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Georgian Government reverses course on cancelling contract with oil firm Frontera

24 July 2020
A Frontera well in Eastern Georgia's Kakheti Region. Photo: Mariam Nikuradze/OC Media.

The Georgian government have reversed their decision to terminate their contract with US oil and gas company Frontera Resources, citing the need to protect the country’s international reputation.

In a statement on Thursday, the government said they had offered to extend the three month termination period in order to seek a mutual compromise with the company ‘in a bid to maintain [Georgia’s] reputation as an exemplary country for investments’. 

They said Frontera had rejected the offer, after which the government decided not to cancel the contract and to allow Frontera to continue to operate on 1% of the contracted territory. According to the government, the other 99% has already been returned to the state through a ruling by the International Arbitration Tribunal.

Since Georgia filed a case against Frontera with the tribunal in 2018, a number of members of the US congress have linked criticism of the state of democracy in Georgia with the government’s treatment of Frontera. Several had received campaign contributions from the company.

Frontera responded to the government’s reversal on Thursday with a statement calling for an end of the Georgian government’s ‘disinformation campaign’.

They said the government’s announcement was ‘wrapped in a litany of slanderous statements that served only to defame the character of our company and advance false statements about our work’.

‘We wish to once again be clear that no legal basis has ever existed for the unilateral cancellation of our contract. The government of Georgia’s continued insinuation to the contrary is wrong and amounts to intentional harassment.’

They called on the government to ‘abide by the recent Arbitration Tribunal Ruling’, and to guarantee their right to return to work ‘without continued threats, intimidation and new conditions’.

In April, the Georgian government announced that the International Arbitration Tribunal had upheld the vast majority of their claims. 

They had accused Frontera of violating the terms of their contract, signed in 1997. The government claimed that Frontera had refused to return to the state land they were no longer using for extraction, 99% of the contracted territory.

The government spent around $7 million on legal services in the dispute, from which they said approximately $6 million should be reimbursed by the company as ruled by the Arbitration Tribunal.

Following the ruling, Frontera accused the government of deliberately misrepresenting the ruling but provided no details on which of the government’s claims were false.

They said they remained pleased with the outcome of the Arbitration ruling.

Frontera has not responded to numerous previous attempts by OC Media to clarify which of the government’s claims regarding the ruling were false. 

On Friday, the Georgian government called on the company to agree to publish the concluding part of the Arbitration Tribunal’s ruling, which remains confidential. 

The company’s CEO, Zaza Mamulaishvili, refused to comment when contacted by OC Media.

A company dogged by controversies

Elaborating further on their decision not to cancel the contract on Friday, the Ministry of Economy said it aimed to protect the ‘positive perception of our investment climate’ and relations with the US, as a strategic partner of Georgia. 

The government said they wanted to prevent anyone in the ‘diverse political spectrum of the US from using this routine commercial dispute negatively against the strategic relations between our countries’.

They added that they hoped this would put an end to the issue and that ‘those interested, including US Senators and Congressmen, will receive information from open sources’. 

‘Lastly, this decision allows Frontera Resources Georgia Corporation not to waste its efforts on mobilising lobbyists […] They should rather concentrate on their obligations and pay the employees to whom they owe.’ 

An oil well on the Mirzaani field. Photo: Frontera.

Frontera has been accused by employees of not paying its employees. In July, the Georgian Trade Union Confederation said that an employee of the company took his own life after not being paid for 14 months. 

In December 2019, several dozen employees went on strike claiming the company owed them 11 months of pay. 

One of the striking employees, Shota Moseshvili, told Netgazeti at the time that management had repeatedly promised that they would receive their salaries but that they never did.

‘We stopped working several times, but they were always promising that they’d pay us. They were asking us to be understanding, and that an investor would come in with a 70 million investment. They said everything would be alright and that’s why the process was taking so long’, said Moseshvili. 

‘Eventually, we decided to stop because the company had oil and they weren’t giving us salaries.’

Frontera’s lobbyists in the US Congress

The dispute between Frontera and the government has led to a number of highly critical comments from US legislators aimed at the government and the ruling Georgian Dream party.

In January 2020, several US legislators sent letters to Prime Minister Giorgi Gakharia accusing the Georgian Government of ‘aggressive actions against US companies’.

‘For the first time in Georgia’s modern history, your country has been cast in a negative and cautionary light with respect to appropriation from the US Government’, Republican representative Markwayne Mullin wrote on 17 January.

‘The result is that foreign direct investment in Georgia is on the decline because US and European business interests have been subjected to harassment and expropriation attacks. The oil and gas company from Houston, Texas, Frontera Resources, is a notable example of this’, the letter said.  

In another letter, republican representative Brian Babin wrote that members of the congress were concerned about ‘notable increasing negative trend in Georgia’s democratic and free-market economic indicators’.

He reiterated Mullin’s concerns over Frontera Resources.

Speaking in the house of representatives in January, Pete Olson criticised the Georgian government and defended Frontera.

‘Coming from Texas, Frontera Resources has been drilling in Georgia for years and years and years. They’ve created great jobs in America, great jobs in Georgia. They’ve created freedom. That was, until the government took over all their operations, all the equipment. Now they are drilling zero wells in Georgia’, said Olson. 

According to Opensecrets.org, a nonprofit research group tracking money in US politics, since 1998, Frontera affiliates have spent more than half a million dollars on lobbying.

All three republican representatives who spoke in Frontera’s defence have received donations from the company, as accounted by opensecrets.org.

In 2017, US representative Steve Russell introduced a bill  that would require the US to determine whether the Georgian Government was undermining any commitments or contracts with US citizens doing business in Georgia, 

The bill ‘calls for sanctions including visa refusals for current or former Georgian government officials engaged in such activities. The bill is mostly a warning and will probably never be voted upon by the US House of Representatives’, Ifact.ge, a Georgian investigative outlet reported in 2018.

Russell has also received a donation from Frontera Resources, according to opensecrets.org.

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