The Georgian Cabinet approved draft government instructions earlier in the day on transferring the government's 100% share in the Georgian Railway company to attract investment.

Arveladze said at least $1 billon would be invested in the project in the first decade, the bulk in the next three to four years. The minister said the project could help enhance the capacity of the railway network.

"The government would be unable to invest such large sums in the sector in such a short period," the official said.

Arveladze said an agreement with the investor was nearing completion and would be signed within the next two weeks.

Georgia's railway network stretches over 1,575 kilometers (1,000 miles) and includes 45 tunnels and 1,714 bridges.

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Georgia Hands over Railway to Investment Fund

Civil Georgia: 2007-08-16

Tbilisi -- Management rights of the Georgian Railway company will be handed over to “a British investment fund, Parkfield, for 89 years,” Giorgi Arveladze, Georgia’s economy minister, said on August 16.

“We did not sell the railway; we have chosen to hand over management rights, instead,” Arveladze said.

He said that the company had pledged to invest USD $1 billion to rehabilitate railway infrastructure within the next ten years. “Most of these funds will be invested within the next three or four years,” Arveladze added.

It will be, Arveladze said, Parkfield’s first investment in the railway business.

No other information about this investment fund was available at the time of writing this report.

Arveladze also said that Parkfield would delegate management responsibilities to a separate company. The government, he said, would not interfere in the selection process. The selected company, however, Arveladze added, “should be a leading international company with experience in railway management.”

Existing passenger and cargo tariffs will be maintained until 2009, Arveladze said, and for five subsequent years tariffs will be determined jointly by the state and the company.

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Parkfield Capital LLP is a specialist investment management firm established in September 2005 by Nigel Wightman, Adam Parkin and Andrew McDonald. Parkfield Capital LLP is the investment adviser of ACDS Parkfield Investment Funds ICVC.

Nigel Wightman - Managing Partner, Parkfield. He served on the investment committees of the Royal institute for International Affairs and Brasenose Collage Oxford. Received an MA in Politics, Philosophy and Economics from Brasenose College Oxford and M Phil in Economics from Nuffield College Oxford

Adam Parkin - Partner, Parkfield. He has been a Managing Partner of Parkfield Capital since 2005. he holds a BA degree in Economics from Warwick University and MPhil in Economics from Worcester College Oxford.

Andrew McDonald - Partner, Parkfield

The General Director of Georgian Railways, David Onoprishvili, a former economist at Vanderbilt University in the US has already restructured management, dismissed 2,445 workers and seen a dramatic rise in ticket sales - a rise he attributes to having more ticket sales being officially recorded instead of pocketed by low-paid cashiers. Salaries increased by 17 percent and the minimum salary by 28 percent in 2004. The company's budget for 2005 was GEL 260 million Georgian Lari (£75 million).

His long-term goal has been to privatise the railway. To this end, Onoprishvili appealed to the United States Agency for International Development (USAID) for assistance - for the financial year 2006 USAID provided $43.36 million to Georgia, out of total foreign aid of $66.18 million. USAID in turn selected Booz Allen Hamilton to conduct a pre-privatisation analysis of the railway and assist it in restructuring. The company conducted similar pre-privatisation consultations for all of Algeria's state-owned industries, Saudi Arabia's state-owned telecom and Latin America's largest telecom company, the Brazilian government's Telebras.

USAID and Onoprishvili signed the agreement in November 2004 under which ExxonMobil announced that over the next five years it will export 10 million tons of oil from the Caspian Sea by rail via Georgia and Batumi, thereby by-passing the Baku-Tbilisi-Ceyhan pipeline.

The annual railway subsidy to the passenger service was GEL 35-40 million (£10 million) in 2004. According to Onoprishvili the board of directors has agreed to create a separate company for passenger transport in order to cut costs.

Georgian Railway revenue earnings from freight for eight months in 2006 amounted to GEL 206 million (£60 million). Passenger traffic from January to August 2006 amounted to GEL 10.43 million (£3 million).

Irakly Ezugbaya, from Georgian Railways said that the company's current turnover compared with 2005 had increased by 18%, the volume of transported goods reached 19-22.3 million tonnes. A 25% increase in revenue was recorded, so that instead of GEL 150 million (£43 million) end of the year, company earnings will be approximately GEL 200 million (£57 million). Net profit for Georgian Railways increased by 116% and operating profit by 54%.

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History:

Georgian railway is a vital artery linking the Black and Caspian Seas and important part of the Euro-Asian Transportation Corridor - the shortest route between Europe and Central Asia, the north and south. The concept of a rail-link originated back in the 1830's, but construction began only in 1865. In 1871 railway operations on the Poti- Kvirila (now called Zestafoni) section were opened and on 10 October 1872 the first passenger train from Poti arrived to Tbilisi. This date is regarded as the "birthday" of Georgian railways.

Poti, ferrying across the Black Sea

Since then the construction of Georgian Railways picked up pace. The following railway branch lines were built: Rioni-Kutaisi (1877), Rioni-Tkibuli (1887), Zestafoni-Chiatura (1891).

On 16 September 1890 the construction of the double-lined Tsipa tunnel was completed. For that period this tunnel was a unique construction.

The Tbilisi-Baku railway was part of the second stage of Georgian railway construction. This line was put into operation in 1883 and the transportation of Azerbayjani oil through Batumi port to the world market began.

Batumi, the ferry across the Black Sea

In 1899 the railway connection between Georgia and Armenia was opened.

Borjomi Gorge has always been the matter of great interest as far as its rare woodland species, resorts and the well-known "Borjomi" mineral water are concerned. The Khashuri-Borjomi railway was built in 1984 and in 1902 the Borjomi-Bakuriani narrow-gauge line, which serves skiing, leisure and tourist resorts.

Syrami tunnel construction

The Kaheti railway line, the construction of which was completed in 1915, covered regions producing the outstanding Georgian wines: "Mukuzani", "Tsinandali", "Rkatsiteli", "Gurjaani", "Manavis Mtsvane", etc.

In 1923 the first "Ferli" class steam engines were replaced with "F" and "SU" class steam engines.

Alongside the electrification of the Surami pass the "S-10" series locomotives built by "General Electric" were put into operation.

In 1932 the first locomotive depot was built in Khashuri, where the first Soviet locomotive was tested. Today, this locomotive is placed on the pedestal in Khashuri station.

One of the prominent days in the history of Georgian railway was 16 August, 1932. For the first time in the former Soviet Union electric traction was introduced and the first electric locomotive climbed Surami pass.

Double-track on Surami pass

From this day onwards all railway lines gradually turned to electric traction. In November 1967, this process was completed - all Georgian railway lines, Borjomi-Bacuriani narrow-gauge included, were electrified.

From 1974 Tbilisi Locomotive mill modern "VL-1O" and "VL-11" series locomotives began functioning.

The rapid development of the leading industrial and agricultural sectors, such as tea-growing, citrus-growing, gardening, wine-growing, was followed by new railway constructions: Natanebi-Ozurgeti (1924), Brotseula-Tskaltubo (1934), Senaki-Ingiri-Gali (1930), Gali-Ochamchire-Sokhumi (1938), Gori-Tskhinvali (1940).

The construction of the Sokhumi-Adler line, connecting with Russian railway network, began during the World War II, was in progress in spite of the war actions, and was finished in 1946.

On 31 December 1986 the construction of the new Marabda-Akhalkalaki railway line was completed.

The beginnings of the communication, automation and telemechanics era goes back to 1946-1949. The automatic blockage, switches and mount electric centralizing systems, train and maneuvering radio communications.

The construction of the Black and Caspian Sea railway link was finished on 10 October 1872. After this, it was possible to begin Azeri oil shipments to the world markets via Georgia and Black Sea.

In 1899 the railway connection between Georgia and Armenia was opened.

The complicated geographical relief of Georgia stipulated construction of the artificial engineering structures, of which there are more than 3,700 with a total length of 108 km. In 1967 full electrification of Georgian railway was completed.

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Azerbaijan gives Georgia initial 40 mln usd loan to begin planned railway

AFX News Limited: 08.14.07

BAKU (Thomson Financial) - Oil-rich Azerbaijan has sent 40 mln usd to neighbouring Georgia to start construction of a strategic railway linking the two countries with Turkey, Azerbaijani officials said.

The payment was the first instalment of a 220 mln usd loan to Georgian railway builder Marabda-Kartsakhi Railways, the Azerbaijani transport ministry said in a statement.

The three countries agreed in February to build a rail line linking the Azerbaijani capital Baku, the Georgian capital Tbilisi and the Turkish city of Kars.

The railway, expected to cost 420 mln usd, is seen as a major step in linking the strategic ex-Soviet Caucasus region south of Russia to the West. It should be completed by the end of 2008.

Azerbaijan, Georgia and Turkey have already cooperated to build the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzerum pipelines to deliver oil and gas from energy-rich Azerbaijan to Europe.