oDR: Opinion

An investor standoff in Georgia brings workers, US congressmen into conflict

As a major foreign investor faces rocky times in Georgia, America looms in the shadows.

Sopiko Japaridze
29 January 2020, 12.01am
Second World War monument, Dedoplistskaro, Georgia
CC BY NC ND 2.0 orientalizing / Flickr. Some rights reserved.

It’s no easy feat attracting foreign investment when 27 countries are “born again” into global capitalism at the same time. Alongside other post-Soviet and east European states, Georgia has followed strict neoliberal reforms in order to attract investment - and although it has done so later than most other countries, its zeal makes it stand out in the crowd.

Successive Georgian governments have brandished their pro-business image proudly, even going out of their way to minimise or hide any government interventions. The rest of the world may have been shocked by the 2008 crisis, leading to various surges for statist or rightwing anti-liberals in protest against neoliberalism, but Georgia seems to be completely unaware. The country moves forward with reforms that far surpass any demands from regional and international financial organisations, such as flat income tax and private pensions - the latter often supported by local business associations.

Enter US company Frontera Resources, which has been exploiting Georgia’s oil and gas reserves since 1997, the time of Eduard Shevardnadze. In Georgia, Frontera was hardly noticeable until 2015 when the company claimed it had discovered huge reserves of gas in Dedoplistskharo, in the east of the country, and that new methods, mainly fracking, would be used to extract it. Since these claims were made, different audiences - investors, business, politicians - have started to pay attention to the company. After all, the apparent discovery could mean energy independence from Russia.

At a time when most villages in Georgia are emptying due to lack of jobs and opportunities, this part of the country has felt relatively safe, shielded by the bounty of natural resources

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Yet the reality for the roughly 100 Frontera workers has been less rosy. For the past two years, Frontera workers in eastern Georgia have not received their wages on time - either being paid late or not at all. As several workers have told me, this has led to a situation where some employees are owed up to 11 - and even 14 - months of wages. They were patient at first, thinking this was temporary. After unsuccessful attempts to get their unpaid wages through the company, in November 2019 Frontera workers held two protests in Tbilisi. A couple of weeks after these protests, which were not well covered by the media, Frontera laid off 84 workers. Eight office workers lost their jobs before this, having refused to go on unpaid leave. Instead of receiving their wages, they are facing unemployment.

Oil and gas extraction not only employs workers in Dedoplistskharo, it sustains their families as well. There aren’t any other jobs in this part of eastern Georgia: the town’s surrounding villages completely depend on oil and gas for survival and self-realisation. At a time when most villages in Georgia are emptying due to lack of jobs and opportunities, this part of the country has felt relatively safe, shielded by the bounty of natural resources. It’s also one of the last places where the higher-educated workforce, such as engineers, are in demand - rather than service and hospitality work like the rest of Georgia.

But the issue goes beyond non-payment of wages. As it turns out, despite the best efforts of the Georgian government to shy away from holding any company accountable (in order, perhaps, to impress international economic freedom rankings), the Georgian government has been forced to sue long-time top investor Frontera and take it to arbitration.

This process, regarding a breach of contract over financial obligations, may have begun in 2017 - but it was only revealed to Frontera workers on 25 December 2019. At a large town hall meeting where workers spoke of their grievances, people talked of the prospect of long-term unemployment (especially true for older employees), how holidays were coming up and they had no money. Many spoke of their utilities getting cut off due to their inability to pay, as well as bank fees because they weren’t able to make payments.

Town hall meeting for Frontera workers in Dedoplistskaro, Georgia
Image: Sopiko Japaridze

This was followed by a statement by an official from Georgia’s State Agency of Oil and Gas, who was dismayed to reveal that “We sued them in 2017 in arbitration. This is the first time in the history of Georgia that the government sued a company in international arbitration.” The official justified why Georgia’s State Agency of Oil and Gas had failed to notify Frontera workers of the ongoing arbitration by claiming the agency had followed the advice of their lawyers, who told them to strictly obey confidentiality. Yet the workers hadn’t predicted unpaid wages and loss of jobs: they have been working in the Upper Kura field since Frontera took it over in 1997. Plus, they said, it’s an American company.

Indeed, America looms large in this standoff. The company’s CEO has previously cited the company’s US registration status and geopolitical desires for energy independence when dealing with countries like Georgia, Moldova and Ukraine. In November, one of the sites Frontera workers chose to protest was the US Embassy in Tbilisi, hoping to put pressure on the US company. For many years, Frontera was also a member of the American Chamber of Commerce in Georgia, until its apparent sudden departure in 2019. The Chamber is a significant player when it comes to determining Georgia’s economic and social policy - for example, speaking against removing the ban on progressive taxation in the Georgian constitution, thus continuing flat taxation.

This month, several US Congressmen wrote to the Georgian Prime Minister with concerns over declining economic and political freedom in the country. Two congressmen in Texas, where Frontera is based, reserved specific mention for the company, in a context where, according to their similarly phrased letters, “U.S. and European business interests have been subjected to harassment and expropriation attack.”

Then, on 28 January, another Congressman called out Georgia for attacks on human rights during a speech in Congress, mentioning Frontera in the same context. “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... Now they are drilling zero wells in Georgia.”

According to OpenSecrets.org, Frontera company executives have spent a sizable amount on lobbying in recent years - $230,000 in 2018 and $150,000 in 2019. These lobbying funds have been matched by political contributions, with company executives on donations spending $201,600 since 1998, according to OpenSecrets.org. In 2017, a US congressman proposed a bill to impose possible financial and visa sanctions on the Georgian government in cases where American businesses were undermined. As reported by iFact.ge, this bill followed a lobbying campaign on behalf of Frontera.

According to OpenSecrets.org, the two Texas congressmen who mentioned Frontera in their letters (Congressmen Markwayne Mullin and Brian Babin) have received donations ($5,700 and $5,500 respectively) from Frontera company executives in recent years. Texas congressman Pete Olson, who made a speech in support of Frontera on 28 January, received $9,200 in donations from Frontera executives between 2016-2018, according to OpenSecrets.org. It looks to me as if these statements of support, alongside the 2017 sanction bill, are meant to frighten the Georgian government into inaction more than anything else.

Meanwhile, families in Dedoplistskharo are worried about their uncertain future. They have gone into 2020 penniless and wondering if the Georgian government has any bargaining chip - or willpower - left to defend itself against multinational corporations. Speaking to openDemocracy in January, four workers in Dedoplistskharo reported that Frontera had contacted about 20 former employees in order to load up the remaining barrels of oil that were to be sold. According to the four workers, these former employees wrote a formal letter to accept employment, but they were never contacted again.

Generally, Frontera transports supplies via rail, but Georgian Railways has deemed the relevant section of track unsafe. These workers report that they heard there were further plans to remove reserves via truck, and in response have vowed to stop any oil trucks from leaving Dedoplistskharo. Given their deteriorating relationship with the company, workers in the town believe that Frontera has little intention of ever paying their salaries. The whole town, they claim, is unified in stopping the company from taking out the rest of the reserves.

openDemocracy contacted Frontera Resources for comment, but did not receive a response.

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