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Georgian Government wins arbitration with US oil and gas firm Frontera

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

The International Arbitration Tribunal has upheld the vast majority of claims filed by the Georgian Government against the US oil and gas firm Frontera Resources, the government says. 

Georgia had accused the company of violating the terms of their contract, signed in 1997. They claimed that Frontera refused to return to the state land they were no longer using for extraction.

After Georgia filed the appeal at the International Arbitration Tribunal in January 2018, Frontera responded with a counterclaim, claiming $3.5 billion in damages. The company accused the government of trying to take resource-rich lands from them.

According to a statement released by the state-owned Georgian Oil and Gas Corporation, the tribunal upheld their claim that Frontera committed a ‘material breach of the contract’ by refusing to give up the land. These lands, the statements reads, comprise ‘99% of the entire contract area’.

According to the government, all of Frontera’s counterclaims were dismissed.

OC Media has reached out to Frontera for comment.

Frontera’s activities in Georgia have been dogged by controversy for years, including accusations they were not paying their workers. 

A number of members of the US Congress who have received campaign donations from Frontera have also spoken publicly in the company’s defence. Several legislators criticised the Georgian government’s actions towards Frontera and linked this with the state of the country’s democracy.

Frontera Resources is an international oil and gas exploration and production company headquartered in Houston, Texas. They have operated in Georgia since 1997 and according to their webpage, they operate over an area of  5,060 square kilometres in Georgia.

In 2015, Frontera announced that they had discovered 3.8 trillion cubic metres of gas in Kakheti Region, eastern Georgia.  A year later, then Energy Minister Kakha Kaladze said that the company had not appealed to the ministry for permission to extract the reserves despite the government renewing contracts with them annually. 

In a statement in June 2016, the Georgian Oil and Gas Corporation said that ‘to confirm the existence of resources indicated in the report [of Frontera Resources], it is essential to carry out concrete aim-oriented activities; however, the company still hasn’t presented a plan that would serve this purpose’.

Striking employees

In December 2019, several dozen employees of Frontera Eastern Georgia went on strike claiming the company owed them 11 months of pay. Frontera Eastern Georgia is co-owned by the state-owned Georgian Oil and Gas Corporation. 

One of the striking employees, Shota Moseshvili, told Netgazeti in December that management had repeatedly promised that they would receive their salaries but that they never were.

‘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.’

Workers on a Frontera well at the Mtsarekehevi gas fields. Photo: Frontera.

Despite owning 50% of Frontera Eastern Georgia, the Georgian Oil and Gas Corporation said they were unable to intervene.

In February 2020, the director of the corporation, Goga Tatishvilii, told RFE/RL’s Georgian Service, Radio Tavisupleba, that the company fired up to 90 employees following the strike.

The president of Frontera Resources, Zaza Mamulashvili, told Radio Tavisupleba it was not true that the company owed several months’ salary to its employees.

‘There people were encouraged by the Ministry of Economy and by Mr Tatishvili. We don’t even know most of these people who appear on TV and pose some demands. Several of them are our employees’, said Mamulashvili. 

‘A while ago, some of them on their own, others by our demand, left our company. They don’t work for us. How can they be on strike?’ 

Frontera’s lobbyists in US Congress

In January 2020, several US legislators sent letters to Georgian 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.