Georgian Railway LLC has started implementation of the Railway Modernization Project. The main objectives of the Project are:

· optimising freight and passenger traffic;

· optimising stations, depots and infrastructure;

· optimising freight and passenger rolling stock;

· reducing operational expenses;

· improving operational safety;

· improving social and environmental safety;

· increasing train speeds; and

· introducing a clear and defined maintenance programme.

This project focuses primarily on the mainline that runs from Tbilisi to the Black Sea, in particular to the terminals at Poti and Batumi. As part of the project, the Company intends to modernise the railroad and electric supply infrastructure between Tbilisi and Batumi (315 kilometres), including the 40-kilometre mountainous gorge region in Central Georgia, with the aim of achieving passenger train speeds of 80 km/h on the gorge section and 120 km/h on the rest of the mainline, as compared to current average speeds of approximately 55 km/h in the gorge section and approximately 65-90 km/h on the rest of the mainline.

The company engaged SYSTRA and SNCFI in 2010 to prepare a full-scale feasibility study and an initial design study for this project.

The Company expects that its purchases of the necessary materials and equipment will be finalised in early 2012.  The tendering process for the work on the gorge section has already been completed and work on the gorge section is expected to begin in spring or summer of 2012.  Modern rails and electric supply infrastructure has already been installed on a 40 kilometre section of the line.  In addition, the Company has to date achieved speeds of 120 km/h on a 100 kilometre section of the line, and it expects to be able to achieve that speed on a further 50 kilometre stretch by the end of 2011.  The Modernisation Project is planned to take place in stages, thereby increasing the Company’s flexibility.

The project is scheduled to be completed by 2013.