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Russia: Gas Trader Itera Shows Signs Of Trouble

  • Michael Lelyveld

Georgia may be coming under another form of Russian pressure following a threatened gas cutoff due to unpaid bills. But the issue, which comes in the midst of fighting in Abkhazia, may be clouded by reports of a financial squeeze at Russia's mysterious gas trader Itera.

Boston, 19 October 2001 (RFE/RL) -- A Russian threat to cut gas supplies to Georgia has raised fears about pressure tactics against Tbilisi. But there are also signs of financial trouble at Russia's fast-growing Itera gas company.

On 17 October, Itera announced that it would start reducing gas deliveries to both Georgia and Armenia unless it received payment for their arrears. Itera is the trading partner of Russia's gas monopoly Gazprom, which is 38-percent owned by the state.

Georgia's total gas debt stood at $86 million, but Reuters news agency reported that the current dispute is about bills of $25.8 million for the past two years.

Itera said Armenia owes $36.9 million. Armenian Energy Minister Karen Galustian recently argued that a repayment scheme was in force, except for a $2.8-million debt by an unnamed "organization," the Caspian News Agency reported.

Russia is the sole gas supplier to both countries, which have been chronically behind on their bills. Russia can only supply gas to Armenia through Georgian territory.

But the case of the Georgian cutoff raised particular questions of political motives on several counts. First and foremost is the similarity to a stoppage by Itera last January, which sparked an international outcry.

Shortly after the shutdown, the London-based "Financial Times" published the contents of a letter from Anatolii Chubais, the head of Russia's Unified Energy System electricity monopoly. In the letter, Chubais hailed the move as part of a plan to control Georgia's energy business and promote power exports to Turkey, the paper said.

The second question is one of timing. The threat to gas supplies comes in the midst of Georgia's volatile dispute with Russia over the separatist region of Abkhazia, where fighting has flared for two weeks.

Georgian President Eduard Shevardnadze told OSCE envoys yesterday that Russian peacekeepers should be replaced with a multilateral force, a move that would weaken Moscow's presence in the region.

A third issue involves Itera's plans to dominate Georgia's energy infrastructure. Itera has already bought 50 percent of the Georgian gas distributor Gruzgaz, which owes the current debt to Itera. Itera recently reached an agreement to purchase the remaining 50 percent, Reuters said.

Paul Joyal, president of the Washington-based consulting firm Intercon International, USA, which has operations in Georgia, told RFE/RL that the threatened cutoff is an attempt to make Gruzgaz accept a swap of equity for debt.

On the other side of the issue, Itera is also apparently coming under financial pressure that may be forcing the company to raise cash. The Russian business daily "Vedomosti" recently reported that Itera has pledged its Moscow headquarters as collateral for a $40 million bank loan.

Itera said that it wants the money to develop a new gas field. But "Vedomosti" quoted analysts as saying that the funds are needed to pay a $250 million debt to Gazprom for using its pipelines. The company denied the allegation, but Troika Dialogue analyst Valery Nesterov said the collateral was a sign of Itera's tight financial condition.

Experts have been probing links between Gazprom and Itera for years, but have so far failed to uncover conclusive evidence of wrongdoing. In the meantime, Itera has risen from its obscure beginnings in 1992 to become a giant conglomerate with some 130 companies in 24 countries and over $3 billion in revenues in 2000.

Intercon's Joyal called Itera "a company with no money and no assets and now the sixth-largest gas company in the world."

When asked whether Itera was motivated by finances or politics in threatening to cut gas to Georgia, Joyal said, "There's no reason it can't be both." But he also argued that if Itera does owe Gazprom as much as $250 million, it can hardly solve such a huge problem even if it collects all the bills owed by Georgia and Armenia.

No matter which view proves to be true, Moscow's motives seem to be at the heart of the controversy. If the government is serious about reforming Gazprom, it may be pushing for payment of Itera's debts. But it may also be using the company to turn up the pressure on Georgia.

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