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Georgia: President Hints At Possible Gazprom Deal, U.S. Unhappy

Georgian President Mikheil Saakashvili recently indicated that Russia could soon own all or part of the country’s import gas pipeline. The remarks sparked widespread criticism in Tbilisi, with the opposition accusing the government of selling strategic assets to a neighbor that is largely perceived as being hostile to Georgia. Yesterday, the United States entered the fray, urging its South Caucasus ally to not let Russia to deal for the pipeline.

Prague, 25 February 2005 (RFE/RL) -- In an interview given to the Italian “La Stampa” daily ahead of his planned visit to Rome next week, President Mikheil Saakashvili on 20 February said his government has begun negotiations with Russian natural-gas giant Gazprom about the privatization of Georgia’s main import pipeline.

“Talks are under way, but I’d rather say no more for the time being,” the newspaper quoted Saakashvili as saying.

Gazprom has long had designs on the pipeline that runs from Georgia’s northern border with Russia to its southern border with Armenia.

In the summer of 2003, the partially state-owned company signed a strategic partnership with Georgia and negotiated with the government of President Eduard Shevardnadze about the possibility of acquiring a stake in the country’s pipelines. Saakashvili and other opposition leaders then denounced the tentative deal that was never finalized -- possibly because of the political upheaval that occurred a few months later in Georgia.

The Russian gas producer recently returned to the attack. A Gazprom delegation headed by Aleksandr Gorokholinskii was in Tbilisi last month to sound out opportunities offered by the new Georgian leadership’s plans to replenish depleted state coffers through privatization.
Many in the predominantly pro-government legislature oppose a possible deal with Gazprom.

Asked during his visit whether Gazprom’s Georgian plans included the North-South pipeline, Gorokholinskii remained evasive enough to spark renewed concerns in Tbilisi. “I guess they are," he said. "What do you think we are interested in at Gazprom?”

Pending the completion of a Western-sponsored project to pump Azerbaijani-produced gas to Turkey’s eastern Anatolian city of Erzurum through Tbilisi, the North-South pipeline will remain Georgia’s only supply route for at least another 18 months.

Saakashvili’s comments triggered widespread controversy in Tbilisi, with critics saying any move to let Gazprom in would ruin Georgia’s hopes of loosening Russia’s energy grip any time soon.

For State Minister Kakha Bendukidze, however, these fears are unfounded. As he explained on 22 February, he sees nothing wrong in letting Gazprom acquire stakes in the country’s gas import pipeline. “If someone pays us money for the pipeline that carries gas from Russia and then maintains this pipeline, what is the problem? What will that change in our energy policy? In my opinion, that would pose no threat to our energy security,” Bendukidze said.

A successful Russian industry baron, Bendukidze returned to his native Georgia last June after Saakashvili asked him to join his team as economy minister. During a brief tenure in this position -- he was later promoted to state minister in charge of economic reforms -- Bendukidze launched an ambitious denationalization program that has been met with fierce criticism by the opposition.

The government has come under fire for the alleged lack of transparence of its privatization plans and for letting Russian investors acquire stakes in Georgian companies at a time when relations between Tbilisi and Moscow are experiencing renewed tensions.

Shortly after he joined Saakashvili’s team, Bendukidze made it clear he would cede state-owned assets to the highest bidders regardless of their nationality and that Georgia could sell everything “but its conscience.”

Georgia’s main gas pipeline is not included in the list of 372 privatization items released by the government last year. Whenever a final decision on its sale is made, it will have to be approved by the parliament.

But many in the predominantly pro-government legislature oppose a possible deal with Gazprom.

Opposition Conservative Party lawmaker Zviad Dzidziguri on 22 February accused the government of pursuing a pro-Moscow policy. “As long as Bendukidze will oversee the economy, we will be unable to get rid of Russia," Dzidziguri said. "We keep saying that we pursue a pro-West policy, that we favor Western investments, while in fact we let Russia interfere more and more in our political and economic affairs.”

The reaction sparked by Saakashvili’s comments has forced the government into a defensive position.

On 23 February, Prime Minister Zurab Noghaideli went as far as saying that the sale of Georgia’s import pipeline was not on the agenda. “[Gazprom] is interested in Georgia’s pipeline network and there is nothing new about that," he said. "However, we haven’t yet decided to sell our gas pipelines. This question was not discussed [at today’s cabinet meeting] and will not be discussed in the foreseeable future. Only after discussions begin would we be able to talk about a possible buyer.”

Of all Georgian government officials, late Prime Minister Zurab Zhvania is the only one who publicly spoke out against the sale of the North-South pipeline to Gazprom.

On 31 January, just two days before dying of an apparent gas leak, Zhvania told a press conference that Georgia must give absolute priority to the U.S.-sponsored Baku-Tbilisi-Erzurum pipeline -- also known as Shah-Deniz -- for its energy imports.

“The Georgian government will not make any decision -- and this is not just about the sale of the [North-South] pipeline -- that could create the slightest problems for the Shah-Deniz project,” Zhvania said.

Together with an oil conduit due to link Baku and Tbilisi to the Turkish Mediterranean port of Ceyhan later this year, the Shah-Deniz pipeline is Washington’s pet economic project in the South Caucasus region. Among other things, both pipelines aim at making the entire area less dependent on Russia for its energy supplies.

In comments printed yesterday in Georgia’s “24 Saati” (24 Hours) daily, the U.S. State Department’s Caspian Basin energy adviser, Steven Mann, warned Tbilisi to consider the pros and cons before deciding on privatizing its pipelines. “The U.S. categorically opposes any step that could ruin its years-long efforts to secure Georgia’s energy independence,” Mann said.

Spelling it out, the top U.S. official added that the sale of the North-South pipeline to Gazprom would be perceived in Washington as “hindering the realization of the Shah-Deniz project.”

As if he had anticipated the negative U.S. reaction, Bendukidze suggested on 22 February that the international consortium that operates Shah-Deniz compete with Gazprom to acquire the North-South pipeline. But the consortium leader, BP, has already rejected the offer outright.