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Georgia/Russia: Both Sides Move Closer On Gas Issues

Gazprom intends to hike the price Georgia pays for gas (ITAR-TASS) A tentative agreement on the volume and price of Russian gas deliveries to Georgia was reached in Tbilisi yesterday. Russia's Gazprom natural gas monopoly also reiterated a proposal to buy a stake in Georgia's main natural-gas pipeline. The Georgian-Russian gas rapprochement comes amid an increasingly politicized dispute over a proposed Russian price hike for gas deliveries to Ukraine.

Prague, 21 December 2005 (RFE/RL) -- The agreement was announced after talks in Tbilisi between Gazprom Deputy Chairman Aleksandr Ryazanov and Georgian Prime Minister Zurab Noghaideli.

Ryazanov was initially expected in Tbilisi on 14 December. However, Gazprom had rescheduled the visit at the last moment.

The postponement initially fuelled speculation that relations between Georgia and Russia would reach a new record low amid Gazprom's insistence that Tbilisi pays more for its gas deliveries as of next year. But Kakha Bendukidze, the Georgian state minister in charge of economic reforms, later suggested that the Russia-Ukraine gas dispute could be responsible for the delay.

Citing market constraints, Gazprom earlier this year announced plans to charge most of its CIS neighbors near-European prices for its gas deliveries.

The move triggered angry reactions in Georgia and Ukraine, where parliamentarians and government officials accused Russia of "blackmailing" their respective countries, which are seeking closer ties with the West and NATO.

Gazprom has threatened to turn off gas supplies to Ukraine if the latter does not agree to the proposed price hike. Kyiv in return has floated the idea of retaliating by raising the rent for the port of Sevastopol, which is home to Russia's Black Sea Fleet.

Addressing a panel of political experts in Washington on 16 December, Georgian Foreign Minister Gela Bezhuashvili suggested that Tbilisi and Kyiv form a common front against Russia.

Yet, the reality is that Tbilisi is heavily dependent on Moscow for its energy supplies and, as Noghaideli told a business forum on 17 December, Russia remains Georgia's leading investor and main economic partner.

Yesterday's gas talks ended in a much more relaxed atmosphere than Bezhuashvili's recent comments could have suggested.

Addressing reporters at the end of the meeting, Prime Minister Noghaideli said Russia's gas imports to Georgia would increase by more than 70 percent next year.

"Gazprom once again confirmed the volume of gas Georgia will receive next year. It will be approximately 2.25 billion cubic meters. This year it was about 1.3 billion cubic meters. As you can see, the increase will be significant," Noghaideli said.

Ryazanov in turn confirmed Gazprom's intention to hike the price it charges Georgia and the other two South Caucasus states of Armenia and Azerbaijan to $110 per 1,000 cubic meters as of next year.

"For Georgia, the price will be the same as for [the] other [two] countries, although I must say I believe this is not entirely fair from a strictly commercial viewpoint. If you take Armenia, for example, we have a joint venture there, of which we own 45 percent," Ryazanov said.

"[Armenia's] pipeline [network] belongs to our joint venture. Since we're earning money through sales to consumers, Armenia was entitled to expect some clemency on our part. Yet, we decided to introduce a single price of $110 for the whole Transcaucasus region."

Transit Fees

Gazprom currently charges Georgia $64 per 1,000 cubic meters of natural gas. It reportedly charges Armenia $56.

In return for the price hike, Ryazanov said Gazprom had agreed to pay Georgia more for the transit of gas deliveries meant for Armenia.

"We're currently paying about $5-$6 [per 1,000 cubic meters and] per 100 kilometers. Next year we'll pay nearly $11. Considering that [Georgia's main] pipeline has no compressing station, this is a very high price that does not exist anywhere in the world," Ryazanov said.

Gazprom currently pays its transit fees to Georgia in kind, with Tbilisi receiving approximately 10 percent of the Russian gas meant for Armenia.

Ryazanov yesterday said Gazprom was unhappy with the current deal and wanted to pay its transit fees in cash. However, he said the sides could not reach a final agreement on that issue.

"What we agreed upon [today] -- that is to sign a long-term agreement and finalize it during the first quarter [of next year] -- envisions that we pay cash [for the transit of gas deliveries to Armenia]," Ryazanov said. "I don't know what tariff will apply [in the future], but we'll try to reach an agreement."

In order to settle the transit fee issue, Georgia has suggested that both sides set up a joint venture that would, among other things, supervise gas deliveries to Armenia. However, Noghaideli said Gazprom had rejected the offer and made an alternative proposal.

"We have proposed setting up a joint venture, whose main task would be to oversee the transit of gas through Georgia and realize joint investments in [our] gas sector," Noghaideli said. "As Mr. Ryazanov informed us today, Gazprom in return says it is interested in acquiring stakes in our [main] gas pipeline, or even purchasing the pipeline. [Before giving our answer], we first need to study this proposal thoroughly and in detail."

This is not the first time Gazprom says it is interested in acquiring the pipeline through which all its gas supplies to Georgia and Armenia are shipped.

In 2003, the Russian company and the government of then Georgian President Eduard Shevardnadze had reached a tentative agreement on this issue. The Georgian opposition, then led by Mikheil Saakashvili, denounced the possible deal, saying it was Russia's attempt to tighten its energy grip on the country.

But once elected president, Saakashvili changed his stance. In February, he said his government had resumed talks with Gazprom over the possible sale of Georgia's main pipeline.

The United States reacted negatively to the announcement, saying any privatization deal with Gazprom would ruin its years-long efforts to secure Georgia's energy independence from Russia.

In September, Washington granted Tbilisi a $295 million assistance package to help it renovate the pipeline and implement other rehabilitation projects.

The deal, which was signed by the Millennium Challenge Corporation on behalf of the U.S. government, says Georgia has no right to sell part, or all, of the pipeline to any third party without Washington's consent.

RFE/RL Caucasus Report

RFE/RL Caucasus Report

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