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Georgia: Official Denies U.S. President Warned Tbilisi Over Deal With Russia

The White House has denied that U.S. President George W. Bush warned Georgia against the sale of its gas network to a Russian company. Conflicts with Moscow have deepened opposition to the deal, despite President Eduard Shevardnadze's support.

Boston, 1 October 2002 (RFE/RL) -- A U.S. official has denied a report that President George W. Bush urged Georgian President Eduard Shevardnadze to block the sale of his country's gas network to a Russian company.

Last week, the leader of the Georgian National Movement, Mikhail Saakashvili, alleged that Bush had written to Shevardnadze, asking him not to allow the Russian gas trader Itera to take over the distribution company Tbilgaz.

At a press conference in Tbilisi, Saakashvili said, "U.S. President George W. Bush is categorically against Itera's participation in Tbilgaz and Georgia's energy dependence [on] Russia." Saakashvili said Bush made the statement in a recent letter to Shevardnadze, RBC news reported.

A White House official told RFE/RL that Bush has written to Shevardnadze, but the contents of the letter were exaggerated. The official, who asked that his name not be used, said: "It did stress the importance of Georgia paying its debts so that its critical assets did not need to be sold off." The official said Saakashvili's comment about specific opposition to Itera was "spinning it a little bit."

But Saakashvili's vow that Itera would never gain control of the Georgian gas company is a measure of the bitterness over the deal reached in August that would give the Russian trader 51 percent of the business. The transfer of shares is reportedly set to be completed in November before the start of the winter heating season.

Shevardnadze has supported the agreement as the only way to assure gas deliveries to Georgia, which owes some $90 million to Itera for past supplies. Since then, Saakashvili said he has held talks in Moscow, Kyiv, and Washington in an effort to head off the sale. Itera has shut off the gas several times in the past year, citing the unpaid debts.

Concern has been heightened by the dispute over Chechen rebels allegedly operating in the Pankisi Gorge. In mid-September, the Russian State Duma passed a resolution suggesting that energy supplies to Georgia should either be raised in price or cut off in retaliation. On 30 September, Duma Speaker Gennadii Seleznev said "there are certain nonsanction means at our disposal" for dealing with Georgia, according to official Russian news agency RIA-Novosti. These would include charging full European prices for energy exports to the country, he said, adding that these would not be the same as sanctions. Such a move would nearly double the price of gas.

While the United States has not addressed the Itera acquisition, a State Department official said last month that Washington "strongly supports Georgia's territorial integrity and would oppose any unilateral military action by Russia inside Georgia," according to the Reuters news agency.

Itera, which is based in Moscow but registered in Florida, has insisted that it acts only as a private business without links to the Russian government. But analysts have tried for years to find connections to the Russian gas monopoly Gazprom because of its concessionary deals with Itera, which allowed it to capture much of Russia's gas trade with CIS states.

The Itera deal is only one of several investments by Russian companies that have raised fears about Moscow's control.

In Poland, a long-running controversy about the sale of a major refinery, Rafineria Gdanska, to Russia's largest oil company LUKoil took another turn last week. The nation's biggest refiner, PKN Orlen, suggested that it could replace LUKoil in a consortium with Rotch Energy of the United Kingdom to take over the facility. The government must choose between letting LUKoil acquire 20 percent of the fuel market or allowing a Polish operator to monopolize it.

In Lithuania, a political struggle over the sale of the Mazheikiu Nafta refinery to Yukos, the second-biggest Russian oil company, seems to have ended with the government's support for the deal after the sudden withdrawal of a U.S. energy firm.

Last week, Yukos installed its own management at the refinery and announced plans to cut the government's huge costs for the facility by refinancing its debt. Lithuanian Economy Minister Petras Cesna said there is now a possibility that Yukos could now raise its stake in the refinery even further, from 53 to 75 percent.

But the process has been beset by opposition. On 19 September, a Lithuanian court annulled the issue of new shares that were sold to Yukos, the Prime-TASS news agency reported. The outcome of the legal wrangling is still unclear.

Although the issue of Russian energy investment continues to rage in many neighboring countries, Georgia's situation stands out because of its destitute finances, vulnerability, and the conflict in Chechnya next door. The unsettled problem of separatist Abkhazia also remains a major irritant in relations with Russia, raising more doubts about energy dependence. Even if Itera gains control over the gas system, there is no guarantee it will keep fuel flowing unless customers pay their debts.

But Georgia's alternative, of getting gas from Azerbaijan's Caspian resources, may not be realized as soon as hoped. The country counted on collecting gas from Azerbaijan's Shah Deniz field as a transit fee after a pipeline to Turkey is built.

But the project for the Baku-Tbilisi-Erzurum pipeline is under review due to higher costs and doubts about Turkish demand. The first exports from the pipeline are now expected no sooner than 2006, officials of Britain's BP oil company have said.

The delay may leave Georgia with several more years of uncertainty over energy, unless it relies on Russia or finds some other energy source.