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Georgia: Smell Of Russian Gas Hangs Over Election Campaign

Renewed prospects of joint gas deals with Russia are sparking controversy in Georgia as the Southern Caucasus country gears up for crucial parliamentary elections this autumn. A proposed agreement with Russia's Gazprom natural gas conglomerate is triggering fears that Tbilisi might waver in its commitment to energy cooperation with the West. RFE/RL reports on a debate that has both international and domestic implications.

Prague, 13 June 2003 (RFE/RL) -- The controversy started immediately after Alexei Miller, chairman of the board of Russia's natural gas giant Gazprom -- a close ally of the Kremlin -- held talks in Tbilisi two weeks ago with Georgian President Eduard Shevardnadze.

Following the meeting, media in both Moscow and Tbilisi reported that the two men had made an oral pledge to refurbish a depleted gas pipeline connecting Russia's Northern Caucasus city of Vladikavkaz to the Armenian capital, Yerevan, through Tbilisi.

In addition, the two sides reportedly agreed to revive GruzRosGazprom, a Russian-Georgian venture that would be responsible for upgrading the Vladikavkaz-Tbilisi-Yerevan pipeline and implementing other joint energy deals.

Plans for the creation of GruzRosGazprom were first announced in October 2001 but have never been finalized.

Neither Shevardnadze's office nor the Georgian government has publicly commented on the outcome of Miller's visit and officials at the Georgian Gas International Corporation and at Georgia's Fuel and Energy Ministry could not be reached for comment.

Contacted by RFE/RL, Shevardnadze's chief economic adviser, Temur Basilia, declined to elaborate on the planned energy cooperation, whose details remain sketchy.

A statement released by Gazprom during Miller's visit to Tbilisi said both sides intended to sign a comprehensive deal on strategic partnership that, besides cooperation in transport to Armenia, would cover energy supplies to Georgia and gas distribution in that country. The Russian conglomerate gave no further details.

The Tbilisi-based Civil Georgia website on 11 June said the deal could be signed when Miller visits Georgia again later this month.

Roman Gotsiridze, the head of the Georgian parliament's budget committee, told our correspondent he strongly opposes any such agreement with Gazprom.

"The aim of Gazprom is to get hold of Georgia's main gas pipelines. It is a strategic aim. Should [GruzRosGazprom's] joint venture be created, it could trigger a real political cataclysm because then all hope would be lost to see Georgia become independent for its energy supplies, and it would also undermine Georgia's political sovereignty," Gotsiridze said.

Many in Georgia fear the upcoming agreement would give Gazprom de facto control over the national pipeline network, with the exception of a planned transit conduit designed to pump gas extracted from the Caspian Sea by a British Petroleum-led consortium from Baku, the Azerbaijani capital, to Erzurum in eastern Turkey. Construction of the 690 kilometer Baku-Tbilisi-Erzurum pipeline -- also known as the South Caucasus Pipeline -- is expected to start soon, with completion set for 2006.

Mikhail Jibuti, a former economy minister who now chairs Georgia's National Securities Commission, while insisting his comments reflect his personal views and not the government's, told RFE/RL he regrets the Georgian-Russian negotiations have been shrouded in secrecy.

"Unfortunately, the Georgian public is not well-informed and, even worse, everything that is being done regarding this project lacks transparency. There is simply no access to information. Neither the Georgian side nor the Russian one has given any press conference or released any official communique [that would have provided detailed information]. Since we are speaking here of a joint venture, there should be available figures regarding stakes, assets, [and] debts, shouldn't there?" Jibuti said.

Parliament speaker Nino Burjanadze on 6 June urged Shevardnadze's administration to provide legislators with detailed information about the planned agreement.

Opponents of this project do not only object to its opaqueness.

The United States has expressed concern at what Steve Mann, the State Department's senior adviser on Caspian Basin energy diplomacy, recently described as Gazprom's "extending monopoly" in the region.

On 6 June in Tbilisi, Mann urged the Georgian government to refrain from any step that could harm the South Caucasus Pipeline and another U.S.-backed project that envisages the construction of an oil conduit between Baku, Tbilisi, and the Turkish Mediterranean port of Ceyhan.

Already under construction, the 1,750 kilometer Baku-Tbilisi-Ceyhan pipeline (BTC), should be operational in two years.

To add to Washington's uneasiness, Russian Deputy Foreign Minister Viktor Kalyuzhny on 4 June suggested that, instead of relying on the South Caucasus Pipeline for its natural gas exports, Azerbaijan use a Gazprom-manned underwater conduit that links Russia to the Turkish Black Sea port of Samsun.

Shipments through the so-called Blue Stream pipeline came to a halt earlier this year after cash-starved Turkey said it wanted to renegotiate the terms of the agreement and import much lower quantities of Russian gas than originally planned.

It is unclear whether Kalyuzhny's proposal was primarily motivated by fears that Blue Stream might be less profitable after a new deal is reached with Turkey or by Russia's traditional opposition to U.S.-sponsored Caspian energy deals.

Many in Tbilisi see Russia's recent energy initiatives as being aimed directly at Georgia's cooperation with Western oil and gas producing companies.

Another matter of concern for those who oppose a deal with Gazprom is that the Russian conglomerate plans to modernize a pipeline running through Georgia's southern region of Ajara and extend it to Turkey, if need be. This, critics say, could undermine the economic viability of the South Caucasus Pipeline.

Former Economy Minister Jibuti believes Gazprom's insistence on striking a deal with Georgia, rather than joining U.S.-sponsored projects, is attributable to Russia's geopolitical ambitions rather than to its economic interests.

"If Russia did not have political interests, it would have joined these projects. Besides, it will probably join them eventually. When Russia is guided by its economic interests, there will be no political objections from Georgia. Russia has several possible options. It could first link its [Black Sea port of] Novorossiisk to the conduit that stretches between Tbilisi and [Georgia's Black Sea port of] Supsa, then to BTC. With regard to gas, it could connect its transport network to the pipeline going to Erzurum. That would be the best possible way to create a balance among the economic interests of all states in the Caucasus, including those of Georgia."

Georgia currently depends almost entirely on Russia for its energy supplies. Gas imported from Turkmenistan is being re-shipped through Gazprom's pipelines to Georgia, Armenia, and Azerbaijan by Russia's Itera private company. A onetime close partner of Gazprom, Itera has stakes in many Georgian companies and is now competing with the Russian giant on the CIS energy market.

Under the South Caucasus Pipeline project, Georgia is to receive for free 5 percent of all Azerbaijani gas transiting from Baku to Erzurum -- that is, at least 300 million cubic meters a year, which should suffice to meet one-third of its domestic demand. To cover the rest of its annual needs, Tbilisi will buy an additional 400 million cubic meters from the BP-led consortium at a preferential rate.

Market analysts believe Georgia will soon be able to stop nearly all energy imports from Russia. Should it need more gas as its economy grows, it could make use of market rules.

"[To buy our gas from Azerbaijan] will be much cheaper because the distance from the production site to the consumer -- that is, to Tbilisi -- is roughly 100 kilometers," said Gotsiridze, the parliament's budget commission chairman. "The gas we are presently receiving from [Itera] comes from Turkmenistan and crosses the whole territory of Russia. Consequently, transport fees are extremely high. As for Gazprom, it is pumping its gas from Siberia or other distant regions. So importing gas from Azerbaijan will be much, much cheaper."

If Russia's traditional rivalry with the United States for control over the Southern Caucasus region, concerns over the possible loss of Georgia's gas market, and competition between Russian gas producers can explain Gazprom's attempts at sealing an agreement with Tbilisi, analysts say there is another factor, this one inherent to Georgia's domestic politics.

Georgian voters will be called to renew their parliament next November, and presidential elections are scheduled for 2005.

For Shevardnadze, whose popularity is said to be plummeting, it is essential to ensure that gas supplies will not be stopped before the elections. During his visit to Tbilisi, Gazprom chief executive Miller reportedly interfered in the election campaign, saying his company might consider shipping gas to Georgia at a lower rate than Itera's.

Gotsiridze says what he describes as the "election factor" is playing an important role in the ongoing discussions between Georgia and Gazprom.

"The Georgian side is afraid that, once its contract with Itera expires [later this year], the country will remain without gas. Itera has already lost to Gazprom its rights [to ship Turkmen gas to Ukraine]. Within two years, Itera could find itself without enough gas to meet the demand of the Transcaucasus region. There is an election factor here. The government does not wish to take any risk before the elections. In order to remain in power and reach its short-term political objectives, it is ready to make concessions, even if that means undermining the interests of the state."

However, Gotsiridze does not believe the project between Gazprom and Georgia will eventually be finalized.

"Even if Russia or Gazprom try to induce us to accept the deal, for example by threatening to stop gas supplies before the elections, I do not think Georgia will accept. All the more so that it is now under strong pressure from Western countries, especially from the U.S.," he says.