Tbilisi: Of Pipes and Men

Civil Georgia, Georgia
Feb 24 2005

Of Pipes and Men

Tea Gularidze, Giorgi Sepashvili
Civil Georgia / 2005-02-24 14:05:06

Plans to Sell Trunk Gas Pipelines Stir Controversy

Negotiations between the Georgian leadership and the Russian energy
giant Gazprom over the potential sale of Georgia’s main gas pipeline
network are currently underway. The United States calls on Georgia to
excercise caution when making a final decision.

News about the government’s decision to privatize Georgia’s gas
pipeline system broke after President Saakashvili told the Italian
newspaper La Stampa on February 20 that Georgia is in fact
negotiating with Gazprom over this issue. This triggered fierce
criticism from the opposition, which questions the political
rationale behind these negotiations.

Despite the apparent determination by the Georgian government to keep
this issue of selling the pipeline on the table, US officials remain
cautious. In an interview with the Georgian daily 24 Hours, published
in Georgian on February 24, the U.S. President’s Advisor for Caspian
Energy Issues Steven Mann said said that as a sovereign state,
Georgia has the right to independently make decisions regarding
privatization, but the United States has been calling on the Georgian
leadership to use caution when making these kinds of decisions.

Mann added, that the United States has been working to secure
Georgia’s energy independence for many years and the U.S. will be
categorically against any steps which might hinder this process.

Selling of the trunk gas pipeline will contradict the plans of the
United States, which envisages the creation of alternative gas supply
sources for Georgia, Steven Mann said.

Mann also said that he has held many discussions with Georgian
President Mikheil Saakashvili and late Prime Minister Zurab Zhvania
over this issue. While saying that the United States is not against
cooperation between Georgia and Gazprom, the U.S. official added the
latter represents an important part of Georgia’s energy sector.

Mann continued by saying that selling Georgia’s gas pipeline system
to Gazprom would reduce the selling potential of gas piped through
the Shah-Deniz project. The U.S.-backed Baku-Tbilisi-Erzerum gas
pipeline, or the ‘Shah-Deniz project’, is part of the much broader,
BP-led oil and gas development project in the region, which also
includes the Baku-Tbilisi-Ceyhan (BTC) Main Export Oil Pipeline

Nonetheless, Mann said that the Shah-Deniz project will be
implemented regardless of whether Gazprom buys Georgia’s gas pipeline
system or not.

Some observers suggested, that the recent revelation of the ongoing
talks between Georgian officials and Gazprom was intended to raise
the stakes in Georgia’s privatisation plans. Speaking with reporters
on February 22 Georgian State Minister for Economic Reform Issues
Kakha Bendukidze made it clear that Gazprom is not the only company
which can buy Georgia’s gas pipeline system.

`I think the fact that the Baku-Tbilisi-Erzerum gas pipeline is so
sensitive to these issues [of selling the trunk pipeline] means that
the Georgian gas pipeline system might have two potential buyers: one
may be the Shah-Deniz Consortium, the other – Gazprom; if one of them
wishes to gain a victory over the other, it should come and launch
talks with the Georgian government,’ said Bendukidze.

But BP, which leads the BTC and Shah-Deniz projects, has no intention
of taking part in this privatization process. `We will continue our
activities and do not intend to purchase anything,’ Tamila
Chantladze, a spokesperson for the BP Tbilisi Office, told Civil
Georgia on February 23.

In order to sell Georgia’s gas pipeline system the authorities will
have to make amendments to the Law on Privatization, which bans the
sale of facilities which are of `strategic importance’ to the
country. Georgia’s gas pipeline system is on the list of
`strategically important’ facilities. Bendukidze has been adamant
since his appointment that he sees no real meaning behind the
designation of certain facilities as `strategically important.’

A small group of opposition parliamentarians has already expressed
protest regarding the plans to sell the gas lines. `This will be a
huge mistake. This is really a strategic facility which should remain
under Georgian control,’ MP Davit Berdzenishvili, leader of the
opposition Republican Party, told Civil Georgia.

MP Davit Gamkrelidze, who chairs the New Rights-Industrialists
parliamentary faction, also called on the authorities to refrain from
selling the pipelines. `Transferring this facility to Russia will
finally destroy Georgia’s energy independence,’ he said at a news
conference on February 22.

The government will also have to convince Parliamentary Chairperson
Nino Burjanadze, who, in an interview with the Georgian daily
Rezonansi (Resonance) published on January 31, said she is
`categorically against selling the gas pipelines, especially to a
Russian company.’

Some observers say that the Georgian government, who normally take a
clearly defined pro-western stance, might be engaged in some kind of
political ‘horse-trading’ with Russia, in which Tbilisi may be
willing to give up its energy independence in exchange for the
political concessions by Moscow which are presently hindering ties
between the two countries. Above all these issues include the
resolution of the conflicts in South Ossetia and Abkhazia.

`Of course it is not ruled out that a particular political deal might
take place; however, it is difficult to say what kind of deal it will
be,’ economic analyst Revaz Sakevarishvili told Civil Georgia.

This latest situation surrounding the government’s decision to sell
the country’s gas pipelines is nearly identical to one which
occurred over the same issue less than two years ago.

In 2003, then-President Eduard Shevardnadze became a target of
criticism by the opposition – which, at that time included most of
the current officials – as a result of a declaration of intent over
strategic cooperation with Gazprom. Steven Mann arrived in Georgia
shortly after this hand-shake agreement was made and warned the
Georgian leadership not to undertake steps which could have
endangered the Shah-Deniz project.

But the Georgian authorities at that time signed an agreement with on
strategic cooperation for 25 years, which is still valid. It
envisages the supply of natural gas to Georgian customers and the
rehabilitation of gas pipelines, including two trunk-line gas
pipelines, one of which will be used for transporting gas to Armenia
and the other to Turkey, via the Adjara Autonomous Republic. Analysts
say that Russia is mainly interested in purchasing those pipelines
which are used for transit purposes.

Russia is currently the only supplier of natural gas to Georgia.
Although a reserve pipeline with Iran has been recently repaired, its
capacity is far below what the country requires. Iranian gas is also
nearly three times as expensive as the gas Georgia receives from