TBILISI: Political Change, Gas Woes To Cost Georgia In 2006

By Christina Tashkevich

The Messenger, Georgia
Oct 3 2005

Saknavtobi official predicts natural gas prices to rise next year

The head of the Saknavtobi (the Georgian National Oil Corporation)
Advisory Committee Bhamy Shenoy thinks that Tbilgazi customers will
have to pay more for gas consumption next year, as international oil
prices are likely to remain around USD 50 to 55 per barrel in 2006.

Shenoy explained to The Messenger over the weekend that “since oil
competes with gas for many uses, the price of oil puts a ceiling on
the price of gas.”

He says that for the last two years Gazprom was selling gas to Georgia
at “a highly subsidized price.” However, Shenoy thinks that given “the
changed circumstances of the political landscape” between Russia and
Georgia, “Gazprom has no compulsion to sell gas at a subsidized price.”

“The only leverage Georgia has with Russia is the dependence of the
latter to supply its ally Armenia,” Shenoy said.

Representative of Gazprom in Georgia David Morchiladze confirmed
last Wednesday that Gazprom has already made its first offer to the
Georgian side about the cost of gas imports.

“The first offer by Gazprom at negotiations in Moscow was USD 110
[for 1000 cubic meters of gas instead of the previous USD 60],”
Morchiladze said. He added that Georgia plans to agree with Gazprom
on a 10-year contract.

The Russian company also demands that the Tbilisi gas distribution
company Tbilgazi pay off its existing debts to Gazprom’s subsidiary
company Gazexport. Tbilgazi still has a USD 5.7 million debt to cover.

“If Tbilgazi were to operate as a commercial company where losses are
kept to a minimum, this [paying higher price for gas] would not have
caused a big problem,” Shenoy said. Currently Tbilgazi is subsidized
by the government.

He added to the paper that a higher price for gas supply offered by
Gazprom is more “a political issue rather than an economic one.”

Shenoy thinks the South Caucasus (Baku-Tbilisi-Erzrum) pipeline can
become an alternative source of gas supply for Georgia when it goes
into operation.

“It will be an important new energy source for Georgia,” Head of BP
Georgia Wref Digings told the paper earlier this year. The pipeline
should start operation around October 2006. “The current agreement set
the prices at which Georgia can buy gas, which are quite advantageous,”
Digings said.

According to the gas sales contract between Azerbaijan, Georgia and
Turkey, Georgia will get 0.3 billion cubic meters rising to 0.8 bcm
a few years. Currently, Georgia’s demand for gas is about 1.3 bcm
per annum.

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