PAY $230 OR SAY "NO" TO RUSSIAN GAS
Georgian Times, Georgia
Nov 14 2006
The countdown has started. Georgia will either have to bow to
Russian pressure and buy Russian gas at European prices or cut off
consumption. On December 31st of this year, the agreement that allows
Georgian gas companies to buy gas from Russia at $110 USD per 1000
cubic meters will expire. Russia will agree to lower the gas tariff
only if the government of Georgia sells them its main gas pipelines
and distribution networks.
After bargaining with Ukraine and Armenia, GazProm headed to bargaining
table with Georgia, where it offered a trade of sorts: Georgia’s
strategic assets in exchange for cheap gas. Aleksandr Medvedev,
Deputy Head of the GazProm Supervisory Board said that if Georgia
conceded some assets to Russia, it would receive gas at a lower
price. Medvedev referred primarily to the main gas pipeline that
delivers Russian gas from Georgia’s northern border to Armenia.
Why does Russia need Georgia’s gas pipeline?
That Russia wants to take over the pipeline is not news. Several
years ago, while Shevardnadze was in power, GazProm asked for the gas
pipeline in exchange for relief of the Georgian government’s debt
to Russia. Later, GazProm offered cash and the creation of a joint
venture through which it would acquire control over the pipeline.
If not for strict warnings from the United States, Shevardnadze’s
government might have conceded the pipeline to Russia. The US State
Department advised Georgia to retain the pipeline, and assigned
$40 million USD from its central budget for the renovation of
the pipeline. (Renovation starts in about a week and is due to be
completed in two years). Moreover, the agreement that Georgia signed
with Millennium Challenge Corporation forbids Georgia from selling
the pipeline for the next five years.
There are two reasons driving Russia’s interest in the gas pipeline.
One reason is that, by acquiring the pipeline, Russia will ensure
uninterrupted gas deliveries to Armenia – its strategic ally in the
South Caucasus region. Even were Russia to cut off gas deliveries to
Georgia, it would still be able to deliver gas to Armenia. (When an
accident disrupted gas delivery to Georgia last winter, Armenia was
also left without gas). The second reason for Russia’s interest in
the pipeline is that by acquiring it, Russia would be able to block
Iranian gas, restricting its transit to Europe.
Before Iranian gas reaches Georgia via Azerbaijan, it has to travel
through the main gas pipeline network. Iran, which is second biggest
gas supplier in the world (holding about 27 billion cubic gas reserves,
or 18 percent of world supply), has been wanting to deliver gas to
Europe since 1994. By taking over Georgia’s gas pipeline, Russia
would get rid of its strongest rival.
The government of Georgia says it is not going to give its pipeline
to GazProm. Therefore, Georgia will either have to pay GazProm’s
asking price of $230 USD per 1000 cubic meters of gas or switch
to alternative gas suppliers. Even Belarus – which enjoys better
relations with Russia – refused to sell its gas pipeline network,
opting instead to paying the asked-for $200 USD for Russian gas.
Georgia’s Prime Minister, Zurab Noghaideli, says Georgia will not
pay a political price for gas and will not pay more to GazProm than
Armenia and Azerbaijan pay. If this is to be the case, Georgia will
have to completely switch to alternative gas suppliers.
Deal between Russia and Armenia
To squeeze Georgia into a tight energy blockade, Russia seeks to
create an energy alliance and wants to lure Armenia and Azerbaijan
into this coalition. After a meeting at the Kremlin a week ago,
Russian President Putin talked his Armenian counterpart into the
sale of the Armenian gas distribution network to Russia. In return
for cheap gas-$110 USD per 1000 cubic meters-GazProm is increasing
its interests from 45 percent to 58 percent in ArmzRosGazProm (the
Armenian gas distribution company that controls the Iran-Armenian
gas pipeline). By doing so, Russia has cut off one possible route
for Iranian gas to get to Europe. Russia spent millions renovating
the pipeline. The pipeline will be operational in about two months.
Armenia will receive Iranian gas and after some time Russian analysts
say it will not have to use Georgia’s conduits to receive Russian
gas. Georgian experts maintain that even after Armenia launches
gas imports from Iran, it will have to use Georgia for transit, as
Iranian imports will not fully satisfy the gas demand. Russia did not
allow Armenians build a high-capacity pipeline, as this would have
minimized its dependence on Russia. Georgian analysts argue that at
best, Yerevan will receive 1.5 billion cubic meters of Iranian gas.
Its annual consumption now is 2 billion cubic meters and is likely
to rise to 2.5-3 billion cubic meters next year.
Even though Armenia has managed to diversity its gas supplies to some
extent, it will still need Russian gas and thus the Georgian pipeline
this winter. Therefore, Armenia is likely to refrain from joining
the Kremlin’s coalition and will not cut electricity supply to Tbilisi.
(On the eve of the meeting between Putin and Kocharian, the Russian
media speculated that the Kremlin would demand that Armenia suspend
the delivery of power to Georgia during the energy blockade).
Will Azerbaijan join the anti-Georgian Energy Alliance?
Even more important for Georgia was what arrangement Putin and Alyev,
the President of Azerbaijan, agreed to on November 10. Before Alyev’s
depature to Moscow, analysts predicted that if Alyev declined to join
an anti-Georgian energy alliance, Moscow would charge Azerbaijan $230
USD per 1000 cubic meters of gas. The Azeri route still one without
alternatives for Georgia, and Azerbaijan still has to decide how much
gas produced from Shahdeniz deposit it will allot to Georgia.
Alyev’s visit to Europe and his high-profile meetings on energy
issues in Brussels eclipsed the issue of Russia’s proposed energy
alliance and its impact on Georgia’s suppliers. And the question of
Georgia’s energy supply has become much more important to Moscow than
what Alyev promised to European leaders.
Russian Kommersant reports that Alyev told Europeans that Azerbaijan
cannot become an alternative to Russia. Alyev told Putin that he
prefers to partner with Russia and would not give energy guarantees
to European leaders. After receiving such assurances, Putin will
not require Azerbaijan to mount pressure on Georgia, especially as
Alyev does not show any inclination of doing so. Alyev said that the
strained relations between Russia and Georgia has spilled over into
Azerbaijan, and that he hopes that Georgian-Russian relations will
improve in the near future as Azerbaijan "plans to expand strategic
cooperation" with both countries.
The latest developments leave room for hope that Georgia’s negotiations
with Azerbaijan will be successful and that Georgia will receive
additional supplies from Shahdeniz pipeline if Russia turns off its
gas taps to Georgia.