Gazprom Presents Harsh Ultimatum to Georgia

The Vice Prime Minister and Minister of Energy of Georgia, Kakha Kaladze, and a top official at the Russian energy giant Gazprom, Yelena Burmistrova, failed to reach an agreement during the latest round of talks in Vienna (Rustavi2, January 21). The Georgian Ministry of Energy issued a statement at the conclusion of the talks that contained more diplomatic declarations than actual information. “The subject of the talks has not changed and they will continue,” the statement said (Energy.gov.ge, January 20).

Earlier, Kaladze repeatedly emphasized that the primary subject of the talks with Gazprom was the Russian proposal—essentially a demand—to monetize the Georgian payment for the Russian gas transit to Armenia (Civil Georgia, January 12).

According to the agreement between Russia, Georgia and Armenia that was signed in 1992 immediately after the disbandment of the USSR, Georgia takes 10 percent of the Russian gas supplies to Armenia as payment for transit. The agreement was regularly renewed every year since, without any of the parties questioning it (Vestikavkaza.ru, October 1, 2015).

However, the fall in energy prices and the corresponding fall of the price for transit (a relationship widely accepted worldwide), combined with the lifting of the Iran sanctions and the rise of Russian ambitions in the region, prompted Moscow to change its tactics and deliver a harsh ultimatum to Georgia through Gazprom. Gazprom is rightly considered to be the Kremlin’s “geopolitical tool.”

Kaladze never concealed that during his three previous meetings with the head of Gazprom, Aleksei Miller, the latter insisted on the monetization of payment for the transit of Russian natural gas to Armenia. Gazprom’s CEO cited the European Energy Charter and the World Trade Organization’s (WTO) rules to support his claim. Ironically, Miller cited the very international agreements that Gazprom has repeatedly broken by introducing embargos and taking other extravagant steps against Georgia, among other countries (see EDM, March 28, 2006).

If the Georgian side fails to accept Gazprom’s conditions, the company threatens to suspend the transit of gas to Armenia via Georgia entirely, instead, providing supplies to Armenia from Iran via the company’s pipeline. According to Kaladze, monetization of the payment for gas transit is not beneficial to the Georgian side, but he is prepared to consider it if Tbilisi has some guarantees that it will not lose part of the natural gas after monetization and retain the energy balance in the country (Ipress.ge, December 10, 2015).

However, the problem is that Miller, who represents Moscow, is prepared to sell natural gas to Georgia only in exchange for certain concessions. As independent analyst David Avalishvili stated, “Georgia will, of course, receive the payment for the transit of natural gas to Armenia according to the international tariffs, but it is highly questionable whether the country will be able to buy the same 10 percent of transited gas to Armenia from Russia for that money. Moscow will give its consent to that only in exchange for a range of geopolitical concessions, for example, the opening of the railway link via occupied Abkhazia toward the Russian bases in Armenia; giving monopoly status to Gazprom on the Georgian market; or even halting cooperation with NATO and the EU” (Author’s Interview, January 22).

A columnist at the news agency GHN, Gela Kalandadze, says that Gazprom has serious trump cards in this game. “First of all, Georgia cannot import more gas from Azerbaijan using the two existing gas pipelines at least until 2019, when the third pipeline, Shah Deniz 2, launches. Currently the existing pipelines are operating at the limit of their capacity. Georgia receives about 9 million cubic meters of natural gas per day during winter time through them. In addition, the country receives 2.5 million cubic meters of gas as payment for the transit of Russian gas to Armenia. Jointly it is 11.5 million cubic meters, which is a minimal amount of gas that is needed for the normal operation of the Georgian energy system,” the expert said (Author’s Interview, January 22).

According to Kalandadze, Georgian authorities find themselves between two “bad and very bad” choices. The expert states, “If Gazprom makes good on its threat, suspends gas transit and/or refuses to sell natural gas to Georgia after monetization, it will destabilize the energy balance in the country. Gas and electricity tariffs will inevitably rise, which will produce discontent among the people and the decline of popularity of the ruling coalition Georgian Dream. All of these will happen during the year of parliamentary elections. Gazprom bets on this, demanding geopolitical concessions to the Kremlin from the government of Giorgi Kvirikashvili” (Author’s Interview, January 22).

The expert doubts that the Kremlin’s threat to stop gas transit to Armenia via Georgia is a bluff, “Gazprom can send half of the gas that Armenia needs from Iran already this year. The remaining deficit of energy in Armenia this winter can be alleviated with a quick export of other types of energy via Iran, such as heavy fuel oil that can be used at electric plants that use natural gas. Also, the nuclear station in Armenia may increase its electricity output. When Russian geopolitical interests and a chance to change the foreign policy orientation of the Georgian government are at stake, Moscow is willing to sustain some material losses. The sanctions from Iran have been lifted. The throughput of the gas pipeline from Iran to Armenia can be doubled by next winter. Also it should not be forgotten that another Russian company, Inter-Rao, is the supplier of electricity to Georgia and it is also acting in the interests of the Kremlin.”

Kalandadze states that in the current situation, Georgian authorities have only one choice if they do not want to capitulate before the Kremlin. “They should honestly tell the public that we all need to be patient and endure difficulties at least until 2019-2020 when Georgia will be able to receive more natural gas from Azerbaijan via the new gas pipeline that is under construction,” the expert told Jamestown.

Upon his return from the talks in Vienna, Minister Kaladze told journalists that Georgia still receives 10 percent of the natural gas that flows from Russia to Armenia via Georgia. The Georgian government did not agree to monetization, because there is no guarantee that the country will be able to buy the same amount of natural gas or that Gazprom will agree to sell gas without a change in Georgia’s foreign policy (Netgazeti.ge, January 20).

It appears that Georgian authorities are hoping that Moscow will not take such a radical step as stopping the transit of natural gas via the Georgian territory. However, given how often the Russian government has used Gazprom as an instrument of geopolitical pressure previously, this hope may be excessively optimistic. Russia’s view of the issue will be clarified in the next few months or even weeks.