Publication: Eurasia Daily Monitor Volume: 3 Issue: 208

Gazprom’s deputy chairman and head of Gazexport, Alexander Medvedev, confirmed on November 7 the price hike to $230 per 1,000 cubic meters of gas to Georgia in 2007, up from $110 in 2006. Gazprom will stop deliveries to Georgia on January 1, 2007, unless the new contract is signed before that date, Medvedev warned. At the same time, he proposed that Georgia pay the higher price by handing national assets over to Gazprom. “This is pure commerce,” he told a Moscow news conference (Itar-Tass, Interfax, November 7).

Moscow had first informed Tbilisi of this move on October 31, the day when Minister of Foreign Affairs Gela Bezhuashvili was arriving in Moscow for yet another Georgian effort to defuse tensions. Thus, Gazprom’s initial announcement of an extortionate $230 price was timed to actually increase the tensions. A hike of such magnitude adds a further dimension to Russia’s economic blockade and political assault against Georgia.

Gazprom’s stated new price for Georgia is an arbitrary decision in a monopolized “market.” It equals the average price for Russian gas in Western Europe and is more than double the $110 price charged to Georgia’s neighbors, Armenia and Azerbaijan, per 1,000 cubic meters of Russian-delivered gas. It is also far higher for Georgia than the price set for Ukraine at $130 for 2007 or the prices now being demanded from Belarus and Moldova at $140 and $160 or $170, respectively, for 2007. Those ostensible discounts are explained in part by Gazprom’s takeovers of controlling stakes in Armenia’s and Moldova’s gas transport and distribution systems and its expectation to achieve similar results in Belarus and with a Russia-leaning Ukrainian government.

Georgian President Mikheil Saakashvili told an international conference in France on November 3 that Moscow’s extortionate price hike to Georgia and overall political use of energy is a “bad precedent for everyone. Energy should not become a political tool” (AP, November 3). On the same day, however, U.S. State Department spokesman Sean McCormack told the media, “We believe that market forces should determine the price levels. So Georgia and Gazprom are going to work out a price. Our general take on this is that Russia should be a good partner for its clients [sic] and a reliable supplier of energy.” The statement inadvertently implied that Russia and Georgia are negotiating as equivalent actors in normal market circumstances — an implication all the more disconcerting as the spokesman had sought official guidance before giving this answer to a press query from the previous day (, November 3).

Top Georgian officials including Bezhuashvili, Prime Minister Zurab Nogaideli, and Parliamentary Chair Nino Burjanadze are publicly asking Moscow to explain the commercial formula it is using to arrive at such a price. These and other Georgian officials describe that price as politically motivated and amounting to blackmail — an interpretation substantiated by Gazprom’s refusal to explain, against the backdrop of Russia’s blockade measures and political campaign against Georgia.

Gazprom has not officially identified the Georgian national assets it seeks to take over. Clearly, its primary target remains Georgia’s gas transport and distribution system, as was the case in 2005. Georgian officials unanimously rule out the idea of transferring assets to Russia in return for price restraint on energy. State Minister for Economic Reforms Kaka Bendukidze had in 2005 and early 2006 favored selling to Gazprom the gas transit pipeline that runs via Georgia to Armenia. However, Bendukidze was speaking of a straight commercial sale for cash, not in payment for gas, not linked to the annual negotiations over the gas price, and in any case to be carried out at a time chosen by Georgia. In common with the other Georgian officials, Bendukidze rules out any non-commercial sale of assets in return for gas and “under blackmail.”

Tbilisi regards the Gazprom-named price as not final and is prepared to negotiate it down. However, officials assert in consensus that Georgia would not accept a Gazprom price that could not be justified commercially.

Georgia has some limited but real options to de-monopolize gas imports this coming winter through arrangements with Azerbaijan and Iran. Ministerial-level negotiations have been under way since October with Baku and Tehran, in anticipation of a possible emergency similar to that of January 2006. At that time, never-explained sabotage blasts on three energy lines running to Georgia on Russian territory in the North Caucasus stopped gas and electricity deliveries for several weeks. Georgia survived last winter amid great hardship, on meager volumes of energy imported from Azerbaijan and Iran.

This coming winter will be the last one in which Georgia may be forced to survive without Russian gas after January 1. With its current annual requirement estimated at some 1.6 to 1.7 billion cubic meters, the country needs some 300 million cubic meters of gas from Azerbaijan and Iran in January-February to tide Georgia over on an emergency basis. Stable deliveries of Azerbaijani gas from Shah-Deniz beginning next year should emancipate Georgia from Gazprom’s monopoly.

(Interfax, 24 Saati, Imedi and Rustavi-2 televisions, November 3-8)