Publication: Eurasia Daily Monitor Volume: 2 Issue: 22

When Tbilisi recently completed the privatization of several Georgian industrial giants, Russian companies had become owners of several strategic economic entities in Georgia. All indications suggest that the Russian firms are not finished with their Georgian acquisition plans.

Evraz Holding has taken ownership of 70.8% of the shares in the Zestaponi ferrous alloy plant, Chiatura manganese mines, and the Vartsikhe hydroelectric power plant, all located in western Georgia. The Georgian government and the company signed a memorandum on the privatization deal on January 24. Alexander Abramov, president of Evraz Holding, confirmed his company’s interest in two other Georgian strategic units, namely coal mines in Tkibuli (west Georgia) and the Rustavi metallurgy plant (TV-Rustavi-2, Imedi TV, January 24). Abramov made no effort to conceal the fact that he had consulted with Russian President Vladimir Putin before departing for Georgia.

The Ukrainian company Interpipe, which is controlled by former Ukrainian president Leonid Kuchma’s son-in-law, Viktor Pinchuk, originally was predicted as the most probable winner in the latest round, but unexpectedly dropped out of the privatization race. The pundits link this with changing political winds in Ukraine (24 Saati, January 21).

Interpipe representatives have accused the Georgian authorities of conducting the tender unfairly. “We do not participate in vague processes with no rules,” an Interpipe representative declared at a news conference (Imedi TV, January 19). The Georgian government denounced Interpipe’s charges, stating that Evraz Holding had made a far better offer. Evraz Holding bought the Chiatura manganese plant and the Vartsikhe hydropower plant for $132 million dollars (Kavkasia-Press, January 19). In addition to Evraz Holding, the Yekaterinburg-based Dema Computers won the tender for a Tbilisi plant that builds electric locomotives (TV Channel 1, January 21).

Another “surprise” for the Georgians was that Russia’s Vneshtorgbank bought 51% of the shares of the United Georgian Bank, one of three leading Georgian banks. Georgian Prime Minister Zurab Zhvania, Finance Minister Zurab Noghaideli, and State Minister for Economic Reforms Kakha Bendukidze described the event as a “positive” move that would “facilitate the development of business relations between Georgia and Russia” (Imedi TV, January 18).

Yet some analysts argue that Russian acquisition of these Georgian enterprises is less alarming than the anticipated sale of a controlling packet of shares in Georgia’s principal gas pipelines to the Russia-based Gazprom. A recent editorial entitled “Dangerous Trends” (Resonance, January 24) argues that if Gazprom succeeds in a takeover of strategic Georgian gas pipelines, it will jeopardize plans to route the Western-backed Shakh-Deniz international gas pipeline through Georgia. Furthermore, the editorial argues, such a sale could eventually knock Georgia out of its current position as a player in international energy projects. Russian ownership of the pipelines would also strengthen Russian influence in the South Caucasus.

Prime Minister Zhvania’s staff denied information reported by the Russian RBK news agency saying that the Georgian government had offered Gazprom the controlling packet of stocks in the Georgian trunk pipelines for $300 million and the Tbilisi gas distribution company for $100 million (Inter-Press, January 24). Indirectly confirming the rumor, the Georgian State Minister for Economic and Infrastructure Reform, Kakha Bendukidze, used a press briefing on January 24 to hint at the existence of secret Georgian-Russian negotiations about selling the local trunk pipelines to Gazprom.

Bendukidze, a former Russian oligarch who is rumored to be the Russian business community’s principal lobbyist in Georgia, told journalists that he is not concerned if Georgia’s deal with Gazprom harms the Shakh-Deniz gas pipeline. He also conceded that a possible deal between Gazprom and Georgian government might be unpalatable for the British and American governments.

Georgian media has speculated that one reason Gela Bezhuashvili, secretary of the Georgian National Security Council, visited Moscow January 26-27 was to gauge Russia’s attitude toward the alleged deal. Such reports suggest an agreement whereby Georgian trunk pipelines are sold to Russia in exchange for Moscow’s withdrawal from Russian military bases in Georgia. Any sale of trunk pipelines still would need parliamentary approval. David Gamkrelidze, leader of the New Rightists-Industrialists opposition parliamentary faction, said that anyone who would consider selling the main gas pipelines should go to jail. He said that the law “On Privatization” prohibits privatization of the trunk pipelines (24 Saati, January 25; Resonance, January 20, 25, 26, 27).

Georgian Parliamentary chair Nino Burjanadze categorically opposes the possible privatization of the state-owned trunk pipelines. “I don’t know any reason why we should sell the pipeline to Russia,” she declared. Burjanadze pledged to do her best to keep the Shakh-Deniz and Baku-Ceyhan pipeline project from encountering any problems in Georgia (Interpress, Kvira, January 30).

The opposition charged the government with conducting the privatization process in a non-transparent manner. On January 26 Gamkrelidze demanded Zhvania’s and Bendukidze’s resignations. He argued that privatization had transformed into a behind-closed-doors deal between the bidders and the Zhvania-Bendukidze team (Resonance, 24 Saati, January 27). Some newspapers also speculated about backroom deals between the Russian companies and Zhvania (Akhali versia, January 20).

Soso Tsiskarishvili, an independent analyst, argues that if Kremlin-directed Russian business operations make a foothold in Georgia, the development would impede Georgia’s integration into Europe (Resonance, January 26), Liana Jervalidze, an energy expert, suspects that private financial interests of several Georgian groups explain such an abnormally rapid privatization. “Georgia is the only missing section in the energy chain coming from Iran,” she said, alluding to the Russian and Iranian plans to transport energy to Europe. Jervalidze suggested that Tbilisi has now found itself trying to justify some hasty decisions (24 Saati, January 21).

Georgian President Mikheil Saakashvili and his team, who had fervently criticized former president Eduard Shevardnadze’s intention to invite Gazprom to Georgia, have now become indifferent to this matter. At his January 24 news briefing, Saakashvili brushed away the allegations about Russian dominance over Georgian enterprises and said, “Economic relations are good for political relations.” Saakashvili admitted to the talks about transporting Iranian natural gas to Europe via Georgia. But, “I can say with full responsibility that Iran has not offered Georgia anything concrete” (Resonance, January 25).