Russian Company That Illegally Operates in Abkhazia Is Coming to Georgia

Abkhazia, a former autonomous region of Georgia, was recognized as an “independent state” by Russia following the five-day Russian-Georgian war in August 2008. A couple weeks ago (April 10), the “prime minister” of Abkhazia, Artur Mikvabia, officially presented the self-proclaimed republic’s newest deputy prime minister, 39-year-old Russian citizen Dmitry Serikov (Abkhazinform.com, April 10). Serikov’s task in the Abkhazian government will be to control the spending of funds that Russia is sending to Abkhazia. Financial assistance from Moscow makes up 50–60 percent of Abkhazia’s budget (Mk.ru, February 16, 2015).

The appointment would hardly be noticed were it not for Serikov’s background. Prior to his appointment as deputy prime minister in Abkhazia’s government, he was the CEO of the Russian telecommunications company MegaFon, which operates in Abkhazia in breach of the Georgian Law on Occupied Territories (Travelgeorgia.ru, October 23, 2008).

The fact that the CEO of telecom giant MegaFon was put in charge of such a sensitive issue as the oversight of Russian subsidies to Abkhazia indicates the proximity of this company to the political leadership of the Russian Federation. The business strategy Russian telecom companies clearly takes into account not only their commercial interests, but also apparently the state interests of the Kremlin.

Because of this relationship between large Russian corporations and Moscow, the Georgian public showed keen interest in news that recently emerged about MegaFon’s attempt to enter Georgia’s telecommunications market through a Georgian provider, Silknet. The Russian company, in cooperation with Silknet, constructed a fiber optic network cable between Upper Lars, on the Russian side of the border, and Kazbegi, on Georgian territory. The cable is 37 kilometers long and its initial capacity is 100 Gigabits per second (Comnews.ru, March 27).

The head of the Department for Cooperation With International Telecom Operators at MegaFon, Oksana Maguliy, explained to reporters that her firm was inspired by “the idea of ??being present in the region, which affected the company’s model of cooperative interaction.” Maguliy said that “the market of Transcaucasia [the South Caucasus] has high demand for Russian content.” And according to her, a direct connection between Russia and Georgia was “the only element that has long been absent for MegaFon, but as soon as an opportunity to find a partner appeared, the project was implemented,” Maguliy explained (Comnews.ru, March 27).

However, MegaFon has, for years, been in breach of the Georgian Law on Occupied Territories, which expressly forbids foreign companies from operating in Abkhazia and South Ossetia without permission from Tbilisi. MegaFon operates in both breakaway regions. In Abkhazia, Akvafon is the Russian telecom company’s subsidiary, and in South Ossetia, it operates through its daughter company Ostelkom (Abkhaziya.org, February 3, 2004).

In 2009, the Georgian National Communications Commission fined MegaFon $600,000 for illegal operations in Abkhazia and South Ossetia, but the company did not pay the fine (Bpn.ge, April 6). Now, in business-as-usual mode, MegaFon signed a contract with the largest Georgian telecommunications firm and, evidently, aims not only at controlling Internet traffic passing between the two countries, but also at establishing itself on the Georgian market of telecom services. According to Megafon’s Oksana Maguliy, the company “does not meet any resistance” from the government of Georgia, despite not having paid the six-year-old fine (Comnews.ru, March 27).

The Georgian opposition, meanwhile, is furious at this situation. “The government does not react, because they do not want to irritate Russia,” Sergo Ratiani, a member of parliament from the opposition party United National Movement, told Jamestown (Author’s interview, April 13).

Silknet and the Georgian National Communications Commission have attempted to explain that the contract with the Russian company is commercially beneficial, since it only involves the transit of Internet traffic and does not grant MegaFon direct access to the Georgian market. “MegaFon did not encroach on the Georgian border even one centimeter,” Silknet said in a statement. “The purpose of the network cable is to satisfy the needs of telecom traffic between Russia, Europe and the Caucasus region countries,” the Georgian company’s management said (Newsport.ge, April 2). Georgia’s National Communications Commission agrees with Silknet, saying that the company had the right to allow the Russian firm to use its line for transit, even if the Russian side broke Georgian legislation and does not pay the 2009 fine imposed by the Georgian court (Geodigital.tv, March 30).

An anonymous source at Silknet told Jamestown that the company had spent significant resources on the modernization of cable infrastructure, replacing the copper wire with a fiber optic cable; and such expenditures should be compensated somehow. Considering the large investment into the project as well as the fact that the modernized network cable specifically connects Georgia only to Russia, Silknet’s management most likely needed and expected to be able to come to an agreement with one of Russia’s telecom giants. Moscow, in turn, made sure that a company close to the Kremlin, MegaFon, would become Silknet’s partner in this venture.

MegaFon is not the only Russian company that disregards Georgia’s territorial integrity. Notably, the telecom corporation Beeline, which has operated in Georgia since 2007, published a map on its website that labeled Abkhazia as an independent state (News.ge, March 29, 2012).

Beeline, unlike MegaFon, actually operates on the Georgian market, providing cellular and Internet services to Georgian customers. Following a recent public discussion about the right of Georgia’s security services to eavesdrop on citizens’ telephone conversations, Several Georgian non-profit organizations demanded that the technical access to such information be handed over to cellular companies instead of the interior ministry. But the authorities rejected this, hinting that if the Russian company Beeline receives a technical ability to control the activities of the Georgian security services, the information will be immediately transmitted to the Russian security services in Moscow (Legalfs.ge, November 1, 2014).

However, in the case of MegaFon and its Internet traffic, the government prefers not to interfere in the present situation. At least in part, the authorities likely do not want to disrupt the operations of Silknet, Georgia’s largest and most successful company, which brings significant tax revenues to the state budget.