Publication: Eurasia Daily Monitor Volume: 2 Issue: 41

A flurry of statements by Georgian officials in recent days suggests that Tbilisi is once again considering the high-risk proposition of selling the country’s gas transportation system to Russia’s monopoly Gazprom. The idea is deeply controversial in Georgia’s decision-making circles. The individuals pushing for such a sale appear oblivious to three considerations that should remain uppermost to Georgian decision-makers. The first, overarching priority must be national security. Second, the country’s energy supply sources must be diversified– in this case by guaranteeing a large market share for the BP-led gas export project from Shah-Deniz in Azerbaijan, via Georgia to Turkey. Finally, the third priority is Georgia’s credibility in the United States, which regards the proposed sale to Gazprom as detrimental to the U.S. goal of strengthening Georgia’s political independence.

At a February 22 news conference, State Minister for Economic Reforms Kakha Bendukidze professed to “not understand why we should be threatened if those gas pipelines, through which Georgia receives gas from Russia, are sold to Russia, which then takes care of the pipeline system.” Implicitly acknowledging, however, that the U.S.-backed BP pipeline project would be affected adversely, Bendukidze countered by challenging the BP-led consortium to bid against Gazprom for acquiring Georgia’s Soviet-era pipeline system (Imedi Television, Civil Georgia, February 22). Bendukidze could not have been unaware of the fact that BP had long made clear that it has no commercial interest in acquiring Georgia’s old pipelines, but only in building its own pipeline. The BP office in Tbilisi lost no time reaffirming that the company “has no interest in taking part in this privatization process and does not intend to purchase anything” in the old pipeline system (Civil Georgia, February 24).

On February 24, Bendukidze declared that any sale of pipelines to Gazprom would include a clause to guarantee supplies to Georgia. He also held out the prospect of Gazprom expanding the capacity of the trunk line to Turkey in order to export more Russian gas to that country. The two Soviet-era lines run via Georgia to Turkey and to Armenia, respectively. Their combined throughput capacity is said to have fallen from 16 billion cubic meters annually pre-1991 to 8 billion cubic meters annually at present, requiring an estimated $200 million to repair (Reuters, February 24).

A guarantee clause in a sale contract could, however, only guarantee overwhelming market share for Gazprom in Georgia, to the detriment of alternative supply sources such as Azerbaijan. Gazprom’s guarantees would offer no protection from threats to interrupt supplies on technical or force majeure pretexts, as an instrument of Russian political leverage on Georgia. Meanwhile, pumping Gazprom gas to Turkey via Georgia would increase Turkey’s already risky dependence on Russian gas. It would, moreover, preempt in Gazprom’s favor the Turkish market niches that are now reserved for Shah-Deniz gas to be piped via Georgia.

Reacting to the political fallout in Georgia from Bendukidze’s remarks, Prime Minister Zurab Noghaideli reassured the public that no decision has been made or even officially examined by the cabinet of ministers. Noghaideli also pledged that the Parliament would be part of any decision on this issue (Imedi Television, Civil Georgia, February 23). Selling the trunk pipelines to Gazprom would require changes to existing Georgian legislation that prohibits the sale of strategic assets such as transportation pipelines. Parliament Chair Nino Burjanadze is on record as strongly opposing, on national-security grounds, any sale of the trunk lines to Gazprom (Rezonansi, January 31).

Steven Mann, the top U.S. official responsible for Caspian energy issues, cautioned Georgia publicly on February 24 against selling the trunk pipelines to Gazprom. Noting that the U.S. has been working for years to strengthen Georgia’s independence and to help diversify the country’s energy supply sources, Mann pointed out that the proposed sale to Gazprom would run counter to this U.S. policy, and also reduce the commercial potential in Georgia of BP’s Shah-Deniz project, which would however go ahead regardless (Civil Georgia, February 24). Mann has issued several cautionary statements of this kind ever since former president Eduard Shevardnadze and former energy minister Davit Mirtshkulava (now in jail on corruption charges) entered into talks on this issue in 2003 with Gazprom.

In an interview with the Italian newspaper La Stampa, cited by Georgian media on February 22, President Mikheil Saakashvili confirmed that talks on selling trunk pipelines to Gazprom are in progress. Declining to go into details, the president only remarked, “The gas is Russian after all” (Imedi Radio, Civil Georgia, February 22). This remark as cited seems implicitly to acknowledge that selling trunk pipelines to Gazprom may well result in preserving an overwhelming market share for Gazprom in Georgia. However, Saakashvili returned to the matter during the cabinet of ministers’ special session on energy issues on February 25, in the conclusion of which he reassured the public, “The Georgian government would not do anything that would make the country dependent on some monopolistic scheme. Currently there is no decision being prepared on this issue . . . No one should be able to blackmail us by saying, ‘If you do something, you will find your power cut’ ” (Georgian Television Channel One, February 25).

The president possesses the political and moral authority to put an end to speculation on a sale to Gazprom that would be detrimental to Georgia’s national interests on so many counts.