The fragility of Georgia's electric system became vivid on August 18, when a disruption to a transmission line switched off the entire country. Government officials promptly claimed sabotage. But opposition politicians in Tbilisi accuse President Eduard Shevardnadze of betraying citizens by allowing Russian energy companies potentially decisive influence over how Georgia delivers electricity. Russia's electricity monopoly took controlling interest of Georgia's power plants on August 6, weeks after a Moscow-based natural gas giant won the right to upgrade and manage pipelines through Georgia. Many observers suspect Shevardnadze of trading strategic assets in return for a promise that Russian players will back his political allies in a contentious upcoming parliamentary vote.
Anatoly Chubais, chairman of the Russian electricity monopoly, RAO Unified Energy Systems (UES), confirmed August 6 that the company had purchased a 75 percent stake in Georgia's AES-Telasi joint venture from AES Silk Road, a subsidiary of the US-based AES Corp. The purchase price was not disclosed. The deal gives UES a virtual lock on Georgia's domestic electricity market. The deal's public-relations value came to the fore in Chubais' press conference, when he declared: "Systematic power supply to Tbilisi is our main goal." These promises almost always gain steam in Georgia, where power outages occur several times a year. Chubais also promised to consider reducing Georgia's often-cripplingly high rates, which average around 6.5 cents per kilowatt.
The UES deal followed a late May strategic partnership agreement between the Georgian and the energy conglomerate Gazprom. Under the agreement, Gazprom can conclude confidential future projects with the Georgian government, possibly paving the way for debt-for-equity deals that enhance the Russian company's control over Georgia's domestic energy distribution infrastructure. Such debt-for-equity swaps have already been made in neighboring Armenia. [For background see the Eurasia Insight archive].
Fearing such maneuvers, officials in Tbilisi had initially distanced themselves from the deal. Shevardnadze claimed at first that AES negotiated the sale to UES behind the government's back, thereby precluding the state from exercising an option to obtain a full share of the AES-Telasi utility. He also denounced the company on July 28 as suffering its own "crisis." Opposition politicians, meanwhile, blamed Shevardnadze's administration for failing to block Russia's acquisition, which had reportedly been in the works for months. "The country's independence should not be sacrificed to a business," said Levan Gachechiladze, a leader of the opposition New Rights Party.
Some opposition leaders contend that Shevardnadze is sanctioning the sale in return for Russian political support for his administration. Such support could possibly help Shevardnadze withstand international condemnation in the event that the government rigs the November 2 parliamentary vote to enable presidential allies to retain control over the legislature. Political observers in Tbilisi say pro-Shevardnadze forces, given their current low public approval rating, would be hard pressed to retain power in a fair election. [For background see the Eurasia Insight archive].
Shevardnadze has dismissed the notion that his populist stance on the deal is politically motivated. He has likewise insisted that his administration maintains a pro-Western policy, under which NATO membership is a top goal. While the president initially complained about the manner in which the AES-UES deal was made, he maintains that it will mean lower costs for Georgian energy users. "One company [UES] is becoming both the strategic distributor and the supplier and this can only have a positive affect on electricity tariffs," Shevardnadze said in his weekly radio interview August 11.
Many inside and outside Georgia suspect that in accumulating economic assets, Russia is seeking to control the former Soviet republic's economy. In late May, when Gazprom signed a deal to manage natural-gas routes in Georgia without disclosing many contract terms, American diplomats were so alarmed that US President George W. Bush's top Caspian adviser hastily flew to Tbilisi to warn that the deal could harm American-backed efforts to develop natural gas resources in Azerbaijan. [For background, see the Eurasia Insight archive]. Some observers see the Gazprom deal as useful only for influence, since it will be years before the company could recoup operating profits from any joint venture. "Gazprom has great appetites. It wants to get the main gas pipelines of Georgia," says Roman Gotsiridze, who heads the Parliament's budget office.
Washington officials have expressed concern about the secretive nature of Gazprom's dealings with the Georgian government. Gazprom has agreed to provide natural gas to Georgia and help upgrade the country's existing pipeline distribution network. The 25-year strategic development agreement seems to leave Gazprom free to expand its holdings in the Georgian energy sector in ways that could block or undermine other pipelines. "These negotiations between Gazprom and the Georgian Ministry of Fuel and Energy are not, in my opinion, sufficiently transparent," said Steven Mann, Bush's Caspian-energy envoy, told Rustavi-2 television.
Some suspect that Gazprom and UES are using Georgia as an economically weak springboard into the more developed Turkish market. UES officials have openly stated that they seek to export electricity to the Turkish market. As part of the AES deal, UES obtained a key stake in AES-Transenergy, a joint venture with Georgia's Energy Ministry that seeks to promote power exports to Turkey. Bush and his predecessor, Bill Clinton, have energetically supported the planned Baku-Tbilisi-Erzerum natural gas pipeline, which would bring resources from Azerbaijan's Shah Deniz field to the Turkish market and beyond. Russia and Turkey have wrangled in recent months over gas deliveries via the Blue Stream pipeline which connects the two countries via the Black Sea. [For background see the Eurasia Insight archive]. Gazprom's potential ability to disrupt Shah Deniz supplies could give Russia added leverage in its Blue Stream dealings.
Opposition leaders have focused on the UES deal, vowing to annul it. Even if they wrest control of Parliament on November 2, though, it is unclear how extensively Georgian officials have cemented UES' dominance. It is also unclear what legacy Georgia's latest blackout will leave.
Zeyno Baran is Director of International Security and Energy Programs at The Nixon Center in Washington, DC. EurasiaNet contributors Karen Madoian in Tbilisi and Sergei Blagov in Moscow also provided reporting for this article.