Georgia: Private Companies Carry Burden for Gazprom Gas Price Talks

As temperatures drop below freezing in Georgia, the problem of the country's winter gas supply appears to remain unresolved. While Georgian officials emphasize that they will not pay a "political price" for gas from Russian company Gazprom, responsibility for negotiations with the energy giant has been placed on regional distributors. Meanwhile, some local experts and opposition members are blaming the Georgian government for a passive response to the proposed price hike.

For now, the Georgian energy ministry has restrained from commenting on the Gazprom negotiations, saying that price talks are to be held by Georgian gas-distributing companies alone. On November 15, however, Georgian President Mikheil Saakashvili stated that Gazprom's desired price of $230 per 1000 cubic meters of gas was politically motivated. Speaking to reporters in Strasbourg on November 14 at a session of the European Parliament, Saakashvili stated that Georgia should not pay the new price.

"The price is not the commercial one," Saakashvili stated, the Georgian news agency Black Sea Press reported. "Some of our neighbors pay $65, others $110, and only some of them pay $130. There must be a reason why Georgia, the closest neighbor to Russia, pays more than remote states," the president argued.

At the same time, the Georgian leader expressed no concern about the capability of the Georgian energy system to handle power and heating needs this coming winter. Saakashvili praised the energy sector's recent development, adding that it had bypassed that of other countries.

"We have started building the economy from the very beginning [...] the new economy is more effective in the energy field compared with other states," Saakashvili said. "2006 was the first year after 1991 when Georgia not only imported, but also exported electric power [...] We can now partially compensate for the lack of gas with electricity in the winter." Power outages in Tbilisi, as well as in the regions, however, nonetheless persist.

Based on the limited information so far made public about Georgia's plans to make up the difference for a potential cut-off in Russian gas supplies in the 2006-2007 winter, the government appears to be banking largely on receiving increased supplies from Azerbaijan, facilitated by the start of gas flows through the Tbilisi-Baku-Erzurum pipeline by late 2006, as well as potentially from Iran. (For background see the Eurasia Insight archive.)

The Turkish newspaper Zaman, however, recently reported that Azerbaijan has approached the Turkish government about delaying the start of gas flows from Baku for one year. The report has not yet been confirmed.

Energy Minister Nika Gelauri could not be reached for comment. Like Saakashvili, however, Gelauri has also recently praised conditions in Georgia's energy sector, telling a November 10 session of parliament that "Georgia has all the chances for becoming an electric power center for the entire region." Gelauri stated that repair work at several power generating stations means that Georgia plans to start exporting electricity to Azerbaijan and Turkey in 2007.

Gelauri's statement, however, irritated some opposition MPs, who claimed that the minister never answered their question about whether Georgia will be supplied with gas in 2007.

"The minister failed to answer the most important question of the Georgian population, and this is . . . what kind of winter do you expect? One without snow and with a temperature that does not fall below zero?," charged Conservative Party parliamentarian Zviad Dzidziguri.

The Georgian opposition has also again raised the question of the possibility that Georgia would sell its main gas pipeline, a conduit that supplies Armenia as well as Georgia with gas from Russia. In 2005, local media reported that the government was allegedly considering selling the pipeline to Gazprom, but officials later came out strongly against the idea. "They say they won't sell the pipeline to Russia, but I'm interested in whether they will sell it to someone else," Zurab Tkemaladze, a member of the Industry Will Save Georgia party, commented to reporters after parliamentarians' meeting with the energy minister.

Gelauri himself, however, has refused to share details from the talks with Gazprom, removing the energy ministry from responsibility for price haggling with the Russian gas supplier. Instead, Gelauri told reporters on November 14, Georgia's individual gas distributor companies "are the ones who are negotiating."

State Minister for Coordination of Reforms Kakha Bendukidze, however, has explained the decision by saying that gas purchases fall outside the government's control. "[The] Georgian government itself does not and did not buy gas from Gazprom," Rosbalt news agency quoted Bendukidze as saying on November 15. "All deals are done by private companies involved in gas distribution or [in the] use of gas in industrial process[es]."

While the government's decision to look to distributors to negotiate the terms of their contracts with supplier Gazprom is not unusual, noted one expert, the government should more actively supervise the process. Failing to do so suggests that the government wants to escape blame if agreement with Gazprom cannot be reached and supplies to Georgia are cut, commented Giorgi Mchedlishvili, head of the Georgian Transition non-governmental organization.

"The government seems to be trying to put all the responsibility on the distributing companies," said Mchedlishvili. "If the population does not get gas this winter, they will have someone to blame."

"Every single Georgian wants to know what happens with gas this winter," he continued. "The government should be more active in the talks, as it must answer all the questions that appear. Saying