Officials: Georgia Will Survive Gas Price Hike

As Georgia steels itself for a potential spike in Russian gas prices, Georgian leaders are downplaying the increase's possible impact on the economy, and emphasizing that the search for alternative gas sources continues.

Russian energy giant Gazprom, which supplies Georgia with most of its natural gas, announced November 2 that prices for the Georgian market could more than double in 2007 from $110 per 1,000 cubic meters (tcm) to $230. Georgian President Mikheil Saakashvili's government has charged that politics, rather than economics, is driving the price hike. After Georgia arrested four Russian military officers on espionage charges in late September, Moscow cut off all transportation and communication links with the South Caucasus state, and withdrew most of its diplomatic mission. [For background see the Eurasia Insight archive]. Those moves followed an earlier Russian embargo against Georgian wine, mineral water and agricultural products. [For details, see the Eurasia Insight archive].

Talks are currently underway between Georgian gas distributors and Gazprom about a final price for 2007. Although Gazprom, by size alone, would appear to hold a potential trump card in these negotiations, the Georgian government maintains that it will not be railroaded into paying an artificial price.

"If it is a commercial price, adequate and universal for the entire region, we will continue negotiations, but if it is a punishment for Georgia, there is no reason for further talks," Georgian Prime Minister Zurab Noghaideli told reporters on November 4. Georgia will not pay "a non-commercial price" for its gas supplies, Noghaideli stressed.

A gas price probably won't be fixed sometime in December, said David Ingorokva, president of the Georgian International Gas Corporation, which manages the country's gas pipeline system. Ingorokva, speaking after the November 2 session of the National Energy Regulatory Commission, expressed hope for a positive outcome. "There is no ground for panic right now," media outlets quoted him as saying.

Meanwhile, Georgian officials say that the price hike will do little to slow Georgia's economic growth, fueled, they maintain, by a range of recent reforms in areas ranging from licensing to taxation.

"Georgia's economy and its fiscal situation are ready to resist such shocks. It will have an impact, but not serious enough to hamper development," Finance Minister Alexi Alexishvili told journalists on November 3. Alexishvili cited a recent analysis by Standard & Poor's, which estimated that an increase in the price of gas would decrease Georgia's Gross Domestic Product by 1.1 percent. However, a November 2 Standard & Poor's press release states that Georgia's creditworthiness and its overall economic situation could be negatively impacted by the crisis in relations with Russia in general, "including the ongoing blockade of all trade and transport between the two countries."

Noghaideli maintains that Georgia's treasury and ordinary Georgians can handle such a price hike. Speaking at a governmental session of November 3, Noghaideli reported that the state budget posted a GEL 38.5 million (about $22.2 million) surplus in tax revenue for the past 10 months; private sector salaries, the minister said, have increased by 37.2 percent for the same time period. In 2005, Georgians' Gross Domestic Product per capita stood at $3,400, in terms of purchasing power parity, according to CIA estimates.

Some observers believe that officials are overly optimistic about the country's ability to handle a massive natural gas price hike. Niko Orvelashvili, an economic expert affiliated with several Georgian non-governmental organizations, suggested that President Mikheil Saakashvili's administration is partly to blame for the present situation. "It is [a] common [scenario] for Georgia: When an external enemy appears, [the Georgian] people forgive the authorities a lot of mistakes, and this is why the authorities continue using that aggressive rhetoric against Russia," Orvelashvili said. "But the power crisis is not only about Russia, but also about the inactivity of the Georgian government."

In addition, Orvelashvili suggested that the government had been lax in its efforts to limit the damage from Russia's punitive economic actions. [For additional information see the Eurasia Insight archive]. http://www.eurasianet.org/departments/business/articles/eav090106.shtml Orvelashvili additionally complained about a lack of transparency in the government's search for alternative sources of energy. "The government does not reveal the gas price listed in the contract on Iranian gas supplies [signed in January 2006]. This is public information and should be widely released. But they keep saying it's