Agency WPS
The Russian Oil and Gas Report (Russia)
February 25, 2005, Friday

GEORGIAN GOVERNMENT SUPPORTS THE IDEA OF SALE OF THE LOCAL TRUNK GAS
PIPELINE

Georgian government supports the idea of selling the local trunk gas
pipeline. Minister of Georgia for Economic Reforms Kakha Bendukidze
is convinced that this does not threaten the energy security of the
country. Gazprom is considered a realistic buyer of the gas pipeline.

The US is averse to sale of the Georgian gas pipeline to Gazprom.
American representatives believe that control of the Russian gas
monopoly over the pipeline “will infringe on the interests” of the
gas pipeline from Shah Deniz which is under construction. This
pipeline will be built from Azerbaijan to Turkey via Georgia.
Americans are afraid that Russia will start supplying its gas to
Turkey through Georgia, which will make Azerbaijani gas
non-competitive. American experts warn the Georgian government that
selling the gas pipeline they will pose a threat for their own
national energy security.

The rightist opposition and Speaker of the Georgian parliament Nino
Burdzhanadze are against the sale of the trunk gas pipeline to
Gazprom too. They say that Bendukidze lobbies the Russian business
and political interests because “he is connected to Russia not only
with business but also with politics.”

Minister Bendukidze, who considers himself a “pure” economist
separated from politics, is uncompromising, “If this is sensitive for
the Shah Deniz gas pipeline, consortium for its construction may
become an equally realistic buyer of the Georgian trunk gas pipeline
as Gazprom. Both companies can hold the relevant negotiations with
the Georgian government.”

Intention of Georgia to sell the trunk gas pipeline to Gazprom has
been known for a long time. Back in July 2003, Gazprom and the
government of Georgia signed a memorandum on strategic cooperation
for the next 25 years, in the framework of which the Russian
corporation started gas supplies to the country.

In September 2004, a delegation from Gazprom visited Georgia, met
with Prime Minister Zurab Zhvaniya (now deceased) and Bendukidze.
Representatives of the company did not comment on results of the
meeting officially. Georgian mass media wrote with reference to
officials of the Georgian state office that the parties negotiated on
an agreement on establishment of Rosgruzgazprom joint venture on the
basis of the trunk gas pipeline from Russia to Armenia being 250
kilometers long and having capacity of 6 billion cubic meters a year.
Gazprom even allegedly assured the ministers that it was ready to pay
$300 million for control over the gas pipeline and to take part in
privatization of the gas distribution chain of Tbilgaz, supplying gas
to the region of Tbilisi. Representatives of Gazprom said that they
did not promise this and negotiations were long and difficult.

In December 2004, General Director of Gazexport (export subsidiary of
Gazprom) Alexander Medvedev visited Tbilisi. Medvedev described
results of his visit in a very vague manner, “Gazprom conducts gas
transportation operations and hence it is interested in maintenance
of the trunk gas pipelines of Georgia in good technical condition.
This is important for transit of Russian gas to Armenia and
Azerbaijan through the territory of Georgia.” Medvedev did not
explain on which terms Gazprom would agree to participate in the
project of reengineering of the trunk gas pipelines of Georgia.

Speaking about the export of Russian gas to Turkey via the territory
of Georgia Medvedev said that this issue was not on the agenda,
“Turkey already receives gas via two routes and has undertaken
obligations to buy natural gas from the Azerbaijani gas field Shah
Deniz.”

In December 2004, President of International Gas Corporation of
Georgia David Ingorokva, reported that in the course of negotiations
with Gazprom the parties discussed three options for participation of
the Russian company, namely complete or partial sale of the trunk gas
pipelines or establishment of a Georgian-Russian joint venture.

Only at the beginning of February, it was clear who was ready for
what and on what the parties disagreed. Price was the main problem.

Gazprom counts on acquisition of ten gas objects in Georgia.
According to Georgian laws, the trunk gas pipeline is not subject to
privatization but the Economic Development Ministry of Georgia does
not rule out that Georgian government may turn to the parliament with
a request to amend the law.

Georgian government invited Gazprom to buy several gas objects within
one package. For example, the government estimated the trunk gas
pipeline at $300 million, Tbilgaz at $100 million and three energy
generating units of the Tbilisi hydro power station, two of which
were not functioning, at $25 million. Gazprom considered the price
excessive. The company was not ready to pay even a half of the
required price for the pipeline. For Tbilgaz Gazprom offered $50
million. The parties reached an understanding only on the generating
units of the Tbilisi hydro power station. The parties preliminarily
agreed on the required price of $25 million.

With regard to the other objects, the parties agreed to continue the
consultations. Bendukidze’s statement can be considered recognition
of an agreement of the parties on the price of the trunk gas
pipeline.

The answer of the Georgian President Mikhail Saakashvili to the
question about the fate of the gas pipeline asked by the Italian
newspaper La Stampa also shows that the problem is close to solving.
The President of Georgia said, “After all, this gas comes from
Russia.”

Source: gazeta.ru, February 23, 2005