U.S. Ambassador repeats call to not sell to Gazprom

The Messenger
Monday, March 21, 2005, #050 (0824)

A “rational privatization” and transparency are needed to encourage
investment, envoy says
By M. Alkhazashvili

The year 2005 should be decisive for Georgia with respect to the
implementation of the Caspian energy projects.

By the end of this year the BTC oil pipeline will be finished and
the first tanker will be loaded in Ceyhan port.

In parallel with the BTC pipeline, construction of the Shah Deniz
gas pipeline has entered full gear, and construction of the Georgian
section of the pipeline will be completed by the end of this year. The
first gas should flow through the pipeline in the first half of 2006.

Meanwhile, the possible sale of Georgia’s trunk gas pipeline,
which connects with Russia to the north and Armenia to the south,
could take place this year as well, although officials have sharply
backtracked since stating earlier this year that there are talks to
sell the pipeline to Russia’s Gazprom.

The possible sale of the pipeline, which was one of the main topics
of discussion at last week’s Fourth Georgian International Oil, Gas,
Energy and Infrastructure Conference – GIOGIE 2005, has created a
good deal of controversy both within the country and abroad.

The Russian energy giant Gazprom is eager to buy the pipeline, and
State Minister for Economic Reform Kakha Bendukidze has backed its
privatization, saying that only private investors will be able to
ensure its full rehabilitation, the total cost of which has been
estimated at between USD 250-400 million.

Many Georgian politicians and analysts, including Speaker of Parliament
Nino Burjanadze, have expressed strong opposition to the sale of the
pipeline, saying that this would in fact be illegal as the Georgian
constitution expressly forbids the sale of strategic assets.

U.S. Ambassador to Georgia Richard Miles entered the fray at the
GIOGIE conference last Thursday, saying that although it was Georgia’s
decision to make, he believed sale of the pipeline “to a would-be
monopoly supplier is not likely to be in Georgia’s strategic interest.”

Responding to claims that a quick sale is necessary and that no other
bidders have stepped forward, the ambassador took a swipe at the
lack of transparency regarding the issue. “I cannot stress enough
that serious bidders may be more offput by the air of uncertainty
and secrecy that currently surrounds this issue – and the perception
that Georgia is only interested in one bidder anyway – than they
will be attracted to the potential asset,” he said, as quoted in an
Embassy transcript.

“It would be more advantageous for Georgia to retain control of
its infrastructure,” he suggested, “at least until the country’s
strategic plans for both the domestic energy sector and for its role
as an energy resource transportation link become clearer.”

He added that the government could encourage investment in the country
through “Georgian government investment in the rehabilitation of its
infrastructure and preparation for rational privatization. This,
he said, “would be a strong demonstration that this Government is
taking a deliberate and strategic approach to its own interests,
and is committed to a course of action.”

Miles was reiterating comments by U.S. State Department Advisor in
Caucasus energy resources Steven Mann, who has publicly stated that
while the sale of the gas pipeline might be economically profitable,
its purchase by Gazprom could create a monopoly and thus allow the
Russian state-owned company to use the pipeline for its advantage.

The government has a difficult decision to make regarding the trunk
pipeline. If it turns down Gazprom’s offer to buy it, it is difficult
to see how it will be able to find the funds to rehabilitate the
pipeline. While the U.S. and backers of the South Caucasus Pipeline
have expressed concern that the pipeline may fall into Russian
competitor’s hands, there has been no hint that they would be prepared
to purchase the pipeline or finance its rehabilitation.