The Messenger, Georgia
Sept 15 2005

Two takes on talks with Gazprom
Georgian minister calls Gazexport’s statement of new prices
“incompetent”
By M. Alkhazashvili

On September 19 Minister of Energy and Fuel of Georgia Nika Gilauri
will again hold negotiations with the leadership of Gazprom in
Moscow. The meeting will clear up once and for all just how much
Georgia will pay to be supplied by Russian natural gas. However, even
before the agreement is reached the two sides appear to differ on
what they have agreed to agree to.

In a statement made at the Russian Embassy in Tbilisi on Wednesday,
David Morchiladze, the head of Gazprom’s daughter company in Tbilisi
Gazexport, said that the prices were already decided at USD 120 per
1,000 cubic meters.

Speaking at the Russian Embassy, the head of Gazexport ironically
stressed that the decision being made was in no way political.
Morchiladze described the agreement as an “apolitical” one “between
partner countries.”

Immediately afterwards, Georgia’s minister of energy countered that
the price had in no way been fixed and reiterated that talks are
still under way. Calling Morchiladze’s statement “incompetent,”
Gilauri said that until now Georgia has relied on yearly contracts
that had to be redrafted annually.

But now, as the minister said, the Georgian side has decided to sign
a long-term contract. “That price that was mentioned cannot be
considered final, because we are planning to conclude a three, four
or maybe five year contract. And so far neither of the sides can fix
the exact price, as it is a much longer process and there are lots of
issues connected to each other,” said the minister

He described last weeks talks as “only the first two hour meeting
with the representative of Gazprom in Russia and the negotiations
will continue.”

One unusual aspect of the situation is that Gazprom openly speaks
about an inevitable price increase on natural gas. Currently the only
natural gas supplier to Georgia is Russia. The natural gas share in
Georgia’s energy balance is approximately 24 percent. In 2004
Gazexport, Gazprom’s child company that supplies Georgia with natural
gas, imported to Georgia 1.23 billion cubic meters of natural gas. In
2005 Georgia will get approximately the same amount.

Despite the fact that Gilauri does not think that the price increase
on natural gas price has been decided yet, the Russian side has
spread information on Gazprom’s website that “From 2006 Gazprom will
supply Georgia with the natural gas at European market prices,
including the transportation cost.” Gazprom’s second demand – that
the Georgian government cover its current debts this year – seems
almost insignificant in comparison with the price increase, as
outstanding debts amount to about USD 12.

Worries for the domestic market

The looming increased cost of gas is worrying many in Georgia and
Morchiladze’s statement did nothing to allay concern. 24 Saati writes
that if the increase happens, the electricity tariff will increase (2
gas-powered turbines are being built in Georgia to overcome the
electricity crisis), living conditions will worsen, prices will grow
on Georgian products, the trade deficit will widen, and so on.

A possible counter balance is that the gas transit fee for Armenia be
paid by monetary means and help offset the increase. 24 Saati writes
that another negotiating point is the Georgian government’s reaction
to demands that it submit proposals to involve Gazprom in the
“gas-energetic projects” underway on Georgian territory. Moscow
continues to demand ownership over the natural gas pipelines and
blocs of Tbilgazi and Tbilsresi. These are strategic state energy
assets that would give serious levers to Gazprom and by extension, to
the Russian government.

The Georgian media points out that there exists a way to avoid panic
over the natural gas price increase, but the administration does not
want to speak about it. It is true that the country used to receive
natural gas from Russia at a low price – 1,000 cubic meters for USD
65, but the population paid European-sized tariffs to consume it –
USD 130 per thousand cubic meters.

As the newspaper Alia points out, “The difference is the profit that
goes to firms that perform the role of middlemen. We have had two
such firms that existed even under the Shevardnadze administration.”
If these firms are eliminated, or if they at least take a sharp
reduction in profits, homeowners can get natural gas at almost the
same price as before.