GEORGIA TRIES TO KEEP LID ON RUSSIAN WATER ROW

Lloyds List
Apr 25, 2006

Tensions fizz between countries over exports ranging from citrus
fruit to mineral water, writes James Brewer.

AS IF fears over Gazprom’s grip on gas prices were not enough, a
bubbling dispute over bottles of mineral water that everyone these
days loves to tote, or to sip at table, could turn relations toxic
between Russia and its neighbour Georgia.

Russia seems to be sending its messages in rejected bottles of wine,
brandy and potentially of water.

Tbilisi is already quavering over the head of steam built up by the
giant Russian energy company in raising its charges. Just a short
time after Gazprom almost doubled its price to $110 per 1,000 cu m,
there are fears in Georgia, as there are in several other countries,
that worse is to come.

It is possible that Russia’s next move will be to take the fizz
out of the huge import trade in Borjomi mineral water, produced by
a renowned spa in central Georgia, after centuries in which it has
been gulped in quantity byRussians of all walks of life. They enjoy
its taste and detoxicant powers.

Trade rows have been escalating since the beginning of 2006, and the
speaker of the Georgian parliament, Mrs Nino Burjanadze, has been
raising her country’s concerns in European capitals, most recently
in London, where she discussed them, alongside seeking support for
Georgia’s application to join NATO, with defence secretary John Reid,
foreign office minister Douglas Alexander, and many other politicians
during more than a dozen meetings.

Bottled water worries have bubbled to the surface following three
serious blows to the Georgian economy. In September 2005, Russia
introduced phytosanitary measures against imports of fruit and
vegetables.

In January 2006, at the height of winter, the gas and electricity
supply to Georgia was briefly cut off. Then on March 7, Russia banned
the import of wine from the mountainous Black Sea republic on the
grounds of ‘violation of health norms’ by wines containing pesticide.

Russia’s federal consumer protection inspectorate has impounded
more than 9,000 bottles of Nabeghlavi-brand mineral water in Moscow
district, to the outrage of producer Tsqali Margebeli.

Earlier the directorate announced that it had found a large quantity
of counterfeit and low-quality Borjomi mineral water. Georgia says the
ban on wine, and the fuss over mineral water Borjomi and Nabeghlavi
have licences from Russian laboratories is political, and a reprisal
for its pro-Western stance.

Mrs Burjanadze stressed that Georgia had offered dialogue with
the Russian Federation, but she said that Moscow had cancelled and
refused top level meetings. She said: ‘We appeal to the international
community to give adequate evaluation to Russia’s actions and ability
to behave as a reliable trade and energy partner in good faith, and
to honour its participation and commitments in the various agreements
and international organisations through predictable and transparent
trade policy.’

She added that lack of progress during bilateral and multilateral
talks created serious difficulties for Georgia’s support for Russia
joining the World Trade Organisation.

Action over gas ‘shows that Russia is trying to use its gas and oil
resources as the major mechanism for political pressure,’ warned
Mrs Burjanadze.

Such fears were underlined both by the dramatic shutdown of supplies
to Ukraine at the turn of the year, and more recently when Gazprom
executive Alexander Medvedev declined to rule out a further rise in
prices for Armenia and Georgia (pricing is similar for both countries)
towards European levels.

Representatives of European Union member states who were given a verbal
reminder of the power of Gazprom by its leader Alexei Miller recently,
will have had an ear to its attitude toward Georgia and other former
Soviet republics, given that the huge company controls almost all
the gas needs of central and eastern Europe.

Mrs Burjanadze has been at the centre of political life for the last
few years; she came to international attention when she was acting
president of Georgia after the downfall of Eduard Sheverdnadze,
welcoming what was known as the Rose Revolution. She is a law
graduate who studied in Tbilisi and Moscow, where her thesis was on
international maritime law, organisations such as Inmarsat, and the
export of oil. She told Lloyd’s List that part of her mission in
London was to inform the UK government about the way Georgia was
strengthening reforms and democracy, and striving for a peaceful
solution to the conflicts in the separatist influenced regions of
South Ossetia and Abkhazia.

The future of these regions is highly sensitive, and both Russia and
Georgia are keen to maximise leverage.

Paradoxically, Georgia is pleased with the progress made by Russia in
withdrawing from its military bases, but Mrs Burjanadze is concerned
the instability that could be caused by trade difficulties might
deter Western investors, at a time when a 12% uniform tax and more
liberal licensing has brought in growing foreign money.

BP has been the leading investor for the past few years, and is
expected to be so again in 2006, to the tune of $195m.

Mamuka Khazaradze, chief executive and owner of Georgian Mineral
Water ‘ Glass Co, told Lloyd’s List by telephone that he welcomed
the presence of Russian inspectors at his warehouses, but was anxious
about a potential ban.

His company is planning to export a total of 250m bottles of water
in 2006, of which it was planned to send 40% or 50% to Russia.

He pointed out that his company was one of the biggest taxpayers
in Russia.

In an attempt to strengthen energy supply security, meanwhile,
president Mikheil Saakashvili and his government are pressing for
the opening of new gas pipelines to transport Azerbaijaniangas from
Shah Deniz field via Georgia to Turkey, which will run parallel to
the Baku-Tbilisi-Ceyhan oil pipeline.

This is likely to prove just as political as the Russian decision a
short time ago to suspend entry visas for Georgian nationals.

Earlier this year, Russian president Vladimir Putin had something to
say about the crisis. It was this: ‘I feel very sorry, very sorry,
for the Georgians. This beautiful people to whom we feel close are
currently in a difficult situation,’ he told journalists.

‘Georgia is experiencing great economic difficulties and if some
people deem it possible to solve these kinds of problems by diverting
people’s attention into looking for external enemies, I think they
are on the wrong track.’