Eurasia Daily Monitor
Thursday, November 9, 2006 — Volume 3, Issue 208
GAZPROM’S `PURE COMMERCE` IN GEORGIA
by Vladimir Socor
Gazprom’s deputy chairman and head of Gazexport, Aleksandr Medvedev,
confirmed on November 7 the price hike to $230 per 1,000 cubic meters of gas
to Georgia in 2007, up from $110 in 2006. Gazprom will stop deliveries to
Georgia on January 1, 2007, unless the new contract is signed before that
date, Medvedev warned. At the same time, he proposed that Georgia pay the
higher price by handing national assets over to Gazprom. `This is pure
commerce,’ he told a Moscow news conference (Itar-Tass, Interfax, November
7).
Moscow had first informed Tbilisi of this move on October 31, the day
when Minister of Foreign Affairs Gela Bezhuashvili was arriving in Moscow
for yet another Georgian effort to defuse tensions. Thus, Gazprom’s initial
announcement of an extortionate $230 price was timed to actually increase
the tensions. A hike of such magnitude adds a further dimension to Russia’s
economic blockade and political assault against Georgia.
Gazprom’s stated new price for Georgia is an arbitrary decision in a
monopolized `market.’ It equals the average price for Russian gas in Western
Europe and is more than double the $110 price currently charged to Georgia’s
neighbors, Armenia and Azerbaijan, per 1,000 cubic meters of
Russian-delivered gas. It is also far higher for Georgia than the price set
for Ukraine at $130 for 2007 or the prices now being demanded from Belarus
and Moldova at $140 and $160 or $170, respectively, for 2007. Those
ostensible discounts are explained in part by Gazprom’s takeovers of
controlling stakes in Armenia’s and Moldova’s gas transport and distribution
systems and its expectation to achieve similar results in Belarus and with a
Russia-leaning Ukrainian government.
Georgian President Mikheil Saakashvili told an international
conference in France on November 3 that Moscow’s extortionate price hike to
Georgia and overall political use of energy is a `bad precedent for
everyone. Energy should not become a political tool’ (AP, November 3). On
the same day, however, U.S. State Department spokesman Sean McCormack told
the media, `We believe that market forces should determine the price levels.
So Georgia and Gazprom are going to work out a price. Our general take on
this is that Russia should be a good partner for its clients [sic] and a
reliable supplier of energy.’ The statement inadvertently implied that
Russia and Georgia are negotiating as equivalent actors in normal market
circumstances — an implication all the more disconcerting as the spokesman
had sought official guidance before giving this answer to a press query from
the previous day (state.gov, November 3).
Top Georgian officials including Bezhuashvili, Prime Minister Zurab
Noghaideli, and Parliamentary Chair Nino Burjanadze are publicly asking
Moscow to explain the commercial formula it is using to arrive at such a
price. These and other Georgian officials describe that price as politically
motivated and amounting to blackmail — an interpretation substantiated by
Gazprom’s refusal to explain it, against the backdrop of Russia’s blockade
measures and political campaign against Georgia.
Gazprom has not officially identified the Georgian national assets it
seeks to take over. Clearly, its primary target remains Georgia’s gas
transport and distribution system, as was the case in 2005. Georgian
officials unanimously rule out the idea of transferring assets to Russia in
return for price restraint on energy. State Minister for Economic Reforms
Kakha Bendukidze had in 2005 and early 2006 favored selling to Gazprom the
gas transit pipeline that runs via Georgia to Armenia. However, Bendukidze
was speaking of a straight commercial sale for cash, not in payment for gas,
not linked to the annual negotiations over the gas price, and in any case to
be carried out at a time chosen by Georgia. In common with the other
Georgian officials, Bendukidze rules out any non-commercial sale of assets
in return for gas and `under blackmail.’
Tbilisi regards the Gazprom-named price as not final and is prepared
to negotiate it down. However, officials assert in consensus that Georgia
would not accept a Gazprom price that could not be justified commercially.
Georgia has some limited but real options to de-monopolize gas imports
this coming winter through arrangements with Azerbaijan and Iran.
Ministerial-level negotiations have been under way since October with Baku
and Tehran, in anticipation of a possible emergency similar to that of
January 2006. At that time, never-explained sabotage blasts on three energy
lines running to Georgia on Russian territory in the North Caucasus stopped
gas and electricity deliveries for several weeks. Georgia survived last
winter amid great hardship, on meager volumes of energy imported from
Azerbaijan and Iran.
This coming winter will be the last one in which Georgia may be forced
to survive without Russian gas after January 1. With its current annual
requirement estimated at some 1.6 to 1.7 billion cubic meters, the country
needs some 300 to 400 million cubic meters of gas from Azerbaijan and Iran
in January-February to tide Georgia over on an emergency basis. Stable
deliveries of Azerbaijani gas from Shah-Deniz beginning next year should
finally emancipate Georgia from Gazprom’s monopoly.
(Interfax, 24 Saati, Imedi and Rustavi-2 televisions, November 3-8)
–Vladimir Socor