Of Pipes and Men

Plans to Sell Trunk Gas Pipelines Stir Controversy

Negotiations between the Georgian leadership and the Russian energy giant Gazprom over the potential sale of Georgia’s main gas pipeline network are currently underway. The United States calls on Georgia to excercise caution when making a final decision.

News about the government’s decision to privatize Georgia’s gas pipeline system broke after President Saakashvili told the Italian newspaper La Stampa on February 20 that Georgia is in fact negotiating with Gazprom over this issue. This triggered fierce criticism from the opposition, which questions the political rationale behind these negotiations.

Despite the apparent determination by the Georgian government to keep this issue of selling the pipeline on the table, US officials remain cautious. In an interview with the Georgian daily 24 Hours, published in Georgian on February 24, the U.S. President’s Advisor for Caspian Energy Issues Steven Mann said said that as a sovereign state, Georgia has the right to independently make decisions regarding privatization, but the United States has been calling on the Georgian leadership to use caution when making these kinds of decisions.

Mann added, that the United States has been working to secure Georgia’s energy independence for many years and the U.S. will be categorically against any steps which might hinder this process. 

Selling of the trunk gas pipeline will contradict the plans of the United States, which envisages the creation of alternative gas supply sources for Georgia, Steven Mann said.
 
Mann also said that he has held many discussions with Georgian President Mikheil Saakashvili and late Prime Minister Zurab Zhvania over this issue. While saying that the United States is not against cooperation between Georgia and Gazprom, the U.S. official added the latter represents an important part of Georgia’s energy sector.
 
Mann continued by saying that selling Georgia’s gas pipeline system to Gazprom would reduce the selling potential of gas piped through the Shah-Deniz project. The U.S.-backed Baku-Tbilisi-Erzerum gas pipeline, or the ‘Shah-Deniz project’, is part of the much broader, BP-led oil and gas development project in the region, which also includes the Baku-Tbilisi-Ceyhan (BTC) Main Export Oil Pipeline Project.
 
Nonetheless, Mann said that the Shah-Deniz project will be implemented regardless of whether Gazprom buys Georgia’s gas pipeline system or not.
 
Some observers suggested, that the recent revelation of the ongoing talks between Georgian officials and Gazprom was intended to raise the stakes in Georgia’s privatisation plans. Speaking with reporters on February 22 Georgian State Minister for Economic Reform Issues Kakha Bendukidze made it clear that Gazprom is not the only company which can buy Georgia’s gas pipeline system.
 
“I think the fact that the Baku-Tbilisi-Erzerum gas pipeline is so sensitive to these issues [of selling the trunk pipeline] means that the Georgian gas pipeline system might have two potential buyers: one may be the Shah-Deniz Consortium, the other – Gazprom; if one of them wishes to gain a victory over the other, it should come and launch talks with the Georgian government,” said Bendukidze.
 
But BP, which leads the BTC and Shah-Deniz projects, has no intention of taking part in this privatization process. “We will continue our activities and do not intend to purchase anything,” Tamila Chantladze, a spokesperson for the BP Tbilisi Office, told Civil Georgia on February 23.
 
In order to sell Georgia’s gas pipeline system the authorities will have to make amendments to the Law on Privatization, which bans the sale of facilities which are of “strategic importance” to the country. Georgia’s gas pipeline system is on the list of “strategically important” facilities. Bendukidze has been adamant since his appointment that he sees no real meaning behind the designation of certain facilities as “strategically important.”

A small group of opposition parliamentarians has already expressed protest regarding the plans to sell the gas lines. “This will be a huge mistake. This is really a strategic facility which should remain under Georgian control,” MP Davit Berdzenishvili, leader of the opposition Republican Party, told Civil Georgia.
 
MP Davit Gamkrelidze, who chairs the New Rights-Industrialists parliamentary faction, also called on the authorities to refrain from selling the pipelines. “Transferring this facility to Russia will finally destroy Georgia’s energy independence,” he said at a news conference on February 22.
 
The government will also have to convince Parliamentary Chairperson Nino Burjanadze, who, in an interview with the Georgian daily Rezonansi (Resonance) published on January 31, said she is “categorically against selling the gas pipelines, especially to a Russian company.”
 
Some observers say that the Georgian government, who normally take a clearly defined pro-western stance, might be engaged in some kind of political ‘horse-trading’ with Russia, in which Tbilisi may be willing to give up its energy independence in exchange for the political concessions by Moscow which are presently hindering ties between the two countries. Above all these issues include the resolution of the conflicts in South Ossetia and Abkhazia.
 
“Of course it is not ruled out that a particular political deal might take place; however, it is difficult to say what kind of deal it will be,” economic analyst Revaz Sakevarishvili told Civil Georgia.
 
This latest situation surrounding the government’s decision to sell the country’s gas pipelines is nearly identical to  one which occurred over the same issue less than two years ago.

In 2003, then-President Eduard Shevardnadze became a target of criticism by the opposition – which, at that time included most of the current officials – as a result of a declaration of intent  over strategic cooperation with Gazprom. Steven Mann arrived in Georgia shortly after this hand-shake agreement was made and warned the Georgian leadership not to undertake steps which could have endangered the Shah-Deniz project.  

But the Georgian authorities at that time signed an agreement with on strategic cooperation for 25 years, which is still valid. It envisages the supply of natural gas to Georgian customers and the rehabilitation of gas pipelines, including two trunk-line gas pipelines, one of which will be used for transporting gas to Armenia and the other to Turkey, via the Adjara Autonomous Republic. Analysts say that Russia is mainly interested in purchasing  those pipelines which are used for transit purposes.

Russia is currently the only supplier of natural gas to Georgia. Although a reserve pipeline with Iran has been recently repaired, its capacity is far below what the country requires. Iranian gas is also nearly three times as expensive as the gas Georgia receives from Russia.