Crisis in the Caucasus

Georgia claims energy crisis 'over'

By Diana Petriashvili and Joshua Kucera

A recent agreement signed with Azerbaijan and Turkey appears to have lessened Georgia’s gas woes just in time for the winter. But the country’s energy talks with Iran remain a wild card - both in terms of the Georgian government’s relationship with the United States, and its ability to do without higher-priced Russian gas.

During a 4-14 December visit to the United States, Georgian Prime Minister Zurab Noghaideli affirmed that his country has averted the energy crisis that could have come from Georgia’s refusal to pay the new US$230 per 1,000 cubic meters price demanded by Russian energy giant Gazprom, which supplies the bulk of Georgia’s natural gas.

By 1 January 2007, Russian gas will account for only "20 percent or zero percent" of the gas that Georgia imports, Noghaideli forecasted in a 13 December speech at the Johns Hopkins University School of Advanced International Studies in Washington, DC. "There is no energy crisis any longer," he said.

But despite the prime minister’s assertions, talks with Turkey, Azerbaijan and Iran over alternative gas supplies to those offered by Gazprom continue. On 15 December, energy ministers from Georgia, Turkey and Azerbaijan in Baku reached an agreement about the delivery of 1.01 billion cubic meters of gas from Azerbaijan’s Shah Deniz field to Georgia in 2007.

Turkey has also agreed to hand over to Georgia 800 million cubic meters of gas from its take of the field’s output. This comes in addition to the 250,000 cubic meters Georgia will receive as a transit fee for the pipeline that carries the gas from Azerbaijan to Turkey via Georgian territory. The Georgian energy ministry has stated that Georgia consumed 1.8 billion cubic meters of gas in 2006. Noghaideli in Washington claimed that conservation measures have allowed Georgia to decrease its natural gas consumption by 15 percent.

While the deal would appear to remove considerable pressure from Georgia this winter, the start date for delivery of the Azerbaijani gas has been postponed. Earlier plans to start pumping the Shah Deniz gas to Georgia on 15 December were postponed until 20 December after "minor technical problems" arose, a spokesperson for the Georgian energy ministry said. Georgia expects to receive 10 million cubic meters of gas from Azerbaijan by the end of the year, Azerbaijani television broadcaster ANS reported Alexander Khetaguri, president of the Georgian Oil & Gas Corporation, which controls Georgia’s main gas pipeline, as saying in Baku on 15 December.

The actual cost of the deal with Azerbaijan to Georgian coffers remains unclear, however. Georgia’s Rustavi-2 television news, a media outlet with close ties to the government, reported on 15 December that Georgia has agreed to pay US$120 per 1,000 cubic meters of gas from Azerbaijan’s Shah Deniz field. The price is US$10 higher than the US$110 per 1,000 cubic meters currently paid to Russian energy giant GazProm, but far below the US$230 price GazProm has said it would charge Georgia as of 1 January 2007. President Saakashvili has termed GazProm’s proposed fee a "political price." Talks between Georgia, Azerbaijan and Turkey about Shah Deniz gas supplies continued on 16 December in Baku. Details were not immediately available.

In this game of strategy, however, Iran also plays a role. The two countries have deep-rooted historical ties – dating back to the Persian Empire’s control of much of eastern Georgia from the 16th until the 19th century – and the Tbilisi government has recently taken steps to enhance its commercial ties with Tehran. An investment conference for Iranian businesspeople with Georgian officials was held in Tbilisi in November.

Noghaideli is expected to discuss the issue of Georgia’s gas imports from Iran during a trip to Tehran later in December. The issue, however, is not without its potential stumbling blocks for ties between Georgia and its key strategic ally, the US. US Ambassador to Georgia John Tefft, however, has stated that the American government does not approve of Tbilisi striking long-term deals with Iran.

"We understood when, last year, because of the emergency situation, Georgia ended up without gas because of the gas pipeline [in the North Caucasus] blast, and had to import a small amount of gas from Iran," the ambassador said in an interview with the Georgian newspaper Kviris Palitra, published in the weekly’s 27 November edition. "But long-term cooperation between Georgia and Iran is unacceptable for us."

The US embassy in Tbilisi has declined further comments on the issue, but has indicated that the ambassador’s views were accurately portrayed.

Some Georgian politicians and analysts have reacted to the warning by blaming the government for inactivity in putting together a package of alternative gas supplies to those received from GazProm. In an interview with EurasiaNet, Zviad Dzidziguri, a parliament member for the opposition Conservative Party, termed the talks 'ineffective' and 'late.' "This kind of negotiations should not be taking place in December," Dzidziguri said, "It is too late now. If talks like this would have been completed in the summer, [any] surprises would not be so painful."

Economic analyst Niko Orvelashvili, who has recently joined the National Forum, a non-parliamentary opposition party, said that because of Georgia’s attempts to cooperate with Iran "too much time and money was spent in vain. It was not hard to figure out that our strategic partner, the U.S., would not let Georgia sign an agreement with Iran," Orvelashvili said, adding that trips by the prime minister and Energy Minister Nika Gilauri to Tehran have so far proven "useless."

For now, however, the government shows little sign of ending its talks with Iran. "I do not know what the US Ambassador said," Noghaideli said on 27 November in remarks broadcast by Georgian TV channels. "As for our relations with Iran, we will cooperate in the energy field with it. This year we are likely to buy gas from Iran and we will possibly exchange electricity with Iran."

In Washington, Noghaideli struck a similar note, affirming that the US will not stand in the way of short-term gas deals with Tehran. "Why should we be discussing it here [in Washington]?" he said, referring to Georgia’s energy ties with Iran. "The Iran gas issue will be discussed with Iran."

In his remarks to Georgian media, Noghaideli referred to an earlier statement by US Deputy Assistant Secretary of State Matthew Bryza, who, according to the prime minister, "made it clear that the United States, regardless of its relations with Iran, cannot tell Georgia to freeze in winter and not to buy gas from Iran."

Interpretations of Bryza’s actual comments at a 17 November press conference in Tbilisi have slightly varied, however. While the Georgian and Russian media initially presented the remarks as signaling US support for Georgian purchases of Iranian gas, a US embassy transcript of Bryza’s remarks suggests a less categorical stance.

Terming Georgia’s decision about paying a higher price to GazProm "very difficult," Bryza told reporters that "If Georgia, under such pressure, feels it has to look elsewhere for gas, looking first and foremost to Azerbaijan as a supplier, we understand that. While we are pursuing our policy toward Iran, we certainly don’t want Georgia or Armenia or any other country to be in a situation where it has not energy for the winter," he concluded.

Georgian analysts have assumed that Noghaideli would discuss the issue of Iranian gas in his trip to Washington, but details about such talks, if any, have not been forthcoming. Noghaideli’s trip featured four days of meetings with Washington officials, including Secretary of State Condoleezza Rice, Vice President Dick Cheney and World Bank President Paul Wolfowitz, among others.

In his 13 December speech, the prime minister described Gazprom’s price increase as part of a pattern of Russian attempts to put pressure on Georgia and its pro-Western government, a comment that is now a recurring refrain for Georgian government officials in trips abroad. "We have to deal with constant meddling in our internal affairs," he said.

Georgian officials point to the government’s September 2006 arrest of Russian military officers on espionage charges as the proof of such alleged meddling. In the weeks that followed the officers’ arrest and subsequent release, Russia deported scores of Georgian citizens living in Russia, removed most of its diplomatic mission to Tbilisi and cut off all transportation and postal communication links with the country.

Both domestic and international observers have kept a close eye on what these moves will mean for Georgia’s developing economy. Noghaideli said that Russian sanctions on Georgian wine, mineral water and other products, measures imposed before the espionage scandal, will decrease Georgia’s Gross Domestic Product by about 1.5 percent in 2006, but that the Georgian economy is still on target to expand by about 10 percent this year.

The International Monetary Fund, however, has projected slightly lower growth. In a 12 December statement, the IMF’s Tbilisi mission reported that Georgia’s "economic performance continues to be strong," but put GDP growth at a possible 8 percent for 2006. "Economic growth has been hindered by the loss of Russian export markets, but remains robust," the statement read.

Diana Petriashvili and Joshua Kucera submitted this article to EurasiaNet, which
provides information and analysis about political, economic, environmental, and social developments in the countries of Central Asia and the Caucasus, as well as in Russia, the Middle East, and Southwest Asia.