Russian Energy Giant Takes Over Georgian Gas Distribution System

One more Tool of Pressure Goes into Russia’s Hands

Three-days long negotiations between the Georgian government and the ITERA company ended with the Russians victory on August 16. The sides signed a protocol, under which Russian energy giant received control package of the shares in Tbilgazi company, which distributes gas in Georgian capital and Azoti Chemical Factory in Rustavi town. From now on ITERA will be controlling all gas distribution companies in Georgia, Adjarian Autonomous Republic is an exemption.
 
ITARA, which was founded by the Russian Gazprom company in the United States, is an exclusive supplier of the natural gas to Georgia for the past few years. ITERA is selling the gas to Georgia through the Sakgaz company, registered in Tbilisi. Besides gas supply to the population, ITERA also was a partner in the biggest enterprises in Georgia.

After launching cooperation with ITERA, Georgia’s debt to the company exceeded 70 million Laris (USD 32 million). Experts believe that these debts were accumulated intentionally to enable ITERA to take over the strategic distribution networks and major industries at almost no price.

According to the agreement, ITERA will receive 51% of Tbligazi shares and Azot Chemical Factory as a debt repayment. There will also be a joint venture, which would be an exclusive supplier and distributor of the natural gas in the country.

The government authorities say that the agreement with ITERA guarantees uninterrupted supply of the gas. Deputy State Minister Akaki Zoidze stated that this was the optimal solution to the existing situation. However, Leonid Deikalo, General Director of the Sakgaz company, owned by ITERA dismissed government’s hopes at the press conference of August 15, saying that “nobody should hope for permanent gas supply. Gas will be supplied to those who will pay for it”.

Government’s decision caused major concern among the politicians and experts. Member of the “United Democrats” faction Giorgi Baramidze said at the special press conference on August 15 “in ITERA’s face, the Georgian government will have the organization, linked with the Russian special services, which is guided not by economic goals but by these services and in fact is a tool of pressure over Georgia”.

Doubts about ITERA have several reasons. During these past years ITERA has numerously suspended gas supply to Georgia due to unpaid debts, including the winter seasons when the gas consumption reaches its peak. Last winter an American company AES Telasi, which distributes electricity in Tbilisi, signed a contract with ITERA regarding prepayment of the gas supply. Despite this, gas supply was cut to the Gardabani power plant, belonging to AES.

As the government officials say the agreement allows the Georgian government to have the right to conclude a contract with an alternate supplier if such emerges in the future. Experts believe this to be quite unreal, because ITERA will be able to deny the other supplier use of the gas pipelines belonging to it. Georgia will not have the choice other than agree to ITERA’s demands, they believe.

Head of the Budgetary Office of the Parliament Roman Gotsiridze says that after launching of the Baku-Tbilisi-Erzerum gas pipeline, Georgia will have a right to purchase certain amount of transported gas with discount price. But if the main pipelines and distribution network is given to the Russian companies, Georgia will not have a possibility to enjoy its right.

Georgian experts underline that during the recent years Russia was using energy companies to achieve its foreign policy goals. Kremlin influences economies of the CIS countries through its connections with the energy companies. Energy, banking and telecom systems are Moscow’s main targets in neighbor countries.

Similar to Georgia, during the past two years huge amounts of debt to Gazprom and ITERA were accumulated in Ukraine, Moldova and Armenia and Moscow demanded handing over strategic industries to these companies as a debt repayment. Nowadays Moscow is actually controlling energy sectors in most of CIS countries.

Experts suspect that there is yet another, most important reason, why the Government accepted agreement with ITERA. As the Deputy State Minister Akaki Zoidze told the Rustavi 2 TV channel, with this agreement the Government avoided possible destabilization in autumn and winter.

Suspension of the gas supply in winter causes even more civil upset with already tense social-economic background. Last year cutting of gas supply resulted in mass protests against the Government. Experts think that the Government will do everything to avoid social tensions as the Parliamentary elections are approaching and the opposition forces are uniting rapidly.

Certain part of the Georgian experts tend to believe that the Russian company reached the agreement with the Georgian government, using Russia’s military pressure, as the negotiations with ITERA coincided with extreme deterioration of the Georgian-Russian relations and bombing of the Georgian territory.

By achieving control over the Georgian energy sector, Russia strengthened its positions in the Southern Caucasus. Now Russia possesses significant economic levers along with its military bases and this will ease directing the political processes in the region for Moscow. It seems that Russia’s small neighbors will have to consider wishes of their former lord for a long time ahead.

By Revaz Bakhtadze, Civil Georgia