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GEORGIA



 

In-depth Business Intelligence

Key Economic Data
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 3,937 3,324 3,100 126
         
GNI per capita
 US $ 830 650 590 145
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km)
69,700 

Population 
4,693,892 

Principal 
ethnic groups 
Georgians 68.8%
Armenians 9% 
Russians 7.4%

Capital 
Tbilisi 

Currency 
Lari

President 
Mikhail Saakashvili



Update No: 302 - (27/02/06)

Gas crisis over, Georgia vows to diversify energy supplies
Georgia's gas crisis has come to an end, with the government vowing to diversify energy supplies away from Russia and calling for fresh investments in the energy sector to help the country realize that goal. 
Russian gas began to flow again to Georgia on January 29th after completion of repairs to two sabotaged pipelines supplying the South Caucasus state and Armenia. Gas has now been partially restored to the capital, Tbilisi, and to the key regional cities of Kutaisi, Gori and Rustavi. Officials estimated that within one week all of Georgia would have normal gas supplies. 
But despite the improvement, the government's bitterness at Russia for allegedly imposing an "energy blockade" on Georgia will not fade soon. Putin, who must have approved the steps that led to the crisis, has, in the opinion of many observers, shot himself in the foot. Energy planners, not just in the Caucasus, but throughout Europe are now thinking of how to diversify their imports.

Iran to the rescue
In remarks televised on January 30th on the Rustavi-2 television station, Georgian Energy Minister, Nika Gelauri, charged that Russia had accelerated the repair work "only after we announced plans for importing Iranian gas. Iranian gas started flowing into Georgian pipelines, via Azerbaijan, for the first time in 35 years on January 30th. Depending on supplies from Russia, Georgia will receive Iranian gas for either 15 days or a month, Gelauri said recently at the Marneuli gas distribution station south of Tbilisi. The Iranian news agency IRNA has reported that the Persian Gulf state will supply Georgia with 30 million cubic meters of gas over the course of a month. 
Although government officials have refrained from saying how much Georgia will pay for the gas, Gelauri suggested that the deal with Tehran could continue for some time to come. "In the future, we can use this alternative gas in case of any problems with Russian gas supplies," he said. Presently, Georgia receives gas from Russia, Azerbaijan and Iran to meet its daily consumption of 7 million cubic meters. 
Georgian Prime Minister, Zurab Noghaideli, stated on January 30th that Iranian gas would help Georgia avoid a supply crunch like the one that paralysed the country after the two pipelines that feed gas from Russia exploded on January 22nd. "The start of Iranian gas flowing to Georgia means that if similar problems occur in the future, we will receive gas from alternative sources," Noghaideli said. 
Nonetheless, some local analysts see risks for Georgia in an Iranian gas partnership. In a recent op-ed in the daily newspaper Resonansi (Resonance), energy expert Gia Khukhashvili wrote that close cooperation between Tbilisi and Tehran could spark doubts about Georgia's pro-Western orientation and irritate strategic partners such as the United States. 
One expert, however, countered that such short-term cooperation in the energy field is understandable, given Georgia's gas crisis. "It is a temporary measure. Any country that would appear in a position like this, would act in the same manner," said Giorgi Khelashvili, a professor of social sciences at Tbilisi State University. 
Few alternatives exist for Georgia's energy supplies, making the country's future energy strategy "a complicated issue," Khelashvili continued. "It is impossible to rely on Russian supplies; but nor is Iranian gas a solution [due to the country's disputes with the international community over its nuclear research programme]." 

The search for alternatives is afoot
The Iranian gas deal and additional supplies pumped from neighbouring Azerbaijan are just the start of a diversified gas supply for Georgia, President Mikhail Saakashvili stressed in a January 31st televised speech to the nation. "For the first time since its independence, Georgia is not being supplied with only Russian gas. It is the first time that we have alternative gas. And we will continue working in this direction," Saakashvili said. "As the share of Russian gas decreases, there will be fewer attempts to carry out acts of sabotage or to manipulate gas prices." 
Among the perspectives for international investments in the Georgian energy sector, the president continued, is an international tender for hydropower plants "[so that] Georgia will be able to take care of its own need for electricity." The tender, he added, would occur by 2009, the last year of Saakashvili's presidential term. 

The new Cold War with Russia
Another large-scale proposed energy project - the purchase of Georgia's main gas pipeline by Russian energy giant Gazprom - appears to have been quietly shelved. When the gas crisis struck, opposition members demanded the resignation of the project's most outspoken proponent, State Minister for Economic and Structural Reforms, Kakha Bendukidze, for supposedly kowtowing to Russian interests, but Tbilisi State University's Khelashvili said that he doubted Bendukidze would now be asked to leave government. 
"His economic position is rather liberal, but it is doubtful that Bendukidze fulfils the strategic interests of Russia," Khelashvili said. The question of privatising Georgia's main gas pipeline will again appear on the agenda, he added, "but it will be now more difficult for Bendukidze to propose it." 
Meanwhile, relations with Russia remain decidedly chilly. On January 28th, Tbilisi Mayor Gigi Ugalava, former chief of staff to President Mikhail Saakashvili, ordered that gas and electricity supplies be cut to the Russian embassy and GazExport, the export arm of Russian gas supplier GazProm, in retaliation for the alleged "energy blockade." After the Russian foreign ministry protested the move, power and heat was restored to the building, but the Georgian embassy in Moscow lost gas and power on January 30th in what Russian officials described as a failure of the local electricity network. 
At a January 31st press conference in the Kremlin, Russian President, Vladimir Putin, remonstrated with Georgia for accusing Russia of deliberately sabotaging the country's gas supply. While Russian specialists worked "day and night" in freezing temperatures to repair the pipeline, Georgian government officials "only spit at us," Putin said, media services reported. The worsening of relations "will not improve the situation of rank-and-file citizens," Putin said, adding that "Georgian authorities bear the responsibility for that." Putin termed the pipelines "a good bridge" for improving relations with Georgia, however. 
In a televised speech to the nation on January 31st, Saakashvili, however, gave little indication that Tbilisi is willing to accept Russia's arguments. The Georgian leader described the January 22nd explosions as aimed at "demoralizing" the Georgian population and at "the total collapse of the energy system." 
"But we have seen the exact opposite of this," he continued, adding that the government and energy specialists had allowed Georgia to overcome the crisis quickly. 

Azerbaijan: an unlikely solution to Georgia's energy woes 
As Georgia scavenges for non-Russian natural gas sources after losing its Russian gas supplies earlier this year, hopes are increasingly focused on energy-rich Azerbaijan to pick up the slack. The Caspian Sea state has already supplied Georgia with millions of cubic meters of gas from its own reserves in a bid to keep heat on and power stations operational. But though Georgia would like to receive even more Azerbaijani gas, some Baku analysts contend that Georgia's expectations may be misplaced. 
"Azerbaijan is like a guy of medium height who has found himself at an NBA (National Basketball Association) party," said Ilham Shaban, editor of the Turan Energy Bulletin. "It is funny to claim a serious place in the natural gas market when in the neighbourhood of Iran, Russia and Turkmenistan. The country's resources are more than enough to meet domestic demand and to sell some gas to neighbours, but too minor to compete with such strong neighbours." 
Under a bilateral mutual support agreement, the Azerigas State Company has supplied Georgia with 10 million cubic meters of gas since the January 22nd explosions that severed the Mozdok-Tbilisi main and reserve gas pipelines, the company's press service reports. Though the country itself is experiencing its own energy crunch amidst record low temperatures, Azerbaijani President, Ilham Aliyev, told a January 24th cabinet meeting that the decision had been made at the request of Georgian President, Mikhail Saakashvili, to deliver gas and electricity to "a friendly neighbour." In the days following the explosions, the Georgian government has attempted to spark an international outcry against what it perceives as a Russian-staged energy crisis. Russia is Georgia's sole source for natural gas, and supplies a considerable part of the country's electricity as well. When the co-ordinated explosions in North Ossetia damaged the widely separated high-voltage power line, as well as the main and reserve pipelines for transmitting gas from Russia, Georgians had to grapple with a heating and electricity shortage not seen in years. Later wind damage to a regional power line that supplies all of eastern Georgia only added to the troubles. 
In a televised speech to the nation upon his return from the World Economic Forum late on January 26th to deal with the crisis, Georgian President, Mikhail Saakashvili, named energy security as one of the foundations for the country's independence. "This is the last winter when it will be possible to launch an energy offensive against us. . . because a new gas pipeline [Baku-Tbilisi-Erzrum] will be launched in the fall, because we are building our own HPPs [hydropower plants] and creating our own power [transmission] lines," the online news site Civil.Ge reported Saakashvili as saying. 
In a January 9th op-ed in The Washington Post, Saakashvili called upon the international community to seek alternatives to Russian energy supplies, suggesting resources from Caspian Sea fields as among the most likely options. 
Azerbaijan has been presented as a key candidate for turning that option into a reality. Although Georgia and Kazakstan have discussed energy projects, that country, along with fellow Caspian Sea state Turkmenistan, is seen as far more dependent on Russia for access to European markets. 
Azerbaijan is currently supplying Georgia with some 2 million cubic meters (mcm) of gas each day. Chances for increasing that supply, however, appear limited. The gas and 70-100 megawatts of electricity that Azerbaijan is supplying Georgia each day is the most that it can do, Georgia's ambassador to Azerbaijan, Zurab Gumberidze, told the Georgian news agency Prime News on January 26th. 
As of January 29th or January 30th, Iran will begin supplying Georgia with gas via Azerbaijan, President Saakashvili announced in a televised cabinet session. "I think this is a very important breakthrough. And it should be understood in Russia as well that we now have an alternative," the online news site Civil.Ge reported the Georgian leader as saying. 
To date, Georgia is the only country in the region that depends on Azerbaijani gas. But Azerbaijan cannot meet Georgia's total demand until the South Caucasus Pipeline, which will deliver gas from Shah Deniz, the country's largest offshore gas field, to Turkey, comes online, most likely not until 2007. The existing infrastructure is too old and is able to deliver a maximum of 3 mcm daily. 
Shah Deniz has an estimated explorable yield of 675 bcm. However, the bulk of that total, 500 bcm, will not be available until 2033, Shaban forecast. Right now, Georgia is scheduled to receive 300 mcm annually from the field in return for allowing the gas to transit its territory en route to Erzerum, Turkey. 
Another tricky issue is Georgia's ability to pay for gas beyond the 300 mcm. Talks are currently underway between Georgia and Azerbaijan for the purchase of up to an additional 3 bcm of Shah Deniz gas, David Ingorokva, president of the International Gas Corporation, which oversees Georgia's gas transmissions, stated on January 20th, Georgian BS-Press news agency reported. The Georgian government, Ingorokva stressed, is ready to guarantee the payments and pay for gas upon delivery. 
However, some Azerbaijani experts are doubtful about Georgia's ability to meet this promise. "Georgia is an insolvent country," Riad Mammadli, chief analyst at the non-governmental organization Oil Research Centre, commented to Turan news agency in a January 19th interview. 
At a January 20th cabinet meeting, President Saakashvili blamed former President Eduard Shevardnadze and Aleko Gotsiridze, former president of the International Gas Corporation, who signed the Shah Deniz agreement, for selling Georgia short. Terming the pair "enemies of Georgia," Saakashvili characterized the 300 mcm of gas too small for Georgia's needs. "Only an enemy could do that," he concluded, BS-Press news agency reported. 
The analyst, Ilham Shaban, however, argues that Georgia, in fact, benefited from the agreement. "Georgia's transit fee was doubled at the expense of Azerbaijan's share in the project. Besides, the gas price in the barter deal [gas in exchange for transit service] with Georgia was calculated according to a very moderate regional price rather than the world market price," the expert said. 
But while Azerbaijan's status as an energy exporter may be attractive to Georgia, a lack of options for getting its gas to more distant foreign markets means that Azerbaijan could have difficulty competing with Russia as a major gas exporter, analysts say. 
After its recent gas clash with energy giant GazProm, Ukraine, with a population of 49 million, one of the largest European markets, was named as one potential market where Azerbaijan could challenge Russia's pre-eminence. Ilham Shaban, however, called the idea "nonsense." 

"You need a 300-kilometer-long trunk pipeline in Georgian on-shore territory and a 500-kilometer-long underwater pipeline in the Black Sea just to deliver gas to Ukraine," Shaban said. "With its huge demand, the country will never be satisfied with Azeri gas and has to maintain other suppliers. Besides, Ukraine needs gas at low prices which will never justify the investments in this kind of infrastructure." 
Nor is Western Europe likely to provide guaranteed demand for the huge volumes of gas required to make construction of a link between Erzerum and Western Europe cost-effective, he added. 
British Petroleum, which oversees the consortium running the Shah Deniz project, itself recognizes that limited foreign markets exist. At an April 2005 press conference, British Petroleum-Azerbaijan Vice President, Rob Kelly, noted that Azerbaijan itself, with an estimated annual demand of 5 bcm, will be the "best market" for Shah Deniz gas in the second stage of the project, when the largest volume of gas is scheduled to become available. 
The role of foreign energy companies in developing Azerbaijan's energy resources is another drawback, commented Inglab Ahmadov, director of the Public Finance Monitoring Centre. The country, he said, holds only "nominal" ownership of its explorable oil and gas resources, and Russian influence on the country is far from marginal. "Unlike Turkmenistan, Russia and Iran, Azerbaijan has already passed rights to the exploitation of its significant fields to Western companies. It is hard to imagine that the BP-led consortium will stand aside when the issue will be not only about world interests, but their profits." 
Nonetheless, Russia's "energy war" with post-Soviet countries will not leave Azerbaijan unscathed, continued Ahmadov. "It is the beginning of a more serious war, and Azerbaijan will definitely be involved." 

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ENERGY

UES triples electricity supply to Georgia 

Russian national electricity company UES has more than tripled electricity supplies to Georgia recently, New Europe reported.
Georgia is currently suffering from a major outage after heavy ice and bombings on Russian territory of a transmission line and a natural gas pipeline. Supply for Georgia "has reached the physical limit set by the capacity of the existing lines," UES, which owns electricity distributor Telasi in Tbilisi and other facilities in Georgia, said recently. Early on January 26th, ice damaged the Imereti transmission line, which links Georgia's Inguri hydro electric plant to the eastern and central parts of the country. As a result, in Tbilisi, only major public service facilities were being supplied with electricity. UES puts the electricity shortage in the capital at 350 megawatts. 
On January 22nd, a bombing in the Russian North Caucasus republic of Karachayevo-Cherkesia destroyed pylons on the Kavkasioni transmission line, which runs into Georgia. UES was sending up to 80 megawatts via the Salkhino transmission line and up to 25 megawatts to Georgia via the Dariali line. "This means that the total supply from the Russian Federation is 70 megawatts in excess of the volume that was provided before the act of sabotage on the Kavkasioni electricity transmission line on January 22nd and have reached the physical limit set by the capacity of the existing lines," the UES release said. Reconstruction of the Kavkasioni pylons has been speeded up.

Georgia hopes Kazakstan will join BTC project soon 

Georgia is hoping for active cooperation with Kazakstan as part of the Baku-Tbilisi-Ceyhan pipeline project, Georgian parliamentary Speaker, Nino Burjanadze, said. "We very much hope that Kazakstan will be actively involved not only in implementing this project, but in others too - involving gas transit ones," Burjanadze said after a meeting with Kazak foreign minister, Kasymzhomart Tokayev, Interfax News Agency reported.
The meeting with Tokayev addressed ways of expanding bilateral cooperation in a wide range of areas, she said. "We are working vigorously to help Kazakstan begin playing a more active role in resolving problems facing the Caucasus," the deputy said. Kazakstan has confirmed its plans to join the Baku-Tbilisi-Ceyhan project and sign an appropriate agreement in the near future. Talks on Kazakstan's role in the project were launched in November 2002.
A Kazak-Azeri inter-governmental agreement on the transportation of Kazak oil via the pipeline envisions the creation of an Aktau-Baku network to ship Kazak crude oil by tankers across the Caspian Sea and to subsequently pump it through the pipeline. A total of 7.5 tonnes of Kazak oil are to be pumped through the pipeline annually at the initial stage, with plans to increase the volume to up to 20 million tonnes.
The 1,767-kilometres Baku-Tbilisi-Ceyhan pipeline crosses Azerbaijan (443 kilometres), Georgia (248 kilometres) and Turkey (1,076 kilometres). It has a throughput capacity of 50 million tonnes of oil a year. Construction started in April 2003. The project's participants are BP (30.1 per cent), the Azerbaijan State Oil Company (25 per cent), Unocal (8.9 per cent), Statoil (8.71 per cent), TRAO (6.53 per cent), ENI (5 per cent), Itochu (3.4 per cent), ConocoPhillips (2.5 per cent), INPEX (2.5 per cent), Total (five per cent) and Amerada Hess (2.36 per cent).

Georgia to diversify energy sources 

Georgia is to diversify its sources of energy in order to lower the country's dependency on Russian gas, Georgian President, Mikhail Saakashvili, said. "Russia exerted heavy pressure on Georgia and Ukraine with the aim of causing problems in their economies," Saakashvili said. "We do not want any confrontations with Russia, however, will stick to our policies until the end," he said and added that in the given situation it is in Georgia's interests to diversify its sources of energy, he said. "This is the first winter in 15 years that Georgia is not experiencing a shortfall in energy, but we do need alternative sources of energy," Saakashvili said. Georgia has several options for diversifying its energy sources, including "several projects in which Kazak investors may participate," he said. "I am sure that Kazak capital will be involved in the implementation of a programme aimed at developing the Georgian hydroelectricity industry," Saakashvili said. A source at national oil company Gruzneft said that oil production in Georgia totalled 66,700 tonnes in 2005, down 31.6 per cent, Interfax News Agency reported.
Currently there are two Georgian companies, part of Gruzneft, and two foreign companies - Canadian-British Canargo Energy and the US company Frontera Resources, through its joint venture Frontera Eastern Georgia - producing oil in the republic. Production by Canargo Energy, which is developing the Ninotsmin oil field, fell 50 per cent to 25,000 tonnes in 2005 and Frontera Eastern Georgia produced 5,700 tonnes of oil last year. The Georgian company Joris Valley, previously a joint venture between Gruzneft and the Swiss company National Petroleum Limited, produced 22,400 tonnes of oil, and the oil production department of the national company produced 13,600 tonnes. At the same time the source said that gas production in the country more than doubled last year to 14.8 million cubic metres, all of which was produced by Canargo. Georgian oil production fell 30.1 per cent to 97,600 tonnes in 2004. Gas production in 2004 fell almost 60 per cent to 6.1 million cubic metres.

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TRANSPORT

Georgia to tap transport and tourism potentials 

In a presentation report, Minister of Economic Development, Irakli Chogovadze, said that the government would entrust state funds and attract private investment to the transport sector. He went on to say that this year the transport sector would be the main concern of the government, New Europe reported.
He highlighted Georgian Railways, Poti and Batumi Ports has three key activities that are pillars of bringing dry and liquid cargo in and out of Georgia. "The government's economic policy should be directed to raising the cargo turnover index," Chogovadze said. He recalled that last year the railway's turnover index exceeded 21 million tonnes and both Poti and Batumi ports had a turnover of 38 million tonnes. Besides the transport sector, 2006 would also be a year for prioritisation of the development of the road infrastructure. The main roadways to be improved are the Tbilisi-Akhalkalaki-Armenia highway that could connect Georgia with Turkey and Armenia. The economic development ministry predicted that Kazakstan and China might be interested in this route. Attention would also be paid to air transport development. The government will continue its Open Skies Policy in an effort to attract new carriers to Tbilisi. In 2006 the minister reported the registration of airlines will be simplified in order to achieve this.

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