Books on Georgia
Update No: 301 - (30/01/06)
The Russian bully-boy tactics back-fire
Putin has a genius for alienating former republics of the Soviet Union. He has
certainly done it with Ukraine. And he has certainly done it by proxy and
directly with Georgia.
The gas crisis unleashed by Gazprom on New Year's Day is of course the issue. It
has had an arresting sequel.
Saakashvili Says 'Blackmailer' Russia Sabotages Georgia
President Mikhail Saakashvili said on January 22nd that the explosion of two gas
pipelines on the same day was a "heavy sabotage" against Georgia
"by the Russian Federation" and described Moscow as "an
Gas supply to Georgia was halted as a result of blasts which occurred on two
pipelines in North Ossetia on January 22nd, a Sunday as it happened, making it
Two simultaneous explosions at 3am cut through both tubes of a gas pipeline just
on the Russian side of the border with Georgia. Another blast struck an
important electricity pylon nearby nine hours later. The three blasts left
Georgia with limited supplies of Russian gas for heating. It also meant Georgia
could only supply about 40% of the electricity demanded by its 3 million
inhabitants in temperatures of -5C (23F).
"Three major energy arteries have been cut off: high-voltage power line
Kavkasioni [delivering electricity from Russia] has been exploded. Sabotage has
damaged two gas pipelines in Russia… Georgia is experiencing a heavy sabotage
by the Russian Federation," Saakashvili said on his televised address to
He said that Russian officials' response and explanations to the current
situation are "absolutely unsatisfactory and contradictory. Russia has
doubled its gas price for Georgia - a decision which lacks any market logic. We
have to deal with an unprincipled blackmailer, I can not call it [Russia]
otherwise," Saakashvili said.
"Georgia is constantly experiencing pressure from Russia," he said.
"Threats like these were heard from the Russian politicians: you will be
left without heat, without electricity… And this happened when there is the
coldest winter in Georgia," Saakashvili added.
He said that against the background of persisting blackmail Russia has demanded
from Georgia that it sell its trunk gas pipeline. "We are ready to consider
any kind of commercial proposal, but we will not do anything in case of
blackmail," Saakashvili said. "Those in the Kremlin should understand
that they will fail to achieve something with blackmail," he added.
Saakashvili also said that he has ordered to halt courses in the schools and
high education centres before restoration of gas supply.
Saakashvili may be wrong but…
It is understandable that Saakashvili immediately blames Russia for the
sabotage. But it may have been the work of Chechen or other Caucasus terrorists,
Islamic or otherwise. There is nothing that they would like better than to put a
spanner in the works between Moscow and Tbilisi.
Sergei Prokopov, a spokesman for Russian prosecutors, said the blasts might be
the work of "extremists bent on worsening Russian and Georgian
relations". He could not rule out the involvement of Chechen-linked
militants who are active in Russia's North Caucasus.
The tone of the president's criticism was intemperate to say the least. But then
he may well have information he cannot disclose. The following reflections by
Saakashvili put the crisis in context.
Saakashvili on the gas crisis
Manipulation of energy prices and supplies is a critical tool of those in
Russia who believe that gas is the best means of political influence, President
Mikhail Saakashvili of Georgia said in his article published by the Washington
Post on January 9th. His words are worth reporting in full, both because of what
he says and because of whom he is.
Saakashvili said that a momentary crisis involving halting of gas supply to
Ukraine (on January 1st-2nd) "should have wide-ranging ramifications for
the economic security of Europe and raise questions about any notion of a role
for Russia as a reliable energy supplier." He said that this crisis was a
clear message for the EU that "there can be no energy security when an
undependable neighbour is willing and able to use its energy resources as a
weapon in political influence."
"The fig leaf of "market rates" that Russia traditionally uses as
cover to jack up prices or to cut off energy supplies is disingenuous at best.
There is nothing "free market" or "market rate" behind
Russian energy prices. Manipulation of energy prices and supplies is a critical
tool of those in Russia who believe that hydrocarbons are the best means of
political influence. In Georgia, both Abkhazia and South Ossetia, two areas that
are outside of our control and whose separatist authorities are directly
controlled by Russia, receive natural gas free -- hardly a practice free-marketeers
would applaud," Saakashvili said.
The Georgian President also criticized Russia for "scuttling the deal"
between Georgia and Kazakstan wherein the latter agreed to deliver gas to
Georgia, but the Russian energy giant Gazprom refused to transit it via Russia.
Saakashvili said that Georgia is "moving aggressively" to diversify
its energy sources and transportation networks.
"The recently completed Baku-Tbilisi-Ceyhan pipeline, which brings natural
gas from Azerbaijan to Turkey and crosses Georgia, is a critical piece of this
effort. For Europe, the Black Sea states hold the key for new routes to bring in
energy supplies from the Middle East and Central Asia. We are willing to work
closely both with our European partners and with Russia to make the whole system
transparent, predictable and immune to -- or insulated from -- political
shocks," Saakashvili said.
Saakashvili also spoke about creation of the Community of Democratic Choice and
Russia's position with the newly created union. 'We believe it is critical to
our future safety and economic security that we integrate ourselves with
Euro-Atlantic structures, which is why we are working to gain membership in NATO
and the European Union. We are constantly striving for good relations with our
giant neighbour, but the Russian government's recent actions are yet another
example of that country's attempts to influence nearby countries,' Saakashvili
As we have just quoted him, the key statement, bitterly expressed in this
article, is this: 'Manipulation of energy prices and supplies is a critical tool
of those in Russia who believe that hydrocarbons are the best means of political
influence. In Georgia, both Abkhazia and South Ossetia, two areas that are
outside of our control and whose separatist authorities are directly controlled
by Russia, receive natural gas free...'
The geopolitical spin-off for the Kremlin
That is the rub. It looks as if Russia is wanting to suborn Georgian
independence. It will not succeed. It is rather surprising that an intelligent
man like Putin thinks he has a chance of success by bully-boy tactics.
Of course his aim may be more modest, simply to solidify the adhesion of the
Abkhazians and the South Ossetians to Russia by demonstrating their good luck in
having such a munificent patron.
The Russians don't just want as much of their previous empire back as they can
get. They want to be loved by them for coming back!
The route to the West lies via the East - Kazakstan
Georgia's economy is still a basket case, as Saakashvili well knows. The EU
will not want it as a member until it is clearly on the mend. Energy supplies
are vital here. He sees the solution in the East.
This is where energy-rich Kazakstan comes into the picture. The Georgian
President, accompanied by Foreign Minister Gela Bezhuashvili and other
officials, arrived in Astana on January 10th to participate in the inauguration
of President Nursultan Nazarbayev.
Kazakstan is a reliable economic partner, which depends less on "political
caprices," President Saakashvili said after talks with his Kazak
counterpart in Astana on the same day.
"Unfortunately we, as well as many other countries of the region, failed to
finally agree on several issues with Russia [in the energy sector]; but we have
a very good cooperation in this regard with Azerbaijan and Kazakstan…
Kazakstan is an investor, which has economic goals and is less dependent on
political fluctuations and political caprices, that is very important,"
Saakashvili told reporters after the talks with Nazarbayev.
Kazak state-owned company to buy TbilGazi
He must have had in mind a path-breaking deal done just before the crisis
broke. The Georgian Economy Minister and top executive of the Kazak KazTransGaz
company had already signed a memorandum in Tbilisi on December 26th, which
stipulated that the Kazak state-owned company will buy 100% of shares of the
capital city Tbilisi's gas distribution company TbilGazi.
The amount of the deal is not yet agreed, but according to the memorandum the
Kazak company will take over TbilGazi after the bankruptcy procedures of the
latter are over, expected to be by February 15th. "This is a very important
[deal] for us. It means that the state budget will no longer subsidize TbilGazi,"
Zurab Nogaideli, the Prime Minister, told reporters.
Economy Minister Irakli Chogovadze did not specify the amount of the Kazak
company's planned investments in the TbilGazi, but said that "hundreds of
millions" of US dollars will be invested.
Kazakstan Eyes Georgia's Transit Routes
This takes one back to the most important diplomatic initiative of 2005 for
Georgia, the visit of the Kazak president in the autumn. Nazarbayev said on
October 3rd in Tbilisi that Kazakstan's major interests in their relationship
with Georgia is the latter's transit capabilities to transport Kazak oil and
other freight to Europe. Saakashvili hailed relations with Kazakstan as
"free from any problems" and supported the Kazak bid for OSCE
Chairmanship. Saakashvili hosted Nazarbayev in Batumi, Adjara Autonomous
Republic, where the Kazak leader toured the local port.
"Economic cooperation [with Georgia] is of major interest for Kazakstan. On
the shores of the Caspian Sea we have built the largest port in the Caspian Sea
- Aktau - which is currently capable of handling 15 million tons of oil [per
year]… Another port of this kind is being constructed, designed to obtain
access from Kazakstan via the Caucasus and Black Sea to Europe. To become
acquainted with the [Black Sea port's] capacity was very important in this
regard and I want to thank Mikhail Saakashvili and the Adjarian leadership for
giving us the opportunity to see the capabilities [of the Batumi port],"
Nazarbayev said at a joint news conference with Saakashvili after talks in
"Secondly, the railway link between Baku [Azerbaijan] and the Black Sea [in
Batumi] is also very important and interesting for us in respect to
transportation of ferrous and non-ferrous metals and other freight," the
Kazak President added.
While visiting Batumi, Nazarbayev noted that Kazakstan also plans to transport
its oil through the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.
According to the Georgian Economy Ministry, Kazakstan exported a total of 3,300
tons of freight through the Georgian railway to the west in 2004. The total
amount of cargo transported through the Georgian railway, including those
imported to Kazakstan via Georgia, totalled 38,000 tons in 2004.
Kazakstan transported a total of 332,800 tons of oil through the Georgian
railway in 2004. Saakashvili said that this figure will double in 2005. The
Georgian port in Poti handled a total of 15,800 tons of Kazak freight in 2004.
President Saakashvili said at the joint news conference in Tbilisi that a new
terminal and port in Kulevi, which is currently under construction, will make it
possible to increase these figures.
But bilateral trade between the two countries is low. According to the Georgian
Economy Ministry, bilateral trade decreased in the first half of 2005. Total
trade volume was up to US$30 million in 2004, against US$8.7 million in the
first half of 2005.
But officials say that recent investment projects being implemented by the Kazak
side in Georgia can help increase these figures as well.
Kazak BankTuranAlem (BTA), which holds assets of US$5.5 billion, has recently
opened a branch office in Tbilisi and launched, in cooperation with its local
partner the Silk Road Group, the implementation of a US$100 million investment
project, involving reconstruction of the hotel Iveria, in downtown Tbilisi, into
a five-star hotel, as well as renovating all of Republic Square, where the hotel
is located. The two Presidents visited Republic Square on October 3rd and
attended a presentation of this project.
Nazarbayev said at a news conference that Kazakstan is also interested in
investing in Adjara's tourism industry.
The two Presidents also discussed a possible supply of Kazak gas to Georgia,
which desperately seeks an alternative gas supply source to decrease its
dependency on Russia in this regard. But in the event that Georgia begins
importing gas from Kazakstan, Russia would still play the role of transit
country. Nazarbayev said that he thinks Russia will not oppose this project.
Saakashvili said that all three states - Georgia, Russia and Kazakstan - will
benefit from the gas supply from Kazakstan. "I think Russian and Georgian
interests coincide here, as Russian enterprises also operating in Georgia
consume gas," Saakashvili said, which may prove the key point.
The blessing of the Kazak patriarch for the Georgian path
Both, Saakashvili and Nazarbayev spared no words to praise the reforms going
on in each others' countries. The Georgian President said that the Kazak
experience of economic reforms is an example for Georgia.
"We have the most pleasant experience of relations with Kazakstan and this
has been observed through the past decade. Kazakstan never creates any problems
for anyone… And Kazakstan's participation in international processes is
welcomed and we count on them [the Kazak side]," Georgian President
Saakashvili said at the joint news conference, adding that Georgia supports
Kazakstan's OSCE Chairmanship bid in 2009.
Nazarbayev, who has led Kazakstan since 1989 and who is accused by opponents of
suppressing any dissent, has, on several occasions, expressed scepticism towards
the regime changes which took place in Georgia and Ukraine through peaceful
revolutions. Autocrats are not fond of revolutions anywhere; they put dangerous
ideas in people's heads.
But in Tbilisi he said: "Now I am convinced that there is a stable
situation in Georgia… I am now convinced that the Georgian authorities are on
the right path of [economic] reforms. I was pleasantly surprised."
During this visit, Georgian and Kazak officials signed a number of bilateral
agreements, including one outlining economic cooperation targets for 2006-2010.
Georgian-Kazak relations are alive and well.
Georgia to consider US interests in gas pipeline sale
Georgian Economy Minister Irakli Chogovadze said on January 9th that Georgia
will consider the US interests in respect of possible privatisation of the
country's gas pipeline system.
"We follow the principle: never say "never." But no decision has
been taken yet. This issue is related to the interests of our strategic ally and
Georgia should take into account the interests of its strategic partner - the
United States," Chogovadze said at a meeting, Interfax News Agency
Georgia will take into account the advantages and disadvantages before the gas
pipeline system which is a political-economic issue.
The US urged the Georgian authorities to exercise caution while taking decisions
on selling gas pipelines.
Commenting on whether Russian oil giant Gazprom would pay US$200 million for the
gas pipelines, Chogovadze remained silent. Georgia and the United States signed
a US$295.3 million, five-year aid deal in frames of the Millennium Challenge
Account in September. US$49.5 million is envisaged for rehabilitating the gas
pipeline system in frames of this aid.
Georgia hopes for major Kazak investment
Kazakstan's investment in the Georgian economy may reach one billion Euro,
Georgian foreign minister, Gela Bezhuashvili, said after a meeting with his
Kazak counterpart, Kasymzhomart Tokayev, in Astana, Interfax News Agency
"Kazakstan has invested nearly 300 million Euro in Georgia. If all of our
planned projects are put into practice, the amount of investment in the Georgian
economy will be up to one billion Euro," he said. Kazakstan is currently
the biggest investor in Georgia, Bezhuashbili said. Mukhtar Ablyazov, chairman
of the Kazak commercial bank TuranAlem's board of directors, said that a group
of Kazak investors is ready to fund the construction of a new plant in Georgia
capable of refining five million tonnes of crude oil annually. "The
government of Georgia is considering a 350-million Euro project to build a
facility on the territory of the country capable of refining five million tonnes
of crude oil a year. A group of Kazak investors is ready to provide financing
for the project. A decision on the project will be taken within a month and made
public in two months," said Ablyazov, who attended talks with Georgian
President, Mikhail Saakashvili, in Astana on January 11th, "The
construction of such a refinery may begin this year" if Georgian
authorities approve the project, he said.
Georgian economy minister visits Hong Kong
Georgian Economy Minister, Irakli Chogovadze, visited Hong Kong recently to
participate in the Sixth World Trade Organisation (WTO) ministerial conference,
Interfax News Agency reported.
Chogovadze decided to discuss the issue of deploying Georgian customs officers
at the Roki tunnel, which links breakaway South Ossetia with the Russian
Federation, as well as at the Adleri-Leselidze border checkpoint in breakaway
Abkhazia. Recently, Chogovadze said that Russia will have to meet a number of
Georgia's demands if Moscow wants to secure Tbilisi's consent on Russia's
membership into the World Trade Organisation (WTO).
However, all decisions regarding a country's WTO membership require approval by
consensus among all member states. A session of the Georgian-Chinese
Governmental Commission for Economic Cooperation will also be held in Hong Kong
to discuss deepening of economic ties between China and Georgia. The government
officials of both the countries will discuss prospects for closer cooperation in
transit, investment and tourism branches, Natia Turnave, deputy minister of
economic development of Georgia said.
MINERALS & METALS
New owner to pump US$150m into Georgian steel mill
The locally registered Energy Industry Complex, which is controlled by Asian
Global Opportunity Fund (AGOF), intends to invest more than US$150 million in
Georgia's Rustavi Iron and Steel Works, Malkhaz Alborashvili, the Rustavi
plant's receiver, said, Interfax News Agency reported.
Energy Industry Complex bought the assets of a company called Tudzhi-XXI, to
which the Rustavi plant's pig iron and sintering plants have been spun off, for
US$2.5 million, Alborashvili said.
The new owners have been working on plans to revive Tudzhi-XXI since 2004 and
have already invested more than US$15 million in it. They have set aside two
million laris in wages for employees and paid more than 2.5 million laris in
taxes. Alborashvili said Energy Industry Complex planned to make the plant fully
integrated by using iron ore mined at the Dashkesan field in Azerbaijan.
"Talks with the Azerbaijani side are nearing completion," he said.
Energy Industry Complex bought most of the Rustavi plant's assets at an auction
in the fall for US$22 million. It plans to create up to 8,000 jobs in the years