Books on Georgia
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
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
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
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
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
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
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
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."
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
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.
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
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.