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Georgia Rejects Gazprom Deal

November 09, 2006
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Georgia rejected an offer from Russian state gas monopoly Gazprom yesterday informs the Georgian Security Analysis Center press release.

The proposal would have handed control of Georgia's gas distribution infrastructure to Russia. Otherwise, starting from 2007, Georgia will have to pay the highest price in the CIS, $230 per 1,000 cubic meters of Russian gas, the average price that Russia charges European countries, such as Germany and Italy. If no contract is signed, supplies will be cut on January 1, 2007.

Neighboring Armenia accepted the $110 price until the end of 2008 in exchange for its energy distribution assets. Unlike his Armenian colleague, Georgian Prime Minister Zurab Nogaideli rejected the offer: "I want to repeat once again-we are not going to bow to blackmail," Reuters reported. Tbilisi says Moscow is using gas as a political tool to punish Georgia for its pro-western politics. Gazprom says the increase is purely commercial.

Georgian Security Analysis Center (GSAC) asked the Ministry of Energy and some leading foreign affairs experts to comment:

Ministry of Energy of Georgia: "Negotiations with Russia are not finished; they are still going on. The proposed price of $230 per 1,000 cubic meters is not acceptable for Georgia. Negotiations about gas are going on with Azerbaijan, Turkey, BP and Iran. So, at this time, it is early to say something more."

"Sheer extortion"- said David J. Smith, Director, Georgian Security Analysis Center. Moscow's monopoly pricing is a tool to wrest control of neighboring countries' strategic assets, thereby pulling them into the Kremlin's "liberal empire." In Armenia, RAO-UES owns 80% of the country's electricity generation capacity and all of its electricity transmission system. Gazprom has just taken control of Armenia's gas distribution infrastructure and the Iran-Armenia gas pipeline in exchange for cheaper gas-for only two years. And, part of Moscow's Armenian deal is to restrict it from any possibility of delivering gas to Georgia. "Just say no!"

Professor Alexander Rondeli, President, Georgian Foundation for Strategic and International Studies: "This Gazprom attempt (and Gazprom is the same as Kremlin) is one of the powerful leverages which Moscow is using to suffocate the current Georgian leadership for its Euro-Atlantic aspirations."

"Gazprom is a dragon that is unlikely to stay content with the gas distribution assets"- stated Professor Vladimer Papava, Member of Parliament of Georgia; Senior Fellow, Georgian Foundation for Strategic and International Studies. "In future it may ask for more Georgian assets, or even some enterprises. Moreover, the deal does not mean keeping the gas price low in the long run-the assets have a fixed price that could cover only the current cost of the gas. Gazprom is using the same scheme in Armenia and Belarus. The Georgian government should be more resistant under such circumstances."

"Gazprom's initial announcement of an extortionate $230 price was timed to actually increase the tensions"- said Vladimir Socor, Senior Fellow, The Jamestown Foundation. "A hike of such magnitude adds a further dimension to Russia's economic blockade and political assault against Georgia."

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