Georgian Energy Passes to Russia

Russia's move into Georgia's electricity and gas markets signals a major new strategic shift.

Georgian Energy Passes to Russia

Russia's move into Georgia's electricity and gas markets signals a major new strategic shift.

The American company running the electricity system here has sold its shares to the Russian power giant UES, sparking a passionate row about the fate of the country's energy sector and Russia's increasing economic role in Georgia.

UES boss Anatoly Chubais arrived in Tbilisi this week to talk over the final details of a deal with the US firm AES. His visit follows hard on the heels of another partnership agreement with the Russian gas company Gazprom.

The two deals mean that Georgia will become much more dependent on Russia for its energy needs - something that could weaken the country's close strategic relationship with the United States. Georgia also plays host to American troops and is due to have two major pipelines to the West on its territory.

After a series of meetings in Tbilisi, Chubais, however, was careful to reassure Georgians that that he could guarantee what most concerned them - a stable power supply and no hike in prices. "The coming winter will be absolutely reliable and stable in Tbilisi and not only here," he told reporters on August 6.

AES owned 75 per cent of the shares in its subsidiaries AES-Telasi, which supplied electricity to Tbilisi and several power stations, and AES-Trans-Energy, which delivers energy to Turkey. All this now passes to UES. The other 25 per cent of these companies belongs to the Georgian state.

The talks come ten days after Georgia signed a strategic partnership agreement with Gazprom on July 21, which gives the Russian company a major role in the distribution, marketing, operation and modernisation of Georgia's gas pipeline system.

Gazprom will now control the import of gas into Georgia and has part ownership of seven gas-distribution stations, including the one in Tbilisi. Discussions are also said to be underway about the sale of the Inguri hydro-electric power station.

Georgia's opposition parties have angrily accused President Eduard Shevardnadze of selling out the country's strategic interests to the Russians, just as he faces difficult parliamentary elections this coming November.

"Clearly, Shevardnadze's clan has received guarantees of support from the Kremlin for the elections," charged leading opposition politician, former justice minister Mikhail Saakashvili.

Others say that the Georgian government, which has run up huge debts to Russian energy suppliers and relies heavily on Russian gas, simply had no choice.

"When you have no alternative and just one supplier of gas and electricity [Russia], with whom you have a difficult relationship, then you have no option but to give in to the supplier because there's no other solution," Roman Gotsiridze, head of the Georgian parliament's budget office, told IWPR.

AES began working in Georgia in December 1998 and since then has invested more than 260 million US dollars in the country's electricity system. Although there were great hopes at the coming of an American company, Georgians have mostly been disappointed at continuing power shortages and AES complained of encountering systematic corruption.

The American embassy in Tbilisi issued a statement, expressing regret about AES's departure and hinting at the problems it faced. "The US is sorry that AES Corporation of Arlington, Virginia, has decided to sell its assets in Georgia. But we understand the commercial reason for the decision. AES's action reflects the difficult investment climate in Georgia," it said.

The manner of AES's departure has led to top-level recriminations. Speaker of parliament Nino Burjanadze accused the government of failing to inform parliament about the privatisation of a major national strategic asset.

But Shevardnadze put the blame on AES, alleging that it had not even informed the government about its plans.

"Like all other citizens of Georgia, I was outraged by the completely unacceptable behaviour of the former owner of Telasi, which refused even to inform us about its illegal or secret talks about the sale of a strategically important company," Shevardnadze said in his weekly radio interview.

AES responded, however, that the Georgian government and president first knew about the intended sale last year.

The opposition also alleges that the July 21 deal with Gazprom - many of whose details are not yet in the public domain - was struck without proper consultation.

"This is a very dangerous and disturbing decision and if [energy minister David] Mirtskhulava really signed an agreement on July 21 without telling the public or parliament that is grounds for Mirtskhulava to resign," said opposition politician David Gamkrelidze.

Pro-western leader and former speaker of parliament Zurab Zhvania was more worried about the strategic implications of a deal with Gazprom. "The government is under an obligation not to allow Russian influence to grow, otherwise it we can say that Georgia has no government," he said.

And Akaky Asatiani, leader of the Traditionalists party, called the Gazprom agreement "an energy Treaty of Georgievsk" - a reference to the treaty signed in July 1783 under which Georgia became a protectorate of tsarist Russia.

Pro-Russian politicians accused their pro-western rivals of not facing up to reality.

"What is there to discuss, don't you see what state the country is in?" asked former Communist leader Jumber Patiashvili. "The main thing is that the people have gas and electricity and we have always received our gas from Russia."

The Americans, however, are clearly worried about the Gazprom deal and the implications it has for the Baku-Erzerum gas pipeline, which will pass through Georgia and is scheduled to open in 2006. Along with the Baku-Tbilisi-Ceyhan pipeline, it as much a political as an energy project.

"We definitely need an independent outlet to world markets in order for the region partially to leave Russia's sphere of influence - and that is only the Georgia-Turkey route," said oil and gas expert Teimuraz Gochitashvili.

Ambassador Steven Mann, the US's main adviser on Caspian energy issues, visited Tbilisi in early June to voice his worries about the deal and its implications for the Baku-Erzerum line which will carry gas from the Shah Deniz field in the Caspian.

"This could kill off Shah Deniz," Mann told IWPR in June. "And no one should forget that the Shah Deniz and Baku-Ceyhan projects are being implemented jointly and in coordination, so a threat to one puts the other at risk, and I mean Baku-Ceyhan."

Since then Washington has been quiet about the Gazprom deal, although President Shevardnadze discussed it with US ambassador Richard Miles on July 29. The president has insisted that the new agreement will not undermine his country's commitment to the new Caspian pipelines.

In any case, Shevardnadze seems to have made the calculation that the population is more concerned about stable energy supplies than the country's perceived strategic orientation towards Washington or Moscow.

"From which country can we import the amount of natural gas the country needs," he asked in his radio interview. And he added, "America is far away and it's impossible to brings its energy resources to Georgia."

Lika Basilaia is a freelance journalist based in Tbilisi

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