Georgia's Neighbours Eye Plan to Sell Key Pipeline

Georgia is close to allowing the privatisation of a major gas pipeline, risking a battle over the crucial transit link that could stir up tensions across the south Caucasus.

The North-South Pipeline, which runs from Russia through Georgia to the Armenian border, and supplies consumers in both the latter countries, is currently on a list of strategic assets that cannot be sold. However, the Georgian parliament recently approved a second reading of a bill that could, if finally passed, allow the privatisation to go ahead.

The opposition was furious about the bill as it fears that the most likely buyer would be Russia, with which Georgia fought a brief war in 2008, and which has recognised separatist Abkhazia and South Ossetia as independent states despite strong objections from Tbilisi.

Keen to avoid a purchase by Russian energy giant Gazprom, the United States spent 35 million US dollars on repairing it after Georgia first suggested privatising it. Although Tbilisi would have to repay that investment if it decided to sell, the government is nevertheless pushing for privatisation.

When the bill was being debated in parliament on July 13, Giorgi Akhvlediani, a member of the opposition Christian Democrats, said, “You draw your sword to fight with Russia, while with the other hand you give it all these strategic assets, or you’re raising the possibility of doing so.”

Government supporters attempted to allay such fears, while Lasha Tordia, one of those who drafted the bill, argued that even if Gazprom did buy the pipeline, it would not spell disaster.

“I don’t want you to think that I’m in some way politically inclined towards the Russian Federation,” he said. “But if you want my opinion, it wouldn’t create any problems.”

Gazprom has so far refrained from commenting on the pipeline, saying it will wait for the bill to go through before considering whether to approach the Georgian government.

Russia is not the only gas producer watching the bill's progress with interest.

Mahir Mammadov, the head of SOCAR Energy Georgia, a subsidiary of Azerbaijan’s state oil and gas company, said on July 14 that his company, too, was interested in the pipeline.

Government officials in Azerbaijan have so far avoided commenting on the issue, while energy experts there say a purchase would not make much commercial sense.

“I don’t think Azerbaijan would gain materially by buying shares in it,” Qubad Ibadoglu, head of the Centre for Economic Investigations in Baku, said. “The transit fees don’t generate much income, and the pipeline is old and needs a lot of investment in repairs.”

At the same time, he said, a majority stake in the pipeline could prove a useful geopolitical tool for Azerbaijan, in the context of the continuing stand-off over Nagorny-Karabakh, which is controlled by Armenians but is internationally considered part of Azerbaijan.

“Azerbaijan would gain a lever with which to put pressure on Armenia. It might not be a big lever, but it would be something,” he said.

That possibility has caused some alarm in Armenia, which is dependent on Georgia for almost all its land-based trade, as its borders with Azerbaijan and Turkey are closed, and its only other route out is through a short frontier with Iran.

In Armenia, there are concerns that Azerbaijani ownership of a stake in the North-South gas route would pose a threat to national security.

“Relations are not that smooth with our neighbour Georgia, which for various reasons does not always allow Russian gas to transit its territory to Armenia,” said Stepan Safaryan, head of the Heritage party in parliament. “Therefore, if our opponent Azerbaijan held some kind of stake, it would use however many shares it owned to advance its aims. If it owned ten or 15 per cent, it would play anti-Armenian games, and if they owned 100 per cent, then it would completely close off the transit.”

For Georgia, selling the pipeline to Gazprom could mean cheaper prices for Russian gas, as has been the case in other post-Soviet states that sold their transit systems to Moscow. However, since most of the two billion cubic metres of gas that Georgia buys every year comes from Azerbaijan, that factor is not as significant an incentive as it would otherwise be.

“The proportion of Russian gas on the Georgian market, even in the best-case scenario for the Russians, is not going to exceed 20 per cent. It follows that Georgia does not have a very great economic interest in selling the pipeline to the Russians and reducing the price of Russian gas,” said Revaz Sakevarishvili, an economic commentator with Radio Liberty.

Referring to Russia’s strong support for and presence in Abkhazia and South Ossetia, he said, “Georgia has even less political benefit to gain from handing over a gas pipeline to a country that is occupying our territory.”

Ana Kandelaki is a freelance journalist in Tbilisi. Naira Melkumyan is a freelance journalist in Yerevan. Shahin Rzayev and Samira Ahmedbeyli are IWPR staff in Baku.