The Georgian leadership announced it may consider selling the country’s major gas pipeline network, as the Kremlin-controlled energy giant Gazprom says it waits for Georgia to name a bidding sum. Experts say Georgia should be cautions while considering this deal, as the country’s security is at stake.

Georgian Energy Minister Nika Gilauri outlined Tbilisi’s position over the possible deal after a government session on December 28. He said that privatization of the gas pipeline system “is under consideration but no final decision has been made yet.”

“The Georgian government’s position is that we are considering the possibility of this [privatization]. If there is a guarantee to receive cheap gas for the next 25 years, or a guarantee that the gas pipeline will be returned [back to Georgian ownership] in case of a violation of contract, then of course we will consider [this privatization],” Energy Minister Nika Gilauri said after the government session.

Georgia’s trunk pipeline receives gas at Georgia’s northern border with Russia, transports gas to Georgian wholesale customers and transits gas to Armenia.

Gazprom, the company which controls a quarter of the world’s gas reserves, will increase the price of gas for Georgia from the current USD 63 to USD 110 per 1000 cubic meters starting from January, 2006.

This decision was described by officials in Tbilisi as “political pressure.” Georgia now wants guarantees that the price will not go up further in coming years.

Tbilisi also wants to receive 10% of all gas transited from Russia to Armenia via Georgia as ‘payment.’ But Gazprom prefers to pay cash.

Alexander Ryazanov, Gazprom’s top executive, said after two-hour talks with Georgian PM Zurab Nogaideli in Tbilisi on December 20 that issues related with the privatization of the gas pipeline system, as well as with transit tariffs, will be discussed in the first quarter of 2006.

“We would like to return to discussions over the purchase of the Georgian gas pipeline system – at least the purchase of the gas pipeline which transits our gas to Armenia,” Ryazanov said.

Gazprom’s proposal also includes setting up a joint venture “for exploitation and development of Georgia’s gas transportation system.”
Davit Morchiladze, the resident representative of Gazprom in Georgia, said on December 28 that the Russian company is now waiting for Georgia’s proposals on price.

“Any figure will be considered by Gazprom. When a price is agreed, we shall discuss whether it is possible to carry out a privatization of the pipeline or not,” Morchiladze said.

This is the second occasion that debates about the possible privatization of the gas pipeline system have in 2005.

President Saakashvili announced in February, 2005, that talks were underway with Gazprom over the privatization of the main gas pipeline network. Following this announcement, the United States called on Georgia to exercise caution when making a final decision.

As a result, during consultations which were held between the Georgian and the U.S. sides to outline priorities of the U.S.’s major assistance program – the Millennium Challenge Account (MCA) –  it was decided to allocate USD 49.5 million towards rehabilitating the gas pipeline network.

Georgia and the United States signed a USD 295.3 million, five-year aid deal in frames of the MCA in September and USD 49.5 million is envisaged for rehabilitating the gas pipeline system.
 
But by signing this agreement, Georgia has undertaken the binding commitment not to sell its gas pipelines until the expiration of the agreement’s term – 2010.

“Otherwise the financial support [in frames of MCA to rehabilitate pipelines] will be ceased,” Lasha Shanidze, Chief Executive Officer of the Millennium Challenge Georgia Fund, told Civil Georgia.
Some observers think that the Kremlin-controlled Gazprom is largely driven by politics.  There is concern that if Georgia sells the country’s gas pipeline system this will lead to further dependence on Russia.

“Gazprom has lobbyists in Georgia who push the country’s authorities towards the wrong track, which might lead to a controversy between Washington and Tbilisi,” Gia Khukhashvili, an economic expert, told Civil Georgia.

During these recent debates about the possible privatization of the gas pipes, the Georgian authorities seem to be cautious while making statements about this issue. A similar tendency was observed in February, 2005 as well. Officials say that the issue is under consideration only and privatization is not on the agenda yet. Tbilisi seems to be concerned about a negative reaction from the United States.

But State Minister for Economic Reforms Kakha Bendukidze, known for his straightforward statements, said on December 28 that Georgia should decide whether to sell its gas pipeline system based on its own interests and not on recommendations from abroad.
 
“We should listen less to foreign experts,” Bendukidze said.

Analysts suggest that the issues should not be tackled solely by the executive authorities. “The issue is too significant and the parliament also should be involved in the decision-making process,” Khukhashvili said.

Earlier this year, Parliamentary Chairperson Nino Burjanadze said after meeting with visiting U.S. President George W. Bush on May 10 that “we noted our unanimous position regarding the privatization of Georgia’s gas pipeline system - we are against this privatization.”