State Minister for Economic Reforms Kakha Bendukidze warned on March 30 that economic relations are expected to further worsen with Russia, as there is no signs of improvement in political relations between the two countries.

Kakha Bendukidze, dubbed by the opposition as the “pipeline privatization lobbyist,” was summoned by the opposition lawmakers to a parliamentary session to brief the MPs over the government’s position on the possible privatization of the country’s major gas pipeline system. But Bendukidze also spoke about the economic aspects of Georgia’s presence in the Commonwealth of Independent States (CIS), as well as Russia’s recent decision to ban the import of Georgian wines.

Worsening Economic Ties

Kakha Bendukidze said that Russia’s decision to ban the import of Georgia wines was “purely politically motivated.” Earlier, President Saakashvili described Russia’s decision as “cynical.”

“Our relations with Russia can be explained by the following formula: good economic relations and bad political relations. Bad political and good economic relations can not last forever - they must turn either into good political and good economic relations, or into bad political and bad economic relations,” Bendukidze said.

“The price of good political relations is absolutely understandable for us and it is unacceptable for us. The price [Russia asks for] is to say "no" to two occupied territories [Abkhazia and South Ossetia]. We will never pay this price, it will never happen. So this means that we should be ready for a further deterioration of economic relations [with Russia]… Georgian exporters face and will further face problems on the Russian market,” he said.

The State Minister said that the authorities have warned Georgian entrepreneurs about this threat several times, “but little has been done [by the entrepreneurs] in this regard by them.”

He said that the only way to solve the problem is to diversify the country’s foreign trade markets.
 
“I hope they [Georgian exporters] will be able to overcome this problem now and they will be able to diversify their exports. I understand that it might take more resources, but this diversification will be a long term foundation for the stable development of the economy. For example, let’s tallk about Estonia. Russia’s share in Estonia’s foreign trade was 78% about 15 years ago, but now this figure has decreased, as far as I remember, to 15-16%,” Bendukidze said.

He said that the process of diversification of foreign trade consists of two major issues: “what the government does and what business does.”

“The government’s function in this regard is to achieve maximally favorable trade regimes with as many foreign states as possible. One major success was gaining the GSP+ trade system with EU. One very important success is a free trade agreement with Ukraine as well,” Bendukidze said.

“The function of business is to think adequately in this situation and think about diversifying its foreign trade markets. Business should not think that because Russia – a huge market – is so close it is easy to sell everything on this market,” he added.

Russian Gas Price

In January, after Russia increased the gas price to USD 110 per 1000 cubic meters, the Georgian government came under fire from the opposition for the alleged failure to achieve a more favorable deal with Gazprom. Kakha Bendukidze denied these allegations and said that Russia set a common price policy in the South Caucasus and all three states are now paying the same price – USD 110.

Kakha Bendukidze also denied the opposition's allegations that the Georgian authorities were unprepared for Russia’s proposal to increase the gas price. Parliamentarian from the opposition Republican Party Ivliane Khaindrava asked why Georgia did not coordinate its gas talks with Russia with its allies from GUAM (Georgian, Ukraine, Azerbaijan and Moldova) who also faced similar problems with Russia.

But Bendukidze said that Georgia was the first country among these states which offered to develop a joint strategy over Russia’s plan to increase the gas price, but, Bendukidze added, these countries ignored the proposal.

“It was in autumn 2005 when Georgia was, I can say, the only country which started preparations for this kind of situation [an increase of gas prices]. I do not want to list those countries – although you [referring to MP Khaindrava] have already listed them – which we got in touch with and offered to develop a joint position. But they responded: 'your concerns are groundless, nothing will happen, these are just commercial games by Russia, Georgia will probably be the only state which will suffer from a gas price increase because you are playing the wrong game' etc. Even Ukraine was absolutely sure initially that it could have made Russia agree [on a favorable price] through blackmailing [Russia] with its transit capabilities. As for Ukraine’s gas deal with Russia - I think it was totally not in favor of Ukraine. Ukraine has suffered a huge defeat with this deal,” Bendukidze said.

Trunk Gas Pipeline

State Minister Bendukidze told lawmakers that the Georgian government is holding “neither formal, nor informal talks” with any of interested parties over the possible privatization of Georgia’s trunk gas pipeline, including the Russian power giant Gazprom

But Bendukidze reiterated that his “personal position” still remains in favor of privatization; the Minister added, however, that his “personal position” does not reflect the position of the Georgian government.

“It is my personal position that whom the pipeline belongs to is not important. The most important thing is the gas that flows in this pipeline … and recent sabotage [when two gas pipes were blown up in Russia’s North Ossetia] has further strengthened my position over this issue,” Bendukidze said.

“However, the government’s position, at present, is that it is carrying out no negotiations over this issue. No talks are being carried out today and no talks have been carried out recently,” Bendukidze said.

Bendukidze also told lawmakers that even if the government decides to privatize the gas pipelines it is the Parliament who has the final say on this issue.

“You know that there is a law which defines those facilities which are regarded as strategic and this pipeline is among them. So if the government decides to privatize it the law must be amended, so the final decision will always depend on the Georgian Parliament,” Bendukidze said.

He said that a priority of Georgia should be the diversification of its energy supply sources.

“The most important issue in the respect of energy security is diversified energy sources and not the issue of who will own the pipeline… So my personal position is that I do not see any threat in this [privatization of the gas pipeline] and I have not yet found a person who could explain to me what the threat is. But this is not the position of the government,” Bendukidze said.

He said that no other state but Russia can provide Georgia with gas through this trunk gas pipeline.

When the State Minister was asked whether it is appropriate to sell the gas pipeline to a country which masterminds sabotage – referring to the explosions of gas pipes in Russia’s North Caucasus, Bendukidze replied:

“This question means that if I say "yes," I will then be described as an idiot. But I will ask you: is it possible to buy gas from a saboteur? So we should say that we will not buy gas from and will not even discuss anything with a saboteur. But we are in a position wherein we have to buy gas and electricity from this northern country. We are now talking about whether the pipeline, which brings gas from Russia to Georgia, will be under the ownership of Russia until the village of Shmi in the North Caucasus [at the Russian-Georgian border] or until Tbilisi. This is the only difference,” Kakha Bendukidze said.
 
CIS Membership

Bendukidze was also asked about his position regarding Georgia’s presence in the Commonwealth of Independent States (CIS). The opposition is demanding that the authorities quit this organization.

“I think that from the political point of view there is nothing attractive about this organization. But from the economic point of view there are several purely pragmatic and mercantile interests, including the maintainance of existing customs regimes within the CIS countries,” Bendukidze said.

He explained that in the event of a withdrawal Georgia will also have to quit agreements on free trade with 11 CIS-members states and on free movement of citizens with 9 CIS-members states.

“We will be able to replace these favorable regimes only if we reach bilateral agreements on free trade with all other 11 CIS-member states and bilateral agreements on free movement with the other 9 CIS-member states. After this we can start considering how appropriate it is to quit the CIS,” Bendukidze said.

“But if we politicize this issue and say that we are not interested in issues related to trade, as well as with free movement of citizens, I think this will be an absolutely incorrect step,” he said.