Parliament endorsed on July 6 with 88 votes to 5 in first reading a draft law on privatization of state assets, lifting restriction on sale of Georgia’s North-South Gas Pipeline.

MP Pavle Kublashvili, chairman of parliamentary committee for legal affairs and his deputy MP Lasha Tordia have sponsored a proposal, which envisages unification of four separate laws related to privatization of state assets into one legislature.

Among other issues, the draft envisages removing trunk gas pipeline, which transmits natural gas from Russia into Armenia via Georgia, from the list of facilities which are banned from being privatized.

The controversial proposal triggered debates during the session with lawmakers from the parliamentary minority opposing the initiative.

PM Nika Gilauri told lawmakers on July 2, that the government had no immediate plans to sell Georgia’s North-South Gas Pipeline. He, however, also did not rule out to sell minority shares of the pipeline through initial public offering at London Stock Exchange not earlier than in couple of years.

PM Gilauri also said that the state “will in no way give up the controlling stakes” of the pipeline.

Lawmakers from the parliamentary minority argued that the verbal pledge by the PM that the state would retain controlling stakes into strategic gas pipeline was not enough. They offered the ruling party to include a provision in the draft, which would allow sale of no more than 49% of pipeline shares.

“Russia is interested in this pipeline even more than in Abkhazia or South Ossetia… Russia wants to link its pipeline infrastructure with Iran and it will be able to do so if it gains control over the Georgian section of this pipe… It will then pose a threat to east-west gas pipeline, which in turn will pose a threat to the Georgian state,” MP Levan Vepkhvadze, parliamentary vice-speaker and a senior member of Christian-Democratic Movement, said before the voting.

Lawmakers from the ruling party, however, rejected to include a provision allowing sale of no more than 49% of the pipeline shares. They said that the proposal was purely economic and called on the opposition lawmakers not to politicize the issue. They said that the move was a reflection of the government’s policy of liberal, free market economy.

“The principle is that private sector can manage better such enterprises, than the state,” MP Tordia, co-sponsor of the draft, said. “And no one is going to sell this pipe to the Russian Federation… and there is no where written in the draft that it will be Russia, which will buy this pipeline.”

MP Mikheil Machavariani, the vice-speaker of the parliament, said: “We will not take any decision, which will be against Georgia’s interest. Each and every decision taken by us is directed towards stronger economy. We do not want closed economic system managed by the government. Our vision is very simple: we should give maximum benefit to economy. Take a look at this issue broadly… This is yet another option to help attract money into Georgia.”

“We cannot afford ourselves not to look for new innovative ways in the economy. We need investments and we should not be afraid of novelties,” MP Machavariani said.

Another lawmaker from the ruling party, Davit Darchiashvili, said that there were more than enough levers in the Georgian legislature to protect from a situation if, for example, an investor in any field of economy posed a threat to the country. “No matter how cynical it may sound, but money does not smell,” MP Darchiashvili said.

MP Giorgi Targamadze, CDM leader and chairman of the parliamentary minority, said that the North-South Gas Pipeline was more than purely economic issue.

“We are strongly against this proposal. It is not purely economic issues, it is about politics. Everyone in the world agrees that Russia is a country, which uses its energy levers for political purposes,” MP Targamadze said.

Lawmakers from the ruling party had to reiterate for number of times during the debates that the authorities had no intention to sell the pipeline to Russia.

This is not the first time when the issue became debated in Georgia. In early 2005 when the Georgian authorities suggested that the pipeline could have been sold to Russia’s gas monopoly, Gazprom, it triggered the opposition’s protest and then U.S. special advisor on Caspian energy, Steve Mann, warned the Georgian authorities against taking such decision.

In September, 2005 Georgia and the United States, through its Millennium Challenge Corporation (MCC), signed an agreement on USD 295.3 million five-year aid program (further USD 100 million was added to this program in 2008). The program, among other infrastructure development projects, also envisaged rehabilitation of the north-south gas pipeline system.

Under that five-year agreement, which went into force in April, 2006, the Georgian government has undertaken commitment not to “sell or transfer, or permit to be sold or transferred” the pipeline or a controlling interest in the a state-run company which operates the gas pipeline system, until the expiration of this agreement term, hence until April, 2011.

Since then the U.S. has invested USD 35 million in rehabilitation at 22 sites of the pipeline.