The Georgian government made “an optimal” decision on agreeing to Gazprom’s proposal on terms of Russian gas transit to Armenia via Georgia, according to which, during the first year of the two-year contract, Georgia will partially maintain the commodity payment scheme and move to monetization in the second year, Georgian Energy Minister Kakha Kaladze said.

Kaladze met the Director General of Gazprom Export LLC Elena Burmistrova in Minsk on January 10, the third meeting held as part of annual negotiations with Gazprom Export for renewing the gas transit agreement. The two previous working meetings were held on December 13 and December 23 but no agreement was reached.

According to the existing agreement, which expired on December 31, Georgia was receiving 10% of gas transported to Armenia. Gazprom insisted on monetization of the gas transit fee, which was unacceptable for the Georgian side. Georgia rejected the terms offered by Gazprom last year and following lengthy negotiations an agreement was signed in April, under which Georgia maintained the existing transit terms. 

In a press release issued by Gazprom Export on January 11, the company said that it offered “mutually beneficial conditions” to Georgia.

“Gazprom Export offered a package proposal to the Georgian side based on favorable and mutually beneficial conditions, which will provide the Georgian side with a guaranteed income flow from gas transit services and increase the security of gas supply of Georgia,” Elena Burmistrova said.

“The government discussed this proposal and decided to sign the agreement,” Kaladze told reporters after the government meeting on January 11.

“This agreement will not increase Georgia’s dependence on Russian energy carriers,” he explained. “Only the form of payment will be changed and instead of payment with commodity, in accordance with international practice, we will move to monetization."

He also said that the planned agreement is “short-term” and it will last for two years.

“During the first year, the form of payment with commodity will be retained partially and after that, the payment will be made through monetary means, according to international practice,” the Georgian Energy Minister said.

“As for the transit cost that should be paid to Georgia, it will be one of the highest among European countries,” he said without elaborating details.

“If needed, we will be able to receive additional amount of natural gas at a reduced price to meet seasonal shortage,” Kaladze added.

Kaladze explained that considering the increasing natural gas consumption, if Georgia requires additional natural gas, it will pay USD 185 per 1000 cubic meters of Russian gas "instead of USD 215."

Kaladze noted that accepting Gazprom’s proposal does not mean “compromising,” because “from the financial point of view, we will have the same result as in case of commodity payments.”

He also said that the talks “were not easy” and added that if they failed, Georgia would have had “to take illegally or to steal” Gazprom’s gas, that in turn, “would have been followed by court proceedings and it would have been much more damaging for Georgia.”

The Energy Minister did not specify when the new agreement would be signed.

The UNM lawmakers described the government’s decision to accept Gazprom’s terms as “an act of capitulation” and “a very dangerous decision” for the country’s security.

According to the Georgia’s Energy and Water Supply Regulatory Commission’s 2015 report, Georgia received 295 million cubic meters (12%) of gas from Russia in 2015 of which 265 million was a transit fee. Azerbaijan was Georgia’s main source of gas supply: the country received about 83% of its total consumption in 2015. About 721 million cubic meters (29%) of Azerbaijani gas came as part of the deal in frames of the BP-operated South Caucasus Pipeline, which transports gas from Shah Deniz offshore field in the Caspian Sea to Turkey via Georgia. 1.35 billion cubic meters (54%) were imported as part of a separate contract with Azerbaijan.