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Gazprom alters the terms of contract with Georgia

Georgia yields to Gazprom’s demands as to the form of payment for gas transit to Armenia

Gazprom has altered the terms of contract concluded with Georgia.

Until now, Georgia received 10% of the total volume of natural gas transported to Armenia through its territory by the main gas pipeline. However, since 2018, Georgia will paid for gas transit in cash instead of raw materials.

Georgian Energy Minister, Kakha Kaladze met with the Gazprom officials in Minsk, on January 10. A decision on a new form of payment was made in course of that meeting. The new contract will be concluded for a period of 2 years. Under the contract, the payment in the form of raw materials will be in force for one year, and since the next year the payments will be made in cash.

According to the Georgian Energy Minister, ‘the contract will, in no way, make Georgia more dependent on Russian energy carriers. Only the form of payment will be changed, which is a common international practice.’

As for Georgia's tariff for transit of natural gas through its territory, according to Kaladze, ‘it will be the highest one among the European countries.’

In addition, according to the Energy Minister, there is an agreement, under which, in case of necessity, Georgia will buy Russian gas at US$185 instead of US $215.

Gazprom insisted on revision of the contractual terms and monetization of the form of payment as early as last year. When giving the reasons for the aforesaid, the company referred to the European Energy Charter, that binds Georgia to accept Gazprom's offered payment for gas transit in cash rather than in raw materials. However, according to the Georgian experts, this agreement would be disadvantageous for Georgia. Last year, the Georgian government rejected the conditions offered by the Gazprom-Export company. However, this year, the government has accepted the Russian side’s condition.

Last year, Georgian government also entered into talks with Gazprom, hoping to purchase additional volumes of natural gas, which stirred a wave of protest in Georgia. Finally, the agreement with Gazprom was not reached.

• At this stage, Azerbaijan is the key supplier of natural gas to Georgia. 87,1% of the total volume of gas consumed by Georgia were transported from Azerbaijan last year. Georgia buys Azerbaijani gas at preferential prices: for population supply - at US$120 per 1,000cub.m. of natural gas; for TPPs- at US$143 per 1,000cub.m, which is considerably lower than the price offered by Gazprom to its strategic partner - Armenia. Armenia currently pays US$165 per 1,000 cub.m. of the Russian gas.

Apart form Azerbaijani gas, Georgia is also supplied Russian gas, though in relatively smaller volumes. In 2014, Georgia received 267, 773,000 cub.m. of Russian gas, including 206,166,000 cub.m. as a payment for transit. Georgia receives 10% of the total volume of Russian natural gas transported to Armenia through the 221-km North-South gas pipeline.

• About 2,1 billion cub.m. of natural gas were transported to Armenia through the territory of Georgia by the main gas pipeline last year. Georgia received 0.3 billion cub.m. from the total volume of transported gas.

• Gazprom is the largest Russian company on the global scale. The state owns 51% of the company’s shares.

Published: 11.01.2017

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JAMnews, Tbilisi 12 January 2017 - 07:57

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