Why “no to “Gazprom”

Less than ten years ago, in a cold winter of 2006, Georgian population was left without power supply and heating on the Russian gas company “Gazprom’‘s decision.

That’s when the story of replacement of the Russian gas with the Azeri one begun: today, 90 percent of gas is supplied to Georgia from Azerbaijan, while “Gazprom remains at the market only in the form of gas transit to Armenia, 10 percent of the total feedstock of which is accrues to Georgia.

The country, that was the first to free itself from dependence on the Russian energy giant, has not once received positive international assessment.For this very reason, the reports about Georgian government holding talks with “Gazprom on gas procurement have caused a great stir in public.

In numerous public discussions, that followed the talks with Gazprom, the government is trying to put the dialogue with ‘Gazprom into the technical, commercial and narrow-field framework; it seems that the government couldn’t see the context that will reveal a number of foreign policy, domestic policy and strategic problems.

I will try to focus on some particularly important problems accompanying the process of negotiations with “Gazprom:

1. International context

“Gazprom” is the world’s largest company, 51% stake of which is owned by the Russian government and which has been declared as one of Russia’s tools for gaining international influence.
“Gazprom covers almost half of Europe’s gas needs, while certain countries (5 countries of Eastern Europe) 100% depend on “Gazprom’s gas.

Europe started thinking of the threats that dependence on the Russian energy giant could bring as early as in the beginning of 2000. However, at the initial stage, it was hardly possible to develop a common energy security policy, since the European countries’ energy policy is not part of the European integration and is within the national policy competence – European countries have different systems, objectives and needs.

Soon, the Kremlin, itself, provided a significant impetus for the process of liberation from “Gazprom’s influence, leaving Europe without gas for a couple of weeks in course of gas transit talks with Ukraine, in 2006 and 2009. Whereas Russia-Ukraine war in 2014 turned out to be a decisive moment. In 2015, the European Union announced an ambitious plan of setting up the Energy Union.

Reduction of dependence on the Russian gas supply was one of the key and declared motives of the aforesaid grand plan.

The Southern Gas Corridor is one the most important projects for Europe’s energy security. Shah Deniz II, in which Azerbaijan and Georgia are the leading countries, shall be put into operation in 2019, providing Europe with an alternative to Russian gas supply.

Today, the EU countries are not just talking about Russia using gas for political purposes, but are taking on particular actions aimed at reducing “Gazprom’s influence.

A drop in “Gazprom’s export in 2015 has been reflected in particular figures. In one quarter alone, the volume of “Gazprom’s gas supplies were reduced: in Hungary – by 20%; in Poland – by 14%, in Slovakia and the Czech Republic – almost by 30%. Total gas export to Europe in the same quarter dropped by 8%.

Besides, since 2012, the European Union has launched legal proceedings against “Gazprom, accusing the company of the abuse of its monopolist position.

In view of this international context, Georgian government’s attempts to bring “Gazprom back onto the Georgian market are far more incomprehensible and vague.

2. Regional context

For ten years, Azerbaijan has been providing uninterrupted gas supply on advantageous terms to Georgia. Times, when electricity was supplied according to schedule, when there were power cutoffs and cold winters, are gone. Apart from the fact that Azerbaijan is a reliable and profitable gas supplier, cooperation with this neighboring country is of strategic importance for Georgia.

Shah Deniz II, which is due to finish in 2019, will fully resolve Georgia’s gas supply issue, and, most importantly, will be a concrete manifestation of Georgia’s transit potential. Therefore, cooperation with Azerbaijan is very important for living up Georgia’s European potential.

Whereas the launch of negotiations with “Gazprom” is likely to spoil stable relations with Azerbaijan.

Certain irritants in relationship with Azerbaijan emerged as early as in 2012, when then- Prime Minister of Georgia, Bidzina Ivanishvili questioned the appropriateness of Kars-Akhalkalaki important railway project, and later, during his visit to Armenia, raised the issue of restoration of the railway linking Russia and Armenia.

In course of negotiations with “Gazprom” this irritation shifted onto a higher political level

The President of Azerbaijan, himself, responded to the Energy Minister’s statement that Azerbaijan allegedly does not possess sufficient gas resources and therefore Georgia is trying to fill the deficit gap through negotiations with “Gazprom”. In Ilham Aliyev’s words, Azerbaijan possesses enough resources not only to meet Georgia’s needs, but also the needs of the whole Europe for at least 100 years.

A statement, made from such an important political rostrum, shall be a signal for Georgia – negotiations with the risk-bearing “Gazprom has a potential of spoiling stable relations with Azerbaijan.

3. Illusion of rebuilding relationship with Russia

After winning parliamentary elections in 2012, the “Georgian Dream” coalition named settlement of relations with Russia as one of its key foreign policy priorities. Normalization of relations is certainly a noble and right task, but not at the expense of country’s interests and not in exchange for creation of additional problems.

Having put aside the potential risks of negotiations with “Gazprom, the Energy Minister, Kakha Kaladze, has already states that one of the reasons for holding a dialogue with “Gazprom is that “Gazprom is blackmailing Georgia over Armenia’s transit. If that is true, then we are facing the already shaped rather than potential problem and then intensification of talks has no justification at all.

4. Non-transparent and suspicious process

The citizens of Georgia got familiar with the first report about Georgian government holding talks with the Russian state-run company from “Gazprom’s official web-site.

Throughout the subsequent period, the government officials were making mutually exclusive statements with regard to the aforesaid talks. It is still unclear, who specifically initiated the talks and what issue are being negotiated.

At first it was said that those were technical negotiations on extension of the annual transit terms. Then there came reports that those were negotiations on increase of the volumes of gas supply to Armenia; later on, statements were made that the negotiations served to diversify the natural gas supply; that gas consumption had increased and that “Gazprom was the only company that could provide additional volumes; that Russia was requesting Georgia to change the transit conditions…

This form of communication contains some significant and dangerous aspects: 1. the government has launched the process secretly, without notifying the public; 2. each time there is a discussion on this issue, the government is providing the arguments that justify Russia’s stance.

For instance, it was reported that Russia was seeking revision of the transit conditions (nowadays Georgia receives 10% of feedstock from “Gazprom in exchange for gas transit to Armenia. What “Gazprom actually wants is to pay cash as a transit fee instead of giving Georgia 10% of gas feedstock).

As an argument, the government refers to the European Energy Charter, binding “Gazprom” to receive cash payment instead of gas feedstock. “Gazprom” adduces the same argument.

In fact, Russia, that constantly violated the terms of the Energy Charter, was suspended its participation in the Charter as early as in 2009. So, what does that make? Instead of talking about Russia’s violation of its commitments, the government is seeking arguments to justify Russia’s position.

Georgian government officials also constantly point to the cheap price of the Russian gas, which is not true. Russian gas is almost twice more expensive than Azerbaijani gas. Besides, mind that Russia sets prices on the basis of political expediency rather than based on sound commercial logic.

Thus, one will get an impression that the government is not seeking the way out, but is rather trying to unconditionally justify the negotiations.

5. Georgia’s energy policy problems

Negotiations with “Gazprom” have raised some important issues related to efficiency of Georgia’s energy policy, in general.

According to one of the versions, this year’s seasonal deficit, caused by increase in gas consumption, was the main reason for launching talks with “Gazprom”.

The question is, why hadn’t the authorities dealt with the deficit before this deficit actually occurred? In terms of efficient energy policy, this should be prognosticated and smoothly settled in advance.

Increase in gas consumption is mainly linked to the economic development.

A new thermal power plant, which certainly requires additional resources, was put into operation this year. Both factors were quite predictable and easy to estimate.

If the power sector managed to cooperate with Azerbaijan for years, including in terms of increased consumption, then why has it failed to do so now? It is unclear, why is Georgia facing the deficit today and why is it trying to eliminate this deficit through unprofitable negotiations with “Gazprom”?

Elene Khoshtaria, Co-founder, Georgia’s Reforms Association (GRASS)