Gazprom to Capitalize on Georgia-Azerbaijan Gas Contention?

Unsavory scenes at a recent football match have appeared to dampen Georgian-Azerbaijani relations. Earlier this month, Dinamo Tbilisi played the Azerbaijani club Gabala. The tie, played in two legs with the first in Georgia and the second in Azerbaijan, brought out the worst in some of the supporters. In Tbilisi, Georgian fans unveiled flags staking a claim to modern day Azerbaijani territory, and a week later the Azerbaijani reciprocated in Gabala, listing several Georgian towns such as Marneuli on banners as being Azerbaijani territory. Skirmishes were also reported at both games between fans.

This misunderstanding between neighbors deepened away from sport when the Georgian Competition Agency fined the Azerbaijani company SOCAR Georgia Petroleum over 14 million Lari for market infringements. In short it has been a tumultuous month for the two countries’ relations.

Georgian Prime Minister Irakli Garibashvili has downplayed the significance of the altercations on the football terraces: “Such provocations will bring nothing and it cannot pose a threat to the Georgian-Azerbaijani relations.” Despite this optimistic outlook, if we look at the recent relations between the two countries closely, we will notice that the bond between Baku and Tbilisi has weakened in recent years. The cooling of relations began at the time of the presidential elections in 2012 when the Georgian Dream accused the outgoing government of increasing the gas tariff.

Today, Georgia receives gas from several sources. However, all of the sources are Azerbaijani. 150 million cubic meters of gas per year is received for transiting gas from Russia to Armenia, but this is only a fraction of Georgia’s annual gas need. The rest is imported from Azerbaijan. Some is purchased at a discounted price as a transit country but the main agreement is signed with SOCAR. Based on the agreement signed between Georgia and Azerbaijan, Azerbaijan provides 1000 cubic meters of gas for 160 USD, which is 90 USD less than Azerbaijan charges to other neighboring countries, including Russia. Georgia should therefore be keen to avoid any measures that might jeopardize this arrangement.

SOCAR has already halted one of its investments in Georgia, the construction of the $700 million carbamide factory. President of SOCAR Rovnag Abdulayev told the Azerbaijani media that the reason for halting the project was the problematic negotiations with the Georgian government. He also reminded that current Georgian government to carefully consider the agreement signed during Saakashvili’s reign.

This comment of SOCAR’s president coincided with the emergence of the issue of restoring the Sokhumi-Tbilisi railway, which would most likely lead to an increase in tariffs.

Last week after the Competition Agency fined SOCAR Georgia Petroleum, news appeared in the Georgian media about Azerbaijan increasing gas prices. The news agency “Tabula” wrote that, according to its sources, this was a direct response to the multi-million Lari fine imposed on SOCAR earlier in the month. SOCAR later denied the connection.

Nevertheless, the prospect of Gazprom entering the Georgian market has been speculated upon amid the apparent contention with Azerbaijan. Gazprom’s name was mentioned in Parliament while discussing the anti-crisis program of the government when Minister of Economy Giorgi Kvirikashvili and Minister of Finance Nodar Khaduri let MPs and the public know that in order to improve the financial situation they would need to pursue “big privatization”, attract foreign investments and develop tourism. Interestingly, in all three directions the opposition detected a Russian involvement which was not rejected by the ministers. “We cannot prohibit trade to anyone”, this was the response of Kvirikashvili. It may have been previously inconceivable but now, with an apparent price hike being put forward from Azerbaijan, the chance of Georgia looking to Gazprom is now more realistic than it has been for some time, particularly when one consider the shareholding owned by Bidzina Ivanishvili in the Russian company.

Zaza Jgharkava

23 July 2015 22:25