ADVANTAGES OF GOOD NEIGHBOURS

After achieving record-breaking rates of economic development and becoming a leader in the region, over the last few years Azerbaijan has started to actively expand its foreign investments. Today the country is confidently having its say in the economies of the neighbouring states, not only as an initiator of transit and transport projects, but also as the owner of the controlling packages of shares in major enterprises and in managing important projects.

 In this sense, Azerbaijan is probably making the most weighty investment in the Georgian economy. Thanks to Azerbaijan, today the state coffers of this neigbouring country are already being filled with income from the transit of energy, with the taxes paid by SOCAR [State Oil Company of the Republic of Azerbaijan], and so forth. "Over the last 10 years no other country has done for Georgia what Azerbaijan has done or provided us with as much support as Azerbaijan has," Georgia's ex-president, Mikheil Saakashvili, noted during his term in office.

Naturally, we are talking about financial and economic support in this context: over the last few years Azerbaijan has regularly been among the top five countries in the amount of its investments in Georgia's economy, and the "daughter" company of  Azerbaijan's state oil company SOCAR Georgia is among this Georgia's top three taxpayers. The launching of the Baku-Tbilisi-Kars and TANAP [ Trans-Anatolian Gas Pipeline] projects has substantially boosted the status of economic relations between the two countries of the Southern Caucasus, considerably increasing Azerbaijan's involvement in Georgia's economic development.

 A regional partner

Azerbaijan started to expand its investments in Georgia in 2006-2007, although the countries had been actively working together on major transit projects even before that. Back in 1999, as partners in exploiting the Azari-Ciraq-Gunasli [Azeri-Chirag-Guneshli] oil fields, they started to pump the first oil along the Baku-Supsa [Georgian Black Sea village] pipeline and make payments of the first transit tolls to Georgia's budget for using the pipeline. A few years later the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines started operating, which acted as an important catalyst in turning the country into a state with considerable potential for the location of transit pipelines. 

It is no accident that the construction of the Baku-Tbilisi-Kars (BTK) transport corridor linking the railway networks of Azerbaijan, Georgia and Turkey, began about that time too. The construction of the BTK, which is one of the most important sections of the Caspian transit corridor, is to be completed in 2014. After the railway line is opened, mutual trade between Azerbaijan, Georgia and Turkey is set to increase considerably with the overall volume of freight carried worth more than 10bn dollars per year. "The BTK is an extremely significant project for Georgia. The Georgian government believes that the project should definitely be continued. The implementation of this project is not likely to come up against any problems," Georgia's former minister of the economy and sustainable development, Giorgi Kvirikashvili, has noted.                 

It should be recalled here that a loan worth 220m dollars for the construction of the Georgian section of the BTK was the first major loan granted by Azerbaijan to a partner-country, on preferential terms moreover (over a period of 25 years at one per cent annual interest). Later on, the amount of the loans given to Georgia for this project repeatedly grew and now the sum is more than 775m dollars. 

To be fair, the above-mentioned projects can be considered to be not solely as bilateral co-operation between Azerbaijan and Georgia, but more as an extremely successful trilateral Azerbaijan-Georgia-Turkey format. It is to be furthered within the framework of other major projects such as the construction of the TANAP and TAP gas pipelines, bringing Georgia estimated investments of around two billion dollars. 

Georgia's Minister of Energy [and Natural Resources] Kakha Kaladze has said that Georgia is expecting investments of 400-700m dollars from Stage-2 of the development of the "Shah Deniz" [Sah Daniz] gas field, besides the country receiving additional volumes of natural gas. K. Kaladze has stressed that during the implementation of this project 2,000 new jobs will be created in the course of the pipeline's construction and approximately 130 permanent jobs once it starts operating.

It can be seen that even in a trilateral format, Azerbaijan's participation in Georgia's economic development is quite considerable. This is especially true today, taking into account the volumes of direct investments injected into this country, SOCAR's involvement in supplying Georgia with gas, Azerbaijan's repeated assistance in resolving energy supply problems and so forth. "In the cold winter months Azerbaijan's selflessness came to our rescue, in a way saving the Georgian nation and Georgia's statehood," the Georgian ex-president Mikheil Saakashvili noted, when he recalled how Georgia suddenly found itself without electricity and gas in January 2008. Azerbaijan rendered assistance to the Georgian people during that cold winter.

Top supplier

Today Azerbaijan's SOCAR is the main supplier to Georgia of oil and petroleum products, as well as natural gas.

Thus, by the end of this year the number of petrol stations in Georgia bearing the SOCAR brand name will be more than 120. Moreover, SOCAR Georgia Petroleum has invested more than 200 million dollars in developing Georgia's wholesale sales' market. 

Yet another major petroleum products project involving SOCAR may be recalled. In January 2007 the Azeri company's daughter enterprises acquired the oil terminal at Kulevi [in Georgia on the east coast of the Black Sea], having invested more than 350m dollars in the completion of its construction and upgrading it. The terminal with a through-put capacity of 10 million tonnes of oil and petroleum products per year, carries out the trans-shipment of these products from Azerbaijan to the world markets. At the present time, moreover, the company is building a carbamide factory costing 700m dollars in Georgia.

SOCAR's involvement in supplying gas to Georgia is probably its most important project as a supplier of energy resources to that country's market. A memorandum was signed between the governments of the two countries on 18 November 2008 on supplying Azerbaijan's gas to Georgia for a period of five years. In keeping with the conditions of this memorandum, the state oil company has gained the right to control the distribution of Georgia's gas resources and then gained the right gratuitously to organise the gas-supply network in 22 districts in Georgia.

Within the framework of the SOCAR investment programme in 2009-2012 Georgia provided gas to more than 166,000 households, having invested 136 million dollars. In 2012, SOCAR Georgia Gaz laid 1,430 km of new gas pipelines. The daughter enterprise currently provides 176,800 households with gas.

According to the plan drawn up by Georgia's Energy Ministry and the gas supply company, by the end of 2014 86,000 families throughout the country will be connected to the gas supply network. After the plan has been completed, another 252 villages are to be supplied with gas, and tens of millions of dollars are to be invested in creating a new infrastructure.

It is understandable that this type of project will not recoup its costs in the short term, so we cannot talk about Azerbaijan gaining inordinately from it, at any rate not in the very near future. In this sense, SOCAR may not have taken quite a productive step from an economic point of view, but this is undoubtedly extremely worthwhile and correct, when seen through the prism of relations between the two countries. Thus, starting from November this year, for 12 months the company will supply facilities belonging to religious structures of all confessions in Georgia with gas free of charge.

It should be recalled yet again that the gas supplied to Georgia by the new and old pipelines comes primarily from Azerbaijan. In January-October 2013 alone Georgia imported 978,160 tonnes (of oil equivalent) natural gas worth 178.7m dollars from Azerbaijan, which is the main supplier of this type of fuel to the country and accounts for 83.25 per cent of the total volume of Georgia's gas imports. 

Reaching the billion mark

In spite of playing such an impressive part in the energy market, Azerbaijan's investments in Georgia are not limited to this field alone. Georgia's ambassador to Azerbaijan, Teymuraz Sharashenidze, has said that Azerbaijan has made very large investments in Georgia's construction sector. "Thus, a splendid new housing estate is being built on the banks of the river Kura in Tbilisi today with investments from Azeri entrepreneurs. Two hotels are also being built, one in Tbilisi and one in the Adjarian capital Batumi as well," the ambassador reported. 

It has to be said that the choice of Batumi is not accidental, since the capital of the Adjarian autonomous republic is a very popular tourist destination favoured by Azeris. A third of the tourists visiting Georgia come from Azerbaijan. In eight months of this year alone 3,568,000 tourists visited the country, up by 26 per cent compared with last year. Five million tourists are scheduled to have visited Georgia before the end of the year. There has been a 15-per-cent rise in the number of Azeri tourists.  Experts believe that more than 700,000 Azeri tourists visit Georgia annually, spending more than 200m dollars in that country, according to the most modest calculations.

But let us return to the investments and recall yet again that Azerbaijan was among the top five countries in the volume of direct investments made in the Georgian economy in the first half year of 2013. According to a Gruzstat (the Georgian Statistics Service) report, from January to June 2013 the volume of Azerbaijan's direct investments in Georgia was 60.5m dollars or 13.19 per cent of the total direct investments in that country over the first six months of the year.

In total, over the last 18 months Azerbaijan's business sector has invested 210 million dollars in Georgia, 300 Azeri companies are operating in Georgia and 150 Georgian companies are operating in Azerbaijan. The activity of the Azeri companies, including SOCAR in that country, has created the conditions for making available 7,700 new jobs. Azerbaijan is only second to Turkey as an economic partner of Georgia. 

All these projects and investments have resulted in a considerable growth in trade turnover between the countries. Whereas in the previous 15 years, even in the best years, trade turnover did not exceed 150m dollars, in 2007, it doubled. From January to September 2013 the trade turnover between Azerbaijan and Georgia was more than 958m dollars, which is 12.6 per cent of Georgia's total foreign trade turnover. Turkey was Georgia's top trade partner with a turnover of 1.08bn dollars.

Thus, by the end of the year it seems very likely that Azerbaijan will occupy the first place, passing the one billion dollar mark, and will find itself not only in the top three major investors, but also among Georgia's trade and economic partners.