YET ANOTHER WEAK LINK IN ARMENIA

Georgia's decision to remove a section of the North-South gas pipeline (via which Russian natural gas is supplied to Armenia) from the list of strategic government-owned facilities and offer it for sale, marks the beginning of a new intrigue in the South Caucasus.  The question is, who will gain ownership of 49% of shares in the trunk gas pipeline?  At the same time, the current situation clearly sheds light on the true nature of relations between the states in this region.

The question of selling the Georgian branch of the North-South pipeline was raised by Tbilisi as early as three years ago, because of the poor state of the facility and the need for private investment for repair.  However, back then the United States, worried that the pipeline could wind up in Russia's hands, raised objections.  Washington allocated $50 million to Tbilisi for emergency repairs to the section and secured in return agreement by the Georgian leadership to a 5-year ban on selling the pipeline; this expires in April 2011.

Now Tbilisi says that "any facility is considerably better run by the private sector than by the state," and is thus revisiting the idea of selling the pipeline branch; the USA has also agreed to the idea of privatizing the pipeline.  At the same time, Georgia will retain a controlling share (51%).  Among the most likely buyers of the remaining shares are the Russian company Gazprom and Azerbaijan's SOCAR.

Tbilisi is unlikely to allow the Russian Gazprom to acquire shares in the pipeline.  It is not in Georgia's interests to give Moscow an extra lever to exert political pressure.  Thus it is likely that precisely the Azerbaijani company will become one of the owners of the North-South gas pipeline, which is causing Armenia to voice its concern.

Armenian experts warn that the likelihood of the acquisition by Azerbaijan of a share in the North-South pipeline poses a real threat to Yerevan.  David Shakhnazaryan, for example, believes that Baku's interest in acquiring the Georgian section of the pipeline is not commercial, but stems exclusively from political motives, relating to Azerbaijan's intention to further tighten the Armenian blockade.

"The situation in the region is changing dramatically in Azerbaijan's favour.  To prevent developments that would be dangerous for Armenia, the country's authorities must do their best to acquire this section of the gas pipeline" Shakhnazaryan argues.

Ara Nranyan, a member of the Armenian Parliament from the Dashnaktsutyun party, also believes that Yerevan must bid to buy the branch of the pipeline.  At the same time, he urges the Armenian authorities to convey to the Georgian leaders the opinion that "selling the gas pipeline to other country, and especially to Azerbaijan, would be considered an act of extreme unfriendliness towards Armenia."

The international media also write about Armenia's concerns with increasing frequency.  "Georgia's plans to sell at least part of the gas pipeline causes concern in Armenia that the shares could be bought by Azerbaijan," France Presse notes.  In the opinion of the French news agency, "selling the pipeline could cause a surge in tensions in an uneasy South Caucasus region which plays an important role in the plans for transportation of oil and gas from the Caspian Sea to Europe, bypassing Russia."

Deutsche Welle, for its part, reports that "Armenia fears Azerbaijan's gas expansion."  "Armenians are sure that Azerbaijan is willing to pay a hefty sum, not only out of economic considerations, but also to acquire yet another important means of putting pressure on Yerevan in the conflict over Nagorno-Karabakh.  If Baku can influence Russian gas supplies to Armenia, its blockade by Azerbaijan will become total," the German online news portal reports.

In the mean time, Baku has made no statement for some time about its intention to take part in the "Georgian" project.  However, the Turkish newspaper Hurriyet wrote, citing sources in Tbilisi that "last month, Azerbaijani President Ilham Aliyev held talks on this matter with Georgian President Mikheil Saakashvili because Aliyev has a firm desire to take the gas pipeline under his control."

In principle, this type of agreement between Baku and Tbilisi cannot be ruled out.  Furthermore, it is possible that Georgia decided to sell the pipeline branch precisely after the talks with Azerbaijani leaders.  And there is an explanation for this:  Azerbaijan has always supported Georgia, in particular, by selling it gas at a discounted price.

At any rate, Baku soon stated its ambitions openly.  The State Oil Company of Azerbaijan does not rule out the possibility that it might buy all pipelines in Georgia, including the Georgian section of the North-South gas pipeline.  Mahir Mammadov, General Director of SOCAR Energy Georgia, said that although talks have not been held yet on this issue, the company is closely monitoring developments surrounding the possible sale of shares in the gas pipeline.

Naturally, the price of the deal is another intriguing factor.  In the past, Gazprom has offered $250 million for the Georgian section of the pipeline, although its real value was estimated at $1 billion.  Today this is an overestimation, which is why experts say that Azerbaijan might offer Georgia about $500 million.

Yerevan's reaction to these forecasts is painful.  In particular, member of the Armenian Parliament Vardan Khachatryan said that if Baku really offers Tbilisi the sum being discussed in the press, Yerevan will have no chance of buying shares in the trunk pipeline.

Nonetheless, the possibility of Azerbaijan acquiring a share in the North-South Gas pipeline does not mean that Russia will stop supplying gas to Armenia as usual.  A requirement for an uninterrupted gas supply to Armenia will most probably be one of the conditions for acquisition of the pipeline.  But even in that case the acquisition of the gas pipeline would be of a strategic importance for Azerbaijan because the deal would enable it to dictate its conditions for the transport of natural gas to Armenia, in particular, to influence transit tariffs (which is why Armenians are worried that this might influence gas prices in their country).  And in case of failure to meet these conditions, SOCAR would have the right to suspend gas supplies to Armenia.

Be that as it may, Baku will do this deal only if it really is in the country's national interests.  As for geopolitics, against the backdrop of this talk about the imminent acquisition by Azerbaijan of shares in the North-South gas pipeline, events of great importance began to take place inside the South Caucasus "triangle."

The increasingly strained relationship between Tbilisi and Yerevan, hindered by Armenia's territorial claims on the Georgian region of Javakheti, is in noticeable contrast to the development of the strategic partnership between Georgia and Azerbaijan.  In particular, the statement by Georgian Deputy Foreign Minister Nino Kalandadze, expressing Tbilisi's interest in creating a Georgian-Azerbaijani confederation, caused a great stir in Armenia.

"Technically, Georgia has already given its consent to the creation of a confederation with Azerbaijan, but the issue requires deeper consideration.  The form of this initiative depends on talks between the diplomats; this is a subject for diplomatic work.  At this stage, discussion is under way on the legal framework for further talks about different aspects of this issue," Kalandadze said.

She said that the idea of confederation was discussed during Azerbaijani President Ilham Aliyev's visit to Georgia.  "Signing an appropriate agreement would serve the purpose of progress in the two states.  Within the framework of a confederation, we will be able to develop the plan for promoting our relations, which will help to develop the entire region, especially considering the fact that economic cooperation between our countries is very intense.  Georgia welcomes the idea of establishing a confederate relationship between Baku and Tbilisi," said a highly placed official of the Georgian Foreign Ministry stressed.

Naturally, this is only an initiative, and discussing it in detail would be premature, if only because Baku has not voiced a clear response to the idea of an Azerbaijani-Georgian confederation.  It is also possible to speculate about the different motives behind this idea, periodically voiced by the Georgian side, and why the latest proposal took place a few days ago.  But in the context of the future of Georgian-Azerbaijani cooperation in the energy sphere, statements on this issue are important in that they confirm a trend towards the development of regional processes of integration in which Armenia, which has doomed itself to isolation with its aggression against Azerbaijan, has no place.