NEW GAS ESCAPADE

Secret talks between Geor-gian Deputy Prime Minister and Energy Minister Kakha Kaladze and the management of Gazprom, which took place in Switzerland in late December 2015, have sparked a fresh round of domestic political tension.

Information about the talks was disclosed by political analyst Soso Tsiskarishvili. According to the analyst, the "Georgian Dream" government is going to replace 50 per cent of Azerbaijani gas with Russian gas, and the "Partnership Fund", which belongs to tycoon Bidzina Ivanishvili, former prime minister, will be behind the deal.

It has been known since autumn 2015 that the Georgia government seeks to find alternative sources of gas. It would seem that this is quite a natural tendency, if it were not for one circumstance. Azerbaijan has never abused its monopolistic positions in Georgia's gas market and offered to the western neighbour low prices, a package of social concessions (free gas supply to all churches, temples and mosques, regardless of religion), and a required volume of supply. After all, it is through Georgia that main export pipelines for Azerbaijani oil and gas run to the world market. Azerbaijan is interested, like nobody else would be, in socio-political stability and socio-economic security in Georgia.

However, the "Georgian Dream", apparently, has other calculations. According to Energy Minister Kakha Kaladze, Georgia's needs grow by the year, and Azerbaijan no longer has the technical capacity to increase gas supply. Another obstacle is the capacity of gas pipelines that deliver gas to Georgia. Therefore, according to Kaladze, Russian gas is an alternative. Georgia is already receiving Russian gas as a transit fee for deliveries to Armenia. The most interesting statement Kaladze has made is that Gazprom is willing to supply gas to Georgia for prices even lower than Azerbaijani prices. It would be very interesting to learn about the specific proposals made by the Russian monopoly, but Kaladze preferred not to specify the figures.

We will come back to the issue of prices. First, it is worth having a look at the option of diversification of gas supply. A paradoxical situation is effectively taking shape in Georgia - all of Europe is searching for possibilities of alternative energy supplies to reduce its dependence on Russia, Gazprom in particular, and is viewing Azerbaijani gas as a paramount possibility to this end, but everything is happening exactly the other way round in Georgia. Apparently, the Georgian government has forgotten the winter of 2006, when Azerbaijani gas saved the neighbouring country from freezing. "The Georgian public remembers well the terrible situation we were in when Russia staged an accident on a gas pipeline and power lines, leaving Georgia without gas and electricity in the cold winter of 2006. People understand perfectly well what excessively intensive cooperation with Gazprom is fraught with, which is why they are against it," former Georgian Deputy Foreign Minister Nikoloz Vashakidze recalls. In a comment on Azerbaijani President Ilham Aliyev's statement that Azerbaijan is willing to supply Georgia with as much gas as it needs, he said: "We have every reason to trust the Azerbaijani president. He has never failed to keep his promises. As for bilateral cooperation, it was established on a solid foundation, which we have been tirelessly creating over the past 25 years, and no momentary conjuncture will be capable of seriously shaking them." "The agreement with Gazprom means a geopolitical deal with the Kremlin to the detriment of Georgia's long-term interests," Nugzar Tsiklauri, an ally of former President Mikheil Saakashvili in the opposition United National Movement (UNM) party, explained to Russian newspaper Kommersant. "It is not clear how cooperation with a tested partner - Azerbaijan - can be abandoned and a deal can be made with an enemy state that has occupied 20 per cent of our territory," said David Darchiashvili, another opposition MP. The opposition fears that after increasing gas supplies, Russia will demand that Georgia make further concessions, including a resumption of railway traffic from Russia to Armenia via Abkhazia.

UNM has already held several protests in Tbilisi against the agreement with Gazprom and is threatening to launch large-scale protests in the event of any agreements being reached with the Russian monopoly. The Georgian government views these protests as attempts to gain political dividends in the course of the election campaign that has started. "If the present-day opposition in the shape of the former ruling party, the United National Movement, is so concerned about energy issues, they should not have sold so many power stations to Russian companies back then [when they were in power]. They even tried to sell a main gas pipeline to Russia," Zurab Abashidze, special representative of the Georgian prime minister for relations with Russia, recalls.

But let's go back to the issue of the price of gas. According to Georgian Deputy Energy Minister Mariam Valishvili, the population is receiving gas under a social package at a price of 120 dollars per 1,000 cubic metres (incidentally, that was the price paid by the Azerbaijani population before the February 2015 devaluation of the manat), thermal power stations pay 143 dollars, while the price of commercial gas ranges depending on consumers and on average is 260 dollars. This price is formed from a mixture of SOCAR's gas supplies and also volumes received by Georgia free of charge from the transit of gas from the Shah Deniz field.

It is known that Azerbaijani gas is the cheapest in the region in comparison with either Russian gas or Iranian gas. The most important criterion for the price is Azerbaijan's proximity to Georgia. Azerbaijani gas runs some 500 km to the Georgian border, while Gazprom will need to "drag" gas from its Siberian deposits for a distance of more than 2,000 km. It is the length of the delivery of gas that plays almost the key role towards the formation of the price of gas. Until recently, Gaz-prom had been buying gas from SOCAR in order to supply Dagestan, because delivering its own gas was more expensive due to transportation costs. Therefore, it is not clear on the basis of what economic calculations Gazprom is willing to provide Georgia with gas for a cheaper price than that offered by Azerbaijan. The only justification is a political element, considering the fact that the Russian Federation very actively uses Gazprom to advance its foreign policy interests.

In this regard, quite remarkable is the example of Armenia. Before joining the Eurasian Economic Union [EAEU], Armenia had been buying gas from Gazprom for 270 dollars per 1,000 cubic metres. At the same time, back then the leadership of Armenia was holding active talks with the EU toward an association agreement. In the event of such an agreement being signed, Gazprom threatened to raise prices to market levels. Immediately after the signing of the agreement on [Armenia's] accession to the EAEU, Russia abolished customs fees for gas for Armenia, which led to a reduction in the price to 190 dollars. Afterwards, Armenia was given another discount of 25 dollars. As a result, Armenia has the lowest gas prices - 165 dollars per 1,000 cubic metres, but all of its gas infrastructure is in the hands of Gazprom, and, in addition, the political independence of that country is very debatable.

Given this baseline, is it really necessary for Georgia to receive more gas, be it even commercial gas, from Russia? Especially given that when buying commercial gas from Azerbaijan, Georgia secures the financial support of SOCAR towards the implementation of social projects, including getting free gas for its religious institutions.

However it may be, the head of SOCAR, Rovnaq Abdullayev, went to Tbilisi for talks. There, he met Prime Minister Giorgi Kvirikashvili, and Kakha Kaladze. An agreement was reached at the meeting with Kaladze that work would be carried out to expand the capacity of the pipeline to Georgia and that supply would be increased by 1m cubic metres per day up to 7m. The sides also agreed to build a gas storage facility in order to balance supplies in summer and winter.

It is also interesting that after the meeting Kakha Kaladze said once again that Azerbaijan would not be able to meet all of Georgia's needs.

"We said that it is technically impossible to receive additional volumes of gas. That was the case for years, and we filled that deficit with gas from Gazprom, and this will probably be the case in the future as well. We have the ability to resolve this problem, but additional investments will need to be made to this end," Kaladze said. The minister also said that Georgia expected to receive an additional amount of gas in 2019 after the completion of phase two of the Shah Deniz project, when a new export gas pipeline was built and volumes of transit of Azerbaijani gas through Georgia increased. This means that the statements Kaladze made suggest that the Georgian government continues to insist on purchase of gas from Gazprom. In this regard it is interesting how patient SOCAR will be, because depriving the company of opportunities to earn money may impact its social commitments. After all, it was SOCAR who invested in the construction of gas supply infrastructure in Georgia and therefore contributed to an increase in gas consumption. It turns out that the Azerbaijani company sowed for another company to reap the fruits.

Meanwhile, it appears that Kaladze's ministry has started to realize that a new gas escapade, especially one involving Gazprom, and against the will of their own public, is futile.

According to Georgian Deputy Energy Minister Mariam Valishvili, the ministry is discussing with Gazprom the possibility of paying money, not gas, for transit to Armenia. This revenue could be used to buy the missing amount from Azerbaijan. She said that the possibility of such a substitution was discussed at the talks with SOCAR. In an interview with Trend news agency, Valishvili said that it would not be possible to fully replace Russian gas, this being the reason Georgia is negotiating with Gazprom. However, she said, the prices offered by Russia are quite high, against a background of the fact that Azerbaijan is selling gas for a very competitive and beneficial price.

This statement by Valishvili effectively almost completely contradicts her boss's position. But it should not be forgotten that her boss has a boss, too. It is quite likely that Valishvili voiced a change in the strategy of the Georgian government in tackling gas issues.