MUTUALLY BENEFICIAL NEIGHBOURHOOD

Over the past two decades, the South Caucasus region has emerged as a prominent business hub in the post-Soviet space, showcasing a strategic nexus of Azerbaijan and Georgia's energy, transport, logistics, agricultural, and industrial capabilities. The friendly states intend to expand the investment component and trade turnover, and in the new geopolitical realities, the key focus is on strengthening coordination in the transport sector, including to increase transit supplies of non-oil cargo and electricity to Türkiye and EU countries.

This message was also the key message during the talks held within the working visit of Georgian Prime Minister Irakli Kobakhidze to Azerbaijan.

Transit, Trade, And Investment

Baku and Tbilisi have maintained a close partnership for many years, with a focus on transportation and energy projects. A network of oil and gas pipelines has been constructed across both countries, and terminals for transshipment of oil, fuel, and petrochemical products have been developed in Georgian ports. These ports facilitate the export of raw materials from the Caspian region to the Black and Mediterranean seas, ensuring energy security in Europe. In recent years, Baku and Tbilisi have also been implementing projects to export electricity to the Turkish market and subsequently transmit it to several countries in Southern Europe. Significant joint efforts have also been made in the transport and logistics sector. For approximately seven years, partners have been utilizing the capabilities of the Baku-Tbilisi-Kars (BTC) railway corridor, which was modernized last year and connects Europe and Türkiye with Central Asia and China, for cargo transit via the Trans-Caspian International Transport Route (TCITR).

Azerbaijan has traditionally been one of Georgia's five leading trade partners, despite a slight decrease in mutual trade turnover in 2024. In terms of volume, trade between the two countries totals over $1.308 billion, positioning Georgia as one of the leading post-Soviet trade partners.

Additionally, Azerbaijan has consistently been among the top investors, contributing to the growth and development of the Georgian economy. Currently, about 650 companies with Azerbaijani capital operate in Georgia. Since 1995, we have invested over $3.6 billion in the Georgian economy. A notable portion of these investments has been contributed by SOCAR Energy Georgia, a subsidiary of the State Oil Company of Azerbaijan. SOCAR Energy Georgia has allocated over $1.1 billion to various projects in Georgia, including an oil terminal in the port of Kulevi, oil depots, a network of petrol stations, and gas distribution pipelines. These efforts are ongoing. Last December, the Georgian government approved the sale of the gas pipeline network in western Georgia to SOCAR Gas Georgia.

Oil and Gas Projects

Despite the conclusion of the period of peak investment activity, the governments have been actively diversifying business ties over the past two years, expanding potential areas for capitalization building. As Azerbaijani President Ilham Aliyev noted in a press statement following his meeting with Georgian Prime Minister Irakli Kobakhidze, "More than 80 per cent of Georgia's natural gas consumption is of Azerbaijani origin." He noted that oil and gas projects implemented jointly by their countries have become the foundation of the energy security of many nations. Aliyev highlighted that Azerbaijan exports natural gas to 11 countries through Georgia, with these supplies increasing annually. Last year, the volumes reached 25 billion cubic metres, and 10% of our total gas exports are to Georgia."

Cooperation in the sphere of gas supply is a key area of SOCAR Energy Georgia's activities. According to Forbes magazine, the subsidiary of the State Oil Company of Azerbaijan is currently one of the largest companies in Georgia, with a workforce of over 5,100.

Remarkably, in 2007-2009, SOCAR Georgia Gas, a structural subdivision of SOCAR, initiated the initial phase of the Georgian gasification project. During this period, 880 kilometres of main and distribution gas pipelines were modernized and constructed from the ground up, providing natural gas to approximately 90,000 subscribers. Since then, the process of modernizing the Georgian gas distribution system has been consistently expanding. At the end of 2008, the gasification level in Georgia was 46%, and the number of gas distribution network subscribers was 71,000. By the beginning of 2024, this number increased to 870,000, and by the end of the previous year, the gasification level approached 90%.

The joint efforts to transport hydrocarbon raw materials and Georgia's contribution to the gasification of the country are not the only areas where Baku and Tbilisi demonstrate the maximum level of complementarity. "Today, Georgian-Azerbaijani economic relations are successfully developing in all directions. Azerbaijan has invested $3.6 billion in the Georgian economy," Aliyev said. This is a testament to the Georgian government's economic policies, and the positive investment climate in Georgia encourages investors, including Azerbaijani companies, to invest in the Georgian economy.

Transit Potential

Addressing the pivotal sectors of Azerbaijani-Georgian business collaboration, the President of Azerbaijan and the Georgian Prime Minister highlighted joint endeavours in the domain of green energy, along with the advancement of transport infrastructure within the Middle Corridor initiative. "You mentioned transport communications projects, and this topic is also important in terms of the development of our bilateral relations. We connect Asia with Europe, and our countries can play a significant role in this geographical expansion and should maximize the available potential," Kobakhidze said.

As a reminder, aspects of Azerbaijani-Georgian cooperation in the transport sector, including the issues of optimising the TCITR, were discussed at the 10th meeting of the Joint Intergovernmental Commission on Economic Cooperation held in Baku on January 17th and chaired by the prime ministers of the two countries. The meeting emphasized the significance of collaborative efforts to maximize the BTC railway's capacity. Thanks to additional investments by Azerbaijan and efforts by the Georgian side, the throughput capacity of this steel railway was increased from 1 to 5 million tonnes per year.

The BTC, spanning 826 kilometres in total, was officially inaugurated on October 30, 2017. However, its potential has not been fully utilized, including due to a number of technical deficiencies. During its six-year operation, the average annual cargo volume has remained below 500,000 tons. These rates are not sufficient, especially considering the extended delivery times for cargo along the BTC route, with an average of more than 70 hours from Baku to Kars, and significantly longer during winter months. To address these challenges, from 2023 to May 2024, Azerbaijan allocated funds for the enhancement of road infrastructure in the Georgian segment of the BTC, specifically in the Marabda-Kartsakhi area. This stretch of the BTC traverses challenging terrain, characterized by mountainous and wooded landscapes. Significant progress was made, including the installation of overhead lines and the implementation of signalling, centralization, and interlocking systems. Modernization efforts also encompassed several railway stations and passenger platforms, the installation of snow fences and tunnels, and the construction of traction substations. Reconstruction efforts have been undertaken on the railway tracks and tunnels along the Akhalkalaki-Kartsakhi section and the Tsalka-Akhalkalaki line, among other locations. As a result, the throughput capacity of the BTC railway line increased fivefold, and the speed of trains on the Georgian section increased, including in winter. 

During discussions on transport issues, Prime Minister Ali Asadov also noted that active work is underway to increase the capacity of the most important link of the Middle Corridor — Baku International Sea Trade Port — from 15 to 25 million tonnes per year. This expansion is pivotal for the enhancement of joint Azerbaijani-Georgian transit infrastructure, facilitating seamless connectivity between China, Central Asian countries, and Türkiye.

Energy Bridge to Türkiye

In recent years, Azerbaijan and Georgia have been strengthening cooperation in the segment of electricity transit to the Turkish and European markets. In 2015, Azerenerji completed the modernization of the transmission infrastructure, including transmission lines and substations in the western direction. As a result, the capacity of the Azerbaijani-Georgian-Turkish energy bridge is now sufficient to maintain a level of supply of 700 MW and higher. This potential has only increased in subsequent years. On December 17, 2022, a strategic partnership agreement was signed by Azerbaijan, Georgia, Romania, and Hungary for the joint laying of the Black Sea Energy submarine electric cable, which will be 1,195 km in length and have a capacity of 1 GW. According to preliminary estimates, the cable's capacity will enable the annual supply of up to 4 GW of green electricity. The Italian consulting company CESI was involved in the relevant studies for laying the submarine cable in the section between Georgia and Romania. In September of last year, a joint venture was established by the energy operators of the four countries. Since then, the partners have been studying the possibility of financing the project by the European Commission, which plans to allocate 2.3 billion euros for the project. According to preliminary estimates, the Black Sea Energy project is expected to take 3-4 years to implement.

Azerbaijan, which is actively developing the renewable energy segment, will have an impressive surplus (several gigawatts) of capacity in a few years. Its future plans include exporting approximately 80% of its "green" electricity, primarily to regions in the Old World that are experiencing energy shortages. Georgia, which also has "green" potential to participate in the realisation of this energy corridor, is following a similar path. "Over the past two years, Georgia has become a significant net exporter of electricity, with 90 per cent of its electricity being generated by hydroelectric power plants and is therefore 'green.' This is an important contribution to the implementation of the Black Sea Energy Corridor." Valery Chechelashvili, Georgia's former ambassador to Russia, has stated that Georgia's green energy potential is significant.

Georgia's strategic geographic location and its good-neighbourly relations with its neighbours make it a prime location for the implementation of major regional and international projects that will benefit the present and future economic development of the countries in the region.