Georgia will switch to a monetary compensation plan with Gazprom in exchange for allowing transport of Russian natural gas to Armenia.
After long negotiations, the Georgian government made “an optional” decision and accepted the offer from Gazprom regarding transition to a monetary form of payment for the transit of Russian gas to Armenia, Declared Georgian Energy Minister, Kakha Kaladze.
Year 2007 – Punishment for Georgia’s pro-Western policies
Georgia stopped importing gas from Russia in 2007, when Russia turned up the economic pressure on Georgia by saying gas monopoly giant Gazprom would switch off supplies to its ex-Soviet neighbor if a deal was not reached on new, higher gas prices.
Back then, Tbilisi was locked in a bitter political struggle with Moscow, with no choice but to accept double the price for gas as punishment for the country’s pro-Western agenda. Georgian policies towards the EU and NATO had evidently angered the Kremlin. The gas price row was accompanied by an embargo on trade, proving that the price increase was politically-motivated and Russia was using Gazprom as a political weapon.
Since then, Georgia has relied on neighbouring Azerbaijan as its principal energy supplier. Last year, Georgia received 83% of its total gas consumption from Azerbaijan. Georgia has received about 10% of the total volume of Russian gas sent to Armenia as a transit fee.
Year 2016 – Declined Agreement with Gazprom
Negotiations between Georgia and Russia dragged on because Gazprom insisted on monetization of the gas transit fee, which was unacceptable for the Georgian side. Georgia rejected the terms offered by Gazprom last year and maintained the existing transit terms.
In March 2016, Azerbaijan agreed to increase supply. Kaladze and the President of Azerbaijan’s SOCAR, Rovnag Abdullayev, signed a contract increasing the amount of Azerbaijani gas to be delivered to Georgia. Thanks to the agreement, Russia’s offer was declined.
The previous contract between Georgia and Gazprom Export was valid to the end of 2016.
Year 2017 – An ultimatum to Georgia
After several meetings in December with no agreement, a decision was made on January 11th of this year. Georgia decided to agree to the proposal from Gazprom and accepted the contract on its terms.
“Gazprom Export offered a package proposal to Georgia based on favorable and mutually beneficial conditions, which will provide the Georgian side with guaranteed income flow from gas transit services and increase the security of gas supply of Georgia,” said Elena Burmistrova, Director General of Gazprom Export.
Commenting on the meeting in Minsk, Georgian Energy Minister Kakha Kaladze called the proposal from Gazprom interesting, noting that it was the last offer. Kaladze said negotiations “were not easy” and that if they had failed, Georgia would have had “to take illegally or to steal” Gazprom’s gas, and that “would have been followed by court proceedings. It would be much more damaging for Georgia.”
Kaladze stated that accepting Gazprom’s proposal did not mean “compromising,” because “from the financial point of view, we will have the same result as in the acase of commodity payments.”
“This agreement will not increase Georgia’s dependence on Russian energy carriers, only the form of payment will be changed and instead of payment with a commodity, in accordance with international practice, we will move to monetization,” Kaladze said after the meeting.
Is Georgia obliged to accept Gazprom terms?
Georgian opposition leaders and civil society representatives described the government’s decision to accept Gazprom’s terms as an extremely dangerous decision for the country’s security and political independence. Analysts also doubt whether Russia will pay a price equal to the value of the commodity Georgia was receiving in the past. Georgia also loses its leverage against Russia with the change in terms. Opposition leaders also question whether Georgian oligarch, Bidzina Ivanishvili (ex Prime Minister and an informal ruler of Georgia now) has personal interest in this deal.
Georgia had a strong position in negotiations for a simple reason; transit passes through the territory of Georgia. Russia just can not do the business without reaching an agreement. However, the Georgian government remains on the losing side regarding the Gazprom ultimatum, which is hard to explain and raises questions about the government’s real motives.