Georgia: Russian Gas Deal Concerns

The government's plan to join forces with the Moscow-based international energy concern Itera to set up a consolidated gas supply company in Tbilisi has provoked unease among parliamentary deputies and economic analysts.

Should the joint venture materialise, the Russian energy giant would control Georgia's entire gas supply system, from source to distribution, at a time when relations between Moscow and Tbilisi have sunk to an all-time low.

Russia has threatened military intervention in Georgia's Pankisi Gorge region where, it claims, large groups of Chechen guerrillas have found shelter. Georgia, in turn, is outraged by Russia's alleged support for the breakaway republic of Abkhazia, which Tbilisi considers its own.

The country has been plagued by energy shortages for the last ten years, which have been most acute in the autumn and winter, when the provinces hardly get any electricity at all. At these times, power supply in the capital is rigidly rationed, with gas shortages sometimes lasting several months.

"We always have a miserable time in winter, wearing warm shoes around the house instead of slippers," said Maya Gogoberidze, a schoolteacher from Tbilisi, resignedly. "Electricity is only turned on for so many hours a day, sometimes only four."

The energy problem has come to a head this year as the condition of the gas pipes has rapidly deteriorated. Unable to raise enough cash to repair them, Tbilisi is facing the threat of a complete gas shutoff. As a result, many enterprises would come to a standstill and living standards would plummet.

The Russian-Georgian venture will be formed with the assets of Sakgazi, Georgia's gas supply monopoly fully owned by Itera, along with those of some 40 of the country's local gas distribution companies, 12 of which are also owned by Itera. The Russian partner will hold 51 per cent of equity in the new company.

"Georgia cannot take any more pressure from Moscow, such as this new joint venture," said Giorgi Baramidze, leader of the main opposition Democrats parliamentary faction. "It's a plain insult to be forming a partnership with Russia at this juncture."

In his defence, the beleaguered minister of fuel and power David Mirtskhulava countered that Itera is the only buyer Georgia has been able to find for Tbilisi's derelict gas supply system which he said "is long due for retirement with leakages running at nearly 80 per cent. A tragedy can happen any minute."

He said Tbilisi's gas network would cost up to 100 million US dollars to rehabilitate, and another 7 million to winterise, "We do not have that sort of money, but if the joint venture is established, Itera will provide the funding."

Itera moved into Georgia in 1996, and has since remained the only supplier of natural gas to the country, systemically buying up its local distribution facilities.

The government, though, seems unconcerned about its growing monopoly, saying there's no other alternative. This would be understandable if Mirtskhulava were honest in saying no other buyer could be found for Tbilisi's gas system - the authorities have been negotiating the sale with the Tahal compnay, part of one of Israel's largest Holding groups, Kardan Ltd, since early 2002.

Coincidentally, as soon as Tahal came on the scene in late 2001, Itera stepped up pressure on the gas distribution company Tbilgazi to pay off its debts arrears and introduced prepayment last spring. As a result, natural gas was cut off in most of Tbilisi and supply has not resumed to this day.

In August, government minister Avtandil Jorbenadze unveiled a tentative plan to set up a joint venture with Itera.

The problems awaiting the new owner of Tbilgazi go beyond the rehabilitation of decrepit piping. An estimated 50 to 60 per cent of the company's 160,000 subscribers either pay their bills infrequently or not at all.

Tbilisi police have found out that the Chinese-made gas meters usually installed in Georgian houses are easily disconnected. Furthermore, according to police records, Tbilgazi inspectors are usually in cahoots with the tenants, who pay them to register low meter readings.

The Georgian Audit Chamber agrees - its chief Sulkhan Molashvili telling IWPR that it had reported the scams to the prosecutor general a year ago. "This racket partly explains why gas losses in Georgia's other distribution networks never even come close to Tbilisi's," said Vladimir Ugulava, head of the government's anticorruption office.

Itera is convinced it can handle all the challenges. "Let no one delude themselves they can continue not to pay for gas after we take over Tbilgazi. We will straighten everything out, and payments, too," Leonid Deikalo, head of Itera-owned Sakgazi, told the press.

But parliamentarians are unconvinced. "Georgia should have learned from its bitter experience of fostering a power monopoly. Having taken over the capital's electric network, the Americans jacked up the rate from 2 tetri (about 1 US cent) to 12.4 per kW, and are pushing for further price hikes in a country where the average monthly wage is 20 US dollars. What can we expect from the Russians?" said deputy Giorgi Baramidze.

Other analysts say it's a mistake to allow the Russians to have a monopoly over gas supply, as Georgia could soon be able to choose from several other suppliers, such as Azerbaijan and Turkmenistan. "Our hands must be free so that we can take full advantage of that choice," said oil and gas expert Liana Jervalidze.

Giorgi Kalandadze works for the 24 saati newspaper in Tbilisi