The Georgian Vice Prime Minister, the Minister of Energy and a former defender of FC ‘Milan’, Kakha Kaladze, told reporters with a joyful voice that his ministry and the Russian company Gazprom have finally extended the agreement on the payment of transit of natural gas to Armenia via Georgia for one year. There is nothing sensational in the agreement – Georgia takes 10% of the gas supplied to Armenia from Russia via the strategic Vladikavkaz-Tbilisi-Yerevan pipeline for 24 years. The tripartite agreement was reached in 1992. Since then, each year the agreement has been extended for another 12 months. Since 2007 the main supplier of natural gas to Georgia was the Azerbaijani company SOCAR. But Tbilisi continues to receive 10% of the total gas volume of transit, in winter it is about 2.5 million cubic meters. In a crucially important winter season for the energy system, Georgia imported 9 to 9.5 million cubic meters of gas from Azerbaijan.
However, this year two interrelated problems have appeared.
The first, due to the extension of the gas network on Georgian territory and the supply of natural gas to those regions of Georgia where the population has never been able to use gas, consumption has increased considerably. Azerbaijan immediately agreed to supply any extra volume. President Ilham Aliyev said during a visit to Tbilisi that Azerbaijan ‘has enough natural gas to ensure not only Georgia, but the whole of Europe for another 100 years.’ However, the pipeline system connecting the two neighboring countries doesn't allow the supply to be increased without further efforts to increase the throughput capacity of the pipelines.
The second problem is that Gazprom, in accordance with the international rules of energy transit, including the European Energy Charter, has raised the issue of monetization of the transit fees. Moscow was ready to pay according to international rates. But this proposal categorically did not suit the Georgian side. Minister Kaladze has repeatedly explained why: there is no guarantee that the country can buy the same amount of natural gas from Gazprom, which was obtained in the form of transit fees, it means, 2 to 2.5 million cubic meters per day in winter.
During three rounds of talks, Kakha Kaladze invited the head of the Russian energy giant Alexei Miller to sign a medium-term agreement with the condition of approximately doubling the volume of Russian gas supplied to the Georgian consumers, that is, up to 5 million cubic meters per day in winter. But apparently this proposal did not suit Moscow, because this way not only the volume, but the price of goods would be fixed in the document and not in the framework of the world market, which could create an unfavorable precedent for Gazprom in negotiations with other partners.
Alexei Miller threatened that if Tbilisi does not agree to the proposed terms, Russia would stop all gas transit through Georgian territory and would start deliveries to Armenia from Iran through an existing pipeline already this year. This statement, which became known in the retelling of the Kakhi Kaladze himself, has caused a storm of controversy among experts. Most of them agree that Armenia can receive half of the natural gas that is required by the country from Iran in the current year, and after the modernization of the pipeline it can receive the whole volume of blue fuel. Another question is how far it is profitable for Russia to let such a powerful player as Iran into the energy market of the South Caucasus.
After the obvious fluctuations and under intense pressure from the opposition, the Georgian authorities finally rejected the proposal of Gazprom. Kaladze publicly said that he would not depart from the ‘root’ payment offer of payment with gas. The situation seemed to have reached an impasse, creating multifaceted risks to energy stability in the region.
This knot was possible to unravel with the help of Azerbaijan. Baku agreed to increase the volume of gas supplied to Georgia in winter by 500 million cubic meters. As Vestnik Kavkaza was told by the Energy Ministry, the verbal agreement also provides for carrying out urgent work to increase the capacity of the existing pipelines. In turn, Russia has agreed to extend the validity of the document on transit for another 12 months. Thus, Georgia will continue to receive 10% of the total amount of fuel supplied to Armenia.
According to experts, the region thus recovered its energy balance, and hence political stability, at least in the form in which it existed before the crisis, and the agreements reached have demonstrated again the need for the coordination of the actions of the two main actors in the Caucasus energy market – Russia and Azerbaijan.
