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Georgia says will not sell key gas pipeline (UPDATED)

23 August 2010 23:45 (UTC+04:00)
Georgia says will not sell key gas pipeline (UPDATED)

TBILISI – Georgia has said it has no plans to sell part of a major gas pipeline extending from Russia to Armenia through Georgian territory, following earlier reports saying its government would open bids to privatize the conduit.

Energy Minister Alexander Khetaguri made the announcement after a government meeting on Saturday. He did not elaborate but said Tbilisi would not sell any pipelines.

Georgia's parliament last month approved the lifting of a legal ban on the privatization of the North-South pipeline that was previously listed as a "strategic asset" that could not be sold.

Georgian officials earlier insisted that only a minority stake could be sold. But the potential sale nonetheless sparked concern among some in Georgia, who feared Russia could be a likely buyer, and in Armenia, who worried that arch-rival Azerbaijan could purchase a stake in the key supply route.

Russian gas monopoly Gazprom was one of the two would-be buyers of the pipeline and had offered to pay $250 million for the acquisition. But Georgian officials set the price at as much as $1 billion, reports say.

The other potential buyer was Azerbaijan’s state energy firm SOCAR. The company reportedly announced it was ready to pay $500 million to purchase the stake.

SOCAR President Rovnag Abdullayev told the press last week that his company was interested in all energy projects in Georgia, including the Georgian section of the Russia-Armenia pipeline.

Some Baku-based experts say Azerbaijan’s proposal had prompted Tbilisi to alter its decision.

Vugar Bayramov, head of the Center for Economic and Social Development, said that by trying to buy the pipeline stake Azerbaijan sought to gain a strategic leverage of influence over Armenia, its long-time foe. This does not mean, however, that the Azerbaijani company would have halted gas supplies to the country any time.

"This issue would have probably been reflected in the package of proposals in some shape or form," Bayramov said.

According to him, Georgia’s giving up its pipeline sell-out plans was due to two reasons. Initially, Georgia bewared of Gazprom’s buying the pipeline, which would grant Russia an opportunity to influence Tbilisi. The other reason is related to Azerbaijan, the analyst suggested.

"The decision not to sell the pipeline was passed after the Azerbaijani company stated its intention [to buy it]. Azerbaijan’s interest in the pipeline could be cited as one of the reasons. Therefore, European countries supposedly requested Georgia not to sell the conduit. Some of them think that this could have caused a disruption of the balance [of powers] in the region and Azerbaijan’s dictating regional processes."

Ilham Shaban, who heads the Oil Research Center, believes that the buyer of the pipeline section would not have made profits from the acquisition, as Russia pays a 10 percent transit fee for the gas it transports through Georgia. In other words, Moscow pays for 170 million cubic meters out of a total of 1.7 billion cubic meters of gas.

"This makes up only $10-15 million. At this cost, you need to both operate the pipeline and pay taxes…This doesn’t look realistic."

Shaban said that, moreover, Georgian officials were issuing conflicting statements about the pipeline’s privatization.

"They were saying that the pipeline may be privatized in two to three years, then they said that Georgia would retain the controlling stock of 51 percent. This alone was prompting a skeptical approach to the future of the project."

When Georgia first floated the idea of privatizing the pipeline in 2005, the United States provided 50 million dollars in funds for urgent repairs instead, in a move analysts said was aimed at keeping it out of Russian hands.

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