Georgia Promises to Retain Control over Gas Pipeline to Armenia

Georgia's North-South Pipeline

TBILISI (Eurasia) – Georgia’s Minister of Economic Development today repeated earlier assurances that Tbilisi does not plan to sell off the trunk pipeline that feeds natural gas from Russia to Armenia via Georgian territory. The state may offload only a minority share — 15 percent tops — but would retain the controlling stake in the North-South pipeline, Economic Development Minister Vera Kobalia said.

A vote to remove the pipeline from Georgia’s list of strategic property last week sparked concerns both in Georgia and Armenia about the line’s future. The measure, which passed in a second hearing on July 13, faces another vote in parliament.

Critics at home fear that Russia’s Gazprom, which controls Armenia’s domestic gas infrastructure, may purchase the pipeline — a sale that would give the Kremlin a tool to pressure Tbilisi and expand its regional clout, they fear. Some commentators in Armenia, which receives most of its gas supply via the Georgian pipeline, have raised concerns about Azerbaijan taking a piece of the action.

Georgian government officials have promised not to sell the pipeline to Russia, but the opposition has requested the government to seal that promise in writing. Kobalia did not name potential buyers.

Meanwhile, Russia’s energy giant Gazprom, the world’s largest gas producer, shoots down fears that it is looking to acquire or has acquired a significant stake in Georgia’s North-South trunk gas pipeline, which could change the dynamic of how Armenia receives its gas, and says it is only hypothetically interested in an acquisition and is not actively seeking a stake at the moment.

A Gazprom official told Energy Risk: “We do not hold any equity in the pipeline at all. If we even considered it a possibility, the first step would be to await the final decision from the Georgian Parliament, not only through first session results but on final results on its [economic and business] restructuring program. The complete pipeline would have to be included in the list for privatization.”

“Then, feasibility studies would have to be carried out, to enable any decision on acquiring a stake in the pipeline. It is only on having these results, that Gazprom experts would be able to judge whether a deal is feasible,” the official added.

Earlier this month, Georgian Prime Minister Nikoloz Gilauri revealed in an interview of plans to sell 10% to 15% of Georgia’s trunk gas pipeline on the London Stock Exchange in 2 to 3 years’ time. The announcement came as a shock as Georgia would have to effectively restructure its economy to accommodate foreign investment in Georgian businesses.

The Georgian government is currently reviewing whether it will allow privatization and foreign investment for most of its businesses. A change in regulation is needed to allow non-Georgian national companies to acquire stakes in the country’s businesses.

However, despite Gilauri saying Georgia plans to privatize the pipeline, there are several factors that seem to make this unlikely, thus preventing companies like Gazprom to seek a stake.

In April 2006, Georgia and the U.S. signed an agreement as part of the independent US foreign aid agency Millennium Challenge Corporation (MCC) under which the US would disburse $295.4 million in financial aid. A portion of this aid would be used to rehabilitate the gas pipeline on condition that the Georgian Gas International Corporation (GGIC), which manages the pipeline, would not privatize the asset without written consent from the MCC. The project ended in February 2010. Another clause within the agreement stipulates that if Georgia privatizes the gas pipeline in any way, the country must return all the financial aid.

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