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Last Updated: Thursday, 2 November 2006, 12:24 GMT
Georgia faces a haggle for gas
By Stephen Mulvey
BBC News

Russia's proposal to double the price of gas to Georgia is in line with its declared policy of putting a halt to energy subsidies for former Soviet states.

But the policy is applied inconsistently.

Georgian woman uses wood stove
Georgia cannot easily afford to pay market prices for gas
The importing countries can, and do, haggle to get a price below the supposed market price of between $200 and $250 per 1,000 cubic metres.

Armenia and Ukraine are two recent examples.

In April, Armenia signed a three-year contract to buy gas for $110 per 1,000 cubic metres, after agreeing to sell part of a gas-fired energy plant and part of a new pipeline to Armenia from Iran.

A fortnight ago, Ukraine negotiated a price of $130 per 1,000 cubic metres, but in this case the payback is less clear.


Gazprom is always keen to buy up energy infrastructure, but Ukraine is equally keen to hang on to its export pipeline - the one that carries most of Gazprom's exports to Europe.

Comments made by the Russian prime minister after the deal was struck signalled that Ukraine may have paid a political price - an agreement to co-ordinate with Russia the timing of its entry into the World Trade Organization.

So what are the prospects for Georgia?

The lessons from Armenia and Ukraine would appear to be that if Georgia wants cheap gas it either has to give up part of its energy infrastructure, or to make some political concessions.

What such concessions might be is unclear, though there has been speculation that the recent deterioration of relations between Georgia and Russia may in some way be linked to its increasingly close ties with Nato.


At any rate, Gazprom's announcement will certainly have given Georgian foreign minister Gela Bezhuashvili food for thought as he visits Moscow for talks aimed at defusing recent tensions.

No legitimate interest is served when oil and gas become tools of intimidation
US Vice-President Dick Cheney
The timing of Gazprom's announcement is probably no coincidence, though negotiations on a new gas contract have been on the agenda for some time.

This way of doing business alarms the US and the EU.

In May, US Vice-President Dick Cheney made a speech in the Lithuanian capital Vilnius, attacking Russian foreign policy.

"No legitimate interest is served when oil and gas become tools of intimidation or blackmail, either by supply manipulation or attempts to monopolise transportation," he said.

US Defense Secretary Donald Rumsfeld, meanwhile, told the French paper Le Figaro that Russia had "used its energy resources as political weapon".

The EU's position is that Russia and its energy partners would be best served by a genuine open market for energy, and a transparent pricing policy.

It has put huge efforts into getting Russia to sign the Energy Charter Treaty - which would, among other things, have allowed foreign energy companies in Russia to export gas and oil via Russian pipelines - but has now more or less accepted defeat.

The current EU strategy is to negotiate a framework for energy sector co-operation in a new strategic partnership agreement.

Iranian option

At a summit in Finland last month, President Vladimir Putin said Russia was prepared to have this discussion, though he did not promise any concessions.

Talks are due to start soon but they will take months, and unlike the Energy Charter Treaty, the EU-Russia agreement is unlikely to be much help to a non-EU country like Georgia.

Georgia is short of money and cannot easily afford to pay $200 or more for 1,000 cubic metres of gas.

In the long run it will be able to buy more gas from Azerbaijan.

It may still have a chance to get competitively priced gas from Iran via the Armenian pipeline, though Russia's increased stake makes that look less likely.

So in the short term, it has a problem.

Gazprom to double Georgia charges
02 Nov 06 |  Business
New Gazprom gas to go to Europe
11 Oct 06 |  Business
Gazprom goes solo on gas project
09 Oct 06 |  Business
Russia's Gazprom profits rocket
07 Jul 06 |  Business
Russia and Ukraine agree gas deal
30 Jun 06 |  Business
Gazprom widens European influence
19 Jun 06 |  Business

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