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In Search of a Gas Price
/ 5 Jan.'06 / 21:10
Nino Khutsidze, Civil Georgia

Ukraine’s gas price deal with Russia, which has been described by the western media as a “face-saving” deal, giving both Kiev and Moscow the ability to claim a commercial victory, gave rise to speculations in Georgia that Tbilisi could have negotiated better gas price conditions with Moscow during recent talks.

Under the deal agreed upon by both countries Ukraine will receive 1000 cubic meters of gas for the average price of USD 95, which is USD 45 more than in previous years but USD 135 less than initially demanded by Russia. This price – USD 95 – was made possible by combining high-priced Russian gas – USD 230 – with low-priced Turkmen gas – USD 50.

Georgia, for its part, has already signed one-year contract with Gazprom envisaging the supply of 2.5 billion cubic meters of gas for USD 110 per 1000 cubic meters. But many Georgian energy analysts argue that the gas price for Georgia should not have been higher than USD 90 per 1000 cubic meters.

”Although it is very difficult to say what was going on at the negotiating table, as seen from this perspective I think this rate [USD 90] was quite achievable during the talks and this would have been the most economically reasonable price,” Temur Gochitashvili, an independent energy analysts, told Civil Georgia.

Analyst Gia Khukhashvili says that the Georgian authorities “wasted time” by negotiating with Kazakhstan as a possible alternative source of gas supply instead of “properly negotiating with Gazprom.”

“Talking about Kazakh gas as an alternative source was a mug’s game. Kazakh gas has to reach the Georgian border through the Russian territory and Moscow said no, as was anticipated” Khukhashvili told Civil Georgia.

But Georgian officials say that negotiating an acceptable price with Gazprom was almost impossible, as the Russian energy giant is a monopoly.

Analysts also argue that signing this price deal with Gazprom without pushing for favorable gas transit fees was also unacceptable.

Georgia transits Gazprom’s gas to Armenia via a trunk pipeline, which Gazprom now wants to purchase. Currently, Georgia receives 10% all gas sent from Russia to Armenia via Georgia as ‘payment.’ But now Russia prefers to pay cash up front for these transportation fees. According to energy analyst Temur Gochitashvili, this figure would be about USD 6.5 per 1000 cubic meters of gas transited via Georgia.

“10% is just a formal ‘price’ because gas losses amount to 5%, as the pipelines have not been maintained properly. Therefore, [the gas Georgia receives amounts to] only half of this USD 6.5 [per 1000 cubic meters],” Gochitashvili said.

He says that the Georgian side should now insist on USD 7-8 as a transit fee per 1000 cubic meters.

“But with the gas price already agreed upon with Gazprom it will be difficult to convince Russia to agree on transit fees which are favorable for the Georgian side,” analyst added.

Tbilisi now looks with hope to the BP-led Baku-Tbilisi-Erzrum (BTE) pipeline, which is currently under construction and which will bring gas from the Caspian Sea to Turkey via Georgia. According to the BTE deal, Georgia will receive 5% of the natural gas transported from Azerbaijan to Turkey as a transit fee and, in addition, Georgia will also be able to purchase 500 million cubic meters of gas at a reduced price – USD 55 per 1000 cubic meters for 20 years.

Meanwhile, the Georgian government plans to subsidize the increased gas price until May, 2006, at an estimated cost of USD 35 million. The increased gas price will be subsidized for residents of the capital Tbilisi by the Kazakh company KazTransGaz, which will take over the Tbilisi gas distribution company TbilGazi in February.

After May, however, consumers in Tbilisi will have to pay GEL 0.34 (about USD 0.19) per cubic meter instead of the current GEL 0.26 (USD 0.14). In other parts of Georgia, the gas price will be GEL 0.36 per cubic meter.

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