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Tuesday, October 04, 2005

Political change, gas woes to cost Georgia(USA) in 2006

The head of the Saknavtobi (the Georgian National Oil Corporation) Advisory Committee Bhamy Shenoy thinks that Tbilgazi customers will have to pay more for gas consumption next year, as international oil prices are likely to remain around USD 50 to 55 per barrel in 2006.

Shenoy explained to The Messenger over the weekend that "since oil competes with gas for many uses, the price of oil puts a ceiling on the price of gas."

He says that for the last two years Gazprom was selling gas to Georgia at "a highly subsidized price." However, Shenoy thinks that given "the changed circumstances of the political landscape" between Russia and Georgia, "Gazprom has no compulsion to sell gas at a subsidized price."

"The only leverage Georgia has with Russia is the dependence of the latter to supply its ally Armenia," Shenoy said.

Representative of Gazprom in Georgia David Morchiladze confirmed last Wednesday that Gazprom has already made its first offer to the Georgian side about the cost of gas imports.

"The first offer by Gazprom at negotiations in Moscow was USD 110 [for 1000 cubic meters of gas instead of the previous USD 60]," Morchiladze said. He added that Georgia plans to agree with Gazprom on a 10-year contract.

The Russian company also demands that the Tbilisi gas distribution company Tbilgazi pay off its existing debts to Gazprom's subsidiary company Gazexport. Tbilgazi still has a USD 5.7 million debt to cover.

"If Tbilgazi were to operate as a commercial company where losses are kept to a minimum, this [paying higher price for gas] would not have caused a big problem," Shenoy said. Currently Tbilgazi is subsidized by the government.

He added to the paper that a higher price for gas supply offered by Gazprom is more "a political issue rather than an economic one."

Shenoy thinks the South Caucasus (Baku-Tbilisi-Erzrum) pipeline can become an alternative source of gas supply for Georgia when it goes into operation.

"It will be an important new energy source for Georgia," Head of BP Georgia Wref Digings told the paper earlier this year. The pipeline should start operation around October 2006. "The current agreement set the prices at which Georgia can buy gas, which are quite advantageous," Digings said.

According to the gas sales contract between Azerbaijan, Georgia and Turkey, Georgia will get 0.3 billion cubic meters rising to 0.8 bcm a few years. Currently, Georgia's demand for gas is about 1.3 bcm per annum.

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