Russia's State-Controlled Gas Firm Announces Plan to Double Price for Georgia

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By Peter Finn
Washington Post Foreign Service
Friday, November 3, 2006

MOSCOW. Nov. 2 -- The state-controlled company Gazprom said Thursday that it wants to more than double the price of natural gas for Russia's southern neighbor Georgia in 2007. The sharp increase, if implemented, is likely to reopen the debate on whether Russia is using its vast energy resources as a political weapon.

The prickly relations between the two countries reached a new low in late September after Georgia arrested four Russian military officers on charges of espionage and, days later, Russia imposed a transportation and communications blockade on the small republic. The officers were released, but Russia has spurned entreaties from the European Union and the United States to lift the blockade.

Relations have also been strained by two breakaway parts of Georgia, South Ossetia and Abkhazia, which are policed by Russian troops, whom the Georgians accuse of stoking separatism. In the past month, Russia also began the deportation of hundreds of Georgians who officials said were illegally living and working here.

Word of Gazprom's preferred price came as Georgian Foreign Minister Gela Bezhuashvili met with his Russian counterpart, Sergei Lavrov, in Moscow on Thursday, the first high-level contact between the two countries since relations plummeted last month. But there was no sign of a breakthrough.

"Dialogue has been launched, and we agreed to continue it," Bezhuashvili told reporters after the meeting. "This one-way game is over. We told our Russian colleagues that."

Georgian President Mikheil Saakashvili is determined to join the NATO military alliance, an ambition that also raises hackles here, given that Georgia was part of the Soviet Union.

Gazprom said it wants to charge $230 per 35,300 cubic feet, up from the current price of $110. Although Georgia has been diversifying its energy sources, it still depends heavily on Russian gas. The price hike could damage the country's economy, which is already enduring a Russian ban on the import of Georgian wines, bottled water, fruits and vegetables, all significant moneymakers. "Using energy is a card which Russia employs not only with Georgia but with other countries, and we have no illusions about this," Bezhuashvili said on Echo Moskvy radio Thursday. "This issue has a large commercial component, but on the other hand, there are politics behind it."

A Gazprom representative said the $230 price was a proposal and that negotiations were ongoing. "There is nothing to discuss yet," said the representative, who declined to be identified, citing company policy.

Russian officials have argued that they can no longer subsidize former Soviet republics by providing them with cheap energy and that the countries will have to pay West European market prices, up to $250 for 35,300 cubic feet. President Vladimir Putin has said that if the Western governments want the subsidies to Georgia to continue, then they can make up the difference, which amounts to billions of dollars.

But critics have pointed out that Gazprom continues to sell at lower prices to countries that have good relations with Moscow.

At the start of the year, Gazprom cut off supplies to Ukraine in a price dispute, which affected supplies in Western Europe because gas is routed there through pipes in Ukraine. The shutdown was condemned at the time as an attempt to punish a new pro-Western government that came to power after street protests in the capital, Kiev, swept Viktor Yushchenko into the presidency.

Since the shutdown, a new government regarded as more friendly to Moscow has come to power with Viktor Yanukovich, Yushchenko's former opponent for the presidency, now serving as prime minister. Yanukovich's government recently negotiated a gradual price increase to $130 per 35,300 cubic feet for 2007.

"I think it's a gift," said Russia's ambassador to Ukraine, Viktor Chernomyrdin, speaking to reporters Thursday in Kiev. "Nearby, just across the road, the price is $230-$250. To my mind, $130 per 1,000 cubic meters is a very acceptable price. And that's what your leaders say, too."

"We don't understand why the prices are so different in neighboring territories," said Bezhuashvili, clearly aware of Ukraine's negotiations.


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