TODAY.AZ / Business

Kazakhstan extends helping hand to Georgia

23 March 2007 [14:55] - TODAY.AZ
Kazakhstan's deepening economic cooperation with Georgia and Ukraine is increasingly assuming political connotations which go far beyond the boundaries of bilateral relations.

A red rag to Moscow and a hopeful development for energy-hungry Western Europe, frequent reciprocal trips between Astana and Tbilisi culminated in the signing of new bilateral agreements during Mikhail Saakashvili's second visit to Kazakhstan.

The Georgian President's brief stopover in Astana on his way to Japan on March 5 could hardly be called an epoch-making visit. Even observers familiar with Mikhail Saakashvili's distaste for ceremonial pompousness were puzzled by the low profile he upheld in his talks with his Kazakh counterpart and with journalists, dropping casual jokes about tourism and investment. But in Astana, everybody knows that the current state of Georgian economy, especially in the energy sector, is anything but a joking matter. What brought Saakashvili to Astana was essentially a desperate need for investment. After last year's gas row with Moscow, Tbilisi is restlessly looking for alternative suppliers of gas. With its war-torn economy and underdeveloped infrastructure, Georgia offers Kazakhstan a huge investment market. Astana in the past repeatedly stressed that its relations with Tbilisi were based exceptionally on economic rationale, excluding any political components.

Speaking at the business forum in Astana, Nazarbayev reaffirmed this attitude, praising only in passing the "transparency, freedom and good business climate" created by the Georgian government for foreign investors. However, it is becoming increasingly hard for Astana and Tbilisi to avoid political undercurrents of bilateral relations and the risk to poison relations with Russia, which always stood in the way. In November 2005, the Ministries of Energy of Georgia and Kazakhstan signed an agreement on the annual delivery of 2 billion cubic meters of Kazakh gas to Georgia for $68 per 1000 cubic meters. But the full implementation of the agreement came at an impasse as deliveries had to pass through Russian territory. When Russia threatened to turn off the gas tap to Georgia and Gazprom was urged by Kremlin to hike gas prices for Tbilisi from $110 to $230, the Kazakh gas transporting company KazTransGaz offered Tbilisi financial aid, promising to compensate for losses in exchange for shares in Georgian insurance markets. In 2006, KazTransGaz became the owner of Tbilgaz, the main gas distributing network in the Georgian capital. Simultaneously, the insurance company affiliated with KazTransGaz was granted rights to insure all residents of Georgia against gas price increases.

It seems the ongoing political standoff between Georgia and Russia blows a fresh wind into the sails of Kazakh gas companies. While Gazprom and the Georgian government are wasting time in endless reciprocal accusations and agreements on gas deliveries from Moscow are still in limbo, KazTransGaz is reportedly conducting talks with Iran to ensure Iranian gas supplies to Georgia this year. Some sources say talks are under way between Russian Gazprom and KazTransGaz over the purchase of 420 million cubic meters of gas to supply Tbilisi's municipal services.

It may all look like a generous sacrifice on the part of Kazakhstan for the sake of maintaining friendly ties with Georgia. But in the final analysis it is nothing more than a part of Kazakhstan’s effort to find alternative export routes for its oil and gas. Kazakhstan's gas transporting facilities were previously designed to bring Turkmen and Uzbek gas to Russia and to supply domestic consumers. With the projected increase of oil and gas output and discouraged by Moscow's energy disputes with Ukraine, Belarus and Western Europe, Kazakhstan is looking for politically reliable alternatives for Russian transit. One of the promising projects for Kazakhstan seems to be the Trans-Caspian gas pipeline, which is being considered by the Kazakh government and which would link to an existing pipeline, creating a link from Aktau in West Kazakhstan to the Turkish city Erzurum via Baku and Tbilisi. The Trans-Caspian undersea pipeline project, however, is a technically complicated and politically unpredictable enterprise which demands unanimity among all littoral states. Russia already balked at the project, arguing the pipeline would cause environmental damage to the region. The Kazakh government was encouraged by the European Commission and the US Trade and Development Agency, which promised financial backing for Kazakhstan's participation in the project.

Western-sponsored energy projects look attractive to Kazakhstan and Georgia, and offer a solid ground for long-term cooperation, albeit fraught with some political dangers. Kazakhstan's state-controlled KazMunaiGaz Company announced its plans to purchase a controlling stake in the Georgian Black Sea Batumi seaport which provides new export routes for Kazakh grain and oil to Western Europe. The company's further projects include the construction of a $1 billion oil terminal and oil refinery in Georgia. The estimated amount of Kazakh investments in the Georgian economy exceeds $300 million. Recently, TuranAlem, one of the leading banks in Kazakstan, acquired 49 percent of the shares in the Silk Road Bank and the state-controlled stake in the Unified Telecommunications Company of Georgia. Mikhail Saakashvili expressed hope that Kazakh investments will boost the tourism industry of his country, and will facilitate the construction a highway linking Georgia and Kazakhstan.

Under the watchful eye of Kremlin, bilateral cooperation between Georgia and Kazakhstan is gaining momentum. In fact, there is very little Moscow can undertake to hamper these relations. Tbilisi is apparently aware of Kazakhstan's potential role as a mediator in its difficult energy negotiations with Russia. Moscow, in turn, cannot overestimate the political price to be paid if it loses its foothold in Kazakhstan. Astana hopes to benefit from Georgia's pro-western stance to get Tbilisi's support for its OSCE chairmanship in 2009. So everyone in the game has something to bargain for.

By Marat Yermukanov



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