Georgia

Like many countries in the region, Georgia’s economy is struggling. The local currency, the Georgian lari, has fallen about 17% since October. Georgia’s Central Bank is still spending money from its reserves to prop up the currency, selling another $40 million this past Tuesday alone. It had not intervened in the market since the middle of October. But the interventions do not seem to be doing much good, as the lari continues to fall daily.

The government has now turned to a combined package of austerity measures and new taxes to fill holes. The government is apparently planning layoffs and pay cuts in various ministries, and will impose additional tariffs on items such as cigarettes starting after the first of the year.

In addition, the government is discussing selling off stakes in the state-owned railway company, and the “Georgian Oil and Gas Corporation“.

“We had a conversation with several investment banks about the placement on the stock exchange of a 25% stake in the railway and the “[Georgian] Oil and Gas Corporation”, Georgia’s acting Prime Minister Giorgi Kvirikashvili was quoted as saying in late November.

“If there are appropriate market conditions, we will make this decision, but we want to wait for the best time, and it must be said that last year was not the best time for this,” said Kvirikashvili, adding that this issue needs to be solved “very carefully and correctly.”

The Saakashvili government had previously planned a similar transaction a few years ago, but those plans were shelved due to the unfavourable market situation at the time.

There is some concern in Armenia about the proposed plan because the pipeline that supplies Georgia also supplies Armenia with natural gas from Russia. Georgia gets to take a 10% cut of the natural gas supplied to Armenia in exchange for acting as carrier of the gas. The deal was first reached in 1992, and is renewed each year. Last year there was some conflict because Gazprom decided that it wanted to be paid in cash for the transit fee rather than continue with the previous deal. The negotiations went on for about six months and culminated in an agreement with Azerbaijan’s SOCAR to increase supplies.

An article in the Russian press last week speculated as to who would be interested in buying a stake in the pipeline.

“Yerevan is in a panic: the Georgians could sell to Azerbaijan [SOCAR] the gas pipeline that transports Russian gas to Armenia. Tbilisi is also nervous: what if the government gives it to “the enemy” Gazprom?”

Another option would be the Iranians, the article’s author suggests.

Of course, none of this might actually happen. Things are always changing in the Caucasus, and this could end in a way similar to what happened the last time Georgia tried to sell the pipeline to Gazprom:

“…Mikhail Saakashvili when he was president of Georgia, despite the extremely strained relations with Russia, strongly attracted Russian capital into the country. Now it [Russia] owns almost all of the strategically important and profitable industries, including electric power, but it was not a catastrophe. So in 2005, Saakashvili thought to sell the main pipeline to Gazprom. And then not only Georgian politicians and experts whined, but also the Americans: the US did everything to torpedo the deal, and money was allocated for the rehabilitation of the pipes and the gas infrastructure….”

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