GEORGIA: SOCAR PURCHASES 22 OF GEORGIA'S INTERNAL

C O N F I D E N T I A L TBILISI 002493


E.O. 12958: DECL: 12/28/2018
TAGS: ENRG ECON PGOV PREL AZ GG
SUBJECT: GEORGIA: SOCAR PURCHASES 22 OF GEORGIA'S INTERNAL
GAS DISTRIBUTION SYSTEMS

REF: A) TBILISI 2190 B) TBILISI 2426

Classified By: Ambassador John F. Tefft for reasons 1.4 (b) and (d).


1. (C) The Georgian Government has sold 22 regional natural
gas distribution companies to the Azerbaijani State Oil and
Gas Company SOCAR. Georgia had originally pledged to sell a
number of its natural gas delivery systems to SOCAR during
negotiations with Azerbaijan in November that resulted in the
conclusion of a five year MOU to provide gas to Georgia at
existing rates (ref A). While Government officials,
including Minister of Energy Khetaguri and his Deputy
Ministers, as well as now former First Deputy Minister of
Economic Development Vato Lezhava worked hard to separate the
MOU from the sale of the distribution system, the two were
integrally tied.


2. (U) The sales agreement was signed on December 26 by
Minister of Economic Development Lasha Zhvania and the
Director General of SOCAR-Georgia Davit Zubitashvili. SOCAR
now owns regional distribution companies in Kakheti,
Mtskheta-Mtianeti, Shida Kartli, Kvemo-Kartli, Adjara, Guria,
Imereti and Samegrelo. (Note: The Tbilisi distribution
system currently remains under the control of KazTransGas,
which is owned by the Kazakh state-owned KazMunai Gas, though
the company has said they are interested in selling the
asset. End note.) As a stipulation to the sale, SOCAR must
invest $40 million to further develop and upgrade gas
distribution systems within three years. As a result of
expansion, SOCAR has also pledged to bring 150,000 new
subscribers into the system.


3. (C) Comment: While the purchase price for the 22
distribution systems has not been publicized, Georgian
officials have hinted that it was lower than the original 10
million USD asking price. This was in large part due to the
favorable terms Azerbaijan and SOCAR granted to Georgia in
the overall five year MOU to supply gas to the country.
SOCAR,s promise to invest heavily in the gas distribution
network is crucial for Georgia, as the government does not
have the money to do the necessary upgrades and expansions to
serve the needs of the population. While post has yet to
receive information on exactly which distribution companies
within the regions now belong to SOCAR, with the purchase of
regional networks in Shida Kartli and Mtskheta it is possible
that SOCAR will now be responsible, at least in part, for
providing Tskhinvali and South Ossetia with gas. This could
prove to be a serious headache for the company and a possible
pressure point for Azerbaijan with the Russians as the latter
pushes to restore gas supplies to South Ossetia despite
restricting access to repair infrastructure damaged during
the August conflict (ref B). End Comment.


TEFFT