Appeal to the Government on Lifting Restriction on Sale of Trunk Gas Pipeline

15 Jul, 2010

On July 12, the Open Society Georgia Foundation (OSGF) organized debates over removing Georgia’s North-South Gas Pipeline from the list of the state property not subject to privatization.  Among other issues, the bill “On State Property Privatization” prepared by Parliamentary Committee for Legal Affairs, seeks to remove the trunk gas pipeline from the list of facilities privatization of which is strictly banned.  Parliament approved the bill during the first hearing; the second hearing was planned to take place on July 13.  The media have reported that the pipeline has already drawn interest of Russian Gazprom, Kazakh KazMunayGas and Azeri SOCAR.

The civil society has come up with an appeal in response to the government decision.  The appeal calls for the public involvement in the decision making process by the government and the transparency of this process.

“We, representatives of non-governmental organizations and the civil sector, think that the government has failed to provide sufficient explanation for the need to remove the trunk gas pipeline from the list of entities that are not subject to privatization.  Moreover, we would like to have assessment of risks associated with selling the gas pipeline to Russia, considering the importance of the enterprise in terms of energy security of the country”, reads the appeal.

In the first place, NGOs require that Parliament suspend the consideration of the state property bill until it is considered by the civil society.  Moreover, the government should provide arguments for removing a ban on the sale of the gas pipeline, hold active consultations with the civil sector and field experts, develop legal guarantees and criteria jointly with them regarding the privatization of the trunk gas pipeline.

“The pipeline transits gas to Georgia and Armenia.  Therefore it has both strategic and economic importance for the country.  Everybody knows very well that Russia is the party that is interested in acquiring the gas pipeline at the stage.  But, the country is motivated not only by business but also strategic interests.  The people that have gotten together at the meeting require that the authors of the bill and the government provide strong arguments for removing the gas pipeline from the list of the property not available for privatization .  We demand that the process be made transparent and would like to understand why the gas pipeline has been added to the list of property available for privatization, who may be a potential buyer etc.”, OSGF Executive Director Keti Khutsishvili said.

Authors of the bill, government officials, representatives of embassies, international organizations, political parties, field experts, NGOs, took part in the debates.  They focused on the energy security of the county and fiscal effect.  The meeting had a question-and-answer format.

Lasha Tordia, the vice chairman of the Parliamentary Committee for Legal Affairs, said that even if the gas pipeline was privatized by Gazprom, Russia would pose the same threat to Georgia.  The point is the need to hand over the enterprise to a private owner to make it financially profitable.  However, the government has no immediate plans to privatize the gas pipeline, he said.

“There is no great philosophy behind the reasons for which the bill has been proposed.  This is about the conceptual approach the government has built regarding such types of enterprises.  Precedents of privately owned enterprises that are successfully managed are available.  In this case, we have had a conceptual approach, that such an enterprise could be managed by a private owner.  The oil pipeline, hydro power stations and the energy system is in the hands of a private owner.  They are not strategically less important than this one and it is fact that they are well managed.  Nor did we see any negative consequences of private ownership of the enterprises during the war.  On the other hand, when the enterprises were owned by the state we had neither electricity nor gas.  This is our approach on a legislative level, what can be privatized and cannot be privatized in the country.  If privatization occurs, only 10-15% of the shares may be sold rather than the controlling interest”, Lasha Tordia said.

Revaz Sakevarishvili, an economic expert, inquired about economic effects of selling a controlling interest or 10-15% of the shares.  The government officials responded that because the privatization of the gas pipeline was not yet at issue, financial calculations had not been made yet.

Irakli Macharashvili, a representative of Green Alternative Association, reminded government officials of the agreement on the rehabilitation of the North-South Gas Pipeline system signed between Georgia and the USA through the Millennium Challenge Corporation (MCC), under which the Georgian government had undertaken not to sell the pipeline.

“The Georgian government has undertaken commitment not to sell or transfer, or permit to be sold or transferred the pipeline or a controlling interest in the Georgian Gas International Corporation (or its subsidiaries), which operates the gas pipeline system, until the expiration of this agreement term, unless there is written approval provided by the MCC”, says the agreement.

If Georgia fails to abide by the article, the NCC shall be refunded by the Georgian government for the amount spent on the pipeline rehabilitation.  After this the NCC will suspend the gas pipeline rehabilitation project; at the same time it reserves the right to suspend other projects envisaged by the agreement, which is due on April 7, 2011.

In case the bill is passed without making any alterations to it, NGOs call for the executive branch of the authorities to employ protective mechanisms and not make the decision that will pose a threat to the country.

“We are not against privatization.  When such an important enterprise is sold a separate package of protective bills may be developed to avoid the loss of a controlling interest by the state, or there may be some other mechanism, like diversification”, Keti Khutsishvili said.

Listen to audio records of the meeting.  Voices on the records belong to:  Lasha Tordia, Vakhtang Lejava, Guram Chakhvadze, Revaz Sakevarishvili, Irakli Macharashvili, David Gamkrelidze, Lado Papava and others.

Record1; Record 2; Record 3.

Read, listen to and watch media representatives say regarding the questions raised ot the meeting as well as generally on the proposed privatization of the gas pipeline.