08TBILISI2493, GEORGIA: SOCAR PURCHASES 22 OF GEORGIA’S INTERNAL

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Reference ID Created Released Classification Origin
08TBILISI2493 2008-12-30 14:33 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

P 301433Z DEC 08
FM AMEMBASSY TBILISI
TO SECSTATE WASHDC PRIORITY 0639
INFO EUROPEAN POLITICAL COLLECTIVE PRIORITY
AMEMBASSY ASHGABAT PRIORITY 
AMEMBASSY ASTANA PRIORITY

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

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