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OO RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHSI #2190/01 3291355
ZNY CCCCC ZZH
O 241355Z NOV 08
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0450
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHAH/AMEMBASSY ASHGABAT PRIORITY 0848

C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 002190 
 
SIPDIS 
 
E.O. 12958: DECL: 10/16/2018 
TAGS: ECON ENRG PGOV PREL RU AZ GG
SUBJECT: GEORGIA SIGNS 5 YEAR MOU FOR GAS WITH SOCAR 
 
REF: OLSON 11/10/2008 E-MAIL 
 
Classified By: Ambassador John F. Tefft for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary and Comment:  After months of discussion, the 
Georgian government signed a five-year memorandum of 
understanding (MOU) with SOCAR, the Azerbaijani state oil and 
gas company, to provide natural gas to Georgia.  The 
agreement will, in principle, take effect on January 1, 2009 
following the expiration of Georgia's current contract with 
SOCAR.  The actual amount of gas Georgia purchases will 
depend on demand.  The MOU states the agreement will provide 
for any deficit between supply and "social" demand at 
existing prices.  Negotiating on the actual contract for 2009 
continues, and the GOG worries it may not be concluded by 
January 1.  For its part, the Government of Georgia will sell 
26 regional gas distribution networks, covering the whole 
country except for Tbilisi, to SOCAR.  This deal has yet to 
be finalized, although talks continue.  The pre-conflict 
status quo regarding the operation of the Enguri power plant 
(the dam is in Georgia, but the power station across the 
"border" in Abkhazia) seems to have taken hold, although the 
threat of a power shutoff remains real.  Georgia appears to 
have made significant progress to ensure its energy needs in 
the short term.  End Summary and Comment. 
 
VOLUME TO MAKE UP GEORGIAN DEFICIT 
 
¶2.  (C) According to First Deputy Minister of Energy 
Valishvili, the amount of gas provided under the MOU will 
vary based on season and demand.  The MOU is written to meet 
any deficit demand of commercial and individual customers. 
The volumes will essentially equal total Georgian "social" 
demand minus transit gas from Russia and Georgia's transit 
allotment from the South Caucasus Pipeline (SCP).  The actual 
volume will vary, as Georgian natural gas demand in winter is 
approximately 9 mcm/day, while it is merely 2 mcm/day in the 
summer.  Approximately two-thirds of Georgian gas consumption 
is used mostly for residential customers and for power 
production, with the remaining one-third being used 
commercially.  Based on these figures, contracted volumes 
with Azerbaijan as of 2009 could be as high as 5 to 6 mcm/day 
in winter. 
 
PRICES REMAIN STABLE 
 
¶3.  (C) According to the GOG, the five year agreement, which 
will run through December 31, 2013, keeps prices at the 
current rate.  Georgian Minister of Energy Khetaguri 
elaborated that the price for &social8 users, which 
includes residential and thermal power plants, would be 
approximately 164 USD/tcm.  The commercial rate would vary 
based on market prices.  Commercial contracts will be 
negotiated and agreed directly by SOCAR and commercial users. 
 According to Khetaguri, the current commercial rate in 
Georgia is 258 USD from SOCAR and 280 USD from Gazprom.  Some 
commercial entities, including Itera, are buying gas directly 
from Gazprom, although the Georgian Oil and Gas Company is 
not currently buying gas from Gazprom. 
 
SIGNED ON THE DOTTED LINE, NOW THE HARD WORK STARTS 
 
¶4.  (C) Now that the MOU has been signed, Valishvili stressed 
that the hard, painful work of negotiating a contract has 
begun.  She is hopeful that an agreement can be reached for 
2009 by January 1, but is skeptical.  She said the 
bureaucracy of the Azerbaijani system, both within the 
government and SOCAR, will make the contract negotiations 
challenging and likely lengthy. 
 
NEGOTIATING CONTINUES ON SALE OF GAS NETWORKS TO SOCAR 
 
¶5.  (C) Minister Khetaguri confirmed to us that the Georgian 
government has agreed to sell all 26 regional gas 
Qgovernment has agreed to sell all 26 regional gas 
distribution networks to SOCAR as part of the larger MOU 
negotiation.  (Note:  This does not include the Tbilisi 
system which is currently owned by KazTransGas).  Valishvili 
said the Ministry of Economic Development is continuing to 
negotiate with SOCAR over final sale of the distribution 
assets.  She did not know when the final sale will be 
completed. 
 
ENGURI ) MAINTAINING THE STATUS QUO 
 
¶6.  (C) On Enguri, Khetaguri said not much has changed in 
recent days.  He said the sharing of power from the Enguri 
station continues as it did prior to the conflict, and the 
Abkhaz and Russians have been relatively quiet.  He stressed 
that the five yearMOU with SOCAR is the best defense against 
an Russian/Abkhaz shutoff of the Enguri power station. 
(Embassy note:  Georgia reportedly depends upon power from 
Enguri to meet 40% of its energy needs during winter.  The 
 
TBILISI 00002190  002 OF 002 
 
 
Abkhaz have repeatedly threatened to stop the operation of 
the power plant (located in Abkhazia) and cut off power to 
Georgia; the Georgian have responded with a threat to cut off 
the water from the dam, stopping the supply of electricity to 
Sukhumi and the rest of Abkhazia.  End note.)  With Georgian 
natural gas needs met, Khetaguri said that the country could 
deal with the threat of a cut off of Enguri power much more 
easily than the Abkhaz could in Sukhumi.  In his view, the 
Russians, or their Abkhaz allies, would only decide to cut 
the power from Enguri to Georgia only if they are sure that 
such a move would completely cripple the Georgian government. 
TEFFT