Energy Information Administration
Georgia is important to world energy markets because of its location as a potential oil transit center between the energy-rich Caspian Sea republics and Western markets.
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BACKGROUND
The political situation in Georgia has stabilized after years
of civil strife. It has a leader, President Shevardnadze, who
commands support from home and has a high profile abroad. Georgia
has friendly relations with all of its neighbors - rare in a region
torn with conflict. In addition, it has also been able to institute
a series of economic reforms and position itself as a regional
trading hub.
However, stability in Georgia has been a recent phenomenon, and several underlying problems remain. Following its independence from the Soviet Union in 1991, Georgia suffered from a civil war in 1992 following the overthrow of Zviad Gamsakhurdia, its first democratically elected president. In addition, Georgia was divided by separatist struggles in Abkhazia (northwest Georgia) and South Ossetia (north central Georgia). South Ossetia wants to join with North Ossetia, which is a part of Russia, and Russia has backed both separatist struggles. About 250,000 people were displaced by the civil wars in Georgia.
A Russian-enforced ceasefire in 1994 brought an end to the armed conflict in Abkhazia, and resulted in the permanent stationing of Russian troops in Georgia. However, both Abkhazia and South Ossetia have remained adamant in their separatist demands, and have refused any sort of autonomy that would mean remaining a part of Georgia. Georgia has been striving to reach a peaceful solution with the separatist regions.
The instability in Georgia during the early 1990s led to the postponement
of elections until November 1995, when President Shevardnaze and
his ruling Union of Georgian Citizens party won the presidential
elections with over 70 percent of the vote. President Shevardnaze
narrowly escaped an assassination attempt just prior to the elections
on August 29, 1995. The assassination attempt resulted in a crackdown
against opposition forces such as the para-military Mkhedrioni
(horsemen), led by former ally Saba Ioseliani.
Recently, however, this decline appears to have leveled off. After suffering annual declines of 20 - 40 percent from 1991-1994, Georgia's economy showed a modest growth during 1995, and is estimated to have grown by 11 percent in 1996. Continued economic growth of 5 - 7 percent is expected over the next 5 years. These growth rates do not reflect the underground economy; the World Bank has estimated that this unofficial economic activity accounts for over half of Georgia's overall economy.
The hyperinflation of the early 1990s is also under control. The inflation rate had reached over 7,000 percent per year by 1994 before it was brought under control with the help of the International Monetary Fund (IMF). Georgia's new currency, the lari, was introduced in September 1995 and has remained stable with the backing of an IMF stabilization fund. Consumer prices rose by 13.5 percent in 1996, and are expected to rise by 8 - 12 percent per year over the next 5 years.
Georgian reform measures, including privatization, accelerated during 1995, partly as a result of IMF pressure. During that year, Georgia freed most prices, established an independent central bank, and in the summer held its first privatization voucher auction, although many Georgians sold their vouchers for cash. Privatization of small-scale businesses is complete, and almost half of the medium-to large-scale businesses have also been privatized. However, privatization of the state industrial sector has been limited, and many of the large industrial firms are unlikely to survive because they relied on cheap energy and subsidies.
Georgia must also address its growing foreign debt problem. Much
of this debt is for fuel payments to Russia ($156 million for
electricity) and Turkmenistan ($400 million for natural gas).
Georgia has yet to formally reschedule the payments to either
country.
Hydroelectric power accounted for over 80 percent of electric power generation in 1995, and hydropower's share has been rising steadily as thermal capacity lays idle with the end of fuel subsidies following the collapse of the Soviet Union. Equipment and maintenance problems have also plagued generation capability, and only 700 megawatts (MW) of the installed capacity of 4.4 MW are currently in service. Non-payment for power continues to hinder the ability of the system to operate.
Georgia is actively privatizing its power sector, and is seeking foreign equity participation for both new capacity and rehabilitation projects. Georgia has an estimated 100 billion kilowatts of untapped hydro energy that could be exploited, as well as untapped coal resources. Privatization plans include the drafting of new electricity laws that will separate responsibilities for policy and regulation, establish an independent regulatory commission, and create rules to encourage a a competitive market.
A U.S. AID-funded study indicates that Georgia needs $250 million
to modernize its power sector. Of this total, $100 million is
committed from multilateral agencies such as the World Bank; the
remainder needs to come from private sector investments in exchange
for equity. At least 2,500 MW will be offered to international
investors, including the Gardabani thermal plant, and a tender
to complete the Hudon hydropower plant. Georgia's largest generating
facility - the 1325 MW Inguri hydropower plant - is in Abkhazia,
and is not included in the bidding.
OIL
Georgia's importance in the region stems not from its own oil
resources but from its location as a potential oil transit center.
Georgia is one of several contenders for the 1 million barrel/day
main export route for oil exports from the Azerbaijan International
Operating Company (AIOC), an international consortium developing
offshore Caspian Sea oil
in Azerbaijan.
The World Bank has provided $1.4 million for a feasibility study
of routing the main export pipeline through Georgia to the Black
Sea. An alternative route for the main export pipeline to the
Turkish port of Ceyhan could also cross Georgia.
On March 8, 1996, the Presidents of Georgia and Azerbaijan signed a 30-year agreement to pump a portion of AIOC's "early oil" along the western route to the Georgian Black Sea port of Supsa. The Georgian International Oil Company, a subsidiary of the AIOC, plans to have facilities ready by end-1998, and will spend $200 million for repair, expansion, and modernization of both pipeline and port facilities.
Chevron has also signed a protocol of intent with Georgia about expanding the shipment of oil from the Tengizchevroil joint venture in Kazakhstan across Georgia to the port of Batumi. These volumes are currently running at about 25,000 barrels/day via a complicated system of barges, pipeline, and rail. Under the new agreement, the oil would be shipped to Georgia via barge and then by pipeline to Batumi. If a final agreement is reached, Tengizchevroil would receive the exclusive right to transport oil through the Khashuri-Batumi oil pipeline for the next 25 years. When rebuilt, the 180-mile pipeline could carry 140,000 - 160,000 barrels/day.
Ukraine has also been interested in a project to transport Azeri oil across Georgia to Ukraine. Ukraine has set up a pilot project to ship oil via rail across Georgia to Poti, and then to the Ukrainian port of Odessa where an oil terminal is also under construction. If the pilot project goes well, Georgia will transport about 20,000 barrels/day to Ukraine.
Georgia's plans to become a transit center are conditional not only on its ability to maintain friendly relations with its neighbors, but also its internal politics. Azerbaijan has complained that oil products exported from Baku are being illegally diverted to Armenia, which is under an economic blockade with both Azerbaijan and Turkey. In addition, the proposed pipeline routes pass within a few miles of the separatist regions of South Ossetia and Abkhazia, where tensions still remain.
Despite limited oil resources, Georgia is taking steps to increase domestic production. Georgia has negotiated several production-sharing agreements and joint ventures in the Kura Basin east of Tbilisi, as well as in the Black Sea region in western Georgia. Arco, Canadian Canargo Energy, Frontera Resources, JKX, National Petroleum, and Ramco all have upstream activities in Georgia.
Georgia's refinery at Batumi had been running at less than capacity
because of a lack of crude oil supplies. This situation is expected
to change with the completion of the pipeline carrying crude oil
from Azerbaijan through Georgia to the Black Sea. Georgia is modernizing
its refinery at Batumi, and it awarded a $250 million contract
in August to Japan's Marubeni Corporation and JGC Corporation
to expand and modernize the refinery. Georgia also awarded Frontera
the right to construct a new refinery near Tbilisi as part of
its production sharing agreement.
NATURAL GAS
Georgia has small gas resources of its own, although it has yet
to develop these resources. Georgia must import its natural gas;
however, its only suppliers, Russia
and Turkmenistan,
cut off gas supplies in 1997 for lack of payment. Gas supplies
from Turkmenistan had been received via a North Caucasus-Transcaucasian
pipeline through Russia. Georgia's gas imports had been interrupted
several times before because of civil strife and the country's
inability to pay. On March 3, 1995, bombs blew up the pipeline
delivering gas through Georgia to Armenia. Georgia's gas imports
had been used mainly by the Rustavi steel mill and the Tbilisi
power station.
As it did with oil, Georgia is positioning itself as a transit
point for gas shipments. It has agreed to a natural gas pipeline
Ato be built across its territory that will bring Russian gas
to Armenia
and Turkey.
The Georgian International Gas company, incorporated in July 1997,
will spend up to $500 million to upgrade pipelines that will eventually
carry 300 billion cubic feet/year of gas. Part of this gas will
go to Georgia for payment.
ECONOMIC OVERVIEW
Currency: Lari
Market Exchange Rate (6/20/97): US$1= 1.3 Lari
Gross Domestic/National Product (GDP) (1996E, purchasing power parity): $6.9 billion
Real GDP Growth Rate (1996E): 11%
Consumer Prices (Change Dec 95 - Dec 96): 13.5%
Major Trading Partners: Russia, Turkey, Armenia, Azerbaijan
Total Exports (1996E): $199 million
Total Imports (1996E): $647 million
Major Export Products: Citrus fruits, tea, wine, other agricultural products; diverse types of machinery; ferrous and nonferrous metals
Major Import Products: Fuel, grain and other foods, machinery and parts, transport equipment
ENERGY OVERVIEW
Minister of Fuel and Energy: David Zubitashvili
Proven Fossil Fuel Reserves (1/1/97): Negligible; small oil, gas, and coal fields
Oil Production (1996E): 3,000 barrels/day (b/d)
Oil Consumption (1995): 8,000 b/d
Crude Oil Refining Capacity (1/1/97): 106,436 b/d
Natural Gas Production (1996E): Negligible
Natural Gas Consumption (1995): 42 billion cubic feet
Coal Production (1996E): Negligible
Coal Consumption (1995): 290,000 short tons
Electric Generation Capacity (1995E): 4.4 gigawatts
Electricity Generation (1996E): 7.1 billion kilowatthours
ENVIRONMENT OVERVIEW
Total Energy Consumption (1995E): 0.11 quadrillion btu
Energy Consumption per Capita (1995E): 20 million Btu (vs. 345.9 million Btu in U.S.)
Energy-Related Carbon Emissions (1995E): 1.0 million metric tons (0.02% of world emissions)
Carbon Emissions per Capita (1995E): 0.2 metric tons (vs.5.4 metric tons in the United States)
Major Environmental Issues: Air pollution, particularly in Rust'avi; heavy pollution of Mtkvari River and the Black Sea; inadequate supplies of potable water; soil pollution from toxic chemicals
ENERGY INDUSTRIES
State Oil Company: Saknaftobi
State Gas Company: Sakgazi
Major Oil and Gas Fields: None; small fields in both eastern Georgia and on the Black Sea shelf in western Georgia.
Major Pipelines: 100,000 b/d Batumi -Azerbaijan oil pipeline; Grozny (Russia) to Tbilisi (Georgia) to Yerevan (Armenia) gas pipeline.
Major Refineries (crude oil capacity): Batumi (106,436 b/d)
Major Ports: Batumi, Poti, Sukhumi (Abkhazia), Supsa, (oil terminals under construction)
State Electric Utilities: Sakenergo-Generatsia (Generation) and Sakenergo-Gadatsema (Transmission)
Major Power Plants (capacity): Tbilisi thermal (1280 Megawatts, or MW), Inguri hydroelectric (1325 MW)
For more information on Georgia, see these other sources on the
EIA web site:
International Energy Annual 1995 -
Annual international energy data through 1995
Latest EIA Detailed Annual Data (1994)
WORLD ENERGY Database for
the International Energy Annual (requires Microsoft Access)
Links to other sites:
1997 CIA World Factbook - Georgia
BISNIS - The Department of Commerce's Business Information Service for the Newly Independent States
U.S. Mission to Georgia
Georgia - U.S. State Department Consular Information Sheet
Library of Congress Country Study - Georgia
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File last modified: November 10, 1997
Contact:
Erik Kreil
ekreil@eia.doe.gov
Phone: (202)586-6573
Fax: (202)586-9753
URL: http://www.eia.doe.gov/emeu/cabs/georgia.htm