By Eka Janashia (03/04/2015 issue of the CACI Analyst)

The Kremlin continues Russia's annexation of Georgia's breakaway regions and at the same time warns Tbilisi to cease its effort to integrate with NATO. On February 18, breakaway South Ossetia signed a "border treaty" with the Russian Federation, and declared its intention to strike an "Alliance and Integration" deal with Moscow shortly.

The agreement mirrors the "Alliance and Strategic Partnership" agreement inked between Moscow and Sokhumi in November, though envisions a deeper integration of the South Ossetia's defense, security, and customs agencies with those of Russia. An already signed border agreement dictates the abolishment of the border crossing point at the Roki tunnel connecting the South Ossetia to Russia.

The border eradication initiative was first aired by Vladislav Surkov, the Russian president's aide in charge of supervising Moscow's relations with the two de facto republics, on February 17, during a meeting with Abkhazia's de-facto president Raul Khajimba. "There must not be a border between us," Surkov said and added that Russia's financial support for the two breakaway regions would be upheld in the face of Russia's current economic troubles.

The border agreement between Moscow and Tskhinvali is a swift implementation of this initiative. After signing the border treaty, Russia's Foreign Minister Sergey Lavrov expressed the Kremlin's readiness to avert the "negative effect" of "never-ending attempts to drag Tbilisi into NATO."

The Kremlin's apprehension is directed towards the establishment of NATO's "Training and Evaluation Center" (TAEC) in Georgia which, in the words of Russia's permanent representative in NATO Alexander Grushko, provokes Moscow, escalates tension and worsens regional security.

At the recent NATO summit in Wales, Georgia obtained a "substantial package," which along with other supportive tools, aims to enhance Georgia's defense capabilities through launching the TAEC, which could obtain a regional dimension in the future.

As part of this policy, NATO's Deputy Secretary General Alexander Vershbow visited Georgia in January 2015. Vershbow assured that despite the Kremlin's nervous reaction towards the planned NATO-Georgia training center, the alliance will make a resolute effort to create the facility before the end of this year.

He underlined that the TAEC will be "the most visible element of a NATO presence in Georgia." While it will primarily focus on command post exercises, field exercises with participation of foreign troops as well as live and simulated trainings for allied military units committed to the NATO Response Force and Connected Forces initiative might also take place, Vershbow said. He also announced that periodic military exercises involving NATO allies and partner countries will start in Georgia this year.

The Kremlin's reaction to the high NATO official's statement was soon reflected in the border removal initiative and strict declarations on Russia's counter-measures to deal with the undesirable implications of NATO-Georgia cooperation. Zurab Abashidze, the Georgian Prime Minister's special representative for relations with Russia, commented that Moscow, Brussels and Tbilisi all are well-aware "that Georgia's membership to NATO today and tomorrow is not on the agenda" and that Georgia-NATO cooperation "in no way aims at deploying NATO military infrastructure in Georgia."

Later, Defense Minister Mindia Janelidze restated that Georgia has no plans to host a NATO military base and that only the TAEC, aiming to enhance the professionalism of Georgian servicemen and with no additional military functions, will be established. The parliamentary minority immediately slammed these official remarks. The former state minister for European and Euro-Atlantic integration issues, Free Democrat Alexi Petriashvili dubbed Abashidze's statement another proof that the country's Euro-Atlantic course is under threat. The Free Democrats, led by former Defense Minister Irakli Alasania, quit the ruling coalition Georgian Dream (GD) in November with the same motivation.

The United National Movement (UNM) party, in turn, argued that Abashidze had voiced the government's position. The party's leader David Bakradze said that instead of distancing himself from Abashidze's statement, the defense minister had justified it.

Abashidze's statement came a few days before his meeting with Russia's Deputy Foreign Minister Grigory Karasin in Prague. The Karasin-Abashidze format is the only channel for direct communication between Tbilisi and Moscow, established by former PM Bidzina Ivanishvili. The previous government led by Mikheil Saakashvili government did not engage in direct negotiations with the Kremlin and preferred dialogue in an international format with the participation of representatives from partner countries.

While Russia's anti-NATO policy hardly surprised anyone, Abashidze's statement, which the opposition interpreted as appeasing to Moscow, was unexpected and triggered doubts about the consistency of Georgia's Euro-Atlantic aspirations.

Through the border removal initiative as well as the "amalgamation agreements" with South Ossetia and Abkhazia, Russia signals that the establishment of a training center where the troops of NATO partners may hold military exercises is totally unacceptable to Kremlin. Georgia's incumbent government clearly seeks to avoid irritating Moscow, but it yet uncertain to what extent this stance will slow Georgia's NATO integration pace. However, ambiguous moves with regard to Euro-Atlantic policy not only cast doubt on Georgia's achievements at the Wales Summit, but also minimize its chances to reach any tangible success at the Warsaw Summit scheduled for next year.

By Eduard Abrahamyan (02/18/2015 issue of the CACI Analyst)

Armenia’s relationship with Russia has never been simple. Although Russia has considered Armenia a reliable ally since its independence, the relationship has never transformed into a formal partnership. Russia’s policy of double standards on the Nagorno-Karabakh issue and its delivery of weaponry to Azerbaijan has gradually increased distrust in Armenian society towards Russia in recent years. A bloody incident in Gyumri on January 12, 2015, when a soldier from the deployed Russian 102nd military base killed the entire Avetisyan family in their sleep, including two children, has catalyzed a vivid debate in Armenia on the nature of the relationship to Russia.

By Stephen Blank (02/18/2015 issue of the CACI Analyst)

In early 2015, oil prices are in free fall and the ruble’s value is plunging along with it.  Though Russia is the immediate target or victim of these trends the repercussions of its economic crisis are already manifesting themselves throughout the CIS and affecting the economies of Central Asian and South Caucasian states. Economic crisis due to falling energy prices immediately throws failures of economic and political governance, like excessive borrowing and vanity projects, into sharp relief. But when this occurs in tandem with the depreciation of the Russian ruble and the inability of Russian firms to access foreign capital, the challenges to these states, all of whom are to varying degrees connected to the Russian economy, grow by an order of magnitude.

By Eka Janashia (01/22/2015 issue of the CACI Analyst)

At the beginning of 2015, Russia’s state-owned oil producer Rosneft entered Georgia’s oil retail market by purchasing a 49 percent stake of Petrocas Energy Ltd. Petrocas’ affluent assets include an oil terminal in Georgia’s Black Sea port of Poti with a capacity of 1.9 million tons per year as well as a network of 140 gas stations in Georgia under the Gulf brand.

By launching a joint venture with Pertocas, Rosneft will gain high-quality storage capacity in one of the major oil and oil products hubs in the region, enrich supply routes options and enhance its operations in the Central Asia and South Caucasus oil market. “[It] is a new milestone that will highlight the strategic importance of the South Caucasian energy corridor,” the main shareholder of Petrocas, Russian businessman David Iakobashvili said.

The opposition United National Movement (UNM) party insisted that Rosneft plans to acquire a controlling interest in Petrocas and called on the government to revoke a deal damaging to state interests. The government responded that it was during UNM’s term in power that Russian investments penetrated strategic areas of Georgia’s economy such as finances, electricity, chemicals, ore industry, food and dairy products. For example, at that time, the Russian state-owned electricity trader, Inter RAO, obtained 75 percent of Tbilisi’s electricity distribution company Telasi, thermal power generating plants, as well as the management right of two hydro power plants; Khrami I and Khrami II. The government also lamented that it has no right to influence private business, especially the decisions of Petrocas, which is registered in Cyprus and manages its operations from there.

UNM counter-argued that Rosneft operations in Abkhazia breach the Law on Occupied Territories and that the government is obliged to cancel the agreement granting the Russian company “the most important communications on the country’s Black Sea shore.”

Indeed, in 2009 Rosneft started offshore explorations and development of oil and gas fields in Abkhazia under an agreement signed between the company and Abkhazia’s de facto government. Against this background, three of Georgia’s government agencies began to study the legitimacy of the Rosneft-Petrocas deal. The results are yet unknown. 

The recent deal reflects Russia’s strategy to strengthen its infrastructure capabilities in the South Caucasus to ensure an uninterrupted delivery of oil as well as other products to Armenia, which recently became a member of Eurasian Economic Union (EEU) but lacks land access to other EEU members in the absence of common borders. The reconstruction of the railway through Abkhazia and the planned Avro-Kakheti highway from Dagestan to eastern Georgia and then to Armenia, can be understood in this light.

While improving Armenia’s situation is Moscow’s key rationale, the Kremlin is also interested in consolidating its position in the Georgian market. UNM asserts that the Rosneft-Petrocas deal is only the beginning of “a big process” and unless countervailing measures are taken, “Moscow will have no obstacles at all.”

On January 17, Iase Zautashvili, the General Director of Airzena, Georgia’s national airlines, disclosed correspondence between Georgian and Russian state agencies regarding the prospect of restoring flights between the two countries. These clandestine negotiations aim to grant Russian companies a monopolistic position in Georgian airspace, Zautashvili said.

Referring to other covert correspondence taking place between the Russian and Georgian sides via the Swiss Embassy, UNM claims that 11 Russian companies, including Vladimir Putin’s Private Company, will enter Georgia’s airspace by dumping prices and eliminating the competition, including the national airlines, in order to obtain a monopolistic position in the Georgian market. The UNM also claims that some of these companies fall under the international sanctions against Russia while others have violated the Law on Occupied Territories.

The Enguri hydropower plant with a total capacity of 1,300 megawatts could become another target of Russian strategic interest. Russia allegedly intends to register Georgia’s most powerful hydroelectric station in the region in Abkhazia. Although Georgia’s Ministry of Energy categorically denies that the plant’s ownership is under discussion, Aslan Basaria, Director of Abkhazia’s power company Chernomorenergo, claims that negotiations have already been launched with participation of the Georgian side. “The plant is located on Georgian territory and belongs to the Georgian state. The Chernomorenergo Director General’s statement is far from reality,” the Ministry of Energy says. Despite the denial, Sokhumi in fact raised the question of the Enguri hydropower plant’s ownership a month ago when Abkhazia’s de facto leader Raul Khajimba said “what is located on our territory should be owned by the Abkhaz people.”

In fact, the Enguri generators are located on the territory of occupied Abkhazia while its arch dam is in the Georgian-controlled area. According to the informal agreement reached between Tbilisi and Sokhumi in the 1990s, Abkhazia gets 40 percent of the electricity generated by the plant free of charge while the rest goes to Georgia. The fact that the agreement terms are rather favorable to the Abkhaz side suggests that the questions raised over the plant’s ownership comes from Moscow, rather than Sukhumi.  

Taken together, signs are emerging of several steps taken by Russia to make inroads into vitally important sectors of Georgia’s economy.