Rosneft Expands Its Presence in South Caucasus Via Georgia

Late in 2014, Russian state oil company Rosneft acquired 49 percent of the Georgian company Petrocas Energy Group, which owns a strategically important oil terminal at the port of Poti and Georgia’s most extensive network of gas stations, branded as Gulf (Rosneft.com, December 29, 2014). Additionally, Petrocas is actively engaged in transporting cargo in and out of Afghanistan. Rosneft is currently under US sanctions for supporting the Russian annexation of Crimea.

Petrocas Energy Group is registered in Georgia and pays taxes in the country, but it belongs to one of the most influential Russian businessmen of Georgian descent, David Yakobashvili. Meanwhile, Rosneft head Igor Sechin is often referred to as Russian President Vladimir Putin’s right hand man, and he is instrumental in pushing the interests of Russian state corporations across the post-Soviet space and around the world. Therefore, the political underpinnings of the Rosneft-Petrocas deal are obvious.

The vice president of Petrocas Energy Group, Niko Mchedlishivili, told Jamestown that discussions with Rosneft about the latter buying 49 percent of the Georgian company had been ongoing since fall 2013. “The controlling stake is still in the hands of David Yakobashvili, and I do not confirm the information in the Georgian media that he intends to hand over the controlling stake to Rosneft,” Mchedlishivili emphasized (Author’s interview, January 7).

According to Mchedlishivili, the oil terminal in Poti has been used by Rosneft for transporting petroleum products for a long time, and that was probably a reason for Rosneft’s interest in Petrocas. “Despite the complicated relations between Russia and Georgia, including the absence of diplomatic relations, the arrival of Rosneft in our country will be a signal to other Russian investors to start doing business in Georgia,” Petrocas’ vice president said. He noted that Rosneft and Petrocas Energy Group planned to implement “a range of large projects that are worth tens of millions of dollars” (Author’s interview, January 7).

The arrival of the huge Russian state corporation in Georgia evoked a negative reaction from the political opposition and the pro-Western part of Georgian society. The primary argument against the registration of the deal is that Rosneft has worked on oil exploration projects on Abkhazia’s Black Sea coastal shelf, supplying the separatist regime in Sukhumi with petroleum products, in breach of the Georgian Law on Occupied Territories (Ekhokavkaza.com, October 16, 2010). Petrocas Energy Group, however, does not consider this argument to be sufficient for annulling the business deal. “Rosneft’s subsidiary that does not work in Abkhazia bought Petrocas’ shares, so it does not break the Georgian Law on Occupied Territories,” the Georgian company’s Vice President Mchedlishivili, told Jamestown (Author’s interview, January 7).

One of the leaders of the Georgian parliamentary opposition, Giorgi Kandelaki, said in an interview that he regarded Mchedlishivili’s statement to essentially be “a confession that Rosneft was breaking Georgian law by operating in Abkhazia” (Author’s interview, January 9). “Government officials say that they cannot interfere in the deal between the two companies; but if the Georgian government joined the international sanctions against Russia, the issue of legitimacy of the deal would not even appear, since Rosneft is under sanctions,” Kandelaki pointed out.

According to Kandelaki, if there is a political will, “the government of Georgia can block the business agreement, based on the Law on Occupied Territories, which has been grossly violated by Rosneft in the past five years. [Russian] President [Vladimir] Putin finances various political projects using Rosneft—such as, for example, the [2014 Winter] Olympics in Sochi, the annexation of Abkhazia, and so on. This is a deeply politicized company that captured the assets of Mikhail Khodorkovsky’s [company] Yukos,” the deputy noted. Apart from that, Kandelaki stressed the importance of the fact that one of the pillars of Vladimir Putin’s regime, Igor Sechin, is the head of Rosneft. Sechin is also on the West’s blacklist, and his assets in Western banks have been frozen. Giorgi Kandelaki told Jamestown that the Georgian opposition, thus, demands a parliamentary debate “on the topic of an illegal deal that violates Georgia’s legislation and causes great harm to the country’s national interests” (Author’s interview, January 9, 10).

Yet, Georgian Minister of Foreign Affairs Tamar Beruchashvili, along with the leader of the parliamentary majority, Giorgi Volski, have spoken against annulling the Petrocas purchase by Rosneft. According to them, “the government cannot interfere in the deal of two commercial companies” (Rustavi 2, January 6).

However, as Zurab Gogoberidze, a columnist of the weekly newspaper Premier, noted in an interview for Jamestown, the Georgian authorities do, in fact, possess sufficient regulatory instruments to break up the Petrocas-Rosneft deal. “If the agreement between Petrocas Energy Group and Rosneft contradicts the Georgian Law on Occupied Territories, the State Registration Office of Georgia may refuse to register the agreement,” Gogoberidze said (Author’s interview, January 10). Nonetheless, the columnist doubts that the government of Georgia is resolute enough to block the deal, since officials in Tbilisi fear the resumption of a Russian embargo on Georgian goods.

Rosneft’s sudden motivation for expanding into the Georgian market—which, until now, was of no apparent interest to the Russian oil company in previous years—should most likely be attributed to Russia’s political and geopolitical intentions. A Georgian expert with the informational analytical agency GHN, David Avalishvili told Jamestown on January 9, “Armenia, which has recently joined the Eurasian Economic Union, is supplied with Russian oil via the terminal in Poti. Apart from that, Russians might buy up Georgian transit infrastructure, including the [north-south] railway that connects Russia to the South Caucasus [via Abkhazia], as well as other assets. Each time, [to obtain what it wants] Moscow will seek to blackmail Garibashvili’s government by threatening to resume the embargo,” Avalishvili asserted. Another motivation for the Kremlin in pursuing Rosneft’s purchase of Petrocas may be an attempt to sour relations between Georgia and its Western partners. “[The Georgian government’s demonstrated] amiability [sic] toward Sechin and his company, which are under Western sanctions, will eventually cause irritation in Western capitals,” the GHN analyst warned. Thus, Tbilisi is walking a fine line in its relations between Russia and the West, and the Petrocas deal—however it finally shakes out—will likely set a powerful precedent for the Georgian-Russian relationship going forward.