Georgia's Promise: Why Transparency Matters, Even When Oil is Still in the Ground

How do nations go from zero oil, gas and mining activity to full-scale, responsible development? A new report by the International Business and Economics Development Center explores Georgia’s potential to commercialize its resources, become a more profitable transit country for neighboring Azerbaijan, and join the Extractive Industries Transparency Initiative (EITI), an international standard of transparency for resource-rich countries.

Georgia, though not yet an extractive country, is located geologically in the upper Kura Basin, with Azerbaijan, and alongside Russia’s volatile, oil-rich North Caucasus regions, which stretch from the Black Sea to the Caspian Sea. As many as 17 oil fields have been discovered in Georgia so far, with confirmed total reserves of 8.3 million tons. Three natural gas fields have also been discovered. In order to successfully commercialize these resources, prudent industry management and extensive investment is needed.

As EITI In Georgia: A Short History and Promising Perspectives points out, Georgia also plays an important transit role for a number of major projects. The country hosts part of the huge Baku-Tbilisi-Ceyhan pipeline, which pumps oil from the Caspian Sea to the Mediterranean Sea. And gas from Azerbaijan’s Shah Deniz field will soon be the main source of the Southern Gas Corridor, an initiative that envisages the transportation of Caspian gas to European markets. Georgia is expected to benefit from this process by collecting tax revenues from the midstream. The project will also open new work places and contribute to infrastructure.

As the Russia-Ukraine conflict wears on, well past its year mark, the importance of these pipelines will only increase. So too will the need for the transparency and accountability of transit revenues. “Greater transparency would facilitate more informed policy making and hence help the overall development in the best way,” the report’s authors write. Thus, EITI, a prominent initiative guaranteeing access to extractive industry operations and data, must top Georgia’s political agenda. (In principle, authorities agreed that Georgia become an EITI pilot country at a world summit on sustainable development way back in 2002.)

Together with partners in Georgia, which include the International Business and Economics Development Center, the Natural Resource Governance Institute (NRGI) has technically and financially contributed to number of projects and research works. In 2013, NRGI organized EITI workshops with Extractive Industries Eurasia Knowledge Hub experts and regional civil society representatives. These workshops contributed significantly to proposal preparations, recommendations for EITI implementation, draft legislative amendments to respective laws, the preparation of agreements between extractive industry stakeholders, and discussions with state officials. (See “Expanding the EITI Agenda to Transportation of Hydrocarbon Resources” and “Promoting Hydrocarbon Transit Transparency in Georgia”.)

As a result, key stakeholders and potential beneficiaries of EITI in Georgia have embraced the value of the initiative. However, the political will to translate such intention into substantive action is so far absent. The current administration’s commitment to open government and its adherence to structural reforms gives grounds for cautious optimism. And discussions about the future of EITI in Georgia remain relevant and significant to the country’s aspirations to join the European Union and realize its overall development plan, as outlined by the government.

Fidan Bagirova is NRGI’s Eurasia senior officer.