TBILISI, Georgia, Sept. 30, 2002 (UPI) — For centuries, it’s been the place where interests and empires have collided. Romans, Persians, Byzantines and Ottomans, among others, have affected the Caucasus, usually to the detriment of its inhabitants.

Now, the two main combatants are Russia and the West, led by the United States.

While Western countries have sponsored new energy-sector infrastructure, Russia has been consolidating its control over existing infrastructure.

Through projects like the Baku-Tbilisi-Ceyhan oil pipeline, the United States enhances economic and political influence in the region. Moscow, meanwhile, wants to maintain its role as key energy supplier. It is truly a battle of titans, involving multinationals like British Petroleum, Unocal and Gazprom.

It remains to be seen whether the locals will win out — or see their interests swallowed up by these giants.

Writing on Eurasianet.org, analyst Haroutiun Khachatrian praised Russia’s Caucasus “commitment … at a moment when private and other international investors are shying away from the region.”

July’s debt restructuring deal means Russia will write off $98 million of commercial-rated Armenian debt, in exchange for shares in five state-owned interests. This protects Moscow from yet another CIS-state loan default, and also bolsters its military and energy sectors.

The companies involved will probably include a robot factory, “two or three research institutes which once served the USSR’s military-industrial complex,” and the Hrazdan thermal plant. The last of these has strategic value — it can supply up to 40 percent of Armenia’s electricity. Russia can also create cheap electricity, by building a proposed Iran-Armenia gas pipeline.

According to Khachatrian, electricity competition between Russia and Armenia will “diminish or end.” Still, Russia will increase control over the electricity supplies of not only Armenia, but also of Georgia and eastern Turkey.

Georgia sees little benefit in further Russian encroachment. A bellicose Moscow is threatening to bomb Chechens on Georgian territory. Another cold Caucasus winter is approaching, and the Georgians fear more strong-arming. In the past, power cuts have meant four hours of electricity a day, in the dead of winter.

In 1998, when the government put Tbilgaz, the state-owned gas distributor up for sale, it was hoped that this particular albatross would take off, and not look back. Saddled in debt, ruined by chronic mismanagement, Tbilgaz exemplified post-Soviet Georgia’s worst characteristics. Yet in the first of three unsuccessful tenders, only Sakgaz came forward, but couldn’t meet the tender terms. In the third tender, Israel’s Tahal was interested, but only briefly.

Now, Tbilgaz will be acquired by its own supplier, Gazprom’s subsidiary Itera, to whom it owes $24 million. Itera is currently Georgia’s exclusive gas supplier.

Itera is to acquire 51 percent of Tbilgaz. As in Armenia, the deal involves infrastructure swaps, but not debt absolution. Rather, Tbilgaz’s $24 million debt will undergo five-year restructuring- based on future revenues. While Itera pledged not to raise tariffs and to find cheaper gas, the government must increase budget subsidies.

These two case studies exemplify the vulture-like way in which Russia has devoured the dying beasts of the Caucasus.

Yet the Caucasus energy sector is more ambivalent. Americans do in fact have a stake in existing infrastructure — for now. Georgia’s single largest investor is American giant AES, which operates three power plants and owns 75 percent of Telasi, Tbilisi’s electricity distributor. These were subsumed into “Silk Road” BV, an AES subsidiary, which operates hydroelectric, gas, coal and oil, plants in Ukraine, Georgia and Kazakhstan. In December 1999, around $60 million in EBRD and IFC loans were announced for AES Telasi.

However, insiders say that AES — to cut its larger international losses — is now on the verge of pulling out of unprofitable Georgia. Although AES has denied this possibility, it would not be surprising.

Neighboring Turkey’s 8 percent annual increase in energy demand makes it one of Europe’s fastest growing markets. Yet it has poor infrastructure and dwindling supplies of oil and gas. According to the APS Oil Review, Turkey’s reserves have dropped below 300 million barrels, and “the chances of local and foreign explorers finding major hydrocarbon reserves in this country are slim.”

Turkey is thus investing considerably in foreign exploration and production ventures. It receives Azeri gas, and the new Blue Stream pipeline (which can supply Turkey with 16 bcn of Russian gas annually) will also help appease consumer demand. Yet this also stymies energy independence. Turkey too has occasionally suffered from foreign-ordered blackouts.

There may be light at the end of the tunnel, but it won’t be reached for another 2-3 years. On Sept. 18 in Baku, the Georgian, Azeri and Turkish authorities inaugurated the long-awaited Baku-Tbilisi-Ceyhan oil pipeline. The $3 billion project, run by British Petroleum, also involves Italy’s Eni Spa, Norway’s Statoil ASA, and Unocal.

BTC’s sister project is a $2.9 billion gas pipeline (Baku-Tbilisi-Erzurum). It exploits one of the world’s richest gas fields, and should help solve Georgia’s energy problems — when finished in 2005. BTC is a boon for the Caucasus countries. At least that’s how it’s being billed. Yet whether it will benefit the citizenry, and not just the multinationals and ruling elite, is unclear.

Recently, several Caucasus NGO’s voiced concerns about potential environmental hazards. They also questioned whether locals will receive derivative energy supply and jobs.

The Dutch Ministry of Environment, commissioned to write an impact assessment report for Georgia, warns that the pipeline will traverse the “highly sensitive” areas of Borjomi, Bakuriani and Tsalka. The region is famous for mineral water — Georgians swear by its salutary effects — and also contains a ski resort, health spas, and a protected wilderness area.

Borjomi Mineral Water alone has 1,200 employees, and accounts for 80 percent of the region’s revenues. This year’s estimated turnover is $30 million. Within five years sales are expected to top $100 million annually. The company doesn’t depend on government subsidies — in fact, its revenues help subsidize the government. Its shareholders include both foreign and Georgian interests, like TBC Bank (Georgia’s first private bank). And the EBRD and IFC have invested $14 million since 1997. Clearly, a lot is at stake.

Borjomi’s general manager Jacques Fleury told United Press International the company’s concerns: “we understand that any major breakage of the pipe, whether accidental or criminal, would result in a flood of up to 7,000 tons of oil — which I think could be the end of our business.”

Borjomi is seeking a mutually beneficial compromise solution with the pipeline backers. Says Fleury: “We are asking the operator to use protective measures that would be recommended in similarly sensitive areas of Western Europe — the best solution being to divert the pipeline to a more southerly route.” The issue remains unresolved.

British Petroleum claims up to 80 percent of the 2,500 needed workers can be locally recruited. Critics say it’ll be closer to half, and only temporary work. But in impoverished Georgia, anything will help.

Another problem is land compensation. Those whose property falls within the pipeline’s path are elated, whereas landowners further away feel frozen out. Jaba Ebanoidze, representative of the landowners’ rights association, recently told local media that the compensation procedure is not “clearly defined,” and that “appraiser companies simply do not exist in Georgia.” Ebanoidze envisioned a further scenario, whereby miffed landowners off the pipeline route disrupt construction, to spite their luckier neighbors.

This is analogous, on a microcosmic scale, to Russia’s irritation with the Caucasus states. In 1992, Abkhaz separatists were aided surreptitiously by Russia, many believe, to keep Georgia unstable. The Nagorno-Karabakh dispute between Armenia and Azerbaijan, a relic of Soviet demographic ploys, is a managed, frozen conflict prolonging Russia’s regional diplomatic relevance. But with the BTC on its way from pipe dream to pipeline, and Washington expanding its influence, it’s doubtful that the Caucasus sandbox can fit two kings.