Abkhazia’s energy crisis potentially opening the de facto states’ pandora’s box?
Geopolitical implications on the road to Abkhaz energy security
After more than a year of unexpected blackouts, the authorities of Abkhazia initiated rolling blackouts within the state in July 2021, where during the night each region would be deprived of electricity for two hours. Two months later, in September, Abkhazia experienced an unprecedented fuel crisis, which led the government to increase fuel prices—something that did not still discourage people from attempting to fuel up, leading to enormous queues at gas stations and frustration among the locals.
Source: Facebook / Levan Gabechava
A combination of postponing of duty-free fuel from Russia, the maintenance works of the Enguri Power Plant, Abkhazia’s only source of electricity, and finally the crypto-mining frenzy, are deemed to be the reasons to have pushed the de facto state of South Caucasus in an energy insecurity predicament. Reflecting on this, Sukhum has moved towards discussions for a pipeline construction with Gazprom, which will be the endeavor to resolve the energy insecurity issues.
This brings up several questions regarding Abkhazia’s relations with Georgia on the energy sector, which strongly influences the security sector. However, it also opens up new opportunities that a closer partnership with Moscow, as well as any other potential state actors that might want to get involved in an energy partnership with Sukhum might entail. The story of Nagorno-Karabakh can be utilized as a point of reference so that the Abkhazian authorities, but also the Georgian ones, can formulate a policy that will provide a desired outcome. The main issue with this notion is that there is no exact direction towards which both states seem to be willing to go.
The chronicles of an energy system design failure
Ever since 2018, Abkhazia has emerged among the cryptocurrency champions, riding the wave of blockchain technology. The existence of abandoned Soviet factories in the size of hangars that would facilitate the large volumes of computational power needed, coupled with the minuscule pricing, puts the de facto states like Abkhazia and Transnistria in a very advantageous position for crypto mining.
Sukhum receives electricity from the Enguri hydro power plant for $0.01/kWh, whereas Georgian consumers have to settle for $0.06-0.07/kWh. Such pricing and subsidizing policies have converted the region into a crypto mining haven, where Bitcoin millionaires can thrive. Nonetheless, relying on one only hydro power plant for energy supply is fraught with serious implications for energy security. This can have detrimental effects in a region where cryptocurrency operations are taking place—these are considered so energy intensive that they had already accounted for 37TWh of energy by 2017, almost as much as what is consumed in New Zealand. As expected, this fatal amalgam resulted in massive blackouts and fluctuations in voltage that, apart from public frustration, led to severe damaging of electric appliances. In order to remedy these far-reaching ramifications, the authorities introduced a ban on imports of electronic appliances as well as a permitting system, while trying to mitigate the effects of lack of electricity by introducing blackouts.
Despite the fact that an increase in taxation has always been on the table, there was no final implementation of it. The main objective was that the state authorities wanted to refrain from increasing the burden on citizens that have not been benefitting from the Bitcoin frenzy.
Maintenance works on the Enguri Power Plant came to put an extensive pressure on the electricity grid in February 2021. As a plant that operates on hydro power, Enguri is typically low on power during winter when needed the most, whereas it can generate more power in summer, which is by default energy intensive, and this intensity is heightened by the significant influx of tourists to the region. Taking both into account, Abkhazia scored high in the energy vulnerability index and in order to deal with that huge stress, turning to its long-term ally, Moscow. Electricity imports from Russia began in December 2020 in an attempt to reduce electricity cuts in the region and compensate for the loss of energy from Enguri. This, however, added more pressure on Tbilisi since, as mentioned before, electricity in Abkhazia is heavily subsidized. Russian imports, depending on the source, would be significantly more expensive than the cheap hydro electricity generated in Georgia. It should be noted that this is not the first time Sukhum seeks assistance from the North in terms of energy, as this was the case in 2019 as well.
As the mounting problems accumulated, the advent of summer brought a significant number of tourists to the region, which increased the load both in terms of electricity and fuel. The apogee of this emerged in July, when it became evident that there were fuel shortages, through the long lines in gas stations. Endeavors to smoothen the demand curve by increasing fuel prices was futile, as the lines persisted, resulting in public discontent and frustration. Facing the mounting pressure, Arslan Bzhania, raised the issue of gasification of Abkhazia through Russia during a meeting with the Russian President Vladimir Putin.
Shortly after that meeting came an agreement with Gazprom to provide more gas to the region within a year, as part of minor adjustments that were made to the three-year “Investment Program to Promote the Socio-Economic Development of the Republic of Abkhazia for 2020-2022.”
Observing the political aspect of the electricity and energy grid management from Abkhazia, an overall trend of distancing from Tbilisi can be observed. Nevertheless, the path towards energy security is much longer, and a pipeline alone cannot guarantee that. Numerous improvements should be made to all of the energy system, from transmission and distribution to the construction of power plants. There is room for several state actors and institutions to support Abkhazia, always taking into consideration the implications of getting involved with a partially recognized state—hence, this presents great interest to examine those prospects further.
It has been stated on numerous occasions that the paramount concern in Sukhum has to do with the energy diversification. The only power plant in relative proximity is the Enguri HPP, whereas the only alternative source would be the Shaori HPP with highest capacity of 138MW, which is considered very little to support the partially recognized state. Abkhazia is very poor on natural resources and, therefore, needs to be supplied in fuel. Nonetheless, it is in very close proximity to two competing global energy players, namely Russia and Turkey, which creates an aptitude for collaborations.
This is not the only hurdle that needs to be overcome. The de facto state possesses a chiefly obsolete energy grid, as transmission lines and voltage transformers are very outdated and are in constant need of repair, as it is significantly easier for them to overload and cause power interruption even at times when electricity is abundant. Adding to this, if the energy mix is to be changed, incorporating gas power units or even wind farms will cause even more issues, adding to the already virtually unbearable burden that the transmission and distribution system is facing. Therefore, a need for radical change of the grid is eminent.
Finally, the skillset of the current workers on the sector ought to be reexamined and the energy measurement to be modernized. This requires employment to people with deep knowledge and a strong scientific background, willing to provide their expertise.
Russia’s steady (?) helping hand
Russia has clearly set itself in the pole position of providing assistance to the energy sector of Abkhazia. The agreement with Gazprom portrays that Moscow will be its premium gasifier, which is fully aligned with the strategy that the Kremlin and Russian energy companies are pursuing with regards to oil and gas.
The power plant construction, however, is a different story. Russia has traditionally refrained from resorting to its own companies for the technical expertise and the capital to construct conventional power units that are not nuclear ones. August 2020 provided a characteristic example of that, as Energy China signed an agreement for project design procurement and construction of a 270MW gas-fired power plant in Tula Oblast, Russia, whereas other companies like French Alstom have supported similar initiatives in the past. Moscow has been utilizing its nuclear expertise to promote nuclear power plant diplomacy across Eastern Europe, but also in Asia, through multiple tender bids by Rosatom. However, pursuing such a strategy with Sukhum can have terrible geopolitical implications, taking into consideration the general tendency towards nuclear power, especially in neighboring European Union (EU).
Potential of a Chinese (in)direct involvement
China, through its investment on construction of the Tula power plant, but also through its pledge to build 43 coal-fired power plants, is positioning itself as the major global power in the conventional units construction sector, being able to provide an excellent alternative for Abkhazia should there be a desire for such an addition to the energy mix.
Moreover, its pledge towards hybrid renewable power plants to produce green hydrogen, with the project of Inner Mongolia as a prevalent example, brings about a lot of hope and potential for similar investments in Abkhazia, which is deemed to sustain one of the most promising solar technical potential in the region. No recognition on Beijing’s behalf puts barriers. In addition, reflecting on the current low level on the China-U.S. relations, the implications of such a move certainly outweigh the benefits, which means there is a very low probability that a support by China might occur.
North Korea, on the other hand, has fully recognized Abkhazia and enjoys excellent relations, to the point that North Korean workers have been deployed to assist the partially recognized state. Taking into account the very close relations between China and North Korea, Pyongyang can work as a buffer zone if China wishes to make investments in the energy sector of Abkhazia. The investment might be small, nonetheless, presumably in staff with technical expertise, or inexpensive technical equipment.
The emerging role of Turkey in the region
Turkey is a critical partner for Abkhazia. Currently, it is its second largest trade partner, accounting for 18% of the trade turnover of Sukhum. In 2020, Turkish banks Ziraatbank and Isbank started to provide service to the Abkhaz credit cards APRA, and Abkhazia appointed a Plenipotentiary Representative in Ankara in 2021.
Over the last decade, actions like these are showing that Ankara wishes to strengthen its ties with Sukhum but has refrained from fully recognizing the government, in part due to its relations with the West. Turkey’s large newly found gas reserves in the Black Sea present a great opportunity to strengthen bilateral ties further, moving forward in the competition with the Kremlin.
However, alteration of the gas markets, lack of public support towards Erdogan’s policies and lack of alignment over the gas policy with Azerbaijan have led Turkey to solely provide short-term contracts that will make gas prices much more volatile, which is not in the interest of Abkhazia. Combining all of this with an all-time low in the relations with the EU, Ankara possesses very low potential of actually engaging Sukhum.
Line of communication with Georgia
Tbilisi stands to lose a lot of leverage and connections that it currently sustains with Sukhum. Nevertheless, in maintaining these close ties, it is significantly easier to provide assistance in several fronts in order to tackle Abkhazia’s energy security crisis. Georgia’s hydro power potential is immense, with only 20% of it being used at the moment. This brings up great opportunities for cooperation with Abkhazia on a greater scheme to exploit more of the hydro power reserves in an agreed manner. Currently, the two sides maintain informal agreement, where Abkhazia utilizes 40% of the Enguri HPP power, whereas Georgia exploits 60% of it. Reaching agreement on joint ventures regarding new hydro power plants but also as regards joint use of the existing electricity sources would mitigate the effects of fuel and electricity shortages to a great extent for Abkhazia.
As far as joint ventures are concerned, the vast solar technical potential of Abkhazia could be paired up with the neighboring regions’ abundance in wind to form a great investment opportunity for a hybrid park—with the prospect of green hydrogen, a largely attractive investment for virtually all global players and international institutions, which are currently impeded by the ambivalent status of Sukhum.
In addition, the Georgian electricity grid is outdated, with efforts being made to ameliorate the situation through the various funding sources from international institutions. Abkhazia can gain eligibility for similar support by exchanging knowledge and collaborating with Georgia. Nonetheless, this could lead to several concessions, and Georgia could also use the energy crisis as leverage to drag the partially recognized state fully to its trajectory. Lessons stemming from the fate of the de facto state of Artsakh after the Nagorno-Karabakh war suggest that such states would be recommended to stay close to their allies but never be too close and never be fully alienated by their adversaries.
In a nutshell
Abkhazia is facing an unprecedented energy crisis. The increase of cryptocurrency activity, combined with the effects of climate change to the water sources, affecting the hydro power plants, will only increase the energy issues in the foreseeable future.
Sukhum needs to come up with a strategy that will ensure resilience of the energy and electricity sectors by modernizing both and enhancing its energy sources. That can be achieved either by turning to Moscow, its closest ally, and thus increasing the distance with Tbilisi, or to any other global power. Any one of these outcomes can have its geopolitical risks, with the largest being moving away from the Kremlin. Such a move would fully isolate Abkhazia, as the only land connections it currently maintains are with Russia and Georgia.
On the other hand, Abkhazia can move to a new informal agreement with Georgia, which might then have implications with regards to the state’s current stance regarding its self-proclaimed independence. In order to navigate in this situation, the Abkhazian authorities ought to carefully assess the trade-offs that come with each option, having the energy security and reliability of the region as a main concern, but also examining the possible ramifications of each one of these options to the regional stability. The outcome of the Nagorno-Karabakh war can provide the guidelines for the policy chosen. Finally, global powers have a great opportunity to include Abkhazia in their energy strategy, and they will have, nevertheless, to take into consideration the bigger picture, which includes the relations with Russia, which are at a very low level with most countries in the West.
For the Sukhum-Moscow relations, it will be a major test if such an approach to third parties actually happens, namely for the Turkey-Russia or the Sino-Russian relations, possibly through Pyongyang.
Most importantly, nevertheless, the current energy crisis should be a point of reference for all partially recognized states and the way towards solving this should function as a roadmap, so that all of them can implement a strategy that will provide them resilience from the energy and geopolitical ramifications that climate change and the energy transition might bring.
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