Georgia Oil Refinery Plans drops by Kazakhstan

Kazakhstan, one of the biggest foreign investors in Georgia, has ditched plans to build a $1 billion oil refinery in Georgia’s port town of Batumi.

Earlier this week Kazakhstan, the region's biggest economy and oil producer, abandoned a separate project to build a grain terminal in Georgia citing political instability which is a worrying sign for Georgia trying to bounce back after war with Russia.

The decision however, is apparently not linked with the political situation in Georgia. Kazakhstan, which sees Georgia as a key oil supply route to Europe, had been due to start building the refinery at the Kazakh-controlled Georgian port of Batumi this year. Total investment in the project was seen at $1 billion.

At the crux of Georgia's conflict with Russia last month, Kazakhstan suspended oil shipments through Batumi but flows were restored in early September.

On Monday, Kazakhstan announced it would not go ahead with plans to build a grain terminal in another Georgian port of Poti due to political uncertainty surrounding the country following its armed conflict with Russia.

Kazakhstan's Soviet past and landlocked geography have made the Central Asian nation reliant on Russia for export routes and has prompted the government to look for alternative routes.

While maintaining good relations with Russia, Kazakhstan has played a balancing game with the West as it seeks to attain more export independence by diversifying flows away from Russia.

Plans about building oil refinery in Batumi first emerged in March, 2007, when KazMunaiGas went into partnership with Greenoak Group, a company, which owned Batumi oil terminal and sea port. In February, 2008, Greenoak Group, however, sold both the oil terminal and sea port in Batumi to KazMunaiGas for an undisclosed sum.

Moscow is particularly wary of Kazakhstan joining the Baku-Tbilisi-Ceyhan oil pipeline that goes through Georgia and bypasses Russia, and Kazakhstan's burgeoning diplomatic ties with the European Union and the United States.

Author: Jo Amey