Publication:  N32 / Review period:  December 1 – 31, 2023 / Author:  Arsen Araqelov 

Review of Russia’s Economic Relations with Abkhazia and the Tskhinvali Region is being prepared within the framework of the project - Roadmap to Kremlin's Policy in Abkhazia and the Tskhinvali Region. The purpose of the publication is to provide an overview of economic relations between Russia and Abkhazia and the Tskhinvali region. The review is a monthly publication and will be useful for everyone – decision-makers, public employees, media representatives and other people who are interested in the Kremlin policy in the occupied regions of Georgia.

 

Economic Relations Between Russia and Abkhazia

Rosneft - Exclusive Supplier of Petroleum Products

The de facto Minister of Economy, Kristina Ozgan, stated that as per a decree of the Russian government of December 16, 2023, only Rosneft and its subsidiary companies will have the exclusive right to export oil products to the occupied Abkhazia.

According to Ozgan, there are many suppliers of fuel in Abkhazia who have signed contracts with different companies, and the resolution temporarily restricts their rights. According to the de facto Minister, negotiations are underway with Russian relevant agencies to settle the issue. Ozgan wants that in parallel with the resolution fuel to be supplied to Abkhazia from those companies with which contracts have already been signed on export of various volumes of fuel, so that a crisis does not arise, and other suppliers do not suffer.

It should be noted that as a result of the decision of the Russian government, some companies in the occupied Abkhazia stopped selling fuel. For example, the AZiD gas station network stated that for reasons beyond their control, due to the limited fuel supplies to the de facto republic, the sale of some petroleum products was temporarily suspended. Those legal entities which have signed a contract with the company before the decision of the Russian government can purchase fuel. The company said that this restriction will be in effect until the problem is resolved.

“We hope to find a certain solution,” Ozgan added. The resolution of the Russian government was extended to the Tskhinvali region as well.

Another “Lastochka”

According to Abkhazian Railways, another electric train – Lastochka - will start operation in occupied Abkhazia in the summer of 2024. Lastochka has been operating in the Sochi-Gagra direction since June 8, 2023, and transported a total of 48,309 people from Sochi to Gagra. As Abkhazian Railway explains, the addition of one more electric train flight is due to high demand.

Railway Revenues

In 11 months of 2023, 12,526 freight wagons, with 839,239 tons of cargo, were transported by railway in Abkhazia. The highest volume of cargo was transported in February - 1,641 wagons. In the same period of 2022, this number equaled to 10,680 wagons and 712,817 tons of cargo. The increase in the load on railways is related to the increase in economic activity on the part of Russia, which under the sanctions, is trying to develop alternative economic directions.

Tourism Consequences

In 2023, more than 1 million people visited Abkhazia. Taxes paid in the field of tourism amounted to RUB 743 million. Two most popular tourist destinations in Abkhazia were Ritsi Park which hosted 572,737 people and the New Athos Cave with 385,000 visitors.

There is a decrease in the number of tourists compared to the previous year. Tourism in Abkhazia is completely dependent on Russian tourists. It is interesting that the Chairman of the Belarusian Tourism Industry Union, Philip Gul, was also present at the annual summary event and noted recent increase in the number of Belarusian tourists to Abkhazia. Although at this stage Minsk does not recognize the independence of Abkhazia, relations between Belarus and the occupied Abkhazia have grown significantly over the past year.

Citrus Season

From October till today, 20 thousand tons of mandarins were exported from Abkhazia to Russia. In the last days of December, 700 tons of citrus fruits were transported from Abkhazia to Russia every day.

Meeting with a Delegation from Krasnodar Krai

On December 12, the so-called President of the Chamber of Commerce and Industry, Tamila Mertskhulava, met with a delegation from Krasnodar Krai. The Russian delegation was headed by Anatoly Rotarenko who is the Head of the Center for Coordination of Export-Oriented Small and Medium Enterprises. The purpose of the delegation's visit was to develop trade relations between the de facto republic and Krasnodar Krai. Rotarenko introduced to Mertskhulava services and products which Krasnodar Krai can offer to Abkhazia.

Tamila Mertskhulava Meets with the Delegation of Krasnodar Krai

Economic Relations Between Russia and the Tskhinvali Region

Kvemo Zaramagi - Situation at the “Border”

On November 23, the President of the de facto republic, Alan Gagloyev, met with the Counsellor of the Russian “Embassy” in the region, Alexander Zhurov, and a representative of the Russian Customs Service in the region, Alexei Popov. At the meeting, Gagloyev said that local manufacturers are scared by the fact that at the Kvemo Zaramagi crossing checkpoint, which connects the region with Russia, Russian border guards stopped trucks loaded with goods several times and did not let them into the de facto republic. Then Popov promised Gagloyev that he would convey the mentioned problem to heads of the Federal Customs Service of Russia.

On December 9, the Acting Head of the Russian Federal Customs Service, Ruslan Davidov, announced that the Kvemo Zaramag CCP is functioning stably. According to him, in good weather, about 70 trucks and 1000-1100 cars cross the CCP per day.

On December 28, Gagloyev held a press conference summarizing the year, during which he again spoke about the problems at the “border.” According to him, the Russian Customs Service has started stricter control of cargo. “It's no secret to anyone that some entrepreneurs reduce the cost of goods to be cleared at customs or do not provide enough information to customs officials in order to avoid taxes,” Gagloyev explained the possible delays at the so-called border, during which Russian customs officials check the goods transported to the occupied region more strictly and in detail.

Investment Program

In order to promote the socio-economic development of the Russian-occupied regions of Georgia, Abkhazia and the Tskhinvali region, Russia has developed the “Investment Program Promoting the Socio-Economic Development.” Works are currently underway in the region within the framework of the 2023-2025 investment program.

The de facto Construction Minister, Konstantine Eldzarov, assessed the past year and said that 95% of the works planned for 2023 have been completed. According to him, construction works were underway on 20 new facilities under the program in the region this year. According to Eldzarov, there were objective reasons for several uncompleted works.

Alan Gagloyev also talked about the progress of the investment program at his year's summary press conference. He said that through the investment program and credits given by Russian banks, the construction of a canning factory has been started. The factory will produce products from local raw materials.

On December 19, a deputy of the de facto parliament, Elena Jioeva, discussed the progress of the investment program with a deputy of the Russian Duma, Andrei Makarov. Jioeva told Makarov that the occupied region needs stable funding for development. According to her, Makarov assured that problems will be solved within the next year.

Meeting Between Elena Jioeva and Andrey Makarov

Export Customs Duty was Abolished

At his year-end press conference, Alan Gagloyev announced that Russia will abolish export customs duty on fuel and lubricants for the occupied region. According to Gagloyev, tax was one of the reasons why part of the ongoing works under the investment program could not be completed.

The Russian government limited the export of fuel from September 21, 2023, and effective October 1, those countries, including the occupied regions, which still export fuel from Russia under signed agreements, would have to pay an additional tax.

The de facto governments of the occupied regions of Georgia claimed for months that they would not be affected by the tax, although the official decision of the Russian government in this regard was not announced.

As Gagloyev said, during a telephone conversation with Alexander Novak, the Deputy Chairman of the Russian Government who also supervises the occupied rgions of Georgia, he was informed that the Russian government would sign the resolution in two days. On December 30, the tax abolition protocol was signed in Moscow.

The protocol was signed by the Deputy Minister of Economic Development of Russia, Dmitry Volvach, and the newly appointed Minister of de facto Economic Development of the region, Sarmat Kotaev. The protocol will enter into force on January 9, 2024.

The export customs duty on propane from Russia to Abkhazia was abolished on October 25. The said decision was made by the Russian Federation Council.

Fuel Prices Go Down

Fuel in the region has become cheaper by RUB 3, and the price of one liter of AI-92 will be RUB 54. It should be noted that car owners can buy fuel at this price only at Yugosetnefteproduct gas station. In this company, the price of AI-92 decreased to RUB 57 in October. The company said that the price decrease is due to decrease in fuel price in Russia.