Monthly Review

Review of Russia's Economic Relations with Abkhazia and the Tskhinvali Region

2023 / 11 / 03

Publication:  N30 / Review period:  October 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

Memorandum with Russian Export Center

On October 7, as part of his working visit to Moscow, the de facto president of Abkhazia, Aslan Bzhania, visited Russian Export Center, where he met with the Director General of the center, Veronika Nikishina. Bzhania was accompanied by the de facto Deputy Prime Minister and the so-called Minister of Economy, Kristina Ozgan.

At the meeting, the parties signed a memorandum of understanding which envisages trade and economic cooperation between the de facto republic and Russia.

According to Nikishina, Russia is interested in the development of agribusiness, transport infrastructure and other economic sectors in the occupied Abkhazia. According to her, Russian companies express their readiness to participate in similar projects, and the center will support these initiatives.

Russian Export Center JSC actively cooperates with the occupied regions of Georgia. Before the meeting with Bzhania, the de facto President of the Tskhinvali region, Alan Gagloyev, met with Nikishina, on May 31, 2023, and the parties signed a memorandum of cooperation. For information, during 2022, the center promoted the export of products from Russia to the occupied Tskhinvali region in the amount of USD 20.6 million, which is a 40% increase compared to 2021.

Aslan Bzhania Visits Russian Export Center

Process of Forming a Common Social and Economic Space Between Abkhazia and Russia is Coming to an End

On October 17, a working meeting was held in Moscow on the implementation of the program for the formation of a common social and economic space between Russia and Abkhazia based on the harmonization of the Abkhaz “legislation” with the Russian one.

A delegation from Abkhazia was headed by the de facto Vice Prime Minister and the so-called Minister of Economy, Kristina Ozgan, and a Russian delegation – by the Deputy Minister of Economic Development, Dmitry Volvach.

At the meeting, the parties discussed the results of the program implementation as well as its ongoing issues, such as: double taxation, customs regulation, social and banking activities.

Volvach believes that the “legislations” harmonization project will be completed in 2023, an important part of which has already been done, and relevant agencies are actively cooperating on the remaining work.

Ozgan, for her part, noted that the work done within the framework of the program is unprecedented in the modern history of Russia and the de facto republic, and the results will lead to an effective increase in economic, investment and humanitarian cooperation. At the end of the meeting, the parties agreed to intensify cooperation in order to accomplish the program by the end of the year.

Work on the harmonization of the “legislations” between the de facto republic and Russia began in 2021. Since then, several areas have been regulated and synchronized, such as: energy, tax and customs regulation, investment and banking, social insurance, health care, education, labor relations and pension.

Another Acquisition of the Abkhaz Railway

The Abkhaz Railway purchased another locomotive. Earlier, in January 2023, the railways acquired two locomotives which was the first acquisition since the 1992-93 war. The new locomotives should contribute to the increase in the volume of cargo passing through the railway.

As per the data for the three quarters of 2022, a total of 8,937 wagons loaded with 595,848 tons of cargo arrived in the occupied Abkhazia. In the same period of 2023, the number of wagons to Abkhazia totaled 9,972, which exceeds the last year’s data by 855. In the same period of this year, the weight of cargo amounted to 655,112 tons.

Preparing for the Citrus Season

On October 21, a meeting was held between the de facto State Customs Committee and the Russian Federal Customs Service. The meeting summarized the holiday season of 2023 and started preparations for the citrus season.

The export of tangerines from the occupied Abkhazia to Russia started in October. According to October data, a total of 593 tons of tangerines were exported to Russia. The citrus season in Abkhazia lasts until March, and the peak of the harvest is in December. As expected, the citrus harvest will reach 30,000 tons this year.

Import of Propane

The Russian Federation Council ratified the changes in the trade agreement signed with the de facto republic. The amendment abolishes the export customs tax on the propane export from Russia to the occupied Abkhazia.

This solution is temporary and is related to the energy crisis. Propane is considered a commodity of primary consumption, and according to the agreement, in conditions of energy shortages, Russia is obliged to supply two thousand tons of liquefied petroleum gas per year to the occupied region.

Economic relations Between Russia and the Tskhinvali Region

Trade Turnover with Russia in 2022

On October 3, the Minister of Foreign Affairs of Russia, Sergey Lavrov, met in a bilateral format with the de facto presidents of Abkhazia and the Tskhinvali region. During the meeting with the de facto President of the Tskhinvali region, Alan Gagloyev, the parties paid special attention to economic cooperation. “Last year, in 2022, the trade turnover between the region and Russia amounted to USD 140 million. We still count this number in USD, however, it will change soon,” Lavrov said.

Reconstruction of the Kvemo Zaramagi Checkpoint

On October 6, Alan Gagloyev met with Mikhail Kokaev, the Director of the State Policy Department of the Russian Ministry of Transport, at the Kvemo Zaramagi crossing checkpoint (CCP). Car traffic between Russia and the occupied region is carried out through the Kvemo Zarmagi and Zemo Roka CCPs. The meeting was also attended by the Secretary of the Security Council of the de facto Republic, Anatoly Pliev, and members of the government of the Republic of North Ossetia - Alanya.

On September 26, the ninth meeting of the demarcation commission of Russia and the de facto republic of the Tskhinvali region was held in Moscow. The meeting discussed the issue of delimitation and demarcation of the “border” between the de facto republic and Russia. At the same time, the conversation touched upon the reconstruction of the Kvemo Zaramagi CCP. According to Kokaev, the meeting with Gagloyev was the result of the discussion at the “intergovernmental” commission.

According to Kokaev, the Russian government signed a state contract with a competent organization which will be responsible for the reconstruction of the CCP. As planned, the checkpoint will start operation in 2026. According to him, at the end of 2023, the reconstruction project will be sent for state expertise, and at the end of 2024, once the expertise is available, large-scale works will be started.

Some difficulties arose during the reconstruction of the CCP, namely, the operation of the checkpoint will not be interrupted during the rehabilitation period. According to representatives of the Russian Ministry of Transport, it’s planned to build additional infrastructure during the reconstruction in order to ensure the anticipated number of vehicles (over 1,500 cars) pass through the point per day. Reportedly, after the reconstruction, the throughput capacity of the CCP will increase by 400 vehicles.

This decision of the Russian government was long awaited in the de facto republic. “The issue of this checkpoint is vital for South Ossetia, and the population of the republic has been waiting for the improvement of border crossing conditions for several decades,” Gagloyev said.

Alan Gagloyev at the Kvemo Zaramagi Checkpoint

Fuel Price Decrease

According to the Minister of Economic Development of the de facto republic, Dzambolad Tadtaev, AI-92 fuel has become cheaper in the region, and the cost of one liter totals RUB 57 from October 10.

It should be noted that consumers can purchase fuel at this price only at one gas station - Yugosetnefteprodukt. Tadtaev explains this fact and says that as per Gagloyev’s order, the de facto government conducted negotiations with this company only.

De Facto Government Will Pay Energoresource’s Debt to Russia

As per the data published in February 2023, the de facto republic had accumulated a debt of RUB 527 million (approx. USD 7 million) for electricity purchased from Russia.

At that time, the Minister of Economy of the de facto republic, Dzambolat Tadtaev, said that the debt would be repaid by 2025. According to him, the de facto government can allocate only RUB 232 million (approx. USD 3 million). An additional problem was that the collection of electricity tax from the population in 2022 amounted to 68% which is a 1% decrease compared to 2021. That's why Tadtaev then called on the population to take the mentioned issue more responsibly.

On October 31, the de facto government discussed the issue again. The company Energoresources - South Ossetia supplies electricity to the occupied region at the local level, and it buys electricity from the Russian company Inter-RAO.

As per a decision of the so-called Cabinet of Ministers, Energoresource will no longer have to pay the debt as the subsidy will be allocated from the “State Budget.” The specific amount of the subsidy has not been named, and at this stage it is not known whether the de facto government will fully cover the company's obligation.

First Private Investment in the Construction Business May Not Happen

On September 28, the de facto Ministry of Construction announced that a 72-apartment residential building with private investment would be built in the occupied Tskhinvali region for the first time. According to current information, the private investor has implemented successful projects both in Russia and in the Republic of North Ossetia - Alanya.

There is an acute problem of shortage of well-equipped residential houses in the region. Before the investment, all residential houses in the region were built within the framework of the “state program” and were intended only for those “citizens” who needed to renovate/receive a residential house, for which people wait for their turn for years.

The mentioned news was important and unprecedented for the region, however, on October 20, Gagloyev issued a statement, which stipulates that the construction process would not start at this stage. According to Gagloyev, the reason for his decision is the dissatisfaction of the population living near the building under construction. According to the de facto leader, the mentioned issue will be resolved only through negotiations with the population.