About a year ago, Azerbaijan's NEQSOL Holding bought 49% of the shares of the Caucasus Online, a fibre-optic cable (FOC) constructed along the bottom of the Black Sea, for $ 61 million. It was a very serious deal. However, it became clear that there are forces hindering the implementation of the deal after a short time. Who are they and what are their goals?
First of all, NEQSOL is represented with the companies which not only have business operations in Azerbaijan but also in the United States, Britain, Turkey, Kazakhstan, the UAE and Georgia. The head of the holding is Nasib Hasanov.
The Caucasus Online is a company that plays a strategic role in providing the region with the Internet. The main burden of the Internet coming from Europe to the South Caucasus falls on the bottom of the Black Sea. The company controls 85% of this market in Armenia, 65% in Georgia and 50% in Azerbaijan. One of the Caucasus Online's partners is Azerbaijan's Delta Telecom.
Prior to the signing of the agreement, the parties have held talks for more than a year, and former Georgian Prime Minister Bakhtadze was aware of these talks. Although the Georgian government welcomed the agreement, after the appointment of Gakharia as a prime minister, problems began to arise. Currently, the Georgian government claims that the purchase is illegal as it was not agreed with them. According to the rules, the Georgian government must approve the purchase and sale of more than 5% of telecommunications companies.
In the background of this controversial situation, on July 17 in 2020, Georgia’s parliament approved amendments to the Law on Electronic Communications, which will allow the Georgian National Communications Commission (GNCC) to appoint “special managers” to telecommunications companies that do not meet its requirements. These managers will have unlimited authorities. Experts believe that this change will have a negative impact on the Georgian business environment: in fact, any private organization in the field of telecommunications can come under full state control. According to some, this step only aims to take full control of the Caucasus Online.
This situation has surprised and criticized by the Western partners who support the development of a major international "digital telecommunications corridor" which connect Georgia and Azerbaijan to European and Asian markets via fibre-optic networks. Former US Ambassador to Azerbaijan Matthew Bryza told Georgian media that he regretted Tbilisi's position. Now, another alternative to this corridor is the Russian route, but because of tense relations with Russia, Georgia will be left out. However, the project was also aiming to establish a data storage centre in Tbilisi for content providers (e.g., Netflix, Amazon, Google, etc.). Of course, it is in the interests of Georgia.
The Government officials did not explain why they opposed Azerbaijani investor's entry into the Georgian telecommunications market. In fact, Azerbaijani companies are operating in other important sectors. However, the former owner of the Caucasus Online, Mamia Sanadiradze warned that if a huge Azerbaijani company establishes control over the Euro-Asian cable, a telecommunications hub will be created not in Tbilisi, but in Baku and Georgia will lose its strategic position within the regional telecommunications system. NEQSOL will invite the giant global companies Netflix, Amazon and Google to Baku, and Georgia will turn into a dead-end instead of being a bridge between Europe and Asia.
Currently, NEQSOL is preparing an appeal to the international court of arbitration. Well-known international law firms consider the legislative changes in this area to be contrary to Georgian and international law.
Why did the Georgian government take this step?
First of all, the agreement will allow Azerbaijan to become an Internet hub in the region. Experts call the project, which will connect Asia and Europe, the "Digital Silk Road." This, in turn, can further increase Azerbaijan's geo-economic influence in the region. Presumably, Georgia did not allow the purchase of the national operator by a foreign company out of fear or jealousy.
The owner of the Caucasus Online, Khvicha Makatsaria, agreed to sell 49 per cent of his company’s shares to NEQSOL Holding. This can be the second possible reason for the current situation, as Makatsaria is close to former President Mikheil Saakashvili. Makatsaria bought the company from Sanadiradze in 2009 with the state support. Sanadiradze notes that as soon as the company began to make a profit, the state pressured it and forced it to sell the company at a lower price. Makatsariaa, whose main source of income is offshore, was close to Russian citizens Merab and Revaz Shangaria, known as Saakashvili's “black cashiers”. They had business interests in the oil and gas sector, and Saakashvili sponsored their business. They had a 25% share in SOCAR-Georgia Company. The current government regards Saakashvili supporters as an enemy. Presumably, the Georgian government decided to seize the shares through a third company (i.e NEQSOL) as it could not buy them directly from it. Therefore, the contract had been agreed in advance but later it was claimed to be illegal.
However, this move could also be assessed as a policy of pressure on foreign investors. In this context, the ousting of the US oil company Frontera Resources, as well as other companies involved in the construction of a deep port in Anaklia, is also noteworthy.
One of the sensitive points is that Armenia also expressed its dissatisfaction with the sale of the project. Armenia is afraid that Azerbaijan will be able to analyze internet traffic going to Armenia. On the other hand, there is an alternative project supported by Yerevan. During Armenian Prime Minister Nikol Pashinyan’s visit to Iran on February 27-28, 2019, Iran, Qatar and Armenia signed a memorandum on” Qatar-Iran-Europe optic communication channel project” passing through Armenia. The document was signed by UCOM co-founder Alexander Yesayan, CEO of Iranian Telecommunication Company Majid Sadri and the President of the largest cable network provider the Gulf states, GULF Bridge International Abdulla Al-Rwaili. According to the agreement, the project will create a transit link for Internet provision to connect the Gulf and Asian countries to Europe.
“By joining the project, Armenia underlines its position as a regional IT leader. The new channel will become an alternative to the current maritime route, will sidestep Azerbaijan and Turkey,” stated the Ucom co-founder Alexander Yesayan. Although Azerbaijani and Turkish companies wanted to participate in the project, the fact that the choice was Armenia, shows its political nature. According to the Gulf Bridge International website, the project has two branches to Armenia via Georgia. One of them passes through the occupied territories of Azerbaijan.
As only “Gulf Bridge International” has sufficient financial resources among three partners, it can be assumed that the project is still on paper and doesn’t have the necessary funding. Sanctions on Iran complicate the process of attracting large investments from international organizations in this field. On the other hand, the Armenian National Security Service opened a criminal case against Gurgen Khachataryan, the head of “Ucom” - partner from Armenia on January 14, 2020. He is accused of participating in Gagik Khachatryan’s corruption schemes, who served as Minister of Finance during his father- Sargsyan’s period. His father has been imprisoned since August 2019. Gurgen Khachatryan fled from the investigation and put on the wanted list by the National Security Service. Khachatryan claims that the government forces him to sell his company at the lowest possible price. Besides, one of Ucom's partners is Sargsyan's son-in-law, political immigrant M. Minasyan. It is not ruled out that criminal cases against the company make the implementation of the project difficult.
Thus, there is currently competition between the two projects. The Digital Silk Road may have more chances and benefits for the region. The Georgian government simply needs to put aside its unreasonable jealousy and illegal obstacles. If the alternative is implemented, one of the losers will be Georgia itself.
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