Kazakhs Cancel Construction Of $1Bln Refinery in Georgia

ASTANA, Kazakhstan -- Kazakhstan, one of the biggest foreign investors in Georgia, has ditched plans to build a $1 billion oil refinery in the Caucasus country, an industry source said Wednesday.

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 -- a worrying sign for Georgia trying to bounce back after its war with Russia.

The source in the state oil and gas company KazMunaiGaz said the latest decision was not linked to politics. "We have a lot of interest in many different project, but we rely on economic feasibility when choosing," the source said. "So, you should not drag politics into this one. ... Our experts have carefully studied it and decided that it is not feasible."

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.

On Monday, Kazakhstan announced that it would not go ahead with plans to build a grain terminal in another Georgian port of Poti because of political uncertainty surrounding the country.

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.

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.