Russia pours cash into Georgia rebel region

By Christian Lowe

TSKHINVALI, Georgia (Reuters) - Georgia's breakaway South Ossetia region says it wants to be part of Russia. If its finances are any guide, it already is.

The tiny strip of land in the foothills of the Caucasus mountains, still tense after an unresolved separatist war in the 1990s, last year received over 60 percent of its budget revenue directly from the Russian state, a separatist official said.

This year, the figure will be even higher and Russian state-controlled companies are pumping in additional cash through major infrastructure projects.

"The money comes from Russia. It does not come by some back route but directly and openly," Znaur Gassiyev, speaker of the separatist parliament told Reuters in South Ossetia's capital, Tskhinvali. "The assistance is not trifling."

South Ossetia is a major source of tension between Georgia's pro-Western government and its former imperial master Russia. Georgian forces and Russian-backed separatists fight regular skirmishes that threaten to spill over into full-scale conflict.

Russia's Foreign Ministry did not respond to a written request asking it to comment on the reasons for its financial aid to South Ossetia. It has in the past described it as humanitarian and development aid.

South Ossetia declared its independence from Tbilisi and drove out Georgian forces in the fighting in the early 1990s. The region is still recognized internationally as part of Georgia and Tbilisi has vowed to restore its control there.

Russia has for years been close to South Ossetia -- a relationship that angers Georgia, which accuses Moscow of using the separatists to meddle in its affairs.

Almost all the 50,000 people in the separatist region hold Russian passports, transactions are in roubles and Moscow is the region's biggest diplomatic supporter. South Ossetia has close ethnic ties to North Ossetia, a neighboring Russian region.

"I feel like we are part of Russia," said Inna, a civil servant, at a cafe in Tskhinvali.

But the scale of the financial aid suggests Russia is also the separatists' paymaster.

GAS PIPELINE

Gassiyev, who as speaker of parliament oversees the approval the annual budget, said last year it had revenues of about 800 million roubles ($31.52 million). Of this, 500 million roubles came directly from the Russian federal budget.

"This year, we are just working out the figures for the first half, but it seems for the first six months it (Russian budget assistance) will be 500 million," he told Reuters in an interview.

Non-budget assistance from Russia is even greater. Russia's state-controlled gas giant Gazprom has begun building new gas pipelines and infrastructure for the region, a project with a price tag of 15 billion roubles, said Gassiyev.