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Davit Tsiklauri

What is Georgia’s Potential For Energy Independence?

Energy independence is a central issue for the Georgian economy. In order to achieve energy independence, Georgia’s rich hydro potential must be fully utilized. For this purpose, over the past several years a special focus has been placed on the construction of new capacity and on attracting foreign investors to the sector. The stability of our economy depends heavily on this.

In recent years, in addition to foreign investors, local banks have also expressed their interest in energy and, in particular, in financing hydro energy projects. Among them, TBC Bank is notable for its USD 150 million investment in the field over the past five years and the bank has even more ambitious plans in the energy sector.

In addition, commercial banks not only finance the construction of new energy generation points but also greatly contribute to attracting foreign investment in the sector.

We spoke about these and other issues with TBC Bank’s Corporate Banking Business Director, David Tsiklauri:

– At what pace are the new capacities being built in Georgia and is it realistic that Georgia achieves energy independence over the next several years?

– As you are aware, achieving energy independence is one of the country’s top economic objectives.  Considering Georgia’s natural resources, one of the ways to achieve energy independence, using our rich, renewable energy sources. In the first place, this implies using our hydro resources – currently only 40% of its potential is being used.  The utilization of this resources and the construction of new capacity will be a great stimulus for the economy, as it will result in the creation of new jobs, economic growth, and development.

In recent years, the demand for energy has been constantly increasing. The pace of the construction of new capacity has not matched the increased demand, unfortunately.

For this reason, the country has been importing more energy more than it exports since 2012. Imported energy, as you may be aware, is more expensive than the energy produced by local hydro power plants.

In the future, as the economy grows, we will need additional capacity – more and more energy. It is absolutely necessary to obtain enough energy capacity for the economy to develop and for the country to have sufficient energy resources.

In general, when the energy consumption increases, there are three major sources that can be used to fill the deficit: import, which at this point is the most expensive resource; fossil energy, which is not a cheap resource either, and energy produced by hydro power plants, which is the most affordable option of the three sources.

As I have already mentioned, at this stage only 40% of the country’s hydro potential is utilized, which implies that there are significantly more resources that can be used.

– What are the development dynamics in the energy sector? How attractive is it for banks to invest in this sector?  

– The energy sector in Georgia is a growing and stable business. It also has a very high growth potential.

Over the past five years, energy consumption in Georgia has increased by 27%  whereas energy production has increased by 23%. This indicates that consumption is growing faster than production. Based on this, we can assume that the pace of the construction of new capacity, and the overall pace of sector development, will become faster. The trend of foreign investment inflow to the sector will also continue. Hence, the banks will have even more interest to finance the sector.

As for energy companies, in order to implement several medium or large projects in the energy sector, private capital and debt capital are necessary. This explains the active cooperation between energy companies and banks.

Today, energy is one of the top priority sectors for TBC Bank’s Corporate Banking Service. Loans to energy companies comprise 12% of the Bank’s corporate l loan portfolio.   We have even more ambitious plans for the future.

– How important is bank’s participation in the implementation of a new project?

– To start with, I would like to note that commercial banks finance various projects that are important for the country and that support the development of various fields of economy. The same applies to the energy sector: banks have contributed significantly to the development of the energy sectors.

The growth of energy generation in 2004-2012 was the result of the rehabilitation of existing facilities and the reduction of losses. The banks were actively involved in this process and financed the rehabilitation projects.  As a result, the system has become healthier and energy generation has increased.

At this stage of sector development, it is necessary to build additional capacity to meet the increasing demand. The construction of new plants without banks’ participation is hardly possible: new projects are mainly implemented through bank loans and private capital is only 30-50% of total financing for hydro plants.

– How much has TBC bank invested in the energy sector?

– We have financed about 10 energy projects over the past five years. This is a USD 150 million investment. During this period, the energy sector obtained an addition 60 MW of capacity as a result of TBC Bank’s financing.

We participated in financing the rehabilitation of existing facilities, as well as the construction of new hydro power plants.

I would like to emphasize our efforts in financing the construction of the biggest hydro power plant since the independence of the country – 108 MW Darialhesi. The bank even received an award for this project in 2015 from the influential financial magazine EMEA FINANCE. The project will be finished in the second half of 2016.

– What do the banks pay the most attention to when making a decision about financing a particular project? To what extent are the environmental standards met during the implementation of energy projects?

– In order for the bank to finance an energy project, it has to be technically and financially complete. We have set standards and we can provide information about them to anyone interested.  It is very important that the environmental impact of a particular project is well researched and argumented.

Even though hydro energy projects are known as “green energy”, i.e. renewable energy, they have an impact on the environment.

For this reason, each detail should be considered during the project evaluation: we should be sure that each standard is met and construction will have minimum impact on the microclimate where the project will be implemented.

– The Minister of Energy and other government officials frequently emphasize the banks’ role in the implementation and development of energy projects. In addition to providing financing, what other services do you provide in the energy sector?

– In addition to providing financial resource to energy companies, we carry out nonfinancial initiatives that support the development of the sector. In particular, TBC Bank regularly organizes various international forums and conferences.

These initiatives have two goals: first to attract investors to the sector and, second, to provide interested investors with information on investment opportunities in the sector.

We cooperate with foreign, as well as Georgian, investors and we also have the capacity, and the will, to provide a stimulus to the further development of the sector. Recently, TBC Bank’s subsidiary prepared and published the results of its research on the energy sector.  The report gives a detailed description of investment opportunities in the field. The aim of this report is to raise interest in the field among foreign investors, provide them with information and help them discover proper investment opportunities.

– Should the Georgian economy expect banks’ continued active participation in the utilization of the country’s hydro potential and in the creation of new capacity?

– TBC Bank has very ambitious plans with regard to energy projects: we plan to increase our energy portfolio in  2016. At the moment, we are also in a very active phase:

We are working on approximately 5 projects, which will bring an addition 100 MW capacity to the country.

A portion of these projects is still in the preliminary evaluation stage, while others are at the stage of investment risk assessment. We are already financing one of them, the construction of a plant with 4 MW capacity, and we hope to finance the majority of these projects by the end of the year.