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Investors to Finance Major Energy Projects for $2 Billion

The Georgian energy sector will draw considerable investments. Namely, Pegasus East West company plans to invest about 300 million USD to purchase the Gardabani steam power plant. At this stage, the agreed value of the deal makes up 90 million USD. As reported, the plant’s installed generation is 230 megawatts. The asset is being constructed by Turkish company Calik Enerji. It should be also noted the electricity generated by the Gardabani steam power plant will be mainly consumed in Georgia. Deputy Energy Minister Ilia Eloshvili talks about the sales of the Gardabani steam power plant and other investment projects in the energy sector.

– The Gardabani steam power plant’s sales is the most relevant issue for the recent days. Pegasus East West Ltd is interested in purchasing the asset. The negotiating process with the company and changes into the asset’s management are very interesting.

-Indeed, this is a very important issue. Georgia has not drawn similar major investments for a long period and this is a very good decision for both parties. We have concluded an agreement and the parties have agreed to put the asset into exploitation in late November 2015. At this stage, only little formalities should be decided and after that the company will pay 290 million USD. This is a foreign direct investment that will positively affect the whole economy. This deal will also affect the GEL exchange rate.

This is the first asst we have sold and we hope to make similar successful deals in the future too. This is a very strong and experienced business group that operates in Asia, Israel, Africa and so on. It should be also noted Mikheil Mirilashvili is one of the founders of the company. He is a very serious Israeli businessman from Georgia and he is interested in making investments in Georgia ‘s agribusiness, tourism and so on.

As to the future projects in the energy sector, we have quite positive expectations. We plan to construct steam power plants with a total generation of 500 megawatts in Gardabani. We have already launched negotiations on carrying out feasibility studies. The preliminary exploration has showed in two years we will draw about 2 billion USD investments to Gardabani as part of the steam power plants construction projects. The Co-Investments Fund has also intensified operation. They have chosen financially problematic projects, concluded agreements on important projects of about 2 billion USD investments. The issue is of Mtkvari, Tskhenitskali, Khobi projects. Negotiations are underway on Oni, where a cascade will be located and negotiations are underway on Namakhvani Cascade too. Moreover, we are working on inauguration of the Nenskra HPP. We will also launch Khudoni HPP. All the mentioned HPPs will generate about 2300-2400 megawatts.

– Negative energy balance is one of the major challenges before Georgia. Our country partly depends on electricity imports. Will Georgia depend on  energy imports after implementation of these projects?

– Georgia’s electricity consumption makes up 10 billion kilowatt-hours a year, of which we import 800 million kilowatt-hours from the Russian Federation for the autumn-winter period.

This is a main goal of our government to get rid of the energy dependence. Moreover, we have got problems of commercial character. We have no agreements with the Russian Federation and consequently, it is difficult to make forecasts. Every year prices change, therefore, we cannot make any forecasts. This is a serious blow to our economy. This dependence makes serious problems to major investors. To get rid of the energy dependence, we should construct three additional steam power plants. As reported, we have already constructed the first one and feasibility studies are being prepared for another asset that will be constructed in two years. These assets will provide an energetic basis for the autumn-winter period. The above-mentioned HPPs will also leave generated electricity in Georgia for 12 months and this list will be also replenished by wind-driven power plants. These projects will be implemented for 7 years  for our economic survival. It should be also noted the HPPs will not be exempted from taxes.

– You have mentioned HPPs. Do you apply this experience in other regions? We know a part of the territory will be flooded for the Namakhvani HPP construction in the Racha Region.

– There are regulations for implementing this or that project. When the Authorities decide to implement this or that project, all procedures should be carried out under determined procedures. The investor must obtain a construction license, feasibility studies should be carried out, public discussions should be organized and so on. If the local residents should be resettled, we should develop a resettlement plan. Both the government and the population must act in line with the legislation. Our experience from relations with the population suggests that, first of all, we should request from investors to submit a refined, international-standard plan in line with requirements of the WB, EBRD or any other major finance institution. Our experience suggests that everything should be carried out in line with the legislation. We should also listen to the population and take into account their problems and answer their questions.

The employment issue is also very significant along with Khudoni HPP construction issue. We always try to maximally employ domestic residents, but we know investors do not make focus on patriotic motives and they always care for making profits. They basically bring qualified staff from abroad. For example, over 1200 persons will be employed, including 500 domestic residents. Moreover, the HPP will pay a property tax during the construction period. When the HPP construction ends, the Georgian economy will receive 300-400 million USD a year, while the asset will pay annual 1% of the property tax, that is, 4 million GEL will go the local budget a year. After the construction completion, the asset will employ several hundreds of local residents.