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Who should build Khudoni HPP?!

Khudoni HPP is located in Georgia which enjoys a huge and currently to large extent underutilized hydro energy potential, which creates a unique investment opportunity in hydro sector. There are 26000 rivers in Georgia with total annual potential capacity equivalent to 15000 MW and annual generation potential of 80 Billion KWh. The three major Rivers in Georgia are Enguri, Rioni and Mtkvari.

The company Transelectrica, which plans to invest in the construction of a giant Khudoni Hydro Power Plant, will fulfill one of the conditions set by the Government of Georgia – to refuse registration in the offshore zone.

Despite the fact that the Indian company Transelectrica Limited owns a branch Transelectrica Georgia registered in Georgia, it is going to fulfill this condition, and refuse registration   in the offshore.

According to the Technical Director David Mirtskhulava, Transelectrica  is currently waiting for a response from the government, which must submit for consideration its own version of a Memorandum between the company and the Ministry of Energy.

Under one of the conditions, electricity that will be produced by KhudoniHPP might not be exported and be completely consumed inside the country for 15 years.

“The state requires financial guarantees for USD 5 and 10 million on the 1st and 2nd stages of the project. We are willing to provide such guarantees; the only question is the timing. The state requires obtaining 5 000 000  guarantee after registering the land on which it is planned to build a hydroelectric power station, while we believe that it is better to do it after environment  impact assessment  study of the  project  is completed – this is due to the fact that conclusions about the environmental issues are crucial. If the conclusion is positive, it will mean that the project is given the green light as well asforeign banks that participate in financing the construction. As for the second, 10 million guarantee, it must be provided after permission to start construction work is given,”- said David Mirtskhulava.

With regard to long-term rates, then in his words, it will be possible after financial and investment side of the issue will be calculated together with the banks. Ministry of Energy of Georgia will be also involved in the process.

“In this regard, we offer the maximum flexibility and forward proposals from the Ministry of Energy” – he notes.

According to him, as soon as the work on the harmonization of all the documents is over, Transelectrica founders will arrive in Georgia to sign all contracts with the government. It is assumed that this could happen before the end of the year.

The company’s founders visited Georgia in March 2014. According to them, the company has extensive experience with implementing such large projects.

“We can all assure that the project will be implemented with all the international standards. Work is proceeding on the standards established by the World Bank, so many well-known international organizations are involved in it, “- Mirtskhulava adds.

The company plans to invest USD 1.2 billion in the construction of a giant KhudoniHPP.

 

Levan Kalandadze

Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative

Since the energy minister  announced government’s intention to participate in the construction of the giant Khudoni HPP project, the subject of Khudoni gained fresh momentum in the Georgian politics and society. Below is economic analyst Levan Kalandaze’s insight regarding topic:

Why is it not feasible to build a state-HPP?

  1. The activity arena of government institutions should not be economic activities and business projects. Economically active ministries and state agencies are typical in such a centralized power-sate as the Soviet Union. A democratic government’s function is to create a favorable environment to business development and investment in the country, to establish and implement an effective economic and investment policy, which would allow us to attract major foreign direct investment (FDI). Business must be doing what it does and government – what it must do.
  2. The investment cost of the project is USD 1.2 billion (approximately GEL 2,3 billion), this is 28,7% of state budget revenues. In accordance with the current budget problems and in the next few years of the forecast budget revenues, it’s impossible to investment resources from the state.
  3. Investment by foreign investors in the project will significantly increase the country’s foreign direct investment (FDI), including the possibility of increasing the foreign monetary sources. If the government implements this project, this benefit will be virtually lost.

Why should the government provide commercial risk with budget funds, when the investor assumes the risk of this project?!

State and state institutions are always bad business managers and business administrators. State officials have no motivation to provide successful and efficient business projects, when the investor is interested in the effective implementation of the investment project.

So, the decision – who should build Kudoni HPP – should be based on rational and pragmatic considerations and calculations, not on populism and useless PR.

Kakha kaladze

Minister of Energy of Georgia

The Khudoni HPP might be built by the state instead of a private company, Energy Minister Kakha Kaladze said at the meeting with students at the hotel “Radisson”.

“We are well aware of the importance of the Khudoni HPP project for our country. At the present time we are negotiating with the Indian company Trans Electric. We demanded completely transparent process from them. This company was registered in the offshore, while we believe that everything must be open, because our population’s interest is too high in relation to this project and nothing must be covered. We asked them to present information about the founders are and we also asked them to show us their ability to implement this project”, said the Minister.

According to him, it was very bad that under the previous government some companies were given land for 1 GEL without asking anything to people.

‘’We asked this company to give back land to local population. At this moment we are in the negotiation process and later we will make a decision regarding the construction. I will not hide, we have also considered the possibility of building the power plant by the state, given the strategic importance of the project. This issue is being discussed in the government and in the near future everything will become clear”, said Kaladze.