Whether Investing of Pensions Agency Funds in Energy and Logistics Sectors Bring Profits

The Pension Agency may invest money in energy, telecommunications and logistics sectors, the Agency executive director Levan Surguladze noted.

“There are profitable and reliable sectors in Georgia, for example, power sector, telecommunications sector, logistics sector, banking sector and so on. I believe we can diversify investment portfolio with good proceeds and low risks”, Surguladze noted.

The Caucasus Business Week has inquired whether the Pensions Agency can make profitable investments in the mentioned sectors.

“Investing of the Pension Fund’s savings in power sector will bring real profits”, Deputy Energy Minister David Mirtskhulava noted.

It is a widespread practice, when pension funds invest accumulated finances into energy projects. This is a good deal for stable revenues. Therefore, I would welcome similar deals in Georgia, David Mirtskhulava said.

As to the presumable risks, Mirtskhulava explained that risks are lower because the demand for electricity grows everywhere.

The statistics proves that Georgia built 24 megawatt power in 1999-2004, 15 megawatt was put into exploitation in 2004-2012, and 1035 megawatts was added since 2012. There was certain boom after signature of guaranteed contracts for electricity purchase, Mirtskhulava noted.

“I have frequently criticized similar contracts, because this method comprises a lot of gaps. Nevertheless, this practice used to somehow stimulate investors. Our region includes high risks and similar agreements are very attractive for investment climate. This method includes certain gaps, but it is also inadmissible to refrain from stimulating construction of power facilities. Certain stimulation mechanisms should be selected and in this case it is absolutely adequate to employ the Pensions Fund resources in this field (I mean power sector), because this sector will bring real profits for many years”, Mirtskhulava noted.

This idea will bring benefits to both Pension Fund and the whole power sector, he said. Georgia will lack for electricity supply up to 2030. The country imports electricity. Our steam power plants work on imported natural gas. Therefore, the demand for electricity will always grow in our country, Mirtskhulava said.

Investing in renewable energy sources will also bring profits such as wind power plants, solar power plants and so on, David Mirtskhulava noted.

In response to the question whether the Government will compete with the private sector, Mirtskhulava rules out similar scenario, because the fund may develop a methodology for entering the project for several years , receive benefits and withdraw from the project.

As to logistics aspects, Paata Tsagareishvili, head of Transport Corridor Research Center and HUB Georgia expert, explains that expedience of funding the logistics sector by the Pension Agency and its profitability may be questionable.

About 2 years ago the Government announced plans for building two logistics centers in Tbilisi and Kutaisi. Consolidated investment value of both projects made up 150-160 million USD. Total value of Tbilisi Logistics Center made up 80.3 million USD (60.7 million USD for the first phase), while total value of Kutaisi Logistics Center made up 72.5 million USD (27.1 million USD for the first phase).

Feasibility studies have been also prepared by well-known German company Dornier Consulting International. Two years have passed and no real results are seen, Tsagareishvili noted.

“The winner was not announced and even the preliminarily prepared feasibility studies remain useless. Our neighbor Azerbaijan have made use of our frustration and built a new logistics center near Baku. They have made important investment in this project. Kazakhstan has also built a logistics center. At the same time, in Karsi Turkey also launched a construction of important logistics center. The construction works will be finished in the near future. Thus, the niche that we had to grasp has been already taken by our neighbors”, Tsagareishvili said.

If our country makes focus on building logistics centers and make investments from the Pensions Fund resources, naturally, we welcome this process and this is necessary. However, it should be also noted this is the business of private sector rather than public sector, he said.

“Regretfully, I do not know details of this idea. They have failed to attract investors, because many countries have already built similar centers and our project has become questionable in terms of profitability.

Logistics center should be built near Anaklia. A set of logistics centers is necessary for developing the country. Otherwise, the corridor cannot work and cannot compete with other alternative routes. We have this niche, on the one hand, however, another aspect is whether investing of the Pension Fund resources in this sector will bring real benefits. We may receive benefits or bear losses. This aspect requires fundamental examination and calculation”, Tsagareishvili noted.

The Authorities should have a logistic centers development strategy that would answer all questions, he added.

In response to the question whether investing of the Pensions Fund’s resources in construction of logistics center will make the Government competitor to the private sector, Tsagareishvili explained that similar projects should be implemented by private companies, in general, and the Authorities should only provide support and develop due infrastructure.