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NBG: External Shocks Remain a Significant Risk

Wednesday, April 16, 2014
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An Unprecedented Energy Project

Written by Irakli Kovzanadze, Partnership FUND, Chairman

21/10/2013 00:00 (177 Day 04:37 minutes ago)


The FINANCIAL -- To a large extent, investments determine economic growth, especially for countries like Georgia that have modest resources and have to focus on the best use of their strategic position, innovations, high technologies and creating a business environment and investment climate attractive for local and foreign capital. 



Before free capital recognizes the Georgian economy as a favourable and desirable environment for investments, the Georgian Government’s objective is to create investment success stories and pursue correct investment policy to show potential investors the benefits of investing in Georgia.

I’m happy to say that a large-scale project decision was made by the Partnership Fund (PF) a couple of days ago. This is the construction of a modern combined-cycle thermal power plant (TPP) in Gardabani. The 230 megawatt power plant to be put into operation at the end of 2015 will have a role in meeting the growing energy demand and ensuring energy sustainability and energy independence.

The TPP construction renewal agreement was signed with Turkish Çalik Enerji. We worked hard for several months to think through all the aspects of the project and then renewed the contract with Çalik Enerji which has rich experience in similar projects. Today, with the efforts of the PF and governmental agencies, all issues have been agreed upon between the parties, laying solid ground for the project’s success.

The first of this scale in the energy sector history of independent Georgia, the project will become an important step towards new generation sources. The project investment value is USD 200 million, to be fully funded by the PF and its subsidiary, the Georgian Oil and Gas Corporation (GOGC). The project is a decisive step towards recovery of the Georgian energy system, its sustainability, and energy independence.

It is important to note that it will take 25-30 minutes to connect the new TPP with the two installed newest General Motors turbines to the Georgian energy system when necessary, to sustain the energy balance and system stability.

Owing to the modern technologies, the combined Gardabani TPP’s performance is one-third higher and 50% more cost-efficient than those of any other gas-operating power plant in Georgia.

The energy sector is the most investment-hungry and hence a priority among the PF’s key domains: energy, agribusiness, real estate/infrastructure, and manufacturing. So the PF exercised every effort in renewing this unprecedented energy project in a clear and win-win manner for all parties.

Our objective is to make decisions based on careful analysis of all projects that meet the country’s economic priorities, both suspended ones and new investment proposals, evaluation of risks, the project investment value and attractiveness.

I think that exit practices are important, to justify governmental co-participation with private business. A project is considered complete only after the PF’s exit. I can cite the example of a project that we have completed. It is a hotel complex in Akhaltsikhe, a success story of cooperation between private business, the banking sector and the state. The project was funded by its initiators: the PF and a commercial bank. The total investment value was USD 5 million.

Soon after the hotels were put into operation, an interested investor, the Slovak EximBank, appeared and substituted for the PF. Thus, our funds made the project possible, and then the investor’s interests came in and replaced our investments, freeing up the funds for new projects.

This is our approach to projects, and it is the only correct, fair and justified approach for the state to support private business development. In the working process, partners should remember that the state does not compete with business and that governmental involvement is reflected only in purposeful and private interest-oriented support.

As for other projects, we accomplished the construction of an animal farm close to Tbilisi , also of a hotel complex in Kvareli. The famous Likani Hotel in Borjomi and a hotel project in Tsinandali are both under construction. Another energy project involves design works that are in progress for a hydropower plant on the Nenskra River which is full and fast-flowing even in winter. The Fund is planning to participate in the construction of the 210 megawatt hydropower plant, and is readily engaging in other interesting projects too.

The PF’s assets exceed GEL 5 billion. The Fund owns a 25% stake in the state-owned Georgian Railways, the Gas and Oil Corporation (GIOC), the Georgian State Electrosystem, the Electricity System Commercial Operator, and the Tbilisi Power Distribution Company (Telasi). Revenues from successful activities of these organizations are pooled in the PF for further investment in different promising projects. The PF can also fundraise from commercial banks and/or international financial institutions when necessary.

Placement of stocks at different international stock exchanges is a priority and promising fund-raising direction. This process is already underway, and the Georgian Railway and GIOC have issued eurobonds. Partially, GIOC’s eurobonds are used to finance the construction of the Gardabani TPP. Eurobonds and, in future, stock placement at stock markets are additional means for attracting long-term capital, which is critical for the Georgian economy today.

The PF is interested in all initiatives that have commercial potential, may seriously impact economic development, and promote the private sector. The PF finances the highest of 50% of project budgets as well as offers subordinated loans.

One of the critical requirements for energy projects is total necessary investment of at least GEL 30M. In agricultural and infrastructure projects, this ceiling is much lower (GEL 5M). Among other things, this is necessary to prevent PF from competing with the banking sector in project funding. Exactly for this reason, PF’s Supervisory Board includes top-managers of some leading banks, so that the banks would have concrete information and a chance to track the Fund’s projects. If there is an interest from the banks, the PF steps aside and lets the banks finance the projects.

The PF’s mission is filling the gap of long-term capital in the country and sharing risks with investors. These two factors are critical in relations with investors. Once they see a healthy partnership attitude from the state, the investors can more easily make important steps on a larger scale.



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