FINANCIAL -- To support the Georgian energy and infrastructure sector
the European Investment Bank is investing EUR 409 million in the
Development Bank (ADB) - USD 500 million, and EUR 100 million is being
allocated from KFW, a German government-owned development bank.
International Financial Corporation is investing USD 328 million in
The major directions of the priority projects are water pollution, collecting of remains and recycling, technologies for cleaning, exhaust control and environmental protection, urban infrastructure, security and disaster management, transport and traffic, and building and construction technologies.
“Georgia has benefited from EUR 409 million from the European Investment Bank (EIB),” Philippe Szymczak, Head of the Southern Caucasus and Russia Division at EIB, told The FINANCIAL. “Overall, we have a portfolio of EUR 5.2 billion outstanding throughout the Eastern Partnership countries including Georgia, Armenia, also Moldova, Ukraine and Russia. Georgia is the third largest country portfolio and we have a broad based cooperation with the country, which includes investment projects in the field of transport, water infrastructure, energy and also support to small and medium sized enterprises through the credit loans we have established with banks in Georgia.
“One of the critical challenges faced by the countries in transition is inadequate infrastructure. For example, the roads that are inherited from the past are not in good shape today, water infrastructure also inherited from the past needs massive rehabilitation. With the Government we are working towards improving this infrastructure. As a result it benefits the population and will support the development of the economy in general and will facilitate the development of the private sector. There was some slowdown in economic growth last year not only in Georgia but in the region for a number of reasons. But all the forecasts that we have seen regarding Georgia show a significant economical improvement in 2014. We all agree that more investments are required,” said Szymczak.
“Economic data shows that GDP growth in Georgia in 2012 was 6.1 and in 2013 - 2.5 of EUR 16 billion. GDP per capita was EUR 3.5. Finally Georgia’s rating is Ba3, rating outlook - stable. Only Moldova and Ukraine got a negative rating outlook. We have three high level objectives for 2014-2020: 1. Private sector development, in particular support to SMEs; 2. Development of social and economic infrastructure; and 3. Climate change mitigation and adaptation (renewable energy, energy efficiency, sustainable transport,” Szymczak said.
International Finance Corporation (IFC) has invested USD 40.5 million in the 87 Megawatt Paravani Hydropower Plant project and syndicated USD 11.5 million from Turkish Development Bank. IFC co-developed Adjaristsqali HPP Cascade through IFC InfraVentures, an early stage project developer.
“USD 56 million of near term investments are needed by SMEs, according to a survey and the industry could be saving up to 12% of energy costs,” said Thomas Lubeck, IFC Regional Manager for the South Caucasus. “In Georgia there is over 4,000 mW of undeveloped hydropower potential. For example, in Armenia USD 35 million is needed for SMEs and the industry could be saving up to 14.5% of energy costs,” he added.
“There is a huge role of the private sector in combating climate change. Now more than ever, major investment is needed to help mitigate climate change. 80% of that capital will need to come from the private sector. Solar, wind, and other forms of renewable energy pose great opportunities for private investors in emerging markets. IFC sees up to USD 1 trillion climate-related investment potential in Emerging Europe, Central Asia, and the Middle East and North Africa,” he added.
The private sector operates to see the profit and our job is to provide finance to them. From 1995 IFC has invested USD 650 million in about 50 projects. Right now IFC has an active investment portfolio of USD 328 million, out of which about 70 percent is in the financial market and another 25 percent is in infrastructure, hydro power, Airport s. The rest of the portfolio is directed to agriculture, which we also believe is important,” Lubeck said.
Asian Development Bank is another financial institution which supports investments and institutional reforms in the urban water supply and sanitation sectors in Georgia. ADB works with governments and international finance funding agencies.
“In Georgia we have, what we call, a multitranche financing facility that provides USD 500 million investments over eight years,” said Kathie M. Julian, Resident Representative at ADB. “Of this amount some USD 250 million has been approved targeting 7 secondary towns which will benefit nearly 350,000 residents. These towns are Poti, Zugdidi, Kutaisi, Anaklia, Marneuli and Mestia. For the future there are several major investments that are needed to be implemented. USD 6.4 billion is estimated for the South Caucasus over the next ten years. The key question is the water tariffs, how Georgia will raise the tariff levels, how it will reduce the energy costs and how the country will realize that wastewater management is important,” she added.
"The problem in Georgia was that its vast hydropower potential was mostly unused, the domestic transmission network was unstable and technical obstacles as well as non-sufficient transmission lines prevented major energy export to Turkey,” said Lars Oermann, Director of the South Caucasus Office at KFW. “For solving this problem the construction of a new countrywide 500 kV transmission network was necessary including the construction of a back to back substation functioning as an adapter between the European and Russian power grid and connection Georgia to the Turkish network. For financing this project EUR 100 million has been allocated by KfW, on behalf of the German Government. The energy project I referred to was the Black Sea Transmission Network which was finished in 2012/13. In December 2013 the Back to Back station in Akhalsikhe, was opened under the attendance of PM Garibashvili, Minister Kaladze, Turkish and Azeri Energy Minister. All the problems mentioned (unstable network, technical obstacles) are solved with the opening of the 290 Mio. € Black Sea Transmission Network. Energy exports to Turkey are possible now. The project was funded by KfW and its partners among them EBRD, EIB, OeEB." Oermann added.
When it comes to energy, the EU Association Agreement requires a number of reforms in the Georgian energy sector in terms of legislation, structures and institutions in order to create a more transparent, stable and effective regulatory framework.
“There are a number of instruments that we can use and I would like to start with the neighbourhood investment facility, which is a financial mechanism aimed at normalizing additional funding to cover the investment needs of the EU neighbouring region for infrastructure in sectors such as transport, energy and the environment,” said Boris Iarochevitch, Deputy Head of the Delegation of the EU to Georgia. “This facility also supports the private sector through risk capital operations in SMEs. To see the final results and benefits of the EU Association Agreement at least 6-7 years should pass. It is a long term effort. For instance, in the field of environment potential investors will know that such a directive, similar to the one in the EU, will be in Georgia in two years. It gives a very clear framework for potential investors,” he said.