Georgia Seeks Energy Independence From Russia

Dependent on Moscow for natural gas supplies – and partially dependent for electricity – the Georgian government has embarked on a multi-step process to free the country from its reliance on Russia. While the plan has some supporters, the authorities are facing opposition from energy analysts and consumers alike.

On the surface the Energy Ministry's plan to establish energy self-reliance seems straightforward. However in order to achieve their ambitious goal, the government has embraced two controversial programs: privatization and tariff increases.

While no one questions the need to rehabilitate the failing infrastructure and hydro-electric plants, some analysts warn that privatization is happening too fast. The deadline for the first phase of the privatization process is June 15. At stake in this phase are six hydro stations and three distribution companies, the largest of which is JSC United Energy Distribution Co. (UDC). The sales are expected to fetch as much as $30 million for UDC, and as little as $2 million for the Kakheti Energy Distribution Co.

Dean White, UDC's general director, is supportive of the privatization program, but worries how many foreign investors are ready to trust the Georgian market. Such caution is linked to the experience of the American energy entity AES, which entered the Georgian market in 1998 and invested hundreds of millions of dollars in the country's energy grid only to quit Georgia in disgust in mid 2003 amid complaints about rampant corruption and government interference. Members of President Mikheil Saakashvili's administration are quick to point out, however, that AES's troubles occurred under the previous administration led by Eduard Shevardnadze, who was driven from power by the Rose Revolution in late 2003. [For background see the Eurasia Insight archive].

"Generally I think a lot of investors are interested and are willing to give Georgia the benefit of the doubt. However, you step back and you now have large international arbitration cases for foreign investors, you have the whole [AES] experience," White said. "You have a lot of legacy – baggage in a sense - in terms of making this country look not so attractive for investors."

According to Professor Teimuraz Gochitashvili, an energy consultant, that