Russian Capital in Georgian Energy sector
27 August, 2015
Russian Capital in Georgian Energy sector
Several months ago, an announced increase of electricity tariffs caused mass protests in Armenia. Russia’s dominance and its pressure forced Armenia to throw aside its European aspirations and opt for the Eurasian Economic Union. Now it falls to Georgia to predict Russia’s future behavior by analyzing its neighbor’s example.

Alongside the creeping occupation, Russian capital in Georgia is growing. Communication, water supply, mineral waters and banking are among the sectors in which Russian citizens and companies have significant representation. But
none of them compare to the energy sector in this regard. How dangerous is having a large share of Russian capital for Georgia? What aims does the Georgian government pursue by allowing more Russian investors here and what is expected from Russian side if it manages to get Georgia’s entire energy sector into its pocket? The fact that these pressing questions do not have answers yet is very troubling.

Dangerous and regrettable examples of Russian influence are quite close to Georgia. Neighboring Armenia suffers not only from Russia’s control of its energy sector, but also from its full dominance of the country’s entire economy. Several months ago, an announced increase of electricity tariffs caused mass protests in Armenia. Russia’s dominance and its pressure forced Armenia to throw aside its European aspirations and opt for the Eurasian Economic Union. Now it falls to Georgia to predict Russia’s future behavior by analyzing its neighbor’s example. But tendency towards doing so is not yet felt in the country.

According to the research prepared by and translated with the financial support of IDFI (Institute for Development of Freedom of Information), Inter Rao, one of the largest Russian companies, owns a lion’s share of Georgian energy facilities - JSC Telasi (75 percent of shares), Mtkvari Energy LLC, Khrami HPP-1, Khrami HPP-2, Enguri HPP. It is crucial to mention that all sharers of Inter Rao are companies affiliated with the Russian government. Moreover, the board chairman of Inter Rao is Igor Sechin, one of the closest friends of Vladimir Putin.

Except Inter Rao, Russian citizens own other large hydropower plants as well. For example, Russian citizen Mevlud (Evgeny) Bliadze possesses 70 percent of shares of Energy LLC, which owns Dariali HPP, Larsi HPP and Shilda HPP. According to the National Statistics Office of Georgia, the largest portion of investments made by Russia into Georgia in 2011 can be credited precisely to Bliadze.

“Having a big share of Russian capital in Georgia means Russia maintaining economic and financial leverage over Georgia.” - Eugene Kogan
“Several other objects owned by Russians are Avani HPP, Algeti HPP and Skurdidi HPP. Meanwhile, SakRusEnergo, which runs the country’s electricity transmission system, is jointly owned by the Georgian and Russian side,” reads the research.

Nata Dzvelishvili, one of the authors of the research, says that sale of strategic energy facilities to Russians is not a new tendency:

“This tendency did not emerge in 2014 or 2015. Sale of energy objects started in the 2000s, when Inter Rao entered our energy market. After August War in 2008, Enguri HPP was given to this Russian company, followed by Khrami HPP-1 and Khrami HPP-2. Now, take note of a very important fact - both Khrami-1 and Khrami-2 were sold directly. No other investors had an opportunity to participate in the competition, although they could have offered the Georgian government better terms.”

Eugene Kogan, an energy expert, says that Russia wishes to maintain control over Georgia not only politically, but economically and socially as well.

“Russia consistently undermines Georgia’s territorial integrity. Having a big share of Russian capital in Georgia means Russia maintaining economic and financial leverage over Georgia. This leverage has nothing to do with Russian statements that promise Georgian economy extra funds or extra employment as a result of Russian investment. Georgia will not be provided either. In the meantime, the current Georgian government is dead scared of the influx of Russian capital but maintains silence and is too timid to undertake any anti-Russian measures”.

According to Kogan, it seems that Russia intends to get a hold of majority of energy companies to dictate its own terms to the remaining ones; this will mainly concern price regulations. Some would say that it is a very distant perspective, but it is absolutely possible, since a similar thing has already happened in Armenia. Now, price of electricity in Armenia is set by Russia.

Officials from the Ministry of Energy of Georgia keep saying that foreign investments are important for country. “Ministry of Energy of Georgia does not see the threat of any country becoming an energy monopolist in Georgia,” stated Liza Tavdumadze, head of Investment Projects Department of Ministry of Energy. Then again, nobody really is against foreign investment, but it is important to make sure that it will not endanger the country in the future.

Author: Tamta Jijavadze
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