Strategic Gas Trunk Pipe Exposed to Risks
24 May, 2012
Strategic Gas Trunk Pipe Exposed to Risks

The much coveted North-South gas trunk pipeline is under USD 250 million Eurobonds loan to raise funds for construction Namakhvani 450 megawatt hydro cascade. Some experts question relevance of the Eurobond allocation deal as non-transparent and risky for gas pipe.

The sagging international financial market trend did not hamper the state owned JSC Georgian Oil and Gas Corporation (GOGC), owning North-South gas trunk pipeline [running from Russia to Armenia through Georgia] as its key assets, to allocate the 5-year USD

250 million Eurobonds for 7.1% of yield at London Stock Exchange (LSE) on May 16, 2012. The yield rate was fixed at 7. 50-7.75% initially, but as demand for Eurobonds exceeded expectation by more than 4-fold the yield dropped to 7.125%.
This USD 250 million will be invested in the upcoming 450 MW Namakhvani Hydro Power Plant (HPP) Cascade project including three HPPs construction with an estimated average annual generation of 1600 GWh and investment costs of USD 800 million. Namakhvani is a subsidiary company to GOGC.
“This is a great success of Georgian economy, “Nika Gilauri, Prime Minister of Georgia, said in the interview with Financial Times after the transaction was through. Part of Georgian experts agree to find the 7.1% of yield rate quite successful against the backdrop of sluggish international market and coming second crisis tide in eurozone. But some find the venture quite risky for its non-transparent sides.
Levan Surguladze, Head of investment bank Caucasus Financial Service (CFS), thinks the GOGC Eurobond deal was successful for around 7% yield is a good achievement today.
“There was a window opened at global financial market at the moment and they used this chance obviously, 7.5-7.1% is an excellent result,” he said.
Lia Eliava, an economic analyst, thinks the yield figure is quite high in fact for good Eurobond deals are concluded at 2-3% for stable economies, and 7% is fixed for less trustful countries like Georgia and GOGC with no obvious financial plans backing the Eurobond emission and from instable country could not get more.
The point is that no financial sheets of GOGC are available at the moment except that company charter capital amounts to GEL 478 325 300 that is divided into 23 916 265 ordinary shares with GEL 20 nominal value per share. Neither did the company implemented any PR campaign to make Georgian publicity aware how reasonably the attracted Eurobonds would have been spent. Only after the Eurobonds deal was allocated GOGC stated in its official release that the attracted money would be invested in Namakhvani cascade, the project questioned by Georgian environmentalists quite ardently for exposed risks.
Ditrikh Muller, a financial market analyst with Georgian Investment Group, fears that the absence of clear economic argumentation of the Eurobond emission poses risks to the trunk pipeline that has a geopolitical importance to the entire region and is coveted by the Kremlin that gets a controlling lever in the region if  this pipe is added to its map.
Privatization of this pipeline has been intermittently popping on the screen as soon as Georgian government needed money under familiar argument that the soviet-time trunk pipeline was obsolete and government had no money to repair it.
Kremlin has long been chasing after this trunk pipe proposing even USD 250 million in 2005-2006 for it and  Georgian government seemed prone to hand over the assets but White House interference blocked the deal: the US allotted about USD 49 million to Georgia [via Millennium Challenge Corporation project] on energy infrastructure rehabilitation project and dissolved the deal. In summer of 2010 the issue of privatization came in again when the gas pipe was removed from the list of strategic objects that cannot be divested and Gilauri did not rule out placement of its 10-15% shares at LSE.  
“Only 10-15% of it can be divested via LSE as the Primer stated, and only in about 2-3 years,” Aleko Khetaguri, Energy Minister of Georgia, said to Georgian Journal in summer of 2010.
Government really planned IPO of GOGC and Georgian Railway in 2010 but delayed for sagging market till their recovery. But Georgian authority could not wait too long in the election year with striped off state budget and decided to raise money through Eurobonds allocation instead of IPO.
As a consequence 100% of the pipe is burdened by the USD 250 million loan at the moment while nobody cared to explain beforehand how this loan would be paid off in 5 years by company financial data of which are confidential as yet.
According to GOGC spokesperson, they keep all financial data closed at the moment for the JP Morgan and Goldman Sachs handling the Eurobond transaction asked to keep all information confidential till the offering process is over. 
“We’ll disclose all details as soon as the offering is through,” Tamar Shoshiashvili, GOGC Spokesperson, told GJ.
Giorgi Loladze, Head of Georgian Stock Exchange, agrees that things can be confidential till the transaction at stock exchange is over for company may change up its mind in the last moment and say no but he eluded commenting how the state companies should behave.
Muller assures confidentiality is OK when it comes to the OTC [over-the-counter] trade but trades at open stock exchange require disclosure of all financial data beforehand and good PR campaign months ahead the trade especially for state companies as Georgian Railway did in past fall. He fears the mistakes of the first Georgian sovereign Eurobonds can be repeated when the first USD 500 million Georgian sovereign bonds emission when funds raised through this loan were designed to be invested in energy projects but were put in the state treasury and two special non-budgetary funds and evaporated ultimately as nobody can trail down where they actually had gone.
“The economic reasonability of GOGC Eurobond issue should be released before the deal to avoid the mistake of sovereign Eurobonds,” he said.
Muller fears that loading assets by loans in order to make it bankrupt and divest ultimately is a probated method in developing countries including Georgia and to make sure that the strategic pipeline is not exposed to such risks GOGC should present clear calculation how it will pay around USD 17.5 million as annual yield while Eurobond maturity expires and then clear the total loan amounting to USD 250 million. 
“Do you doubt that GOGC will be able to cover this debt?” Marika Valishvili, Deputy Energy Minister, asked GJ. “Incomes of this company enable to pay off everything.”
She could not name even average annual income of GOGC however but explained that money will be raised through Namakhvani HPP too as the project will be implemented gradually: the first HPP will be built in 3 years, after 6-motnh period another one will come on, and they will be put into exploitation and generating money gradually to insure completion of the third HPP and success of the cascade eventually.
Namakhvani was supposed to be launched by consortium of Turkey - Korean companies in the second half of 2011 and completed in 6 years. However the deal failed as 18-month period expired in February of 2012 since memorandum with the investors was signed but sides did not reach an agreement. Energy ministry has already announced another call for investors and about 40 companies expressed their interest, but no actual memorandum is concluded with any of them as of yet.
Valishvili says this USD 250 million been raised through the GOGC Eurobonds makes about 30% of USD 800 million projected investments to Namakhvani that enables  the state to attract more finances from international institutions [who require at least 30% of co-financing] and implement Namakhvani project even if investors did not appear.
Non-transparent sides of the deal makes Eliava thinks the fund - raising is to fill the state budget for elections this year that is the reason government jumped on decisions and placed GOGC Eurobonds without disclosing economic grounds beforehand.


Other Stories
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
February 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28