Czech Company Takes over Majority of Georgia’s Energy Market

The Czech company Energo-Pro has become the leading electricity distributor in Georgia, with control of 62.5% of country’s market, after purchasing six hydro-electic power plants and two electricity distribution companies for USD 132 million. In addition, Energo-Pro has pledged to invest over USD 285 million in Georgia’s energy sector.

Energo-Pro’s top executive Jiří Krušina and Georgian Economy Minister Giorgi Arveladze signed a contract on February 5 – seven months after the Georgian government announced the Czech company as the winner of a privatization tender.

Czech government officials were invited to the signing ceremony in Tbilisi in an apparent attempt by the Georgian authorities to demonstrate that Energo-Pro has nothing to do with the Russian electricity monopoly UES, as has recently been alleged by some opposition politicians and print media sources in Georgia.

According to the February 5 contract, Energo-Pro has to pay USD 132 million for Georgia’s United Energy Distribution Company (UDC) and Energy Company of Adjara (ECA), with 780,000 and 95,000 customers, respectively, as well as six hydroelectric power plants: Lajanuri, Rioni, Gumati, Shaori, Dzevrula and Ats, with total power generation capacity of more than 350 megawatt hours.

Energo-Pro has also pledged to invest over USD 100 million in modernizing the electricity network covering the service territory of UDC and ECA.

Investment of an additional USD 85 million in the rehabilitation of already privatized hydropower plants is also planned, Energo-Pro said in a statement.

In addition, the Czech company has also pledged to construct a new, USD 100 million hydro-electric power plant with a capacity of 100 megawatt hours.

“This is the most important investment from any EU country in Georgia’s energy sector… This contract with Energy-Pro is a new stage of relations not only between Georgia and the Czech Republic, but with the entire EU community,” Martin Tlapa, Deputy Minister of Industry and Trade of the Czech Republic, said at a news conference in Tbilisi.

Rut Bizkova, the Czech Deputy Minister of Environment; Josef Tauber, Chairman of the Board of Directors of the Czech Export Bank and the Czech Ambassador to Georgia Jozef Vrabec were also present at the contract signing ceremony.

Martin Tlapa underlined that Energo-Pro and its agreement with Georgia “is backed by the Czech government.”

Energo-Pro’s investments in Georgia will be implemented with the support of the Czech state-run Export Bank, which has been supporting the company’s foreign investments since 2002. Export Guarantee and Insurance Company (EGAP) of the Czech Republic is providing risk insurance associated with the investments in Georgia.

The final terms of the agreement – both Energo-Pro and the Georgian government have declined to reveal the actual text of the agreement – were revised from the initial deal reached between Energo-Pro and Georgia last June, when the Czech company was announced the winner of a privatization tender.

In June, 2006 the Georgian government chose the Czech company’s privatization bid out of eight proposals submitted by other companies after Energo-Pro offered USD 312 million for the six hydropower plants and two electricity distribution companies. But under the final agreement, which has only now been finalized, the price tag on the auctioned items is USD 132 million.

Prime Minster Zurab Nogaideli explained on February 5 that if Energo-Pro had purchased the energy facilities for USD 312 million it would have been forced to increase the consumer tariff on electricity, “which would have been an extra burden on the country’s economy.”

“So finally we have agreed on a mutually acceptable deal, envisaging a privatization package with a value of USD 427 million,” PM Nogaideli said, adding that the USD 132 million will go into the state budget and the rest will be invested by the Czech company into rehabilitation projects.

“Privatization is now over, but much is still to be done in this sector and I hope that Energo-Pro will fully follow its investment commitments,” Georgian Energy Minister Nika Gilauri said.

With a total of 875,000 costumers, mainly in western Georgia, Energo-Pro is now the country’s largest electricity distribution company.

Telasi, an electricity distribution company in Tbilisi owned by the Russian monopoly UES, has a total of 412,000 costumers. It also owns two hydro-electric power plants and two gas-generated electricity plants. Kakheti Energy Distribution (KED) in eastern Georgia, owned by the Georgian company TBC Energy, has a total of 111,000 costumers.

Currently, the high-voltage power lines and Enguri hydropower plant on the administrative border with breakaway Abkhazia remain under the state ownership. PM Zurab Nogaideli said on February 5 that the government plans to retain control over this piece of infrastructure.