Op-Ed | Namakhvani Is Just a Small Part of a Much Bigger Problem

Author: Rati Gabidauri, a consultant to governments and private companies on issues of energy policy and economic development. Rati Gabidauri is a pen name.

Our government has gotten much criticism over the way it has handled the Namakhvani project. It is true that the project is a mess that should never have been run the way it was, and that the government deserves all the criticism it got. The government though did not get enough criticism for something that I think is actually more important than Namakhvani alone — and that is the way in which it runs the electricity sector as a whole. And that way, I claim, will make everyone pay more for electricity so that those who put their money in hydropower plants and cryptocurrency farms can become richer than they already are. And that while the people that live downstream from big poorly designed dams risk their lives, Georgia imports electricity from its neighbors, and the country’s rivers and the living creatures that depend on them suffer. And scratch the “will” part, too: all of this is happening already, and it will only get worse.

A serious charge? It is. So let me explain.

The government’s approach, roughly speaking, is: “Our electricity demand is growing, and we need to meet it. We’ve got a lot of rivers, so let’s meet it mostly with hydropower. And in fact, we have so many rivers that we’ll build more hydropower than we need and sell the electricity to our neighbors. And we’ll call in foreign investors to get all of this done.” This sounds reasonable—we do have lots of rivers, and why not use them? And foreign investment is how a lot of countries like us go about doing infrastructure projects, no? Well, maybe. One could do these things in lots of ways. The problem is that the government is doing such a bad job running the sector that it does not really matter what it does: it will end badly. And that is what is happening.

Now, what would it mean to do a good job? There are three parts to it. First, you — the government — get some experts and do the technical analysis: you think about what your demand is going to be (both in terms of what you need every year in total and in terms of when you need it within the year and the day) and you figure out with what mix of technologies you will meet it.* Once you do the analysis, you get to the second part: you decide how you will get all your technologies built, meaning, really, with whose money — public or private — and under what kind of control (there are lots of ways to deal with the money part and only one way to deal with the control part, which is to make it very strong). And finally, you do the third part, which is talking and listening — or really, you do it all throughout, and the way in which you do it is you talk and talk and talk to as many people as possible about what you are proposing and why (and you listen, too, to what they say and include at least some of it in what you propose). And then comes the fourth part, and that is actually doing what you said you will do.

All of this takes years and years and needs a lot of people who know what they are doing. But if you do the work you hopefully get an electricity system that has the kind of balance between how much it costs, how reliable it is, and how much it affects nature that most of your country is happy with — and one that is owned and runs in a way that most of the country is happy with as well. It would be nice if Georgia had such a system. But it does not, and it will not, because our government is failing.

Failing one: the government is doing a very poor job on the technical part. On the demand side, it both tries to grow and does not regulate the very electricity-hungry cryptocurrency mining industry in ways that are really difficult to explain: what point there is in allowing large miners to run in free industrial zones in which they consume electricity VAT-free, employ almost no people, pay no taxes on their profits, and drive up the country’s demand by up to 18%, the government has not said.

There are consequences though, and the worst one is that in the last three years, Georgia —that Georgia that talks about exporting energy to Turkey and elsewhere — has had to import up to 13% of its electricity from neighbors (mostly Azerbaijan) to cover the demand that crypto mining created.**

Every country needs some imports, yes, but if you need more than a few percent, you’re in trouble — especially in a neighborhood like ours. And then on the supply side, the government is using just one technology to meet (or really, fail to meet) the demand that it has allowed to appear. That technology is hydro: almost all new power plants that started to work in recent years have been that. Georgia will need some hydro, but building only hydro probably makes no sense because it would make electricity more expensive than it could be: solar and wind can already be cheaper, and they will become cheaper yet.*** They damage nature in the places in which they stand much less than hydro does, too. Sure, the government talks about wind and solar, but so far there is no solar to speak of, the wind is 0.8% of total generation, and there are no real plans to change any of it except maybe hoping that some foreign investor will decide to come.

On to failing two: a lot of these new hydropower plants are a really bad deal. The government asked foreign investors to build these plants but then did not negotiate with them properly or maybe at all: it agreed to pay way too much for the electricity that these plants will produce and promised the people who own them to pay for risks that it shouldn’t be paying for (things like rivers having less water than everybody thought they would). The expensive electricity will cost $2.6 billion over the next twenty years; the other risks could add billions more (it could be $1 billion for the Nenskra project alone).**** If that’s called the benefits of FDI, count me against (even the IMF thought it was too much: it forced the government to stop in 2017, but only after they signed a whole lot of these sorts of deals). And then there is the fact that the government did not control how these HPPs actually get built, which means that people who live close to them will be risking their lives. The tunnels of Shuakhevi HPP collapsed in 2017 just after the plant opened, and it took three years to repair it. Landslides at Dariali HPP killed ten workers in 2014. And there will probably be more stories like these. If one works with private investors to build HPPs, one should negotiate with them very, very aggressively about how much one will pay them — and one should have a pretty good story, too, why it should be these investors and not the public building and making money on at least the biggest plants (one example: in perfectly capitalist Norway, the public owns 87% of all hydro capacity and no private investors can build by themselves anything bigger than 10 MW).

And no matter with whose money one builds, one should have lots of people around whose only mission in life is to find problems with these plants and make owners pay very large fines for them: dams, whatever those who build them say, do fail, and then people die.

Finally, we get to the third failing, and that is that the government has not talked to Georgia’s people almost at all about what it is doing and why. Talking to citizens is the job of any government that calls itself democratic — and this job this government has only done when really, really pressured, and even then in a very half-hearted kind of way (“Who are you,” the government seems to say, “to question our judgement?” “Citizens,” is the answer to that question). Friends: you are building giant dams next to people’s homes. Show more concern. It is also the job of any democratic government to explain what it is doing and why in public policy documents and technical studies. On this, the government fails, too: its electricity policy consists of one low-quality document after another — the sort that one writes to show that one has written something and make some donors happy. Maybe the government is doing some fantastic planning work that it is not sharing, but probably it is not (says a 2020 USAID report, diplomatically: “Current and strategic decisions of the energy sector are not made on the basis of relevant and sufficient information analysis and research. There is no proper system and procedures in place for providing expert research and professional support for decision-making.”) And the burden, at any rate, is on the government to explain itself rather than on citizens to force it to do so.

What is it that we have, then, as our result? Demand is out of control because of crypto mining, the country has to import electricity to cover it, the government is signing bad deals with investors, prices are higher than they should be, and poorly designed HPPs small and large are going up all over the country, changing rivers and putting people’s lives at risk.

Who benefits? Certainly the investors in the HPPs — and in the crypto mining farms that these projects power. Who loses? I would argue that it’s everyone else.

All of this is the sort of slow-drip incompetence that, for a “developing” country like ours, will make sure that we stay developing forever. Maybe some officials really have no idea what they are doing and are happy if they can show that FDI numbers are going up — a job success indicator, of sorts. Or maybe they — or some other officials — are stealing a lot of money. It could be — and usually is — both, but it is a job for the investigative journalists to figure out what is actually happening. We will instead point out the obvious: yes, Georgia will need a lot more electricity in the coming years even if all cryptocurrency mining stops and there are no exports of anything anywhere (private transport turning electric can probably double demand by itself). But our government has dealt with this need so badly that everyone who has been a part of it — at the high level, at least — should really find something else to do with their lives. And until that happens, Georgia’s electricity system shall remain a dam-mediated mechanism for taking money from the many and giving it to the few.

*Which is important because different technologies are, well, different: they have different costs and they produce electricity at different times—and you need to match those times to when those who use electricity actually need it. To some extent, you can also do it the other way round: you can think of how you can change your demand to fit both the amount and the shape, in time, of the supply that your technologies give you.

**The import figures are for 2020. In that year, Georgia produced 11.16 TWh of electricity, imported 1.61, and exported 0.15, for net imports of 1.46. See here.

*** What matters is not just the cost per kWh: the way in which solar and wind’s ability to generate electricity changes within the day and the year is different enough from hydropower that it would probably make sense to use them even if they cost slightly more than hydropower per kWh, which anyway they don’t. Even if all three cost exactly the same running the whole system on hydro alone would mean that you’d have far too much electricity in summer, when rivers have the most water—and if one argues that one should do that and then sell the energy abroad one better convince a large enough part of the country’s population that it makes sense to dam up rivers to speculate in foreign energy markets.

**** The $2.6 billion figure is from a leaked World Bank analysis from 2018 (see here). The Nenskra figure is from a public IMF analysis from 2017 (see here).

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