Georgia Loses USD 76 Million Dispute with Russia’s Inter RAO

The Georgian government has lost another, USD 76 million arbitration case with Russia’s state-controlled energy company Inter RAO, which indirectly owns 75% of Telasi, an electricity distributor in the Georgian capital, Tbilisi.

When did the dispute start and what were the petitioners asking for?

The International Centre for Settlement of Investment Disputes (ICSID) received a request for arbitration from Gardabani and Silk Road Holdings, subsidiaries of Inter RAO, in 2017, seeking compensation for Georgia’s breach of contractual and treaty obligations in setting and imposing tariffs on the petitioners’ electricity production and distribution in Georgia. In particular, in 2014, Georgia adopted a new regulatory methodology for setting tariffs that did not include agreed upon tariff adjustments to compensate for factors such as inflation and the depreciation of the Georgian national currency.

What did the arbitrators find?

The ICSID found that the Georgian government had breached its agreements with the claimants and ordered it to pay damages in the amount of USD 48,427,000 to Silk Road and USD 27,499,000 to Gardabani, plus the interest to accrue from December 24, 2021 until payment in full.

Previously lost dispute

This is not the first time that the Georgian government has lost a dispute with the same company – earlier, in December 2021, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) ordered Georgia to pay Inter RAO USD 80.5 million in compensation, instead of the USD 200 million that the company demanded. The Georgian side appealed the decision as unfounded. According to some media reports, the Russian company appealed the compensation amount and increased it to USD 112 million.

The dispute is still ongoing and it is not known how much the country will have to pay to the company. What is known is that the government will only pay the compensation for one dispute.

Kakha Kaladze reacts

Tbilisi Mayor Kakha Kaladze, who was energy minister at the time when the dispute was initiated, said on February 15 that his decision had helped the country save money rather than suffer damage.

“The first thing I did was to reduce tariffs and our country and especially, the people of Tbilisi benefited from that,” he said, adding that at the initial stage, Inter RAO had initially demanded the USD 200 million in compensation, but the Georgian government did not agree. “The issue was considered by the arbitrators and instead of USD 200 million, we will have to pay much less,” Kaladze noted.

“I did not allow myself, and none of my employees would have dared to agree to Inter RAO’s demand,” he added.

Opposition speaks of government’s corrupt deal with Inter RAO

MP Roman Gotsiridze of the United National Movement wrote on Facebook that after Georgian Dream came to power in 2012, “in order to at least partially fulfil its populist, propaganda promises,” the Energy Ministry signed a new agreement with Inter RAO, in exchange for a slight reduction in tariffs, and abolished previous commitments to “impose a moratorium on investments and tariff increases.”  

He also noted that the changes made by Kaladze to the agreement are secret; however, the arbitration dispute made it clear that some provisions had been added providing for the increase of tariffs in case of devaluation of the Georgian national currency Lari.

“The concessions made in favor of the Russian company can be discussed not only as a mistake, but as a corrupt deal,” MP Gotsiridze said, adding that “the investigation into the fact of an alleged corrupt deal with the Russian company and the damage caused to the country should be launched immediately.”

This post is also available in: ქართული (Georgian) Русский (Russian)


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