In Georgia, leaked contract shows Nenskra hydropower project to cost country USD 60 million a year

Prague, Tbilisi ­– A leaked contract between the Georgian government and the company behind the Nenskra hydropower project includes terms that indicate the project will incur massive losses for the state, according to a report broadcast on 8 June by the national television station Rustavi 2 [1].

The report contradicts the claims of the Georgian government and JSC Nenskra, which have long maintained that the 280 MW hydropower plant is essential for Georgia’s energy security, arguing it would provide the country with considerably cheaper electricity.

But an analysis of the contract by Bankwatch member group in Tbilisi Green Alternative shows that the government has committed to buy electricity generated by Nenskra during its first 36 years of operation at a price that is on average double the current tariff for domestic electricity, and three times the price of electricity Georgia exports. This means that if the project materialises, it will generate losses of approximately USD 60 million every year for the public coffers.

Initially signed in August 2015 and amended in June 2017, the contract also reveals that the Georgian government has agreed to reimburse the company for any losses in case Nenskra fails to generate the anticipated amount of energy due to various hydrological reasons. This is not an unlikely scenario, given the projected impacts of climate change in the region, as well as the under-performance of earlier hydropower projects in Georgia like the Paravani, Dariali and Shuakhevi plants [2].

The new revelations add to earlier warnings about the financial viability of the billion dollar Nenksra project. The International Monetary Fund’s fiscal transparency report for Georgia from September 2017 [3] warned that the Nenskra project would pose serious risks to the country’s fiscal stability. The IMF’s findings were followed by a February 2018 World Bank analysis [4], commissioned by the Georgian finance ministry, which warned that the project could incur costs over EUR 1.8 billion between 2022 and 2041,.

The report authors expect additional costs – beginning at EUR 113 million a year between 2023 and 2026 – due to worsening exchange rates. In addition, liabilities to Georgia’s electricity operator due to the energy surplus could reach USD 154.2 million by 2041, and the report also cautioned that the project’s costs could further increase with delays or unplanned expenses.

David Chipashvili, campaigner for Green Alternative, said: “The promises of energy security by the company and government officials about the grandiose Nenskra project have now confirmed to be out of touch with reality. Their motivations to sign an agreement that is so blatantly against the national interest remain a mystery.

International financial institutions considering the project, including the European Investment Bank, the European Bank for Reconstruction and Development, the Korean Development Bank, the Asian Development Bank, and the Asian Infrastructure Investment Bank, have long been aware of the outrageous terms in this contract. Now that it has finally been made public, they need to seriously re-think their engagement.”

For more information contact

David Chipashvili
Green Alternative, Bankwatch campaigner for Georgia