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Energy Facilities for Sale
/ 17 Feb.'06 / 17:11
Nino Patsuria, Civil Georgia

The Georgian Economy Ministry announced that it will launch acceptance of privatization bids for three electricity distribution companies and six hydro power plants on May 16, 2006. Experts anticipate that two energy giants will emerge on the Georgian energy market after the privatization.

USD 119 million is the total initial bidding price of these energy facilities which include:

United Energy Distribution Company (UDC) – USD 30 million;
Energy Distributing Company of Adjara – USD 5 million;
Energy Distributing Company of Kakheti – USD 2 million (the company is currently in the bankruptcy process); 
Lajanuri hydro power plant, with total a capacity of 112.5 megawatts – USD 26 million;
Rioni hydro power, plant with a total capacity of 48 megawatts – USD 14 million; 
Gumati hydro power, plant with a total capacity of 66.5 megawatts – USD 12 million; 
Shaori hydro power plant, with a total capacity of 38.4 megawatts – USD 12 million; 
Dzevrula hydro power plant, with a total capacity of 80 megawatts – USD 14 million; 
Ats hydro power plant, with a total capacity of 16 megawatts – USD 4 million.

Economy Minister Irakli Chogovadze said on February 13 that each of them will be sold separately through open tender to all potential investors who will bid the highest price.
The UDC is the largest energy facilities in the list. With its 670,000 individual and 24,300 commercial customers, the company distributes electricity in the following regions of Georgia: Imereti, Kvemo Kartli, Guria, Samegrelo-Zemo Svaneti, Samtskhe-Javakheti, Mtskheta-Mtianeti and Shida Kartli. The UDC was created in March 2002 through grouping regional energy distribution companies.

The company is managed by the PA Consulting, which is a USAID contractor company in Georgia, since 2003. PA consulting company has a contract with the government until the end of 2006.

According to the competition terms, 50% of the price of each facility should be covered through one month since the signing date of the sale-purchase agreement. The remainder part of the entire price should be paid by December 1, 2006. The bids from the potential investors are to be accepted through one month since May 16 to June 16, 2006. On June 16 the open tender will be held as well.
Analysts foresee the inevitable increase of consumer tariffs on electricity and suppose that two giant monopolists might emerge in the Georgian energy sector as soon as the privatization is over.

An independent energy expert Davit Ebralidze told Civil Georgia that it is most likely that one will be Telasi – the Tbilisi electricity distributor company owned by the Russian United Energy Systems (UES) – with its energy generating units in the east Georgia and another – the UDC with its energy generating units mainly in the west Georgia.

The energy facilities were supposed to be sold through one package as proposed by Kakha Bendukidze, the State Minister for Economic Reforms, in 2005. But now the government plans to sell facilities separately.

“Energy objects will be sold separately,” Prime Minister Zurab Noghaideli told Civil Georgia, but he added: “it looks like that some investors might purchase several of them [energy facilities] together; this kind of deal will not cause any legal problems.”

Moreover, the official declaration of the bidding terms issued by the Economy Ministry reads: “in the process of privatization of the property of Hydro Power Plants, preference will be granted to the winner of the competition on energy distribution companies.”

Experts say that energy distributing companies are less favorable than hydro power plants and it is expected that the latter might be in better demand during the privatization process.

“It seems that the strategy of this privatization is to sell ‘unprofitable’ energy units together with the ‘profitable’ ones. Of course the state will put for bidding the energy distributing companies first, however, the bidder is likely to require the better part of the slice as well and purchase the distributing companies through one package together with the energy-generating plants. Therefore I presume that though the state puts energy entities through tender separately, they will be sold through one package as an aftermath,” expert Davit Ebralidze said.

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