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Georgia's infrastructure reform initiatives gain EBRD support
The European Bank for Reconstruction and Development (EBRD) today signed two significant projects in Georgia. The first will support the ongoing reform in the transport sector; the second, involving a package to rehabilitate the Enguri hydropower station, will support the government’s efforts to restructure and privatise the power sector.
Olivier Descamps, Director of the EBRD’s team for the Caucasus Region, said: "The fact that today the EBRD is ready to commit over ECU 50 million in new direct funding to Georgia is a major signal of our support for the country. Georgia remains at a critical stage of its reforms. It is essential for the government to accelerate the reforms in fiscal policy and in the commercialisation of its state enterprises to strengthen the investment climate and allow the private sector to develop."
A US$ 20 million (ECU 18.1 million) loan will assist the Georgian National Railways to finance a programme of infrastructure improvements on the Georgian section of the trans-Caucasian railway line. The line is of strategic importance, providing the key link between the Caspian and Black Seas, connecting the landlocked countries of Azerbaijan, Armenia and Central Asia to Europe.
"The involvement of the EBRD in this project is crucial, as it provides Georgian Railways with financing commensurate with the long-term nature of infrastructure investments", said Paul Amos, Senior Banker in the EBRD’s Transport team. "The project has wider implications for the region as a whole and Central Asian economies will benefit through the development of an effective southern trade corridor to Europe."
The EBRD’s loan will finance track renewal and equipment, bridge repairs, and the renewal of the signalling system on the trans-Caucasian line. The project has been developed in cooperation with the European Union, which has confirmed an ECU 6 million co-financing grant from the Tacis programme for an optic fibre communications link running parallel to the trans-Caucasian line.
The break-up of the Soviet Union and regional conflicts generated a huge decline in Georgia’s rail traffic, from 36 million tonnes in 1988 to 4.7 million tonnes in 1995. Since then traffic has begun to recover and is expected to reach 8 million tonnes in 1998 and nearly 12 million tonnes by the end of 2003. Important traffic flows include crude oil from the Tengiz oilfield in Kazakhstan and cotton from Uzbekistan. Transit traffic represents more than half of the total tonnes carried, highlighting the regional importance of this link.
Formerly a department of the Ministry of Transport, Georgian National Railways has been transformed into a state-owned company which will operate according to sound commercial principles. It operates a network of 1,569 route kms and employs 26,480 people.
In a separate signing, the EBRD has provided a loan of US$ 38.75 million (ECU 32.3 million) to Sakenergo, a state-owned utility responsible for Georgia's power transmission. Guaranteed by the Georgian government, the financing will support the government's efforts to privatise the power sector, to increase the availability of non-polluting renewable energy in the country, and to improve dam and power waterway operational safety.
"Georgia’s hydropower plants have suffered from a lack of maintenance, leading to frequent power cuts throughout the country which have a significant impact on the productive sector of the economy, particularly small private businesses and households," said Ananda Covindassamy, Director of the EBRD’s Power and Energy Team. "Supporting the restructuring and privatisation of Georgia’s power sector, this project will enable the urgent rehabilitation of one of the largest arch dams in the world, to alleviate critical power at a low cost, to enhance the environmental benefits of the Enguri power facility, to improve the collection of electricity bills and to reduce system power losses."
Mr Covindassamy continued: "A condition for the project is that government commitment to the privatisation of power distribution is demonstrated through the privatisation of at least one large distribution area. Anticipating the condition set by the Bank, the government has already privatised the power distribution company in Tbilisi."
In 1994 the EBRD extended the first loan from an international finance institution (IFI), to the Georgian power sector. The project included as a condition a provision to commence sector restructuring in consultation with the Bank. In 1997, as agreed with the Bank and other IFIs, the government decided to demonopolise the power sector. Several medium-sized hydro plants have been privatised, an independent regulatory authority has been established, and power distribution is being privatised. In the second stage, power generation, including Enguri HPP when feasible, will be privatised.
The EBRD has committed 11 projects in Georgia, amounting to ECU 115.9 million in direct funding. Total value of projects supported to date is ECU 171.2 million. Two-thirds of the Bank’s commitment to date is in the power and transport sectors, while 35 per cent is in the private sector.
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