Is hydropower the key to Georgia’s economic future?

Is hydropower the key to Georgia’s economic future?

Georgia seeks to capitalize on potential hydro-power reserves to increase local production and potentially become an energy exporter.

In May, India’s Tata Power agreed to invest in two hydroelectric projects in Georgia, which could be a big boost to the country’s export potential and regional standing as a power provider. Together with Norway’s Clean Energy Invest and IFC Infra Ventures, the three partners will invest about $700 million in the two projects to supply energy to Turkey.

Central Asia and the Caucasus often promote themselves as being a strategic natural resource link between Europe, the Middle East, and Asia. The region’s oil and gas sources, as well as its transportation infrastructure, have long been of interest to foreign investors. However, poor government infrastructure and problems with the rule of law, corruption, and security deter robust investment.

Nevertheless, emerging economies are leading the way in renewable energy, particularly in hydro, wind and solar power sources. Many of the countries in this region have looked to jump on the green energy bandwagon to increase their international presence. Georgia is no exception.

Rugged Georgia, full of mountains and rivers, has been striving to place itself as a hydropower hub in part because of its significant hydroelectric potential and its competitive pricing structure. If these projects prove lucrative, then Georgia could successfully take advantage of this trend and really boost its impoverished economy.

These hydropower investments are also a much-needed lift since Georgian economic growth forecasts are on the decline due to recent political uncertainty.

The American-educated President Mikheil Saakashvili was key in pushing for Western investment in Georgia to protect the country against its neighbor Russia, where border conflicts have plagued relations. Saakashvili did make strides towards improving Georgia’s business climate through tackling corruption and increasing investor protection. The World Bank’s 2013 “Doing Business” report lauded Georgia for its progress, listing it as a leader in business-friendly changes.

However, the recent political successes of opposition leader and Prime Minister Bidzina Ivanishvili, who is decidedly anti-Saakashvili, has been the main catalyst in driving international uncertainty surrounding Georgia’s political future and a decline in direct foreign investment in recent months. Saakashvili’s term ends in October.

Ivanishvili, whose net worth of $6.4 billion equals approximately 40 percent of Georgia’s economy, made much of his fortune in Russia and has worked on improving ties with the neighboring country amidst continuing hostilities following the 2008 Russo-Georgian War. Recently the two countries agreed to expand border crossings to help facilitate trade and tourism. Meanwhile, ambiguity surrounds the Prime Minister’s stance towards the West.

But a Georgian detente with Russia should not necessarily be worrisome for Western investors. One of the main reasons foreign investors remain weary of the resources-rich Caucasus region is precisely because of the multitude of politically-tense intra-regional situations. Hostile relations between Armenia and Turkey, Azerbaijan and Armenia, and Georgia and Russia continuously give investors pause and limit the region’s capabilities as a secure, reliable energy transit spot. Reestablishment of ties between Russia and Georgia could add a bit more stability to the region.

Furthermore, the energy competition between Turkey and Russia could bode well for Georgia once these hydropower plants begin operation. They are currently set to start producing power in 2016, with an estimated combined capacity of 400 Mw.

Georgia continues to receive official support from the West, including the United States Agency for International Development (USAID) and the European Bank for Reconstruction and Development, and the Western strategy for Georgia highlights the country’s underutilized renewable energy sector potential.

Last week, Georgia, together with the United Nations Economic Commission for Europe (UNECE), hosted an international forum, “Energy for Sustainable Development,” that brought together over 200 delegates from over 20 countries throughout the Caucasus, Central Asia, Europe, and Asia to discuss policy initiatives and infrastructure to successfully develop energy efficient energies. The forum has convened for four years and is part of the UNECE’s strategic efforts to boost economic growth and improve energy quality and security in emerging economies.

Georgia’s government states that the country has an estimated production potential of 32 TWh of hydropower annually. If hydropower does become the major player in the renewable energy sector and existing hydropower plans live up to their potential, then Georgia could become a key investment destination in the region. Easing investors’ fears of political instability must be a key component of this plan.

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