GEO

The Partnership Fund’s projects and investments: 2011 to 2014

16 May, 2014

 

Minister of Economy, Giorgi Kvirikashvili, recently announced that the Partnership Fund  may be reorganised as a state-run Development Bank of Georgia. Currently the Partnership Fund co-invests in medium to large-scale projects, but has been unable to find co-investors for it’s larger projects, such as Nenskra hydro power plant and a deep sea port in Anaklia. In January 2014, the Partnership Fund signed an agreement with the International Finance Corporation (IFC), a subsidiary of the World Bank, to advise it on how to structure a Public-Private Partnership agreement for Nenskra with international investors. (For a full list of the PF's projects see below.)

 

The proposed Nenskra hydro power plant in Svaneti would be the first large dam project in Georgia since Inguri, which opened in 1987.

This advisory agreement with the IFC is a positive development. The Partnership Fund owns two large hydropower projects: Oni and Nenskra. The manner in which both projects were initially developed by the Fund, under the UNM government, has been criticised by Green Alternative, a Georgian environmental group, for lacking any proper public consultation process or environmental impact assessment. The involvement of the IFC should help ensure that the 210 megawatt hydropower plant project meets the highest international standards for environment, cultural heritage, resource efficiency, pollution prevention, working conditions, land acquisition and involuntary resettlement. The agreement, signed in January 2014 for USD 1,389,845, will run until 30 June 2016.

In response to questions from TI Georgia, Natia Turnava, the Partnership Fund’s deputy Director, added, “the most important aspect of IFC's support will be assisting the Fund complete its environmental & social impact assessment (including public consultations). And definitely the process and the documents should satisfy World Bank/European Bank for Reconstruction and Development’s high standards. The IFC will also be responsible for preparing a whole bundle of legal, financial, environmental documentation etc. and in assisting us in negotiations with potential investors… we expect that the project will match all international standards and thus, will become more attractive for international financial institutions.”

In February 2014, the Partnership Fund also began to implement a USD 6 million manufacturing project with Georgian company, ICES Construction Material Factory. This is the first project to be initiated by the Partnership Fund since the 2012 Parliamentary Elections, which triggered a complete change in senior management.

The signing of an agreement with the IFC is a positive step forward for the Partnership Fund. However, the new management has been in charge of the Partnership Fund for 19 months now, and this is its sole achievement. The fund has significant financial and human resources at it’s disposal — it owns Georgian Railway and Georgian Oil and Gas Company, amongst other significant assets, and has around USD 1.4 billion in total equity, USD 2.95 billion total assets. It has nearly USD 50 million available to co-invest annually, according to the CFO.

The Partnership Fund has completed a total of four projects in three years; a further six projects are under development. The completed investments are a pig farm-slaughterhouse (which has now been shut down) and three spa hotels. The projects under development include a manufacturing plant, a thermal power plant, two hydropower plants, a deep sea port and two luxury hotels.

Headed by the Prime Minister, the Supervisory Board of the Fund includes the incumbent Ministers of Energy, Justice, Finance and Economy as well as four senior executives from four Georgian banks. After the Parliamentary elections of October 2012, Irakli Kovzanadze was appointed CEO of the Fund with George Bachiashvili as his deputy. Bachiashvili moved to head the Co-Investment Fund in September 2013.

For a full list of the Partnership Fund's completed and ongoing projects, scroll below.

Completed Projects

Kalanda GeoAgro Pig Farm

Status

Opened June 2013

Total Project Value

USD 9 million; Fund participation to date USD 1.3 million convertible subordinated loan; Co-investor participation USD 2.75 million; Bank of Georgia loan USD 5 million.

Description

Pig farm and slaughterhouse for 600 sows (Phase I) to 1,500 sows (Phase II - this will represent over 10 per cent of Georgia’s entire pig population). British pig-breeding company ACMC Ltd. won the contract tendered by Kalanda to supply genetically advanced pigs as the foundation stock for the farm and American company, Big Dutchman, is supplying and operating the farm equipment.

In February 2014, the Food Safety Agency was called to the farm, a swine fever outbreak killed much of the pig population, the rest were euthanized by the Agency and buried at the farm. The farm has now been closed. The Partnership Fund and Bank of Georgia are considering whether to issue new loans to restart the farm.

Location

Koda village, 25 kilometres from Tbilisi

Co-Investor

Geo Agro JSC, owned by Kalanda JSC, registered director Anri Batsikadze. Registered shareholders: 50% Kobali JSC (wholly owned by Ucha Kartvelishvili); 25% Valeri Maltsev (Russian Fed.); 12.5% Mamuka Kajrishvili and 12.5% Anri Batsikadze, Georgian Company Register.

Rabat Gino Wellness Hotel

Status

Opened April 2013

Total Project Value

Total investment value USD 5 million, Fund participation USD 2.4 million (senior convertible loan)

Description

38 room hotel and spa in the Rabat Fortress

Location

Akhaltsikhe

Co-Investor

Rabat Gino Wellness Hotel is wholly owned by Eurocom Investment, a Slovakian-registered company owned by Nodar Giorgadze, a native Georgian. Giorgadze was appointed Georgian Minister of Defence in 1991 under the Presidency of Zviad Gamsakhurdia. Giorgadze subsequently became a Slovak citizen and has since developed the Gino Paradise Besenova Resort, a water park and 3 hotels in Slovakia. In Georgia, Giorgadze has developed the Rabat Gino Wellness Hotel and the Gino Paradise Aqua Park at Tbilisi Sea, which opened in July 2013. According to the Fund’s CFO, Giorgadze has fully repaid this loan to the Partnership Fund.

 

Sairme Resort

Status

Opened in 2012

Total Project Value

Total investment size USD 11 million (including loan from TBC bank); Fund participation USD 1 million (convertible loan).

Description

150 room hotel and rehabilitation center

Location

Sairme was a dilapidated mountain spa resort. In 2010, President Saakashvili announced that Parliament would move to Kutaisi, 55 kilometres away from Sairme, and that the government would renovate the spa resort.

Co-Investor

Sairme Development Company, wholly owned by Temur Kokhodze,. According to investigations by lawyers working for ALAC, (TI Georgia’s Advocacy and Legal Advice Clinic), 20 local landowners accuse the local prosecutor, in collusion with the Partnership Fund’s co-investor Temur Kokhodze, who was at that time the area’s regional UNM parliamentarian, of pressuring them into giving up their lands for free for the resort development. During a ten day period from 13 to 23 December 2010, at least 22 local landowners in Sairme were all registered as having given their private property away for free (either in the form of a gift or registered as abandonment) to the state. These properties are all located in close geographical proximity to each other. In most cases this land was the only property that these individuals owned. The UNM government then transferred all of these properties to Kokhodze’s Sairme Development Company. Kokhodze has stated that he paid a total of USD 36,000 (GEL 60,000) for the combined properties. The landowners claim they received no financial compensation for the loss of their land and businesses, and that they were intimidated into transferring their assets by the local prosecutor Kakha Svanidze. An investigation is ongoing.

Royal Batoni Hotel, Kvareli

Status

Opened July 2013

Total Project Value

USD 2.3 million, Fund participation USD 1.15 million (senior convertible loan),Viniveria Group LLC participation 1.15 million.

Description

32 room hotel

Location

Kvareli, Kakheti Region

Co-Investor

In December 2011, the Fund granted a loan to Georgian Viniveria Group LLC to build the Royal Batoni hotel on Ilia Lake in Kvareli. Viniveria Group, is 70 per cent owned by Giorgi Piradashvili, who operates a number of hotels in the region including Chateau Mere. According to the CFO, this loan has been fully repaid to the Partnership Fund.

Projects Under Development

Gardabani Power Station

Status

Construction re-initiated in January 2014, completion date estimated in 2016 (project initiated early 2012).

Total Project Value

USD 220 million

Description

Gardabani is the first combined cycle thermal power station in Georgia and will have 230 MW of installed capacity. With efficiency of 54% it uses 40% less Natural Gas than existing thermal power stations and according to the Fund, “provides much needed winter generation capacity for Georgia’s growing electricity needs.”

The project originated in spring 2012 with the Ministry of Energy, and the agreement to fund the project was signed by Nika Gilauri, who had been appointed CEO of the Fund by President Saakashvili in July 2012, having stepped down as Prime Minister (and head of the Supervisory Board of the Fund) in June 2012. Prior to that, from 2004 until 2007, Gilauri had served as Minister of Energy. Construction was initiated in January 2013, without a private sector co-investor, making the Partnership Fund wholly liable for the cost of entire project. After attempts to persuade the construction contractor, Calik Enerji Sanayi Ve Ticaret A.S., to purchase an equity stake in the plant failed, it is now wholly owned by the Partnership Fund (49%) and its subsidiary, Georgian Oil and Gas Corporation (51%). This shareholding structure is contrary to the Fund’s mission to provide co-financing to private sector projects. As a result of this project, in March 2013, the Executive Board of the International Monetary Fund issued the following statement: “The Partnership Fund’s decision to fully finance a power plant project has highlighted the need to strengthen the Fund’s governance and the recent steps taken by the authorities in this regard are welcome. The authorities should work with their development partners to ensure that the new investment funds contribute to inclusive growth in a transparent, fiscally responsible, and sustainable manner.” As a result the new management amended the Fund’s legal charter and now the Fund’s investment principles are restricted in the following way:

  • PF participation should not exceed 50% of the total investment
  • The project should allow for exit of PF in 3-7 years from investment
  • Maximum amount of funds (both debt and equity) that PF is able to invest in the project should not exceed private investor’s equity investment.

Location

Gardabani

Co-Investor

No co-investor

ICES Construction Materials Factory

Status

Agreement signed February 2014, according to the Fund this project will be launched as soon as the construction permit is approved (presumably, within one month). The Fund aims to have the plant operational by spring 2015.

Total Project Value

USD 6 million. Co-investment by Fund: USD 2.3 million (including land plot).

Description

Manufacture of standard polyurethane sandwich panels for heat isolation units. According to Irakli Kovzanadze, Georgia imports the majority of these panels from Turkey, producing these locally will reduce imports by up to 90%. The annual capacity of the plant will be 2.8 million square meter panels. According to company representatives, 45% of the production will be sold locally, while the rest will be exported to Kazakhstan, Azerbaijan, Ukraine and Russia.

Location

Rustavi Highway, Tbilisi

Co-Investor

Industrial Construction Engineering Solutions is wholly owned by Aleksi Morchiladze. Morchiladze is also a 30 % shareholder and director of LTD "Georgian Constructing Group" (ID 236095809) and a shareholder in the following 3 companies: 5% shares in LTD " GeoAgrokiri" (ID 204998422); 45% shares in LTD "climat" (ID 400046437) and 20% in LTD "Eurasia Trans Service" (ID 404983764).  Morchiladze is a director in LTD "Sea of Beauty" (ID 400092378), but he is not listed as a shareholder.

Borjomi-Likani International Resort

Status

Construction initiated, no confirmed completion date.

Total Project Value

USD 48.6 million; Partnership Fund’s contribution USD 15.3 million equity, Co-investor contribution USD 15.3 million equity, USD 8 million bank loan, value of land USD 10 million

Description

152 room Spa Hotel and leisure center managed by international hotel chain operator Rixos. The Fund holds a 50 per cent stake in JSC Borjomi-Likani International, a Special Purpose Vehicle to fund the construction and development of a luxury hotel and spa; this is the Fund’s largest investment in the real estate portfolio.

Location

Likani, Borjomi

Co-Investor

In 2006, the Fund’s counterpart KazMunaiGaz Service Georgia (KMG SG), a subsidiary of KazMunaiGaz (KMG) which is wholly owned by the Kazakh government, bought the historic spa resort, which included 38 hectares of National Parkland and mineral deposits. The UNM government sold KMG SG the site for USD 10 million in 2006 on the condition that it would develop a resort. KMG manages the Kazakh government’s hydrocarbon assets; this is its only hotel project. According to a senior figure who previously worked at the Fund, the original contractual obligations set by the Georgian government in 2006 were too vague and simply stipulated that KMG GS must build a luxury hotel. But there was no date set in the contract by which the hotel construction should be completed. The site was left abandoned for many years. Details of the contract have never been released publicly, despite a Freedom of Information requests made by TI Georgia to the Ministry of Economy in May 2011 and March 2012. The Fund initially said that the hotel would open in summer 2013 under the Rixos brand, the management have not set a new date for opening.

Projects Seeking Co-Investors

Nenskra Hydropower Plant

Status

Preliminary construction works made, conducting investor negotiations, according to the Fund.

Total Project Value

USD 650-700 million, Fund participation to date USD 8.3 million equity (will be up to 10% of equity).

Description

Hydropower plant in Svaneti, on the Nenskra River, with installed capacity of 210 mw, potential output of 1.3 b kwt/h.      

Nenskra was transferred to the Partnership Fund in 2011 by a UNM government-approved resolution. Chinese state-owned company Sinohydro, China’s largest dam construction company, was the proposed contractor for Nenskra until December 2012. Sinohydro has been criticised internationally for a number of its dam construction projects. For example, in 2011, Sinohydro publicly admitted that the construction procedures it had used for the Bakun Dam in Sarawak, Malaysia (finished in 2012), were negligent. The Bakun Dam has been labelled a monument of corruption by Transparency International Malaysia. Health and safety officers employed at the site allege they had repeatedly warned Sinohydro’s senior management that dam construction workers were adding excess water to the cement, in order to keep costs lower and speed up construction. Bakun is the largest dam in Malaysia and is located in an earthquake zone. The Sarawak Report, a local lobbying group, cited concerns by dam construction experts that excess water in the cement would significantly weaken the dam’s structure and its ability to withstand seismological forces. Negotiations with Sinohydro were eventually discontinued as the contractor sought a state guarantee. In January 2014, the Partnership Fund signed an agreement with the International Finance Corporation to advise the Fund on structuring the Public Private Partnership to ensure it meets international best practice standards.

Location

Nenskra River, Svaneti

Co-Investor

Seeking co-investors

Deep Sea Port in Anaklia (Lazika)

Status

Feasibility study will be finished end of May 2014 and a decision will be made whether to continue with the project.

Total Project Value

Approximately USD 500 million, Fund participation to date USD 1.6 million equity.

Description  

New deep sea port on Black Sea coast capable of accommodating Panamax size cargo vessels. In December 2011, then President Saakashvili publicly announced plans for the UNM government’s biggest development project yet, Lazika charter city and port in Anaklia and that construction would begin in early 2012, funded by the Partnership Fund. A few days before the parliamentary elections, Saakashvili was broadcasted opening Lazika city’s first administrative building. In September 2013, at the launch of the Georgian Co-Investment Fund, then Prime Minister Bidzina Ivanishvili said that his private equity vehicle, the Georgian Co-Investment Fund, were setting up a consortium to raise funds for a deep-sea port in Anaklia. Since then, deputy CEO of the Partnership Fund, Natia Turnava announced that this project has been transferred back to the Partnership Fund who have announced an international consultancy tender to complete the feasibility study. For further details please read our previous blog.

Location

Anaklia, Black Sea coast

Co-Investor

Not yet seeking co-investors

Radisson Hotel Tsinandali

Status

In the process of securing financing, construction not yet begun. Project initiated April 2012.

Total Project Value

Total investment value USD 16.8 million, co-investor Tsinandlis Mamulebi LLC’s contribution USD 6 million, Fund’s contribution to date USD 4 million, USD 8 million bank loan.

Description  

104 room 5 star hotel. As part of the Tsinandali rehabilitation project, the UNM government paid for the renovation of the historic Tsinandali Wine Factory and converted it into a museum; this museum is leased by Silk Road Group. The Wine Factory Museum is connected to the Radisson Tsinandali by a 15 metre long underground corridor.

Location

Tsinandali, Kakheti

Co-Investor

Silk Road Group is believed to be one of the shareholders. According to an email sent to TI Georgia from the Silk Road Group, the owners of Silk Road Group Holdings SA, are Giorgi Ramishvili, Alexei Topuria and David Franz Borger, although, because of the holding company’s anonymous offshore structure, TI Georgia is unable to verify this information. The Radisson Hotel Tsinandali, according to the Public Registry, is wholly owned by Tsinandlis Mamulebi LLC, whose shareholding is divided equally amongst a complicated series of anonymous, offshore trusts. As a result, neither the Partnership Fund nor the public are able to identify who owns this investment and who is receiving these state co-investment funds.  By purposefully obscuring the identities of the true owners, who could be politicians, officials, business associates and family members, these corporate structures create a risk or perception of corruption.

 

Source: Ministry of Justice of Georgia, Corporate Registry and Maltese Corporate Registry, April 2013

Tbilisi Logistics Centre

Status

Seeking co-investor

Total Project Value

USD 7 million (projected) The Ministry of Agriculture gave TLC its own budget of 0.9 USD million in 2011, and the project was subsequently passed to the Fund to manage. Fund participation: USD 2.33 million equity (shared between Tbilisi Logistics Centre, USD 60,000; its subsidiary the Fruit and Vegetable Export Company LLC (FVEC), USD 770,000 and co- subsidiary the Georgian Product Fruit and Vegetable Export Company LLC, USD 1.5 million).

Description  

TLC was initially created as a company by the UNM Ministry of Agriculture in May 2011, and given 25 hectares of land by the government in Gardabani, to develop a ULO system of cold storage facility as part of Phase I of this project. According to Natia Turnava, the Fund has seen a high interest from investors in this project, who have proposed different concepts for developing TLC, the Fund is analysing the best opportunity and will announce a decision by June/July 2014.

Location

Undecided

Co-Investor

Seeking co-investors

Oni Hydropower Plant

Status

Preparation stage, seeking investors

Total Project Value

USD 600 million to 1 billion, Fund participation USD 0.8 million (Advance Payment against Bank Guarantee)

Description  

300 megawatt hydropower plant project. The feasibility studies for this HPP were completed in spring 2013. Green Alternative says it is opposed to construction of a dam in Oni, as it is located in a seismologically active zone and it has criticised the previous UNM government for its unwillingness to hold public discussions on the planned hydropower plant project. On 8 September 2009, an earthquake measuring 6.2 hit Oni, the epicentre was in the immediate vicinity of one of the planned dams. Green Alternative claims that since then, all public talks regarding the construction of a HPP in Oni have been suspended. According to the management of the Fund, Oni is still at the preparatory stage, and a public consultation procedure will be engaged upon if and when a decision is made to implement the project. In an interview with TI Georgia, deputy Energy Minister Mariam Valishvili says safe construction of the dam is possible: “Frankly these reports have been exaggerated. The dam could be constructed to withstand up to scale 9, Oni usually suffers from 5-7 quakes. It is not impossible to build in an earthquake zone; it all depends on the design and the quality of the dam construction.”

Location

Oni, Racha

Lagodekhi Trading Centre

Status

Preparation stage, seeking investors

Total Project Value

USD 3.6 million (under review); Fund participation USD 0.3 million equity

Description  

3,000 square metre shopping mall

Location

Lagodekhi, near the border with Azerbaijan

Author: Eva Anderson