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June 27, 2011 / joninews

British Virgin Islands and Khurdoni Dam Project. Georgian Shadow Economy

Khudoni Dam and British Virgin Islands

As water swirls – so goes the political intrigue of the Georgian business climate. Take for instance a massive hydro station project that has been on hold for years; it is now being renewed under what some may consider as mysterious and less than transparent circumstances. This article, however, is but the tip of an iceberg of the shadow economy and money laundering operations in Georgia.

The proposed 201 metre Khudoni Hydro Power Plant construction is planned for high mountains of west Georgia (2010 metres above sea level) on the River Enguri. This is the source of water where the Enguri dam already operates. However, something bigger is in the works, and it dates back to the period of the Soviet Union and its centralized planning efforts that make extensive use of the Enguri River’s vast water resources for power generation. The proposed Khudoni project was until recently on hold, almost forgotten by all those involved stakeholders, even those in government and environmentalists, and those who are really suppose to be in the know.

Mikheil Saakashvili, (and after Zurab Zhvania died under mysterious circumstances) and while in government, the former PM was a staunch environmentalist), and the Georgian government in 2005 revised the Soviet project and began seeking outside investors. In 2007, a group of Indian businessmen visited the Khudoni site in the Upper Svaneti region, and gave the Georgian energy ministry a clear commitment to complete the project.  The group represented a company called “Transelectric”, which is owned by British and Indian investors, and registered in the Virgin Islands.

Based on these promises, the Georgian government awarded the investors the rights to build Khudoni with a price tag of 800 million USD. There was no tender, no bidding competition or any such similar arrangement.  One would have thought that they would have done one this for show, for the sake of transparency and accountability, especially in the reform minded government that came into power in the post 2003 Rose Revolution period.

In short, the Georgian public, as well as parliamentarians, are in the dark as to who all are behind the biggest hydropower project currently in their country, and even within the Energy ministry little is known about it. There seems to have been a kind of lull after the rights to build the dam were awarded in 2007. The energy ministry had the impression that the group had abandoned its promises for some time. As of now, construction work may start in 2011 and take four to five years to complete. The dam will be 201 m tall, consisting of 170 m tall concrete arches, and lays about two thousand meters above sea level. The generators will be able to deliver 700 MW output, which is fairly large in an international context, and per year estimated to produce 1.5 billion kWh of energy.

Environmental and social impact: six villages and about a thousand people will be displaced. The Khudoni HPP would intensify the devastation of forests and wildlife habitat, the loss of river species populations and the degradation of upstream catchments areas owing to the flooding of the reservoir area in one of the most amazing highland regions of Georgia. There are serious environmental concerns, both in terms of changed ecosystem (forests) and change in the flow of the river. Environmentalists think it will result in catastrophic consequences to the local habitat.

There is also question as where much of the profits for the export of electricity will go when the company is registered as an offshore company. Others think it is a good thing that Transelectric is able to build it in a careless fashion without competition and proper oversight, as getting it quickly up and running will further increase the country’s capacity for export of electricity and to make up for a lost in foreign direct investment and in light of less than a shiny business environment. 

Analysis and Commentary

The main cause of the systemic growth of the shadow economy in Georgia is the peculiar institutions and features of local market and networks of patronage. The system of tribes and bribes has been allowed to operate as a mechanism for other ends, and Georgia is a transit country in ways than one. The newly private institutions acted, and continue to act, according to the rules of the shadow economy, and more a safe haven for money that is looking for  home and this is done under the cover of various projects and complicated mechanisms. Many governmental institutions along banking operations work hand in hand with corruption, and this involves a wide and complex range of shadow relations. The shadow economy has been transformed into backbone of the socio-economic system of Georgia while the legal economy is only on the periphery, with what little exist of any economic activity in Georgia; the  entire socio-economic system in Georgia is now turned “upside down.”

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One Comment

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  1. Joni Simonishvili / Jun 27 2011 12:25 pm

    The construction of the Khudoni Hydro Power Plant started in 1979 and was stopped after the protests over environmental concern in June 1989. Environmentalists remain skeptical about the Khudoni HPP project. The construction will also cause flooding of the highland village of Khaishi, requiring the resettlement of local population.

    http://www.ekhokavkaza.com/content/article/9502763.html

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