Georgia’s power sector faced multiple challenges after the collapse of the Soviet Union, since it had been a part of the centralized power system. At that time, no customer had uninterrupted power, there were daily blackouts and brownouts, the capital had a scheduled power supply, and several rural areas had no power for months. Power sector assets were dilapidated and theft of electricity and corruption was rampant. Due to lack of financial discipline in the sector, only a fraction of fees paid by the customers was collected, resulting in a massive debt accumulation by the sector companies, making them unable to import needed power for the country from neighboring country systems, which in turn led to more power shortages.
The Electricity Market Support Project (EMSP) was designed to tackle a wide range of sector challenges, including structural, financial, legal, technical, and policy reforms. Through concerted effort by the International Development Association (IDA) and other donor organizations, the project has helped the government to unbundle, de-monopolize, commercialize, and privatize the sector. The debt issues have also been addressed by other donor’s support. An Electricity law was adopted which established a power sector regulator and provided a basis for an electricity tariff increase to a cost-recovery level. Privatization has also been launched to enable the better-equipped private sector to own and operate the generation and distribution assets. Finally, the EMSP has invested in the rehabilitation and upgrading of critical elements of the power grid.
By investing in the Supervisory Control and Data Acquisition System (SCADA) and a management contract for the national power transmission company, the EMSP has helped to turn the power sector into a viable sector and achieved four specific outcomes:
- Improved power system reliability, with no registered total blackouts during 2006 – 2009.
- Reduced technical losses in the power system from 6.6 percent in 2004 to 1.7 % in 2009.
- Increased collection rate for transmission services from 22.3 % in 2004 to 100 percent in 2009.
- Re-adjusted power sector debt, through financial rehabilitation, bankruptcy protection, and liquidation of bankrupt companies.
All of the above provided the foundation to make Georgia’s power sector sustainable and financially viable.
There was a strong partnership among all development agencies involved in the power sector. IDA helped to coordinate donor activities and harmonize the efforts. The German government-owned Development Bank (Kreditanstalt für Wiederaufbau, KfW) and the European Bank for Reconstruction and Development (EBRD) provided parallel financing of $12 million and $1 million respectively. The government of Georgia also provided $17 million. In addition, KfW and the U.S. Agency for International Development (USAID) funded various technical assistance activities. IDA, together with USAID, KfW and EBRD, provided policy advice to the government and supported sector reforms.
Toward the Future
EMSP was followed by a major transmission system expansion project, the Black Sea Transmission Line Project. This project, in the amount of about $300 million, has been jointly funded by EBRD, the European Investment Bank (EIB), and KfW and will increase the transmission connection capacity between Georgia and Turkey. This expansion will substantially increase Georgia’s power export and transit capacity. In addition, potential donors have considered a second phase of the SCADA upgrade. Considering the outstanding transformation of the power sector in Georgia, IDA and the government of Georgia have agreed to publish a book documenting the reforms’ success and drawing lessons learned.
The project has helped improve reliability of electricity supply to the entire country. Beneficiaries include every citizen and household, and public and private entities, especially the service, industrial and productive sectors.