AES, Georgian Government Locked in Battle

After the war of words through the Georgian media, the US-owned AES, managing Tbilisi electricity network, and the Georgian government are about to be locked into a legal battle. Mutual accusations in violating the contract between the sides induce AES to sue the Georgian government at the London Court of International Arbitration (LCIA).

“I tried to recall any foreign company, which has successful business in Georgia and I could not. This means that this is simply impossible in this country. Apparently, Georgians have a different idea of a successful business,” says Ignacio Iribarren, General Manager of the AES Telasi.

AES says the Georgian government deliberately creates unfavorable business conditions for the company and says the legal remedy is their last resort.

“We have decided to defend our rights and will use any legal mean for this, including the appeal to the LCIA. During my recent visit to London, where I met with the top management of the AES, I have discussed our business in Georgia and we have come to the conclusion that nothing good is happening here [in Georgia],” Iribarren said at the news briefing on February 27.

The US company asks for reduction of the tax burden. They argue, some of the taxes are in violation of the contract, as for instance the 20% commercial loss tax that reimburses the cost of electricity lost during the transmission.

AES Telasi also requests several power transmission lines, which were to come under the company according to the framework agreement signed between AES Telasi and the Georgian government in 1999, when the company rented Tbilisi electricity distribution system for 99 years.

“Our lawyers are currently studying the contract, to find out what other provisions are being violated. After this we will decide what would be our appeal to the court. I am sure that we will reveal many violations,” Iribarren said.

Iribarren also protested that the company receives much less electricity from the energy market than demanded, although AES Telasi is regarded as the best payer on the Georgian energy market.

The AES Telasi’s lobbyist Irakli Melashvili told Civil Georgia that in case the LCIA rules positively on the company’s appeal, “the company’s maximum request would be compensation of the USD250-million investment. This amount will be paid by the Georgian government from the central budget”. It must be mentioned that USD250 million is almost the half of Georgia’s average annual budget.

Despite such a grim perspective, the Georgian Energy Ministry believes that AES-Telasi is bluffing, trying to cut the better deal.

“This is not the first time when the company tries to intimidate us. We have heard such statements before. They choose to act this way whenever they are dissatisfied with something,” Nino Asatiani, the Spokesperson for the Energy Ministry told Civil Georgia.

The Energy Ministry thinks that even if the company appeals to the court, the process will be stretched for months if not years, and say the government has counter-claims on violation of the contract by AES.

The Ministry believes AES is instigating the crisis trying to reimburse from Georgia’s budget the losses caused by a recent decision of the Constitutional Court of Georgia which obliged the Energy Regulation Commission of Georgia to reduce the electricity tariff after March 1, 2003.

Iribarren admits that the company will suffer major losses after the reduction of the electricity tariff. “[T]he reduction [of the tariff] is absolutely unjustified. The previous tariff included all costs of any energy facility. I do not know why the tariff must be reduced,” Iribarren says. However he denies this is the main reason for the court appeal.

While the Georgian authorities and the AES-Telasi argue, Tbilisi blackouts still remain frequent, and the workings in the energy field remain one of the biggest mysteries of contemporary Georgia.

By Tea Gularidze, Civil Georgia