Economy Minister Talks Khudoni HPP Deal Withdrawal, Project Fate

In a June 28 press briefing, Economy Minister Natia Turnava said the government was negotiating the termination of investor agreement over Khudoni HPP, a controversial large-scale hydropower project planned to be built in the Svaneti region of western Georgia.

According to the Minister, in 2011 the government concluded the deal with Indian company Trans Electrica to “develop” the Khudoni HPP, but the project has not been implemented due to “objective or subjective reasons” on part of both contracting parties. This led Georgian authorities to consider the termination by engaging an international consulting firm, she added.

“We would have probably proceeded more strictly” should there have been only investor’s fault, Minister Turnava noted, citing “population issue,” “complexity of the project,” and “correct structuring of the project” as some of the causes for project failure. Instead, she said both the government and the company agreed to negotiate the termination and handing the assets that had been passed to the company back to the state.

The Minister said the government will decide next what is the preferred way to implement the project in the future. “The recent developments have demonstrated that the state needs to have more share in implementing such mega-projects and become at least the partner if not the sole owner.”

The remarks come amid months-long active protests against the construction of the Namakhvani HPP on the Rioni River in western Georgia, where the criticism about the “anti-state” investor agreement allegedly involving concessive clauses for the government eventually became one of the key concerns. However, the Minister had also implied the state takeover of the Khudoni project in May 2020, when reports of deal termination first emerged.

Questions over the Khudoni HPP agreement were raised after expensive procurement deals with the international law firm Hogan Lovells, hired to represent the Economy Ministry in the negotiations with the investor, became public. The first such service deal was concluded back in May 2020 to last till December the same year but was eventually extended as no final agreement was reached in talks. According to Minister Turnava, the authorities are currently extending the consultation deal until the end of 2021.

The project of a large-scale Khudoni HPP on the Enguri River in the mountainous Svaneti region dates back to Soviet times and has met active protests from environmentalists and the local population ever since. The HPP deal with Trans Electrica on a build, own and operate basis was signed in 2011 under the Mikheil Saakashvili administration and was later backed by the Georgian Dream government. As the company has so far failed to commence the construction, uncertainty remains over real causes for the failure.

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