Giorgi Gakharia: “The reason why the Anaklia port failed was a low-quality investor which did not fulfil its obligations.”

Verdict: FactCheck concludes that Giorgi Gakharia’s statement is FALSE.

Resume:

The contract on the construction of the Anaklia seaport was signed in 2016 between the Government of Georgia and the Anaklia Development Consortium, the winner of an international competition, and the preparatory work started in 2017. Apart from its strategic importance, the Anaklia seaport has commercial viability and based on modest estimates, it would have been able to handle 600,000 TEU [1] cargo by 2025.

The Anaklia seaport investors were influential organisations and financial institutions such as the Conti Group, SSA Marine, Van Oord, Wondernet Express LLP, TBC Holding, the Asia Development Bank, the European Bank for Reconstruction and Development, the Overseas Private Investment Corporation (OPIC) and the Asian Infrastructure Investment Bank. At the same time, the Anaklia seaport was recognised as having a strategic importance based on the Trans-European Transport Network (TEN-T) Action Plan jointly produced by the European Commission and the World Bank. According to the same plan, the European Commission would have allocated EUR 233 million to fund the second phase of the Anaklia seaport construction.

In December 2018, it was reported that financial institutions were requesting certain guarantees from the authorities to finance the project. This request for guarantees was presented in the form of an eight-point plan. The Government of Georgia made it clear at the very beginning of the negotiations that it was categorically against one of the points; particularly, on commercial risk insurance. However, in the case of other projects, commercial risk insurance has not always been so unacceptable for the authorities and there were many instances of the government providing such commercial risk insurance, including contracts on the construction of the Namakhvani HPP and the Nenskra HPP signed simultaneously with the Anaklia project.

Eventually, the parties reached an agreement on seven out of the eight conditions whilst the Government of Georgia, as expected, did not change its position on the commercial risk insurance issue. Therefore, the negotiations failed and finding a new investor(s) before 31 December 2019 became necessary. According to the information of the Anaklia Development Consortium (ADC), out of two new potential investors at that time, one of them, the Kazakh – Hong Kong group (Meridian Capital Limited) was deemed undesirable by the Government of Georgia because of the origins of the investors. Another potential investor, an American investment foundation (Cerberus Capital Management, LP), was simply requesting an official letter from the government on the acceptability of the investor. According to the ADC’s information, the Government of Georgia did not prepare a respective letter in spite of pledging such a confirmation. On 9 January 2020, the Government of Georgia declared that the contract with the ADC was cancelled.

The reason behind the failure of the Anaklia deep-water seaport is not the “low-quality” of investors but the Government of Georgia’s inconsistent and dubious “principled” stance on an issue which had not been so fundamental in other cases. At the same time, the chronology of the criminal persecution against businessmen (the founder of the ADC) having direct association with the project, other specific circumstances and the entire nature of this process raises serious questions vis-à-vis the real motives of the Government of Georgia and the former Prime Minister Ivanishvili about the project’s implementation. Without the government providing open help in good faith, any public and private partnership project is doomed to fail even with an investor’s efforts.

Analysis

On 31 May 2021, the former Prime Minister of Georgia and incumbent chair of the newly founded For Georgia political party, Giorgi Gakharia, made the following statement during his meeting with journalists:

“The Anaklia seaport should be built in this country. It is unfortunate that the project failed but the main reason behind the failure of the project was a low-quality investor which did not fulfil its obligations. This is true, this is what it is. If you were expecting that I was going to flip my position today… I was saying the truth then and this is an objective reality… The private investor failed to fulfil its obligations despite the government’s support which increased additionally four or maybe five times. The government did everything it could and it could not have built the port instead of Mamuka Kharadze.”

The Government of Georgia signed a contract on the construction of the Anaklia deep-water seaport with the Anaklia Development Consortium (ADC) in 2016. The initial stakeholders of the Anaklia Development Consortium were as follows:

TBC Holding (Georgia) – Regional investment and developer company with one of the largest Georgian banks, TBC Bank, being the representative of the group.

Conti Group (USA) – The Conti Group was founded in 1906 and it was in charge of the supervision and the programme management of the Anaklia deep-water seaport development.

Afterwards, the following companies joined the ADC:

SSA Marine – One of the world’s largest operators of marine terminals, headquartered in Seattle (USA). The company operates in over 250 locations across five continents and handles 27.2 million containers (TEU) each year.

Wondernet Express – An international company, mostly focused on freight forwarding services, including cargo transportation through rail and other cargo shipment in CIS and Baltic countries, particularly in Georgia, Azerbaijan, Kazakhstan, Latvia, Lithuania, Tajikistan, Turkmenistan, Uzbekistan and Estonia.

G-Star LTD – G-Star LTD owns multiple daughter companies in different countries worldwide, headquartered in Bulgaria. G-Star LTD operates in different business fields, including international currency market transactions and investments in real estate.

The Anaklia deep-water seaport has been and is rightly acknowledged as an essential project for Georgia’s long-term security and economic development.

The port project was supposed to mark Georgia’s strategic geographic function on the east-west land trade map. In terms of commercial viability, based on modest estimates, [2] the Anaklia seaport would have been able to handle 600,000 TEU (one TEU is the equivalent of one regular 20-foot container) and accommodate 10,000 TEU ships. These are the largest ships that pass through the Bosphorus and which existing ports in Georgia (Poti and Batumi) are unable to berth.

The new port on Georgia’s Black Sea coast would have provided an alternative corridor for the east-west land trade that currently flows through Russia. The port’s importance for the Euro-Atlantic area was acknowledged by the open and direct support from the EU and USA. The Anaklia seaport was recognised as having a strategic importance based on the Trans-European Transport Network (TEN-T) Action Plan jointly produced by the European Commission and the World Bank. According to the same plan, the European Commission would have allocated EUR 233 million to fund the second phase of the Anaklia seaport construction.

On 11 June 2019, US Secretary of State, Mike Pompeo, urged Georgia to complete the Anaklia port project. The importance of Secretary Pompeo’s statement was highlighted by its timing, the place where it was made and its emphasis. In particular, during the joint press remarks with the then Georgian Prime Minister, Mamuka Bakhtadze, the American Secretary of State stated: “I expressed the hope that Georgia will complete the implementation of the (Anaklia) project. The project and others will enhance Georgia’s relationship with free economies and prevent Georgia from falling prey to Russian or Chinese economic influence. Those pretend friends do not have Georgia’s best interests at heart.”

Apart from the Anaklia Development Consortium, the creditors of the Anaklia deep-water seaport should have been the European Bank for Reconstruction and Development (EBRD), the Asia Development Bank (ADB), the Overseas Private Investment Corporation (OPIC), Van Oord and a private investor, Bob Mayer. Most of the aforementioned are transnational companies and are respected across the world. Prior to the failure of the project, the investors had already spent USD 75 million in total for seabed deepening, coastal wetland draining and preparatory work. In addition, the successful conclusion of the talks with the Government of Georgia would have made a USD 400 million credit resource available for the ADC. The Government of Georgia purchased the location for the future port from private owners in 2016 at a value of GEL 64 million in total. However, the government-announced tender on the construction of the infrastructure for the port was foiled three times. Of additional note is that the Government of Georgia postponed the project’s financial closure date three times.

The Anaklia seaport was supposed to start handling cargo in autumn 2020 and the following period should have been a time for the further development and loading of the port. Shortly after the former Prime Minister Kvirikashvili’s resignation from the position amidst a confrontation with Bidzina Ivanishvili, the ADC suddenly became a suspicious target of government investigation from 17 July 2018 which naturally raised questions among both the public and investors in regard to the government’s motives. The Prosecutor’s Office of Georgia launched cases against ADC founders on money laundering charges related to an 11-year-old financial transaction.

In December 2018, it was reported that financial institutions were requesting certain guarantees from the authorities to fund the project. This request for guarantees was presented in the form of an eight-point plan. [3] The Government of Georgia made it clear at the very beginning of the negotiations that it was categorically against one of the points; particularly, on commercial risk insurance. However, in the case of other projects, commercial risk insurance had not always been so unacceptable for the authorities and there were many instances of the government providing commercial risk insurance, including contracts on the construction of the Namakhvani HPP and the Nenskra HPP signed simultaneously with the Anaklia project.

During the negotiations, the reason behind the Government of Georgia’s refusal vis-à-vis the insurance of shipment turnover was that the insurance of such commercial risks was not acceptable for the government. At the same time, almost simultaneously, the Government of Georgia insured commercial risks on the similarly strategically important Namakhvani HPP project and signed a 15-year guaranteed energy purchase agreement with the investor [4] provided that the Georgian side would be able to purchase energy at a fixed price. Of note is that the Namakhvani HPP is not an exception and this is a common approach for the purposes of contracts on the construction of energy facilities.

In the case of the Nenskra HPP, the government went even further. The guaranteed energy purchase agreement for the Nenskra HPP project was signed for 34 years and the Government of Georgia provided additional guarantees of a 12.5% internal return rate (IRR). The Government of Georgia also took responsibility for construction and hydrological risks. The IMF’s Fiscal Transparency Evaluation report (September 2017) reads that the contract “has some unique characteristics that present additional risks.”

Eventually, the parties reached an agreement on seven out of the eight conditions whilst the Government of Georgia, as expected, did not change its position on the commercial risk insurance issue. Therefore, the negotiations failed and finding a new investor(s) before 31 December 2019 became necessary. According to the information of the Anaklia Development Consortium, out of two new potential investors at that time, one of them, the Kazakh – Hong Kong group (Meridian Capital Limited) was deemed undesirable by the Government of Georgia because of the origins of the investors. Another potential investor, an American investment foundation (Cerberus Capital Management, LP), [5] was simply requesting an official letter from the government on the acceptability of the investor. According to the ADC’s information, the Government of Georgia did not prepare a respective letter in spite of pledging such a confirmation. On 9 January 2020, the Government of Georgia declared that the contract with the ADC was cancelled.

The Government of Georgia’s categorical refusal on commercial risk insurance in the case of the Anaklia seaport, on the one hand, and committing to risk insurance vis-à-vis nearly all large energy projects, on the other hand, and including commercial risk insurance for the Nenskra and the Namakhvani HPPs coinciding with the Anaklia project, indicates the government’s inconsistency and the dubious nature of the “principled” stance it has demonstrated.

Please see GRASS’s publication for an extensive analysis of the Anaklia seaport.

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1. TEU – TEU is the equivalent of one regular 20-foot container and is used to measure cargo and shipping terminal loads.

2. According to the pessimistic scenario of the WSP study produced at the behest of potential creditors (financial institutions) of the project.

3. When it was evident that the commercial risk insurance issue was the only one to be agreed, the negotiation process was put at risk by the Government of Georgia’s abrupt decision to approve the land-use permit for the construction of the new deep-water multi-functional dock at the Poti seaport. Although the Ministry of Economy and Sustainable Development abrogated this decision, inconsistent steps sparked concern among the project stakeholders and harmed the government’s image. A moratorium on simultaneously building other deep-water seaports in Georgia’s territorial waters together with Anaklia seaport, was one of the issues in the negotiations.

4. In the course of eight months from September to April.

5. This is not officially confirmed information.

Authors - Zurab Maisashvili and Valeri Kvaratskhelia