44183-013: Regional Power Transmission Enhancement Project

Project Data Sheet (PDS): Details


Project Rationale and Linkage to Country/Regional Strategy

Sector Overview: Georgia has made significant progress in energy sector reforms over the past ten years to address the chronic power shortages and the poor financial condition of electricity companies. Since 2007, the levels of generation production have surpassed the annual demand, due to rehabilitation of existing HPPs, improvement in the efficiency of energy use, and reductions in losses. Currently, Georgia has power trade with Russia, Turkey, Azerbaijan and Armenia. In 2010, Georgia exported 1.5 TWh of electricity power, accounting for 15% of the country's total electricity generation. The Government has launched a large hydropower investment promotion campaign since 2008 and a number of concession agreements for HPP construction have been awarded. It is estimated that an additional 1,400 MW of new HPPs by 2016-2017 can be added to the existing 2,510 MW of HPPs, providing an additional 3.8 TWh of capacity available for export at an economic value to Georgia of $300 million per year. Of Georgia's potential export markets, Turkey is the most attractive given its summer peak in demand, projected capacity shortfalls and high market prices . There is also the possibility for transit trade from Azerbaijan and Armenia to Turkey. Through the power transit in Turkey, it is expected that the rich energy resources in the Caucasus could eventually be exported to the European market. Georgia could therefore act as a regional hub for energy dispatch and transit through the Caucasus area. Key Problems and Constraints: To develop the hydropower potential and expand power export, and especially to attract private sector capital for these investments, two critical technical issues need to be resolved: (i) ensuring the stability, reliability, and efficiency of Georgia's power transmission system, and (ii) enlarging the transmission capacity and providing market access to the most promising export markets for surplus power. There is also a significant generation-load regional imbalance within the Georgian power system: two-thirds of Georgia s energy resource is located in the Northwest, while two thirds of the domestic demand is located in eastern Georgia. Additionally most of the potential export market is located in the south of Georgia. The major potential export market, i.e. Turkey, is experiencing rapid growth in electricity demand. Other countries such as Armenia and Azerbaijan whilst experiencing modest or indeed at times zero demand growth, are likely to avail of a relatively cheap supply of hydro-energy from Georgia to augment and indeed offset thermal and thermal-nuclear power generation. Power delivery to these markets requires a reliable high voltage transmission network. To accelerate the hydropower development, the Government also requested ADB to consider financing a run-of-the-river HPP with a capacity of 40-50 MW in 2012. The generated power will be required to meet the increased demand of domestic water utilities due to rehabilitation and expansion of water supply system . Part of the generation may be exported to neighboring countries. After screening potential project sites and conducting pre-feasibility studies, the government will officially propose that ADB finance the HPP. Sector Policy and Priorities: The government recognizes that the development priority for power is the effective development and utilization of rich hydropower resources. The energy sector policy has a strong focus on (i) efficient utilization of power resources; (ii) rehabilitation of existing generation, transmission, and distribution facilities; (iii) interconnection with neighboring countries to promote energy trade, including transit; and (iv) attraction of investment and privatization. Due to its geographic location, the government aims to establish Georgia to act as a transit country for import export and transit operations of energy carriers in the Caucasus region. This will move the Caucasus countries closer to establishing a regional power market to facilitate flexible and mutually profitable cross-border energy exchanges. It will eventually result in regional energy resources being used in an efficient and environment-friendly way. Due to the geographic location of Georgia, the Government wishes Georgia to act as a transit country in import-export and transit operations of energy carriers in the Caucasus region. This will move the Caucasus countries closer towards establishing a regional power market which facilitates flexible and mutually profitable cross-border energy exchanges. It will eventually result in regional energy resources being used in an efficient and environment-friendly way. ADB's Operations and Sector Strategy: Under its long-term strategic framework, Strategy 2020, ADB will exploit the great promise that regional cooperation activities offer for accelerating economic growth. ADB will assist its member countries realize growth through integration and closer links with their neighbors. The Project is in line with the ADB's Strategy for Georgia, which focuses on upgrading and developing energy infrastructure and enhancing regional energy trade through development Caucasus regional energy market. ADB has no lending operations in the energy sector yet and the Project provides a unique opportunity for ADB to enter the energy sector. Presently, the Government funding is not sufficient on the scale needed for expansion and rehabilitation of the power system. ADB s involvement can not only contribute to fill the funding gap but also enhance private sector s confidence in the power sector investment. In addition, the Project will complement with other ADB support for the infrastructures including the development of transport and water sectors. ADB will work with the Government and development partners to improve the structural, legal and regulatory framework needed to attract private sector funding in the sector. Development partners, including the European Bank for Reconstruction and Development (EBRD), European Investment Bank, European Union, the German development cooperation through KfW, the United States Agency for International Development (USAID), the World Bank, and the European Union, recognize Georgia s vast renewable energy potential and the country s prospect to become a regional power trading hub that capitalizes on the unique geographic location. Substantial progress in the sector reforms and strong improvements in the efficiency of power sector operations were achieved in recent years. This has generated strong commitment among the donor community to continue supporting the sector through project finance, institutional reforms and capacity building.

Impact

Expanded power trade in the Caucasus region.

Project Outcome

Description of Outcome

Reliable, stable, and efficient power operating system in GEO meets increasing power demand export and transit.

Progress Towards Outcome

No progress yet. The first turnkey contract (Khorgra) was awarded in July 2014. Contractors commenced its services in September 2014. The bids for the remaining turnkey contract is still under evaluation.

Implementation Progress

Description of Project Outputs

1. Substations rehabilitated and improvement fully implemented. 2. New Khorga 220/110 kV Substation commissioned. 3. A potential hydropower project (HPP) identified. 4. Project managed on time and within budget

Status of Operation/Construction or Implementation Progress

1. In June 2013, ADB approved the minor change in scope (in lieu of the rehabilitation of 11 existing substations) as requested by GSE for the rehabilitation and improvement works in three substations: (i) rehabilitation of 500 kV Ksani substation, (ii) rehabilitation and expansion of 500/200/10 kV Marneuli substation, and (iii) additional transformer at Menji substation which are among the priorities of GSE's Strategic Development 2012-2020. The bids for this turnkey contract is still under evaluation. 2. Contract was awarded in July 2014, and contractors started services in Sept 2014. 3. Consultant recruitment planned for 2015. 4. Project management and construction supervision team recruited, and commenced their services in Sept 2014.

Safeguard Categories

Environment: B
Involuntary Resettlement: B
Indigenous Peoples: C

Summary of Environmental and Social Aspects

Environmental Aspect
The project does not seem to involve major environmental issues that cannot be mitigated. Necessary due diligence was undertaken during PPTA.

Involuntary Resettlement
The project does not seem to involve major social issues that cannot be mitigated. Necessary due diligence was undertaken during PPTA.

Indigenous Peoples
No impacts on indigenous peoples are envisaged so far.

Stakeholder Participation and Consultation

During Project Design
Stakeholders' consultations through community meetings, discussions, and interviews were conducted during the PPTA. Potential initial stakeholders are general households, business community, and public and social institutions.

During Project Implementation
Consultation meetings with affected people and project stakeholders are being done.



Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

Project Data Sheets (PDS)

Translated PDS

Timetable

Concept Clearance
06 Jul 2010

Fact-finding
25 Apr 2011 to 06 May 2011

Management Review Meeting
21 Jun 2011

Approval
17 Dec 2012

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