Critics call out financial and social costs of Georgia hydro dam

For much of their existence, 17 mountain villages in Georgia that border neighbouring Russia – located in an area known as the Upper Svaneti – have been under constant threat from man and nature. For centuries, invading armies and environmental disasters like avalanches, flash floods and landslides have bedevilled the Svan people. And yet, it is humanity’s attempt to harness the power of nature – the Nenskra Hydropower Plant (HPP) – that some Svan people believe could ultimately erase them.

“These mountain rivers are very unpredictable,” says long-time Upper Svaneti resident Merab Khergiani. “The government has only abstract ideas of the nature here. We see it with our own eyes.”

For 7,000 years, the Svan people have lived according to ancient tribal traditions in the Caucasus Mountains. In this geologically volatile region, climate change is intensifying the frequency of extreme weather events, according to the United Nations Development Programme (UNDP). Experts warn the power plant will not only further increase the risk of landslides and flooding, but also deprive the Svans of their ancestral lands.

Towering at 130 metres (427 feet) and spread over 700 hectares (1,730 acres), when it is complete, the Nenskra HPP will be the largest dam in Georgia’s history. The government says the project will mitigate Georgia’s reliance on energy imports from neighbouring countries.

“It has significant storage capacity,” David Tvalabeishvili, Georgia’s deputy minister of economy and sustainable development, told Al Jazeera, “and is designed in a way to generate electricity mainly during the winter months when Georgia heavily depends on imported electricity.”

The Svans, however, say authorities left them in the dark. “They absolutely don’t want to look at what is written by scientists and geologists,” said Nargis Niguriani, a local from the town of Mestia who has been protesting hydropower since the 1980s. “They don’t want to listen.”

After leading a number of anti-dam rallies, Nargis Niguriani was quietly dismissed from her municipal job at the Mestia Cultural Centre in 2019. “A number of people have lost their jobs because of the protests. We’ve hired a lawyer to represent us. We feel powerless,” she says.

‘A bankable deal’

In 2015, the Georgian government signed a contract with JSC Nenskra Hydro, a joint venture between Korea Water Resource Corporation and JSC Partnership Fund, to build the 280MW dam at a projected cost of $1bn.

The financial terms of the project have been largely kept under wraps; despite calls for transparency, the government refuses to release the contract.

But a leaked World Bank analysis from 2018, commissioned by Georgia’s Ministry of Finance, provides a rare view into the project’s price tag. It estimated that Nenskra HPP will cost taxpayers $1.9bn in subsidies by the year 2041. The next most expensive project, Namakhvani HPP, will cost only $221m in subsidies over the same period.

As reported by Bankwatch, a Tbilisi-based NGO, the Georgian government committed to pay the developer a total of $90.6m on the first year of electricity generated from the Nenskra HPP, and increase that rate by three percent every year for the next 33 years.

“One of the major criticisms of this project is that it is very expensive,” said Murman Margvelashvili, who founded World Experience for Georgia (WEG), a think-tank dedicated to strengthening Georgia’s energy security.

“The process was not transparent, so we don’t know whether it is a good deal for the country from an economic standpoint,” he continued. “And where there’s a lack of transparency, you can expect private interests, political interests; you can expect anything.”

Further concerns were raised in the International Monetary Fund’s 2017 Fiscal Transparency Evaluation for Georgia. The report singled out Nenskra HPP, warning that the project could pose a severe risk to the country’s fiscal stability, particularly if project revenues fall short.

According to the IMF, the Nenskra power plant is the product of a large power purchase agreement (PPA) that has some unique and risky characteristics.

“The main obligation is the government guarantee for a USD internal rate of return of 12.5 percent on equity investments, which if not paid for could result in the government terminating the contract, at a total cost of $800m,” reads the report.

The IMF report goes on to explain that this exposure is subject to exchange rate risk – and that as is not the case with most other PPAs, the government has also guaranteed against construction and hydrology risks (up to $30m for the former, uncapped for the latter).

A leaked contract dated June 2017 between the government of Georgia and JSC Nenskra Hydro casts further doubt over the project’s financial viability.

Bankwatch ran an analysis of the contract shortly after it was leaked. It found that the government will be locked into paying an electricity tariff that is double the current domestic and import rate for 36 years and triple the export rate, running at a loss of $60m per year.

“We are struggling to understand why the government would sign an agreement that is so blatantly against the national interest,” said Dato Chipashvili, Bankwatch’s national campaigner for Georgia. “It seems their main priority is putting together a bankable deal for investors.”

A case for the Nenskra Hydropower Plant

Minister Tvalabeishvili maintains the project is a key part of his country’s long-term energy independence strategy. “Nenskra HPP is a vital project for Georgia,” he says.

According to a report by the International Finance Corporation, Georgia has an energy supply gap. In the summer months, the country’s generators produce more energy than the country demands. In the winter, Georgia cannot supply all the energy the country needs. It makes up for the shortfall by importing electricity.

Currently, Russia supplies 9.8 percent of Georgia’s wintertime electricity. This creates a significant political and strategic risk for Georgia, particularly in light of previous conflicts such as the energy crisis of 2006, where Russia sabotaged a natural gas transmission pipeline, plunging Georgia into darkness for almost two weeks.

According to energy researcher Murman Margvelashvili, “These developments have indicated a serious need for strengthening Georgia’s energy security and urged the actions for diversifying energy supply sources.”

Protecting a 7,000-year-old culture

“We love our place and do not want to be forced to leave,” says Lile Chkhetiani, a teacher in Chuberi, a small village located just 10km (6 miles) downstream from the Nenskra dam site.

Lile is among a group of activists fighting to get the Svan people officially recognised as an Indigenous population, a feat that could strengthen their case against the dam.

“The Svan people have their own language, they have their own culture and customs, their own holidays,” says Shivcharn S Dhillion, a professor of human ecology and managing director of Enviso, an environmental and social impact consulting firm that specialises in hydropower. He analysed the nearby Khudoni HPP in 2012, finding the government neglected to assess its potentially damaging effect on the region’s biodiversity, as well as the Svan people’s cultural heritage and traditional livelihoods.

“The Georgian government doesn’t want to recognise the Svan people as an ethnic minority because they will have to give them special favours,” he continued.

These “special favours” would include the transfer of land rights and increased safeguards to protect the Svan population. And the government’s controversial “eminent domain” legislation (the right to seize private property without consent) would likely be vetoed, making it harder to gain approval for large scale developments like Nenskra HPP.

Dhillion says that environmental impact assessments in Georgia are typically “very weak”.

In 2018, Bankwatch lodged complaints with the European Investment Bank (EIB), the European Bank for Reconstruction and Development and the Asian Development Bank. Bankwatch requested that they uphold the Indigenous peoples’ standards set in their own charters.

In May 2020, the EIB’s complaint mechanism responded with a conclusions report. It stated that the EIB, which committed $150m to Nenskra HPP, failed to properly assess whether the Svans qualify as an Indigenous population. It also recommended commissioning a qualified social scientist to reassess this matter.

But it is, of course, just a recommendation, and at this stage, it is unclear what course of action the EIB will take. And with the government still fully committed to the project, it looks as though the Svans’ plight still hangs in the balance.

“I think people are afraid, really,” says Dhillion. “I would use the word afraid. And it has impacts on the social fabric of a community.”

That is why Nargis promises to keep fighting. “I won’t sit back and watch a 7,000-year-old culture go underwater,” she says.

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