Georgian utility rises to the challenge


Until about 1990 there was only one vertically integrated (generation, transmission, and distribution) electricity utility in the Soviet Georgia, known as Sakenergo. By and large it was adequately, even well, run. 

After the collapse of the Soviet empire Sakenergo, the one vertically integrated electricity utility, was separated into about 60 local distribution companies, a transmission licensee, and several generation licensees. The three biggest distribution licensees are Adjara, Tbilisi, and Khaheti; the remaining 57 were very small and legally independent. Some of the generation licensees are private, while others are still state controlled.

The United Energy Distribution Company is a rural electricity utility serving small villages, inhabited by poor payers, at high altitudes. The ‘cost to serve’ is high, and unaffordable by many.

Georgia is rich in hydropower most of the year, but depends heavily on imports of electricity from Russia and Armenia in the winter. Neighbouring Azerbaijan is not able to sell electricity to Georgia because of the shortages it experiences, while neighbouring Turkey will not sell electricity to Georgia.

In two stages several years apart the small licensees were consolidated by the government into eight regional companies, and then into one United Energy Distribution Company. The UEDC now consists of about 680,000 registered customers (actual estimate is about 800,000). The average daily load is about 5,000 MWh. The UEDC is a winter peaking utility (about 250 MW hourly peak demand in the winter) and an evening peaking utility (about 250 MW in winter and 220 MW in summer). The load is severely limited by graphics; feeders, villages and cities are disconnected from time to time throughout the day to limit consumption and demand. The retail and commercial tariff is about US$0.04 per kWh.

The installed capacity of the country is about 2,425 MW, and on any given day 50% to 65% of the generation capacity is not available at all. The generators have fallen into disrepair, as have transmission and distribution assets.

The UEDC is a distribution company with only 10, 6, and 0.4 kV lines. Only 12 of the 275 substations in Georgia belong to and are controlled by the UEDC. All switching operations on the 10 and 6 kV feeders are controlled from the circuit breakers and the switchgear in the substations of the transmission licensee (which UEDC cannot control at all). Furthermore, there are no current interrupting devices along the 10 and 6 kV feeders, which make it very difficult – if not impossible – for the UEDC to control its load.

The tough controls of the Soviet system are gone, but those of a new democracy have not taken root yet, even 14 years later. Two civil wars (Abkazia and South Ossetia) have taken their toll on the power sector. The small distribution companies were essentially the personal kingdoms (and revenue producers and patronage providers) of local government officials. Many of the power system assets were sold off to friends. Items classified as redundant (lines, transformers, poles, substations, etc.) were stolen and sold. No one notices when ‘redundancy’ is stolen; it is only when the primary facility is stolen and the village goes dark (which still happens) that people notice and report the theft.

About 100 million kWh of energy is sent to the 57 branches each month, worth (billed) about US$4 million. Only 8-10% of the money makes it back to the central office; the rest is stolen by lower level employees, with protection from some government officials.

Top level government recognised the problem early in 2003, and brought in consultants to manage the company until an investor could be found. The consultants have purged the headquarters’ operation, have severely but not completely eliminated the branches’ corruption, installed a new regional layer of younger and honest employees, a new billing system, operational policies and procedures, and more. The work to control the branches continues.

Today UEDC’s credibility is slowly being established. Employee salaries are paid on time, a modest salary increase has been implemented, all current taxes to the government have been paid in full and on time, and a significantly large bank loan is close to being paid off. The challenge now is to increase collections so that power purchase bills can be paid, and so that maintenance can resume. New capital investment is some months or years away, and depends upon the donor community (the World Bank, European Bank for Reconstruction and Development, United States Agency for International Development, and KfW Germany, etc).

Retrenchments have seen staff numbers reduce from 6,600 to 4,200 employees, and efforts are underway to reduce this number still further to about 3,200 employees. The work force consists mostly of older people who have difficulty coming to terms with managing the challenges facing the energy sector.

Though the intention of the government is to privatise the UEDC, this is unlikely to happen in the near future. The climate for international investors is not good – the economy is not growing, and Georgia has yet to figure out its position in the new post-Soviet world order (extractive technologies? service economy? manufacturing? banking? tourism?) All this, coupled with too many people in the country for the level of the economy, makes operating and saving the electricity utility a challenging task.

Nevertheless there is hope. The people voted for a new government, which is prosecuting white-collar criminals (including those in the power sector) and showing that it means to operate a transparent Georgia.