Saturday, June 13, 2009

Georgia, AES and Energy Development Programs

The BBC has an interesting TV program called Storyville which covers unusual or rare reports on issues that otherwise are not covered in great detail. Today I happened to tune in to the report on electricity supply in Georgia.

In 1999 the American firm AES won the tender to purchase the electrical distribution system in Georgia. This is not the same as buying the generation capacity which is owned separately and AES needs to pay for the power supplied to it. Thus, the payments by users, billed by AES, is critical to a viable and profitable operation. There is the rub. It is demonstrably not profitable and therefore not sustainable.

Development agencies such as USAID and EU programs have always emphasised the privatization of electrical distribution systems despite the fact that there has been no evidence that privatization, even through open bidding by seemingly knowledgeable private sector companies, would result in sustainable commercial companies. Tbilisi residents never had the money to pay the bills - especially the pensioners. With incomes around $30 - $50 per month the objective was to avoid the metering system (provided free, thank you very much) which could take as much as 50% of that income. AES would cut the power for non-payers, leaving many without light or television. AES, of course, needed to pay for the electricity it received, but considering the black hole of corruption in Georgia, the money it paid to those in charge of supply would disappear into the pockets of the energy ministry or other highly placed officials.

This is only one example. Armenia attempted the same with its distribution system - it did not work. The private sector built generation and distribution system in southern Tajikistan in Khorog fulfills the definition of bankrupt. In Khorog, the director of the facility was physically threatened when power was cut to homes. (Since I dealt with the firm which was owned by my employer at the time, it will go nameless).

There is the persistent idea that privatization of energy production, distribution or both in poverty rich nations like Armenia, Georgia and Tajikistan, is the optimum solution. It has not worked and cutting off power to the poor is not an option. A different way forward for energy reform in poor countries needs to be developed. The backlash by ordinary people in Georgia against the US (AES is based in the US)because they live in darkness and can't afford the cost, does not benefit US foreign policy goals. Conversion of formally state run companies providing "free" public services, such as electricity, into for-profit firms needs a re-assessment.

Denying essential services to those who cannot afford to pay is not an option.

1 comment:

Anonymous said...

We had a similar program air on PBS yesterday (US... possibly as part of'Independant Lens' - not sure) though I guess, whether an entirely different show or thru spin or personal interpretation, I felt I was led to a slightly different conclusion.

I think your explanation of circumstances surrounding privatization in said nations is on the mark. No quibbles there.

What I found different from what you describe was that I saw a focus on the experiences of Dennis Bakke and his team, their motives and obstacles. Investors getting zero return and the company losing $190 million (US) annually... having consulted for public companies I can tell you that's an extremely rough situation to be in and a regular cause of good men cracking under pressure. Bakke and his team get a gold star from me for drive and trying to improve the situation with little external help. Bakke was, in fact, ceremoniously invited to join the country's scholarly elite as a result.

I saw two sides to the issue: those that loved AES for their efforts and those that (whether due to circumstances or vice) stole power. The numbers presented led me to believe that 70-80% of collections were successful. However, after those numbers were presented, the appearance of little white transistor boxes likely impacted those numbers (lowering them).

At the closing of the story, a female was quoted in saying something to the affect that AES brought a lot to the country and those efforts are still greatly appreciated. And that she felt the country's future landed squarely in the people's lap now. She stated that she felt up to the challenge.

I guess I disagree with your assessment, "The backlash by ordinary people in Georgia against the US (AES is based in the US)because they live in darkness and can't afford the cost, does not benefit US foreign policy goals." I guess I don't see that backlash or anything supporting it within the show I saw... except perhaps by the ambiguous conjecture offered by poverty, unpaid bills and stolen electricity. I was given the impression that Georgians were much less happy with UES (Russia) and sadden by the forced resignation of Bakke.

That difference noted, I still agree with your industry and morale conclusions. I'm astounded by the impact of more recent years on the world.