Amidst pervasive corruption, high drama, and hot …siteresources.worldbank.org/EXTENERGY2/Resources/4114199... · The result in either case, is that Russia is able to use this monopoly

Amidst pervasive corruption, high drama, and hot tempers, an American power company tries to keep the lights on in the former Soviet Republic of Georgia.

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Synopsis

In an environment of pervasive corruption, assassination, and

street rioting, the story of chaotic post-Soviet transition is told through

culture clash, electricity disconnections and blackouts.

AES Corp., the massive American “global power company,” has

purchased the privatized electricity distribution company in Tbilisi,

capital of the former Soviet Republic of Georgia. AES manager Piers

Lewis must now train the formerly communist populace that, in this

new world, customers pay for their electricity. The Georgians

meanwhile, from pensioners to the Energy Minister, devise ever more

clever ways to get it free.

Amidst hot tempers and high drama, Lewis balances his love for

the Georgian people with the hardships his company creates for them,

as they struggle to build a nation from the rubble of Soviet collapse.


Power Trip Awards

Berlin Film Festival – International Forum, February, 2003:

The Berliner Zeitung Reader's Jury Prize (2,500 Euros), and

A Special Mention by the International Confederation of Art Cinemas

The Florida Film Festival, Orlando, March 2003: Grand Jury Award for Best Documentary Feature Hot Docs, Canadian International Documentary Festival, Toronto, May 2003: Best International Documentary Feature

Transparency International Film Festival, Seoul, May 2003: Best Documentary (1,000 Euros) Port Townsend Film Festival, Washington, October 2003: Grand Jury Award for Best Documentary Red Bank International Film Festival, New Jersey, October 2003: Best Documentary 2003 Freiburg Okomedia Environmental Film Festival, Germany "Golden Lynx" - First Prize for Best Journalistic Achievement 2003 Ecomove Film Festival, Berlin, Germany

Grand Prix Award – Best Documentary (Awards continued)


2003 Berlin Film Festival, International Forum The Berliner Zeitung Reader's Jury Prize Granted by Berlin's daily newspaper, the 9-member jury screened all of the 52 films from 24 countries chosen by the International Forum of the Berlin Film Festival. In awarding their prize to Paul Devlin's "POWER TRIP", the jury made this statement: "POWER TRIP is a film full of energy, about energy and about what happens when there is a lack of energy, or when it doesn't flow. It's also a film about the reason why supplying energy to Georgia (a former Soviet Republic) is proving so difficult to do. The film distinguishes itself through its dense illustration of the circumstances and complications and through its privileged yet critical insight into the structures and difficulties of a global, profit-oriented company - despite the seeming impenetrability of the complex connections. "Power" is a word with several meanings in English. The unbelievable ingenuity of the residents of the capital of Tbilisi in dealing with daily life and bureaucracy is depicted in an accurate and, ultimately, tragicomic manner." A cash prize of 2,500 Euros accompanies the Berliner Zeitung Reader's Jury Prize. 2003 Berlin Film Festival, International Forum A Special Mention by the International Confederation of Art Cinemas "Based on the incalculable availability of electricity in the Georgian capital of Tbilisi, Paul Devlin forcefully reveals how fragile (and marketable) commodities no longer considered a luxury have become in times of political and economic upheaval." This award seeks to bring attention to non-mainstream films that the confederation believes merit release in Art House Cinema.


Background Notes

• How did AES get to Georgia? AES was founded in the USA in 1981 by two former members of the Department of Energy, Roger Sant and Dennis Bakke (the CEO in Power Trip). The founders aimed to change the world by bringing competition to a previously staid sector – electricity – and by building a company organized around a core set of values and a de-centralized system of management. Their phenomenal growth with such an unusual management philosophy created buzz in the business world (http://www.businessweek.com/1999/99_50/b3659121.htm) and by the early 1990s, AES was investing worldwide, and most notably in regions where others feared to tread. In the meantime, Piers Lewis was working out of San Francisco for a consulting company. He was sent to the former Soviet Republic of Georgia to work with the Georgian govenrment on a pilot project to determine if the vicious cycle of "no payment - no electricity supply" could be broken by implementing a transparent accounting/billing system, remetering, disconnections for non-payment, and improved electricity supply. The project was a success and Piers took this information to Mike Scholey of AES, who had already visited Georgia on a new-investment fact finding tour for the company. In 1998, Merrill Lynch won a mandate to advise the Georgian government on the privatization of Telasi, the electricity distribution company of Tbilisi. They launched a tender, AES ultimately won the bid, Mike Scholey became General Director of AES-Telasi in 1999 and hired Piers Lewis.

• How did Georgia get to be such a mess? According to classical legend, Jason and the Argonauts came to Georgia to steal the Golden Fleece -- a greasy goat skin lying in a mountain stream which collected passing particles of gold. Many more recent visitors, including the Persians, Turks and Russians came with no better intentions. In 1921 Georgia was forcibly incorporated into the Soviet Union, where it remained until 1991. When Georgia declared independence from Moscow that year, other republics followed and the Soviet Union dissolved soon thereafter. In Georgia, chaos, secessionist conflicts, and civil war followed independence, only ending when Eduard Shevardnadze returned from Moscow and restored order, though institutional corruption continued. Not surprisingly during this turbulence the power, gas and heat all went out. By the end of it all, payment deteriorated, and citizens desperate for shuki (power) connected themselves to anything that was live (street lights, tram lines, metro, hospitals etc). This in turn overloaded what was left of the system and caused even more failures.


(Background Notes – continued)

• Problems with Russia Eduard Shevardnadze was the Soviet Foreign Minister under Mikhail Gorbachev who oversaw the dissolution of the USSR and the Warsaw Pact. This enabled the reunification of Germany, which is why Shevardnadze is still revered in Germany, and respected in the West. But he remains vilified in Russia, and in Georgia the cold war continues – this time over oil. Georgia is a gateway to the west for the oil and gas rich Caspian states to which Russia would very much like to shut the door. According to some, Russia has been engaging in a systematic effort to gain economic hegemony over its former satellites. In an outtake from Power Trip, Akaki Gogichaishvili, anchor of the Georgia’s version of 60 Minutes, describes how Russia would allow energy debts to accumulate and then demand hand-over of strategic assets as payment. This has resulted in a Russian monopoly of the natural gas supply. Whether or not Russia can be blamed for taking unfair advantage of an impoverished, newly independent nation, or the Georgians should be blamed for simply not paying their bills, is open to interpretation.

The result in either case, is that Russia is able to use this monopoly for political leverage against Georgia: After President Shevardnadze threatened to expel Russian troops from Georgian soil, the Russians shut down the natural gas supply. In winter most of the country’s electricity comes from gas-powered thermal generation plants, so this resulted in complete shut down of AES-Telasi, and much of the country went dark for several days.

• Aftermath Though AES never participated in energy trading, the scandals of Enron rocked the energy world, and subsequently the instability of Latin America weakened AES such that it could no longer support its Georgian operations.

Although we do not want to reveal the end of Power Trip to readers, we will say here that AES put Telasi up for sale, and there was only one buyer – the Russians. UES, a Russia state-owned company, now owns Telasi. Dennis Bakke was squeezed out of AES, but Shevardnadze still clings to power in Georgia. In November 2003, alleged irregularities in Parliamentary elections caused widespread protests in Tbilisi for several weeks. Protesters eventually stormed Parliament and President Shevardnadze was unceremoniouslly rushed out the back of the building. He resigned soon after, on November 23rd, and opposition leaders have now inherited a daunting set of chronic problems.


Production Notes

• Less than an hour after first arriving in the former Soviet Republic of Georgia, director Paul Devlin was robbed by a policeman. Entering the country overland via Turkey, Paul hired a car and driver in the Black Sea coast town of Batumi to take him to Tbilisi. In the hills outside Batumi, two policeman pulled the car over and interrogated Paul. They discovered a Turkish customs form that indicated Paul had US$1600. After a half-hour of haggling, and threats of arrest he handed them the money in his wallet: US$40. They happily sent him on his way with promises of a safe journey. • Piers Lewis, the main character in Power Trip is a University of Michigan classmate of director, Paul Devlin. Piers, who had lived in Tbilisi for years and spoke fluent Georgian, pitched the film to Paul, and provided unusual access to AES-Telasi. At first Paul felt that trying to portray the transition from collapsed communism to capitalism was too monumental a story with too many complicated abstractions to convey in a movie. Until Piers explained that the reason for his shoulder-length hair was that he refused to cut it until the electricity bill collection rate increased from 10% to 50%. Paul realized that Piers’ daily visual reminder to his Georgian co-workers could provide a dramatic structure for the movie – whether or not Piers cut his hair would represent the progress of Georgian electricity reform. After committing to the project, more interesting narrative threads emerged and Paul traveled to Tbilisi 4 more times to shoot, staying 3 to 4 weeks each visit. • Rustavi-2 Broadcasting, the popular independent television station in Tbilisi and Georgian co-producer Valery Odikadze provided production support and archival footage. Valery Odikadze, a producer/cameraman at Rustavi-2 shot the first footage of illegal lines removal with a Hi-8 Camera Paul sent to Tbilisi. A great partnership developed and Valery was able to shoot important material for Power Trip and provide essential historical footage from Rustavi-2 archives. This included archival footage of a rocket propelled grenade assassination attempt on President Shevardnadze, shot by the assassins themselves! The footage was recovered after the assassins’ capture. It was emailed by Valery to Paul. • Director Paul Devlin worked mostly alone with a single Sony TRV-900 mini-DV camera, and 2 microphones – a wireless and shotgun attached to the camera. As a result, much of Paul’s shooting was apparently unnoticed by Georgian authorities. He had a scare one night, while shooting cars passing in blackout darkness, one stopped and four large, threatening men emerged, insisting that he stopped shooting. Fortunately, they turned out to be security forces, protecting foreigners from a rash of violent robberies in the neighborhood. During the blackout riots, the most frightening moments came when crowds of frenzied children, attracted by the camera, began pulling at it and Paul.


Paul Devlin

Producer / Director / Editor

Paul Devlin is the filmmaker of Power Trip, which tells the story of chaotic

post-Soviet transition in Tbilisi, Republic of Georgia, through culture clash,

electricity disconnections and blackouts. Power Trip has won top award at film

festivals in Berlin, Florida, and Hot Docs in Toronto and is being sold worldwide by

Films Transit, International (www.powertrip-themovie.com).

Paul Devlin is also the filmmaker of the award-winning film SlamNation,

distributed nationally in theaters by The Cinema Guild and recently cablecast on

HBO/Cinemax and Encore/Starz (www.slamnation.com). His fiction film, The Eyes

of St. Anthony, is distributed by Tapestry International.

As a freelance video editor, Mr. Devlin has been awarded four Emmys for his

work with NBC at the Olympic Games and with CBS at the Tour de France. His

extensive credits as an editor include commercials, music videos, weekly television

shows and sports television including the Super Bowl, World Cup Soccer, and

NCAA Basketball Championships, among others.

Paul Devlin is also the Producing Editor (or Preditor) on Freestyle: The Art

of Rhyme, winner of a Special Jury Award for Documentary Filmmaking at the

2002 Florida Film Festival.


Paul Devlin – Producer / Director Filmography

Power Trip (2003) – Producer/Director/Editor Feature nonfiction narrative about an American company trying to solve the energy crisis in Tbilisi, capital of the former Soviet Republic of Georgia, amidst street riots, mafia corruption, political assassination, and US troops in search of Al-Quaeda terrorists.

Freestyle: The Art of Rhyme (2002) – Producing Editor (Preditor) Documentary on rappers who can improvise their rhymes, exploring the roots, community and spiritual values, as well as the competitive edge of contemporary hip hop. Winner of several festival awards, including a Special Jury Award for Documentary Filmmaking at the 2002 Florida Film Festival

SlamNation (1998) – Producer/Director/Editor Award-winning feature length nonfiction narrative film on the 1996 National Poetry Slam. Opened theatrically in New York City at Film Forum, NYC summer ’98. Distributed nationally in theaters, video, and HBO/Cinemax & Starz/Encore. (www.slamnation.com)

Slammin’ (1995) – Producer/Director/Editor Television pilot, presenting a Nuyorican Poets Cafe semi-final slam as a sporting event. Broadcast in several PBS markets including New York's Reel New York & Chicago's Image Union. Nominated for 2 New York Emmy Awards.

The Eyes of St. Anthony (1992) – Producer/Director/Editor Fiction film, winner of several film festival awards and distributed internationally by Tapestry International.

EDITING

The Tour De France – CBS Sports, 2001-2003 - 2 EMMY AWARDS The NFL Today (preview show on CBS) – 1998-Present

The Road to the Final Four (NCAA Basketball Tournament) – CBS Sports, 1999-Present Super Bowl – CBS Sports, Tampa Bay, Florida, 2001 Sports Feature & Promo Editor – NBC Sports, 1996-2000 Soccer World Cup, Paris - ABC / ESPN / ESPN2, 1998 Winter Olympic Games, Nagano, Japan - CBS Sports, 1998 (Feature Editor) Summer Olympic Games, Atlanta - NBC Sports, 1996 - EMMY AWARD Summer Olympic Games, Barcelona - NBC Sports, 1992 - EMMY AWARD

Also numerous music videos (Elvis Costello, Cyndi Lauper, Kenny G.), TV series and commercials.


Film Credits & Information

Paul Devlin: director, producer, editor, camera Valery Odikadze: co-producer, camera Claire Missanelli: co-producer Vince Sherry: consulting producer Tom Reilly: post-production producer

Audio post-production: Benny Mouthon

Matt Haasch, Caterini Studios Pat Donahue

Additional editing: Neil Gegna Valery Odikadze Walter Schlomann Darryl Thurston

Assistant editors: Luciana Fernandes Marie-Paule Jiccio Karine Baczynski Mininder Saini Bill Charlton

Appearing in order: Piers Lewis

Akaki Gogichaishvili Leeka Basilaia Michael Scholey

Running time : 85 minutes Aspect ratio: 1:1.33 Formats: 35mm and DigiBeta Year of production : 2003 English and Georgian with English subtitles www.powertrip-themovie.com International Sales Agent: Films Transit International

514 844-3358, [email protected]


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(Docu) A Paul Devlin production. (International sales: Films Transit Intl., Montreal.) Produced by Paul Devlin. Co-producers, Valery Odikadze, Claire Missanelli. Directed, edited by Paul Devlin. By DAVID STRATTON A first-rate documentary which impresses on a number of levels, "Power Trip" provides unique insights into the role played by a major American company in an impoverished, corrupt, almost Third World country, Georgia. Made with deft evenhandedness, Paul Devlin's accomplished film plays almost like a fictional drama, containing suspense, comedy and some colorful characters. In some territories, theatrical release could prove successful, while television slotting is a must as well as further fest exposure. In 1999, AES Corp., headquartered in Arlington, Va., and which is the largest owner of power in the world, spent $35 million to acquire Telasi, Georgia's electricity distribution company, which was formerly nationalized. The Americans couldn't have predicted what they were in for; Georgia, the former Soviet republic, located in the unstable Caucasus region, is almost a basket case. In the years since the fall of the Soviet Union, the country, led by President Edward Shevardnadze, has staggered from one crisis to another, including civil war. Devlin tells his story from the POV of British-born Piers Lewis, who has lived in Georgia for six years, speaks the language, and, at the start of the film, is strategic project director for AES-Telasi. The first problem the new company faces is that supplies of electricity in the country are a mess, with up to 40% of customers illegally bypassing their meters via homemade wiring. In the Communist era, power was free; now, the user has to pay, and AES-Telasi is determined to improve power supplies and keep shareholders back in America happy. A fortune is spent improving the power lines and metering every customer, but when the company starts sending out bills -- averaging $24 per month, in a city where the average wage is as little as $15 per month -- something's got to give. In effect, the customers simply refuse to pay. And when the company begins to cut off power supplies from bad debtors, public unrest grows.


(Variety continued) While the wily consumers set about finding ways of obtaining illegal power again, AES-Telasi faces more pressing problems from the government itself. Despite the assurances of the president and his Fuel and Energy Minister, government facilities also refuse to pay for their power. In one revealing scene, AES-Telasi decides to cut off power to Tbilisi's airport in order to force payment of a staggering debt. The company is now losing $120,000 per day, and everyone's getting edgy. Devlin depicts the increasing tensions between the visiting Americans and the government and people, and, by implication, the tensions between the AES CEO, Dennis Baake, and his shareholders. Baake, who has signed photographs of Mother Teresa and Bill Clinton on his office wall, seems genuinely dedicated to dragging Georgia into the modern world, but the difficulties he and his staff face seem almost insuperable. Almost as an aside, Devlin depicts the crusading work of a trio of Georgian TV journalists who threaten to expose government corruption; when one of the journalists is gunned down in his home, his funeral brings Tbilisi to a halt, though Shevardnadze refuses to accept that the assassination was political. As the end credits unfold, the viewer is informed that, after filming was completed, an AES-Telasi exec (not seen in the film) was also murdered. Devlin includes interviews with ordinary Georgians, TV commercials for AES-Telasi, Georgian cartoons which mock the Americans' efforts, and newsreel footage which fleshes out the recent history of the troubled country. What makes "Power Trip" unusually interesting is the fact that Devlin refuses to take sides. He clearly sympathizes both with the people of Georgia and the horrendous problems they face when their power supply is shut down, and also with the generally good-natured, hard-working and amiable AES-Telasi employees. There isn't a hint of "ugly American" bashing in the film. Shot on video, "Power Trip" plays out as a dynamic and incident-packed 85 minutes, offering insight into seldom discussed problems concerning the former satellites of the Soviet Union. Camera (color, DV), Devlin, Valery Odikadze; sound, Benny Mouthon, Matt Haasch, Pat Donahue. Reviewed at Berlin Film Festival (Forum), Feb. 14, 2003. Running time: 85 MIN. © 2002 Reed Business Information © 2002 Variety, Inc.


by Steve Schneider

Power Trip Directed by Paul Devlin The more of Paul Devlin's films I see, the more I believe that every documentarian should be forced to work in professional sports before shooting anything of his or her own. A video editor who has generated TV coverage of three Olympics and a Super Bowl, Devlin brought his sportsman's eye to the world of spoken-word poetry in 1998's "SlamNation." In "Power Trip," Devlin applies his kinetic style to a topic with even less inherent visual appeal: the advent of paid electrical power in the former Soviet Union. Since Georgia declared independence in 1991, the film teaches us, its citizens have had a hard time adapting to the idea that electricity must be contracted on an individual basis, not donated by a communist state. In the capital city of Tbilisi, the energy rights are held by AES Corp., a U.S.-based multinational with the atypical mandates to serve the world and "be the most fun workplace ever." There's little visible fun in AES' dealings with the Tbilisi populace, most of whom cannot afford the company's services and resort to stealing it. A whopping 40 percent of customers have an illegal line -- an epidemic represented in the film by tangles of illicit, potentially deadly cords that snake out of windows and across yards. The task of normalization falls to Piers Lewis, an idealistic AES manager who has to ensure customer compliance while battling a corrupt government that dispenses free power to favored industrial applications as political patronage. But Lewis is not the film's main character: It's power (both electrical and political), and there's no better testament to Devlin's filmmaking skill than the ease with which he grants main-player status to something you can't see or hear. Acting as producer, director and editor, as well as operating one of two cameras, Devlin again shows his mastery of sports-TV sensibilities: when to cut, when to bring in music, and when to pan across a static subject to imply movement. The gradual nature of social progress doesn't always suit his game-time storytelling structure, nor does it grant him the kind of sweeping denouement a Sunday-afternoon armchair habitué might expect. But if you're looking to be reminded how much excitement any filmed conflict can and should entail, "Power Trip" is a big event indeed.


Power Trip May 08, 2003 By Joe Mader A Paul Devlin Production SAN FRANCISCO -- Paul Devlin's wonderful documentary, shown as part of the 46th San Francisco International Film Festival, examines the tribulations of the former Soviet republic of Georgia's newly private (since 1999) power company, AES-Telasi. In the process, he illuminates a whole country. "Power Trip" may have difficulty finding an American audience (it has no domestic distributor yet), but with the right marketing, this film could entrance documentary film aficionados. It's also a natural for PBS. Devlin lucidly packs an extraordinary amount of information into the film's 85 minutes, weaving a compelling and passionate tale out of the chaos of a country rebuilding itself. Piers Lewis, Devlin's college buddy and regional manager at AES-Telasi, tries to up the collection rate on electricity bills from a paltry 10% to a more acceptable 50%. Georgians, used to subsidized utilities under the Soviets, now resort to stealing electricity any way they can. Flimsy, self-installed wires snake all over the capital city of Tbilisi. Meters are routinely vandalized. Power-pilferers are often electrocuted making connections they shouldn't. (The average monthly power bill is $25; the average monthly salary ranges from $15-$45.) And payments are no guarantee that customers will receive power: Widespread corruption leads to current being diverted from AES to more favored institutions and corporations. Like Lewis and Devlin, you begin to fall in love with the Georgians, their cynicism, humor, determination to survive, corruptions both charmingly petty and alarmingly criminal and love for their country. It comes as a shock when Devlin relates the devastating violence Georgians have lived under for the past dozen years since their independence: civil war and unrest, assassinations both attempted and accomplished and cold winters with intermittent power. Devlin also introduces us to people at all levels of Georgian society, including the charismatic AES-Telasi general director Michael Scholey, a Brit with an unruly eyebrow, and investigative journalist Leeka Basilaia, who earnestly endeavors to unearth Ministerial misdeeds despite danger to her personal safety. Devlin portrays the torturous progress in rebuilding and reforming a country, encapsulating both hope and despair in this enlightening film.


DOCUMENTARY DAYS:

Power Trip Oct. 31 - Nov. 6, 2003 By David Chute In the early 1990s, the American-owned “global power company,” Applied Energy Services Inc. bought the newly privatized state power company of the former Soviet Republic of Georgia. Which may seem an odd premise for a gripping film, until you meet the idealistic techies who are in over their heads in the capital city of Tbilisi, trying to explain to furious citizens accustomed to unlimited free power that they will now have to pay for it. As corrupt politicians siphon off energy for their relatives, residential customers weave sparking rat’s nests of wires to steal a feed, and the company hemorrhages a steady $120,000 per day. The triumph of filmmaker Paul Devlin (SlamNation) is in finding a narrative through-line that clarifies this horrendously complicated situation without oversimplifying its issues. AES claims to stand for more than maximizing the bottom line; it wants to “give something back” by helping to restore the city’s infrastructure. The people on the ground make us believe it. The star of the show is AES project manager Piers Lewis, a talkative former non-governmental-organization veteran who was a college chum of Devlin’s. The suspense factor that sets in almost at once is whether the sheer seething chaos will defeat Lewis and his crew of corporate do-gooders. Devlin is not alone in believing that, in the modern world, the power supply is the basis of civilization. He’s managed to turn the notion into a real-life thriller, with a lot more at stake than a stock price or a few careers.

Energy Forum 2004:Privatizing Power in Georgia

Jonathan Walters, World Bank

Political Economy

Energy security = national securityShevardnadze: “If the lights go out, I go out.”Post-independence Georgia is patchwork of fiefdoms (some with separatist tendencies)Geopolitical competition“Mafia” and politics are intertwinedSummer electricity relies on Inguri hydro (geopolitics of Abkhazia)Winter electricity relies on Gardabani thermal plant plus imports (geopolitics of fuel and electricity imports)

Macroeconomic Context

Economic collapse at independence in 1991Non-payments for electricity keep economy and society afloat/energy sector rents keep mafia afloat Abkhazia gets free electricity in return for Inguri hydro operating (financial hemorrhage)~5% of GDP p.a. quasi-fiscal subsidy through power sector (~$ 200 million p.a.)

So What Happened?1991-94: $ 600 million power sector arrears to Turkmenistan for gas (IMF program turns this into scheduled Govt. debt)By 1998: another $ 500 million arrears for fuel oil, electricity and Russian gas imports (creditworthiness then exhausted)No maintenance, cannibalization of system reaches limitsEnd-1998: privatization of Telasi distco, followed by Gardabani genco (both to AES)AES now the “creditworthy” importer of electricity and fuel for Georgia (this brings relative energy security and helps depoliticize imports)

What was Privatization?

Transfer of formal ownership from State to AESTransfer of control of power sector from State/mafia to AESTransfer of anti-corruption responsibility from State to AESTransfer of huge quasi-fiscal subsidy function from State to AES Imposition of regional subsidy policy by State on AES/Tbilisi (funding power to rest of Georgia)

Lessons Learnt from Georgia

Limited relevance of standard pre-privatization reforms in such macroeconomic and political chaosA roadmap for subsidies is needed from the outset of privatizationA private sector with a very difficult task was better than a weak, corrupt State

Privatizing power distribution in Georgia

Government Perspective

Irma KavtaradzeFormer deputy minister of State Property

Management of GeorgiaEmail: [email protected]

Description of the privatization process

• Soviet legacy• Sakenergo restructuring• Decision on privatization

adopted• Privatization Strategy

adopted• World bank assistance• Investment Advisor

selected• Tender conditions

elaborated

• Information memorandum prepared

• Tender announced• Tender conducted,

Government Tender Commission decision announced

• Negotiations• Contract signed• “Completion”• Investor

Investment climate in 1998 (when Telasi was privatized)

• Modern Electricity Law elaborated with the assistance of the international experts and adopted in June 1997;

• Independent regulator (Georgian National Energy Regulatory Commission (GNERC)) created (in 1996-under the MoEc, in 1997 –independent commission), GNERC members appointed in August 8, 1997, charter and internal regulations adopted in October 97, tariff setting rules and conditions adopted;

• Tariff increased before the tender to get closer to the real;• Judicial reform conducted;• GWEM (Georgian Wholesale Electricity Market) established (1998-

99);• Privatization Law amended within couple of weeks from the request of

AES;

Privatization Conditions

• Cash• Investments• Assumed (and excluded)

liabilities• Power supply

• Protection from expropriation;• Protection from the change of

law;• Support in Legal Actions;• Transition period for 5 years for

compliance;• Currency conversion;• Repatriation of money;• International Arbitration;• Debt rescheduling for 99 years

(Sakenergo loan Note);• Power purchase incentives;• Tariff principles.

Results of privatization

• Improved power supply;• Improved quality of service;• Improved condition of the network;• Improved company (improved condition of assets,

improved performance by the company, improved conditions of work, back salaries paid, increased and regular payment of salaries, company liabilities satisfied, billing and collection system set up, etc.)

• Corruption partially defeated; • Customer habits changed;• Causes and solutions of the problems of the energy system

revealed;

Post privatization, problems

• Continued power shortages, schedules, blackouts;• Problems with the transmission-dispatch and with the GWEM; • Non-payment by the organizations of the vital importance (ministries,

hospitals, etc);• Consumer protests against tariff increase;• Contracts with consumers not signed;• Re-metering not finished;• Corruption in the country (state bodies, energy system, etc) and in the

company (business centers);• Hindering by the influential groups with vested interests and by some

political parties;• Constitutional court decision of December 30, 2002 requested

GNERC to not increase the tariff.

Post-privatization, Possible reasons of problems

• Political – controversies within the government, lack of accountability and fear of the responsibility, eclectic enforcement of reforms in the energy sector caused by the vested interests undermining reforms;

• General economic depression, increased number of poor;• Corruption;• Social

- Soviet mentality of the consumers, assuming the social role of power distribution;- habits of the consumers;- habits of the employees, problems with cash collectors;

Post-privatization, possible reasons of problems, continued

• unsettled structure of the power sector,• soviet mentality – division of the economic, regulatory and policy

functions achieved on the legislative level, but not fully enforced;• deficit of power in the country;• deficit of energy resources, resulting over consumption of the more

expensive power by the poor, no-elasticity of the economy• goals of privatization not clearly defined: privatization, what is this

about? - Simply sale of the assets?/Earning money to cover loop holes in the budget?/Removal of the responsibility from the government and transfer of it to the other?/Restructuring?/Reform of the company/sector/economy?

Lessons learned

• Privatization is the positive step forward improving the economy, improving the wealth of population and improving service to population, but only privatization per se is not a panacea unless its goal is clearly defined and enforced, and unless it is supported by enabling reforms;

• Governments tend to only formally or partially adhere to the reform plans, designed by the international experts, but such plans bring success when they are fully enforced in practice. Attempts to show adherence to such reforms, at the same time undermining those byleaving the loop holes, can worsen the situation.

• For the power distribution, It is difficult to achieve significant improvement of performance of the one distribution company if the rest of the distribution business remains untouched;

Lessons learned, continued

• It is difficult to improve situation in the power distribution, if the transmission, dispatch and generation/power supply is not improved, and if the delivered/consumed electricity is not metered/properly accounted for;

• It is not possible to improve situation in/for one company if the business environment is not improved;

• Reforms in the energy sector are linked with the political, social, economic situation of the country and with the level of corruption. In order to achieve desired level of success, energy sector reforms must be accompanied with the reforms in other spheres.

Recommendations

• Governments must understand, that privatization is the means of the economic reforms, which must bring long-term results, and not the one time solution for curing the budget deficits. Also, privatization is not the means to remove responsibility from the shoulders of governments, rather, this is a way to improve the situation in the sector;

• In the countries of transition from socialistic, planned economy, identification and delineation of the assets must be conducted prior to conducting the privatization, in order to have functioning distribution network;

Recommendations

• Privatization is only the part of the process, which includes pre-privatization and post-privatization phases. Success and sustainability of the privatization significantly depends on “pre-” and “post-” phases.

• Privatization of the distribution sector must be considered as a significant part of the energy sector reforms, but not as the single solution of the problems. Hence, it must be accompanied with the reforms in the rest of the energy sector and reforms in the relevant sectors of economy by division of functions between the government and the investor, where both are members of the same team thus sharing the successes and failures of each other;

What happened to AES in Georgia and where do we go from here?

Mike ScholeyThe AES Corporation

World Bank Energy Week

Washington DCMarch 2004

Strictly Confidential 25/13/2005

The rise and fall of global power

Privatization of Ekibastuz & Almaty

Privatization of Telasi

Privatization of Gardabani etc

Privatization of Altai & Karaganda

Privatization of Moldovan distcos

Privatization of Ukraine distcos

Enron collapses

AES leaves Georgia

Int Power leaves Kazakhstan

Tractabel leaves Kazakhstan

Argentina collapses

Problems in California


After the boom and the bust

• Industry rationalization - company strategies and financial profiles have become better aligned with the reality of the business landscape

• Capital markets are more skeptical• Growth through development has been replaced by growth through acquisitions:

development seen as too difficult; distressed assets seen as better opportunities

• Trading and marketing are no longer viewed as core businesses; marketing capability maintained solely for the sale of power from owned assets

• Vertical integration is preferable to full unbundling

• Significant need for new power in emerging markets, but:– Countries have to compete among themselves to attract capital– Few privatizations going forward in the short term

– Distribution is seen as less attractive than generation

• Cogeneration and renewables supported by public policy may be attractive

• Development on the basis of power contracts with creditworthy counterparties is back in vogue


AES chronology in Georgia

1997/8

1999

2000/1

2002

2003/4

• Initial fact finding visits in 1997 • Due diligence leading to bid submission in October 1998• SPA signed in late December 1998

• Takeover in January 1999• Blur of fire fighting, infrastructure and capability building• Generation privatization with SPA signed in late December 1999

• AES CEO Dennis Bakke resigns• Nik Lominadze shot, many expats and families evacuated• AES decides to leave Georgia

• Paul Devlin begins filming Power Trip• Heavy capital expenditure on re-metering and network upgrades• Problems with Russia

• Business sold to RAO UES – the only serious bidder• Telasi collections collapse• BTC moves ahead; Shevardnadze resigns in the “rose revolution”


Preparation for privatization

• Well organized, resulting in clear rights and obligations and an appropriate allocation of risk

• A ten-year formulaic tariff was included in the SPA

Privatization process

• Created against the wishes of AES • Prevented the pull-push interplay of generators and

distributors in resolving Tbilisi’s supply problems

Creation and operation of GWEM (Georgian Wholesale Electricity Market)

• Well set-up and funded but low competence level• Personal interests played significant part in GNERC’s

decision making • Many concepts adopted by GNERC were inappropriate for

Georgia’s stage of development

Creation and operation of GNERC (Georgian National Energy Regulatory Commission)

• The electricity law was good, but often abused • Unbundling created basic transparency in the make up of

the end-user tariff• Impossible to define where responsibility lay

Unbundling and structural reform of the sector

CommentsScoreAssessment Area

Excellent Good Fair PoorScoring legend


The way it was supposed to work

Introduce billing, accounting & information systems with

tools for analyzing and finding losses

Reinforce the network, improving reliability, safety

and power quality

Pay in full for power, thereby attracting more power to

Tbilisi, albeit at the expense of other regions

Improve the level of service in Tbilisi and hence customer

satisfaction and willingness to pay

Power demand would initially increase, but then fall back to

pre-privatization levels, but with full service

Tbilisi’s power problems are

resolved

Investor makes an adequate return

Privatization viewed as a success by stakeholders: it

becomes sustainable

Generation in Georgia has some

value

Re-meter every customer, feeder and TP and provide

secure disconnection ability

Improve the quality and motivation of the people in

Telasi and reduce the level of internal corruption

Raise collections to an economically sustainable level

Those who paid would get power and the poorest would

benefit from a properly targeted and auditable safety

net


Raising collections - how well did AES do?

• AES raised collections from below 10% to more than 60% of supplies

• Not finishing the re-metering severely weakened AES

Raise collections to economically sustainable levels

• Six hundred people replaced in the first year• Around 50 high potential, highly motivated “MBA” types

hired and trained • Average salaries raised by a factor of three • Overall lack of skills still remained a handicap to progress

Improve the quality, skill levels and motivation of the people in the companies

• Basic billing system installed by the end of 1999• Comprehensive and integrated system by early 2001 • Reliable accounting systems up by mid 2000• By 2002, management information becoming sophisticated

Introduction of billing, accounting and information systems

• Original schedule proved impossible• Costs per customer more than doubled• Only 80% of customers successfully re-metered

Execution of the re-metering program




AES Telasi performance overview

-

500

1,000

1,500

2,000

2,500

3,000

1999 2000 2001 2002

Purchase Billing Collection

* Billing data of very poor quality, probably significantly overstated

* *

GWh


AES Telasi performance in more detail

Telasi Performance January 1999 to Present

0%

20%

40%

60%

80%

100%

120%

Jan-

99 Mar

May Ju

l

Sep

Nov

Jan-

00 Mar

May Ju

l

Sep

Nov

Jan-

01 Mar

May Ju

l

Sep

Nov

Jan-

02 Mar

May Ju

l

Sep

Nov

Jan-

03 Mar

May

Months from January 1999 to Present

Collection to Supplies 12 month rolling Collection to Billings 12 month rollingBilling to Supplies 12 month rolling Residential Remetered Customers

`


Improving power supplies - how well did AES do?

• By 2002 AES delivers significant increases in the hours of power supplied to re-metered customers

• Improvements due to conservation effect and application of severe limitations on non re-metered areas

Improve the quality of service and increase customer’s willingness to pay

• Due to continued shortages in the market, AES forced to intervene and purchase two big, newer generation units

• Reliability improved significantly until the catastrophic failure at one of those units

Improve the amount of power supplied through purchasing generation assets

• AES pumped massive amounts of liquidity into the sector during the first two years

• During times of shortage Tbilisi only ever received 35-40% of the power on the system

Pay in full for power to attract more power to Tbilisi

• Reliability improved and time to repair faults reduced to less than 24 hours

• Incidence of public and Telasi fatalities significantly reduced

Improve safety, reliability and power quality within the network




EBRD/ IFC US$60M

Opex & interest US$82m

$

State US$69m

AES Corp US$194m

$

$ $

$

Customers US$135m

CapexUS$96m

$$ $$

$

Power sector US$157m

The cashflow

Money in Money out

USAID US$15m $$

$

$

$


The final assessment

• Telasi was the lynchpin in the sector, but not all donors rallied around this objective

• AES ended up fighting too many battles

Donor coordination

• Completely dysfunctional• Impossible to maintain any alignment of interests behind the

AES plan• Enormous interference caused AES to lose time with re-

metering, etc.

The performance of the Georgian State

• AES lost 90% by value of its investment in Georgia.• “Working capital” requirements too high to be borne by the

private sector• Accounting losses from Georgia became problematic for

AES

Investment performance

• By the end of AES tenure, Telasi nearly breaking even on cashflow

• Fatal flaw - failure to complete re-metering• Collections at Telasi have deteriorated significantly in the

past six months

Making Telasi economically sustainable




The takeaway

Private operators

– The private sector will always do a better job than the state sector in raising collections, given the right incentive structure and enough ownership

– But funding remains a problem -- who will do it?

– If I were there now, I would push for control of the transmission system, exactly as UES is doing

– No credit should be extended to new government until some major reforms instituted

– Georgia is the tip of the iceberg: non-payment and low tariffs have depleted infrastructure across the region

– Payment rate is more important than the tariff

– Bilateral contract markets work best when payment rates are low

– Investment in distribution and loss reduction usually reduces demand, often removing the perceived deficit in generation

– Emerging market conundrum: high levels of private sector equity creates high tariffs for customers

Georgia

Structural reform

Supporting slides & charts


Value destruction in emerging markets

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1992 1994 1996 1998 2000 2002

Ratio

Asia Pacific GenerationAsia Pacific DistributionLatin American GenerationLatin American Distribution

A comparison of purchase prices to resale prices

Chart from CERA

Documents

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