Ministry of Regional Development and Infrastructure releases statement

It is unfortunate that in its latest statement, the Anaklia Development Consortium is once again trying to divert public attention from the consortium’s nonfulfillment of its commitments to idle discussions of the special significance of the Anaklia Port, which no one doubts today and which does not constitute a topic of dispute, - it is said in the statement released by the Ministry of Regional Development and Infrastructure of Georgia.

“The importance of the deep water port in Anaklia is certainly clear to everyone, in the first place – to the Government of Georgia, which announced the expression of interest for the construction of the port in 2014 precisely because of the importance of the port, and which provided the investor with unwavering support in the fulfillment of its commitments after the Anaklia Development Consortium was declared the winner in 2016.

Ever since the first day, the Government of Georgia promoted the construction project of the Anaklia deep water port on every international format. It requested support for the project during talks with international partners, potential investors, and international financial institutions. The permanent partners of the Government of Georgia – the international financial institutions – agreed to finance the project precisely as a consequence of these efforts, while the European Union incorporated the deep water port of Anaklia in the trans-European transportation network.

The Government of Georgia provided the Anaklia Development Consortium with unprecedented support when it agreed to the consortium’s demands before the finalization of the investment agreement and assumed additional financial commitments to provide 100 million US dollars in order for the consortium to fill its capital. Within a month of being declared the winner, the Anaklia Development Consortium sought the establishment of different conditions from the expression of interest, i.e., the exclusivity of the deep water port of Anaklia, which means placing a restriction on the development of other deep water ports. The Government of Georgia agreed to assume the commitment for an additional 100 million US dollars precisely in return for the fulfillment of this condition, which was not envisaged during the expression of interest.

The public is already aware that the deadline for obtaining funding for the construction of the first phase of the port was postponed on numerous occasions from 2017 until today, and, according to the latest changes, it was shifted to the end of 2019, instead of August 2017.

Since December 2018, the direct involvement of the government in the negotiations between the banks and the consortium became necessary in order for the Anaklia Development Consortium to obtain loans from international financial institutions. A package of significant changes that needed to be made to the investment agreement was presented. The government once again demonstrated unprecedented levels of support and agreed to practically all of the new conditions, with the exception of insuring the private investors’ commercial risks and fully securing the 400 million dollar loan. The Anaklia Development Consortium was given additional time to conduct final negotiations with the banks – initially, until 1 July 2019, and subsequently, until the end of 2019.

Thus, the deadline for the initiation of the construction of the port was also postponed by two years – from 31 December 2017 to the end of 2018 at first, and subsequently to 31 December 2019.

Against this background, it is unclear which obstacles from the government the Anaklia Development Consortium representatives are referring to, especially since 2017. The only thing that the aforementioned facts confirm is that the consortium began violating the obligations assumed under the investment agreement precisely from the summer of 2017 onwards, and at the same time, rather than terminating the investment agreement and enforcing sanctions, the Government of Georgia embarked on an unprecedented series of making exceptions and shifting deadlines. This is called the support of the government and it is continuing to this day.

Unfortunately, this is not the only case when the public statements of the Anaklia Development Consortium and its individual founders have differed from reality.

This is also confirmed by the fact that despite the Anaklia Development Consortium’s loud statements, whereby the violation of the deadlines for securing the funding would not affect the deadline of construction and the date of the reception of the first vessel, according to the latest schedule provided by the consortium, the conclusion of the port’s construction will be extended to June 2022, instead of 2020, as was envisaged by the agreement.

Furthermore, these deadlines are relevant only if the consortium is successful in securing funding for the construction of the port until the end of 2019, and initiating the construction process in January 2020. This seems difficult to achieve as the Anaklia Development Consortium and its Georgian and foreign founders have not yet offered the international financial institutions an alternative solution for commercial risks and the provision of loans in exchange for state guarantees. And without this, the banks are refusing to issue the 400 million dollar loan to the consortium to this day.

Despite this, the Anaklia Development Consortium does not shy away from making numerous public statements, claiming that it has obtained, in full, the funding necessary for the construction of the first phase of the port.

The consortium also claims that it has obtained the investor’s own capital of 120 million dollars in full, at a time when it is still conducting negotiations with practically all of the potential investors. Moreover, at the beginning of July, one of the potential investors and the port operator presented the state with new conditions for the investment, which entailed the government insuring the investor’s commercial risks, as well as the exclusivity of the Anaklia Port. The investor is demanding for the government to refuse to issue a permit for the construction of a competing deep water port until the freight turnover of the Anaklia Port reaches 70% of the planned volume.

We should assume that the government and geopolitics in general will once again be blamed for the fact that despite numerous delayed deadlines, the consortium is still failing to fill its own capital of 120 million dollars, let alone to secure a 400 million dollar loan.

As for the guarantees of commercial banks, apparently the Consortium is still trying to deceive the public and convince people that indemnity of commercial risks is an obligation of the government, rather than that of the private investor, as the deep sea port of Anaklia is a project of sovereign importance.

Project is indeed of sovereign significance and that is why the authorities are providing the following:

• Transfer of 1000 hectares of land to the private investor and cost incurred so far for this commitment is almost 60 MLN GEL;

• Extension of the new road and railway to the port facility with a potential cost of 330 MLN GEL;

• Allocation of 100 MLN USD as an equity contribution to the Consortium;

• Creation of a Free Economic Zone (FEZ);

• Amendments to the Constitution of Georgia made by the authorities of the country manifesting in the unprecedented support for the development of a special legal framework for the creation of the Free Economic Zone (FEZ);

• Indemnity of risks arising from political disorders and force majeure;

• Indemnity of investor against risks of legislative amendments;

• Unprecedented support and assistance to the investor.

Even when the private investor has to solicit 520 MLN USD in total at the inception phase of the port infrastructure development, financial contribution of the state has amounted almost 250 MLN USD, which is over 30% of the investment amount.

Consortium is now requesting the state to provide full security for the commercial bank loan of 400 MLN USD out of the 520 MLN USD to be solicited. Same applies to the indemnity of its own commercial risks - volume of cargo - which is the consortium wishes the state to guarantee. It is literally requesting an indemnity of revenues to be generated by the private investor. It absolutely contradicts the essence of private investment and principle of risk sharing under the public-private partnership (PPP). If the state secures the commercial risks and borrowings of the investor, it becomes unclear what makes this project qualify as private?

At the same time, it is worth noting that only one share of the Anaklia port belongs to the state. Revenues generated from the operation of the port and related facilities operating within the Free Economic Zone (FEZ) over 50 years will entirely belong to the Anaklia Development Consortium and it will pay a small percent of the port revenues to the government only after 20 years.

Consortium is trying to convince the society that it has exclusive right to breach all the commitments assumed during the Call for Expression of Interest and within the Investment Agreement concluded with the Government of Georgia on the grounds of being of sovereign importance; It claims to be entitled of deferring the operation of the port of sovereign importance for a certain period of time; It claims to fully adjust the key terms and conditions of the Call for Expression of Interest as well as of the Investment Agreement; It claims to have the right to oblige the state to indemnify the commercial risks of the private investor if and when the consortium fails to repay the loan and to fully compensate the borrowing and violate the inter-state and international agreements, Constitution of Georgia and prevent the development of the consortium by competing private investors.

According to the statements made by the consortium, all of it should not be surprising to anyone as it was known to the consortium from the inception phase that additional guarantees and commitments would be called upon from the state and it was not even intending to honor its commitments assumed under the agreement.

Thus, refusal of the state to act upon the scenario planned by the consortium is presented by the consortium to the general public as an obstacle, cheating and political chasing, while the truth is simple - Anaklia Development Consortium fails to solicit the funding required for the first phase of the project even at present irrespective of multiple deferrals, concessions and truly unprecedented exceptions and state support. It is thus putting the implementation of a project of sovereign significance under a huge risk. Considering all the aforementioned, we are obliged again to call upon the Anaklia Development Consortium, its Georgian and foreign founders, interested investors, partners to concentrate their efforts towards honoring the commitments given to the government in the most efficient timeline and towards the implementation of the most important project of Georgia, instead of false accusations, spread of inaccurate information and search for geopolitical and political reasons.

We assure all the supporters of the Anaklia Deep Sea Port Construction Project that the deep sea port of Anaklia will be built by all means - either with private of public investment! Besides, we remain optimistic that Anaklia Development Consortium will solicit opportunities to return to the constructive framework and complete the implementation of this most important project, which it had and will still have support from the Government of Georgia,“ the statement reads.