research reports

Georgia temporarily suspended the movement of visitors from China and Iran to prevent the spread of coronavirus. We hope that virus will not take the form of a global pandemic and economies will revive. However, uncertainty persists and it is difficult to make accurate estimates. With this in mind, we try to identify threats to the Georgian economy and allow for the development of various adverse scenarios.

Total international visitor (tourists and same-day combined) growth accelerated to 19.8% y/y in Jan-20 after growing 16.3% y/y in Dec-19. Out of total 0.52mn visitors, Georgia hosted 0.36mn tourists (up 18.9% y/y) and 0.16mn same-day visitors (up 21.9% y/y) in Jan-20.

Georgia suspended flights to and from China till Apr-2020 to prevent the spread of the coronavirus. Notably, Georgia’s dependence on tourism from China is very limited with just 48K (0.6% of total visitors) Chinese traveling to Georgia in 2019. So direct hit from weaker Chinese tourism on Georgia will be minimal (Chinese spent US$ 3.8mn in 1Q19 or 0.7% of total revenues), and expected arrival growth from other countries will fully compensate this shortfall. Expectations can change if virus is not contained and willingness to travel globally weakens or many avoid Asia and start traveling to other countries. 

Please see the full note here, which brings together tourist arrival data for reporting month, most recent statistical information available in the sector and 2020 forecast

Electricity trade deficit widened to US$ 70.5mn in 2019. In 2019, electricity consumption increased by 1.4%, while hydro generation was down by 10.1% due to unfavourable hydrological conditions. Under reduced hydro generation, local demand on electricity was met by increased imports (+7.8% y/y) and thermal generation (+ 34.3% y/y), additionally the exports were down by 58.8% y/y. In overall, cost of imported electricity amounted to US$ 78.3mn (+ 3.4% y/y), while export revenue was mere US$ 7.8mn. Consequently, the electricity trade deficit widened by 24.5% y/y and reached a historic maximum of US$ 70.5mn. 

Electricity consumption in Georgia is expected to grow by 5.0% in 2020. Ministry of Economy and Sustainable Development approved annual forecasted balance of electricity on December 28, 2019. According to the forecasted annual balance, 72.6% of total demand on electricity in 2020 will be met by hydro generation, 18.2% by thermal power plants, 0.6% by wind generation and 8.6% by imports. The forecast defined May, June, July and August as potential export months of 2020.

In 2019 and beginning of 2020, 9 hydro power plants were commissioned, with a total capacity of 72 MW. The largest of them were Mestiachala 1&2 (50MW in total) and the rest were small HPPs with average capacity of 3.5MW. Additionally, 230MW Gardabani-2 thermal power plant was put into operation by end of 2019.  

GNERC made significant tariff modifications for TPPs, Enguri, Vardnili and Georgian State Electrosystem by end of 2019. These changes will also affect the balancing market prices. Moreover, GNERC approved natural gas tariff for residential users.

Parliament adopted two energy-related laws: 1) Law on Energy and Water Supply - important roadmap for the energy sector reform process and 2) Law on Promotion of the Production and Use of Energy from Renewable Sources (Renewable Energy law) – setting renewable energy targets and implementation deadlines. The laws define general framework of the upcoming markets and give guidelines for transition period. The laws also set deadlines and responsible bodies for the adoption of secondary legislation, which should define the most important details of market organisation and action plans of their implementation. Importantly, donor organisations are actively involved and assisting Georgia in this transitional process.

Energy community membership also obliges Georgia to adopt three other laws by end of 2019, currently under discussion in the parliament. These laws are: 1)Law on Energy Efficiency - setting energy efficiency targets for the country and encouraging energy savings, 2)Law on Energy Performance of Buildings - tightening the construction norms in 2020 and enforcement of penalties from2021, 3)Draft law on Energy Labelling - will force all consumer electronics vendors to include energy-related information on the product label. The list of information and form of labelling will be set during 2020, and penalties for non-compliance to these norms will come into force from 2021. The timeframes mentioned in the draft laws may change during its review and approval process.

Electricity trade deficit widened by 29.7% y/y to US$ 58.2mn in 11M19. Electricity consumption increased by mere 1.6% y/y, significantly below forecasted numbers as well as growth levels of previous periods. On supply side, hydrogenation decreased by 9.2% y/y due to unfavourable hydrological conditions. Reduced hydro generation created demand on electricity imports (+10.5% y/y) and thermal generation (+29.4% y/y), despite the low consumption growth rate. Importantly, 36% of imported electricity came from Russia in 11M19. 

GNERC revised tariffs for Khrami 1 and Khrami 2 to 10.837 Tetri/kWh (+18.5% y/y) and 12.304Tetri/kWh (+15.9% y/y), respectively. These tariffs are set from Dec-19 until Dec-21. Notably, Khami 2 HPP’s has the highest regulated tariff on the market, which, according to current market rules, is used as reference price of balancing electricity, purchased by the ESCO from deregulated small capacity HPPs. Respectively, after enforcement of new tariffs on Khrami cascade in Dec-19, the purchase price of balancing electricity will increase to 12.304 Tetri/kWh from the current 10.614 Tetri/kWh.

Thermal power plant Gardabani-2 has been put into test mode. The 250 MW plant is equipped with modern technologies and will be able to produce electricity more efficiently than the old ones. Unlike other TPPs, Gardabani-2 will not receive a guaranteed capacity fee. Its income source is a 14-year guaranteed power purchase agreement for 1,200kWh annually at USc 5.5/kWh. The owner of Garabani-2 TPP is the state-owned company - Georgian Oil and Gas Corporation.