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Georgia's Energy Sector - Electricity Market Watch | Summary of 2020 and 1Q21

21 May, 2021

Electricity consumption was down by 4.9% y/y in 2020, caused by lockdowns and related reduction in economic activity due to Covid-19 pandemic. Despite reduced electricity consumption, import of electricity and thermal generation remained flat, needed to fill the winter deficit and compensate the drop in hydro generation caused by bad hydrological conditions. 

Electricity consumption was up by 3.1% y/y in 1Q21, reflecting gradual recovery in economic activity and last year’s low base. Supply mix of 1Q21 was mainly dictated by closure of Enguri HPP for maintenance works for 3 months. Reduced hydro supply was mainly balanced by doubled volume of electricity imports (+93.2% y/y). To satisfy the need of Abkhazian region, traditionally satisfied from Enguri’s generation, additional import from Russia through Salkhino interconnection line was made.

The government subsidized population’s utility bills  to mitigate the negative impact of Covid-19 during March-May 2020 and November 2020 - February 2021.  This support covered those subscribers who consumed less than 200 kWh of electricity and 200 m3 of natural gas in a month. This consumption translates into monthly payment of GEL 37 in case of electricity bill and GEL 100 in case of natural gas. The subsidy covered bills for a total amount of GEL 167.7mn during March-May period and GEL 267.8mn during November-February period.

Installed capacity of Georgia increased by 432MW in 2020 and by 19MW in 1Q21 to 4.5GW. Capacity additions of 2020 included 230MW thermal power plant in Gardabani, 178MW Shuakhevi HPP in Adjara region and six small HPPs with total capacity of 23.4MW. In 1Q21, three small HPPs were commissioned. Notably, Shuakhevi HPP was in testing regime from 2017, technical issues were resolved and station started operation from February 2020. The HPPs commissioned in 2020 satisfied 2.2% of electricity demand of 2020, out of which 2.0ppts fell on the Shuakhevi HPP. Total installed capacity of Georgia was 4.5GW by end of 1Q21, including 7 TPPs (1.2GW), 1 wind farm (0.02GW) and 97 HPPs (3.3GW). 

GNERC approved new tariffs for all regulated activities from January 2021, including subscribers of Telasi and Energo-pro Georgia. Electricity tariffs for end-users increased on average by 19% for residential consumers and by 70% for commercial subscribers. The rise in tariffs mostly reflect increase of the cost of electricity due to increased share of electricity import and thermal generation and FX effect. Effect of lockdowns was also important factor - as consumption of 2020 was lower than expected, the regulated companies saw significant losses. According to tariff methodology, compensation of this loss had to be considered in tariff of 2021-23.  The end-user tariff is effective till 1 July 2021, due to expected market reforms. Importantly, we do not expect any further growth of the tariff in 2021. 

Other components of end-user tariff also increased. Tariffs for electricity transmission and dispatch were approved for 2021-25 period. As a result, total service fee (transmission, dispatch and ESCO’s service fee) increased from 2.102 tetri/kWh in 2020 to 2.739 tetri/kWh in 2021 (+30.3% y/y). Notably, transmission licensee Energo-trans merged with parent company Georgian State Electrosystem, therefore, currently Georgia has only two transmission system operators. 

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Auto Business in Georgia

19 Mar, 2021

Georgia has established itself as a regional hub for the car trade since 2005, without its own car production industry. New cars are mostly imported from Japan, while used cars mostly come from USA, repaired in Georgia and sold to Georgians and regional customers. Therefore, cars are top export and import commodity in Georgia’s foreign trade. From car re-export activities, Georgia’s auto business earns 31% of total revenues on average annually, by our estimates. 

2020 was a tough year for Georgia’s auto trade, to large extent affected by increased customs duties in Armenia. Car exports almost halved to US$ 404mn in 2020, mostly reflecting reduced demand from Armenia and Kyrgyzstan as these countries increased customs duties from January 2020. Car re-exports were also hindered by travel restrictions and used car market closure in 2020. However, online sales largely supported car trade with Azerbaijan and Ukraine. We expect car exports to improve in 2021, taking into account ongoing economic recovery in the region and last year’s low base.

We estimate full market size of auto business at GEL 3.8bn in 2020, with formal sector accounting for 70% of total market size on average during last 5 years. Notably, high gross margins on used cars incentivize many individuals to trade with cars, leading to large informal turnover in the sector. Another major source of informal activities are bazaars for used car parts. 
Locals demand fuel-efficient cars, mostly used hybrids. Weighted average age of passenger cars registered in Georgia was 8 years in 2020 (7.5 in 2019). Hybrids accounted for 34.6% of total passenger car registrations in Georgia vs 5.9% of total in EU in 2019. In Georgia, used hybrids are preferred over gasoline cars because of their lower total cost of ownership despite higher price, with latter compensated within 3 years of ownership on average.

There are healthy demand drivers on cars in medium-term – including outdated auto park and growing women drivers. Out of 1.38mn vehicles registered in Georgia, only 1.06mn (77% of total) are on roads, while others are lapsed, according to our estimates. Moreover, passenger car penetration in Georgia is only 234 (excluding lapsed cars), far below the rates found in Central and Eastern Europe (e.g. 642 in Poland, 562 in Czech Republic, 355 in Romania etc.). Despite the rising number of Georgian female drivers, only 20% have driving license vs 72% of male as of 2020, showing room for further expansion. We estimate c. 32k female to obtain driving license annually over the next 10 years.

We expect gradual transition towards electric mobility in medium-term. Many drivers shifted to hybrid cars, while electric vehicle (EV) imports are still low in Georgia. Four major barriers keep EV penetration rates low globally and in Georgia also: 1) high price, 2) limited driving range, 3) lack of charging infrastructure and 4) limited choice of available models. However, these barriers are expected to be eliminated in medium-term, leading to 32% of total auto sales being EVs by 2030 globally, according to IEA.


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Healthcare sector presentation

18 Mar, 2021

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Georgia's Healthcare Sector

10 Dec, 2020

Demand on healthcare services in Georgia is largely driven by rising prevalence of age-associated diseases and improved accessibility, supported by increased government spending. Public health spending tripled to GEL 1.3bn over 2010-19, reducing share of out-of-pocket payments from 73% to 56% of total health expenditure in Georgia. This ratio is still high compared to EU (16%) and peer EM countries in the region (38%). The government plans to reduce share out-of-pocket health expenditures to 30% of total by 2030.

New wave of reforms aims to make healthcare provision more sustainable through: 1) more targeted UHC model (effective from 2017), 2) new funding model - Diagnostic Related Grouping (DRG, to be launched in the near future), 3) new requirements for hospital infrastructure and human resources from 2021.

Hospital sector in Georgia shows low efficiency. Number of hospital beds stood at 4.7 per 1,000 people in 2019, above peers and many high income countries globally. With oversupply of hospital beds, occupancy rate is low (49% in 2019). Implementation of DRG model is expected to reduce market fragmentation and increase efficiency. Utilization of primary healthcare is still low in Georgia, despite significant improvement in accessibility over the last decade. Outpatient contacts per person stood at 3.6 in 2019 in Georgia vs 7.0 in EU. 

Georgia faces oversupply of physicians and undersupply of nurses, with only 0.6 nurses per physician in Georgia vs 2-5 nurses in European countries. As a result, Georgian doctors are 3 to 5 times less productive than peers in terms of patients treated annually.

Georgia shows high incidence of COVID-19, with total confirmed cases up to 4,400 cases per 100,000 people as of December 9. Furthermore, testing seems to be insufficient to capture all the infected, with average 30% positivity rate in November. Mobility restrictions were reintroduced at end-November to limit virus spread.

COVID case fatality rate remains less than 1% in Georgia, below many developed and emerging countries in Eurasia. More than 7.2k COVID beds are prepared, out of which 6.9k are occupied as of December 10. There is a room to reduce hospitalization rate, relaxing burden on hospital sector. Vaccine candidates against COVID-19 show promising results. Georgia has already ordered first lot of vaccine (worth of US$ 4mn), expected to be available from spring 2021.

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