Complaint on incompatible State aid for the Nenskra hydropower project, Georgia

The Implementation Agreement for the Nenskra Hydroelectric Project dated by 31 August, 2015 and amended and restated on June 16, 2017 between the Government of Georgia, JSC Electricity System Commercial Operator (ESCO), JSC Georgian State Electrosystem (GSE), JSC Partnership Fund, and JSC Nenskra Hydro. The Implementation Agreement includes a section on the project related Power Purchase Agreement as well as other obligation of the parties such as energy rates, guaranteed generation, put and call options etc.

The Implementation Agreement to the Power Purchase Agreement related to the Nenskra project was analysed by the Secretariat against its compliance with the market economy investor principle. That principle compares the State’s engagement with the one of a comparable private investor in normal market conditions. The Secretariat came to the preliminary conclusion that the contractual framework of the Nenskra HPP Project confers selective advantages to JSC Nenskra Hydro since they are not in line with market terms. This concerns in particular the offtaker’s (ESCO) obligation to purchase all power generated and delivered for a duration of 36 years at a fixed price, the transfer of land for a symbolic price as well as exemptions from tax (VAT and corporate income tax).

The Secretariat discussed this preliminary assessment with you in a call on 31 November 2021. The project is currently on hold since EBRD and EIB, who approved loans for the project in the amount of 214 million and 150 million respectively, but not signed final loan contracts yet, have found in September 2020 the project to be non-compliant with their environmental and social policies. The Secretariat is further closely monitoring any renewable energy projects in Georgia to avoid noncompliances with the State aid acquis. Due to the Annex to the Protocol concerning the Accession of Georgia to the Treaty establishing the Energy Community and the lack of enforcement of State aid acquis by either GNERC or the Competition Agency, it was agreed that the Secretariat would not further pursue this case.