Georgia loses arbitration case to Russian company, ordered to pay $76.9m
Georgia loses dispute with Inter RAO
Georgia has lost an arbitration dispute with the Russian energy company Inter RAO and must pay $76.9m. The International Centre for Settlement of Investment Disputes rejected Georgia’s appeal and upheld the earlier ruling.
The court also set an annual interest rate on the compensation, calculated as the Secured Overnight Financing Rate (SOFR) plus 2%. This means the amount Georgia owes has increased.
Inter RAO exports electricity to Georgia and is one of the country’s main suppliers. At the same time, the company also purchases electricity from Georgia when Russia faces shortages.
The dispute
On 31 March 2011, Inter RAO and the then Georgian government signed a memorandum under which Georgia guaranteed the company fixed electricity tariffs in the country for 15 years.
However, in 2014 Georgia changed the methodology for calculating electricity tariffs. The amendment did not include compensation for losses caused by the devaluation of the national currency. By that point, Georgian Dream party had come to power.
In 2016, Inter RAO asked the Georgian government to adjust the tariffs but was refused. The following year, in 2017, the company filed a claim in arbitration, arguing that Georgia’s measures had caused it financial damage.
The tribunal confirmed that the terms of the memorandum had been violated.
Comment
According to former National Bank of Georgia president Roman Gotsiridze, the blame lies directly with former energy minister Kakha Kaladze, who is now the mayor of Tbilisi.
Roman Gotsiridze:
“It was perfectly clear that the appeal would fail, but it was filed simply to buy time. That, in turn, led to the penalty sum increasing.
The direct culprit is then–energy minister Kakha Kaladze, who signed an agreement with Inter RAO that damaged the country’s interests and remains classified to this day.
A similarly disastrous situation arose with a Turkish company, which Georgia also lost an appeal against. The country was ordered to pay $380m. When Georgia failed to do so, the company filed its own lawsuit to demand enforcement of the earlier ruling. As a result, with penalties added, it is almost certain that Georgia will end up paying about $450m.
Taken together, just these two cases will cost the country around $540m. That money could have solved many problems.
A crime of this scale will not go unpunished. This government will face trial for the damage it has caused the country.”
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