Georgia Obliged to Pay Over $80.5 to Russian Energy Company

By Natalia Kochiashvili

Friday, December 3

Inter Rao argued the government breached its obligations under the 2013 Memorandum by not allowing tariff adjustments after Georgia’s national currency drastically depreciated against the U.S. dollar in 2013-2016.

Economy Minister Turnava said that the decision of the Georgian government not to increase tariffs for consumers despite the Arbitration Court’s ruling ‘was the right decision.’

Georgia has lost an arbitration dispute with Russian energy giant Inter Rao. On 23rd of November, the Stockholm Arbitration Tribunal ordered Georgia to pay $80.5 million in favor of Inter Rao as compensation for damage caused by the lari depreciation. The arbitration dispute has been going on since 2017. The Ministry of Justice announced yesterday that this decision will be appealed in the Stockholm court.

“The Stockholm Arbitration Court ruled on April 19, 2021, that Inter RAO was entitled to certain compensation. The state still believes that the tariffs were set correctly in 2014 and therefore the arbitral award has been appealed in the Stockholm court as unsubstantiated,” said the MoJ.

MoJ has also informed that the company demanded $200 million for compensation. Arbitration, however, did not satisfy the request “on the basis of the arguments and evidence submitted by the Government of Georgia.

“The legal dispute over the issue continues and regardless of its outcome, it is clear that this will not affect the tariffs of the population,” the statement of the ministry reads.

Georgia’s former Energy Minister and Tbilisi Mayor Kakha Kalazde commented on the issue and stated that the agreement with Inter RAO was signed under the previous United National Movement (UNM) government, underlying that he refused to pay $200 million back when he held the position of minister.

Rusudan Chkuaseli, a lawyer for BLC, spoke about this issue and explained that if there was no procedural violation of the arbitral tribunal, then the relevant decision can not be reversed. As for the change or modification of the decision, this will not be possible due to the terms of the arbitral tribunal, as the new hearing will not address the substantive part of the dispute and it will only assess the review process in a procedural manner.

According to Chkuaseli, there are 2 procedures of the International Arbitration Court against the decision, the cancellation of the procedure when the losing party can oppose the decision or the recognition and enforcement of the act against the recognition and enforcement, when this decision will arrive in Georgia.

As the statement shows, most likely, the state has made a request of cancellation; however, the decision can be revoked only on procedural grounds, as the court can not enter into the material part of the dispute and can not re-evaluate the reasoning of the decision.

Inter Rao owns 75% of the shares of Telasi, the company responsible for Tbilisi's energy supply. In addition, the Russian energy giant, through the Dutch-based company Gardabani Holdings BV, owns 2 hydropower plants in Georgia, "Khramhesi 1" and "Khramhesi 2".

There is a bilateral investment protection agreement between Georgia and the Kingdom of the Netherlands, which protects the interests of foreign investors in Georgia. Gardabani Holdings BV and another Dutch firm owned by Inter Rao, Silk Road Holdings BV, sought compliance with the terms of the agreement in order to protect their investment rights in the arbitration process. In addition, the records on the protection of investor rights are covered by the agreement that Georgia signed with the Dutch subsidiaries of Inter Rao, back in 2008 during the transfer of ownership of the Khmramhes to them.

The content of the dispute is related to the damage caused by the exchange rate difference. The company argued that the electricity tariff generated by its hydropower plants in Georgia should also reflect the losses caused by currency depreciation. However, the Georgian tariff methodology does not provide for such a record, due to which the relevant request was not met.

However, the company argued that under the asset purchase agreement, Georgia should have reimbursed the company's expected costs, taken into account the need to finance the investment program, and compensate for exchange rate losses.

Georgia's national currency has lost more than 80% of its value against the US dollar since 2014. Already in 2016, Inter Rao's Dutch subsidiaries indicated that not reflecting the rate of depreciation on the exchange rate was detrimental to their investments in Georgia, and that this contradicted the 2003 purchase agreement and the 2013 memorandum.

Based on these documents, the international arbitration shared the positions of Inter Rao and ordered Georgia to pay more than $ 80 million in favor of the Russian energy giant.

Georgia was represented in the dispute by the MoJ and the law firm White & Case, while the Freshfields Bruckhaus Deringer and Dentons represented the Russian energy company.