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In Defense of Khudoni

The massive dam planned for western Georgia will destroy homes, but it is the best solution to the country’s up-and-down energy supply.

by Giorgi Chanturia 17 January 2014

The village of Khaishi sits in the picturesque mountains of the historical Georgian province of Svaneti, some 2,000 meters above sea level. But soon it and a few other nearby villages will be under water, forcing more than 2,000 people to leave their homes, if the long-planned Khudoni dam is finally built over the Enguri river.

 

Locals have sworn on a sacred icon in a village church – which will also be lost to the flood waters – to thwart the construction at any cost. Meanwhile, environmentalists say the massive dam would destroy habitat for land- and river-dwelling species.

 

The Khudoni power plant has a long and tortuous history. Work on it started in 1978 but was halted in 1989 amid strong opposition from environmentalists and leaders of Georgia’s independence movement. The project was revived in 2005, as Mikheil Saakashvili’s government focused on hydropower in an effort to end constant power outages and to make the country a net exporter of energy.

 

The village of Khaishi, Georgia. Photo by Aleksey Muhranoff/Wikimedia Commons

 

Khudoni, with an estimated price tag of $1.2 billion, will be Georgia’s second largest hydropower plant. It will be able to generate up to 700 megawatts of electricity at any given time, which amounts to about 15 percent of the country’s entire installed capacity in 2010. Preliminary calculations show that the plant will boost the country’s hydropower generation by around 20 percent, as the water it collects will also be used by two other plants downstream.  

 

Members of the government that came to power in October 2012 made a campaign promise to the residents of Khaishi to revisit the decision to build the dam. Now in power, however, they have given the green light to the project’s developer, TransElectrica Ltd., a Georgian-Indian company registered in the British Virgin Islands, to start construction in the spring. In September, then-Prime Minister Bidzina Ivanishvili said critics of large dams stirred the pot with “superficial statements” and accused them of not wanting Georgia to develop.

 

“Those who look into the future and those who want the country’s revival should realize that Georgia has to use its hydro resources,” he said.

 

The determination to build Khudoni – shared by two consecutive governments with distinct political and economic platforms – is likely rooted in the need to prevent future electricity shortages. In the past five years, consumption of electricity has risen by around 16 percent and is projected to keep growing.

 

Georgians know well the miseries of energy shortages. After the collapse of the Soviet Union, throughout the 1990s and early 2000s, electricity cuts resulting from corruption, mismanagement, and electricity theft were a daily experience. Today there is an entire generation in Georgia that grew up doing homework by kerosene-fueled lamp light. Since 2003, the government has deregulated the industry and made decisive steps to restore financial discipline and attract new investment.

 

Those reforms have had remarkable results: electricity is available around the clock, the industry has been cleaned up, and infrastructure and the investment environment have improved.

 

Still, Georgia has a lot more to do to ensure its energy security. Today electricity is produced in either hydropower plants or thermal power plants that burn imported natural gas. Those imports rise in winter, when river levels are relatively low and demand for electricity high. Conversely in summer months, when hydropower electricity generation exceeds demand, the excess goes for export. By building Khudoni dam, the government is attempting to smooth out these ups and downs: in the summer excess water will be accumulated in Khudoni dam and used to generate additional power during the rest of the year.

 

In 2006 the government pledged to ratchet up electricity generation from hydropower plants to position the country as a net power exporter and in the long run help replace the share of electricity generated by gas-powered plants. Statistics from 2012 show how far Georgia remains from that goal. The country imported 86 million more kilowatt hours of electricity, much of it from Russia, than it exported. In addition, roughly a quarter of electricity generated domestically came from thermal power plants.

 

The push for massive dams is not wholly motivated by some desire to go green, nor is it a manifestation of the “gigantism,” so prevalent in the Soviet and post-Soviet world.

 

Instead, it’s pure pragmatism. The truth is that Georgia, beset by growing demand, desperately needs these dams. Blessed with rivers and high mountains, the country has huge potential for hydropower generation with no other quick and economically feasible way to generate electricity. Thermal power plants, which run on imported natural gas and generate electricity that costs three to four times more than that from dams, are not really an option.  

 

Nor are electricity imports: power produced by Khudoni will be fixed at 5.84 cents per kilowatt hour for 10 years, roughly 15 percent lower than the price of the electricity that Georgia buys from Russia today. That gap will only widen as the cost of imported energy grows at 7 to 10 percent annually.

 

As Khudoni dam construction faces fierce opposition, the new government is forced to make an urgent but politically costly decision that could make electricity shortages a thing of the past. Officials could duck the issue for a couple of years, relying on imports during that time, but eventually rising costs and demand would force their hand.

 

The debate over building large dams has been more emotional than grounded. Critics often point out dangers that large dams pose in case of an earthquake or other natural calamity. But preliminary studies funded by the World Bank in 2009 showed that the effect on the environment as a result of Khudoni construction would be minimal due to the dam’s location and that seismic risks could be minimized by modern engineering technologies.

 

Critics also often suggest building smaller dams and investing in wind power to offset the growing demand, an idea widely circulated in social and print media. Research by the Energy Ministry, however, shows that Georgia’s potential to generate wind power is dwarfed by the country’s potential for hydropower. Officials have investigated the development of small “run of river” hydropower plants that do not require dams, alongside the large projects, but they have not managed to find investors for them or wind power plants. Further, it is the large dams’ ability to hold water – to create reservoirs – that helps insure against the peaks and valleys in electricity supplies. Finally, by sticking with small projects, building the required capacity could take years or even decades, while Khudoni dam will become fully operational in five years.

 

The country needs more power in the coming years and not in the distant future.

 

The most serious obstacle to building Khudoni is the relocation of the local population. Locals are not happy with the compensation scheme offered by TransElectrica, which must adhere to World Bank policy on involuntary relocation, assessing the value of a person’s property, relocating what can be moved, and compensating for the rest at market rates. The company plans to build a new village nearby for those uprooted.

 

The question for the villagers is not whether to accept the compensation and resettle, but rather how much to accept. Locals do not rule out accepting compensation as long as they deem it satisfactory. Hopefully all the stakeholders will be able to reach an agreement that will benefit them and the country as a whole.

Giorgi Chanturia is an economist who formerly worked as a senior expert for the Chancellery of Georgia and as a consultant for the Office of the State Minister on Reforms Coordination.

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