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Georgia: China Experiences Black Sea Setback

For China, the New Year got off to an inauspicious start in the South Caucasus country of Georgia after a Chinese-Georgian consortium failed to win a contract to build a deep-water port on the Black Sea.
 
The consortium earlier had been seen as the Georgian government’s preferred candidate, but, on February 8, officials instead announced that the Anaklia Development Consortium (ADC), an American-Georgian partnership, had won the tender.
 
Ironically, the announcement came on Chinese New Year’s Day. In an emailed statement to EurasiaNet.org, Deputy Economy Minister Irma Kavtaradze did not offer a detailed explanation about the tender choice. “In selecting companies for bidding, the government commission was guided by financial, technical, economic, and legal criteria to identify the best bidder,” she wrote.
 
Touted as a game-changer for Georgia’s economy, the $2.5-billion, 988-acre Anaklia port facility, which will stretch 2.5 kilometers along the coast, will be able to accommodate vessels that are too large to call at Georgia’s existing Black Sea ports at Poti and Batumi. Currently, such ships must transfer Georgia-bound cargo to feeder ships, mostly in Istanbul.
 
Anaklia is expected to welcome its first deep-sea vessel by the beginning of 2019. Construction, estimated to cost upwards of $700 million, should begin this October, provided an environmental-impact assessment does not hold things up. The government has committed to spend an additional $100 million on upgrading local infrastructure, including the construction of an 18-kilometer-long railway to connect the port to the national rail system.
 
Critically for Georgia, which is grappling with an official unemployment rate of 12.4 percent, the project is projected to create an estimated 6,400 jobs, more than half in construction. By 2025, the ADC consortium estimates that the port, able to process 100 million tons of cargo per year, could generate up to an extra half-percent to the country’s overall annual economic growth figure.
 
ADC also received a 49-year-long lease to develop a free industrial zone on about 1,482 acres (600 hectares) of land adjacent to the port.
 
“We don’t believe in building the port and depend[ing] only on cargo. We want to create a big industrial area [next to it],” commented Mamuka Khazaradze, owner of TBC Holding, the Georgian partner in ADC, a joint venture with Conti International, a New Jersey-based developer of industrial infrastructure.
 
Disappointment in China over losing the port deal seems sure to be strong. For Beijing, the port was seen as an important economic lily pad. Over the past few years, China and Georgia have steadily strengthened their economic and diplomatic relations. Georgia is one of the founding members of the China-led Asian Infrastructure Investment Bank and hosted the bank’s first summit last August.
 
Georgia’s strategic location and privileged trade deal with the European Union would have provided a boost to Chinese companies participating in China’s $40-billion Silk Road Economic Belt, a trade and transportation project. Europe-bound railway cargo from China began to arrive in Georgia last year.
 
In December, the two countries officially started negotiations for a free-trade agreement which could boost Georgia’s annual exports to China by 9 percent and China’s to Georgia by 1.7 percent. Against that backdrop, Economy Minister Dimitri Kumsishvili said it was of “principal importance” for Georgia to have “China’s confirmation in welcoming the participation of Chinese companies in the construction of the Anaklia deep-sea port.”
 
The state-owned Power Construction Corporation of China (PowerChina) represented Beijing’s interests. Its consortium with Anaklia Industrial Eco-Park and Port, a company founded by Georgian businessman Teimuraz Karchava, was one of two finalists chosen from among seven candidates to develop the port.
 
After its promotion of ties with China, the government’s decision not to award the Anaklia contract to the Chinese-Georgian consortium caught some observers in Tbilisi by surprise.
 
At a Silk Road forum in the Georgian capital last October, “the good money was on the Chinese consortium getting the project,” recollected Michael Cecire, an associate scholar on Eurasia at the Philadelphia-based Foreign Policy Research Institute. There was an understanding that “it would have had attendant financing already in place,” and, hence, be better positioned to launch the project more quickly, he added.
 
China could still be involved in the port’s development.
 
TBC Holding’s Khazaradze, the co-founder and board chairperson of TBC Bank, told EurasiaNet.org that ADC is seeking to add a Chinese partner to its consortium and is currently negotiating with two Chinese-run multinationals that specialize in infrastructure projects. He acknowledges the key role that China could play in the overall project’s success. “We sent signals that we were ready to negotiate with the Chinese partner, the competitor, but we didn’t get the response in the end, so we provided the BAFO (Best and Final Offer) and it appears it was only us [which provided it],” he said.
 
Week-long Chinese New Year celebrations meant that Chinese diplomats in Tbilisi could not be reached for comment.
 
Not everyone agrees on the extent of China’s advantages for Georgia. Chinese foreign-policy expert Philippe LeCorre, a visiting fellow at the Brookings Institution, a Washington, DC-based research center, maintains that “many countries are probably wondering what ‘One Belt, One Road’ will mean for them in terms of net job creation.”
 
“China also has a serious image problem in many of the countries it is intending to ‘help,’ including in Central Asia and [the] South Caucasus,” he said.
 
Sergi Kapanadze, director of the Tbilisi-based think-tank Georgia’s Reforms Associates and a former deputy foreign minister, believes pragmatic considerations will help China get over its tender defeat. “China needs functioning infrastructure that can efficiently deliver its goods to European markets. It doesn’t really matter who builds it [the port],” he said, adding that the focus now should be on quickly completing the port.

Monica Ellena is a Tbilisi-based freelance journalist.

Georgia: China Experiences Black Sea Setback

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