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In A Win For Russia, Anaklia Deep Sea Port Project Descends Into Chaos

In a win for Russia, Anaklia deep sea port project descends into chaos

In A Win For Russia, Anaklia Deep Sea Port Project Descends Into ChaosSource: Anaklia Development Corporation

Anaklia, Georgia (PortSEurope) August 30, 2019 – Russia is winning the protracted game around the idea for Anaklia – the first deep-water port on the eastern shore of the Black Sea, as the project descends into chaos, fuelled by inefficient government, bureaucracy and corruption in Georgia, lack of attention from the U.S. and the European Union (EU), and above all, a successful attempt by Moscow to interfere in Georgia’s internal affairs.

The $2.5 billion (€2.23 billion) Anaklia deep sea port project is at a standstill whilst the U.S. doesn’t even have an ambassador in Tbilisi and the EU is “on hold”, waiting for the new European Commission (EC, its governing body) in end-October.

Russia does not want a competitor for its Novorossiysk port, the nearest Black Sea deep-water port, luring to Anaklia west-bound Asian cargo that currently transits via Russia. Moscow also has other political and territorial issues with Georgia.

After the collapse of the Soviet Union, ethnic Abkhaz in Georgia with Russian military support fought a war against the Georgian government in 1992-93. In August 2008, Russia recognised the territory as independent – all major countries consider it part of Georgia. Also, in 2008, Russia occupied Georgia’s South Ossetia.

Moscow also rejects the idea that a future Anaklia deep sea port could welcome large U.S. Navy ships and offer them a base on the eastern shores of Black Sea which Russia considers one of its prime spheres of interest. Georgia is also a country aspiring to join NATO.

Behind the scene pressures from Russia, and a refusal of international banks to finance the private project without state guaranties and/or lack of future cargo volumes, seem to be key issues for the project.

Earlier this year Georgia’s government extended the deadline for Anaklia Development Consortium (ADC) for submitting financial closer documents – for the sixth time by six months – until mid-December 2019, so the government and four donor banks – European Bank for Reconstruction and Development (EBRD), the Overseas Private Investment Corporation (OPIC), the Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB). could agree on how the state can be the guarantor for the insurance of freight turnover of the future deep sea port.

But it seems very unlikely that such an agreement will be reached in the next three months.

Georgian Infrastructure Minister Maya Tskitishvili was quoted as saying that it is very hard for the government of Georgia to take the responsibility for commercial risks. She said that the private sector should take the risks, while the government should support the project. The consortium claims that the Anaklia Deep Sea Port is not a private project and that the state should also take responsibility.

The Anaklia Development Consortium claims that it has already mobilised the required capital for the project, however, the postponement of the deadline would be used to effectively finish the process of negotiations with international banks.

Speaking at the 16th Batumi International Conference in July, Tskitishvili repeated the government’s support for the Anaklia deep sea port. The minister was quoted as saying that the Anaklia port is a trans-European project, and an additional opportunity for European and Asian businesses to connect with one another via Georgia and with the help of Georgia.

Last April, Anaklia deep sea port was again put in doubt after the announcement of Georgian government support for a rival project in the nearby port of Poti, and the almost immediate denial by the Economy Minister, claiming that the document for the construction of a deep sea port in Poti has been cancelled.

Poti is controlled by the Maersk’s APM Terminals which already in 2011 said that it wants to develop a deep sea port. Poti, only 35 kilometres south from Anaklia, is currently the largest sea port in Georgia, able to handle 6–6.5 million tons of cargo per year. Its capacity has never been utilised. It presently deals with 85% of the country’s container traffic.

The allegedly granted and then denied permission for a deep-water port project for Poti added to the confusion and the conflicting information about it was attributed to attempts by Moscow to meddle in Georgian affairs.

The Georgian government said it was actively working with international banks and had high hopes that the private investor, ADC, would meet its obligations amid such support. ADC won the state tender to construct the Anaklia Deep Sea Port and signed a deal with the government in 2016.

ADC consists of TBC Holding from Georgia, Conti International (U.S.), SSA Marine (U.S.), British Wondernet Express working in Central Asia, and G-Star Ltd. from Bulgaria (the company has Georgian owners and seems to operate as an offshore investment vehicle).

Local sources reported that Conti International, one of the partners of the project, has decided to leave the Anaklia Development Consortium. The reasons remain unclear as Levan Akhvlediani, director general of the Consortium, told reporters on August 15 that Conti International has not made the decision on leaving the Consortium “today or yesterday” and that “talks about it were underway for a certain period of time”. reported on August 15, quoting an unidentified source, that lack of agreement between the government and the international financial institutions prompted Conti International to leave the project.

IPN News reported that Elisabeth Rood, U.S. Chargé d´Affaires in Georgia said: “The U.S. continues to believe that the Anaklia port project is a very important project for Georgia’s economic development and for the fulfilment of its potential as a trade and transportation hub. We continue to believe that this project should be completed with American investment because this can be a very strong strategic partnership between the U.S. and Georgia in the economic sphere”.

The Georgian government is likely to demand that a replacement foreign investor be found.

In another development, Anaklia Development Consortium announced that Mamuka Khazaradze and Badri Japaridze, the current Chairman and Vice-Chairman of the Anaklia Development Consortium’s Supervisory Board, would resign from the board. Both confirmed in July their intention to resign after Tbilisi City Court ruled that the founder and former Board Chair of the TBC Bank, Mamuka Khazaradze and his Deputy Badri Japaridze had to post a GEL 700,000 (215,000 euro) bail each after being charged in a money laundering lawsuit.

In a separate development, China might be trying to take over the Anaklia deep-water port and might be pressuring Tbilisi to oust the Georgian-American developers, replacing them with Chinese state-owned companies. This would allow China to add a jewel in the crown of its new Silk Road project and receive a strategic foothold in the Black Sea.

The new Silk Road (part of the Belt and Road initiative also known as One Belt, One Road, or OBOR) is a Chinese economic strategy to seek better access for Chinese-made products in European markets, which includes acquiring stakes in ports and other transport facilities, and cooperation agreements with countries along the Silk Road routes.

The Anaklia project has strategic importance for Georgia’s economy and the country’s status as a trade hub between Europe and Asia. Georgian ports currently have the capacity to receive approximately 25% of the world trading fleet, as Poti, the biggest port in the country is only 9 metres in depth.

Anaklia (20.5 metres deep when finished) will allow Georgia to service cargo ships with capacity of 1,400 tons and more. Another benefit of the port could be enhanced interaction between Georgian and Abkhaz communities as the town is next to the Inguri line that divides Georgia and Abkhazia.

The new port is designed to handle 100 million tonnes of cargo per year after five decades, an unrealistically huge amount considering that the four Georgian ports – Batumi, Poti, Kulevi, and Supsa – handled together less than 10 million tonnes in 2018! The 100 million tonnes might well be only a theoretical capacity, while more realistic but still huge figure, is 20 million tonnes.

The hope is that Anaklia will attract cargo mostly from China, but it can also be used to provide transhipments for U.S. military to Afghanistan.

Since the launch of the project in 2016, five million m³ of sand has been dredged up from the seabed, and a private investment of $70 million ($62.48 million) has been made, Akhvlediani said. Maritime construction started at Anaklia port in the second half of 2018. The Dutch maritime contractor Van Oord NV is carrying out dredging and reclamation work.

Anaklia Deep Sea Port is to be constructed in nine phases, the last one to be completed in the very distant 2069, when the port will have depth of 20.5 metres, 32 berths and a free trade and industrial zone of 600 hectares.

The port, when finished, will be able to accommodate 10,000 TEU ships, the largest that can pass through the Bosporus – the gateway to Black Sea. Existing Georgian ports can handle ships that are up to just 1,000 TEU.

The project will receive for the second stage of its construction EU financing of about €233 million ($266 million) as one of the major infrastructure projects in the EU Eastern Partnership (EaP) countries. In addition, the EU will also provide €100 million ($114 million) for the construction of a new railroad that will connect Anaklia to the railroad network of Georgia. Anaklia also needs improved highway connection to the rest of Georgia.

The inauguration of the 16-metre deep port of Anaklia with two container berths and one for bulk goods like fertiliser (stage one of the project development), planned for 2021, will re-open the region to international shipping. With 75% of Black Sea vessels having nowhere to dock on the eastern shores, overland trade is only accessible by truck, or through Russia.

Anaklia would offer multimodal access to Central Asia and the Middle East, all the way to India and China. In 2016, then Georgian Prime Minister Giorgi Kvirikashvili said that the port would be able to receive ships of any size and keep pace with the growing dynamic of freight transit.

In March, Georgia, together with Romania, Azerbaijan and Turkmenistan, signed a declaration for the promotion of a multimodal corridor for the transport of goods between the Black Sea and the Caspian Sea (Caspian Sea – Black Sea International Transport Corridor project – ITC-CSBS).

The project was launched by Romania and Turkmenistan to create an intermodal transport route for maritime, river, road and rail freight transport between central and northern Europe and the southern Caucasus and central Asia, with the prospect of connecting to the Asia-Pacific region. Both countries have modern multimodal ports which, by and large, stand idle.

The corridor is based on the geographic contiguity between Romania, Georgia, Azerbaijan and Turkmenistan and the services offered by the ports of Constanţa (Romania), Poti (Georgia), Baku (Azerbaijan) and Turkmenbashi (Turkmenistan).

The new transport route is being created on the basis of the Trans-Caspian (Kazakhstan, Azerbaijan, Georgia and Turkey) and Lazurite/Lapis Lazuli (Turkey, Georgia, Azerbaijan, Turkmenistan and Afghanistan) corridors.

Currently there are three land corridors between China and Europe: a southern one, via Iran, made impractical by American sanctions; a middle one, via the Caspian Sea and then across Georgia to the Black Sea, made impractical by the lack of modern deep-sea Georgian ports; and a northern one, via Russia, on which most east-west land trade currently flows. Anaklia proposes to change that by giving the middle corridor the deep-sea port it lacks and removing the bottleneck.

Australian SMEC, member of the SJ Group, has won the tender for the development of a project for new railway and road links to Anaklia, Georgia’s Regional Development and Infrastructure Ministry said in April. The construction documentation and cost estimates are expected to be ready by end 2019. SMEC contract is worth about $2.6 million (€2.31 million). SMEC has expertise in preparing projects for airports, tunnels, bridges, railways, roads.

In March, the Regional Development and Infrastructure Minister Tskitishvili described the demands of the international financial institutions that should be fulfilled in order for them to invest in Anaklia port project: the project should have a feasibility study for each phase of its development; the port development should not be linked to any specific date and should start only after the feasibility study is done and approved by the banks.

The financial institutions expected to cover the main part of Anaklia project’s investment are European Bank for Reconstruction and Development (EBRD), the Overseas Private Investment Corporation (OPIC), the Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB).

The banks also want to significantly reduce the state impact mechanism as well as the power of the state-owned “golden share” in the project; compensations and political force majeure are also issues for the lenders; the banks require that works, resettlement and all the process to be developed for the new road and railway that will be connected to the port have to follow the investors’ rules, which was not initially envisaged.

And above all, the banks insist on state guarantees for the money they will lend the private Anaklia Development Consortium.

Georgia has four Black Sea ports: Poti (controlled by Danish logistics giant Maersk; used for containers and dry cargo), Batumi (controlled by Kazakhstan state-owned KazTransOil; used mostly for oil, but also for dry cargo and containers), Kulevi (controlled by Azerbaijani state owned oil and gas company SOCAR) and Supsa (operated by the British oil major BP).

Anaklia port is becoming a geopolitical issue in the global confrontation between the United States with China and Russia. Georgia relies on the U.S. for its security and it borders on the Black Sea. But the long-term focus of U.S. global strategy will be on containing China at sea and Washington will be less able to properly address the Russian navy in the Black Sea – it does not have enough available naval resources to hand.

In June, the American secretary of state, Mike Pompeo, told visiting Georgia’s Prime Minister Mamuka Bakhtadze that the future port at Anaklia “will enhance Georgia’s relationship with free economies and prevent Georgia from falling prey to Russian or Chinese economic influence. These pretend friends do not have Georgia’s best interests at heart”.

Pompeo’s reference to the Anaklia project was a powerful message to Georgian government that the project is strategic and should be completed. Also, he clearly outlined the two countries that are seen as trying to derail it.

The strongly worded Pompeo statement came weeks after the Chinese Foreign Minister visited Georgia for the first time in decades. Perhaps there were concerns in Washington that China might try to use the issues surrounding Anaklia to help out the Georgian government.

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