Georgia is seeking to capitalise on an increased interest in Middle Corridor trade, and its government has announced plans to resurrect a deep sea port project… again. Maybe third time’s the charm?
As supply chains reconfigure to exclude Russia in the aftermath of its invasion of Ukraine, interest in the so-called Middle Corridor has surged. Indeed, the trade route’s current capacity has struggled to keep up with the surge in demand.
Georgia’s government is hoping take advantage of its geographic advantage—the only South Caucasus country with a Black Sea coast—and renewed global interest in the Middle Corridor to attract investment to finally build the nation’s first deep sea port in the small village of Anaklia.
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Georgian governments have tried to build the port at least twice before, but both projects failed due to domestic political controversy and a failure to secure the needed investment. Now, the government sees the geopolitical moment as an opportunity to once again try and raise the funds from private investors.
“Anaklia Port will be built with the co-participation of the state, where the state will own 51 per cent [of shares] while we will announce an international call for the rest and select the partner companies,” said prime minister Irakli Garibashvili late last year.
In the most recent failed attempt to build the port, which ended in 2020, control would have been held by private investors.
“We want to have a modern port infrastructure which would meet the country’s transit potential, which would serve the interests of our country, and, of course, will further increase cargo flows in the Georgian corridor,” Economy Minister Levan Davitashvili said in October.
If at first you don’t succeed
The first attempt to build a deep sea port at Anaklia began in 2011 as part of then-president Mikheil Saakashvili’s project to build a new, planned city, Lazika, designated with a special legal status to promote commerce.
While Anaklia’s population was only 1,400 in 2014, Saakashvili had big plans for the site, declaring, “Lazika will be [Georgia’s] second largest city after Tbilisi, which, based on my forecast, will have at minimum half a million residents in ten years. It will become the main trading and economic centre in Western Georgia.”
Saakashvili worked obsessively to sell Lazika as a Dubai or Manhattan on the Black Sea. When he left office in 2013, he pledged to continue to work to realise its creation and has requested for his ashes to be scattered at Anaklia.
Anaklia is close to the border between government-administered Georgia and the breakaway state of Abkhazia. Lazika was meant to surpass Abkhazia’s capital of Sukhumi in population and economic opportunity; it would entice Abkhaz to gradually reintegrate with Georgia via peaceful, economic means rather than military conquest.
“We have chosen a different path, which I think is the right path: Five and seven-star hotels instead of trenches; the best aqua parks in Europe instead of land mines,” Saakashvili said in 2012.
However, the project lacked meaningful transparency and planning, and construction stalled at an early stage as Saakashvili and his party left power.
The idea of constructing Georgia’s first deep sea port in Anaklia was resurrected in 2016 and construction even began in late 2017, although dreams of Lazika had by now withered away. The port was hoped to become operational in 2021.
That did not happen.
Mamuka Khazaradze, a top banker, founded the Anaklia Development Consortium, the port’s main contractor. He clashed with the government, was charged him with money laundering, had his bank account frozen, and resigned from the consortium in late July 2019. He then founded his own opposition party, Lelo for Georgia. He is still involved in legal arbitration with the current government.
In August 2019, Conti Group International, a major American investor in the port’s construction, left the consortium, saying, “The Group has not felt the support from the Georgian government for the project”.
In January 2020, the government cancelled the consortium’s contract, citing its failure to attract the necessary investment and unrealistic demands on the government to underwrite large loans from the European Bank for Reconstruction and Development, the Overseas Private Investment Corporation, the Asian Development Bank, and the Asian Infrastructure Investment Bank.
However, the government maintained it was still interested in the project and was looking for another contractor.
While the Georgian government plans for the port’s construction to resume in 2023 and international interest in the project is high, it remains to be seen whether the necessary additional financing can be raised… and keeping politics in check may be just as hard.
On the day he announced the government would take a majority share, Garibashvili railed against Khazaradze, saying, “After they abandoned this project after four-five years and failed to implement it, they decided to rob our country. They sued and took the case to arbitration and today they are disputing 1.5 billion US dollars. Can you imagine what is happening?”
Khazaradze responded the same day on Twitter, accusing the prime minister of lying.
But he also said, “I want to underline that my main motivation is to see Anaklia constructed. This is the purpose of arbitration as well – to force the government to build the port!”
Flights between Georgia and Russia resume
Ironically, while renewed interest in Anaklia and the Middle Corridor stems from a desire in most Western economies to cut Russia out of supply chains, Moscow last week lifted a ban on direct flights by Russian airlines to Georgia that Moscow unilaterally imposed in 2019 after a wave of anti-Kremlin protests in Tbilisi.
The reaction in Georgia has been mixed. While the Georgian government welcomed the move, with Deputy Economy Minister Mariam Kvrivishvili telling reporters the announcement would significantly improve travel options for the million Georgians living in Russia, there were protests in Tbilisi on May 15, with demonstrators calling for Georgia to impose its own ban on flights to and from Russia.
The EU has also called on Georgia, which aspires to become EU candidate country, to align with the EU and other countries in their sanctions against Russia in the aviation sector, and to remain vigilant regarding any possible attempt to circumvent them.
“Moreover, in light of the significant safety concerns notified to Russia by the UN’s International Civil Aviation Organisation (ICAO), Georgia should not allow unsafe Russian aircraft into its territory,” said Peter Stano, the EU’s spokesperson for foreign affairs and security policy said on May 16, adding that the EU “regrets” the decision to resume flights.
Due to EU sanctions, 95 per cent of the Russian airplane fleet is not able to update and upgrade their airplanes, which is essential to maintain the necessary international technical and safety standards.
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