How did AES get to Georgia?
AES was founded in the USA in 1981 by two former members of the Department of Energy, Roger Sant and Dennis Bakke (the CEO in Power Trip). The founders aimed to change the world by bringing competition to a previously staid sector – electricity – and by building a company organized around a core set of values and a de-centralized system of management. Their phenomenal growth with such an unusual management philosophy created buzz in the business world and by the early 1990s, AES was investing worldwide, and most notably in regions where others feared to tread.
In the meantime, Piers Lewis was working out of San Francisco for a consulting company. He was sent to the former Soviet Republic of Georgia to work with the Georgian government on a pilot project to determine if the vicious cycle of “no payment – no electricity supply” could be broken by implementing a transparent accounting/billing system, remetering, disconnections for non-payment, and improved electricity supply. The project was a success and Piers took this information to Mike Scholey of AES, who had already visited Georgia on a new-investment fact finding tour for the company.
In 1998, Merrill Lynch won a mandate to advise the Georgian government on the privatization of Telasi, the electricity distribution company of Tbilisi. They launched a tender, AES ultimately won the bid, Mike Scholey became General Director of AES-Telasi in 1999 and hired Piers Lewis.
How did Georgia get to be such a mess?
According to classical legend, Jason and the Argonauts came to Georgia to steal the Golden Fleece — a greasy goat skin lying in a mountain stream which collected passing particles of gold. Many more recent visitors, including the Persians, Turks and Russians came with no better intentions. In 1921 Georgia was forcibly incorporated into the Soviet Union, where it remained until 1991. When Georgia declared independence from Moscow that year, other republics followed and the Soviet Union dissolved soon thereafter.
In Georgia, chaos, secessionist conflicts, and civil war followed independence, only ending when Eduard Shevardnadze returned from Moscow and restored order, though institutional corruption continued. Not surprisingly during this turbulence the power, gas and heat all went out. By the end of it all, payment deteriorated, and citizens desperate for shuki (power) connected themselves to anything that was live (street lights, tram lines, metro, hospitals etc). This in turn overloaded what was left of the system and caused even more failures.
Problems with Russia
Eduard Shevardnadze was the Soviet Foreign Minister under Mikhail Gorbachev who oversaw the dissolution of the USSR and the Warsaw Pact. This enabled the reunification of Germany, which is why Shevardnadze is still revered in Germany, and respected in the West. But he remains vilified in Russia, and in Georgia the cold war continues – this time over oil. Georgia is a gateway to the west for the oil and gas rich Caspian states to which Russia would very much like to shut the door.
According to some, Russia has been engaging in a systematic effort to gain economic hegemony over its former satellites. In an outtake from Power Trip, Akaki Gogichaishvili, anchor of the Georgia’s version of 60 Minutes, describes how Russia would allow energy debts to accumulate and then demand hand-over of strategic assets as payment. This has resulted in a Russian monopoly of the natural gas supply. Whether or not Russia can be blamed for taking unfair advantage of an impoverished, newly independent nation, or the Georgians should be blamed for simply not paying their bills, is open to interpretation.
The result in either case, is that Russia is able to use this monopoly for political leverage against Georgia: After President Shevardnadze threatened to expel Russian troops from Georgian soil, the Russians shut down the natural gas supply. In winter most of the country’s electricity comes from gas-powered thermal generation plants, so this resulted in a major setback for AES-Telasi, and much of the country went dark for several days.
Though AES never participated in energy trading, the scandals of Enron rocked the energy world, and subsequently the instability of Latin America weakened AES such that it’s Georgian operations became severely jeopardized.
In November 2003, alleged irregularities in Parliamentary elections caused widespread protests in Tbilisi for several weeks. Protesters eventually stormed Parliament and President Shevardnadze was unceremoniouslly rushed out the back of the building. He resigned soon after, on November 23rd, and opposition leaders have now inherited a daunting set of chronic problems.