Georgia looks to deep-sea ports to raise its profile in China’s Silk Road plans

Georgia looks to deep-sea ports to raise its profile in China’s Silk Road plans
Anaklia Port Project.
By Monica Ellena in Tbilisi May 4, 2016

Georgia might not have actually been on route of the ancient Silk Road, but sitting at the crossroads between east and west, straddling trade routes between Asia and Europe, this former Soviet republic is well placed to be part of Chinese President Xi Jinping’s ambitious Silk Road Economic Belt and Maritime Silk Road projects. 

The Black Sea provides a natural gateway, and so Georgia is looking to ports to help it play a major role in China’s plan to revive this network of trade routes from Central Asia to Europe. One of those is the Anaklia Port Project, which involves the construction of a deepwater port at the coastal town of Anaklia, a sleepy resort town that sits on the shortest route from China to Europe.

This project took a big step forward in February when the government awarded the Georgian-US consortium Anaklia Development Consortium (ADC) the right to build the port. Once completed, the 400-hectare port will stretch 2.5 kilometres along the coast. In addition, ADC has received the rights to develop and operate a free industrial zone on about 600ha of adjacent land for 49 years.

Logistics experts maintain that the new facility will give a huge boost to Georgia’s economy, which was hard hit in 2015 by falling oil prices, declining exports and a weakening currency. “The port can potentially increase the business flow tremendously,” reckons John Braeckeveldt, regional manager of the Belgium-based logistics group Gosselin. “Currently it takes about 40 days for containers from Antwerp to reach Poti due to the stop-over in Istanbul. It is a very busy port and delays are regular practice, not an exception. Bypassing Istanbul would cut the transport time by two to three weeks.”

The delays stem from one of the gaps in Georgia’s transit infrastructure: the inability of the country’s two existing ports at Batumi and Poti to host Panamax-size vessels. Currently, such large ships with Georgia-bound cargo are forced to use other docks in the Black Sea region, mainly Istanbul, where containers are reloaded onto feeder ships, carrying a maximum of 1,700 containers and heading for Batumi or Poti.

Anaklia is not the only facility looking into filling that gap. Last year APM Terminals, part of world’s largest container ship operator AP Møller-Maersk, which operates and has owned an 80% stake in the port of Georgian port of Poti since 2011, announced a “large-scale port expansion” plan. The project, expected for 2018, foresees the construction of two new deepwater berths able to accommodate vessels with capacities of 9,000 TEU (twenty-foot equivalent units) and an annual throughput capacity of 1mn TEU. 

The Anaklia project – a joint-venture between Tbilisi-based TBC Holding and Conti International, a US infrastructure developer – envisages berthing for cargo ships with a capacity of 10,000 TEU. “It is a huge project with an incredible potential and we really worked hard for two years to put on the table the best proposal possible,” Mamuka Khazaradze, founder and president of TBC Holding, tells bne IntellinNews.

The consortium also includes port designer Moffatt & Nichol and Maritime & Transport Business Solutions, a Netherlands-based port transaction advisor.

Such a vision doesn’t come cheap. The total price tag is estimated at €2.2bn, with the first phase being the most capital intensive at a cost of about €600mn, states Khazaradze, who adds that the government has committed to spend €88mn in infrastructure upgrades, including the construction of an 18km segment of railway to the town of Zugdidi to connect the port to the national rail system.

Critically for Georgia, which is grappling with an official unemployment rate of 12.4%, the project is projected to create an estimated 6,400 jobs, more than half during the construction phase. By 2025, ADC estimates that the port, able to process 100mn tonnes of cargo per year, could generate up to an extra 0.5% to the country’s annual GDP.

The Chinese card

ADC won the tender on the finishing line over the joint-venture of Chinese state-owned Power Construction Corporation of China (PowerChina) and Anaklia Industrial Eco-Park and Port, a company founded by Georgian businessman Teimuraz Karchava.

The exclusion of the Chinese company caught many by surprise, as economic relations between Tbilisi and Beijing have been steadily on the rise. China was Georgia’s fourth largest trading partner in the first quarter of 2016, with exports accounting for 11.2% of the total €395mn, up from 4.8% in the same period last year.

Chinese President Xi’s $40bn “One Belt, One Road” initiative – which is shorthand for the land-based Silk Road Economic Belt and oceangoing Maritime Silk Road projects – includes Georgia on its transit route to reach European markets. Talks of a free trade agreement between the two countries are ongoing, and Tbilisi’s privileged trade deal with the EU makes the South Caucasus nation an attractive partner for Chinese companies.

Beijing may not be out of the Anaklia Port game, however. “It is our intention to have a three-party consortium with Georgia, the US and China… and we are negotiating with a Chinese partner,” explains Khazaradze.

Sergi Kapanadze, director of the Tbilisi-based think-tank Georgia’s Reforms Associates and a former deputy foreign minister, believes that ultimately pragmatic considerations rule in Beijing. “China needs functioning infrastructure that can efficiently deliver its goods to European markets – it doesn’t really matter who builds it [the port],” he tells bne IntelliNews, adding that the focus should now be on completing the port as quickly as possible.

Time is, indeed, a key issue. A deepwater port at Anaklia was originally mooted by former president Mikheil Saakashvili, but the project stalled until it resurfaced in 2014 under the current administration. “Precious time has been lost and other ports have taken advantage of Georgia’s delays. Today, Riga port accounts for most of the trade for Central Asia with vessels calling in Latvia and their cargo then transported via the railway through Russia. We are about five years late,” says Kapanadze.

The Belgian logistics group Gosselin is also betting €9.6mn on Georgia’s transit potential, as it is building a 70,000-square-metre logistics business park, which is scheduled to be operational by mid-2017.

Many ports, enough trade?

Georgia features four maritime facilities – Batumi and Poti are commercial ports, while Supsa and Kulevi are oil terminals handling a variety of hydrocarbon exports. The ports have been steadily growing since 2000 and were privatised in 2008.

Poti currently handles 82% of the container volume through Georgia. Anaklia is located just 68km north of it and its location has raised questions about whether the new project will jeopardise the Poti facility. In October Economy Minister Dimitry Kumsishvili told bne IntelliNews that, “Anaklia will not kill Poti, as the idea is to attract a new flows, not moving the already existing one.”

Khazaradze shares this view and maintains that “all ports have a future in Georgia”, as reviving the Silk Road route “is a big game and business can only benefit from healthy competition”.

Not everyone agrees, though. In a recent interview, Irakli Iashvili, chairman of East Gate Group, which owns Georgian Trans Expedition Poti, the port’s largest container terminal, expressed doubts about building more ports. “Economies around us are not as developed, they don’t have that much freight for Anaklia Port’s capacity as it was announced. 100mn tonnes of freight is an unimaginable number,” he stated. “Currently, we have two more-or-less profitable ports. If a third one on this scale is added, it is sure to be unprofitable, as there will be competition, including in terms of freight. Attracting freight is not possible merely by having a port.”

Indeed, the numbers are not particularly encouraging. Freight volumes steadily grew from 2011, with container throughput at Georgian ports increasing by 18.5% y/y to 480,000 TEU in 2014. However, in 2015 container throughput plunged by 16% y/y and early 2016 volumes seem to indicate another drop of 10% this year.

Since taking control of the Poti port in 2011, APM Terminals has invested over €61.6mn in expanding the facility, but its announced expansion project now looks less likely. The land side of the expansion is underway, but the port’s managing director, Klaus Holm Laursen, recently stated that the port is currently working at half capacity. So while the deepwater berths “are still on the books, the need for more capacity is not there in the short term,” he said.