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. Last Updated: 07/27/2016

Shevardnadze Blasts 'Secret' UES Deal

APGeorgian President Eduard Shevardnadze
Georgian President Eduard Shevardnadze on Monday blasted what he called the "secret deal" that resulted in Russian power monopoly Unified Energy Systems gaining control of his country's choicest utility asset.

Speaking in his weekly radio address to the nation, Shevardnadze said he was outraged by the "utterly unwarranted" sale to UES last week of Tbilisi's electricity distribution network by U.S. company AES Corp., according to BBC Monitoring's transcript of the address.

The former foreign minister of the Soviet Union said AES held negotiations with UES "in secret" and criticized the company for not informing the Georgian government that it was selling the strategic asset.

AES confirmed last week that its subsidiary, AES Silk Road, had sold its 75 percent stake in the Tbilisi utility AES-Telasi for an unspecified amount to a UES Finnish subsidiary called RAO Nordic.

AES acquired the stake for $25 million in 1998 and a year later bought Tbilisi's thermal power station. It also landed management contracts for two hydro stations, giving it control of 30 percent of the country's generation capacity and 60 percent of its distribution capacity, according to United Financial Group.

AES, which invested more than $260 million in its Georgian business, failed to turn a profit, analysts said.

Roger Sant, the former chairman of AES, informed Shevardnadze last year that AES was considering all its options regarding its operations in Georgia, including selling them, the company said in a statement.

Shevardnadze said earlier last week that he hoped Georgian businessmen would buy part of the stake so that the utility remained in Georgian hands.

The remaining 25 percent of the utility is owned by Tbilisi's mayor's office.

"We knew about the negotiations but they hid their results from us," Shevardnadze said.

Moscow-based investment bank Aton said Monday that by its estimations UES paid some $150 million. "If indeed our estimates are correct, it is likely that the acquisition was politically motivated and not a pure business decision," analyst Alexander Korneyev wrote in a research note.

Korneyev said that although the deal could be value-destructive for UES shareholders, "from a strategic point of view ... the acquisition should allow UES to increase electricity exports to Turkey and improve receivables collections in Georgia."

The U.S. Embassy in Tbilisi seemed to confirm the political nature of the transaction, issuing a statement expressing regret at AES's decision to sell its stake.

When rumors of the impending deal first surfaced two weeks ago, many Georgian politicians decried the purchase, saying it would give Russia powerful political leverage over the former Soviet republic.

Blackouts are still common in Georgia, which has been plagued by power shortages since the 1991 Soviet collapse.

Shevardnadze on Monday, however, brushed off concerns that Moscow was increasing its influence over its former subject, calling them "incompetent."

"Many important issues will be resolved" during UES chief Anatoly Chubais' visit to Tbilisi on Wednesday, he said.

UES spokesman Andrei Yegorov said the itinerary of the visit had been drawn up, but he would not elaborate "before we coordinate it with the Georgian side."

Yegorov said that whatever complaints Shevardnadze has about the deal should be addressed to the U.S. side.

"In all our international projects we pursue economic goals, not political ones," Yegorov said.

AES Silk Road spokeswoman Yekaterina Shcherbakova declined to comment, referring reporters to an earlier statement issued by the company that Shevardnadze's "accusations are groundless."