How does a small business owner make a long-term business development plan work when the immediate concern is survival? This is the kind of question that small business owners in Georgia often ask themselves.
So, what is the least a businessman can do in such a situation? Efficient use of energy and resources is something Georgian business owners would agree is effective, but many are still hesitant to take the plunge due to lack of funds and lack of awareness of what to do. But thanks to initiatives funded by the European Union such as the Greening Economies in the Eastern Partnership Countries (EaP GREEN), a few of small business owners are beginning to understand in practice that the ‘do more with less’ strategy is worth a try.
On the outskirts of Tbilisi, inside a three-storey building, a man sits at his desk and runs a small business. Once a doctor, 41 year-old Avto Jvarsheishvili left his former profession behind a few years ago and took over an oil production company called EcOil. The company produces motor and industrial oils, and is the only local manufacturer in Georgia, Jvarsheishvili explains. EcOil supplies 2-3% of local customers while the rest of the market relies on imported goods. The company wants to reach out to 30% of potential customers, but it didn’t seem an achievable goal due to financial constraints that the business needs to overcome.
That might change as EcOil has received recommendations from the EaP GREEN project experts on how to reduce energy and resource consumption for greater environmental good and financial profit. The Resource Efficient and Cleaner Production (RECP) concept is promoted by UNIDO under the EaP GREEN. Some of the recommendations the company took into consideration were the shortening and thermal insulation of pipelines carrying heated oil materials, a reduction of engine volumes consuming a lot of energy and updating old technology. Changes were made and EcOil has already managed to reduce its spending on energy.
“We have managed to reduce gas consumption by 7-10%,” Jvarsheishvili says. “Considering that we aspire to produce 300,000 litres of oil, which requires a lot of energy resources, cutting 10% of the consumption has had a dramatic impact. As for electricity, usually we don’t consume much, but we have still managed to reduce it by 3-5%.”
Thanks to all the measures taken under the guidance of the RECP, annual savings for the business stand at up to 12,000 laris. But with EcOil hoping to boost its production in the future by producing 10 times more, Jvarsheishvili says the savings will reach 120,000 laris, which is going to be a “serious saving for the company”.
“Some of the measures we took were not cheap, but considering how much we have managed to save, expenditures will be returned in a year,” he adds.
Unlike EcOil, the Azot factory in Rustavi (the third largest city in Georgia) is anything but small. Bringing together up to 1,800 employees, Azot specialises in the production of mineral fertilisers, ammonia, sodium cyanide, nitric acid, ammonia water and others. These products are mainly used in agriculture and gold mining and, according to the management, buyers come from all across the world.
Big businesses consume a lot of energy. Gela Iakobashvili, the head of Azot’s technical division and a man who has spent almost 40 years at the factory, is well aware of this. He had already developed a plan on how to cut energy expenditures – focusing on the thermal isolation of some of the pipelines and reservoirs – and was about to present his ideas to management when he came across the RECP brochure by accident. With his ideas coinciding with the recommendations he received through the project, it became easier to convince management that changes were due.
“We wanted to reassure ourselves that our plan was correct,” Iakobashvili says. “When we received the exact same recommendations from the EaP GREEN, management became more eager to spend money.”
He is not sure how much energy the company is going to save after the changes, but says that the next issue they want to tackle is the reduction of emissions, as Azot works with dangerous chemical materials.
EcOil and Azot are among 50 businesses in Georgia that have benefited from the EaP GREEN guidance on RECP. Such guidance has been provided in all six Eastern Partnership countries to promote green economy where people's wellbeing and preservation of the environment is the goal.
Launched in 2013, the project covers three fields in Georgia: food production, chemical production and construction materials. The Project's National Coordinator Malkhaz Adeishvili speaks of some of the challenges they have faced.
“Georgian enterprises usually use outdated technologies or handmade equipment, which are very inefficient,” Adeishvili says. “Our aim was to demonstrate what could be done [to improve production efficiency and reduce environmental pollution in the enterprises]. Some of the improvement measures we identified were expensive, but some of those that we recommended were really cheap. If these measures are implemented, the enterprises could save 15-30% of the energy they are currently using.”
Average payback time for companies ranges from 1.5 to 2 years, Adeishvili says, but some of them are still hesitant. Firstly, because they use traditional methods and changing tradition is not easy. Secondly, they know they have losses, but have never calculated how much they actually lose. Thirdly, small and medium-sized businesses think they cannot afford expensive energy-efficient approaches because they are focused on surviving in the market. While this sometimes is the case, EU grants help to make changes affordable for the small enterprises.
TMT Ltd, a food production company that has been producing canned food in the Kaspi region since 1960, has also received recommendations on energy and resource efficiency from the EaP GREEN. The director of the company, Tamaz Merebashvili, says that if they were to put in place all the changes that have been suggested, the company could save up to 50% of the electricity, gas and water resources they use, but due to the lack of finances, they are not able to make such investments.
“If I was able to invest, the production would quadruple, even quintuple and revenue could reach millions,” Merebashvili says, “but I cannot invest in technology, I cannot afford it.”
Mr. Adeishvili concludes that approximately 50% of the enterprises they have been working with did implement some of project’s recommendations. In his experience, small enterprises in Georgia are usually looking for financial profits and therefore social responsibilities, such as reduction of environmental impact, are usually set aside.
The reduction of environmental impact, as well as designing a better energy efficiency agenda, are two of the aims that Georgia has committed to as part of international agreements including its Association Agreement (AA) with the EU, the Energy Community Treaty and the Paris Agreement on climate change. The Ministry of Energy has been drafting Georgia’s first National Energy Efficiency Action Plan for some time now and this is due to be published in the near future. The draft action plan of 2017-2020 consists of four main fields, transportation, energy, construction and industrial. According to the ministry, in terms of potential energy efficiency savings, sectoral reforms will achieve 36% of the planned aim by 2020.
According to the document that the ministry presented to the United Nations Economic Commission for Europe (UNECE), Georgia plans to introduce saving programmes in industry. It is still uncertain what shape these programmes will take, but the ministry plans to examine potential savings for each of the sub-sectors in lighting, including industry, street-lighting, commercial and residential buildings and public buildings, which has to make 7% of all the savings by 2020.
Head of Energy Efficiency and the Alternative Energy Division of the Ministry, Marita Arabidze, says that while a study conducted by the ministry has identified some of the problems inside businesses, the private sector is of least concern as better energy efficiency plans means less expenditure. She also believes that the first steps will be aimed at improving the situation in the public sector to make serious savings in the budget.
“We don’t need to explain much to the private sector,” she adds. “They understand that energy costs money.”
For now, Georgia doesn’t have the precise data on the exact extent of emissions of fluorinated greenhouse gases across the country. The Georgian Ministry of Environment explains this will change in the coming years, as AA regulations oblige the country to implement a registry system for all devices that emit certain fluorinated greenhouse gases, which has to be in place by 2021. Until then, Georgia can only guess the potential emissions by calculating from the quantity of imported materials that usually emit such gases.
Having signed the Paris Agreement on Climate Change, Georgia agreed to reduce emissions by 15-25% until 2030. According to the Ministry of Environment, emissions in Georgia were 16,391 thousand tonnes of the CO2 equivalent in 2013. The energy sector was the leader with 56% of all the emissions in the whole country. Only 20% of general emissions came from industry. At the same time, this number didn’t include extra emissions that came from the consumption of energy in these enterprises. The agriculture sector came third with 16% of emissions and the waste sector was fourth with only 8%.
Chief Specialist of the Climate Change Division of the Integrated Management Department of the Ministry, Kaxaber Mdivani, says that regulations regarding climate change will only affect Georgian businesses if emissions in the industry sector are high. However, they are currently minimal compared to the energy sector, which is the current focus of the regulations.
“Reduction of emissions from the energy sector will give us profound benefit in terms of completion of the agreement,” Mdivani says.
If reduction in this area is successful, enterprises may not face many obligations in the future from this perspective. Meanwhile state policy is still scratching the surface of the reforms it plans to make in the coming years, and green economy is only applied through small projects. Until it becomes a state-wide strategy, small enterprises are just learning the perks of ‘doing more with less’ and how much it pays off.
Author: Dato Parulava