The project is intended to allow energy trading between the two countries and provide them with better access to European electricity markets.
It involves the construction of a new HVDC station in Ayrum, Armenia, close to the Georgia border, and a power transmission line linking the two countries.
The project is being supported by a €85.2m loan from lead financier KfW Bankengruppe on behalf of the German government, a €10m loan from the European Investment Bank, another €10m grant from the EU Neighbourhood Investment Facility, €1.5m from Armenia and €6.6m from Georgia.
Armenia’s finance minister Gagik Khachatryan said: “Developing the energy sector is of crucial importance for the growth of Armenia’s economy. We hope that our joint efforts on this project will serve its goal of ensuring a reliable energy system.”
He said the project was “an example of the excellent co-operation between the EIB, the regional actors, the European Commission and KfW”.
EIB vice-president Wilhelm Molterer said: “Secure and reliable supplies of energy are of crucial importance for further improving the living standards of the people of Armenia and Georgia.”
He added that the project “will also foster regional trade, increase the potential for the use of hydro energy generation and facilitate FDI by ensuring the reliable electricity deliveries needed by foreign investors”.
Eva Witt, KfW’s director for Eastern Europe, Caucasus and Central Asia, said: “The connection of the Armenian and Georgian power grids aims at closing a missing link in the regional power network and will contribute to improving energy security in particular in Armenia.”