Issue #866 Business

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Issue no: 866/38

• AUGUST 2 - 4, 2016

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

NBG Decreases Refinancing Rate by 25 Points PAGE 2

Construction on Rikoti Pass Highway Begins

FOCUS ON VIEWS OF PROGRESS We spoke to management of PriceWaterhouseCoopers Georgia to see what expectations they have PAGE for the country this year

7

Tbilisi’s Luxurious Biltmore Hotel Opens in Former Soviet Institute Building

BY TAMAR SVANIDZE

T

he Soviet era Institute of Marx, Engels and Lenin (IMELI) was officially turned into a luxurious hotel in the heart of Georgia’s capital city Tbilisi on Sunday.

The USD 140 million, 214-room Biltmore Hotel Tbilisi officially opened to a lavish display of fireworks and laser shows Sunday night.

The 32-floor hotel is the first hotel in Georgia to have a presidential suite, according to the hotel’s financiers, the UAE-based Arab Investment Company.

Continued on page 2

PAGE 3

Foreign Investment to Develop Sports Tourism in Georgia PAGE 5

Electricity Market Watch GALT & TAGGART PAGE 9

US House Committee on Foreign Affairs Supports Georgia’s Territorial Integrity, We find out Why POLITICS PAGE 10

Dechert OnPoint: Consumer Protection & the DCFTA PAGE 11 Prepared for Georgia Today Business by

Markets As of 29ͲJulͲ2016

STOCKS Bank of Georgia (BGEO LN) GHG (GHG LN) TBC Bank (TBCB LI)

COMMODITIES Crude Oil, Brent (US$/bbl) Gold Spot (US$/OZ)

INDICES

w/w

m/m

Price

w/w

m/m

GBP 27.31

Ͳ0,2%

+9,7%

GEOROG 04/21

104.13 (YTM 5.74%)

Ͳ0,4%

+0,4%

GBP 3.06

Price

+1,3%

+5,5%

GEORG 04/21

111.20 (YTM 4.22%)

Ͳ0,2%

+0,4%

US$ 13.20

Ͳ1,5%

Ͳ

GRAIL 07/22

111.69 (YTM 5.42%)

+0,2%

+0,8%

BGEOLN 07/23

100.63 (YTM 5.89%)

Ͳ0,2%

na

Price

w/w

m/m

42,46

Ͳ7,1%

Ͳ16,1%

1 351,28

+2,2%

+2,4%

Price

w/w

GEL / USD

2,3510

+0,3%

Ͳ0,2%

GEL / EUR

CURRENCIES

2,6309

+2,1%

+0,4%

m/m

w/w

m/m

GEL / GBP

3,1099

+1,1%

Ͳ1,7%

FTSE 100

6 724,43

Ͳ0,1%

+5,7%

GEL / CHF

2,4222

+1,9%

+1,0%

FTSE 250

17 282,88

+1,8%

+8,0%

GEL / RUB

0,0356

Ͳ1,7%

Ͳ4,3%

DAX

10 337,50

+1,9%

+7,5%

GEL / TRY

0,7869

+2,4%

Ͳ3,4%

DOW JONES

18 432,24

Ͳ0,7%

+4,2%

GEL / AZN

1,4563

Ͳ1,5%

Ͳ3,4%

5 162,13

+1,2%

+8,0%

GEL / AMD

0,0049

Ͳ

Ͳ

NASDAQ

Price

BONDS

MSCI EM EE

123,97

Ͳ1,1%

+0,9%

GEL / UAH

0,0948

+0,1%

+0,3%

MSCI EM

873,47

+0,5%

+6,3%

EUR / USD

0,8949

Ͳ1,8%

Ͳ0,4%

Ͳ0,9%

+1,5%

SP 500

2 173,60

Ͳ0,1%

+5,0%

GBP / USD

MICEX

1 944,62

+0,9%

+3,0%

CHF / USD

0,9695

Ͳ1,8%

MSCI FM

2 567,05

Ͳ0,0%

+1,7%

RUB / USD

65,9445

+1,8%

+3,5%

GT Index (GEL)

842,35

+0,1%

Ͳ

TRY / USD

2,9888

Ͳ2,5%

+3,4%

GT Index (USD)

709,14

+0,2%

+1,1%

AZN / USD

1,6151

+1,2%

+1,8%

0,7560

Ͳ1,0%

2

BUSINESS

Tbilisi’s Luxurious Biltmore Hotel Opens in Former Soviet Institute Building Continued from page 1 Originally built in 1934-38 in the Stalinist Gothic style by famed Soviet architect Alexey Shchusev – the man who designed Lenin’s Mausoleum in Moscow’s Red Square – the building materials were looted from the Armenian Pantheon in Tbilisi after notorious NKVD head Lavrenty Beria had the church and cemetery destroyed.

Following the collapse of the Soviet Union, the building was used for government purposes and housed Georgia’s first independent government under controversial former President Zviad Gamsakhurdia in 1991-92.

It later briefly served as the Ministry of Foreign Affairs, before being heavily damaged in the civil wars that plagued Georgia in the early 1990s.

Large parts of the interior were destroyed by both shelling and looting, and the institute’s former Soviet-era library that was dedicated to MarxistLeninist theory was sacked.

In 2006, developers Kempinski and Vostok Capital pledged to turn the building into a five-star luxury hotel, with an original design by Berlin-based architects Christoph Kohl and Rob Krier but after the 2008 five-day war between Russia and Georgia, the original investors pulled out and the Abu Dhabi Group

took over the re-design of the building.

A new project was developed by UKbased Architectural firm Shankland Cox in 2012.

The design immediately ran into controversy after architects, historical preservationists and civil society representatives objected to the building of a modern, glass skyscraper in the heart of Tbilisi’s historic center.

As part of a negotiated settlement, Abu Dhabi Group agreed to restore the main building of the Soviet-era IMELI building and incorporate it into the hotel.

Georgia’s Prime Minister Giorgi Kvirikashvili and Minister of Culture and Knowledge Development of United Arab Emirates Sheikh Nahyan bin Mubarak Al Nahyan attended Sunday’s grand opening.

“This is Dhabi Group’s largest investment in Georgia. The opening of this high-class hotel once again proves that there is a comfortable environment for investment and doing business in Georgia,” Kvirikashvili said.

Sheikh Mubarak Al Nahyan added that the hotel suits Georgia’s growing highend tourism potential.

“Georgia and its capital are stable and secure places to invest in the region.

This makes the country an ideal place for doing business,” Al Nahyan said.

GEORGIA TODAY

AUGUST 2 - 4, 2016

NBG Decreases Refinancing Rate by 25 Points

BY EKA KARSAULIDZE

G

eorgia is starting to move away from the tightened monetary policy set by the National Bank of Georgia (NBG) in February 2014, with a decrease in the refinancing rate from 7 to 6.75.

The decision was made after a thorough look into the country’s macroeconomic forecast. “According to current projections, it is expected that inflation will be below the forecasted figure in the coming quarters, which makes it possible to reduce refinancing rates,” said National Bank of Georgia’s President, Koba Gvenetadze. “Unless other factors affecting the economy occur, the monetary policy rate will be around 6 percent in the midterm period.”

As a result of a lower refinancing rate, people with loans in foreign currencies will have to pay less for their debt obligations. Last year there were more than 7,000 borrowers who had loans linked to the refinancing rate, reported the NBG. For the past few months the Georgian

Lari has remained steady at around 2.1 GEL for every USD, however it peaked this weekend at 2.34. “This fluctuating exchange rate has influenced the public and the currency they choose to borrow and save in,” said the NBG. According to the figures, in June 2016

people in Georgia deposited 14.3 billion GEL into local banks but borrowed 16.4 billion GEL. The NBG reiterated that further changes to the monetary policy will depend on the inflation forecast, factors affecting inflation and the general state of the economy.

BUSINESS

GEORGIA TODAY AUGUST 2 - 4, 2016

Free One-Year Land Registration Program Launches in Georgia

TBILISI-BATUMI BATUMI-TBILISI

KUTAISI AIRPORT TBILISI CENTRAL

BATUMI CENTRAL

09:00, 12:00, 20:00, 01:00 09:00, 12:00, 19:00, 01:00 2 Station Square

TAMAR MEPE AVE.

595 99 00 00

BY EKA KARSAULIDZE

T

he Georgian Land Registration Law came into full effect from August 1. Prime Minister of Georgia Giorgi Kvirikashvili estimated this issue as one of most important for the population, and one which will contribute to the development of agriculture and the land market.

According to the law, mediation, obtaining certificates or other notary services will be completely free of charge for

citizens. Minister of Justice Thea Tsulukiani stated that the population would benefit from this project for a year. “During one year, everyone should register land that they were unable to previously as a result of various barriers,” she said.

PM Kvirikashvili said that, to date, only 25 percent of land is registered- a big problem for the private sector in particular because the population cannot capitalize on land which is actually available for possession and for full use in economic activities.

“It’s good the land registration system has been simplified,” the PM said. “The State is significantly helping the population in

the registration process, including in financial instruments. Following the conclusion of the program we will have a much healthier and complete picture,” he claimed, adding that it is also a social issue – more than 50percentofthepopulationarestillinvolved in agriculture. As such, this is expected to be a very important project for the strengthening of the rural population.

Additionally, the Georgian Prime Minister has asked the Minister of Justice to create a mechanism that will eliminate the risk of abuse of the law. “It is important to have a correct and transparent mechanism during land registration,” Kvirikashvili said.

3

www.eurobus.ge

Construction on Rikoti Pass Highway Begins The Rikoti Pass highway.

Photo: Alexandre Suladze / panoramio.co

BY EKA KARSAULIDZE

C

onstruction of a 52-kilometer, USD 40 million (93 million GEL) stretch of the Rikoti Pass highway began Friday, according to the Head of Georgia’s Road Department Giorgi Seturidze.

The mountain highway lies in the southern portion of the Likhi Range, a

spur of the Greater Caucasus, which divides Georgia into its western and eastern parts. Also known as TbilisiKutaisi Highway, it connects Georgia’s two main cities.

“This is a top priority for us. There are no other similar projects like this in Europe today,” Seturidze said.

Nearly 150 kilometers of the highway has already built. Another 100 kilometers are slated to be built in the coming years, with plans to link the road to Georgia’s Black Sea ports of Poti and Anaklia.

4

BUSINESS

GEORGIA TODAY

AUGUST 2 - 4, 2016

Alternative Energy on the Georgian Market

BY EKA KARSAULIDZE

G

eorgia appears to be heading for a gradual transition to alternative energy consumption, following last week’s announcement that a solar energy generation system has been set up at the Shota Rustaveli Tbilisi International Airport.

The same system was also installed at Ilia State University. Moreover, in the surroundings of Gori city, eastern Georgia, the active construction of wind power plants is ongoing.

The solar energy generation system at Tbilisi International Airport is capable of generating 337,000 kWh electricity a year, which covers 40 percent of the facility’s total consumption, while Ilia State University’s solar energy generation system can generate 30,000 kWh electricity a year, which is enough to cover 15 percent of the building’s total use.

The project is the first of its kind in the South Caucasus and aims to promote the use of clean energy in Georgia. Its construction was possible

thanks to a USD 4.8 million grant from the Japanese government offered for the project in 2010.

The local government named the decrease of carbon dioxide emissions as the main advantage of the project- at Tbilisi International Airport and Ilia State University it is expected to reduce by 187 tons and 16.6 tons a year, respectively, which equals to about 569,000 m2 of forest.

The Ministry of Energy of Georgia is currently strongly focused on this direction and recently began construction of the Kartli wind power plants which will have a 20 MW capacity.

“The energy is expected to provide for approximately 20,000 families,” said Tornike Kazarashvili, Chairman of the Board of Kartli Wind Power. “After the pilot wind power plant begins operation next year, the Ministry of Energy will increase its capacity to 100 MW, with additional financial resources from investors and International Financial Institutions.”

The first solar heating systems in Georgia were installed in the mountainous Tusheti region, in the east, in 2010. In future, the Georgian government is also planning to construct a large solar power station in Gardabani district, eastern Georgia.

Tbilisi Hosts 48th International Chemistry Olympiad

BY THEA MORRISON

O

n July 31, the eight-day 48th International Chemistry Olympiad (IChO) came to a close in Tbilisi, having seen around 300 students from 75 countries arrive in Georgia with their mentors to participate.

According to the Education Ministry, for the first time in history, a member of the Georgian national team won the bronze medal. Saba Tavdgiridze, 11th grader of the Physics and Mathematics N199 Public School of Tbilisi, was declared third place winner.

The Ministry says such events contribute to Georgia’s involvement in international scientific and academic processes and strengthen academic and educational cooperation between countries.

Georgia’s Prime Minister, Giorgi Kvirikashvili,

and Education Minister Aleksandre Jejelava, attended the closing ceremony of the Olympiad to award the winners in various categories.

The PM noted that it was great honor for Georgia to host such an important event, which it did this year for the very first time, and said he wished the participants of the Olympiad many more scientific achievements and discoveries.

“Olympiads, along with science popularization, promote friendship and cooperation between students, enabling young researchers to establish close contacts and share practices,” he said.

Georgia joined the International Chemistry Olympiad just two years ago, with a four-member Georgian team competing in the 46th Olympiad in Hanoi, Vietnam.

"I am sure that memories of this Olympiad will last a lifetime and your days in Tbilisi will help you build new friendships and an even deeper passion and love for science," the PM told the young participants.

75 countries participated in the Chemistry Olympiad. Source: Prime Minister’s Press Office

BUSINESS

GEORGIA TODAY AUGUST 2 - 4, 2016

TBC Bank Wins Multiple Awards for Corporate and Consumer Digital Banking from Global Finance Magazine

T

BC Bank is delighted to announce that it has received the “Best Integrated Corporate Bank Site in Central & Eastern Europe 2016” award by Global Finance Magazine for the fourth year running. At the same time, TBC Bank was once again named the “Best Consumer and Corporate Digital Bank in Georgia 2016”.

“The most successful retail and corporate banks in the world are those that have effectively transformed themselves into fully-integrated digital banks, with a strong focus on user experience,” says Joseph D. Giarraputo, Publisher and Editorial Director of Global Finance. “The winners of

this year’s awards are those banks that understand that both corporate and retail clients expect their financial partners to provide easy access to a suite of financial products and tools that are fully-integrated into their broader digital life.”

According to the editorial press release of the publication, the winning banks were selected based on the following criteria: “strength of strategy for attracting and servicing digital customers; success in getting clients to use digital offerings; growth of digital customers; breadth of product offering; evidence of tangible benefits gained from digital initiatives; and web/mobile site design and functionality.”

“We are extremely proud to continue

to receive such important recognition from Global Finance Magazine. These prestigious awards are validation of the Bank’s efforts to develop exceptional multichannel capabilities with a special focus on digital channels,” said Vakhtang Butskhrikidze, CEO of TBC Bank.

5

Foreign Investment to Develop Sports Tourism in Georgia

About Global Finance 2016 World’s Best Digital Bank Awards This is the 17th year Global Finance has named the World’s Best Digital Banks and details on all First Round winners will be published in its September issue.

Additional information on Global Finance Best Digital Bank Awards 2016 can be found on the publication’s website.

BY EKA KARSAULIDZE

P

rime Minister of Georgia Giorgi Kvirikashvili has highlighted the need to support and develop sports tourism in the country and noted that Canada and Slovakia are injecting USD 65 million (150 million GEL) into Georgia to build new sporting infrastructure to develop the country’s ability to host top sporting events.

“Over the past four years, the government has spent more than USD 213 million (about 500 million GEL) on a variety of sports infrastructure and activities. This overriding support for the development of Georgian sport has given the right results, with Georgia becoming something of a regional hub in terms of sporting events,” the PM said.

He noted the importance of foreign partnership and asked the country’s Minister of Sports and Youth Affairs to launch a public-private partnership model that would best support the Canadian and Slovakian investment.

“The State shall not compete with the existing infrastructure and the best partnership model should be found to avoid damaging a competitive environment. This service should be available for wider society and we should not become the managers of this infrastructure in the long-term,” said Kvirikashvili.

Minister of Sports and Youth Affairs, Tariel Khechikashvili, said that Georgia is preparing to host a number of sporting events in 2017, such as the World Rugby U20 Championship. The Minister claimed that due to the development of sports infrastructure, these events would be held at the highest level, which will contribute to the development of sports tourism overall.

6

BUSINESS

GEORGIA TODAY

AUGUST 2 - 4, 2016

New Georgian Wine Center Opens in China

EUR 100 Million Investment and SME Support from EIB

BY EKA KARSAULIDZE

The new 4,000 m2 boutique is the 40th of its kind to open in China in the last two years. Source: Georgian Ministry of Agriculture

BY EKA KARSAULIDZE

A

newGeorgianwineboutique has opened in the capital of China’s southeast Jiangxi Province, Nanchang.

The new 4,000 m2 boutique is the 40th of its kind to open in China in the last two years. The center includes an exhibition hall, tasting room, museum and Georgian restaurant.

Developing robust political, economic and cultural relations with China has been one of the top priorities of the ruling

Georgian Dream coalition.

Cooperation between the Chinese Communist Party and the Georgian government, including a Sino-Georgian intergovernmental commission on trade and economic cooperation, has significantly contributed to increased trade and stronger economic relations.

China became one of the leading importers of Georgian wine in 2016, with only Russia and Ukraine buying more bottles than the Chinese.

Between January and June, more than 1.9 million bottles of Georgian wine was exported to China, a 148 percent year-onyear increase from 2015.

G

eorgia is to receive an additional EUR 100 million from the European Investment Bank (EIB) to be spent on the development of municipal infrastructure in Georgia, from building new roads to renovating schools.

A meeting was held between Municipal Development Fund (MDF) Executive Director, Juansher Burchuladze, members of the Donors Relations and Projects Management Unit, and EIB representatives Ionas Bistrom, Georgia Koutsiana and Aleksandra Vilkom.

During the meeting, the MDF and EIB discussed those projects carried out with their cooperation during the past year, and future goals were set, amongst which one of the most important programs is the Urban Reconstruction and Development Program.

Last week, the EIB, together with the European Union, allocated a EUR 5 million (11 million GEL) loan to Georgia to rehabilitate the central water system in Tsnori village in Georgia’s Kakheti region to enable its 5,500 residents to have 24 hour access to a clean, reliable water supply.

In July, the EIB also announced its decision to provide financial support for small and medium-sized businesses (SMEs) in Georgia from September via local commercial banks. The EIB agreed to actively take part in the financing of local SMEs, but said that business own-

ers would be required to meet the current stringent conditions required to gain initial capital.

According to official sources, the banks that will be involved in the financing include Bank Republic, TBC Bank, ProCredit Bank and the Bank of Georgia.

BUSINESS

GEORGIA TODAY AUGUST 2 - 4, 2016

7

EXCLUSIVE

PwC on What’s Ahead for Georgia

BY KATIE RUTH DAVIES

G

EORGIA TODAY got the chance to sit down with Altaf Tapia, Country Managing Partner, PriceWaterhouseCoopers (PwC) Georgia & Armenia, and Simon Parsons, PwC Manager of Tax & Legal Services, to get their take on Georgia, links to the UK and the progress it is making in the lead up to the next election.

PwC offers a global network of skills and expertise in accounting, tax, legal and advisory services and has been in Georgia for 11 years helping both businesses and government organizations to get ahead. “In the last few years, PwC Georgia has had close cooperation with the UK, both in terms of our firm and clients. One example is TBC Bank being listed on the London Stock ExchangePwC helped with the Initial Public Offering in 2014 and the Premium Listing process this year,” Simon told us.

“Georgia’s success in the 2015 rugby world cup in the UK, and British newspapers calling Qvevri wine the latest trend, means that Georgia is getting more press attention in the UK than ever,” Simon told us. “Our partnering with the British Georgian Chamber of Commerce, which recently opened an office in Tbilisi, having been based solely in London before that, recognizes these growing connections.”

GEORGIAN REFORM WITH UK SUPPORT Altaf added, “Apart from this, we have more Georgia-UK ties because of the British government’s Good Governance Fund (GGF).” Managed by PwC UK together with PwC Georgia and the Tbilisi consultancy, Policy and Management Consulting Group (PMCG), the British government set up the GGF to provide technical assistance to Georgia and four others (Ukraine, Serbia, Bosnia and Herzegovina and Moldova) so that they become more resilient to political and economic shocks, and have further growth and stability.

Georgia’s public authorities identify priority areas where they would like to strengthen governance capacities whether by benchmarking performance, improving working processes, increasing transparency or developing new policy and legislation. “This means we’re on the ground to discuss and advise on topics they [the government] want to reform,” Altaf said.

The GGF team then design reform assistance projects, which the British Embassy in Georgia then assesses and approves, before the right people from a range of international experts are chosen to carry out the project.

THE RIGHT MIND-SET Reform is very much on the agenda in Georgia. When looking to other coun-

In Georgia the desire to be a part of Europe is distinctly clear

Altaf Tapia, Country Managing Partner, PwC Georgia & Armenia, and Simon Parsons, PwC Manager of Tax & Legal Services

Further targeted initiatives are needed to prevent brain drain and up Georgia’s basic vocational training capacities tries in the CIS region, Altaf said he found the Soviet mentality can be “very ingrained” but that in Georgia, “in both politics and the minds of the general public, there is little value still placed on the Soviet regime or styles” and that the “desire to be a part of Europe” is distinctly clear.

As for the development, the assessment was positive. But Altaf suggests further targeted initiatives are needed to prevent brain drain and to up Georgia’s basic vocational training capacities. “Accountants, lawyers and consultants are well catered for [here], but there needs to be more impetus for new graduates to build careers more broadly.”

“Georgia seriously lacks expertise in some key areas,” he said. “The technocrats of Soviet times are no longer around.

Now, for example, large companies are finding it hard to get qualified engineers [here].”

He added that more encouragement is necessary in addition to the steps already being taken (such as the focus on STEM in universities, the current PM’s priority project, or the Produce in Georgia program) This should kick start progress soon and should be the beginning.

“A core of expertise needs to be built from schools and colleges. But education and awareness are key- people need to be open to going into new fields and also have the skills to do so.”

“Progress naturally slowed in the 20072009 period due to political influence.

Further, Georgia is in a political geographical area whereby it can be dependent on the actions of neighboring countries when making its own decisions,” Altaf said, pointing out that over the past four years the pace of development and growth in business confidence has been uneven and the authorities need to continue to try “to get it right”. He expressed hope that the next parliament will provide a stable platform - “to take the country forward faster.”

THE EU & GEORGIA Altaf thinks that with present times in and around Europe, Georgia is closer but still quite far from being eligible to join the European Union. “The initial expectations given to Georgia were unfortunately high and could have been better managed,” Altaf said Investors are key to progressing eco-

A core of expertise needs to be built from schools and colleges nomically, Altaf believes, and links between the UK and the EU and Georgia only serve to boost that side of affairs.

And with the ex-Soviet countries having the tourism and investment potential of Georgia regularly touted at them, now is the “right time to put Georgia and its businesses out there.”

The next step, Altaf added, is to encourage more investment and grow exports.

“Georgian products need to be visible in the EU markets, be tested, tried, and valued for quality. Such access to European markets is vital. It will happen if

things progress as they are. It’s just a question of time.”

Altaf Tapia is a qualified Chartered Accountant and a Fellow member of the Institute of Chartered Accountants of India. He has over 30 years of professional practice experience providing Assurance services to a variety of industries including FMCGs, Oil and Gas, Mining, Telecom and Financial services in

India, the US, Central Asia and the Caucasus.

Simon Parsons is a Chartered Accountant with the Institute of Chartered Accountants Scotland and Chartered Accountant with the Chartered Institute of Taxation (UK). He has over five years of professional practice experience, advising multinational companies on their tax affairs, previously in the UK, Germany and Singapore.

8

BUSINESS

GEORGIA TODAY

AUGUST 2 - 4, 2016

Georgia Recognizes China as One of its Main Trade Partners

BY EKA KARSAULIDZE

C

hinese entrepreneurs are increasingly investing in Georgia’s economy. To coordinate efforts to attract investment and intensify trade relations between the two countries, representatives of the Ministry of Economy and Sustain-

able Development of Georgia conducted a business visit to China to establish the Trading and Investment Council.

The business trip opened with the China-Georgia Investment Forum, where the Georgian side presented a USD 7 billion investment portfolio. The Minister of Economy, Dimitry Kumsishvili, claimed that these projects should be interesting for many of the 100 Chinese companies gathered at the Forum.

“Chinese companies have been successfully oper-

ating in different sectors in Georgia such as construction, roads and infrastructure, energy, the banking sector and more. China is Georgia’s fourth largest trade partner and second largest in terms of export. China takes nine percent of Georgia’s entire exports,” stated the Minister.

Among recent joint projects between China and Georgia, Kumsishvili named the Free Trade talks among the most important, which started in 2015 with a deal expected to come into force in late 2016. He also discussed establishing a joint Trade and Investment Council to facilitate the exchange of information about entrepreneurs, attract investors, and develop trade, as well as to develop the ‘One Belt, One Road’ initiative that aims to offer many new opportunities to countries along the Silk Road.

The issue of import was also a priority during the Minister's visit, as China recently became leading importers of Georgian wine, with only Russia and Ukraine buying more bottles than the Chinese.

In recent months Georgia has strongly focused on expanding its wine exports to China and has opened several Wine Houses to raise awareness of Georgian wine.

During the business visit, the Minister of Economy not only attended the opening of the new Georgian wine boutique in the capital of China’s southeast Jiangxi Province, Nanchang (see page 6), but signed an agreement to sell wines on the E-SilkRoad website. The first Georgian company to sell its wine

there will be the Dugladze Wine Company, which will initially export 300,000 bottles of wine for online purchase.

The idea to make Georgian wine available online was supported by the Silk Road Chamber of International Commerce, which is an international nongovernmental organization that aims to promote the renaissance of the Silk Road and enable business participation in the investment and trade opportunities it offers.

The Minister held a meeting with CEFC China Chairman, Ye Jianming. CEFC China generates most of its revenue from oil and gas (60 percent) and financial services (25 percent), but operates also in a wide range of other sectors like transport infrastructure, forestry, asset management, hotel management, warehousing services, real estate development and logistics services.

Regarding Georgia, CEFC China has shown readiness to open a regional office in Georgia to cover the region and Eastern Europe. Moreover, the company is interested in making investments in the banking sector, power system and tourism business of Georgia.

During the visit, Kumsishvili also held other official meetings and visited the port and Industrial Zone in Shanghai. He further took part in an evening of Georgian wine and other cultural events, organized by the National Wine Agency of Georgia and the Chinese Silk Road Chamber of International Commerce.

BUSINESS

GEORGIA TODAY AUGUST 2 - 4, 2016

9

The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research.

For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.

Electricity Market Watch FOR GEORGIA TODAY BY TAMARA KURDADZE

S

ector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine, and Real Estate sectors in Georgia. As part of our energy sector coverage, we produce a monthly Electricity Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website - gtresearch.ge.

The Ministry of Energy announced in May 2016 that it would reevaluate the existing PPA policy as per IMF’s recommendation. The evaluation process has been completed and the ministry has announced one major change to the policy – investors in the energy sector will no longer be granted 12-month takeor-pay PPAs; the guarantee period will be limited to 8 months. Since 12-month PPAs were only granted in exceptional cases, such as Khudoni HPP, Nenskra HPP, and Tkibuli TPP, this change will not affect the majority of potential investors. The purchase price is expected to remain at USc 6/kWh on average, according to the ministry. Notably, the change in the PPA policy will not affect existing MoUs.

submitted bids for the 433MW Namakhvani HPP cascade project. The Expression of Interest stage lasted six months, with 26 companies present at the initial site visit and basic design presentation.

The Ministry of Energy will select the winner within six months; the key criterion in the selection process is the average per kWh price proposed by the investor.

figures, with GM’s consumption up 14.3% y/y. Total domestic usage was up 7.3% y/y, with DNO consumption (+6.3% y/y) a major driver. Growth was concentrated on the greater Tbilisi area (+13.4% y/y).

Usage of Energo-Pro subscribers was up 3.4% y/y. Consumption of the Abkhazian region was up 14.8% y/y, after three consecutive months of flat or negative growth figures.

DIRECT CONSUMPTION BACK ON TRACK AS GM RESUMES MINING OPERATIONS

STRONG EXPORT GROWTH IN JUNE WITH TURKEY THE MAJOR DRIVER

Direct consumption was up 6.4% y/y in June 2016, after Georgian Manganese (GM) resumed mining operations in May. The full effect was seen in the June

Exports were up 14.6% y/y in June 2016.

50.2% of exports were directed to Turkey (+23.1% y/y), 29.2% to Russia (-5.6% y/y) and the rest to Armenia (+32.4% y/y).

DOMESTIC CONSUMPTION NEEDS WERE FULLY MET BY DOMESTIC HYDROGENATION Total generation was up 8.7% y/y. The main contributor to the growth was Enguri and Vardnili generation, which reached a six-year high. TPP generation in June 2016 was negligible, but the TPPs remained on stand-by to support system capacity. Notably, Gardabani CCPP was on stand-by for only eight days, leading to a 57.4% m/m decline in the guaranteed capacity fee.

Electricity imports in June 2016 were negligible.

ELECTRICITY MARKET PRICES ON THE RISE BOTH IN

GEORGIA AND TURKEY The market clearing price in Turkey was up 11.0% y/y in US$ terms in June.

Turkish electricity prices have posted increases on an annual basis for three consecutive months, albeit from very low bases. Wholesale prices are on the rise in Georgia as well - the June 2016 price for balancing electricity was USc 4.9/kWh, up 37.0% y/y. A mere 2.3% of total electricity supplied to the grid was traded through the market operator. The rest of the trade occurred through bilateral contracts.

The average export price of Georgian electricity was USc 3.9/kWh, with over half of the exports going to Turkey.

THREE INVESTORS HAVE EXPRESSED INTEREST IN BUILDING, OWNING AND OPERATING THE NAMAKHVANI HPP CASCADE PowerChina Resources LTD (CHN), Clean Energy Group Georgia LLC (NOR), and General Development LLC (GEO, AUT) are the three companies who have

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10

POLITICS

GEORGIA TODAY

AUGUST 2 - 4, 2016

Source:www.washingtontimes.com

US House Committee on Foreign Affairs Supports Georgia’s Territorial Integrity, We Find out Why

BY NINO SAJAIA, VOICE OF AMERICA GEORGIAN SERVICE

B

efore going on a recess in July this year, the US House of Representative’s Committee on Foreign Affairs passed H. Res.660 which expressed the desire of the House of Representatives to support the territorial integrity of Georgia. In summary, the Resolution introduced on 03/23/2016 supports the US Stimson Doctrine to not recognize territorial changes effected by force, affirming that this policy should continue to guide US foreign policy; and condemns Russia's military intervention and occupation of Georgia and its continuous illegal activities along the occupation line in Abkhazia and Tskhinvali region/South Ossetia. Furthermore, it calls upon Moscow to withdraw its recognition of Georgia's territories of Abkhazia and the Tskhinvali region/South Ossetia as independent countries, and refrain from acts and policies that undermine Georgia's sovereignty and territorial integrity.

Additionally, the Resolution urges the United States to declare that it will not recognize Russian de jure or de facto sovereignty over any part of Georgia, including Abkhazia and the Tskhinvali region and, among other points, to deepen cooperation with Georgia, including Georgia's advancement towards Euro-Atlantic integration.

We spoke to one of its co-sponsors, Illinois Representative Peter Roskam, to evaluate its importance and discuss the major points.

WHY DID YOU SUPPORT RESOLUTION-H.RES 660 ON GEORGIA AND WHAT IS ITS PURPOSE? This is a very important resolution and the pur-

pose of the resolution is to get the Russians to back off, and refrain from taking over Georgian territories. Territorial integrity is inextricably linked to the sovereignty of the nation. It is also important because of the close strategic relationship between the US and Georgia- we share a value system, we share a world view, we share strategic interest, and that is why I think this resolution is so important.

HOW POSSIBLE IS IT THAT THE OBAMA ADMINISTRATION WILL ACT ON THE MAJOR STATEMENTS INSIDE THE RESOLUTION? It is hard to predict what is likely to happen in the waning days of the Obama Administration. But it is important for the co-equal branch of the government -US Congress- to tell to the American people, the Administration and their friends in Georgia that we believe territorial integrity matters; it matters that Georgia-South Ossetia and Abkhazia should not be taken over by the Russians; that things should be named for what they are. This is aggression and that aggression should be recognized as aggression before it can be redeemed and replaced.

ARE THERE OTHER MECHANISMS TO HAVE MOSCOW DE-OCCUPY OR REVERSE THE RECOGNITION OF ABKHAZIA AND SOUTH OSSETIA? I think Russia has numerous challenges and difficulties. They have bitten off more than they can chew with what they are doing in Ukraine and Georgia, plus the nature of their involvement in Syria. I hope they will come to say, “Let's be good neighbors. Let’s aim for good relations with our neighbors so they look to us for help, and feel esteem as opposed to fear and loathing.”

Georgia’s Intelligence Service Arrests Pankisi Resident for Suspected Terror Sympathies

BY TAMAR SVANIDZE

G

Contact: www.edelbrand.ge Phone: 599 461908

eorgia’s Counterterrorism Center announced on Saturday that it had arrested a young Georgian citizen for posting threatening message on Facebook using a fake account.

According the State Security Service, 23-year-old Vakhtang Khangoshvili was detained on Friday after posting a message on a social media that allegedly threatened a terrorist attack in Tbilisi. Khangoshvili is a resident of Duisi, a village in the isolated Pankisi Gorge inhabited by Muslim Chechens.

Located on the border between Georgia and Russia’s restive republic of Chechnya, the Pankisi Gorge has in recent years become known as the home of several prominent ISIS fighters. The most notable was the ginger-bearded Tarkhan Batirashvili, who gained international attention as ISIS’ top field commander under his Arabic nom de guerre, Omar alShishani - Abu Omar the Chechen. After leading ISIS to several stunning battlefield victories, Shishani was killed in a massive American drone strike in March.

In a post that appeared on Facebook under the pseudonym Dau Levsky, the user posted an image of a massive explosion with a short message in Russian saying, “Tomorrow at 12:30, in Tbilisi will be fireworks”. The user also posted an image of Batirashvili alongside the explosion.

“Following our investigation, on July 29 the detainee attempted to distribute information that contained terrorist threats though Facebook under

the username – Dau Levsky. The Counterterrorism Center, under the direction of the State Security Service of Georgia, immediately launched an investigation into the incident. If found guilty, the suspect could face up to 11 years in prison,” the Security Service said Iin an official statement released to the media.

According to Security Services, Khangoshvili’s vehicle and flat have been searched, though no information has been released regarding their findings.

Pankisi, home to more than 10,000 ethnic Chechens living in a scattering of isolated mountain villages in Georgia’s eastern Akhmeta district, has been a stronghold of age-old mountain traditions associated with the Chechen clans known as teips.

After Russia waged two brutal wars to end Chechnya’s drive for independence in the 1990s, thousands of Chechen refugees were resettled in Pankisi with their ethnic and religious kin.

The bleak situation in the valley has led to a rise of radical Islamist movements among its younger population, particularly in the number of those who reject the Chechens’ traditional moderate form of Sufism in favor of an extremist brand of Saudi Arabian-style Salafism.

As fundamentalist Islamic teachings have gained traction among Pankisi’s youth, militant fighters like Shishani have become local heroes.

The shift away from the traditional Chechen brand of Sufism – seen by most in the population as paramount to their national identity – has caused a major rift with the community’s elders and religious leaders.

BUSINESS

GEORGIA TODAY AUGUST 2 - 4, 2016

11

Dechert OnPoint: Consumer Protection & the DCFTA

D

echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

On July 1, 2016, the Deep and Comprehensive Free Trade Agreement (“DCFTA”) between Georgia and the European Union (“EU”) entered into force. The EU is Georgia’s main trade partner. Roughly 32.6 percent of Georgia’s trade is with the EU, followed by Turkey (17.2 percent) and Russia (8.1 percent). Therefore, the entry into force of the DCFTA is a matter of utmost importance for the development of both Georgia’s economy and the quality of its overall legal environment.

The DCFTA aims to deeper integrate Georgia with the EU through reforms in trade-related areas. Being based on the principles of the World Trade Organization (“WTO”), the DCFTA removes all import duties on goods and provides for broad mutual access to trade in services between EU and Georgia. It also provides the opportunity for EU and Georgian companies to set up subsidiaries or branch offices on a non-discriminatory basis, allowing Georgian companies to enjoy the same treatment as domestic companies in the EU markets, and vice versa.

However, open access to the EU single market comes with certain stringent obligations, which require Georgia to modify its legal framework to make it more compatible and harmonized with EU legislation. In the coming years, many different fields of law will fall under scrutiny and be subject to amendment in order for Georgia to fulfill DCFTA obligations. This edition of OnPoint analyzes those legal aspects of the DCFTA which relate to consumer protection.

EXISTING CONSUMER PROTECTION LAWS IN GEORGIA The existing legislative framework in the field of consumer protection leaves a lot to be desired from the perspective of the consumer. There is no generic legislation which guarantees the rights of consumers of different products. Consumer protection norms, if they exist, are scattered among different regulatory documents in different fields. In general, the consumer protection obligations are industry-limited and apply mainly to regulated industries.

Possibly the best developed consumer protection practices in Georgia are to be found in the field of electronic communications, where the Georgian National Communications Commission (“GNCC”) acts as a watchdog for the rights of different network subscribers. The GNCC’s

DCFTA OBLIGATIONS REGARDING CONSUMER PROTECTION Georgia must approximate its legislation to EU acts and international instruments in the field of consumer protection, according to the DCFTA. EU consumer protection policies shall be implemented in Georgia within the timeframes set by the DCFTA itself. The following policies are notable: • With regards to product safety, Directive 2001/95/EC of the European Parliament and of the Council of 3 December 2001 on general product safety shall be implemented upon the entry into force of the DCFTA. Additionally, the directive on the approximation of the laws of the Member States concerning products which, appearing to be other than they are, endanger the health or safety of consumers shall be implemented within two years of the entry into force of the DCFTA; • Commission Decision 2006/502/EC of 11 May 2006 requires Member States to take measures to ensure that only lighters which are child-resistant are placed on the market, and to prohibit the placing on the market of novelty lighters. The decision shall be implemented within two years of the entry into force of DCFTA; • In the sphere of contract law, the directive on consumer protection in the indication of prices of products offered to consumers, as well as the directive on unfair commercial practices, shall be implemented within five years of the entry into force of the DCFTA; • As for marketing, the directive concerning misleading and comparative advertising, as well as the directive on certain aspects of the sale of consumer goods and associated guarantees, shall be implemented within five years of the entry into force of the DCFTA; • Additional contract law protections to be implemented include the directive on unfair terms in consumer contracts; the directive to protect the consumer with regards to contracts negotiated away from business premises; and the directive on the protection of consumers with regards to distance contracts, are to be implemented within five years of the entry into force of the DCFTA; • Protections in the tourism sphere will

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Commercial Director: Iva Merabishvili Marketing Manager: Mako Burduli

GEORGIA TODAY

within the set timeframe. The DCFTA also encompasses many other guarantees regarding product safety and specifications in different fields that do not on the surface refer to consumer protection but serve the overall aim of improving the quality of supplied goods and services. For example, the NFSA is to implement 102 different technical regulations in the sphere of food safety, 84 different regulations in the veterinary field and 85 other documents in plant protection, in order to comply with the obligations undertaken under the DCFTA.

mandate is enshrined under the technical regulations for consumer protection in the field of electronic communications.

The field of electricity, gas and water supply is another example, under the supervision of the Georgian National Energy and Water Supply Regulatory Commission (“GNERC”). The banking, insurance and payments sector can also be added to the limited list of industries with specific consumer protection obligations placed on business operators.

Additionally, the LEPL National Food Safety Agency (“NFSA”) controls and supervises food safety in Georgia. It is now involved in implementing a number of regulations which must be put in place in the course of the DCFTA approximation process.

EDITORIAL DEPARTMENT:

Editor-In-Chief: Katie Ruth Davies

DCFTA imposes additional obligations on Georgia in terms of consumer protection.

Source: bpi.ge

also become applicable, with the directive on package travel, package holidays and package tours and the directive on the protection of consumers with regards to certain aspects of timeshare, longterm holiday product, resale and exchange contracts to be implemented within five years of the entry into force of the DCFTA; and • The banking and financial sector will also be reshuffled with regards to consumer protection laws. The directive concerning the distance marketing of consumer financial services and the directive on credit agreements for consumers shall be implemented within five

Journalists: Tony Hanmer, Tamar Svanidze, Zviad Adzinbaia, Beqa Kirtava, Meri Taliashvili, Eka Karsaulidze, Zaza Jgarkava, Maka Bibilashvili, Karen Tovmasyan, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Ana Akhalaia, Robert Isaf, Joseph Larsen, Will Cathcart, Vazha Tavberidze, Nugzar B. Ruhadze

years of the entry into force of the DCFTA. Consumer protection enforcement mechanisms shall also be put in place within the framework of approximation with EU law. Namely, the directive on injunctions for the protection of consumers' interests shall be implemented within five years of the entry into force of the DCFTA.

CONCLUSIONS The DCFTA approximation process will upgrade Georgia’s consumer protection legislation from being virtually nonexistent to on par with EU levels, once the approximation process is complete

Photographer: Giorgi Pridonishvili Layout: Misha Mchedlishvili Webmaster: Sergey Gevenov Circulation Managers: David Kerdikashvili, David Djandjgava

*** Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, an international specialist Law firm that focuses on core transactional and litigation practices, providing world-class services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide.

For more information, please visit www. dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

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