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Issue no: 926/68

• MARCH 7 - 9, 2017

• PUBLISHED TWICE WEEKLY

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In this week’s issue...

ON LAW

From Economic Freedom to Labor Law - it's all change & analyze in Georgia this week

PAGE 4, 10, 11

Austrian FM Calls for Refugee Centers outside EU NEWS PAGE 3

Economic Freedom (Act): Do We Need It or Not? ISET PAGE 4

World Tourism Forum Brings Industry Leaders to Istanbul Global Meeting PAGE 6

As Steady As Ever: Israel-Georgia Relations INTERVIEW BY VAZHA TAVBERIDZE

T

he visa-free regime between Israel and Georgia was, and is, rightfully considered a huge step toward closer ties between two nations that share a 26-century history of fraternity and friendship. There may be many a thing you can accuse Georgians of, but AntiSemitism would probably be at the very end of that list. Therefore, cries from deported Georgians that they were treated with disrespect at the Israeli border caused quite an uproar in Georgian media and society recently. Continued on page 5

First Woman to Run Construction Company in Adjara PAGE 7

Electricity Market Watch GALT & TAGGART PAGE 8

Dechert Onpoint: Georgia & The Energy Charter Treaty PAGE 14

The Russian Oil Industry Will Survive, even at $20 per Barrel PAGE 15 Prepared for Georgia Today Business by

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NEWS

GEORGIA TODAY

MARCH 7 - 9, 2017

De-facto Abkhazian Officials Close 2 "Crossing Points" on Occupation Line BY THEA MORRISON

T

he puppet regime of Georgia’s breakaway region Abkhazia closed two socalled crossing points along the administrative boundary line (ABL) on March 5. Before this decision, three crossingpoints along the occupation line were accessible: Enguri Bridge, NabakeviKhurcha and Otobaia-Orsantia. Now, following a decision by the de-facto Abkhazian authorities, only Enguri Bridge will remain open for locals to be able to cross the occupation line. Georgia’s Ministry of Foreign Affairs (MFA) condemned the fact, highlighting that last year the representatives of the occupation regime also closed the "crossing points" in the villages of Tagiloni and Lekukhona. “This decision grossly violates funda-

mental rights to freedom of movement, privacy and family life, access to education and healthcare for the local population, and serves for isolation of the occupied Abkhazia region from the rest of the world,” the statement of the MFA reads. The ministry says that closing crossing points along the occupation line will aggravate the already difficult humanitarian situation in the Abkhazia region, especially the livesof vulnerable groups, such as the elderly, people in need of medical care or medical evacuation and schoolchildren, further provoking destabilization of the situation on the ground. Moreover, the MFA states that despite clear-cut appeals from the international community, the Russian occupation regime in Sokhumi made the decision to continue its “destructive policy” and to impede the peaceful conflict resolution efforts offered by the Georgian government. “The Ministry of Foreign Affairs calls

upon the Russian Federation to refrain from provocative actions against Georgia, and to respect the fundamental principles of international law, as well as commitments taken under the EU-mediated 12 August 2008 Ceasefire Agreement, in order to make a responsible approach to the prevention of escalation of tensions on the ground,” the statement reads. The ministry also appealed to the international community to duly assess the tendency of closure of the so-called crossing points and isolation of the occupied regions; the so-called referendum to be held on 9 April in the Tskhinvali region, and to take effective measures with regard to Russia’s illegal steps undermining the sovereignty and territorial integrity of Georgia. Ketevan Tsikhelashvili, Georgia’s Minister of Reconciliation and Civil Equality also criticized the closure of “crossing” points. “Around 1000 people use the crossing

points every day and the closure of two more points violates the fundamental rights of local residents,” Tsikhelashvili says. “This includes the right to free movement, private and family life, education and healthcare. The de-facto regime’s argument that the crossing points were closed for 'enhanced secu-

rity measures' is groundless. These points are used by peaceful populations for domestic reasons,” she added. The minister called on all the parties involved in the decision to realize the gravity of the action and take steps towards simplifying the opportunities of movement in the affected region.

WHERE to Go, Stay, Eat, Drink and Buy in March

A

lthough winter is nearly over, tourists can still find places in Georgia covered in snow, and this is true not only in the high mountains. Don’t be surprised, then, when you meet snowy views captured on the pages of this WHERE February-March issue, a guide full of hot travel reviews and recommendations carefully prepared by the Where editorial team. One of our top picks this issue is an article about Gergeti, with Swiss journalist Manuela Kosch discussing in detail the story of one of Georgia’s must-see monasteries, just three hours from Tbilisi. If you haven’t been yet, doubtless you will have seen photos of the Gergeti Trinity Church, sometimes peeking out of the clouds against the mesmerizing background of the Kazbegi

mountains. Another resort where winter lingers is the famous Borjomi and BorjomiKharagauli National Park, a protected area with unique landscape and distinguished biodiversity. Beautiful Borjomi town, surrounded by high mountains, is a popular tourist destination with interesting architecture, breath-taking nature and warm mineral spring water spouting straight from the tap for you to try in the central park. Follow our Svaneti-resident Tony Hanmer, who has lived there since 1999, on a discovery tour of the region, on the way learning everything you need to know to make your trip to Svaneti a real success before, during and after your visit. Discover the best spots for a romantic meal, check out the lunchtime offerings

along the former Leselidze Street and take a peek into the city’s churches and yards while hearing about the Love Letters past visitors have written about it all. You might think that we Georgians are bias in our glowing descriptions of the country’s resorts, but even the foreign press is on to it- check out The Telegraph, which included Tbilisi on its list of 21 Must-Visit European Cities, and Vogue, which puts Georgia among its hot travel destinations in 2017. Now you’re sure Georgia is the right choice for your holiday in 2017, grab a copy of WHERE from any souvenir shop in the Old Town and know that in your hand you have all the best information on WHERE to Go, Stay, Eat, Drink and Buy this spring – another wonderful time to explore Georgia.


NEWS

GEORGIA TODAY MARCH 7 - 9, 2017

Strasburg Court Suspends Georgia’s Supreme Court’s Verdict over Rustavi 2 TV BY THEA MORRISON

T

he European Court of Human Rights (ECHR) temporarily suspended enforcement of the verdict over Rustavi 2 TV reached on March 2 by the Grand Chamber of the Supreme Court of Georgia. Rustavi 2 appealed to the ECHR and requested an interim measure to suspend the Supreme Court’s decision on March 3. The broadcaster received a letter from the ECHR later the same day, suspending the verdict until March 8. "On March 3, 2017, the court (the duty judge) decided … to indicate to the Government of Georgia, under Rule 39, that the enforcement of the Supreme Court’s decision of 2 March 2017 should be suspended and that the authorities should abstain from interfering with the applicant company’s editorial policy in any manner,” the ECHR letter said, adding that this interim measure is granted temporarily, until March 8 of 2017. “For the first time in its history, the ECHR suspended the enforcement of the Supreme Court decision," said Director General of Rustavi 2, Nika Gvaramia, stated at a special press-conference. "Such a measure has never been used by the Strasburg Court expect for cases concerning torture or extradition of a person, or when a person’s life is in danger”.

The Director General believes that the Rustavi 2 case and the “shameful judicial authorities of Georgia, laid the foundations for the new practice of the European Court”. The Grand Chamber of the Supreme Court of Georgia, which is tasked to solve the most complex cases, made the final decision over the high-profile Rustavi 2 TV dispute and granted the assets of the broadcaster to its former owner, Kibar Khalvashi. Khalvashi was a co-owner of Rustavi 2 from 2004 to 2006. He filed a lawsuit in August 2015 to reclaim his shares, saying he was illegally deprived of his company under the previous United National Movement (UNM) government. The case was handed to the Grand Chamber on November 21, 2016. On March 2, 2017, the Chamber, which consists of nine judges, including the Chair of the Supreme Court, ruled that 60 percent of Rustavi 2 TV shares were to be given to Khalvashi and the remaining 40 percent to Panorama LTD, which is a company owned by him. The Chamber made the decision on the background of protest rallies, organized by Rustavi 2 and its supporter oppo-

sition parties, who demanded “a fair decision” from the court. Georgia's Minister of Justice, Thea Tsulukiani, commented on the decision of the ECHR, saying that correspondence from Strasburg shows that Rustavi 2, as a company, had applied to the European Court and named the government of Georgia as a respondent party. The Minister said that Rustavi 2 requested the following: 1. To prevent the Government of Georgia from executing the March 2 decision until the European Court considers the case on its merits and delivers the final decision; 2. To prevent the Government of Georgia from shutting down the TV station; 3. To prohibit the government from changing the management or the board of the company. “The judge made the decision to ban the government from taking any measure that would cause changes in the editorial policy until March 8 and not until the end of the review of the case, as was demanded,” said Tsulukiani, adding that Georgia will follow the case according to procedures. The ECHR is a supra-national or international court established by the European Convention on Human Rights. It serves to hear applications alleging that a contracting state has breached one or more of the human rights provisions concerning civil and political rights set out in the Convention and its protocols.

3

Austrian FM Calls for Refugee Centers outside EU BY THEA MORRISON

S

ebastian Kurz, Foreign Minister of Austria, has proposed to create refugee centers outside the borders of the European Union (EU), for example in Georgia or in the Western Balkans. The proposal came during his interview with German bild.de newspaper. “We need refugee centers outside the EU, which are operated together with the UNHCR… It is not that important where they will be. The important thing is that these countries will ensure protection, and that people who illegally try to get into Europe gate sent back there. The facilities could be placed in countries such as Egypt, Georgia, or somewhere in the Western Balkans,” Kurz stated. Kurz added that the Mediterranean route should be closed for illegal immigrants.

“It is easier to stop and take someone back to the EU's external border than when they have already moved into a flat in Vienna or Berlin,” the Austrian minister noted. The statements of Kurz were followed by comments in Russia. Russia believes that the idea of migrants in Georgia, taking into account the threat of international terrorism, contradicts Russia's national interests. First Deputy Chairman of Russia's Federation Council Committee on Defense and Security, Franz Klintsevich, told Ria Novosti that EU member states want to rid themselves of the migration crisis burden and transfer it to others. “The proposal of Sebastian Kurz is directly related to the national security of Russia, which has a common border with Georgia,” Klintsevich stated in his interview. The Russian official also said that “everyone should remember the time when terrorists were being readied in Georgia's Pankisi Gorge.”


4

BUSINESS

GEORGIA TODAY

MARCH 7 - 9, 2017

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

Economic Freedom (Act): Do We Need It or Not? BY LEVAN PAVLENISHVILI & NORBERTO PIGNATTI

T

he Magna Carta (originally known as the Charter of Liberties) is one of the most famous documents in the world, which established the idea of limited government in 1215 and is considered to be a symbol of liberty today. The so-called “Economic Freedom Act” (EFA), which has been a matter of public discussion in recent weeks, refers to two pieces of legislation: (i) a Constitutional amendment from 2010, which requires a referendum for introducing new taxes or increasing the tax rate, and (ii) the Law on Economic Freedom (2011), in force since 2013, setting a number of additional restrictions to government fiscal policy (Table 1). Several economists have criticized this legislation as limiting the government’s ability to utilize fiscal policy effectively. Some of the center-left MPs from the ruling party have actively endorsed this idea, proposing the revocation of the legislation. Other

Table 1. Law on Economic Freedom in Short

Number of Taxes

6

Government Expendi- 30% tures, share of GDP Budget Deficit, share of 3% GDP Public Debt, share of GDP 60% New tax / Tax rate increase Referendum (except for excise tax) government officials, however, affirmed the that EFA, which does limit the discretionary power of the government to add new taxes and to expand the public budget, is consistent with the current government’s vision for economic development and therefore does not need to be modified. Given the importance of this piece of Georgian economic legislation, in this article we will discuss in greater depth the merits of both positions, looking separately at its two most relevant consequences: • the inability of the government to introduce new taxes (or to increase the existing ones)

• the constraints it poses to expansionary fiscal policies.

Table 2. Total Government Expenditures as Share of GDP and HDI Ranking (selected countries)

Total Govern- HDI ment Expendi- Ranking tures (%) of GDP

NO NEW OR HIGHER TAXES? Requiring a referendum to introduce new taxes can be problematic if it prevents the government from introducing new (specific) taxes to align the incentives of market players with those of the society (as in the case of negative externalities). Given the limited number of taxes allowed by Georgian legislation and the way in which they are defined, there is a real possibility that the EFA could prevent the introduction of potentially useful economic instruments (such as a tax per unit on pollutants released in the air or discharged in a river) or, at least, delay their introduction and add a non-negligible element of unpredictability to the legislative process. Even the modification of existing taxes to fit emerging needs, whenever possible, could theoretically be challenged as “introduction of a new tax.” What is more concerning – to those that oppose the EFA– is that the final decision about the legitimacy of the instrument used would not depend on whether its introduction led to a net gain or a net loss for the society but, rather, on a court’s interpretation as to whether the instrument constitutes a “new tax,” or not, potentially preventing even the introduction of a welfare (and efficiency) enhancing instrument. Similar concerns can be raised also with respect to situations in which, facing an exogenous revenue shortfall in the state budget, the government finds itself in the impossible position of being unable to raise taxes (or indebt itself, something we will discuss below) and must adopt sub-optimal choices (such as cutting crucial investment expenditures), with potentially negative long-term effects on the economy. Does this need to be the case? Not necessarily. The EFA does not prohibit the introduction of new taxes or the increase of the existing taxes tout court. It “just” conditions the adoption of such initiatives to the approval of the Georgian population. While there is a justified concern that the population would instinctively oppose tax increases (or the introduction of new taxes) and favor the reduction of taxation, there is some evidence to the contrary coming from the experiences of other countries (e.g. the approval of a sales tax increase and of a property tax increase in the USA and the rejection of a proposed tax cut in Switzerland). Voters can (and do) vote to increase taxes and to reject tax cuts when a sufficiently strong case is made. Ultimately, having a rule such as the EFA could even be beneficial if it forced the government to have a good case for requiring the introduction of new taxes or an increase in existing ones. Finally, the fact that the EFA allows the government to temporarily increase taxes for up to 3 years without referendum gives some additional leeway to government action, limiting potentially negative impacts.

WHAT ABOUT GOVERNMENT SPENDING? The other critical aspect of the Economic Freedom Act concerns the rigid limits imposed on the government concerning some parameters such as the share of government expenditures, budget deficit and public debt over GDP. As we mentioned, the rationale of such constraints would be to limit the potential burden on the economy associated with a hypertrophic government. However, as those opposing the current legislation remind us, these very rigid constraints might prove counterproductive in exceptional circumstances, limiting the capacity of the government to act in a countercyclical way. They have a point. In situations characterized by a prolonged underutilization of factors of production (such as capital and labor), an increase in public expenditure can play an important role in accelerating a recovery and preventing painful (and wasteful) stagnation. The excessive rigidity of the Euro Convergence Criteria (also known as the Maastricht

Denmark

56

4

Norway

48

1

Switzerland

33

3

Ireland

29

6

Georgia

29

76

Sources: IMF WEO 2016; HDR 2015 Criteria), for example, are being criticized by an increasing number of economists around the world as lacking economic meaning and as being among the main causes for the poor macroeconomic performance and the increasing social tensions within the Euro Area. It is interesting to note how two out of the three macroeconomic indicators included in the Law on Economic Freedom coincide with the Maastricht criteria (namely, the 3 percent limit for the budget deficit/GDP ratio and the 60 percent limit for the debt/GDP ratio). Another interesting observation is that the Euro Convergence Criteria do not mention any maximum limit to public expenditure (as share of GDP). Indeed, there is no generalized consensus in the economic profession about the relationship between the size of government and development of a country. The reason is simply illustrated by an analysis of Table 2. For example, Ireland and Switzerland, which have a share of government expenditure to GDP similar to Georgia, are among the top ten countries in terms of the Human Development Index (a broader measure of economic development, compared to GDP), exactly like Denmark and Norway, whose share of government expenditure to GDP is more than 20 percentage points higher. All this seems to indicate the absence of a clear, univocal relationship between government size and development. Also in this case, however, things are not as dramatic as they may seem at first sight. The EFA does leave some flexibility to the government to exceed the values set in the law, requiring in exchange the definition of a plan to “reabsorb” the excesses over a two-year period.

CONCLUSION To summarize, while the Economic Freedom Act does not currently prevent the government from conducting an active fiscal policy, it does constrain its capacity to conduct it. On the positive side, this maintains a simple and transparent tax system, reduces the risk of the government overreacting to temporary fluctuations of the economy, and conditions the introduction of new taxes and any increase in existing ones to the scrutiny of the population, encouraging a more thorough analysis of the expected impacts of public expenditures. On the negative side, however, it creates obstacles to the introduction new (potentially welfare enhancing) tax instruments, it may limit the possibility of the government to act in a decisive manner to tackle deep and prolonged recessions, and it may prevent the government from investing significant resources in the development of the country (financing its expenditure by issuing debt). Overall, whether the benefits of this legislation will exceed its costs will depend on the challenges faced by Georgia, and on the pragmatism and flexibility shown by both the Georgian government and Georgian society. Rules can be useful, but one should always keep in mind that they are a means towards a goal, not the goal itself. Levan Pavlenishvili is a Senior Researcher, EEPRC, ISET Policy Institute; Norberto Pignatti is a Professor at ISET – Head of the EEPRC, ISET Policy Institute.


BUSINESS

GEORGIA TODAY MARCH 7 - 9, 2017

5

First Georgian Children’s As Steady As Ever: Israel-Georgia Relations Clothing Brand Spilow to Enter UK Market Continued from page 1

BY NINO GUGUNISHVILI

S

pilow, the first Georgian children’s clothing brand, is to be made available in the London Igloo Kids store. The cooperation began when Spilow made clothes displaying book characters for Igloo for its World Book

Day dress up. World Book Day is celebrated on April 23, but the UK marks it on the first Thursday of March. Founded a year ago by three young Georgian women, Sopo Chkhaidze, Taso Japaridze and Marinka Garibashvili, Spilow produces clothes from all natural materials for children aged 1 to 12. “We wanted it to be a Georgian brand affordable for young parents, with

clothing made from natural materials and comfortable to wear for any occasion,” Chkhaidze says. Today, the company produces two lines of clothing- one vintage and another made with contemporary textile. Even without their own shop, Spilow became an instant success on social media. They are now planning to open their own sewing facility and possibly expand their export beyond the UK.

Wanting to hear both sides of the story, and from a reliable source at that, Panorama TV Show and GEORGIA TODAY spoke with the Israeli Ambassador to Georgia, Shabtai Tsur, who opted for a rather straightforward approach to the issue. Serving in his second term as Ambassador (his first was in 2005-2008), Tsur was born and raised in Georgia, in the Vani region, and, in his youth, went by name Shota Tsotsiashvili. The Vani native left Georgia when he was 21 to study in Russia, before permanently moving to Israel. He now boasts 32 years of public service, having held posts as Advisor to the Prime Minister on Georgia and the South Caucasus, Honorary Consul of Georgia in Israel and, as mentioned, Ambassador. His second coming to his second homeland, as he calls Georgia, has, however, been somehow overshadowed by the recent deportation controversies, and he was keen to explain just what is going on at the Israeli border for Georgians. “First of all, let’s talk numbers,” he says, visibly eager to underline the pros of the visa-free regime that was considered a major boon from Israel. “In 2015, around 70,000 tourists came here from Israel. In 2016, that number grew to 100,000. Similarly, more than 13,000 tourists visited Israel from Georgia. What we see from those numbers is a mutually beneficial tourist flow between our two countries. “ However, there are challenges and problems, too, a fact he’s willing to admit. “There are three types of tourist coming from Georgia,” he says. “First, the ‘real’ tourist, those that come and go back. Second and third, however, are more problematic – these are people who seek to work there, often illegally, or ask for asylum.” “In 2016, when we looked at the statistics

we were quite confused,” he confesses. “The numbers of those who illegally remained in Israel and asked for asylum had dramatically increased.” Looking at numbers wasn’t the only thing they did, though: a few weeks ago, Israel promptly recognized Georgia as a country of safe origin, which effectively rules out getting asylum in Israel on grounds of persecution or discrimination in Georgia. “Nobody is above the law in Israel – not the prime minister, not the president, nobody. And that certainly includes tourists from Georgia,” Tsur says. According to his logic, an Israeli border guard shouldn’t be above the law, either, so how about investigating those claims from Georgian travelers that caused such a public outcry here? “Every concrete issue will be looked at. The embassies of both countries, and foreign ministries – all of this is being discussed at the highest level. We are working very hard to make such things happen less and less often. Each and every complaint is monitored by the Georgian Consulate. And don’t get me wrong- I don’t deny anything; it’s possible somebody at the border made a mistake. When, out of 100 % of travelers, 80 % seems to be trying to stay illegally and engage in illegal activities, 1 or 2 % mistakes are to be expected. As bad as it is, such things happen in every country, at every crowded border. But rest assured, we’ll investigate every single issue,” he promises. And, he says, the tourist flow between the two countries is only going to get bigger. “In 2017, there will be literally 100 flights per month. It’s really, really busy. So, no matter what some people might say, the visa-free regime between Israel and Georgia is doing just fine, and will continue to do so. The relationship between Israel and Georgia is as steady as ever,” he concludes reassuringly.


6

BUSINESS

GEORGIA TODAY

MARCH 7 - 9, 2017

World Tourism Forum Brings Industry Leaders to Istanbul Global Meeting BY GEORGE SHARASHIDZE

O

n 16-18 February, Istanbul hosted the world-renowned World Tourism Forum with the participation of a large number of industry executives, investors and public authorities from around the globe. Since 2015, the World Tourism Forum has been the meeting point for leaders shaping the global tourism trends. Under the auspices of the Presidency of the Republic of Turkey, and in partnership with leading hospitality, travel and destination management organizations such as Coral Travel, Turkey’s leading tourism company (member of OTI Holding), the World Tourism Forum hosted a three-day intensive tourism conference distinguished with prominent speakers including David Miliband, the President and Chief Executive of International Rescue Committee (IRC); Sphilko Sergey Pavlovich, President of Russian Union of Travel Industry; and Fettah Tamince, Owner of Rixos. Prime Minister of Republic of Turkey, HH Binali Yıldırım, delivered the opening speech at the World Tourism Forum. "It is insufficient to evaluate tourism only from an economic point of view- tourism is beyond that. It is primarily the meeting of cultures, the meeting of civilizations," he declared, adding that tourism plays a key role in today’s chaotic world, supporting peace and prosperity. “Tourism encourages communication between different cultures,” he said. Naming tourism as an ambassador of peace and a main factor in resisting violence through hospitality and unity, HH Binali Yıldırım provided rich statistics and numerous facts and figures showing tourism’s increasing role in economic development.

Celebrating its 25th anniversary in 2017, OTI Holding hosted foreign guests, together with Coral Travel agents in Turkey and other special guests, at the Coral Travel booth during the World Tourism Forum in the Istanbul Congress Center. Twenty foreign press members in the OTI group got the chance to interview senior managers from OTI Holding and Coral Travel throughout the Forum. On the opening day, Prime Minister Binali Yıldırım visited the Coral Travel booth and started a successful new season for OTI managers. In addition to the UNWTO (World Tourism Organization) Special Envoy and OTI Holding Board of Directors consultant Dr. Michael Frenzel, and Russian Tourism Industry President Sphilko Sergey, who also delivered speeches during the Forum, Artur Grocholski, President of the National Association of Travel Agents of Poland; Ukrainian Ministry of Economy Tourism Department Director Ivan Liptuga, Head of Kiev City Management Tourism Department Anton Taranenko, and Tunisian Tourism National Office General Director Abdellatif H’mam visited the Forum as OTI guests. During the gala night organized in Çıragan Kempinski on the last day of the World Tourism Forum, Coral Travel Group was given the "Perfect Tourism Group" award. The World Tourism Forum embodies a professional staff under the leadership of its president, Bulut Bagcı. The World Tourism Forum, based in Istanbul, Turkey, was founded with the purpose of bringing all tourism industry leaders around the world together. World Tourism Forum is a highlevel platform to discuss tourism and other linked disciplines in different aspects. It is organized four times every year in global centers around the world, bringing together world tourism leaders and tourism industry representatives. Regional meetings are held three times a year in different cities around the world and one global meeting is held once a year in Istanbul.


BUSINESS

GEORGIA TODAY MARCH 7 - 9, 2017

7

Meet the First Woman to Run a Construction Company in Adjara INTERVIEW BY MARIKO NATSARISHVILI

G

ender balance has always been an issue in the contemporary world. Equality of sex is intrinsically linked to sustainable development and is vital to the realization of human rights for all. In line with global trends, more and more Georgian women are becoming decision makers and being appointed to high managerial positions

Women can multitask better than men [and], generally, Georgian women are “all mighty...” But is seems that men do not like to acknowledge this

in Georgia. As such, the Black Sea region of Adjara was pleased to see a former journalist and Member of the European Cultural Parliament, Natia Sirabidze, after years of serving in government, appointed as CEO of the Mardi Holding construction company in Adjara. The company Mardi Holding was founded in 2007, though its history started 25 years ago with a small company working on import-export. Currently, the Holding unites construction, project development, architectural, real estate and freight companies as well as wine and tobacco production and hydropower plants. GEORGIA TODAY met the newly appointed CEO to discuss women’s priorities when holding leading positions in the public and private sector.

IS THE PRIVATE SECTOR MORE WELCOMING TO FEMALE BOSSES?

WHY DID YOU DECIDE TO MOVE FROM GOVERNMENT TO THE PRIVATE SECTOR?

WHAT ARE THE MAIN BUSINESSES OF THE HOLDING?

I’ve worked in different leading positions in the government, non-governmental organizations and media - I was at various times a Deputy Minister and Head of PR and, to be honest, I wanted to try something different. I’m a former journalist and as a journalist I always considered myself an agent of change: every position I took was a trial to change something and now I think it’s time to face new challenges in the business sector. This will be a new experience for me and hope it will open new opportunities, bringing more success and less failure.

From my observation, women can multitask better than men. Generally, Georgian women are “all mighty;” we are educated, we are disciplined workers, we cook well, take care of kids, are talented in singing and craft-making. But is seems that men do not like to acknowledge this. Businesses do not yet really welcome women bosses, but are starting to feel the need to. I myself took this position because it was interesting for me to work for a company that produces diverse products and works in so many new directions. The founder of the company, Irakli Turmanidze, and the team are very creative and energetic, which is a good drive.

The main direction is construction and development; we build houses and aparthotels in Batumi and Tbilisi. Our company was the first in Georgia to make semi-ready products for hunting and sports weaponry out of walnut tree roots, which were sold on the European market for companies such as Beretta, Benelli, Anschutz, and Perazzi. In addition, in 2008, Mardi Holding started growing tobacco leaves and creating tobacco products, among which were the first Georgian cigars to be exported to Europe. Currently, there are 23 kinds of Georgian cigar and six kinds of Georgian tobacco on sale. So, we are pioneers in many

Natia Sirabidze, CEO of the Mardi Holding construction company in Adjara

directions and would like to continue this pattern.

WHAT NOVELTIES DO YOU PLAN TO INTRODUCE? Our priority is environment protection, so we have started working on energyefficient constructions. We offer our customers houses with “green frames” that save energy. Our headquarters was the first building in Georgia with a system of renewable energy facilities: geothermal heating and conditioning, and energy-efficient illumination based on helio and wind power. There are soon

to be water recirculation and electromobile charging stations as well. Even more, to support Georgia’s economic and political independence, we commenced hydropower plant construction in Adjara, in Keda municipality. This will see three mini hydropower plants built ensuring no harm is done to the environment. The plants will produce a total power of 5.7 megawatts from a $7 million investment. I’ve come to realize how hard it is to run so many projects, but we have a great team and I hope that my participation will bring even more success.


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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 MARIAM CHAKHVASHVILI

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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.

total annual electricity demand (22% excluding the Abkhazian region). On average, 46% of electricity generated from Enguri and Vardnili is used to satisfy the consumption of the Abkhazian region, while the rest is used to meet domestic consumption needs and/or exported. When Enguri is temporarily shut down, daily demand is satisfied through electricity imports from Azerbaijan, Armenia, and Russia (for the Abkhazian region).

GEORGIA RENEWABLE POWER COMPANY (GRPC): SIGNIFICANT PLANS IN RENEWABLE ENERGY PROJECT DEVELOPMENT GoG has declared its intent to sign an MoU with JSC Caucasian Wind Company for the feasibility study of wind power plants (WPPs) in Tbilisi, Martkopi, and Tkibuli. The approximate installed capacity of each WPP is 100MW, while the exact capacity and required investment will be known after the completion of the 18-month feasibility study. The company is also planning to develop four additional WPPs. JSC Caucasian Wind Company is an SPV established by GRPC, subsidiary of BGEO Group, for the development of wind power projects in Georgia. GRPC is also pursuing the development of ten solar power plants and several HPPs through various SPVs. Excluding GRPC’s wind project pipeline, there is approximately 822MW of wind projects under development MoUs, which would generate approximately 3 tWh of electricity. Feasibility studies, to be finalized in the next couple of years, will establish the final number of projects to advance to the construction and operation phase, with adjusted installed capacity and generation figures.

ENGURI HPP TEMPORARILY HALTS OPERATIONS TO PREPARE FOR REHABILITATION WORKS IN 2018 Enguri is the largest HPP in Georgia, owned by Enguri Ltd, a state-owned company. The Enguri dam is the sixth largest

ELECTRICITY CONSUMPTION AND GENERATION – JANUARY 2017

dam in the world and included on the list of national cultural heritage. A series of renovations were completed on the Enguri HPP from 2006, specifically on the dam and electro-mechanical equipment. The fourth phase of rehabilitation, which mainly includes works on the 15km tunnel through the Enguri dam to the power house, is scheduled for 2018 and will require approximately EUR 33mn. An EBRD loan, along with EU NIF funding, will be used to finance the completion of the Enguri HPP renovation program. The first part of the project envisages the

selection of a consultancy, which will deliver the final design and timeline of the renovation works. The tender procedure for the selection of a consultancy is expected to commence by the end of March 2017. In order to give consultants the opportunity to evaluate future works and submit competent bids, Enguri HPP halted operations for several days starting February 19th, allowing experts to walk through the tunnel. Enguri HPP, together with Vardnili HPP, which mainly uses the water flowing from Enguri, satisfies approximately 35% of

Domestic consumption increased 7.2% y/y in January 2017, with Telasi (+10.5% y/y) and eligible consumers (+17.9% y/y) driving the growth. DSO consumption increased 5.8% y/y: consumption was up 2.7% y/y by Energo-Pro, 7.7% y/y by Kakheti Energy Distribution, and 10.5% y/y by Telasi, which has posted 20%+ annual growth rates for the past five months. Consumption of the Abkhazian region was up 6.9% y/y and accounted for 94.8% of the electricity generated by Enguri and Vardnili. Consumption by eligible consumers was up significantly (+17.9% y/y), albeit from a low base in January 2016 (-24.7% y/y). The largest eligible consumer, Georgian Manganese (78.5% of direct consumption), posted 24.9% y/y growth, also from last year’s low base (-28.3% y/y), and contributed quite significantly to energy demand growth in January 2017 (1.7 percentage points). Electricity exports were negligible, while electricity transit from Azerbaijan to Turkey amounted to 9.7gWh in January 2017. Domestic consumption needs in January 2017 were met in roughly equal parts by hydro generation (49.7%), on the one

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hand, and thermal (34.0%) and imported (15.8%) electricity, on the other. The newly built wind power plant accounted for 0.6% of total electricity supply. Total electricity supply from domestic sources was down 1.3% y/y. Hydro generation decreased 10.4% y/y, mainly due to low generation of regulated power plants (-29.3% y/y), excluding Enguri and Vardnili, whose combined production was up 5.6% y/y. The drop in hydro generation was compensated by thermal power (+13.8% y/y) and imports. The amount of imported electricity almost doubled (+92.3% y/y), but from a very low base in January 2016 (-43.9% y/y), and increased only 7.8% compared to January 2015. Most of the imported electricity came from Azerbaijan (96.3%), with the rest (3.7%) imported from Russia, via the Salkhino line, at the beginning of January 2017 to supply the Abkhazian region in island mode. Guaranteed capacity fee was down 21.9% y/y to USc 0.66/kWh. Guaranteed capacity was provided by each of the five guaranteed capacity sources for most of the month. Mtkvari Energy and Gardabani CCGT operated at full power for the entire month, while Blocks 3 and 4 and GPower were mainly providing reserve for the system.

WHOLESALE ELECTRICITY PRICES IN JANUARY 2017 Wholesale market prices in Georgia decreased 7.5% y/y to USc 5.1/kWh, just 0.4% above the Turkish market clearing price in January 2017. Turkish electricity prices decreased 3.0% y/y to USc 5.0/ kWh from a very low base in January 2016 (-32.5% y/y). 27.8% of total electricity supplied to the grid in January 2017 was traded through the market operator, with the rest traded through bilateral contracts.

FLIGHT NUMBER

TK 387 TK 385 TK 383 TK 386 TK 384 TK 382

WEEK DAYS

DEPARTURE

ARRIVAL

EVERYDAY

05.50 11.45 18.10 01.40 07.30 13.55

07.25 13.25 20.00 04.55 10.50 17.15

07.40

09.00

20.45

00.10+1

17.50 13.55

19.10 16.55

TK 381 EVERYDAY TK 380 TK 393 TK 392

EVERYDAY


BUSINESS

GEORGIA TODAY MARCH 7 - 9, 2017

9

755 080 International Qatar Airways Travellers Visited Georgia Adds More in the Last Two Months Flights to Tbilisi BY NINO GUGUNISHVILI

BY NINO GUGUNISHVILI

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he months of January and February showed a 10.5 percent (71,519) increase in international visitors coming to Georgia y/y, said Ketevan Bochorishvili, Deputy Minister of Economy and Sustainable Development of Georgia at a briefing last week. According to the information Bochorishvili provided, the number of tourists who visited Georgia in the months of January and February 2017, and spent more than 24 hours in the country, amounted to 294,001, 24.3% higher (57,417) than in the same period in 2016. “Tourism is one of the top priorities for our country and a number of governmental institutions are involved in the process of development,” Bochorishvili said. “The arrival of each tourist to Georgia has a positive impact on private sector development, on the increase of job opportunities and on income growth. Our goal is to make Georgia a four-season tourism destination and the figures from January - February confirm a rising interest from international tourists and visitors in the winter resorts of the country,” The Deputy Minister went on to thank the Georgian National Tourism Administration, the Mountain Resorts Development Company, United Airports of Georgia LLC, Ministry of Regional Devel-

A Ketevan Bochorishvili, Deputy Minsiter of Economy and Sustainable Development of Georgia

opment and Infrastructure of Georgia and other state organizations for their coordinated efforts for development of the Georgian tourism sector. Azerbaijan, Armenia, Turkey, Ukraine and Russia are among the top countries in the number of visitors coming to Georgia and, as Bochorishvili noted, a positive tendency can also be seen with regards to the EU countries, with visitors from Germany up 35%, Poland +30%, Bulgaria+29%, and France +19% for the first two months of 2017. The United Kingdom has shown a growth of visitor numbers to Georgia up by 26%. Iran with +438%, Uzbekistan +211, India +129%, Israel +65%, China +38% and Russia + 36% are countries showing a considerable increase in the number of international tourists travelling to Georgia. Bochorishvili said that in February 2017,

368,010 visitors came to Georgia which is 7,608 more than in the same period last year, with a 2.1% growth. The number of visitors spending more than 24 hours in the country in February 2017 was 139,918, which is 19,703 % higher when compared to February 2016. Foreign credit card operations made by international visitors in January 2017 totaled GEL 152,896,000, a 37% increase compared to the same indicator in 2016, Bochorishvili said. She concluded by highlighting that these are the results of active marketing campaigns being implemented to promote the country, and the number of infrastructure projects realized, especially in the mountain resorts development sphere. The number of new airflights launched to Georgia was also mentioned as a very important factor for the tourism growth.

Doha-Tbilisi-Doha flight (Airbus 320) is to be launched by Qatar Airways from May 1, 2017. The new schedule is to be presented for approval to the Georgian Civil Aviation Agency in the coming days. The decision to intensify flights to Tbilisi was announced at the reception

marking the five-year anniversary of Qatar Airways operations on the Georgian market. The demand on both Doha and Tbilisi as destinations is said to be increasing from Middle-East origin passengers. Qatar Airways started operating on the Georgian market in February 2012 with Doha- Baku- Tbilisi and TbilisiBaku - Doha flights. From December 2016, the company added four more flights, removing the intermediary stop in Baku.


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Developing Adjara’s Coastal Zone in the Context of Climate Change BY NINO KHIMSHIASHVILI

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he Network of Caucasus NGOs for Environment Protection (CENN) organized a conference on Prospects of Developing Adjara’s Coastal Zone in the Context of Climate Change, at Sheraton Batumi Hotel, on March 2. Numerous state and private sector, NGO and educational sector representatives participated in the event alongside the Ministry of Environment and Natural Resources Protection, Parliament of Georgia, ENPARD: Support to Agriculture and Rural Development Program, National Environment Agency of Georgia, Ministry of Regional Development and Infrastructure, and the Government of Adjara region. The seven-hour four-section session centered on a discussion of Adjara’s coastal zone development and potential; its climate and morpho-dynamics development perspectives and challenges; the methods used for safeguarding the Black Sea coastline; and analysis of the outcomes and recommendations. The fourth session was set aside for initiation of the State Program for Black Sea Coastline Protection. “The goal of this conference is to discuss Black Sea coastal zone development perspectives affected by climate change,” said Nana Janashia, CENN Executive Director. “The state program for Black Sea coastal zone protection will detail what needs to be done. We have vast experience of initiating such state programs that we’ve lobbied and which have been approved and are working. The fact that we’ve been joined by every ministry, the Adjara government and the Parliament of Georgia means that they realize the importance of the issue.” It was highlighted during the conference that the process of coastal zone wash-out is speeding up, and is expected to only increase in strength as a result of climate change. The problem is caused by two major factors: global warming, which causes the sea level to rise and an increase in wave energy, and human agricultural activities affecting the environment. “During the 20th century, the coastline moved back about 400 meters at the outfall of the River Chorokhi,” Janashia said. “The morpho-dynamics of Adjara coastal zone

development is considered to contain high risks for natural disasters. Risks are still higher with high-wave sea storms. Even during storms of scale 3 or 4, houses in the coastal zone are damaged, as is the infrastructure, leading to inhabitants becoming eco migrants,” Janashia added. Chichiko Janelidze, Doctor of Geography, said that the prognosis of risk made by scientists is not taken into consideration. “Beaches are washed away everywhere and, paradoxically, we’re not considering the danger of the sea level already having risen by one meter just this century. Buildings are being constructed right on the coast, in a zone that will clearly be at high risk in future,” said Dr. Janelidze. The conference was also attended by oceanologist Alexander Khorava and Zurab Janalidze, Associate Professor at Ilia State University, Tbilisi. Zurab Alavidze, Minister of Regional Development and Infrastructure, was only available to attend the opening of the conference, addressing the participants with the words: “We’re delighted to be gathered in Batumi to discuss such issues as climate change and the problems it causes to the Black Sea coastal zone”. He then thanked CENN for the conference and said that he had to leave to meet with a contractor of a coastline protection project to discuss “concrete topics”. The minister had no opportunity to listen to the themes of the event, to the risks identified by the specialists or to what should be done to protect the coastline in the future. The minister was attending the launch of a coastal protection project on Batumi Boulevard, on a two kilometer stretch of land between the new boulevard and the airport. The minister announced that GEL 30 million is to be assigned for the project, with completion expected in 2018. The project will also be extended to Kobuleti beach this year. Back at Sheraton Batumi, geographers and scientists continued to discuss what needs to be done to protect the Black Sea coastal zone, including what activities and initiatives must be implemented. Chichiko Janelidze noted that the coastal protection works will be insufficient if not planned within a larger scale, with Poti coastline protection activities also taken into consideration. As the discussion drew to a close, it appeared that neither the scientists nor the Environment Protection Agency representatives had any concrete information on the State Program for Black Sea Coastline Protection.


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Garlic Smells Like Money

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ood prices continue to follow the latest trends. Retail FPI shows a 2.6% increase m/m (that is, compared to January 2017) and a 4.9% decline y/y (that is, compared to February 2016). During the last two weeks, matsoni, tea and carrots lost value (by 10.4%, 6.2% and 6.2% respectively), whereas the prices of cabbage, greens and eggplant increased (by 25.0%, 16.1% and 14.9% respectively).

First Workshop in Georgian Labor Law & Practical Challenges

GARLIC LOOKS INTERESTING Higher vegetable prices are not surprising given seasonality. However, garlic prices have been continuously increasing over the last couple of months. Prices started rising in October 2016, and are now much higher (by 65%) than in 2015. Such a big difference y/y shows that increasing prices are caused by other factors than seasonality. In 2016, garlic imports to Georgia dropped by 63% in value, and by 65% in quantity, compared to 2015. Therefore, in 2016, Georgia imported less than half of the quantity that it imported in 2015. As to trade partners, Georgia imports garlic mostly from China, Turkey and Armenia, with China being the leading import market for Georgia, and the biggest garlic producer in the world. In 2015, 50% of the total quantity of imported garlic to Georgia was from China, and in 2016, this amount slightly decreased and equaled 47%, which is still high.

Such a sharp decrease in the value and volume of imports can be easily explained if one looks at the world garlic market. Poor weather conditions (rain and snow) in China back in 2015 led to a very bad harvest in 2016, causing speculation on the garlic market and driving international prices up. High worldwide prices forced Georgian importers to reduce their imports, and finally garlic became much more expensive in Georgia as well. This particular case emphasizes again the

importance of import substitution, both for consumers and producers. Increased domestic production would save Georgian consumers from shortages of products and high prices. As to producers, switching to high-value goods will also generate additional income for them.

BY KHATIA KIRIA

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he Ivane Javakhishvili State University this weekend organized a two-day conference on the legislative and practical challenges of the Georgian labor law. The main goal of the conference was to create an academic platform for discussion and to contribute to the dialogue on Georgian labor law and how to align it with European law. “The format [of this conference] was interesting and saw significant participants in attendance, including judges, experts and so on,” said TSU rector Gia Sharvashidze. “Our aim is European and Euro Atlantic integration and, as such, a number of legal changes need to be made in all directions. We believe a dialogue is necessary between employers and employees, and labor relations need to be transparent to all parties. Changes were last made to the Georgian labor law in 2013, and the discussions are still ongoing”. TSU’s initiative was shared by some of the largest employers in the country,

the first of which was Georgian Post. “This is an important process for the business sector. It’s about approximating the new labor law with that of Europe,” said Levan Chikvaidze, Georgian Post General Director. “Putting these laws into practice is no easy feat, but we need to find the middle line between business interests and employees. Georgian Post is fully in support of this”. TBC Bank, ProCredit Bank, and Rompetrol Georgia also counted among the biggest supporters present at the conference. Deputies of Georgian Parliament were also there. Member of majority party Georgian Dream, Beka Natsvlishvili, said, “even though the labor law was improved in 2013, and is already near to international standards, there still remain a number of issues [to solve]”. “The principal problem is to execute and activate the labor law norms. This is the biggest challenge,” Natsvlishvili said. “Labor inspection, for example, which is the mechanism of execution, still works in pilot mode and is unable to control the problems in the sector. After the pilot regime, it will be able to detect only dangerous working conditions, no more. It simply isn’t enough.”

Welcome to Indian Punjabi Restaurant Sanjha Chulha 1 Mobile +995 596 56 13 13 Phone +995-322-95-96-14 Skype: SANJHA CHULHA Facebook: sanjha chulha indian restaurant mail: order@sanjhachulha.ge Website: Sanjhachulha.ge Agmashenebeli Avenue 130, Tbilisi 0112 Georgia Delivery service are available


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Dechert Onpoint: Georgia & The Energy Charter Treaty

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echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Irakli Sokolovski and Natia Lapiashvili and associates 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.

GEORGIA AND THE ENERGY CHARTER TREATY The 1994 Energy Charter Treaty (“ECT”) ratified by Georgia on 22 February 1995 entered into force on 16 April 1998 (the “Effective Date”). Georgia also became party to the 1994 Protocol on Energy Efficiency and Related Environmental Aspects and the 1998 Amendment to the Trade related provisions of the Energy Charter Treaty. The ECT establishes legal protections of foreign investment in the energy sector, provides for the transit of energy and energy products without discrimination as to origin, destination or ownership, as well as for transparency and competition, and aims to bring about non-discriminatory access to the sector. In our previous edition of OnPoint, Dechert provided an overview of the main obligations of member states in the investment sphere under the ECT. This edition of OnPoint will cover the provisions of the ECT relating to trade.

MAIN OBLIGATIONS OF MEMBER STATES IN THE TRADE SPHERE UNDER THE ECT The Trade Amendment (“TA”) to the ECT was adopted in 1998 by the Energy Char-

ter Conference. The objective of the ECT trade regime is to forge open and nondiscriminatory energy markets through the Energy Charter process. The TA aims to create a stable, predictable and nondiscriminatory regime for all energyrelated trade between ECT Contracting Parties. The World Trade Organization (“WTO”) does not have specific rules governing the energy sector. However, the WTO’s legal framework includes a number of rules that are applicable to trade in energyrelated products and equipment. Accordingly, the purpose of the ECT trade regime is to extend both the benefits and obligations of WTO membership to the energy sectors of those ECT Contracting Parties who are not yet members of the WTO. In practice, this principle means that trade in the energy sector between WTO and non-WTO Members and among nonWTO Members is treated the same as if all parties were members to the WTO.

BASIC PRINCIPLES OF THE WTO INCORPORATED IN THE ECT 1.1.1 Non-discrimination – which embodies two key principles: (a) Most-favored-nation treatment (“MFN”) guarantees that countries cannot under normal circumstances discriminate between their trading partners. A country granting a special favor regarding its imports or exports to or from any other country must extend this favor immediately and unconditionally to all other members. This obligation extends to all and any goods, services and investments in the energy sphere. The WTO and the ECT, however, allow exceptions from MFN for members of customs unions or free trade agreements or in cases involving imports from developing countries.

(b) National Treatment (“NT”) concerns treating foreign products and “like” domestic products on an equal basis. Adhering to this principle means treating imported and locally-produced energyrelated products equally. NT, however, becomes applicable only once a product has entered the domestic market. Therefore, charging customs duties on an imported energy-related product is not a violation of NT, even if locally-produced products are not taxed in an equivalent manner. 1.1.2 Elimination of Quantitative Restrictions (a) The ECT requires the elimination of all quantitative restrictions on trade, be they in the form of quotas, licensing restrictions or any other measures implying quantitative limits to trade. In principle, this applies to exports as well. Governments may, however, retain customs duties if they are below the maximum level agreed in their respective WTO commitments. Additionally, qualitative product regulations—so-called Technical Barriers to Trade (“TBTs”)—are acceptable so long as they are least trade distortive and serve a legitimate purpose.

NEW ELEMENTS INTRODUCED BY THE TA Apart from adopting traditional WTO stipulations, the TA specifically extended WTO rules on energy-related products and equipment to the ECT. As a result, the ECT trade regime now covers not only “Energy Materials and Products” but also a large list of energy-related equipment items. With regards to customs duties, the TA has maintained the “best endeavors” system. Under the ECT, Contracting Parties are only required to make a “soft law” or “best-endeavor” commitment not to

increase their tariffs beyond a certain level. However, the TA additionally introduced the possibility to progressively replace the soft law customs tariffs pledges with a binding customs tariff standstill regime. The member states undertook to negotiate further in order to gradually replace the “soft-law” commitments with regards to non-increase of tariffs to legallybinding commitments in this regard.

TRADE DISPUTE SETTLEMENT UNDER THE TA The trade dispute settlement component of the ECT mirrors the WTO’s dispute settlement system. However, the TA mechanism is lighter, less detailed and simpler than that implemented by the WTO. Under the ECT, if a trade-related dispute arises between contracting parties, those parties shall refer it to a dispute settlement panel, comprised of panelists selected by the Energy Charter Conference from a pre-agreed list of panelists. Once the panel decides upon a case, its dispute settlement report is subject to adoption by the Energy Charter Conference by a vote of three-fourths of those present and voting, provided that at least a simple majority of all contracting parties support the decision. This is different from the WTO, where the WTO Dispute Settlement Body automatically adopts panel reports unless rejected by consensus. Therefore, the TA retains the former element of political decision-making that could serve as an additional incentive for the mutually-

acceptable, out-of-court settlement of trade-related disputes.

CONCLUSIONS The ECT and the obligations under it are of utmost important for Georgia as the country wishes to expand its influence in the regional energy market and better exploit its energy resources. In that light, we will continue to provide overviews of different aspects of the treaty in detail in upcoming editions of OnPoint. *** 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, a global 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.

Ici Paris Presents New Perfume of Sisley - Izia BY THEA MORRISON

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ci Paris, a renowned cosmetic chain in Georgia, has introduced a new perfume from Sisley-Izia to its customers, launched in 2017. Sisley Izia is described as a modern fragrance, a bouquet of sensual and

affirmed character, although, judging by the notes, its composition has a more classical vibe than a trendy one. Sisley Izia is a "modern, new and multifunctional" perfume with a focus on the note of rose. The composition begins with aldehydes, white bergamot and pink pepper. A rose accord can be found in the "sophisticated" heart of the perfume, enriched with transparent floral notes

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and angelica. Amber, musk and cedar form the warm woody-musky base of the fragrance. Ici Paris marketing and PR Department Head, Khatia Shamugia, said at the launch that customers can buy the new perfume in all branches of Ici Paris. “The fragrance is available as a 30, 50 and 100 ml Eau de Parfum and its prices vary from GEL 195 to Gel 430,” she said. Sisley is a brand that is present on all

five continents, in more than 90 countries. The company draws 85 percent of its revenue from exports and has experienced one of the largest growth increases in its sector. In order to ensure that expert advice is communicated, Sisley handles its products through distributors, as well as and especially through its 30 subsidiaries in Europe, Asia, the Americas, and the Middle East.

Its international growth has followed a rapid trajectory, and Sisley products have been met with growing success worldwide. As for Ici Paris, the perfume chain has 21 shops throughout Georgia. Ici Paris priorities are quality and diversity. The company was launched in 1995 and since, has become one of the most sought after European standard chain stores in Georgia.


BUSINESS

GEORGIA TODAY MARCH 7 - 9, 2017

15

The Russian Oil Industry Will Survive, even at $20 per Barrel BY DIMITRI DOLABERIDZE

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lthough from time to time "oil howling" sees very low prices, for Russia it is unimportant what the cost of a barrel will be, as long as it is no less than $20. This is the minimum "comfort price" for Russian miners, according to a joint report from experts at the Oxford Institute for Energy Studies and Energy Research Institute of the Russian Academy of Science. $30 per barrel, according to their estimates, is enough to maintain the viability of the Russian Federation on the market, while field exploration will be added and development of new areas will increase profits. The matter is seen differently by various producers: some work offshore, others - not, some are large, others –not. Accordingly, the ideal price for oil for each will vary. For example, for the largest oil company, Rosneft, which has solid cash supplies and a lot of "daughters" throughout Russia, mining is comfortable even at $10 per barrel, and Lukoil could survive at $9-12 per barrel, says the RussianBritish experts board in its report, ‘The Russian oil industry – 2020,’ published on the website of the Oxford Institute for Energy Studies on February 21. However, none of the stated prices take into account investment in new projects, and they are comfortable only if the target is to increase production and not to develop. “On average, a barrel of oil produced in Russia even at a price below $10 is profitable. Moreover, taking into consideration that the cost of mining at a level of $6 per barrel is not enough for development, it is clear that investment in new projects is only possible at a price of around $20 per barrel,” the authors of the study say.

However, the declining production in traditional fields means companies are “paying more attention to the shelf. The large distance between oil and (lack of) infrastructure necessitates much more money. For example, the Arctic deposit Prirazlomnoe is able to survive at a price of $25 / bbl.,” claimed Gazprom Oil head, Alexander Dyukov, in an interview with Vesti 24 back in December 2015. It turns out that all oil companies have an incentive to maintain and increase production at a price much below $30 per barrel, analysts conclude. In this case, even at a price of $10, they not only cover the costs of production and transportation, but also receive a net profit. For example, for $10, according to the calculations of the Oxford experts, profit is $0.9; at a cost of $20 - $ 5.9; at $ 30 - $ 6.9. Representatives of Rosneft, Gazprom Oil, Lukoil, and Surgutneftegaz declined to comment on the Oxford report. “The fact is that as soon as quotas of black gold step over the $15 per barrel mark, taxes are automatically reset to zero, and vice versa - if it rises above the budgeted amount (in 2017-2019 $40 per

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barrel), the budget gets the windfall. Thus the price of oil at $55-60 per barrel is the most comfortable,” said Alexander Novak, Minister of Energy of the Russian Federation in December. If we assume that the tax burden won’t change, it can be difficult not to agree with the estimates. Indeed, in Russia, the majority of deposits are produced at very low cost, and Russia in this regard is very competitive in comparison with other regions. “In the North Sea brownfield transaction costs, on average and excluding capital investments in new deposits, are up to $25-30 a barrel, about the same as the major European oil companies, which, even with the decline in cost, still sell at about about $25 / bbl.,” said a Fitch Ratings analyst. “Russian oil will definitely have a lower break-even: the most competitive, taking into account the increasing number of traditional deposits and government support, is Rosneft. Among the most unstable are likely to be smaller companies,” says Stanislav Mitrakhovich, a leading expert of the National Energy Security Fund.

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Issue #926 Business  

March 7 - 9, 2017

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