Issue #920 Business

facebook.com/ georgiatoday

Issue no: 920/65

• FEBRUARY 14 - 16, 2017

• PUBLISHED TWICE WEEKLY

FOCUS

ON BOOSTING POTENTIAL From the MFA to the GNTA, Georgia is being promoted in all economyboosting areas

PRICE: GEL 2.50

In this week’s issue...

Georgia and Belarus to Expand Trade & Economic Relations

PAGE 2-8

NEWS PAGE 2

Modern Quagmire and Georgia's Trump Card?

ISET PAGE 4

Tourism Market Watch GALT & TAGGART PAGE 6

NGOs Criticize Majority Bill on Covert Investigation

BY THEA MORRISON

PAGE 8

Playing by the Rules: Belarus vs Russia PAGE 9

N

on-Governmental Organizations (NGOs) united under the campaign This Affects You have expressed disapproval of the Bill on Covert Investigative Actions, initiated by the ruling party Georgian Dream (GD) on February 6.

The legislative package provides for the creation of a legal entity of public law (LEPL) the Operative-Technical Agency of Georgia, which will be responsible for covert surveillance. The Agency will be under the supervision of the State Security Service (SSS), however, the agency will be accountable before the Prime Minister and will submit a

Georgia at International Tourism Fair Balttour 2017

Electricity Market Watch GALT & TAGGART PAGE 10

generalized report of its activities annually to the PM. The NGOs believe that, together with the technical implementation of covert surveil-

lance, the Agency will have a number of other functions, in the interests of obtaining as much information as possible.

Continued on page 2

Russian News Agency Says De-facto South Ossetia’s Possible Joining Russia Delayed POLITICS PAGE 11 Prepared for Georgia Today Business by

Markets As of 10ͲFebͲ2017

STOCKS Bank of Georgia (BGEO LN) GHG (GHG LN) TBC Bank Group (TBCG LN)

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NEWS

GEORGIA TODAY

FEBRUARY 14 - 16, 2017

NGOs Criticize Georgia and Belarus to Majority Bill on Expand Trade & Economic Covert Investigation Relations

BY NINO GUGUNISHVILI

G Continued from page 1 “The Agency will also be granted the powers to exercise control on electronic communications companies. Therefore, instead of an independent structure, the legislative package provides for the creation of a unit of the SSS with even more powers and an increased risk of these powers being abused,” the statement of This Affects You reads.

The initiative over the new bill of covert investigative actions was raised after the Constitutional Court of Georgia ruled on April 14, 2016, that the existing model of surveillance, with the Interior Ministry and Personal Data Protection Inspector as key players, needed to be changed.

The Court stated that the legislation allowing the police to have direct, unrestricted access to telecom operators’ networks to monitor communications was unconstitutional and set March 31, 2017 as the deadline for implementing the court’s decision and replacing the existing surveillance regulations with new ones.

Now, by presenting the new bill, the majority plans to transform the “two-key model” into a three-key one, where access to surveillance will be in hands of the new LEPL under the SSS, Personal Data Protection Inspector and the Judge of the Supreme Court.

On Friday, This Affects You campaigners provided a list of the main risks and shortcomings related to the new legislative package: 1. The legislative package contradicts a judgment of the Constitutional Courtin which the Court stated that the “Creation, possession, and administration of technical means of obtaining personal information in real time and having direct access to personal information using this means, by an agency that has investigative functions or is professionally inter-

ested in familiarizing itself with this information, creates an excessive threat of unsubstantiated interference with personal lives.”

2. The legislative package fails to provide safeguards for the independence of the new agency.

3. The number of structural units with covert surveillance powers increases.

4. The powers of the agency carrying out covert surveillance are expanded.

5. The mechanisms for controlling the agency have a formal character – apart from the State Security Service, all other mechanisms for controlling the agency will be formal or weak.

6. The agency’s interference with the activity of private companies – the agency, a part of the State Security Service, will not only carry out covert investigative and certain operative-investigative actions but will also interfere with the activities of private companies.

Public Defender of Georgia, Ucha Nanuashvili, also released a statement regarding the issue.

“The Public Defender of Georgia negatively assesses the bill on covert investigative actions initiated in the Parliament of Georgia and believes that the fact the so-called "key" will still belong to the State Security Service on the one hand will not ensure execution of the Constitutional Court’s decision of April 14, 2016, and, on the other hand, will not safeguard the public domain with regard to illegal wiretapping,” the statement reads.

Moreover, the bill is strongly opposed by the parliamentary opposition parties and the Presidential Administration.

They say the bill is even worse than the previous one and does not offer anything new.

The ruling party says the bill ensures the new agency’s maximum independence and it is line with the verdict of the Constitutional Court.

rowing export possibilities between the two countries and the existing situation in the food and agro industry were topics of focus during the meeting of Georgian and Belarus government representatives within the interagency working meeting held last week. The meeting was chaired

by Genadi Arveladze, Deputy Minister of Ecomomy and Sustainable Development of Georgia, and Alexander Ogorodnikov, Deputy Minister of Industry, Belarus.

Prospects for opening joint ventures were also discussed during the intergovernmental meeting, with a particular interest in Georgian winter resorts expressed by Belarusian officials.

Arveladze introduced the current economic situation in the country and spoke about the ongoing and future reforms to be implemented. The parties then signed

Genadi Arveladze, Deputy Minister of Economy and Alexander Ogorodnikov, Deputy Minister of Industry, Belarus

the minutes of the meeting regarding development of trade and economic cooperation between the two countries.

The government delegation from Belarus met with Giorgi Gakharia, Minister of Economy and Sustainable Development of Georgia the same day to talk about opportunities for collaboration in the spheres of tourism, economy and

information technologies.

The creation of the current format of dialogue between Georgia and Belarus was decided during Prime Minister Kvirikashvili’s official visit to Belarus in March 2016. The goal of the interagency working group is to deepen economic and trade relations and grow export between the two countries.

General Ben Hodges: Georgian-US Relations Are Stronger Than Ever

Georgian delegation visits the Hohenfels Base

BY THEA MORRISON

A

Georgian delegation led by the Defense Minister Levan Izoria visited the United States (US) European Command’s 7th Army training base in Hohenfels, Germany, on Friday.

The delegation was hosted by the US Army European Forces Commander, Lieutenant General Ben Hodges and training base commander Brigadier General, Antonio Aguto.

Georgia’s Defense Ministry reports that the US Army European Forces Commander praised the Georgian soldiers, who are currently taking a special training course at the Hohenfels base before leaving for Afghanistan to participate in a peacekeeping mission.

“I was impressed by the Georgian servicemen. They are well-prepared for the Afghanistan mission, being open-minded and working very well as a team. I trust them. We, Americans, know that the Georgians are noble and reliable partners,” Lieutenant General Ben Hodges said.

He also noted that a readiness center

like the Hohenfels base will be built in Georgia.

“Georgia is a leading country in a region where there are plenty of challenges. It is a kind of portal for the rest of the European countries. Georgia has an opportunity to lead other countries and ensure the stability of the Caucasus and the Black Sea region,” the US military official said.

The sides discussed future cooperation and the three-year US-Georgia security cooperation deal that envisages long-term objectives and the development of strong defense capabilities for Georgia.

“To my mind, US-Georgia relations at present are stronger than ever and this will continue. Americans like to be with people who love freedom and who are fighting for it,” Hodges added.

Minister Izoria also confirmed that the Georgian servicemen are ready to participate in a peacekeeping mission in Afghanistan.

“We will continue the important reforms required by NATO to ensure our country's defense capabilities and military training quality standards," he said.

He went on to highlight the important contribution of the US European Command in the development of the defense capabilities of the Georgian Armed Forces.

The American General plans to visit Georgia in the near future to discuss further details of the Preparedness Program.

NEWS

GEORGIA TODAY FEBRUARY 14 - 16, 2017

3

Tbilisi to Host HPP Congress

BY KATIE RUTH DAVIES

G

eorgia’s capital is set to host an international congress and exhibition this week focused on hydropower construction and plant operation in the region.

The event will see high-profile speakers discussing the formative role of hydropower in the Caucasian and Central Asian energy sector, namely in the countries of Armenia, Azerbaijan, Belarus, Georgia, Iran, Kirgizia, Kazakhstan, Russia, Turkey, Tajikistan and Ukraine). The speakers

are also expected to touch on the benefits of an interconnected energy grid that runs between said countries.

The congress Hydropower: The Caspian and Central Asia 2017 will take place from February 15-16.

Over 40 plans will be presented for both new projects and for projects which envisage the modernization of existing hydropower plants in the region.

Participants will also review the initiatives and commitments of participating countries and discuss action priorities, including the most pressing issues facing hydropower, including project financing, ecological safety and technology innovation.

Chief Prosecutor Says Archpriest Planned Murder of High-Rank Cleric

BY THEA MORISON

G

eorgia’s Prosecutor General, Irakli Shotadze, stated that the Prosecutor’s Office had arrested a cleric on suspicion of the intention

to murder.

Shotadze held a special press-conference on Monday, in which he claimed the Head of the Property Management Department of the Patriarchate, father Giorgi Mamaladze, was allegedly plotting to poison a high-rank cleric.

“The investigation was launched into the case on February 2, based on a request by a citizen who indicated that his

made firearm with six cartridges in the house of the detained.

At present, Catholicos-Patriarch Ilia II is in one of Germany’s prestigious clinics in Berlin, recovering from a successful gallbladder operation.

The Prosecutor says that in connection to the alleged preparation of the crime, guards from the State Security Service of Georgia had been sent to Germany to ensure the Patriarch’s security.

“I am not saying that the intended victim was the Patriarch. I am giving the information and evidence that we have at this stage. The investigation is ongoing,” said Shotadze.

If archpriest Mamaladze is proven guilty, he faces from 7 to 15 years’ imprisonment.

acquaintance Giorgi Mamaladze asked him for help acquiring the deadly poison cyanide with which the latter planned to kill a high-rank cleric. The Prosecutor's Office launched an immediate investigation,” Shotadze said.

The Prosecutor General did not specify who the arrested priest was going to murder, but according to unofficial information, this person is His Holiness, Catholicos-Patriarch of Georgia, Ilia II. Shotadze said the archpriest was detained in Tbilisi International Airport from where he tried to fly to Germany on February 10.

“Police searched the archpriest and found the poisonous substance cyanide on his person,” he said, adding that the police also found an unregistered hand-

Gautier Brand Official Showroom Opens in Tbilisi

BY NINO GUGUNISHVILI

F

amous French brand Gautier has opened an official showroom in Aghmashenebeli Alley, Tbilisi, following a decision influenced by the fact that consumers of Akhali Nateba and Forum had been in love with Gautier furniture for the past three years.

Gautier has 55 years' history as a leading company, with more than 60 show-

rooms and shops in France alone.

It is the first French company to have three ISO certificates in quality, environment and safety as the company uses only natural and degradable materials.

Produced in France, Gautier products offer a variety of comfortable furniture for small and large apartments, living and dining rooms, bedrooms and children's rooms.

Gautier is said to create ideal furniture models that fit the creative ideas of any consumer, making a comfortable space for anyone with any taste.

4

BUSINESS

GEORGIA TODAY

FEBRUARY 14 - 16, 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.

Modern Quagmire and Georgia's Trump Card?

BY FLORIAN BIERMANN AND VICTOR KIPIANI

Russia” (MacFarlane). Even more obvious, Russia’s intervention in Eastern Ukraine was triggered by the country’s NATO aspirations.

T

IS NEUTRALITY AN OPTION?

he fundamental problem for Georgian security is that Russia holds all the major cards and no one is reshuffling the deck in Georgia’s favor, writes Neil MacFarlane in his 2016 article on Georgia’s security situation. Georgia has a mighty neighbor that is not democratic, does not respect the right of self-determination of nations, and, most importantly, actually brings its military power to bear whenever Russian (legitimate or illegitimate) interests are not sufficiently honored. To add insult to injury, Russia’s military strength is uncontested in the Caucasus, because Russia is the only major power for which this area of the world is important enough to put the lives of soldiers on the line.

Russia is very outspoken about its geopolitical stance: it does not want its neighbors to align with the West, let alone aspire for NATO membership.

And Russia actually means it – countries not exercising self-restraint when casting their own destiny may well notice the Russian sabre-rattling soon enough. Rather than some phony solidarity with the South Ossetians, the 2008 NATO summit in Bucharest may have been the true reason for Russia’s military invasion into Georgia in the same year. At that summit, NATO was discussing Georgia and Ukraine’s paths to membership, and “these states’ membership in NATO was unacceptable to

After the Second World War, Austria saw itself in a situation quite similar to Georgia’s situation today.

The country was occupied by the Soviet Union, the United States, Great Britain, and France. The Austrians themselves, like the Georgians today, had clear preferences, seeing themselves as a member of the Western family of nations. Yet, they faced a firm demand by Stalin: Austria (where Stalin had lived for some time – another similarity with Georgia) should not become a member of the Western military bloc. If that demand was to be honored, however, Moscow was willing to grant Austria selfdetermination in those areas that really mattered, namely economics and internal politics. Understanding that full sovereignty is only valuable if one has the power to enforce it, the Austrian parliament enacted its famous Declaration of Neutrality on October 26, 1955, which until today is constitutional for Austrian (geo)political identity.

Over the years, neutrality yielded many advantages for Austria, though. First of all, Austria could reduce its military expenditures to lowermost levels. In 2015, Austria spent only 0.7% of its GDP on its military, which is much less than what NATO countries spend on their defense (2.4% of their total GDP) and also less than Georgia’s expenditures (2.3%, coming down from more than 9% in

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2007). If Austria had been attacked, nobody was obliged to come to the rescue, and even with higher defense spending, Austria alone would not have withstood the Red Army. Thus, Austria had no rationale for maintaining an expensive army.

Secondly, Austria was not attacked over all these years. Attacking a neutral country is a breach of international law, and while that did not protect a country like Belgium, whose neutrality was violated

by Germany twice in the 20th Century, Switzerland shows that even dictators are reluctant to invade neutral countries. Belgium’s off-putting experiences with neutrality are due to its unfortunate geographical position between Germany and France, yet Switzerland, not situated between warring nations, was left alone even by Hitler.

Thirdly, a neutral country can attract international organizations much more easily, which is a considerable economic factor, more so for Georgia than for Switzerland and Austria. Geneva benefits big time from the presence of various international organizations, and also Vienna got its share. Why not Tbilisi?

GEORGIA MOVING WESTWARD There is no question that Georgia should do everything to become a truly Western country in terms of economy and society. The Austrian and Swiss examples show that this is possible without being militarily aligned with the West. Moreover, the Swiss and Austrians became exceptionally rich.

Those who fear that a neutral Georgia would resemble Armenia, with a society that is strongly dominated by Russian economic and cultural influence, forget that Armenia crucially depends on Russian military support to survive in a hostile environment. Russia can therefore play out its influence in Armenia much more ruthlessly. Russia would not have such leverage vis-à-vis a neutral Georgia.

In the past, countries like Georgia and Ukraine have sought protection from Russian aggression by huddling under NATO’s umbrella, but through this very act they brought about Russia’s aggression. If Georgia declared once and for all that it does not want to enter NATO anymore and, moreover, that it will also be militarily neutral in reality and not become a de facto member of the Western bloc, this would mitigate Russian fears of “encirclement”. It would take away the very reason Russia wants to control Georgia. Would this be a smart choice? As Georgia’s Western friends are not willing to provide the arms and military assistance that would be necessary to stand up to the Russian army, let alone deploying their own forces to defend this country, perhaps one should give in to reality. And what is that reality after Donald J. Trump ascending to US presidency?

If judged by statements and staffing of the new administration, what the US may be suggesting is to drive its foreign policy course to a qualitatively

new model of realpolitik which we would rather term as transactional diplomacy. This course may deviate from the previously known bi-polar or multi-polar setups but also precludes a deep retrenchment. Contrary to the isolationism or selective intervention, the United States under Trump would more likely pursue a stately molded corporate pattern, dealing with other state actors on direct engagement basis. In other words, the new administration heralds tactical decision-making and implementation processes without a coherent strategy frame: specific circumstances surrounding a case would be assessed in isolation from their links with the rest of global challenges, trade-offs would be taken into account, and resources (either diplomatic, economic, military or altogether) available to achieve an end would be laid out on an as-needed-basis. There are some clear indications that a plethora of international conventions and rules may well be "trumped" by corporate interests, and US foreign policy may be driven by such interests.

Given that reality, Georgia faces two unprecedented challenges: it has to adapt itself to the mainstream of its NATO aspirations and carve out a very unique approach to the new winds from across the Atlantic, as those apparently run against the spirit we witnessed in the course of the NATO expansion in the 1990s. Hence, is the notion of transacting in foreign policy-making, when an expediency of firmly aligning Georgia's own interest with interests of new US "visionaries" – corporate influential groups – becomes ever more demanding. The coming years would obtrusively witness non-state actors – big businesses clouted with state insignia – to exercise a powerful say in a new security architecture. And Georgia, as the West civilization's bulwark in the Caucasus, should be ready to face that new setup through chiseling its own geopolitically-driven subsidiarity by reshaping its profile in the national and regional context.

It is high time to bid farewell to outdated means of diplomacy since they fail to produce plausible credits. They do not fit the forceful shift from the Wilsonian era of racing for universal liberties to narrowly-focused newly styled pragmatism which discards what is moral and indulges into cherrypicking in pursuing its own interests. With that in mind, has Georgia to stop complaining about morality, since the world of tomorrow will ostensibly applaud to a mere raison d'etat instead of a heartwarming liberty-equality-fraternity tirade?

Times will show and soon enough. It is deplorable to say that our times may repeatedly demonstrate that history will favor power over morality.

Moreover, in view of transactionality and tacticality of foreign affairs, the country will most likely be adrift, and maverick capabilities to charter its course for reaching safe shores are critically needed at this historical juncture.

BUSINESS

GEORGIA TODAY FEBRUARY 14 - 16, 2017

Georgian FM Meets US Secretary of State in Washington

BY THEA MORRISON

G

eorgia’s Foreign Minister, Mikheil Janelidze, met with the United States (US) Secretary of State, Rex Tillerson last week before completing his two-day official visit to the US. “Georgia remains America’s strong partner and ally not only in the region but also globally,” Janelidze stated at the meeting.

Georgia’s Ministry of Foreign Affairs reports that the sides discussed the successful democratic and economic reforms Georgia has carried out over the past few years, setting an example in the region.

The officials also highlighted Georgia's great potential for developing its economy, attracting investments, and becoming a regional hub. It was underlined during the meeting that the US continues to support Georgia in developing its democratic institutions and economy.

“Rex Tillerson thanked Georgia for its

contribution towards maintaining global security, and for the bravery of Georgian soldiers serving in international peacekeeping missions,” MFA reports.

Recent developments in the region and in Georgia’s breakaway regions of South Ossetia and Abkhazia were also discussed.

“The Secretary of State reaffirmed the US administration’s firm support for Georgia’s sovereignty and territorial integrity and expressed readiness to support the country in dealing with its

current challenges,” Georgia’s Foreign Ministry says.

Mikheil Janelidze invited Rex Tillerson to Georgia, adding that Georgia is not only America’s strong partner but it also shares common values of the West like democracy, rule of law, and freedom.

Georgia’s Prime Minister, Giorgi Kvirikashvili commented on the high-rank meeting, saying Georgia’s Janelidze is among the first top diplomats to meet the Secretary of State.

5

Made in Georgia: NonSuture Pipes to Be Exported to EU

BY NINO GUGUNISHVILI

F

or the first time in its history, the Rustavi Metallurgical Factory is to export 2000 tons of non-suture pipes under its own brand to Italy, Germany, Poland, Bulgaria and Hungary.

Used for the construction of magistral pipelines and for the transportation of liquid and gas, the pipes from Rustavi Metallurgical factory are currently exported to Azerbaijan and Kazakhstan.

The addition of European markets is a welcome development. It is planned to produce 25,000 tons of pipes in 2017 and to export them to Russia and the US.

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BUSINESS

GEORGIA TODAY

FEBRUARY 14 - 16, 2017

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.

Tourism Market Watch ENGURI HYDROPOWER PLANT WILL BECOME A TOURISM DESTINATION

FOR GEORGIA TODAY BY KAKHABER SAMKURASHVILI

The Enguri dam was included on the list of national cultural heritage in 2015 and is located on the road to Svaneti, one of the top tourist destinations in Georgia. The Enguri project entails creating a museum of science, open air concert space, cableways, and a glass elevator that will take visitors to a lookout point at the top of the dam. Project implementation will start in 2017 and Enguri will be included in various tour offerings.

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 tourism sector coverage, we produce a monthly Tourism 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 AGENCY OF PROTECTED AREAS HAS PUBLISHED ANNUAL VISITOR STATISTICS FOR 2016 The number of visitors to protected areas was up 41.8% y/y to nearly 735,000. The number of domestic visitors increased 25.7% y/y to 423,000, while the number of international travelers was up an impressive 71.8% y/y to nearly 312,000. Russia (24.8% of total), Israel (15.5%), and Poland (7.5%) were the top drivers of growth. Most popular destinations in 2016 were the Prometheus Cave and Kazbegi National Park, each hosting over 130,000 visitors, while Martvili Canyon hosted more than 55,000 visitors. Furthermore, the Agency of Protected Areas is working on a project to establish a national park between Oni and Ambrolauri in the Racha region. According to preliminary details of the project, the park will be located on 70,000ha, increasing the total protected area in Georgia by approximately 12%.

FURTHER DIVERSIFICATION OF AIR TRAVEL DESTINATIONS IS EXPECTED IN 2017 As of January 2017, there were 31 carriers servicing

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THE NUMBER OF INTERNATIONAL ARRIVALS TO GEORGIA WAS UP 19.8% Y/Y TO 0.39MN IN JANUARY 2017 56 direct flight routes out of Georgia. New destinations in the Middle East and Central Asia will further increase air connectivity, as several companies that are already present on the Georgian market are expanding their offering. Georgian Airways plans to re-establish direct flights to Tehran to match the increased demand from Iranian visitors (+485.3% y/y in 2016). Qatar Airways announced the launch of direct flights from the Tbilisi International Airport to Doha. New brands are also entering the Georgian market. Gulf Air, the national airline of Bahrain, is launching flights from Tbilisi to Manama, to be carried out three times a week, while Hualing Group plans to establish a carrier to operate flights from Georgia to European and Asian cities. On the back of an increasing number of visitors from India, the Georgian government signed a memorandum with the Civil Aviation Ministry of India, granting permission to launch direct flights from Georgian airports to major Indian cities. The number of Indian visitors was up 198.9% y/y to 36,000 in 2016.

THE NATIONAL AGENCY FOR CULTURAL HERITAGE PRESERVATION OF GEORGIA ANNOUNCED THAT THE

Of the top four source markets, there was strong growth from Russia (+40.3% y/y), Armenia (+31.4% y/y), and Azerbaijan (+7.1% y/y), while the number of visitors from Turkey was flat (-0.8% y/y).

WHILE THE TOP FOUR SOURCE MARKETS ACCOUNTED FOR 86.3% OF INTERNATIONAL ARRIVALS TO GEORGIA IN JANUARY 2017, SECONDARY SOURCE MARKETS ALSO

POSTED ROBUST PERFORMANCES Ukraine, the 5th largest source market, posted a 28.2% y/y increase in January 2017, while the number of Iranian visitors was up over 7x to 8,000 visitors, albeit from the low base in January 2016, as visa-free regime with Iran was reinstated in February 2016. After growing 8.6% y/y in 2016, arrivals from the EU posted 26.1% y/y growth to over 10,500 visitors in January 2017, with Poland (+24.9% y/y), Germany (+32.0% y/y) and United Kingdom (+22.8% y/y) the top contributors to growth.

THE TOURIST CATEGORY CONTINUES TO DRIVE ARRIVAL GROWTH IN JANUARY 2017, AFTER POSTING A 19.0% Y/Y GROWTH RATE IN 2016 The number of overnight visitors (‘tourist’ category) was up 32.4% y/y and accounted for 39.8% of total international arrivals in January 2017. Same-day arrivals posted modest growth of 5.9% y/y, while the number of transit visitors was up 34.8% y/y in January 2017, after declining 5.7% y/y in 2016.

BUSINESS

GEORGIA TODAY FEBRUARY 14 - 16, 2017

7

Turkey - A Strategic Energy Hub omy in the period 2003 to 2016, daily production was no less than 700 thousand barrels in 2006, which rose to 860 thousand barrels at the end of 2015; 41% of imports of crude oil comes from Iraq, Turkey carries 20% - from Iran, 11% - from Russia, and 9% - from Saudi Arabia.

Most important is the role of Turkey as an "energy crossroads," one of the most unique in the world. With the help of tankers through the Bosporus and Dardanelles, more than two million barrels of Caspian and Russian crude oil Presented by ifact.ge

BY DIMITRI DOLABERIDZE

T

he US, which in the global energy strategy always claims its rights and puts energy first place in its foreign policy, presents itself as the largest oil producer in the world with production of more than 15 million barrels a day. Saudi Arabia comes in at second place with 12 million barrels, Russia with over 11 million. China, at 4.7 million barrels a day, is fourth in line, after which begins another league of states in which Canada, with 4.5 million, ranks fifth, and Iraq, extracting more than four million – holds sixth place.

Turkey, with the production of 63 thousand barrels per day, is located in 59th place after Bahrain.

In a US Energy Information Administration publication dated February 2, Turkey's Energy Information Administration claims that today Turkey has reserves of 312 million barrels, a daily production of 85 thousand barrels in 2004 after a low in 1991 of just 43 thousand.

The Turkish state-owned oil company

is a major player in the sector, which counts approximately 72% of daily production.

Crude oil production in Turkey provides 7% of its needs. The report notes that in the near future, Turkey may make significant investments in drilling oil and gas wells in the Black Sea and Aegean regions.

With steady growth of the Turkish econ-

In the near future, Turkey may make significant investments in drilling oil and gas wells in the Black Sea and Aegean regions

are carried per day. The Baku - Tbilisi – Ceyhan pipeline pumps 1.2 million barrels, as well as the Kirkuk - Yumurtalik and Erbil – Ceyhan pipelines with a capacity of 1.5 million and 700 thousand, respectively. About 5% of global oil production runs through Turkey.

The report of the US Energy Information Administration indicates that Turkey is an important energy hub in continental Europe and the Atlantic markets.

Continental Europe is the second largest in the world in natural gas consumption

and Turkey is vital to the energy potential of the Caspian Sea, the Middle East, and Russia, in terms of providing access to the most important markets.

In 2015, Turkey satisfied 99% of its natural gas needs by imports. 83% of its daily requirement is provided by the pipelines, 1% by domestic production and 16% by liquefied natural gas. The most important supplier of gas to Turkey is Russia. For Russia, Turkey is the second most important market after Germany.

8

BUSINESS

GEORGIA TODAY

FEBRUARY 14 - 16, 2017

Altersocks Opens 5th Branch in City Mall Gldani

BY MANUELA KOSCH

L

ess than one year ago, Nina Menteshashvili and Rezi Beselashvili started their company Altersocks. Bored of the standard black, white and grey on their toes, the pair set about designing more colorful daily alternatives- with prints of Khinkali, Khachapuri, Pirosmani’s ‘Fisherman,’ superheroes and more, all with the aim of making the wearers’ lives brighter.

“At the beginning, it was hard to find a shopping mall that would rent us a place to sell our socks from,” they say. But now they are in demand, the latest addition being City Mall Gldani, which contacted Altersocks on Facebook asking them to open a branch in their mall.

Neither Menteshashvili or Beselashvili expected that their business would grow as fast or be as successful as it has. Therefore, in the beginning, only Nina quit her day job to make the socks. And in the first five months after setting up, they reinvested all the money they earned in making new designs and opening new branches. As soon as they realized that the business was doing well, Beselashvili also quit his job to devote 100% of his time to Altersocks, which is now so successful, it supports them both and then some!

The two are not only business-partners. They are also husband and wife.

“Sometimes it’s not easy being married to your business-partner,” they admit. “We often have arguments because we’re not on the same page. But that’s probably why our products are so successful- we always work out a solution”.

The cotton for Altersocks is imported from Turkey, but the production of the socks takes place in

Georgia. The main customer group is Georgians, but even for the growing number of tourists the socks are attractive as a cheap and practical souvenir.

One point of their strategy was to rent spaces on

the ground floors of the shopping malls. Even if such is difficult to find and even if they are more expensive locations to rent, the pair only opened branches on the ground floors. “People didn’t know our brand. Therefore, they needed to see us,” Menteshashvili explains.

Five branches later, all in different shopping malls, the couple dreams of having their own store in Tbilisi. They would also like to be able to expand

to other cities: “In the future, we want to sell our socks not only in Tbilisi, but also in Kutaisi and in Batumi”.

Tempted? Check out their stands in: • Tbilisi Mall • Pixel shopping mall • City Mall shopping center (Goodwill, Saburtalo) • East Point shopping mall • City Mall Gldani

Georgia at International Tourism Fair Balttour 2017

BY NINO GUGUNISHVILI

O

n an ongoing mission to promote Georgia and its tourism potential, the Georgian National Tourism Administration (GNTA) participated in the International Tourism Exhibi-

tion Balltour 2017, together with the Adjara Tourism Department and various Georgian travel agencies.

Possibilities of traveling to Georgia, its summer resorts and prices, as well as direct-flight options, were displayed to the many visitors of the 24th International Tourism Fair in Riga, Latvia. The Fair this year brought together 850 tourism companies from 41 countries worldwide.

BUSINESS

GEORGIA TODAY FEBRUARY 14 - 16, 2017

Playing by the Rules: Belarus vs Russia

Source: Peter Schrank/The Economist

OP-ED BY DIMITRI DOLABERIDZE

T

he president of Belarus, Alexander Lukashenko, last week criticized Russia in a meeting with representatives of the public, Belarusian and foreign mass media, stressing that Belarus' economy can survive the current pressure the Russian authorities are applying.

He went on, however, to ask that Russia not create problems for Belarusian producers as a way to try and make Minsk pay Russia for gas and oil.

"I want to know how to act tomorrow, because we have to pay you (Russia) for energy, and if we cannot get a penny in Russian and other markets, we cannot pay for oil and natural gas," Lukashenko said at a meeting with the Kostroma (Russia) region governor, Sergey Sitnikov.

Yet, in spite of the traditional emotional speech of Lukashenko, it was clear that the Belarusian leader was nervous. And here's why: the Belarusian economy has serious problems, particularly with sales in the traditional Russian market.

As the modern economic model of the country largely ensures the safety of the political regime headed by Lukashenko, and clearly not wanting to go through painful reforms which may significantly affect the social situation of citizens, Lukashenko wants to use the established track. This implies large discounts from the Russian side on Belarusian products in exchange for the energy supplied by the republic.

The desire for neutrality in Belarus is inconsistent due to its military-political union with Russia and Moscow is now demanding to know why, in exchange for oil and gas exports, it must lose profits. And it is not satisfied with a situation which sees it ensuring the stability of the Belarusian economy, but not receiving the expected dividends in the political sphere- with Minsk openly demonstrating its unwillingness to share sovereignty. It is no coincidence that Belarus, together with Kazakhstan, are the leaders in the Eurasian Economic Union (EEC), hindering the integration

processes within that Union.

Moscow's ability to put pressure on Astana is significantly less than that it can apply to Minsk.

As such, the Russian authorities decided to start with Belarus to show that the rules of the game have changed, and clearly demonstrating that it (Russia) will be helping no-one. This, not only because of a lack of resources, but also due to changes in foreign policy.

Judging by the statements of Lukashenko, however, he has no desire to put up with this new reality. And he does not understand why the traditional methods in Belarusian relations with Russia no longer work as before. After Ukraine, Moscow has no fear of relations with the West, nor of an increase in tariffs for transit of Russian oil, or equivalent boycotts at summits and meetings.

Therefore, the Russian authorities, without emotional statements in the style of Lukashenko, have moved to show their hand has changed and they are confident they will beat Belarus. For example, a few hours after an order from Lukashenko that the Belarusian Ministry of Internal Affairs start a criminal case against the head of “Rosselkhoznadzor,” Sergey Dankvert, Russia banned the supply of beef products from Minsk.

At the same time, the Russian authorities emphasize that they expect Belarus to repay its gas debt in full and at a price which is specified in the contract and not which is identified by their Belarusian colleagues.

The Russian authorities are well aware that Minsk cannot escape. An IMF loan is capable of solving the financial problems of the country for the shortterm but, like Ukraine, no one will be supporting Belarus in its long-term fight against the bear.

What’s more, no one can replace the Russian market for Belarusian manufacturers.

It can be expected that in the near future, Lukashenko will find a compromise with the Russian authorities. But in any case he will have to come to terms with the new reality and realize that if he wants to continue to maintain the current political model in Belarus, he must analyze the interests of Russia and play by its rules and its rules alone.

External Merchandise Trade of Georgia Grows by 22% in January

BY THEA MORRISON

G

eorgia’s external trade increased by 22 percent in January, according to the latest preliminary report of the National Statistics Office of Georgia (Geostat) published on Monday.

The report revealed that the External Merchandise Trade of Georgia amounted to $ 651 million in January, 22 percent more than the data of the same period of 2016.

The value of export increased by 45 percent to reach $ 177 million, while import grew by 15 percent and amounted to $ 474 million with respect to January of the previous year.

The trade deficit equaled $298 million and its share in trade turnover constituted 46 percent.

Detailed data on the external merchandise trade of Georgia will be published on February 20.

The National Statistics Office of Georgia is a legal

entity of public law and carries out its activities independently. It is an institution established to produce statistics and disseminate statistical information according to Georgian legislation.

Geostat says that the electronic Database of Customs Declarations (DBCD) is the main administrative information source of external merchandise trade transactions.

Geostat receives DBCD from the Revenue Service of the Ministry of Finance of Georgia on a monthly basis.

Geostat produces External Merchandise Trade Statistics in line with international methodology and standards.

9

10

BUSINESS

GEORGIA TODAY

FEBRUARY 14 - 16, 2017

Electricity Market Watch FOR GEORGIA TODAY BY MARIAM CHAKHVASHVILI

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.

HPPS COMMISSIONED IN LATE 2016 (164.9MW) ARE EXPECTED TO ACCOUNT FOR 5.7% OF TOTAL HYDRO GENERATION IN 2017 Generation of deregulated HPPs already posted a significant increase in Dec-16 (+27.5% y/y). The 108MW Dariali HPP, commissioned in Nov-16, was the main contributor to the increase, as it has already generated 22.1gWh of electricity and is expected to generate 464.5gWh in 2017. The HPPs commissioned in 2016 also include Debeda (3.0MW), Shakshaheti (1.5MW), Maksania (0.5MW), and Saguramo (4.4MW). Khelvachauri HPP (47.5MW), constructed by Turkish company Adjar Energy 2007, is currently operating in test mode and will be granted a generation license in 2017. It is part of a cascade of three HPPs, including Khelvachauri, Kirnati, and Khelvachauri 2, the last two of which are to be commissioned in coming years. The cascade is expected to provide 512.7gWh, on average, to the grid annually.

AN ESTIMATED US$ 733MN WILL BE SPENT ON THE CONSTRUCTION OF THE NAMAKHVANI HPP CASCADE IN THE NEXT 5 YEARS An SPV established by the Norwegian company, Clean Energy Group, was granted the right to build, own, and operate the Namakhvani HPP cascade (433MW), the third largest HPP project in Georgia after Enguri and Khudoni. Expression of interest was held by the current project owner, Namakhvani LLC, a subsidiary of the state-owned company GEDF. Experience and financial performance were the prequalification criteria, while the PPA terms offered by the bidders were the deciding factors (the tariff and the period requested from GoG for purchasing generated electricity). The investor requested a guaranteed tariff for only eight months (September through April) for the first 10 years. Annual generation of the Namakhvani HPP cascade is estimated at 1.5tWh, which represents 11.0% of the projected Georgian electricity consumption in 2022.

SOLAR ENERGY POTENTIAL IN GEORGIA GoG has signed an MoU with Caucasian Solar Company JSC for the feasibility

DOWN IN DECEMBER 2016

study of solar power plants (SPPs) in ten different locations across Georgia. The approximate capacity of each SPP is 50MW. The exact amount of installed capacity and required investment will be known after the completion of the 18-month feasibility study. Currently there are two other solar projects on the feasibility stage: one developed by GEDF in Udabno, Kakheti region, with approximate capacity of 5MW and another by Solar Energy Company Ltd. in Kvemo Kartli region, with approximate capacity of 50MW.

Wholesale market prices in Georgia decreased 23.3% y/y to USc 4.2/kWh, 35.2% below the Turkish market clearing price in December 2016. Turkish electricity prices increased 12.6% y/y to USc 6.5/ kWh from a significantly low base in December 2015. 22% of total electricity supplied to the grid in December 2016 was traded through the market operator, with the rest traded through bilateral contracts.

ELECTRICITY CONSUMPTION, EXPORTS, AND GENERATION – 2016 SUMMARY

GEDF OFFERS INVESTORS ITS 150MW ZESTAFONI WPP PROJECT FOR FURTHER MUTUAL DEVELOPMENT

Domestic consumption increased 6.2% y/y in 2016. The main contributor was Telasi (+15.3% y/y), which doubled its 2015 annual growth rate. The Abkhazian region, which led the growth in 2015, continued steady growth (+7.0% y/y) in 2016. EnergoPro subscribers increased their consumption by 3.3% y/y in 2016, while consumption by Kakheti Energy Distribution subscribers increased by only 1.9% in 2016, following high single-digit increases in previous years. Consumption of eligible consumers decreased 1.0% y/y from the low base in 2015 (-21.4% y/y), but the decrease was the result of Rustavi Water Company giving up its eligible consumer status in 2016. Consumption of Georgian Manganese, the largest direct consumer, was up 4.4% y/y from the 2015 low base.

Pre-feasibility revealed the possibility to construct 50 wind turbines on the site, which would require an investment of US$ 227mn. The main investor selection criteria are the rates offered for call and put options, which can be activated after the completion of the feasibility study.

GEDF is also developing the Central WPP project (150MW) in the Imereti region and the Nigoza WPP project (50MW) in the Kartli region, together with the Turkish company Calik Enerji Sanayi ve Ticaret A.S. GEDF is also the owner of Gori WPP, which commenced operations in November 2016 and already reached 0.6% of total energy supplied to the grid in December 2016.

ELECTRICITY CONSUMPTION, EXPORTS, AND GENERATION – DECEMBER 2016 Domestic consumption increased 14.5% y/y in December 2016, with Telasi and eligible consumers driving the growth.

DNO consumption was up 12.6% y/y, with the greater Tbilisi area (Telasi subscribers) posting an outsized 20.5% y/y growth rate. Usage of Energo-Pro subscribers was up 8.4% y/y, while Kakheti Energy Distribution usage was up 6.0% y/y. Consumption of the Abkhazian region was up 9.2% y/y. Eligible consumer usage was up 44.3% y/y from the very low base in December 2015. Georgian Manganese, the largest direct consumer (81.4% of direct consumption), drove the growth with a 71.7% y/y increase from the December 2015 low base. Electricity exports were negligible, while a significant amount of electricity transit (134.4gWh) took place from Azerbaijan to Turkey in December 2016.

Domestic consumption needs were met almost entirely by domestic generation in December 2016. Imports (-72.7% y/y) accounted for a mere 2.8% of total electricity supplied to the grid, with 58.8% coming from Azerbaijan and the rest from Russia. Total generation increased 26.7% y/y, with TPPs driving the growth (+50.9% y/y) and accounting for 40.8% of total electricity supply. The newly commissioned wind power plant accounted for 0.6% of total electricity supplied to the grid (7.2gWh). HPP generation was up 12.4% y/y, following the high growth rate in November 2016 (+17.0% y/y). The main drivers of the increase in hydro genera-

HIGHER CONSUMPTION DEMAND MET ALMOST ENTIRELY BY DOMESTIC GENERATION SOURCES Domestic generation increased 6.8% y/y and comprised 96.0% of total electricity supply. HPP generation increased 10.4% y/y, while TPP generation decreased 6.0% y/y in 2016. Growth of hydro generation was mainly driven by regulated HPPs, with generation up 7.8% y/y by Enguri and Vardnili and 11.9% y/y by other regulated HPPs. Generation by deregulated HPPs was up by 16.6% y/y. 91.3% of total electricity supply was consumed by domestic consumers, 4.6% was exported, and 4.1% was consumed by power plants or lost during transmission.

GEORGIA BECAME A NET EXPORTER OF ELECTRICITY IN 2016 WITH 80.1GWH OF NET EXPORT

tion were Enguri and Vardnili (+13.6% y/y) and deregulated HPPs (+27.5% y/y), as newly commissioned HPPs commenced operations.

ELECTRICITY PRICES IN GEORGIA AND TURKEY Wholesale market prices in Georgia decreased 23.3% y/y to USc 4.2/kWh, 35.2% below the Turkish market clearing

price in December 2016. Turkish electricity prices increased 12.6% y/y to USc 6.5/ kWh from a significantly low base in December 2015. 22% of total electricity supplied to the grid in December 2016 was traded through the market operator, with the rest traded through bilateral contracts.

WHOLESALE ELECTRICITY PRICES

ROUTING

TBILISI ISTANBUL ATATURK AIRPORT ISTANBUL ATATURK AIRPORT TBILISI TBILISI ISTANBUL SABIHA GOKCEN AIRPORT ISTANBUL SABIHA GOKCEN AIRPORT TBILISI BATUMI - ISTANBUL ISTANBUL - BATUMI

10 Galaktion Street

Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge

Electricity import decreased dramatically (-31.5% y/y) to 478.9gWh in 2016 and accounted for only 4.0% of total electricity supply. 77.1% of imported electricity came from Azerbaijan, the rest from Russia. Exports in 2016 were down 15.3% y/y to 559.0gWh. Exports to the main export market, Turkey (52.7% of 2016 export), decreased 29.8% y/y, largely due to the fewer export months for Paravani HPP. There was a significant increase in export to Armenia (+57.4% y/y), while export to Russia declined 13.0% y/y and accounted for 26.4% of exported electricity. Total amount of electricity transit from Azerbaijan to Turkey reached 849.6 gWh in 2016.

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

POLITICS

GEORGIA TODAY FEBRUARY 14 - 16, 2017

Mikheil Janelidze Meets President of Azerbaijan

11

Russian News Agency Says De-facto South Ossetia’s Possible Joining Russia Delayed

Leonid Tibilov, Source: sputniknews.com

BY THEA MORRISON

L

eonid Tibilov, ostensible President of Georgia’s breakaway region South Ossetia, says that the issue of South Ossetia’s joining Russia has been delayed until the self-proclaimed republic holds presidential elections in April, claimed Russian news agency Tass on February 10.

“Last year, we agreed on a scheme that would allow us to make a proposal to the Russian leader-

ship on accession,” Tibilov said, adding that the process is inner state and it was discussed in detail by a political council.

“We took the decision to reconsider this issue after the 2017 elections. We have time to work with our Russian colleagues, and Moscow knows about our ideas," Tibilov said, going on to emphasize that all citizens of South Ossetia seek rapprochement with Moscow.

Tass reports that in 2016, South Ossetia decided to hold a referendum on accession to Russia, a move which was later postponed. It is expected that the referendum will be held in 2017.

Mikheil Janelidze, Minister of Foreign Affairs of Georgia and Ilham Aliyev, President of Azerbaijan on the meeting

between Azerbaijan and the EU. The parties then agreed to continue the high level dialogue and to deepen cooperation between the two countries.

BY NINO GUGUNISHVILI

M

icheil Janelidze, Minister of foreign affairs of Georgia, met with Ilham Aliyev, President of Azerbaijan while on an official visit to Baku.

The two are said to have discussed the strategic partnership between the two countries, with a particular emphasis on bilateral relations and regional cooperation issues in political, trade and economic directions. They also underlined the importance of the projects realized in the energy and transport spheres.

The parties agreed to continue their collaboration on the south energy corridor and the BakuTbilisi -Kars project, stressing their significance for the two countries and the wider region.

Cooperation possibilities under the EU Eastern Partnership initiative were also discussed, with Janelidze congratulating the President of Azerbaijan on starting work on a strategic document

The parties agreed to continue their collaboration on the south energy corridor and the BakuTbilisi-Kars project, stressing their significance for the two countries and the wider region

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SOCIETY

GEORGIA TODAY

FEBRUARY 14 - 16, 2017

FlyDubai to Add Batumi Flights The company has already applied to the Civil Aviation Agency of Georgia, with intensive consultations taking place with both the Agency and TAV Georgia Batumi to receive flight authorization and airport time slots.

According to the application, Boeing 737-800 flights will operate three times a week on Tuesdays, Thursdays, and Saturdays, with operation starting sometime between June - September 2017.

BY NINO GUGUNISHVILI

F

lyDubai, a leading UAE budget airline, plans to add direct flights between Dubai and Batumi. FlyDubai entered the Georgian market in 2011. Based in Dubai, it offers flights to around 90 destinations around the world.

World Bank & Georgia to Cooperate on Education Reform

BY THEA MORRISON

T

he World Bank and Georgia plan to cooperate on education reform, one of the main components of the government’s fourpoint plan, which envisages modifying Georgia's income tax rules, improving governance, accelerating infrastructure projects, and developing education.

Mutual cooperation was one of the key issues of the meeting between Georgia's Prime Minister, Giorgi Kvirikashvili, and Christian Aedo, the World Bank's Global Education Practice Man-

ager last week.

The Prime Minister's Press Office reports that the PM informed the World Bank delegation about the comprehensive ongoing reform of the education system which aims to forge a professional and higher education system focused on the labor market and actual demand in Georgia.

The Georgian side expressed readiness to take the World Bank's advice in this direction.

Kvirikashvili also mentioned special education opportunities for adults, which will enable people of all ages to master vocations of their choice or start their own businesses.

Particular emphasis was put on the

necessity to use modern technologies in the education system.

The meeting was attended by World Bank representatives and the Minister

of Education and Science of Georgia, Alexander Jejelava.