Page 1 georgiatoday

Issue no: 912/61

• JANUARY 17 - 19, 2017



In this week’s issue...

President Calls on Citizens to Buy Georgian NEWS PAGE 2

FOCUS ON THE GAZPROM DEAL NGOs and think tanks criticize closed-door deal with Russian energy giant

NDI Poll: Economy Still Top Concern for Georgians, Support for NATO & EU Stable


oll results released Monday by the National Democratic Institute (NDI) and CRRC Georgia reveal that economic anxieties continue to top Georgians’ list of primary concerns. The top issues for Georgians remain jobs (58 percent), rising prices and inflation (38 percent), and poverty (30 percent). As in previous polls, the vast majority of Georgians considers themselves unemployed, 66 percent, and only a third feel their economic situation will improve. Few (17 percent) believe their household is better off since 2012, while 82 percent report that they are the same or worse off. With regard to the country’s direction, 32 per-

cent believe Georgia is going in the right direction, up from 20 percent in the March 2016 poll, while 63 percent feel the country is not changing or going in the wrong direction. “In multiple polls for years now, Georgians have consistently expressed concern about the country’s and their economic well-being, and they are not feeling any relief or improvement,” says Laura Thornton, NDI Senior Director. “With elections completed, the new government has a clear mandate to start responding and focusing their attention and resources on addressing employment and the poor state of the country’s economic security.” Continued on page 2

PAGE 3, 10

International Arbitration & the Globalization of Life Sciences PAGE 4

Tourism Market Watch GALT & TAGGART PAGE 6

Green Bond Market in Georgia – a Growing Opportunity PAGE 7

End of Days: What Empowers ISIS? POLITICS PAGE 11

Newly Equipped Disability Friendly School & New Gov’t ‘Healthy Youth’ Initiative SOCIETY PAGE 12 Prepared for Georgia Today Business by

Markets Asof13ͲJanͲ2017


COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)






























































































































































JANUARY 17 - 19, 2017

Forbes Includes Georgia in Top 12 Underrated Wine Regions to Visit in 2017

Local winemakers in Kakheti. Source: Taste Georgia



month-by-month guide published by Forbes on Friday, which offers its readers the Top 12 Underrated Wine Regions to Visit In 2017, includes Georgia’s oldest winemaking region Kakheti along with other well-known places of the world. The month-to-month guide identifies the new frontiers of enotourism. Of the twelve regions offered by Forbes in 2017, some are up-and-coming, while others have been underrated for far too long, yet all delivering high-quality wine, dis-

tinct food and hospitality and beguiling scenery. The article notes that within wine circles and, increasingly, mainstream travel media, the word on Georgia as a wine destination has spread. “Villages remain authentically charming, the countryside still a peaceful refuge and the unique winemaking traditions endure intact,” the guide reads. The article says that the best time to visit Kakheti is May. “Kakheti, nestled at the foothills of the Caucasus Mountains, is the main region, known for fermenting wine underground in terra-cotta jars called Qvevri. A delicious food culture sweetens the incentive to visit,” Forbes writes.

President Margvelashvili visited Georgian factories and promoted Georgian production

President Calls on Citizens to Buy Georgian BY THEA MORRISON


he President of Georgia, Giorgi Margvelashvili has initiated a campaign - Ask for Georgian- to promote Georgian production. As a part of this campaign, the President visited four factories in Shida Kartli and Mtskheta-Mtianeti: Campa, Kula and Kareli Fruit, tasted Georgian products and took part in the production process.

Margvelashvili also visited the factory of Dynasty, located close to the borderline of Georgia’s occupied region South Ossetia, where he met with locals and took part in the production process – wrapping and labelling dried fruit, Tklapi, and Churchkhela. The President hopes the campaign will raise public awareness of the Georgian food industry and popularize Georgian products on the local market. The President has also joined the movement KAR.GE and the initiative of photographer Goga Chanadiri - Buy Georgian.

“Through the initiative, we aim to strengthen our country’s local production, ask for Georgian products while shopping and by doing so improve our country’s economic situation, strengthen those individuals who are employed in Georgian companies, create new job opportunities, contribute to overcoming currency problems, and give hope to others that we can strengthen one another by standing side by side. Once again, while shopping in stores or markets, ask for Georgian products,” the President said.

NDI Poll: Economy Still Top Concern for Georgians, Support for NATO & EU Stable Continued from page 1 Georgians are equally divided in their evaluation of the performance of local government, and interaction with local government bodies is low, with only 14 percent of respondents reporting that they have interacted with the sakrebulo and 12 percent with the mayor’s office. Those who have interacted, however, rate the experience favourably, saying that they were treated with respect, that staff were competent, and in a majority of cases helped solve their problems. Support for the European Union (EU) and NATO remain high, with 72 percent of Georgians approving the country’s

goal to join the EU and 61 percent to join NATO. Exceptions remain in minority settlements in which less than half support these goals. Age is also a factor, with support ratings more than 15 percent higher among younger respondents than older ones. This poll examined issues related to women’s political participation, and the majority of Georgians believes that women are as capable as men in decision making. However, they acknowledge that access, resources, time, and culture affect their ability to participate on equal terms with their male counterparts. The vast majority of Georgians (74 percent) continue to believe that parliament should

include at least 30 percent women, and that the current composition has too few women MPs, and approve of a mandatory gender quota. They believe that more women in parliament would have either a positive or neutral impact (83 percent) and only 8 percent state there would be a negative result from enhanced representation. “Parties have dragged their feet on the issue of women’s political participation, as we see clearly from the composition of the candidate lists in the last election. The Georgian people, however, are ahead of their leaders and are clearly in favor of more concrete measures to ensure more equal representation,” - Thornton says.

NDI surveys public opinion to help Georgian stakeholders diagnose and address issues of public concern by providing accurate, unbiased and statistically-sound data. This poll aims to capture the most relevant information to foster the development of responsive policies and governance. A wide range of leaders from across the political spectrum have reported that the polls are important to their work and encourage continued polling. The results reflect data collected from November 4 to December 4 through face-to-face interviews with a nationwide representative sample of Georgia’s adult population, excluding occupied territories that

included 3,141 completed interviews. The average margin of error is +/- 1,8 percent. NDI’s survey work is funded by the Swedish International Development Cooperation Agency (Sida). ENDNDI is an independent, non-profit, nonpartisan organization working to support and strengthen democratic institutions worldwide through citizen participation, openness and accountability in government. CRRC-Georgia is a non-governmental, non-profit research organization with a mission to promote evidence based debates on policy issues by providing reliable, up-to-date and accessible data and analysis.




NGOs and Opposition Call on Energy Ministry to Disclose Details of New Deal with Gazprom BY THEA MORRISON


on-Governmental Organizations (NGOs) and the parliamentary opposition of Georgia are openly against the new deal made by the Energy Ministry of Georgia and Russia’s energy company Gazprom, and is calling on the Energy Minister, Kakha Kaladze, to disclose all details of the agreement. 23 NGOs, united under the Coalition for Euro-Atlantic Georgia, released a statement last week, saying that the new transit terms with Gazprom endanger the country’s energy independence and security. “The new terms worsen the country’s energy security and the government’s arguments concerning the new agreement are not satisfactory,” the coalition stressed in its statement. The new deal means that Georgia, as a transit country for the transportation of Russian gas to Armenia, will from 2018 receive payment from Gazprom. However, under the previous agreement, which expired on December 31, 2016, Russia has been paying Georgia for gas transportation by supplying natural gas to the amount of 10% of the volume of transported gas. The NGOs call on the authorities to disclose the agreement details and hold a special parliamentary hearing. They stressed the government should provide answers to the following questions: • What has changed since last year, when the current position was unacceptable for the government? • Why should seasonal shortage be met by Russian gas? • What specific steps were taken dur-

Gazprom. Source:

ing the year to inquire into the possibility of receiving additional gas from other suppliers? • Is the transit fee in line with the price calculated under the requirements of the European Energy Community and has this price been approved by the Georgian National Energy and Water Supply Regulatory Commission? • Were the talks based on strategic expert calculations and were international partners involved?

Georgia’s parliamentary minority also disapproves of the deal, saying it is antistate. They call on Kaladze to provide detailed information at a special meeting at parliament. Sergo Ratiani, member of the faction European Georgia, believes the deal contradicts national interests and is economically unprofitable. “The deal reached with Gazprom is a version profitable only for Russia…The agreement is anti-state and problematic

in terms of energy security,” he said. The ruling party Georgian Dream (GD), which had always been against monetary compensation from Gazprom, now says the deal is “optimal” and does not endanger Georgia’s energy independence. “Azerbaijan will be our top priority in terms of gas, followed by Russia. We did not allow Russia to increase its share in Georgia’s gas supply. This is the most optimal agreement at present,” majority member, Irakli Zarkua, said.

Gazprom also commented on the deal, saying the agreement was “profitable for both sides.” “The Russian side guarantees to pay for the transit of Russian gas through Georgia to Armenia in 2017-2018 at a volume of 2.0-2.2 billion cubic meters per year, as well as to supply Georgia with natural gas on flexible terms at a price lower by $30 per 1000 cubic meters than in 2016,” the Gazprom statement reads.

Georgia’s Opposition UNM Splits BY THEA MORRISON


eorgia’s main opposition party, the United National Movement (UNM), officially divided after 38 heads of UNM municipal and regional organizations, 21 MPs and a number of the council members decided to leave the party on Thursday. In all, 59 members left the party on January 12. The decision was made following the inter-party confrontation about the January 20 party congress, which will gather around 7000 delegates to decide the fate of the party. The UNM members were also in disagreement about electing a new leader for the party, which divided the party into two. The group which left the party was for distancing itself from the founder and informal leader of the party, Georgia’s ex-president, Mikheil Saakashvili, who is now a Ukrainian citizen with his own opposition party there. The group which remained in the party, says the election of a new party leader will destroy the UNM and Saakashvili should remain as the informal head of the party. The political leaders who have left the

Photo source: Tabula

United National Movement are going to continue political activities in the party European Georgia. However, the party name might be changed. Former members of the UNM will also maintain their fraction in parliament. According to unconfirmed information, the faction will be led by Sergo Ratiani,

however, the candidacies of Irakli Abesadze and Otar Kakhidze are also being considered. Former Tbilisi Mayor, Gigi Ugulava, who was released from prison just days ago, also quit the UNM. He underlined that the UNM does not belong to Saakashvili and he should no longer remain its leader.

“The party should elect a new leader. It would do no harm to Saakashvili’s image, but he wants to keep this chair… So he is the one responsible for the split of the party,” Ugulava said. Another prominent UNM leader, Davit Bakradze, who also quit the party, said they had left the inter-party controversy

in the past and would build a new future. As the anti-Saakashvili wing left the party, new leader of the UNM, Nika Melia, said the party was not weakened after the split, but strengthened. “The National Movement is now free of insularity, arrogance, nepotism, ignorance… On January 20 the party will start a new stage. The UNM does not belong to Saakashvili or anyone else. It belongs to the people,” said Melia. Ex-President Saakashvili also commented on the issue. He said Ugulava had criticized him more than “Georgia’s informal ruler Bidzina Ivanishvili,” exPrime Minister and founder of the ruling party Georgian Dream. “Losers’ governance is over. The party is now more united and powerful than it has been for the last 4 years, since control was regained by tens of thousands of activists,” Saakashvili’s Facebook post reads. Political Analyst Gia Khukhashvili believes that since the most prominent members had left the UNM, “there is no political intellect left within the party.” “The split of the UNM does not change Georgia’s political climate, but changes many things for the party. The split is quite strange: The political elite are on one side and the informal leader and his followers on the other,” the expert said.




JANUARY 17 - 19, 2017

International Arbitration & the Globalization of Life Sciences


echert 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 highlight significant issues which may impact businesses operating in Georgia. This article from Erica Stein, Alexandre de Gramont and Jonathan Schur at Dechert was first published in the November-December 2016 edition of CDR magazine and looks at arbitration in the life sciences sector. The global life sciences industry, and the way in which its disputes are resolved, have evolved over the past two decades. Alexandre de Gramont, Jonathan Schur and Erica Stein of Dechert summarise the current landscape for international arbitration in this sector. Although a variety of disputes are resolved through international arbitration, a high percentage of parties have traditionally come from a relatively small number of industries, such as energy, construction and shipping. That is unsurprising, given that companies in those industries have historically entered into commercial arrangements with international business partners, often in the developing world, or in countries with very different legal systems and cultures. In such arrangements, each party typically wants to avoid litigating disputes in each other’s domestic courts, and so they agree to neutral and independent international arbitration. More recently, as other industries have become truly global (i.e. developing, producing and selling higher percentages of their products in global markets), they also are turning to international arbitration as their preferred method of dispute resolution.

The life sciences industry is one of the most prominent examples. In fact, given the nature of life sciences transactions and the manner in which the industry has developed over the past two decades, it would be difficult to imagine an industry better suited to international arbitration.

THE GLOBALIZATION OF THE LIFE SCIENCES INDUSTRY Cycles of invention and development come and go in the pharmaceutical industry but the past two decades have been remarkable in terms of growth in both traditional and new markets – including emerging markets. A study of large pharmaceutical companies by industry publication Drug Discovery Today reported that during the 1995 to 2005 period, none of the companies listed had derived more than 20% of its revenues from emerging markets. By contrast, during the following decade of 2005 to 2015, most large pharmaceutical companies saw the size of their emerging market revenues grow to at least 25%, with the figure as high as 35% for one major player (Sanofi of France). Brazil, Russia, and China have accounted for much, but certainly not all, of the emerging market demand. In part, because of this demand, the market value and geographic diversification of the pharmaceutical industry have increased dramatically. According to industry reports, in 2003, the market value of the global pharmaceutical industry was approximately USD 462 billion. Markets outside the United States and Europe accounted for around USD 133 billion, or about 29% of the total. By 2015, the market value of the global pharmaceutical industry had more than doubled to USD 951 billion. Markets outside the US and

Europe accounted for USD 362 billion of global value, representing an almost three-fold increase since 2003, comprising approximately 38% of the total global value. Further illustrations of such growth and diversification can be shown by the fact that of the 308 pharmaceutical companies with at least USD 1 billion in revenue in 2015, 102 – nearly a third – are now based outside the US, Canada and Europe. Countries such as Brazil, China, Japan, India, Indonesia, Israel, Mexico, South Korea and South Africa all have significant pharmaceutical companies, with annual revenues exceeding or approaching USD 1 billion. Such trends are not restricted to ‘big pharma’ – the mastodons of the industry. Specialty pharmaceutical companies that focus on particular niches or technologies adopt global strategies, often through licensing, co-development, copromotion or distribution arrangements. Even biotech companies developing novel drugs or drug development platforms, which lack the scale needed for late-stage development or worldwide commercialisation, seek both financing and opportunities for collaboration world-wide. According to industry data, from 2004 to 2015, the global biotechnology market more than tripled in size (from USD 114.1 billion to USD 357.9 billion). In 2004, the United States and Europe represented about 76% of that market. In 2015, that share had fallen to around 62% – meaning that roughly 40% of global biotech firms are located outside traditional markets.

HOW LIFE SCIENCE DISPUTES ARISE Developing and bringing a product to market, which requires clinical trials and regulatory approvals, is time-consuming and expensive, usually taking more than 10 years and hundreds of millions of dollars in investment. Multiple parties with global footprints may become involved in the development process. Financing is sought from venture capital and strategic investors on every continent. Once a product gets to market, the supply and distribution chain typically consists of multiple companies in multiple countries. Beyond the challenges arising from globalisation, the contractual arrangements used in life sciences transactions are unusually complex. They mix issues of contract law, intellectual property law, administrative law, product liability law, antitrust and competition law, anti-corruption law, privacy and data protection, and niche issues in employment and corporate law. They are generally long, complex, and heavily negotiated by specialists for whom it is a standard practice to spend a day in a conference room on the definition of the relevant product, two days to debate what development efforts should be considered ‘commercially reasonable’, or a week to hammer out a termination clause. The industry has also seen a high number of mergers and acquisitions in recent years, creating issues as to the impact of changes in control and changing scientific and commercial priorities. These agreements are often entered into between companies of different nationalities, and increasingly include international arbitration clauses. As if this were not complicated enough, what actually happens during a complex, decade-long development programme is almost never what the lawyers were told to expect at the outset.

THE RISE OF INTERNATIONAL ARBITRATION TO RESOLVE LIFE SCIENCES DISPUTES Given the profile of the life sciences industry, it is not surprising that companies are increasingly choosing international arbitration to resolve their global disputes. Its advantages are particularly well-suited to global life sciences disputes. The principal motivation underlying interna-

tional arbitration has historically been the desire to avoid domestic litigation in favour of resolving disputes in a neutral and independent forum. For life sciences companies doing business in emerging markets, or other jurisdictions with substantially different legal systems and cultures, that in itself is often a crucial goal. Both inserts show how arbitration is well-suited to this task. The growth of international arbitration as a preferred means to resolve global life sciences disputes can be seen in the statistics provided by some leading international arbitration institutions. For example, the ICC International Court of Arbitration recorded an average of 30 international arbitration cases concerning health, pharmaceutical and body care matters submitted annually between 2011 and 2015. The International Centre for Dispute Resolution (ICDR) – the international arbitration wing of the American Arbitration Association – reports similar numbers over the same period. The Arbitration and Mediation Centre of the World Intellectual Property Organization (WIPO) – reports that approximately 15% of its current case load involves the life sciences industry. Moreover, to accommodate these market needs, the ICDR and WIPO now offer lists of life sciences experts to act as arbitrators, as do JAMS and the International Institute for Conflict Prevention and Resolution.

CONCLUSION Of course, court litigation may be the only option in cases where there is no contractual relationship between the parties. Many such cases in the life sciences industry, as well as cases where the parties have failed to include arbitration clauses in their agreements, will continue to be heard in domestic courts. But as in many other industries for which international arbitration has long been the preferred method of resolving cross-border disputes, it is anticipated that an increasing percentage of such disputes in the life sciences industry will be resolved through international arbitration.

KEEPING BUSINESS RELATIONSHIPS ALIVE One particular aspect of why international arbitration is especially suited to the industry springs from disputes having arisen between parties with an ongoing business relationship that is important to preserve. Managing a research programme mobilising specialised (and expensive) teams and facilities is like operating a major airport, and the consequences of a shutdown can be catastrophic. There are no time-outs in a clinical trial, as patients need to be treated and data collected, and a delay or cessation can compromise programmes that cost hundreds of millions of dollars. A pharmaceutical product for which there is a medical need must be offered for sale, even if there is a dispute pending, failing which the regulatory and reputational consequences can be significant. Furthermore, although the industry is large, it is also small in the sense that most participants know one another and tend to have multiple relationships over long periods. As a result, when a dispute arises there is a lot to be lost beyond the immediate damage at issue. The fact that international arbitration is a consensual process, combined with its relative informality, often means it is more conducive to preserving a business relationship than litigation. The parties can recognise the ancillary risks associated with their dispute and work to minimise those risks, thereby keeping their relationship as productive as possible.

ADVANTAGES FOR LIFE SCIENCES LAWYERS There are many advantages and features of international arbitration especially suited to global life sciences disputes. They include: Confidentiality: Unlike court proceedings, which are largely open to the public, international arbitration is usually confidential (if the parties so elect and/or if the chosen rules so provide). For an industry that depends so heavily on intellectual property, including proprietary contract provisions and negotiating practices, confidentiality can be essential. Continued on page 5




Chinese Company International Arbitration to Buy 5 Million & the Globalization of Bottles of Wine Life Sciences from Shilda Continued from page 4


contract for five million bottles of wine was signed last week by the Georgian producer Shilda and the Chinese importer Shangha Stsifan Trading. Shilda, founded by Mikheil and Natia ChKhartishvili, is advertising this deal as unprecedented, and amounting to nearly the entire quantity of wine exported from Georgia to China in 2016 as a whole.

This, the company asserts, speaks to growing interest among Chinese consumers in Georgian wine. Shilda and Shanghai Stsifan Trading signed the agreement on January 11. The Georgian Ambassador to the Peoples’ Republic of China and a representative of the Georgian-Chinese Friendship Association of The Georgian Trade-Industry Chamber attended the signing.

Arbitrators with subject matter or technical expertise: The parties can select arbitrators who have particular experience with a given subject matter, technology or industry. Given the extraordinary complexity of many life sciences disputes – not to mention the complexity of the industry itself – that feature can provide huge advantages over having disputes decided by a judge with no particular expertise or experience in the matter or even, in some jurisdictions, by a jury. There are also practices in many life sciences agreements, be they product acquisitions, research collaborations, or licenses, that take time and experience to master, and for which a trained eye is particularly valuable, as one must understand not only what is there, but what should be there. Procedures designed for the dispute in question: Another advantage is the ability of the parties to tailor procedures for the specific dispute at hand. For example, many disputes in the life sciences industry arise when the product is still under development – when time and resources are especially critical. The parties can design procedures for such disputes that will enable them to resolve disputes with particular speed and efficiency, similar to what the construction industry has done

with dispute review boards to minimise disruptions to ongoing projects. Fast and efficient resolution of disputes: Although international arbitration has come under criticism in recent years for its lack of speed and costefficiency, there is no question that it provides a faster and more efficient dispute resolution process than much litigation – where, in some jurisdictions, it can take over a decade to resolve even mid-size disputes. Ease of enforcement: Treaties like the New York Convention, which provide for the recognition and enforcement of arbitral awards, have typically made it easier (and in some instances, far easier) to enforce arbitral awards abroad than domestic court judgments. The importance of ease of enforcement in high-risk jurisdictions cannot be understated. Alexandre de Gramont is a partner in the Washington, DC, office of Dechert. He has extensive experience in international arbitration and litigation. He focuses his practice on international commercial arbitration and investment arbitration matters across a broad range of industries, including life sciences, energy and natural resources, and financial services, arising from nearly every corner of the globe. Jonathan Schur is a partner in the New York office of Dechert. He advises pharmaceutical and medical device

companies in structuring mergers and acquisitions, divestitures, licensing and distribution arrangements, joint ventures, and cooperative development and marketing relationships. Erica Stein is a special counsel in the Brussels office of Dechert. She focuses her practice on international arbitration, including both commercial and investment arbitration matters. Her work touches upon numerous industry sectors, including life sciences, energy and telecommunications. * * * 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 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.

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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 or contact us at



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 - The accommodation industry in Georgia continued rapid growth in 2016. The number of accommodation units at end2016 is up 19.7% y/y, with bed capacity up 11.1% y/y to over 57,000. Hotels account for 63.9% of beds, followed by family hotels (16.8%) and guesthouses (13.1%). International branded hotels comprise 11.4% of total room supply in Georgia. The highest concentration of international brands is observed in Tbilisi (22.3% of total room supply) and Adjara (15.7%). The 2017-2019 pipeline of international

branded hotels features almost 3,400 additional rooms in Tbilisi and over 1,600 in Batumi. Overall, there are almost 10,000 new hotel rooms, branded and non-branded, in the 2017-2019 pipeline of new accommodation units. Leading global hotel brands display continued interest in the Georgian market. On December 19, 2016, Hilton announced the signing of a management agreement with Granat LLC for its flagship Hilton Hotels & Resorts brand hotel in Tbilisi. The investment is estimated at US$ 50.0mn, with the 206-room hotel set to open in early 2019. In its press release, Hilton cites “Tbilisi's diverse economy - with substantial international infrastructure investment, a burgeoning events calendar and leisure growth” as the reasons to introduce its flagship brand to the Georgian capital. Hilton is already present on the Georgian market, with Hilton Batumi, while Hilton Garden Inn Tbilisi Chavchavadze is currently under construction and set to open in 2018. On December 14, 2016, Rezidor Hotel Group (RHG) announced plans to open a 100-room Radisson Red in Tbilisi in mid-2019, with LLC Commerce Group as its local partner. Radisson Red

is a new hotel concept by RHG, targeting millennials through art, music, and fashion. There are currently only two Radisson Red hotels in the world – in Brussels and Minneapolis. Adjara Hospitality Group (AHG) continues to introduce innovative concepts on the Georgian hospitality market. The group has announced plans to construct an airport in Stepantsminda, in close proximity to its Rooms Hotel Kazbegi. As of December 2016, the company already operates the first air taxi in Georgia with its 5-seater Beechcraft airplane. AHG also announced plans to expand its presence on the Georgian accommodation market with the introduction of its own new 5-star hotel brand, Aviator, in 2017. The new hotel will be located near Rooms Hotel Tbilisi and Intercontinental Hotel, which is set to open by end-2017. This move follows AHG’s entry in the lowprice segment of the accommodation market with its introduction of Fabrika. Fabrika is a Soviet sewing factory converted into a multifunctional cultural space targeting young visitors. It features 49 hotel rooms and a 335-bed hostel, which increased the number of hostel beds in Tbilisi by 26.2%. AHG is also expanding its Rooms Hotel chain with a Rooms Hotel Batumi, set to open in 2017.

While the top four source markets accounted for 83.6% of international arrivals in 2016, secondary source markets also posted robust performances. Ukraine, the 5th largest source market, posted a 21.9% y/y increase in 2016. The number of Iranian visitors is up almost 5.9x to 148,000, while the number of Israeli visitors during the same period is up 1.6x to over 92,000 visitors. The tourist category continues to drive arrival growth in December 2016. The

number of overnight visitors (‘tourist’ category) was up 14.8% y/y and accounted for 36.6% of total international arrivals. Same-day arrivals posted modest growth of 5.1% y/y, while the number of transit visitors declined 15.8% y/y in December 2016. The number of tourist arrivals is up 19.0% y/y to 2.7mn in 2016, compared to 2.3mn in 2015. The number of sameday visitors is up 4.4% y/y, while the number of transit visitors is down 5.7% y/y in 2016.

INTERNATIONAL ARRIVALS TO GEORGIA The number of international arrivals was up 4.3% y/y to 0.49mn in December 2016. Out of the top five source markets, there was growth from Armenia (+9.5% y/y), Azerbaijan (+3.9% y/y), and Ukraine (+14.0% y/y), while arrivals were down from Russia (-2.3% y/y) and Turkey (-16.7% y/y). Arrivals from the EU were up 28.6% y/y to over 13,400 visitors. The number of international arrivals was up 7.6% y/y to 6.35mn visitors in 2016. The number of visitors increased from all major countries except for Turkey (-9.9% y/y) in 2016. Russia and Ukraine posted double-digit growth rates, while Azerbaijan (+9.3% y/y) was the single largest contributor to overall growth. Travel inflows were up 11.7% y/y to US$ 1.68bn in 9M16. Based on our estimates, travel inflows will reach approximately US$ 2.1bn in FY16.



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limate change is a threat to development in our lifetime. Studies show that poor people are more vulnerable in the face of climate change, as it would likely spark higher agricultural prices and could threaten food security in poorer regions. Climate change will also magnify many threats to health, as poor people are more susceptible to climate-related diseases. Therefore, without more action to reduce extreme poverty, provide access to basic services, and build resilience, global warming could push an additional 100 million people into poverty by 2030. While there are many ways we can reduce our carbon footprint, finding the funding for that is often challenging, especially for governments with already pinched budgets. To help address the challenge, new and innovative financing solutions need to be developed. One increasingly popular tool is the green bond, which marshals funds from private issuers, including commercial banks, to finance sustainable projects. Green bonds aim to tap into the $80 trillion bond market. They are fixedincome, liquid financial instruments, and the funds that green bonds raise are dedicated exclusively to projects that help combat climate change. This pro-

vides investors with an attractive investment proposition as well as an opportunity to support environmentally sound projects. The potential of these bonds is enormous. A study released in November 2016 by IFC, a member of the World Bank Group, shows that the historic global agreement on climate change adopted in Paris last year helped open up nearly $23 trillion in opportunities for climatesmart investments in emerging markets between now and 2030. The study found sectors like renewable energy, urban transport, and sustainable construction especially promising. Green bonds could have a significant impact here in Georgia. The country has a very energy-intensive economy, using much more power than similar-sized European Union states. Green bonds could help change that by channeling investments into climate-smart projects. According to estimates, Georgia could support about $1 billion in investments in projects like those through 2020. That's in part because the government of Georgia is committed to developing the renewable energy sector and improving energy efficiency. The National Energy-Efficiency Action Plan is currently being developed, and the energy sector has been shaped by a series of reforms undertaken in recent years. Financing has been identified as one of the key mechanisms needed to support further development of energy efficiency and renewable energy in Georgia. Green bonds offer an innovative solution, bringing needed resources for private issuers,


National Bank of Georgia to Reform Securities Settlement System BY NINO GUGUNISHVILI

T including commercial banks, to finance sustainable projects across several sectors. In December 2016, IFC hosted a seminar in Tbilisi, Georgia, on the state of the green bond market. Around 25 participants, including representatives of the National Bank of Georgia, the Georgian Stock Exchange and commercial financial institutions, discussed current market conditions and opportunities for climate financing. The event highlighted that there is potential for green bonds, especially given a recent push by the government to bolster the renewable energy sector and to encourage energy efficiency. Examples of successful green bonds are abound. In Mexico, a series of bonds are financing the construction of a large-

scale solar power facility. That does not require state subsidies and will meet the energy needs of 164,000 people, while creating jobs and reducing dependency on polluting diesel generators. In India, another green bond is helping a company recycle e-waste from computers, discarded mobile phones and other electronics that can be harmful to the environment and to peoples’ health. Investing in climate business through green bonds offers advantages for issuers, including a positive image as well as the strong appetite from investors, which helps secure a good pricing for the debt. But partnership and coordinated action between government and business is needed, and by working together we can make it work for everyone’s benefit.

he National Bank of Georgia and the Georgian Stock Exchange are to begin reforming the Georgian securities settlement system. The upcoming reform aims to renew the securities settlement system to include the Georgian central securities depository within. The recent initiative is part of the capital market development strategy jointly set by the National Bank and the Government of Georgia in 2016. Upon finalization of the project, any securities settlement in the country will be available through a united system. In addition, the Georgian Stock Exchange will acquire a new trade platform from the Montran Corporation, an American company whose systems are used in 30 countries around the world. The securities settlement system has operated in the Bank of Georgia since 2010, financed by USAID and incorporating two components. The second component, RTGS, with which bank transactions are made in Georgian Lari, will also be upgraded. The project of renewal of the securities settlement system will be realized through cooperation with ECB, EBRD and Clearstream. The first phase of the project will be complete by the end of 2017.




JANUARY 17 - 19, 2017

Budget Rent-a-Car Enhancing Innovation & Efficiency BY NINO GUGUNISHVILI


tokoc Georgia LLC is the holder of the master franchise of Budget Renta-Car in Georgia. The company is a 100% subsidiary of Otokoc Automotive Turkey which is the 31st largest company of Turkey with USD 1.9 billion sales revenues. Otokoc holds the licensee rights of Avis and Budget not only in Turkey, but also represents Avis in Kazakhstan, Azerbaijan, Northern Iraq and Budget in Georgia and Hungary. Avis Budget Group is a US company with USD 8.5 billion sales revenues operating in 180 countries with 11.000 sales offices. Otokoc Turkey manages a car fleet of 40,000 cars. GEORGIA TODAY met Berat Ecemis, Country Manager of Budget Rent-a-Car, to find out more.

WHEN AND HOW DID YOU START OPERATING IN GEORGIA? The company was founded in January 2016 and Otokoc Georgia started active operations in Georgia in September 2016. The company is currently based in Tbilisi with one downtown office in Rose Revolution Square and the other in the Shota Rustaveli Tbilisi International Airport.

WHAT SERVICES DO YOU OFFER AND WHAT DO YOU THINK ARE THE BENEFITS? Budget Rent-a-Car is the smart car rental choice for value-conscious customers, offering a simple, efficient rental process and delivering high value to the savviest of frequent renters. We offer a carefree, confident experience to the casual renter every time. What’s more,Budget Georgia aims to be the first and most innovative player in car rental in Georgia. It will target the leisure and business segments and offer online solutions as well as stations. It will create a competitive advantage in its positioning by enhancing innovation and efficiency. The company will become a significant player of the mobility market.

WHAT DISTINGUISHES BUDGET RENT-A-CAR FROM OTHER COMPANIES ON THE MARKET? Budget Georgia will stand out with its brand-new car fleet, robust financial position, and strong international experience, corporate structure and focus on a still untapped operational leasing market. We aim to place ourselves among the top 3 in Rent-a-Car. Our company will leverage Rent-a-Car as the primary growth engine for Budget by going after a greater market share and strengthen its long-term rental position. It will tap under-penetrated market segments – international companies, small and medium sized enterprises and retail customers. We will also pioneer in 360 degree Mobility. It will earn first-mover advantages by establishing novel mobility services in Georgia. We aim to achieve operational excellence, and lead corporate efficiency and bottom line results by focusing on fleet management and technology.

WHAT CHALLENGES DO YOU FACE DOING BUSINESS IN GEORGIA? The challenging factor in Georgia is its still unregulated car market for the import of used cars. 0% VAT for new car sales lies ahead of the development of operational leasing, while the latter offers all kind of services related to everyday vehicle operations up to 48 months. In operational leasing, there is no need to tie up the capital of the leasee in the vehicles and the funds saved can be used for its core business. Vehicles are not part of the balance sheet. Any cost for tires, insurance, tax, repair and maintenance and replacement of the vehicles is incurred by the leasor.


Budget Georgia will extend the operating leasing model for a one-year term and use this for shorter periods, too, by utilizing the flexibility of our Rent-

a-Car fleet and making sure that the holding cost is covered. We will also establish novel mobility services.



Reduced Gas in Ukraine Leaves Chilly Locals Turning to Firewood



eduction of gas supply has been noted in a number of regions in Ukraine, explained by supplier Naftogaz as being associated with the accumulated debt of consumers. However, given that the measures were taken during the cold season, it is suspected that the real reason lies in the gas having been deliberately reduced. “We’re talking about a reduced gas supply, rather than termination,” said Ivan Kapitonov, a senior fellow at the Institute of Economics, Associate Professor. “It can be assumed that the pipes are not frozen as the risk of the pipes bursting would risk multibillion-dollar losses”. "Clearly, these measures are due to lack of gas, and the debtors in this situation just happened to be non-payers. In the past, the calculation was carefully planned, while today it seems that the truth is a struggle to keep enough gas to last to the

end of the winter. That severe frosts would limit gas supplies was already calculated in early autumn,” Kapitonov said. To fight the cold, Ukrainians are having to turn to firewood, choosing this over the alternativerenewing deals with Russian giant "Gazprom". Coal is not an option- buying supplies from Donbas is impossible, and attempts so far to find an alternative supplier at a reasonable price have failed. Dmitry Marunich, director of the Institute of Energy Research, in an interview with a Ukrainian TV channel, said that in the cold period after new year, Ukraine has managed to avoid rolling blackouts only because of its coal reserves. "If the frosts repeat at a temperature below -10 -15 degrees, problems can be expected again in the third week of January. And these problems are likely to affect gas transit to Europe, because, as it has been said, there is a minimum necessary amount of gas in the pipes to fulfill needs," Marunich warned. At the beginning of the heating season Ukraine, accumulated 14.6 billion cubic meters of gas. However, November gas consumption increased by 17% over the same period in 2015.

New Airport Terminal Opened in Ambrolauri, Racha BY NINO GUGUNISHVILI


acha, a mountainous region in northwest Georgia, now has its own airport. Officially opened on January 14, the first passenger to fly into the new terminal in Ambrolauri was Georgian Prime Minister Giorgi Kvirikashvili. The Ambrolauri runway was first opened in October last year. Ambrolauri airport is set to receive twice-weekly flights on its 30-meter runway strip, which has the

capacity to accommodate the L 410 aircraft with 15 to 20 seats. The terminal itself can accommodate up to 50 passengers with the possibility of future expansion. The construction and opening of the airport terminal in Racha is expected to bring new life and possibilities to the Racha - Lechkhumi region, as a part of the government’s Four Point Plan which entails infrastructure, local business, and tourism development throughout the country. The government’s Four Point Plan also aims at supporting the growth of family-type guesthouses and hotels, while a micro grants program is available to assist smallscale entrepreneurs to successfully run their family-owned farms. Built according to international standards, the new airport in Ambrolauri is expected to encourage more tourists to visit the region, thus creating additional employment opportunities and sources of income for the locals.





JANUARY 17 - 19, 2017

WEG: Georgia Losing in Gazprom Deal BY KATIE RUTH DAVIES


he Government of Georgia accepted the Gazprom Export Deal to shift to monetary payment for Russia -Armenia gas transit. With this agreement, Georgia loses the benefits of receiving in kind gas materials and becomes more sensitive to gas price volatility, claims independent think-tank World Experience for Georgia (WEG). It is clear, they say, that according to the new terms of monetary compensation, Georgia will receive less value than it could get from natural gas according to the previous agreement. “Georgia will be receiving gas from Russia for $185 per 1,000 cubic meters but this refers only to the so called ‘social’ sector and only in case of deficit. There is no expectation of competition with SOCAR in the ‘commercial’ sector,” the WEG site reads. “It’s a two-year long deal and in 2017 the in-kind payment will be maintained partially, for 1bcm. However, it is unlikely that Georgia will ever return to the terms and conditions

of the previous agreement and receive 10% of gas from transit. Further, the Ministry of Energy indicates that this was not a free choice and negotiation outcomes were forced by Russia.” WEG experts say that although the monetary settlement for transit is more in line with international practice and WTO rules, the new transit conditions are significantly worsened with respect to previous ones, both in economic and energy security terms. “Negotiations with Gazprom Export were conducted one-on-one, behind closed doors, without proper risk analysis, negotiation strategy, scenarios analyses and involvement of international or local experts, international political allies or general public. These circumstances raise doubt as to whether the country’s interests were fully defended and the best possible outcome was achieved,” WEG says. “Considering the existing non-transparent environment, it is important to understand how and why it was possible to maintain the existing deal in the last year; what was the convincing argument that made Russia agree to favorable conditions for Georgia, and what has changed now?”

WEG is concerned by the secrecy surrounding the deal. The Ministry claimed that the transit fee is a “commercial secret” yet the negotiating parties were not full-fledged commercial agents and the price remains "secret" only to the Georgian population while, WEG says, it is very likely that all other interested stakeholders will easily access this information from their own sources. WEG points out that the Transit fee was not set by the regulator (GNERC); it was negotiated by the Ministry of Energy of Georgia and most probably does not reflect all previous and future costs related to transit. “The negotiated Gas purchase price for Georgia ($185 per 1,000 cubic meters) is political,” says WEG. “It is higher than the price for Armenia ($165 USD/1000m3) and even for Germany ($160 USD/1000m3). In addition, the purchase agreement is not signed with a fixed volume of gas, which strengthens SOCAR’s monopoly power (especially in 'Commercial' sector) even further, while Russia is being treated as a common trade partner in negotiations, despite the fact that it explicitly violates international law, has obvious political

interests and holds many economic, energy or political and military leverages against Georgia (Enguri HPP and electricity consumption of Abkhazia, dependence on electricity import, ownership of energy assets etc.),” the WEG site claims. WEG concludes that the negotiations with Gazprom Export go well beyond the energy framework and need to be discussed in the context of National Security. “The involvement of the Ministry of Foreign Affairs, National Security Council and other security stakeholders, as well as international organizations and partner countries, is crucial but was not considered in the recent negotiations,” WEG states. They consider it equally important to consider political preparation, use expert knowledge and a systematic approach to ensure transparency and public involvement in order to reduce risks and protect the best interests of the country. “The existing non-transparent and non-competitive environment in the gas market contradicts the interests of the country and consumers. Gas market reform and introduction of transparent regulations and healthy competition is

vital for future democratic development and energy security,” WEG says, adding that the country’s needs an energy security strategy which will define sector development and guide the actions of policy makers. “The existing practice of non-transparent governance in the energy sector does not allow the full defense of national interests and needs to be changed through reforms.” Note: North-south gas transit does not fall under the regulation of Energy Community accession process for Georgia, according to the membership protocol, gas transit agreements are exempt from the requirements of EU directives (Derogation). World Experience for Georgia (WEG) is an independent, non-profit think tank dedicated to strengthening Georgia’s energy security and economic sustainability, supporting and challenging Georgian decision-makers at all levels to make informed decisions based on accurate analysis and knowledge, and providing a platform for engaging partners, stakeholders and citizens in the country’s policy-making in the debate about the future of the country in its path to Euro-Atlantic integration.


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End of Days: What Empowers ISIS? BY ZURAB KHUTSIANIDZE


espite being one of the best-financed terrorist organizations in the world, the Islamic State is unable to sustain itself solely on behalf of its oil revenues and the ransoms received through hostages. Their tactics of self-maintenance have previously been demonstrated, through the centralization of water, flour and hydrocarbon resources in the areas the jihadists advanced. Yet, one of the key instruments for their profitable expansion remained concealed in the Islamic eschatology. The vast majority of Muslims around the world think that the end of the days is either here, or will be here soon. According to a survey conducted in 2012 by the Pew Research Center, in most countries surveyed in the Middle East, North Africa, South Asia and Southeast Asia, half or more people believed they would witness the return of the Mahdi (The Guided One). The apocalyptic narrative suggests Mahdi’s appearance being directly linked to the preceding large-scale sectarian war, preparing the Muslim community for the second coming of Jesus. It is important to acknowledge that the early Islamic apocalyptic prophecies arose from the sectarian conflicts in the early Islamic world waged in Iraq and the Levant. Therefore, the

prophecies resonate powerfully in contemporary sectarian civil wars. Narratives of the coming final battle were already being hijacked as early as the 1980s, when Abdullah Azzam, the founder of modern jihadism, encouraged all Muslims to take part in the jihad in Afghanistan. The Islamic State, however, began to promote the apocalyptic traditions using literalist approach- through actions as well as words. The Islamic State initially intended to manipulate the Muslims into inflaming rivalry between the two major sects, as it would have been considered as a sign that the final days had arrived. The literalist approach of the Daesh has also been demonstrated by their interest in Syria and Kobane in particular, as the eschatological literature refers to the crisis in Syria and the massacre of Kurds. The Islamic state has used the prophetical predictions to attract more members. In an interview with Reuters, a Sunni Muslim stated: “If you think all these mujahideen came from across the world to fight Assad, you are mistaken. They are all here as promised by the Prophet. This is the war he promised- it is the Grand Battle”. ISIS has also emphasized the appearance of the pro-Assad Hezbollah militia- whose flag is yellow. The Islamic eschatology prognosticated that when the fighters with yellow flags fight antiShi’ites in Damascus and Iranian forces join them,



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the Mahdi will eventually show up. Such ‘signs’ of the incoming final battle have largely supported the spread of Jihadi-Salafist ideology across the globe. The capture of Dabiq- a Syrian farmland 6 kilometres away from the Turkish border, should also be understood as an important milestone supporting the jihadists. Prophet Muhammad is believed to have said that the “last hour will not come until the Muslims vanquish the Romans at Dabiq”. The occupation of Dabiq enabled the Islamic State to boast its success and the importance of the location for the final battle to come. Later, its declared intentions to conquer Constantinople (Istanbul) supported their claims of closely following the prophecy. Furthermore, the Islamic State eagerly awaited the arrival of the enemy army in Dabiq in order to defeat them and initiate countdown to the apocalypse. As expected, the capture of the town inspired many Islamic State supporters to become directly involved in the final battle; however, their enthusiasm did not last long. The town of Dabiq was recaptured by the Syrian rebels in October 2016, following other major losses of the Islamic State. Despite this, the Daesh will eventually try to advance in Dabiq again and again, as devotion to the apocalyptic narratives has come to be an integral part of the ISIS modus operandi.


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JANUARY 17 - 19, 2017

A Second Chance for Back to School

Newly Equipped Disability Friendly School & New Gov’t ‘Healthy Youth’ Initiative BY THEA MORRISON



he Ministry of Education and Science has announced a new program in which both youth and adults who have been unable to receive a secondary education, for whatever reason, will now have a second chance to finish their studies. The program was introduced by Alek-

sandre Jejelava, Minister of Education and Science and hopes to identify children who are not currently attending school, and to reach out to those who, due to family circumstances, are in danger of not finishing all nine obligatory grades. Young adults who have already left school before completing their nine years will have specially-designed programs enabling them to pursue professional education. Programs for integrating homeless children into the education system are also to be catered for.


upils of Tbilisi Public School 103 are to continue their studies this term in a new building equipped with modern facilities and adapted for the

disabled. The new building was constructed on the area of the original school, which was demolished 3 years ago, on Meskheti Street, Isani district. The opening ceremony was attended by the Prime Minister of Georgia, Giorgi Kvirikashvili, the Education Minister,

Alexander Jejelava, and other government officials. The PM noted that the new school building was the most modern educational facility in Georgia: “For a civilized society, it is necessary to fill social gaps and give everyone the chance to gain knowledge and integrate into society,” he said. Kvirikashvili went on to announce a new initiative of the government – popularization of an active lifestyle, which means that Education and Sports Ministries will offer special programs to students in order to promote a healthy lifestyle among youth. “Our children are very actively involved in the use of modern technologies but

even so, physical activity and exercise are gaining in popularity again. That is why we want to offer each school and each child a firm base of opportunity in terms of physical activity,” the PM said. The Education Minister noted that the aim of the new initiative was a healthy generation. “We are going to involve youth in more sports activities. We are sure that children want to develop in this direction," said Jejelava. The Education Reform is one of the top priorities of the government’s Four Point Plan. Moreover, Georgia’s President, Giorgi Margvelashvili, declared 2017 as the Year of Education.

Human Rights Watch Includes Georgia in Its 2017 World Report BY THEA MORRISON


uman Rights Watch (HRW), an Americanfounded international NGO that conducts research and advocacy on human rights, has published its World Report 2017, subtitled “Demagogues Threaten Human Rights.” Key events from Georgia’s last year are mentioned within. The October 8th parliamentary elections, the state security service’s unfettered access to telecom operators’ networks, associated fears of a compromised right to privacy, the persisting lack of accountability concerning alleged abuses committed by law enforcement agencies, the restriction of media freedoms, and the rights of LGBT people were highlighted by HRW as the main events of 2016 in Georgia. The NGO reports that parliamentary elections in Georgia, in which the ruling party Georgian Dream (GD) won an overwhelming victory, were assessed by international observers as being “competitive, well-administered and (generally respectful of) fundamental freedoms.”

However, they also noted procedural violations during the vote count in almost one-third of all polling stations and violent altercations in four. “Local monitoring groups highlighted some cases of vote-buying, alleged political intimidation, and campaigning by unauthorized persons, but found these had no effect on the overall outcome,” the report reads. The report also says that in April the

Constitutional Court of Georgia ruled as unconstitutional legislation that allows state security services to have direct, unrestricted access to telecom operators’ networks to monitor communications, and ordered the authorities to reform surveillance regulations by March 2017. Legislation adopted in 2014 had imposed restrictions on surveillance operations by law enforcement, but left in place the security agencies’ operation of “black

box” surveillance devices in telecommunications service providers’ networks. The court found this system allows mass collection of personal information in real time without effective oversight. The leakage of a number of private conversations and videos, a top issue in the lead-up to the elections, found a place in the report, which also takes Georgia to task for not having an independent, effective mechanism for investigating crimes

committed by law enforcement officials. In particular, the report relates that in July, the Georgian Young Lawyers’ Association (GYLA), a leading human rights group, published a report analyzing 22 cases they litigated in the past two years concerning alleged torture and ill-treatment by law enforcement officials. The suicide of 22-year-old Demur Sturua in August was also included. The young man left behind a note accusing a local policeman of coercing him to inform on local cannabis growers. HRW says that several criminal cases against former officials have raised questions about selective justice and politically motivated prosecution here. The issue of whether marriage ought to be legally defined as the union between a man and a woman, raised by the GD and blocked by President Margvelashvili, made the list as well, as did the Rustavi 2 TV dispute, which is currently being considered by the Grand Chamber of the Supreme Court. The report says that this last dispute has “raised concerns about ongoing government interference with media.” In the 687-page World Report, its 27th edition, Human Rights Watch reviews human rights practices in more than 90 countries.

Profile for Georgia Today

Issue #912 Business  

January 17 - 19, 2017

Issue #912 Business  

January 17 - 19, 2017