Issue no: 1000/105
• NOVEMBER 21 - 23, 2017
• PUBLISHED TWICE WEEKLY
PRICE: GEL 2.50
In this week’s issue... Galleria Tbilisi Grand Opening Planned at the End of November NEWS PAGE 3
Against Weakening Expectations, Business Confidence Strengthens on Robust Sector Performance ISET PAGE 4
FOCUS ON THE ADVANTAGES OF ANAKLIA
Exclusive interview with top experts on the advantages Anaklia will bring to Georgia and the region
Prime Minister Attends Launch of Georgia’s Longest Tunnel Construction BY NINO GUGUNISHVILI
rime Minister of Georgia Giorgi Kvirikashvili attended the opening of the KvishkhetiZvare tunnel construction works on November 19, as almost 8.5 kilometers of tunnel excavation was completed, forming a part of the Tbilisi-Makhinjauri main railway magisterial modernization project, which is expected to play an important role in the development of the country’s infrastructure. Continued on page 2
Lari Devaluation Leads to Higher Prices of Oil Products BUSINESS PAGE 7
Tourism Market Watch GALT & TAGGART PAGE 10
JSC Electric Locomotive Building: The Tbilisi Electric Locomotive Plant BUSINESS PAGE 13
A New Round of US-Russia Confrontation POLITICS PAGE 15
Rugby: Georgia Lose to Wales at Cardiff's Principality Stadium SPORTS PAGE 15 Prepared for Georgia Today Business by
STOCKS BGEOGroup(BGEOLN) GHG(GHGLN) TBCBankGroup(TBCGLN)
COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)
NOVEMBER 21 - 23, 2017
NGOs Denounce Criticism towards Public Defender of Georgia BY THEA MORRISON
on-Governmental Organizations (NGOs) based in Georgia have issued a statement denouncing the recent “attack” on the Public Defender of Georgia, Ucha Nanuashvili, who was harshly criticized by members of legislative, judiciary and executive branches of government, including high-ranking officials. The criticism of Nanuashvili started after he published his report on the notorious “Cyanide Case,” in which he spoke about fundamental violations which could have led to an unfair verdict for clergyman Giorgi Mamaladze, who was given a nine-year sentence for the attempted murder of the Patriarch’s secretary. The statement of the NGOs reads that the non-governmental sector also nega-
tively assessed the investigation and court process. “Specifically, the report negatively assesses: violation of presumption of innocence, limiting the right to an attorney based on a so-called statement of secrecy, complete closure of the court hearing, and more,” the statement reads. The organizations criticize the prosecutor of the case, adding that he had an “aggressive attitude” towards the Ombudsman. The NGOs also claim that Tbilisi City Court made a political statement which included a degrading reference to the upcoming end-of-term of the current public defender. “The ongoing political campaign was joined by the Minister of Justice, who said that Nanuashvili was the ‘first unjust public defender’,” the statement reads. “We call upon high-ranking government officials to abstain from such statements, as they contribute to disgracing and degrading the institution of the
Public Defender of Georgia, Ucha Nanuashvili
Public Defender, especially on the international arena,” the NGOs added. Furthermore, Council of Europe Commissioner for Human Rights Nils Muižnieks condemned the statement of Georgian Justice Minister Thea Tsulukiani on the Ombudsman and called on
all to refrain from such comments. “I am very concerned about the harm that such sustained verbal attacks can cause to the standing and effectiveness of this important institution… the role of the Public Defender is to act in defense of human rights, be a check on the power
of governments and to help improve the quality of governance,” Muižnieks stated. The Commissioner said the authorities might not always agree with the Public Defender’s criticisms, but it is crucial that the Public Defender is not hindered in the performance of his duties and can act with the requisite independence, free from any undue pressure. He added this is also important in the context of the forthcoming election of the new Georgian Public Defender. The United States Ambassador to Georgia, Ian Kelly, also commented on the issue, saying the US government firmly supports the Public Defender’s office as well as Ucha Nanuashvili and perceives them as an important part of democracy. “We are very supportive of this office and hope whoever replaces Mr. Nanuashvili is also independent,” Ian Kelly said. The term of Georgian Public Defender Nanuashvili expires in December.
Prime Minister Attends Launch of Georgia’s Longest Tunnel Construction Continued from page 1 “This large-scale project will increase the railway line capacity flow; the safety of trains in the area of the mountain pass and, what’s equally important, the travelling time will be reduced, with the distance from Tbilisi to Batumi to be operated by even faster trains,” PM Kvirikashvili said, adding that the project is expected to finish by 2020, and that the Tbilisi-Makhinjauri direction will have
modernized infrastructure, meeting modern standards. The railway modernization project is a part of the Four-Point Reform Plan initiated by the Georgian government, with spatial development being one of the largest components. The Prime Minister noted that Georgia, following the spatial reform, will have brand-new infrastructure, with new sea ports, railway stations, airports and touristic infrastructure.
Kvirikashvili thanked the China Railway Bureau '23rd Bureau Group,' which is in charge of the construction works on the mountain pass. ILF and DB International Consortium are supervising the project. “We have the possibility to restore our international function within the Silk Road, and in this regard, this project is immensely important in terms of increasing our country’s transit potential. A further developed transport and logistics infrastructure is a crucial factor for pri-
vate sector competitiveness, and offers great potential for doing business, both regionally and internationally,” the Prime Minister of Georgia said. “The Makhinjauri railway magisterial project is important for the Anaklia Deep Sea Port development too; together, these two projects will fundamentally change Georgia’s transit potential and economic landscape, which is why the successful realization of these projects is a top priority for our country. These are the pro-
jects that are set to make a major breakthrough in our country's economy. We know that Anaklia Development Consortium is negotiating with Chinese companies on behalf of the Georgian government. I would like to say that for us it is vitally important that the Chinese be seriously represented in this project,” Kvirikashvili said, adding that on November 28 and 29, the International Silk Road Forum: One Belt, One Road will be held in Tbilisi.
GEORGIA TODAY NOVEMBER 21 - 23, 2017
Georgia Today Celebrates 1000th Newspaper Issued! BY KATIE RUTH DAVIES, EDITOR-IN-CHIEF
lthough I have worked for GEORGIA TODAY for just three of its 17 years, it has been an exciting time for the whole team: seeing a rebranding and redesigning of the newspaper and an upgrading of the website, including the introduction of daily news and a newsletter delivered straight to your inbox twice weekly with the hottest newspaper stories in e-format. When I came to Georgia 10 years ago, the weekly GEORGIA TODAY newspaper was my top-choice for connecting with what was happening in the country: from politics, to business, culture and society. I never imagined then that one day I’d be in charge of what goes into each paper, and that the paper would at some point become twiceweekly, with a separate Business issue on Tuesdays. It’s not easy: there are standards to keep up with, reader expectations to meet, commercial demands to fulfil. But the buzz is a joy, especially
partnered with such a hard-working and reliable team of journalists and marketers. And of course, the man who makes it all happen: Misha Mchedlishvili, our designer, without whom none of this would be possible! I’d like to take the opportunity to thank all of them for their dedication, and for making it such a pleasurable job to do. I’d also like to give a shout-out to everyone who has been a part of the great brand of GEORGIA TODAY throughout these years, both team-members and readers, as our newspaper has been delivered to the desks of hundreds of Ambassadors, twice as many top business persons, and even more diners and travelers. “1000 issues! I’m really proud of being the publisher of each of them despite ups and downs along the way,” said George Sharashidze, GEORGIA TODAY’s Publisher and General Manager. “Take any issue from #1 to #1000 and you will learn more about contemporary Georgia. I am proud of having documented the history of modern Georgia in the English language since 2000, and proud of having our own library now consisting of 1000 issues. I believe historians, researchers and
experts can find any of these 1000 issues as a trusted reference for major events occurring in Georgia during the last 17 years. Our mission now, when we celebrate 1000 issues, has not changed since the very first issue – being an unbiased, objective and comprehensive source of information about Georgia in English language for the rest of the world! I would like to thank the staff of GEORGIA TODAY for contributing to any of those 1000 issues and of course to our respected readers for giving us the inspiration for continuous improvement and to make sure that every new issue is better than the last”. The GEORGIA TODAY team recognizes that foreign workers, as well as visitors to Georgia, rely almost solely on the English-language press for information on news and current events. Our local and international editorial staff ensure that GEORGIA TODAY provides a sensible balance for its diverse readership, completely free from any kind of influence, be it political, business or organizational. The information offered in the newspaper also attempts to give a voice to the voiceless. That last is something I have personally aimed
George Sharashidze, GEORGIA TODAY’s Publisher and General Manager
for in my time as Editor-in-Chief. And while we all recognize that we are living in a digital age where webnews is, and in many countries has, taken over from the printed format, I would like to celebrate this 1000th issue
by thanking you, Dear Reader, for your loyalty and continued interest, and to hope that the printed format will last eternal. Because nothing’s better than turning real pages as you enjoy your cup of tea or coffee…
NOVEMBER 21 - 23, 2017
Against Weakening Expectations, Business Confidence Strengthens on Robust Sector Performance
verall, the BCI gained 1.2 points compared to Q3 2017. Expectations in the private sector in Georgia declined by 10.9 percentage points, and reached 33.4 index points (down from 44.3 points in Q3). Business performance over the past three months increased significantly, reaching nearly 50.7 points (increasing from 33.5), indicating an improvement in production/ turnover/sales. Improved performance of the past three months could outweigh decreased expectations, which led to an insignificant raise in overall BCI. The BCI index increased in the financial (+19.9), construction (+10.1) and service (+2.5) sectors, and worsened in agriculture (-12.2), retail trade (-2.5), manufacturing (-1.5) and other (-13.9) sectors.
PAST PERFORMANCE The actual performance of businesses significantly increased compared to the third quarter of 2017. In the Q4 2017
reporting period, sales (production or turnover) of the 124 firms surveyed increased from 33.5 (Q3 2017) to 50.7 (Q4 2017). A significant increase in performance was observed in the construction (+49.3),
agriculture (+40.5), service (+28.7) and manufacturing (+21.3) sectors. Significant improvement means that in these sectors, the weighted balance between positive and negative responses increased compared to the previous quarter. In all other sectors, production/turnover/sales for the past three months worsened, with the highest drop recorded for the financial sector (-24.7). Compared to the previous quarter, a higher share of surveyed firms (69%) stated that employment remained the same over the past three months. Fewer businesses reported either decreases or increases in employment. Moreover, 41% of firms claimed that their business activities remained unchanged over the past three months, while 45% of participants stated that they had improved their performance (which was an increase of 5 percentage points over the previous quarter).
tors (see the table). As one can see from the table below, business expectations for the three-month period October through December- 2017 decreased for both SMEs and large size firms. The majority (65%) of surveyed businesses do not expect any changes in employment over the next three months. Furthermore, 28% of firms stated that they would employ more employees in the future (which is lower compared to the previous quarter, by 3%). Meanwhile, 47% of the surveyed firms expected that the economic condition of their businesses would improve over the next three months, and 41% did not expect any changes in the future, while a slightly higher share of businesses expected their business conditions to worsen.
turing and service sectors expect a noticeable decrease in prices over the next three months (for more information, see Table). The overall Sales Price Expectations Index increased for both large compa-
Survey in December 2013, and publishes the Business Confidence Index (BCI) on a quarterly basis. Confidence is measured through a simple survey instrument targeted at top business executives. The survey is online.
nies and SMEs. The majority (62%) of all surveyed firms are not going to change the prices they charge over the next three months. Only 7% of firms expect to decrease prices, and 31% expect to increase prices in the future.
Answers obtained from the surveys are aggregated in the form of â€œbalances.â€? Balances are constructed as the difference between the percentage of respondents giving positive and negative replies. The methodology for compiling the indices is based on the Joint Harmonised EU Programme of Business and Consumer Surveys.
SALES PRICES EXPECTATIONS The Sale Price Expectation Index
EXPECTATIONS The Expectations Index decreased by 10.9 index points in the fourth quarter of 2017. Expectations about the next three months worsened almost in all sectors, except agriculture (+34.0) and manufacturing (+13.6). The highest decrease was
reported in the financial and other sec-
increased from 7.2 points (Q3 2017) to 17.2 points (Q4 2017). Such a large hike in expectations may be related to renewed depreciation of the national currency (GEL) against our main trade currency (USD). The increase in the Index is driven by the agriculture, construction and retail trade sectors. The agriculture sector's sales price expectations have increased the most, by 74.4 points. The manufac-
LIMITING FACTORS Low level of consumption activities and lack of access to financing continue to be two of the most significant obstacles for businesses. From a total of 124 firms participating in the survey, 30% of large sized firms and 22% of SMEs noted that lack of access to finance was their main obstacle. Meanwhile, 24% of large firms and 32% of SMEs chose lack of demand as the main limiting factor for further business development.
METHODOLOGY The ISET Policy Institute, working in partnership with the International Chamber of Commerce in Georgia (ICC), implemented the Business Confidence
10 Galaktion Street
Tel: (995 32) 2 45 08 08 E-mail: email@example.com
NOVEMBER 21 - 23, 2017
Digital Currency: An Evening with Spotcoin Founder Andrew Thornhill BY TOM DAY
ou may have heard the terms ‘digital currency’ and ‘Bitcoin’ being used quite a lot recently, but many of us are still unsure what they mean. How will digital currency be involved in the future of transactions? Will it improve the way we exchange services? Can cashless transactions be secure? These questions and more were answered last Friday in Tbilisi when Startup Grind hosted entrepreneur Andrew Thornhill to introduce his digital-currency trading company ‘Spotcoin’. Mr. Thornhill defined a Bitcoin during the evening as “a block of information, but a very complex block of information. Every [transaction] path that that block has taken is recorded. There is only one coin. It’s about 22GB of information and when you participate in that, it is recorded. You download it and to own a coin is to own a map.” Andrew Thornhill is an American businessman who has been working in Georgia since 2007, here full-time since January 2016. He speaks Russian and is actively learning Georgian. His company, Spotcoin, promises to be the future platform for digital currency transactions around the world. The event began with him speaking about how he came to Georgia and eventually ended up living here. “Yesterday, I celebrated 10 years of doing business here in Georgia. Back then, I was working for an Australian company that was hired by a bank here in Georgia to help them do all their work online, so I was flown here. All that time ago, setting foot for the first time in Tbilisi, I never thought that I’d eventually be living here! But it was a really, really good experience. This was one of the fastest deals I have ever
executed and after, I had to keep flying back and forth to the United States, so I just decided to move here”. He then told us the story of how he stumbled upon digital currency and made the move to build a business around it here in Georgia. “The company I worked for before I set off on my own here was a very large payments company that I helped to build. We were quite hesitant to get into it because there were a lot of unknowns. We decided to look at it, but not launch it right away and got the authority to not sell them, but buy them”. Andrew believes that digital currency is the way of the future, and for a very good reason. A Bitcoin contains all records of transactions, called a blockchain, and it removes all inconsistencies between people on both sides of a transaction. “People are generally good, but they will sometimes lie about things, especially when it comes to money. The blockchain basically prevents me from telling you ‘[the money] it’s on its way!’ The block chain prevents that because it contains proof in itself. To have that technology, really nothing more than a database of information, verifying that I made this transaction and that you received it is absolutely revolutionary when it comes to payments. I’m not talking about 1-2 dollar transactions, I’m talking about paying rent, paying salaries or paying bills.” In the fast-emerging digital currency market, it is still difficult to exchange digital currency for ‘fiat currency’ (money whose value is backed by the government that issued it), such as Dollars and Euros. Andrew went on to tell us how he was presented with this problem and how Spotcoin was founded around it. “People or organizations that have a large amount of digital currency find it very difficult to sell it. Spotcoin is basically a stock market for digital currency; on one side we have people who want to buy it
and on the other, people who want to sell it. This idea was brought to me by a friend who was actively trading coin for fiat and couldn’t sell them fast enough. So, over many months, I did some looking around and by January we were handling transactions of a couple of million Euros. The demand was there. I tested the system and it responded well. I wrote a business plan, approached people in the US and raised a million dollars to launch Spotcoin. Digital currency is really taking off and has entered into the mainstream. As its popularity continues in the months and years to come, how will Spotcoin develop? Andrew declared his plan for the com-
ing months is to hire more team members and work towards automation. “To manage our growth, we’re currently trying to hire a lot of people. We have project needs, management needs, and I need another social media manager. We need to hire about 15 people. But, parallel to that, we’re automating our system, allowing people to engage on the market place. Spotcoin is kind of an eBay for digital currencies. We hope to go live with that in early January. We’re also running an ICO (initial coin offering) and we’re looking to hire an ICO manager in the States and a project manager here in Georgia.” Like Andrew, many businessmen and
women are coming to Georgia to establish businesses. Andrew told us his own reason. “It’s here in Georgia because I’m here in Georgia. Georgia isn’t the best place for Spotcoin, let’s be honest, but I love Georgia! I go home for Thanksgiving, but I live and work here. Georgian regulation makes it very easy to do business. I can go down to the public house and open a company for 100GEL, and sit in a café and have a cup of tea while I’m doing it. For those of you who are not familiar with how that works outside of Georgia, it doesn’t work like that anywhere [else]! Working in a place with a government so strongly into innovation is a great place to be”.
Anaklia Deep Sea Port: Reviving Georgia’s Transport Potential BY NINO GUGUNISHVILI
egarded as a game changer, the project of the century, unprecedented for the country, and expected to create a new reality both for Georgia and for the entire region, the Anaklia Deep Sea Port project, construction of which is expected to be officially launched on December 20, will not only promote a significant economic impact on Georgia’s development, but to be a major booster for trade and transport interactions between Georgia and other countries. It is touted as the next project set to reshape and revive Georgia’s transit potential, opening some of the major markets from the South Caucasus to Central Asia and North Iran. Anaklia Deep Sea Port, ambitious as it may sound, is to become a gateway between Europe and Asia, an emerging transport and logistics hub of the region, and with the Silk Road increasingly developing and shifting the whole trade environment between China and Europe, with Anaklia Deep Sea Port, Georgia is to fully benefit from the Silk Road’s potential. GEORGIA TODAY met with experts Jaba Tarimanashvili, Business Analyst, Director of Maritime Services and Transportation Company Trans Logistic; Vaso Urushadze, Executive Director, HUB Georgia; and Paata Tsagareishvili, Transport Corridor Research Center Director, to discuss the significance of the Anaklia Deep Sea Port project specifically from an international transportation and logistics development angle and the opportu-
nities it brings to Georgia. We asked why the Anaklia Deep Sea Port construction is a necessary measure for Georgia and what the advantages are to existing ports in the country. “Anaklia Deep Sea Port construction is not an event of short-term importance, the more so when compared to Poti Port,” said Vaso Urushadze. “In reality, such comparison is not relevant, because stevedoring activities alongside the majority of berths in Poti, is not managed by port operators themselves. On the contrary, stevedoring services are provided by private companies, which in many cases, leads to the threat of interest conflicts and monopolized approaches, which negatively affect not only the performance of the port and internal market, but also damages the efficiency of the international transport corridor passing through Georgia. Owners of cargo often try to avoid Georgia and deliver goods by sea-river transport using the Volga-Don canal to the countries surrounding Caspian Sea, or from Iran, passing Azerbaijan and
transporting goods to Central Asia. Healthy competitiveness and transparency will reduce these barriers, and Anaklia Deep Sea Port will bring a solid positive impulse to increase the turnover of goods”. “Batumi and Poti Sea Ports are located in the centers of their respective cities; a fact which automatically affects their development,” said Jaba Tarimanashvili. “The freight is usually transshipped based on a direct type of re-loading ‘vessel to rail wagon,’ which in turn drastically decreases the efficiency of cargo-handling operations. In Poti Port, off-dock container terminals are located outside the port, and that makes the cost of transportation of goods from ships to container termi-
nals 50% higher than handling bulk cargoes. While freight containerization is a practice actively used in the world nowadays, making it logistically easy to deliver goods to the end user, sea ports try to make the costs for stevedoring services equal or to even overcome the bulk cargo operation costs. Right now, existing ter-
minals in Georgia don’t have that capacity, partly because of the insufficient safe draft in the harbor and lengths acceptance alongside berth, which hinder handling capabilities and the possibility to accommodate larger ships, and making the logistics chain complicated due to the location of the sea ports and limiting possibilities for their development. Anaklia Deep Sea Port, with its unlimited spatial capacity and the correct legislative development of its special economic zone, is to establish new standards in the region, and bring the Georgian transport industry to a new stage of development”. “In the regional arena where Anaklia Deep Sea Port would compete, there are several sea ports (Bandar Abbas, Iran; Mersin, Turkey; Odessa, Ukraine; Baltic ports; Novorossiysk port in Russia, and of course Poti and Batumi ports,” Tsagareishvili says. “All of them want to take over cargo for Central Asia and they more or less manage to do so. That’s why Anaklia Deep Sea Port has an advantage due to natural factors, due to political sanctions against Russia/ Ukraine, US/Iran, and also, of course due to Anaklia Port being a Deep Sea Port of 16m depth, a very important factor for receiving container ships. All of these together put Anaklia Deep Sea Port in an advantageous position”. When asked about how the Anaklia Deep Sea Port could possibly influence the process of Georgia becoming an international transport and logistics hub in the region, Tarimanashvili points out that the Port’s advantage, as facilitator of international transport corridor development is important. But it is important that before it opens, following finalization of the first phase of
construction, the country needs to expand its transportation of goods beyond Armenia, Azerbaijan and Georgia and to work on gaining the right, without un-stuffing and reloading to rail wagons, to deliver containerized shipments towards Central Asia. “Unless the country has access to Central Asian countries, there will be no quantitative development,” he says. From Tarimanashvili’s perspective, it may be difficult for Anaklia Deep Sea Port to compete solely based on its technical or natural advantages without appropriate legislation and institutions functioning. “It’s an important factor to note that the problems related to the transport sector are not examined on scientific or institutional levels and, often, statistical analyses are made which are without value, when, instead, regional and global tendencies need to be in focus”. For years, he says, developing just narrow-profile industrial zones has been unsuccessful for Georgia. Continued on page 7
GEORGIA TODAY NOVEMBER 21 - 23, 2017
Lari Devaluation Leads to Higher Prices of Oil Products BY THEA MORRISON
he recent sharp devaluation of the Georgian national currency Lari (GEL) against the US Dollar has resulted in increased prices of all products in the country, including oil and gas products. The depreciation notably accelerated after the October 21 local elections, and some experts and opposition parties have voiced accusations about an artificial retention of a more or less stable currency rate by the government during the pre-election and election period. $1 equaled GEL 2.72 on November 20 in the official rate set by the National Bank of Georgia (NBG). On November 17 it was 2.70. On October 20, just a day before the municipal elections, the rate was 2.48. While the prices on food and medica-
tion have already gone up, the price of petrol, gas and oil products rose by 10%. Experts do not exclude higher prices just before Christmas and New Year, like last winter when the GEL devaluation established the historical maximum – 2.78. Last year, the official reason for the GEL devaluation was named “external shock:” economic problems in the neighboring countries and throughout the region, while this year, the representatives of the NBG and the government say the situation is caused by the false expectations of society. President of the National Bank, Koba Gvenetadze, will go to Parliament on November 27 to provide MPs with the current economic situation and give explanations for the sharp depreciation of the GEL. The opposition is getting questions ready for the meeting with Gvenetadze. They also claim that the government is not doing its best to improve the current economic situation in the country. “We have fundamental problems in the
country and the government is not doing anything to solve them,” opposition United National Movement member, Zurab Melikishvili stressed. One of the leaders of the parliamentary minority, European Georgia, Giga Bokeria, says that the explanation of the government about the GEL depreciation is
“nonsense.” Bokeria believes that it is the government which should be held responsible for the poor economy of the country, and not the NBG president. “We see that the country does is not moving forward. The economy has not developed and the prices are up. In terms
of economy, we have stayed in the PostSoviet swamp and we do not even have the trends to get out of it,” he stated. Economist Giorgi Papava believes that the elections were the main factor for the GEL devaluation because the private sector thought it would be better to purchase Dollars beforehand, believing the rate would increase after the polls. “This was the main reason. The additional factor was the expectations of society, with people believing the GEL always increases at the end of the year and acting accordingly,” the economist said. Davit Matikashvili, MP of the Georgian Dream majority, has positive expectations. He says the NBG will do its best to improve the situation. “The NBG President stated some time ago that if the GEL reaches the defined rate, the National Bank will intervene. I believe that the government will do its best to maintain stability in the country,” the MP said.
Prices for Russian Anaklia Deep Sea Port: Gasoline Held Back, Reviving Georgia’s Transport Potential Growth Inevitable BY DIMITRI DOLABERIDZE
ussian wholesale gasoline prices are growing faster than some experts expected, linking it to an unexpected reduction in fuel output at the Moscow refinery of Gazprom Neft. However, a number of analysts point out that wholesale prices for fuel were kept from sharp growth for as long as possible artificially, but now they will grow confidently. According to St. Petersburg International Commodity Exchange, the price of one ton of AI-92 gasoline increased by 2.3% between November 7 and 13 to 42,850 Roubles, while a ton of AI-95 fuel went up by 1.7% to 44,990 Roubles. This data is confirmed by information and analytical center “KORTES”. Gasoline has also appreciably risen in price and will continue to rise, which, in general, is not very typical for this time of year, when the cost of fuel usually declines. According to Yevgeny Arkushi, head of the Russian Fuel Union (RFU), the temporary shutdown of the plant at the Moscow Refinery is one factor, while, strategically, the prices for gasoline depend on two main factors: inflation and increasing of tax burden. In the Russian Federation, the tax on the extraction of minerals increases by the year, a process which inevitably hits consumers. Oil prices were also up this autumn: Brent Oil was in the price range of $60 per barrel, and the price is already higher, at the level it was two years ago.
The consensus of expert opinions is that the rise in prices for various grades of gasoline is directly linked to the policy of the state, which soon after the crisis followed a course of containing the rise in fuel prices, so after a sharp weakening of the Rouble at the end of 2014, the same increase in prices for gasoline did not happen. Now, as the country announces an improvement in the economic situation, a natural process of increasing the cost of fuel has begun. Natural, because in Russia the oligopolies are happy about it. An oligopoly is a market form wherein a market or industry is dominated by a small number of sellers. Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. “As a result, gasoline and diesel fuel in Russia became the cheapest in Europe (in currency prices),” said Rustam Tankayev, CEO of InfoTEK-Terminal. “This is unquestionably good for the population during the crisis, but not so positive for the market. First, the flow of imported gasoline from Belarus, Finland and Southeast Asia to the Far East became unprofitable and disappeared. Secondly, the production of Russian gasoline declined: where in 2012, 95% of the oil supplied to the refinery was processed, in 2016 it was only 80%,” he said, adding that he does not believe that this situation will continue for long, as, if production of gasoline is unprofitable to the manufacturer, then, despite all political and administrative measures, it will do everything possible to reduce production. A year earlier, losses from the production of gasoline and diesel fuel were partly
offset by profit from other types of oil refining, mainly petrochemicals. “Today, the situation is different: prices will tend to achieve either at least parity with production costs, or a new gasoline crisis will occur, similar to what Russia experienced in 2007,” Tankayev pointed out. Alexander Pasechnik, Head of the Analytical Department of the National Energy Security Fund (NESF), said that vertically integrated companies (VIC) shifted the profit center to wholesale trade, thereby restraining the growth of retail prices, but “this situation, in fact, strangles independent sellers, and because according to statistics, their gas stations are larger than the gas stations of large companies.” Analysts predict that the increase in fuel prices is not a one-time process: it will continue, although not abruptly, because, as they say, the presidential elections are up-coming. Therefore, the government will hardly be openly angered by power, but will nevertheless try to contain the rise in gasoline prices within the framework of inflation. “Sharp price increases until March 2018 will not be due to the approaching elections and the traditional winter fall in demand,” Tankayev predicts. “But by the middle of next spring, we’ll see 95 gasoline at retail at a price of up to 50 Roubles per liter, unless there is a growth in the Rouble / Euro rate. Dependence on the Euro is not accidental as Russia’s neighbours are guided by European prices”. To all that, the fact that car sales began to increase again in the country also adds to the negative for ordinary Russian citizens as, usually in such cases, the cost of fuel increases in parrallel.
Continued from page 6 “It’ll be important for Anaklia to consider leading European or Middle East practices and implementing them in Georgia, the way Singapore did, through solving problems and gaining immense success,” he said. “We need to consider the experience and practice of the leading countries. It is vital to apply innovative approaches, create value added services to the logistics chain, and increase attractiveness. Georgia has huge potential and we have to use it in the right way. To improve the overall performance of the Georgian transport industry, all three components are needed to work together, which will be a foundation for success and harmonious development,” he added, going on to point out that in order for Georgia to benefit from the Silk Road, it has to critically improve all three major components (infrastructure, means of transport and management) needed for transport sector development, with a particular emphasis on the need to improve management. “Lack of management is a systemic problem in Georgia,” he stated. “We need a unified vision and policy that forms a free and accessible platform for businesses, and as a result, that would make transport corridors transpassing Georgia more effective and competitive,” he said. “Anaklia Deep Sea Port has the potential to become a catalyzer for the development of Georgian and regional economy at a whole,” Tsagareishvili tell us. “The Port will become a multiplicator for the development of adjacent systems: railway, air, automobile and marine, giving an
impulse for the establishment of modern logistics centers and, in this regard, such a large-scale project has no alternative indeed”. For Vaso Urushadze, the question of Anaklia Deep Sea Port helping Georgia to become a regional transport and logistics hub is critically important. “In order for Anaklia Deep Sea Port to be successful, Georgia has to become an international transport and logistics center, a hub, and not only a transport corridor but one offering multimodal development of transport and infrastructure systems. This in turn depends on state policy and vision: the State has to have a short- and long-term vision for transport system development,” Urushadze says. “Anaklia Deep Sea Port can become a center for doing business locally and internationally with no preferences given to shipping companies, with everyone having the same opportunity to operate in equal conditions, which will increase transparency and raise attractiveness,” he adds. “Business will respond to the positive changes and will make decisions in favor of Anaklia Deep Sea Port. In the long-term perspective, Anaklia Deep Sea Port has the potential to use its capacity to its fullest, which, with SSA Marine, terminal operator of Anaklia Deep Sea Port, will be much more effective as it will implement successful international practice”. “Success lays in Georgia becoming a regional logistics and transport hub, a regional center for trade, education and medicine; a multicultural, industrial and business hub which ultimately means a strong, economically sustainable society and country,” Urushadze concludes.
NOVEMBER 21 - 23, 2017
Project Poseidon: Europe Starts the Fight for Russian Gas from Turkish Stream BY DIMITRI DOLABERIDZE
he Company IGI Poseidon is engaged in the development of gas infrastructure projects in South East Europe and is currently promoting the Interconnector GreeceBulgaria (IGB), the Poseidon pipeline and the Eastern Mediterranean pipeline (EastMed). The Poseidon gas pipeline project, the offshore part of the ITGI (Interconnector Turkey - Greece - Italy) gas pipeline, was designed to connect the gas transmission systems of Greece and Italy. The length of the "pipe" is about 800 kilometers and capacity about 8-10 billion cubic meters. Initially, it was assumed that the pipeline would ensure the supply of Azerbaijani gas along the route Turkey-Greece-Italy. But in February, Gazprom, Edison and DEPA signed a memorandum of understanding on gas supplies from Russia under the Black Sea to Greece and Italy. "Recent statements from the Italian company about its interest in gas from the Turkish Stream are rather strange, as the agreements with Turkey imply the laying of a "pipe" to the border with Greece, while Bulgaria and Serbia confidently assert that the continuation of the European pipeline will pass through their territory. These long-term contracts of Gazprom suggest the delivery of large volumes of gas to the Austrian gas hub. Yet, Russia refused the "South Stream" because Brussels pressed Bulgaria, and the latter refused permission to build a pipeline. In this chain, Bulgaria has remained a weak link: there are no guar-
antees that history will not repeat itself. The Poseidon project could be an alternative to laying a gas pipeline from Turkey to Europe, generating new problems in negotiations with Sofia. The Head of IGI Poseidon Elio Ruggieri said at the European autumn gas conference in Milan that the gas pipeline Poseidon can be built by 2023. According to him, the final decision will be made in 2019, when Russia finishes the construction of the pipeline across Turkey to the borders of the EU. However, the deadline stated by Ruggeri does not agree with the interests of Moscow. "The Italians assume that they will only begin negotiations in 2019, while Russia plans to completely or almost completely abandon transit through Ukraine in 2020, for which the Turkish Stream and the Nord Stream-2 are built," Gazprom stated. Neither Gazprom nor Europe have determined how the pipeline will pass through the EU. Moscow needs clear guarantees; EU countries are interested in transit revenues from the "pipe" in their sovereign territories. Most likely, the final decision will have to be taken by Brussels: the supranational body of the European Union must decide which geography of gas supplies it is interested in". The fact that the first thread of the Turkish gas pipeline was included in the Exclusive Economic Zone of Turkey was reported by Gazprom on November 4. In total, 448 kilometers have already been laid along two lines of the gas pipeline. In less than half a year almost 25% of the sea area was built. The beginning of gas transportation on the "Turkish Stream" is scheduled for December 2019.
Now the European Commission is actively trying to prevent the construction of the Nord Stream-2, and it may end in complete failure, with the body trying to extend the new rules to the Russian gas pipelines "retroactively" after filing applications. Therefore, Nord
Stream 2, most likely, will no longer face serious obstacles. But it is likely that this will force the European Commission to shift its focus to the European thread of the "Turkish Stream". It may seem to the outside observer that Gazprom has won with
its "menacing" projects. It is now important for the regulator to prove that it is not toothless, but has real power. Therefore, the sticks in the wheels of the gas pipeline from Turkey will now be inserted with tripled perseverance.
Pâtisserie Legato Expands into a Café-Restaurant BY NINO GUGUNISHVILI
hough relatively young as a brand, Pâtisserie Legato, founded in 2012, quickly became popular among locals for its cakes, pies, pastry, sandwiches, and own-baked low calory bread. Celebrating this success, Legato has transformed itself from a simple pâtisserie into a café-restaurant offering a full assortment of Italian cuisine to its customers. GEORGIA TODAY met with Legato founder Davit Anjaparidze to find out more.
TELL US ABOUT THE HISTORY OF LEGATO From the very start when deciding to open Legato, we had pastry lovers on our minds. Legato is a family business and we wanted to offer high quality pastry products to our clients, something that was quite rare at the time. Although the brand is constantly developing, initially everything started with pâtisserie, centered on our slogan “Pleasure in Sweetness.” We got in touch with the Confecioners Association President in Israel and started bringing all the necessary equipment from Italy and France. In 2016 we decided to change our direction and invited Georgian chef, Gia Gachechiladze, who worked in Italy for almost 20 years (we can say he’s one of the best chefs, one who can do literally anything!) and added more Italian dishes to our menu, which is now available at all Legato branches in town. In addition, we’re now offering lunch menus at our Pekini branch.
LEGATO AS PÂTISSERIE ALONE WAS ALREADY POPULAR. WHAT MADE YOU DECIDE TO EXPAND? Customer demand. Apart from delicious pastries, people who were coming often asked for a salad, or sandwich or soup
alongside the sweets. When we added pizza to our menu, which became an instant hit, and so we decided to combine the concept of pâtisserie with a restaurant.
HOW COMPETITIVE IS LEGATO ON THE MARKET? For the five years that we’ve been on the Georgian market, we’ve gained numerous loyal clients. Of course, the competition is fierce, but we’re holding our niche with the high-quality products we offer and we’re growing: our Kazbegi Avenue branch is the largest now, and we plan to expand further. We believe it’s one of the best places to have business meetings, accompanied
with the delicious food served. For our confectionery, we import all the ingredients from Europe and for our dishes, we regularly taste and select new, high-quality products. When Legato was founded, we invited foreign specialists to selected and then train our Georgian staff of pastry chefs and bakers and even now, we offering training opportunities to our employees, to help them learn about the latest trends and novelties in the sphere. Legato has approximately 100 employees, as all our products are made locally. Our pastry bakery is on Abashidze Street, where you can find Legato’s famous cakes. 90% of our own produced bread is without yeast and that’s also
something that Legato can be proud of, as well as our coffee, which we make with a special, seven-stage water-filtering system we installed in all our branches. Our customers often say that it’s very tasty.
WHAT WOULD YOU NOTE AS THE MAJOR CHALLENGE FOR YOUR BUSINESS? The Lari rate is probably one of the remaining major challenges. We depand on Euro and on imported products, and the growing prices are of course problematic as we then have to increase the prices on our products, too.
WHAT ARE YOUR ASPIRATIONS
IN THE LONG-TERM? Legato is a Georgian brand, and although its focus is on European cuisine, as ambitious as it may seem, I would say that entering other markets outside Georgia would be an interesting goal for us to achieve in the future.
ANY PERSONAL RECOMMENDATIONS WHAT TO TASTE AT LEGATO? I would recommend tasting our shou and cheesecakes from the Legato pastry line and from Italian cuisine, I would recommend the ravioli or fettuccine, but to be honest, it’s quite difficult to choose from all the tasty dishes we offer.
GEORGIA TODAY NOVEMBER 21 - 23, 2017
Dechert OnPoint: New Balance of Interests between Lawful Owners & Good Faith Purchasers
echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associate Irakli Sokolovski and associates Ana Kostava and Tamar Jikia, is partnering with GEORGIA TODAY on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.
On 17 October, the Constitutional Court of Georgia rendered an important judgement regarding good faith purchasers of immovable properties in Georgia (the “Judgement”). Before the Judgement, the Civil Code of Georgia (the “Civil Code”) used to be interpreted in an inconsistent way and the Judgement is supposed to clarify the balance between good faith purchasers and lawful owners. The present OnPoint provides an overview of reasoning of the Court underlying the Judgment and further discusses its potential impact on the process of acquisition of property in Georgia.
ARTICLES IN QUESTION The Judgement relates to two Articles of the Civil Code: Article 185 and Part 2 of Article 312 (the “Challenged Articles”). Article 185 of the Civil Code states that a purchaser of property is acting in good faith if he/she relies on the information provided by the LEPL National Agency of Public Registry (the “Registry”) unless the purchaser knows that the seller, i.e. alienator, is not the lawful owner of the property in question. In such cases, the purchaser shall be considered as acting in bad faith. In addition, part 2 of Article 312 of the Civil Code provides the principle of completeness and accuracy (the “Accuracy Principle”) of the Registry and states that the information contained in the Registry shall always be deemed as complete and accurate except for the cases when: (a) there is a complaint against such information; and (b) upon purchasing the property the purchaser knew about the inaccuracy of the information of the Registry. Other than that, the Accuracy Principle along with Article 185 of the Civil Code protects the interests of the purchaser. The courts of common jurisdiction of Georgia, including the Supreme Court of Georgia have interpreted the Challenged Articles in different ways. On the one hand, the courts tend to favor the interests of the purchaser and stress the importance of the Accuracy Principle thus leaving the property with the purchaser and granting only the right to compensation to the lawful owners. On the other hand, in several cases the Supreme Court of Georgia has reasoned that the purchaser cannot be considered as acting in good faith when there is a complaint against the information provided by the Registry in which case, the purchaser ought to know about such inaccuracy upon purchasing the property. Importantly, the case law does not answer the question whether existence of inaccuracy as such is already an obstacle for the purchaser or whether the purchaser has to know of such inaccuracy as well.
DECISION OF THE COURT A plaintiff in a case before the Constitutional Court initially requested to recognize the Challenged Articles wholly unconstitutional since, in his view, the Challenged Articles deprived the lawful owners of their ownership right. However, the court differentiated between the issues presented and stated that the Accuracy Principle provided under the Civil Code is constitutional and important to promote the stable commercial turnover and trust of the Registry records. On the other hand the court stated that in many cases the interpretation of the
Challenged Articles unreasonably limits the rights of the lawful owners. Accordingly, the court found that the interpretation of Article 185 which prioritizes the interests of the purchases in cases when: (i) there is a complaint lodged against the records of the Registry; and (ii) the purchaser knows about such complaint, is unconstitutional. In other words, if the above conditions are present and the complaint of the lawful owner is satisfied at a later stage, the purchaser cannot be considered as a good faith purchaser and he runs the risk of losing ownership rights over the property.
POTENTIAL IMPACT OF THE JUDGEMENT The main legal effect of the Judgement is that where there is a complaint lodged against the records of the Registry and such complaint is satisfied, the purchaser will bear the risk of losing the ownership title over the property if the purchaser knew about such complaint upon acquisition of property. Thus, the property will be returned to its lawful owners. Such reasoning is based on the assumption, that the purchaser, having knowledge about possible inaccuracy of the property, ignored such information and did not demonstrate due care towards the interests of the parties involved (mainly that of the lawful owners). With respect to the practical impact of the Judgement, it should be noted that, generally, the courts of common jurisdiction are bound by the decisions of the Constitutional Court and have to uphold the same approach to the matter established by the court. Thus, the impact of the Judgement may be assessed positively in terms of establishing a foreseeable test which gives guidance on how the courts interpret the issue and how they balance the interests of the purchaser and the lawful owners. On the other hand, the Judgement gives rise to several concerns. Firstly, there can be seen a risk to the stability of commercial turnover of the country as the decrease of safeguards granted to the purchaser may diminish the value and the purpose of the Registry, at the same time unreasonably prolonging the property acquisition process. Furthermore, it is expected that the costs of acquisition process will increase due to the fact that the purchasers will have to do a due diligence with respect to the property and investigate and assess the complaints lodged to the Registry. As of today, the Registry extracts do not indicate the existence of complaints. In addition, it is not entirely clear what a “complaint” means. Finally, some also see a threat of so called “nuisance claims” which means that such regulation may be a tool in the hands of those people who wish to impede the process of alienation of property by filing groundless complaints to the Registry. *** Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business. Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice. Dechert Georgia is the Tbilisi branch of Dechert LLP, a global specialist Law firm that focuses on core transactional and litigation practices, providing world-class services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 28 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 firstname.lastname@example.org.
NOVEMBER 21 - 23, 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 email@example.com.
Tourism Market Watch FOR GEORGIA TODAY BY KAKHABER SAMKURASHVILI
ON THE RISE, THANKS TO IMPROVEMENTS IN AIR CONNECTIVITY AND GROWTH IN NUMBER OF VISITORS FROM SECONDARY SOURCE MARKETS
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 number of visitors arriving by air was up 49.0% y/y to 1.4mn in the first 10 months of 2017 and accounted for 21.5% of total arrivals, up from 13.5% in the first 10 months of 2015. The growth in air arrivals and EU visa liberalization resulted in explosive growth in passenger traffic across the three international airports in the first 10 months of 2017: +41.1% y/y to 2.7mn in Tbilisi, +58.7% y/y to 0.5mn in Batumi, and +65.6% y/y to 0.4mn in Kutaisi.
TURKISH AIRLINES MAINTAINS LEADING POSITION ON GEORGIAN MARKET BY NUMBER OF PASSENGERS SERVED IN FIRST NINE MONTHS OF 2017
AIR CONNECTIVITY WITH WESTERN EUROPE AND SECONDARY ASIAN MARKETS SET TO EXPAND SIGNIFICANTLY IN NEAR FUTURE
While it maintains the leading position, the increased competition over the last two years has weakened the airline’s lead. Its share on the Georgian market has almost halved from 19.8% in 2015 to 11.2% in the first nine months of 2017. Georgian Airways, the only local carrier on the market, is close behind, with 9.6% of the market. Since the addition of direct flights from Kutaisi to European cities, Wizz-Air’s competitive position on the Georgian market has strengthened considerably. The airline’s share is up from 4.6% in 2015 (100,464 passengers) to 7.7% in the first 9 months of 2017 (240,055 passengers). Overall, the share of top three airlines is on the decline, as the number of carriers operating on the Georgian market has increased from 33 in 2015 to 52 today.
SHARE OF AIR TRAVEL IN TOTAL ARRIVALS TO GEORGIA
Wizz-Air announced direct flights to four new European cities – Rome, Paris, Barcelona, and Prague – starting May 2018. Wizz-Air already serves 11 routes with 24 weekly flights, as of October 2017. The expansion of Kutaisi International Airport, expected to be completed in the middle of 2018, will be integral to accommodating the expected growth in air traffic. Negotiations are also underway with several Asian airlines, including Indian and Chinese carriers, to launch direct flights to Georgian airports.
NUMBER OF INT’L ARRIVALS UP 15.2% Y/Y TO 0.61MN IN OCTOBER 2017 Of the top four source markets, there was strong growth from Russia (+30.3% y/y), Armenia (+12.7% y/y), and Azerbaijan (+9.1% y/y). The number of visitors from Turkey also increased (+2.4% y/y) for the fourth consecutive month, but the increase was a modest one. Arriv-
als from the EU were up 17.4% y/y to nearly 30,000 visitors.
NUMBER OF INT’L ARRIVALS UP 18.8% Y/Y TO 6.43MN VISITORS IN FIRST 10 MONTHS OF 2017, SURPASSING ANNUAL FIGURE FOR 2016 The number of visitors increased from all major source countries except Turkey (-4.1% y/y). The largest individual con-
tributor to overall growth was Russia (+33.3% y/y), while Armenia and Azerbaijan also posted double-digit increases. The number of Iranian visitors was up 2.3x to over 292,000 visitors and surpassed the number of Ukrainian visitors (170,797).
SECONDARY SOURCE MARKETS ALSO POSTED ROBUST PERFORMANCES IN FIRST 10 MONTHS OF 2017 Arrival growth from secondary (nonEU) source markets contributed 3.8ppts to the overall growth of 18.8% y/y. The number of Israeli visitors increased 35.9% y/y to over 115,000 visitors, while the number of visitors from Saudi Arabia
was up 171.5% y/y to almost 55,000. Arrivals from the EU were up 24.0% y/y to over 293,000 visitors, with Germany, Poland, and UK accounting for a third of the growth.
TOURIST CATEGORY CONTINUES TO DRIVE ARRIVAL GROWTH IN OCTOBER 2017 The number of overnight visitors (‘tourist’ category) was up 19.9% y/y and accounted for 42.7% of international arrivals. Same-day arrivals and transit visitors posted annual growth rates of 3.5% and 24.9%, respectively. The number of tourist arrivals in the first 10 months of 2017 is up 28.0% y/y to 3.0mn, surpassing the annual figure for 2016.
GEORGIA TODAY NOVEMBER 21 - 23, 2017
Interview with Janez Kopac, Director of the Secretariat Energy Community find out more. “This International organization is the waiting room for EU membership. We were bigger in the past (Romania, Bulgaria and Croatia were the members), but after they became EU members, they seized EnCS as an individual member, because the EU is an integrated unit. The main purpose of the organization is to bring the same rules into the oldest member countries, to create an internal energy market that is transparent, competitive, environmentally sustainable and secure. Unfortunately, Georgia cannot benefit from all these elements because it is not geographically connected with any EU state or energy organization member. Yet, it can definitely benefit a lot from using the same approach which is based on tens of years of mistakes and experiences in the European Union. It is not easy to establish a functioning electricity and gas market and mistakes are easy (and quick) to make. The EU learnt from its mistakes. So, transposing avoids mistakes, and also brings transparency and effectivity. In Georgia. the energy market, electricity and gas, if not regulated, is definitely not efficient.
EXCLUSIVE INTERVIEW BY DIMITRI DOLABERIDZE
r. Janez Kopac is the Director of the Secretariat Energy Community, an international organization which brings together the European Union and its neighbours, to create an integrated pan-European energy market. The Com-
munity has similar institutions as the EU, and the EU is a member of the Energy Community. Presently, the Energy Community has nine Contracting Parties: the six Balkan countries, Moldova, Ukraine and Georgia. By adopting the Energy Community Treaty last week, the Contracting Parties made legally binding commitments to adopt core EU energy legislation, the so-called "acquis communautaire”. GEORGIA TODAY spoke to Janez Kopac on his recent visit to Tbilisi to
TO RENDER ITS ELECTRICITY SUSTAINABLE, GEORGIA MUST ENSURE THE FULL TRANSPARENCY OF ITS ELECTRICITY MARKET, WHILE GRADUALLY MOVING AWAY FROM PRICE REGULATION. WHAT KIND OF RESPONSIBILITIES IS GEORGIA TAKING ON? In general, an electricity market should be liberalized, which means that every producer sells electricity for the market price, because if the market price is not
high enough, the producer will not sell it. If it is very high, however, they will make a huge profit. Of course, every consumer has the right to choose a supplier. The electricity network (cables, distribution system, operator, transmission system, high voltage cabals) is regulated by KNERK, an energy regulator. They function completely differently, which means that they have to allow third-party access, if s/he wants to sell electricity, allowing others to use these cables. This is the main idea of the competitive market: how to separate monopoly over cables from the competitive activity of supplying electricity. Supply and generation is free on the market, and networks are regulated. Yet, this entails another price. Which means that only the most efficient producers are capable of offering electricity on the market. So, less efficient producers simply don’t have the capability to offer it. This is in theory how it functions.
WHAT BENEFITS DOES SIGNING THE ACCESSION PROTOCOL TO THE ENERGY COMMUNITY TREATY BRING GEORGIA? Both seller and buyer sign the bilateral agreement; the state, ministry or energy regulator has nothing to do with it, which means that the supplier will be a private company. If the government is able to intervene, there’s the risk it won’t function as well. Such intervention is called “public service obligation” and must be very short and justified. The government defines who are to be deemed as ‘socially vulnerable’ customers because they cannot be exposed to the free market (which sometimes diminishes or decreases). In such situations, you need protection, which is taken from the budget. Thus, it
has to be visible and transparent. To summarize, it should go only to socially vulnerable people who are not able to pay for energy. The EU is surrounded by countries who respect the same rules. Georgia is surrounded by countries that do not need to respect such rules. This means that if Georgia exceeded its electricity levels, the company can stop producing energy, or sell it to neighboring countries. But, for example, if Armenia were to be a member of the Energy Community, it would not be allowed to buy. We hope that Armenia will start to apply European, and now Georgian, rules and standards. That said, any cooperation is better than no cooperation; any element in the internal energy market is better than no element. For example, Turkey is already a member of the European Capacity Allocation Office, which means it offers cross-border capacities on tenders organized in Europe. Georgia can also start the process within the European Capacity Allocation Office. This will be the first direct connection with Europe. Turkey is also an observer to the European Network of Transmission System Operators for Electricity (ENTSOE), and tries to follow all the rules of ENTSOE. I am sure that Georgia will become a member and not an observer of ENTSOE in the near future. This will create two Transmission System Operators in neighboring countries, and they must apply similar rules, which is vital for crossborder cooperation. This will bring benefits to both sides. It will always be a win-win situation. This is a very responsible decision. So, it has to be decided to adhere to the pro-European way. I look at this very optimistically.
NOVEMBER 21 - 23, 2017
Minister of Economy Meets with Hellenic Petroleum Leadership H&M Hosts Party to Celebrate Tbilisi Launch BY KATIE RUTH DAVIES
he excitement over H&M’s arrival in Tbilisi reached fever pitch last week as nearly a thousand VIPs, celebrities, fashion enthusiasts and members of the media gathered for an exclusive pre-opening shopping party at its 3,000 sq.m. store at Galleria Tbilisi, Freedom Square, on Thursday. On arrival, guests were greeted by a spectacular light show and a walk down the red carpet. What some named “the event of year” saw numerous personalities in attendance, among them super model Nuka Karalashvili, international
actresses Tina Dalakishvili, popular singer Nini Badurashvili, TV personality Irakli Makatsaria and actor Bakhva Bregvadze, all of whom were styled up in H&M’s latest collections, including the actual Autumn campaign and upcoming Holiday campaign. Many other local stylists, bloggers and members of the Tbilisi “cool crowd” were seen at the event, enjoying shopping in the modern and luxurious H&M store. First to entertain the crowd was popular DJ Rembo who warmed up the atmosphere for guests on arrival before Shvansikh band took to the stage to create the ultimate shopping experience. Then the band New One came on, turning the shop floor into a dance floor. Tbilisi H&M opened its doors to the public on Saturday.
irst Vice Prime Minister of Georgia, Minister of Economy and Sustainable Development, Dimitry Kumsishvili, met with the Hellenic Petroleum Chief Executive Officer and the Executive Member of the Board of Directors, Grigorios Stergioulis, and other representatives of the company. Hellenic Petroleum
is the largest oil company in the Balkans. Minister of Energy Ilia Eloshvili and the Deputy Minister of Economy and Sustainable Development Giorgi Cherkezishvili, as well as the leaders of the Greek company partner the Wissol Group, also attended the meeting. Minister Kumsishvili provided Greek guests with detailed information on
Georgia’s economic indicators, the Government’s Four-Point Reform Plan and on-going reforms. Hellenic Petroleum’s delegation paid special attention to the scheduled reforms in the energy-sector and confirmed their continued interest in the Georgian market. It was highlighted that the company intends to continue cooperation with Georgia.
DS Group: Team Work & Client Care short-term advertising goals; we want modern tendencies to be considered behind it all, bringing us ever closer to the European level and standards.
BY NANA ABULADZE
n order to gain customer trust, you have to offer them a highquality product, - said Sergey Davidof, Founder of DS Group, in his interview with OK! Batumi Magazine, sharing his views on what makes his company stand out, the advantages it offers, and why customers should choose DS Group. Read the interview with the DS Group Founder below.
WHY SHOULD INDIVIDUALS CHOOSE YOUR COMPANY? First, because we have interest-free internal loans for our apartments and, if, for example, the US Dollar rates swing, or any other unforeseen things happen, we try to support our clients, even if, after the initial 36-months of no payment passes, the client can’t cover it: we can extend. In other words, we try to keep all our cleints happy with our services. We think that DS Group is one of the best construction companies in Adjara, offering the highest quality, which is among its top priorities both in construction and in other directions.
WHEN WAS THE DS GROUP AS A COMPANY FOUNDED AND WHAT IS ITS HISTORY TO DATE? A multi-profile company, DS Group was established in 2012 and started in August that year to realize a number of important projects. Right now, the overall volume of the past projects realized with the ongoing ones included is 150,000 square meters. Shortly after its foundation, our company managed to firmly establish itself on the Georgian real estate market. We aim to provide an interesting range of services to our clients, starting from quality of the construction works, to a comfortable, safe environment, real cost and modern architecture. When we started, from the beginning, we saw that constructions were “stuck in a rut” and needed some kind of novelty. After careful examination, we found out the number of customers able to pay 50 to 100% of the apartment costs and cover the full amount in 6 - 7 month were limited, so our company decided to offer, and were the first ones in Georgia to do so, interest-free inner loans. In other words, a customer could have an interest free internal loan for 36 months with
WHAT IS YOUR SUCCESS FORMULA? Success depends on team-work and combined, joint efforts. We define our priorities based on our team principle and then work to make them happen.
WHAT BENEFITS HAS YOUR COMPANY BROUGHT TO THE CITY OF BATUMI? no need of first instalment when buying an apartment. When the apartment carcass is complete, we help them to take a bank loan to continue the construction works further. This brought us very positive results; not just for our company but for other developers who returned to Adjara, restarted their work and continued construction. With the offers our company provides, those who have incomes in salaries have the opportunity
to acquire their own living space and this is a great advantage indeed.
in working in this direction further, with our motto: Batumi without barracks!
TELL US ABOUT THE PROJECT YOU SAY YOU WERE THE FIRST TO DO
WHAT DISTINGUISHES YOUR COMPANY FROM OTHERS AND WHAT ARE THE NOVELTIES YOU OFFER CUSTOMERS?
We were the first in Georgia to completely rebuild a five-floor “Khrushchevka” building, providing apartments for all its inhabitants. If the support continues, we’re very much interested
For a year-and-a-half we’ve been working on studying what the company can potentially do to bring more comfort for the client. We don’t want to focus on
In the framework of our projects, we’ve employed 2000 people. DS Group cares about Batumi and wants it to have new and an ultra-modern architectural projects. We think that each of our projects plays an important role in the development of the image of Batumi as a city. We’re trying to improve our service quality and to realize many important projects in Adjara, ensuring a comfortable and safe environment to our costumers.
GEORGIA TODAY NOVEMBER 21 - 23, 2017
JSC Electric Locomotive Building: The Tbilisi Electric Locomotive Plant 11 modern electric locomotives, which includes new models, management pools, microprocessor techniques and static transformation. Asynchronous traction loads have been developed to design eight 8A 1A eight-mile mains electric locomotives, which are designed to carry 3,000 volt voltages and 1,520 mm lanterns on the electric lines of cargo carriers. The electric locomotive has high traction power and a max speed of 120 km / h. Specialists were guided by the following principles: • Modern solutions in the construction of the locomotive; • Increasing safety level; • Simplification of maintenance and repair; • Reduced expenditures. The factory is implementing large-scale modernization and maintenance of the company. Rehabilitation projects of galvanic and suspension workshops have been initiated, and the center for conducting certification exams for electric machines and machines has already been accredited. The regular upgrade of mechanical equipment is underway, as is the introduction of new technologies. The enterprise policy in the field of quality improvement represents an important function of factory management. The strict control of all stages of the electric locomotives and its spare parts is carried out periodically. As a result of the efficient functioning of the quality management system, which is certified in accordance with the ISO 9001: 2015 sequestration, the company's performance is constantly improving. The factory has a multi-stage system of quality control of the manufactured products. Electric locomotives produced by JSC Electric Locomotive Building are successfully operated in Georgia, Azerbaijan, Armenia, Russia and Ukraine.
ne of the main manufacturers of permanent power mains and industrial locomotives is the territory of the former USSR. JSC Electric Locomotive Building is a mechanical engineering company that focuses on railway project design. The factory was founded in 1939 as a steam-propelled factory. In 1957, the factory released the first electric locomotive. The enterprise structure consists of 15 workshops, a special design bureau, special technological bureau, control-examination station, examination polygon, labs and exam stands that provide for a full process of production. To date, the company has issued more than 4.5 thousand permanent power mains, more than 430 industrial coxmaking electric locomotives, and hundreds of thousands of spare parts and accessories. One of the latest products of JSC Electric Locomotive Building is the Vol 11M, number six in the series of continuous power truck mains electric
locomotives. The electric locomotive is equipped with modern static transformation of Czech production, with an electronic management system. The electric locomotive 11m / 6 is distinguished for high reliability and maintenance repair. The electric locomotives of this model are in operation on railways in Ukraine and Azerbaijan. The 11m / 6 uses a number of technical solutions in modern electric locomotives. The electric locomotive is equipped with powerful 820 kW collector engines TL-6R, instead of the steering wheelaxial slabs used by Gorvic bearings. The pneumatic system is used by a screw compressor asynchronous motor. An asynchronous engine is also used for the electric locomotive cooling system. Electricity management is carried out by electronic control. The management and diagnostic system is a microprocessor. The locomotive is equipped with fire alarms and fire-fighting systems. Static converters are used for feeding the electric locomotive network, as well as for the feeding of traction motors. The electric locomotive also has an ecologically pure sanitary-technical module. The electric locomotives produced by JSC Electric Locomotive Building are operated in close and long-term partnership with foreign countries. The factory is developed by both Volk10 and VL
NOVEMBER 21 - 23, 2017
Education, Culture Ministries to Launch Optimization
BY THEA MORRISON
ikheil Chkhenkeli, the new Minister of Education and Science of Georgia, has stated that he plans to carry out optimization within the ministry.
One of the main departments where this will be carried out is in Youth Affairs, he says, which was added to the ministry after the Ministry of Sports and Youth Affairs was abolished. The Sports Department of the abolished ministry was merged with the Ministry of Culture, while Youth Affairs was added to the Education Ministry. Chkhenkeli explained that the opti-
mization will includes the dismissal of a number of employees. “Our main goal is to create a ministry which will deal with the existing challenges in education and science,” he added. Within the Ministry of Culture, a new process will be launched in the same regard, with Culture Minister Mikheil Giorgadze, also confirming that opti-
mization will include a reduction of staff. He highlighted that the aim of the process is to reduce administrative expenses. “This process means the optimization of staff and administrative expenses, like transport, communication, administration, and so on. As soon as the structure is ready, we will evaluate each
member of staff, and, depending on their functions and responsibility, we will try to choose the best employees,” he noted. The Prime Minister of Georgia, Giorgi Kvirikashvili, announced structural changes to the Government on November 13. The PM reshuffled the cabinet and reduced the number of ministries from 18 to 14.
Georgia: Cradle of…Beer! BY VAZHA TAVBERIDZE
eorgia being a cradle of wine is already old news, especially in the light of the recent discovery that Georgians were engaging in winemaking a whopping 8000 years ago, in the Neolithic period. However, veterans of winemaking that we might be, wine is by far not the only draught that Georgians can boast centuries of familiar history with. Take, for example, beer, one of the oldest beverages humans have produced. “Beer as a brewing culture was introduced in Georgia from the countries of the Old East, Ancient Egypt, Iran and Mesopotamia, recognized as the earliest places where people started brewing it” – writes Prof. Eldar Nadiradze in his essay “Georgian Beer”. In mainland Georgia, wine enjoyed little competition, but in the mountains, where grapes are a rare commodity, Beer was a rather welcomed alternative, quickly becoming the number one drink from Georgian highlanders. Among traditional Georgian beers, Tushetian Aludi is the most known, a sort of transitional stepping stone between beer and wine. To this day, Tushetians are brewing Aludi, mostly at the summer religious feasts, called Atingenoba. It really begs a question: if the centuries-old Qvevri wine methodology is something we can make the world marvel at, why forsake Aludi, the brewing procedure of which also spans several centuries? Apparently, Tushetians are asking this question themselves, too.
What’s more, some of them seem to have already found the answer. This is a story of one such man. In recent years, the economic situation has seen a clear upturn in Tusheti, with much of the local population actively engaged in small and medium scale enteprises. Some of them pursue agriculture, some run family hotels and guesthouses, and then there are some who aim to attract tourists by reviving old, timehonored traditions. 68-year-old Giorgi Ichuaidze, from the village of Omalo, restored a traditional Tushetian brewery, where Aludi has been brewed for tens of years, to its full glory. Before that, the brewery was only used during festivities, with the building on the brink of ruin. Two huge copper cauldrons stand in the brewery as primordial leviathans, each of them able to accommodate 400 liters of beer. “It’s was as much a business matter as that of principle and pride,” Ichuaidze tells us. “This is a traditional Tushetian brewery and they don’t build them like this anymore. At the beginning of the 20th century, you could find breweries like these in every Tushetian village. Today, this might be the only functioning one. It was built in 1920 and the cauldrons were made by two smith brothers. As we said, breweries have been operating in Tusheti for centuries. Brewing beer is intertwined with yet another ancient Tushetian tradition: the Shultaoba fest, which is celebrated in Tusheti to this day. At Shultaoba, six families in each village take upon themselves to provide guests from any corner of the country with freshly brewed beer.
Restoring the brewery was no easy task, however. Ichuaidze’s finances were only sufficient to restore the roof. The next step was writing a project for the full-fledged restoration and pitching it to local and international donors alike. Caritas Czech Republic in Georgia approved the project and funded Giorgi’s endeavor, who in turn expanded the brewery by another room. The determined enterpriser is not alone in his endeavors: he is assisted by young Tushetian, David Mozaidze, who also lives in Omalo and runs a guesthouse business. Together with David, “Grandpa
Giorgi” gets a helping hand from his 22-year-old grandson, his namesake Giorgi, who recently graduated in the UK and has come back to his country as, per his words, this is “where he sees his future”. It’s young people like these in whose hands the future of Tusheti lies. The restored brewery hosted numerous guests until the very end of Tusheti’s tourist season. The Aludi, which is brewed using barley malt, the traditional component of Tushetian beer, has a particular, sour taste that you can never mistake. According to tradition, women aren’t
allowed in places where Aludi is made, or, to be more precise, beer for men and women are brewed in separate locations. You can taste Aludi at the guesthouse ran by the Ichuaidze family and in nearby café, Sakhavitse, where, together with Aludi, you can enjoy a delicacy of Tushetian cuisine: Khavitsi. “We had our first guests at the Tushetoba fest. More than 100 liters of beer were sold at 5 GEL per liter. Not to boast, but the guests loved it and I hope to offer Aludi to more tourists when the new season comes,” says Ichuaidze, with the smile of a man who’s done the deed.
GEORGIA TODAY NOVEMBER 21 - 23, 2017
A New Round of US-Russia Confrontation OP-ED BY EMIL AVDALIANI
onfrontation between Russia and the US seems to have reached new heights over the past couple of weeks, seeing both sides taking reciprocal steps in limiting each other’s actions. The US made the Russian RT (Russia Today) register as an agent, while similar legislature was passed by the Russia State Duma to target foreign media operating in Russia. However, the timing of this legislature suggests the Kremlin did this in response to the US actions and to confront US media outlets. The media legislature could be regarded as a sideshow to those bigger processes which are unfolding in the ever-deteriorating Russia-US relations. The US increases its pressure on Russia on two fronts where the Russians are most vulnerable: in Ukraine and Georgia. Special US envoy Kurt Volker, and Kremlin aide Vladislav Surkov, met in Belgrade, Serbia, on November 13 to discuss the possibility of peacekeeping forces stationed in east Ukraine. However, since there have been irreconcilable differences between Moscow and Washington, it was likely the talks would largely fail. Washington insisted on Moscow giving up its control of the east Ukraine-Russia border, while Moscow insisted on the contrary. From a purely geopolitical standpoint, Russia accepting the US offer would mean losing control over the processes in east Ukraine.
As a result, in a joint statement that followed the Volker-Surkov meeting, we read: “Both sides agreed to reflect on the discussions... and to think about further ways to address this challenge”. After the talks, the US and Russian envoys also said that their countries have, “different concepts for how to make peace” but will work further to achieve results. Moreover, the differences were so extensive that after the meeting, Surkov said that the US side presented 29 paragraphs and that “only three of them were acceptable”. That is a clear indication that the US is not going to give up on its and Ukraine’s vital interests. Moreover, additional reports from the last week point to the US further increasing its support for Ukraine. On November 18, ABC News reported, quoting a State Department source, that senior aides will present US President Donald Trump with a $47 million plan to finance and sell high-tech defensive weapons to Ukraine to bolster its efforts to repel Russian aggression in east Ukraine. This will be a landmark development as it will go against the standard US approach to the conflicts across the former Soviet Union: no supplies of lethal weapons to Ukraine, Georgia or Moldova, so as not to cause further escalation with Russia. The plan in the White House might not materialize for the same reasons stated above, but it nevertheless reflects the current prevailing thinking in the American political establishment. Somewhat related to the US-Russia confrontation, recently NATO announced the Alliance will be creating two addi-
tional command centers in east Europe to better protect sea lanes and improve the movement of troops and equipment within Europe overall. This fits into the process of the west increasing its presence along the Russian periphery to better confront Russian actions. Moreover, to indicate further ratcheting up of the US-Russia relations last week, it was announced that the US will be increasing its military support to Georgia. From spring 2018, US Army officers will train Georgian soldiers on defensive tactics. The new Georgia
Defense Readiness Program differs from previous US military aid initiatives. Previously, the US was training Georgian troops for participation in foreign missions, in particular, the coalition operation in Afghanistan. However, with the new program, the focus will be the defense of Georgia’s own territory against a potential invasion. This is what Georgia has lacked for decades and what was well reflected in the 2008 Russo-Georgian war. The Georgian defense minister Levan Izoria said before his visit to Washington
in early November: “US-Georgia defense relations are advancing to a new level. The US side will allocate more than $100 million for defense reforms in Georgia, which will further strengthen Georgia’s defense capabilities and will deepen the existing strategic cooperation between our countries”. Thus, overall, the US is increasing its pressure on Russia through various means available, among them increasing support for Ukraine and Georgia as a centerpiece of the US strategy of containment in the former Soviet space.
Rugby: Georgia Lose to Wales at Cardiff's Principality Stadium twice found space on the right and soon forced a penalty, which was scored by fly-half Rhys Priestland. Georgia then conceded another penalty, and from the resulting line-out, Wales appeared to have scored a try. The referee went to the TMO, and replays on the stadium screen showed that winger Alex Cuthbert was held up by scrumhalf Vasil Lobzhanidze’s brilliant tackle. Wales kept pressing, and midway through the first half Hallam Amos, with acres of space on the left, finally scored a try. Yet Georgia were gradually finding their feet in the match, and a few minutes later had the Welsh defending inside their 22. The Welsh defensive line was excellent; however, Georgia turned the ball over and Wales scored on the break. After some deliberation, the officials ruled the try out for a forward pass in the build-up. By now, Georgia were playing with more confidence, while Wales lacked discipline, and on 30 min full-back Soso Matiashvili scored a penalty, reducing the home team’s lead to just seven
BY SANDRO VETSKO
eorgia lost to Wales Saturday, with a final score of 13-6, despite a spirited second-half performance. Georgia’s burning desire to join the Six Nations is understandable, and it’s not just about who you play, but where you play: at the iconic Principality Stadium, watched by tens of thousands of demanding but appreciative and generous supportive connoisseurs. Where atmosphere is concerned, rugby venues don’t get much better than Cardiff’s Principality Stadium, and one wonders whether the Lelos on Saturday were overawed by the occasion. Welsh supporters had feared that coach Warren Gatland’s team selection could backfire, he made 14 changes to the team that played Australia the previous weekend, but the home team started strongly, stretching Georgian defense with ease. Within minutes of kick-off, Wales
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points. Just before the half-time whistle, the camera zoomed in on Georgia head coach Milton Haig. The New Zealander’s contemplative expression appeared to suggest he had expected more from his players against the second-string Welsh side. Georgia started the second half positively, and matched Wales throughout. In the final few minutes, Wales defended with their backs to the wall. There was tension inside the ground, as Georgia looked likely to score and tie the game at 13. Confusion broke out in the stands as well as, apparently, on the pitch when after sending a Welsh player to the sinbin, the referee called uncontested scrums. Georgia went for a line-out, but conceded a penalty, and Wales kicked the ball into touch. Welsh captain Dan Lydiate admitted his team had escaped a defeat. “I’m just glad it worked out for us in the end. It was touch-and-go there for a minute or two,” he told the BBC. Georgia will take heart from a tenacious performance, but the quest for the first win over a tier-one nation continues.
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November 21 - 23, 2017