Caucasian Business Week #47 by Caucasian Business Week

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BUSINESS WEEK March 24, 2014 #47

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March 24, 2014, Issue 47

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GEORGIA

INTERCONTINENTAL TBILISI TO OPEN IN 2016

Bidzina Ivanishvili: “The Georgian Development Bank will be established in the country”

87% INTEREST RATE LOAN – BANK REPUBLIC’S DREAM CARD

Pg. 6

Exporters Interests Protection Center Opens in Georgia

Pg. 4

SHARE OF REMITTANCES FROM RUSSIA TO GEORGIA REDUCED

EUROPEAN SUPERMARKET CHAIN SPAR ENTERS THE GEORGIAN MARKET

ommersant” has learnt what international retailer will replace “Foodmart” in the Georgian market. According to our source, we are talking about the European network SPAR. Pg. 6

TBC BANK WINS BEST BANK IN GEORGIA AWARD 2014 FROM GLOBAL FINANCE MAGAZINE

Pg. 5

he Banks and Finances newspaper starts publishing materials about dark sides of bank products in Georgia. We will publish information about concrete conditions of bank products that remains beyond AD campaigns and bank clients face after the loan is approved. Unfortunately, the conditions commercial banks show in AD campaigns absolutely differ from the reality. Out goal is to show this factor to our readers to make them more cautious when taking decisions on this or that loan product. Today we introduce real conditions of Bank Republic’s Dream Card.

BANK REPUBLIC’S DREAM CARD The Bank Republic’s website persuades Dream Card is a way to make all dreams come true! This card enables to receive about 15 000 GEL for a year without any guarantee and use the sum for 55 days without interest rates. Consumers are able to take 3 varieties of Dream Card: Visa Electron, Visa Classic and Visa Gold. At this stage we introduce concrete samples with Visa Electron to show what is the real interest rate consumers have to pay for this loan. To take the Dream Card, consumers must have an at least 300 GEL salary account at one of the commercial banks in Georgia. Moreover, consumers must have at least three month working history.

SOCAR INCREASES NATURTAL GAS TARIFF TO GEORGIAN BUSINESS

Pg. 6

“SOCAR” Increased Gas Price for “Barambo” and “ Zedazeni”

SOCAR WORKS TO DEVELOP ADVANCED WELDING TECHNOLOGIES

zerbaijan’s state energy company SOCAR conducts active work on the development of advanced welding technologies, which are the important component of the oil and gas sector. Pg. 11

CIS CRIMEA’S ECONOMY IN NUMBERS AND PICTURES

WORLD NEWS SANCTIONS ON RUSSIA: WOULD WORLD CUP BOYCOTT HIT HARDER?

Pg. 6

Georgia, Italy to intensify military co-op IRAKLI ALASANIA Defense Minister Pg. 2

International development bank issues inaugural Georgian Lari bond Pg. 4

Pg. 5

DOUBTFUL MANIPULATIONS BY MAGTI ENERGY OF GIA JOKHTABERIDZE

AZERBAIJAN

GIORGI KVIRIKASHVILI Economy Minister

The Way to Become Wealthy in Georgia

he issue with elite corruption has been relevant in Georgia for many years. The business groups related to the ruling parties used to appropriate the most profitable assets in the country and take control of whole segments of the Georgian makret to receive excessive revenues from business activities. For the last 20 years only several bodies could collect wealth in doubtful and illegal ways, while the population was impoverished. These bodies did not care about this tendecy relying on the principle : the time will write off everything and we will maintain everything. Pg. 5

“ProCreditBank Georgia” has a New Director General Pg. 4

Lado Gurgenidze: There is no alternative for Khudoni HPP! Pg. 8

World Bank’s Stance on Hydropower: “Main Component of the Bank’s Strategy” Pg. 8

MAIN EVENTS caucasian business week

March 24, 2014 #47

GEORGIA, RUSSIA AGREED ON NEXT ROUND OF GENEVA TALKS

he next round of Geneva talks between Georgian Prime Minister’s Special Representative for RussianGeorgian relations, Zurab Abashidze and Russian Deputy Foreign Minister Grigory Karasin will be held on March 2425. Foreign Minister Maia Panjikidze made the remark at a news briefing on March 19. She said the meeting will show once again, at what level are the relations between Russia and Georgia. The first meeting of Georgian and Russian official representatives was held in Geneva on December 14, 2012, and the last fifth meeting - in Prague on November 21, 2013.

The last scheduled talks between Abashidze and Karasin were recently postponed for an indefinite period. “The last talks between Abashidze and Karasin were postponed, and we see caution. It is difficult to consider themes of the last period in the regime of constructive dialog,” Panjikidze said. Georgia and Russia, its giant northern neighbor, have maintained no diplomatic relations since a brief war in 2008. Tbilisi broke off relations with Moscow in August 2008 when Moscow crushed a Georgian assault to reassert control over two rebel regions -South Ossetia and Abkhazia- and later recognized the regions. Georgia announced the two unrecognized republics as occupied territories in September 2008.

GEORGIA, ITALY TO INTENSIFY MILITARY CO-OP

T GEORGIA, AFGHANISTAN TO ENHANCE CO-OP

eorgian Foreign Minister Maia Panjikidze met with her Afghan counterpart Zarar Ahmad Osmani in Tbilisi on March 17. “Georgia is ready to continue its mission in Afghanistan after 2014,” Panjikidze said after the meeting. She said that the sides talked about the importance of Georgia’s participation in the ISAF operation and noted the great contribution of Georgia to ensuring global security. Georgia has been assisting the NATO-led International Security Assistance Force (ISAF) in Afghanistan since 2004. Speaking about the possible areas of cooperation, Panjikidze highlighted Afghanistan’s interest in sharing experiences to strengthen democracy and cooperation with Georgia in the economic sphere. Osmani within his visit to Georgia also met

with President Giorgi Margvelashili. The sides discussed bilateral relations and highlighted the deepening of cooperation in economy, defense and culture. Afterwards, Osmani met with Prime Minister Irakli Garibashvili. The sides discussed the relations of two countries, and expressed their willingness to enhance cooperation in economic and transport fields. Osmani thanked the head of the Georgian Government for Georgian military participation in ISAF mission and contribution in the fight against terrorism. Defence Minister Irakli Alasania also met with Osmani to discuss the prospects of future cooperation between Georgia and Afghanistan. The signature of the Memorandum of Understanding on Bilateral Defense Cooperation between the Defense Ministries of the two countries is scheduled for the nearest future.

GEORGIA TO DEVELOP FARMER COOPERATIVES THROUGH EU ASSISTANCE

he European Union (EU) will allocate 15 million euros to Georgia for the development of agricultural cooperatives. Nearly 160 farmer cooperatives will be created in 45 regions of Georgia. Georgian Deputy Minister of Agriculture, David Galegashvili attended the ceremony of signing a memorandum between the EU and four consortiums, Oxfam, Mercy Corp, Care and People in Need. Deputy Head of the EU mission in Georgia, Boris Yarochevich made a welcome speech at the ceremony. “It is gratifying that agriculture is a real priority

for the Georgian government. With the support of the Agriculture Ministry it became possible to start the EU programme whereby the fund will allocate 15 million euros to Georgia for the creation and development of farmer cooperatives,” Yarochevich said. David Galegashvili in turn stressed that under the European Neighbourhood Programme for Agriculture and Rural Development project (ENPARD), agricultural cooperatives will receive technical and financial assistance. “This will be another important aid for Georgia’s agrarian sector and expansion of agricultural production,” he said.

he defense ministers of Georgia and Italy held the first official meeting in Rome on March 13, as Defense Minister Irakli Alasania was hosted by his Italian counterpart Roberta Pinotti. The parties emphasized the current close contacts between the two countries’ defense ministries and expressed their support for intensification of cooperation in this sphere, the Georgian Defense Ministry reported. Alasania informed his Italian counterpart about the implemented and planned reforms in defense sphere. Special attention was paid to participation of the Georgian contingent in ISAF mission and the plans after the completion of the peacekeeping

operation in Afghanistan. The parties also discussed the issues of intensification of Georgian-Italian cooperation in the military sphere. Pinotti expressed satisfaction with the processes taking place in Georgia and pointed out that she is glad for the country’s successes towards integration into NATO. The Georgian delegation also expected to visit Italian Armed Forces Officers Club, the highest educational and scientific center of the Defense Ministry where it will meet with cadets and officers. The delegation will also visit Italian Air Force Flight Center and become familiar with its work.

GEORGIA, BELARUS TO INTENSIFY CO-OP ON EMERGENCY SITUATIONS

eorgian Interior Minister, Alexander Chikaidze and Belarusian Minister of Emergency Situations, Vladimir Vashchenko signed an agreement ‘On cooperation between Georgia’s Interior Ministry and Belarus’s Emergency Situations Ministry to avoid and remediate emergency situations’ on March 11. The agreement aims to intensify the bilateral partnership cooperation in the sphere of natural and man-made emergency situations, the Georgian ministry reported.

A statute of Georgian-Belarusian Working Group on cooperation in the field of prevention and elimination of emergency situations was also signed. The purpose of the working group is to organize and coordinate cooperation in the mentioned fields. As part of the visit, the Belarus delegation visited the Rescue Training Centre of the Department of Emergency Situations 11 and took part in the opening of the mountain rescue course. The guests will also visit the service agency and “112” center on March 12.

GEORGIA DOES NOT RECOGNIZE CRIMEA REFERENDUM RESULTS

eorgia does not recognize the referendum conducted in Crimea on March 16 amid pressure from Russian armed forces, in defiance of the universally recognized norms and principles of International Law, with complete disregard for the Ukrainian national laws, the foreign ministry reported. “Russia’s attempt to annex Crimea represents a blatant violation of the commitments it has undertaken both under multilateral and bilateral agreements,” the statement said. The Georgian Foreign Ministry unequivocally reaffirms its support for Ukraine’s sovereignty and territorial integrity within its internationally recognized borders and calls upon the international community to consolidate efforts to make the Russian Federation order its troops back to base, to immediately de-escalate the situation in Crimea as well as in other regions of Ukraine,

to enter into direct talks with the Ukrainian Authorities and to co-operate with the international community in order to find ways to deal with the existing situation. On February 26 several thousand people gathered in front of Supreme Council of Crimea. After the escalation of the protests in Crimea, the Federation Council supported Russian President Vladimir Putin’s appeal regarding the use of the Russian armed forces in Ukraine pending “the normalization of the socio-political situation in that country”. The Crimean parliament made a decision on joining Russia on March 6. The deputies also voted for the referendum on the status of the peninsula on March 16. Upon the results of processing of 75 percent protocols from the polling stations after referendum on the future of Crimea, the percentage of voters who supported Crimea’s reunification with Russia stands at 95.7%.

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PUBLICITY March 24, 2014 #47

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BUSINESS & ECONOMY caucasian business week

March 24, 2014 #47

BUSINESS ASSOCIATION REQUIRES REASONABLE SANCTIONS IN ANTIMONOPOLY LEGISLATION

usiness Association of Georgia introduces to Parliament its opinion about amendments to the “Free Trade and Competition” law, which draft law is debating on an expedited basis. Business Association of Georgia requires that the antitrust laws and regulations must be clear and unambiguous, without a lot of vague regulations and contain reasonable sanctions in case of violations. According to the Business Association, they will try to convince the legislative body in the validity of their arguments in the process of the committee hearings.

INTERNATIONAL DEVELOPMENT BANK ISSUES INAUGURAL GEORGIAN LARI BOND

historic milestone in Georgia’s finance sector has been reached today as an international development bank announced it had issued a significant financial bond to help build the Georgian market economy. The European Bank for Reconstruction and Development (EBRD) issued a 50 million Lari (€20.7 million) bond to strengthen Georgia’s capital markets and boost lending to local currency. The bond is EBRD’s first-ever issuance. It is also the first placement by an international financial institution and also represents the first floating rate note on the domestic market in Georgian Lari. The two-year bond, announced today, was jointly led-managed and underwritten by two leading local financial institutions - JSC BG Capital, the wholly-owned brokerage subsidiary of Bank of Georgia, and TBC Bank. A coupon on the EBRD’s Lari bond will offer a three-month flat rate on certificates of deposit issued by the National Bank of Georgia (NBG). The bonds are eligible for sale and repurchase through the NBG. NBG’s deputy CEO of Finance Nikoloz Gamkrelidze believed the bonds would be “a great instrument” in preserving the short-term liquidity of the bank. “We’re eager to sell the bonds as well as to consolidate them onto the banks’ balance sheet,” he said. “The Bank of Georgia believes local banks and in-

ternational companies will express interest in purchasing the bonds,” Gamkrelidze said following the issuing of the bonds at the NBG head-office. EBRD director for the Caucasus, Moldova and Belarus, Bruno Balvanera, said the organisation aimed to encourage borrowing in local currency and to develop and strengthen local capital markets and increase the supply of locally-sourced finance. “Bonds bring a new instrument for investors and at the same time allow the EBRD to diversify its source of Lari and continue lending to companies in need of long-term financing in the local currency,” he said. NBG president Giorgi Kadagidze was confident bond issuance by the EBRD would pave the way for such issuances by other international financial institutions and would further the development of Georgian capital markets. “With developed local bond and currency markets encourage improved efficiency of financial intermediation, diversification and reduction of the currency risks in the banking sector. These lessen important risks connected with exchange rates and strengthen the stability of local financial systems in the Georgian economy as a whole,” he said. To date, the EBRD has invested a total of €1.86 billion (4.48GEL) for 167 projects in various sectors of the Georgian economy. Furthermore, it has mobilized an additional €3 billion (7.23 GEL) for these ventures from other sources of financing.

INTERCONTINENTAL TBILISI TO OPEN IN 2016

brand of luxury hotels is set to begin operating in Tbilisi in two years. InterContinental Hotels Group (IHG) announced it had signed-off on a deal to launch InterContinental Tbilisi and open in 2016. The 200-room hotel will operate under a management agreement with the existing owner-partner Adjara Group, a Tbilisi-based hospitality company. A central city piece of land that was once a printing works warehouse will be transformed into the InterContinental Tbilisi. The iconic building located in the heart of the Georgian capital will be at home amongst Tbilisi’s eclectic mix of Georgian, European and Middle Eastern architecture, stated international hotel industry media Hotel News Resource. The hotel will be within walking distance of the city’s major landmarks and neighbouring embassies and business centres. IHG’s chief executive officer of Europe, Angela Brav, said Russia and the Commonwealth of Independent States (CIS)

was a priority market for the company. “We’re thrilled to be signing a property under our flagship InterContinental Hotels & Resorts brand in Georgia. We are on track to have 100 hotels open or in the development pipeline in Russia and the CIS by 2020 and look forward to further expanding our presence in this region,” Brav said. Adjara Group, which owned Holiday Inn Tbilisi, believed the InterContinental Tbilisi and its “excellent location” would be perfectly placed to meet the needs of a fast-growing business and leisure travel market in Georgia’s capital city. “IHG has an excellent world-wide reputation for great service and great brands. We’re delighted to be bringing the InterContinental Hotels & Resorts brand to Georgia for the first time in partnership with them,” Valeri Chekheria, CEO of Adjara Group said. Currently, full-service international hotels operating in Georgia include Tbilisi Marriott, Courtyard Marriott, Sheraton Metekhi Palace, Radisson Blu Iveria and Holiday Inn. Earlier this February, Moxy, the newest hotel by world hotel chain Marriott International expressed interest entering the Georgian market. If this happened, Georgia will be set to become the first Eastern European country to welcome a new affordable but chic hotel brand to the region. IHG’s broader family of nine hotel brands are located in nearly 100 countries and territories. Caption: The 200-room hotel will operate under a management agreement with existing ownerpartner Adjara Group.

“We believe that in the initial stage of the bill enactment, special care is needed to avoid the risk of erroneous decisions, which poses a serious threat to the business environment, “- the Association states. Recall that in the current week the Parliament will consider a draft law on “Free Trade and Competition” an expedited basis, which has been developed for almost a year and a half. Business Association was involved in the working process together with other stakeholders and business organizations. But an agreement has not been reached on a number of important and principle issues.

ISRAELI BUSINESSMAN TO BUILD AGRO-TOURISM CENTER IN KAKHETI

t is planned to buy farms, build hotels and visitors’ center, produce products at the site ‘’Commersant” reports that the Israeli businessman will be engaged in agrotourism development in Georgia . Abram Tetruashvili states “Commersant ‘’ that he intends to invest one million USD in agro-tourism development project that will be implemented in the region of Kakheti. He says that the purchase of farms, hotels and vis-

itors’ center construction, production of agricultural products at the site are planned in the region. Tetruashvili adds they plan to purchase the land where wheat and other crops will be grown. The necessary equipment will be brought from Israel in order to increase production while produced products will be exported . In his words, the agrotourism center will be deigned mostly for Russian and Israeli tourists. The businessman plans to implement the project in the spring.

“PROCREDITBANK GEORGIA” HAS A NEW DIRECTOR GENERAL

roCreditBank Georgia” has a new Director General. In March 2014, after Sascha Ternes left the bank, Asmus Rotne has taken Director-General position. According to the bank, the beginning of Asmus Rotne’s career in “ProCredit Group” is associated with “ProCreditBank Georgia “. They explain that after Georgia Asmus Rotne occupied Deputy Director General ‘s position in “ProCredit Bank Romania “, CEO post

- in “ ProCredit Bank- Armenia “and in Moldova he held the post of Chairman of the Management Board of the bank. “ProCreditBank Georgia” new CEO states that “ProCredit” is one of the leading banks in Georgia focused on development of very small, small and medium business. Asmus Rotne says they will continuepositioning on the Georgian banking market and will offer customers services tailored to their needs.

SHARE OF REMITTANCES FROM RUSSIA TO GEORGIA REDUCED

n February 2014 the volume of remittances received by the country from abroad increased by 7.3% compared to January, and in comparison with the previous year - by 2.8% and amounted to 106.5 million U.S. dollars. Russia leads again by money transfers but in comparison with last year 4.6 million USD less were received (51.4 million USD). Its share in the total volume of transfers decreased from 54.1% to 48.2%. But transfers from Greece increased by 19% and reached 16.7 million USD (its share was 15.7 %)

, from Italy - by 10% up to 9.3 million USD (it takes the third place with 8.8 % in total transfers). Remittances from the United States increased slightly by 4% ( to 5.6 million USD), from Turkey almost doubled ( to 4.4 million), and a volume of transfers from Ukraine has not changed ( 3 million USD) .Transfers from Spain increased by 9% (to 2.1 million USD) , and from Germany - by 25% ( to 1.7 million USD). But transfers from Israel decreased by 2% ( to 1.5 million USD), and from Azerbaijan – by 9% ( to 1.2 million USD).

BUSINESS March 24, 2014 #47

caucasian business week

APPEAL OF ECONOMIC EXPERTS’ CLUB TO PRIME MINISTER, MR. IRAKLI GARIBASHVILI Mr. Prime Minister, We studied the problems facing to logistic sphere, for the resolution of which over 40 companies publicly appealed you and Parliament Chairman. We consider that these problems have systemic character. The case is that the practice established by previous government still continues, when on the basis of the verbal instructions of state institutions of high rank officials harsh interference in the business occurs and in many cases in favor of Legal Entities of Public Law (LEPL), in some cases giving advantage on the market to a specific private company. Activities of Tbilisi Registration Economic Zone (REZ) is a clear example of it, when imported cargoes are processed only there, private companies with permission of the analogic activities just disappeared from the market. Only 2 out of over 60 operating companies on the market can continue activities since 2011 only because they have some warehouses. Similar situation is in Poti, where terminal service of the imported vehicles is carried out in one specific terminal at REZ. It’s clear that this policy is carried out on the basis of verbal reference and it has not legal or bylaws normative basis. The custom officer does not serve to the attempt to process this kind of cargo in the other terminal with the same authorities and infrastructure. Over 40 representative companies of the sphere see greater threat, which will become basis for their disappearance from the market. According to their public statement, some works are going in Poti with participation of APM Terminals Poti (belonging to Poti Port owner company) and representatives of Revenue Service. On their joint sessions or so called working meetings all other remaining terminal logistic companies are informed that from May of the current year only APM Terminals Poti will provide cargo procession with simplified procedure. It means that over 5000 persons

directly employed in this sphere in Poti will become unemployed; also over 2000 indirectly employed people will lose jobs. Instead maximum 500 jobs will be created. Mr. Premier, It is specific and local side of the issue. But as we mentioned at the beginning, the problem has a system character. What do we mean? – The case is and it’s important that this action violates constitution. It’s so when instead of elaboration of the economic or sectorial policy, this or that ministry and its subordinated LEPL becomes market payer economic subject and provides economic activities. It happens when Ministry of Agriculture buys vaccines itself, when Ministry of Accommodation constructs houses itself, when Ministry of Infrastructure operates as a construction company and so on. In the case of logistics problem is analogic. Ministry of Finance replaces private business with own service and becomes its competitor. Mr. Premier, it is a relation between state and business based on market economy It is not promotion of compe-

tition. It is not implementation of free access primate on the market, declared by your government. This practice will not develop business. This practice will permanently create threat of establishment of artificial monopolies and illegal state support of these monopolies. We consider that institute of so-called LEPL should be immediately revised. The ministries should not get funding from LEPLs. In the extreme cases revenues received from LEPLs should go not in the ministry’s, but to the state budget in the way that strict supervision is provided in order to establish real, healthy competitive environment between LEPLs and private business, based on equal conditions. Although it will be only half step, but it will be better than current situation. In other case relationship with business based on had-twisting will not bring benefits. Unofficial argument explaining current situation is that administration with one subject is easier for Revenue Service, that in this case risks reduce for the that in the case of LEPLs establishment some state funds were invested in this project It’s clear, but it’s not a normal

format. It looks like a principle, when sheep are slaughtered for the fear of wolf. It’s necessary to think about it and take specific efficient steps. Economic Experts’ Club listened to businessmen on the session and discussed the problem. The club considers businessmen’s position justified and appeals you with request, as first person of the government reflecting people’s will, oriented to improvement of businessenvironment and establishment of healthy competitive environment, to discuss the problem and provide its resolution in accordance to business and country interests. We hope that government and personally you will see this important systemic problem completely and fullscale and immediately make respective decision. ON BEHALF OF ECONOMIC EXPERTS’ CLUB: Levan Kalandadze – head of NGO Georgian Infrastructural Projects Initiative Irakli Lekvinadze- head of information-analytic portal Georgian Business Insight Emzar Jgerenaia – Doctor of Economic Sciences, Professor Vazha Beridze – member of Independent Experts’ Club

87% INTEREST RATE LOAN – BANK REPUBLIC’S DREAM CARD

ccording to the bank’s information, the annualized interest rate is 36% (in case of money withdrawal from ATM). It should be also noted clients have to pay a 25 GEL a commission fee for approved loan limit in case of taking Visa Electron card. Moreover, clients pay 3.5% of the withdrawn sum (at least 3 GEL). Now we will discuss a concrete terms of a 400 GEL Visa Electron card. There are two variants for a use of Visa Electron: In the first case clients withdraw money and pay off the loan in 55 days. In this case the loan is interest-free, but the client has to pay one-time fee of 25 GEL for approved loan, as well as 14 GEL for

withdrawing the money from ATM. This signifies clients have to pay at least 39 GEL for taking 400 GEL Visa Electron card in case of one-time withdrawal and paying off the loan. But if the clients withdraw the sum in every 55 days, they have to pay 14 GEL as a commission fee each time. In case the clients withdraw the sum stage by stage the fees and, consequently, the loan interest rates grow further. Another variant is when the client withdraws the sum and pays stage by stage for a year. In this case the client has to pay a 25 commission fee for approved loan, 14 GEL ATM commission fee. Moreover, Bank Republic’s annualized interest rate for withdrawing the sum stage by stage makes up 36%. However, it is interesting the clients

have to take into account all expenditures (when taking the loan) that are required to serve the loan. The real interest rates are calculated on this basis. A special term exists to determine this factor – the loan’s efficient interest rate that is calculated on the ground of all expenditures. It is worth noting the annualized interest rate Georgia based commercial banks announce considerably differ tom the efficient interest rate. This factor raises concealed costs clients have to take for approved loans. THE DARK SIDE If we calculate the efficient interest rate on the ground of Bank Republic’s 400 GEL Dream Card conditions, we will see that the credit card’s efficient interest rate is

87% that is 2.4 times higher compared to the announced interest rate. Starting 2012, according to the decree of the president of the National Bank of Georgia (NBG), all commercial banks are obliged to indicate the annualized efficient interest rate when issuing loans, but, unfortunately, a major part of the consumers has not information on this component or ignores it. Thus, this one sample points to the ugly tendency in the Georgian bank sector, when the client misled by AD campaigns goes to a commercial bank to take an interest free loan and later has to pay 80% to 100% efficient interest rate. Banks and Finances

SOCAR INCREASES NATURTAL GAS TARIFF TO GEORGIAN BUSINESS

he State Oil Company of Azerbaijan (SOCAR), a sole natural gas supplier to Georgia, has taken a decision to increase the natural gas tariffs by 10% to Georgian business companies. The decision of the monopolist will make the Georgian production less competitive and less profitable. The competitive capacity of the domestic production will further fall compared to imported products. The natural gas tariff has increasd to 345 USD from 315 USD. Bakeries will face real problems, as a major part of the bakeries use natural gas in the production process. This factor will be definately reflected on the bread prices in Georgia. Amid the current social background in Georgia the growth in bread prices will affect the poor citizens. Bread manufacturers also show strange positions. In personal conversations they prove natural gas tariff has increased and expect growth in bread prices, but they

abstain to make public statements against SOCAR. It seems, besides change in tariffs, SOCAR has got other leverages too to stage pressure on these companies. It is famous that 5 mill complexes of 6 ones are managed by Azerbaijani business groups. Consequently, the Azerbaijani business groups emerge as monopolists on Georgia’s wheat wholesale market. As a result of efforts of SOCAR, a natural gas monopolist supplier, and Azerbaijani business groups that control the Georgia’s wheat market, the bread market will record growth in prices in the near future. The Azerbaijani influence on Georgia’s bread market is not touchable, but SOCAR has already grabbed this business. SOCAR strengthens pressure on the Georgian business, while the Georgian Authorities prefer to ignore the situation and the problem. The Georgian society cannot even see the contract agreement to cast light what is the

price Georgia pays to buy Azerbaijani natural gas. Absolutely all Georgian companies worry about the natural gas tariffs. Despite the new government often makes statements on nautral gas tariffs, the information is not publicized yet what is the price Georgia pays for Azerbaijani natural gas, what are the preferences Georgia enjoys, as a natural gas transit country, and in general, what agreement have been signed by the countries over the issue. Naturally, it is the SOCAR interest the information be hidden and unclear, because the Azerbaijani company is the market monopolist. According to unofficial information, leading figures of the United National Movement party still maintain close relations with SOCAR. Part of the Dividends from the SOCAR business in Georgia go to ex President Mikheil Saakashvili and his team members with the consent of Azerbaijani President Ilham Alyiev, as

Mikheil Saakashvili has initiated to sign those losing agreements that enable SOCAR to receive excessive revenues. The bodies involved in natural gas business also name concrete figures. According to their information, the SOCAR head office supplies natural gas to its Georgian subsidiary at 185 USD, while the Georgian subsidiary sells the Azerbaijani gas at 345 USD. In the production process the transportation price of one cubic meter of natural gas is about 0.85 GEL, including taxes. The price for transporting Azerbaijani antural gas on the territory of Georgia goes to the SOCAR pocket too. As to the gas consumption tariff, it makes up 0.45 GEL. The Georgian government balances the tariff by tax preferences as part of the GeorgiaAzerbaijan economic relations. This signifies SOCAR concedes nothing in this case and receives excessive profits in this segment too.

DOUBTFUL MANIPULATIONS BY MAGTI ENERGY OF GIA JOKHTABERIDZE

n 1999 Magti Energy LLC owned by Gia Jokhtaberidze, a son-in-law of ex president Eduard Shevardnbadze, purchased Rustavi Azot plant, one of the expensive assets in Georgia, at 100 000 GEL from the state, while the assets of Rustavi Azot were valued at about 250 million GEL that time. Auditor Niko Bakashvili (later he became a rehabilitation manager for Rustavi Azot) says, the value of only precious metals used in Rustavi Azot machineries was about 3 million USD. In several months after the purchase of Azot, Jokhtaberidze returned the asset to the state, after ITERA, a single natural gas supplier to Azot, expressed interest in the Rustavi-based asset. But it turned out the company of Gia Jokhtaberidze had earned about 8 million USD by purchase and sales of Rustavi Azot. Rustavi Azot turned out to have 8 million USD debts to Magti Energy. Analysts say Magti Energy artificially increased debts of Azot and later collected the so-called debts as a creditor company. Today Gia Jokhtaberidze is considered to be a success-

ful businessman. He is a genuine owner and manager of Magticom, a leading cell communications company in Georgia. As to LLC Magti Energy, according to the Public Registry information, the company has ceased operation. When preparing materials on Rustavi Azot, we wanted to pose several questions to Gia Jokhtaberidze. We forwarded the respective questions to Nino Surguladze, a representative of Magticom PR Service, and asked her to deliver our questions to Gia Jokhtaberidze. A month passed and Nino Surguladze notified the questions were not related to Magticom activities and no answer would be provided. Today the Banks and Finances newspaper publicly poses these questions to Gia Jokhtaberidze. Maybe this person will see these issues our society is interested in: THE QUESTIONS TO MR. GIA JOKHTABERIDZE : - What was your interest in Magti Energy ? Did you or your family members own stakes in the company ? - On what conditions and in which forms LLC Magti Energy purchased state-owned JSC company Azot assets in 1999 ?

- What was the reason to annul the agreement between LLC Magti Energy and the state, under which JSC Azot assets were returned to the state ? - Was LLC Magti Energy a creditor for JSC Azot before 2005, prior to the privatization of Azot ? - What was the debts of JSC Azot to LLC Magti Energy ? - Which operations have raised debts of Azot to Magti Energy? -Azot was privatized in 2005 and we are interested whether Magti Energy as an Azoti creditor has collected debts? - What was the reason Magti Energy has ceased operation? Another issue is how Magti has earned hundreds of million of USD for Gia Jokhtaberidze, how the west has appreciated the efforts to the family of Shevardnadze and why the cell communications tariffs were the highest in the world for many years. The Georgian society is waiting to receive answers to these questions. Before, we should cast light how our business elite has man-

aged to earn millions of USD. This is necessary to do to prevent them from hiding their property and making transfers to foreign countries, because the origins of their property often raises questions.

BUSINESS & ECONOMY caucasian business week

March 24, 2014 #47

EX-PRIME MINISTER: “THE GEORGIAN EUROPEAN SUPERMARKET CHAIN DEVELOPMENT BANK WILL BE SPAR ENTERS THE GEORGIAN ESTABLISHED IN THE COUNTRY” MARKET

ormer Prime Minister announces the creation of the Georgian Development Bank. According to Bidzina Ivanishvili, the current Prime Minister Irakli Garibashvili is actively involved in this process and the development bank will accelerate the country’s economic development.

”Development Bank, which I couldn’t established during my premiership, is created in Georgia. This will stimulate the economy too much, we have the agriculture foundation which is socially oriented, as well as the Co-investment Fund, which is meant for pure business. Now the development bank is being established, it is not going to be social, but will be intermediate between social and pure business, the bank will help in the development of certain sectors , “ – says Ivanishvili. In addition, the former Prime Minister positively appreciates the activity of the Co-investment Fund and explains that the Fund will hold a presentation of sponsored projects next week. ”The presentation is expected to be held on Monday, particularly of the projects which are already funded. We are talking about more than a billion, which is the unique result in such a short period of time. By the end of the year it will reach 2 billion, apart from that, the state is actively working in this regard, “ - Bidzna Ivanishvili said in an interview with Imedi TV channel.

EXPORTERS INTERESTS PROTECTION CENTER OPENS IN GEORGIA

ccording to the decision of the Ministry of Economy, the center to protect the interests of exporters began operating in Georgia. In parallel, a hotline was activated. “The information that the Ministry of Economy will receive will be used for talks with trading partners to maximally use the benefits of free trade , in order to protect entrepreneurs working for export,” - Economy Minister Giorgi Kvirikashvili states. According to the Ministry of Economy, in recent months Georgian exports have grown but in parallel with this, attempts to create artificial barriers hindering exports have become more frequent.

RIXOS 5-STAR HOTEL TO OPEN BY 2016

ixos” five-star hotel is planned to open for Israeli investments at the end of 2015. President of Georgia – Israel Chamber of Business Itzik Moshe states radio “Commersant” that certain amendments entered the hotel project as the brand’s representative office requested to

increase the number of rooms up to 220 given a high- class of the hotel. However, Moshe notes that the maximum limit of the 5 - star hotel was set at 180 rooms and an agreement with the brand has been reached in this regard. Itzik Moshe adds that “Rixos” hotel investment cost amounts to 30 million USD.

GEORGIAN EGGS TO BE EXPORTED TO IRAQ

eorgian eggs will be exported to Iraq. At this time 26egg-producing companies are operating in the market andthere is no need for the importation of eggs. However,consumption of eggs declines in the summer, so it is planned to export eggs to Iraq. Chairman of Poultry Development Association Zurab Uchumbegashvili states “Commersant”

that they launched a serious advertising campaign to make consumers aware of high quality of Georgian eggs . According to Uchumbegashvili, Iraqi partners are expected to arrive in Georgia this week to agree on the amount of products and other details of the cooperation. At this point the price of Georgian eggs amounts to 0. 25- 0.26 GEL, but in summer the price declines by 0.04 0.05 GEL due to less expenses.

“SOCAR” INCREASED GAS PRICE FOR “BARAMBO” AND “ ZEDAZENI” ”Young Financiers and Businessmen’s Association: “SOCAR” increased the natural gas tariff for bread producers’’

ommersant” has learnt a list of Georgian companies for which “SOCAR” increased the price of the natural gas. Price has been hiked by 10 % for “Barambo ‘’ and “Zedazeni”. ”Young Financiers and Businessmen’s Association” told “Commersant ‘’. According to Nodar Chichinadze, apart from “Barambo’’ and ‘’Zedazeni”, the natural gas tar-

iff has increased for bread producers. However, experts express doubt that the natural gas is mixed with air and the gas supplied by “SOCAR” becomes less effective. Yesterday, “Banking and Finance” published an article saying about gas price hiked by “SOCAR” forGeorgian companies. “Commersant” will offer the comments of the representatives of the companies on this issue.

ommersant” has learnt what international retailer will replace “Foodmart” in the Georgian market. According to our source, we are talking about the European net-

work SPAR. “Commersant” exclusively learnt that the owner of “Populi “ “Foodmart” company will bring in Georgia a well-known European brand. “Foodmart “ becomes the owner of the brand’s franchisees . The company does not specify the name of the well-known retailer at this point. “Foodmart “ representative states “Commersant “ that after “Populi”, “Foodmart” will presumably disappear from the market as well , as the world-class brand received their application, became interested and decided to enter. According to Otar Shamugia, it will not be just

a re-branding and we are talking about a full adaptation - introduction of standards of one of the leading European retailers that envisages the implementation of world -class retail practices, the growth of service quality and control, a pricing policy perfectly adjusted to the market and internal marketing activities. Recall that “Foodmart “ bought a chain of supermarkets “ Populi “ late last year. As for the SPAR, a Dutc Spar is an international retail chain and franchise with approximately 12 500 stores in 35 countries worldwide whose headquarters is located in Amsterdam. The brand owns several sub- brands : InterSpar hypermarkets , which compete with “Carrefour “, “Tesco”, a medium-sized supermarkets EuroSpar and SuperSpar, Spar Express which are the smallest shops and are located in small cities.

30% SHAREHOLDER OF FOODMART FOODSERVICE AND MEGAFOOD UNITED 30% shareholder of supermarket network Foodmart - FoodService and Megafood united. Till now the companies had the same shareholders, although were registered as separate legal entities. Merging process of the companies ended on March 14. Respectively, major stockholder of Foodmart SEAF Caucasus Growth Fund became 10% shareholder of Megafood. According to data of Public Registry, FoodService and Megafood currently have 5 stockholders. Holding.ge owns 45% of the company, Andro Gegenava - 24,48%, Ivane Nikolaishvili - 10,26%, George Chubinashvili - 10,26% and

SEAF Caucasus Growth Fund - 10%. Reminding that company Megafood provided nutrition, employment and working of convicted persons the penitentiary institutions during the certain period. Company Foodservice was founded in 2006 and their main activity sphere was procurement, distribution and logistic of the local nutrition products, also import of the food from various countries. It’s noteworthy that recently media released information that Dutch retailer SPAR will enter in the Foodmart supermarket network.

PARTNERSHIP FUND HIRED IFC AS CONSULTANT FOR NENSKRAHESI

nternational Financial Corporation (IFC) will evaluate proposals of the potential investors of Nenskrahesi. Partnership Fund signed contract with IFC on Friday. According to the agreement, International Financial Organization will consult in elaboration of project structure, preparation of contract and financial documentations, also negotiations with investors. “We want all the large infrastructural projects implemented by us along with private investors according to international standards. That’s why we hired IFC as consultant, which will evaluate investor’s proposal, also will prepare legal, commercial and financial structure of the deal”, - executive director of Partnership Fund Irakli Kovzanadze stated. Reminding that Nenskra hydro power station of 210 MW should be built in Svaneti, on the river Nenskra. Its potential capacity will be 1.3 billion KW/hour. Overall investment budget of the proj-

ect is $570 million, construction term - 5 years. IFC, which is a member of World Bank group, is the largest international institute oriented for private sector development. It also provides consultations in the infrastructural projects in cooperation issues of state and private sectors.

ARDI GROUP OBTAINED LIFE INSURANCE LICENSE

he company obtained life insurance license from Insurance Supervision Service on March 14. Respectively, the regulator included data about license awarding to Ardi Group in the institution’s license registry.

Ardi Group operates on the insurance market since 2010. According to Q3 2013, the company has attracted bonuses of 16,59 million GEL. 50% share of Ardi Group belongs to Armaz Tavadze, 20% - Zaza NIshnianidze, 30% - Zurab Khizanishvili.

GLOBAL PROJECT CAPITAL EXPRESSES INTEREST TO INVEST IN GEORGIA

orking meeting with representatives of British company was held in Ministry of Regional Development and Infrastructure on Friday. As representatives of British company explained, they are interested in implementation of various infrastructural projects

in Georgia by introduction of investment and new technologies. The meeting participants focused on the ongoing and planned projects by the ministry try during 2014 in the road infrastructure, water supply and solid waste management. The sides expressed desire to cooperate and hope that this cooperation will be beneficial for both sides in the future.

STATISTICS March 24, 2014 #47

caucasian business week

HPP

WORLD BANK’S STANCE ON HYDROPOWER: “MAIN COMPONENT OF THE BANK’S STRATEGY”

n a recent interview with the International Hydropower Association (IHA), the World Bank’s chief technical specialist for hydropower, Jean-Michel Devernay, talked about the World Bank’s stance on all things hydropower, including current policies and priorities in the field. “The World Bank and its clients recognize that sustainable hydropower is part of the solution for tackling the development challenges outlined in our mission, which is to eradicate poverty by 2030 and promote shared prosperity in an environment that is strongly marked by climate change.” Devernay elaborated that Hydropower had the advantage of being both affordable and clean, as well as producing limited gas emissions. He further talked about the Bank’s plans on connecting hydropower more clearly to the global development and climate agenda, saying that “lending to hydropower projects will continue to be a main component of the bank’s strategy.” “We will be working with our clients more and more to help them shape the hydropower sector in their own countries, and to help them prepare the right legal landscape and business environment for attracting other sources of funding. We intend to work with our clients to help them make sure that when they decide to go ahead with a

March 24, 2014 #47

caucasian business week

project, it is optimum from the point of view of responding to the challenges of energy and water security, and it is properly sized in accordance with the general interests of the country.” Regarding particular projects, Devernay responded that the World Bank Group have about 100 operations with hydropower components, of which around 40 prioritize that aspect. “This takes place largely in Asia, south Asia, south-east Asia, east Asia and Africa, and also central Europe to some extent, and central Asia. We are very much attuned with the natural distribution of size and type of projects that happens in the world. The bank has very small projects in its portfolio and it also has large, several-thousand-megawatt projects.” The interview also touched upon matters of hydropower projects impacting communities in developing worlds. Devernay said that the past decades have taught the World Bank a lot on how to deal with these issues, and that the concerns of biodiversity, social and environmental impacts are very real. “The World Bank has a very robust set of safeguards – conditions, in effect, which have to be satisfied by the country which borrows money from the bank to cope properly with those social and environmental impacts. Meeting those safeguards is a condition for the bank to finance the project. What we will do in the future is put more emphasis on the actual implementation of the project, and also post-construction monitoring. I think we’ve been good at setting up the programmes upstream, but there is a need to do more on how those programmes are implemented and how they improve the livelihoods of the affected people many years after construction.” He noted that when people have to be displaced, it’s not a question of mitigation, but rather an opportunity for these populations to live a better life.

LADO GURGENIDZE: THERE IS NO ALTERNATIVE FOR KHUDONI HPP!

t is a banality but it’s obvious that the country will have a new export sector by utilization of hydro resources”- noted Lado Gurgenidze, CEO of the Liberty Bank’s Board and country’s former Prime Minister. According to him utilization of hydro potential has no alternative for the country’s energy security and strategically positive aspects of this project would outweigh the problems faced before commencement of the construction. The banker thinks that the media has to play a significant role in formation of the sound public opinion. As he stated, the government was doing its best for implementation of this project. Bank of Georgia, one of the leading Georgian banks is also engaged in the energy sector and is starting construction of 27 mwt HPP. Irakli Gilauri, CEO of the Bank emphasized importance of energy projects for Georgia’s competitiveness: “” naturally the more energy country has the higher its competitiveness will be. Afterwards other sectors will become attractive for investors in addition to energy, since the energy component is important for all businesses.” Nikoloz Shurgaia, Chairman of the Azeri Rabit Bank’s Board noted that use of country’s hydro

potential and construction of big hydro dams were necessary: - “Participation of Georgian commercial banks in such important projects is advisable, however such participation will be possible only if the project’s profitability and risks meet the bank’s requirements and vice versa if the cost of bank’s funding is acceptable for projects. So far this combination has not been achieved easily. I’ll be happy if this picture changes an economically justified, profitable large projects have sponsors ( i.e. party that is owner, that assumes the largest risk in funding in the form of equity contribution) and it is well structured (sales /tariff, transfer, construction contracts)”. Georgian banks are not experienced in funding projects like Khudoni yet, however Archil Gachechiladze, a Member of the JSC Bank of Georgia’s Directorate hopes that time will come. He assigns significant importance to banks’ participation in energy sector due to two reasons – access to credit and finding investors. In addition, Archil Gachechiladze noted that Bank of Georgia was regularly monitoring the sector and publishing respective surveys. Potential of Georgia’s Hydro Power Stations is one of them, the revised version of which will be soon published.

KHUDONI HPP ANALYSTS - OPINIONS OF WELLKNOWN INTERNATIONAL COMPANIES

nvestigation of Enguri, Georgia’s one of the largest and affluent Rivers with energy potential, started in 1921 when a river level and discharge meter was installed at Jvari Village, below Khudoni Dam. More than a century has passed since then and implementation of Khudoni Project still represents a dilemma. Project opponents had various arguments at various times. Nowadays, when the frozen process of the HPP construction started to melt, the environmentalists began to talk about non-reliability and incompetence of conducted preliminary studies. Opponents in social networks are distributing the opinion that funding the hydro energy sector is no longer on the agenda of the international financial institutions such as World Bank and EBRD. However, Jean-Michel Devernay, Chief Technical Specialist of the World Bank in his interview to International Hydro Energy Association (IHA) (February 28, 2014), stated the opposite: “World Bank thinks that the sustainable development of hydro energy represents resolution of those problems which are related with poverty reduction in emerging countries prior to 2030. Currently the World Bank is implementing approximately 100 projects that include the hydro energy component and in 40 of them hydro energy represents the major component. These projects are being implemented basically in Asia and Africa and at some extent in Central Europe as well. We well understand the type and sizes of projects allocated across the world. The bank has small as well as big projects (several thousand megawatt), in its portfolio.” EBRD expressed the same position. Moreover, it is reviewing funding of several hydro energy projects in Georgia and as it turned out at the meeting between Irakli Gharibashvili, the Prime Minister and Suma Chakrabarti, president of EBRD the bank was planning to hold its shareholders’ meeting in Georgia in 2015. Which companies conducted analysis on Khudoni HPP and what was the basis for including Khudoni in the 100 best infrastructural projects? Who were the experts who prepared the opinion on this significant project? Well-known international compa-

nies have been conducting research on Khudoni HPP since 2005. 9 years ago when the World Bank approved a technical assistance grant in the amount of USD 5 million different companies were invited to conduct three parallel researches. French – Italian Consortium BRL/ARS performed Evaluation of Environmental Impact Inflicted by the Project; Joint Swiss Company Stucky-Colenco, recognized for its experience in big hydro dam designing projects, carried out technical economic research of the Khudoni HPP construction, while Serbian Company SEEC presented a strategic research, aiming to evaluate alternate energy sources. The aforementioned studies showed that construction of Khudoni HPP with the existing location represented the best option. In 2008 Stucky-Colenco presented its findings to the Government of Georgia, Ministry of Energy, Group of International Experts, World Bank representatives and completed development of the major plan in accordance with their recommendations. Panel of International Experts which conducted the noted studies included: Professor Juan Valdez, Hydrology Expert (USA), William Moller - Engineering Geology Expert (Australia) and Doctor Harold Cruetzer –Hydro Dam Expert (Switzerland). According to survey findings performed in June 2009 Khudoni Project got included in the World bank’s list. Khudoni Hydro Energy project ended up in the list of the 100 largest global infrastructure projects. In 2009 Company Stucky and Colenco based on the assignment of the Ministry of Energy of Georgia and World Bank’s Funding prepared Technical Economic Feasibility study (second phase), which

proved that the project was viable and initially selected area was suitable for construction of arched dam and it was necessary to perform new geological studies and explorations at the third stage for the purpose of completing the dam design. Implementation of Khudoni HPP was undertaken by Trans Electrica LTD, which concluded a new agreement with Stucky for performance of new researches and exploration works to substantiate the type, form and capacity of the dam. Swiss Consulting Company Stucky studying geology of dams and energy constructions has the best reputation in the world in this field. Special emphasis is to be made on 80-year experience in research of big dams, arched dams with double curves. Alfred Stucky was a pioneer in this area. New original project of Khudoni was developed by Stucky Company. One more argument used by Khudoni opponents is the vagueness and incompetence shown in preparation of Khaishi population resettlement plan. The plan commissioned by Trans Electrica will be implemented by Canadian Company “rePLAN”. It has been a leader in evaluation of social impact and development of related management plans, as well as in management of resettlement and compensation plans. rePLAN has been working successfully for 30 years in this area in over 60 countries. There are 80 professionals in the Company’s team, including public engagement and development specialists, social scientists, engineers, architects, lawyers and psychologists. rePLAN is conducting evaluations of social impact and risks, develops social management plans in cases of land acquisitions and re-

settlement. The second phase of the resettlement of people living in the Khudoni project site area will be designed by rePLAN. Trans Electrica in addition to foreign experts engaged local specialists in the project. Detailed seismic study of the Khudoni Construction Site was completed by Mikheil Nodia Institute of Geophysics under Ivane Javakhishvili Tbilisi State University in 2013. Evaluation of Environmental Impact which caused agitation was conducted by CENN (Caucasus Environmental NGO Network) and German ERM. As Rezo Getiashvili Coordinator of CENN Project noted they engaged the best local and foreign scientists in the study. The Project management team was consisting of the following scientists: Nana Janashia -CENN MSc in Environmental Science and Policy Kakha Bakhtadze - MSc in Biology, Natural and Social Environmental Impact Evaluation Expert Advisers of Environmental Impact Evaluation Process: Norbert Ralkshe - ERM-MSc in Geography. PhD, (Evaluation of soil maps based on GIS through distance sounding). Thomas Floran - ERM PhD in Physics and additional degree in Medical Physics; International Expert in Environmental and Compliance Management Akhim Broner - ERM MSc in Geography, Social Expert; International Expert in Environmental and Compliance Management MAIN TECHNICAL SPECIALISTS: Irakli Kobulia (CENN) - MSc in Geography; Management of Natural Resources; management of Natural Resources Management Surveys Tamar Mtvarelidze (CENN) - MSc in Environmental Science and Policy, MSc in Geology; Environmental Impact Evaluation Expert Nino Tevzadze (CENN) - MSc in Sociology. Chichiko Janelidze, (CENN ) - MSc/PhD in Geomorphology. Ucha Zviadadze - Consultant, MSc/PhD in Geography. I total 32 experts and scientists took part in Evaluation of Environmental Impact.

BANKING NEWS March 24, 2014 #47

caucasian business week

ECONOMIC OUTLOOK AND INDICATORS

TBC BANK WINS BEST BANK IN GEORGIA AWARD 2014 FROM GLOBAL FINANCE MAGAZINE

BC Bank has been recognized as one of the World’s Best Emerging Markets Banks 2014 by Global Finance Magazine, winning in the “Best Bank in Georgia” category for the third consecutive year. Global Finance editors selected winners based on the input from industry analysts, corporate executives and banking consultants and the results of the Magazine’s corporate readership poll. Best banks were assessed against the following criteria: growth in assets, profitability, strategic relationships, customer service, competitive pricing, and innovative products. “Faced with slowing growth and volatile markets, these banks are star performers under increasingly challenging conditions,” said Joseph

D. Giarraputo, publisher and editorial director of Global Finance. “The banks that Global Finance is honoring may not be the largest or oldest, but they are the best at targeting their products and offerings to the specific markets they serve.” Vakhtang Butskhrikidze, the Chief Executive Officer, commented, “We are deeply honored to win the Best Bank in Georgia award for the third year in a row. The continued recognition from the Global Finance editorial board and experts reflect our strong financial performance and longstanding leadership in innovation and customer experience. This excellent achievement is an important award for the dedication and talent of the entire TBC Bank team.” This is the twenty-first year the Magazine has named the best banks in emerging markets.

TBC and Bank of Georgia expect high demand on EBRD bonds

olders of EBRD securities expect high demand on obligations from other commercial banks. Director general of TBC Bank Vakhtang Butskhrikidze stated that according to preliminary information, the banks have a demand and TBC will sell part of the securities. Deputy director general of Bank of Georgia Nikoloz Gamkrelidze stated that with great probability the bank will maintain the securities and use for management of short-term liquidity, as well as other instruments - securities of NBG and government. Although, in the case of interesting proposal, he does not exclude to sell

them Nikoloz Gamkrelidze expects demands mainly from the commercial banks and from the international financial institutes, which buy the government’s securities. Securities of 50 million GEL were equally distributed on 2 system banks (TBC, Bank of Georgia). Annual rate is changeable and analogic to NBG 3-months deposit certificates. TBC and Bank of Georgia purchased 2-year obligations for annual 4,3%. NBG president George Kadagidze awards great importance to the emission of Euro Bank. According to his evaluation, this decision of Euro Bank is a clear demonstration of high trust to Georgian banking sector.

TBC Bank remains leader of individuals deposit market

SC TBC Bank remains a leader of individuals’ deposit market. By March 1, 2014 its market share equals to 31,7% (2013 - 32%, 2012 - 35,2%). Individuals’ deposit portfolio in TBC

Bank equals to 1,555 billion GEL (01/02/14 -1,549 billion GEL). BY March 1 total portfolio of TBC Bank’s clients (without banks’ deposits) equals to 2,589 billion GEL (01/02/14-2,580 billion GEL).

BANKING SECTOR COMPLETED JANUARY-FEBRUARY WITH 78,096 MILLION GEL PROFIT

anking sector completed JanuaryFebruary 2014 with 78,096 million GEL profit (01/02/14 -37 million GEL). Profit of the 2 months of last year equaled to 42,3 million GEL. For the reporting period own capital of the banking sector (stock capital) is 2,967 billion GEL (01/03/132,498 billion GEL). Supervision capital equals to 3,079 billion GEL (01/03/13- 2,603 billion GEL), capital adequacy coefficient is 18% (01/03/1317,7%). For the reporting period Return On Equity (ROE) is 15,9%, Return On Actives (ROA) - 2,7% (01/03/13 - respectively 10,2 %, 1,8%). Consolidated data includes results of 21 commercial banks.

BTA COMPLETED JANUARYFEBRUARY WITH 628,2 THOUSAND GEL LOSS

SC BTA Bank (Georgia) completed January-February 2014 with 628 191 GEL loss (01/03/13 - 923 283 GEL loss). By March 1 clients’ deposits equaled to 41,1 million GEL (01/03/13-32,3 million GEL), credit portfolio - 58,1 million GEL (01/03/13-80,3 million GEL), overall obligations -106,7 million GEL (01/03/13 - 97 million GEL).

Bank’s actives are 128,2 million GEL, market share - 0,7% (01/03/13 -122,6 million, 0,9%). BTA Bank operates on Georgian market since 2001. 49% of the bank’s stocks belong to JSC BTA BANK, 51% - to Silk Road Financial Group. Large Beneficiaries are fund Samruk Kazina (39,9%) and George Ramishvili (31,6%). Stock capital of the bank is 30,5 million GEL.

PUBLICITY caucasian business week

March 24, 2014 #47

AZERBAIJAN March 24, 2014 #47

caucasian business week

AZERBAIJAN RAILWAYS REVENUE UPS IN 2013

evenue of Azerbaijan Railways Joint Stock Company amounted to over 223 million manats in 2013. In an article published in the local media on March 17, Head of the JSC Arif Askerov noted that last year the company’s revenue was mainly generated by shipping - 208.2 million manats - and passenger transportation - 14.9 million manats. “Total expenditure for Azerbaijan Railways reached 214 million manats in 2013 including 73.3 million manats for the payment of workers’ salaries, 53.1 million manats for the purchase of goods and materials, 38.7 million manats for paying consumed electricity, fuel and water, 15.3 million manats for the social security fund and 4.1 million manats for the state budget in the form of tax payments,” Askerov wrote. “Thus, the net profit of the company amounted to

9 million manats in 2013,” he concluded. In total, some 23.2 million tons of cargo and 2.5 million passengers were transported by JSC in 2013. Currently, the total length of main roads is 2,932 kilometers and the operational length is 2,117 kilometers, including 815 kilometers of bilateral roads. 1,272 kilometers of the total length of the path is electrified and 845 kilometers is operated by the diesel traction. More than half of railways-1,126 kilometers- are equipped with self-locking, 479 kilometers are equipped with centralized control and the rest are equipped with semi-automatic locking. The road consists of 176 stations, two of them - Shirvan and Bilajari- are large automated sorting stations. Some 12 stations include container platforms, equipped with the necessary equipment and machinery and three stations (Keshla, Ganja, Khirdalan) with the ability to conduct large-scale container operations.

ITALIAN TRADE DELEGATION ARRIVES IN AZERBAIJAN

n Italian delegation led by president of Friuli-Venezia Giulia region Debora Serracchiani has arrived on a visit to Azerbaijan. The visit, initiated by Azerbaijan’s embassy in Rome, is aimed at building cooperation between Azerbaijan and the Italian region on institutional and business levels, as well as developing the existing relations. During the visit, Italian delegation, which includes presidents of Udine and Pordenone chambers of commerce and industry, businessmen, representing such fields as mechanical engineering, chemical industry, furniture production, and

construction, will have meetings with Azerbaijani state and government officials. Being one of the most developed regions of the northern Italy, Friuli-Venezia Giulia has economy based on small and medium size industries, specialized agriculture, high-quality tourism industry and a strong tendency to export. Italy remains the largest importer of Azerbaijani goods, and almost a quarter of Azerbaijan’s exports went to Italy in the first 6 months of 2013, compared to 22 percent in the same period in 2012. Currently, 45 Italian companies operate in Azerbaijan in insurance, banking, trade, and other areas.

EBRD SPOKESMAN: THE BANK NOT INVOLVED WITH THE PROJECT OF SOCAR REFINERY CONSTRUCTION IN TURKEY

he European Bank of Reconstruction and Development has officially confirmed its withdrawal from the project of “Star” Aegean oil refinery planned to be constructed by SOCAR Turkey in Aliaga port. “I can confirm we are not involved with the project”, - said the Head of Media Relations at EBRD Anthony Williams. Earlier, the information on this project was removed from the official EBRD site. Bank repeatedly postponed the consideration of this issue in its Board of Directors and the last target date for its consideration was April 9, 2014. Initially the Bank planned to endorse the loan on 16 October and later started to postpone the terms due to the situation around the project.

EBRD estimated the cost of the project planned to be financed by EBRD and commercial banks at the level of $5.3 bn. EBRD considered the possibility of providing $150 million loan for that project. The main problems of this project are associated today with the claims of Buhar Energy, which earlier received the right for the territory later allotted for the refinery. SOCAR plans to solve these problems applying to the special law on priority infrastructure projects, adopted in Turkey. The Company set the date of March 31 as the deadline for expressing the interest in project financing. The refinery capacity will be 10 millions tons per annum (213 million barrels). It will produce petrochemical output in accordance with euro 5 standards.

AZERBAIJAN CUTS POWER EXPORT

zerbaijan exported 155.35 million kilowatt hours of electricity in January-February 2014 according to a customs declaration compared to 232.96 million kilowatt hours in January-February 2013, the Azerbaijani State Customs Committee reported. Azerbaijan exported electricity totaling $7.17 million in January-February compared to $9.18 million in the same period of 2013. Azerbaijan exported over 595.67 million kilowatt hours of electricity according to a customs declaration in 2013 compared to 482.7 million

kilowatt hours in 2012. Azerbaijan exported electricity totaling $24.85 million in 2013 compared to about $24.76 million in 2012. The power stations of Azerenergy JSC (engaged in the production and distribution of electricity in Azerbaijan) generated nearly 2.2 billion kilowatt hours of electricity in January 2014 compared to over 2.1 billion kilowatt hours in January 2013. The capacity of power plants owned by Azerenergy JSC exceeds 6,000 megawatts. The JCS has over 200 substations with capacity of 500, 330, 220 and 110 kV / amp, as well as eight hydroelectric plants and 13 thermal power plants.

AZERBAIJAN CUTS CAR IMPORT

zerbaijan imported 13,162 vehicles in January -February 2014 compared to 14,091 in the same period of 2013, the Azerbaijani State Customs Committee reported. Some 11,998 vehicles out of total volume of imported ones accounted for cars and motor vehicles, designed for passenger transportation, according to the committee’s message. This figure amounted to 12,856 in January -February 2014.

In total Azerbaijan imported 104,385 vehicles in 2013 compared to 101,255 in 2012. Some 94,879 vehicles out of total volume of imported ones accounted for cars and motor vehicles for passenger transportation, versus 89,652 vehicles in 2012. Also, the country imported 512 trucks in January 2014versus 452 in the same period of 2013. The remaining vehicles imported in January accounted for other types of vehicles. In 2013, the country imported 7,823 trucks compared to 9,433 in 2012.

SOCAR WORKS TO DEVELOP ADVANCED WELDING TECHNOLOGIES

zerbaijan’s state energy company SOCAR conducts active work on the development of advanced welding technologies, which are the important component of the oil and gas sector. This remark was made by SOCAR official Khalig Mammadov on March 18 during a seminar titled “New technologies and materials of welding production in industry”. He noted currently, SOCAR subdivisions employ over 2,000 specialists in the field of welding. The development of this area is of great importance in terms of implementation of large-scale projects in the country. In particular, in the framework of implementation of the second stage of development of giant Shah Deniz gas condensate field in the Azerbaijani sector of the Caspian Sea will create around 15,000 working places, 4,0005,000 of which will fall to welder-specialists, Mammadov noted. Also, the specialists will play an important role in implementation of the project on construction of a new complex for oil and gas processing and production of petrochemical

goods, Mammadov added. The Shah Deniz field, one of the world’s largest gas-condensate fields, was discovered in 1999. The field has proved to be a secure and reliable supplier of gas to Azerbaijan, Georgia, Turkey, and Europe. The gas that will be produced in the second stage of Shah Deniz field’s development project will be the main source of supplying the Southern Gas Corridor. The Corridor envisages transferring Caspian gas to European markets. Azerbaijan’s energy giant SOCAR is involved in exploring oil and gas fields, producing, processing, and transporting oil, gas, and gas condensate, marketing petroleum and petrochemical products in domestic and international markets, and supplying natural gas to Azerbaijan’s industry and public.

IMF SUPPORTS MEASURES TO LIMIT CONSUMER LENDING IN AZERBAIJAN

he International Monetary Fund (IMF) supports the measures aimed at limiting the consumer lending in Azerbaijan. The news was announced by Head of the IMF mission to Azerbaijan Raja Almarzoqi on March 17 at a press conference dedicated to Article IV of the IMF establishment agreement. “We appreciate the aspiration of the Central Bank of Azerbaijan (CBA) to preserve the neutrality of the monetary policy, as well as its initiatives to limit the growth of consumer lending as correct. At the same time, the consequences of such measures should be controlled. Recent actions taken by the Central Bank to strengthen the financial control rules will support financial stability. But there is a need for additional measures to improve the endurance of the system,” he said. Almarzoqi also noted that the rapid growth of consumer lending mainly creates risks for borrowers. “In this regard, a decrease in the share of consumer loans would be beneficial amid the increase in the share of lending to the private sector and SME,” he said. “There are very high interest rates in the consumer lending segment and, as a consequence, the margin of banks. Of course, the limitation of this segment does not mean that the banks will immediately start lending to businesses. But if one limits the profitability, the banking sector will begin to look for other opportunities to gain profit.” The final report of the Mission following the consultations on Article IV, which is held annually on a regular basis, will be published in late May. Almarzoqi went on to say that Azerbaijan’s successful debut placement of sovereign Eurobond in the background of the market environment in the region shows the investors’ confidence in the fact that the management of oil revenues is performed in a balanced way. “The main challenge facing the country is to reduce dependence on oil revenues and give an impetus to the development of private sector as

the driving force of the diversified economic growth,” he stressed. He also noted that the country’s short-term economic prospects are favorable. “The non-oil sector is expected to grow to eight percent of the GDP and the inflation is expected to remain at one-digit level in 2014-2015. The main risk is a possible reduction in oil prices,” he noted. Almarzoqi also said the IMF supports the tougher fiscal policy envisaged in the state budget for the current year. “The goal is to consolidate the budget and reduce dependence on oil revenues by means of further decline in transfers from the State Oil Fund of Azerbaijan (SOFAZ). The revenues of the state budget generated by the private sector should grow. It will facilitate the creation of a strong buffer for the national economy in case oil prices fall,” he said. Almarzoqi also highlighted the need to cut public spending. “This can be achieved by increasing the efficiency of state investment, and determining the priority of various large-scale investment projects. If the business climate continues to develop in this background, then the economic growth of Azerbaijan will grow healthier,” he added. The visit of the IMF mission to Baku started on March 4, and continued until March 17. The visit was aimed at holding consultations with the Azerbaijani government on Article IV of the IMF establishment agreement. Azerbaijan has cooperated with the IMF since September 18, 1992. IMF loans were allocated to Azerbaijan within six programs, but cooperation with the IMF has been at the level of consultation since 2005, as the Azerbaijani government has refused to receive loans from the fund. The IMF office opened in Baku in 1992. Although its staff has been reduced since 2009, it has remained an important partner for the Azerbaijani government. It is noteworthy that cooperation between Azerbaijan and the IMF played an important role during the global economic and financial crisis.

BP ANNOUNCED ABOUT COMPLETION OF DRILLING 5 PRODUCTION WELLS WITHIN SHAH-DENIZ-2

he Stage 2 of Shah-Deniz gas and condensate field development in Azerbaijani sector of the Caspian Sea has been accelerated. According to BP Azerbaijan (technical Operator of the project), the Istiglal drilling rig has completed drilling the latest well in the northern part of the field, meaning that five production wells have now been drilled.

“Additionally, an upgrade and recertification programme has been successfully completed on the Heydar Aliyev rig, which has now returned to drilling activities in the western part of the field”, - BP informed. These two rigs will remain working on the Shah Deniz field to deliver all the wells required to ramp production up to the planned plateau level of 16 billion cubic metres per year.

12 LATVIA COULD LOSE 10% OF GDP FROM SANCTIONS AGAINST RUSSIA– PM

ny economic sanctions against Russia could adversely affect the economy of Latvia, which could lose up to 10 percent of its GDP, said Latvian Prime Minister Laimdota Straujuma. “This is the worst case scenario, where completely everything stops. I think so far this is unreal,” the PM added. Latvian Minister of Economic Affairs Vyacheslav Dombrovsky had warned that Latvia would be the worst hit EU member from cutting ties with Russia. The country’s President Andris Berzins also said he was against the sanctions. About 10 percent of Latvian exports go to Russia, according to Reuters.

UKRAINIANS WORKING IN RUSSIA MADE $20 BN – PUTIN

here are about 3 million Ukrainians working in Russia, said President Vladimir Putin in his Tuesday address to the Federal Assembly on the integration of Crimea into the Russian Federation. Those people made a total of $20 billion last year, which is 12 percent of Ukraine GDP, Putin said. Putin’s speech follows Sunday referendum in Crimea, where about 97 percent voted for joining Russia. In his address Putin stressed the strong ties between Russia and Ukraine, both historic and economic.

PRICE TAG FOR RUSSIAN GAS TO UKRAINE COULD RISE TO $500

he price of Russian gas to Ukraine could rise to $500 per 1,000 cubic meters, as future developments in relations between Moscow and Kiev remain vague. From April 1 the price Ukraine pays for Russian gas will go up to $360-$370 per 1,000 cubic metres, after Russia cancelled the discount agreed in late December, Pavel Zavalny, the head of Russian Gas Society told Izvestia newspaper. In the worst case scenario, and Ukraine decides to take over Russian property, as well as new threats from radical nationalists, the price could jump to as high as to $500, the paper added. Such a price rise may take place if the Kharkov agreement of 2010 is cancelled. Under its terms, Russia allowed a $100 discount to Ukraine for keeping its fleet in the Crimea, Izvestia quotes its source in Gazprom as saying. “The discount of $100 was connected with the Russian fleet’s stay in the territory of Ukraine. Now, when circumstances change, it’s a big question, whether we can keep it in the future,” the Minister of Energy of Ukraine Yury Prodan said. Gazprom has until April 10 to decide a new price. Earlier this month Gazprom CEO Aleksey Miller said he didn’t want a gas war with Ukraine, but insisted Ukraine’s Naftogaz needs to follow the terms of the contract and pay the outstanding $1.8 billion debt.

CIS caucasian business week

March 24, 2014 #47

CRIMEA’S ECONOMY IN NUMBERS AND PICTURES

s the clock ticks down to Crimea’s March 16 referendum, where residents will vote to align with Russia or to stay in Ukraine, RT looks at what the sunny Black Sea peninsula can offer economically and what ties it has with Moscow and Kiev. At first glance, Crimea has certain problems - a lack of energy, and more dangerously, freshwater resources. The republic’s annual GDP is only $4.3 billion - 500 times smaller than the size of Russia’s $2 trillion economy. Whatever the results of the referendum are, fixing the dilapidated state of infrastructure and transport could offer a real investment opportunity for both Russian companies and Crimean entrepreneurs. TOURISM The backbone of Crimea’s local economy is its bustling tourist industry, which draws in 6 million visitors per year during the summer season. But currently, 70 percent of the tourists are from Ukraine, and only 25 percent from Russia. Political rifts between Russia and Ukraine could turn off tourists, with tourism expected to drop by 30 percent this year. However, if Crimea becomes a part of Russia it’ll become a more attractive holiday destination for Russia’s population of 142 million, whose per capita income is more than three times Ukrainians’, according to World Bank estimates. The average Ukrainian salary was 3,148 hryvna per month ($331) in February 2014, according to the Ukrainian Bureau of Statistics. In Crimea, the average is 2,693 hryvna ($283), whereas in Kiev, workers make nearly double, 4,783 hryvna ($503).

economy for the better. Aksyonov cited Singapore, which is an independent city-state, as an example to follow. “For me, Singapore is a style icon. This is a city with 2 million people and has an area of 52 square kilometers, with a budget of $46 billion. These days, Crimea has 26,000 square kilometers, 2 million people, and a budget of $500 million. In my opinion, all in all, we are capable of doing this ourselves, and can independently solve a lot of issues and at the very least, achieve a three- to four-fold increase in the budget,” Aksyonov told NTV on March 9. Singapore is situated beneath Malaysia, and is predominantly ethnic Chinese. The region declared independence from Britain in 1963, and after a brief unity stint with Malaysia, became its own city state in 1965, and has since developed into a business and commercial hub, and an in-

ternational finance center. Before, its only claim to fame was being Britain’s biggest naval base in South Asia. Crimea may not follow the same success path, but an option to boost growth is to make Crimea a special economic zone – with less taxes and financial regulation – which could spur growth and attract foreign investment. In 2005, Russia passed a law that allows for special economic zones, and has toyed with setting one up in the Far East, but so far, none have been established. Crimea was part of the Russian republic in the Soviet Union until 1954, when it was handed over the Ukrainian republic by Nikita Khrushchev, who lived in Ukraine and married a Ukrainian. Upon the collapse of the Soviet Union in 1991, Crimea, even though majority ethnically Russian, became part of the newly independent Ukraine.

OIL AND GAS PRIZE The big economic prize in Crimea lies to the south, in the Black Sea natural gas fields. Extraction from these fields has the potential to be substantial - up to 7 million tons in annual production capacity, by Bloomberg estimates. US ExxonMobil and UK/Dutch Shell have also been in talks with Ukraine about deepwater offshore oil drilling, but the only problem is, all this oil is located under Crimean waters. The deal is estimated at $1 billion. ExxonMobil’s Black Sea offshore plans are currently on hold, senior vice president Andrew Swiger told investors at an early March meeting. On Thursday, Crimea’s authorities took under their umbrella Ukrainian oil and gas fields in the Black and Azov seas, according to the speaker of Crimea’s parliament, Vladimir Konstantinov. He supports Russia’s Gazprom taking control of the oil and gas assets. “Russia, and Gazprom, should take care of the oil and gas production. It’s not our issue,” RIA reported Konstantinov as saying. SECOND SINGAPORE? Sergey Aksyonov, Crimea’s prime minister and an advocate of joining Russia, has the hope that breaking away from Ukraine will transform the

RUSSIAN STOCKS REBOUND AFTER CRIMEA CHOOSES TO BREAKAWAY

tocks in Russia shrugged off fears of a market collapse after the Crimea referendum, as they opened higher on Monday. Analyst say domestic investors view possible Western sanctions as purely symbolic, as they don’t concern corporate assets. Both Russian key indices – the RTS and the MICEX - opened higher on Monday, with the dollar –denominated RTS adding 1.13 percent at midday, Moscow time, and the ruble-denominated MICEX up 1.17 percent. Experts say all major investor fears had already been priced into Russian stocks prior to the Crimea referendum, as the country’s market were pretty volatile and pessimistic over the last two weeks. “For the time being there is nothing new: they carried out the referendum, they haven’t yet announced sanctions. Simply for the time being, there are Russian investors who are buying in the belief that there is a bright future,” Dmitry Ryzhkov, a trader at Renaissance Capital told Reuters.

The US and the EU have been repeatedly threatening Russia with sanctions, which so far look mostly political. The German newspaper Bild said on Friday that about 100 leading Russian officials could face visa restrictions. “Of course there will be sanctions from the West, but for the time being they concern officials and not corporate assets,” Oleg Dushin, Zerich Capital analyst, wrote in a note to Reuters. The US and European Union foreign ministers are meeting in Brussels later on Monday to discuss sanctions against Russia, that are largely expected to deal mostly with visa bans and a possible asset freeze. However, given the western strong dependence on Russia’s oil and gas, any economic sanctions could seriously bite back, Jeff Sahadeo, director of Carleton University’s Institute of European, Russian and Eurasian Studies told Bloomberg. If the West “puts down the card of energy sanctions, it becomes a question of who blinks first,” he said.

On Monday the Russian ruble has lost against the dollar, while strengthening against the euro. The ruble stood at $36.6 per dollar and went up to 50.8 against the euro, according to the Central Bank of Russia. On Sunday, the citizens of Crimea overwhelmingly voted for joining Russia, with 96.77 percent saying they would want to rejoin the country, rather than remain a part of Ukraine and return to the Ukrainian Constitution of 1992.

WORLD NEWS March 24, 2014 #47

caucasian business week

SANCTIONS ON RUSSIA: WOULD WORLD CUP BOYCOTT HIT HARDER?

uropean leaders are meeting in Brussels Thursday to discuss further sanctions against Russia. So far the EU has imposed financial and visa restrictions against 21 carefully selected Russian and Ukrainian officials -- but avoided anyone from President Vladimir Putin’s inner circle and stayed clear of any largescale economic sanctions. The EU and U.S. have condemned Russian annexation of Crimea as illegal and stepped up their rhetoric towards the Kremlin, but whether they are willing to put more economic pressure on Russia is unclear. The leaders of Europe’s biggest economies are likely to be cautious. HOW IMPORTANT IS RUSSIA’S ECONOMY? Russia is the eight biggest economy in the world, with GDP of more than $2 trillion. But its economy -- which is heavily reliant on commodities, particularly oil and gas, was growing just 1.3% last year compared to 2012, one of the sharpest slowdowns in the emerging markets. With the Ukraine crisis taking its toll, Russia’s economy may not grow at all in 2014, some analysts have warned. Hopes Russia would be one of the decade’s powerhouse economies may have faded, but its close links with the European Union have not.

says the sanctions would hurt both sides. “Between great powers, leverage is a two-way street, Russia can squeeze us almost as effectively as we can squeeze them,”Pape wrote for CNN. While steps that would push the price of oil down for a sustained period would really bite, these would be hitting right back. Energy supplies remain vitally important for the European Union, to which Russia supplies a third of EU’s natural gas. Germany, the eurozone’s biggest economy, imports around 40% of its gas from Russia. WHAT IS RUSSIA’S ECONOMIC RELATIONSHIP WITH THE U.S? The economic relationship between Russia and the U.S. is more unbalanced. Russia is the 20th largest trading partner for the U.S., with $27 billion worth of trade exported across the Atlantic. On the flip-side, the U.S. is Russia’s fifth largest partner, with just $11 billion worth of trade. According to Russian Foundation chair David Clark, trade is a “relatively unimportant” component of relations. Energy links are also weakening as the U.S. looks to shale gas for its energy supplies and heads towards self-sufficiency. Clark told CNN the U.S. could get greater leverage over Russia from financial sanctions aimed at

the country’s banking system and stability of the ruble. Measures targeted at named individuals, similar to those contained in the Magnitsky Act, could also be effective. “Russia’s angry response to the act shows that it works,” Clark said. But again, the financial links between Russia and the west would mean huge losses for European banks which have lent billions to Russia. While the EU and U.S. adopted sanctions against 28 individuals, Clark said these “have little more than nuisance value and would have to be dramatically expanded to have a real impact.” “Travel bans and asset freezes aimed at all members of the Duma and Federation Council who voted to annex Crimea would be a start,” Clark said. Targeting the money men who handle the finances and assets (often illicit) of top tier politicians would really hurt, he added. And the names of these individuals are quite well known. But again, the financial links between Russia and the west would mean huge losses for European banks which have lent billions to Russia. ARE THERE OTHER OPTIONS? The EU has a wide range of legal options here. Its economic significance means sanctions can be very powerful tool. Export and import bans or restrictions that apply to specific products such as oil or diamonds, flights restrictions or investment freezes have been successful in the past. “Restricting access to foreign capital and the international banking system could prove very damaging indeed because Russia’s economy is stagnating and it needs inward investment,” Clark said. But experience shows that economic sanctions rarely work in the pursuit of non-economic goals. “Imposing economic sanctions on a state is similar to backing an angry dog into a corner -in most cases, the dog will become more vicious, and more defensive,” Pape said. At the end, targeting Russia’s national pride may prove more useful. “A decision by a large group of countries to boycott the 2018 Football World Cup in Russia would probably hurt Russian prestige rather more, especially if FIFA had to move the event to another country,” David Clark said.

WOULD SANCTIONS HIT EUROPE BACK? The EU is Russia’s largest trading partner, and there are deep economic links between the two. Almost half of Russia’s exports -- $292 billion worth -- end up in EU countries. 15% of Russia’s GDP comes directly from the country’s exports to EU. Russia, in turn, is the third biggest trading partner for the EU, with $169 billion in imports. But the eurozone itself has only just emerged from its own crisis, and is wary of cutting ties with such a powerful economic partner. Its reliance on gas out of Russia would also feed caution. Robert Pape, political science professor at University of Chicago with expertise in security studies,

SAFETY FIRST: TOYOTA TO PAY RECORD $1.2BN FINE

he US Justice Department has imposed a $1.2 billion fine on Toyota for misinforming customers about safety issues. The deal put an end to a four-year criminal investigation, which is the largest to date against the auto maker. Toyota reached an agreement with the US Attorney’s Office to resolve the investigation which began in February 2010. It relates to the company’s 2009-2010 recalls to address potential “sticking” accelerator pedals and floor mat entrapment in Lexus and Toyota models, says the manufacturer’s statement. Toyota recalled some cars after US authorities started an investigation blaming at least five deaths on the defect.

“At the time of these recalls, we took full responsibility for any concerns our actions may have caused customers, and we rededicated ourselves to earning their trust,” said Christopher P. Reynolds, Chief Legal Officer for Toyota Motor North America.“In the more than four years since these recalls, we have gone back to basics at Toyota to put our customers first.” “Toyota addressed the sticky pedal and floor mat entrapment issues with effective and durable solutions, and we stand behind the safety and quality of our vehicles,” he added. However government officials consider the number of recalled cars should be bigger. According to them, the manufacturer was worried about spoiling its reputation and concealed the real scale of the flaws.

Apart from the fine Toyota will be obliged to warn the public about all the revealed defects. The agreement also provides for an independent monitor to review policies and procedures relating to Toyota’s safety communications process. The measures come after the giant US vehicle manufacturer General Motors recalled 1.5 million cars in connection with airbag wiring harnesses, brake parts and other components across several models. Last month GM recalled more than 1.6 million cars due to faulty ignition switches, 13 years after first noticing the issue, which has been linked to a dozen deaths. The manufacturer estimates a loss of $300 million in Q1 2014.

RUSSIA’S RICHEST MAN USMANOV DITCHES APPLE AND FACEBOOK FOR CHINA

ussia’s biggest billionaire has bought shares in big Chinese internet retailer Alibaba, after selling his stakes in US tech giants Apple and Facebook. The deal comes as the West imposes sanctions on Russia, that could spread from politics to business. Usmanov, 60, a founder of Russia’s iron ore Metalloinvest holding company, has an estimated fortune of $18.6 billion as of March 2014 and is increasing his bet on China, while selling American assets. “Chinese companies account for about 70 percent to 80 percent of the portfolio of our foreign internet investments,” Ivan Streshinskiy, head of Usmanov’s asset-management company USM Advisors LLC, told Bloomberg in an interview in Moscow. In the last few months Usmanov sold the stake in Apple he bought for about $100 million last year, Streshinskiy said.Prior to the Apple sale the Russian tycoon started a gradual sale of his 10 percent stake in Facebook he bought in 2009, when the company was valued between $6 billion and $10 billion. Usmanov sold some of the shares in the Facebook IPO, that valued the company at $104 billion. Alibaba, the world’s second biggest internet company after Google Inc., is valued at about $200 billion, as Bloomberg cites an investment bank data. The Chinese on-line retailer posted surging sales in the three months through September, marking fourth straight quarterly profit. CHINA’S SAFE HARBOR As Russia’s relations with the west sour over the Crimea referendum and the crisis in Ukraine, Usmanov says his Metalloinvest holding would increase its presence in the Chinese market, in case Europe imposes sanctions on its exports. “We are concerned with the possible sanctions against Russia but don’t see any dramatic repercussions for our business,” Streshinskiy said. “China is unlikely to impose any sanctions. So, we will be trading in rubles, yuan, Hong Kong or Singapore dollars.” On Monday the EU and the US imposed sanctions against some leading Russian officials, which include visa bans and asset freezes for presidential aide Vladislav Surkov and presidential adviser Sergey Glazyev. No Russian corporate assets have so far been affected. China is one of Russia’s biggest trading partners, with bilateral trade estimated at a record $87.5 billion in 2012. Over the past years the two countries have been actively strengthening economic ties, with direct investment by Chinese companies into Russia increasing 40 times, to reach S4.9 billion between 2004 and 2012, according to Tang Hua, an official with China’s National Development and Reform Commission. TAKING AN INVESTMENT OPPORTUNITY IN A CRISIS One of Russia’s key indices - the MICEX – has lost about 15 percent since the start of the unrest in Ukraine and the protests in Kiev. Though on Monday Russia’s exchanges reacted positively to the results of the Crimea referendum, they could see a further fall in the longer term, Streshinskiy said. If this is the case, Usmanov may buy some shares of the wireless operator MegaFon and internet company Mail. ru Group. “Mail.ru and MegaFon revenue is coming from Russia and people won’t stop making calls and using the internet,” Streshinskiy said. “If the events further escalate, we will be buying shares. A crisis is always a good opportunity as valuations become cheap.”

PUBLICITY caucasian business week

March 24, 2014 #47

TBILISI GUIDE March 24, 2014 #47

Embassy United States of America Embassy 11 Balanchivadze St., Dighomi Dstr., Tbilisi Tel: 27-70-00, 53-23-34 E-mail: tbilisivisa@state.gov; askconsultbilisi@state.gov United Kingdom of Great Britain and Northern Ireland Embassy 51 Krtsanisi Str., Tbilisi, Tel: 227-47-47 E-mail: british.embassy.tbilisi@fco.gov.uk Republic of France Embassy 49, Krtsanisi Str. Tbilisi, Tel: 272 14 90 E-mail: ambafrance@access.sanet.ge Web-site: www.ambafrance-ge.org Federal Republic of Germany Embassy 20 Telavi St. Tbilisi Tel: 44 73 00, Fax: 44 73 64 Italian RepublicEmbassy 3a Chitadze St, Tbilisi, Tel: 299-64-18, 292-14-62, 292-18-54 E-mail: embassy.tbilisi@esteri.it Republic of Estonia Embassy 4 Likhauri St., Tbilisi, Tel: 236-51-40 E-mail: tbilisisaatkond@mfa.ee Republic of Lithuania Embassy 25 Tengiz Abuladze St, Tbilisi Tel: 291-29-33 E-mail: amb.ge@urm.lt Republic of Latvia Embassy 16 Akhmeta Str., Avlabari, 0144 Tbilisi. E-mail: embassy.georgia@mfa.gov.lv Greece Republic Embassy 37. Tabidze St. Tbilisi Tel: 91 49 70, 91 49 71, 91 49 72 Czech RepublicEmbassy 37 Chavchavadze St. Tbilisi Tel: 291-67-40/41/42 E-mail: czechembassy@gol.ge Web-sait: www.mzv.cz Japan Embassy 7 Krtsanisi St. Tbilisi Tel: 75 21 11, Fax: 75 21 20 Kingdom of Sweden Embassy 15 Kipshidze St. Tbilisi Tel: +995 32 2 55 03 20 , Fax: +995 32 2 22 48 90 Kingdom of the Netherlands Embassy 20 Telavi St. Tbilisi Tel: 27 62 00, Fax: 27 62 32 People’s Republic of China Embassy 52 Barnov St. Tbilisi Tel: 225-22-86, 225-21-75, 225-26-70 E-mail: zhangling@access.sanet.ge Republic of Bulgaria Embassy 15 Gorgasali Exit, 0105 Tbilisi, Georgia Tel: +995 32 291 01 94; +995 32 291 01 95 Fax: +99 532 291 02 70 Republic of Hungary Embassy 83 Lvovi Street, Tbilisi Tel: 39 90 08; E-mail: hunembtbs@gmail.com State of Israel Embassy 61 Agmashenebeli Ave. Tbilisi Tel: 95 17 09, 94 27 05 Embassy of Swiss Confederation’s Russian Federation Interests Section Embassy 51 Chavchavadze Av., Tbilisi Tel: 291-26-45, 291-24-06, 225-28-03 E-mail: RussianEmbassy@Caucasus.net Ukraine Embassy 75, Oniashvili St., Tbilisi Tel: 231-11-61, 231-12-02, 231-14-54 E-mail: ukraina_pu@wanex.net; emb_ge@mfa.gov.ua Consular Agency: 71, Melikishvili St., Batumi Tel: (8-88-222) 3-16-00/ 3-14-78 Republic of Turkey Embassy 35 Chavchavadze Av., Tbilisi Tel: 225-20-72/73/74/76 E-mail: turkemb.tbilisi@mfa.gov.tr Address: 8, M. Abashidze str. Batumi, Georgia tel: (8-88-222) 7 47 90 Republic of Azerbaijan Embassy Kipshidze II-bl . N1., Tbilisi Tel: 225-26-39, 225-35-26/27/28 E-mail: tbilisi@mission.mfa.gov.az Address: Dumbadze str. 14, Batumi Tel: 222-7-67-00 Fax: 222-7-34-43 Republic of Armenia Embassy 4 Tetelashvili St. Tbilisi Tel: 95-94-43, 95-17-23, 95-44-08 E-mail: armemb@caucasus.net Web: www.armenianembassy.ge Consulate General, Batumi Address: Batumi, Gogebashvili str. 32, Apt. 16

caucasian business week Kingdom of Spain Embassy Rustaveli Ave. 24, I floor, Tbilisi Tel: 230-54-64 E-mail: emb.tiflis@maec.es Romania Embassy 7 Kushitashvili St., Tbilisi Tel: 38-53-10; 25-00-98/97 E-mail: ambasada@caucasus.net Republic of Poland Embassy 19 Brothers Zubalashvili St., Tbilisi Tel: 292-03-98 Email:tbilisi.amb.sekretariat@msz.gov.pl Web-site: www.tbilisi.polemb.net Republic of Iraq Embassy Kobuleti str. 16, Tbilisi Tel: 291 35 96; 229 07 93 E-mail: iraqiageoemb@yahoo.com Federative Republic of Brazil Embassy Chanturia street 6/2, Tbilisi Tel.: +995-32-293-2419 Fax.: +995-32-293-2416 Islamic Republic of Iran Embassy 80, I.Chavchavadze St. Tbilisi, Tel: 291-36-56, 291-36-58, 291-36-59, 291-36-60; Fax: 291-36-28 E-mail: iranemb@geo.net.ge United Nations Office Address: 9 Eristavi St. Tbilisi Tel: 225-11-26/28, 225-11-29/31 Fax: 225-02-71/72 E-mail: registry.geo@undp.org Web-site: www.undp.org International Monetary Fund Office Address : 4 Freedom Sq., GMT Plaza, Tbilisi Tel: 292-04-32/33/34 E-mail: kdanelia@imf.org Web-site: www.imf.ge Asian Development Bank Georgian Resident Mission Address: 1, G. Tabidze Street

Freedom Square 0114 Tbilisi, Georgia Tel: +995 32 225 06 19 E-mail: adbgrm@adb.org; Web-site: www.adb.org World Bank Office Address : 5a Chavchavadze Av., lane-I, Tbilisi, Georgia Tel: 291-30-96, 291-26-89/59 Web-site: www.worldbank.org.ge Regional Office of European Bank for Reconstruction and Development Address: 6 Marjanishvili St. Tbilisi Tel: 244 74 00, 292 05 13, 292 05 14 Web-site: www.ebrd.com Representation of the Council of Europe in Georgia Address : 26 Br. Kakabadze, Tbilisi Tel: 995 32 291 38 70/71/72/73 Fax: 995 32 291 38 74 Web-site: www.coe.ge

Hotels in Georgia TBILISI MARRIOTT Tbilisi , 13 Rustaveli Ave. Tel: 77 92 00, www.marriott.com COURTYARD MARRIOTT Tbilisi , 4 Freedom Sq. Tel: 77 91 00 www.marriott.com RADISSON BLU HOTEL, TBILISI Rose Revolution Square 1 0108, Tbilisi Tel: +995 32 402200 radissonblu.com/hotel-tbilisi RADISSON BLU HOTEL, BATUMI Ninoshvili Str. 1, 6000 Bat’umi, Georgia Tel: 8 422255555 http://radissonblu.com/hotel-batumi SHERATON METECHI PALACE Tbilisi , 20 Telavi St. Tel: 77 20 20, www.starwoodhotels.com SHERATON BATUMI 28 Rustaveli Street • Batumi Tel: (995)(422) 229000 www.sheratonbatumi.com HOLIDAY INN TBILISI Business hotel Addr: 1, 26 May Square Tel: +995 32 230 00 99 E-mail: info@hi-tbilisi.com Website: http://www.hi-tbilisi.com BETSY’S HOTEL With Marvellous Tbilisi Views Addr: 32/34 Makashvili St. Tbilisi Tel: +995 32 293 14 04; +995 32 292 39 96 Fax: +995 32 99 93 11 E-mail: info@betsyshotel.com Website: http://www.betsyshotel.com

Restaurants CHARDIN 12 Tbilisi , 12 Chardin St. , Tel: 92 32 38 CHINA TOWN Tbilisi , 44 Leselidze St. (ent. from Chardin St.) Tel: 43 93 08, 43 93 80, Fax: 43 93 08 BREAD HOUSE Tbilisi , 7 Gorgasali St. , Tel: 30 30 30 BUFETTI - ITALIAN RESTAURANT Tbilisi , 31 I. Abashidze St. , Tel: 22 49 61 DZVELI SAKHLI Tbilisi , 3 Right embankment , Tel: 92 34 97, 36 53 65, Fax: 98 27 81 IN THE SHADOW OF METEKHI Tbilisi , 29a Tsamebuli Ave. , Tel: 77 93 83, Fax: 77 93 83 PICASSO Tbilisi , 4 Miminoshvili St. , Tel: 98 90 86 SAKURA - JAPANESE RESTAURANT Tbilisi , 29 I. Abashidze St. , Tel: 29 31 08, Fax: 29 31 08 SIANGAN - CHINESE RESTAURANT Tbilisi , 41 Peking St , Tel: 37 96 88 VERA STEAK HOUSE Tbilisi , 37a Kostava St , Tel: 98 37 67 BELLE DE JOUR 29 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 VONG 31 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 BRASSERIE L’EXPRESS 14 Chardin str, Tbilisi Tel: (+995 32) 230 30 30 TWO SIDE PARTY CLUB 7 Bambis Rigi, Tbilisi Tel: (+995 32) 230 30 30 LOFT 11. I. Mosashvili str, Tbilisi Tel: (+995 32) 230 30 30 RESTAURANT NERO 21 Abano Street, Tbilisi Tel: (+995 32) 292 10 15

SH. RUSTAVELI STATE THEATRE Tbilisi. 17 Rustaveli Ave. Tel: 93 65 83, Fax: 99 63 73 TBILISI STATE MARIONETTE THEATRE Tbilisi. 26 Shavteli St. Tel: 98 65 89, Fax: 98 65 89 THEATRE OF PANTOMIME Tbilisi. 37 Rustaveli Ave. Tel: 99 63 14, (77) 41 41 50 Z. PALIASHVILI TBILISI STATE THEATRE OF OPERA AND BALLET Tbilisi. 25 Rustaveli Ave. Tel: 98 32 49, Fax: 98 32 50

Galleries ART GALLERY LINE Tbilisi. 44 Leselidze St. BAIA GALLERY Tbilisi. 10 Chardin St. Tel: 75 45 10 GALLERY Tbilisi. 12 Erekle II St. Tel: 93 12 89 GEORGIAN NATIONAL MUSEUM - PICTURE GALLERY Tbilisi. 11 Rustaveli Ave. Tel: 98 48 14 KARVASLA’S EXHIBITION HALL Tbilisi. 8 Sioni St. Tel: 92 32 27, KOPALA Tbilisi. 7 Zubalashvilebi St. Tel: 99 99 02, Fax: 99 99 02 MODERN ART GALLERY Tbilisi. 3 Rustaveli Ave. Tel: 98 21 33, Fax: 98 21 33 M GALLERY Tbilisi. 11 Taktakishvili St. Tel: 25 23 34 ORNAMENT - ENAMEL GALLERY Tbilisi. 7 Erekle II St. Tel: 93 64 12, Fax: 98 90 13

Akhvledianis Khevi N13, Tbilisi, GE. +995322958377; +995599265432

Cinemas AKHMETELI Tbilisi. “Akhmeteli” Subway Station Tel: 58 66 69 AMIRANI Tbilisi. 36 Kostava St. Tel: 99 99 55, RUSTAVELI Tbilisi. 5 Rustaveli Ave. Tel: 92 03 57, 92 02 85, SAKARTVELO Tbilisi. 2/9 Guramishvili Ave. Tel: 8 322308080,

Theatres A. GRIBOEDOV RUSSIAN STATE DRAMA THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 93 58 11, Fax: 93 31 15 INDEPENDENT THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 98 58 21, Fax: 93 31 15 K. MARJANISHVILI STATE ACADEMIC THEATRE Tbilisi. 8 Marjanishvili St. Tel: 95 35 82, Fax: 95 40 01 M. TUMANISHVILI CINEMA ACTORS THEATRE Tbilisi. 164 Agmashenebeli Ave. Tel: 35 31 52, 34 28 99, Fax: 35 01 94 METEKHI – THEATRE OF GEORGIAN NATIONAL BALLET Tbilisi. 69 Balanchivadze St. Tel: (99) 20 22 10 MUSIC AND DRAMATIC STATE THEATRE Tbilisi. 182 Agmashenebeli Ave. Tel: 34 80 90, Fax: 34 80 90 NABADI - GEORGIAN FOLKLORE THEATRE Tbilisi. 19 Rustaveli Ave. Tel: 98 99 91 S. AKHMETELI STATE DRAMATIC THEATRE Tbilisi. 8 I. Vekua St. Tel: 62 59 73

THE BEST GEORGIAN HONEY OF CHESTNUTS,ACACIA AND LIME FLOWERS FROM THE VERY HART OF ADJARA MATCHAKHELA GORGE IN THE NETWORK OF GOODWILL, NIKORA AND SMART

PUBLICITY caucasian business week

March 24, 2014 #47