Caucasian Business Week #70

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October 06, 2014 #70

October 06, 2014, Issue 70

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BE INFORMED, DO BUSINESS

GEORGIA LIVO

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rab investment company Dhabi Group believes the Georgian economy has potential and is expressing hope in the country’s business-friendly environment.

SOCAR TAKES CONTROL OVER GEORGIAN ECONOMY

The 28th Confederation of AsiaPacific Chambers of Commerce and Industry (CACCI) conference Pg. 5

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AZERBAIJAN AZERBAIJAN LEADING COUNTRY IN CIS FOR FOREIGN INVESTMENT PER CAPITA

Any Businessman to be able to Expand within “Produce in Georgia” Program

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zerbaijan is leading among the countries of the Commonwealth of Independent States (CIS) in terms of foreign investment per capita. Pg. 10

CIS MOSCOW REJECTS KIEV’S ‘VIRTUAL’ GAS PRICE, SEEKS $3.9BN TO RESUME SUPPLIES

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ussia is ready to resume gas deliveries to Ukraine only after it pays $2 billion of its debt and makes a $1.9 billion advance payment for future supplies. Pg. 11

WORLD NEWS BANKS AND INVESTORS AWAKEN TO CATALAN INDEPENDENCE DEBATE

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he surge in political tensions between Spain and its Catalonia region has fuelled furious debate among the country’s political class. Pg. 13

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he State Oil Company of Azerbaijan (SOCAR) has taken a full control over Georgia’s fuel and natural gas market. Several weeks ago SOCAR’s monopolistic state on Georgia’s natural gas market showed clutches once again – the gas price rose at refueling stations and the price of one cubic meter of gas marked 1.1 GEL. Initially, SOCAR increased the natural gas price to competitor gas filling stations, but maintained the price in its own network unchanged. This step,

PASHA BANK FIRST AND THE ONLY BANK FROM GEORGIA TO ATTEND THE SIBOS Pg. 5

COMPANY NATAKHTARI – FIRST COMPANY IN CAUCASUS REGION TO OBTAIN HIGHEST ENERGY USAGE EFFICIENCY POLICY Pg. 5 FT: RESURGENCE OF GEORGIA’S VITICULTURAL HERITAGE EXCITES WINE CONNOISSEURS Pg. 6

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as a result of its monopolistic state in Georgia, has aggravated the condition of the competitor companies. Major part of them became bankrupt, part of gas filling stations closed, while another part was appropriated by SOCAR. As a result of absence of an antitrust service in Georgia, SOCAR resorted to a classical scheme to prevail over competitors and strengthen its positions. As a result, the company increased prices due to its interests, contrary to the market principles. Pg. 2

Georgia Lacks for Qualified Workforce and We Invite them from China Pg. 4


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MAIN EVENTS caucasian business week

GOTSIRIDZE CONSIDERS THAT RESTORATION OF ANTIMONOPOLY SERVICE WILL END IN DISAPPOINTMENT

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ead of Economic Development Center Roan Gotsidirze considers that by “resuscitation” of antimonopoly service existing government of Georgia will be greatly frustrated and also there is danger that “stupidities” may be made through the service. Former president of National Bank of Georgia writes in social network Facebook that initiative to restore the service is kind of Soviet holdover trust to bureaucracy. “Is there any problem? Create any institution for its solution. Now special hopes are on the reanimated Antimonopoly Service. They will have a great frustration. There will not be what they expect. Then they will again blame bad law or head of the service. I’m sorry for him! The most dangerous in the history is that they will make him to do some follies”, - Roman Gotsiridze states.

LIVO’S LEMON JUICE WINS GOLDEN MEDAL IN KYIV

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IVO, a natural juices manufacturing Georgian company, has won a golden medal. Namely, LIVO produced lemon juice has won the medal at the WorldFood Ukraine 2014 tasting

competition. The company will be handed over the prize at the official award ceremony as part of the WorldFood 2014 exhibition on October 28. LIVO company has been founded by the Sales

Management Company. The enterprise appeared on the market two years ago. At this stage, the company supplies eight varieties of natural juices to the retail network. LIVO natural juices are produced by Citro plant in the Autonomous Republic of Achara, Georgia. Citro plant was constructed as part of the Millennium Challenge program. According to the Quality Lab report, LIVO juices are free of genetically modified organisms.

October 06, 2014 #70

THE GROSS EXTERNAL DEBT OF GEORGIA AS OF 30 JUNE 2014 AMOUNTED TO 13.1 BILLION USD

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ccording to the National Bank of Georgia, the gross external debt of Georgia as of 30 June 2014 amounted to 13.1 billion USD (22.8 billion GEL), which came to 80.4 percent of the last four quarters’ GDP. Of that total, public sector external debt was 5.3 billion USD (9.2 billion GEL) or 32.5 percent of GDP. A total of 4.1 billion USD (7.2 billion GEL) or 25.4 percent of GDP was the debt of the general government; the external liabilities of the National Bank amounted to 288.3 million USD (500.5 million GEL) or 1.8 percent of GDP; and the debt of public corporations was 833.5 million USD (1.5 billion GEL) or 5.4 percent of GDP. Banking sector external debt amounted to 2.6 billion USD (4.5 billion GEL) or 16.0 percent of GDP; other sectors’ external debt stood at 3.4 billion USD (5.9 billion GEL) or 20.8 percent of GDP; while 2.7 billion USD (4.7 billion GEL) or 16.6 percent of GDP was the debt of intercompany lending. A total of 93.7 percent of the gross external debt of Georgia was denominated in foreign currency. During the second quarter of 2014, the gross external debt of Georgia increased by 55.1 million USD (97.2 million GEL). Out of that, price changes and transactions led to an increase of gross external debt by 60.4 million USD (106.4 million GEL) and 15.9 million USD (28.0 million GEL) respectively. During the same period, exchange rate and other changes led to a decrease of gross external debt by 20.1 and 1.1 million USD (35.4 and 1.9 million GEL) respectively. External liabilities of the government sector decreased by 24.2 million USD (42.6 million GEL) during the second quarter of 2014. Transactions and exchange rate changes resulted in a decrease of government debt by 42.3 and 5.4 million USD (74.6 and 9.5 million GEL) respectively. While price changes led to an increase of 23.5 million USD (41.4 million GEL). External liabilities of the National Bank of Georgia decreased by 12.8 million USD (22.6 million GEL). This decline was almost totally a result of transactions, which totaled 12.9 million USD (22.7 million GEL). By the end of the second

quarter of 2014, the external debt of the National Bank of Georgia amounted to 288.3 million USD, of which 222.6 million USD are Special Driving Rights (SDR)1 which have no maturity date, therefore there is no obligations to repay them as long as Georgia is a member of the IMF. External liabilities of the banking sector increased by 19.7 million USD (34.8 million GEL), of which transactions and price changes led to an increase of 18.9 and 3.8 million USD (33.4 and 6.8 million GEL) respectively. At the same time, exchange rate changes decreased banking sector external debt by 3.0 million USD (5.3 million GEL). Other sectors’ external liabilities increased by 67.3 million USD (118.6 million GEL) during the reporting period. Of that amount, nonfinancial corporations’ debt grew by 50.8 million USD (89.6 million GEL), while the external liabilities of nonbanking financial corporations increased by 16.4 million USD (29.0 million GEL). Other sectors’ liabilities increased by 45.8 and 33 million USD (80.6 and 58.2 million GEL) due to transactions and price changes, respectively. Exchange rate and other changes led to a decrease of other sector debt liabilities by 6.8 and 4.7 million USD (12.0 and 8.3 million GEL) respectively. Intercompany lending increased by 5.1 million USD (9.0 million GEL) during the second quarter of 2014. Transactions and other changes led to growth of 6.4 and 3.7 million USD (11.3 and 6.5 million GEL) respectively; while exchange rate changes led to a decline of lending by 4.9 million USD (8.7 million GEL). Liabilities denominated in foreign currency increased by 69.9 million USD (123.1 million GEL) and amounted to 12.3 billion USD (21.4 billion GEL). At the same time, liabilities denominated in the national currency decreased by 14.7 million USD (25.9 million GEL) and totaled 831.5 million USD (1.4 billion GEL). The net external debt of Georgia totaled 8.5 billion USD (14.7 billion GEL or 51.9 percent of GDP) as of 30 June 2014. Net public sector external debt was 2.8 billion USD (4.8 billion GEL or 17.0 percent of GDP) and net private sector external debt was 5.7 billion USD (9.9 billion GEL or 34.9 percent of GDP).

SOCAR TAKES CONTROL OVER GEORGIAN ECONOMY

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OCAR has taken these steps thanks to its monopolistic positions on the market. The Azerbaijani company fully controls the diesel market, while the company ratio on the petrol market is over 80%. Consequently, SOCAR determines pricing policy on this market. The change of power was expected to bring revision of fuel prices, but, in reality, the Georgian government turned out a hostage of SOCAR’s interests. Despite downturn in international prices on fuel, artificially grown prices are maintained in Georgia as a result of cartel collusion on petrol and diesel products. Despite the fact fuel prices have been falling since January 2014 on international markets, in Georgia fuel prices started decreasing only several days ago by only 0.3 to 0.05 GEL. As soon as former Prime Minister Bidzina Ivanishvili came to power, he announced the new government would import cheap Turkmen gas to Georgia. According to certain information, this initiative was blocked by SOCAR. The situation is more complicated on the natural gas market, where SOCAR emerges as 100% monopolist, except the capital city residential

network. The Azerbaijani company has taken control over all segments of the market – imports, transit and supply. According to the Bank&Finances information, SOCAR is interested in Tbilisi gas distribution network too. A 100% stake in KazTransGas Tbilisi will be sold in 2015, according to the influential Kazakh edition Capital. KazTransGas launched operation in Georgia in 2006. Because of delayed debts a special manager was appointed in the company in 2009. Today the investor plans to sell the company. Negotiations are underway with some circles; including, SOCAR is mentioned in this case most often. The last scenario seems logic, because SOCAR owns regional networks in Georgia and the plans for taking control over Tbilisi network will further strengthen monopolistic positions on Georgia’s oil products and gas market. SOCAR will gain profits of billions of USD, while the state energy system will become dependent on one company (and on one country). As a result, a foreign country will further strengthen influence leverages on Georgia. Thus, the fact the Authorities have applied almost

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all mechanisms against KazTransGas Tbilisi, while SOCAR had got all directions open (on both retail and wholesale markets), as well as the information on SOCAR’s plans to purchase KazTransGas Tbilisi, creates doubts that this scenario is in line with collusion between the state Authorities and the Azerbaijani company so as SOCAR absorb KazTransGas Tbilisi. “Our energy dependency in terms of gas, in practice, is fully determined by SOCAR supplies. There are no natural gas standards in Georgia, because the state lacks for regulatory efficiency and SOCAR, in reality, as a sole exclusive monopolist, has no competitor in Georgia. The absence of competition, SOCAR’s dominating state, limits our choice and we have to be dependent on SOCAR goodwill and the honesty of the Azerbaijani company”, economic expert Levan Kalandadze noted. The pricing policy is one of the major problems in relation to SOCAR. The new government often makes statements on natural gas prices, but the information on purchase price of Azerbaijani natural gas still remains secret, as well as the information on Georgia’s preferences, as a natural gas transient country, and in general, it is interesting what are

the bilateral agreements between the countries over the issue. The concealing and ambiguity of information, naturally, serves the SOCAR’s interests, because it is the market monopolist. In this situation, it is surprising that several days ago SOCAR put forward a new initiative for taking full control over small gas distribution stations. The issue is of natural gas sales points for retail networks, where several small companies operate. According to the spread information, SOCAR plans to change the conditions for these small companies and increase the natural gas price again so as these companies be bankrupt and make them sell the existing stations. Supposedly, these stations will be handed over to SOCAR. It is simple to suppose what will be the result from further enlargement of the SOCAR’s monopoly. It is familiar picture. The Azerbaijani company practically robs Georgian citizens through increased prices on energy carriers. P.S. The competition agency will launch operation in several days. By the way, Google search engine contains no photos of Giorgi Barabadze, who was appointed as the agency head several months ago.

The weekly is distributed to top companies, banks, embassies, state sector, Tbilisi and Batumi hotels, Tbilisi, Batumi and Kutaisi Airports, as well as in the town of Marneuli. The newspaper will also penetrate Azerbaijan in the near future


PUBLICITY October 06, 2014 #70

caucasian business week

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BUSINESS caucasian business week

GEORGIA LACKS FOR QUALIFIED WORKFORCE AND WE INVITE THEM FROM CHINA Tbilisi will host the European Youth Olympic Festival in summer 2015. An Olympic village is being built at the Tbilisi Sea with residential complexes, restaurants, recovery centers, trading pavillions and other assets. The Olympic Village is being built by Chinese Hualing Group. Besides the Olympic Village, the company is also carrying out various business activities. Georgian Economy Minister Giorgi Kvirikashvili has recently visited China. During the visit the parties expressed intention to implement a new investment project in Georgia. Hualing Group plans to unveil a cattle-breeding farm and a meat processing enterprise in Georgia. On this and other interesting issues the CBW has interviewed VANG SINFU, a Hualing Group Georgia deputy director.

- How do the Olympic Village construction works proceed at the Tbilisi Sea ? Will your company meet the schedules? Have you faced any problems during the project implementation ? -The construction works are being carried out under schedule. We have already finished the construction of frames and buildings, only interior works are being carried out. There is much demand for workers, who will perform interior lining works. Georgia lacks for professional workforce in this respect. Therefore, we have to invite them from China. Last period, Georgia has changed a visa regime with China. As a result, Chinese citizens have to arrive in Beijing to take a visa. Our head office is located in Urumqi, a 4000 kilometer way from Beijing. This circumstance is related to additional expenditures. At the same time, experienced and highly-qualified workers may fail to receive visas and arrive in Georgia and to take part in the project implementation. Therefore, we may face greater problems. All other factors proceed in due manner. -You have mentioned the workforce. Does your company employ more Chinese nationals than Georgians? Moreover, Georgian citizens assert that Georgian workers receive three times less wages than Chinese workers. What would you say about this ? -As to the quantitative correlation between Chinese and Georgian employees, we strictly follow the contract agreement norms, under which 70% of the employed workforce are Georgian citizens and 30% are Chinese citizens. From China we basically invite the specialists that are difficult to find on the Georgian market. For example, Chinese workers have built buildings of metal constructions, because Georgia has less developed these technologies. It is a bit ridiculous to assert as if we pay three times less wages to Georgian workforce compared to Chinese workers. We pay wages due to performed work. The more employees work, the more they are paid. In many countries, including the USA, Russia, similar approaches and practices are widely applied. -According to our information, the Olympic Village’s trade assets will remain in your ownership after the completion of the Youth Olympic Games. What are your plans in relation to these assets. Do you plan to sell them or continue your business activities ? -In whole, the Olympic Village complex will include 18 buildings, including 9 buildings for the Olympic Games and they will be sold after the

completion of the tournament. The construction of the remaining 9 buildings will be finished soon and their sales will also start in the near future. As to the hotels, a restaurant, a recovery complex, they may be reconstructed, but these assets will remian in our management. We are also constructing Tbilisi Plaza in Vazisubani. The construction works will be finished in the near future. We have already unveiled 12 pavillions for trades. The number of clients grows every day. At this stage, however, we abstain to advertise these pavillions and the society is not informed about these assets in due manner. As to shopping malls, we plan to invite several major Korean, Chinese and American companies. Negotiations are underway with Carrefour, Outlet and other famous brands. -According to certain information, Chinese nationals will settle your residential complexes after the Youth Olympic Games. Is it true information? - This issue is long circulated in the society. We have declared many times this is false information. State officials have also noted this information is not true. It is about 20 year distance between China and Georgia in terms of economic development and the living level. When a Chinese takes a decision to go to immigration, they prefer more developed countries, for example, the USA, Canada. -According to the Economy Ministry, you plan to construct a cattle-breeding farm and a meat processing enterprise in Georgia. What is the investment value of the project and when do you plan to launch the project ? - Giorgi Kvirikashvili has visited Urumqi after a Beijing Forum. I have noted Hualing Group comes from Urumqi and it holds one of the biggest corporations in Xingjian Region that is a quite large Region with the administrative center of Urumqi. Our company has been carrying out development projects in the whole Region, and owns trade assets, hotels. Our capitalization in China constitutes 3 billion USD and is one of the biggest companies in the country. In China Mr. Giorgi met with the president of our company and they saw Hualing meat processing plant that is equipped with modern technologies. The enterprise processes, packs and supplies beef to the market. During his meeting MR. Giorgi expressed his idea for developing a similar plant in Georgia too. Today we have only idea. We are carrying out detailed calculation, and collecting information. As a result, we may develop a similar project in Georgia too. At this stage, I cannot provide more detailed information on the project. -Huliang Group has applied to the Economy Ministry for obtaining a free industrial zone status in Kutaisi. What are your plans in Kutaisi and what has the Ministry answered ? -The government has already started exploring our statement and we hope the issue will be decided positively. The status of a free industrial zone in Kutaisi will increase domestic production and draw foreign investors. There was an old machinebuilding factory in Kutaisi. We have purchased the asset and completed its reconstruction and prepared everything for creating a free industrial zone. The free industrial zone will increase local production and attract foreign companies, even more so Georgia has concluded an associated membership agreement with EU. The products manufactured in the zone may be exported to the EU market under its own code. We have already organized production of furniture in Kutaisi, as well as the production of roofing materials and a marble processing enterprise. We also make materials in Kutaisi for the Tbilisi Olympic Village.

October 06, 2014 #70

INTERNATIONAL FINANCE INSTITUTION INVESTS IN GEORGIA’S AGRICULTURE

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n international financial institution is investing two million USD to finance one of Georgia’s largest dairy farms Kvarlis Baga in Georgia. International Finance Corporation (IFC), a member of the World Bank Group, backed Kvarlis Baga’s effort to significantly expand fresh milk production. The owner of Kvarlis Baga Lasha Papashvili believed the investment would help the business purchase additional facilities, allowing them to triple their fresh milk production and “making Kvarlis Baga the number one Georgian producer of fresh milk”. “Last year we started a very risky business but the project will hopefully serve as a role model for other agricultural projects in the country. We started with 120 lactating dairy cows and the farm’s capacity is three tonnes of milk daily,” Papashvili said at today’s signing ceremony of a new loan agreement. “This IFC’s financial long term, seven year loan will allow us to purchase an additional 120 cows and build housing facilities for cattle. The daily milk production will increase 10 tonnes per day,” he said. IFC’s Director for Europe and Central Asia Tomasz Telma believed the project would also spur agribusiness development, which was crucial for Georgia’s economic growth, employment generation and poverty reduction. “Georgia is a small market in terms of agribusiness. This investment is expected to increase high-quality fresh milk production in Georgia at a cost competitive with international suppliers. The increased production will allow Georgia’s dairy sector to reduce reliance on imported whole milk powder and, eventually, become self-sufficient,” Telma said. Telma believed that while agribusiness provided employment for more than half of Georgia’s workforce, increasing the productivity of this sector was “still a challenge,”“This investment will enable a quality fresh milk producer to scale up production and help meet rapidly growing demand in the Georgian market,” he added.

IFC currently had only three clients in Georgia’s agricultural industry but Telma believed this number would soon increase. “IFC is eager to identify with entrepreneurs like Mr. Papashvili who are willing to spend time to prepare proper projects which will significantly increase the productivity and quality of Georgian agriculture products,” he said. Georgian dairy farm Kvarlis Baga has been operational since October 2013 and was equipped with high-standard facilities and management systems, ensuring the production of fresh milk was always high. Telma highlighted a number of other projects were being prepared for future investments in Georgia’s agribusiness. Georgia became a member of IFC in 1995. Since then, IFC has invested $810 million USD in 60 projects across various sectors and supported regional projects developed in the country. In the past fiscal year IFC invested $400 million USD in the agriculture sector in Europe and Central Asia.

ANY BUSINESSMAN TO BE ABLE TO EXPAND WITHIN “PRODUCE IN GEORGIA” PROGRAM

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eputy Minister of Economy and Sustainable Development Ketevan Bochorishvili explains that 25 projects in the agriculture and industrial areas have been approved in the framework of “Produce in Georgia” project which means thousands of new jobs. The novelty lies in the fact that from now on, any businessman who wants to expand, can join the program and receive a concessional loan. “The interest of entrepreneurs in the program was so great that the government decided that existing enterprises would be able expand as well. For this purpose, they can apply to banks and benefit from soft loans and government’s funding, “- Bochorishvili notes. A presentation on opportunities and prospects of Georgia’s transit corridor development was held at today’s Economic Council. The Council members discussed the “New Silk Road” project which aims to enhance trade, economic and cultural links between Europe and Asia regions, develop the new road network and global connections.

FIRST WIZZAIR FLIGHT DEPARTS KUTAISI FOR BUDAPEST

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eorgia’s connection with Hungary is growing stronger with the first flight from Kutaisi International Airport to Budapest scheduled to take off today. The first flight of Hungarian airlines WizzAir will depart Kutaisi International Airport bound for Budapest on October 1. From today, flights from Georgia’s second largest city to the Hungarian capital will depart twice a week, on Wednesdays and Fridays. The cost of one-way travel will start from €29.99 (66 GEL).

WizzAir, one of the largest low-cost airlines in Central and Eastern Europe, launched flights from Kutaisi International Airport after it opened on September 27, 2012. Since then, Kutaisi International Airport has transported more than 380,172 passengers. Of this, the airport was responsible for transporting 178,574 passengers from January to August this year. One local and four foreign companies operate at Kutaisi International Airport – they are WizzAir, S7, Ural Airways, Belavia and Georgian Airways.


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BUSINESS October 06, 2014 #70

caucasian business week

THE 28TH CONFEDERATION OF ASIAPACIFIC CHAMBERS OF COMMERCE AND INDUSTRY (CACCI) CONFERENCE

PASHA BANK FIRST AND THE ONLY BANK FROM GEORGIA TO ATTEND THE SIBOS

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ASHA Bank, a full service corporate bank, underlined its increasing role in international finance by attending Swift International Banking Operations Seminar in Boston, the USA. PASHA Bank was there to share practices and debate emerging issues. Already for the fifth time it is the only bank from the region to attend SIBOS. SIBOS is an annual banking and financial seminar organized by the Society for Worldwide Interbank Financial Telecommunication in various cities around the world. Started out as SWIFT international banking operations seminar, it has grown into a premier business forum for the global financial community to debate and collaborate in the areas of payments, securities, cash management and trade. People who work in financial markets around the world participate as exhibitors and attendees and discuss issues relevant to the financial industry. During one week, SIBOS brings together some 7,000 decision makers and topic experts from financial institutions, market infrastructures, multinational corporations and technology partners. With half a dozen conference tracks, a hundred speakers and as many conference sessions, nearly 200 exhibitors, and plenty of networking events, SIBOS is the place to do business and collectively shape the future of the financial industry. The SIBOS offers the opportunity to engage with leading financial industry figures to debate the

latest developments and trends. This year’s conference program addressed key industry issues in a variety of sessions such as plenaries, big issue debates, keynote addresses, panel discussions and special interest sessions. There also were profiles of big hitters in the industry as well as editorial analyses of the themes of SIBOS 2014. These included regulation, collaboration and innovation in financial technology. “This year’s conference provided food for thought for delegates as various regulatory initiatives took hold globally and many economies have shown tentative signs of recovery against a backdrop of growing geopolitical uncertainty. We are proud to state that PASHA Bank was the only bank from Georgia to attend the conference, participate with its own booth together with PASHA Bank Azerbaijan and bring this experience to our customers,” said Shahin Mammadov, CEO of PASHA Bank Georgia. “PASHA Bank is a significant international financier, in line with the highly interconnected nature of our client base. Our approach of combining innovative new products and channels with international financial solutions is enabling our clients to conduct business both locally and internationally. In addition, our strategic partnerships with major international banks help ensure our clients get the best service and support from strong institutions wherever they are doing business around the world,” Mammadov added.

COMPANY NATAKHTARI – FIRST COMPANY IN CAUCASUS REGION TO OBTAIN HIGHEST ENERGY USAGE EFFICIENCY POLICY

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ompany Natakhtari has accepted the achievement of highest energy usage efficiency as an inseparable part of their facilities rather than acknowledging it only as a legislative obligation. „Our aim is to establish the system which will sustain the consumption of energy responsibly while increasing the quality of our products & facilities. Along following legislations and legal obligations, referring Energy topics and fulfill them, company also will support usage of renew-

able energy resources in all possible activities and increasing the energy usage efficiency via focusing on energy saving options. ISO 50001 is Energy management systems – Requirements with guidance for use is a specification created by the International Organization for Standardization (ISO) for an energy management system. It was released by ISO in June 2011 and it is honorable for us to be the first to possess this certificate because we really do care about the environment.” announces company Technical Director, Giorgi Kokiashvili.

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uring 83rd CACCI council meeting on September 17th, 2014 in Kuala Lumpur, Malaysia Mr. Jemal Inaishvili, CACCI Vice President and Member of the Council of Georgian CCI has been elected as a next CACCI President for the two years term. The inauguration and hand over ceremony was held during 28th CACCI conference gala dinner at Kuala Lumpur Convention Center (KLCC) on September 19th, 2014. The CACCI newly elected vice presidents: Senior Vice President: Mr. Samir Modi (India) Vice Presidents: Mr. Takeo Fukui (Japan) Mr. Pradeep Shrestha (Nepal) Amb. John Feng (Taiwan) Mr. Rifat Hisarciklioglu (Turkey) Mr. Peter McMullin (Australia) Dr. Ali Akbar Farazi (Iran) FROM THE HISTORY OF CACCI Representatives of chambers of commerce and other trade organizations from various countries in Asia gathered in Manila for an Asian Conference of Chambers of Commerce under the theme Asian Progress Through Economic Co-operation. The Chamber of Commerce of the Philippines, under the presidency of Mr. Demetrio Munoz hosted the meeting which was organized by a panel chaired by Dr. Aurelio Periquet. Jr. The conference was significant to Asian businessmen and to the region’s population, not only for the study it made on vital and current economic problems of Asia, but also because it ushered in the unification of chambers of commerce in the region. It was the first step towards a potent regional economic cooperation. A resolution creating a Select Committee was approved during the conference to prepare the preliminary work in formalizing the organization. In September 1965, just a few months after holding the conference, the Select Committee met in Hong Kong to discuss the establishment of the Confederation of Asian Chambers of Commerce and Industry. Less than a year later - on May 2-6, 1966 - CACCI held its inaugural conference in Taipei with 10 national chambers represented. The first officers were elected and the First Council Meeting was held. Since then, CACCI has been holding regular biennial conferences with concurrent themes and annual council meetings. ABOUT CACCI The Confederation of Asia-Pacific Chambers of Commerce and Industry (CACCI) is a regional grouping of APEX national chambers of commerce and industry, business associations and business enterprises in Asia and the Western Pacific. Georgian Chamber of Commerce and Industry become a primary member of CACCI from 2005. It is a non-governmental organization serving as a forum for promoting the vital role of businessmen in the region, increasing regional business interaction, and enhancing regional economic growth. Since its establishment in 1966, CACCI has grown into a network of national chambers of commerce with a total now of 28 Primary Members from 26 countries or independent

economies. It cuts across national boundaries to link businessmen and promote economic growth throughout the Asia- Pacific region. CACCI is a non-governmental organization (NGO) granted consultative status, Roster category, under the United Nations. It is a member of the Conference on NGOs ( CoNGO), an association of NGOs with UN consultative status. Among the benefits of membership in CACCI are the following : 1. Policy Advocacy - CACCI aims to play a strong policy advocacy role in order to establish a business environment conducive to creating better opportunities for CACCI members. 2. Promotion of SMEs - With its SME Development Program, CACCI hopes to encourage its members to participate more actively in the important task of nurturing and developing the entrepreneurial and managerial class in their respective countries. 3. Wide scope for networking - Participation in the various projects of CACCI will provide members the opportunity to expand their reach in Asia- Pacific by establishing contacts with the business communities of the region. 4. Participation in CACCI Training Programs Members are invited to participate in the various training programs which CACCI regularly conducts either on its own or in cooperation with other international organizations and member chambers. 5. Interaction in Product and Service Councils Membership in CACCI allows participation in the activities of the various Product and Service Councils (PSCs) of the organization. PSCs are business groupings organized along product or service lines with a primary objective of promoting business cooperation, personal contacts, and technology transfer. 6. Access into a Network of Business Assistance Centers - CACCI members have access to a network of Business Assistance Centers (BACs). BACs are operated by Primary Members, with the assistance of CACCI, to help their own members and foreign businessmen who are exploring or planning to do business in their respective areas. 7. Access to CACCI publications – CACCI publishes the CACCI Profile, its monthly newsletter, and the CACCI Journal of Commerce and Industry, a bi-annual publication which features papers, speeches, and other articles pertaining to issues affecting the regional economy.


WINE BUSINESS 6 FT: RESURGENCE OF GEORGIA’S VITICULTURAL HERITAGE EXCITES WINE CONNOISSEURS caucasian business week

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n an austere sixth-century Georgian monastery in the south Caucasus surrounded by vineyards, bearded monks sing in soaring harmony over a hole in the ground. An oenologist in a white cape and carrying a ceremonial sword joins in, while a Russian film crew looks on with hushed awe. The monks unseal a huge clay amphora of new wine, buried up to its neck, in an ancient ceremony both sacred and festive. Poured into plain earthenware drinking bowls by a brother on one knee, the amber wine has a fresh, bounteous earthiness – cause, indeed, for song. The Alaverdi monastery in the Alazani Valley boasts the country’s oldest working marani (wine hall), dating from the 11th century. Less than two hours’ drive from the Georgian capital Tbilisi, it stands in Kakheti, the easternmost region of forested mountains and meadows, bordered by Russia and Azerbaijan, where three-quarters of Georgian wine is produced. The ancient hilltop churches and modest houses, with donkey carts and sheep sharing the roads, might suggest rustic neglect. But Kakheti is a window on a resurgent industry. Georgian wine was to Russians what French wine was to other parts of Europe. “Kakhetian and Karabakhi are worth several burgundies,” wrote Alexander Pushkin in 1829. Journeying through the Caucasus, the poet noted how Georgians kept wine in “huge jars buried in the ground. These are opened with great ceremony. Recently, a Russian dragoon secretly unearthed one of these jars, fell inside and drowned in Kakhetian wine, like the unfortunate Clarence in the butt of malmsey.” The love affair continued in the Soviet era. In 1945, the Georgian-born Stalin toasted Churchill and Roosevelt at Yalta with his favourite Khvanchkara semi-sweet red. Russia is still the biggest market. Producers were stunned when Moscow banned imports of Georgian wine and mineral water in 2006, citing quality concerns. The more likely cause was rising tensions after Georgia’s 2003 Rose revolution, which led to the downfall of president Eduard Shevardnadze, before the 2008 war over South Ossetia. The seven-year embargo was lifted last year. Though crippling, it forced Georgian winemakers, already adapting to the post-Soviet era, to compete for markets in Europe, the US and China. Marks and Spencer in the UK added Georgian wines to its retail list last autumn. Georgia is rediscovering its vine-growing heritage amid rising international support for its claims to be the cradle of wine. It has the oldest continuous viticulture in the world, dating back 8,000 years. A ceramic wine vessel decorated with grape motifs from about 6,000 BC was found near the village of Shulaveri. With 525 indigenous grape varieties, from Abistazh to Zerdagi, the country is also impressing global wine connoisseurs who have become jaded by growing conformity. As wine lovers enthuse over dry white Rkatsiteli – one of the world’s oldest known grape varieties – and red Saperavi, there is a tourism benefit in burgeoning wine trails. The writer Guram Odisharia was present as culture minister at the ceremony in Azerbaijan’s capital Baku last December at which Georgia’s unique method of winemaking in a qvevri (red

clay, egg-shaped jars buried to maintain temperature) was anointed by Unesco as an intangible cultural heritage. It was Georgia’s second such listing after its polyphonic choral singing (also demonstrated by the monks) in 2008. “We only have two; Azerbaijan has seven,” Odisharia notes with regret. “We’re trying to catch up with our neighbours.” I met the then minister – now adviser to prime minister Irakli Garibashvili – shortly after the anniversary of Georgia’s declaration of independence on May 26 1918 from Russian rule since 1801 – a freedom curtailed by Soviet reconquest in 1921 and reclaimed only in April 1991. After 70 years behind the Iron Curtain, “we’re just learning how to communicate with the outside world”, Odisharia tells me. “When the doors opened, we discovered we had something we did not value. Our winemaking is precious and we should take care of it, and learn to protect it.” Preserving cultural heritage – from Tbilisi’s old town to ancient gold mines – is a source of fierce disputes in post-Soviet Georgia. Yet wine is a national rallying cry, almost as potent as the mother tongue, and fermenting grapes is tantamount to a civil right. Many householders have amarani – less a cellar than a ground-floor reception room – with qvevri in the floor. A qvevri filled at the birth of a child might be opened on his or her wedding day. In an elaborate culture of feasting and hospitality, the tamada, or toastmaster, is king. Viticulture shapes the cuisine, frommtsvadi (kebabs skewered on vine wood) to churchkhela (candle-like strings of nuts in sun-dried grape syrup that were food for warriors). Vines thread through Georgian art, from the Dionysian cult in The Knight in the Panther’s Skin, the 12thcentury national epic by Shota Rustaveli – Georgia’s Dante – to the naive-art harvest banquets of Kakheti-born painter Niko Pirosmani. “For us Georgians, wine is not just alcohol,” says Konstantine Natsvlishvili of the National Agency for Cultural Heritage Preservation of Georgia. Wine was chosen by popular poll for the Unesco bid, which was delayed by the 2008 war. “The roots go deep into our culture. It’s a basis for rituals that unite people,” says Natsvlishvili. Some honour ancestors and, despite their “Christianised form”, hark back to a pagan and Zoroastrian past. At funerals, wine is a “mediator between the living and the dead”. The Unesco nomination, Natsvlishvili stresses, was for “common people making wine for themselves – not for retail”. Family winemakers were central to resisting commercial threats to traditional methods from Russian-influenced nobility and Soviet collectivisation. Winemaking came to symbolise national resistance – a defiance echoed after the

2006 Russian embargo. “You can’t prevent people making wine. It would be like telling them not to go to the cemetery to honour their ancestors.” Though the clergy, like the nobility, was purged by the Bolsheviks, monks helped keep the methods alive. In Soviet times, “monasteries were destroyed”, says the worldly bishop David of Amba Alaverdi, a trained architect who heads the Georgian Patriarchate’s restoration programme. Born Irakli Makharadze in Tbilisi, he became a priest in 1988. He says, in the 1960s, “the Soviet government ordered the destruction of all qvevri in the factories. Scientists were forced to say they were bad. Yet the method – and people’s love of it – was preserved. The war against qvevri as part of Georgian national identity is still going on today.” The bishop, aged 54, spoke to me at the Georgian Wine Culture Centre in Tbilisi’s Saburtalo district, over deep-orange, vintage wine from Alaverdi. The next day, we reconvened at the monastery in the walled compound of the 11th-century St George Cathedral, the tallest medieval church in Georgia. Damaged by battles and earthquakes, its frescoed icons, whitewashed during 19th-century Russian rule, are gradually being restored. The Church and wine are intertwined, he says, because “you can’t conduct a service without wine – a symbol of Christ’s blood”. After Christianity arrived in the fourth century, monasteries were sited in land fertile for grapes, and monks took their knowledge to the Holy Land. Yet even in antiquity, he says, Georgian wine was prized as pure. The 11th-century marani had 25 qvevri, each holding 1,600 bottles. The bishop renovated it with help from a Georgian-Italian company, Badagoni, and co-production began in 2006. Since then 60,000 bottles have been produced, with five monks working there. White qvevri wine, as well as red, is made with the grape skin, stalks and pips, and is decanted several times – here, for between 18 months and 12 years – making it rich in minerals and antioxidants. The bishop, who recalls helping his grandfather make qvevri wine, aims to integrate new and old, also using oak caskets and steel vats. In a little plot beside the cathedral, samples of an astonishing 102 grape varieties grow “like a museum”. Three years after hosting the first symposium on qvevri winemaking, with support from USAID, the development agency, the monastery is to hold its first wine festival on September 2224, as part of the Alaverdoba harvest festival. Up to 6,000 bottles of qvevri-only wine have been sold since 2011 to private buyers, “famous individuals and wine lovers”, the bishop says. “We sell it as a message to the world that the monastery exists.” Beside the mountains bordering Dagestan, the Eniseli Bagrationi wine factory is at the other end of the scale, accounting for 5 per cent of Georgian wine production. In 2003, Sandro Bagrationi and

October 06, 2014 #70

his wife, Mary Gomelauri, bought back a winery established in 1887 by his ancestor Zakaria Jorjadze. Its Saperavi had won gold at a show in Brussels in 1888. Confiscated in the Soviet era, the factory became a renowned source of Soviet wine and brandy, but fell into ruin in the 1990s. The renovated 19th-century marani has 120 clay qvevri, each holding two tonnes. Jorjadze gathered grapes from peasant smallholders; Bagrationi too buys up grapes from the area (“I don’t own land – I shop and I buy”). Wine stays in the qvevri for eight months before being moved to tanks in a factory that employs 70 people and makes sparkling wine and chacha (grappa). On the marani walls are first-world-war photographs by Jorjadze’s daughter Nina, a nurse who tended English and Russian troops in Manchuria. “Ninety per cent of my wine goes to Russia,” Bagrationi tells me. Minor markets are in Poland, Belarus and Germany. “The embargo created a crisis,” he says, but its lifting, he believes, has boosted the industry, while pushing up the slumped price of Saperavi grapes threefold. He cites a national sales figure of 15m bottles from the 2013 harvest – the first after the ban ended. “In six months they sold what usually takes five years to sell.” In Alaverdi, the bishop is as confident in his resolve to “preserve and adapt”. Despite the Russian embargo, demand held. The gap was plugged in part, he scoffs, by “Moldova producing wine using this method and calling it Georgian”. For him, “the best weapon against counterfeit wine is to maintain quality. If you want something good, you need to give it time.” FOR DRINKING OR INVESTING IN? Georgian fine wines are a sound investment for the palate, not the purse. Bruce Aston, director of Aston Lovell, a London-based wine investment company, says “while Georgia produces much good wine, and has done so for possibly longer than anywhere else in the world”, there is “no investment market currently in these wines, and no market budding”. Yet what of the future? Wine writer Andrew Jefford thinks the best of Georgian wines could “prove to be some of the most influential produced anywhere around the world over the next decade”. A renaissance in Georgian winemaking owes much to investment in improved techniques as well as joint ventures with foreign winemakers – some spurred by the Russian embargo imposed in 2006 that forced the closure of many wineries. Jeneve Williams, a winemaker for Marks and Spencer, feels the country holds its place in an emerging “eastern Mediterranean”. Yet the future may lie not only in unusual grape varieties but in respecting ancient methods. Partly made in 0.00, her blend with the Georgian company Tbilvino of quince-flavoured “orange wine” was a surprise sellout.


7 THE PROBLEMS THAT RMG GOLD’S SUSPENSION HAS CREATED FOR THE BOLNISI POPULATION SAKDRISI TRUTH

October 06, 2014 #70

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ccording to official statistics, in the eight months of the current year, Georgia has exported processed and partially processed gold worth 23,6 Million USD, which is drastically behind last years’ indicator. In the same span of time during 2013, 47,7 million USD worth of gold was exported. In 2012, the exported gold over the same eight months was priced over 55 million USD. In this year, gold hasn’t even broken through the top ten leading export products. Gold took 9th place in the same list last year, while overall 73,29 million USD worth of processed and partially processed gold went to export in 2013 and up to 88 USD worth of gold in 2012. In Georgia, gold is obtained by RMG (Rich Metals Group) GOLD. On the Sakdrisi-Kachagiani site, because of ongoing disputes regarding it containing an ancient gold mine, the company is unable to carry out proper mining procedures, and has halted processing the Sakdrisi ore – lessening the country’s export revenue. The issue of Sakdrisi-Kachagiani containing ancient artifacts has been going on for several months and the topic has all but stagnated; this type of stagnation is the biggest problem in this case, according to an expert of economy, Levan Kalandadze. According to him, there’s a certain tendency that has become commonplace lately regarding investor problems. Apart from RMG GOLD, there are issues with the Tata Group, the Khudoni HPP investors, the Jvari-Khorga project and numerous other investors in the field. “The uncertainty and problems that investors have in the country will naturally affect the production and export indexes. There’s a certain tendency at creating problems for investors and at this point, the government is failing at fully solving the issues. RMG GOLD’s case is the most trumpeted

caucasian business week

and, at this point, stagnated; which is the worst possible case, since it doesn’t let the company plan out and execute long-term projects. This problem needs to be solved one way or another. There’s also a compromising option, but the government is due for more action and contributions in order to help facilitate this compromise. When I say that the government is in need of hyperactive investment politics, this means that the issues need to be solved with the government’s mediation and involvement. If similar issues aren’t brought to an end and agreements aren’t reached, the trend of waning will continue, which isn’t favorable to neither the society, nor the company, nor the budget,” says the expert, noting that the decrease in numbers isn’t good for anyone. Apart from this, the country is experiencing a decrease in export revenue, seeing that RMG’s artificial halt dropped Bolnisi’s tax revenues by 40%, which created serious problems for the region. “The Bolnisi regional budget tax revenues decreased by 40% since one of the region’s largest taxpayer, RMG, stopped being capable of carrying our full-fledged activity because of the problems around the Sakdrisi site. “RMG ensures 80% of Bolnisi’s tax revenue,” – says Bolnisi’s municipality leader, Gogi Meshveliani. “Despite the company having to work at incomplete capacity, their debt to the budget is nonexistent; what’s more, they have preliminarily payed their budget’s due for the year in advance.

This company is very important for our region because it generates our budget’s 80%, we have no other large payers here,” says Meshveliani. Per his prognosis, in case of RMG managing to restore its full operational capacity, the region will gain 40-50 million GEL in budget revenue over the next 5-6 years. “These numbers clearly speak of the importance of the company continuing its functionality as it used to, and of the importance of reaching a compromise. I hope that

all of this will ensure that we reach this compromise and arguments on this issue will end,” noted Meshveliani. The Bolnisi municipality head states that in order to solve the problem surrounding the Sakdrisi site, using contemporary practices can prove to be acceptable for both sides. Namely, he considers moving the artifacts to the so-called “museum space” can allow the company to continue its work.


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BANKS&INVESTMENTS caucasian business week

October 06, 2014 #70


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BANKING NEWS October 06, 2014 #70

caucasian business week

BANK OF GEORGIA ANNOUNCED ABOUT THE PROMO OFFER ON THE MONEY TRANSFER SERVICE

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ank of Georgia announced about promo offer on the money transfer service. On every 3rd transfer (sent or received) made by any system the consumer will get talk time of 5 GEL. Mobile balance will be filled automatically. Minimal amount of the transfer is 300 unit (GEL, USD,

Euro...). The promo continues till February 1. Bank of Georgia is involve in over 10 money transfer systems, among them: Western Union, Ria Money Transfers, Elva, MoneyGram, Contact, Anelik, InterExpress, Unistream, Zolotaya Korola, Leader. In addition to service center, receipt of the transfer is available through the call center and ATM.

BANK OF GEORGIA ATTRACTED 15 MILLION EURO FROM GGF

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ank of Georgia announced that they got credit line of 15 million EURO from South-Eastern European Fund - Green for Growth Fund. According to the press release of the leading Georgian Bank, GGF loan will be

initially spent for the construction of energy efficient buildings in Tbilisi, which consume 20% less energy than in the houses constructed by the common technologies. Allocation of the loan by Green for Growth Fund occurs first time in Georgia.

LIBERTY BANK COMPLETED JANUARY-AUGUST WITH 14,6 MILLION GEL PROFIT

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iberty bank completed January-August with 14,6 million GEL profit. In the same period of last year profit equaled to 11,5 million (01/09/12 -5,4 million). By September 1, 2014 clients’ deposits equaled to 1,3 billion GEL (01/09/13 - 1,05 billion, 01/09/12 - 703,1 million GEL), credit portfolio - 750 million GEL (01/09/13 -515,5 million, 01/09/12 - 450,3 million GEL), overall obligations - 1,09 billion GEL (01/09/13 - 1,09 billion; 01/09/12 -805,1 million). Bank’s actives are 1,5 billion GEL, market share - 8,2%. IN the same period of last year actives were 1,2 billion, share - 7,8% (01/09/12 -894,5 million GEL, 6,3%). Stock capital o the bank equals to 166,2 million GEL (01/09/13 -125,4 million; 01/09/12 -89,4 million GEL).

In September 5 years completed after Lado Gurgenidze headed Liberty Bank and the bank sharply improved financial data. In September 2009 Deposits of legal entities did not exceed to 59 million GEL, the bank did not have mortgage loan, credit card. Soon, in 2-3 years time the bank created reserve of 19 million GEL based on the loans issued during the previous management. Considering that loss of the bank equaled to 42 million GEL due to previous management decisions, since 2008 the bank was in fact insolvent and only with efforts of regulator, investments and right management it could survive and develop. In 2008-2009 the bank had negative supervision capital, in fact had to suspend existence. Currently the bank is in the top=5 list of the profitable ones, in the top-3 list according to actives. Due to this date the bank starts various large-scale promo campaign for the consumers.

TBC COMPLETED 8 MONTHS WITH 74,4 MILLION GEL PROFIT

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SC TBC bank completed January-August with 74,4 million GEL profit. In the same period of last year bank’s profit equaled to 40 million GEL. In August profit was 15,7 million GEL. By September 1 credit portfolio of the bank was 2,726 billion GEL (01/09/13 - 2,319 billion), deposits - 2,9 billion GEL (01/09/13 - 2,6 billion),

TBC ANNOUNCED ABOUT LARGESCALE RAFFLE FOR INTERNETBANK’S USERS

300 Apple products and monetary prizes will be on the raffle for internet-bank’s users. 100 winners will be revealed every month and they will get iPhone6, iPad, MacBook Air and money up to 100 GEL. 10 000 GEL is super prize of the raffle, which will be drawn on January 17 along with other prizes. Everyone who uses Internet banking of TBC Bank and makes operations by Internet or mobile banking from October 1 to December 31, can participate in the raffle. 3 points equal to 1 raffle ticket. Points are ac-

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asisbank offers a new promo project to the business sector representatives. Namely, starting October 1 small and medium-sized business sector representatives are able to join the Basisbank business club, receive a Basisbank credit business card and have an access to the business portal, specially created for the club members. The club membership is a unique opportunity for companies to acquire new partners, broaden sales network and enjoy exclusive preferences on various services. The club members are able to enjoy special terms of the credit business card. The universal card is useable for cash and noncash payments. The cardholder enjoys high credit limits and low interest rates. The card owner is able to place own funds on the account and earn

high yield interests. The card’s grace period is about 60 days. This innovative project of Basisbank, a business portal, has no analogy in Georgia. “The business portal is a closed space that contains information on all companies integrated into the Basisbank Business Club. The business portal enables the club members to exchange information, set up new business contacts, on the one hand, increase sales volume and, on the other hand, enjoy exclusive offers from the club members. In the future the Business Club will also invite Chinese companies, besides Georgian companies. “The club members will search and set up business relations with desirable organizations”, the bank representatives noted.

cumulated from various operations (entrance in the internet bank - 1 point; transfer on the own or other’s account - 1 point, payment of communal taxes - 1 point, filling balance on the mobile - 1 point - purchase of deposits or other banking products through internet banking - 10 points). Double points are awarded to any transaction made by mobile banking. The raffle will be made by drum on November 17, December 17 and January 17 at 20:00. It will be transmitted by livestream on the Facebook page of TBC Bank.

CAPITAL BANK INCREASES CAPITAL AND CHANGES HEAD OFFICE SC Capital Bank (former Invest Ban) increases capital by 6,9 million GEL. Supervision board of the bank made the decision. The capital should be filled till December 31. Respectively, supervision capital will also increase. Due to failure to comply it temporary administration of National Bank of Georgia entered in the Bank in November 2013. NBG Managed Invest bank till April 1, during 5 months. After the leaving NBG information about change of Majoritarian stockholder was released. Alex-

BASISBANK TO LAUNCH NEW BUSINESS PROMOTION PROJECT

overall obligations - 3,642 billion GEL (01/09/13 -3,145 billion GEL). Annual growth of loans is 16%, deposit portfolio has increased by 12%. Bank’s actives equal to 4,452 billion GEL, market share - 24% (01/0913 -3,719 billion, 23,9%). Bank’s shares have been tradin on London Stock exchange since June of the current year.

ander Kurtanidze became 70% shareholder. By May 2 supervision capital coefficient was 10,5% for Invest Bank. It was below the required norm (≥12%). By September 1 supervision capital equals to 4,6 million GEL. The bank completed 8 months with 3,8 million GEL loss. Meanwhile, August was profitable like previous months (01/08/14 -3,9 million). In addition to name, the bank will also change office (currently #1 Vertskhli Street). The group purchases office in the constructing building in Vake district, Tbilisi for $4 million.

BANK REPUBLIC COMPLETED 8 MONTHS WITH 25,4 MLN GEL PROFIT

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ank Republic completed JanuaryAugust with 25,4 million GEL profit. The bank’s profit equaled to 5,3 million in August. By September 1 deposits (nonbanking) portfolio equaled to 516,2 million GEL (01/08/14 - 497,6 million), loans - 725,2 million GEL (01/08/14 - 737,3 million). Since the beginning of the year deposits have increased by 1,4%, loans - by 1,8% (01/01/14 -

509 million, 713 million). Overall obligations are 866,4 million GEL. Actives of Republic have been increased to 1.039 billion GE. Market share is 5,6% (01/01/14 -6,1%). The bank operates since 1991. Stockholders are SOCIETE GENERALE (93,6%) and EBRD (6,36%). Stock capital equals to 173 million GEL (01/01/14 -146,8 million).

VTB INTRODUCED AUTO LOAN WITH RENEWED CONDITIONS

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rom October 1 during 2 months VTB offers auto loan for 0% installment to those, who want to purchase Nissan cars. The loan is available quickly, without leaving auto saloon, only with ID card. Besides, the owner wills het auto insurance and commissioning for preliminary payment

is 0% as well. The loan is issued for 5 years. The promo action also considers purchase of Nissan Juke without first payment, from $305 per month. Term of the action is valid for any Nissan model. Annual rate of the loan is 12-14%. VTB also issues loans for purchase of secondhand cars, with 14,9% rate.


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AZERBAIJAN caucasian business week

October 06, 2014 #70

AZERBAIJAN LEADING COUNTRY IN CIS FOR FOREIGN INVESTMENT PER CAPITA

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ADB TO ALLOCATE $350 MILLION FOR TRANSPORT INFRASTRUCTURE DEVELOPMENT

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he Asian Development Bank plans to allocate $350 million for the development of transport infrastructure in Azerbaijan over the next three years. This was announced in the bank’s new strategy of cooperation with Azerbaijan for 2014-2018 approved by the ADB Board on September 30. “These loans are supposed to be given from 2015 to 2017. The bank intends to apply a systematic approach to the development of transport infrastructure network in Azerbaijan that will promote the development of non-oil sector of the country,” the new strategy reads. “A particular attention will be paid to the EastWest corridors (within the CAREC 2 program) and North-South, which are among government’s main priorities. The financial assistance of ADB is expected to contribute to a more rapid completion of the construction work of these corridors,” the strategy said. Expansion of opportunities for the rural population of Azerbaijan is an important aspect of ADB’s support and it will have a positive impact on the economic diversification of the country. The involvement of rural roads in the NorthSouth transportation network will make it possible to increase the access of rural population to markets, educational and medical institutions. By 2020, the turnover of goods in Azerbaijan will increase by 25 percent compared with 2010. This year it amounted to 11,325 million metric tons/kilometers, passenger traffic - 20 percent (it amounted to 16,633 million passengers/kilometers in 2010). ADB expect the fatalities to be reduced by 25 percent for every 100,000 people (from 10.3 percent in 2010 to 7.7 percent in 2020). The number of passenger buses running in the city center will be reduced from 700 units in 2014 to 400 units in 2018 with no change in the quality of services. ADB’s support for railways expansion will be made as part of its technical assistance. Meanwhile, the bank plans to allocate $752 million for infrastructure projects in the areas of transport, energy, water supply and other urban utilities and services, while some 46.5 percent will be allocated for financing the road projects. In recent years, Azerbaijanis have started to travel

more inside the country, as a 41 percent increase was recorded in the number of passengers traveling within the country in 2007-2012. Over the past 10 years, the length of constructed, reconstructed and repaired roads in Azerbaijan amounted to 8,332 km, with 222 new bridges and overpasses. A great deal of works have been carried out to expand the roads of the capital Baku where more than 60 overpasses and tunnels were put into operation. The new facilities unloaded the busy roads of the city with about 70 percent of the country’s cars. Earlier, ADB’s Board of Directors approved a loan worth $250 million for the construction of Azerbaijan’s Masalli-Shorsulu highway. “The total cost of the project is $332 million, some $82 million of which would be provided by the Azerbaijani government,” ADB said. ADB allocates the loan as part of a second multitranche package aimed at constructing new roads in Azerbaijan. ADB provides the loans for roads construction in Azerbaijan in the form of multi-tranche packages. The first multi-tranche package of ADB worth $250 million was aimed to construct the four-lane Masalli-Jalilabad road. The total cost of the project amounted to $312 million, $62 million of which was provided by the Azerbaijani government. The second multi-tranche package of ADB worth $500 million is aimed to construct the MasalliShorsulu highway to a length of 63 kilometers, consisting of two parts: Masalli-Jalilabad (32.2 kilometers) and Jalilabad-Shorsulu (over 30 kilometers). The total cost of the project is $625 million, $125 million of which will be provided by the country’s government. Established in 1966, ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. The bank is owned by 67 members, including 48 from the region. Azerbaijan’s share in the bank’s capital is 0.5 percent. Overall, ADB has provided Azerbaijan a total of about $1.64 billion for the implementation of 20 projects for the entire period of cooperation, the data for the end of 2013 shows.

AZERBAIJANIS EAT MORE RICE

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zerbaijanis are fond of their traditional foods, which are served at most gatherings. One of these foods is the delicious spicy Pilaf. Pilaf is the most common dish at Azerbaijani weddings and other great ceremonies. Known in Azerbaijani as Ash and Plov, the dish is believed to come to Azerbaijan from Iran and India. Today, Azerbaijani cuisine has dozens of types of pilafs. Rice in Azerbaijani Pilaf is never sticky. The pilaf is usually served in a special plate with the accompanying sauces and stews in separate bowls. The latest statistics show that rice eating has increased 40 percent in Azerbaijan, which is over 28,400 tons per year. Annual rate of rice eating per capita is 7.4 kg in the country. Rice is a very healthy product, which is able to provide fast and instant energy. It stabilizes blood sugar levels and provides an essential source of vitamin B1. It can also boost skin health, increase the metabolism, help digestion, reduce high blood pressure, help weight loss efforts, improve immune system and provide protection against some disease.

These features have made it a fundamental food in many cultural cuisines around the world. This important cereal crop feeds more than half of the world’s population. It is easy to cook. It is tasty and affordable in price. The Chairman of the Sustainable Development Research Center, Nariman Agayev says the rise in rice eating in Azerbaijan is connected with increase of population’s income, and the more accurate calculation of this product’s consumption. Most of the rice is imported to the country from abroad. Azerbaijan mostly imports rice from India, Pakistan, and Thailand, as the country’s climate makes it possible to produce rise only in two southern regions of Lankaran and Astara. Local production meets the demand for rice only at 17 percent, and there is no huge capacity in production of this valuable crop in the country. However, the production of rice has increased in 36 percent in recent years. There is an increase in reaping of rice not cleaned from husk in Azerbaijan. In 2013, the figure reached 49,000 tons. The areas under this rice are also expanding.

zerbaijan is leading among the countries of the Commonwealth of Independent States (CIS) in terms of foreign investment per capita, Administration Chief of Azerbaijan’s Economy and Industry Ministry Samir Veliyev said at a meeting of the Azerbaijani-German High Level Working Group on Trade and Investment on September 30. Addressing the meeting, Veliyev noted the successful development of relations between Azerbaijan and Germany. He said negotiations on financial and technical cooperation are held regularly between the two countries. He went on saying that joint projects in the field of trade and investment highlights the fruitful cooperation between the two sides. “Today, 177 German companies are operating in Azerbaijan. They participate in ongoing projects in our country as contractors, and the total amount of German investment made in Azerbaijan’s economy is approximately $760 million. Over the past years, a positive dynamics is also observed in the trade between the two countries,” As of 2013, the trade turnover between Azerbaijan and Germany increased by 25 percent reaching $2.2 billion, while in January-July 2014, the trade relations between the two countries increased by 15 percent. Veliyev went on to note that Azerbaijan has created all conditions for maintaining macroeconomic stability, sustainable economic development and ensuring a favorable investment and business environment.

“Investment worth over $174 billion was made in Azerbaijan’s economy during the period of independence, and half of this amount accounted for the foreign countries,” he added. Veliyev also said Azerbaijan has become an exporter of capital. Over the last 10 years, the country’s GDP increased by 3.2 times, investment making by 6.5 times, and foreign trade turnover by 6.6 times. For his part, head of the German delegation, Federal Vice Minister of Economy and Technology Karl-Ernst Brauner expressed confidence that the issues discussed at the meeting, will have an effective influence on the development of trade and economic relations between the two countries. The sides also discussed the current state of economic and trade relations between Azerbaijan and Germany, cooperation in investment, energy efficiency and renewable energy, protection of environment, implementation of twinning projects, the possibility of participation of German companies in the industrial parks of Azerbaijan, training of Azerbaijani doctors in German hospitals, and came to an agreement on several issues. Diplomatic relations between Azerbaijan and Germany were established in February 1992. The economic relations between the two countries are developing successfully. To date, 67 documents have been signed between Azerbaijan and Germany in various fields. Azerbaijan has sent about 200 entrepreneurs and young managers to various German cities in 2009-2014 to take training courses within a joint program to upgrade their skills in business management.

FITCH AFFIRMS STABLE OUTLOOK FOR AZERBAIJAN

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nternational Rating Agency Fitch Ratings has affirmed Azerbaijan’s long-term foreign and local currency issuer default ratings (IDR) at ‘BBB-’ with a stable outlook. The issue ratings on Azerbaijan’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB-’. The Country Ceiling has been affirmed at ‘BBB-’ and the Short-term foreign currency IDR at ‘F3’. Fitch said Azerbaijan’s sovereign balance sheet is one of the strongest of any rated sovereign and underpins the rating. Azerbaijan’s state oil fund SOFAZ reached $37.6 billion in the first half of 2014. Adding $15 billion in foreign-exchange reserves at the Central Bank of Azerbaijan (CBA), the sovereign’s gross external assets are equivalent to 69 percent of GDP. Fitch expects further modest growth in sovereign assets as the current account registers (diminishing) surpluses in 2014-2016. This should provide a buffer against oil price or production shocks and support the manat’s (AZN) peg to the USD at AZN 0.78/USD 1. The state budget ran a smaller surplus in the seven months of 2014 than in the corresponding period of 2013. Fitch projects a small general government deficit in 2014, albeit below the original target of 3 percent of GDP owing to higher than expected oil prices. Fitch forecasts that the general government will run deficits of 1-2 percent of GDP annually in 2015-2016 as the authorities keep current and capital spending high against a backdrop of diminishing revenue. “SOFAZ transferred 4.9 billion manats ($6.3 billion) to the state budget in the first half of 2014, or 52 percent of total revenue. The government’s long-term aim is to reduce the budget’s dependence on the SOFAZ transfer, and thus oil prices. The success of this strategy will crucially depend on the ability to develop a strong, sustainable non-oil economy,” Fitch said. Fitch forecasts that GDP growth will slow to 3.3 percent in 2014 from 5.8 percent in 2013, and remain in the 3.5-4 percent range in 2015-2016. Non-oil sector growth will be the driver of economic activity, with growth in hydrocarbons output stagnating as existing oilfields age and large

ongoing gas projects have yet go on-stream. In the medium term, the government will pursue the twin aims of developing large gas reserves while continuing to diversify the economy in order to reduce its strong commodity dependence. “The key risk to Azerbaijan’s economy is a sudden and prolonged drop in oil prices. Indirect risks from the effect of sanctions of the Russian economy are contained, given the limited overall exposure to the Russian economy. However, the manat’s effective exchange rate has appreciated in 2014 owing to the steep depreciation of the Russian rouble, and if carried forward, this could hamper efforts to develop the non-oil economy,” Fitch said. The CBA has undertaken macro-prudential measures to curb consumer lending growth, which consequently fell to 29 percent year on year in July 2014 from 40 percent in January. Nevertheless, the banking system remains a relative weakness. Majority state-owned International Bank of Azerbaijan (IBA), which controls one-third of the banking system’s assets, has asset quality problems, despite an ongoing 500 million recapitalization. The stable outlook reflects Fitch’s assessment that upside and downside risks to the rating are currently balanced. Nonetheless, the following risk factors individually, or collectively, could trigger positive rating action: - Steps to correct the gradual deterioration of Azerbaijan’s budgetary position since 2010, sufficient to increase Fitch’s confidence in the longer-term sustainability of Azerbaijan’s sovereign balance sheet strengths. - A credible strategy for sustainable economic diversification, supported by reforms to improve governance and transparency.


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EU-UKRAINE PACT CAN BE RUSSIA CAN DRILL IN ARCTIC, CHANGED, BUT ONLY BY BRUSSELS EVEN WITHOUT EXXON – ENERGY AND KIEV - BARROSO OFFICIAL

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evisions of the EU-Ukraine trade deal are possible, but only at the request of Brussels or Kiev, not Moscow, the head of the European Commission said, stating that the EU has “strong concerns” over Russia possibly cancelling duty-free trade with Ukraine. “The Association Agreement (between the EU and Ukraine) remains a bilateral agreement and ... in line with international law, any adaptations to it can only be made at the request of one of the parties and with the agreement of the other.” European Commission President Jose Manuel Barroso said in a letter addressed to President

Putin, published Wednesday. Barroso said that the EU is ready to discuss changes to its trade pact with Ukraine, but only if Kiev asks for the revisions, in an interview published in the Wall Street Journal last Thursday. The EC chief’s letter was in response to one penned by the Russian President on September 17, just days before Prime Minister Dmitry Medvedev signed a decree allowing Russia to cancel duty-free trade for Ukrainian food products and manufactured goods if Kiev enters the EU trading zone before 2016. “We have strong concerns about the recent adoption of a decree by the Russian government proposing new trade barriers between Russia and Ukraine,” Barosso’s letter said. “We consider that the application of this decree would contravene the agreed joint conclusions, and the decision to delay the provisional application of the trade related part of the Association Agreement,” he continued. The EC head anticipates that future talks will be held on how to “address concerns raised by Russia.” Moscow is worried a flow of European goods into the Russia via Ukraine would be a threat to its domestic market. The Association Agreement was ratified on September 16 by both the European and Ukrainian parliaments. The Minsk Protocol will delay Ukraine’s full integration into the EU.

MOSCOW REJECTS KIEV’S ‘VIRTUAL’ GAS PRICE, SEEKS $3.9BN TO RESUME SUPPLIES

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ussia is ready to resume gas deliveries to Ukraine only after it pays $2 billion of its debt and makes a $1.9 billion advance payment for future supplies, Russian Minister of Energy Aleksandr Novak said. “There will be no new supplies if part of the debt is not paid. Otherwise, it turns out to be a game with only one goal, where we deliver the gas and the debt payment is postponed,” he argued. Novak said that Ukraine is prepared to pay $3.1

billion of its Russian gas debt. “They calculated the cost at their own virtual price at $268.5 [per thousand cubic meters of gas],” the Minister said. However Russia is happy to sell its gas at $385 which amounts to $1.9 billion for the 5 billion cubic meters Ukraine wants to purchase. Together with the debt payment it amounts to $3.9 billion. Prepayment will likely be made every month, according to the needs of Ukraine. The amount of $3.1 billion has to be paid in two tranches: $2 billion before supplies are resumed, and the remainder - by the end of the year, Novak said. Russia is ready to fulfill the agreements reached on Friday in Berlin and is waiting for a Ukrainian response, Novak said answering a question concerning the possibility of sealing the deal this week. All the agreements of the so-called “winter plan” worked out on September 26 were verbal, and the gas price remains an unresolved issue. The money for this plan has already been provided to Ukraine by the International Monetary Fund (IMF), Novak said.

IRAN READY TO PURCHASE 6 MLN TONS OF GRAIN FROM KAZAKHSTAN

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ran has expressed its readiness to purchase up to 6 million tons of grain per year from Kazakhstan. It was announced by Kazakh President Nursultan Nazarbayev at a meeting with businessmen of the Mangistau region. “On my instructions, the capacity of the Aktau seaport has been increased from 12.5 to 16 million tons, and it will be increased to 22 million tons of cargo per year by 2020. Iran is ready to purchase up to 6 million tons of grain each year. The agreements achieved with Iran in this and other areas open up new prospects for access to foreign markets. Overall, given the capacities of Aktau seaport, our country enjoys a great export capacity,” Nazarbayev said. Kazakhstan is among the world’s major grain exporters. In 2011, the country had a record harvest of nearly 27 million tons of grain in net weight. Kazakhstan exported 8.7 million tons of grain in 2013-2014 marketing year.

In 2012, Kazakh farmers harvested only 14.8 tons of grain due to a summer drought which occurred in the main grain regions. In 2013 grain harvest hit 18.9 million tons including 14.5 million tons of wheat. Kazakhstan’s total revenue from the wheat export has grown in the past four years by almost 2.5 times. The total revenue from wheat export was $1.2 billion in 2013 while in 2009 this figure was about $600 million. Kazakhstan plans to export about 7 million metric tons of grain in the new marketing year. Earlier Chairman of the Committee of State Inspections in the Agricultural Sector of Kazakh Agriculture Ministry Saktash Khasenov said Kazakhstan plans to export grain to South-East Asia. “We have made good progress in the export of bread to South-East Asia and China,” he noted. “The issue has been almost resolved. Thus, the export volume of Kazakh grain to China has been growing over the last 3-4 years.”

Drilling in the Kara Sea will continue into next year, even if sanctions prevent US firm ExxonMobil from participating, Russia’s Deputy Energy Minister Kirill Molotsov said Monday. According to Molotsov, Russia can independently go ahead with the necessary drilling in the Kara Sea in 2015 with the help of drilling platforms owned by Russian companies. Russia’s largest oil company, Rosneft has opened a large deposit of oil and gas in the area. “In total, we have about eight units of 100 percent Russian-owned platforms,” the deputy energy minister said. In the event Exxon leaves, work in the Arctic will continue, Rosneft CEO Igor Sechin has confirmed. “Of course we’ll do it on our own and attract the necessary technologies and different partners who don’t have limitations on cooperation,” the Rosneft CEO said in an interview with Bloomberg News. On September 12, the US banned Western companies such as BP, Shell, Exxon, and Total from working on Arctic, deep-sea, and shale oil projects in Russia in an attempt to punish Moscow for its perceived meddling in the Ukraine conflict. At the same conference, Molotsov also said that the Russian government is prepared to financially support energy companies such as Rosneft that are feeling the squeeze of sanctions. Other energy companies sanctioned are Gazprom (but only by the US), Gazprom Neft, Lukoil, Transneft and Surgutneftegaz. Rosneft and Exxon launched a new drilling well, Universitetskaya-1, in the Kara Sea on Saturday. However, Exxon will have to wind down operations before the October 10 deadline set by the US government. Exploration and development will have to be continued by Rosneft without Exxon, or be put on hold until sanctions are lifted. BILLION-BARREL FIELD On Saturday, Rosneft’s CEO Igor Sechin, along with Russian President Vladimir Putin, were pres-

ent at the unveiling of the northernmost oil well in the world, which is estimated to have cost over $700 million. Oil output from the field may begin in the next five to seven years, Sechin said. Though no exact estimates are available to date, experts believe it could hold up to 1 billion barrels of oil or crude equivalent, bigger than offshore reserves in the Gulf of Mexico, Alaska or Canada. There are also more than 300 billion cubic meters of recoverable gas reserves. Recoverable oil is just important to Rosneft as to ExxonMobil, both of which are facing production shortages, and need to find new sources to replace old and depleted ones. Russia and the US are neck-and-neck in claiming to be the world’s biggest oil and gas producer, a title Russia currently claims but America is close to taking over. The Kara Sea field will be named “Pobeda” or “Victory.” “We will continue drilling here no matter what,” Sechin told Bloomberg News. Both Rosneft and Sechin are targets of the US and EU sanctions against Russia.

EBRD ISSUES 30 BILLION TENGE TO KAZAKHSTAN’S NATIONAL RAIL COMPANY

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he European Bank for Reconstruction and Development (EBRD) has allocated a loan worth 30 billion tenge ($121 million) to Kazakhstan’s national rail company Kazakhstan Temir Zholy (KTZ). The loan is aimed at financing the purchase of equipment for logistics and infrastructure maintenance, EBRD said on September 29. “The project will serve the main priorities for KTZ, to increase Kazakhstan’s transit potential and also to strengthen the security of passenger rail transportation,” the bank noted. This loan is also significant as EBRD’s largest local currency loan in Kazakhstan to date. It will hedge the company against foreign exchange risk.

“This loan will significantly reduce KTZ’s foreign currency risk. It is particularly significant for the EBRD as it is the first large local currency loan by the bank under the new local currency facilities granted by the National Bank of Kazakhstan,” EBRD Director for Kazakhstan Janet Heckman said. KTZ is a joint stock company which manages the country’s railway system and also operates passenger and freight rail services, handling about half of all rail freight in the country. The loan will be made to KTZ and its subsidiaries, KTZ Express and Lokomotiv. Since the beginning of its operations in Kazakhstan, the EBRD has invested close to $6.5 billion in the country’s economy with more than half of the bank’s projects supporting the private sector.

ARMENAL INVESTED $120 MILLION IN UPGRADING ALUMINUM FOIL PRODUCTION

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rmenAl Armenian-Russian foilrolling plant in Yerevan has invested a total of $120 million in upgrading the facility since 2000, economy minister Karen Chshmarityan said Thursday during a government session after it granted the plant a three-year VAT payment deferment. The minister said the plant plans to import a furnace, worth 202 million drams, for processing of aluminum foil and an electrostatic coating system worth 310.7 million drams. He said as part of its investment program the plant seeks to increase production of aluminum foil by 5,600 tons per year. The installment of new equipment will create 35 new jobs, Chsh-

marityan said. Under a government decision, the deferment is awarded to companies which import more than 200 million drams worth modern equipment or technology to expand their output and modernize production facilities. The ArmenAl foil rolling mill was founded in May 2000 on the basis of Kanaker aluminium smelter in Yerevan. It is one of the biggest production facilities in Armenia and is the only producer of aluminium foil in the Caucasus and Central Asian regions. In 2000 the mill was integrated into United Company RUSAL. Together with two other foil mills, SAYANAL in the Russian republic of Khakasia and Urals Foil, ARMENAL forms the company’s Packaging Division. ($1 407.58 drams).


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WORLD NEWS October 06, 2014 #70

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BANKS AND INVESTORS AWAKEN TO CATALAN INDEPENDENCE DEBATE between Catalonia and the state could weaken in

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he surge in political tensions between Spain and its Catalonia region has fuelled furious debate among the country’s political class. Now a new crowd is joining the conversation: bankers and financial analysts are asking if the conflict should be a cause for investor concern. The answer is far from clear-cut. Most believe Catalonia will remain an integral part of the country, despite the growing clamour in the region for an independence referendum and a break with the rest of Spain. But there is also a strong sense that Spain may be entering a phase of heightened political uncertainty – with no clear exit in sight. Concerns about the impact on business and investment dominated the debate in the run-up to Scotland’s recent independence referendum – providing a last-minute boost to the No camp. In Spain, the discussion has not yet registered on markets themselves. Yields on the country’s debt are close to historical lows and shares in bellwether Catalan companies have continued to perform well. According to senior Spanish officials, this proves that fears of a big rift between state and region are overblown: “You see no reaction in the markets. Why? Because the markets believe that nothing will happen,” says Cristóbal Montoro, the Spanish budget minister. Such assurances, however, have done nothing to damp the interest of investment banks, credit rating agencies and business consultants. The recent flurry of research reports and economic papers analysing the Catalan situation suggest the conflict is rapidly moving up their agenda. One sign of heightened concern came late on Monday, just hours after Spain’s constitutional court formally suspended the Catalan government’s plan to hold an independence referendum on November 9. Fitch, the US credit rating agency, issued a statement warning that it was putting Catalonia on watch for a ratings downgrade as a result of the “increased tensions” with Madrid. The move attracted attention because Spain acts as something of a financial guarantor for its regions, and has repeatedly stepped in to provide funding for cash-starved regional governments – including Catalonia’s. Suggesting that the financial link

the months ahead implies that a political rupture is no longer unthinkable for investors. That same day, Morgan Stanley published a 20page report on Catalan independence, the latest in a string of investment banks to examine the theme. It concluded that a Spanish break-up, either through a managed exit or by unilateral Catalan action, was “rather unlikely”. But it also warned that Spain faced a period of heightened uncertainty regardless of whether the planned referendum goes ahead. “This is negative for sentiment – consumer, business, investor – and the key near-term issue, we think. Business investment and financial flows may be particularly affected,” Morgan Stanley said. Some argue that tensions are already chilling investment. “Investors are enormously worried,” says Jaime Malet, the chairman of AmChamSpain, the US chamber of commerce in the country. “Many companies are asking if we are entering into a dynamic where there will be a constant battle with the Spanish state. They ask: Will my investment be safe or not?” The debate has left Catalan leaders in a bind. In political terms, the fact that analysts and bankers are starting to take the independence issue seriously is a form of validation. Yet the Catalan government must also be careful to avoid a situation where the region’s status as a hub for business and finance is called into question. Officials in Barcelona insist that, despite the recent tensions, there is no sign that the region is losing its allure as an investment destination. According to data from the Catalan industry ministry, the region has attracted more than €190m in foreign investment so far this year – a third more than in the same period last year. “The political dynamic is separate from the business dynamic,” says Antoni Grau, the ministry’s director-general. But with tensions rising by the day and no political compromise in sight, businesses are increasingly wondering if that can last.

THE BRICS BANK IS A FEEBLE STRIKE AGAINST DOLLAR HEGEMONY

If the club is to improve on Bretton Woods it will have to do better than this, writes Benn Steil

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he new financial institutions announced by the Brics nations in July – a development bank and an arrangement to share currency reserves – have been compared by many observers to the World Bank and the International Monetary Fund. There is no doubt that they reflect frustration in the developing world over governance at the multilateral institutions that emerged from the Bretton Woods summit 70 years ago. These remain dominated by the US and western Europe despite their relative economic decline. In truth, however, the new initiatives break little ground. President Vladimir Putin of Russia has said the Brics countries want to end the international monetary system’s dependence on the policy of US authorities. If so, they are off to a poor start. Whereas only 10 per cent of the World Bank’s paid-in capital was contributed in dollars, all the start-up funding for the Brics bank will be in greenbacks, creating new demand for dollar assets. Brazil, Russia, India and China could mitigate this problem by pooling the $5.1tn in foreign exchange reserves they hold between them. A shared stock of reserves could be considerably smaller, and still provide an ample buffer against a balance of payments crisis. This would allow participating countries to avoid the conditions attached to IMF loans. Mr Putin claims the so-called contingent reserve arrangement, under which each country would have conditional access to others’ foreign reserves, “creates the foundation for an effective protection of our national economies from a crisis in financial markets”. In fact, it is far too small for this purpose, and it is barred from making big loans without IMF involvement. China can borrow $6.2bn without approval from the fund; for the other participants the number is smaller. This is chicken feed. The

IMF approved $38bn in loans to Russia in the 1990s, and $15bn in standby credit to Brazil in 2002. Net private financial flows to emerging markets today are about 10 times what they were in 2002, meaning that even larger loans would now be needed in similar crises. Mr Putin knows this, which is why Russia currently holds over $400bn in foreign exchange reserves. The natural riposte is that the Brics are only just beginning their collaboration. But beefing up the fledgling institutions will not be simple. The 13member Chiang Mai initiative, created after the 1997 Asia crisis, has yet to commit a dime to mutual assistance – despite in theory having created a pool of $240bn in combined reserves. Members can call on significant funds only if they are subject to the surveillance (and stigma) entailed by an IMF programme. Governments in the region remain hesitant to extend credit to one another during crises. The Brics countries, even more disparate, will share this reluctance. As for development financing, funds for basic infrastructure and healthcare in poor countries could do much good. But the founders of the new bank risk being carried away by their own hyperbole. India and China are the World Bank’s biggest borrowers – and therefore its biggest beneficiaries. Together with Brazil, they have $66bn in outstanding loans, a third more than the entire initial subscribed capital of the new Brics bank. The Brics leaders have rightly been critical of the US Congress for failing to reform the IMF. But their own bank is hardly more democratic. The World Bank’s 37 founding members now command less than half of the votes in that institution’s governing body. The Brics bank’s articles of agreement accord its founding members a permanent minimum voting share of 55 per cent – irrespective of how its membership evolves. This is not to say that the world should be satisfied with the legacy of Bretton Woods. But it does illustrate how difficult it is to improve on it.

VICTIM OF SHALE REVOLUTION, NIGERIA STOPS EXPORTING OIL TO US

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igeria has become the first country to completely stop selling oil to the US due to the impact of the shale revolution – an astounding reversal as the African nation was only four years ago one of the top-5 oil suppliers to America. According to the US Department of Energy, Nigeria did not export a single barrel of crude to US-based refiners in July for the first time since records start in 1973. Preliminary data suggest the trend continued in August and September. Many oil producers have seen their exports to the US drop as domestic production rises thanks to the use of new technologies such as horizontal drilling and hydraulic fracturing, or fracking. But Nigeria is the first to fully stop exporting crude. At its peak in February 2006, the US imported 1.3m b/d from Nigeria – equal to roughly one super-tanker the size of the Exxon Valdez every day. By 2012, Nigeria was already selling just 0.5m b/d, but was still one of the top-5 suppliers to the US, alongside Saudi Arabia, Canada, Mexico and Venezuela. Earlier this year sales dropped to a trickle of about 100,000 b/d. And in July, they completely stopped. Nigeria, a member of the Opec oil cartel, is Af-

rica’s largest oil producer and international companies from ExxonMobil to Royal Dutch Shell and from Total to Chevron operate some of the country’s top oil fields. The shale revolution has affected US oil suppliers unevenly, hitting particularly hard those in Africa such as Nigeria, Algeria, Libya and Angola, which produce high quality crude similar to the one pumped in the new oil fields of North Dakota. Middle East producers such as Saudi Arabia and Kuwait have suffered far less as they pump crude oil of a lower quality that US refiners continue to buy. Saudi crude oil exports year-to-date to the US have increased over the 2013 level. Kuwait has also sold more crude to the US so far this year than in 2013. Overall US crude oil imports hit a peak of 10.8m b/d in July 2005. Since then, they have fallen by roughly a third to hit 7.6m b/d in July as domestic production boomed. The dramatic collapse in Nigerian crude oil exports to American refiners corroborates a warning by the country’s oil minister a year ago. Diezani Alison-Madueke said then that shale was “one of the most serious threats for African [oil] producers”.

Nigeria has offset the impact of the drop in US sales lifting exports towards Asia. According to Platts, a specialized information service for the oil industry, Nigerian oil sales to Asia’s four largest oil importers – China, Japan, India and South Korea – have risen more than 40 per cent so far this year over the 2013 level.

Oil analysts believe that Africa-US oil trade could completely stop in the next two-to-three years as other leading exporters, including Angola, Libya and Algeria, suffer the same fate as Nigeria. If that materializes, Africa will have to find new customers for its oil, going head-to-head with Middle East producers in the key Asian market.


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TBILISI GUIDE October 06, 2014 #70

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: +995 32 2 75 21 11, Fax: +995 32 2 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 CAFE 78 Best of the East and the West Lado Asatiani 33, SOLOLAKI 032 2305785; 574736290 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


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PUBLICITY caucasian business week

October 06, 2014 #70