FOCUS

ON LAWFrom Economic Freedom to Labor Law - it's all change & analyze in Georgia this week

PAGE 4, 10, 11

Issue no: 926/68

MarketsAs of 03 Mar 2017

STOCKS Price w/w m/m BONDS Price w/w m/mBank of Georgia (BGEO LN) GBP 29.30 +2,3% 2,6% GEOROG 04/21 105.38 (YTM 5.28%) 0,1% 0,2%GHG (GHG LN) GBP 3.64 1,6% +3,8% GEORG 04/21 111.21 (YTM 3.89%) 0,3% +0,1%TBC Bank Group (TBCG LN) GBP 14.15 0,4% 2,4% GRAIL 07/22 110.50 (YTM 5.46%) +0,9%

BGEOLN 07/23 101.50 (YTM 5.72%) 0,4%COMMODITIES Price w/w m/mCrude Oil, Brent (US$/bbl) 55,90 0,2% 1,6% CURRENCIES Price w/w m/mGold Spot (US$/OZ) 1 234,81 1,8% +1,2% GEL / USD 2,5075 2,8% 6,4%

GEL / EUR 2,6632 2,3% 7,3%INDICES Price w/w m/m GEL / GBP 3,0847 4,1% 7,7%FTSE 100 7 374,26 +1,8% +2,6% GEL / CHF 2,5023 2,3% 7,3%FTSE 250 18 882,86 +1,6% +2,6% GEL / RUB 0,0429 3,2% 5,5%DAX 12 027,36 +1,9% +3,2% GEL / TRY 0,6759 5,5% 6,8%DOW JONES 21 005,71 +0,9% +4,7% GEL / AZN 1,4001 2,7% +1,1%NASDAQ 5 870,75 +0,4% +3,6% GEL / AMD 0,0051 3,8% 7,3%MSCI EM EE 146,52 0,9% 3,7% GEL / UAH 0,0924 3,5% 6,2%MSCI EM 931,07 1,3% +1,3% EUR / USD 0,9413 0,6% +1,5%SP 500 2 383,12 +0,7% +3,7% GBP / USD 0,8133 +1,4% +1,5%MICEX 2 056,89 1,7% 7,6% CHF / USD 1,0079 +0,0% +1,5%MSCI FM 2 558,49 0,5% 1,0% RUB / USD 58,2370 0,3% 1,3%GT Index (GEL) 1 177,93 +0,1% TRY / USD 3,7045 +2,7% +0,2%GT Index (USD) 887,17 +2,3% +5,1% AZN / USD 1,7825 0,6% 8,0%

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facebook.com/georgiatoday

• • MARCH 7 - 9, 2017 • PUBLISHED TWICE WEEKLY PRICE: GEL 2.50

In this week’s issue...

Continued on page 5

Prepared for Georgia Today Business by

PAGE 15

PAGE 14

Economic Freedom (Act): Do We Need It or Not?

World Tourism Forum Brings Industry Leaders to Istanbul Global Meeting

Dechert Onpoint: Georgia & The Energy Charter Treaty

First Woman to Run Construction Company in Adjara

Electricity Market Watch

The Russian Oil Industry Will Survive, even at $20 per Barrel

Austrian FM Calls for Refugee Centers outside EU

INTERVIEW BY VAZHA TAVBERIDZE

The visa-free regime between Israel and Georgia was, and is, rightfully considered a huge step toward closer ties between two nations that share a 26-century history of

fraternity and friendship. There may be many a thing you can accuse Georgians of, but Anti-Semitism would probably be at the very end of that list. Therefore, cries from deported Geor-gians that they were treated with disrespect at the Israeli border caused quite an uproar in Georgian media and society recently.

As Steady As Ever: Israel-Georgia Relations

GEORGIA TODAY MARCH 7 - 9, 20172 NEWS

BY THEA MORRISON

The puppet regime of Geor-gia’s breakaway region Abkhazia closed two so-called crossing points along the administrative bound-

ary line (ABL) on March 5.Before this decision, three crossing-

points along the occupation line were accessible: Enguri Bridge, Nabakevi-Khurcha and Otobaia-Orsantia. Now, following a decision by the de-facto Abkhazian authorities, only Enguri Bridge will remain open for locals to be able to cross the occupation line.

Georgia’s Ministry of Foreign Affairs (MFA) condemned the fact, highlighting that last year the representatives of the occupation regime also closed the "cross-ing points" in the villages of Tagiloni and Lekukhona.

“This decision grossly violates funda-

De-facto Abkhazian Offi cials Close 2 "Crossing Points" on Occupation Line

mental rights to freedom of movement, privacy and family life, access to educa-tion and healthcare for the local popula-tion, and serves for isolation of the occu-pied Abkhazia region from the rest of the world,” the statement of the MFA reads.

The ministry says that closing crossing points along the occupation line will aggravate the already diffi cult humani-tarian situation in the Abkhazia region, especially the livesof vulnerable groups, such as the elderly, people in need of medical care or medical evacuation and schoolchildren, further provoking desta-bilization of the situation on the ground.

Moreover, the MFA states that despite clear-cut appeals from the international community, the Russian occupation regime in Sokhumi made the decision to continue its “destructive policy” and to impede the peaceful confl ict resolu-tion efforts offered by the Georgian gov-ernment.

“The Ministry of Foreign Affairs calls

upon the Russian Federation to refrain from provocative actions against Geor-gia, and to respect the fundamental prin-ciples of international law, as well as commitments taken under the EU-medi-ated 12 August 2008 Ceasefi re Agree-ment, in order to make a responsible approach to the prevention of escalation of tensions on the ground,” the statement reads.

The ministry also appealed to the inter-national community to duly assess the tendency of closure of the so-called crossing points and isolation of the occu-pied regions; the so-called referendum to be held on 9 April in the Tskhinvali region, and to take effective measures with regard to Russia’s illegal steps undermining the sovereignty and ter-ritorial integrity of Georgia.

Ketevan Tsikhelashvili, Georgia’s Min-ister of Reconciliation and Civil Equality also criticized the closure of “crossing” points.

“Around 1000 people use the crossing

points every day and the closure of two more points violates the fundamental rights of local residents,” Tsikhelashvili says. “This includes the right to free movement, private and family life, edu-cation and healthcare. The de-facto regime’s argument that the crossing points were closed for 'enhanced secu-

rity measures' is groundless. These points are used by peaceful populations for domestic reasons,” she added.

The minister called on all the parties involved in the decision to realize the gravity of the action and take steps towards simplifying the opportunities of movement in the affected region.

Although winter is nearly over, tourists can still fi nd places in Georgia covered in snow, and this is true not only in the high moun-

tains. Don’t be surprised, then, when you meet snowy views captured on the pages of this WHERE February-March issue, a guide full of hot travel reviews and recommendations carefully pre-pared by the Where editorial team.

One of our top picks this issue is an article about Gergeti, with Swiss jour-nalist Manuela Kosch discussing in detail the story of one of Georgia’s must-see monasteries, just three hours from Tbilisi. If you haven’t been yet, doubtless you will have seen photos of the Gergeti Trinity Church, sometimes peeking out of the clouds against the mesmerizing background of the Kazbegi

WHERE to Go, Stay, Eat, Drink and Buy in March

mountains. Another resort where winter lingers

is the famous Borjomi and Borjomi-Kharagauli National Park, a protected area with unique landscape and distin-guished biodiversity. Beautiful Borjomi town, surrounded by high mountains, is a popular tourist destination with interesting architecture, breath-taking nature and warm mineral spring water spouting straight from the tap for you to try in the central park.

Follow our Svaneti-resident Tony Hanmer, who has lived there since 1999, on a discovery tour of the region, on the way learning everything you need to know to make your trip to Svaneti a real success before, during and after your visit.

Discover the best spots for a romantic meal, check out the lunchtime offerings

along the former Leselidze Street and take a peek into the city’s churches and yards while hearing about the Love Let-ters past visitors have written about it all.

You might think that we Georgians are bias in our glowing descriptions of the country’s resorts, but even the for-eign press is on to it- check out The Telegraph, which included Tbilisi on its list of 21 Must-Visit European Cities, and Vogue, which puts Georgia among its hot travel destinations in 2017.

Now you’re sure Georgia is the right choice for your holiday in 2017, grab a copy of WHERE from any souvenir shop in the Old Town and know that in your hand you have all the best information on WHERE to Go, Stay, Eat, Drink and Buy this spring – another wonderful time to explore Georgia.

GEORGIA TODAY MARCH 7 - 9, 2017 3NEWS

BY THEA MORRISON

Sebastian Kurz, Foreign Minis-ter of Austria, has proposed to create refugee centers outside the borders of the European Union (EU), for example in

Georgia or in the Western Balkans.The proposal came during his inter-

view with German bild.de newspaper.“We need refugee centers outside the

EU, which are operated together with the UNHCR… It is not that important where they will be. The important thing is that these countries will ensure pro-tection, and that people who illegally try to get into Europe gate sent back there. The facilities could be placed in coun-tries such as Egypt, Georgia, or some-where in the Western Balkans,” Kurz stated.

Kurz added that the Mediterranean route should be closed for illegal immi-grants.

Austrian FM Calls for Refugee Centers outside EU

“It is easier to stop and take someone back to the EU's external border than when they have already moved into a fl at in Vienna or Berlin,” the Austrian minister noted.

The statements of Kurz were followed by comments in Russia.

Russia believes that the idea of migrants in Georgia, taking into account the threat of international terrorism, contradicts Russia's national interests.

First Deputy Chairman of Russia's Federation Council Committee on Defense and Security, Franz Klintsevich, told Ria Novosti that EU member states want to rid themselves of the migration crisis burden and transfer it to others.

“The proposal of Sebastian Kurz is directly related to the national security of Russia, which has a common border with Georgia,” Klintsevich stated in his interview.

The Russian offi cial also said that “eve-ryone should remember the time when terrorists were being readied in Georgia's Pankisi Gorge.”

BY THEA MORRISON

The European Court of Human Rights (ECHR) temporarily suspended enforcement of the verdict over Rustavi 2 TV reached

on March 2 by the Grand Chamber of the Supreme Court of Georgia.

Rustavi 2 appealed to the ECHR and requested an interim measure to suspend the Supreme Court’s decision on March 3.

The broadcaster received a letter from the ECHR later the same day, suspend-ing the verdict until March 8.

"On March 3, 2017, the court (the duty judge) decided … to indicate to the Gov-ernment of Georgia, under Rule 39, that the enforcement of the Supreme Court’s decision of 2 March 2017 should be sus-pended and that the authorities should abstain from interfering with the appli-cant company’s editorial policy in any manner,” the ECHR letter said, adding that this interim measure is granted temporarily, until March 8 of 2017.

“For the fi rst time in its history, the ECHR suspended the enforcement of the Supreme Court decision," said Director General of Rustavi 2, Nika Gvaramia, stated at a special press-conference. "Such a measure has never been used by the Strasburg Court expect for cases concern-ing torture or extradition of a person, or when a person’s life is in danger”.

Strasburg Court Suspends Georgia’s Supreme Court’s Verdict over Rustavi 2 TV

The Director General believes that the Rustavi 2 case and the “shameful judicial authorities of Georgia, laid the founda-tions for the new practice of the Euro-pean Court”.

The Grand Chamber of the Supreme Court of Georgia, which is tasked to solve the most complex cases, made the fi nal decision over the high-profi le Rustavi 2 TV dispute and granted the assets of the broadcaster to its former owner, Kibar Khalvashi.

Khalvashi was a co-owner of Rustavi 2 from 2004 to 2006. He fi led a lawsuit in August 2015 to reclaim his shares, say-ing he was illegally deprived of his com-pany under the previous United National Movement (UNM) government.

The case was handed to the Grand Chamber on November 21, 2016. On March 2, 2017, the Chamber, which con-sists of nine judges, including the Chair of the Supreme Court, ruled that 60 per-cent of Rustavi 2 TV shares were to be given to Khalvashi and the remaining 40 percent to Panorama LTD, which is a company owned by him.

The Chamber made the decision on the background of protest rallies, organ-ized by Rustavi 2 and its supporter oppo-

sition parties, who demanded “a fair decision” from the court.

Georgia's Minister of Justice, Thea Tsulukiani, commented on the decision of the ECHR, saying that correspond-ence from Strasburg shows that Rustavi 2, as a company, had applied to the Euro-pean Court and named the government of Georgia as a respondent party.

The Minister said that Rustavi 2 requested the following:

1. To prevent the Government of Geor-gia from executing the March 2 decision until the European Court considers the case on its merits and delivers the fi nal decision;

2. To prevent the Government of Geor-gia from shutting down the TV station;

3. To prohibit the government from changing the management or the board of the company.

“The judge made the decision to ban the government from taking any measure that would cause changes in the edito-rial policy until March 8 and not until the end of the review of the case, as was demanded,” said Tsulukiani, adding that Georgia will follow the case according to procedures.

The ECHR is a supra-national or international court established by the European Conven-tion on Human Rights. It serves to hear appli-cations alleging that a contracting state has breached one or more of the human rights provisions concerning civil and political rights set out in the Convention and its protocols.

GEORGIA TODAY MARCH 7 - 9, 20174

THE ISET ECONOMISTA BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economicgrowth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

BUSINESS

BY LEVAN PAVLENISHVILI & NORBERTO PIGNATTI

The Magna Carta (originally known as the Charter of Liberties) is one of the most famous documents in the world, which established the idea of limited government in 1215 and is considered

to be a symbol of liberty today.The so-called “Economic Freedom Act” (EFA),

which has been a matter of public discussion in recent weeks, refers to two pieces of legislation: (i) a Constitutional amendment from 2010, which requires a referendum for introducing new taxes or increasing the tax rate, and (ii) the Law on Economic Freedom (2011), in force since 2013, setting a number of additional restrictions to government fi scal policy (Table 1).

Several economists have criticized this legislation as limiting the government’s ability to utilize fi scal policy effectively. Some of the center-left MPs from the ruling party have actively endorsed this idea, proposing the revocation of the legislation. Other

Economic Freedom (Act): Do We Need It or Not?

• the constraints it poses to expansionary fi scal policies.

NO NEW OR HIGHER TAXES?Requiring a referendum to introduce new taxes can be problematic if it prevents the government from introducing new (specifi c) taxes to align the incen-tives of market players with those of the society (as in the case of negative externalities). Given the lim-ited number of taxes allowed by Georgian legislation and the way in which they are defi ned, there is a real possibility that the EFA could prevent the intro-duction of potentially useful economic instruments (such as a tax per unit on pollutants released in the air or discharged in a river) or, at least, delay their introduction and add a non-negligible element of unpredictability to the legislative process. Even the modifi cation of existing taxes to fi t emerging needs, whenever possible, could theoretically be challenged as “introduction of a new tax.” What is more con-cerning – to those that oppose the EFA– is that the fi nal decision about the legitimacy of the instrument used would not depend on whether its introduction led to a net gain or a net loss for the society but, rather, on a court’s interpretation as to whether the instrument constitutes a “new tax,” or not, poten-tially preventing even the introduction of a welfare (and effi ciency) enhancing instrument. Similar con-cerns can be raised also with respect to situations in which, facing an exogenous revenue shortfall in the state budget, the government fi nds itself in the impossible position of being unable to raise taxes (or indebt itself, something we will discuss below) and must adopt sub-optimal choices (such as cut-ting crucial investment expenditures), with poten-tially negative long-term effects on the economy.

Does this need to be the case? Not necessarily. The EFA does not prohibit the introduction of new taxes or the increase of the existing taxes tout court. It “just” conditions the adoption of such initiatives to the approval of the Georgian population. While there is a justifi ed concern that the population would instinc-tively oppose tax increases (or the introduction of new taxes) and favor the reduction of taxation, there is some evidence to the contrary coming from the expe-riences of other countries (e.g. the approval of a sales tax increase and of a property tax increase in the USA and the rejection of a proposed tax cut in Switzerland). Voters can (and do) vote to increase taxes and to reject tax cuts when a suffi ciently strong case is made. Ulti-mately, having a rule such as the EFA could even be benefi cial if it forced the government to have a good case for requiring the introduction of new taxes or an increase in existing ones. Finally, the fact that the EFA allows the government to temporarily increase taxes for up to 3 years without referendum gives some addi-tional leeway to government action, limiting potentially negative impacts.

WHAT ABOUT GOVERNMENT SPENDING?The other critical aspect of the Economic Freedom Act concerns the rigid limits imposed on the gov-ernment concerning some parameters such as the share of government expenditures, budget defi cit and public debt over GDP. As we mentioned, the rationale of such constraints would be to limit the potential burden on the economy associated with a hypertrophic government. However, as those oppos-ing the current legislation remind us, these very rigid constraints might prove counterproductive in exceptional circumstances, limiting the capacity of the government to act in a countercyclical way. They have a point. In situations characterized by a pro-longed underutilization of factors of production (such as capital and labor), an increase in public expenditure can play an important role in acceler-ating a recovery and preventing painful (and waste-ful) stagnation. The excessive rigidity of the Euro Convergence Criteria (also known as the Maastricht

Criteria), for example, are being criticized by an increasing number of economists around the world as lacking economic meaning and as being among the main causes for the poor macroeconomic per-formance and the increasing social tensions within the Euro Area. It is interesting to note how two out of the three macroeconomic indicators included in the Law on Economic Freedom coincide with the Maastricht criteria (namely, the 3 percent limit for the budget defi cit/GDP ratio and the 60 percent limit for the debt/GDP ratio). Another interesting observation is that the Euro Convergence Criteria do not mention any maximum limit to public expend-iture (as share of GDP).

Indeed, there is no generalized consensus in the economic profession about the relationship between the size of government and development of a coun-try. The reason is simply illustrated by an analysis of Table 2. For example, Ireland and Switzerland, which have a share of government expenditure to GDP similar to Georgia, are among the top ten countries in terms of the Human Development Index (a broader measure of economic development, compared to GDP), exactly like Denmark and Norway, whose share of government expenditure to GDP is more than 20 percentage points higher. All this seems to indicate the absence of a clear, univocal relationship between government size and development.

Also in this case, however, things are not as dra-matic as they may seem at fi rst sight. The EFA does leave some fl exibility to the government to exceed the values set in the law, requiring in exchange the defi nition of a plan to “reabsorb” the excesses over a two-year period.

CONCLUSIONTo summarize, while the Economic Freedom Act does not currently prevent the government from conducting an active fi scal policy, it does constrain its capacity to conduct it. On the positive side, this maintains a simple and transparent tax system, reduces the risk of the government overreacting to temporary fl uctuations of the economy, and condi-tions the introduction of new taxes and any increase in existing ones to the scrutiny of the population, encouraging a more thorough analysis of the expected impacts of public expenditures. On the negative side, however, it creates obstacles to the introduc-tion new (potentially welfare enhancing) tax instru-ments, it may limit the possibility of the government to act in a decisive manner to tackle deep and pro-longed recessions, and it may prevent the govern-ment from investing signifi cant resources in the development of the country (fi nancing its expend-iture by issuing debt). Overall, whether the benefi ts of this legislation will exceed its costs will depend on the challenges faced by Georgia, and on the prag-matism and fl exibility shown by both the Georgian government and Georgian society. Rules can be useful, but one should always keep in mind that they are a means towards a goal, not the goal itself.

Levan Pavlenishvili is a Senior Researcher, EEPRC, ISET Policy Institute; Norberto Pignatti is a Professor at ISET – Head of the EEPRC, ISET Policy Institute.

Number of Taxes 6

Government Expendi-tures, share of GDP

30%

Budget Defi cit, share of GDP

3%

Public Debt, share of GDP 60%

New tax / Tax rate increase Referendum (except for excise tax)

Table 1. Law on Economic Freedom in Short

government offi cials, however, affi rmed the that EFA, which does limit the discretionary power of the government to add new taxes and to expand the public budget, is consistent with the current gov-ernment’s vision for economic development and therefore does not need to be modifi ed.

Given the importance of this piece of Georgian economic legislation, in this article we will discuss in greater depth the merits of both positions, look-ing separately at its two most relevant consequences:

• the inability of the government to introduce new taxes (or to increase the existing ones)

Total Govern-ment Expendi-tures (%) of GDP

HDI Ranking

Denmark 56 4

Norway 48 1

Switzerland 33 3

Ireland 29 6

Georgia 29 76

Sources: IMF WEO 2016; HDR 2015

Table 2. Total Government Expenditures as Share of GDP and HDI Ranking (selected countries)

GEORGIA TODAY MARCH 7 - 9, 2017 5BUSINESS

As Steady As Ever: Israel-Georgia Relations

Continued from page 1

Wanting to hear both sides of the story, and from a reliable source at that, Pano-rama TV Show and GEORGIA TODAY spoke with the Israeli Ambassador to Georgia, Shabtai Tsur, who opted for a rather straightforward approach to the issue.

Serving in his second term as Ambas-sador (his fi rst was in 2005-2008), Tsur was born and raised in Georgia, in the Vani region, and, in his youth, went by name Shota Tsotsiashvili. The Vani native left Georgia when he was 21 to study in Rus-sia, before permanently moving to Israel. He now boasts 32 years of public service, having held posts as Advisor to the Prime Minister on Georgia and the South Cau-casus, Honorary Consul of Georgia in Israel and, as mentioned, Ambassador. His second coming to his second homeland, as he calls Georgia, has, however, been somehow overshadowed by the recent deportation controversies, and he was keen to explain just what is going on at the Israeli border for Georgians.

“First of all, let’s talk numbers,” he says, visibly eager to underline the pros of the visa-free regime that was considered a major boon from Israel. “In 2015, around 70,000 tourists came here from Israel. In 2016, that number grew to 100,000. Simi-larly, more than 13,000 tourists visited Israel from Georgia. What we see from those numbers is a mutually benefi cial tourist fl ow between our two countries. “

However, there are challenges and prob-lems, too, a fact he’s willing to admit. “There are three types of tourist coming from Georgia,” he says. “First, the ‘real’ tourist, those that come and go back. Second and third, however, are more problematic – these are people who seek to work there, often illegally, or ask for asylum.”

“In 2016, when we looked at the statistics

we were quite confused,” he confesses. “The numbers of those who illegally remained in Israel and asked for asylum had dramatically increased.” Looking at numbers wasn’t the only thing they did, though: a few weeks ago, Israel promptly recognized Georgia as a country of safe origin, which effectively rules out getting asylum in Israel on grounds of persecution or discrimination in Georgia.

“Nobody is above the law in Israel – not the prime minister, not the president, nobody. And that certainly includes tour-ists from Georgia,” Tsur says. According to his logic, an Israeli border guard shouldn’t be above the law, either, so how about investigating those claims from Georgian travelers that caused such a public outcry here?

“Every concrete issue will be looked at. The embassies of both countries, and for-eign ministries – all of this is being dis-cussed at the highest level. We are work-ing very hard to make such things happen less and less often. Each and every com-plaint is monitored by the Georgian Con-sulate. And don’t get me wrong- I don’t deny anything; it’s possible somebody at the border made a mistake. When, out of 100 % of travelers, 80 % seems to be try-ing to stay illegally and engage in illegal activities, 1 or 2 % mistakes are to be expected. As bad as it is, such things hap-pen in every country, at every crowded border. But rest assured, we’ll investigate every single issue,” he promises. And, he says, the tourist fl ow between the two countries is only going to get bigger.

“In 2017, there will be literally 100 fl ights per month. It’s really, really busy. So, no matter what some people might say, the visa-free regime between Israel and Geor-gia is doing just fi ne, and will continue to do so. The relationship between Israel and Georgia is as steady as ever,” he concludes reassuringly.

BY NINO GUGUNISHVILI

Spilow, the fi rst Georgian chil-dren’s clothing brand, is to be made available in the Lon-don Igloo Kids store. The cooperation began when

Spilow made clothes displaying book characters for Igloo for its World Book

First Georgian Children’s Clothing Brand Spilow to Enter UK Market

Day dress up. World Book Day is cel-ebrated on April 23, but the UK marks it on the fi rst Thursday of March.

Founded a year ago by three young Georgian women, Sopo Chkhaidze, Taso Japaridze and Marinka Garibash-vili, Spilow produces clothes from all natural materials for children aged 1 to 12.

“We wanted it to be a Georgian brand affordable for young parents, with

clothing made from natural materials and comfortable to wear for any occa-sion,” Chkhaidze says.

Today, the company produces two lines of clothing- one vintage and another made with contemporary tex-tile. Even without their own shop, Spi-low became an instant success on social media. They are now planning to open their own sewing facility and possibly expand their export beyond the UK.

GEORGIA TODAY MARCH 7 - 9, 20176 BUSINESS

BY GEORGE SHARASHIDZE

On 16-18 February, Istanbul hosted the world-renowned World Tourism Forum with the participation of a large number of industry executives, investors and public authorities from

around the globe. Since 2015, the World Tourism Forum has been

the meeting point for leaders shaping the global tourism trends.

Under the auspices of the Presidency of the Republic of Turkey, and in partnership with lead-ing hospitality, travel and destination management organizations such as Coral Travel, Turkey’s lead-ing tourism company (member of OTI Holding), the World Tourism Forum hosted a three-day intensive tourism conference distinguished with prominent speakers including David Miliband, the President and Chief Executive of International Rescue Committee (IRC); Sphilko Sergey Pavlovich, President of Russian Union of Travel Industry; and Fettah Tamince, Owner of Rixos.

Prime Minister of Republic of Turkey, HH Binali Yıldırım, delivered the opening speech at the World Tourism Forum.

"It is insuffi cient to evaluate tourism only from an economic point of view- tourism is beyond that. It is primarily the meeting of cultures, the meeting of civilizations," he declared, adding that tourism plays a key role in today’s chaotic world, supporting peace and prosperity. “Tourism encourages communica-tion between different cultures,” he said.

Naming tourism as an ambassador of peace and a main factor in resisting violence through hospi-tality and unity, HH Binali Yıldırım provided rich statistics and numerous facts and fi gures showing tourism’s increasing role in economic development.

World Tourism Forum Brings Industry Leaders to Istanbul Global Meeting

Celebrating its 25th anniversary in 2017, OTI Hold-ing hosted foreign guests, together with Coral Travel agents in Turkey and other special guests, at the Coral Travel booth during the World Tour-ism Forum in the Istanbul Congress Center. Twenty foreign press members in the OTI group got the chance to interview senior managers from OTI Holding and Coral Travel throughout the Forum. On the opening day, Prime Minister Binali Yıldırım visited the Coral Travel booth and started a suc-cessful new season for OTI managers.

In addition to the UNWTO (World Tourism Organization) Special Envoy and OTI Holding Board of Directors consultant Dr. Michael Frenzel, and Russian Tourism Industry President Sphilko Sergey, who also delivered speeches during the Forum, Artur Grocholski, President of the National Association of Travel Agents of Poland; Ukrainian Ministry of Economy Tourism Department Director Ivan Lip-tuga, Head of Kiev City Management Tourism Department Anton Taranenko, and Tunisian Tour-ism National Offi ce General Director Abdellatif H’mam visited the Forum as OTI guests. During the gala night organized in Çıragan Kempinski on the last day of the World Tourism Forum, Coral Travel Group was given the "Perfect Tourism Group" award.

The World Tourism Forum embodies a profes-sional staff under the leadership of its president, Bulut Bagcı. The World Tourism Forum, based in Istanbul, Turkey, was founded with the purpose of bringing all tourism industry leaders around the world together. World Tourism Forum is a high-level platform to discuss tourism and other linked disciplines in different aspects. It is organized four times every year in global centers around the world, bringing together world tourism leaders and tour-ism industry representatives. Regional meetings are held three times a year in different cities around the world and one global meeting is held once a year in Istanbul.

GEORGIA TODAY MARCH 7 - 9, 2017 7BUSINESS

INTERVIEW BY MARIKO NATSARISHVILI

Gender balance has always been an issue in the con-temporary world. Equality of sex is intrinsically linked to sustainable development

and is vital to the realization of human rights for all. In line with global trends, more and more Georgian women are becoming decision makers and being appointed to high managerial positions

Meet the First Woman to Run a Construction Company in Adjara

in Georgia. As such, the Black Sea region of Adjara was pleased to see a former journalist and Member of the European Cultural Parliament, Natia Sirabidze, after years of serving in government, appointed as CEO of the Mardi Holding construction company in Adjara.

The company Mardi Holding was founded in 2007, though its history started 25 years ago with a small company work-ing on import-export. Currently, the Holding unites construction, project development, architectural, real estate and freight companies as well as wine and tobacco production and hydropower plants.

GEORGIA TODAY met the newly appointed CEO to discuss women’s pri-orities when holding leading positions in the public and private sector.

WHY DID YOU DECIDE TO MOVE FROM GOVERNMENT TO THE PRIVATE SECTOR? I’ve worked in different leading positions in the government, non-governmental organizations and media - I was at vari-ous times a Deputy Minister and Head of PR and, to be honest, I wanted to try something different. I’m a former jour-nalist and as a journalist I always con-sidered myself an agent of change: every position I took was a trial to change something and now I think it’s time to face new challenges in the business sec-tor. This will be a new experience for me and hope it will open new opportu-nities, bringing more success and less failure.

IS THE PRIVATE SECTOR MORE WELCOMING TO FEMALE BOSSES? From my observation, women can mul-titask better than men. Generally, Geor-gian women are “all mighty;” we are educated, we are disciplined workers, we cook well, take care of kids, are tal-ented in singing and craft-making. But is seems that men do not like to acknowl-edge this. Businesses do not yet really welcome women bosses, but are starting to feel the need to. I myself took this position because it was interesting for me to work for a company that produces diverse products and works in so many new directions. The founder of the com-pany, Irakli Turmanidze, and the team are very creative and energetic, which is a good drive.

WHAT ARE THE MAIN BUSINESSES OF THE HOLDING? The main direction is construction and development; we build houses and apart-hotels in Batumi and Tbilisi. Our com-pany was the fi rst in Georgia to make semi-ready products for hunting and sports weaponry out of walnut tree roots, which were sold on the European mar-ket for companies such as Beretta, Benelli, Anschutz, and Perazzi. In addition, in 2008, Mardi Holding started growing tobacco leaves and creating tobacco products, among which were the fi rst Georgian cigars to be exported to Europe. Currently, there are 23 kinds of Georgian cigar and six kinds of Georgian tobacco on sale. So, we are pioneers in many

directions and would like to continue this pattern.

WHAT NOVELTIES DO YOU PLAN TO INTRODUCE?Our priority is environment protection, so we have started working on energy-effi cient constructions. We offer our customers houses with “green frames” that save energy. Our headquarters was the fi rst building in Georgia with a sys-tem of renewable energy facilities: geo-thermal heating and conditioning, and energy-effi cient illumination based on helio and wind power. There are soon

to be water recirculation and electro-mobile charging stations as well. Even more, to support Georgia’s economic and political independence, we com-menced hydropower plant construction in Adjara, in Keda municipality. This will see three mini hydropower plants built ensuring no harm is done to the envi-ronment. The plants will produce a total power of 5.7 megawatts from a $7 million investment.

I’ve come to realize how hard it is to run so many projects, but we have a great team and I hope that my participation will bring even more success.

Natia Sirabidze, CEO of the Mardi Holding construction company in AdjaraWomen can multitask better than men [and], generally, Georgian women are “all mighty...” But is seems that men do not like to acknowledge this

GEORGIA TODAY MARCH 7 - 9, 20178

The Galt & Taggart Research team comprises Georgian and Azerbaijani fi nance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fi xed income corporate research.

For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.

BUSINESS

FOR GEORGIA TODAY BY MARIAM CHAKHVASHVILI

Sector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine,

and Real Estate sectors in Georgia. As part of our energy sector coverage, we produce a monthly Electricity Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website - gtresearch.ge.

GEORGIA RENEWABLE POWER COMPANY (GRPC): SIGNIFICANT PLANS IN RENEWABLE ENERGY PROJECT DEVELOPMENTGoG has declared its intent to sign an MoU with JSC Caucasian Wind Company for the feasibility study of wind power plants (WPPs) in Tbilisi, Martkopi, and Tkibuli. The approximate installed capac-ity of each WPP is 100MW, while the exact capacity and required investment will be known after the completion of the 18-month feasibility study. The company is also planning to develop four additional WPPs. JSC Caucasian Wind Company is an SPV established by GRPC, subsidiary of BGEO Group, for the development of wind power projects in Georgia. GRPC is also pursuing the development of ten solar power plants and several HPPs through various SPVs.

Excluding GRPC’s wind project pipe-line, there is approximately 822MW of wind projects under development MoUs, which would generate approximately 3 tWh of electricity. Feasibility studies, to be fi nalized in the next couple of years, will establish the fi nal number of projects to advance to the construction and oper-ation phase, with adjusted installed capac-ity and generation fi gures.

ENGURI HPP TEMPORARILY HALTS OPERATIONS TO PREPARE FOR REHABILITATION WORKS IN 2018Enguri is the largest HPP in Georgia, owned by Enguri Ltd, a state-owned com-pany. The Enguri dam is the sixth largest

Electricity Market Watch

dam in the world and included on the list of national cultural heritage. A series of renovations were completed on the Enguri HPP from 2006, specifi cally on the dam and electro-mechanical equipment. The fourth phase of rehabilitation, which mainly includes works on the 15km tun-nel through the Enguri dam to the power house, is scheduled for 2018 and will require approximately EUR 33mn. An EBRD loan, along with EU NIF funding, will be used to fi nance the completion of the Enguri HPP renovation program. The fi rst part of the project envisages the

selection of a consultancy, which will deliver the fi nal design and timeline of the renovation works. The tender proce-dure for the selection of a consultancy is expected to commence by the end of March 2017. In order to give consultants the opportunity to evaluate future works and submit competent bids, Enguri HPP halted operations for several days start-ing February 19th, allowing experts to walk through the tunnel.

Enguri HPP, together with Vardnili HPP, which mainly uses the water fl owing from Enguri, satisfi es approximately 35% of

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total annual electricity demand (22% excluding the Abkhazian region). On average, 46% of electricity generated from Enguri and Vardnili is used to satisfy the consumption of the Abkhazian region, while the rest is used to meet domestic consumption needs and/or exported. When Enguri is temporarily shut down, daily demand is satisfi ed through elec-tricity imports from Azerbaijan, Armenia, and Russia (for the Abkhazian region).

ELECTRICITY CONSUMPTION AND GENERATION – JANUARY 2017Domestic consumption increased 7.2% y/y in January 2017, with Telasi (+10.5% y/y) and eligible consumers (+17.9% y/y) driving the growth. DSO consumption increased 5.8% y/y: consumption was up 2.7% y/y by Energo-Pro, 7.7% y/y by Kakheti Energy Distribution, and 10.5% y/y by Telasi, which has posted 20%+ annual growth rates for the past fi ve months. Consumption of the Abkhazian region was up 6.9% y/y and accounted for 94.8% of the electricity generated by Enguri and Vardnili. Consumption by eligible consumers was up signifi cantly (+17.9% y/y), albeit from a low base in January 2016 (-24.7% y/y). The largest eligible consumer, Georgian Manganese (78.5% of direct consumption), posted 24.9% y/y growth, also from last year’s low base (-28.3% y/y), and contributed quite signifi cantly to energy demand growth in January 2017 (1.7 percentage points). Electricity exports were negligi-ble, while electricity transit from Azer-baijan to Turkey amounted to 9.7gWh in January 2017.

Domestic consumption needs in Janu-ary 2017 were met in roughly equal parts by hydro generation (49.7%), on the one

hand, and thermal (34.0%) and imported (15.8%) electricity, on the other. The newly built wind power plant accounted for 0.6% of total electricity supply. Total electricity supply from domestic sources was down 1.3% y/y. Hydro generation decreased 10.4% y/y, mainly due to low generation of regulated power plants (-29.3% y/y), excluding Enguri and Var-dnili, whose combined production was up 5.6% y/y. The drop in hydro generation was compensated by thermal power (+13.8% y/y) and imports. The amount of imported electricity almost doubled (+92.3% y/y), but from a very low base in January 2016 (-43.9% y/y), and increased only 7.8% compared to January 2015. Most of the imported electricity came from Azerbaijan (96.3%), with the rest (3.7%) imported from Russia, via the Salkhino line, at the beginning of January 2017 to supply the Abkhazian region in island mode. Guaranteed capacity fee was down 21.9% y/y to USc 0.66/kWh. Guaranteed capacity was provided by each of the fi ve guaranteed capacity sources for most of the month. Mtkvari Energy and Garda-bani CCGT operated at full power for the entire month, while Blocks 3 and 4 and GPower were mainly providing reserve for the system.

WHOLESALE ELECTRICITY PRICES IN JANUARY 2017Wholesale market prices in Georgia decreased 7.5% y/y to USc 5.1/kWh, just 0.4% above the Turkish market clearing price in January 2017. Turkish electricity prices decreased 3.0% y/y to USc 5.0/kWh from a very low base in January 2016 (-32.5% y/y). 27.8% of total electricity sup-plied to the grid in January 2017 was traded through the market operator, with the rest traded through bilateral contracts.

GEORGIA TODAY MARCH 7 - 9, 2017 9BUSINESS

BY NINO GUGUNISHVILI

The months of January and February showed a 10.5 percent (71,519) increase in international visitors coming to Georgia y/y,

said Ketevan Bochorishvili, Deputy Minister of Economy and Sustainable Development of Georgia at a briefi ng last week.

According to the information Bochorish-vili provided, the number of tourists who visited Georgia in the months of January and February 2017, and spent more than 24 hours in the country, amounted to 294,001, 24.3% higher (57,417) than in the same period in 2016.

“Tourism is one of the top priorities for our country and a number of gov-ernmental institutions are involved in the process of development,” Bochorish-vili said. “The arrival of each tourist to Georgia has a positive impact on private sector development, on the increase of job opportunities and on income growth. Our goal is to make Georgia a four-sea-son tourism destination and the fi gures from January - February confi rm a rising interest from international tourists and visitors in the winter resorts of the coun-try,”

The Deputy Minister went on to thank the Georgian National Tourism Admin-istration, the Mountain Resorts Devel-opment Company, United Airports of Georgia LLC, Ministry of Regional Devel-

Ketevan Bochorishvili, Deputy Minsiter of Economy and Sustainable Development of Georgia

755 080 International Travellers Visited Georgia in the Last Two Months

opment and Infrastructure of Georgia and other state organizations for their coordinated efforts for development of the Georgian tourism sector.

Azerbaijan, Armenia, Turkey, Ukraine and Russia are among the top countries in the number of visitors coming to Georgia and, as Bochorishvili noted, a positive tendency can also be seen with regards to the EU countries, with visi-tors from Germany up 35%, Poland +30%, Bulgaria+29%, and France +19% for the fi rst two months of 2017. The United Kingdom has shown a growth of visitor numbers to Georgia up by 26%.

Iran with +438%, Uzbekistan +211, India +129%, Israel +65%, China +38% and Rus-sia + 36% are countries showing a con-siderable increase in the number of international tourists travelling to Geor-gia.

Bochorishvili said that in February 2017,

368,010 visitors came to Georgia which is 7,608 more than in the same period last year, with a 2.1% growth.

The number of visitors spending more than 24 hours in the country in February 2017 was 139,918, which is 19,703 % higher when compared to February 2016.

Foreign credit card operations made by international visitors in January 2017 totaled GEL 152,896,000, a 37% increase compared to the same indicator in 2016, Bochorishvili said.

She concluded by highlighting that these are the results of active marketing campaigns being implemented to pro-mote the country, and the number of infrastructure projects realized, espe-cially in the mountain resorts develop-ment sphere. The number of new air-fl ights launched to Georgia was also mentioned as a very important factor for the tourism growth.

BY NINO GUGUNISHVILI

A Doha-Tbilisi-Doha fl ight (Airbus 320) is to be launched by Qatar Airways from May 1, 2017. The new schedule is to be presented

for approval to the Georgian Civil Avi-ation Agency in the coming days.

The decision to intensify fl ights to Tbilisi was announced at the reception

Qatar Airways Adds More Flights to Tbilisi

marking the fi ve-year anniversary of Qatar Airways operations on the Geor-gian market.

The demand on both Doha and Tbilisi as destinations is said to be increasing from Middle-East origin passengers.

Qatar Airways started operating on the Georgian market in February 2012 with Doha- Baku- Tbilisi and Tbilisi- Baku - Doha fl ights. From December 2016, the company added four more fl ights, removing the intermediary stop in Baku.

GEORGIA TODAY MARCH 7 - 9, 201710 BUSINESS

BY NINO KHIMSHIASHVILI

The Network of Caucasus NGOs for Environment Protection (CENN) organized a conference on Prospects of Developing Adjara’s Coastal Zone in the Context of Climate Change, at

Sheraton Batumi Hotel, on March 2.Numerous state and private sector, NGO and

educational sector representatives participated in the event alongside the Ministry of Environment and Natural Resources Protection, Parliament of Georgia, ENPARD: Support to Agriculture and Rural Development Program, National Environ-ment Agency of Georgia, Ministry of Regional Development and Infrastructure, and the Govern-ment of Adjara region.

The seven-hour four-section session centered on a discussion of Adjara’s coastal zone development and potential; its climate and morpho-dynamics development perspectives and challenges; the methods used for safeguarding the Black Sea coast-line; and analysis of the outcomes and recommen-dations. The fourth session was set aside for ini-tiation of the State Program for Black Sea Coastline Protection.

“The goal of this conference is to discuss Black Sea coastal zone development perspectives affected by climate change,” said Nana Janashia, CENN Executive Director. “The state program for Black Sea coastal zone protection will detail what needs to be done. We have vast experience of initiating such state programs that we’ve lobbied and which have been approved and are working. The fact that we’ve been joined by every ministry, the Adjara government and the Parliament of Georgia means that they realize the importance of the issue.”

It was highlighted during the conference that the process of coastal zone wash-out is speeding up, and is expected to only increase in strength as a result of climate change. The problem is caused by two major factors: global warming, which causes the sea level to rise and an increase in wave energy, and human agricultural activities affecting the environment.

“During the 20th century, the coastline moved back about 400 meters at the outfall of the River Chorokhi,” Janashia said.

“The morpho-dynamics of Adjara coastal zone

Developing Adjara’s Coastal Zone in the Context of Climate Change

development is considered to contain high risks for natural disasters. Risks are still higher with high-wave sea storms. Even during storms of scale 3 or 4, houses in the coastal zone are damaged, as is the infrastructure, leading to inhabitants becom-ing eco migrants,” Janashia added.

Chichiko Janelidze, Doctor of Geography, said that the prognosis of risk made by scientists is not taken into consideration. “Beaches are washed away everywhere and, paradoxically, we’re not considering the danger of the sea level already having risen by one meter just this century. Build-ings are being constructed right on the coast, in a zone that will clearly be at high risk in future,” said Dr. Janelidze.

The conference was also attended by oceanolo-gist Alexander Khorava and Zurab Janalidze, Asso-ciate Professor at Ilia State University, Tbilisi.

Zurab Alavidze, Minister of Regional Develop-ment and Infrastructure, was only available to attend the opening of the conference, addressing the participants with the words: “We’re delighted to be gathered in Batumi to discuss such issues as climate change and the problems it causes to the Black Sea coastal zone”. He then thanked CENN for the conference and said that he had to leave to meet with a contractor of a coastline protection project to discuss “concrete topics”. The minister had no opportunity to listen to the themes of the event, to the risks identifi ed by the specialists or to what should be done to protect the coastline in the future.

The minister was attending the launch of a coastal protection project on Batumi Boulevard, on a two kilometer stretch of land between the new boule-vard and the airport. The minister announced that GEL 30 million is to be assigned for the project, with completion expected in 2018. The project will also be extended to Kobuleti beach this year.

Back at Sheraton Batumi, geographers and scien-tists continued to discuss what needs to be done to protect the Black Sea coastal zone, including what activities and initiatives must be implemented. Chi-chiko Janelidze noted that the coastal protection works will be insuffi cient if not planned within a larger scale, with Poti coastline protection activities also taken into consideration. As the discussion drew to a close, it appeared that neither the scien-tists nor the Environment Protection Agency rep-resentatives had any concrete information on the State Program for Black Sea Coastline Protection.

GEORGIA TODAY MARCH 7 - 9, 201712 BUSINESS

Food prices continue to follow the latest trends. Retail FPI shows a 2.6% increase m/m (that is, compared to January 2017) and a 4.9% decline y/y

(that is, compared to February 2016). During the last two weeks, matsoni, tea and carrots lost value (by 10.4%, 6.2% and 6.2% respectively), whereas the prices of cabbage, greens and eggplant increased (by 25.0%, 16.1% and 14.9% respectively).

GARLIC LOOKS INTERESTINGHigher vegetable prices are not sur-

prising given seasonality. However, gar-lic prices have been continuously increas-ing over the last couple of months. Prices started rising in October 2016, and are now much higher (by 65%) than in 2015. Such a big difference y/y shows that increasing prices are caused by other factors than seasonality.

In 2016, garlic imports to Georgia dropped by 63% in value, and by 65% in quantity, compared to 2015. Therefore, in 2016, Georgia imported less than half of the quantity that it imported in 2015. As to trade partners, Georgia imports garlic mostly from China, Turkey and Armenia, with China being the leading import market for Georgia, and the big-gest garlic producer in the world. In 2015, 50% of the total quantity of imported garlic to Georgia was from China, and in 2016, this amount slightly decreased and equaled 47%, which is still high.

Garlic Smells Like Money

Such a sharp decrease in the value and volume of imports can be easily explained if one looks at the world garlic market. Poor weather conditions (rain and snow) in China back in 2015 led to a very bad harvest in 2016, causing specula-tion on the garlic market and driving international prices up. High worldwide prices forced Georgian importers to reduce their imports, and fi nally garlic became much more expensive in Georgia as well.

This particular case emphasizes a g a i n t h e

importance of import substitution, both for consumers and producers. Increased domestic production would save Geor-gian consumers from shortages of prod-ucts and high prices. As to producers, switching to high-value goods will also generate additional income for them.

BY KHATIA KIRIA

The Ivane Javakhishvili State University this weekend organized a two-day con-ference on the legislative and practical challenges of

the Georgian labor law. The main goal of the conference was to create an aca-demic platform for discussion and to contribute to the dialogue on Georgian labor law and how to align it with Euro-pean law.

“The format [of this conference] was interesting and saw signifi cant partici-pants in attendance, including judges, experts and so on,” said TSU rector Gia Sharvashidze. “Our aim is European and Euro Atlantic integration and, as such, a number of legal changes need to be made in all directions. We believe a dia-logue is necessary between employers and employees, and labor relations need to be transparent to all parties. Changes were last made to the Georgian labor law in 2013, and the discussions are still ongoing”.

TSU’s initiative was shared by some of the largest employers in the country,

First Workshop in Georgian Labor Law & Practical Challenges

the fi rst of which was Georgian Post. “This is an important process for the

business sector. It’s about approximating the new labor law with that of Europe,” said Levan Chikvaidze, Georgian Post General Director. “Putting these laws into practice is no easy feat, but we need to fi nd the middle line between business interests and employees. Georgian Post is fully in support of this”.

TBC Bank, ProCredit Bank, and Rom-petrol Georgia also counted among the biggest supporters present at the confer-ence.

Deputies of Georgian Parliament were also there. Member of majority party Georgian Dream, Beka Natsvlishvili, said, “even though the labor law was improved in 2013, and is already near to interna-tional standards, there still remain a number of issues [to solve]”.

“The principal problem is to execute and activate the labor law norms. This is the biggest challenge,” Natsvlishvili said. “Labor inspection, for example, which is the mechanism of execution, still works in pilot mode and is unable to control the problems in the sector. After the pilot regime, it will be able to detect only dangerous working condi-tions, no more. It simply isn’t enough.”

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GEORGIA TODAY MARCH 7 - 9, 201714 BUSINESS

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Ici Paris, a renowned cosmetic chain in Georgia, has introduced a new perfume from Sisley-Izia to its customers, launched in 2017.

Sisley Izia is described as a modern fragrance, a bouquet of sensual and

Ici Paris Presents New Perfume of Sisley - Izia

Dechert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Irakli Sokolovski

and Natia Lapiashvili and associates Ana Kostava and Ana Kochiashvili, is partner-ing with Georgia Today on a regular sec-tion of the paper which will provide updated information regarding signifi cant legal changes and developments in Geor-gia. In particular, we will highlight sig-nifi cant issues which may impact busi-nesses operating in Georgia.

GEORGIA AND THE ENERGY CHARTER TREATYThe 1994 Energy Charter Treaty (“ECT”) ratifi ed by Georgia on 22 February 1995 entered into force on 16 April 1998 (the “Effective Date”). Georgia also became party to the 1994 Protocol on Energy Effi -ciency and Related Environmental Aspects and the 1998 Amendment to the Trade related provisions of the Energy Charter Treaty. The ECT establishes legal pro-tections of foreign investment in the energy sector, provides for the transit of energy and energy products without dis-crimination as to origin, destination or ownership, as well as for transparency and competition, and aims to bring about non-discriminatory access to the sector.

In our previous edition of OnPoint, Dechert provided an overview of the main obligations of member states in the investment sphere under the ECT. This edition of OnPoint will cover the provi-sions of the ECT relating to trade.

MAIN OBLIGATIONS OF MEMBER STATES IN THE TRADE SPHERE UNDER THE ECT The Trade Amendment (“TA”) to the ECT was adopted in 1998 by the Energy Char-

Dechert Onpoint: Georgia & The Energy Charter Treaty

ter Conference. The objective of the ECT trade regime is to forge open and non-discriminatory energy markets through the Energy Charter process. The TA aims to create a stable, predictable and non-discriminatory regime for all energy-related trade between ECT Contracting Parties.

The World Trade Organization (“WTO”) does not have specifi c rules governing the energy sector. However, the WTO’s legal framework includes a number of rules that are applicable to trade in energy-related products and equipment. Accord-ingly, the purpose of the ECT trade regime is to extend both the benefi ts and obliga-tions of WTO membership to the energy sectors of those ECT Contracting Parties who are not yet members of the WTO. In practice, this principle means that trade in the energy sector between WTO and non-WTO Members and among non-WTO Members is treated the same as if all parties were members to the WTO.

BASIC PRINCIPLES OF THE WTO INCORPORATED IN THE ECT1.1.1 Non-discrimination – which embod-ies two key principles:

(a) Most-favored-nation treatment (“MFN”) guarantees that countries can-not under normal circumstances dis-criminate between their trading partners. A country granting a special favor regard-ing its imports or exports to or from any other country must extend this favor immediately and unconditionally to all other members. This obligation extends to all and any goods, services and invest-ments in the energy sphere. The WTO and the ECT, however, allow exceptions from MFN for members of customs unions or free trade agreements or in cases involving imports from developing coun-tries.

(b) National Treatment (“NT”) concerns treating foreign products and “like” domestic products on an equal basis. Adhering to this principle means treating imported and locally-produced energy-related products equally. NT, however, becomes applicable only once a product has entered the domestic market. There-fore, charging customs duties on an imported energy-related product is not a violation of NT, even if locally-produced products are not taxed in an equivalent manner.

1.1.2 Elimination of Quantitative Restric-tions

(a) The ECT requires the elimination of all quantitative restrictions on trade, be they in the form of quotas, licensing restrictions or any other measures imply-ing quantitative limits to trade. In prin-ciple, this applies to exports as well. Governments may, however, retain cus-toms duties if they are below the maxi-mum level agreed in their respective WTO commitments. Additionally, qual-itative product regulations—so-called Technical Barriers to Trade (“TBTs”)—are acceptable so long as they are least trade distortive and serve a legitimate purpose.

NEW ELEMENTS INTRODUCED BY THE TA Apart from adopting traditional WTO stipulations, the TA specifi cally extended WTO rules on energy-related products and equipment to the ECT. As a result, the ECT trade regime now covers not only “Energy Materials and Products” but also a large list of energy-related equipment items.

With regards to customs duties, the TA has maintained the “best endeavors” sys-tem. Under the ECT, Contracting Parties are only required to make a “soft law” or “best-endeavor” commitment not to

increase their tariffs beyond a certain level. However, the TA additionally intro-duced the possibility to progressively replace the soft law customs tariffs pledges with a binding customs tariff standstill regime. The member states undertook to negotiate further in order to gradually replace the “soft-law” commitments with regards to non-increase of tariffs to legally-binding commitments in this regard.

TRADE DISPUTE SETTLEMENT UNDER THE TA The trade dispute settlement component of the ECT mirrors the WTO’s dispute settlement system. However, the TA mechanism is lighter, less detailed and simpler than that implemented by the WTO.

Under the ECT, if a trade-related dispute arises between contracting parties, those parties shall refer it to a dispute settle-ment panel, comprised of panelists selected by the Energy Charter Conference from a pre-agreed list of panelists. Once the panel decides upon a case, its dispute settlement report is subject to adoption by the Energy Charter Conference by a vote of three-fourths of those present and voting, provided that at least a simple majority of all contracting parties support the decision.

This is different from the WTO, where the WTO Dispute Settlement Body auto-matically adopts panel reports unless rejected by consensus. Therefore, the TA retains the former element of political decision-making that could serve as an additional incentive for the mutually-

acceptable, out-of-court settlement of trade-related disputes.

CONCLUSIONSThe ECT and the obligations under it are of utmost important for Georgia as the country wishes to expand its infl uence in the regional energy market and better exploit its energy resources. In that light, we will continue to provide overviews of different aspects of the treaty in detail in upcoming editions of OnPoint.

* * *Note: this article does not constitute

legal advice. You are responsible for con-sulting with your own professional legal advisors concerning specifi c circum-stances for your business.

Dechert’s Tbilisi offi ce combines local service and full corporate, tax and fi nance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, a global specialist Law fi rm that focuses on core transactional and litigation practices, providing world-class services to major corporations, fi nancial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offi ces across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal ser-vices to clients worldwide. For more infor-mation, please visit www.dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

affi rmed character, although, judging by the notes, its composition has a more classical vibe than a trendy one.

Sisley Izia is a "modern, new and mul-tifunctional" perfume with a focus on the note of rose. The composition begins with aldehydes, white bergamot and pink pepper.

A rose accord can be found in the "sophisticated" heart of the perfume, enriched with transparent fl oral notes

and angelica. Amber, musk and cedar form the warm woody-musky base of the fragrance.

Ici Paris marketing and PR Department Head, Khatia Shamugia, said at the launch that customers can buy the new perfume in all branches of Ici Paris. “The fragrance is available as a 30, 50 and 100 ml Eau de Parfum and its prices vary from GEL 195 to Gel 430,” she said.

Sisley is a brand that is present on all

fi ve continents, in more than 90 coun-tries. The company draws 85 percent of its revenue from exports and has expe-rienced one of the largest growth increases in its sector.

In order to ensure that expert advice is communicated, Sisley handles its products through distributors, as well as and especially through its 30 sub-sidiaries in Europe, Asia, the Americas, and the Middle East.

Its international growth has followed a rapid trajectory, and Sisley products have been met with growing success worldwide.

As for Ici Paris, the perfume chain has 21 shops throughout Georgia. Ici Paris priorities are quality and diversity. The company was launched in 1995 and since, has become one of the most sought after European standard chain stores in Geor-gia.

GEORGIA TODAY MARCH 7 - 9, 2017 15

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BUSINESS

BY DIMITRI DOLABERIDZE

Although from time to time "oil howling" sees very low prices, for Russia it is unim-portant what the cost of a barrel will be, as long as it

is no less than $20. This is the minimum "comfort price" for Russian miners, according to a joint report from experts at the Oxford Institute for Energy Stud-ies and Energy Research Institute of the Russian Academy of Science. $30 per barrel, according to their estimates, is enough to maintain the viability of the Russian Federation on the market, while fi eld exploration will be added and devel-opment of new areas will increase prof-its.

The matter is seen differently by vari-ous producers: some work offshore, oth-ers - not, some are large, others –not. Accordingly, the ideal price for oil for each will vary.

For example, for the largest oil com-pany, Rosneft, which has solid cash sup-plies and a lot of "daughters" throughout Russia, mining is comfortable even at $10 per barrel, and Lukoil could survive at $9-12 per barrel, says the Russian-British experts board in its report, ‘The Russian oil industry – 2020,’ published on the website of the Oxford Institute for Energy Studies on February 21. How-ever, none of the stated prices take into account investment in new projects, and they are comfortable only if the target is to increase production and not to develop.

“On average, a barrel of oil produced in Russia even at a price below $10 is profi table. Moreover, taking into consid-eration that the cost of mining at a level of $6 per barrel is not enough for devel-opment, it is clear that investment in new projects is only possible at a price of around $20 per barrel,” the authors of the study say.

The Russian Oil Industry Will Survive, even at $20 per Barrel

However, the declining production in traditional fi elds means companies are “paying more attention to the shelf. The large distance between oil and (lack of) infrastructure necessitates much more money. For example, the Arctic deposit Prirazlomnoe is able to survive at a price of $25 / bbl.,” claimed Gazprom Oil head, Alexander Dyukov, in an interview with Vesti 24 back in December 2015.

It turns out that all oil companies have an incentive to maintain and increase production at a price much below $30 per barrel, analysts conclude. In this case, even at a price of $10, they not only cover the costs of production and trans-portation, but also receive a net profi t. For example, for $10, according to the calculations of the Oxford experts, profi t is $0.9; at a cost of $20 - $ 5.9; at $ 30 - $ 6.9.

Representatives of Rosneft, Gazprom Oil, Lukoil, and Surgutneftegaz declined to comment on the Oxford report.

“The fact is that as soon as quotas of black gold step over the $15 per barrel mark, taxes are automatically reset to zero, and vice versa - if it rises above the budgeted amount (in 2017-2019 $40 per

barrel), the budget gets the windfall. Thus the price of oil at $55-60 per barrel is the most comfortable,” said Alexander Novak, Minister of Energy of the Rus-sian Federation in December.

If we assume that the tax burden won’t change, it can be diffi cult not to agree with the estimates. Indeed, in Russia, the majority of deposits are produced at very low cost, and Russia in this regard is very competitive in comparison with other regions.

“In the North Sea brownfi eld transac-tion costs, on average and excluding capital investments in new deposits, are up to $25-30 a barrel, about the same as the major European oil companies, which, even with the decline in cost, still sell at about about $25 / bbl.,” said a Fitch Rat-ings analyst.

“Russian oil will defi nitely have a lower break-even: the most competitive, taking into account the increasing number of traditional deposits and government support, is Rosneft. Among the most unstable are likely to be smaller compa-nies,” says Stanislav Mitrakhovich, a leading expert of the National Energy Security Fund.