Issue no: 938/74

MarketsAs of 07 Apr 2017

STOCKS Price w/w m/m BONDS Price w/w m/mBGEO Group (BGEO LN) GBP 34.14 +6,0% +18,0% GEOROG 04/21 105.30 (YTM 5.28%) 0,1% 0,2%GHG (GHG LN) GBP 3.51 4,4% 4,9% GEORG 04/21 110.80 (YTM 3.93%) 0,1% 0,3%TBC Bank Group (TBCG LN) GBP 15.00 +0,2% +7,5% GRAIL 07/22 110.68 (YTM 5.38%) +0,1% +0,1%

BGEOLN 07/23 101.07 (YTM 5.79%) +0,0% 0,6%COMMODITIES Price w/w m/mCrude Oil, Brent (US$/bbl) 55,24 +4,6% 1,2% CURRENCIES Price w/w m/mGold Spot (US$/OZ) 1 254,53 +0,4% +3,2% GEL / USD 2,4045 1,4% 1,9%

GEL / EUR 2,5452 1,3% 1,7%INDICES Price w/w m/m GEL / GBP 2,9721 2,3% 0,6%FTSE 100 7 349,37 +0,4% +0,1% GEL / CHF 2,3829 2,0% 1,5%FTSE 250 19 229,69 +1,4% +1,8% GEL / RUB 0,0420 3,2% 0,2%DAX 12 225,06 0,7% +2,2% GEL / TRY 0,6444 3,9% 3,2%DOW JONES 20 656,10 0,0% 1,3% GEL / AZN 1,4281 +1,2% +4,3%NASDAQ 5 877,81 0,6% +0,8% GEL / AMD 0,0050

MSCI EM EE 148,07 +0,8% +2,5% GEL / UAH 0,0892 1,0% 1,9%MSCI EM 961,61 +0,3% +2,7% EUR / USD 0,9443 +0,6% 0,2%SP 500 2 355,54 0,3% 0,5% GBP / USD 0,8083 +1,4% 1,4%MICEX 2 020,23 +1,2% 0,2% CHF / USD 1,0091 +0,6% 0,4%MSCI FM 2 623,62 +1,9% +2,7% RUB / USD 57,2650 +1,8% 1,6%GT Index (GEL) 1 177,93 +0,1% TRY / USD 3,7332 +2,7% +1,4%GT Index (USD) 887,17 +5,1% AZN / USD 1,7035 1,1% 4,3%

ISET PAGE 4

NEWS PAGE 2

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SOCIETY PAGE 11

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• • APRIL 18 - 20, 2017 • PUBLISHED TWICE WEEKLY PRICE: GEL 2.50

In this week’s issue...

Continued on page 2

Prepared for Georgia Today Business by

How Businessmen Grow Wings

The European Investment Advisory Hub: Facilitating Project Promoters

Georgia Presents Its Educational Opportunities at Dubai Exhibition

Energy Minister: Azerbaijan Nearly Satisfi es Georgia’s Entire Gas Demand

Kumsishvili and Kvirikashvili talking about the IMF program

BY NINO GUGUNISHVILI

The International Monetary Fund has approved a new three year $ 285 million program for Georgia and, according to Georgian Prime Minister Giorgi Kvirikashvili, the

program is essential for the successful realiza-tion of all the reforms previously announced by the Georgian government and its Four Point Plan.

The International Monetary Fund’s Executive Board approved the $ 285 million to support the economic reforms in the country on April 12.

International Monetary Fund Approves New Three Year Program for Georgia

FOCUS ON TRANSPORTFrom mobilizing funding to project building guidance, the EU Transport Commission is ready to help PAGE 6-10

Source: interreg-central.eu

Facilitating Cross-Border Investments: Examples of Co-operation in the Implementation of Rail Baltica

GEORGIA TODAY APRIL 18 - 20, 20172 NEWS

Continued from page 1

International Monetary Fund Approves New Three Year Program for Georgia

“The approval of the program means that for the coming three years we have a green light from international monetary organizations to realize all the plans we announced. It also means that the coun-try’s fi scal discipline and fi nancial man-agement must be at the highest level,” Kvirikashvili said, going on to note that the International Monetary Fund’s pro-gram approval is a positive signal to investors working in Georgia.

Within the three year arrangement

BY THEA MORRISON

Georgia’s Vice-Premier and Energy Minister has claimed that neighboring Azerbaijan is the main gas supplier of Georgia and nearly satisfi es

the country’s entire gas demand.Kaladze told Azerbaijani news agency

Trend that Azerbaijan’s state oil company SOCAR ensures a guaranteed, continu-ous and reliable gas supply to the social sector – households and power genera-tion facilities – based on the memorandum signed with Georgia and the agreements with Georgia’s Oil and Gas Corporation.

Kaladze added that this factor signifi -

Energy Minister: Azerbaijan Nearly Satisfi es Georgia’s Entire Gas Demand

under the extended fund facility (EFF), the program aims to help Georgia pro-mote economic growth.

“Structural reforms are critical for the success of the program, enabling higher inclusive growth and economic diversifi cation,” said Tao Zhang, IMF Deputy Managing Director and Acting Chair. “The reform effort will focus on capital market development, pension reform, a PPP framework, public fi nan-cial management, private sector gov-ernance and competition, and education reforms”.

cantly contributes to increasing the energy security of Georgia.

"The average daily volume of gas supply is about 10.5-11.5 million cubic meters from Azerbaijani sources, which is expected to be increased even further with the ongo-ing development of the second phase of the Shah Deniz fi eld," he said.

The minister said the Georgian side welcomes the participation of SOCAR in the energy sector of Georgia.

"SOCAR Georgia Gas Ltd. performs the largest gasifi cation project across the country. The works are provided under the contract between the Government of Georgia and SOCAR signed in 2009, within the framework of which the reha-bilitation and construction of a natural gas distribution network is carried out,"

he added.Kaladze said that in 2009-2016, more

than 200,000 consumers in about 600 settlements got access to natural gas in Georgia.

“By the end of this year, 75 percent of the population will have access to natural gas," he added.

As for the joint Azerbaijan-Georgia-Turkey Power Bridge, Kaladze said it is operating successfully.

"Georgia and Azerbaijan are connected by two high-voltage lines (500 kV and 33 kV), which increased the reliability of connection and cross-border capacity," he said.

In 2016, around 1 billion kWh (300 MW) of electricity was transited from Azer-baijan to Turkey via Georgia.

BY NINO GUGUNISHVILI

An agreement was signed on April 13 by Georgia’s First Vice Premier and Minister of Finance, Dimitry Kum-sishvili; the German Ambas-

sador to Georgia, Heike Peitsch; Chair-man of the Management Board of the Georgian State Electrosystem, Sulkhan Zumburidze; and Klaus Viegel, Head of

German KFW Development Bank to Support Energo Safety in Georgia

locally, but also to export it”. He went on to emphasize the impor-

tance of assistance from Germany in Georgia’s development.

“To date, EUR 700 million in conces-sive credits and grants have been made accessible, a vital help from Germany. These relations and support will con-tinue in future,” he said.

German Ambassador Peitsch in turn emphasized the importance of energo safety to Georgia and noted that Georgia and Germany are marking the 25th anni-versary of cooperation in the sphere of development within the celebration of

the Georgian-German year. The Ambas-sador noted that Germany had provided almost half a billion Euro in fi nancing for projects in the energo sphere since 1993.

Under the framework of Phase Two of Georgia’s Electro Transmission Network Expansion program, the new stage of the multi-year support project is to begin, with a plan to develop the infrastructure of the transmission network in Guria region in the direction of Turkey, and the integration of the hydro power plants located in the north-south part of Geor-gia into the energo network.

the KFW Caucasus Offi ce, according to which KFW Development Bank is to give a EUR 125 million loan to Georgia to expand its electro transmission net-work.

The Georgian Ministry of Finance announces the program is to ensure infrastructure development in order to link hydro power plants to the electro transmission network, with the expecta-tion of increasing its strength and energo safety overall.

Kumsishvili expressed his gratitude to

the German government and the Ger-man governmental organizations work-ing in Georgia- to GIZ and to the KFW Development Bank, which has been supporting important projects in Geor-gia for the last 25 years.

“The EUR 125 million fi nancial resource is crucial for the strengthening of Geor-gia’s energo safety and for the increase of electro transmission in the country,” Kumsishvili said. “The project will enable the building of power plants to not only sell produced electric power

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GEORGIA TODAY APRIL 18 - 20, 20174

it hard to fi nd a true example. An 'Angel Investor' or 'Business Angel' is an experienced entrepreneur, mostly with a high net worth, who directly invests part of his or her personal wealth in a new, grow-ing company at the seed or early stage. Most impor-tantly, besides capital, the business angel provides business management experience, skills and con-tacts for the entrepreneur.

The European Trade Association for Business Angels, Seed Funds and other Early Stage market players (EBAN) provides the key characteristics of a business angel. (See Table 2: What is a Busi-ness Angel?)

Clearly, not every wealthy person satisfi es these characteristics. Angel Investors do not only invest capital, but share their experience with new entre-preneurs and help them to build new companies. Thus, some investors can be considered fi nancial investors but not angel investors. In addition, in some countries, investors need accreditation to show that they satisfy all the requirements and regulations defi ned by securities laws, which vary between countries. The main purpose of the status designation is to protect potential investors from risk. The assumption underlying accreditation is that individuals who qualify will have suffi cient fi nancial knowledge and experience to understand and take on the risks associated with investing in a start-up business.

Business angels can invest individually or in a group, known as a syndicate. The creation of syn-dicates demands less capital from each individual investor, and gives opportunities to diversify invest-ment portfolios, as well as increases the likelihood of start-ups surviving by providing versatile man-agerial expertise, skills and networks. Usually, a syndicate is led by one of the business angels or managed externally.

As discussed in the OECD report “Financing High-Growth Firms”, based on 32 countries' over-view of equity fi nancing markets, business angels are the largest source of outside equity funding, after family and friends, in newly established ven-tures. They play a signifi cant role in providing risk capital and increasingly contribute to economic growth and technological advances. Business angels fi ll a fi nancial gap in the seed and early-stage fi nanc-ing market.

BUSINESS ANGELS IN GEORGIAThe business angels market is partially informal in many countries and there are probably cases in Georgia when wealthy people have invested in the ideas of others and acted as business mentors, using their experience, skills and contacts in the business sphere. However, these cases are rare, and mostly happen through relatives and private networks, and in a completely unorganized way.

With the idea of developing the business angels market in the country and making it more formal-ized and organized, in March, the Georgian Business

Angels Association was founded, the main objec-tives of which are the following:

• Raising public awareness about the business angel market and the success stories of investments,

which should stimulate building of the market. • Address the problem of information asymmetry,

to make it easy for entrepreneurs and investors to fi nd each other.

• Provide training and coaching for both entre-preneurs and investors. Even if Angel Investors are considered to be experienced entrepreneurs and businesspeople, investing in start-ups differs from other types of investment and requires specifi c skills and knowledge. Thus, training and mentor-ing conducted by experienced business angels for new Angel Investors is important for developing a healthy industry. Start-ups in their turn should

be prepared to meet Angels, as the way in which business ideas are presented and advocated for may play a crucial role in decisions over fi nancing the idea.

GOVERNMENT ROLE IN PROMOTING THE BUSINESS ANGELS MARKETPublic policies can include both supply and demand side measures. Two popular and successful gov-ernment policies to address the seed/early stage equity fi nancing gap and encourage business angels, are proving tax incentives and launching co-invest-ment funds, which matches public funds with angel investments. In many countries, governments also support (fi nancially and legally) business angel associations and network groups, as they consider they play a very signifi cant role in coordinating, promoting and developing the market. In the case of a small country such as Georgia, the government could enlarge the market of investors, with experi-ences in various industries by the establishment of links with the Georgian diaspora.

Demand side promotion policies should include the development of an entrepreneurial culture and ecosystem in the country, as well as the provision of programs to increase entrepreneur investment read-iness. Over the last couple of years, the Georgian government introduced programs and concepts, such as the “Business Incubator Fab Lab”, ”Start-up Geor-gia” and “Technopark”, which address the above-mentioned factors to promote the demand side of the business angel market. Some of these government programs have the aim of popularizing the idea of “Angel Investment” and creating precedents for the commercialization of ideas. For example, ten Geor-gian start-ups were chosen to be presented in Silicon Valley (in the US state of California) and to try and fi nd fi nancing there. The scale is tiny, and the process was mostly oriented on foreign investors, and totally subsidized by the government, which will not be a sustainable practice in the long run.

While much work is being done by the govern-ment to promote and support start-ups, further policies are needed to popularize an entrepreneur-ship culture and to arouse the interest of local investors to participate in the business angel mar-ket. The establishment of the Georgian Business Angels Association is the fi rst step forward, and government support of this association, as well as the introduction of a legal framework and infra-structure, will further support the business angels market development.

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

Source: Financing High-Growth Firms, OECD, 2011

BY OLGA AZHGIBETSEVA

Everybody knows Bakar and Tengo (BATE Generals), two businessmen from a very popular Georgian TV series, 'My wife's best friends,' who became incredibly rich from a start-up with a seemingly

'nonsense' idea to export the 'tails' of khinkali (tra-dition Georgian dumplings) to Bulgaria. Later on, the BATE Generals created a special offi ce for ideas, where their relatives and unemployed friends of friends were solicited to generate promising busi-ness ideas. BATE Generals pay a fi xed amount to the idea generator and a small share of the profi t from the operation of the idea, which is how BATE Generals came up with successful business pro-jects, such as a website for husbands of pregnant wives and a taxi with a bed.

SEED AND EARLY STAGE FINANCINGThe tradition, and, in most cases, the only way, for Georgian entrepreneurs to fi nance their businesses and ideas is bank lending, so-called debt fi nancing.

How Businessmen Grow WingsHowever, this source of fi nancing is very limited for start-ups and early-stage businesses due to the high level of risk involved, the unavailability of collateral assets, and high loan interest rates which are almost unaffordable for companies that are unable to generate suffi cient returns in the early stages. Alternative ways of business fi nancing are less popular and underdeveloped in Georgia.

Here, we will discuss equity fi nancing- when a company offers a portion of ownership to investors in exchange for cash and the ability to materialize and prototype the idea. This type of fi nancing exists in Georgia to some extent, but still doesn’t have any organized or formal framework. The most popular equity fi nancing methods around the world are illustrated in Table 1 (the fi rst two being very crucial for seed and early stage ventures).

The fi rst form of equity fi nancing is quite devel-oped in the country. Georgians, as with other peo-ple of the Caucasus, have a very 'tied' social infra-structure, which refers to close relationships with their family and other relatives; making such peo-ple the usual main source of fi nancing business ideas on seed or early stages. However, not every-one with a great business idea has rich relatives or the signifi cant amount of money required, therefore, in many cases, entrepreneurs have to fi nd other ways to make their dreams come true.

The second form of equity fi nancing, angel inves-tors, is almost non-existent in Georgia or, if it does exist, it is rare and entirely informal, which makes

GEORGIA TODAY APRIL 18 - 20, 2017 5

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BUSINESS

BY THEA MORRISON

The National Bank of Georgia (NBG) reports that it is to issue 5-Lari denom-ination silver collector coins on the theme of the Georgian vine, in order to promote the country’s rich culture

and its history of ancient winemaking traditions.This summer, in the Wine Civilization Museum

of the French city of Bordeaux, the International Wine Exhibition will be held, at which Geor-gia will be the

National Bank to Issue 5-Lari Collector Coins

Guest of Honor, presenting itself not only in terms of winemaking, but also in terms of culture, eth-nography and history.

The decision to issue special collector coins was made by the National Bank in respect of this impor-tant event.

The winning design, by Nino Gongadze, was selected through an open competition. The coin is minted in Japan Mint and will be available from July.

The new coin will picture the Georgian vine and the UNESCO heritage-listed large, ancient Geor-gian winemaking vessel Qvevri, with red wine

within.“The main composition is represented by

a graphical illustration of the Wine Civilization Museum located in the

city of Bordeaux, France, where Georgia will be this year’s Guest

of Honor. On the top right side of the coin is depicted

the denomination and the symbol of Lari, while on the arc circularly are placed French inscrip-tions - "L’EXPOSITION ‘VIGNOBLE INVITE’ DE LA CITE DU VIN DE BORDEAUX", "LA GEORGIE - PREMIER INVITE," the state-ment of the National Bank reads.The NBG says the

coins will be sold at the Cash Center of the

National Bank of Georgia and Money Museum in

Kvareli, as well as through an online store accessible on the

website of the National Bank of Georgia. The price has yet to be

announced.

GEORGIA TODAY APRIL 18 - 20, 20176 BUSINESS

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E-mail: info@peoplescafe.ge

By the end of March, food prices increased by 4.4% y/y (that is, compared to March 2016) and by 1.6% m/m (that is, compared to February

2017). On a biweekly basis, the biggest price increases happened for coriander (40.3%), cucumber (30.0%) and eggplant (14.9%). Carrots, onions and tomatoes, on the contrary, became cheaper and cost 22.1%, 24.4% and 15.0% less, respec-tively.

LOOKING AT A PARTICULAR BUNDLE OF PRODUCTSAccording to the Retail FPI, prices of major commodities increased in March this year compared to the same period

RETAIL FPI | Are Major Food Commodities Becoming More Expensive?

the previous year. Sugar prices increased the most, rising by almost 30%, whereas rice, buckwheat, and wheat fl our prices increased by 23.8%, 16.3% and 7.1%, respectively.

While m/m changes are usually driven by seasonality or holidays, such as Easter, y/y changes are mostly driven by the variations in production and interna-tional prices.

Commodities in the diagram are basic foods that are actively traded on inter-national food markets, and, due to their importance for food security in develop-ing countries, the FAO closely follows their prices. FAO’s latest data on their Sugar Price Index shows a huge 55% increase in sugar prices y/y (Feb 2017

compared to Feb 2016). The most recent prices for cereal are also higher, as shown by the Cereals Price Index.

Given that Georgia is a net importer of these commodities, one might expect fur-ther price hikes if international trends are continued into the future, unless Georgian supermarkets offer some discounts to consumers due to the Easter holidays.

BY NINO GUGUNISHVILI

Over 15 Hectares of Tea plantations are to be restored in the Imereti region of Georgia within the three year state initi-

ated program “Georgian Tea”. The budget for rehabilitation works amounts to 37,000 GEL, with 80 percent of the costs expected to be covered by the Agricul-tural Projects Management Agency (APMA) of the Ministry of Agriculture of Georgia.

The Georgian Tea Program was launched by the Georgian ministries of Economic and Sustainable Development and of Agriculture in 2015, with 500 hec-tares of tea plantations already restored in the last two years through an invest-

Georgian Tea Plantations. Source: APMA

Tea Plantations to be Restored in Imereti Region

ment of GEL 1.2 million. The main objective of the Georgian

Tea program is to maximize the use of Georgian tea potential and promote high quality tea production, with organic tea also included. Both privately and state-owned tea plantations are to be reha-bilitated and modern tea processing enterprises established.

“Technical assistance will be provided to program participants in learning tea processing technologies, certifi cation, marketing, and in the creation of sales channels,” the APMA states, adding that the works to be done for tea plantation rehabilitation include the clearing of plantations, drainage channel arrange-ments, heavy and regeneratory pruning and inter-row tillage.

The Georgian Tea program is expected to introduce the standards necessary for the export of Georgian tea to EU countries.

BY DIMITRI DOLABERIDZE

On April 12, the Embassy of the Czech Republic in Georgia organized a pres-entation of Czech Railway Industry Companies. The

aim was to allow the Georgian side to learn practical ways to integrate into the global network, together with Czech companies.

The high technical level of Škoda Elec-tric’s long-standing experience with manufacture, the excellent quality of its technologies, and high employee pro-ductivity, have earned it the Certifi cate of Quality Management Systems (QMS, ISO 9001) and the Certifi cate of Envi-ronmental Management Systems (EMS, ISO 14001). The company was presented by Viktor Vachata, Project Manager.

“This conference was extremely worth

Czech Embassy Presents Czech Railway Industry Companies

the time coming. The information gained was extremely valuable for representa-tives from Batumi and Tbilisi munici-palities. I felt Georgian Railway and Tbilisi Metro participants learned a lot and were able to take back many new ideas and strategies to use and present to their departments and committees,” Vachata told GEORGIA TODAY.

VZU Plzen was then presented by Jan Chvojan, Head of the Dynamic Testing and Force Laboratory.

"This conference addresses many top-ics that are of interest, with presenters being experienced educators who have practical knowledge and are willing to share their successes with attendees,” Chvojan told us prior to his talk.

Involved in research, development and accredited testing, the key activities of VZU Plzen include:

• Research and testing focused on improving in-service reliability and ser-vice life of power engineering devices:

ness, aerodynamics and thermomechan-ics;

• Research and development of thermal spraying for both primary production and renovation including their industrial applications.

GHH-Bonatrans Group provides its clients with complete services in devel-opment and delivery of wheelsets and their parts. “There is a high demand for effi cient noise reduction in all frequen-cies on wheelsets for metro systems,” said Pavel Kufa, Senior Sales Manager.

“I have attended a lot of conferences, and I must say that this presentation of Czech Railway Industry Companies is by far one of the most honest and direct I have ever participated in,” Kufa added. “The Georgian side was truly privileged and thankful to Deputy Head of Missions of the Czech Embassy to Georgia, Mr. Jirí Preclík, for creating such an impor-tant event. Truly an opportunity to learn, refl ect, and be encouraged!”

vibration diagnostics, noise reducing, material tests, residual service life assess-ment, etc.;

• Complex solving of the problems related to operational loading, reliability and service life of road and rail vehicles:

computer simulations, testing room tests, operational measurements;

• Accredited testing and measurements for a wide range of customers;

• Computing in the fi eld of strength, dynamics, fatigue damage, crashworthi-

GEORGIA TODAY APRIL 18 - 20, 2017 7BUSINESS

This year again PASHA Bank congrat-ulated its partners and clients on Easter in a special way: on behalf of its asso-ciates, the Bank planted 1,000 Georgian Oak (Quercus Iberica) and Imeretian

Oak (Quercus Imeretina) trees, the latter currently on the Red List of threatened plant species.

The seedlings were planted in Imereti region and fully covered one of the areas in the Ajameti Man-aged Reserve in which rehabilitation processes are being carried out. Together with Treepex and PASHA Bank, the representatives of the Agency of Protected Areas of Georgia and local school-children also joined the planting process.

“At PASHA Bank we pay considerable attention to corporate social responsibility and we have car-ried out a number of charity and social activities in Georgia,” said Anano Korkia, Head of PR and Marketing at PASHA Bank. “This year we decided

PASHA Bank Plants 1000 Oak Trees

to mostly focus on environmental-friendly projects and get our clients and partners involved as well. Together with Treepex, we are happy to have another opportunity to contribute to the rehabili-tation program and do a good deed”.

“We highly appreciate PASHA Bank’s initiative to participate in the rehabilitation of the Ajameti Managed Reserve,” said Toma Dekanoidze, acting Head of Planning and Development Service at the Agency of Protected Areas. “It is a part of 10-year plan according to which Imeretian Oak and Zelkova trees will be re-planted here. We hope that the Bank will continue its ‘green activities’ and set a good example to other companies in doing so”.

In terms of its “green projects,” PASHA Bank recently planted 2017 Georgian Pine Trees near Borjomi, where 260 hectares of forest got burnt down in August 2008. The Bank plans to fulfi ll even more eco projects in future.

GEORGIA TODAY APRIL 18 - 20, 20178 BUSINESS

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BY KATIE RUTH DAVIES

Rail Baltica is known to many as the project of the century. A global greenfi eld project that will build new European-gauge railways from Tallinn-

through Parnu, Riga, Panevezys and Kau-nas with a link to Vilnius then on to Bialystok and Warsaw -it is seen as the overarching project for the three Baltic countries: Latvia, Estonia and Lithuania. Rail Baltica is a EUR 5 bln expected invest-ment with no current Public-Private-Partnership (PPP) fi nancing; instead, it is 85% fi nanced by ‘Connecting Europe Facility’ (CEF) grants, with co-fi nancing from the three Baltic countries themselves.

GEORGIA TODAY attended the Regional Transport Investment Confer-ence held in Sofi a in March, and heard from Ms. Baiba Rubesa, CEO of ‘Rail Bal-tica Joint Venture’.

GOVERNANCE“At the heart of the project, we have three shareholders: three relevant ministries from each of the Baltic countries, which created special purpose vehicles- inves-tors in a company that has its headquar-ters in Latvia, Riga, and works under Latvian commercial law. ‘Rail Baltica Joint Venture’ is the central project coordina-tor working alongside national imple-menting bodies.”

What is unique is that the ‘Joint Venture’ between the Baltic countries was intended to be not only the project coordinator but also the implementing body for the entire project.

“We now have many national imple-menting bodies, some of whom are also shareholders in the company,” Rubesa says.

The three Baltic countries are the ben-efi ciaries of the project and current share-holders. In the shareholders’ agreement is the option to have two observers; in this case, one from Finland, the other

Facilitating Cross-Border Investments: Examples of Co-operation in the Implementation of Rail Baltica

from Poland. “There is no other cross-border project

in Europe that has so many stakeholders involved,” Rubesa says. “When you take into account that the EU is the key inves-tor with 85%, it presents a lot of complex-ity.” Not least when you take into account potential political interests and adjust-ments. But she is fairly optimistic in this regard: between now and end of the pro-ject, Rubesa expects approximately 35 more elections in all three Baltic countries and the EU itself; “In the course of the last year, we’ve already had three political changes and I can tell you, each political change brings a new wind to the project”.

STRUCTURERail Baltica is a European commitment to deliver a future-driven economic cor-ridor to north-eastern Europe by building European gauge infrastructure. It con-nects north-eastern Europe, from Finland to Poland, with the rest of Europe, and aims to enhance economic development more than ever before.

“The three Baltic countries together have a territory that is larger than the Belgalux countries, but of course the population is signifi cantly smaller. So, this is all about resource effi ciency and effectivity: resources in terms of time, money invested and potential for delivery. Here, we see that there are a lot of econ-omies of scale possible with a very col-laborative environment for such a project in terms of fi nance management, procure-ment, the expertise needed for such a project, and deployment of project per-sonnel. The joint venture and structure of this project was created to ensure inter-operability, which in previous pro-jects has been a challenge”.

RECOGNITIONSpecifi c to Rail Baltica, building the rail-way and developing the economic cor-ridor, it is important for the Baltic coun-tries to be recognized at the regional level.

“It is very hard for small countries. We are seen as stronger if we perform and

present ourselves regionally. To our neigh-bor to the south in Poland, and to the many other stakeholders that might have an interest in the business this [project] will generate”.

CHALLENGESOne of many questions that need to be addressed from the outset include: is this a global project- are we looking at it in its totality or is it a jigsaw puzzle that comes together from its individual national parts?

“It’s extremely diffi cult for any country anywhere in the world to move beyond national interests; to look a bit higher and see where collaboration; genuine col-laboration, not negotiation, between dif-ferent countries brings benefi t,” Rubesa says. “It is diffi cult to agree on genuine alignment and enforcement of project goals, processes, organization, even busi-ness assumptions. It is diffi cult to align permits and studies in the region; to deliver effective and economic technical design and optimized construction cost- if it’s done together, it is more optimal; if it’s done in each nation alone, it will be more expensive and it will take longer to do and there will likely be interoperabil-ity challenges”.

Another question: How do you deal with project governance that has inher-ent confl icts of interest with national bodies?

“What I’m learning from other projects is that there is actually a lack of experi-ence and understanding of cross-border project management and matrix organi-zations,” Rubesa says. “I come from the oil, gas, and retail business where there is a very strong and good understanding and framework for collaboration, even if you are fi erce competitors. In transporta-tion, however, there is still a long way to go to that end”.

She also points to the latent competi-tion between nations and/or existing large infrastructure companies.

“The Baltic countries are seeking to attract Chinese investment. I say to oth-ers: Get your acts together and talk to the Chinese! Such collaboration will ultimately bring greater benefi t! But I do understand that each individual country wants to have its own approach; to have a smaller slice of the pie, but its own slice of the pie”.

Rubesa went on to invite the EU Com-mission to establish a corporate govern-ance mandate that “is very clear up front: a two-tier management, with profession-

als on the management board, independ-ent supervisory board members which should include at least one neutral observer from the European Commission, and common strict guidelines to eliminate confl icts of interest”.

RECOMMENDATIONSThere are a lot of areas of value to the European tax payer in cross-border pro-jects of this nature, Rubesa believes. But the legislative framework needs to change.

“There should be a move toward one common legislative framework for cross-border projects, one that could be cross-sectoral, beyond transportation: essentially a one-stop cross-border standard service unit where there is clarity on fi nancing commitments; one tax regime which dif-

fers from national regimes; and common procurement regulations. We have a new EU procurement directive and, boy, does it take a lot of discussion in the detail when you’re doing procurement with each of the national entities, each of which has own tiny little regulations!”

It’s challenging in time, resources and understanding, particularly when it comes to the application of language.

“If you are into very technical issues, mistakes can be made in translating back-and-forth. We need to fi nd a better way to move forward with this in light of pro-curement regulation”.

Rubesa also believes that it is important to create common templates for report-ing, benchmarking, and best practice from previous projects, and that legal agree-ments need to be standardized.

“There are always legal differences between countries, but the basic stand-ards should be agreed on in policies,” she says.

She adds that there needs to be better regulation of corporate governance for project coordinators; a clarity of roles, particularly in cross-border projects, with the special purpose vehicles of sharehold-ers and joint ventures laid out in detail.

Clear, too, should be who is going to invest and how, and what the fi nancial modalities will be for the entire duration of the project. For Estonia, Latvia and Lithuania, co-fi nancing a project like Rail Baltica has a huge impact on their national budgets. Clarity, for them, is essential.

“Right now, though we’re not far into the project, we’re in the process of rene-gotiating a renegotiation of the negotia-tion,” Rubesa laughs. “It just delays the project”.

The World Economic Forum recently published a study of the most innovative countries in entrepreneurship. Number 1 is Estonia, number 2 is Sweden and number 3 is Latvia. “So, I think we’ll do pretty well to deliver on the project expec-tations,” she concludes.

Ms. Baiba Rubesa, CEO of ‘Rail Baltica Joint Venture’

GEORGIA TODAY APRIL 18 - 20, 201710 BUSINESS

BY DIMITRI DOLABERIDZE

Transport provides vital con-nections for millions of Europe’s citizens and busi-nesses on a daily basis, allowing for the fl ow of

both people and goods. Safe, reliable and high quality transport links are the back-bone of the internal market and economy in Europe. The transport industry directly employs more than 10 million people, accounts for 4.5% of total employment, and represents 4.6% of the EU’s GDP. By attracting additional private and pub-lic investments, the Investment Plan for Europe is pivotal to ensuring transport as the key driver for socio-economic growth and jobs.

Transport faces a wide range of fi nanc-ing challenges across the EU: underin-vestment, lack of suitable fi nancing solu-tions, ageing infrastructure, an insuffi ciently developed and non-trans-parent pipeline of transport projects, continuous growth of urban populations, and regulatory and administrative bar-riers. The economic crisis has further limited the availability of resources and access to fi nance.

It is often the case that transport pro-jects need up-front preparation and structuring before they are ready for fi nancing. As a one-stop shop for tech-nical advice, the European Investment Advisory Hub (EIAH) aims to help kick-start transport projects and make them

The European Investment Advisory Hub: Facilitating Project Promoters

more robust.GEORGIA TODAY attended the

Regional Transport Investment Confer-ence held in Sofi a, Bulgaria, in March, and heard from Mark Mawhinney, Head of Division, EIAH.

There are three pillars to the European Commission’s Investment Plan for Europe: the mobilizing of additional fi nancing, a key element of the European Fund for Strategic Investment (EFSI)- with blending as a route in; supporting investment in the economy; and creating an investment-friendly environment- for many people this is about cutting back on regulation and also about capacity-building.

The EIAH will serve as part of Pillar Two: investment in the real economy.

“When we fi rst set up, we were given a number of key work-stream activi-ties,” Mawhinney says. “The develop-ment of an open forum, or website, through which anybody and everybody can come forward with potentially investable projects. The second, which has become more and more apparent and critical to the development of the Investment Plan for Europe: dealing with investable projects that appear with something missing- having not quite hit the point where they are fi nanceable or investable”.

The third EIHA mission is to help member states develop the capacity to deal with fi nancial instruments, EFSIs and Public-Private Partnerships in greater volume.

“We live in a global society- it is impor-

tant for Europe to be competitive,” Mawhinney insists. “But we need to do more with fewer resources and it’s impor-tant that we take this on board. The EIHA and European Bank of Reconstruction and Development (EBRD), with Digi-Move and the Innovation and Executive Agency (INEA), have worked to estab-lished a set blending call that makes sense from both a policy and practical point of view- one that can attract bid-ders to move forward and participate in the program”.

“This is a bold move; exciting,” he says. “But it is new and it is complicated- we’re moving into a new era that necessitates collaboration across a number of organ-izations”.

The Hub offers advice on existing pro-ject augmentation, identifi cation of major gaps, advice on terms of reference, fi nan-cial structure, and, post-call, providing advice on high-level project implemen-tation.

“In the last months, requests have been coming in for a range of activities from various subsectors within the transport sector. The EIHA aims to promote the idea of a single Point of Contact. There will be a range of experts and consult-ants on hand and further support will be provided when necessary to success-ful applicants,” Mawhinney says. “But collaboration is necessary across a num-ber of organizations in order to help potential projects. We’re working on a

timescale here, and the projects that come through need to be reasonably mature, although those that are not mature will be helped to develop”.

Barriers to investment and challenges faced by the EU market persist in the transport sector, with direct impact on investments. Creating a stable and pre-dictable regulatory environment in a coordinated manner is a key element in increasing investor confi dence in the EU transport industry.

Within the Investment Plan, the EU Commission has set the objective to achieve at least an overall doubling in the use of fi nancial instruments under ESI funds. This objective (approximately EUR 23 billion) is within reach.

GEORGIA TODAY APRIL 18 - 20, 2017 11SOCIETY

GEORGIA TODAY

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EDITORIAL DEPARTMENT: Editor-In-Chief: Katie Ruth Davies

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze,Nino Gugunishvili, Thea Morrison

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BY THEA MORRISON

Georgia’s eight leading state and private universities participated in a three-day international educational exhibition in Dubai, United

Arab Emirates.Georgia’s Ministry of Education and

Science presented the program Study in Georgia, which aims at making Georgia an international hub of education.

The project envisages launching an international educational project in Georgia’s universities which will make Georgia more attractive for foreign stu-dents.

Georgia’s Minister, Alexander Jejelava, also attended the opening ceremony.

“Georgia offers a wide range of educa-tional programs to foreigners, which

Georgia Presents Its Educational Opportunities at Dubai Exhibition

makes the country very competitive on the market,” he told guests.

The Education Ministry says that the programs presented at the exhibition by

Georgian universities generated a lot of interest.

In total, around 130 universities from 20 countries took part in the exhibition.

BY THEA MORRISON

The Embassy of Georgia to Vilnius, Lithuania, says that an Ilia Chavchavadze Audi-torium is soon to be opened in the Lithuanian University

of Educational Sciences.Opened in 1935, the Lithuanian Univer-

sity of Educational Sciences, the biggest teacher training institution in Lithuania, offers undergraduate, graduate and post-graduate studies in humanities, social sciences, physical sciences, biomedicine and technologies.

The news of the newly named Audito-rium was announced while Georgian Language Day was being celebrated at the university on April 14.

Three exhibitions about the Georgian alphabet and its development, Georgian literature and Georgia-Lithuania rela-

Lithuanian University to Open Ilia Chavchavadze Auditorium

tions were also arranged during the cel-ebration.

Georgian Ambassador to Lithuania, Khatuna Salukvadze, spoke at the event attended by Lithuanian and Georgian professors and students.

Ilia Chavchavadze (1837–1907) was one of Georgia’s most prominent 19th cen-tury writers, public fi gures and a jour-nalist who lead a number of public move-ments and institutions.

Chavchavadze is thought to have been

one of the fi rst people to introduce Euro-pean ideas into Georgian society.

Inspired by the contemporary liberal movements in Europe, he directed much of his efforts toward awakening national ideals in Georgians and to the creation of a stable society in his homeland.

As a point of interest, The Society for the Spreading of Literacy among Geor-gians, founded by Ilia Chavchavadze in 1879, discarded fi ve letters from the Georgian alphabet that had become redundant:

In 1907, Chavchavadze was brutally killed in Tsitsamuri, a village of Mtskheta.

His legacy earned him the broad admi-ration of the Georgian people. In 1987 he was canonized as Saint Ilia the Right-eous by the Georgian Orthodox Church.