Foreign Investment to Develop Sports Tourism in Georgia

Issue no: 866/38

MarketsAs of 29 Jul 2016

STOCKS Price w/w m/m BONDS Price w/w m/mBank of Georgia (BGEO LN) GBP 27.31 0,2% +9,7% GEOROG 04/21 104.13 (YTM 5.74%) 0,4% +0,4%GHG (GHG LN) GBP 3.06 +1,3% +5,5% GEORG 04/21 111.20 (YTM 4.22%) 0,2% +0,4%TBC Bank (TBCB LI) US$ 13.20 1,5% GRAIL 07/22 111.69 (YTM 5.42%) +0,2% +0,8%

BGEOLN 07/23 100.63 (YTM 5.89%) 0,2% naCOMMODITIES Price w/w m/mCrude Oil, Brent (US$/bbl) 42,46 7,1% 16,1% CURRENCIES Price w/w m/mGold Spot (US$/OZ) 1 351,28 +2,2% +2,4% GEL / USD 2,3510 +0,3% 0,2%

GEL / EUR 2,6309 +2,1% +0,4%INDICES Price w/w m/m GEL / GBP 3,1099 +1,1% 1,7%FTSE 100 6 724,43 0,1% +5,7% GEL / CHF 2,4222 +1,9% +1,0%FTSE 250 17 282,88 +1,8% +8,0% GEL / RUB 0,0356 1,7% 4,3%DAX 10 337,50 +1,9% +7,5% GEL / TRY 0,7869 +2,4% 3,4%DOW JONES 18 432,24 0,7% +4,2% GEL / AZN 1,4563 1,5% 3,4%NASDAQ 5 162,13 +1,2% +8,0% GEL / AMD 0,0049

MSCI EM EE 123,97 1,1% +0,9% GEL / UAH 0,0948 +0,1% +0,3%MSCI EM 873,47 +0,5% +6,3% EUR / USD 0,8949 1,8% 0,4%SP 500 2 173,60 0,1% +5,0% GBP / USD 0,7560 0,9% +1,5%MICEX 1 944,62 +0,9% +3,0% CHF / USD 0,9695 1,8% 1,0%MSCI FM 2 567,05 0,0% +1,7% RUB / USD 65,9445 +1,8% +3,5%GT Index (GEL) 842,35 +0,1% TRY / USD 2,9888 2,5% +3,4%GT Index (USD) 709,14 +0,2% +1,1% AZN / USD 1,6151 +1,2% +1,8%

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POLITICS PAGE 10

GALT & TAGGART PAGE 9

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• • AUGUST 2 - 4, 2016 • PUBLISHED TWICE WEEKLY PRICE: GEL 2.50

In this week’s issue...

Electricity Market Watch

Construction on Rikoti Pass Highway Begins

US House Committee on Foreign Affairs Supports Georgia’s Territorial Integrity, We fi nd out Why

Continued on page 2

NBG Decreases Refi nancing Rate by 25 Points

Prepared for Georgia Today Business by

PAGE 5

PAGE 11

Dechert OnPoint: Consumer Protection & the DCFTA

FOCUS ON VIEWS OF PROGRESSWe spoke to management of PriceWaterhouseCoopers Georgia to see what expectations they have for the country this year PAGE 7

BY TAMAR SVANIDZE

The Soviet era Institute of Marx, Engels and Lenin (IMELI) was offi cially turned into a luxurious hotel in the heart of Georgia’s capital city Tbilisi on Sunday.

The USD 140 million, 214-room Biltmore Hotel Tbilisi offi cially opened to a lavish display of fi reworks and laser shows Sunday night.

The 32-fl oor hotel is the fi rst hotel in Georgia to have a presidential suite, according to the hotel’s fi nanciers, the UAE-based Arab Invest-ment Company.

Tbilisi’s Luxurious Biltmore Hotel Opens in Former Soviet Institute Building

GEORGIA TODAY AUGUST 2 - 4, 20162 BUSINESS

Originally built in 1934-38 in the Sta-linist Gothic style by famed Soviet architect Alexey Shchusev – the man who designed Lenin’s Mausoleum in Moscow’s Red Square – the building materials were looted from the Arme-nian Pantheon in Tbilisi after notorious NKVD head Lavrenty Beria had the church and cemetery destroyed.

Following the collapse of the Soviet Union, the building was used for gov-ernment purposes and housed Georgia’s fi rst independent government under controversial former President Zviad Gamsakhurdia in 1991-92.

It later briefl y served as the Ministry of Foreign Affairs, before being heavily damaged in the civil wars that plagued Georgia in the early 1990s.

Large parts of the interior were destroyed by both shelling and looting, and the institute’s former Soviet-era library that was dedicated to Marxist-Leninist theory was sacked.

In 2006, developers Kempinski and Vostok Capital pledged to turn the build-ing into a fi ve-star luxury hotel, with an original design by Berlin-based archi-tects Christoph Kohl and Rob Krier but after the 2008 fi ve-day war between Russia and Georgia, the original inves-tors pulled out and the Abu Dhabi Group

took over the re-design of the building. A new project was developed by UK-based Architectural fi rm Shankland Cox in 2012.

The design immediately ran into con-troversy after architects, historical preservationists and civil society rep-resentatives objected to the building of a modern, glass skyscraper in the heart of Tbilisi’s historic center.

As part of a negotiated settlement, Abu Dhabi Group agreed to restore the main building of the Soviet-era IMELI building and incorporate it into the hotel.

Georgia’s Prime Minister Giorgi Kviri-kashvili and Minister of Culture and Knowledge Development of United Arab Emirates Sheikh Nahyan bin Mubarak Al Nahyan attended Sunday’s grand opening.

“This is Dhabi Group’s largest invest-ment in Georgia. The opening of this high-class hotel once again proves that there is a comfortable environment for investment and doing business in Geor-gia,” Kvirikashvili said.

Sheikh Mubarak Al Nahyan added that the hotel suits Georgia’s growing high-end tourism potential.

“Georgia and its capital are stable and secure places to invest in the region. This makes the country an ideal place for doing business,” Al Nahyan said.

Tbilisi’s Luxurious Biltmore Hotel Opens in Former Soviet Institute Building

Continued from page 1

BY EKA KARSAULIDZE

Georgia is starting to move away from the tightened monetary policy set by the National Bank of Geor-gia (NBG) in February

2014, with a decrease in the refi nancing rate from 7 to 6.75.

The decision was made after a thor-ough look into the country’s macro-economic forecast. “According to cur-rent projections, it is expected that infl ation will be below the forecasted fi gure in the coming quarters, which makes it possible to reduce refi nancing rates,” said National Bank of Georgia’s President, Koba Gvenetadze. “Unless other factors affecting the economy occur, the monetary policy rate will be around 6 percent in the midterm period.”

As a result of a lower refi nancing rate, people with loans in foreign currencies will have to pay less for their debt obli-gations. Last year there were more than 7,000 borrowers who had loans linked to the refi nancing rate, reported the NBG.

For the past few months the Georgian

NBG Decreases Refi nancing Rate by 25 Points

Lari has remained steady at around 2.1 GEL for every USD, however it peaked this weekend at 2.34. “This fl uctuating exchange rate has infl uenced the public and the currency they choose to bor-row and save in,” said the NBG.

According to the fi gures, in June 2016

people in Georgia deposited 14.3 billion GEL into local banks but borrowed 16.4 billion GEL. The NBG reiterated that further changes to the monetary policy will depend on the infl ation forecast, factors affecting infl ation and the gen-eral state of the economy.

GEORGIA TODAY AUGUST 2 - 4, 2016 3BUSINESS

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595 99 00 00 BY EKA KARSAULIDZE

The Georgian Land Registra-tion Law came into full effect from August 1. Prime Minister of Georgia Giorgi Kvirikashvili estimated this

issue as one of most important for the population, and one which will contrib-ute to the development of agriculture and the land market.

According to the law, mediation, obtain-ing certifi cates or other notary services will be completely free of charge for

Free One-Year Land Registration Program Launches in Georgia

citizens. Minister of Justice Thea Tsu-lukiani stated that the population would benefi t from this project for a year. “Dur-ing one year, everyone should register land that they were unable to previously as a result of various barriers,” she said.

PM Kvirikashvili said that, to date, only 25 percent of land is registered- a big problem for the private sector in par-ticular because the population cannot capitalize on land which is actually avail-able for possession and for full use in economic activities.

“It’s good the land registration system has been simplifi ed,” the PM said. “The State is signifi cantly helping the population in

the registration process, including in fi nan-cial instruments. Following the conclusion of the program we will have a much health-ier and complete picture,” he claimed, add-ing that it is also a social issue – more than 50 percent of the population are still involved in agriculture. As such, this is expected to be a very important project for the strength-ening of the rural population.

Additionally, the Georgian Prime Min-ister has asked the Minister of Justice to create a mechanism that will eliminate the risk of abuse of the law. “It is impor-tant to have a correct and transparent mechanism during land registration,” Kvirikashvili said.

BY EKA KARSAULIDZE

Construction of a 52-kilom-eter, USD 40 million (93 million GEL) stretch of the Rikoti Pass highway began Friday, according to the

Head of Georgia’s Road Department Giorgi Seturidze.

The mountain highway lies in the southern portion of the Likhi Range, a

The Rikoti Pass highway. Photo: Alexandre Suladze / panoramio.co

Construction on Rikoti Pass Highway Begins

spur of the Greater Caucasus, which divides Georgia into its western and eastern parts. Also known as Tbilisi-Kutaisi Highway, it connects Georgia’s two main cities.

“This is a top priority for us. There are no other similar projects like this in Europe today,” Seturidze said.

Nearly 150 kilometers of the highway has already built. Another 100 kilometers are slated to be built in the coming years, with plans to link the road to Georgia’s Black Sea ports of Poti and Anaklia.

GEORGIA TODAY AUGUST 2 - 4, 20164 BUSINESS

BY EKA KARSAULIDZE

Georgia appears to be heading for a gradual transition to alternative energy consumption, following last week’s announcement that a solar energy generation system has been set up at

the Shota Rustaveli Tbilisi International Airport. The same system was also installed at Ilia State University. Moreover, in the surroundings of Gori city, eastern Georgia, the active construction of wind power plants is ongoing.

The solar energy generation system at Tbilisi International Airport is capable of generating 337,000 kWh electricity a year, which covers 40 percent of the facility’s total consumption, while Ilia State University’s solar energy generation sys-tem can generate 30,000 kWh electricity a year, which is enough to cover 15 percent of the build-ing’s total use.

The project is the fi rst of its kind in the South Caucasus and aims to promote the use of clean energy in Georgia. Its construction was possible

Alternative Energy on the Georgian Market

thanks to a USD 4.8 million grant from the Japanese government offered for the project in 2010.

The local government named the decrease of carbon dioxide emissions as the main advantage of the project- at Tbilisi International Airport and Ilia State University it is expected to reduce by 187 tons and 16.6 tons a year, respectively, which equals to about 569,000 m2 of forest.

The Ministry of Energy of Georgia is currently strongly focused on this direction and recently began construction of the Kartli wind power plants which will have a 20 MW capacity.

“The energy is expected to provide for approxi-mately 20,000 families,” said Tornike Kazarashvili, Chairman of the Board of Kartli Wind Power. “After the pilot wind power plant begins operation next year, the Ministry of Energy will increase its capac-ity to 100 MW, with additional fi nancial resources from investors and International Financial Institu-tions.”

The fi rst solar heating systems in Georgia were installed in the mountainous Tusheti region, in the east, in 2010. In future, the Georgian government is also planning to construct a large solar power station in Gardabani district, eastern Georgia.

BY THEA MORRISON

On July 31, the eight-day 48th Interna-tional Chemistry Olympiad (IChO) came to a close in Tbilisi, having seen around 300 students from 75 coun-tries arrive in Georgia with their

mentors to participate. According to the Education Ministry, for the fi rst

time in history, a member of the Georgian national team won the bronze medal. Saba Tavdgiridze, 11th grader of the Physics and Mathematics N199 Public School of Tbilisi, was declared third place winner.

The Ministry says such events contribute to Geor-gia’s involvement in international scientifi c and academic processes and strengthen academic and educational cooperation between countries.

Georgia’s Prime Minister, Giorgi Kvirikashvili,

75 countries participated in the Chemistry Olympiad. Source: Prime Minister’s Press Offi ce

Tbilisi Hosts 48th International Chemistry Olympiad

and Education Minister Aleksandre Jejelava, attended the closing ceremony of the Olympiad to award the winners in various categories.

The PM noted that it was great honor for Georgia to host such an important event, which it did this year for the very fi rst time, and said he wished the participants of the Olympiad many more scientifi c achievements and discoveries.

“Olympiads, along with science popularization, promote friendship and cooperation between stu-dents, enabling young researchers to establish close contacts and share practices,” he said.

Georgia joined the International Chemistry Olym-piad just two years ago, with a four-member Geor-gian team competing in the 46th Olympiad in Hanoi, Vietnam.

"I am sure that memories of this Olympiad will last a lifetime and your days in Tbilisi will help you build new friendships and an even deeper passion and love for science," the PM told the young par-ticipants.

GEORGIA TODAY AUGUST 2 - 4, 2016 5BUSINESS

TBC Bank Wins Multiple Awards for Corporate and Consumer Digital Banking from Global Finance Magazine

TBC Bank is delighted to announce that it has received the “Best Inte-grated Corporate Bank Site in Central & Eastern Europe

2016” award by Global Finance Magazine for the fourth year running. At the same time, TBC Bank was once again named the “Best Consumer and Corporate Digital Bank in Georgia 2016”.

“The most successful retail and corpo-rate banks in the world are those that have effectively transformed themselves into fully-integrated digital banks, with a strong focus on user experience,” says Joseph D. Giarraputo, Publisher and Editorial Direc-tor of Global Finance. “The winners of

this year’s awards are those banks that understand that both corporate and retail clients expect their fi nancial partners to provide easy access to a suite of fi nancial products and tools that are fully-integrated into their broader digital life.”

According to the editorial press release of the publication, the winning banks were selected based on the following criteria: “strength of strategy for attracting and servicing digital customers; success in getting clients to use digital offerings; growth of digital customers; breadth of product offering; evidence of tangible benefi ts gained from digital initiatives; and web/mobile site design and functionality.”

“We are extremely proud to continue

BY EKA KARSAULIDZE

Prime Minister of Georgia Giorgi Kvirikashvili has high-lighted the need to support and develop sports tourism in the country and noted that

Canada and Slovakia are injecting USD 65 million (150 million GEL) into Geor-gia to build new sporting infrastructure to develop the country’s ability to host top sporting events.

“Over the past four years, the govern-ment has spent more than USD 213 mil-lion (about 500 million GEL) on a vari-ety of sports infrastructure and activities. This overriding support for the development of Georgian sport has given the right results, with Georgia becoming something of a regional hub in terms of sporting events,” the PM said.

Foreign Investment to Develop Sports Tourism in Georgia

He noted the importance of foreign partnership and asked the country’s Minister of Sports and Youth Affairs to launch a public-private partnership model that would best support the Canadian and Slovakian investment.

“The State shall not compete with the existing infrastructure and the best partnership model should be found to avoid damaging a competitive environ-ment. This service should be available for wider society and we should not become the managers of this infrastruc-ture in the long-term,” said Kvirikashvili.

Minister of Sports and Youth Affairs, Tariel Khechikashvili, said that Georgia is preparing to host a number of sport-ing events in 2017, such as the World Rugby U20 Championship. The Minis-ter claimed that due to the development of sports infrastructure, these events would be held at the highest level, which will contribute to the development of sports tourism overall.

to receive such important recognition from Global Finance Magazine. These prestigious awards are validation of the Bank’s efforts to develop exceptional multichannel capabilities with a special focus on digital channels,” said Vakhtang Butskhrikidze, CEO of TBC Bank.

About Global Finance 2016 World’s Best Digital Bank Awards

This is the 17th year Global Finance has named the World’s Best Digital Banks and details on all First Round winners will be published in its September issue. Additional information on Global Finance Best Digital Bank Awards 2016 can be found on the publication’s website.

GEORGIA TODAY AUGUST 2 - 4, 20166 BUSINESS

BY EKA KARSAULIDZE

A new Georgian wine boutique has opened in the capital of China’s southeast Jiangxi Province, Nanchang.

The new 4,000 m2 bou-tique is the 40th of its kind to open in China in the last two years. The center includes an exhibition hall, tasting room, museum and Georgian restaurant.

Developing robust political, economic and cultural relations with China has been one of the top priorities of the ruling

New Georgian Wine Center Opens in China

Georgian Dream coalition.Cooperation between the Chinese Com-

munist Party and the Georgian govern-ment, including a Sino-Georgian inter-governmental commission on trade and economic cooperation, has signifi cantly contributed to increased trade and stronger economic relations.

China became one of the leading import-ers of Georgian wine in 2016, with only Russia and Ukraine buying more bottles than the Chinese.

Between January and June, more than 1.9 million bottles of Georgian wine was exported to China, a 148 percent year-on-year increase from 2015.

The new 4,000 m2 boutique is the 40th of its kind to open in China in the last two years. Source: Georgian Ministry of Agriculture

BY EKA KARSAULIDZE

Georgia is to receive an additional EUR 100 mil-lion from the European Investment Bank (EIB) to be spent on the develop-

ment of municipal infrastructure in Georgia, from building new roads to renovating schools.

A meeting was held between Munici-pal Development Fund (MDF) Executive Director, Juansher Burchuladze, mem-bers of the Donors Relations and Projects Management Unit, and EIB representa-tives Ionas Bistrom, Georgia Koutsiana and Aleksandra Vilkom.

During the meeting, the MDF and EIB discussed those projects carried out with their cooperation during the past year, and future goals were set, amongst which one of the most important programs is the Urban Reconstruction and Develop-ment Program.

Last week, the EIB, together with the European Union, allocated a EUR 5 mil-lion (11 million GEL) loan to Georgia to rehabilitate the central water system in Tsnori village in Georgia’s Kakheti region to enable its 5,500 residents to have 24 hour access to a clean, reliable water supply.

EUR 100 Million Investment and SME Support from EIB

In July, the EIB also announced its deci-sion to provide fi nancial support for small and medium-sized businesses (SMEs) in Georgia from September via local commercial banks. The EIB agreed to actively take part in the fi nancing of local SMEs, but said that business own-

ers would be required to meet the cur-rent stringent conditions required to gain initial capital.

According to offi cial sources, the banks that will be involved in the fi nancing include Bank Republic, TBC Bank, Pro-Credit Bank and the Bank of Georgia.

GEORGIA TODAY AUGUST 2 - 4, 2016 7BUSINESS

BY KATIE RUTH DAVIES

GEORGIA TODAY got the chance to sit down with Altaf Tapia, Country Man-aging Partner, PriceWater-houseCoopers (PwC)

Georgia & Armenia, and Simon Parsons, PwC Manager of Tax & Legal Services, to get their take on Georgia, links to the UK and the progress it is making in the lead up to the next election.

PwC offers a global network of skills and expertise in accounting, tax, legal and advisory services and has been in Georgia for 11 years helping both busi-nesses and government organizations to get ahead. “In the last few years, PwC Georgia has had close cooperation with the UK, both in terms of our fi rm and clients. One example is TBC Bank being listed on the London Stock Exchange- PwC helped with the Initial Public Offer-ing in 2014 and the Premium Listing process this year,” Simon told us.

“Georgia’s success in the 2015 rugby world cup in the UK, and British news-papers calling Qvevri wine the latest trend, means that Georgia is getting more press attention in the UK than ever,” Simon told us. “Our partnering with the British Georgian Chamber of Commerce, which recently opened an offi ce in Tbi-lisi, having been based solely in London before that, recognizes these growing connections.”

GEORGIAN REFORM WITH UK SUPPORTAltaf added, “Apart from this, we have more Georgia-UK ties because of the British government’s Good Governance Fund (GGF).” Managed by PwC UK together with PwC Georgia and the Tbi-lisi consultancy, Policy and Management Consulting Group (PMCG), the British government set up the GGF to provide technical assistance to Georgia and four others (Ukraine, Serbia, Bosnia and Her-zegovina and Moldova) so that they become more resilient to political and economic shocks, and have further growth and stability.

Georgia’s public authorities identify priority areas where they would like to strengthen governance capacities - whether by benchmarking performance, improving working processes, increasing transparency or developing new policy and legislation. “This means we’re on the ground to discuss and advise on top-ics they [the government] want to reform,” Altaf said.

The GGF team then design reform assistance projects, which the British Embassy in Georgia then assesses and approves, before the right people from a range of international experts are cho-sen to carry out the project.

THE RIGHT MIND-SETReform is very much on the agenda in Georgia. When looking to other coun-

EXCLUSIVE

PwC on What’s Ahead for Georgia

tries in the CIS region, Altaf said he found the Soviet mentality can be “very ingrained” but that in Georgia, “in both politics and the minds of the general public, there is little value still placed on the Soviet regime or styles” and that the “desire to be a part of Europe” is distinctly clear.

As for the development, the assessment was positive. But Altaf suggests further targeted initiatives are needed to prevent brain drain and to up Georgia’s basic vocational training capacities. “Account-ants, lawyers and consultants are well catered for [here], but there needs to be more impetus for new graduates to build careers more broadly.”

“Georgia seriously lacks expertise in some key areas,” he said. “The techno-crats of Soviet times are no longer around. Now, for example, large companies are fi nding it hard to get qualifi ed engineers [here].”

He added that more encouragement is necessary in addition to the steps already being taken (such as the focus on STEM in universities, the current PM’s priority project, or the Produce in Georgia pro-gram) This should kick start progress soon and should be the beginning.

“A core of expertise needs to be built from schools and colleges. But educa-tion and awareness are key- people need to be open to going into new fi elds and also have the skills to do so.”

“Progress naturally slowed in the 2007-2009 period due to political infl uence. Further, Georgia is in a political geo-graphical area whereby it can be depend-ent on the actions of neighboring coun-tries when making its own decisions,” Altaf said, pointing out that over the past four years the pace of development and growth in business confi dence has been uneven and the authorities need to con-tinue to try “to get it right”. He expressed hope that the next parliament will pro-vide a stable platform - “to take the country forward faster.”

THE EU & GEORGIAAltaf thinks that with present times in and around Europe, Georgia is closer but still quite far from being eligible to join the European Union. “The initial expectations given to Georgia were unfortunately high and could have been better managed,” Altaf said

Investors are key to progressing eco-

nomically, Altaf believes, and links between the UK and the EU and Georgia only serve to boost that side of affairs.

And with the ex-Soviet countries hav-ing the tourism and investment potential of Georgia regularly touted at them, now is the “right time to put Georgia and its businesses out there.”

The next step, Altaf added, is to encour-age more investment and grow exports.

“Georgian products need to be visible in the EU markets, be tested, tried, and valued for quality. Such access to Euro-pean markets is vital. It will happen if

things progress as they are. It’s just a question of time.”

Altaf Tapia is a qualifi ed Chartered Account-ant and a Fellow member of the Institute of Chartered Accountants of India. He has over 30 years of professional practice experience providing Assurance services to a variety of industries including FMCGs, Oil and Gas, Mining, Telecom and Financial services in

India, the US, Central Asia and the Cauca-sus. Simon Parsons is a Chartered Accountant with the Institute of Chartered Accountants Scotland and Chartered Accountant with the Chartered Institute of Taxation (UK). He has over fi ve years of professional practice expe-rience, advising multinational companies on their tax affairs, previously in the UK, Germany and Singapore.

Altaf Tapia, Country Managing Partner, PwC Georgia & Armenia, and Simon Parsons, PwC Manager of Tax & Legal Services

In Georgia the desire to be a part of Europe is distinctly clear

Further targeted initiatives are needed to prevent brain drain and up Georgia’s basic vocational training capacities

A core of expertise needs to be built from schools and colleges

GEORGIA TODAY AUGUST 2 - 4, 20168 BUSINESS

Georgia Recognizes China as One of its Main Trade Partners BY EKA KARSAULIDZE

Chinese entrepreneurs are increasingly investing in Georgia’s economy. To coordinate efforts to attract invest-ment and intensify trade relations between the two countries, repre-

sentatives of the Ministry of Economy and Sustain-

able Development of Georgia conducted a business visit to China to establish the Trading and Invest-ment Council.

The business trip opened with the China-Georgia Investment Forum, where the Georgian side pre-sented a USD 7 billion investment portfolio. The Minister of Economy, Dimitry Kumsishvili, claimed that these projects should be interesting for many of the 100 Chinese companies gathered at the Forum.

“Chinese companies have been successfully oper-

ating in different sectors in Georgia such as con-struction, roads and infrastructure, energy, the banking sector and more. China is Georgia’s fourth largest trade partner and second largest in terms of export. China takes nine percent of Georgia’s entire exports,” stated the Minister.

Among recent joint projects between China and Georgia, Kumsishvili named the Free Trade talks among the most important, which started in 2015 with a deal expected to come into force in late 2016. He also discussed establishing a joint Trade and Investment Council to facilitate the exchange of information about entrepreneurs, attract inves-tors, and develop trade, as well as to develop the ‘One Belt, One Road’ initiative that aims to offer many new opportunities to countries along the Silk Road.

The issue of import was also a priority during the Minister's visit, as China recently became lead-ing importers of Georgian wine, with only Russia and Ukraine buying more bottles than the Chinese. In recent months Georgia has strongly focused on expanding its wine exports to China and has opened several Wine Houses to raise awareness of Geor-gian wine.

During the business visit, the Minister of Economy not only attended the opening of the new Georgian wine boutique in the capital of China’s southeast Jiangxi Province, Nanchang (see page 6), but signed an agreement to sell wines on the E-SilkRoad web-site. The fi rst Georgian company to sell its wine

there will be the Dugladze Wine Company, which will initially export 300,000 bottles of wine for online purchase.

The idea to make Georgian wine available online was supported by the Silk Road Chamber of Inter-national Commerce, which is an international non-governmental organization that aims to promote the renaissance of the Silk Road and enable busi-ness participation in the investment and trade opportunities it offers.

The Minister held a meeting with CEFC China Chairman, Ye Jianming. CEFC China generates most of its revenue from oil and gas (60 percent) and fi nancial services (25 percent), but operates also in a wide range of other sectors like transport infrastructure, forestry, asset management, hotel management, warehousing services, real estate development and logistics services.

Regarding Georgia, CEFC China has shown read-iness to open a regional offi ce in Georgia to cover the region and Eastern Europe. Moreover, the com-pany is interested in making investments in the banking sector, power system and tourism business of Georgia.

During the visit, Kumsishvili also held other offi -cial meetings and visited the port and Industrial Zone in Shanghai. He further took part in an even-ing of Georgian wine and other cultural events, organized by the National Wine Agency of Georgia and the Chinese Silk Road Chamber of Interna-tional Commerce.

GEORGIA TODAY AUGUST 2 - 4, 2016 9BUSINESS

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Electricity Market Watch FOR GEORGIA TODAY BY TAMARA KURDADZE

Sector research is one of the key directions of Galt & Tag-gart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agricul-

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

The Ministry of Energy announced in May 2016 that it would reevaluate the existing PPA policy as per IMF’s recom-mendation. The evaluation process has been completed and the ministry has announced one major change to the policy – investors in the energy sector will no longer be granted 12-month take-or-pay PPAs; the guarantee period will be limited to 8 months. Since 12-month PPAs were only granted in exceptional cases, such as Khudoni HPP, Nenskra HPP, and Tkibuli TPP, this change will not affect the majority of potential inves-tors. The purchase price is expected to remain at USc 6/kWh on average, accord-ing to the ministry. Notably, the change in the PPA policy will not affect existing MoUs.

THREE INVESTORS HAVE EXPRESSED INTEREST IN BUILDING, OWNING AND OPERATING THE NAMAKHVANI HPP CASCADE PowerChina Resources LTD (CHN), Clean Energy Group Georgia LLC (NOR), and General Development LLC (GEO, AUT) are the three companies who have

submitted bids for the 433MW Namakh-vani HPP cascade project. The Expres-sion of Interest stage lasted six months, with 26 companies present at the initial site visit and basic design presentation. The Ministry of Energy will select the winner within six months; the key cri-terion in the selection process is the average per kWh price proposed by the investor.

DIRECT CONSUMPTION BACK ON TRACK AS GM RESUMES MINING OPERATIONSDirect consumption was up 6.4% y/y in June 2016, after Georgian Manganese (GM) resumed mining operations in May. The full effect was seen in the June

fi gures, with GM’s consumption up 14.3% y/y. Total domestic usage was up 7.3% y/y, with DNO consumption (+6.3% y/y) a major driver. Growth was concentrated on the greater Tbilisi area (+13.4% y/y). Usage of Energo-Pro subscribers was up 3.4% y/y. Consumption of the Abkhazian region was up 14.8% y/y, after three con-secutive months of fl at or negative growth fi gures.

STRONG EXPORT GROWTH IN JUNE WITH TURKEY THE MAJOR DRIVERExports were up 14.6% y/y in June 2016. 50.2% of exports were directed to Turkey (+23.1% y/y), 29.2% to Russia (-5.6% y/y) and the rest to Armenia (+32.4% y/y).

DOMESTIC CONSUMPTION NEEDS WERE FULLY MET BY DOMESTIC HYDROGENATIONTotal generation was up 8.7% y/y. The main contributor to the growth was Enguri and Vardnili generation, which reached a six-year high. TPP genera-tion in June 2016 was negligible, but the TPPs remained on stand-by to sup-port system capacity. Notably, Garda-bani CCPP was on stand-by for only eight days, leading to a 57.4% m/m decline in the guaranteed capacity fee. Electricity imports in June 2016 were negligible.

ELECTRICITY MARKET PRICES ON THE RISE BOTH IN

GEORGIA AND TURKEYThe market clearing price in Turkey was up 11.0% y/y in US$ terms in June. Turkish electricity prices have posted increases on an annual basis for three consecutive months, albeit from very low bases. Wholesale prices are on the rise in Georgia as well - the June 2016 price for balancing electricity was USc 4.9/kWh, up 37.0% y/y. A mere 2.3% of total electricity supplied to the grid was traded through the market operator. The rest of the trade occurred through bilateral contracts. The average export price of Georgian electricity was USc 3.9/kWh, with over half of the exports going to Tur-key.

GEORGIA TODAY AUGUST 2 - 4, 201610 POLITICS

Contact: www.edelbrand.ge

Phone: 599 461908

Source:www.washingtontimes.com

BY NINO SAJAIA, VOICE OF AMERICA GEORGIAN SERVICE

Before going on a recess in July this year, the US House of Representative’s Com-mittee on Foreign Affairs passed H.Res.660 which expressed the desire of the House of Representatives to sup-

port the territorial integrity of Georgia. In summary, the Resolution introduced on 03/23/2016 supports the US Stimson Doctrine to not recognize territo-rial changes effected by force, affi rming that this policy should continue to guide US foreign policy; and condemns Russia's military intervention and occupation of Georgia and its continuous illegal activities along the occupation line in Abkhazia and Tskhinvali region/South Ossetia. Furthermore, it calls upon Moscow to withdraw its recognition of Georgia's territories of Abkhazia and the Tskh-invali region/South Ossetia as independent coun-tries, and refrain from acts and policies that under-mine Georgia's sovereignty and territorial integrity. Additionally, the Resolution urges the United States to declare that it will not recognize Russian de jure or de facto sovereignty over any part of Georgia, including Abkhazia and the Tskhinvali region and, among other points, to deepen cooperation with Georgia, including Georgia's advancement towards Euro-Atlantic integration.

We spoke to one of its co-sponsors, Illinois Rep-resentative Peter Roskam, to evaluate its impor-tance and discuss the major points.

WHY DID YOU SUPPORT RESOLUTION-H.RES 660 ON GEORGIA AND WHAT IS ITS PURPOSE?This is a very important resolution and the pur-

US House Committee on Foreign Affairs Supports Georgia’s Territorial Integrity, We Find out Why

pose of the resolution is to get the Russians to back off, and refrain from taking over Georgian territories. Territorial integrity is inextricably linked to the sovereignty of the nation. It is also important because of the close strategic relation-ship between the US and Georgia- we share a value system, we share a world view, we share strategic interest, and that is why I think this resolution is so important.

HOW POSSIBLE IS IT THAT THE OBAMA ADMINISTRATION WILL ACT ON THE MAJOR STATEMENTS INSIDE THE RESOLUTION?It is hard to predict what is likely to happen in the waning days of the Obama Administration. But it is important for the co-equal branch of the govern-ment -US Congress- to tell to the American people, the Administration and their friends in Georgia that we believe territorial integrity matters; it mat-ters that Georgia-South Ossetia and Abkhazia should not be taken over by the Russians; that things should be named for what they are. This is aggression and that aggression should be recog-nized as aggression before it can be redeemed and replaced.

ARE THERE OTHER MECHANISMS TO HAVE MOSCOW DE-OCCUPY OR REVERSE THE RECOGNITION OF ABKHAZIA AND SOUTH OSSETIA?I think Russia has numerous challenges and diffi -culties. They have bitten off more than they can chew with what they are doing in Ukraine and Georgia, plus the nature of their involvement in Syria. I hope they will come to say, “Let's be good neighbors. Let’s aim for good relations with our neighbors so they look to us for help, and feel esteem as opposed to fear and loathing.”

BY TAMAR SVANIDZE

Georgia’s Counterterrorism Center announced on Saturday that it had arrested a young Georgian citizen for posting threatening message on Face-book using a fake account.

According the State Security Service, 23-year-old Vakhtang Khangoshvili was detained on Friday after posting a message on a social media that alleg-edly threatened a terrorist attack in Tbilisi. Khango-shvili is a resident of Duisi, a village in the isolated Pankisi Gorge inhabited by Muslim Chechens.

Located on the border between Georgia and Rus-sia’s restive republic of Chechnya, the Pankisi Gorge has in recent years become known as the home of several prominent ISIS fi ghters. The most notable was the ginger-bearded Tarkhan Batirashvili, who gained international attention as ISIS’ top fi eld com-mander under his Arabic nom de guerre, Omar al-Shishani - Abu Omar the Chechen. After leading ISIS to several stunning battlefi eld victories, Shishani was killed in a massive American drone strike in March.

In a post that appeared on Facebook under the pseudonym Dau Levsky, the user posted an image of a massive explosion with a short message in Russian saying, “Tomorrow at 12:30, in Tbilisi will be fi reworks”. The user also posted an image of Batirashvili alongside the explosion.

“Following our investigation, on July 29 the detainee attempted to distribute information that contained terrorist threats though Facebook under

Georgia’s Intelligence Service Arrests Pankisi Resident for Suspected Terror Sympathies

the username – Dau Levsky. The Counterterrorism Center, under the direction of the State Security Service of Georgia, immediately launched an inves-tigation into the incident. If found guilty, the sus-pect could face up to 11 years in prison,” the Secu-rity Service said Iin an offi cial statement released to the media.

According to Security Services, Khangoshvili’s vehicle and fl at have been searched, though no information has been released regarding their fi nd-ings.

Pankisi, home to more than 10,000 ethnic Chech-ens living in a scattering of isolated mountain vil-lages in Georgia’s eastern Akhmeta district, has been a stronghold of age-old mountain traditions associated with the Chechen clans known as teips.

After Russia waged two brutal wars to end Chechnya’s drive for independence in the 1990s, thousands of Chechen refugees were resettled in Pankisi with their ethnic and religious kin.

The bleak situation in the valley has led to a rise of radical Islamist movements among its younger population, particularly in the number of those who reject the Chechens’ traditional moderate form of Sufi sm in favor of an extremist brand of Saudi Arabian-style Salafi sm.

As fundamentalist Islamic teachings have gained traction among Pankisi’s youth, militant fi ghters like Shishani have become local heroes.

The shift away from the traditional Chechen brand of Sufi sm – seen by most in the population as par-amount to their national identity – has caused a major rift with the community’s elders and religious leaders.

GEORGIA TODAY AUGUST 2 - 4, 2016 11BUSINESS

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Dechert Georgia, through the contribution of part-ners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan

Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding signifi cant legal changes and develop-ments in Georgia. In particular, we will highlight signifi cant issues which may impact businesses operating in Georgia.

On July 1, 2016, the Deep and Compre-hensive Free Trade Agreement (“DCFTA”) between Georgia and the European Union (“EU”) entered into force. The EU is Georgia’s main trade partner. Roughly 32.6 percent of Georgia’s trade is with the EU, followed by Turkey (17.2 percent) and Russia (8.1 percent). Therefore, the entry into force of the DCFTA is a mat-ter of utmost importance for the devel-opment of both Georgia’s economy and the quality of its overall legal environ-ment.

The DCFTA aims to deeper integrate Georgia with the EU through reforms in trade-related areas. Being based on the principles of the World Trade Organ-ization (“WTO”), the DCFTA removes all import duties on goods and provides for broad mutual access to trade in ser-vices between EU and Georgia. It also provides the opportunity for EU and Georgian companies to set up subsidiar-ies or branch offi ces on a non-discrim-inatory basis, allowing Georgian com-panies to enjoy the same treatment as domestic companies in the EU markets, and vice versa.

However, open access to the EU single market comes with certain stringent obligations, which require Georgia to modify its legal framework to make it more compatible and harmonized with EU legislation. In the coming years, many different fi elds of law will fall under scrutiny and be subject to amendment in order for Georgia to fulfi ll DCFTA obligations. This edition of OnPoint analyzes those legal aspects of the DCFTA which relate to consumer protection.

EXISTING CONSUMER PROTECTION LAWS IN GEORGIAThe existing legislative framework in the fi eld of consumer protection leaves a lot to be desired from the perspective of the consumer. There is no generic legislation which guarantees the rights of consumers of different products. Con-sumer protection norms, if they exist, are scattered among different regulatory documents in different fi elds. In general, the consumer protection obligations are industry-limited and apply mainly to regulated industries.

Possibly the best developed consumer protection practices in Georgia are to be found in the fi eld of electronic com-munications, where the Georgian National Communications Commission (“GNCC”) acts as a watchdog for the rights of dif-ferent network subscribers. The GNCC’s

Dechert OnPoint: Consumer Protection & the DCFTA

mandate is enshrined under the techni-cal regulations for consumer protection in the fi eld of electronic communications. The fi eld of electricity, gas and water supply is another example, under the supervision of the Georgian National Energy and Water Supply Regulatory Commission (“GNERC”). The banking, insurance and payments sector can also be added to the limited list of industries with specifi c consumer protection obli-gations placed on business operators.

Additionally, the LEPL National Food Safety Agency (“NFSA”) controls and supervises food safety in Georgia. It is now involved in implementing a number of regulations which must be put in place in the course of the DCFTA approxima-tion process.

DCFTA OBLIGATIONS REGARDING CONSUMER PROTECTIONGeorgia must approximate its legislation to EU acts and international instruments in the fi eld of consumer protection, according to the DCFTA. EU consumer protection policies shall be implemented in Georgia within the timeframes set by the DCFTA itself. The following policies are notable:

• With regards to product safety, Direc-tive 2001/95/EC of the European Parlia-ment and of the Council of 3 December 2001 on general product safety shall be implemented upon the entry into force of the DCFTA. Additionally, the direc-tive on the approximation of the laws of the Member States concerning products which, appearing to be other than they are, endanger the health or safety of consumers shall be implemented within two years of the entry into force of the DCFTA;

• Commission Decision 2006/502/EC of 11 May 2006 requires Member States to take measures to ensure that only lighters which are child-resistant are placed on the market, and to prohibit the placing on the market of novelty lighters. The decision shall be imple-mented within two years of the entry into force of DCFTA;

• In the sphere of contract law, the directive on consumer protection in the indication of prices of products offered to consumers, as well as the directive on unfair commercial practices, shall be implemented within fi ve years of the entry into force of the DCFTA;

• As for marketing, the directive con-cerning misleading and comparative advertising, as well as the directive on certain aspects of the sale of consumer goods and associated guarantees, shall be implemented within fi ve years of the entry into force of the DCFTA;

• Additional contract law protections to be implemented include the directive on unfair terms in consumer contracts; the directive to protect the consumer with regards to contracts negotiated away from business premises; and the directive on the protection of consum-ers with regards to distance contracts, are to be implemented within fi ve years of the entry into force of the DCFTA;

• Protections in the tourism sphere will

also become applicable, with the direc-tive on package travel, package holidays and package tours and the directive on the protection of consumers with regards to certain aspects of timeshare, long-term holiday product, resale and exchange contracts to be implemented within fi ve years of the entry into force of the DCFTA; and

• The banking and fi nancial sector will also be reshuffl ed with regards to con-sumer protection laws. The directive concerning the distance marketing of consumer fi nancial services and the directive on credit agreements for con-sumers shall be implemented within fi ve

years of the entry into force of the DCFTA.Consumer protection enforcement

mechanisms shall also be put in place within the framework of approximation with EU law. Namely, the directive on injunctions for the protection of con-sumers' interests shall be implemented within fi ve years of the entry into force of the DCFTA.

CONCLUSIONSThe DCFTA approximation process will upgrade Georgia’s consumer protection legislation from being virtually non-existent to on par with EU levels, once the approximation process is complete

within the set timeframe. The DCFTA also encompasses many other guaran-

tees regarding product safety and specifi cations in different fi elds that do not on the surface refer

to consumer protection but serve the overall aim of improving the

quality of supplied goods and ser-vices. For example, the NFSA is to

implement 102 different technical regulations in the sphere of food safety,

84 different regulations in the veteri-nary fi eld and 85 other documents in

plant protection, in order to comply with the obligations undertaken under the DCFTA.

* * *Note: this article does not constitute

legal advice. You are responsible for consulting with your own professional legal advisors concerning specifi c cir-cumstances 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, an international special-ist Law fi rm that focuses on core trans-actional and litigation practices, provid-ing 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 qual-ity legal services to clients worldwide. For more information, please visit www.dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

DCFTA imposes additional obligations on Georgia in terms of consumer protection. Source: bpi.ge