Caucasus Business Week #277

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April 1, 2019 - www.cbw.ge

#277

WEEK

p.4 Economic Growth Marked 4.7% in 2018

p.3

p.6 The Consequences of Banking Regulations – 12 Service Centers Closed

HUAWEI P30 & P30 Pro Changing the Rules of Photography

p.7 Georgia and Gambling Games

p.5

How Much Countries Owe – The Fiscal Condition of Georgia and Its Partners in 2019, and Previous Years

p.11 Hydro Sector Overview byExperto Consulting

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Georgia’s Gross External Debt exceeds 7.4 Billion USD The gross external debt of Georgia amounted to 17.8 billion USD (47.5 billion GEL) as of 31th of December 2018. It accounted for 109.6 percent of the last four quarters’ GDP.

First Passenger Train arrives in Georgia by Baku-Tbilisi-Kars Railway First passenger train launched by the Baku-Tbilisi-Kars (BTK) railway arrived in Georgia, Trend reports citing Georgian media.

NATO Secretary General and Prime Minister discuss Georgia’s Progress Toward Euro-Atlantic Integration The process of Georgia’s NATO membership and the country’s progress toward Euro-Atlantic integration were discussed by Georgian Prime Minister Mamuka Bakhtadze and NATO Secretary General Jens Stoltenberg at the meeting held today at the Administration of the Government.

Finance Expert: We should not expect FDI to Grow with Current Management Model Financier Giga Bedineishvili believes that having the current management model, Georgia should not expect an increase in foreign investment.

Net Profit of Georgian Banks declines PM: Effective Water Resource Management is the Key to Georgia’s Economic Success Green economy, and green policy in general, is the most important component of my Government’s economic development vision, and I believe that green economy, with effective water resources management as its key driver.

In February 2019, Georgian commercial banks made a profit of $ 55.7 million, which is 34.2 million less than in the same period of 2018.

Tourism Agency to train 1500 Operators in 2019 National Tourism Administration plans to open intense training courses for tourism sector staff.

Pension Agency seeking Investment Board Members – Salary to Total 60 000 USD

National Tourism Administration revises Marketing Strategy and plans to Make Focus on EU Market

Pension Agency of Georgia has announced an international competition for selecting 5 members of the investment board. The selected members will determine the agency investment policy for 5 years.

National Tourism Administration of Georgia plans to revises the marketing strategy and make accent on the EU market.

Batumi Bypass Road Construction works Underway The Road Department of Ministry of Regional Development and Infrastructure has been constructing a 14-km section of Batumi bypass road.

The Editorial Board Follows Press Freedom Principles Publisher: LLC Caucasian Business Week - CBW Director: Levan Beglarishvili WWW.CBW.GE Address: Aleksidze Street 1 Sales: Mob: +995 591 01 39 36 Email: caucasianbusiness@gmail.com Editor: Nutsa Galumashvili. Mobile phone: 595 380382 Copy Editor: Ellie Rambo Reporters: Nina Gomarteli; Mariam Kopaliani; Merab Janiashvili, Economic columnist: Andria Gvidiani; Technical Assistant: Giorgi Kheladze;

HUAWEI P30 & P30 Pro changing the Rules of Photography On March 26, at an event held in Paris, the HUAWEI Company presented the new P30 series smartphones. Inspired by the magical colors of the sky, the HUAWEI P30 perfectly reflects the stunning colors of nature and is distinguished with a sophisticated design, while the totally renewed, powerful and ultrasensitive camera system of the HUAWEI P30 and HUAWEI P30 Pro radically changes the rules of photography.

The HUAWEI P30 series is equipped with a camera system, launched as a result of the company’s ongoing collaboration with Leica, which, along with modern sensors and technology, enables automatic processing of an image and offers professional shooting capabilities.

The SuperSpectrum sensor gives you the chance to take bright pictures and capture tiny details even in absolute darkness. Distance no longer represents a challenge as now it is possible to catch an image with the 10X hybrid zoom. The SuperZoom lens ensures 5x optic, 10x hybrid, as well as 50x digital zoom and guarantees clear details in any image. Along with the 40MP main camera and optic image stabilization, owners of a HUAWEI P30 can capture even the moon with unimaginable closeness, in fascinating resolution and with detailed imagery.

Aside from photography, the new smartphones

enable customers to enjoy exceptional video recording capabilities. The simultaneous working of the two core cameras allows you to capture the entire image of the event and all its participants, their moves and actions, with the closest shot.

The very first of its kind in the world, created as a result of collaboration with Leica, the HUAWEI P30 Pro is equipped with four main cameras of 40MP ultra-wide vision and 20MP wide vision lenses. In addition, the P30 Pro camera system also boasts an 8MP telephoto lens and TOF camera, which measures the depth of objects more accurately, giving sharper focus and a more blurred background as one of multiple possible effects.

The HUAWEI P30 series is an ideal choice for selfie professionals, as the smart 32 MP front camera is able to recognize your face, determine the brightness level and ensure a clear image even when you are surrounded by unbalanced lights or night celebrations.

In comparison with the P20, the P30 series comes with fingerprint unlocking capability installed in the smartphone display, wireless and reverse charging functions, 40 watt fast charging technology and a 4200 mAh battery, working on the powerful Kirin 980 processor. All of this makes the smartphone the best companion for travel enthusiasts.

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The major characteristic of the HUAWEI P series smartphones is photography. The brand new HUAWEI P30, along with the modern technologies, totally changes the rules of photography.

HUAWEI products and services are available in more than 170 countries and are used by a third of the world's population. There are 16 research and development centers operating worldwide in the USA, Germany, Sweden, Russia, India and China. HUAWEI Consumer BG is one of three business units of HUAWEI, mainly focusing on the production of smartphones, personal computers, tablets and cloud services. The HUAWEI Global Network is based on 20 years of experience in the telecommunications business and serves to the production of innovative technologies to customers around the world.

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Economic Growth Marked 4.7% in 2018 GDP Growth in 2018 Exceeded Initial Forecast According to preliminary indicators, real growth in GDP in 2018, as compared to 2017, made up 4.7%, while the deflator changed by 3.6%. 2018 GDP volume in current prices constituted 41,077.5 million GEL, up 8.5% year on year.

As for specific fields in Contraction was recorded in the housing the total GDP structure, sector (-3.1%). trading and industry It should be noted that, at the beginning of sectors rank first with 2018, the government of Georgia forecast a 17% each. Transport and 4.5% economic upturn, while the IMF prognosis communications come made up 4.2%, and the World Bank forecast 4%. second, with 10.2%. The A major success was recorded in May 2018, when housing sector ranks third, economic growth made up 7.5%. This is one of the with 9.3%, state governance major indicators over the past years. is fourth at 8.2%, agriculture As to the previous years, in 2017, the Georgian and fishing sectors rank economy grew by 5%. In 2016, the economic fifth with a 7.7% ratio, upturn was at 2.8%. Starting in 2019, Georgia’s the real estate sector and averaged economic growth was at 6.1%; however, leasing ranks sixth with starting in 2013, the pace of growth declined, and 7.4%, healthcare and social constituted 3.3%, instead of the planned 6%. In assistance sector rank 7th 2010, 2011 and 2012, GDP growth pace was at with 5.8%.

6.21%, 7.2% and 6.4%, respectively, but in the It is worth noting that in following period, growth almost halved, 2018, all economic sectors and the monthly pace was below 7% until grew, excluding one field May 2018.

– the housing sector. An For example, in 2013 Georgian upturn was recorded in the economy grew by 3.4%, 2014 – following fields: finance sector (+4.6%), 2015 – (+2.9%), 2016 – (13.5%), utility, social and (+2.8%), 2017 – (+5%). personal services (+13.2%), real estate operations, leading and

By Merab consumer services (12.1%), hotels Janiashvili and restaurants (9.7%), transport (9.4%), mining industry (7.6%), healthcare and social assistance (6.2%), trading, vehicles, household appliances and things of personal use (5.9%), communications (+5.8%)>

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How Much Countries Owe The Fiscal Condition of Georgia and its Partners in 2019 and Previous Years When a country lacks money for some projects, it takes a loan. Such loans are called state debts. There are numerous examples worldwide of when a country fails to pay the loan and announces default. The very default created the preconditions for freezing the bank deposits of ordinary citizens in Argentina in 2001. As a result, near anarchy and political tensions hit the country. To appraise what a threatens a country when they expect this, or that size of loans. Specialists apply various indicators but, the debt-to-GDP ratio is a key indicator. Based on international prices, in order to maintain economic stability in developed countries, debt must not exceed 60% ratio of GDP, while the figure makes up 40%-50% for the developing economies.

As of February 2019, Georgia’s external debts amounted to 5.448 billion USD. Georgia owes 3.824 billion USD to multilateral creditors, and 954 million USD to bilateral creditors. Debts from Eurobonds totaled 500 million USD.

The list of Georgia’s bilateral creditors includes 17 countries, including our neighboring countries: Armenia (8.305 million USD), Azerbaijan (7.435 million USD), Turkey (14.275 million USD), and Russia (58.773 million USD).

According to preliminary reports, at the end of 2018 the debt-to-GDP ratio in Georgia was at 42.1%. This figure makes up 41.1% in Azerbaijan, 58.3% in Armenia. Russia has a very good indicator on this – 19.43%.

The figure accounts for 29% in Turkey. According to the Finance Ministry of Armenia, as of December 31, 2018, Armenia’s external debts exceeded 6.922 billion USD, while in Azerbaijan the state debts hit 9.338 billion USD as of January 1 , 2019.

According to the current plan, Georgia’s state debt-to-GDP ratio must be reduced to 40.6% by 2012.

According to the International Monetary Fund (IMF), Japan has the heaviest state debt burden, where the debt-to-GDP ratio amounts to 250%. The ratio exceeds 100% in Italy (131.7%),

Portugal (127%), the USA (107.48%) and Belgium (106.5%).

It is interesting that the biggest debt worldwide is recorded in the USA, the country with the strongest economy. According to the 2019 indicators, the state external debts of the USA reached 22 trillion USD, while even in 2017 the state external debts of the USA was only 17 trillion USD. According to the US Central Intelligence Agency, the major external debt was registered in EU at 29 trillion USD, including the major external debt among EU countries was registered in Great Britain at more than 8 trillion USD. The figure exceeded 5 trillion USD in France and Germany. As for Georgia, the external debt indicator made up 17.2 billion USD in 2017.

Surprisingly, there are countries with no debts, including Brunei, Macao and Palau, as well as Lichtenstein and Andorra.

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The Consequences of Banking Regulations – 12 Service Centers Closed Georgia-based commercial banks have closed 12 service centers over the past year, as of February 1, 2019, as a result of the enlargement of commercial banks and the development of internet banking, field specialists assert.

A reduction in the issuance of fast loans is also named behind closure of the bank service centers.

As reported, new regulations have restricted access to loans for lowincome citizens. However, experts say that the money supply has been restricted in the population, but demand has not decreased.

Therefore, the role of the private lender, the so-called usurers, will increase. This sector is a challenge for the finance market, and a major part of the appropriated property is registered for usurers.

Giorgi Kepuladze, the founder of the NGO Society and Banks, says that over the past period, access to express loans has been restricted to the self-employed sector of our society.

“Naturally, this effect comes from new regulations, as the volume of crediting has essentially declined.

As a result, service centers which focus on this direction were closed.

This is an irreversible process, and it may continue in 2019, too.

At the same time, the point is that the demand for money will not decrease, and this factor will inspire a certain sort of supply; for example, outside of the banking and official sectors, private persons may start issuing both major and small loans, and the price will be much higher, especially when compared to commercial banks. In the informal sector, loan interest rates are much higher.

Regulations narrow the economy and the market. The rights of one party may be

respected, but another’s rights may be violated. This means that regulations have made commercial banks unable to sell their products as vigorously as previously. They have to revise their costs, and fire some employees. I would not say that the number of unemployed will double, but the figure will considerably increase. We should take into account all these factors. Maybe the government thinks it is expedient to leave these people unemployed, to curb the excessive indebtedness in our society, and we should also realize that these regulations cannot heal poverty and excessive debts.

Aleksandre Meladze, president of the Association of Banks, presumes that the quantity of bank service centers may decline further, and private lenders may activate their business.

Without express loans supplied to the market, naturally, certain optimization will take place in terms of loans, branches and staff.

“The number of consumer loans has declined. Today, we have January-February indicators. These months are the worst period, and it is difficult to receive specific results by comparing this period to other months, but the indicators slightly differ from the 2018 figures. Last year, a total of 12 service centers closed. Today, it is difficult to say whether so many branches are necessary, but in terms of the visual aspect, without express loans supply to the market, naturally, a certain optimization will take place in terms of loans, branches and the staff.

I would like to also note that, prior to the

enforcement of regulations, we released a statement on these suppositions and expectations.

We noted that the issuing of small loans would decrease, and nothing interesting happens in this regard. It is more important to note how other products may reduce these loans. It is worth noting whether loans will move to other markets. I believe a certain part of these loans may move, but on a smaller scale.

In reality we should wait for further developments. Today, we cannot say that everybody runs to work on the unofficial market. The market enlivens in March and reaches its peak in May. We should wait for this period. However, at this stage, commercial banks have enforced a loans approval coefficient and the number of applications is declining”, Dzneladze said.

Rati Abuladze, a PhD in economics, says that amid growing consumer and mortgage loans, excessive indebtedness has grown at a high rate. In this situation, the national bank of Georgia decided to resolve the problem through responsible crediting. However, the NBG’s normative architecture have become a key challenge for the Georgian credit environment.

Rati Abuladze explains that statistics in the Georgian finance sector shows that over the past year, 12 service centers and 10 microfinance organizations closed in the country.

Despite these severe figures, Georgia’s finance market remains stable and diverse.

To stay unbiased, we should note that the finance sector should be based on regulations. Without regulations, we would have major risks and less competition.

“According to

preliminary incomplete indicators, regulations and measures designed for the finance sector recovery turned out excessively bureaucratic, for both ordinary citizens and business (especially for retail stores).

It is worth noting that regulations have a theoretical justification, but in terms of practical aspects, it demonstrates defects in economic policy. Not only regulations in themselves, but a worsened social and economic environment, low incomes, and unemployment rates are real reasons for the aforementioned defects.

In the country, where intellectual resources remain despite problems with revenues, the young generation has no perspective, staff policy is unclear, and there is a hopeless economic reality. Any regulation is an approach of a technical and moral character. Theoretically, the environment is being improved, but in reality, problems and the needs of our citizens remain unaddressed.

Finally, I would like to note that in our reality, regulations change interrelations between the finance sector and clients, but they cannot improve an economically and morally disordered reality,” Rati Abuladze noted.

By Zurab Khachapuridze

7 April 1, 2019 #277

Georgia and Gambling Games According to the latest reports, the rate of turnover in the gambling games industry in Georgia will reach 10 billion GEL in 2019. The ratio of of whole turnover in this industry is also growing ; namely, there are four gambling games companies on the 2018 list of Georgia’s top 50 major companies, including one of them which ranks in at number three.

The figures prove that the Georgian economy is developed in the wrong direction, – unemployment, the absence of production, and a lack of staff are directly interconnected with the spread of gambling. This sector is one of the key reasons behind the excessive indebtedness in our society.

However, a 10 billion GEL turnover looks genuinely impressive.

However, this figure says nothing.

Nobody knows what the ratio of foreign tourists is in this 10 billion USD, or how much domestic residents spend. This means that, even today, we do not have an exact answer to the question: how much do Georgians spend on gambling games?

We should also remember that in this case, the issue is of the government-controlled sector. Who knows what misfortunes takes place on the internet, how much money is spent on uncontrolled domestic internet websites? And we will never learn, despite our efforts, how much money goes to foreign betting houses and online casinos.

Thus, we can imagine the scale of this problem, but there is no way out.

First of all, we should identify the problem, and analyze it, and this is another problem. Namely, it is a flawed notion that gambling games are considered one system that

must either be forbidden or remain unchanged.

Wishing to or not, politicians, mass media and experts harbor incorrect assumptions in our society, and this factor hinders the problem resolution process.

We frequently hear that gambling games are bad, but it is a part of the tourism business, which attracts a lot of tourists to Georgia, and helps the country in overcoming financial problems. Even if we ban gambling games tomorrow – tens or hundreds of tourists will not come to this country any more.

Consequently, the public has to make a difficult choice – either moral health and social stability of the people, or revenues from the tourism sector.

At a glance, this is a genuine choice – if we consider the gambling business as a single segment.

In reality this is a false choice – the domestic gambling problem has nothing in common with international tourism.They are two separate segments, and only statistics connects them.

Foreign tourists play at major casinos, 5-star hotels: they arrive, rent suits, lose tens of thousands of USD and go back – to Turkey, Iran, Saudi Arabia, Russia, or elsewhere.

Domestic residents do not visit major casinos, as a rule. Only welloff citizens of Georgia can afford to play at such facilities. As a rule, ordinary citizens with medium and low salaries do not enter major

casinos ,and nobody would let them enter even if they tried.

This is a major, serious business and we should be grateful to for luxury-class hotels open in Tbilisi and Batumi, and that a lot of foreign tourists arrive in off-season periods.

Closing this part of the market is impossible and unadvisable.

Another, parallel world exists alongside this sector, the sector that damages Georgian society – street gambling slots, betting houses, online casinos and online betting houses.

This very small business genuinely damages Georgia – foreign citizens do not show interest in them, they do not attract foreign tourists, who arrive in our country not to win money, but to have a good time.

You will never see foreign tourists or ordinary foreign citizens at a gambling saloon or betting houses, where manly the impoverished citizens of Georgia walk around.

These small facilities are widespread all over the country, and this is the key problem, not giant casinos at 5-star hotels.

I will say nothing about the absolutely uncontrolled, almost underground online casinos and betting houses, where nobody knows how much money spent.

Consequently, in reality, there is no choice.

Gambling games for foreign citizens are one thing – luxury hotels, in a luxurious atmosphere,

in the most expensive districts, in the centers of cities and on the seaside.

Another aspect is that there are gambling games for the domestic impoverished population – at underground crosswalks, dark rooms with old green carpets on the floor.

Only the political will is required to maintain the one sector untouched, and ban another or, at least, set strict regulations on another segment..Naturally, this is not a simple issue either – what to do with online games? It is much more difficult to control them compared closing slot clubs.

Another problem relates to law enforcement structures – the shadow economy will appear more criminal, more severe and merciless, if this segment is restricted or banned.

However, inactivity cannot be justified by these issues.Those who do nothing make no mistakes. The time has come that the government should try to resolve even a part of this acute problem.

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Mariam Mamulia: "We need to adapt our Mindset to Technological Advancements" Interview with Product Marketing Manager at BDO in Georgia, Audit & Business Advisors, Mariam Mamulia.

Tell us about how you got into the field of marketing, and what factors played an important role in choosing this profession?

I can’t say being a marketer was my fondest dream as a teenager, when I was thinking about choosing a profession. Actually, I wanted to be a doctor. I don’t really remember how I ended up at Free University studying business administration. But once there, I shorty knew what I wanted to do with my life. I think the main reason why I decided to become a marketer was my personality: I can’t stay still. Literally. I can’t imagine myself sitting in an office doing something that does not require communicating with a lot of people. I need to know everything.

In regards to technological changes, what challenges do you face as the head of a marketing service?

Along with technological advancements, we need to adapt our whole mindset. Our future target audience will be media-savvy digital natives to whom you can’t really advertise.

We need to find ways to engage at a deeper level. As technology become our everyday life, people crave a more personal touch, and we need to balance.

And, together with finding more people, you can be of help, and keeping your customers happy, and you need to always keep track of the KPIs and analyze how your efforts are driving ROI. What has changed in the field in the last 5 years, and what changes are expected now?

Nowadays, information is everything. A couple of years ago, Facebook ads and Google analytics were a new thing. Today, we are talking about chatbots, CRM systems, big data and AI. I don’t consider them a challenge. Well, in a sense, they are, but mostly, all these represent an opportunity to create and deliver personalized customer experience, and be responsive in real time.

How we communicate has also changed drastically. If you could sell your product by trying to convince the audience that your product was the best thing they could possibly have, now nobody wants to buy your product. People buy solutions for their problems, experiences and emotions. We should try to create value for certain people, rather than trying to sell a product we came up with. After all, you could say business is all about solving people’s problems at a profit.

What important features should a marketing manager focus on, and what are their roles in an organization?

I don’t really know if there is any kind of a recipe for being a great marketer. I don’t consider myself a judge of it, but I think they should be very curious, flexible and good at

observing & analyzing events, people and their own behaviors. Creativity is great, but marketers should also be good at seeing through numbers and trends. And a little sales talent won’t hurt, either.

A marketer is not a company’s tool to sell their products. In my opinion, out of all the things we do, being the voice of a customer is the most important job. We should make sure we keep providing what people want and need.

What steps did you take, as an organization, to catch up with new trends, and use innovative approaches in the field of marketing?

You could say I’m lucky – as BDO in Georgia is the largest business software provider in the country, it’s impossible to stay behind.

Being surrounded with 300 tech-savvy professionals in different business fields, it’s difficult to be ignorant. Personally, I’m trying to read a lot. We live in a world where over 2.5 quintillion bytes of data are created every single day. There’s no need to reinvent the bicycle, you just need to know how to do research.

What’s your organisation’s business model, in terms of marketing?

In BDO, we are trying to be people who help

other people achieve their dreams. We don’t just sell. We aim at bringing value, and to help other individuals and organizations to succeed. Actually, listening to our customers and constantly pushing ourselves to do our best helps us to be the reliable business partner for a lot of successful companies in Georgia.

One word that describes your job.

Dynamic.

The most useful advice you’ve ever received in life?

If you believe in something, persist.

Think of a person who inspires you professionally.

Can there be two? Those would be Givi Dzamashvili and Zviad Oragvelidze, partners here at BDO in Georgia. They are not marketers, but they are very good at sparking passion and ideas in people around them.

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Business News

Silknet raises $200 Million in Eurobond Issue

TBC Capital’s research on the residential real estate sector includes a complete analysis of 2018.

JSC Silknet (“Silknet”), one of Georgia’s leading telecommunications operators, has successfully priced a debut $200 million 5-year 11% senior unsecured bonds issue (the “Notes”).

Hotel worth 7 million USD to open at Galleria Tbilisi in May The hotel will open at Galleria Tbilisi in May 2019.

The 80-suite hotel will be located on 6th and 7th floors of the shopping mall. The total investment value of the project is 7 million USD.

JSC MFO Swiss Capital Successfully issued GEL 10 million Unsubordinated Unsecured Corporate Bonds JSC Swiss Capital, rated B- by Fitch Ratings, successfully completed an inaugural GEL 10 million offering of notes due September 2021.

CROSTY teams with Zaza Pachulia Designer Sneaker Brand Appoints the Two Time NBA Champion as their First Brand Ambassador.

Tserti – New Store of Agriculture Products to open in Tbilisi In May 2019 a new store of fresh agriculture products and meat will open in Tbilisi. The store is called as Tserti.

Paintings of Niko Pirosmani to be displayed at Mikkel Museum in Tallinn

Digital Management and Double Degree with German University Fresenius University Digital Management Master Program will be introduced in Eastern Europe University and students will receive double degree.

Startup Grind Tbilisi hosts New Successful Georgian Startup Company Startup Grind Tbilisi has hosted the world’s one of the most successful Georgian startupers Tamaz Giorgadze.

On the joint initiative of the National Museum of Estonia, the Georgian Embassy in Estonia and the National Agency for Cultural Heritage Preservation of Georgia, the paintings of a prominent Georgian painter Niko Pirosmani will be exhibited at the Mikkel Museum in Tallinn from 23 March to 20 August.

TBC Capital conducted Large Research of Residential Real Estate Market

Largest Investment in Kobuleti: Georgia starts Half Billion Infrastructure Project Green Resort is building on the tradition of the successful projects of the L & R Company, creating new opportunities and challenges for successful financial partners.

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Hydro Sector Overview

by Experto Consulting Hydro is the most important and widely spread natural resource in Georgia. There are 26 000 rivers on the territory of the country. Their total length is approximately 60 000 km. Among them 300 rivers are significant enough for energy production.

At present, the total installed capacity of electric power plants operated in Georgia amounts to 4 106 MW. From this, 2 226 MW is generated by the so called “regulated” HPPs (with water storage), 934 MW by “seasonal” (runof-river) HPPs, 110 MW by Gas Turbines and 815 MW by thermal power plants.

Electricity consumption grows yearly in the country and is expected to double by 2030. In 2018 the growth rate was 6.1% (amounting 12 595.7 million KWh), which was mainly driven by the business sector electricity consumption growth. 73% of this demand was satisfied by HPPs, 15%

by TPPs and rest 12% was imported from neighboring countries.

Important problem is seasonality of electricity supply.

During winter months the country has to import energy. In 2018 trade deficit amounted USD 57 million.

But in summer months when the generation exceeds local consumption, Georgia exports electricity to Turkey, Russia, Armenia and Azerbaijan.

The average price for electricity import in Georgia in 2018 was USD 0.5 per KWh, while export price was USD 0.32 per KWh.

Source: Georgian State Electro system The maximum utilization of the abundant hydro-resources is one of the priorities of the country. The main objective of the long-run energy policy is the attraction of foreign investments for the construction of the new power plants.

In order to attract investment into new hydropower plants with a capacity of up to 100 MW, Georgia passed the low on Renewable Energy in 2008, which includes the list of potential Greenfield projects and rules for construction

of new renewable energy sources. This Law makes clear the government’s support for private sector construction, operation and ownership of hydropower plants under the principle of Build, Own and Operate.

Besides, hydro power plants with the capacity less than 13 MW, can export energy without license. The owners of hydro power plants can choose customers and set the energy supply prices by themselves.

Currently, 98 Memorandums of Understanding for HPPs are signed between the Government of Georgia and private companies (at the feasibility study stage, feasibility study stage with construction liabilities, or licensing and construction stage). Parties have an obligation to implement the taken projects.

The Government stopped signing Purchase Power Agreements (PPA), but upcoming reforms will open path to the new type of investors and bring assistance of donor organizations.

In 2019 creation of new legislative framework will be finished, which should give more credibility to the market.

In 2017 Georgia became a member of Energy Community, which brings transparency and competition on the market.

In 2018, first step of market deregulation brought increased number of direct customers.

Georgia’s unique energy potential and the market deregulated for new generation facilities make the country an attractive place for investments in hydro.

Most of the equipment needed for hydro power plants isn’t locally manufactured. Therefore, there is a significant opportunity for foreign companies producing the goods for HPP, water supply and sewage systems, melioration and irrigation systems.

It should also be noted that automatic governors and regulators of the existing hydro power plants are obsolete or inoperable, and the most of thermal power units are fully depreciated. Therefore, the governors/regulators shall be rehabilitated and thermal power units shall be replaced with the new cost-efficient analogs.

In addition, companies that are interested in ownership

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and operation of hydro power plants can easily get a license for it. The government has 58 already evaluated HPP projects that can be provided to the interested investor upon request.

There are some projects under construction or feasibility study amounting 5.4 GW in total. In case of developing all these projects, by 2030 Georgia would be able to satisfy local demand and even export. The biggest upcoming projects are: Nenskra HPP - comprises construction of Nenskra Hydropower Plant (HPP) – the largest strategic hydropower plant in the history of independent Georgia.

The project will be developed by K-Water, Korea Water Resource Corporation (investor), and JSC Partnership fund. Nenskra HPP with 280 MW of installed capacity will annually provide Georgia with total energy generation of 1,200.00 GWh which will be fully consumed by the local energy market. The project is planned to be completed in 2021, however the HPP will start producing the electricity in 2020.

Namakhvani HPP - The 433 MW / 1514 GWh project will be developed with a perpetual Build, Own and Operate Agreement, a Power Purchase Agreement and constructed through an EPC contract. The project design is developed by the Italian engineering firm Studio Pietrangeli.

Construction is estimated to start in 2019 under an Engineering, Procurement and Construction (EPC) contract with ENKA İnşaat ve Sanayi A.Ş. (ENKA), a leading Turkish engineering & construction company.

The Enguri Dam Rehabilitation – the dam is located on the Georgian controlled territory in Upper Svaneti, the power station is located in the Gali District of region Abkhazia of Georgia. Currently, it’s the world’s second highest concrete arch dam with height of 271.5 meters.

After the rehabilitation Enguri River dam will become an excellent attraction for tourists.

By Tatia Kartvelishvili

12 April 1, 2019 #277