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www.georgiatoday.ge Issue no: 842/26 • MAY 10 - 12, 2016 • PUBLISHED TWICE WEEKLY PRICE: GEL 2.50

In this week’s issue... PM Announces Future State Business Programs and Their Social Benefi ts

PAGE 2 Helping SMEs Set Sail: EIF Signs InnovFin Guarantee with ProCredit Bank The Georgian Co-Investment Fund PAGE 4 has announced its FOCUS readiness to hand Electricity Market Watch over eight of its ON TOURISM SECTOR funded projects to investors GALT & TAGGART PAGE 7 DEVELOPMENT PAGE 6 New Job Places Increasing by 2.6 Million Annually EBRD to Invest 400 Million Euros in Thanks to Electronic Payments, says Moody’s Georgia This Year PAGE 8 Changing Habits: Kakheti BY EKA KARSAULIDZE Region Begins to Separate Paper and Plastic Waste he European Bank for Reconstruction and Devel- PAGE 10 opment (EBRD) is currently celebrating its 25-year anni- versary and has highlighted IC Group: Tits ‘historic investment’ in Georgia. In just a few decades of cooperation, the Insure Today, Bank has carried out 190 projects in Bruno Balvanera, Regional Director Georgia and has invested more than EUR of EBRD in the Caucasus, Moldova and Belarus and Nodar Khaduri, Pay Tomorrow 2.6 billion. Georgia’s Minister of Finance Continued on page 2 PAGE 13

Prepared for Georgia Today Business by Markets Asof06ͲMayͲ2016 STOCKS Price w/w m/m BONDS Price w/w m/m BankofGeorgia(BGEOLN) GBP22.57 Ͳ1,4% +12,7% GEOROG05/17 102.19(YTM4.65%) +0,1% +0,8% GHG(GHGLN) GBP1.95 +0,3% +17,2% GEORG04/21 110.44(YTM4.49%) Ͳ0,2% +1,8% TBCBank(TBCBLI) US$10.50 Ͳ +5,0% GRAIL07/22 108.69(YTM6.04%) +0,6% +2,1% GEBGG07/17 104.31(YTM3.87%) +0,4% +0,5% COMMODITIES Price w/w m/m CrudeOil,Brent(US$/bbl) 45,83 Ͳ4,8% +15,0% CURRENCIES Price w/w m/m GoldSpot(US$/OZ) 1293,22 Ͳ0,0% +5,8% GEL/USD 2,2050 Ͳ0,9% Ͳ3,7% GEL/EUR 2,5139 Ͳ1,3% Ͳ3,7% INDICES Price w/w m/m GEL/GBP 3,1851 Ͳ2,2% Ͳ1,5% FTSE100 6125,70 Ͳ1,9% Ͳ0,6% GEL/CHF 2,2773 Ͳ1,9% Ͳ5,2% FTSE250 16648,76 Ͳ0,9% Ͳ1,3% GEL/RUB 0,0336 Ͳ2,0% Ͳ0,6% DAX 9869,95 Ͳ1,7% +2,6% GEL/TRY 0,7541 Ͳ5,3% Ͳ6,4% DOWJONES 17636,50 Ͳ0,8% Ͳ0,4% GEL/AZN 1,4553 Ͳ1,6% Ͳ3,6% NASDAQ 4689,46 Ͳ1,8% Ͳ4,7% GEL/AMD 0,0046 Ͳ Ͳ2,1% MSCIEMEE 125,80 Ͳ4,1% +2,4% GEL/UAH 0,0876 Ͳ1,1% Ͳ0,7% MSCIEM 809,46 Ͳ3,7% +0,1% EUR/USD 0,8753 +0,2% Ͳ0,2% SP500 2044,34 Ͳ1,0% Ͳ1,1% GBP/USD 0,6922 +1,1% Ͳ2,2% MICEX 1901,56 Ͳ2,6% +2,2% CHF/USD 0,9694 +1,0% +1,4% MSCIFM 2465,18 Ͳ2,0% +1,7% RUB/USD 65,6974 +1,4% Ͳ2,9% GTIndex(GEL) 796,74 Ͳ Ͳ10,1% TRY/USD 2,9241 +4,6% +3,0% GTIndex(USD) 710,92 +0,8% Ͳ6,9% AZN/USD 1,5165 +1,1% Ͳ0,2% GEORGIA TODAY 2 BUSINESS MAY 10 - 12, 2016 EBRD to Invest 400 Million PM Announces Future State Business Programs and Their Social Benefi ts

Euros in Georgia This Year a construction materials manufacturing plant in BY EKA KARSAULIDZE Khelvachauri, Adjara, while 200,000 GEL will be invested to construct an Askangel Alliance Com- pany factory that produces mineral products, in ew economic initiatives were one Guria. of the main topics at the Georgian The PM highlighted that in total 164 plants have Prime Minister’s recent meeting been created within the ‘Produce in Georgia’ pro- with the Government at which he gram. In total, these factories are worth more than announced the construction of three 400 million GEL, and employ 7,500 people. Nnew factories in the regions, container warehouse “It is extremely important that our citizens know buildings near the Black Sea and the start of a new about these kinds of programs as each of them is state program to support and fi nance Start-Ups. not only an impetus to our economy, but creates GEORGIA TODAY recently reported on PM new jobs,” said PM Kvirikashvili. Kvirikashvili’s new Start-Up funding program which The country’s leader also claimed that a new will be available for any citizen with an innovative, container warehouse which is going to be built exciting business proposal needing funding. The near Poti by local Iceberg Poti Company, would PM stated that, at the fi rst stage, the program’s add to the support of Georgia’s economy. The new budget will consist of 11 million GEL, and is expected container warehouse will receive an investment to increase to 35 million GEL. of 400,000 GEL, but the focus of the discussion PM Kvirikashvili actively encourages businesses was on the job aspect, with the PM stating that to get involved in government programs. In the each container shipped via Georgia meant more framework of the state program ‘Produce in Geor- jobs and better use of Georgia’s transit function. gia,’ the Government approved three projects and “The number of containers being shipped via said it would invest about 4 million GEL. Georgia is on the up and there is growing demand Continued from page 1 and stated that in the near future the EBRD will One of the projects will be a high-tech, modern for new logistics centers,” said the PM. “Georgia’s fi nance an initiative to introduce 60 new buses in livestock farming enterprise created in Martkopi transit potential is being increasingly utilized. The “We consider Georgia as the best country in terms Tbilisi which will run on compressed natural gas. village in Georgia’s Kvemo Kartli region. Local growth of transit shipments via Georgian territory of reforms, as well as introduction of international “We plan to invest more than EUR 400 million company Martkopis Baga will be responsible for implies there are more employed people in Geor- standards and accepting the EBRD mandate. Geor- Euros in Georgia - an unprecedented amount of implementing the project and around 2.5 million gia, since there is a close correlation between the gia has the best investment environment and a money,” said Balvanera. “This money could go to GEL will be invested. number of shipped containers and the great future and, to refl ect this, the investment that various sectors of the economy, like hydropower, More than 1 million GEL will be invested to build prosperity of small and medium-sized the Bank implemented here is one of the largest in banking, municipal infrastructure, and the private enterprises.” our portfolio of projects,” said Bruno Balvanera, sector. Overall, we are positive about the prospects Regional Director of EBRD in Caucasus, Moldova of Georgia's development and look forward to fur- and Belarus. ther successful cooperation.” Georgia’s Minister of Finance, Nodar Khaduri, The Regional Director of the EBRD also stated noted the importance of the assistance of the EBRD that this year is a jubilee not only for the Bank but in Georgia and the projects that have already been for the country as well as this year Georgia will and are going to be carried out. “The EBRD is the celebrate the 25th anniversary of its independence. largest and most reputable of investors in our coun- “This is a signifi cant date for Georgia, too, and we try,” the Minister said. “More than 2.6 billion Euros are very pleased that it has been a member of our was invested in the public and private sector, with big family for such a long time. As a result, we have a focus on the banking sector, energy and infra- been able to carry out a large number of projects, structure.” attract investments and develop the economy,” The Minister also highlighted the future projects Balvanera said.

GEORGIA TODAY 4 BUSINESS MAY 10 - 12, 2016 Helping SMEs Set Sail: EIF Signs InnovFin Guarantee with ProCredit Bank the horizon, one needs to learn fi rst how to build BY KATIE RUTH DAVIES a good ship, and to learn from the successes and failures of others; to learn and share with others; join forces with others. ProCredit will be there to oday the European Investment Fund provide the soundest and most pragmatic advice (EIF) signed an InnovFin Guarantee to stretch the fi nancial prospects of SMEs in the with ProCredit Bank in Thessaloniki, most responsible way. But we don’t build the ship, Greece, with the aim of supporting our clients do. That’s what Pro-Credit is here to its fi nancing of SMEs throughout achieve in order to help the region to fully realize Greece.T Pier Luigi Gilibert, CEO of the EIF, spoke its potential.” openly of the ‘uncertain global prospects’ and In the six months of staff training at the new ‘important social challenges’ facing many countries Greek branch, ProCredit says it has met many a of the EU, causing most to turn increasingly to resilient local company. SMES and entrepreneurs as an important source “Only a resilient and focussed, not overly rich, of economic growth. business can withstand the vagaries of the fast- “Against this backdrop, appropriate access to changing climate,” said Kostadinov. “Northern fi nance is critical to enable these businesses to Greece has both successful and confi dent SMEs invest and create jobs,” Gilibert said. “The EIF, as and passionate business-people. Greece has sur- part of the European Investment Bank Group, is Dimitris Avramopoulos, European Commissioner; Pier Luigi Gilibert, CEO of the EIF, Rena Peicheva, vived the diffi culties of the past years and has not pleased to support the active engagement of Pro- ProCredit Bank EAD, Bulgaria; and Borislav Kostadinov, Member of the Management Board of ProCredit stopped dreaming. These people have been able Bank Holding, at the signing ceremony in Thessaloniki today Credit Bank in setting up the foundations of a new to imagine and reimagine; create and recreate and entrepreneur-friendly business climate.” now I hope they’ll benefi t immensely from the ‘InnovFin – EU Finance for Innovators’ is a joint Thessaloniki and Northern Greece and of his appre- the right staff and the right facilities.” ProCredit approach.” initiative launched by the EIB and EIF in coopera- ciation of the hard work and ‘wisdom’ of the experts The signing and B2B event is being attended by tion with the European Commission under Horizon in the EU Commission who orchestrated the frame- over 500 business people from Greece, Georgia, InnovFin consists of a series of integrated and fi nancing 2020. work under which the fi nancing facilities function. Ukraine, Moldova, Albania, Kosovo, Romania, Bul- tools and advisory services offered by the EIB Group, The Guarantee was signed on behalf of ProCredit “Just borrowing more fi nance is clearly not the garia, and Bosnia & Herzegovina. Attendance from covering the entire value chain of research and innova- Bank by Rena Peicheva, ProCredit Bank EAD, Bul- answer,” Kostadinov said. “More fi nance can be the Georgian side saw 18 companies and 27 busi- tion (R&I) in order to support investments from the smallest garia, and Borislav Kostadinov, Member of the Man- detrimental. It is the right amount of debt, with the ness clients of ProCredit Bank while Greece boasted to the largest enterprise. agement Board of ProCredit Bank Holding. The right purpose and the right structuring, that makes 109 business persons in attendance, expecting to Horizon 2020 is the largest EU Research and Innovation Greek branch of ProCredit Bank Bulgaria opened a difference for an SME, and even this not enough. attend over 600 B2B meetings. program ever. With nearly 77 billion Euros of funding for business in Thessaloniki in November 2015. Responsible banking is only possible when deliv- “The more than 500 business people present have available over 7 years (2014 to 2020), it promises more Borislav Kostadinov, prior to signing the Guar- ered by well-trained qualifi ed personnel. Now that come here today because they want to fi nd out breakthroughs, discoveries and world-fi rsts by taking great antee, spoke extensively of the need for better the umbrella agreement with the EIF has been what is beyond the horizon and whether they can ideas from the lab to the market. Horizon 2020 is seen access to quality banking and fi nance for SMEs in signed, we are happy to report that we have both compete there,” said Kostadinov. “To sail beyond as a means to drive economic growth and create jobs.

The Flight You Deserve EBRD Adjusts Economic BY AIR GEORGIA! Growth Forecast for Georgia International charter flights throughout the Caucasus region, Europe and Asia! BY EKA KARSAULIDZE

he European Bank for Reconstruction and Development’ (EBRD) Director for the Caucasus, Moldova and Bela- rus, Bruno Balvanera, announced the bank would adjust its forecast for TGeorgia's economic growth potential upwards. The EBRD did not provide exact numbers, but Balvanera noted that Georgia’s GDP growth poten- tial could amount to more than 3 percent this year. According to the EBRD’s latest forecast from sharply with the International Monetary Fund’s November 2015, Georgia’s GDP growth should April prediction that stated the county’s GDP amount to 2.6 percent this year. growth potential in 2016 would slip from 3 to 2.5 Everywhere in a radius of 1500km! The EBRD’s newly revised forecast contrasts per cent. 3 hour non-stop fl ights!

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Tbilisi-Yerevan-Tbilisi: 3,500$ Open in Tbilisi by March 2017 Tbilisi-Batumi-Tbilisi: 4,000$ Tbilisi-Baku-Tbilisi: 5,000$ he construction of a new USD 53 mil- lion Intercontinental Hotel in Tbilisi Share between 6 passengers: 5 VIP seats + 1 extra. will conclude in March next year, Adjara Group announced. Don’t waste time waiting for regular economy fl ights- order Your Private VIP fl ight ANY TIME! The 210-room hotel will include Tseven different room categories, including a pres- Just let us know when and where on: [email protected] idential suite. The Bank of Georgia, Adjara Group and the Euro- pean Bank of Reconstruction and Development have signed a loan agreement worth USD 24 mil- lion for the construction of the hotel. The hotel will also include exhibition and confer- ence halls, several cafes and an indoor swimming pool, according to Adjara Group. Adjara Group currently owns Rooms Hotel Tbi- lisi, Rooms Kazbegi and the Holiday Inn. The com- pany is also building a 140-room Crown Plaza in Source: businesscontact.ge Batumi, which is slated to open by mid-2017.

GEORGIA TODAY 6 BUSINESS MAY 10 - 12, 2016 Ivanishvili’s GCF Ready to Transfer 8 Tourist Projects to Investors Hotel at Erekle II Square

majority of them started in 2013 and Tabori Mountain in Tbilisi, near Mtats- BY EKA KARSAULIDZE some of them are expected to begin minda. It will cost USD 40 million and operating in the near future. should open in 2018. The Fund announced Hotel Shekvetili, located on Georgia’s that under the same conditions, 29 hec- he Georgian Co-Investment Black Sea coast and tagged for comple- tares of land near the Tbilisi Botanic Fund (GCF), founded by tion in late 2016, is the fi rst hotel in Geor- Garden, purchased under controversy former Prime Minister of last week, are also ready for transfer. Georgia, billionaire Bidzina “If investors are able to carry work out Ivanishvili, has announced under the current conditions or are able Tthat it is ready to hand over eight pro- to offer a better option, we also agree to jects without any commercial benefi t to concede the 29 hectares of land that we itself, to those investors who provide acquired this week. As a gift, they will successful implementation of said pro- also get 10 hectares of land owned by jects within the set deadlines, namely If investors are the Fineservice Company, which, in due touristic projects in Tbilisi and the regions time, was acquired at the investor’s of a total investment cost of USD 574 able to carry request and with the support of the state million. budget explicitly without the right to The Chairman of the Supervisory Board work out under build in order to protect the green space,” of the Co-investment Fund, Irakli Karse- said Karseladze. ladze, highlighted the profi tability of the the current Hotel Sololaki The Chairman also notes that the pro- projects, taking into account the growing gia to have a swimming pool connected with a total investment cost of USD 49 jects have social value. Approximately tourism potential of Georgia. “In the conditions, we to the sea. The investment sum of this million. One of the hotels will be opened 15,000 people are or will be involved in future, all these projects can become project is USD 77 million. next year, while the second one won’t construction works, while the hotels new business cards of Georgia as they also agree to The Magnolia recreational complex, open its doors until 2019. themselves are anticipated to provide provide a unique package of features, as with an investment of USD 80 million, The construction of one USD 90 mil- employment for around 2,500 employ- well as contributing to raising tourist concede the 29 is expected to be completed in 2019, and lion hotel on Freedom Square and one ees. fl ow and tourism sector development Hotel Ganmukhuri in Georgia’s Black of a higher scale (USD 200 million), USD 216 million of the USD 574 million throughout the country,” said the Chair- hectares of land Sea village of the same name, will open Hotel Sololaki, will be fi nished in 2018 combined total value of the projects has man. in 2018, having run up a cost of USD 40 and 2019, respectively. already been invested. The GCF claim Of the projects, fi ve are Tbilisi-based we acquired this million. Within the presented program, the that any of the above projects are can be hotels and three are hotel complexes in Two hotels will be built on Erekle II GCF is also ready to hand over the Tabori handed over to investors at any stage of the regions. The construction of the week Square in the historic center of Tbilisi project, which will be implemented on their development if conditions are met. GEORGIA TODAY MAY 10 - 12, 2016 BUSINESS 7

The Galt & Taggart Research team comprises Georgian and Azerbaijani fi nance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fi xed income corporate research. For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at [email protected]. Electricity Market Watch

FOR GEORGIA TODAY BY TAMARA KURDADZE

ector research is one of the key directions of Galt & Tag- gart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agricul- Sture, Real Estate, and Wine 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.

ANOTHER THERMAL POWER PLANT PROJECT UP FOR OPEN TENDER The construction of a second combined- cycle power plant is expected to com- istics of Gardabani CCPP, which com- are estimated at US$ 160.0mn. Accord- ticipated in the Expression of Interest CCPP was built by Turkish Calik Enerji mence in 2017. The 240MW power plant menced operations in September 2015. ing to GOGC, the owner of both pro- stage for Gardabani CCPP II, but their Holding. will replicate the technical character- Gardabani CCPP II construction costs jects, six international companies par- identities are not public yet. Gardabani Continued on page 9 GEORGIA TODAY 8 BUSINESS MAY 10 - 12, 2016 New Job Places Increasing by 2.6 Million Annually Thanks to Electronic Payments, says Moody’s

BY MERI TALIASHVILI

ccording to a Moody’s study commissioned in 2011-2015 by Visa Inc and conducted in 70 countries, which con- stitute 95 percent of the Aglobal GDP, the increased usage of elec- tronic payment products, including credit, debit and prepaid cards has increased while the use of consumption products has risen by 0.18 percent per year. As a result of increased electronic payments over the fi ve-year period, 2.6 million new jobs have been created annually. “Electronic payments represent an important contributor to economic growth and employment creation. In those countries where card usage occurred most, economic growth also increased,” said Mark Zandi, Chief Econ- omist of Moody’s. The report release by Visa Inc shows Source: www.huffi ngtonpost.com that payment electrifi cation has benefi ted governments and contributed to the tion. This implies that card usage usage increased regardless of economic Both emerging markets and developed - it requires the support of a well-devel- creation of a more stable and transpar- accounted for about 0.4 percent of growth performance. In Russia GDP increase countries experienced gains in consump- oped fi nancial system and healthy econ- ent business environment. At the same in consumption. Since consumption was estimated at 0.33%, in Ukraine – tion due to higher card usage. Increased omy to have the greatest impact. The time, the electronic payments system growth is, on average, faster in emerging 0.07%, while in Azerbaijan and Kazakh- card usage added 0.2 percent to con- report recommends, at a macro-level, in has minimized the shadow economy, economies, those countries also have stan GDP increase reached 0.03% and sumption in emerging markets, compared order to encourage the further electri- creating a high tax revenue basis for more to gain by increasing card usage. 0.02% respectively. with 0.14 percent in developed countries fi cation of payments, countries must governments. It has also created an addi- Card Usage: Countries with the largest between 2011 and 2015. The correspond- promote policies that minimize unneeded tional benefit for low-budget cash increases in card usage experienced the CONTRIBUTION TO ing fi gures for GDP were 0.11 percent for regulation, create a robust fi nancial expenses and offered a guarantee for biggest contributions in growth. For EMPLOYMENT emerging economies and 0.08 percent infrastructure, and lead to greater con- trade subjects, says the report. example, big increases in GDP were Increased card usage added the equiva- for developed countries, and suggest sumption. “The study shows that the right public recorded in Hungary (0.25%), the United lent of almost 2.6 million jobs on aver- that all markets, regardless of current “Consumers are using cards for pay- policy can create an open, competitive Arab Emirates (0.23%), Chile (0.23%), age, per year, across the 70 countries card penetration rates, can benefi t from ments more and more. In 2011-2015 a tax environment which will benefi t both Ireland (0.2%), Poland (0.19%) and Aus- sampled between 2011 and 2015. Notably, increases in consumption due to increases stable growth of Visa card usage was economic growth and job creation,” tralia (0.19%). In most countries, card the two countries with the greatest aver- in card usage. seen across the Visa CISSEE markets. noted Charles W. Scharf, Chief Execu- age job increases were China (427,000 As the Moody’s results suggest, migra- tive Offi cer, Visa Inc. “Visa Inc is in jobs added) and India (336,000 jobs POTENTIAL FUTURE GROWTH tion to electronic payments added nearly partnership with numerous governments, added), which both had large gains in Across the 70 countries in the study, USD 460 million to the GDP in Ukraine, fi nancial institutions, trade and technol- employment due to the combination of Moody’s found that every 1 percent USD 70 million in Azerbaijan and USD ogy companies globally, together with fast growing labor productivity and increase in usage of electronic payments 210 million in Kazakhstan,” said Dmytro whom we create innovative products,’ increased card usage. In the CIS region, could produce, on average, an annual Krepak, Visa Country Manager for he added. 235,000 new jobs were created in Russia, increase of approximately USD 104 bil- Ukraine, Georgia and Armenia. “This is In those countries and around 13,520 news jobs were added lion in the consumption of goods and the result of close partnership between HIGHLIGHTS OF THE in Ukraine. In Kazakhstan and Azerbai- services. Assuming all future factors all industry stakeholders, including Visa GLOBAL STUDY INCLUDE: where card usage jan increased card usage added the remain the same, this could result in an client-banks, regulators, merchants and GROWTH OPPORTUNITIES equivalent of 2,080 and 1,130 jobs respec- annual average increase of 0.04 percent other players. We’re committed to work- Card Penetration: Real consumption occurred most, tively. to GDP attributable to card usage. ing further with all interested parties to grew at an average of 2.3 percent from The study highlights that expanding reach our common goal – accelerated 2011 to 2015, of which 0.01 percent is economic growth EMERGING MARKETS AND electronic payments alone will not nec- migration to electronic payments for the attributable to increased card penetra- also increased DEVELOPED COUNTRIES essarily increase a country’s prosperity benefi t of national economies.”

Tel: (995 32) 2 45 08 08 10 Galaktion Street E-mail: [email protected] GEORGIA TODAY MAY 10 - 12, 2016 BUSINESS 9 Electricity Market Watch

Continued from page 7 owner of one-fi fth of Georgia’s total weather compared to March of last year. installed capacity. Distribution network operators are a major INTER RAO INTENDS TO SELL consumption group, servicing residential ITS GENERATION ASSETS TURKISH INVESTOR INTEREST and commercial customers. Their con- Inter Rao has declared intent to sell the IN THE GEORGIAN ENERGY sumption growth rate decelerated to 2.7% generation assets under its ownership SECTOR REMAINS STRONG y/y in March 2016. Consumption in the – Mtkvari Energy, blocks 9 and 10 in Calik Enerji Holding has expressed inter- greater Tbilisi area grew 5.8% y/y, while Gardabani. Generation unit 9, with an est in building another thermal power growth in the regions was weaker (1.2% installed capacity of 300MW, is the only plant with GE power, the owner of a 110MW y/y). Consumption by eligible consumers one currently functioning. It acts as a TPP. Calik is also considering the potential (large industrial customers who purchase guaranteed capacity source and supplies of wind power plants to be located in Shida directly from ESCO and the generation electricity mainly to the greater Tbilisi Kartli and Imereti regions, where wind entities) was down 6.7% y/y in March 2016, area (Telasi subscribers). The grid (Tel- towers have already been installed to as Georgian Manganese, representing asi) is not up for sale. The news has been monitor wind conditions over a 1-year 81.0% of direct consumption, further confi rmed by the Deputy Minister of period. Meanwhile, the offi cial agreement reduced its consumption. Energy of Georgia and the Chairman of between Georgian and Turkish govern- Inter Rao, Boris Kovalchuk. A likely ments was ratifi ed by the Turkish Parlia- CHEAP IMPORTS FROM RUSSIA transaction is fi nalized. HPP output was a result of a short-term deal with Russia buyer is GIG, which already owns 362MW ment, further fostering the energy sector BRIDGE ELECTRICITY DEFICIT up 17.1% y/y in March 2016, on the back for discounted electricity imports in of generation assets, including a 300MW cooperation between Georgia and Turkey. In March 2016, domestic generation was of increased generation by deregulated February, the balancing electricity price natural-gas fi red TPP, small hydro plants, down 9.5% y/y on the back of lower TPP HPPs (+41.0% y/y) and regulated sea- in Georgia was cut in half to USc 3.4/ and a 13MW coal TPP, for which it mines DOMESTIC CONSUMPTION output, leading to higher imports from sonal HPPs (+26.5% y/y). Enguri and kWh compared to last year. The market its own coal. Recently, GIG signed an GROWTH DECELERATES Russia. The amount of TPP-generated Vardnili production was down 5.7% y/y clearing price of electricity in Turkey MoU to construct another coal TPP in IN MARCH electricity decreased 56.2% y/y. Tbilsresi due to weather conditions and low water was down 21.5% y/y to USc 3.9/kWh, as Tkibuli, with an installed capacity of Domestic electricity consumption was up generation was down 98.7% y/y, while levels in the reservoir. the downward trend of the past few 150MW. Successful acquisition of Mtk- 1.0% y/y in March 2016 and 1.8% y/y in Mtkvari halted production in March 2016, The drop in domestic generation was months persists. The prices are expected vari Energy and construction of 1Q16. Weaker growth was partly due to as Inter Rao is negotiating the sale. We compensated by Russian electricity to remain low in the short term on the Tkibuli-150 TPP would make GIG the the high base in March 2015 and warmer expect generation to resume once the imports, up 76.2% y/y in March 2016. As back of lower commodity prices. Tbilisi City Hall Willing to Reduce Tbilisi Construction Chaos

Narmania noted that the lack of reg- would initially impose temporary con- city’s ‘green areas,’ (near public squares BY EKA KARSAULIDZE ulations has for a long time been lead- struction restrictions to regulate the and gardens). Moreover, Narmania said ing to the fact that some parts of the height and size of residential buildings that common standards for roofs will city now appear chaotically constructed. in central Tbilisi. However, most likely, be introduced, as well as an initiative bilisi Mayor Davit Narma- This, he says, mostly concerns the his- after the city’s urbanization Master to create ‘green roofs’ in order to give nia has announced that torical area of the city and densely Plan is ready and enters into force, the the city a more eco-friendly and favora- Tbilisi City Hall intends populated zones, including some parts regulation will be made permanent. ble appearance. to implement regulations of Saburtalo, Vake, Didube, Isani and According to Narmania, the regulations The Mayor said City Hall had already prior to the completion of Mtatsminda-Krtsanisi districts. The would affect both construction com- developed the mentioned regulations theT city’s urbanization Master Plan. The head of City Hall said new regulations panies and private property owners and has sent the relevant documenta- Mayor focused on construction regula- would help Tbilisi to retain its unique wanting to remodel or update their tion to the Tbilisi City Assembly (Sakre- tion in a number of city districts and character and reduce the chaotic build- homes. bulo). He added that all details will be the introduction of common standards ing projects in the growing city. The regulations also foresee impos- offi cially made known to the public for roofs and the greening of those roofs. The Mayor said that Tbilisi City Hall ing restrictions on construction in the shortly. GEORGIA TODAY 10 BUSINESS MAY 10 - 12, 2016 Changing Habits: Kakheti Region Begins to Separate Paper and Plastic Waste

Contact: www.edelbrand.ge Phone: 599 461908

physical persons is 0.50 GEL; while by law it is BY BARBARA DZAGNIDZE determined according to various factors like type of activity, number of beds, tables and square meters, for instance. Despite being such a small aste bins with stickers that amount, the majority of citizens could not pay identify ‘only plastic’ and ‘only the waste fee. And to address the issue, they paper’ have recently appeared decided to implement manual recording in vil- in fi ve villages of Telavi Munic- lages in order to determine who has paid. Unfor- ipality, allowing the population tunately, as Enukidze notes, this failed, too. The ofW Tsinandali, Kvemo Khodasheni, Busheti, Vanta, share of service-related fees collected in the total and Akura to start to separately collect paper waste management budget is insignifi cant and and plastic in order to fulfi ll the country’s require- provides almost no economic support. ment towards the Waste Management Code, As Shavgulidze explains, the villages for the which involves implanting a waste collection pilot project were selected by the readiness and system from 2019. willingness of both population and trustees of Aiming to create a waste separation and col- the villages to be involved in the process, the lection system in each of these areas, the pilot existence of active community groups, commu- project is initiated by the USAID funded program nity-based organizations and NGOs, and the Waste Management Technologies in the Regions area’s socio-economic situation. (WMTR), which is implemented by the Interna- “We bought 75 bins for the pilot project from tional City/Country Management Association which each village has fi fteen new bins; six are (ICMA) and the Caucasus Environmental NGO intended for separated waste collection, while Network (CENN). the rest are for ordinary waste. The bins are According to Nino Shavgulidze, the Chief of located in the center of the villages, and near Party of the Program, the reason the pilot is being shops and public schools in order to be more implemented in Telavi Municipality was their accessible,” notes Shavgulidze, adding that the readiness and desire to be involved in such an waste is collected weekly with a specifi c truck initiative. “In December 2014, the municipality and is taken to an appropriate warehouse from addressed us asking for support in the expansion where it will be collected by a private collection of the waste collection and cleaning services company for recycling. within the municipality,” Shavgulidze explains, The progress is slow but noticeable as the adding that the split of the municipality and the population begins to change its habit of not only creation of a separate self-governed city of Tel- throwing waste on spontaneous dumpsites but avi resulted in a division of human and technical also separating waste. Mzia Mdivnishvili, an resources. inhabitant of Tsinandali village, says she had The territory of the newly formed Telavi munic- been collecting old books and waste paper for a ipality is 1077,65 km2 and covers 26 villages. long time. “It was a pity to just throw them away Today, all of the villages have a waste collection in a normal waste bin or burn them. So I kept system operated by Service of Welfare and Infra- them until I saw the bins for separated waste,” structure Ltd. However, as Shavgulidze notes, she explains. when the pilot project was planned, only 5 vil- As a follow up of the pilot project, Shavgulidze lages had the service. explains that the WMTR Program is currently Zura Enukidze, representative of the Infrastruc- working with the City of Telavi to implement a ture Service of Telavi Municipality, stated that similar separated waste collection pilot project the collection fee in Telavi Municipality for in the city. GEORGIA TODAY MAY 10 - 12, 2016 BUSINESS 11 RETAIL FOOD PRICE INDEX: Food Prices Down as Turkish and Iranian Floodgates Open

increased by a mindboggling 164.6% FROM THE INTERNATIONAL (in value) compared to January-March SCHOOL OF ECONOMICS (ISET) 2015. Whereas peach and eggplant are mostly imported from Turkey (and, perhaps, Syria), the main source of ccording to data from the cabbage is Iran. last two weeks of April, Assuming that the thaw in the polit- retail food prices are down ical and economic relations with Teh- 4.6% year-on-year (y/y) ran continues in years to come, Geor- (compared to April 2015) gia is likely to see its trade with Iran andA 0.6% month-on-month (m/m) (com- increase many times, expanding beyond pared to March 2016). During those two basic food products to gas and more weeks we saw the biggest drops in the sophisticated manufactured goods. The prices of eggplants (21.4%), buckwheat situation is quite different as far as (9.4%) and tomato (9.0%). Only one (!) Turkey is concerned. Georgia and Tur- product increased in price during this key have been for many years operating period: greens (up 3.8%). under a free trade agreement, and the current spike in imports from Turkey GEORGIAN CONSUMERS refl ects nothing but a temporary effort CELEBRATED ALL THE WAY by Turkish producers to dump their TO THE EASTER TABLE perishable products in the Georgian Traditional Georgian households were market. Sooner or later, fasting the last few weeks, which implied this fl ood will exhaust itself, not before (potentially) devastating Georgia’s nas- Source: Retail FPI cent greenhouse industry.

reduced consumption of sugar, eggs, the priciest and cheapest retail chains dairy products, fi sh, and meat. Lower reached its historical minimum since demand may have been a factor in keep- FPI’s launch in fall 2014. Hard-pressed by ing food prices at bay, however, the As shown in the chart, the y/y down- downward trend in prices started more ward trend in food prices is driven their competitors, than a month before the Great Lent, in mostly by vegetables and fruits, with February 2016. This trend has little to do some of them losing more than half of the most with Georgian religious traditions. Rather, their price over the last 12 months. it is best explained by the resetting of Garlic (up 33.5%) is an interesting out- expensive retailers Georgia’s economic relations with Iran, lier. on the one hand, and its role as a tem- Cabbage (down by 65.7%), peach (by had to make porary buffer for Russia-banned Turkish 58.1%) and eggplant (by 54.6%) are the products, on the other. clear leaders in price declines as Geor- drastic For now, Georgian consumers emerge gia is seeing a very signifi cant increase as the clear victors from these external in the supply of these products. During adjustments, geopolitical developments. A few fresh the fi rst three months of 2016, the value food prices have been slashed by more of cabbage and eggplant imports leading to a than 50% y/y. Even the cheapest net- increased by 5.8% and 10.9%, respec- works became slightly cheaper. Hard- tively, compared to January-March of convergence in pressed by their competitors, the most 2015. Taking into account lower prices, expensive retailers had to make drastic there has been a much higher increase prices adjustments, leading to a convergence in the quantity (in tons) of cabbage and in prices. By mid-April, the gap between eggplant imports. The imports of peach Only one (!) product increased in price during this period: greens (up 3.8%)

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Pick up a copy of Georgia Today Education at any BIBLUS shop or phone 229 59 19 Price: 2 Gel GEORGIA TODAY 12 BUSINESS MAY 10 - 12, 2016 Arabian Investors Visit Georgia

Representatives of the Ministry of Economy and Sustainable Development of Georgia with the Arabian business delegation in Georgia to study the local investment potential

Annual Investment Meeting, Dawood Al-Shezawi; BY EKA KARSAULIDZE Managing Director of the Arabic Al Nakheel prop- erties, Abdulrahman al Shezawi; and Chairman of the Board of Directors of Alliance International he Ministry of Economy and Sustain- Investment, Amin Hassan, visited Georgia for the able Development of Georgia has fi rst time. announced that an Arabian business Their visit included meetings with the Ministry delegation was in Georgia on a work- of Economy and Sustainable Development of ing visit, with the purpose of study- Georgia, investment funds and the real estate sec- ingT the local investment potential, in particular tor, as well as a number of private companies. One future implementation of tourism and real estate of their main objectives was also a site visit to projects. Batumi, where the guests discovered the tourist The delegation, which included President of the potential and investment opportunities in Adjara. Reconstruction of Historic Gudiashvili Square

and bar. Tbilisi Development Fund said that there BY EKA KARSAULIDZE would also be place for parking near the Square. “One of the main criteria from City Hall was to create a synthesis of old and new for the city,” said bilisi City Hall and the Tbilisi Develop- Nikolo Mchedlidze, architect of the winning pro- ment Fund is continuing reconstruction ject. “There are a lot of old houses from the 18th of the Old Town. Following the David and 19th century, a lot of monuments of cultural the Builder (Agmashenebeli) Avenue heritage, so we had to solve a rather complicated and Dry Bridge surrounding area, gov- task to synthesize a modern house on the site of a Ternors now plan to bring a new look to Gudiashvili demolished one.” Square in Sololaki. In the fi rst phase only two build- Tbilisi City Hall pointed out that the project made ings will be reconstructed. However, City Hall says sure to involve a large number of institutions and it is ready to restore all the houses there. experts – architects, art historians, and restoration Two months ago, the Tbilisi Development Fund experts, so that reconstruction works would not announced a tender for the restoration of two damage the cultural part of the city. On the con- houses on Abo Tbileli and Gia Abesadze streets trary, City Hall says, it is expected that after com- adjacent to Gudiashvili Square. As a result, two pletion of the work, Gudiashvili Square will become winners were revealed from 21 projects. According a lively hotspot for tourists. to the winning project, soon the historic city center City Hall and the Tbilisi Development Fund will will get a new two-fl oor building with offi ce space announce a tender for the restoration of the other and a gallery, and a three-fl oor hotel with a cafe houses on the Square in the near future. Spanish Jamon to Go Georgian?

with representatives of Georgia’s state Partner- BY EKA KARSAULIDZE ship Fund and a concrete proposal was made on May 5. The Deraza Iberico owns an Iberico breed pig delegation of Deraza Iberico Com- farm in Spain and is one of the largest meat pany visited Georgia to study varie- producing companies there. The Partner- ties of Georgian pig and to make a ship Fund stated that the Spanish company potential investment in the local meat is interested in Georgia’s Kakheti pork industry. A meeting was arranged varieties and is consider- A ing its commercialization in the international market. The company’s representatives visited the Partnership Fund with specifi c investment proposals and will tour the regions, meet farmers and purchase a vari- ety of well-known Georgian pigs for scien- tifi c purposes. The interest of Deraza Iberico in the Geor- gian market is the result of the Partnership Fund’s business trip to Spain on April 13-18 in the framework of which representatives of the Partnership Fund visited the company and saw the manufacturing process. GEORGIA TODAY MAY 10 - 12, 2016 BUSINESS 13 IC Group: Insure Today, Pay Tomorrow

will be able to use interest-free payment by install- for such innovative products as low cost insurance ments. This is the purpose of our advertising cam- for hybrid vehicles, which we offer at the lowest paign: “Insure Today, Pay Tomorrow,” under which price in order to promote a clean environment; and farmers are given an opportunity to pay their share motor insurance including a video recorder, which of the premium not at policy inception, but at the enables quick settlement of claims. IC Group was time of harvest. the fi rst in the market to offer online travel insur- ance services. In addition, we offer property insur- IC GROUP HAS LONG BEEN IN ance during the rental period, or short term prop- THE MARKET. WHAT INSURANCE erty insurance during the holidays, also various PRODUCTS DO YOU OFFER APART types of motor insurance modifi ed and tailored to FROM AGRICULTURAL INSURANCE? all categories of drivers. IC Group Insurance Company has been operating IC Group always tries to offer products focused in the market for ten years- in 2016 the Company on its clients and tailored to their needs. This year, is celebrating its anniversary. Our main focus is on the ten-year anniversary of IC Group, will be very non-health insurance products, however, we also special for us and for our loyal customers, and our have well-developed corporate health insurance. Policyholders will see a lot of benefi ts and gifts We offer all types of insurance and are also known coming their way.

Giorgi Shengelia, Deputy Director at IC Group Insurance Company

PREPARED BY KATIE RUTH DAVIES

C Group is actively involved in a state-sub- sidized Agricultural Insurance Program. GEORGIA TODAY spoke to Giorgi Shenge- lia, Deputy Director at IC Group Insurance ICompany, to fi nd out more. REGARDING THE STATISTICS FOR THE PREVIOUS YEAR, WHAT WAS THE AMOUNT OF LOSS REIMBURSED BY YOUR COMPANY? On September 1, 2014, the subsidized Agricultural ence, IC Group has signifi cantly improved and Insurance Program was launched on the initiative simplifi ed its claims handling procedures. of the Ministry of Agriculture and the Agricultural The second stage of the Project was launched in Projects Management Agency of the Ministry of spring 2016 with improved conditions and a lot of Agriculture. IC Group has been actively involved benefi ts. The interest of the population in this is in this Program and, based on the 2015 data, cov- high. At this stage, the Insurance Project has a ered 26.2% of the total market by written premium. budget of GEL 10 million. This year we and the Due to the weather and climatic conditions, the State decided to offer farmers more affordable and 2015 spring-summer season was quite diffi cult for fl exible payment terms. Now, the farmers’ share of the whole of Georgia. Benefi ciaries insured with the premium ranges from 20% to 30%. (In case of IC Group suffered signifi cant losses which were registered land – 20%). reimbursed by the Company in accordance with the Regulations. The total amount of reimburse- WHICH CROPS AND WHAT TYPE ment exceeded one million GEL. OF DAMAGE IS COVERED AND WHAT PERCENT OF THE PREMIUM IS DESPITE THOSE SIGNIFICANT SUBSIDIZED UNDER THE AGRICULTURAL LOSSES, IS IC GROUP GOING TO INSURANCE PROGRAM? PARTICIPATE IN THE AGRICULTURAL Virtually any food crop produced in Georgia can INSURANCE PROGRAM THIS YEAR? be insured against the following: hail, storm, Of course! Moreover, based on last years’ experi- excess rainfall and autumn frost (for citrus crops only) – for the period from September 1 to Novem- ber 30. The Program provides a subsidy for both small and medium-sized farms to an amount of up to 80% of the premium. Last year, farmers’ share was 40%, which, naturally, was quite a IC Group has heavy burden. WHAT KIND OF PAYMENT SCHEME IS OFFERED TO FARMERS? signifi cantly improved On April 26, an Agreement on Mutual Cooperation was signed by IC Group Insurance Company and and simplifi ed its MFO Crystal, under which any interested person has the possibility to buy an IC Group agricultural claims handling insurance policy at the offi ces of Crystal and enjoy procedures preferential credit terms. In some cases farmers GEORGIA TODAY 14 BUSINESS MAY 10 - 12, 2016 Japanese Tokyo UN Development Rope Company Program Promotes Considers Georgian Pastures in Protected Area Market BY TAMAR SVANIDZE

he United Nations Devel- opment Programme (UNDP), European Union and local government offi - cials initiated a new project toT rehabilitate degraded and unused pasture land as well as improve the liv- ing standards of shepherds and farmers in eastern Georgia’s remote Vashlovani region. Vashlovani is one of the unique pro- tected areas in the country and home to a traditional area for sheep breeding that provides income to more than 500 indigenous Tush shepherds and their families. Since 2013 two pilot farms have been set up to maximize the best practices for sustainable pasture management. A structs road safety devices including water supply system is in place that pro- BY EKA KARSAULIDZE avalanche prevention nets as well as vides water to 15 farms, which signifi - cantly increases the effi ciency of local nomic growth and the well-being of the environmental protection products that farming and grazing. local people. It was great to see these include sound insulation walls and cable- Two automated meteorological stations outstanding results fi rst-hand,” Shombi BILISI – Tokyo Rope Chair- suspended bridges – manufacturing and have also been constructed and con- Sharp, Deputy Head of UNDP Georgia, man Shigeto Tanaka met sales of various industrial machinery nected to the national weather system said. on Thursday with Georgian and metal fi ber. to better monitor conditions for herding The project also includes rehabilitat- Prime Minister Giorgi Japanese contingent praised Georgia’s and grazing. ing 4,000 hectares of unused pastures Kvirikashvili to discuss the business potential for Tokyo Rope, say- A unifi ed veterinary service for Tush and 300 hectares of sheep trails by possibilityT of building a new manufac- ing the country’s terrain could signifi - New 5-Star Hotel shepherds is being established to meet December 2016. turing plant in Georgia. cantly contribute to the company’s the needs of the estimated 30,000 sheep The four-year initiative is part of the Tokyo Rope is one of Japan’s leading wire growth. “Georgia is a mountainous coun- Intercontinental to in the region. European Union’s Clima East program rope manufacturers and specializes in the try and we see great potential here. We "The initiative in the Vashlovani Pro- to aimed at helping Eastern Partnership production and sale of wire rope, steel discussed the possibility of constructing Open in Tbilisi by tected Areas is an example of how the governments adapt to the effects of cli- cord and Carbon Fiber Composite Cable. one of our plants in Georgia, as we move protection of the environment can con- mate change by introducing innovative The company also designs and con- towards wider worldwide production.” March 2017 tribute to sustainable development, eco- practices for pasture management. GEORGIA TODAY MAY 10 - 12, 2016 BUSINESS 15 Dechert OnPoint: Setting Aside the Yukos Award echert Georgia, through Court rejected the Tribunal’s competence the contribution of part- and set aside the award, stating that there ners Archil Giorgadze and was no need to discuss any other argu- Nicola Mariani, joined by ments brought by Russia. senior associates Ruslan DAkhalaia and Irakli Sokolovski, as well IV. Results of the setting aside pro- as Ana Kostava and Ana Kochiashvili, is cedure and possible future develop- partnering with Georgia Today on a ments regular section of the paper which will The Claimants have already declared provide updated information regarding their intent to appeal the Judgement. signifi cant legal changes and develop- The recognition and enforcement pro- ments in Georgia. In particular, we will ceedings of the Award are already com- highlight signifi cant issues which may menced in several jurisdictions outside impact businesses operating in Georgia. Russia and the Netherlands, namely France, Belgium and the USA. It is THE SETTING ASIDE OF THE expected that the Judgement will have “YUKOS AWARD” BY THE a negative impact on those enforcement HAGUE DISTRICT COURT proceedings. However, the fi nal say lies The biggest story of the month in the with the higher courts in the Netherlands. global legal and business world was an unexpected judgement issued by The * * * Hague District Court (the “Court”) on Note: this article does not constitute legal 20 April 2016 (the “Judgement”), which advice. You are responsible for consulting set aside the award issued by the Per- with your own professional legal advisors manent Court of Arbitration (“PCA”) in concerning specifi c circumstances for your The Hague on 18 July 2014 to the benefi t business. of Yukos shareholders (the “Award”). Dechert’s Tbilisi offi ce combines local service The award itself, crowning ten years Firstly, Russia signed but never ratifi ed reduced by 25 percent. Finally, the Tri- ECT. Contrary to the Tribunal’s reason- and full corporate, tax and fi nance support of arbitral proceedings, is unprecedented the ECT. However, the ECT itself in bunal awarded over USD 50 billion, mak- ing, the Court ruled that provisional with the global knowledge that comes with in the sphere of international investment Article 45 provided that signatory states ing it the largest damages award in the application depends on the compatibility being part of a worldwide legal practice. law, primarily due to its amount. The were bound to apply the Treaty provi- history of investment treaty arbitration. of separate treaty provisions with national Dechert Georgia is the Tbilisi branch of Dechert Russian Federation was ordered to pay sionally pending its entry into force to laws, rather than providing for the appli- LLP, a global specialist fi rm that focuses on more than USD 50 billion to former the extent that such provisional applica- III. The court proceedings and set- cation of the ECT in its entirety. core transactional and litigation practices, shareholders of Yukos, which was at one tion is not inconsistent with their con- ting aside of the Award Accordingly, the relevant question for providing world-class services to major cor- time the largest oil company in Russia. stitution, laws or regulations. Because Arbitral awards cannot be appealed, the Court was whether the option for porations, fi nancial institutions and private This week’s edition of OnPoint provides the Tribunal deemed that the ECT was however, the courts of the jurisdiction Claimants to go to arbitration, present funds worldwide. With more than 900 Law- a brief overview of the “Yukos Saga,” as applicable in its entirety, it concluded where they are issued in generally have in Article 26 of ECT, was in accordance yers in our global practice groups working in it is commonly known in the legal fi eld, that such provisional application was the power of limited review of questions with Russian law. The Court reasoned 27 offi ces across Europe, the CIS, Asia, the with reference to key facts, legal issues not inconsistent with Russia’s constitu- related to the jurisdiction of the arbitral that Russian legislation “limits the option Middle East and the United States, Dechert and potential future developments. tion, laws or regulations, emphasizing tribunal, if the proceedings to set-aside of arbitration to civil law disputes”, dis- has the resources to deliver seamless, high that the termination of the provisional the award are brought before them. This putes related to Russian public law, i.e. quality legal services to clients worldwide. I. Dismantling Yukos and Khodor- application of the ECT by Russia in 2009 option was used by Russia before the tax law, may not be submitted to arbitra- For more information, please visit www. kovsky’s arrest had no impact on any investments made Court. In the Judgement, the Court aligned tion and can only be brought in the Rus- dechert.com or contact Nicola Mariani at Yukos was a leading joint stock com- before such termination. As the ECT with Russia’s reading of Article 45 of the sian national courts. On that basis, the [email protected]. pany in Russia in the oil and gas sector, was applicable in its entirety, the Tribu- listed as one of the world’s top ten com- nal ruled that Claimants had the right panies in the sector in 2002. In 2003, the to bring their case before arbitration Russian state launched tax and fraud under Article 26 of ECT, and thus the proceedings against Yukos and Mikhail Tribunal had full competence to deal Khodorkovsky, then the company’s larg- with the case. est ultimate benefi cial shareholder. Kho- Secondly, Russia claimed that the Tri- dorkovsky was sentenced to serve a bunal was barred from entertaining the ten-year sentence in Siberia before being claims because of illegal actions of the pardoned by Putin in 2013. Yukos was Claimants themselves, and third, that declared bankrupt in August 2006 and tax proceedings, which were at the core its assets were nationalized by state- of the disputed measures adopted by the owned companies Rosneft and Gazprom. Russian state, were carved-out of the ECT by its Article 21. The Tribunal II. The PCA proceedings and the rejected both of these objections. It Award decided that tax measures were a mere Three parallel arbitration proceedings shield to cover the intent of expropria- were launched in PCA in 2005 by the tion, and that Russia took a series of majority shareholders of Yukos (Veteran measures in 2003-2006 leading to Yukos’s Petroleum Ltd., Yukos Universal Ltd., bankruptcy in 2006. and Hulley Enterprises Ltd.), which were The Tribunal found that the expro- companies registered in Cyprus and Isle priation of Yukos was not in the public of Man (the “Claimants”). The arbitra- interest but rather in the interest of the tions were initiated under the Energy state-owned oil company Rosneft. Rus- Charter Treaty (“ECT”) and the claim- sia’s treatment of Yukos was discrimina- ants’ original request was for no less tory and failed the requirements of due than USD 114 billion. The arbitral tribu- process of law. To rule on the matter of nal was constituted of qualifi ed interna- contributory fault by the illegal actions tional arbitration and investment experts. of the Claimants, the Tribunal reviewed The Tribunal was chaired by Yves For- the causal link between the Claimants tier, with Charles Poncet and Stephen acts and the damages, and determined Schwebel serving as his co-arbitrators whether their contributions were mate- (the “Tribunal”). Russia brought up sev- rial and signifi cant. As a result, the quan- eral jurisdictional objections. tum awarded to the Claimants was

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