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					          OVERVIEW OF TRANSPORTATION & LOGISTICS SECTOR IN GEORGIA

                              By Bea J. Celler, Investment Advisor to GNIA
                                             August 10, 2007

                NUMBER        TITLE                                           PAGE
                1.            Executive Summary                                 1
                2.            Segments                                          2
                               Pipelines                                       3
                               Rail                                            3
                               Ports & Shipping                                4
                               Trade Facilitation
                               Aviation                                        6
                               Roads & Trucking                                6
                3.            Skills Database & Local Key Players               7
                4.            Comparative Advantage                             7
                5.            Sector Analysis & Opportunities                   8
                6.            Infrastructure of Georgia                         11
                7.            Legal & Regulatory Climate of Georgia             13
                8.            Stakeholders in Sector & Websites                 15

SECTION 1. SECTOR EXECUTIVE SUMMARY

1. Executive Summary:

The shortest route from Europe to China, Asia - 400 km of motorway and 600 km of airway - goes through
Georgia. This is a revival of the Georgia-initiated historic “Silk Road”, which was connecting Europe with
Asian in ancient times. The corridor starts in Eastern Europe and ends at the borders of China and
Afghanistan. There are two routes: one through Black Sea ports of Georgia and the other, a land connection
through Turkey.

Georgia‟s Strategic Location or New Silk Road for Energy and Trade are some of the terms that have been
used to describe Georgia‟s Focal Point/Bridge/Hub between Europe & Asia. Georgia is the transportation
hub for the South Caucasus region, comprising of Georgia Armenia and Azerbaijan, as well as for the
landlocked Central Asia region, comprising Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and
Turkmenistan. Georgia‟s investment strategy is to attract technologically advanced and export oriented
efficiency seeking foreign direct investment.

The total output of the entire sector in 2006 is estimated to be over ONE BILLION GEL, employing over
41,000 Georgians. The growth in this sector is 19.6% over the previous year. Total volume of cargo today
is 11 million tons and according to many Georgian transportation experts, Georgia has the capacity to
support this volume. Transportation today in Georgia represents approximately 9.8% of the Georgian GDP.
However, if the volume would increase, per some projections, to 20-25 million tons, the entire system
would need to be modernized within Georgia and Azerbaijan, especially the Azeri rail system.

                                                                                                             1
Located at the crossroads of Europe, Central Asia, Russia, the Middle East and Asia, Georgia is a bridge
connecting several important global economic regions with a total of 827 million people, including:

                           REGION                      POPULATION
                  European Union                                     495 million
                  Russian Federation                                 145 million
                  5 Central Asian countries                           50 million
                  3 Caucasus Countries                                16 million
                   Balkans                                            55 million
                   Turkey                                             73 million
                   Iran                                               70 million
                   Arab Middle East                                  120 million
                                                       Over One Billion Potential Market

Georgia is the key link in the shortest transit route between Western Europe and Central Asia for
transportation of oil and gas as well as dry cargo. Georgia‟s oil and gas pipelines, Black Sea ports, well-
developed railway systems, airports with direct air services to 17 locations, are playing an increasingly
important role in linking East and West. By positioning itself in the central link, in a chain connecting
Europe and Asia, Middle East and Russia, Tbilisi has been trying to switch what was once a 4,000 year old
curse – its geographical sandwiching between Asian/Middle Eastern and European/Russian empires
resulting in many invasions – into a new source of strength, commerce and job creation.




                                                                                                              2
Georgia is quickly rediscovering its “Silk Road” heritage as both Caspian basin oil and western goods flow
through its territory. The Eurasia Corridor policy of the Government of Georgia will require substantial
investment.

Several investment opportunities are summarized on page 10 of this Overview. Opportunities are in cargo
infrastructure (TAM Project), railway links under construction, modern logistical systems in the ports,
further airport development, opportunities for management expertise in port structure, implementation and
monitoring system, development of the opportunities that will arise from the Special Economic Zones,
warehousing and storage facilities and transportation/logistic specific think tanks to provide the system
integration that will make Georgia strategy become reality.

SECTION 2. SECTOR SEGMENTS

According to the Georgian Customs Department, the volume of total transit in Georgia (excluding oil and
gas) rose from approximately ten million tons in 1999 to twenty-three million tons in 2006.

Pipelines
Georgia plays important role as a strategic crossroad in the Caspian region. British Petroleum (BP) and its
partners have invested over $5 billion over the last 10 years to develop the major oil and gas pipelines that
cross Georgia.

       NAME OF                CAPACITY/VOLUME ROUTE                               PAYMENTS
       PIPELINE
       Baku-Tbilisi-          1 million barrels oil perSangachal,                 Estimated profit tax
       Ceyhan                 day, finished in 2005    Azerbaijan to              payments to
       Pipeline                                        marine terminal in         Georgia 2007 $25
                                                       Ceylan, Turkey             million
       South Caucasus Gas     800 million cubic meters Shah Deniz field in        In kind gas in lieu of
       Pipeline               potential, finished in   Caspian Sea to 3           tariff; energy
                              2006                     Caucasus states            security for Georgia
      Western Route           Finished in 1998         Baku - Supsa               Transit fee revenues
      Export Pipeline
     Source: Ministry of Economic Development, Ernst & Young, “Invest in Georgia” 2007

Railways
Georgia‟s rail system served 3.9 million passengers and 22.6 million tons of cargo in 2006, with links to rail
systems of Armenia, Azerbaijan and Russia. The planned new railway serving Georgia, Turkey and
Azerbaijan will be completed by 2010. The advantageous double track rail system in Georgia allows trains
in opposite direction to easily pass each other. The road of the railways structure connects the major ports,
Batumi and Poti, the capital Tbilisi and east to Azerbaijan.

Once tariff structures, equipment shortages, facility limitations and better business processes are addressed,
the system will be able to take advantage of increased container traffic from the ports. The American
Chamber of Commerce (Am-Cham) in Georgia states on its website within the Transportation Sector Study:


                                                                                                                3
“Georgia’s favorable location between Europe and the rapidly developing economies of Central Asia, such
as Kazakhstan, is an asset to its future rail development, as it can provide a staging area for companies
providing products and services to the oil industry, as well as warehousing, distribution and final assembly
site for companies…….Also its advantageous double track system, allowing trains in opposite directions to
easily pass each other. The route structure of the railways is well suited to connect the major ports of
Batumi and Poti, the capital and east to Azerbaijan.”

Please see the Georgian Railways website: www.railway.ge/eng for details on legislation, lists of assets for
sale or privatization, tenders, etc.

Black Sea Ports & Shipping:
This type of transportation accounts for 41% of total cargo imported in Georgia. There are 2 ports on the
Black Sea, Poti and Batumi. Georgia‟s ports have rail ferry links with Ukraine, Romania, Russia and
Bulgaria. Both ports are key links in the TRACECA trade route.

   Poti (depth 11 meters; established 1858; www.potiseaport.com) – Georgia is developing a free economic
zone on the territory of Poti and surrounding area to allow investors to leverage Georgia‟s strategic location.
Poti is estimated to carry 15.5 million tons by 2010 and 19 million tons by 2015. According to the 2007
Poti lst Quarter figures, published by the Poti Sea Port in their publication and from their website:

POTI PORT CATEGORY                      TIME PERIOD                  AMOUNT
Cargo Flow                              First quarter 2007          1.8 million tons; 54% cargo in transit,
                                                                    16% import; 29% export
Number of Containers through port       First quarter 2007          42,977 TEU (Twenty Foot Equivalent
                                                                    Unit; 1TEU=20 foot container)
Handled Containers                      First quarter 2007          16,576 empty & 26,401 full
Total Turnover                          2006                        6 million tons
Cargo Flow                              2006                        3.7 million tons
Number of Vessels Calling at Port       2006                        1,957 Ships
Total Throughput (TEU)                  2006                        126,905
Handled Containers Empty                2006                        44,439
Handled Containers Full                 2006                        82,466

On July 16, 2007 Georgia invited foreign companies for expression of interest in a concession due
September 14, 2007 to run the Port of Poti and the right to develop and run an adjacent free industrial zone,
of 400 hectares, for 49 years. Poti, one of the largest Black Sea ports, transshipped 7 million tons of dry
cargo in 2006, 9.1% more than in 2005. Ministry of Economic Development of Georgia officials expect the
cargo transshipment in 2007 to grow by 12%. Poti has direct motorway ferry connections to the following
ports: Burgas (Bulgaria), Rize (Turkey) and Novorosiisk (Russia).

    Kulevi -- This is a new oil terminal, a former military port in the Kolkheti National Park, near Poti which
is under construction, privately funded and supported by the World Bank, to be completed by the end of
2007. It will consist of 16 tanks with a capacity of 22,000 cubic meters, each serviced by a railway that
could support up to 10 million tons of oil in phase 1 and up to 35 million tons in phase 2.

                                                                                                               4
   Batumi (depth 12 meters) Batumi carried 14.2 million tons in 2005. It is estimated to carry 17.5 million
tons by 2010 and 33.8 million tons by 2015. Batumi is both an oil terminal and seaport. The annual
capacity of Batumi Port is 18 million tons for oil and 2.3 million tons for dry cargo per year. Batumi Port is
managed by Green Oak Group of Denmark, who won bidding for a 49-year management contract of the
Port. Batumi‟s new airport, opened in 2007, has a runway of 2,420 meters.




Trade Facilitation/Logistics
Freight Forwarders
International Freight Forwarders in Georgia are represented by the Association of Freight Forwarders with
26 members, including many employees with FIATA diplomas and involved in the ISO certification
process. Also represented in Georgia is the Georgian International Road Carriers Association
(www.girca.org).

Storage Facilities/Warehousing
Most of the storage and warehousing facilities are located around the Poti, Batumi and Tbilisi ports and
airports. For air cargo, the storage handling market in 2005 was $1.5 million. The potential for
warehousing and storage is substantial, especially in areas of refrigerated storage.

Global Participation
The United States, via USAID, Millennium Challenge Corporation, Overseas Private (OPIC), EXIM Bank,
along with the World Bank, EBRD, EU, Japan Bank for International Cooperation (JBIC) and other donors
are looking at methods to improve the transport, water supply and wastewater treatment infrastructure. The
Millennium Challenge Georgia (MCG) has allocated US $102,2 million for construction and reconstruction
of roads in Georgia ( the Samtskhe-Javakheti Road Rehabilitation Project). The EU has helped to start the

                                                                                                             5
TRACECA (Transport Corridor for Europe, Caucasus and Asia) with 9 countries, signing bilateral
agreements on preferential trade & cargo regimes.

Civil Aviation/Airports
Tbilisi‟s new international terminal, opened in February of 2007, with a 3,000 meter runway, is hailed as
one of the world‟s most comfortable and efficient terminals. Four national and 14 foreign airlines serve
Georgia including Austrian Airlines, British Airways, Lufthansa, Air Baltic, and Turkish Airlines. See
below chart for direct flights from Tbilisi. Kutaisi has a 2,500 meter runway, Batumi a 2,420 meter runway,
Senaki a 2,400 meter runway and Poti a 1,500 meter runway.

           London

                                                                                      Astana and
           Amsterdam                                                                  Almaty,
                                                                                      Kazakhstan
           Paris


           Frankfurt &                                                                Tel-Aviv,
           Munich                                                                     Israel
                                                      Tbilisi,
           Vienna
                                                     Georgia

           Athens
                                                                                      Istanbul,
                                                                                      Turkey
           Kiev&Kharkiv


           Minsk
                                                                                      Dubai, UAE
           Riga                                                                       Baku,
                                                                                      Azerbaijan


Air Cargo:
In 2005 air cargo in Europe-Caucasus-Asia corridor was 2.7 million tons. In 2005 out of the 20 fastest
growing airports in the world, 7 were in China. Estimates of 8 million ton air cargo market require more
logistical hubs, especially 3-modal, in addition to those in Baku, Almaty and Tashkent. These air cargo
sites require specific runway lengths, proper equipment control links and parking spaces for planes.
Georgia still has significant unused capacity in air cargo, if the proper infrastructure is built. Please see
specific investment opportunity in this area on page 10 of this Overview. Some major global players in this
air cargo market are Quantas, Lufthansa, KLM, Swissair and Lasare.

Road Transportation/Trucking


                                                                                                                6
Georgia has allocated 181 million GEL in 2006 and 459 million GEL in 2007 state budget to improve the
quality of its 20,229 km of public roads. The World Bank has financed roads rehabilitation and construction
on all major trunk roads in Georgia and is now rehabilitating the secondary roads in the regions.

Free Economic Zones
On July 3, 2007, to be effective September 1, 2007, the Parliament of Georgia adopted a bill regarding the
creation of free economic zones (FEZ). The bill titled “Free Industrialized Zones” envisages zones located
on at least 10 hectares. The zones may be established by government, a legal entity or private individual.
Companies in the multi-currency zones will be free from profit, property and VAT taxes.

SECTION 3. SKILLS DATABASE & LOCAL MAJOR PLAYERS

The loss of more highly qualified workers from 1991 through 2004, the degradation of the value of certain
formal education qualifications in the 1990‟s, a rapid expansion of imports with small corresponding job
creation, the large informal market in Georgia and other factors have had an adverse effect on the country‟s
skill mix. The Labor Code reform making Georgia one of the most flexible labor markets in the world,
along with the upgrading of the vocational, professional and university training have helped to stem the tide
of rising unemployment and emigration from Georgia. The total labor force is estimated at 2.1 million.

Although the Transportation/Logistics Sector is economically vibrant, it is undergoing intensive enterprise
restructuring requiring specialized skills in modern logistical and management techniques with multimodal
transportation standards. The challenge for the sector is to target current Georgian skills to the modern
requirements of the Black Sea competitors Georgia has for logistical hubs, air cargo centers and standards to
serve the specific demands of the global clients.

Finding qualified staff in such an emerging market is difficult, but considerable training is underway in both
the public and private sector. Organizations like FIATA have been very helpful in providing training with
local business association, such as Association of Freight Forwarders, to fill those needs. Some of the key
players in this sector in Georgia are:
        Maersk, Georgia               www.maerskline.com
        Barwil Georgia                www.barwilpi.com.ge
        CTE Caucastransexpress www.cte.ge
        Chanel Energy Poti Port www.channelenergy.ge
        Batumi Oil Terminal, Ltd. www.greenoak-group.com
        Bertling Caspian Ltd          www.bertlingcaspian.com
        Catoni & Co., Georgia         www.catoni.com.ge
        Globalink                     www.globalink-logistics.com
        Nomad Georgia                 www.nomadexpress.ge
        Solar Georgia                 www.solargeorgia.com

SECTION 4. COMPARATIVE ADVANTAGE

The American Chamber of Commerce in Georgia on its 2007 website under Transportation Sector states:
“…Georgia’s comparative advantage is to emerge as a transit country with the shortest route from
Azerbaijan and Central Asia to the west, and from Turkey to Russia. The Government of Georgia recognizes
                                                                                                             7
this potential and is undertaking broad reforms of the Customs Code and working to upgrade infrastructure,
including roads, tunnels and bridges.”

See chart next page (8) describing some of the Georgia specific inputs into the Comparative Advantage for
Georgia in this Sector:




                                                                                                            8
Concept of Eurasian        One billion GEL             Improved & new Port            Direct flights from
corridor & hub with        sector, with 41,000         facilities in Batumi &         Tbilisi to major
Georgia as the key         jobs thus a critical        Poti, plus new terminal        European, Central
link between Asia          mass for “new silk          in Kulevi to improve           Asian and Middle East
and Europe                 road” for energy &          Black Sea outreach.            countries.
                           trade starting


Marketing of Georgia                                                                  New rail links being
strategic location                                                                    developed, under
globally by Georgia’s                                                                 tenders, to improve
public and private                                                                    service for passengers
sectors                                                                               and cargo with double
                                                                                      track system

Significant FDI by                                                                    Special Economic
investors and donors                  STRENGTHENING THE                               Zones (SEZ)
in transportation and                                                                 legislation approved
logistics sector                                                                      by Parliament and
infrastructure                        TRANSPORTATION AND
                                                                                      tenders for private or
                                                                                      public owners started
                                      LOGISTICS SECTOR IN

New Tbilisi and                       GEORGIA TO BECOME KEY                           Improved regulatory
Batumi airport                                                                        climate – World Bank
passenger terminals                   LINK IN EURASIA HUB                             calls Georgia the # 1
were opened in 2007                                                                   Global Reformer –
                                                                                      Customs Code &
                                                                                      Tariffs reforms


Emerging model of                                                                      Developing number of
systems for intermodal                                                                 people in sector who
& multi-modal                                                                          understand and are
networks with rail, sea,                                                               trained in up to date
air and road links                                                                     modern logistical
                                                                                       systems


Flexible and educated         Understanding of the          Opportunities for           Development of
labor force and Labor         need for separate             investors in logistical     common system of
Code, per World               cargo facilities for          systems, storage and        “electricity circle”
Bank’s & EBRD’s               transportation network        warehousing projects,       with Turkey and
Doing Business                systems                       cargo, ports, SEZ’s,        Azerbaijan
Survey                                                      etc.
                                                                                                               9
Comparative advantages, or corporate location decision factors, are analyzed by many different factors,
utilizing various benchmarks. Some are:

FACTORS FOR INVESTOR                                   FACTORS FOR GEORGIA
Size and Access to Market                              Potential to strengthen Georgian value chains, add value
Availability of Raw Materials/Inputs                   Employment/job creation potential
Availability of land and private property              Skills set match
Availability & Cost of Trainable Labor                 Technology and innovation transfer
Quality & Availability of Infrastructure               Strength local firms ability to compete internationally
Intellectual Property Protection                       Contribute to the rehabilitation of Georgia‟s infrastructure
Export and re-export potential                         Export and re-export potential

SECTION 5. SECTOR ANALYSIS AND INVESTMENT OPPORTUNITIES
The transportation and logistics sector is labor intensive, knowledge based, export oriented, has high
investment levels, uses Georgia‟s intellectual strengths and allows Georgia to be one of the hubs in the
wheel of logistics services in the Black Sea region. It fits with Georgia‟s investment strategy which is to
“attract technologically-advanced and export-oriented efficiency-seeking foreign direct investments.”

    Strengths:                                                  Weaknesses:

       Location – Georgia is crucial link in Eurasian             Dependence on other countries for
        corridor                                                    system efficiencies (i.e. Azeri rail
       High Educational level of Georgians                         system, etc.)
       History of high quality trading route: Silk Road.          Loss of Russian transportation &
       Potential for regional distribution of all                  logistics links with political situation
        Georgian to Caucasus, Black Sea area and                   Low per capita income.
        global countries.                                          Reforms, but widespread realization not
       Most flexible labor market in the region due to             completed.
        regulatory policies in Labor Code.                         Image of political conflict zones
       Investment opportunities in air freight, logistics          instability among some global business
        systems, etc.                                               leaders.
       New law on SEZ‟s to re-export                              Skill shortages in sector without
       Training Plans and private organizations to                 educational skills training to needs of the
        correct lack of qualified personnel in specific             labor market.
        sectors such as logistics, etc.                            Uncertainty about regulatory practices.
       Room on Black Sea for another Logistics                    Electrical shortages & cost of electricity
        Center on Georgian Coast.                                  Infrastructure development in new SEZ‟s
       Access to air, rail, sea, and road transportation           will take time.
        and logistics.                                             Air cargo limitation at Tbilisi airport
       Strong partnerships with Azerbaijan in several             Need for modern navigation systems
        Caucasus/pipeline/rail/electrical projects                 Competition on Black Sea from Bulgaria,
       Georgia‟s NATO collaboration supports image                 Romania, Turkey for Logistical Center
        of stability and security for investments                  Competition in Caucasus for Regional
       MULTIMODALITY: AIR, ROAD, TRAIN,                            Hub with Baku, Azerbaijan
        BLACK SEA


Some of the future global trends in air freight are:
                                                                                                                  10
      Use of sophisticated supply chain management, just-in-time shipments and modern quality control
       and monitoring.
      In the short term the average growth globally in air cargo will be 10-15% per year with volumes of
       over 39 Billion Euros. This is particularly true in the transportation of both high tech and
       pharmaceutical products, most of whom have distribution centers in Europe.
      China will need various different routes to get their products to Europe and bring energy to China.
      Preference for separate cargo airports with 3 modal capability and modern logistical equipment.

Investment Opportunities:

   1. Joint Stock Company TAM (Tbilisi Aircraft Manufacturing; www.tam.ge) is a unique aerospace
      industrial group in the Tbilisi region with 2,300 employees, located in the Veli Airfield. TAM is in
      the process of project development of a world-class multi-modal cargo hub airport on its own ICAO
      certified TAM Valley. This proposed project goal is to convert the area into a cargo hub for the
      Europe-Caucasus-Asia air corridor, with an intermodal transportation network, air cargo distribution
      center, to be integrated into the network of air freight, trucking, shipping and rail transportation. A
      runway of 3,000 meters, park positions for 3 B-747‟s, modern visual and instrument landing
      systems, fuel facility and direct access to Azeri, Pot-Batumi railway lines are anticipated, along with
      an 8000 square mile air cargo logistics center with 20,000 metric tons per year.

   2. According to the publication, Georgia Messenger, dated July 23, 2007 "The first session of the
      coordination council for the Baku-Tbilisi-Kars railway was held in Baku July 18-19, 2007. The
      Georgia section runs from Marabda to Katsakhi on Turkish border, which is estimated to cost $90
      million and completed in two years. Georgia Railway director general, Irakli Ezugbaia, announced
      that both Azerbaijan and U.S. will contribute to the financing. After completion, it is expected that
      10 million tons of cargo will be running the rails from Baku to Kars, via Tbilisi."

   3. Enhanced modern logistical systems in the Ports, Airports and other transportation nodes.

   4. Further airport development in major cities.

   5. Management expertise in port structure, implementation and monitoring systems

   6. Development and implementation of the Special Economic Zones, legislation and construction of the
      zones.

   7. Significant increase in warehousing and storage facilities to meet current and future needs, especially
      in the area of frozen foods and refrigeration to insure freshness when the products reach their
      destinations.

   8. Development of one or many organizations with a knowledge base, or think tank within Georgia
      specializing in, or having a specific expertise in, the Transportation and Logistical needs for Georgia
      today and in the future. This public private partnership should have established links with one or
      more of the global leaders in this field.


                                                                                                           11
SECTION 6. INFRASTRUCTURE IN GEORGIA

In order to facilitate easy transport of goods through its territory and encourage foreign investment in the
sector, the government of Georgia, in cooperation with private enterprise, continues to develop transport
infrastructure including roads, railways, sea ports and airports, while simplifying customs and other
administrative procedures, such as customs and licensing reforms.

Foreign Investment in Georgia

In July of 2007 Prime Minister Zurab Nogaideli announced that foreign investment is anticipated to exceed
$2-2.5 Billion US dollars for 2007. The first quarter actual investments amounted to $575 million dollars.
Zurab Nogaideli announced that FDI in 2006 amounted to $1,147 billion dollars and in 2005 $539
million dollars. Largest recent investors were Turkey, Kazakhstan, Denmark and Netherlands and the
Czech Republic.

According to the July 9, 2007 Messenger Daily English Newspaper: the Czech Republic purchase by
Energo-Pro involved the purchase of six hydroelectric power plants and two electricity distribution
companies, infrastructure with total power generation capacity of more than 350 megawatts and an
electricity distribution network covering over 70% of the territory of Georgia for a total acquisition price of
132 million dollars in June, 2006. The company stated that it intends to invest over $300 million dollars
more in the sector. The market value of Energo-Pro assets is now approximately EUR 300 million.

According to the Georgian National Bank, the 20 largest foreign investors in Georgia during 2006 were out
of a total of 38 different countries were:
                                                                           2000-2006
                           COUNTRY          2006 INVESTMENT                 TOTAL
                                                                       INVESTMENT
                    United Kingdom               $186,824,077            $476,073,671
                    Kazakhstan                   $152,310,539            $152,310,539
                    Turkey                       $129,727,804            $248,647,279
                    Azerbaijan                    $83,635,443            $249,352,652
                    Norway                        $77,894,816            $153,268,199
                    USA                           $62,406,505            $374,843,063
                    Virgin Islands, British       $58,586,159             $76,605,569
                    Italy                         $47,219,073            $138,212,972
                    Denmark                       $42,477,808             $42,796,784
                    Cyprus                        $40,071,206            $133,810,270
                    Japan                         $34,433,075             $71,750,440
                    Russian Federation            $34,209,974            $178,424,547
                    Germany                       $20,380,785             $55,513,131
                    Netherlands                   $18,530,193             $24,944,924
                    France                        $17,221,688             $94,847,536
                    Czech Republic                $15,032,249             $16,838,150
                    Austria                       $10,749,325             $66,747,075
                    Canada                         $6,000,000              $6,000,000
                                                                                                               12
                 China                             $5,445,267          $40,084,340
                 Israel                            $4,084,208          $11,289,084
Note: The source of original data is National Bank of Georgia (NBG) and Department of Statistics of the
Ministry of Economic Development of Georgia included 50 countries.

In analyzing this data, the significant amount of investment from Cyprus and British Virgin Islands indicates
the possibility of off-shore Georgian money returning to Georgia to invest money and that sign, if correct, is
very positive for the mix of foreign and domestic investment.

Electricity
Electricity availability significantly improved throughout Georgia in 2006. Two years ago 85% of Georgian
population outside of Tbilisi were without power; today 98% of paying customers outside of Tbilisi have
24/7 power. In Tbilisi the electricity situation is relatively stable, except for interruptions caused by gas
imports, pipeline failures or water treatment stability.

In an article entitled “Georgia to Create Common Electric circle with neighboring Countries” in the July 31,
2007 issue, page 16, of Georgian Business News, a new “common electricity circle” is described. The
participants are Electricity System Commercial Operator (ESCO), the Georgian State Electricity System
(GDSE), Russia‟s RAO, YeES and TGR Energy from Russia, Azerbaijan and Turkey. The proposed
system would allow the four countries to import and export electricity on a seasonal basis, evening out
shortages and surpluses and ensuring the free exchange of electricity between the countries. This concept
would allow the system to become more stable and reliable.

                                             Electricity tariffs
                                            Tariff (tetri/kw/h)
         Voltage levels                           Tbilisi              Regions
         220/380 volts                13.56                      8.106
         6-10 kv                      11.698                     7.28
         35-110 kv                    12.618                     6.412
Note: Source: GNERC (Georgian National Regulation Commission www.gnerc.ge ) Prices are specified
excluding VAT, “Tetri” is the Georgian cent.

One of the major players in this market is Energy Invest, the leading industrial corporation for 3 years,
having invested over $100 million into Georgian energy infrastructure such as a unique air turbine power
station in Gardabani with a capacity of 110 megawatts, $20 million in the Rustavi-based Azoti factory.
They have also brought selected international standards from Western markets to their firm.
www.energyinvest.ge

Water
There is an abundant source of supply of water in Georgia. However, the infrastructure situation regarding
water treatment has impeded efficient distribution. Significant amount of foreign investment from Western
sources has recently been invested into the infrastructure of water in Georgia. In Tbilisi for legal entitles the
price per cubic meter for water supply is 4.40 GEL, according to Tblisis Tskhali, the major water company
in Georgia.


                                                                                                               13
Land – Property Rights
Foreign Investors can own commercial, but not agricultural land, in Georgia. Projects with a Georgian
partner can own agricultural land. Investors may initiate an expedited, competitive process to privatize land
assets needed for an investment project.

Telephones & Communications
The number of landline telephones in Tbilisi is 510,000. Outside of the major cities of Georgia, the
majority of phone communication is done via mobile phones. The major Mobile Phone Providers are:
MagtiCom and Geocell. They have 2,500,000 clients, as of July 2007.

Number of Internet Connections -- There are 3 major internet providers in Georgia (www.caucasus.net;
www.online.ge and www.sanet.ge. They provide approximately 87% of the Georgian market. (Data
obtained as of July, 2007). Estimates of the number of internet users in Georgia range from 120,000 –
130,000; the Government in its Telecommunications Strategy is committed to increasing this number in the
major cities and rural regions.

Free Economic Zones
On July 3, 2007, to be effective September 1, 2007, the Parliament of Georgia adopted a bill regarding the
creation of free economic zones (FEZ). The bill titled “Free Industrialized Zones” envisages zones located
on at least 10 hectares. The zones may be established by government, a legal entity or private individual.
Companies in the multi-currency zones will be free from profit, property and VAT taxes. Likely sites are
the ports of Poti and Batumi, among others. Future governmental regulations will determine the criteria for
the establishment of the zones. Enterprises set up in the zones will be free from profit and property taxes
and bureaucratic procedures will be minimal.

SECTION 7. LEGAL & REGULATORY ENVIRONMENT IN GEORGIA

Georgia‟s Economic Indicators for 2007, according to Fitch Ratings:
         INDICATOR                                 RESULT
           Real Economic Growth                 10% Growth Estimated ‟07; 9.5% 2006/2005
           FDI percentage of GDP                 18% Estimated „07
           Percent Tax Revenues of GDP           26% in 2006; increased from 16% in 2003

Georgia’s Reforms:
(Sources: Invest in Georgia brochure, 2007 and IFC‟s 2006 Georgia‟s Business Environment, US
Embassy‟s Commercial Guide and World Bank‟s Doing Business)

      Georgia was named the year‟s number one reformer in the World Bank‟s 2007 “Doing Business
       Survey, improving its overall ranking from 112 to 37. Georgia also improved from 52nd to 37th place
       on the Heritage Foundation‟s 2007 Economic Freedom Index

      Total licenses and permits reduced by 84%, in reforms that eliminated 756 licenses and permits,
       streamlined procedures, and introduced statutory time limits for government action on applications.
       Licenses and permits were reduced from 909 to 145 with a 30-day deadline for licenses and 20-day
       deadline for permits.
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      Concept of “Silence is Golden” for a permit or license to be automatically granted if no government
       action is undertaken within the stipulated timeframes. Also the “One Stop Shop” principle is
       declared mandatory for all issuance procedures.

      A new Georgian Labor Code, recognized on international indices as one of the world‟s best, reduces
       labor costs and increases flexibility. The number of registered taxpayers almost tripled from 2005 to
       2006 due to simplified registration procedures for legal entities and physical persons.

      Decrease in corruption, according to the World Bank, corrupt and incompetent judges were
       removed; complete reform of the police force was done. Many donor projects are underway to
       reform and strengthen the judicial system and personnel.

      Fewer Taxes: Effective January 1, 2005 Georgia introduced a new Tax Code that levies only 7 taxes
       (income, profit, social, excise, value-added & 2 Local). Income tax reduced from 20% to 12% flat;
       social tax has been reduced to 20% from 32% and VAT to 18%from 20%. A public tender is
       currently underway to develop software that will allow taxpayers to file their VAT returns
       electronically.

      Import Tariffs: Rates of duty on imported goods fall into 3 bands 0%, 5% and 12%. Nearly 90
       percent of goods benefit from a zero rate of duty. The Government of Georgia has announced its
       intention to reduce tariff rates through 2007 and to completely eliminate tariff rates and duties on all
       products imported to Georgia in 2008.

      Business Registration and Tax Registration now occur simultaneously, taking only one day for a sole
       proprietorship and three days for an LLC, with a charter capital reduction from 2000 GEL to 200
       GEL for an LLC.

                       “What the World Thinks About Georgia”
These ratings are a global acknowledgement of the Georgian Government‟s resolve to transform the country
into a welcome place for business for local, regional and international investors alike.

NAME OF SURVEY              ORGANIZATION                DATE SURVEY              MAJOR FINDING
Doing Business: How to      World Bank/IFC              2007                     World‟s Top Reformer #37
Reform                                                                           Leap 75 points
Credit Rating               Standard & Pours            2007                     B+/B, with + outlook
Bus. Environment            World Bank & EBRD           2002-2005                Georgia had largest
&Enterprise Survey                                                               reduction in corruption
(BEEPS)
Fitch Ratings, Ltd.         Fitch‟s Survey              2007                     BB-long term sovereign
                                                                                 rating
Corruption Perception       Transparency                2006                     2.8
Index                       International
Index Economic              Heritage Foundation         2007                     #35
Freedom
                                                                                                             15
Customs Regulations:
Customs clearance times have been reduced from 52 to 15 days for imports and from 54 to 13 days for
exports, in World Bank 2007 survey. Georgia has low tariffs and preferential trade regimes with major
partners, including the EU, CIS countries, Turkey and the US. Georgia has also been a WTO member since
2000.

In 2006 the Law on Customs Tariffs equalized the customs treatment of WTO member and non-member
states alike, introduced only 3 tariff rates (0%, 5% and 12%) instead of the previous 16 and provided that
majority of imports are effectively zero rated. In 2008 it is anticipated that all customs duties (tariff rates)
will be eliminated. In 2007 Georgia introduced a new Customs Code, harmonized with European
legislation and provides for simplified procedures. A one-stop shop will be in operation for most of the
customs clearance points

Tenders:
Georgia uses tenders to carry out product procurement contracts exceeding GEL 20,000 (approx US
$12,048) and service procurement contracts exceeding GEL 50,000 (approx. US $20,120). The Law on
State Procurement required an international tender announcement for contracts exceeding GEL 600, 000
(US $ $361,000) for products and GEL 8,000,000 (approx. US $ 4,819,277) for services. For government
purchasing decisions determining factors have proven to be credit terms, product/service quality and
supplier reputation. For future information, please contact: www.privatization.ge

Major Legislation
All major legislation that investors would need is described in detail on GNIA website
(www.investingeorgia.org) under Doing Business/Legislation Section. The following is just a summary of
the major legislation.

   Law establishing the Georgia National Investment Agency Law
   State Support of Investments Law
   NAPR – National Agency for Property Registration Law
   Law on Entrepreneurs/Corporate Law
   Intellectual Property Law
   Tax & Customs Code
   Law on Permits & Licensing
   Law on Business Registration
SECTION 8. SECTOR STAKEHOLDERS

Major Stakeholders:

   1. The Georgian National Investment Agency
      Ms. Tamuna Liluashvili, Director
      12 Chanturia Street, Tbilisi, Georgia 0108
      Telephone: 995-32-43-34-24 Fax: 995-32-92-11-22
      E-Mail: tamunal@investingeorgia.org
      Website: www.investingeorgia.org

   2. The Georgian Ministry of Economic Development
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      Mr. George Arveladze, Minister
      12 Chanturia Street, Tbilisi, Georgia 0108
      Telephone: 995-32-99-69-96; Fax: 995-32-92-18-45
      Also includes information on Statistics www.statistics.ge
      Also includes information on Privatization www.privatization.ge

Additional Key Organizations with Web Resources
US Embassy, Tbilisi                          http://georgia.usembassy.ge
United States Agency for Int‟l Development   http://georgia.usaid.gov
American Chamber of Commerce in Georgia      http://www.amcham.ge
Tbilisi Yellow Pages                         http://www.yellowpages.ge/index
World Bank, Georgia                          http://www.worldbank.org
International Monetary Fund                  http://www.imf.ge
Georgia State Procurement Agency             http://www.spa.ge/en
Georgia Ministry of Economic Development     http://www.privatization.ge
European Bank for Reconstruction/Development http://www.ebrd.org
European Union                               http://www.eu.org
Young Economists‟ Association                http://www.economists.ge
Young Lawyers‟ Association                   http://www.gyla.ge
Agency for State Procurements                http://www.spa.ge




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