The Georgian Business Week
08/13/2004 | line305b
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The Georgian Business Week
Weekly Bulletin of News & Analysis
¹434
August 2-8, 2004
Publisher:
The Georgian Business Consulting Group
Distributed in Georgia, Azerbaijan, Armenia, Austria, Great Britain, Greece, FRG, Iran, Israel, Italy, Iran, Romania, Russia, Turkey, USA and other countries.
Tel: (995-32) 347 226, (995-93) 960 962, Mob.: 8- 93 960 962
E-mail: gbw93@mail.ru, gbw93@rambler.ru
http://www.gbw93.narod.ru/
Editor-in-Chief: Vladimir Miroshnichenko. Deputy Editor-in-Chief: Stanislav Sichov. Correspondent: Maya Eristavi, Lika Jorjoliani, Inga Mamulashvili.
Computer service: Levan Vartanov.
Trainees: Temur Kiguradze, Kristina Mkhitarova.
FOREIGN MINISTRY OF GEORGIA EXPRESSES PROTEST AGAINST RAILWAY REHABILITATION WORKS ON THE TERRITORY OF ABKHAZIA
TBILISI WARNS RUSSIAN ENTREPRENEURS “NOT TO THROW MONEY AT RANDOM” PRIVATIZING OBJECTS IN ABKHAZIA
GEORGIAN AUTHORITIES’ ATTACKS AGAINST RUSSIA MAY LEAD TO GREAT CONFLICT AND DAMAGE GEORGIAN ECONOMY
GEORGIA POSSESSES LIST OF RUSSIAN BUSINESSMEN WHO ILLEGALLY PRIVATIZED OBJECTS IN ABKHAZIA
ECONOMIC GROWTH SUSPENDS IN GEORGIA
MINISTRY OF ECONOMIC DEVELOPMENT SUGGEST PRIVATIZATION OF STATE PROPERTY WITHOUT PRESENTING BUSINESS-PLAN BY BUYERS
IMF MISSION POSITIVELY EVALUATES WORK OF GEORGIAN GOVERNMENT
GEORGIAN MINISTER OF FINANCE HOPES PARLIAMENT APPROVES CHANGES INTO STATE BUDGET 2004
NATIONAL BANK REDUCES RATES OF INTEREST ON MONETARY-CREDIT POLICY INSTRUMENTS
EXPORTERS GET BACK PREVIOUSLY PAID SUMS
FIRST STAGE OF CUSTOMS REFORM IS OVER
TBILISI AVIATION FACTORY WILL BE SOLD THROUGH DIRECT SALE
REGULAR T-BILL AUCTIONS
BIDDING RESULTS AT THE TBILISI INTERBANK CURRENCY EXCHANGE
BIDDING RESULTS AT THE GEORGIAN STOCK EXCHANGE
BP IS GIVEN PERMIT TO RESUME BAKU-TBILISI-CEYHAN OIL PIPELINE
BAKU-TBILISI-CEYHAN (BTC) SHAREHOLDERS ARE DISSATISFIED WITH SUSPENSION OF CONSTRUCTION WORKS AT GEORGIAN SECTION
KASPI CEMENT FACTORY OPENS NEW PRODUCTION LINE
GEORGIAN RAILWAY’S EFFORTS TO ATTRACT CARRIERS ARE NOT SUCCESSFUL
UKRAINIAN SHIP RESUMES ITS CRUISE ROUTES TO GEORGIA
NEW FIVE-STAR HOTEL TO BE BUILT IN THE CENTRE OF TBILISI IN PLACE OF HOTEL “IVERIA”
DIFFERENTIATED TARIFF ON WATER IS INTRODUCED IN TBILISI
INSURANCE COMPANY IMEDI L PRESERVES LEADING POSITIONS AT GEORGIA’S INSURANCE MARKET
AGREEMENT WITH TBILISI GAS DISTRIBUTING NETWORK MANAGING COMPANY SHOULD BE ANNULLED
TBILGAZI NEW HEAD PLANS TO SETTLE PROBLEM WITH GAS SUPPLIES TO TBILISI
VOLUME OF SALES OF GG&MW PRODUCE INCREASES BY 30%
HEAD OF NATIONAL MINT BLAMES STAFF OF GEORGIA’S PRIME-MINISTER FOR BLACKMAIL
NATIONAL MINT HEAD WILL BE RELEASED OF HIS POST
OIL PRODUCTS TRADER COMPANY IS ACCUSED OF FINANCIAL MANIPULATIONS
THREE YEARS AFTER AZERBAIJAN WILL REFUSE TO BUY NATURAL GAS FROM RUSSIA
NEWSMAKER’S DIARY
FOREIGN MINISTRY OF GEORGIA EXPRESSES PROTEST AGAINST RAILWAY REHABILITATION WORKS ON THE TERRITORY OF ABKHAZIA
On August 4 the Foreign Ministry of Georgia sent to the Russian side a note of protest in regard to the commencement of the restoration works at the railway section Veseloe-Sokhumi and in regard to the commercial tourist flights from Sochi and Adler to the Abkhazia’s coasts. It is said in the statement made by the Georgian Foreign Ministry “with such unilateral activities, the Russian side grossly violates the agreements concluded earlier and the principles of international law”. The Foreign Ministry of Georgia considers that “such activities hinder the relations between the two sovereign states become healthy”.
On July 31 the information and press department of the Russian Federation Foreign Ministry released comments, in which it is said that participation of the Russian specialists in the railway restoration works in Abkhazia does not violate the Russian-Georgian agreements, concluded in Sochi, in March 2003 with the participation of the Abkhazian side. The document mentions about the need for the repair works being connected with the current measures for maintaining the railway line in the operation condition after an electric train Sochi-Sokhumi is put into operation in December 2002 and with providing the source movement.
TBILISI WARNS RUSSIAN ENTREPRENEURS “NOT TO THROW MONEY AT RANDOM” PRIVATIZING OBJECTS IN ABKHAZIA
“Any privatization of objects in Abkhazia without any agreement with Georgia will mean cast-away money”, said Zurab Zhvania, prime-minister of Georgia on August 5 commenting visit to Georgia’s break-away republic of Abkhazia of the Mayor of Moscow Yuri Luzhkov and his intentions to privatize some objects of touristic infrastructure. “If anyone want to waste money it’s his problem, but we want to honestly warn all that any privatization acts will acquire sense only in case they are concluded in compliance with the Georgian legalization”, observed Mr. Zhvania.
A month ago President Mickeil Saakashvili of Georgia, commenting the decree signed by the Moscow Mayor on purchasing the sanatorium “Moscow” in Georgia by the Moscow government, said that all the economic interests of Yuri Luzhkov in Abkhazia would be confiscated. In Mr. Saakshvili’s opinion, purchase of the sanatorium in Gagra does not correspond the essence of the Russian-Georgian relations. In his words, “this may only be called a purchase of stolen property.” “This is against the declarations of the President and government of Russia”, mentioned the President of Georgia. He says – “the lessons of Crimea and Adjara did not teach the Moscow Mayor anything”.
GEORGIAN AUTHORITIES’ ATTACKS AGAINST RUSSIA MAY LEAD TO GREAT CONFLICT AND DAMAGE GEORGIAN ECONOMY
Arkadi Volski, head of the Russian Union of Entrepreneurs and Manufactures (RUEM), told about it to the journalists in Moscow while commenting the statements expressed by the President of Georgia that Georgia would fire at the ships with the Russian tourists, which enter the territorial waters of Georgia heading to Abkhazia without Tbilisi’s permission, thus violating the international legal norms.
“Being in place of Saakashvili I won’t have allowed such attacks against the Russian tourists. This May cause great conflict and damage the economy of Georgia”, observed Mr. Volski. In his opinion there is some link between the political instability in Georgia and dire economic situation in this country. Mr. Volski expressed supposition that Kakha Bendukidze, the Minister for Economic Development of Georgia, won’t stay long on this post. “I worry very much about the situation, when he (Bendukidze) was surrounded by 200 people and spat at him only for his words that the Georgian rest-houses should be sold to the Russian entrepreneurs. I think he won’t stay long in Georgia”, stated Mr. Volski.
GEORGIA POSSESSES LIST OF RUSSIAN BUSINESSMEN WHO ILLEGALLY PRIVATIZED OBJECTS IN ABKHAZIA
Teimuraz Gamtsemlidze, charge d’affairs in the Georgian issues in Russia, said about it at the press conference in Moscow. “The list is, rather serious, of the Russian legal and natural entities, who confidentially and illegally privatized a great number of objects on the territory of Abkhazia”, states Mr. Gamtsemlidze. Tacking the issue of the influence these people has on the formation of the Russian policy, he mentioned: “I won’t have dramatized this issue in the Russian policy, but it’s the most important factor”.
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GOVERNMENT
ECONOMIC GROWTH SUSPENDS IN GEORGIA
Kakha Bendukidze, the Minister for economic development of Georgia, made this statement on August 4 at the governmental session. In his words this condition is caused by high tax rates, business interests are not protected from the authorities, credit resources are unavailable, corruption is in the state structures. “One of the reasons of suspending the growth of economy is strengthening of the national currency rate, which in its turn became an indicator of business becoming expensive”, said Mr. Bendukidze. In his words, negative impact on the rates of economic growth was exercised by the fact of tax liberalization process inhibition. Wood cutting ban and Baku-Tbilisi-Ceyhan oil pipeline construction suspension also had unfavourable influence on the economic indicators. “If there has been no construction of this oil pipeline and the wood cutting has not resumed we’ll have had economic stagnation”, said Mr. Bendukidze.
“One of the urgent tasks of the Georgian government is to give a push to economy. A new tax code should play an important role in this, as it foresees liberalization of taxes, and the draft law on business”, pointed the Minister. It was mentioned that both laws will be soon released by the government and will be submitted for discussion at the Parliament.
The Minister made his statements on the basis of questioning conducted by the Ministry of Economic Development and the State Statistics Department among more than 200 enterprises and companies. Thus, in the respondent’s opinion, before that strengthening of national currency had a negative influence on their business. The Minister thinks there is abnormal situation in the country as there are more dollars than lari in the circulation and the money supply circulation is out of business.
Prime-minister of Georgia Zurab Zhvania told the journalists after the governmental session that the business environment in Georgia does not promote to development of business in the country as of yet. “There is no stagnation in economy, but I agree with the Minister of Economy that he is dissatisfied with the present rates”, observed Mr. Zhvania. “I generally think that sometimes there is given too optimistic picture. Sometimes we have serious success, for example, from the viewpoint of establishing the budget discipline but there should be made far more serious steps”, stressed the prime-minister.
LEGISLATION
MINISTRY OF ECONOMIC DEVELOPMENT SUGGEST PRIVATIZATION OF STATE PROPERTY WITHOUT PRESENTING BUSINESS-PLAN BY BUYERS
This present demand is being abolished in compliance with the draft law “On introducing changes into the law of state property privatization” submitted by the Ministry of Economic Development to the Parliament. The state property will be transferred to those, who will pay more. According to the draft law, the terms for the state property to be sold will be determined by the president of the country. In compliance with the law in effect now a buyer, who has bought the object through a direct sale, should pay the within a month. The changes prolong the term up to a year. In addition, the suggest draft law grants a buyer with the right to manage the enterprise for a year and then under any pretext to refuse its purchase. However, while buying the object a buyer pays 40% from the declared sum, which is later won’t be returned to the buyer.
FINANCE
IMF MISSION POSITIVELY EVALUATES WORK OF GEORGIAN GOVERNMENT
Zurab Noghaideli, the Minister for Finance of Georgia, said at the press-conference on August 2 that the IMF Mission, heaving finished its regular visit to Georgia, positively evaluated the work of the Georgian government. “The Mission expressed satisfaction with the Georgian government activities in increasing tax revenues in the budget and, correspondingly, with the project of changes into the state budget of Georgia for 2004”, observed the Minister. In his words, the mission specially pointed to the government efforts for reducing debts in the social sphere and agreed with the government project on privatizing big objects, mentioning about both supposed rates of the process and its openness.
Mr. Noghaideli informed that the IMF Mission in its memorandum also gave positive evaluation of the monetary and currency-credit policy ongoing in Georgia and the government activities for increasing collection of payments for consumed electricity. Suring talks with the Mission draft state budget for 2005 was discussed. “A final variant of the project will be ready by the end of September as the new tax Code provisions should be considered in it. The work on the new tax code are being ended this month”, pointed the Minister.
Concerning the new tax code provisions the Mission points that to reduce possible negative influence on the volume of tax revenues, planned changes in the legislation should be introduced in 2-3 years. However, in the Minister’s works, the government hopes it’ll manage to transfer to new system of taxation without any problem in a year.
GEORGIAN MINISTER OF FINANCE HOPES PARLIAMENT APPROVES CHANGES INTO STATE BUDGET 2004
Zurab Noghaideli, the Minister of Finance, mentioned at August 2 press-conference that changes in the state budget of 2004 were caused by several actors, in particular, by increase of tax revenues, beginning of the big objects’ privatization process and strengthening of lari rate, which enabled to spare resources directed at external debt servicing and investment projects financing. The Minister observed that the state budget would increase by 230.583.000 lari. It is expected that 85.5 million lari will be additionally received from tax revenues, 125.7 mln. lari will be from non-tax revenues, it is planned to get 61.1 mln. from the state property privatization.
The Minister informs that 90.9 mln. lari will be spent for covering old indebtedness of the state budget, in particular, 37.1 mln. lari for covering debts on pensions, 12 mln. lari – on the salaries for teachers, 5.1 mln. lari – on salaries in the sphere of education and science, 1.1 mln. lari – on salaries in the sphere of culture, 5 mln. lari – on the programs in the sphere of health care, 3.7 mln. lari will be directed at covering the debts for diplomatic representations of Georgia abroad, and also debts for Georgia’s membership in the international organizations, 15 mln. lari are allotted for covering debts in the energy sphere, 0.7 mln. lari – for the programs on developing tea growing.
Mr. Noghaideli says that thanks to the government activities for paying old indebtedness on social programs, the share of these debts in GDP will reduce to 0.1%. The Minister stressed that all the changes into the budget are agreed with the IMF Mission.
NATIONAL BANK REDUCES RATES OF INTEREST ON MONETARY-CREDIT POLICY INSTRUMENTS
It is said in the statement made by NB that this has been made with the aim of preserving the financial stability in the country. In particular, one-day credit value for the commercial banks was reduced from 11% to 9%, rate of interest for repo-operations reduced from 10% to 8%. The commercial banks are given the possibility through repo to mobilize from NB short-term resources in lari under T-bills guarantee. The experts consider this step, undertaken by NB will promote to preserving the tendencies for reducing the rates of interest, which are noticed lately at T-bills and credit resources market.
EXPORTERS GET BACK PREVIOUSLY PAID SUMS
Zurab Noghaideli, the Minister for Finance informed at August 2 press-conference that soon the exporters would get back the previously paid tax on VAT. At the first stage the sum of 4.8 mln. lari will be returned. In the Minister’s words, return of pre-paid tax became possible after the reform implemented in the treasury. In particular, a part of sums transferred to the state budget is being accumulated at the specially opened account and the sums later are spent for covering the pre-paid tax. By the data of January 1 the pre-paid tax on VAT made up 140 mln. lari. As Mr. Noghaideli stressed till the end of this year the sum will be fully returned to the exporters. In compliance with the tax code export of produce from Georgia is taxed with VAT zero rate of interest, in accordance with which the exporters get back VAT paid on the border.
CUSTOMS
FIRST STAGE OF CUSTOMS REFORM IS OVER
Giorgi Godabrelidze, chairman of the Customs Department, informed about it at August 3 press-conference who said that serious re-organization was conducted in the system. In particular, about 500 customs officials were released. At the same time the department got new employees. In Mr. Godabrelidze’s words, major criteria in selecting the candidates were honesty and professionalism. From now on all the customs employees will be taken for the staff, the work on the contractual base has been abolished. Soon there will be conducted testing of the employees in the customs system.
Some customs services are also abolished, in particular, the regional customs “Railway Line”, the regional customs “Energy”, customs services of Adjara and Abkhazia, customs laboratory, guards service, criminal service, department chairman staff, service of international relations. There remained customs services “North” (head – Emmanuel Margiev), “South”, “East” (head – Levan Baramidze) and “West” (Pridon Surmanidze).
In Mr. Godabrelidze’s words, in January theer will start a second stage of the reform. “In addition, there also are more long-term plans, implementation of which is scheduled for 2006”, said head of the Customs Department.
PRIVATIZATION
TBILISI AVIATION FACTORY WILL BE SOLD THROUGH DIRECT SALE
Kakha Bendukidze, the Minister for Economic Development of Georgia, considers laundering of a tender for JSC Tbilaviamsheni privatization would have been illegal as the enterprise has been transferred in 10-year management to LLC Tbilaviamsheni. The present manager shoulders the obligation to cover a part of debt to Turkmenistan in the amount of 67 mln. dollars. From 2000 Georgia was covering its debt to Turkmenistan through delivery of produce and rendering the services by the Georgian enterprises: Tbilaviamsheni, Kartuli Shakari and TG Trade.
Selling the aviation factory through the schedule suggested by the Minister caused contradictions in the government. By some data, Zurab Noghaideli, the Minister for Finance, does not agree with this plan. The parliamentary opposition parties and Roman Gotsiridze, chairman of the parliamentary financial-budgetary committee, are against it either. Mr. Gotsiridze thinks the enterprise consts far more than 67 mln. dollars. Mr. Bendukidze responds to this statement by saying that he would give 1 mln. dollar from his personal resources to the person who would find an investor wishing to pay more than 67 mln. dollars.
INDICATORS
REGULAR T-BILL AUCTIONS ON THE 4 OF AUGUST IN NATIONAL BANK
Ministry of Finance having nominal cost of GEL 2.000.000 launched 364-day T-bill auction. 7 commercial banks took part in it. They presented 16 applications to buy 38.572 T-bills at GEL 3.857.200. 12 competitive applications (including 2 partually) were satisfied, a total sum of settlement price of which made up GEL 1.744.889,29. Minimum rate of interest of satisfied applications made up 11.00%, maximum – 16.00% and average – 14.66%.
OIL PIPELINE
BP IS GIVEN PERMIT TO RESUME BAKU-TBILISI-CEYHAN OIL PIPELINE
The Ministry of Environment Protection and National Resources of Georgia gave a permit to BP, an operator of BTC oil pipeline construction, to resume works in the Borjomi gorge. Tamar Lebanidze, the Minister for Environment Protection and national Resources, says that “the company will invite the experts to Georgia, who will elaborated a special plan for integrated management over the oil pipeline”. The Minister pointed that along with this an agreement was reached on laying the pipes at the Borjomi section deeper than it was foreseen by the initial project. With this “additional protecting mechanisms will be put into operation as well”, stressed Mrs. Lebanidze.
“BP tried to complain against, us in Washington, to exercise pressure on us, but in vain. They should observe their obligations, we – ours”, observed President Mikheil Saakashvili of Georgia, being for an unofficial visit in Washington. “Georgia is a state and not a banana republic, which it was under Shevardnadze and everyone should understand this”, stressed Mr. Saakshvili. “The oil pipeline is of a strategic importance for Georgia, it is for us but health of our people and the condition of our environment is far more importance for me”, announced the President of Georgia.
BTC pipeline construction was suspended by the Georgian Ministry of Environment of National Resources on July 19 with the demand to the project operator to present additional guarantees for providing security at the 17 km long section passing through the Borjomi gorge – a reservation zone of the country. The Georgian side proves that the project operator BP has not observed some terms for safe construction.
BTC oil pipeline construction started in Georgia in April 2004. It is 1767 km long in total. The Georgian section of the pipeline compressing 248 km and the Azeri section of 443 km should be put to operation in the end of this year and its Turkish section of 1076 km long – in the middle of the first quarter of 2005.
BAKU-TBILISI-CEYHAN (BTC) SHAREHOLDERS ARE DISSATISFIED WITH SUSPENSION OF CONSTRUCTION WORKS AT GEORGIAN SECTION
BTC oil pipeline construction in the Borjomi gorge, suspended on July 19 for two weeks on the demand of the Georgian government, was not resumed on August 2. Even more, due to previous delay in the schedule in Georgia and to the need of conducting additional works, both the oil pipeline building and its constructions become 5% more expensive.
At Azeri-Georgian meeting in Tbilisi on August 2 the Azeri delegation raised an issue on resuming BTC construction works at the Borjomi section. The Baku newspaper “Zerkalo” informs, referring to the informed diplomatic sources, behavior of official Tbilisi irritates both the authorities of BP and of the country, interested in BTC. Both consider that Georgia makes use of the situation and sumply conducts “financial-economic racket”. “They are essentially “begging” for additional financial resources, for which others will pay”, says the source.
It was initially suggested that the volume of works at the Azeri-Georgian section of BTC oil pipeline would make up 1 bln. dollars: in Azerbaijan-600 mln., in Georgia – 400 mln. However, the project has already become 5% more expensive and will become even more expensive. As the “Zerkalo” writes finally Azerbaijan will have to pay for all this with the resources from its oil.
INDUSTRY
KASPI CEMENT FACTORY OPENS NEW PRODUCTION LINE
Sakcementi, a cement factory in Kaspi, on August 2 opened a new production line. Thus 100 new working places were opened at which local residents work. The representatives of the Cabinet of Ministers and the Parliament of Georgia attended the ceremony of opening. Mikheil Machavariani, Vice Speaker of the parliament, said in his talk with the journalists that operation of the new line would assist in satisfying all the demands of Georgia for cement.
TRANSPORT
GEORGIAN RAILWAY’S EFFORTS TO ATTRACT CARRIERS ARE NOT SUCCESSFUL
David Onoprishvili, LLC Georgian Railway director general, announced at August 2 press-conference that despite reduction of tariffs for oil products transportation there were received from the carriers 1 mln. lari less in seven months than over the analogous last year period. By the end of this year this amount will, most likely, increase by 1 mln. more. Mr. Onoprishvili says that Georgian Raiwlay has suggested new discounts to oil freight carriers from the beginning of July with the aim to increase Baku-Batumi route attraction. The carriers, who will transport by Baku-Batumi railway up to 4 mln. tons or more, will get discount of 3.68 dollars per 1 ton of oil and 1.68 dollar discount per 1 ton of oil products. Thus, the following tariff is determined for big carriers: 5 dollars per 1 ton of oil and 7 dollars per 1 ton of oil products (for details see bull. ¹431). However, Mr. Onoprishvili mentioned, no one has responded to this proposal as of yet. He says only a minor growth is being noticed on dry freight transportation.
UKRAINIAN SHIP RESUMES ITS CRUISE ROUTES TO GEORGIA
On August 2 the Batumi Port hosted a cruise ship “Taras Shevchenko”. It is the first such route for last 12 years. Resuming of this route become possible due to cooperation between the Georgian and Ukrainian sides. The tourists from Belarus, Lithuania and Ukraine arrived to Adjara to spend a day in Batumi. This route was known under the name of “Caucasian Odyssey” and was starting from the Crimea. At present the cruise route has additional one-day visit to the Black Sea port in Istanbul. It is planned that sail by this tourists route, now called “Black Sea Odyssey”, will be conducted by “Taras Shevchenko” weekly.
CONSTRUCTION
NEW FIVE-STAR HOTEL TO BE BUILT IN THE CENTRE OF TBILISI IN PLACE OF HOTEL “IVERIA”
The city authorities have found an investor, the company Hayett & Campinski, which is ready to reconstruct once prestigious “Intourist” hotel in the centre of Tbilisi. In case its reconstruction is impossible, the investor shoulders an obligation to destroy the old building and to build a new hotel of world class in its place.
But the project has serious obstacles as there live refuses in “Iveria”, who already arranged the act of protest in front of the hotel on August 6. The protest act participants expressed dissatisfaction with the decision of Tbilisi authorities and the company, which bought Iveria, on paying compensation to the refugees living in the hotel in exchange for leaving the hotel rooms. The refuses say that are dissatisfied with the sum suggested to them – 7.000 dollars per each room by the family of refugees. The act participants stressed they wouldn’t leave the hotel until they were satisfied with the sum suggested for the compensation by the company. However, the city authorities are firm in their decision saying the hotel should be vacant by August 20, otherwise measures of force will be made. As for the compensation sum, in the words of Tbilisi Mayor Zurab Chiaberashvili, this is quite enough for buying a one-room flat in the central regions of Tbilisi, and in the so-called “bedroom regions” – two-or three-room flats.
From August 10 the investor will start concluding a contract with the refugees and from August 18 – payment of compensation. There are 330 rooms in “Iveria” and about thousand refugees live in them.
TARIFFS
DIFFERENTIATED TARIFF ON WATER IS INTRODUCED IN TBILISI
The decision was adopted on August 6 by Tbilisi Sakrebulo (city self-governance elective body). From now on consumers, receiving water for less than 8 hours per 24 hours, will pay 90 tetri for it (per capita per month), instead of earlier fixed tariff of 1 lari 20 tetri. Some privileges are foreseen for the budgetary organizations, which will pay 1.20 lari, but these organizations do not involve the objects of health care, transport, sport complexes, bakeries, wineries. Non-budgetary organizations, having no privileges and engaged in commercial activities, will pay 3.60 lari per capita per month.
INSURANCE BUSINESS
INSURANCE COMPANY IMEDI L PRESERVES LEADING POSITIONS AT GEORGIA’S INSURANCE MARKET
The GBW was informed by Aleko Tughushi, Imedi L marketing director, that according to the data released, by State Insurance Supervision concerning last year the company occupied a 2nd place after insurance company Aldagi. The volume of mobilized premium made up 2.2 mln. lari. Thus year, in Mr. Tughushi’s words, the company plans to increase this indicator. In 2003 Imedi L paid more than 6 mln. lari on insurance cases. A major accent in the company is turned to medical insurance of the population, insurance against accidents.
Pension insurance, a new sphere for the company, has been commenced by the company since this year. In Mr. Tughushi’s words, he has acquainted with the experience of the pension insurance in the USA and England. In result of this an attractive product was formed, which enables a person to form a pension fund for providing his old age. The so-called “Chile system” has been used for forming this product. It means that each employed, working up to 65 years of age, forms private pension fund. In such case this person should become a member of the pension fund of the company and pay monthly 10% of the wage. Individual contributions of resources are possible. Mr. Tughushi mentioned if an enterprise had a powerful trade union it forced an employer to contribute monthly money to the pension fund. For example, thus the employees were insured on medical and pension insurance in Telasi and Tbilaviamsheni companies.
Mr. Tughushi informed the company also worked out a program for insurance of cars from crash. It is also possible to wash a car once a month free of charge. There are many innovations in Imedi L concerning medical insurance programs. In addition to regular medical insurance, which covers hospital expenses, this insurance policy gives the right for free of charge medical examination.
COMPANIES
AGREEMENT WITH TBILISI GAS DISTRIBUTING NETWORK MANAGING COMPANY SHOULD BE ANNULLED
The representatives of the presidential majority in Tbilisi Sakrebulo (local body of governance) announced about it at the meeting with Nika Gilauri, the Minister for Energy, which was held on August 3. They discussed the situation with gas delivery and further fate of the Georg8ian gas distributing company Tbilgazi, which has been managed since last year by LLC New Management for ten years. At present gas delivery is practically cut for half of Tbilisi. The reason being indebtedness to the supplier – Gazprom (the indebtedness of Tbilisi gas distributing company to the Russian supplier makes up about 11 mln. dollars).
The Sakrebulo presidential majority considers the obligations shouldered by new Management in regard to Tbilgazi have not been observed. The representatives of the city legislation body mentioned in their speeches that over six month when the Ministry of Energy was headed by the new minister the problem remained at deadlock and Tbilgazi indebtedness growth daily.
Nanuli Kachibaya, chairman of the faction “National Movement” thinks the debt to Gazprom could have been far less if the state budgetary organizations had paid timely their debts to Gazprom. In addition, she thinks it necessary to have radical changes in the New Management. Chairman of the faction “Burjanadze-Democrats” David Khutsishvili announced that the city authorities together with the Sakrebulo representatives should decide who will manage the system. He suggested to abolish the agreement with the New Management and the city government to shoulder an interim management over the enterprise.
The Minister says it is wrong to blame Tbilgazi management for everything. “The problems, being accumulated over 15 years, are impossible to be solved in a year minimum 40 mln. lari are required for rehabilitation of Tbilisi gas system and even with the most perfect management Tbilgazi is unable to accumulate this sum”, observed Mr. Gilauri. The Georgian Ministry of Energy suggested to privatize Tbilgazi which, in his opinion will, undoubtedly, have favourable impact on the entire system and will promote to mobilization of investments for rehabilitation of not only Tbilgazi but the entire gas system of Tbilisi. The Ministry of Energy does not plan to interfere into the enterprise management, though demands to explain what measures were undertaken by the City Municipality and New Management to make Tbilgazi profitable. On his part the Minister promised to do everything to assist Tbilgazi in overcoming the crisis. In particular, the Ministry of Energy is conducting talks with the EBRD on allotting preprivatization long-term credit of 20 mln. dollars. Mr. Gilauri mentioned about certain success reached in this direction: the Bank representatives decided to start studying the situation in the energy sector. The EBRD suggested new financial program, which would promote to full rehabilitation of the enterprise. It is planned to install new, more modernized meters. After that the EBRD will assist in finding a new buyer for Tbilgazi. The credit allotted by the Bank will be withdrawn from the privatization sum and will be returned to the creditor. In addition, in the Minister’s words, some hopes are put on the new authorities of the enterprise. David Morchiladze, a successful Georgian businessman (42 years old, born in Kutaisi, a member of board of supervisors at the biggest pharmaceutical company Parmafarm – ed.), is a candidate to the post of the enterprise head.
TBILGAZI NEW HEAD PLANS TO SETTLE PROBLEM WITH GAS SUPPLIES TO TBILISI
David Morchiladze, JSC Tbilgazi new director general, who has started his obligations, informed the journalists that first of all he would start solution of the problem with natural gas delivery for Tbilisi and clarifying the relations with gas supplier – Gazexport (Gazprom affiliate company). In his words, it’s most important to conduct talks with Gazprom and Gazexport to determine the schedule of gas delivery suitable for Gazexport. “If the talks yield positive results, it will make our life earlier”, mentioned Mr. Morchiladze.
VOLUME OF SALES OF GG&MW PRODUCE INCREASES BY 30%
The GBW was informed about it by Badri Japaridze, vice-president of GG&MW. In words, this year the company plans to sell 180 mln. half-litre bottles of mineral water “Borjomi”. It is also planned to invest several million dollars for re-equipment of its factories and purchase of new lines. At present, GG&MW owns two bottling factories in Borjomi. The company has 1000 employees.
In the near future the company plans to be registered in EU, which will give it an access to the markets of European countries. Mr. Japaridze observed that at the European market there is a tough competition among the mineral water leading producers. However, the fact of getting registration will imply the high quality of their produce and satisfaction of EC standards and requirements. By the end of the year the company experts to get a standard ISO-1400 and ISO-9000.
Last year GG and MW sold 140 mln. half-litre bottles of water. The company produces water of 8 designations in total. It is being exported to 20 world countries. But major sales markets for the produce are Russia, Ukraine, Baltic countries, Kazakhstan, Azerbaijan, the USA. They had no export to Tajikistan due to instability in this country. The company did not supply its produce to Uzbekistan because as the terms of the currency conversion established there do not suit the company, said Mr. Japaridze.
PRESS CONFERENCES
HEAD OF NATIONAL MINT BLAMES STAFF OF GEORGIA’S PRIME-MINISTER FOR BLACKMAIL
David Lortkipanidze, director general of the state enterprise National Mint, said at August 2 press-conference that was blackmailed by the staff of Georgia’s prime-minister. In his words, he was demanded to transfer some ten thousand lari to some banking accounts in the name of the Georgian government head. “I tried to meet with Zurab Zhvania to clarify the situation but in vain though I have tried several times. I have even sent an official letter to Zhvania”, said Mr. Lortkipanidze. Head of the National Mint observed that he was surprised with the statement made at the last governmental session by Prime-Minister Zhvania. “National Mint director sends some letters”. “I failed to understand this statement”, pointed Mr. Lortkipanizde.
They mention in the State Chancellery that “the statement made by National Mint director is so absurd that the Georgian government representatives won’t officially make any comments, neither the head of the government will do it”.
NATIONAL MINT HEAD WILL BE RELEASED OF HIS POST
Kakha Bendukidze, the Minister for Economic Development of Georgia, considers unacceptable opposition to the country authorities from the director of the state enterprise. He announced the journalists about it on August 6, while commenting the statement made by David Lortkipanidze, head of the state enterprise National Mint, on blackmail from Georgian Prime Minister’s staff members. “National Mint state enterprise should have another director general”, stated Mr. Bendukidze, stressing that “several candidacies are being already discussed for this post”. “In any case, this post should not be occupied by the person, who starts fight with the state, who appointed him to manage the state property. It is quite unacceptable for us. And it is also dishonest”, said the Minister.
CRIMINAL
OIL PRODUCTS TRADER COMPANY IS ACCUSED OF FINANCIAL MANIPULATIONS
The Financial Police press-service informs that Tbilisi Financial Police operation service employees exposed the company Kosmo, engaged in oil products trade, of financial violations. The company was engaged in oil products trade, of financial violations. The company was engaged in diesel fuel import from Azerbaijan, later it processed the fuel in Georgia but had no license for this. Thus, informs the Financial Police, the company Kosmo avoided paying relevant taxes.
After auditing the financial account of Kosmo it was determined that in result of the Company illegal activities in different years the state budget lost several thousand lari. In the process of investigation it was disclosed that Kosmo got offsets of 250.000 lari from LLC Simba 2003. It was stated that Simba 2003 used forged assets. In result Kosmo assets were reduced by 250.000 lari. This sum at present Kosmo should pay to the budget as taxes. On the whole, the company should pay more than 856.000 lari to the budget. A criminal case was filed against Kosmo for tax evasion in large amount.
NEWS FROM ABROAD
THREE YEARS AFTER AZERBAIJAN WILL REFUSE TO BUY NATURAL GAS FROM RUSSIA
Idris Rzabekov, head of fuel and energy operations service at the Fuel and Energy Ministry of Azerbaijan, informed that starting from 2006 Azerbaijan would reduce the volumes of natural gas in the republic, imported from Russia. In his words, they extract gas in Azerbaijan and in 2005 its volume will be stabilized at the level of 4.8-5.0 bln. m3, but from 2006 it will increase at the expense of old deposits of the SOCAR, and from 2007 there will start planed volumes from gas deposit “Shah-Deniz”. “This will give us an opportunity in 2007-2008 to refuse gas import”, said Mr. Rzabekov.
A total requirement of Azerbaijan in natural gas makes up about 12-14 bln. m3 per year. However, now there is extracted about 5 mln. m3. Taking into account this obviously umprofitable balance the optimism of Azeri Fuel and Energy Ministry officials’ optimism is considered excessive by the local analysts. Thus, in the words of authoritative Azeri expert in oil and gas sphere Fuad Alizade, “it’s unreal, at least, at the initial stage”. Firstly, he thinks, after signing a contract, Azerbaijan cannot independently master gasocondensate extracted at Shah-Deniz deposit. “This product is a property of the international consortium”, mentioned Mr. Alizade. “Azerbaijan has the right to master only its share, no more”.
Secondly, at the governmental level Baku has certain obligations before Turkey, since 2006 there should be supplied to Turkey 6 bln. m3 per year. “Thus, to cover requirements in gas at the expense of own resources in the mentioned terms is simply impossible”, stresses Mr. Alizade. But that’s not all. There is also a problem of Georgia which plans, after Baku-Tbilisi-Erzrum pipeline operation, to cover its requirements at the expense of Azeri gas transportation through its territory. But this is only 0.5% from the volumes to be passed through Georgia. To satisfy Georgia’s requirements in the blue fuel it’s not sufficient. To take into consideration all these circumstances Azerbaijan will import gas from Russia for a long time, Mr. Alizade is sure.
Azeri analysts turn attention to the fact that these forecasts were expressed by the high-ranking official of the Fuel and Energy Ministry after the 11th international exhibition-conference “Caspian Oil & Gas” was finished in Baku. At this conference, deputy Foreign Minister of Russia, Russian President’s special representative in the Caspian region Victor Kalyuzhni talked in a tough form about the prospects of Azeri natural gas supplies from Shah-Deniz deposit to Europe. The representative of Russia also doubted the expediency of developing the energocorridor “East-West” and recommended to better consider the potentials of transporting Azeri gas to Turkey, Greece, than to Italy. “Azerbaijan can supply maximum 6 bln. m3 to Turkey, 3 bln. m3 to Greece. And what is planned to be sent to Italy, Bulgaria, Romania and Austria?” asked the Russian diplomat. But he got no answer then. And now Azerbaijan proves it can soon do without Russian gas supplies.
Meanwhile the western investors more frequently talk on Azerbaijan’s dependence on the Russian supplies of energocarriers. In aprticualr, it is directly pointed about it in the preliminary account on the condition of Azeri energosystem, prepared by Japanese company TEPCO (Tokyo Electric Power Company) on the order of the Japanese Bank of International Cooperation (JBIC).
The Georgian Business Week
Weekly Bulletin of News & Analysis
¹434
August 2-8, 2004
Publisher:
The Georgian Business Consulting Group
Distributed in Georgia, Azerbaijan, Armenia, Austria, Great Britain, Greece, FRG, Iran, Israel, Italy, Iran, Romania, Russia, Turkey, USA and other countries.
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Editor-in-Chief: Vladimir Miroshnichenko. Deputy Editor-in-Chief: Stanislav Sichov. Correspondent: Maya Eristavi, Lika Jorjoliani, Inga Mamulashvili.
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FOREIGN MINISTRY OF GEORGIA EXPRESSES PROTEST AGAINST RAILWAY REHABILITATION WORKS ON THE TERRITORY OF ABKHAZIA
TBILISI WARNS RUSSIAN ENTREPRENEURS “NOT TO THROW MONEY AT RANDOM” PRIVATIZING OBJECTS IN ABKHAZIA
GEORGIAN AUTHORITIES’ ATTACKS AGAINST RUSSIA MAY LEAD TO GREAT CONFLICT AND DAMAGE GEORGIAN ECONOMY
GEORGIA POSSESSES LIST OF RUSSIAN BUSINESSMEN WHO ILLEGALLY PRIVATIZED OBJECTS IN ABKHAZIA
ECONOMIC GROWTH SUSPENDS IN GEORGIA
MINISTRY OF ECONOMIC DEVELOPMENT SUGGEST PRIVATIZATION OF STATE PROPERTY WITHOUT PRESENTING BUSINESS-PLAN BY BUYERS
IMF MISSION POSITIVELY EVALUATES WORK OF GEORGIAN GOVERNMENT
GEORGIAN MINISTER OF FINANCE HOPES PARLIAMENT APPROVES CHANGES INTO STATE BUDGET 2004
NATIONAL BANK REDUCES RATES OF INTEREST ON MONETARY-CREDIT POLICY INSTRUMENTS
EXPORTERS GET BACK PREVIOUSLY PAID SUMS
FIRST STAGE OF CUSTOMS REFORM IS OVER
TBILISI AVIATION FACTORY WILL BE SOLD THROUGH DIRECT SALE
REGULAR T-BILL AUCTIONS
BIDDING RESULTS AT THE TBILISI INTERBANK CURRENCY EXCHANGE
BIDDING RESULTS AT THE GEORGIAN STOCK EXCHANGE
BP IS GIVEN PERMIT TO RESUME BAKU-TBILISI-CEYHAN OIL PIPELINE
BAKU-TBILISI-CEYHAN (BTC) SHAREHOLDERS ARE DISSATISFIED WITH SUSPENSION OF CONSTRUCTION WORKS AT GEORGIAN SECTION
KASPI CEMENT FACTORY OPENS NEW PRODUCTION LINE
GEORGIAN RAILWAY’S EFFORTS TO ATTRACT CARRIERS ARE NOT SUCCESSFUL
UKRAINIAN SHIP RESUMES ITS CRUISE ROUTES TO GEORGIA
NEW FIVE-STAR HOTEL TO BE BUILT IN THE CENTRE OF TBILISI IN PLACE OF HOTEL “IVERIA”
DIFFERENTIATED TARIFF ON WATER IS INTRODUCED IN TBILISI
INSURANCE COMPANY IMEDI L PRESERVES LEADING POSITIONS AT GEORGIA’S INSURANCE MARKET
AGREEMENT WITH TBILISI GAS DISTRIBUTING NETWORK MANAGING COMPANY SHOULD BE ANNULLED
TBILGAZI NEW HEAD PLANS TO SETTLE PROBLEM WITH GAS SUPPLIES TO TBILISI
VOLUME OF SALES OF GG&MW PRODUCE INCREASES BY 30%
HEAD OF NATIONAL MINT BLAMES STAFF OF GEORGIA’S PRIME-MINISTER FOR BLACKMAIL
NATIONAL MINT HEAD WILL BE RELEASED OF HIS POST
OIL PRODUCTS TRADER COMPANY IS ACCUSED OF FINANCIAL MANIPULATIONS
THREE YEARS AFTER AZERBAIJAN WILL REFUSE TO BUY NATURAL GAS FROM RUSSIA
NEWSMAKER’S DIARY
FOREIGN MINISTRY OF GEORGIA EXPRESSES PROTEST AGAINST RAILWAY REHABILITATION WORKS ON THE TERRITORY OF ABKHAZIA
On August 4 the Foreign Ministry of Georgia sent to the Russian side a note of protest in regard to the commencement of the restoration works at the railway section Veseloe-Sokhumi and in regard to the commercial tourist flights from Sochi and Adler to the Abkhazia’s coasts. It is said in the statement made by the Georgian Foreign Ministry “with such unilateral activities, the Russian side grossly violates the agreements concluded earlier and the principles of international law”. The Foreign Ministry of Georgia considers that “such activities hinder the relations between the two sovereign states become healthy”.
On July 31 the information and press department of the Russian Federation Foreign Ministry released comments, in which it is said that participation of the Russian specialists in the railway restoration works in Abkhazia does not violate the Russian-Georgian agreements, concluded in Sochi, in March 2003 with the participation of the Abkhazian side. The document mentions about the need for the repair works being connected with the current measures for maintaining the railway line in the operation condition after an electric train Sochi-Sokhumi is put into operation in December 2002 and with providing the source movement.
TBILISI WARNS RUSSIAN ENTREPRENEURS “NOT TO THROW MONEY AT RANDOM” PRIVATIZING OBJECTS IN ABKHAZIA
“Any privatization of objects in Abkhazia without any agreement with Georgia will mean cast-away money”, said Zurab Zhvania, prime-minister of Georgia on August 5 commenting visit to Georgia’s break-away republic of Abkhazia of the Mayor of Moscow Yuri Luzhkov and his intentions to privatize some objects of touristic infrastructure. “If anyone want to waste money it’s his problem, but we want to honestly warn all that any privatization acts will acquire sense only in case they are concluded in compliance with the Georgian legalization”, observed Mr. Zhvania.
A month ago President Mickeil Saakashvili of Georgia, commenting the decree signed by the Moscow Mayor on purchasing the sanatorium “Moscow” in Georgia by the Moscow government, said that all the economic interests of Yuri Luzhkov in Abkhazia would be confiscated. In Mr. Saakshvili’s opinion, purchase of the sanatorium in Gagra does not correspond the essence of the Russian-Georgian relations. In his words, “this may only be called a purchase of stolen property.” “This is against the declarations of the President and government of Russia”, mentioned the President of Georgia. He says – “the lessons of Crimea and Adjara did not teach the Moscow Mayor anything”.
GEORGIAN AUTHORITIES’ ATTACKS AGAINST RUSSIA MAY LEAD TO GREAT CONFLICT AND DAMAGE GEORGIAN ECONOMY
Arkadi Volski, head of the Russian Union of Entrepreneurs and Manufactures (RUEM), told about it to the journalists in Moscow while commenting the statements expressed by the President of Georgia that Georgia would fire at the ships with the Russian tourists, which enter the territorial waters of Georgia heading to Abkhazia without Tbilisi’s permission, thus violating the international legal norms.
“Being in place of Saakashvili I won’t have allowed such attacks against the Russian tourists. This May cause great conflict and damage the economy of Georgia”, observed Mr. Volski. In his opinion there is some link between the political instability in Georgia and dire economic situation in this country. Mr. Volski expressed supposition that Kakha Bendukidze, the Minister for Economic Development of Georgia, won’t stay long on this post. “I worry very much about the situation, when he (Bendukidze) was surrounded by 200 people and spat at him only for his words that the Georgian rest-houses should be sold to the Russian entrepreneurs. I think he won’t stay long in Georgia”, stated Mr. Volski.
GEORGIA POSSESSES LIST OF RUSSIAN BUSINESSMEN WHO ILLEGALLY PRIVATIZED OBJECTS IN ABKHAZIA
Teimuraz Gamtsemlidze, charge d’affairs in the Georgian issues in Russia, said about it at the press conference in Moscow. “The list is, rather serious, of the Russian legal and natural entities, who confidentially and illegally privatized a great number of objects on the territory of Abkhazia”, states Mr. Gamtsemlidze. Tacking the issue of the influence these people has on the formation of the Russian policy, he mentioned: “I won’t have dramatized this issue in the Russian policy, but it’s the most important factor”.
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GOVERNMENT
ECONOMIC GROWTH SUSPENDS IN GEORGIA
Kakha Bendukidze, the Minister for economic development of Georgia, made this statement on August 4 at the governmental session. In his words this condition is caused by high tax rates, business interests are not protected from the authorities, credit resources are unavailable, corruption is in the state structures. “One of the reasons of suspending the growth of economy is strengthening of the national currency rate, which in its turn became an indicator of business becoming expensive”, said Mr. Bendukidze. In his words, negative impact on the rates of economic growth was exercised by the fact of tax liberalization process inhibition. Wood cutting ban and Baku-Tbilisi-Ceyhan oil pipeline construction suspension also had unfavourable influence on the economic indicators. “If there has been no construction of this oil pipeline and the wood cutting has not resumed we’ll have had economic stagnation”, said Mr. Bendukidze.
“One of the urgent tasks of the Georgian government is to give a push to economy. A new tax code should play an important role in this, as it foresees liberalization of taxes, and the draft law on business”, pointed the Minister. It was mentioned that both laws will be soon released by the government and will be submitted for discussion at the Parliament.
The Minister made his statements on the basis of questioning conducted by the Ministry of Economic Development and the State Statistics Department among more than 200 enterprises and companies. Thus, in the respondent’s opinion, before that strengthening of national currency had a negative influence on their business. The Minister thinks there is abnormal situation in the country as there are more dollars than lari in the circulation and the money supply circulation is out of business.
Prime-minister of Georgia Zurab Zhvania told the journalists after the governmental session that the business environment in Georgia does not promote to development of business in the country as of yet. “There is no stagnation in economy, but I agree with the Minister of Economy that he is dissatisfied with the present rates”, observed Mr. Zhvania. “I generally think that sometimes there is given too optimistic picture. Sometimes we have serious success, for example, from the viewpoint of establishing the budget discipline but there should be made far more serious steps”, stressed the prime-minister.
LEGISLATION
MINISTRY OF ECONOMIC DEVELOPMENT SUGGEST PRIVATIZATION OF STATE PROPERTY WITHOUT PRESENTING BUSINESS-PLAN BY BUYERS
This present demand is being abolished in compliance with the draft law “On introducing changes into the law of state property privatization” submitted by the Ministry of Economic Development to the Parliament. The state property will be transferred to those, who will pay more. According to the draft law, the terms for the state property to be sold will be determined by the president of the country. In compliance with the law in effect now a buyer, who has bought the object through a direct sale, should pay the within a month. The changes prolong the term up to a year. In addition, the suggest draft law grants a buyer with the right to manage the enterprise for a year and then under any pretext to refuse its purchase. However, while buying the object a buyer pays 40% from the declared sum, which is later won’t be returned to the buyer.
FINANCE
IMF MISSION POSITIVELY EVALUATES WORK OF GEORGIAN GOVERNMENT
Zurab Noghaideli, the Minister for Finance of Georgia, said at the press-conference on August 2 that the IMF Mission, heaving finished its regular visit to Georgia, positively evaluated the work of the Georgian government. “The Mission expressed satisfaction with the Georgian government activities in increasing tax revenues in the budget and, correspondingly, with the project of changes into the state budget of Georgia for 2004”, observed the Minister. In his words, the mission specially pointed to the government efforts for reducing debts in the social sphere and agreed with the government project on privatizing big objects, mentioning about both supposed rates of the process and its openness.
Mr. Noghaideli informed that the IMF Mission in its memorandum also gave positive evaluation of the monetary and currency-credit policy ongoing in Georgia and the government activities for increasing collection of payments for consumed electricity. Suring talks with the Mission draft state budget for 2005 was discussed. “A final variant of the project will be ready by the end of September as the new tax Code provisions should be considered in it. The work on the new tax code are being ended this month”, pointed the Minister.
Concerning the new tax code provisions the Mission points that to reduce possible negative influence on the volume of tax revenues, planned changes in the legislation should be introduced in 2-3 years. However, in the Minister’s works, the government hopes it’ll manage to transfer to new system of taxation without any problem in a year.
GEORGIAN MINISTER OF FINANCE HOPES PARLIAMENT APPROVES CHANGES INTO STATE BUDGET 2004
Zurab Noghaideli, the Minister of Finance, mentioned at August 2 press-conference that changes in the state budget of 2004 were caused by several actors, in particular, by increase of tax revenues, beginning of the big objects’ privatization process and strengthening of lari rate, which enabled to spare resources directed at external debt servicing and investment projects financing. The Minister observed that the state budget would increase by 230.583.000 lari. It is expected that 85.5 million lari will be additionally received from tax revenues, 125.7 mln. lari will be from non-tax revenues, it is planned to get 61.1 mln. from the state property privatization.
The Minister informs that 90.9 mln. lari will be spent for covering old indebtedness of the state budget, in particular, 37.1 mln. lari for covering debts on pensions, 12 mln. lari – on the salaries for teachers, 5.1 mln. lari – on salaries in the sphere of education and science, 1.1 mln. lari – on salaries in the sphere of culture, 5 mln. lari – on the programs in the sphere of health care, 3.7 mln. lari will be directed at covering the debts for diplomatic representations of Georgia abroad, and also debts for Georgia’s membership in the international organizations, 15 mln. lari are allotted for covering debts in the energy sphere, 0.7 mln. lari – for the programs on developing tea growing.
Mr. Noghaideli says that thanks to the government activities for paying old indebtedness on social programs, the share of these debts in GDP will reduce to 0.1%. The Minister stressed that all the changes into the budget are agreed with the IMF Mission.
NATIONAL BANK REDUCES RATES OF INTEREST ON MONETARY-CREDIT POLICY INSTRUMENTS
It is said in the statement made by NB that this has been made with the aim of preserving the financial stability in the country. In particular, one-day credit value for the commercial banks was reduced from 11% to 9%, rate of interest for repo-operations reduced from 10% to 8%. The commercial banks are given the possibility through repo to mobilize from NB short-term resources in lari under T-bills guarantee. The experts consider this step, undertaken by NB will promote to preserving the tendencies for reducing the rates of interest, which are noticed lately at T-bills and credit resources market.
EXPORTERS GET BACK PREVIOUSLY PAID SUMS
Zurab Noghaideli, the Minister for Finance informed at August 2 press-conference that soon the exporters would get back the previously paid tax on VAT. At the first stage the sum of 4.8 mln. lari will be returned. In the Minister’s words, return of pre-paid tax became possible after the reform implemented in the treasury. In particular, a part of sums transferred to the state budget is being accumulated at the specially opened account and the sums later are spent for covering the pre-paid tax. By the data of January 1 the pre-paid tax on VAT made up 140 mln. lari. As Mr. Noghaideli stressed till the end of this year the sum will be fully returned to the exporters. In compliance with the tax code export of produce from Georgia is taxed with VAT zero rate of interest, in accordance with which the exporters get back VAT paid on the border.
CUSTOMS
FIRST STAGE OF CUSTOMS REFORM IS OVER
Giorgi Godabrelidze, chairman of the Customs Department, informed about it at August 3 press-conference who said that serious re-organization was conducted in the system. In particular, about 500 customs officials were released. At the same time the department got new employees. In Mr. Godabrelidze’s words, major criteria in selecting the candidates were honesty and professionalism. From now on all the customs employees will be taken for the staff, the work on the contractual base has been abolished. Soon there will be conducted testing of the employees in the customs system.
Some customs services are also abolished, in particular, the regional customs “Railway Line”, the regional customs “Energy”, customs services of Adjara and Abkhazia, customs laboratory, guards service, criminal service, department chairman staff, service of international relations. There remained customs services “North” (head – Emmanuel Margiev), “South”, “East” (head – Levan Baramidze) and “West” (Pridon Surmanidze).
In Mr. Godabrelidze’s words, in January theer will start a second stage of the reform. “In addition, there also are more long-term plans, implementation of which is scheduled for 2006”, said head of the Customs Department.
PRIVATIZATION
TBILISI AVIATION FACTORY WILL BE SOLD THROUGH DIRECT SALE
Kakha Bendukidze, the Minister for Economic Development of Georgia, considers laundering of a tender for JSC Tbilaviamsheni privatization would have been illegal as the enterprise has been transferred in 10-year management to LLC Tbilaviamsheni. The present manager shoulders the obligation to cover a part of debt to Turkmenistan in the amount of 67 mln. dollars. From 2000 Georgia was covering its debt to Turkmenistan through delivery of produce and rendering the services by the Georgian enterprises: Tbilaviamsheni, Kartuli Shakari and TG Trade.
Selling the aviation factory through the schedule suggested by the Minister caused contradictions in the government. By some data, Zurab Noghaideli, the Minister for Finance, does not agree with this plan. The parliamentary opposition parties and Roman Gotsiridze, chairman of the parliamentary financial-budgetary committee, are against it either. Mr. Gotsiridze thinks the enterprise consts far more than 67 mln. dollars. Mr. Bendukidze responds to this statement by saying that he would give 1 mln. dollar from his personal resources to the person who would find an investor wishing to pay more than 67 mln. dollars.
INDICATORS
REGULAR T-BILL AUCTIONS ON THE 4 OF AUGUST IN NATIONAL BANK
Ministry of Finance having nominal cost of GEL 2.000.000 launched 364-day T-bill auction. 7 commercial banks took part in it. They presented 16 applications to buy 38.572 T-bills at GEL 3.857.200. 12 competitive applications (including 2 partually) were satisfied, a total sum of settlement price of which made up GEL 1.744.889,29. Minimum rate of interest of satisfied applications made up 11.00%, maximum – 16.00% and average – 14.66%.
OIL PIPELINE
BP IS GIVEN PERMIT TO RESUME BAKU-TBILISI-CEYHAN OIL PIPELINE
The Ministry of Environment Protection and National Resources of Georgia gave a permit to BP, an operator of BTC oil pipeline construction, to resume works in the Borjomi gorge. Tamar Lebanidze, the Minister for Environment Protection and national Resources, says that “the company will invite the experts to Georgia, who will elaborated a special plan for integrated management over the oil pipeline”. The Minister pointed that along with this an agreement was reached on laying the pipes at the Borjomi section deeper than it was foreseen by the initial project. With this “additional protecting mechanisms will be put into operation as well”, stressed Mrs. Lebanidze.
“BP tried to complain against, us in Washington, to exercise pressure on us, but in vain. They should observe their obligations, we – ours”, observed President Mikheil Saakashvili of Georgia, being for an unofficial visit in Washington. “Georgia is a state and not a banana republic, which it was under Shevardnadze and everyone should understand this”, stressed Mr. Saakshvili. “The oil pipeline is of a strategic importance for Georgia, it is for us but health of our people and the condition of our environment is far more importance for me”, announced the President of Georgia.
BTC pipeline construction was suspended by the Georgian Ministry of Environment of National Resources on July 19 with the demand to the project operator to present additional guarantees for providing security at the 17 km long section passing through the Borjomi gorge – a reservation zone of the country. The Georgian side proves that the project operator BP has not observed some terms for safe construction.
BTC oil pipeline construction started in Georgia in April 2004. It is 1767 km long in total. The Georgian section of the pipeline compressing 248 km and the Azeri section of 443 km should be put to operation in the end of this year and its Turkish section of 1076 km long – in the middle of the first quarter of 2005.
BAKU-TBILISI-CEYHAN (BTC) SHAREHOLDERS ARE DISSATISFIED WITH SUSPENSION OF CONSTRUCTION WORKS AT GEORGIAN SECTION
BTC oil pipeline construction in the Borjomi gorge, suspended on July 19 for two weeks on the demand of the Georgian government, was not resumed on August 2. Even more, due to previous delay in the schedule in Georgia and to the need of conducting additional works, both the oil pipeline building and its constructions become 5% more expensive.
At Azeri-Georgian meeting in Tbilisi on August 2 the Azeri delegation raised an issue on resuming BTC construction works at the Borjomi section. The Baku newspaper “Zerkalo” informs, referring to the informed diplomatic sources, behavior of official Tbilisi irritates both the authorities of BP and of the country, interested in BTC. Both consider that Georgia makes use of the situation and sumply conducts “financial-economic racket”. “They are essentially “begging” for additional financial resources, for which others will pay”, says the source.
It was initially suggested that the volume of works at the Azeri-Georgian section of BTC oil pipeline would make up 1 bln. dollars: in Azerbaijan-600 mln., in Georgia – 400 mln. However, the project has already become 5% more expensive and will become even more expensive. As the “Zerkalo” writes finally Azerbaijan will have to pay for all this with the resources from its oil.
INDUSTRY
KASPI CEMENT FACTORY OPENS NEW PRODUCTION LINE
Sakcementi, a cement factory in Kaspi, on August 2 opened a new production line. Thus 100 new working places were opened at which local residents work. The representatives of the Cabinet of Ministers and the Parliament of Georgia attended the ceremony of opening. Mikheil Machavariani, Vice Speaker of the parliament, said in his talk with the journalists that operation of the new line would assist in satisfying all the demands of Georgia for cement.
TRANSPORT
GEORGIAN RAILWAY’S EFFORTS TO ATTRACT CARRIERS ARE NOT SUCCESSFUL
David Onoprishvili, LLC Georgian Railway director general, announced at August 2 press-conference that despite reduction of tariffs for oil products transportation there were received from the carriers 1 mln. lari less in seven months than over the analogous last year period. By the end of this year this amount will, most likely, increase by 1 mln. more. Mr. Onoprishvili says that Georgian Raiwlay has suggested new discounts to oil freight carriers from the beginning of July with the aim to increase Baku-Batumi route attraction. The carriers, who will transport by Baku-Batumi railway up to 4 mln. tons or more, will get discount of 3.68 dollars per 1 ton of oil and 1.68 dollar discount per 1 ton of oil products. Thus, the following tariff is determined for big carriers: 5 dollars per 1 ton of oil and 7 dollars per 1 ton of oil products (for details see bull. ¹431). However, Mr. Onoprishvili mentioned, no one has responded to this proposal as of yet. He says only a minor growth is being noticed on dry freight transportation.
UKRAINIAN SHIP RESUMES ITS CRUISE ROUTES TO GEORGIA
On August 2 the Batumi Port hosted a cruise ship “Taras Shevchenko”. It is the first such route for last 12 years. Resuming of this route become possible due to cooperation between the Georgian and Ukrainian sides. The tourists from Belarus, Lithuania and Ukraine arrived to Adjara to spend a day in Batumi. This route was known under the name of “Caucasian Odyssey” and was starting from the Crimea. At present the cruise route has additional one-day visit to the Black Sea port in Istanbul. It is planned that sail by this tourists route, now called “Black Sea Odyssey”, will be conducted by “Taras Shevchenko” weekly.
CONSTRUCTION
NEW FIVE-STAR HOTEL TO BE BUILT IN THE CENTRE OF TBILISI IN PLACE OF HOTEL “IVERIA”
The city authorities have found an investor, the company Hayett & Campinski, which is ready to reconstruct once prestigious “Intourist” hotel in the centre of Tbilisi. In case its reconstruction is impossible, the investor shoulders an obligation to destroy the old building and to build a new hotel of world class in its place.
But the project has serious obstacles as there live refuses in “Iveria”, who already arranged the act of protest in front of the hotel on August 6. The protest act participants expressed dissatisfaction with the decision of Tbilisi authorities and the company, which bought Iveria, on paying compensation to the refugees living in the hotel in exchange for leaving the hotel rooms. The refuses say that are dissatisfied with the sum suggested to them – 7.000 dollars per each room by the family of refugees. The act participants stressed they wouldn’t leave the hotel until they were satisfied with the sum suggested for the compensation by the company. However, the city authorities are firm in their decision saying the hotel should be vacant by August 20, otherwise measures of force will be made. As for the compensation sum, in the words of Tbilisi Mayor Zurab Chiaberashvili, this is quite enough for buying a one-room flat in the central regions of Tbilisi, and in the so-called “bedroom regions” – two-or three-room flats.
From August 10 the investor will start concluding a contract with the refugees and from August 18 – payment of compensation. There are 330 rooms in “Iveria” and about thousand refugees live in them.
TARIFFS
DIFFERENTIATED TARIFF ON WATER IS INTRODUCED IN TBILISI
The decision was adopted on August 6 by Tbilisi Sakrebulo (city self-governance elective body). From now on consumers, receiving water for less than 8 hours per 24 hours, will pay 90 tetri for it (per capita per month), instead of earlier fixed tariff of 1 lari 20 tetri. Some privileges are foreseen for the budgetary organizations, which will pay 1.20 lari, but these organizations do not involve the objects of health care, transport, sport complexes, bakeries, wineries. Non-budgetary organizations, having no privileges and engaged in commercial activities, will pay 3.60 lari per capita per month.
INSURANCE BUSINESS
INSURANCE COMPANY IMEDI L PRESERVES LEADING POSITIONS AT GEORGIA’S INSURANCE MARKET
The GBW was informed by Aleko Tughushi, Imedi L marketing director, that according to the data released, by State Insurance Supervision concerning last year the company occupied a 2nd place after insurance company Aldagi. The volume of mobilized premium made up 2.2 mln. lari. Thus year, in Mr. Tughushi’s words, the company plans to increase this indicator. In 2003 Imedi L paid more than 6 mln. lari on insurance cases. A major accent in the company is turned to medical insurance of the population, insurance against accidents.
Pension insurance, a new sphere for the company, has been commenced by the company since this year. In Mr. Tughushi’s words, he has acquainted with the experience of the pension insurance in the USA and England. In result of this an attractive product was formed, which enables a person to form a pension fund for providing his old age. The so-called “Chile system” has been used for forming this product. It means that each employed, working up to 65 years of age, forms private pension fund. In such case this person should become a member of the pension fund of the company and pay monthly 10% of the wage. Individual contributions of resources are possible. Mr. Tughushi mentioned if an enterprise had a powerful trade union it forced an employer to contribute monthly money to the pension fund. For example, thus the employees were insured on medical and pension insurance in Telasi and Tbilaviamsheni companies.
Mr. Tughushi informed the company also worked out a program for insurance of cars from crash. It is also possible to wash a car once a month free of charge. There are many innovations in Imedi L concerning medical insurance programs. In addition to regular medical insurance, which covers hospital expenses, this insurance policy gives the right for free of charge medical examination.
COMPANIES
AGREEMENT WITH TBILISI GAS DISTRIBUTING NETWORK MANAGING COMPANY SHOULD BE ANNULLED
The representatives of the presidential majority in Tbilisi Sakrebulo (local body of governance) announced about it at the meeting with Nika Gilauri, the Minister for Energy, which was held on August 3. They discussed the situation with gas delivery and further fate of the Georg8ian gas distributing company Tbilgazi, which has been managed since last year by LLC New Management for ten years. At present gas delivery is practically cut for half of Tbilisi. The reason being indebtedness to the supplier – Gazprom (the indebtedness of Tbilisi gas distributing company to the Russian supplier makes up about 11 mln. dollars).
The Sakrebulo presidential majority considers the obligations shouldered by new Management in regard to Tbilgazi have not been observed. The representatives of the city legislation body mentioned in their speeches that over six month when the Ministry of Energy was headed by the new minister the problem remained at deadlock and Tbilgazi indebtedness growth daily.
Nanuli Kachibaya, chairman of the faction “National Movement” thinks the debt to Gazprom could have been far less if the state budgetary organizations had paid timely their debts to Gazprom. In addition, she thinks it necessary to have radical changes in the New Management. Chairman of the faction “Burjanadze-Democrats” David Khutsishvili announced that the city authorities together with the Sakrebulo representatives should decide who will manage the system. He suggested to abolish the agreement with the New Management and the city government to shoulder an interim management over the enterprise.
The Minister says it is wrong to blame Tbilgazi management for everything. “The problems, being accumulated over 15 years, are impossible to be solved in a year minimum 40 mln. lari are required for rehabilitation of Tbilisi gas system and even with the most perfect management Tbilgazi is unable to accumulate this sum”, observed Mr. Gilauri. The Georgian Ministry of Energy suggested to privatize Tbilgazi which, in his opinion will, undoubtedly, have favourable impact on the entire system and will promote to mobilization of investments for rehabilitation of not only Tbilgazi but the entire gas system of Tbilisi. The Ministry of Energy does not plan to interfere into the enterprise management, though demands to explain what measures were undertaken by the City Municipality and New Management to make Tbilgazi profitable. On his part the Minister promised to do everything to assist Tbilgazi in overcoming the crisis. In particular, the Ministry of Energy is conducting talks with the EBRD on allotting preprivatization long-term credit of 20 mln. dollars. Mr. Gilauri mentioned about certain success reached in this direction: the Bank representatives decided to start studying the situation in the energy sector. The EBRD suggested new financial program, which would promote to full rehabilitation of the enterprise. It is planned to install new, more modernized meters. After that the EBRD will assist in finding a new buyer for Tbilgazi. The credit allotted by the Bank will be withdrawn from the privatization sum and will be returned to the creditor. In addition, in the Minister’s words, some hopes are put on the new authorities of the enterprise. David Morchiladze, a successful Georgian businessman (42 years old, born in Kutaisi, a member of board of supervisors at the biggest pharmaceutical company Parmafarm – ed.), is a candidate to the post of the enterprise head.
TBILGAZI NEW HEAD PLANS TO SETTLE PROBLEM WITH GAS SUPPLIES TO TBILISI
David Morchiladze, JSC Tbilgazi new director general, who has started his obligations, informed the journalists that first of all he would start solution of the problem with natural gas delivery for Tbilisi and clarifying the relations with gas supplier – Gazexport (Gazprom affiliate company). In his words, it’s most important to conduct talks with Gazprom and Gazexport to determine the schedule of gas delivery suitable for Gazexport. “If the talks yield positive results, it will make our life earlier”, mentioned Mr. Morchiladze.
VOLUME OF SALES OF GG&MW PRODUCE INCREASES BY 30%
The GBW was informed about it by Badri Japaridze, vice-president of GG&MW. In words, this year the company plans to sell 180 mln. half-litre bottles of mineral water “Borjomi”. It is also planned to invest several million dollars for re-equipment of its factories and purchase of new lines. At present, GG&MW owns two bottling factories in Borjomi. The company has 1000 employees.
In the near future the company plans to be registered in EU, which will give it an access to the markets of European countries. Mr. Japaridze observed that at the European market there is a tough competition among the mineral water leading producers. However, the fact of getting registration will imply the high quality of their produce and satisfaction of EC standards and requirements. By the end of the year the company experts to get a standard ISO-1400 and ISO-9000.
Last year GG and MW sold 140 mln. half-litre bottles of water. The company produces water of 8 designations in total. It is being exported to 20 world countries. But major sales markets for the produce are Russia, Ukraine, Baltic countries, Kazakhstan, Azerbaijan, the USA. They had no export to Tajikistan due to instability in this country. The company did not supply its produce to Uzbekistan because as the terms of the currency conversion established there do not suit the company, said Mr. Japaridze.
PRESS CONFERENCES
HEAD OF NATIONAL MINT BLAMES STAFF OF GEORGIA’S PRIME-MINISTER FOR BLACKMAIL
David Lortkipanidze, director general of the state enterprise National Mint, said at August 2 press-conference that was blackmailed by the staff of Georgia’s prime-minister. In his words, he was demanded to transfer some ten thousand lari to some banking accounts in the name of the Georgian government head. “I tried to meet with Zurab Zhvania to clarify the situation but in vain though I have tried several times. I have even sent an official letter to Zhvania”, said Mr. Lortkipanidze. Head of the National Mint observed that he was surprised with the statement made at the last governmental session by Prime-Minister Zhvania. “National Mint director sends some letters”. “I failed to understand this statement”, pointed Mr. Lortkipanizde.
They mention in the State Chancellery that “the statement made by National Mint director is so absurd that the Georgian government representatives won’t officially make any comments, neither the head of the government will do it”.
NATIONAL MINT HEAD WILL BE RELEASED OF HIS POST
Kakha Bendukidze, the Minister for Economic Development of Georgia, considers unacceptable opposition to the country authorities from the director of the state enterprise. He announced the journalists about it on August 6, while commenting the statement made by David Lortkipanidze, head of the state enterprise National Mint, on blackmail from Georgian Prime Minister’s staff members. “National Mint state enterprise should have another director general”, stated Mr. Bendukidze, stressing that “several candidacies are being already discussed for this post”. “In any case, this post should not be occupied by the person, who starts fight with the state, who appointed him to manage the state property. It is quite unacceptable for us. And it is also dishonest”, said the Minister.
CRIMINAL
OIL PRODUCTS TRADER COMPANY IS ACCUSED OF FINANCIAL MANIPULATIONS
The Financial Police press-service informs that Tbilisi Financial Police operation service employees exposed the company Kosmo, engaged in oil products trade, of financial violations. The company was engaged in oil products trade, of financial violations. The company was engaged in diesel fuel import from Azerbaijan, later it processed the fuel in Georgia but had no license for this. Thus, informs the Financial Police, the company Kosmo avoided paying relevant taxes.
After auditing the financial account of Kosmo it was determined that in result of the Company illegal activities in different years the state budget lost several thousand lari. In the process of investigation it was disclosed that Kosmo got offsets of 250.000 lari from LLC Simba 2003. It was stated that Simba 2003 used forged assets. In result Kosmo assets were reduced by 250.000 lari. This sum at present Kosmo should pay to the budget as taxes. On the whole, the company should pay more than 856.000 lari to the budget. A criminal case was filed against Kosmo for tax evasion in large amount.
NEWS FROM ABROAD
THREE YEARS AFTER AZERBAIJAN WILL REFUSE TO BUY NATURAL GAS FROM RUSSIA
Idris Rzabekov, head of fuel and energy operations service at the Fuel and Energy Ministry of Azerbaijan, informed that starting from 2006 Azerbaijan would reduce the volumes of natural gas in the republic, imported from Russia. In his words, they extract gas in Azerbaijan and in 2005 its volume will be stabilized at the level of 4.8-5.0 bln. m3, but from 2006 it will increase at the expense of old deposits of the SOCAR, and from 2007 there will start planed volumes from gas deposit “Shah-Deniz”. “This will give us an opportunity in 2007-2008 to refuse gas import”, said Mr. Rzabekov.
A total requirement of Azerbaijan in natural gas makes up about 12-14 bln. m3 per year. However, now there is extracted about 5 mln. m3. Taking into account this obviously umprofitable balance the optimism of Azeri Fuel and Energy Ministry officials’ optimism is considered excessive by the local analysts. Thus, in the words of authoritative Azeri expert in oil and gas sphere Fuad Alizade, “it’s unreal, at least, at the initial stage”. Firstly, he thinks, after signing a contract, Azerbaijan cannot independently master gasocondensate extracted at Shah-Deniz deposit. “This product is a property of the international consortium”, mentioned Mr. Alizade. “Azerbaijan has the right to master only its share, no more”.
Secondly, at the governmental level Baku has certain obligations before Turkey, since 2006 there should be supplied to Turkey 6 bln. m3 per year. “Thus, to cover requirements in gas at the expense of own resources in the mentioned terms is simply impossible”, stresses Mr. Alizade. But that’s not all. There is also a problem of Georgia which plans, after Baku-Tbilisi-Erzrum pipeline operation, to cover its requirements at the expense of Azeri gas transportation through its territory. But this is only 0.5% from the volumes to be passed through Georgia. To satisfy Georgia’s requirements in the blue fuel it’s not sufficient. To take into consideration all these circumstances Azerbaijan will import gas from Russia for a long time, Mr. Alizade is sure.
Azeri analysts turn attention to the fact that these forecasts were expressed by the high-ranking official of the Fuel and Energy Ministry after the 11th international exhibition-conference “Caspian Oil & Gas” was finished in Baku. At this conference, deputy Foreign Minister of Russia, Russian President’s special representative in the Caspian region Victor Kalyuzhni talked in a tough form about the prospects of Azeri natural gas supplies from Shah-Deniz deposit to Europe. The representative of Russia also doubted the expediency of developing the energocorridor “East-West” and recommended to better consider the potentials of transporting Azeri gas to Turkey, Greece, than to Italy. “Azerbaijan can supply maximum 6 bln. m3 to Turkey, 3 bln. m3 to Greece. And what is planned to be sent to Italy, Bulgaria, Romania and Austria?” asked the Russian diplomat. But he got no answer then. And now Azerbaijan proves it can soon do without Russian gas supplies.
Meanwhile the western investors more frequently talk on Azerbaijan’s dependence on the Russian supplies of energocarriers. In aprticualr, it is directly pointed about it in the preliminary account on the condition of Azeri energosystem, prepared by Japanese company TEPCO (Tokyo Electric Power Company) on the order of the Japanese Bank of International Cooperation (JBIC).