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Year: Month: All releases Economy Sectors Companies

Georgia's Tourism Sector - Tourism Market Watch | July 2017

9 Aug, 2017

The number of direct flight routes and flight frequency is on the rise, in line with the record growth in the number of international visitors to Georgia. The number of direct flight routes peaked in June 2017, as 38 carriers serviced 87 routes with almost 400 weekly flights. The growth in connectivity goes hand in hand with the increasing number of visitors from secondary source countries.

The Georgian government is trying to incentivize domestic air travel. According to the latest amendments to the tax code, domestic flights are exempt from excise and VAT taxes on aviation fuel and flight service, which should increase their affordability. Furthermore, the government has provided a GEL 10.8mn subsidy to ServiceAir, a company operating domestic flights to Batumi, Mestia, and Ambrolauri. ServiceAir is expected to operate domestic flights year-round.

International travel inflows to Georgia increased 27.9% y/y to US$ 659.0mn in 2Q17, after growing 23.3% y/y in 1Q17. Overall, travel inflows were up 26.0% y/y to almost US$ 1.1bn in 1H17. The share of travel inflows in service exports reached 61.1% in 1Q17, up from 56.4% in 1Q16. Value added from tourism was roughly flat y/y at GEL 480.1mn in 1Q17 and accounted for 6.8% of GDP, compared to 7.4% in 1Q16.

The number of international arrivals was up 28.5% y/y to 0.98mn in July 2017. Out of the top four source markets, there was very strong growth from Armenia (+25.4% y/y), Azerbaijan (+13.8% y/y), and Russia (+60.4% y/y). For the first time in 2017, the number of visitors from Turkey was up, albeit slightly (+0.6% y/y). Arrivals from the EU were up 21.4% y/y to over 45,000 visitors.

The tourist category continues to drive arrival growth in July 2017. The number of overnight visitors (‘tourist’ category) was up 32.9% y/y – after the largest y/y growth on record in July 2017 – and accounted for 52.9% of international arrivals. Same-day arrivals were roughly flat, while transit visitors posted an outsized 53.7% y/y growth rate. 


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Georgia's Energy Sector - Electricity Market Watch | June 2017

4 Aug, 2017

The degree of deregulation in the electricity market is set to increase in 2018. According to the changes to the Law on Electricity and Natural Gas, the minimum threshold for deregulation will increase from 13MW to 40MW as of January 1, 2018. Based on our estimates, this change will result in an increase in the share of deregulated power plants from 15.5% to 20.5% of total installed capacity and about 3.1TWh will be supplied to the Georgian market at unregulated prices annually over 2018-2019.

Direct consumers are set to account for at least a quarter of total electricity consumption in Georgia. According to the changes to the Law on Electricity and Natural Gas, starting May 1, 2018, consumers connected to high voltage (35kv and above) transmission lines will automatically be registered as direct consumers. This change will result in an increase in the number of direct consumers from two to over 60, with aggregate annual consumption of at least 3.1TWh.

GNERC has recalculated natural gas end-user tariffs for the three leading gas distribution companies, which together accounted for 89.8% of the market in 2016. Old tariffs varied by region and supply pressure, while the new methodology sets a uniform, transparent tariff structure. The end-user tariff is comprised of three components: transmission, cost of gas, and distribution. The transmission tariff is now set at 1.884 tetri/m3 for all consumers, an average increase of 0.5 tetri/m3. Cost of gas is set at 26.8 tetri/m3 (a decrease of 12.5%) The distribution tariff, designed to cover the distribution licensee’s investment costs, is the only remaining driver of tariff differences among distribution companies.

Kakheti Energy Distribution was sold for GEL 21.7mn at a public auction. The buyer was Energo-Pro Georgia, whose market share will increase from 60.2% to 64.6% as a result of this transaction. Energo-Pro Georgia will become the sole electricity distributor in Georgia outside of Tbilisi. Kakheti Energy Distribution has operated in bankruptcy since 2011, managed by a representative of the National Bureau of Enforcement. 

Electricity exports increased 8.6% y/y in June 2017 to 230.1 GWh and 7.4% y/y in 1H17. 28.3% of exported electricity went to Turkey, down 38.8% y/y. The top exporters to Turkey were Georgian Urban Energy (58.0% of total) and Adjar Energy 2007 (26.2% of total). Exports to Armenia decreased 2.3% y/y and accounted for 18.4% of total exports. Exports to Russia almost doubled (+98.2% y/y) and accounted for over half of electricity exports (53.3%), with ESCO being the sole exporter. The reason behind the increase in exports to Russia was an unexpected surplus of generation in the second half of the month and inflexibility of other markets to import additional electricity on short notice. Overall, ESCO accounted for 63.4% of total electricity exports in June 2017.


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Georgia's Tourism Sector - Tourism Market Watch | June 2017

14 July, 2017

Airbnb’s presence in Georgia has grown at an astounding pace. Over the last two years, the number of Airbnb listings in Tbilisi has more than tripled from 2,100 properties in 2015 to 7,000 this year. Almost 4,300 active hosts are now offering a wide array of accommodation options.

International upscale hotels in Tbilisi are nearly booked to capacity for the summer months, despite the high prices compared to peers. Based on booking.com data, the highest prices in the international upscale segment in Tbilisi are commanded by Radisson Blu Iveria and Biltmore, averaging GEL 637 to GEL 775 over July and August.

Georgia was ranked 70th  out of 136 countries in the Travel & Tourism Competitiveness Index (TTCI) 2017, published biennially by the World Economic Forum (WEF). In the previous edition, Georgia ranked 71rd among 143 countries. The TTCI assesses four key areas: Enabling Environment, T&T Policy and Enabling Conditions, Infrastructure, and Natural and Cultural Resources.

The number of international arrivals was up 28.5% y/y to 0.67mn in June 2017. Out of the top four source markets, there was strong growth from Armenia (+28.8% y/y), Azerbaijan (+16.6% y/y), and Russia (+45.0% y/y). The downward trend persists in the number of arrivals from Turkey (-6.4% y/y), but the decline was a modest one, compared to the previous three months. Arrivals from the EU were up 27.0% y/y to nearly 35,000 visitors. 

The tourist category continues to drive arrival growth in June 2017. The number of overnight visitors (‘tourist’ category) was up 43.0% y/y – the largest y/y growth on record – and accounted for 49.3% of international arrivals. Same-day arrivals were roughly flat, while transit visitors posted an outsized 42.9% y/y growth rate. The number of tourist arrivals is up 29.1% y/y to 1.31mn in 1H17, while the number of same-day visitors is down 2.7% y/y and the number of transit visitors is up 17.1% y/y.


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Georgia's Energy Sector - Electricity Market Watch | May 2017

6 July, 2017

The government announced plans for a public offering of the Qartli Wind Farm on the Georgian Stock Exchange. The 20.7MW WPP in Gori has generated 38.6 GWh in 2017 and annual generation is forecasted at 88.0 GWh. There is a 10-year PPA in place with ESCO for a guaranteed USc 6.89/kWh. Georgian Energy Development Fund (GEDF) and Georgian Oil and Gas Corporation (GOGC) are the current shareholders of Qartli Wind Farm Ltd. EBRD provided a 10-year US$ 22.0mn loan for the project. The EBRD transaction was named the best renewable energy transaction of 2016 by EMEA Finance. Details of the public offering will be announced in the coming months.

Adjaristsqali Georgia LLC has completed the construction of the 187MW Shuakhevi HPP. The expected annual generation of 450.0 GWh will contribute positively to Georgia’s electricity trade balance and increase energy independence and security of supply. This is the largest HPP constructed in Georgia in the last 50 years, boasting the world’s second longest hydropower tunnel (37.5km). Total investment amounted to US$ 420.0mn, with 40.5% in equity financing by Norway’s Clean Energy Invest AS, India’s Tata Power, and IFC Infraventures. The remaining 59.5% (US$ 250.0mn) was financed by loans from EBRD, ADB, and IFC. Company’s social responsibility program encompasses more than 70 social projects, including education in energy and construction sectors and infrastructure and local business development.

Inter Rao has filed a dispute against GoG in the international court of arbitration. Inter Rao owns 75% of JSC Telasi and 100% of Khrami 1 and Khrami 2 HPPs through two separate subsidiary companies based in the Netherlands. There is a Bilateral Investment Treaty in place between Georgia and the Netherlands, which protects the interests of foreign investors. Inter Rao claims that exchange rate fluctuation, which negatively affected its revenues, was not taken into account by GNERC in its 2016 tariff calculation. Generally, the tariff methodology in Georgia does not factor in losses due to exchange rate movements. Before filing the dispute, Inter Rao submitted a list of claims to the Georgian government, but the parties were unable to reach an agreement. According to preliminary information, the investor is suing for US$ 125.0mn in damages.

Domestic consumption increased 1.3% y/y in May 2017. Consumption of distribution companies increased 6.0% y/y in May: consumption was up 6.8% y/y by Telasi, 5.5% y/y by Energo-Pro, and 6.2% y/y by Kakheti Energy Distribution. The Abkhazian region’s electricity usage was up 7.7% y/y and accounted for 12.5% of domestic consumption. The low overall growth in domestic consumption (1.3% y/y) was largely the result of a 26.6% y/y decrease in direct consumption (-4.1ppts. in total domestic consumption growth), with Georgian Manganese usage down 30.1% y/y. Georgian Manganese’s production dropped in May 2017 after the government’s appointment of a special administrator at the company.

Electricity exports increased 5.4% y/y in May 2017. The top export destination was Turkey (42.1% of total), posting a 38.1% y/y increase, albeit from the low base in 2016 (-29.7% y/y). The top exporters to Turkey were Georgian Urban Energy (69.8% of total), owner of the 89MW Paravani HPP, and Adjar Energy 2007 (22.5% of total), owner of the newly commissioned 47.5MW Khelvachauri HPP. Electricity exports to Russia decreased 22.6% y/y and accounted for 31.6% of exports, while exports to Armenia posted a 14.1% y/y increase and accounted for 25.8% of total. Azerbaijan accounted for the rest (0.5%). ESCO was the sole exporter to Russia and Azerbaijan, while export to Armenia was split between GIEC (51.0%) and ESCO (49.0%), which exported electricity in exchange for the electricity imported during Feb-Apr from Armenia. 

Electricity demand was satisfied largely by hydro generation, with 99.1% in the supply mix. The new wind power plant accounted for 0.7% of total electricity supply, while imports and TPPs together comprised only 0.2%. 19.0% of domestic generation was exported. Total hydro generation was up only 1.3% y/y. Deregulated HPPs posted a 38.7% y/y increase in generation, with 29.5ppts due to the addition of new large HPPs – Dariali HPP (108.0MW) and Khelvachauri HPP (47.5 MW) – and the remaining 9.2ppts attributed to good hydrological conditions in May 2017. However, generation was down 1.7% y/y by Enguri/Vardnili and 10.0% y/y by other regulated HPPs due to the low water levels in reservoirs resulting from bad hydrological conditions in the winter (Oct-16 to Apr-17). The guaranteed capacity fee was up 12.9% y/y to USc 0.64/kWh, with guaranteed capacity provided by most of the sources for the entire month. Block 3, which was under maintenance for the month, was the exception. 

Wholesale market prices in Georgia decreased 16.8% y/y to USc 3.9/kWh. Only 7.2% of total electricity supplied to the grid in May 2017 was traded through the market operator, with the rest traded through bilateral contracts. The average price of electricity exported from Georgia was USc 3.4/kWh (+2.0% y/y), 22.7% below the Turkish market clearing price. The average monthly market clearing price in Turkey was USc 4.4/kWh (+4.4% y/y), 12.5% above the Georgian wholesale market price in May 2017.


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