Regional Logistics Corridor. Georgian National Investment Agency (GNIA)

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1 Regional Logistics Corridor Georgian National Investment Agency (GNIA) 2012

Regional Logistics Corridor Trans-Caucasian route Latent gateway between Europe and

Infrastructure Rapidly developing road infrastructure Ports are cost-competitive vs.

transport infrastructure Opportunities Deep-sea port with PanaMax vessel

2 Regional Logistics Corridor Trans-Caucasian route Latent gateway between Europe and Central Asia Around 80% of port cargo and 60% of freight rail are transits Transport Infrastructure Rapidly developing road infrastructure Ports are cost-competitive vs. alternative routes FDI inflows in the logistics sector have primarily targeted transport infrastructure Opportunities Deep-sea port with PanaMax vessel Baku-Tbilisi-Kars railway direct connection between EU and Central Asia Logistical centers 2

Georgia s transport infrastructure Mode of transport Existing infrastructure and flows Upgrades Road/Rail Rail 1,500 km (90% electrified) ~7,000 rolling stock, 180 locos Road 1,500 km international

8-10m draft Container and bulk (210k TEU) Owned/operated by Maersk/RAKIA Batumi seaport 5 berths, 1 offshore mooring, 11m draft 90% petroleum/oil, 10% containers (44k TEU) Operated by JSC

destinations Batumi international airport 100,000 passengers Poti seaport New container berth (2014) Deep-sea port Min.

3 Georgia s transport infrastructure Mode of transport Existing infrastructure and flows Upgrades Road/Rail Rail 1,500 km (90% electrified) ~7,000 rolling stock, 180 locos Road 1,500 km international highway + 20,000 km internal and local roads Rail BTK connection to Turkey Modernization Tbilisi bypass ~2500 new rolling stock Road East-West highway upgrade Maritime Air Poti seaport 13 berths, 8-10m draft Container and bulk (210k TEU) Owned/operated by Maersk/RAKIA Batumi seaport 5 berths, 1 offshore mooring, 11m draft 90% petroleum/oil, 10% containers (44k TEU) Operated by JSC KazTransOil Kuhlevi seaport Crude oil, petroleum, and lubricants Owned/operated by State Oil Company Azerbaijan Tbilisi international airport ~1 mn passengers (capacity: 3 mn) Serving 28 destinations Batumi international airport 100,000 passengers Poti seaport New container berth (2014) Deep-sea port Min. 2 berth of 20m draft (PanaMax) First phase: Dry bulk (10m tons) and containers (200k TEU) USD 200 mn investment volume Kutaisi international airport Passenger, incl. low-cost airlines Currently under construction Potiinternational airport Cargo airport, not yet commissioned 3

Overview of Georgia's logistics sector Value generation through transit service provision Logistics accounts for around 7% of GDP and ~ 3% of employment, contributing to 19% of all exports and 9% of

Leveraging its location, Georgia s transport economy can benefit from large addressable transit flows, growing economies and landlocked resources Georgia is already largely transshipment oriented,

4 Overview of Georgia's logistics sector Value generation through transit service provision Logistics accounts for around 7% of GDP and ~ 3% of employment, contributing to 19% of all exports and 9% of all imports Georgia is in a highly strategic location for transshipment Strategic location: It serves as an entry gate to the Caucasus and Central Asia as well as a stepping stone to the region Leveraging its location, Georgia s transport economy can benefit from large addressable transit flows, growing economies and landlocked resources Georgia is already largely transshipment oriented, with transshipment values amounting to ~3x its GDP There is latent demand for transport infrastructure in Georgia Upgrading infra-structure offers huge economic and geo-strategic potential Latent demand for transport infrastructure The current capacity compared to potential flows on the East-West corridor present a latent opportunity to Georgia as a transshipment economy However, current infrastructure not sufficient Strategic location and latent demand for infrastructure offer potentially huge economic opportunity/ geostrategic stake for Georgia (direct GDP impact, economic integration, connection of the economy) 4

Georgia is in a highly strategic location: It serves as an entry gate to the Caucasus and Central Asia as well as a stepping stone to the region Ukraine Moldova Kazakhstan 4 Georgia Caucasus mn 1 4.

5 Georgia is in a highly strategic location: It serves as an entry gate to the Caucasus and Central Asia as well as a stepping stone to the region Ukraine Moldova Kazakhstan 4 Georgia Caucasus mn GDP USD bn Turkey Georgia 2 1 Armenia Azerbaijan Turkmenistan Uzbekistan Land locked countries Stepping stone 1 Russia South Cyprus Syria Iraq Iran 2 Turkey Iran EU ,330 1 Population and GDP, numbers cumulative (apart from stepping stone countries) 2 Includes Russia s Southern Federal District and North Caucasian Federal District 5

6 Georgia serves as the entry gate to a landlocked region boosting significant resource reserves Oil 3% USD 100 bn Gas 14% USD 9 bn Coal 5% USD 28 bn For comparison: region represents only ~1.6% of global population Iron ore 2% USD 4 bn Zinc 5% USD 1 bn Copper 3% USD 3 bn Other (bauxite, gold, nickel, PGMs) 6

Georgia can utilize its location to address several flows on the major European-Central Asian trading routes Caucasus Europe 1 /RoW 2 ~44 mn tons p.a. 1 North-South corridor Russia-Turkey ~35 mn tons p.

7 Georgia can utilize its location to address several flows on the major European-Central Asian trading routes Caucasus Europe 1 /RoW 2 ~44 mn tons p.a. 1 North-South corridor Russia-Turkey ~35 mn tons p.a. Central Asia Europe 1 /RoW 2 ~79 mn tons p.a Western China 3 Europe ~3 mn tons p.a. Total trade on all 3 routes Total trade volume (mn tons) 4 1 Including Eastern Europe, Balkans and Turkey 2 Excluding Central Asia, Asia and Middle East 3 Estimated using total export volume by province 4 Covering trade flows stated or convertible into tons only (excludes, e.g. electricity), equal to >80% of all flows in value ~126 ~100 Total trade value (bn USD) 7

8 In total, the addressable flows relevant for transit through Georgia amount to ~126 million tons Million tons, 2010 Origin Destination Caucasus Central Asia Europe Western China Addressable flows RoW Other flows Total addressable Caucasus Central Asia Europe 3 2 N/A 2 N/A 7 Western China N/A 4 1 RoW 4 4 N/A 22 N/A 8 Total addressable

9 Liquid bulk Most relevant addressable flows are between Caucasus and Europe and Central Asia and Europe Million tons, 2010 Origin Destination Caucasus Central Asia Europe Addressable flows Western China RoW Other flows Total addressable Caucasus Central Asia Liquid bulk Europe 1 1 N/A 0 N/A 2 Western China N/A 0 0 RoW 1 1 N/A 8 N/A 2 Total addressable

10 Dry bulk Most relevant addressable flows are between Central Asia and Europe/RoW Million tons, 2010 Origin Destination Caucasus Central Asia Europe Addressable flows Western China RoW Other flows Total addressable Caucasus Central Asia Dry bulk Europe 1 1 N/A 1 N/A 3 Western China N/A 1 1 RoW 2 1 N/A 12 N/A 3 Total addressable

11 Container Most relevant addressable flows are between Central Asia and Europe/RoW Million tons, 2010 Origin Destination Caucasus Central Asia Europe Addressable flows Western China RoW Other flows Total addressable Caucasus Central Asia Container Europe N/A 0.8 N/A 3.2 Western China N/A RoW N/A 1.6 N/A 3.0 Total addressable

12 Answering this demand, Georgia s existing transport economy is already transshipment based rail and ports have transshipment ratios of >70% Mode of transport Transport volume by purpose Million tons Transit Import Export Transshipment ratio and commodity flows Percent Road % Containers Individual trade flows, such as manufactured goods, food Rail % Oil (KZ) and oil products Grain (Central Asia) Metals and minerals (Central Asia) Containers Ports % Oil and oil products from KZ and AZ (Batumi, Kuhlevi, Supsa) Containers (Poti) Dry bulk (Poti) 12

13 Nevertheless, the market share of Georgia in addressable flows is still quite low particularly in Central Asia mn tons, 2010/11 Georgia & Caucasus Transcaspian Market share 99,3 53% 53,0 Liquid bulk Addressable flows Transit Georgia Dry bulk 80% 4,5 3,6 12,3 21% 2,6 82% 7% Containers 2,8 2,3 5,7 0,4 1 No growth assumption Addressable flows 1 Transit Georgia Addressable flows 1 Transit Georgia 13

This translates into a latent demand for transit and logistics infrastructure in Georgia, particularly in dry bulk and containers Capacity Current load mn tons Liquid bulk Dry bulk Containers

14 This translates into a latent demand for transit and logistics infrastructure in Georgia, particularly in dry bulk and containers Capacity Current load mn tons Liquid bulk Dry bulk Containers Addressable transshipment flows 1 Focus destination Sufficient capacity 99 ~ Available infrastructure by mode of transportation Port (for intermodal and RoRo) + [ OR ] Overseas Pipeline Pipeline to terminal Pure pipeline Overseas/ Regional RoRo ferry + ~2 [ ] + OR 1 Only includes Black sea RoRo Regional Pure rail 3,4 Pure road 3 Suffi-cient capacity Rail intermodal & RoRo Additional capacity on Kars-link to Turkey ~ 15 Pure rail ~ 2 Regional Road intermodal & RoRo TBD Pure road Regional ~ 2 ~ 2 Latent need for infra-structure Ports as capacity and economic bottlenecks Additional rail/road capacity may be needed Loading/ off-loading capacity has to be extended (e.g., termi nals) 1 Caucasus Europe/Row; Central Asia Europe/Row; Western China Europe 2 Projections based on current growth trajectory 3 Transshipment only, not including /imports/exports 4 Rolling stock not included (might be additional bottleneck 5 Full capacity after finalization of railway modernization project 14

The opportunity space Georgia needs to build a deep-sea gateway to its economy and to organize trade flows of its natural hinterlands Geographic scope Deep sea-gate for Georgia Caucasus Transcaspian

15 The opportunity space Georgia needs to build a deep-sea gateway to its economy and to organize trade flows of its natural hinterlands Geographic scope Deep sea-gate for Georgia Caucasus Transcaspian Flow types Liquid bulk Sufficient pipelines and train capacity available Container I Deep-sea port II Container network Extension Dry bulk III Organizing dry bulk flows Extension RoRo IV Organizing RoRo flows Extension Flagship projects 15

The vision for the logistics corridor needs to be backed by sizing the aspiration for additional flows Infrastru c-ture vision Sizing the aspiration 1 Additional flows in mn tons Geographic scope

io assumptions Deep sea-gate for Georgia I Deep-sea port Capacity of deep-sea port 10 mn t dry bulk p.a. and 200k TEU p.a. 10 t/teu on average 80% utilization Increase Georgia s trade II III IV

16 The vision for the logistics corridor needs to be backed by sizing the aspiration for additional flows Infrastru c-ture vision Sizing the aspiration 1 Additional flows in mn tons Geographic scope Scenario assumptions Deep sea-gate for Georgia I Deep-sea port Capacity of deep-sea port 10 mn t dry bulk p.a. and 200k TEU p.a. 10 t/teu on average 80% utilization Increase Georgia s trade II III IV Caucasus Container network Dry bulk corridor RoRo corridor Increase market share 1 90% container (current: 82%) 90% dry bulk (current: 80%) Increase container/dry bulk flow by 50%/30% 1 Transcaspian Increase market share 1 60% container (current: 7%) 50% dry bulk (current: 21%) Increase container/dry bulk flow by 50%/30% 1 Dry bulk +8.0 mt +1.6 mt +5.4 mt Container +1.6 mt +1.5 mt +4.8 mt RoRo Included in above volumes 16

Aspiration needs to be translated into concrete flows to justify deep-sea port and transport corridor infrastructure investments I Deep-sea port II

interest for Panamax/ capesize vessel traffic Container: additional containeriza-tion of goods on relevant routs Dry bulk: large flows to justify

actual market demand for Increased capacity Improved port economics Involve owners of commodity flows (container, bulk) in superstructure investment

17 Aspiration needs to be translated into concrete flows to justify deep-sea port and transport corridor infrastructure investments I Deep-sea port II III IV Transportation corridors Precondition/ aspiration for flows Large dry bulk and/or container flows that exceed current port capacity Sufficient interest for Panamax/ capesize vessel traffic Container: additional containeriza-tion of goods on relevant routs Dry bulk: large flows to justify infrastructure investments RoRo: Capacity limits on current network Potential ways to secure required flows Involve current port owners to evaluate actual market demand for Increased capacity Improved port economics Involve owners of commodity flows (container, bulk) in superstructure investment to secure baseload flows Involve owners of commodity flows (container, bulk) in infrastructure investments to secure baseload flows

The infrastructure vision A deep-sea port opens up a gate for Georgia s and the corridor s trade flows The vision a deep-sea port 1 Required infrastructure Required Deep sea infrastructure port Min.

18 The infrastructure vision A deep-sea port opens up a gate for Georgia s and the corridor s trade flows The vision a deep-sea port 1 Required infrastructure Required Deep sea infrastructure port Min. 2 berths for PanaMax size 20 m depths 2 Handling capacity/equipment Dry bulk terminals, storage, and handling equipment for 10 million tons Container terminals, storage, and handling equipment for 200k TEU Railway connection (only ~17 km to main railway line) Adds capacity to existing ports Changes port economics Potential extension by a liquid terminal 3 USD mn 1 New location (earmarked) or alternatively extension of existing port 2 Can also serve Capesize 3 Not included in investment size estimation 18

Million tons Current port capacity Deep-sea port will add significant capacity to current ports New deep-sea port Poti 4.5 5.6 2.

19 Million tons Current port capacity Deep-sea port will add significant capacity to current ports New deep-sea port Poti m Depth Container Dry bulk Liquid bulk Ownership Depth Container Dry bulk Liquid bulk Ownership Kulevi oil terminal 4.0 Supsa oil terminal 6.3 Batumi m Deep-sea port 2.0 ( 200 k TEU) m? Main advantages Economics (able to accept larger vessels) Strategic location Geology (20 m depths very close to shore) ~27 ~2 ~10 52 ~5 ~8 Container Dry bulk Existing capacity Liquid bulk Container Dry bulk Deep-sea port Total capacity 19

20 and can change the economics of transportation, reducing the cost of trade and benefiting the economy of Georgia Deep-sea port reduces cost of trade Imports Total cost of marine shipment USD mn % Current With deepsea port 1 ILLUSTRATIVE Benefits to Georgia s economy Increase purchasing power by decreasing prices of everyday consumer goods Stimulate investment by decreasing cost of investment goods Improve balance of payments and decrease FX outflows Exports Total cost of marine shipment USD mn % Current With deepsea port 1 ILLUSTRATIVE Increase competitiveness of Georgian exporters Improve balance of payments and decrease FX outflows 1 Assumptions: Total imports through ports 3.0 mn tons; total exports through ports 1.6 mn tons (current volumes); 70% bulk/30% containers; average travel distance 2000 miles; current port capacity for Handymax ships, deep-sea port for Capesize 20

The infrastructure vision Organizing container flows requires the buildup of a network of terminals The vision a terminal network + extension

to handle ~1 mn TEU including Terminal land and construction Railway connections and shunting yards Motorways connections Rail rolling stock

21 The infrastructure vision Organizing container flows requires the buildup of a network of terminals The vision a terminal network + extension throughout corridor Required infrastructure for terminals Sea ports & port operations Existing (see I) Network of 3-5 container terminal platforms to handle ~1 mn TEU including Terminal land and construction Railway connections and shunting yards Motorways connections Rail rolling stock upgrade Extension of network into other countries of the corridor 1 USD 500-1,000 mn 1 Not included in investment size estimation 21

22 Organizing the container corridor could provide additional opportunities for investors to engage Container transport flow Inter-national shipping Port Rail Inland terminals Road transit Warehousing Distribution Organize reverse flows or containers redistribution Shipment company/ freight forwarder Infrastructure operators Logistic service providers Opportunity for investors to engage into corridor development & coordination 22

23 GEORGIAN NATIONAL INVESTMENT AGENCY 8, Rustaveli avenue, 0118 Tbilisi, Georgia Tel: ( ) enquiry@investingeorgia.org

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