State Policies of Georgia in the Energy Sector: Tariffs on Electricity and Gas - საერთაშორისო გამჭვირვალობა - საქართველო

State Policies of Georgia in the Energy Sector: Tariffs on Electricity and Gas

11 January, 2010

Tariffs on electricity and natural gas in Georgia are the highest in the region and throughout the post-soviet area. One probable reason for this is that the country’s natural gas supply is completely imported. The situation in the area of electricity, however, is different: 70-75% of electricity is produced by hydroelectric power stations. During the work on this report it was not possible to determine whether the current tariffs in Georgia are accurately calculated or fair. However, while conducting research it became clear that the Georgian National Energy Regulatory Commission (GNERC), the entity responsible for establishing tariffs, is under substantial pressure from governmental circles. It also became clear that the government of Georgia is trying to control both the state (which is under its control anyway) and private segments of the energy sector. The role and authority of the GNERC is established by the Georgian Law on Electricity and Natural Gas (adopted in 1997), the Georgian Law on the Independent National Regulator (adopted on October 15, 2002), and the Resolution of the Parliament Concerning the Main Course of State Energy Policy of June 2006. In January 2006 amendments to the Law on Electricity and Natural Gas entered into force. These changes curtailed the authority of the GNERC and expanded the authority of the Ministry of Energy. Specifically, the Ministry of Energy was made responsible for determining the annual energy balance and establishing market rules, which had previously been the task of the GNERC. Furthermore, the government of Georgia directly interferes in the work of the GNERC to determine independently the tariffs on electricity and gas. In the agreement signed with Energo-Pro Georgia and the memorandum signed with Rao-Telasi, the government has taken the obligation to force the GNERC to make specific decisions about determining and indexing tariffs as well as about the use of common energy meters. Consequently, the current tariffs are not based on the GNERC’s cost-benefit analysis methodology but in accordance with the agreements between the government and private companies. These agreements were to ensure a continuous supply of electricity and gas by the energy companies in return for receiving high tariffs, which are not connected with their real expenses. If the government intends to either limit the authority of the GNERC or completely abolish it, it must be made clear who will assume the responsibility for ensuring the economic stability of the energy sector and protecting consumers from monopolistic prices, as GNERC currently performs the these two important functions.