Gas And Electricity Tariffs’ Murky Journal
29 November, 2012
Gas And Electricity Tariffs’ Murky Journal
Consumer tariffs on gas and electricity may shrink at around 25% after governmental negotiations with energy companies will be completed. Government expects electricity tariffs to be cut down before New Year by roughly 25% but makes no promises on account of the gas tariff until the in-depth research of the issue is over. The sector pundits recommend finding clues for tariff drop in the contracts and adoption of proper market economy principles.
Consumer tariffs on gas and electricity cannot be
halved, as new government has been promising during its pre-election campaign, but a certain drop seems possible.
“We may reduce tariffs but it is impossible to halve them at the moment,” Bidzina Ivanishvili, Prime Minister of Georgia, reported to Georgian media on October 22, 2012 at press-conference. Shortly after that Ilia Eloshvili, Deputy Energy Minister of Georgia, who is put in charge with the special commission set up at energy ministry to puzzle out the calculation ups and downs of cumulative [consumer] gas and electricity tariffs in Georgia, informed electricity step - tariffs fluctuating from approximately 13 to 17 tetri per kilowatt\hour (k\h) had a potential reserve to shrink by maximum 4 tetri [that translates into 22-30% drop] on expense of reducing share of distribution companies in the overall tariff rate.
However the exact drop figure will be clear after negotiation and meeting with representatives of Inter Rao, a Russian-based energy company and owner of Tbilisi electricity distribution company Telasi, scheduled on November 29 in Tbilisi. Government also negotiates Energo-Pro, a Czech-based energy distributor company of Georgia covering regions.
Of tentative drop figure in gas tariffs Eloshvili is less certain. He thinks reduction reserves lay in “trunk pipelines” rather than in gas distribution companies although deputy minister refrains to make any projection how much and when gas tariffs may be reduced.
“The issue still requires more in-depth research,” Eloshvili said in his TV comments adding that the tariff issue turned out much more complicated than he, not an outsider in the sector, had expected and affiliated the problem to “closed information” in energy sector.
Rezo Arveladze, President of Academy of Energy, believes the clue to the tariff puzzle lies in contracts of Georgian state with energy companies both distributors and suppliers. These contracts have been closed for public eye since their signature date up to this moment. Non-transparency laid ground to permanent speculations and discontent of society as based on the available information of contract-terms and market economy principles experts assured that tariffs were inflated but nobody could check how fairly Georgian National Energy Regulatory Commission (GNERC) had been calculating the cumulative/consumer tariff as nobody but ex-power had an access to contract-terms with energy supplying and distribution companies operating in Georgia. The contract terms include basic information how the share of energy companies can be defined in the consumer tariffs. Ex-power argued that contracts with energy companies were commercial secrets and might not be disclosed.
The sector pundits countered that no contract drawn on behalf of the state can be a secret but to no avail. As an aftermath, energy experts assured tariffs were artificially inflated and ex-government disagreed.
Arveladze for example believes the currently active electricity and gas tariffs include reserves to shrink within 2-3 tetri and 6-10 tetri respectively if contract-terms and economic principles will be applied correctly.
He strongly believes that first and foremost the step-tariff that falls out of all economic principles must be canceled and a united consumer tariff introduced instead.
“The idea of step-tariff is that the more you consume the more you pay while the basic market economy principle is that the more you buy the more profit to give to a company and the bigger discounts you enjoy. The step-tariffs here fall out all economic reasons and affects business in fact as you try to consume less,” Arveladze said in the interview with Georgian Journal.
Another violation of economic principles was that former government allowed Inter Rao to build in the consumer tariffs 2-3 tetri as pay-back of the investments before they were implemented: Telasi owner assumed obligation to construct energy generating stations in Georgia with total 100 megawatt of capacity [tentatively requiring USD 150 million of investments] until 2015 and asked to raise its share in the consumer tariff by 2-3 tetri to this end. As a matter of fact it made zero and Georgian government now with quiet conscious can declare this contract term as well as this 2-3 tetri redundant tariff-share void.
“2013 is already on the threshold and Tela si has not even started constructions [bound to be through by 2015] that require at least 7 years to be through. Due to the redundant share in the tariff Georgian consumer paid roughly GEL 700 million extra money to Telasi ultimately. Energo-Pro also falls behind investment timetables and obligations. So Georgian government can easily denounce the memorandums with the said companies unfulfilled and cut tariffs down, I cannot understand why they should negotiate this with them as they do now,” Arveladze wonders. “
Non-transparency entangles the gas tariffs too. Based on the state-to-state contract that is held above all laws except constitution Georgia is believed to take free gas for transiting Azeri and Russian gas to Turkey [in frames of Baku-Tbilisi-Erzerum (BTE) project] and Armenia respectively: 5% from BTE [around 200-300 million cubic meters (cm)] and 10% [varying between 150-200 million cm] from Russian gas transit. Moreover, the BTE project makes 500 million cm available at special discounts [averaging to USD 60-62 per thousand cubic meter (tcm) at the moment] to Georgia. Another 500 million cm Georgia buys from Azerbaijani national energy company SOCAR at preferential tariff of USD 189 per tcm. Overall Georgian gas consumption varies between 1.4-1.8 billion cm of gas, and based on the statistics above approximately 1.3-1.5 billion cm is made by free and cheaper gas. The remainder part is a commercially priced gas costing USD 240 per tcm to businesses.
The free and preferential gas supply statistics makes Arveladze presume that consumer tariff may average to 44 tetri instead of the currently active 51 tetri per tcm [including tariff shares on gas delivery from Georgian border to distribution companies as well as distribution itself]. However, former energy minister Aleksandre Khetaguri assures that there is no free gas to Georgia in fact as it pays USD 110 and USD 55 per tcm for gas left in Georgia from Russian and BTE gas transit.
“Nonsense,” Arveladze says. “Fee for transit means that the transit-country either takes money or certain portion of gas/oil that passes through this country, this is the best world practice and the essence of transit fee. If we have other terms in the contracts our government should make them public.”
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