Reduced Electricity Tariffs Look Discriminating and Risky
17 January, 2013
Reduced Electricity Tariffs Look Discriminating and Risky
Consumer tariffs on electricity dropped but remained discriminating. On the other hand, the uncertain amendments to be made in contracts of electricity distribution companies pose electricity deficit and security risks.
Consumer tariffs on electricity dropped by 3.5 tetri to those who consume less than 300 kilowatt per month starting January on 1, 2013 and are supposed to slip down even further after three-months probation period will pass and negotiations on new terms of contracts with Inter-Rao, the Russian-based energy company
that owns 75% of Telasi - electricity distribution network of Georgian capital, and the Czech-based Energo-Pro Georgia that runs the electricity distribution networks in Georgian regions, will be through.
As a matter of fact new government of Georgia more-less started implementation of its pre-election promises to halve consumer energy tariffs [on gas and electricity] although implementation seems to be far more difficult and tricky than promising as the reality shows. The achieved electricity tariff reduction seems discriminating, not in line with market economy principles and burdensome to the state budget: as far as Kakheti Electricity Distribution company [supplying Kakheti region with electricity] is under bankruptcy regime government found apt to subsidize consumers in Kakheti by GEL 875 thousand for three months probation period rather than force company to cut down tariffs that might lead to catastrophic results at the moment, Georgian government said. However, tariffs in Kakheti will be equalized in line with the overall tariff reduction eventually.
Energy sector analysts find Georgian government’s tariff policy far from perfection and even risky to the country’s electricity security in a long-run. Revaz Arveladze, President of the Energy Academy of Georgia, worries that the key defect of electricity tariff that is payment based on three step-tariffs was not streamlined as a result of negotiations with distribution companies. Three-step-tariffs fluctuating from 13.48 to 17.7 tetri per kilowatt/hour [k/h] in Tbilisi and 12.98 to 17.5 in regions were introduced in Georgia since 2006 based on which consumption less than 100 k/h was charged by 13.48 and 12.98, consumption from 101 to 300 k/h was charged by 16 and 16.52, and consumption above 300 k/h was charged by 17.7 and 17.5 in Tbilisi and regions respectively. The governmental explanation was that they were oriented on socially-vulnerable consumers on the one hand, and were motivating consumers to consume less to keep close to lower step-tariffs, Marika Valishvili, Deputy Energy Minister of Georgia, elaborated in the interview with Georgian Journal.
Energy sector pundits meantime have been criticizing this kind of allegedly socially-oriented tariffs as an economic nonsense and rather discriminating than protecting socially vulnerable people as far as many new buildings particularly in Tbilisi are based on electricity-supply only and willy-nilly consume electricity in big quantities for heating and cooking purposes unlike those who use gas on this purpose.
Moreover, the step-tariff distorts free market concept. The free market principle is that the more you consume the more preferences the producer/provider company offers as it enjoys more profit.
“While the idea of step-tariff is that the more you consume the more you pay that falls out all economic reasons and affects business in fact as you try to consume less,” Arveladze said.
Once the government had changed and started talks on energy tariffs energy pundits expected of new authority to negotiate cancelation of step-tariffs and adoption of the united tariff with distribution companies first of all. But these expectations fell flat and discrimination was added: electricity tariffs dropped by 3.5 tetri but only to those who consume less than 300 k/h per month. Justification is backed by social-care again: 90% of population consumes less than 300 k/h, energy officials explained and this will be a relief to bigger part of population.
“It never means that if a five-member family that consumes over 300 k/h per month is better-off than a single-member family who consumes 98 k/h for example. On the contrary, this five-member family who lives in a gas-free building can be really socially-vulnerable who stays at home all the time and needs more electricity as depends on it completely, while this single person can really be well-off and consumes less because has gas-supply or is mostly out at entertainment places like restaurants and theatres and does not consume much electricity,” Arveladze suggests and recommends dropping tariffs by 3 tetri to all the three step-consumers rather than 3.5 to just allegedly socially unprotected two-step-consumers once the notorious step-tariff remains in force.
“You cannot find this kind of social policy built in electricity tariffs globe over. Most countries have unified tariffs and countries that have problems with socially vulnerable people, these are mainly post-soviet countries, subsidize them instead of adoption step-tariffs. Let us subsidize them too and have equal tariffs,” Arveladze said.
Liana Jervalidze, an energy sector analyst, also thinks it would be better to flat the step-tariff rather than reduce electricity tariffs at all. She fears much higher price-hike may come on the way in a long-term prospect as a result of this much touted drop. The uncertain amendments to be made to the contract terms in exchange of the drop makes her worry to this end. The point is that this 3.5 tetri removed from the tariff starting this year was built in consumer tariff as the share of to-be-made investments Inter Rao was going to implement in construction of new energy generating stations in Georgia with total 100 megawatt of capacity [tentatively requiring USD 150 million of investments] until 2015. Inter-Rao fell behind contracted investment timelines and therefore Georgian side had full rights to remove this share in the tariff. But once this figure is removed Inter-Rao may say no to construct new energy generating units in Georgia. As a result, electricity supply of the capital and perhaps of the entire country may face deficit due to increased demand on electricity boosted by lower tariffs and increased economic activity, Jervalidze fears.
“Government had better to force Inter-Rao to keep its promise and construct new power plants that will increase our local generation source and decrease import-dependence of the country rather than force to cut tariffs down. If now Inter Rao repudiates to construct new generation units it means that it will be importing more electricity in a long run as far as we may face deficit in supply due to increased demand and since there will be no alternative local supply Russian company will be importing its electricity from Russia not for around 6 cent as we pay today but even for 15 cent that will reflect in the consumer tariff ultimately and be much higher than we paid before this tariff-drop,” Jervalidze said.
Georgian government is still negotiating amendments to be made to the contracts with energy distribution companies and cannot say for sure whether or not Inter-Rao will repudiate its former investment plans.
“What I can say now is that we are trying to keep this obligation on constructing new generating units however I cannot say anything for sure until negotiations are through [in three months],” Valishvili said.
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