Energy Tariffs’ Ostensible Reduction
14 March, 2013
Energy Tariffs’ Ostensible Reduction
Decrease of gas and electricity tariffs for household consumer by approximately 10% and 25% respectively, seems to be temporary relief, having more connection with pre-election promises rather than economic factors.
Consumer tariff on gas reduced by up to 10% or 5 tetri starting March 1, 2013 means Georgian household will pay 46 tetri per thousand cubic meters (tcm) of consumed gas instead of previously fixed 51 tetri. Kakhi Kaladze, energy minister of Georgia proudly declared it after the governmental meeting
that resolved tariff-reduction on March 1, added that the government was keeping all promises. The tariff drops on the expense of incomes of the state-owned Georgian Oil and Gas Corporation (GOGC) that makes bulk procurement of natural gas from Azeri national energy company SOCAR and sells the gas to distribution companies who deliver the gas to final consumer. GOGC owns all gas and oil trunk pipelines trespassing Georgia and commensurately takes entirely the free gas that remains in Georgia as a transit fee for gas flowing from Russia to Armenia through the North South trunk pipeline passing through Georgia as well as Baku-Tbilisi-Erzurum (BTE) pipeline transporting Azeri gas from Shah-Deniz fields to Europe via Georgia and Turkey. Now GOGC will sell the household-denoted gas by 5 tetri cheaper to distribution companies thus enabling to cut the consumer tariff by similar figure ultimately.
However, Georgian energy analysts believe this tariff-slump is a temporary rather than a long-term relief as lacks strong long-term economic ground and affects the state budget since GOGC income enters in the state purse. According to Revaz Arveladze, President of Georgian Energy Academy, tariffs on gas [and electricity too] very likely will start rising soon as economy develops and business will need more gas and electricity. Overall Georgian gas consumption varies between 1.3-1.8 billion cubic meters (cm) of gas, and approximately 1.2-1.5 billion cm is made by free and cheaper gas got through transit projects. 500 million cm Georgia buys from SOCAR at preferential tariff of USD 189 per tcm. Around 800 million is a commercially priced gas costing USD 240 per tcm to businesses. Georgia contracted 5% of free gas in frames of BTE project that makes 300 million cm when the said pipeline reaches its estimated cap capacity of 6 billion cm. However as this pipeline has not reached its maximum as of yet the average transit Georgia got from the BTE project was 120-180 million.
“The BTE is believed to reach its maximum capacity only by 2016 that means if Georgian economy develops and Georgian commercial gas consumption increases by 300 million cm we will have to buy more commercial gas for USD 240 per tcm that will affect consumer tariffs ultimately,” Arveladze said.
Unfortunately, Georgia does not enjoy so called “use-or-pay” term with Azerbaijan in BTE project, which means that the gas-provider country either has to transport the contracted maximum capacity of gas or pay equivalent sum to the transit country for the missing volume. This might secure 300 million cm of gas or its equal payment to Georgia yearly. It could be a significant relief. Turkey meantime enjoys this provision, based on which, Azerbaijan paid USD 90 million to Turkey in 2012 for the missing gas volumes. On the other hand, GOGC has to pay off its 5-year USD 250 million Eurobonds, allocated in spring of 2012 and if its income dwindles, the state will have to reimburse the loss either though subsidies from the pockets of the tax-payers money or through consumer gas tariff-hike again. In either case consumer seems to be a funding source. “Electricity tariffs are very sensitive topic and it is futile to use them in pre-election promises,” Arveladze recommended.

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