Georgian National Energy and Water Supply Regulatory Commission

1. Georgian National Energy and Water Supply Regulatory Commission Natural gas sector Dimitri Namgaladze Department of Natural Gas 27 June -3 July, 2008

2. Regulation of the natural gas sector • Regulation of the natural gas sector in Georgia started in summer of 1999, when a change was made to the Law of Georgia on Electroenergetics. During the same period, the Department of Natural Gas was established within the Commission. • As of today, 1 transportation and 66 licensees are operating in Georgia. • Previously, there were also natural gas supply licensees, but at the end of 2005, after entry of changes and amendments to the Law – they were invalidated, i.e. this domain was deregulated. • Tariff on supply of the natural gas was deregulated correspondingly.

3. Licensing process • A licensee presents to the Commission the following documentation specified by Law, and in particular: • 1. Application; • 2. Charter of an organization; • 3. Record from the Register of entrepreneurs; • 4. Record from the Public Register and cadastral plan; • 6. A letter from Technical Gas Inspection on the state of the network; • 7. Technical conditions of connection to the network; • 8. Audit report on property evaluation; • 9. A Certificate on qualification of the support staff (certificate of training centers). • After examination of documentation submitted to the natural gas, tariffs and price formation departments, the case is considered at the Commission session at which decisions are made.

4. By 2007 the transportation system of Georgia has transmitted 3738 million m³of natural gas, including transit.Armenia was supplied 2054 million m³, Georgia - 1684 million m³ - Natural gas supply in Georgia; - Natural gas supply in Armenia; - Natural gas losses.

5. After launching of the South Caucasian Ppipeline (SCP), Georgia is supplied optional (5% of the transit volume) and additional gas (200500 million m3, by years). Transit of gas to Turkey was 2 billion m3 the first year of operation (in 2007), and in 4 years it is expected to reach 6,6 billion m3. Hence, in 2007, Georgia received 250 million m3. In the years to come, the situation is expected to be as follows: Optional gas means a transit fee paid to Georgia in the amount of US 2,5 dollars per 1000 m3 transmitted gas, which is approximately 5% of the transmitted volume. Georgia may either receive this sum in full, or receive part of it and another part in the form of natural gas (US 50 dollars per each 1000 cubic meters). All the referred sums are increased monthly by 2%. Thus, the price of gas is practically not dependent on the global prices for gas.

6. Quantity of the natural gas, million m3 2000 2001 2002 2003 2004 2005 2006 2007 years According to the volume of natural gas supplied to Georgia in 2000-2007, the situation is as follows:

10. Natural gas is imported to Georgia through gas-main pipeline (system of transportation) having the following technical specification: Designed productivity: 20 billion m3 per year Actual quantity of the transported gas per year Max – 6.9 billion m3 in 1992 Min – 1.9 billion m3 in 2002 Designed working pressure: 5.5 mpa Total length: 1832.18 km. Line part: 1452.6 km. Branches: 366.71 km. Connections: 12.87 km.

11. The highest mark of the pipeline – 2400 m; Max. variation between altitudes – 2400 m; The pipelines cross more than 2000 artificial and natural obstacles, 118 large and medium size rivers; 6.013 km of the pipeline passes through specially constructed 12 tunnels; Active el.chemical protection of the gas pipeline was provided by means of 200 cathodic and 40 el.drainage systems, 3500 protectors; From 1991-1992, they are no longer operating; Out of 1940 km of the pipelines, 19% have been operating for more than 30 years; 76% - for up to 10-30 years; 5% - for less than 10 years; Age of the gas pipelines, complexity of relief and climatic conditions account for special requirements towards their operation.

12. General specifications of gas-main pipelines

13. Infrastructure: • Gas distribution stations • Georgian Gas Transportation Company operates 133 gas distribution stations of which 78 stations are on the balance of the Georgian International Gas Corporation. • Measuring units of the gas distribution stations are brought into compliance with the contemporary standards.

14. Measuring units • Volume of the transported gas is measured by means of 7 measuring units. • A measuring unit of Tsiteli Khidi has a commercial status. • A commercial measuring unit is on the Russian side of the Georgian-Russian border, and a control unit is on the Georgian side. • As of today, actual loading of the gas-main pipelines is 18 %. Natural gas suppliers are: ”Gazpromeqsport”, Itera company, German company ”ЗМБГмбХ”, industrial amelgamation of Azerbaijan ”Azerigazniegl”.

15. “KazTransGaz-Tbilisi” Ltd. • “KazTransGaz-Tbilisi” Ltd., which has purchased movable and immovable property of jsc “Tbilgaz”, in 2006 was issued a gas distribution license from GNERC and started to supply gas to its customers in Tbilisi city. 2007 technical data of “KazTransGaz-Tbilisi” Ltd. • Total length of pipelines 2420 km • High pressure gas pipelines - 232 km • Medium pressure gas pipelines - 811 km • Low pressure gas pipelines - 1377 km • 643 gas regulating ponts and case installations • Number of subscribers – 307638 • 301511 - apartments • 6039 – industrial and communal consumers • 88 – Other consumers (Embassy and etc.) • Yearly consumption - 454,8 million m3 • Loss - 35,6%

16. Gas supply system of Tbilisi city requires capital repair, as gas pipelines and their infrastructure are in emergency state. A number of subscribers are installed obsolete, unfit and non-standard gas-meters, which need to be replaced. • Investor – jsc “yaztrangazma” paid US 12 million dollars for the purchase and restoration of gas supply systems of Tbilisi city and intends to invest another US 79 million dollars into further restoration of gas supply systems.

17. Quality of gas • The Commission is regularly submitted Certificates of Compliance for gas from Georgian Oil and Gas Corporation and Kaztransgaz-Tbilisi laboratories. None of the other licensees has a gas quality examination laboratory. • Certificates of compliance of gas imported over the years show that the quality of gas imported into Georgia satisfy standards.

18. Administration of disputes and complaints (The Commission considers disputes between licensees and between licensees and consumers. Often it has to stand out as mediator in these disputes). The procedure of administration of disputes and complaints is as follows: • A submitted complaint is delivered to the other party. • After a response is received, the case is considered at a working meeting with participation of both parties. • If necessary, on-the-spot investigations are carried out; • In case of arriving at a consensus, a dispute is considered to be settled. • If the parties fail to arrive at a consensus, the case is considered at the session of the Commission, which takes a decision obligatory to both parties. • Both parties have a right to appeal against the decision taken by the Commission in court.

19. Revision of observance of the conditions of licenses • In accordance with the Law of Georgia on Electric Power and Natural Gas, regulation of the natural gas licensees includes carrying out of their permanent monitoring. • Every year, the licensees have to present to the Commission yearly reports, both technical and financial. On the basis of these reports, the Commission makes certain recommendations. • In disputable and questionable cases, on the spot revisions are carried out.

20. Prospects of development of the natural gas sector of Georgia: • New technological facilities; • Replacement of steel pipes by polyethylene pipes; • Increasing safety of operation; • Measuring of natural gas and improvement of the system of settlements with subscribers; • Expanding monitoring of licensees by the Commission.

21. There are following problems with licensing and licensees: • Collection of the sum of tariffs from subscribers and illegal use of natural gas; • There is high incidence of violation by the licensees of the Rules of Consumption of Natural Gas established by the Commission, and in particularly with contracted subscribers; • Applicants for licenses experience difficulties with obtaining of cadastral plans from the Public Register as it is related to certian payment; • Sometimes licensees delay, or fail to present information requested by the Commission; • Problem of minor licensees.

22. Thank you for attention