GAS – Political prices the acts of political heroism on Georgia’s gas market

Nino Arveladze

Exclusive interview with the Minister of Energy of Georgia Mr. Alexander Khetaguri

During the whole year the energy market was carefully observed, (the fact, that Gazprom misuses the monopolistic rights is not secret any more). Russia’s and Iran’s plan creating natural gas cartel in Spring, Russia’s and Kazakhstan’s prime ministers negotiations on the creation of common energy market and on the subjects of gas exporting, price rises on Turkmen natural gas, gas scandal between Moscow and Minsk, Vilnius Summit, new projects, in short there was not a lack of news and scandals on energy market. In the beginning of the current year, the gas’s Russian monopolist Gazprom announced new market prices for the CIS (Commonwealth of Independent States) Countries; Georgia reacted on this announcement with the search of alternative energy resources.
Georgia had to buy 1000m3 of Gazprom’s natural gas with the price of $235. In the import of oil and natural gas Russia does not let the leadership to anyone. In the Summit of Vilnius Georgia’s President signed the project of Odessa-Brodi-Plotski-Poti gas pipeline that increases the geopolitical importance of Georgia, although Russia is trying badly to preserve the gas transportation system with any kind of means.
Georgia and also Azerbaijan do not hide their deep dissatisfaction towards Gazprom’s offered expensive gas. Georgian government claimed the Russia’s offered price as political, but Azerbaijan’s decision to sell 1000m3 of natural gas to Georgia with the price of $120 was claimed as the act of political heroism.
Gazprom’s prices for other countries in the end of 2006 were the following: Belarus- $110, the Ukraine- $130, Azerbaijan, Georgia-$230, Armenia managed to receive Gazprom’s gas with the price of $110. But still Russia’s decision on the price rise of natural gas to CIS countries remains unchanged. In the beginning of the 2007 the high officials of Georgian government claimed that they would manage to negotiate with Azerbaijan and Turkish side and the amount of the natural gas from the Caspian Sea Basin and Shah Deniz layer would increase.
Troubled with Russian monopoly Europe began to think about the alternative energy routes. Georgia is considered as the important country by the Eastern countries too. The Minister of Energy of Georgia Mr. Alexander Khetaguri is speaking about Georgia’s natural gas and electric energy markets.
– Mr. Alexander, please talk about the subjects of the gas diversification, which became vitally necessary for Georgia after Gazprom’s famous statement. How many suppliers of gas does Georgia have now?
– 2007 was the year of the great change for Georgia’s gas sector. In the beginning of 2007 took place the commercial diversification of the gas delivery, but technical diversification took place in the end of 2005. Technically was improved every connecting pipeline with neighboring countries. Among them is the connecting old pipeline with Azerbaijan that used to supply Georgia from 1970s. After technical diversification Georgia is receiving the natural gas from three pipelines, the first connects with Russia, the second with Azerbaijan, the third is the South-Caucasian pipeline, which is widely known with the name of Shah-Denyz pipeline connecting Azerbaijan, Georgia and Turkey and leading to Europe. In 2007 the technical diversification took place, specifically in the beginning of the current year in Georgia’s main gas pipelines started to enter the Shah-Deniz gas and consumers used to receive Shah-Deniz gas with the other suppliers ( Azerbaijan company “Azerygas” and Russian company “Gazexport”).This year was also distinguished by the important event -Azerbaijan gas entered the Europe. In autumn the Turkey-Greece linking pipeline was opened, at first with a little amount but still Azerbaijan gas led its way toward Europe. Turkey and Europe saw that alternative corridor, which can export natural gas and other energy resources to the European market without depending on Russia.
– In Georgia’s printing media the information is spread that Georgia does not receive the sufficient amount of gas from Shah-Denyz pipeline. Does this information correspond to truth that Azerbaijan has no desire to sell 1000m3 of gas with the price of $120?
– It is the fact that Azerbaijan companies “Azerygas” and “Socar” supplies Georgia with 1000m3 natural gas in $120. As for Shah Deniz there exists the active contract according to which we receive 250m3 million natural gas from the Shah Deniz pipeline during the year. Next year the gas will be supplied by an additional transit tax. So, during this year the natural gas that passed from Azerbaijan to Turkey through Georgia its 5 % is left as a transit base. The negotiations with Azerbaijan side about the long tem contract are kept, we speak about 5 year contract. In short it is fact that Georgia is receiving Azerbaijan natural gas from 2 sources, as from Shah Deniz but also from “Azerygas”. We also get fee for the Russian- Armenian transit, the 10% of the passed natural gas. Nowadays all the consumers of the natural gas are provided and there exists no restrictions towards this.
– What part of Georgia’s gas demand is depended on “Gazprom”?
– We only receive the fee of Russian-Armenian transit.
– Is it so that Georgia does not pay the political price $235 for 1000m3 of natural gas? Then everyone will ask the question: why did the consumer price of natural gas rise?
– Nowadays Georgia does not receive 235 dollar gas, but we used to receive it from the beginning of 2007 till the end of May.
– Since Russia has increased the price of natural gas for Georgia, the long term negotiations were held with Turkey, where the President of Georgia and the Prime Minister of Turkey also participated. The following issue was put in negotiations – Turkey will give Georgia that 800m3 million natural gas which Turkey was to receive from Shah Deniz layer and in 2008 Georgia would return the same amount of natural gas to Turkey. What has really happened? Has Georgia received 800m3 million natural gas?
– It did not happen so, because during 2007 Turkey did not receive Shah Deniz gas till July. According to the contract we received natural gas from Azerbaijan Company “Azerygas” and Shah Deniz. We have no responsibilities towards Turkey any more, because Georgia bought natural gas from Azerbaijan on commercial price.
– Iranian side declares its readiness to supply Europe with natural gas through Georgia-Armenia-Azerbaijan. As for Iran, when Georgia was searching for alternative suppliers, the USA showed its fixed position and declared that it would not support Georgia’s any kind of dependence on Iran, this point was also spread on Azerbaijan. What do you think, what kind of decision Georgia will make about Iran’s latest statement?
– When Russia exploded the pipelines and in fact there existed no sources of gas supply for Georgia, we managed the import of natural gas from Iran. Technically we could receive gas from Iran and we went through it, according to the suitable agreement the Iranian gas entered Georgia. It is true that it was not a large amount, but at that time it was vitally important, because in 2006, in the conditions of exploded pipelines Georgia was nearly in hopeless situation. It is worth mentioning that no one was against executing this import, it is possible that the USA had negative position but it must be pointed out that if the case is about the energy security Georgian government will do maximum to supply each citizen with natural gas. We wanted the diversification in the gas sector only for the reason that Georgia would have the maximum amount of suppliers and not to be dependent only on one supplier and in the case of condition’s complication not to move from “Gazprom” to Shah-Deniz. Now the state has the ability to make a choice that supports to develop the competition. When one seller knows about the existence of another it tries to reduce the price. As for Iran’s statements about supplying the Europe with gas, we should pay attention to the fact that Iran has a connecting gas pipeline with Turkey. The famous project “Nabuko” implies not only filling this pipeline with Trans Caspian region’s gas but also among them Iranian and Turkmen gas through Iran. There exist Iran-Turkmen pipelines and also Iran-Turkish and Turkey-Europe pipelines.
– Turkmenistan decided to increase the price of natural gas for the Ukraine, will this decision have any kind of impact on the Georgia’s natural gas market?
– Of course it will not reflect on Georgia, because we do not receive gas from Turkmenistan, that’s why this decision touches only the Ukraine.
– Can we say in percentage what amount of natural gas Georgia receives from each pipeline?
– At this point the data of each month are different; it depends on what kind of loading system has technically.
– What were the data of December?
– The daily consumption of December is about 5 million m3 (cubic meters) natural gas. We receive 1 million m3 of Russian-Armenian transit a day, nearly 1 million m3 from Shah-Deniz and the rest 3 million m3 of natural gas Georgia receives from Azerbaijan Socar’s “Azerygas”.
– In 2007 regulation of gas tariffs took place, what will be the outcomes?
– The regulation of gas tariffs took place for new consumers added after the 1st October, 2007. We want to establish competition in this sector; before consumers had access to natural gas they used liquid gas, wood, coal and other kind of energy resources. The aim of the regulation is that natural gas and other energy resources can compete with each other and that consumers be able to choose the most acceptable energy resources for themselves. In the framework of the regulation limitation of competition takes place artificially and we are trying to liberalize this system maximally.
– How will you comment on 11-12 October Vilnius Summit, where presidents signed an agreement?
– Georgia has already inculcated the main exporting corridor status of oil and gas from Caspian basin countries. It needs further development and we have suitable infrastructure for this. The more crude oil and natural gas pass through this transit corridor, the more income will be directed to state budget. This will also help to develop state’s energy security. During the Vilnius Summit the agreement was signed about creating new company “Sarmatea”, which consists of 5 founders- Poland, Ukraine, Georgia, Azerbaijan and Lithuania. It is possible that Kazakhstan will join the agreement in the future. On the first stage this company will make technical-economic confirmation about new pipelines and corridors. The pipeline will pass Odessa-Brodi-Plotsk-Gdansk, and then new transit corridor will be created on the existing Georgian – Azerbaijan infrastructural basis. The project is very important though the implementation of project may not take a short time, because it needs technical-economic confirmation, after this project must be worked out and necessary construction should be started. Great importance should be paid to Vilnius Summit, because the enlargement of the existing corridor is taking place.
– What do you consider as the great success and challenge of Georgian gas market in 2007?
– We have reached the final goal on the gas market, commercial diversification has taken place, and Georgia receives natural gas from three sources, the process of negotiations and the rehabilitation of network was difficult.
– In your opinion, will gas companies operating in Georgia have any basis to increase the price on gas consuming tariff?
– The increase of gas consuming price is not planned. To tell you the truth I consider it unreal, because prices are quite stable, consequently there is no threat of increasing consuming tariff of gas.
– What policy exists towards dollar rate? When the gas tariff was set the dollar exchange rate was high, now it has experienced decrease. Population pays gas tariff in GEL, the fall of dollar rate is the world tendency.
– You may check the dollar rate when the gas tariff was set, we can ask this question on the following way: If dollar exchange rate rises should the gas consuming tariff increase? Everything is balanced, currency rate fluctuates in all countries, and this fluctuation balances each other. The regulating committee has corresponding methodology of tariff determination, distinct level is fixed. In case of exceeding this fixed tariff the check of tariff takes place. In case of reduction for the balancing of fluctuation the price remains unchanged.
– What happens in Georgia’s electric energy market?
– The year of the great change was for the Georgia’s electric energy sector. From importing country we have been transformed to exporting country, this year Georgia’s export was insignificant, approximately 50 million kW hours. Principle is that Georgia works actively and synchronically with neighboring country’s energy systems. In summer the distribution of electric energy takes place, in winter we receive it back. The barter agreements among all neighboring countries Turkey, Azerbaijan and Russia are signed, we can collaborate with them simultaneously. During the summer of 2007 the exported energy exceeds the imported electric energy in winter. Coming from this Georgia accomplishes pure export of electric energy.
– In 2006 the regulation of electrisity tariffs took place.
– Partly regulation of electrisity tariffs took place that implies setting up of maximum tariffs. Thus the full upper edge on electric stations is defined, so the 10 mw electric stations are fully regulated and can lead the realization of electric energy at any tariff. This decision appeared to be favorable for the development of little Hydro Power Stations and the construction of several Hydro Power Stations are already started.
– Will it help the development of manufactures in Georgia, which will have the opportunity to receive electrisity cheaply?
– Preferential price does not exist at all; every product that has any price is its full cost. Preferential price means the loss of salesman.
– Does not it make any differance for corporate customers to recieve electrisity directly from Hydro power station?
– It is possible, because regulation implies the official registration of the agreement between consumer and the producer, for this reason they have more flexibility, if the price is not considered in the flexibility than there may be considered the payment.
– Is it determined in case of problem formation which side has the obligation to settle them? Who leads the repair services? Does the infrastructure give the possibility of such decision?
_ The infrastructure is not regulated. Transmission lines and distributing network is regulated and they are obliged to lead electricity to everyone without any kind of restriction. Of course the network is not in the kind of level to expel power interruptions completely and to consider every consumer twice or threefold ensured. In spite of this fact there still exists important progress; the number of power interruptions is sharply reduced. Daily, monthly and yearly rehabilitations of the network are led.
– What is the situation like in building the hydro power stations in Georgia? What are the financial meens?
– The building of hydro power stations is made by private means. The suitable memoranda are formed in building nearly five electric stations, in spring the construction of Faravan Hydro Power Station will start, which is the biggest among the above mentioned five stations and is of 78 MW. The memorandum that implies construction of 24 MW wind power station near Tbilisi is signed.
– What will the consumer price of electrisity b in 2008?
– The rise of consumer price on electricity is not planned.