2005, Contributor to “Gas Regulation in 34 Jurisdictions” (published by Global Competition Review in 2005)
Victor Kipiani, Partner, Irakli Mgaloblishvili, Partner, Mikheil Gogeshvili, Lawyer and Mariam Antia Associate
Description of domestic natural gas sector
1.In general terms, describe the domestic natural gas sector, including the natural gas production, LNG storage, pipeline transportation, distribution,commodity sales and trading segments.
Approximately 30 per cent of the country’s energy needs are met by natural gas. LNG is not available in Georgia. Likewise, domestic gas production is non-existent. Nearly, all natural gas importing is done from Russia.
Currently, due to the bad technical condition of the trunk pipeline, the capacity equals 5 billion cubic meters, while the imported natural gas from Russia amounts up to 2.5 billion cubic meters (including transit of natural gas through Georgia to Armenia).
The Law of Georgia on Oil and Gas, dated 16 April 1999, lays down the main rules for exploration, storage and transportation of natural gas. Licensing requirements for physical and legal entities engaged in the mentioned activities are also provided. Further on, the said law defines the authorities of the State Regulatory Agency of Oil and Gas Resources (RAOGR).
The Law of Georgia on Electricity and Gas, dated 27 June, 1997, sets out the main rules for the licensing of gas supply, transportation and distribution activities and delineates the functions of the independent regulatory body – the National Commission for Energy Regulation of Georgia (GNECR).
Resolution No. 36 of the government of Georgia, dated 21 May 2004, on the Statute of the Ministry of Power and Energy defines the general policy of the Georgian government with regards to the power and energy sectors, including natural gas.
Decree No. 107 of the President of Georgia, dated 28 March 2000, on the Statute of the State Regulatory Agency of Oil and Gas Resources outlines, in detail, the competence, authorities and organisational structure of the RAOGR.
Resolution No. 118 of the National Commission for Energy Regulation of Georgia, dated 24 September 2003, on the Statute of the GNECR is also relevant.
3 Broadly speaking, what is the governmental policy for the domestic natural gas sector and which governmental bodies set it?
The governmental policy in power and energy fields, including the natural gas sector, is directed towards: determining a concept of developing the power and energy sector as a single technical-economic division; encouraging investments into the sector; fostering competition and implementing a large-scale privatisation of power and energy assets; conducting monitoring of the local
market for power and energy resources; and having a broad international cooperation in the natural gas sector, etc.
Regulation of natural gas production and importation
4 What percentage of the country’s energy needs are met directly or indirectly with natural gas and/or LNG? What percentage of the country’s natural gas needs are met through domestic production?
Approximately 30 per cent of the country’s energy needs are met by natural gas. LNG is not available in Georgia. Likewise, domestic gas production is non-existent. Nearly all natural gas importing is done from Russia.
5 What is the ownership and organisational structure for production and importation of natural gas (other than LNG)?
The largest importers of natural gas in Georgia are JSC Tbilgazi (100 per cent state shareholding), JSC ITERA Georgia (subsidiary of the Russian ITERA), JSC Saktsementi and Mtkvari Energy Ltd.(subsidiary of the Russian RAO UES). Domestic gas production is non-existent in Georgia.
6 What governmental or administrative authorisations are required to carry out natural gas exploration and production?
Gas operations have to be performed in accordance with the Law of Georgia on Oil and Gas and based on the contract and the license for the usage of oil and gas resources.
6.1 Does the government allow the lease of mineral rights?
Yes. The right to explore, extract and produce natural gas may be delegated to private parties. The following laws are applicable: the Law of Georgia on Oil and Gas; and the Law of Georgia on Rules Governing Granting Concessions to Foreign States and Companies, dated 21 December 1994. The Law of Georgia on Subsoil, dated 17 May 1996, may be applicable when constructing underground gas storage facilities.