IEA Report Georgia 202023 Aug 2020 10:43
https://www.iea.org/reports/georgia-2020
dated July 2020
Regarding fossil fuels, low entrance barriers have made Georgia’s oil product market quite competitive, and supply diversification is robust. Domestic crude oil and gas production have been declining, but the government is taking measures to keep the investment climate attractive to encourage further hydrocarbon exploration and production. Similar to the electricity sector, investments in oil and gas transportation infrastructure have strengthened Georgia’s standing as a transit country and a regional energy platform.
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n the gas sector, the current market structure and legal framework contradict the principles of the EU energy acquis and provide neither proper regulation nor true competition, which raises energy security concerns. Non-transparent governmental agreements with the two suppliers – Azerbaijan’s SOCAR and the Russian Federation’s (hererinfater “Russia”) Gazprom Export – and the absence of a competition mechanism have left the market segmented and largely monopolistic, which gives these companies considerable market leverage. The regulation allowing distribution companies to supply gas to non-residential consumers at non-regulated prices puts the consumer at the mercy of powerful monopolistic suppliers.
Furthermore, the government’s undisclosed long-term agreement with SOCAR undermines prospects of unbundling and market competition. The government is therefore encouraged to renegotiate the agreement in view of the expected gas sector reforms to make the sector more transparent. The lack of supply diversity, SOCAR’s dominance of the gas supply chain, and the absence of competition could be a threat to energy security and affordability, as well as to Georgia’s economic competitiveness. The government would benefit significantly from putting strong checks and balances in place to manage the risks of the current situation. As the planned gas storage facility would reinforce energy security, its construction should be accelerated.
In the oil sector, an impending task for the government is to fulfil the requirements of the EU acquis for oil, i.e. the obligation to maintain minimum stocks of crude and/or petroleum products. The implementation deadline of 1 January 2023 may be challenging to meet, as Georgia’s draft Law on Emergency Stocks, prepared in 2017, is still being discussed with sector stakeholders. The new draft law should address several issues, including available facilities and compliance costs, and especially the impact of the obligations on small importers and their effect on pricing.
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