A two-day event organized under the EU4Energy Governance Project focused on upcoming reforms and Georgian legislation to be adopted in compliance with the EU Third Energy Package.
Discussions covered increased market transparency and fluidity, the unbundling of natural gas system operators and Georgia’s place in the European natural gas market. Caucasus Business Week interviewed Predrag Grujicic, the Head of Gas Unit of the Energy Community Secretariat, who regularly assists member countries with the implementation of gas acquis obligations.
What key reforms are needed in the Georgian natural gas market?
We are here under the umbrella of legal obligations of Georgia to comply with the requirements of the Energy Community Treaty that they signed and that was adopted by the Parliament recently. Now they need to adopt into their national legislation a legal framework in line with the Energy Community. The deadlines in relation to the gas market provisions are relatively generous – end of 2020. The most important step, and for us the sign of real commitment, is the adoption of a draft Energy Law. With Georgia we are extremely happy, as it is a very cooperative country with very knowledgeable people, and no problems so far. It is very important not to lose additional time, which means that the work will consist of not only adopting this law, but having secondary acts already prepared in order to ensure effective implementation of the law in practice. Those acts should mainly be developed and adopted by the regulatory authority, GNERC, and some of them by the government. So far, so good. We are providing assistance in this respect.
The second stream of activities is related to restructuring the companies in line with the law and with the respective secondary acts. The most important activity will of course be unbundling, which means the restructuring of incumbent supply companies by separating their network activities from commercial activities. This relates first of all to Georgian Oil and Gas Corporation, and the second part will be the unbundling of system operators. Georgia will have an independent network operator, which would open the grid to every potential supplier. It will be independent from any activities which are not related to transmission, which will bring transparency in their activities and prices, and also in investment decisions.
How will the unbundling of natural gas system operators be achieved in the Georgian market?
As we speak, we are discussing exactly this topic. Typically, the action starts within the company. The incumbent company shall kick off the process of its unbundling (the State will act in its capacity of the owner) and send the certification application to the regulatory body. The regulator then issues a preliminary decision on certification and sends it to the Secretariat to issue its opinion. Then the Secretariat as the third, European institution, comes into the picture to say everything was done right—or not.
So far there is a general consensus on which model of unbundling should be applied. I’m really happy to tell you that in comparison with other Energy Community Members, Georgia is already just a few steps away from full compliance with its obligations under the Treaty.
It’s not the end, of course: the unbundling process is subject to continuous monitoring by the regulatory authority and also the Energy Community.
What benefits can the average consumer expect to see from increased market transparency?
Things can really start to happen when the retail market, which will be more liquid, more transparent, with more participants comes into place. Initially, customers sometimes—this is the bumpy start—need more time to understand the benefits which will not necessarily come at once, but in the long run. For example, sometimes, household prices were kept artificially low by social policy; in other cases, they were too high and the freedom to opt for cheaper and reliable suppliers was immediate.
Then there is another round when the customer can see that it is really possible to influence what the supplier or network operator is doing, that they cannot do something unlawful. Grid operators, as I said, will have their activities under strict scrutiny of the regulator which will approve only justified costs of their business.
In the third round, democratization and decentralization of the supplies will kick off, because then technology comes in. Not only the foreign suppliers or foreign traders or the big independent companies will come, but also small ones, the small entrepreneurs. You will see the penetration of gases from renewable energy sources, which can directly benefit local communities. In addition, people can compare the energy prices and services of different companies, and they will see the benefits of increased energy efficiency measures. There will be increased transparency and consumers will know what they are paying for.
So overall there will be a benefit for consumers as well as for the economy as a whole. The reforms will kick off wider goals, like the decarbonization of the economy and increasing energy efficiency.
How does Georgia’s current role in regional markets compare to its potential role after EU internal market expansion?
At the same time, Georgia is an isolated country in terms of the internal gas market in Europe. Turkey is there, and it has a big, dynamic market.
I believe that the national gas market will benefit from Georgia’s accession to the Energy Community immensely and that its transit role will be further strengthened.