Janez Kopac Talks on the Implementation of the Law on Energy and Water Supplies in Georgia

Interview with Janez Kopac Director, Energy Community Secretariat.

Georgia adopted the Law on Energy and Water Supply in December 2019. What are other important next steps Georgia has to make in this regard?

The adoption of the Law on Energy and Water Supply is truly an important event in the energy sector reform process of Georgia. It sets a clear path towards the development of the energy sector in line with European principles and outlines the specific requirements for Georgia to develop a competitive energy market.

A number of secondary legal acts which should put market principles envisaged under the law into practice, are yet to be adopted. In the gas sector, the most important next steps are the approval of the natural gas market concept design by the Government in October, followed by the adoption of natural gas market rules next year. In parallel, the gas incumbent GOGC and distribution companies have to unbundle. An unbundling plan should be presented to the Ministry by the end of 2020, according to the law, and the entire unbundling and certification procedure shall be finalized by the end of 2021.  In the electricity sector reforms are faster. Market liberalization should be completed by the mid next year and unbundling still this year.

I hope that Georgian stakeholders will stick to this deadline, having in mind that according to the Accession Protocol of Georgia to the Energy Community Treaty the process should be completed already by the end of 2020.

The ultimate aim of this process is clearly separating the network business from competitive activities, thus ensuring free and transparent third-party access to the network. A separate chain of suppliers competing with other emerging and existing competitors will eventually improve the quality of service and positively impact price dynamics.

What is the potential of Georgia to become a regional gas trading center? What benefits it will bring to the country in general and the citizens?

The potential is big since Georgia is the only place in the region where this can happen. Becoming a regional gas hub requires not only physical infrastructure but also a solid legal and financial framework and enough liquidity. This means the establishment of gas exchange, unbundling of GOGC, and enactment of market rules and concepts that promote real competition, etc. Liquidity is the biggest challenge at present. It would require more imports from Russia, starting to import gas from Turkey and selling so-called social gas, earned as a transit income from SOCAR on the market. The legal framework will be finished in two to three years, I am sure. But achieving adequate liquidity, given Georgia’s geographic position, is not only a legal but also a political challenge.

What are the new rules on the establishment of Solr and how would you assess the SCP gas pipeline project? How could Georgia benefit from it?

The Supplier of Last Resort is a new concept taken from the EU. It is an additional mechanism to protect consumers in case the supplier of customer’s choice exits the market and supply is disrupted. I stress, however, that the gas acquis does not require such a mechanism, the decision is a national one. With the activation of this service, the security of supply is guaranteed to the customer. It is worthwhile to mention that a package of relevant secondary legislation and official documentation has been recently developed under the EU4Energy Governance Project and I hope that Georgian stakeholders will successfully apply for our expertise and assistance.

With respect to the South Caucasus Pipeline, the Energy Community Secretariat and I personally welcome its expansion and the entry of additional volumes of Azerbaijani gas both into Georgia and towards Europe. I believe this will bring benefits to Georgia both in terms of strengthening energy security and increasing economic prosperity. 

How can Georgia cooperate with its neighbors in the energy field under the new law and how could Georgia benefit?

It should be noted that the Energy Community acquis put special emphasis on cooperation among the Energy Community Contracting Parties in order to create a single energy market which requires a harmonized approach, especially at the borders between neighboring countries. The application of these provisions in the case of Georgia brings specific challenges as the country is not interconnected with other Contracting Parties nor EU Member States. For this reason, derogation from cross-border cooperation is granted to the country under its accession protocol to the Energy Community.

Given that Georgia’s direct neighbors are not signatories to the Energy Community Treaty and thus lack mutually binding commitments, the enactment of the principles introduced by the new law, including on security of supply, will largely depend on the acceptance of these principles by the neighboring countries. If Georgia’s neighbors adhere to the same principles, the benefits would be much more tangible and sizable at least in terms of security of supply. 

How would you evaluate the progress achieved by Georgia so far in regard to the law on Energy and Water Supply?

The enactment of the law is only the beginning and provides the foundation for the next steps. Since the entry into force of the new law, we already witnessed concrete progress in the field of electricity, where the deadlines for the introduction of market principles are stricter than for the gas sector. Therefore, everything is still ahead and I hope that the reforms in the area of gas will be implemented with the same high level of commitment by the Georgian authorities, in a timely and proper manner.