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1 GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION NATURAL GAS TARIFF REGULATION Guliko bedoshvili Department for Tariffs and Prcing Tbilisi,

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Presentation on theme: "1 GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION NATURAL GAS TARIFF REGULATION Guliko bedoshvili Department for Tariffs and Prcing Tbilisi,"— Presentation transcript:

1 1 GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION NATURAL GAS TARIFF REGULATION Guliko bedoshvili Department for Tariffs and Prcing Tbilisi, 2008 June 27-July 3

2 2 Natural Gas Tariffs Overview Legal aspects of natural gas tariff regulation State policies in natural gas tariff regulation Commission regulated tariffs in gas sector Tarif deregulation and partial deregulation in gas sector Natural gass supply tariffs Natural gas transportation tariffs Natural gas distribution tariffs Natural gas consumption tariffs Taxation system in natural gas sector

3 3 Legal aspects of natural gas tariff regulation _ Law on Independent National Regulatory Authorities ; _ Law on Electric Power and Natural Gas; _ Rules and Methodologies for Identification of Natural Gas Tariffs (approved by the decision of the Commission); _ Decisio of the Commission on Natural Gas Tariffs; _ Existing Tax Legislation; * Tax Code * Tax Code * Law on Customs Tariffs and Fees * Law on Customs Tariffs and Fees _ International Agreements; * Agreement between CIS countries, according to which the products produced in aforementioned countries are not subject to import customs tariffs * Agreement between CIS countries, according to which the products produced in aforementioned countries are not subject to import customs tariffs

4 4 State Policies in Gas Sector In tariff setting, the Commission takes into consideration State Policies _ State Plocies are implemented byt the Ministry of Energy _ The main functions of the Ministry in development and implementation of gas sector State Policies are as follows: 1. Promoting attraction of short-, medium- and long-Term investments, as well as of the crediting resources and making state investments into the sector, with the view of its rehabilitation and development 1. Promoting attraction of short-, medium- and long-Term investments, as well as of the crediting resources and making state investments into the sector, with the view of its rehabilitation and development * The funds allocated from the state budget for rehabilitation and development of the sector are administerd by the Ministry. Until 2007, such funds were mainly directed to electric power sector, while since 2007, the rehabilitation and development activities for state sites in gas sector have been commenced. * The funds allocated from the state budget for rehabilitation and development of the sector are administerd by the Ministry. Until 2007, such funds were mainly directed to electric power sector, while since 2007, the rehabilitation and development activities for state sites in gas sector have been commenced. _ Promoting transit, import and export relations in the natural gas sector * Ministry of Energy participates or directly conducts negotiations on import of the natural gas and tarifs thereof (with Azerbaijan) * Ministry of Energy participates or directly conducts negotiations on import of the natural gas and tarifs thereof (with Azerbaijan) _ Approving Natural Gas Balance _ Is entitled to make the decisions on deregulation or partial deregulation

5 5 Tarif deregulation and partial deregulation in natural gas sector Tarif deregulation and partial deregulation in natural gas sector The Law on Electric Power and Natural Gas entitles the Ministry of Energy to make a decision on deregulation or partial deregulation of activities in energy sector The Law on Electric Power and Natural Gas entitles the Ministry of Energy to make a decision on deregulation or partial deregulation of activities in energy sector * Deregulation _ right to carry out activities without tariff setting * Deregulation _ right to carry out activities without tariff setting * partial Deregulation _ right to carry out activities on basis of setting the marginal tariffs * partial Deregulation _ right to carry out activities on basis of setting the marginal tariffs * In October 2007, on basis of the Ordinance of the Minister of Energy, the gas supply tariffs were deregulated and partially deregulated * In October 2007, on basis of the Ordinance of the Minister of Energy, the gas supply tariffs were deregulated and partially deregulated * Gas supply tariffs were released from regulatory requirements, save the gas supplied for the customers connected to the gas distribution netowrks, who were subjected to the partial deregulation * Gas supply tariffs were released from regulatory requirements, save the gas supplied for the customers connected to the gas distribution netowrks, who were subjected to the partial deregulation

6 6 Tarifs regulated by the Commission in Gas Sector Authorities of the Commission in tariff setting; * According to the Law on Electric Power and Natural Gas, the Commission regulates the following gas sector tariffs: * According to the Law on Electric Power and Natural Gas, the Commission regulates the following gas sector tariffs: 1. Marginal supply tariffs only for those customers, who are connected to the gas distribution network 1. Marginal supply tariffs only for those customers, who are connected to the gas distribution network 2. Transportation tariff 2. Transportation tariff 3. Distribution tariff 3. Distribution tariff 4. Marginal consumer tariffs 4. Marginal consumer tariffs * The Commission does not regulate (process are free): * The Commission does not regulate (process are free): 1. Gas tariffs of gas sold at liquefied gas stations (regulated until 2006) 1. Gas tariffs of gas sold at liquefied gas stations (regulated until 2006) 2. Supply (wholesale) tariffs 2. Supply (wholesale) tariffs

7 7 Natural gas supply tariffs The sources and prices of the natural gas imported to Georgia and their dynamics (Annex #1) * Prior to 2007, natural gas was imported only fro Russia (prices 40$-60$-110$ -235$/1000m3) * Prior to 2007, natural gas was imported only fro Russia (prices 40$-60$-110$ -235$/1000m3) * Since 2007, the imports also started from Azerbaijan (prices 62,4$ and 120$/1000m3) * Since 2007, the imports also started from Azerbaijan (prices 62,4$ and 120$/1000m3) _ Importers and suppliers of natural gas _ Importers and suppliers of natural gas * Oil and Gas Corporation LLC, JSC Itera Sakartvelo, International Energy Corporation – purchase gas and resell it to the other suppliers and/or customers * Oil and Gas Corporation LLC, JSC Itera Sakartvelo, International Energy Corporation – purchase gas and resell it to the other suppliers and/or customers * All distribution companies are the suppliers at the same time; they purchase the gas fro the above suppliers and supply it to the customers within distribution area * All distribution companies are the suppliers at the same time; they purchase the gas fro the above suppliers and supply it to the customers within distribution area * Some importers purchase gas only for their own consumption (Energy-Invest – for Chemical Plant and HOS, Mtkvari-Energetika – thermal power station) * Some importers purchase gas only for their own consumption (Energy-Invest – for Chemical Plant and HOS, Mtkvari-Energetika – thermal power station) _ The natural gas supply (average weighted) tariffs and their structure on example of Oil and Gas Corporation and Itera-Sakartvelo (Annexes 2, 3) _ The natural gas supply (average weighted) tariffs and their structure on example of Oil and Gas Corporation and Itera-Sakartvelo (Annexes 2, 3) * Since 2007, the prices of natural gas inmported from Russia increasd from $110.0 to $235.0 per 1,000 m3 * Since 2007, the prices of natural gas inmported from Russia increasd from $110.0 to $235.0 per 1,000 m3

8 8 Natural gas supply tariffs Since 2007, gas imports also started from Azerbaijan; its prices were much lower then of the Russian gas (62,4$ and 120$) * In order to avoid the tariff shock, on basis of the Natural Gas Balance approved by the Ministry for 2007 and the applications of the suppliers, the Commission determined for customers the awerage weighted tarif of Russian and Azeri gases, which made $167,0/1,000m 3 ; accodingly the gas prices for the consumers increased by just 52% * In order to avoid the tariff shock, on basis of the Natural Gas Balance approved by the Ministry for 2007 and the applications of the suppliers, the Commission determined for customers the awerage weighted tarif of Russian and Azeri gases, which made $167,0/1,000m 3 ; accodingly the gas prices for the consumers increased by just 52% * Gas tariffs were set in 2007, and the customers connected to the distribution network still pay the same prise for the supplied gas

9 9 Sourceofimport Import price #YearsUS$/1,000m3Note 11999Russia Russia Russia Russia Russia Russia Russia Russia110.0 Russia235.0 The average weighted tariffs were set for the customers Shakhdeniz (Azerbaijan) 62.4 Azerbaijan120.0US$167,0/1,000m Not regulated by the Commission Annex 1 Prices and dynamics of the natural gas imported to Georgia,

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12 12 NATURAL GAS TRANSPORTATION TARIFFS _ Capacities of gas transportation system and dynamics of actually imported to and transported through Georgia gas volumes (Annex) * Capacity of transportation system makes 20,0 billion m3 * Maximal gas consumption in Georgia was filed in the end of 1980-ies and amounted to 6.7 billion m3 * Maximal gas consumption in Georgia was filed in the end of 1980-ies and amounted to 6.7 billion m3 * In 2007, gas consumption in Georgia amounted to 1.7 billion m3, while transit made 2.0 billion m3 * In 2007, gas consumption in Georgia amounted to 1.7 billion m3, while transit made 2.0 billion m3 _ Natural gas transportation tariff _ Natural gas transportation tariff * Transportation tariff is the same for all consumers (save thermal PPs) and is set at GEL16.62/1,000m 3, including VAT * Transportation tariff is the same for all consumers (save thermal PPs) and is set at GEL16.62/1,000m 3, including VAT _ Natural Gas transit * Gas is delivered to the Republic of Armenia * Gas is delivered to the Republic of Armenia * Transi tariffs are not regulated by the Commission * Transi tariffs are not regulated by the Commission * Revenues received from transit are taken into account in setting transportation tariff * Revenues received from transit are taken into account in setting transportation tariff

13 13 Natural gas transportation balance Natural gas transportation balance mln. m 3 Actual volumes of gas transported in Georgia # Source of natural gas I Total consumed gas Total consumed gas imported from – Russia – Iran – Iran – Azerbaijan – Azerbaijan Transit to Republic of Armenia II Transit Transit Actual losses II I Losses Losses IVIVIVIV Total volume of gas received in the network

14 14 Natural gas distribution tariffs _ Tariff application procedures and requirements * Within 3-dayperiod from submission of the Tariff Application to the Commission by the Licensee, the respective services shall check for the accuracy and completeness of the documents. If the documentation is complete, the administrative proceeding of the Application begins; if the documentation is not complete, the notice requiring submission of the missing documents shall be sent to the Licensee * Within 3-dayperiod from submission of the Tariff Application to the Commission by the Licensee, the respective services shall check for the accuracy and completeness of the documents. If the documentation is complete, the administrative proceeding of the Application begins; if the documentation is not complete, the notice requiring submission of the missing documents shall be sent to the Licensee * The draft prepared by the staff of Commission shall be considered at the Meeting of the Commission. * The draft prepared by the staff of Commission shall be considered at the Meeting of the Commission. * The Commission shall come up with the final tariff in 150 days, maximum. * The Commission shall come up with the final tariff in 150 days, maximum. * The Application submitted by the Licensee shall be justified; the audit approved financial analyses of the previous regulated period, as well as any additional information required by the Commission shall also be submitted * The Application submitted by the Licensee shall be justified; the audit approved financial analyses of the previous regulated period, as well as any additional information required by the Commission shall also be submitted _ Natural gas distribution tariff structure – Tariff Application Forms (Annex 1) _ Natural gas distribution tariff structure – Tariff Application Forms (Annex 1) _ The norms for basic costs and net profits of gas distribution _ The norms for basic costs and net profits of gas distribution * Depreciation norm _ set out in Tax Code * Depreciation norm _ set out in Tax Code * Wage rates _ according to categories assigned to cities and regions * Wage rates _ according to categories assigned to cities and regions * Repair expenses _ up to 5% of the fixed assets * Repair expenses _ up to 5% of the fixed assets * The volume of net profit is currently set by the Commission at 8% of the fixed assets * The volume of net profit is currently set by the Commission at 8% of the fixed assets

15 15 Natural gas distribution tariffs - The norm for losses and its share in gas distribution tariff (Annex 2) * The average volume of normal losses in Kaztransgaz tariff – 9%; for the other companies – up to 5% * The average volume of normal losses in Kaztransgaz tariff – 9%; for the other companies – up to 5% * In , increase in gas import and supply tariffs has significantly influenced (almost doubled) the share of normal losses in distribution tariffs * In , increase in gas import and supply tariffs has significantly influenced (almost doubled) the share of normal losses in distribution tariffs _ Differentiation of natural gas distribution tariffs by customer categories (pressure) * According to the used methodology, the gas distribution tariffs are set for the high, medium and low pressure comsumers * According to the used methodology, the gas distribution tariffs are set for the high, medium and low pressure comsumers * So far, the Commission has set tariffs for 67 distribution licensees; for 21 of them the tariffs are differentiated (by the pressure); the remaining 46 companies have only low pressure (residual) customers * So far, the Commission has set tariffs for 67 distribution licensees; for 21 of them the tariffs are differentiated (by the pressure); the remaining 46 companies have only low pressure (residual) customers * Following distribution tariffs (including VAT) are set for the various companies: * Following distribution tariffs (including VAT) are set for the various companies: - High pressure – from 0.6 to 3.5 Tetris - High pressure – from 0.6 to 3.5 Tetris - Medium pressure – from 2.0 to 12.0 Tetris - Medium pressure – from 2.0 to 12.0 Tetris - High pressure – from 10.0 to 17.0 Tetris - High pressure – from 10.0 to 17.0 Tetris

16 16 B Natural gas distribution tariffs _ Calculation and structure of current Kaztransgaz Lt. distribution tariffs (Annex 3) _ Monitoring of companies activities and their financial status _ Monitoring of companies activities and their financial status * The companies shall quarterly submit information on their activities in the form determined by the Commission, and annually submit the audit approved financial statements * The companies shall quarterly submit information on their activities in the form determined by the Commission, and annually submit the audit approved financial statements * Majority of gas distribution companies are unprofitable. In 2007, the loss of Kaztransgaz- Tbilisi amounted to GEL mln., and this mainly is due to a major tecnical losses in the system * Majority of gas distribution companies are unprofitable. In 2007, the loss of Kaztransgaz- Tbilisi amounted to GEL mln., and this mainly is due to a major tecnical losses in the system _ Major problems of the gas distribution companies _ Major problems of the gas distribution companies * The obsolete underground networks and poorly arranged metering result in the major tecnical and, accordingly, financial losses; all the companies require Commission to increase the loss norms * The obsolete underground networks and poorly arranged metering result in the major tecnical and, accordingly, financial losses; all the companies require Commission to increase the loss norms * Major consumers try to leave the distribution systems and connec to the transportation system directly; this results in the reduced revenues of the distribution companies and, therefore, they rewquire increase of the residual customers tariffs. For instance, Kaspigazi lost the large cement factory (consumes mln m3 per annum); Rustavgazi lost chemical plant (250 mln m3) and cement mill (90 mln m3) * Major consumers try to leave the distribution systems and connec to the transportation system directly; this results in the reduced revenues of the distribution companies and, therefore, they rewquire increase of the residual customers tariffs. For instance, Kaspigazi lost the large cement factory (consumes mln m3 per annum); Rustavgazi lost chemical plant (250 mln m3) and cement mill (90 mln m3)

17 17 (Annex 1) Natural gas distribution and consumption tariff Application Form (Annex 1) Natural gas distribution and consumption tariff Application Form Actual in 2007 Forecast for 2008 #DescriptionUnitTotalIncluding High pressure Medium pressure Low pressure consumersconsumersconsumers I Initial indicators 1 Received natural gas 1,000 m3 2 Natural gas losses _,,_ The same information in % % 2.1 Including normal 1,000 m3 The same information in % % 3 Distributed natural gas 1,000 m3 4 The single lenth of gas pipelines on balance Including: 4.1 In operation km 4.2 Out of operation _,,_ 4.2.1Conserved_,,_ 5 Number of customers Customers 6 Number of employees Persons 7 Residual value of fixed assets Starting period 1,000 GEL Including in operation _,,_ Including: 7.1 Gas pipelines _,,_ In operation m.S. moqmedebaSi myofi _,,_

18 18 Natural gas distribution and consumption tariff Application Form (continued) 8 Natural gas purchase price (excl. VAT) GEL/1,000 m3 II Gas distribution costs excl. VAT _ Total GEL 1,000 Including: 1 Gas losses GEL 1,000 2 Payroll fund _,,_ 3 Fixed assets depreciation _,,_ 4 Fixed assets repairs _,,_ 5 Electric power _,,_ 6 Materials and Spare parts _,,_ 7 fuel and lubricants fuel and lubricants_,,_ 8Communications_,,_ 9 Utility services _,,_ 10 Loan interest payments _,,_ 11 Other expenses _,,_ III Taxes, excluding VAT GEL 1,000 Including: 1 Property tax _,,_ 2 Social tax accrual on wages _,,_ 3 Land (non-agricultural) tax _,,_ 4 Regulation fee _,,_ 5 Profit tax _,,_

19 19 Natural gas distribution and consumption tariff Application Form (continued) IV Total operation costs (II+III ) V Net profit (loss) _,,_ The same information as share of fixed assets % VI Total annual revenues from natural gas distribution (IV+V) GEL 1,000 VIITariffs 1 Gas distribution tariff (VI / I-3) GEL/1,000 m3 2 Same, including VAT _,,_ 3 Gas purchase tariff, excluding VAT _,,_ 4 Gas consumption tariff, excluding VAT _,,_ 5 The same including VAT _,,_ VIII Accounts receivable by the end of the period GEL 1,000 IX Accounts payable by the end of the period_,,_ XLoans_,,_

20 20 Annex 2 Loss norms and their share in dirstribution (residual) tariffs of some gas distribution companies Loss norms included in the tariffs (%) 2007 # Name of Company Including Distribution (residual) tariffs (Tetris/m3) Total In high pressure consumers tariffs In medium pressure consumers tariffs In low pressure consumers tariffs Totallosses Kaztransgaz-Tbilisi Ltd. Kaztransgaz-Tbilisi Ltd JSC Kutaisgazi 4.84_ JSC Gorigazi 4.20_ JSC Mtskhetagazi 3.46_ JSC Borjomigazi 5.00_ JSC Rustavigazi

21 21 Annex 3 Calculation of natural gas distribution and consumption tariffs by the categories of customers (pressures) – Kaztransgaz-Tbilisi Ltd. Annex 3 Calculation of natural gas distribution and consumption tariffs by the categories of customers (pressures) – Kaztransgaz-Tbilisi Ltd. Actual in Forecast for 2008 #DescriptionUnitTotalIncluding High pressure Medium pressure consumersconsumers I Initial indicators 1 Received natural gas 1,000 m Natural gas losses _,,_ The same information in % % Including normal 1,000 m3 The same information in % % 3 Distributed natural gas 1,000 m The single lenth of gas pipelines on balance km Number of customers consumers Residual valueof fixed assets by the end of the period GEL 1, Including: 6.1 Gas pipelines _,,_ II Gas distribution costs Total costs excluding VAT GEL 1, Including

22 22 Annex 3 Calculation of natural gas distribution and consumption tariffs by the categories of customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued) Including:_,,_11658,4671,31797,489789,68 2 Gas losses _,,_ Payroll fund _,,_ Fixed assets depreciation _,,_ Fixed assets repairs _,,_ Electric power _,,_ Materials and Spare parts _,,_ fuel and lubricants fuel and lubricants_,,_ Communications_,,_ Utility services _,,_ Loan interest payments _,,_ III Other expenses GEL 1, Taxews, excluding VAT Including: 1 Property tax _,,_ Social tax accrual on wages _,,_ Land (non-agricultural) tax _,,_ Regulation fee _,,_ Profit tax _,,_ Other (insurance) _,,_ IV Total operation costs (II+III) aT. lari

23 23 Annex 3 Calculation of natural gas distribution and consumption tariffs by the categories of customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued) V Net profit _,,_ igive %-ad moqmedi ZiriTadi fondebis mimarT % VI TYotal annual revenues from natural gas distribution (IV+V) aT. lari VIITariffs 1 Gas distribution tariff excluding VAT (VI / I-3) GEL/ 1,000 m Gas distribution tariff including VAT _,,_ Gas wholesale supply tariff excluding VAT _,,_ Gas transportation tariff excluding VAT _,,_ GAs consumption tariff excluding VAT _,,_ GAs consumption tariff including VAT _,,_

24 24 Natural gas consumption tariffs _ Natural gas consumption (residual) tariff structure on example of Kaztransgaz-Tbilisi (Annex 1) * The Commission sets caps (upper limits) for consumption tariffs, which consist of supply cap (upper limit), transportation and distribution tariffs * The Commission sets caps (upper limits) for consumption tariffs, which consist of supply cap (upper limit), transportation and distribution tariffs * Gas consumption tariffs, like distribution tariffs, are set for high, edium and low pressure consumers categories * Gas consumption tariffs, like distribution tariffs, are set for high, edium and low pressure consumers categories * Kaztransgaz-Tbilisi consumption (residual) tariff _ Tetris/m 3, including VAT * Kaztransgaz-Tbilisi consumption (residual) tariff _ Tetris/m 3, including VATIncluding: – capped supply tariff – 33,718 Tetris/m 3 – transportation tariff – 1,632 Tetris/m 3 – transportation tariff – 1,632 Tetris/m 3 – distribution tariff –15,27 Tetris/m 3 – distribution tariff –15,27 Tetris/m 3 _ Direct consumers and their tariffs * Direct consumers – mainly the industrial enterprises – are receiving gas directly from transportation network and, therefore, their tariffs include only supply and transportation components * Direct consumers – mainly the industrial enterprises – are receiving gas directly from transportation network and, therefore, their tariffs include only supply and transportation components * The supply tariffs for direct consumers are deregulated * The supply tariffs for direct consumers are deregulated

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26 26 - Applicable taxes and their rates * Property tax - 1%, non-agricultural land tax – 0.25 Tetris/m2, profit tax – 15%, VAT – 18% * Property tax - 1%, non-agricultural land tax – 0.25 Tetris/m2, profit tax – 15%, VAT – 18% _ Tax allowances * Released from 12% customs tax * Released from 12% customs tax * gas supplies to the thermas PSs is released from VAT * gas supplies to the thermas PSs is released from VAT _ Share of taxes in consumption tariffs * Untill 2005, the share of taxes in consumption tariffs made 23-25% * Untill 2005, the share of taxes in consumption tariffs made 23-25% Since 2005, (accordin to new TAx Code) the number of taxes, as well as their rates were reduced: road, entrepreneurship, environmental taxes were abolished; social tax rate was reduced from 31% to 20% and in 2008 was totally abolished; VAT rate reduced from 20 to 18%; profit tax rate reduced from 20% to 15%. Since 2005, (accordin to new TAx Code) the number of taxes, as well as their rates were reduced: road, entrepreneurship, environmental taxes were abolished; social tax rate was reduced from 31% to 20% and in 2008 was totally abolished; VAT rate reduced from 20 to 18%; profit tax rate reduced from 20% to 15%. * Currently, the tax share (total) in consumption tariffs makes 17-18%. * Currently, the tax share (total) in consumption tariffs makes 17-18%. TAXATION SYSTEM IN GAS SECTOR TAXATION SYSTEM IN GAS SECTOR

27 27 Thank you for your attention


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