1. Andrius Šimkus │ Energy Community Secretariat Tbilisi, 5 October 2018
Natural Gas Market Concept Design for Georgia: the regulatory essentials
Andrius Šimkus │ Energy Community Secretariat Tbilisi, 5 October 2018
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

2. Law of Georgia “On Energy” (LoE)
*draft version #8 of 15 March 2018
Chapter XXIX - Opening & functioning of energy markets
Art Market opening & reciprocity
Art Measures to promote market opening
Art Monitoring & supervision of energy markets
Art Competition in energy markets
Art Significant influence upon energy markets
Chapter XXXI - Organisation of the natural gas market
Art Scope of the natural gas market
Art Organisation of the natural gas market
Art Tasks of the natural gas market operator
Art Natural Gas Market Concept Design & Natural Gas Market Rules
Art Natural gas market participants
Art Derogations in relation to take-or-pay commitments
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

3. Legal background Art. 139 LoE Natural Gas Market Concept Design (GMCD)
Natural Gas Market Rules (GMR)
MoESD
mandatory compliance
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

4. Natural Gas Market Concept Design (GMCD)
Legal form: Decree of the Government of Georgia
general guidance for the organisation & functioning of the GM
definition of the general market structure
general outline of the rights & obligations of GMPs
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

5. Natural Gas Market Rules (GMR)
Legal form: Resolution of GNERC
market design in accordance with GMCD
organisation & operation of the GM (procedures, principles & standards)
method for identification & registration of GMPs
types & templates of applicable contracts
products (commodities) for trading on the GM
standards & procedures for trading on the GM (bilateral & organised)
organisation of trading platform(s)
record keeping & data management
etc.
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

6. Regulatory scope & subject
Regulatory scope & subject of GMCD & GMR have to be clearly separated
Natural Gas Market Concept Design (GMCD)
Natural Gas Market Rules (GMR)
THE STRUCTURE:
WHAT constitutes the GM?
&
WHO acts (can act) on the market?
THE PROCEDURE:
HOW the GM is organised & operated?
&
HOW does the GM function?
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

7. Legal framework of market relations
Law of Georgia “On Energy” (LoE)
Natural Gas Market Concept Design (GMCD)
mandatory market structure
Natural Gas Market Rules (GMR)
General Natural Gas Supply Conditions (Art. 114 LoE)
general outlines (R-GM)
Standard natural gas supply contracts (Art. 115 LoE)
Supplier Switching Rules (Art. 117 LoE)
basic principles
National Natural Gas Emergency Plan (Art. 150 LoE)
Natural Gas Transmission Network Code (Art. 77 LoE)
Natural Gas Distribution Network Code (Art. 92 LoE)
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

8. Natural gas market participants (GMPs)
CROSS-BORDER EXCHANGES
PRODUCTION
SYSTEM OPERATION
TRADE & SUPPLY
CONSUMPTION
Importers
Producers
TSO
Traders (W-GM)
Final customers
DSOs
Exporters
Suppliers (R-GM)
SSO
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

9. Non-household customers
Market opening
Each eligible customer in Georgia shall be entitled to a free choice of the natural gas suppliers and its change (Art. 125 LoE)
Non-household customers
Household customers
Art. 180(2) LoE
From 1 January 2019
From 1 January 2020
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

10. Scope of the natural gas market
Natural gas market (GM)
Retail natural gas market (R-GM)
bilateral transactions between final customers & their suppliers (‘supplier-to-customer’ market)
Wholesale natural gas market (W-GM)
bilateral (forward) natural gas market (‘trader-to-trader/supplier’ market)
organised day-ahead natural gas market (DAM), when established
organised natural gas balancing & ancillary services market (BAM), when established
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

11. Retail market: ‘supplier-to-customer’
R-GM
SoLR contract (Art. 121 LoE)
Supplier
SoLR
Final customer
Large customer
simultaneous contracting (Art. 122(4) LoE)
market-based contract (Art. 114 & 115 LoE)
PSO supplier
PSO customer
standard PSO contract (Art. 115 & 119 LoE)
PSO contract (Art. 9 LoE)
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

12. Wholesale market: ‘trader-to-trader/supplier’
Cross-border exchanges
W-GM
cross-border entry
Trader
import
balancing gas & losses (tender)*
trade
Importer
System operation
transit
trade
trade
TSO/DSO
Exporter
trade
balancing gas & losses (tender)*
export
Producer
cross-border exit
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

13. Issue No 1 - cross-border trading
Cross-border exchanges in natural gas are exempted from application of TEP rules & GM regulation
Cross-border exchanges
cross-border exchanges in natural gas do not fall within the regulatory scope of GMCD & GMR
non-regulated proceedings could be intervened with regulatory measures only without prejudice to applicable IGAs & contractual arrangements
Georgia has its national competence to consider such intervention at its discretion (outside LoE & GMCD)
no GM regulation applies until imported quantities of natural gas are internally realised (traded) on the GM
this exemption applies only vis-à-vis non-EnC Parties
cross-border entry
import
Importer
transit
Exporter
N.B.: VTP or any other market instrument for cross-border trading may be introduced only without prejudice to applicable IGAs & contracts
export
cross-border exit
N.B.: external gas sources is not a regulatory issue and shall not be covered by GMCD, it is a strategic (political & economic) matter to be targeted by the State Energy Policy (Art. 7 LoE)
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

14. Issue No 2 - system & market entry
(1) System entry
Natural gas enter Georgian system/market regulation area:
physically - at an internal system entry point (connection point between transit pipeline & internal transmission network)
commercially - after importer sells natural gas on the GM (whether bilaterally or on the organised market)
cross-border entry
transit
internal system entry (VTP)
Relevant solutions:
internal system entry point shall be a single point for all transfers of natural gas ownership in Georgian balancing zone (VTP)
Georgian balancing zone shall be defined as an area from the internal system entry point to final consumption points
Nominations, CAM, CA & balancing mechanisms shall be applied by system operators within the balancing zone (cross-border exchanges & transit not covered!)
TSO shall bear the responsibility of operational/commercial balancing of Georgia’s natural gas system (balancing zone)
cross-border exit
(2) Market entry
cross-border entry
import
transit
Importer
trade
Legal framework:
GMCD - only basic principles to be established
GMR - market (trading) & balancing instruments to be elaborated
TNC/DNC - operational instruments to be elaborated
cross-border exit
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

15. Day-ahead natural gas market: gas exchange
W-GM
R-GM
purchase
Trader
sale & purchase
Large customer
Supplier
balancing gas & losses (tender)*
System operation MO
imports*
DAM
TSO/DSO
from 1 Jan. 2023
purchase
balancing gas & losses (btender)*
Producer
sale
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

16. Mandatory sale of imported natural gas
GEx
50%
Bilateral or GEx
1 Jan. 2023
GEx
75%
Bilateral or GEx
1 Jan. 2024
ALL natural gas imports (quarterly basis)
GEx
100%
1 Jan. 2025
Possible exemption
≤33%
PSO*
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

17. Balancing & ancillary services market
W-GM
Trader
sale & purchase
balancing gas & losses (tender)* MO
System operation
DAM +
BAM
TSO/DSO
balancing gas & losses (bidding)
from 1 Jan. 2023
balancing gas & losses (btender)*
Producer
sale
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

18. Designation of the Market Operator
MO shall be responsible for the organisation & operation of DAM & BAM (organised GM), when established
MO shall be also responsible for connection & integration of Georgia’s GM with other organised gas markets
MO shall be designated by its authorisation (licensing) by GNERC
MO shall perform its activities in accordance with LoE, GMCD & GMR
It is intended that only a single MO is designated in Georgia
As the first step, MO may be organised by the TSO as a separate legal entity
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

19. Done  in progress  to be done
Workshop on GMCD – MoESD – 28 June 2018
Initial draft GMCD – EnCS – 16 July 2018
Updated draft GMCD – EnCS – 24 July 2018
Draft Law on Energy – MoESD – October 2018
Draft GMCD – MoESD – ?
Draft GMR – GNERC + USAID – ?
New market design & rules to be in full effect from 1 January 2021
High-level Policy Talks on the Natural Gas Market Concept Design for Georgia

20. Thank you for your attention!
Workshop on the Natural Gas Market Concept Design for Georgia