The possibility of lowering electricity and gas tariffs has become one of the top discussion topics across the country in the last few weeks. The little wonder of the interest in this topic at the time when gas and electricity bills reach their annual peak in the account of the increased use of electricity and gas during the winter period.

Having thought for some time about the feasibility of reducing electricity and gas tariffs in the near future, one comes across three questions that need to be addressed before jumping to hasty and potentially regrettable decisions.

1) How can the government decide on lowering tariffs if, according to the Law on Electricity and Gas, the mandate to set them is vested with the GNEWRC, allegedly an independent regulator?

As part of the reform process of Georgia’s energy sector, several governments have signed several agreements on the privatization of energy-sector infrastructure, payment for transit services, etc. While these agreements remain undisclosed, they surely contain provisions providing safeguards, guarantees, and conditions protecting the counterparties’ investments. 2) How feasible is it to re-negotiate them in the immediate future?

The winter months are the most demanding for the companies operating the energy sector (importers, transporters, distributors, etc.). 3) how sensible is it to create uncertainties about the viability of these companies during this period?

Based on the answers to these questions, there is little justification for an immediate reduction of electricity and gas tariffs. That is without running the risk to undo the progress achieved in terms of a reliable supply of electricity and gas and to damage the State’s reputation as investor-friendly and law-abiding.

More interestingly, the debate generated around the energy tariffs shows that the energy sector in Georgia is ripe for a review. The comments and analysis in numerous fora (including this blog) over the past months point to the fact that the realities of the energy sector are quite different since the law on Electricity and Gas was first passed in 1997, and since the Parliament approved the Main Directions of Georgia’s State Energy Policy in 2007.

What has changed? According to a World Bank study (Fighting Corruption in Public Services: Chronicling Georgia’s Reforms”, 2012), electricity bills are being paid in full since 2009, and electricity generation increased almost 45 percent between 2004-2010. Official statistics also report that the energy sector attracted in 2011 the largest amount of foreign direct investment.

What about the consumers? Well, first and foremost they no longer suffer long and wide power blackouts or gas cuts (though the quality of supplies can still improve, see below).

Notwithstanding the financial viability and reliable operation of the energy sector, the debate around the energy tariff has brought up a number of issues that need to be addressed to ensure that the energy sector positively contributes to economic development. Yes, at the end of the day, that is all the energy sector is: a necessary evil for the economy to function and people to have access to lighting, water, heating, and transport. Some of these issues (contributions are welcome) are:

- Does it make sense to continue state support for hydroelectric plants or should this support be expanded to other energy sources in order to expand the generation mix thus increasing the security of energy supplies?

• Is the State maximizing the profits from the natural gas it receives as in-kind payment for the transit services offered to Russia and Azerbaijan? How could these profits be increased and spent?
• Does it make sense to accelerate the liberalization of the electricity and gas markets to increase competition? How this liberalization can be achieved?
• Is the structure of energy tariffs commensurate with the current state of affairs in the sector?
• Should producers, transporters, distributors, and consumers be motivated to use energy more efficiently thus reducing costs in the sector?
• Since they are paying in full, aren’t consumers entitled to an adequate quality of electricity and gas?

It is the answers to these questions that shall ultimately determine how and when energy tariffs will evolve. The coming winter months are a good opportunity to launch, involving all relevant parties, a revision of the Main Directions of State Energy Policy providing a structured set of guidelines for the sector.