Georgia is a net importer of energy, relying heavily on natural gas imports from Azerbaijan, and imports of oil products and coal from various countries. The country’s domestic energy production centres on hydropower, biomass, and some crude oil.
In terms of its geographical location, Georgia plays an important role as a regional crude oil and natural gas transit country, from which it gains monetary benefits that influence the country’s overall subsidy policies.
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
The Baku-Supsa pipeline carries crude oil 829 km from Azerbaijan to the Georgian port city of Supsa along the Black Sea coast. The Baku-Tbilisi-Ceyhan pipeline, carrying crude oil to Ceyhan, Türkiye, is twice the length (1 768 km), of which 249 km run through Georgian territory. Additionally, the South Caucasus Pipeline (SCP) pipes Azeri gas to Turkey while the North-South regional gas pipeline network is used to transit Russian gas to Armenia (2.5 bcm in 2021 and 2.6 bcm in 2022).
The state-owned company Georgian Oil and Gas Corporation manages gas import and transit issues as well as represents government interests in production sharing agreements (PSAs) and is involved in developing thermal power generation capacities. There are three main gas distribution companies in Georgia operating distribution networks on a concessional basis: Tbilisi Energy (former KazTransGaz), which provides gas in Tbilisi, SOCAR Georgia gas and Saqorggaz, which provide gas in regions of Georgia beyond Tbilisi, and smaller distribution companies (around 10% market share) serving different locations country-wide. The two main power distribution companies in Georgia are Telasi and EnergoPro. Currently, Inter RAO Group owns 75% of the shares of JSC "Telasi", while approximately 25% of the shares are in the ownership of “Best Energy Group” LLC. EnergoPro is in private ownership. In the retail market of Georgia, a universal service provider for household consumers and small enterprises, and for other categories of consumers ― a supplier of electricity as a public service: "Tbilisi Electricity Supply Company" LLC (Telmiko) in the license area of Telasi JSC; "EP Georgia Supply" JSC in the license area of Energo-Pro Georgia" JSC.
In 2021, 16.6% of the total energy supply (TES) came from domestic hydropower, which accounted for 80.5% of domestic electricity generation. Because of seasonal fluctuations in hydropower, Georgia is a power exporter during the summer months leaving net imports with a share of only 1.6% of the country’s TES.
The Energy and Water Supply Regulatory Commission of Georgia (GNERC) sets electricity and natural gas tariffs. The VAT rate of 18% applies to all energy products and is incorporated in tariffs for end-users. Average prices on gas and electricity are GEL 0.55/m3 (USD 0.22/m3) and GEL 0.22/kWh (USD 0.08/kWh), respectively.
Natural gas is purchased at different prices according to bilateral import and transit agreements. Along the South Caucasus Pipeline, 5% of transited gas may be purchased at USD 74/1 000 m3 (up to 300 million m3) with additional amounts priced at USD 87 per 1 000 m3 (up to 500 million m3). SOCAR social gas is sold at USD 189/1 000 m3 (up to 500 million m3) while SOCAR commercial gas at USD 240/1 000 m3. Prices on oil products, including fuels, are not regulated.
Electricity tariffs for all consumers are also regulated. A stepwise tariff system is applicable for residential consumers while commercial tariffs vary with the installed voltage level. The main supplier of electricity is Enguri HPP (up to 30% of domestic generation) and its comparatively low average cost of generation contributes to the low weighted average electricity price.
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
The fiscal cost of support measures for fossil fuels in Georgia was estimated at GEL 33.95 million in 2022 (Table 1). Sixty-nine per cent (69%) was directed at end user beneficiaries, as opposed to 31% directed to firms. Support was mainly given out in the form of direct transfers (GEL 23.58 million) accounting for 69% of the total fiscal cost of support measures. Tax expenditures amounted to GEL 10.37 million.
The fiscal cost of support measures for fossil fuels has increased by 58% since 2017. Since last year, tax expenditures have decreased by 9%, from GEL 11.37 million to GEL 10.37 million and direct transfers decreased by 48%, from GEL 146.20 million to GEL 23.58 million. All growth rate percentages above are expressed in terms of nominal national currency amounts.
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
9.488 |
9.545 |
10.411 |
11.323 |
11.367 |
10.366 |
|
Direct transfers |
11.946 |
13.159 |
15.762 |
255.181 |
146.202 |
23.582 |
|
Total |
21.435 |
22.704 |
26.173 |
266.504 |
157.570 |
33.948 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Tax exemptions to oil and gas producing companies for certain operations |
10.366 |
9.488 |
0.878 |
|
|
Direct transfers |
||||
|
Full cost compensation for provision of free gas to households in the Kazbegi and Dusheti municipalities |
12.000 |
6.669 |
5.331 |
|
|
Electricity subsidy for socially vulnerable consumers |
3.353 |
0.576 |
2.777 |
|
|
Electricity subsidies for households in high mountain areas |
3.189 |
1.283 |
1.906 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
|
Tax exemptions to oil and gas producing companies for certain operations |
Georgian oil and gas corporation (GOGC is a state-owned company) based on the production sharing agreement (PSA) with companies (Georgia Oil and Gas Limited, Norioskhevi Georgia, GNV Georgia) GEL paid 1,124,568 in total as a profit tax in the budget during 2010-2022. GOGC paid profit tax instead of these companies, to facilitate and support production of local energy resource. The Tax Code of Georgia (Parliament of Georgia 2010), Article 206 paragraph 1 (F), provides exemption from property tax of the property used for oil and gas operations (activities) as provided for by the Law of Georgia on Oil and Gas. Property tax rate is 1% of the average annual net book value according to Article 202, paragraph 3. GOGC provided amount of property tax exempted for the year 2022 (GEL 10.4 million). According to the Law on Fees for the Use of Natural Resources, Article 5, the fee for extraction is GEL 21 per tonne of crude oil and GEL 2 for 1 000 m3 of gas extracted. GOGC pays the fee instead of oil and gas companies operating in Georgia to facilitate and support production of local energy resource. The annual payments of the fee are provided by the GOGC. |
|
Full cost compensation for provision of free gas to households in the Kazbegi and Dusheti municipalities |
Reimbursement of gas cost supplied to households of Kazbegi and Dusheti municipalities from the state budget in winter months (from 15 October to 15 May). This support has been provided since the 1990s, when North-eastern gas transit pipeline (Russia-Georgia-Armenia) came into exploitation. This pipeline passes through the Kazbegi and Dusheti municipalities. Therefore, the Georgian government decided to supply gas to the households of these two municipalities for free, while the budget transfers go directly to gas suppliers. The subsidy has caused large market distortions. For example, residents used the free gas to heat their greenhouses and cultivate vegetables in highlands. Stricter limitations have been imposed in the last few years, but such practices continue and the burden on the national budget – in the order of about GEL 10 million per year – is not declining. |
|
Electricity subsidy for socially vulnerable consumers |
The tariff subsidy is granted in accordance with the Resolution No. 381 of the Government of Georgia dated 30 July 2015, to families registered in the “Database of Socially Vulnerable Families” whose socio-economic ranking score does not exceed 70 000 (scores are assigned to socially unprotected families by SSA, based on the comprehensive methodology) except the families registered in the administrative territories of Tbilisi municipality. The subsidy is granted on the basis of the electricity consumed, GEL 0.0395 per kWh, including VAT. Estimate is provided by the Social Service Agency (n.d.). From 2022, in the same subsidy scheme families with socio-economic ranking scores 70 000-150 000 also recieved the energy subsidy. |
|
Electricity subsidies for households in high mountain areas |
According to the Resolution No. 418 of the Government of Georgia (25 August 2016) electricity subsidies are issued for permanent residential consumers in Highland Settlements of Georgia. Subsidy covers 50% of the monthly cost of consumed electricity, but no more than cost of 100 kWh per customer |
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.