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Electricity Price will not Rise Due to GEL Volatility

Georgian National Energy and Water Supply Regulatory Commission (GNERC) has launched public administrative procedures for defining electricity distribution, transit and consumption tariff for JSC TELASI.

Amid the depreciation of the GEL exchange rate, electricity tariffs are expected to rise. The market exchange rate has already dropped to 2.45 points. Energy sector specialists assert that electricity and gas tariffs are expected to correct when the exchange rate reaches 2.5 points.

Moreover, it should be noted that current tariffs will run through December 31. At the end of 2016, the GNERC will revise the tariffs. There are predictions that certain distribution companies will suggest that the tariff revision is a problem.

At this stage, GNERC does not confirm tariff growth plans. The GNERC chairperson, Irina Milorava, said that, per the GNERC methodology, the companies should apply to the commission with a new tariff statement at the end of the year. That is the reason behind TELASI submitting its application.

«When talking about the exchange rate volatility, we should remember how much this fluctuation was, when tariffs were corrected. We do not have similar fluctuations currently. Therefore, it would not be correct to make accents on this issue. Also, it should be noted that the commission supervises tariffs in all sectors on an annual basis. According to our methodology, tariff applications must be submitted to the Commission at the end of a year. The commission must discuss these applications and pass corresponding decisions. This signifies that a tariff application does not equal a statement for tariff growth. Currently, the exchange rate tendencies do not create preconditions for embarrassment.

Recent trends prove that import dependency shrinks after domestic output growth. However, the currency exchange rate makes certain contribution to this. Even steam power plants buy natural gas in dollars. However, in part of our steam power plants, last tariffs were calculated with a 2.4 exchange rate. This point is maintained at this stage», Irina Milorava noted. Gia Arabidze, Dean of the Georgian Technical University energy and telecommunications faculty, noted that if the GEL exchange rate drops to 2.50 points, energy distributors will not demand for tariffs growth.

«Currently the rate ranges from 2.3 to 2.4 points. In previous years, electricity tariffs rose because of currency exchange rates. However, during that period, the change was very important and there were no alternatives», Arabidze noted.

In February 2017, when Enguri HPP will be put into a rehabilitation regime, problems are expected to arise. The government must invest great efforts to find adequate reserves. Electricity generated from Enguri HPP is cheap. Changes may occur after Enguri HPP suspends the operation, but the system is to prevent consumer tariffs growth», Arabidze noted.

Andria Gvidiani, analyst for Association of Young Financiers and Businessmen (AYFB), noted that currently the tariff revision issue is irrelevant.

‘Electricity tariffs consist of several components. The key components are: electricity generation, transmission-dispatching and distribution. In the Telasi case, the issue concerns the revision of distribution tariff. This segment is divided into five components: normative losses, capital expenditures, operating expenditures, electricity purchase and TELASI forecast investments.

Regarding the probability of the revision of electricity tariffs due to the volatility of the GEL exchange rate, I believe a similar scenario is ruled out at this stage. Today the GEL exchange rate exceeded 2.4 point. However, in 2015 the tariff was calculated for 2.30 points. Since then, the exchange rate remains permanently volatile. Therefore, I believe that the regulator will not revise the tariff because of TELASI’s application», Andria Gvidiani said.