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How SOCAR Monopolized the Liquefied Gas Market

Consumer interest in liquefied petroleum gas (LPG) is growing, as prices are rising for condensed natural gas (CNG). At this point, the price of LPG is much lower than that of natural gas. The price of one cubic meter of CNG is 1.55 GEL, while one kilogram of LPG is sold for 0.99 GEL.

Increased excise taxes on oil products have considerably contributed to this price difference, but excise taxes have not increased only on LPG. The excise tax on CNG has increased by an average of 0.20 GEL. Based on these circumstances, the demand for LPG is continuously growing. In 2017, experts predicted that LPG would be a popular fuel choice in the long-term, and at this stage, there are tens of refueling stations in the capital city. Besides price, LPG became popular because of its technical characteristics. Unlike natural gas, LPG is the equal of a premium fuel at 95 octane. Additionally, it is very simple to replace a CNG system with an LPG system.

Experts also emphasize LPG’s safety characteristics. Beka Kemularia, the founder of the Consumer Protection Center, noted that LPG is much safer and more ecologically clean than natural gas.

“It is much safer compared to natural gas. It is important to make a focus on the ecological advantages of LPG. This is a much more ecologically clean product than natural gas. The price was the only problem for many years. The liquefied gas price is much higher compared to natural gas. Increased excise tax and an opened oil product market have removed this problem today,” Kemularia said.

Georgian consumers have not used liquefied gas in decades, despite price and technical advantages, but European countries use this fuel as they prefer its ecological characteristics. Many years ago, the fuel was artificially blocked with the support of the government, and consumers were able to use only natural gas with low technical properties and high prices. With the support of the former authorities, all LPG import companies were banned other than SOCAR, the only company allowed to import LPG to Georgia. As a result, the price of LPG was considerably higher than that of CNG. The protectionist environment created by the previous regime on behalf of SOCAR made this company a market monopolist. However, unlike other importers, SOCAR’s product had such an unbearably strong smell that it could not be used in vehicles. Therefore, consumers ignored SOCAR’s LPG and had a preference for CNG, a market in which competition was comparatively higher.

Paata Bairakhtari, the vice president for the Association of Young Financiers and Businessmen (AYFB), knows this economic scheme very well. This system enabled SOCAR to become the only LPG supplier on the Georgian market, he said.

“In that period, hothouse conditions were created for various companies. The oil products market was a closed market, which was controlled by the then Defense Minister David Kezerashvili. The LPG market was independent and competitive. Therefore, there was a real threat that it could compete with not only natural gas, but also petrol, and this was unacceptable for the then authorities. Consequently, they “insured” this risk and blocked all LPG importers, save SOCAR. Their intention was to make SOCAR a monopolist on the LPG market, like the well-known five companies on petrol and diesel markets. However, they did not take into account peculiar characteristics of SOCAR fuel. The point is that in that period SOCAR could not satisfy the existing demand for fuel in terms of technical aspects, and, on the other hand, SOCAR liquefied gas was a low-quality product and smelled unbearable. Therefore, this project failed and LPG’s prospects on the Georgian market were neutralized,” Bairakhtari noted.