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SOCAR Becomes Liquid Gas Monopolist

In 2017 the excise tax rate increased on oil products and this fact has already made significant changes on Georgian automobile market. After the mentioned tax amendments, the demand for hybrid vehicles increased at once, first of all.

Higher excise tax rate also raise the value of vehicle gas CNG considerably, which is used by almost 40%  of vehicles registered in Georgia. Prices increased by averaged 20 Tetri. According to the field experts, this growth dropped drivers’ interest  this product. In this situation, a part of drivers decided to return to liquid gas LPG, forgotten  many years ago. This fuel is an only oil product on which excise tax has not increased. Consequently, if one cubic meter of CNG costs 1.50 GEL, the price of one kilogram of LPG is about 1.20 GEL.

Analyst Beka Kemularia  makes focus on efficiency of fuel. In the existing situation liquid gas genuinely has  technical characteristics that enable to offer real competition to natural gas.

“First of all, we should note that the same volume of fuels generates the same energy in vehicles. This signifies that liquid gas has the same effect for vehicles as petrol. Moreover, it is very easy to replace the natural gas system by liquid gas system in vehicles. As to safety issues, it is much more safer than natural gas. The price was an only problem for many years. In that period, liquid gas was more expensive than natural gas. Growth in excise tax and making oil products market open have removed this problem. We know that under the ruling of the previous Authorities, oil products market was represented by only five companies and those companies, under the umbrella of the previous Authorities, did not enable any other company to enter the market. It should be also noted that, in due time, the people, who used to control fuel market, thought that liquid gas could compete with natural gas. I suppose artificial barriers were introduced  to prevent liquid gas to enter the market. Today the mentioned factors have been neutralized to a certain degree and I believe liquid gas has good perspectives”, Kemularia noted.

AYFB Vice President Paata Bairakhtari also agrees on this opinion. Liquid gas sector was narrowed  because of artificial barriers, he said.

“This is a very sensitive issue, because, in due time,  the then Authorities created artificial barriers so as  liquid gas consumers had to give up liquid gas consumption. To be more precise, in that period, all liquid gas importer companies were blocked and this factor badly affected price policy and liquid gas price considerably increased as compared to natural gas.

It should be also noted that only SOCAR was enabled to continue operation as liquid gas importer, but SOCAR’s product used to smell so badly that consumption of this gas in vehicles was impossible”, Bairakhtari noted.

However, currently, liquid gas has genuinely good perspectives, he said.

“After growth in excise tax rate, natural gas price considerably increased, but hybrid vehicles are too expensive for that category of our citizens, who consume natural gas. Therefore, liquid gas will be a good solution for similar drivers. However, this is a midterm perspective and it will take certain period to arrange various infrastructure and fueling stations”, Bairakhtari said.

Concerning the issue, Union of Oil Products Imports noted that at this stage liquid gas cannot compete with  natural gas, however, mass consumption of liquid gas should not be ruled out, based on European experience. The Union President Vano Mtvralashvili explained that liquid gas is prioritized in many countries because of its quite good technical characteristics.

“This is an issue of far perspective, because natural gas is a quite popular product in Georgia and 35-40% of vehicles use natural gas. Moreover, only several liquid gas fueling stations operate in the country. However, despite lack of due infrastructure, vehicle owners will strive to move to liquid gas systems because of price difference. I also want to note that liquid gas is a very popular product in EU countries. In Turkey 70% of vehicles work on this product, because liquid gas is considered to be a high-quality product and it does not harm environment. As to technical characteristics, liquid gas rules out explosive cases, in practice”, Mtvralashvili said.

In the course of time, moving to liquid gas system will become an irreversible process, he said.

“This process will become irreversible, because retail prices are very low. Moreover, the interest in LPG will increase  because our vehicle importers convey used automobiles from Germany  and a major part of them are equipped with liquid gas systems. In this case number of vehicles will grow if quantity of liquid gas fueling stations goes up”, Mtvralashvili noted.