1 GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION NATURAL GAS TARIFF REGULATION Guliko bedoshvili Department for Tariffs and Prcing Tbilisi,

1

GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION

NATURAL GAS TARIFF REGULATION

Guliko bedoshviliGuliko bedoshviliDepartment for Tariffs and PrcingDepartment for Tariffs and Prcing

Tbilisi, 2008 June 27-July 3

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Natural Gas TariffsOverview

Legal aspects of natural gas tariff regulationState policies in natural gas tariff regulationCommission regulated tariffs in gas sectorTarif deregulation and partial deregulation in gas sectorNatural gass supply tariffsNatural gas transportation tariffsNatural gas distribution tariffsNatural gas consumption tariffsTaxation system in natural gas sector

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Legal aspects of natural gas tariff regulation

_ Law on Independent National Regulatory Authorities_ Law on Independent National Regulatory Authorities;;_ Law on Electric Power and Natural Gas;_ Law on Electric Power and Natural Gas;_ Rules and Methodologies for Identification of Natural Gas Tariffs _ Rules and Methodologies for Identification of Natural Gas Tariffs

(approved by the decision of the Commission);(approved by the decision of the Commission);_ Decisio of the Commission on Natural Gas Tariffs;_ Decisio of the Commission on Natural Gas Tariffs;_ Existing Tax Legislation;_ Existing Tax Legislation; * Tax Code* Tax Code * Law on Customs Tariffs and Fees* Law on Customs Tariffs and Fees_ International Agreements;_ International Agreements; * Agreement between CIS countries, according to which the products produced in * Agreement between CIS countries, according to which the products produced in

aforementioned countries are not subject to import customs tariffsaforementioned countries are not subject to import customs tariffs

4

State Policies in Gas SectorState Policies in Gas Sector

In tariff setting, the Commission takes into consideration State PoliciesIn tariff setting, the Commission takes into consideration State Policies_ State Plocies are implemented byt the Ministry of Energy_ State Plocies are implemented byt the Ministry of Energy_ The main functions of the Ministry in development and implementation of _ The main functions of the Ministry in development and implementation of

gas sector State Policies are as follows:gas sector State Policies are as follows: 1. Promoting attraction of short-, medium- and long-Term investments, as 1. Promoting attraction of short-, medium- and long-Term investments, as

well as of the crediting resources and making state investments into the well as of the crediting resources and making state investments into the sector, with the view of its rehabilitation and developmentsector, with the view of its rehabilitation and development

* The funds allocated from the state budget for rehabilitation and development of * The funds allocated from the state budget for rehabilitation and development of the sector are administerd by the Ministry. Until 2007, such funds were mainly the sector are administerd by the Ministry. Until 2007, such funds were mainly directed to electric power sector, while since 2007, the rehabilitation and directed to electric power sector, while since 2007, the rehabilitation and development activities for state sites in gas sector have been commenced.development activities for state sites in gas sector have been commenced.

_ Promoting transit, import and export relations in the natural gas sector_ Promoting transit, import and export relations in the natural gas sector * Ministry of Energy participates or directly conducts negotiations on import of the * Ministry of Energy participates or directly conducts negotiations on import of the

natural gas and tarifs thereof (with Azerbaijan)natural gas and tarifs thereof (with Azerbaijan)_ _ Approving Natural Gas BalanceApproving Natural Gas Balance_ Is entitled to make the decisions on deregulation or partial deregulation_ Is entitled to make the decisions on deregulation or partial deregulation

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Tarif deregulation and partial deregulation in Tarif deregulation and partial deregulation in natural gas sectornatural gas sector

The Law on Electric Power and Natural Gas entitles the Ministry of The Law on Electric Power and Natural Gas entitles the Ministry of Energy to make a decision on deregulation or partial deregulation of Energy to make a decision on deregulation or partial deregulation of activities in energy sectoractivities in energy sector

** Deregulation _ right to carry out activities without tariff setting Deregulation _ right to carry out activities without tariff setting * * partial Deregulation _ right to carry out activities on basis of setting the partial Deregulation _ right to carry out activities on basis of setting the

marginal tariffsmarginal tariffs * * In October 2007, on basis of the Ordinance of the Minister of Energy, In October 2007, on basis of the Ordinance of the Minister of Energy,

the gas supply tariffs were deregulated and partially deregulatedthe gas supply tariffs were deregulated and partially deregulated * * Gas supply tariffs were released from regulatory requirements, save the Gas supply tariffs were released from regulatory requirements, save the

gas supplied for the customers connected to the gas distribution netowrks, gas supplied for the customers connected to the gas distribution netowrks, who were subjected to the partial deregulationwho were subjected to the partial deregulation

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Tarifs regulated by the Commission Tarifs regulated by the Commission in Gas Sectorin Gas Sector

Authorities of the Commission in tariff setting;Authorities of the Commission in tariff setting; * According to the Law on Electric Power and Natural Gas, the * According to the Law on Electric Power and Natural Gas, the

Commission regulates the following gas sector tariffs:Commission regulates the following gas sector tariffs: 1. Marginal supply tariffs only for those customers, who are connected to 1. Marginal supply tariffs only for those customers, who are connected to

the gas distribution networkthe gas distribution network 2. Transportation tariff2. Transportation tariff 3. Distribution tariff3. Distribution tariff 4. Marginal consumer tariffs4. Marginal consumer tariffs * The Commission does not regulate (process are free):* The Commission does not regulate (process are free): 1. Gas tariffs of gas sold at liquefied gas stations (regulated until 2006)1. Gas tariffs of gas sold at liquefied gas stations (regulated until 2006) 2. Supply (wholesale) tariffs2. Supply (wholesale) tariffs

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Natural gas supply tariffsNatural gas supply tariffs

The sources and prices of the natural gas imported to Georgia and their dynamics (Annex The sources and prices of the natural gas imported to Georgia and their dynamics (Annex #1)#1)

* Prior to * Prior to 2007, natural gas was imported only fro Russia (prices 40$-60$-110$ -235$/1000m3)2007, natural gas was imported only fro Russia (prices 40$-60$-110$ -235$/1000m3) ** Since 2007, the imports also started from Azerbaijan (prices 62,4$ and 120$/1000m3) Since 2007, the imports also started from Azerbaijan (prices 62,4$ and 120$/1000m3) _ Importers and suppliers of natural gas_ Importers and suppliers of natural gas ** Oil and Gas Corporation LLC, JSC Itera Sakartvelo, International Energy Corporation – Oil and Gas Corporation LLC, JSC Itera Sakartvelo, International Energy Corporation –

purchase gas and resell it to the other suppliers and/or customerspurchase gas and resell it to the other suppliers and/or customers ** All distribution companies are the suppliers at the same time; they purchase the gas fro the All distribution companies are the suppliers at the same time; they purchase the gas fro the

above suppliers and supply it to the customers within distribution areaabove suppliers and supply it to the customers within distribution area ** Some importers purchase gas only for their own consumption (Energy-Invest – for Chemical Some importers purchase gas only for their own consumption (Energy-Invest – for Chemical

Plant and HOS, Mtkvari-Energetika – thermal power station)Plant and HOS, Mtkvari-Energetika – thermal power station) _ The natural gas supply (average weighted) tariffs and their structure on example of Oil _ The natural gas supply (average weighted) tariffs and their structure on example of Oil

and Gas Corporation and Itera-Sakartvelo (Annexes 2, 3)and Gas Corporation and Itera-Sakartvelo (Annexes 2, 3) ** Since Since 20072007, the prices of natural gas inmported from Russia increasd from $110.0 to $235.0 , the prices of natural gas inmported from Russia increasd from $110.0 to $235.0

per 1,000 m3per 1,000 m3

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Natural gas supply tariffsNatural gas supply tariffs

Since Since 20072007, gas imports also started from Azerbaijan; its prices , gas imports also started from Azerbaijan; its prices were much lower then of the Russian gas (62,4$ and 120$)were much lower then of the Russian gas (62,4$ and 120$)

** In order to avoid the tariff shock, on basis of the Natural Gas In order to avoid the tariff shock, on basis of the Natural Gas Balance approved by the Ministry for 2007 and the Balance approved by the Ministry for 2007 and the applications of the suppliers, the Commission determined for applications of the suppliers, the Commission determined for customers the awerage weighted tarif of Russian and Azeri customers the awerage weighted tarif of Russian and Azeri gases, which made $gases, which made $167,0/1167,0/1,,000m000m33; accodingly the gas prices ; accodingly the gas prices for the consumers increased by just 52%for the consumers increased by just 52%

** Gas tariffs were set in 2007, and the customers connected to Gas tariffs were set in 2007, and the customers connected to the distribution network still pay the same prise for the the distribution network still pay the same prise for the supplied gassupplied gas

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Source Source of of

importimport Import priceImport price

## YearsYears US$/1,000m3US$/1,000m3 NoteNote

11 19991999 RussiaRussia 60.060.0

22 20002000 RussiaRussia 40.040.0

33 20012001 RussiaRussia 50.050.0

44 20022002 RussiaRussia 56.056.0

55 20032003 RussiaRussia 60.060.0

66 20042004 RussiaRussia 60.060.0

77 20052005 RussiaRussia 60.060.0

88 20062006 RussiaRussia 110.0110.0

RussiaRussia 235.0235.0The average weighted tariffs were set for The average weighted tariffs were set for

the customersthe customers

99 20072007 Shakhdeniz (Azerbaijan)Shakhdeniz (Azerbaijan) 62.462.4

AzerbaijanAzerbaijan 120.0120.0 US$167,0/1,000m3US$167,0/1,000m3

1010 20082008 Not regulated by the CommissionNot regulated by the Commission

Annex 1 Prices and dynamics of the natural gas imported to Georgia, 1999-2008

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Retail tariff# component

(GEL/1,000m3) (US$/1,000m3)I Initial indicators

1 Volume of supplied gas mln. m3. 575.38incl. Azerigaznaigl ~_~ 325.38

- supplementary purchase fro Shakhdeniz ~_~ 250.0

2 gas purchase prise-average (US$/1,000m3) 94.97incl. Azerigaznaigl ~_~ 120.0 - supplementary purchase fro Shakhdeniz ~_~ 62.4

3 Gas purchase price in national currency (GEL/1,000m3) 161.454 GEL/US$ exchange rate (for the moment of approval) GEL 1.7

II Supply costs (GEL/1,000m3) 3.141 1.848

Including:1 _ conversion of GEL into US$ and money transfer ~_~ 0.646 0.3802 _ Paid loan interest ~_~ 2.290 1.3473 _ Other administrative expenses ~_~ 0.205 0.121

III Taxes (VAT exclusive) ~_~ 0.313 0.184IV Regulation fee ~_~ 0.498 0.293V VAT (18%) ~_~ 29.98 17.635VI Net profit ~_~ 1.147 0.675

The same with regard to turnover capital % 5.500VII Natural gas supply margin (VAT exclusive) (GEL/1,000m3) 5.10 3.0VIII natural gas wholesale supply tariff (VAT exclusive) ~_~ 166.55 98.0IX natural gas wholesale supply tariff (VAT inclusive) ~_~ 196.53 115.6

Annex 2

Wholesale gas supply tariff structure of Oil and Gas Corporation Ltd Prices of 2007

GeneralisationTariff

Gas who l esal e suppl y t ar i ff scheme

82,2%

0,58%15,25%

0,25%

1,6%

0,12%

gazis Sesasyidi fasi erovnul valutaSi-82,2%

miw odebis xarjebi-1,6%

gadasaxadebi (dRg-is gareSe)-0,12%

regulirebis safasuri-0,25%

dRg-15,25%

w mida mogeba-0,58%

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# Components ofretail tariff Share in wholesale

GEL/1,000m3 ($/1,000m3) tariff, %I Initial indicator1 Volume of supplied natural gas mln. m3 307.05

incl. from - Russia ~_~ 150.17 - Oil and Gas Corporation ~_~ 126.9 - Transport company ~_~ 30.0

2 Average gas purchase price $/1,000m3 167incl. from - Russia ~_~ 235.0

- Oil and Gas Corporation ~_~ 97.97 - Transport company ~_~ 118.48

3 Gas purchase tariff in national currency GEL/1,000m3 283.9 82.34 GEL/USD exchange rate (for the moment of approval) GEL 1.7II Supply costs GEL/1,000m3 4.065 2.391 1.18

Including:1 _ conversion of GEL into US$ and money transfer ~_~ 0.977 0.575 0.282 _ Paid loan interest ~_~ 0.191 0.112 0.063 _ Other administrative expenses ~_~ 2.897 1.704 0.84

III Taxes (VAT exclusive) ~_~ 1.360 0.800 0.39IV Regulation fee ~_~ 0.881 0.518 0.26V VAT (18%) ~_~ 52.62 30.953 15.25VI profit ~_~ 4.4 2.5881 excessive revenues of the previous year (to be deducted) ~_~ 2.25 1.3242 Net profit ~_~ 2.15 1.265 0.62

The same with regard to turnover capital % 6.00VII Natural gas supply margin (VAT exclusive) GEL/1,000m3 8.46 5.0 2.45VIII natural gas wholesale supply tariff (VAT exclusive) ~_~ 292.36 172.0 84.75IX natural gas wholesale supply tariff (VAT inclusive) ~_~ 344.98 202.9 100

Annex 3

JSC Itera Georgia Supply Tariff StructureIn 2007 pricesUnit

Tariff

gaz i s sabi Tumo mi wodebi s t ar i fi sqema 0,26%

0,39%

1,18%

15,25% 0,62%

82,3%

gaz i s Sesasyi di t ar i fi er ovnulval ut aSi -82,3%mi wodebi s xar j ebi -1,18%

gadasaxadebi (dRg-i s gar eSe)-0,39%

r egul i r ebi s saf asur i -0,26%

dRg-15,25%

wmi nda mogeba-0,62%

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NATURAL GAS TRANSPORTATION NATURAL GAS TRANSPORTATION TARIFFSTARIFFS

_ _ Capacities of gas transportation system and dynamics of actually Capacities of gas transportation system and dynamics of actually imported to and transported through Georgia gas volumes (Annex)imported to and transported through Georgia gas volumes (Annex)* * Capacity of transportation system makes 20,0 billion m3Capacity of transportation system makes 20,0 billion m3

* Maximal gas consumption in Georgia was filed in the end of * Maximal gas consumption in Georgia was filed in the end of 1980-ies and amounted to 6.7 billion m31980-ies and amounted to 6.7 billion m3

* In 2007, gas consumption in Georgia amounted to 1.7 billion m3, while * In 2007, gas consumption in Georgia amounted to 1.7 billion m3, while transit made 2.0 billion m3transit made 2.0 billion m3

_ _ Natural gas transportation tariffNatural gas transportation tariff

** Transportation tariff is the same for all consumers (save Transportation tariff is the same for all consumers (save thermal thermal PPs) PPs) and is set at GEL16.62/1,000mand is set at GEL16.62/1,000m33, including VAT, including VAT

_ _ Natural Gas transitNatural Gas transit

* Gas is delivered to the Republic of Armenia* Gas is delivered to the Republic of Armenia * Transi tariffs are not regulated by the Commission* Transi tariffs are not regulated by the Commission * Revenues received from transit are taken into account in setting * Revenues received from transit are taken into account in setting

transportation tarifftransportation tariff

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Natural gas transportation balance Natural gas transportation balance 2000-20072000-2007

mln. mmln. m33

Actual volumes of gas transported in GeorgiaActual volumes of gas transported in Georgia

## Source of natural gasSource of natural gas20002000

20012001 20022002 20032003 20042004 2005 2005 20062006 20072007

11 22 33 44 55 66 77 88 99 1010

II Total consumed gasTotal consumed gas 1027.971027.97 837.12837.12 700.24700.24 876.93876.93 1114.961114.96 1332.521332.52 1807.841807.84 1616.411616.41

imported from – Russia imported from – Russia 1027.971027.97 837.12837.12 700.24700.24 876.93876.93 1114.961114.96 1332.521332.52 1802.891802.89 1098.181098.18

– – Iran Iran 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00 4.964.96 0.000.00

– – AzerbaijanAzerbaijan 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00 518.23518.23

Transit to Republic of ArmeniaTransit to Republic of Armenia

IIII TransitTransit 1403.611403.61 1403.071403.07 1070.291070.29 1200.951200.95 1332.571332.57 1685.031685.03 1715.641715.64 2054.362054.36

Actual lossesActual losses

IIIIII LossesLosses 169.89169.89 118.83118.83 112.22112.22 132.09132.09 116.35116.35 107.61107.61 73.5473.54 67.2867.28

IIVV

Total volume of gas received in the Total volume of gas received in the networknetwork 2601.472601.47 2359.022359.02 1882.761882.76 2209.962209.96 2563.882563.88 3125.163125.16 3597.023597.02 3738.053738.05

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Natural gas distribution tariffsNatural gas distribution tariffs

_ _ Tariff application procedures and requirementsTariff application procedures and requirements

* * Within 3-dayperiod from submission of the Tariff Application to the Commission by the Licensee, the Within 3-dayperiod from submission of the Tariff Application to the Commission by the Licensee, the respective services shall check for the accuracy and completeness of the documents. If the documentation respective services shall check for the accuracy and completeness of the documents. If the documentation is complete, the administrative proceeding of the Application begins; if the documentation is not complete, is complete, the administrative proceeding of the Application begins; if the documentation is not complete, the notice requiring submission of the missing documents shall be sent to the Licenseethe notice requiring submission of the missing documents shall be sent to the Licensee

* The draft prepared by the staff of Commission shall be considered at the Meeting of the * The draft prepared by the staff of Commission shall be considered at the Meeting of the Commission.Commission.

** The Commission shall come up with the final tariff in 150 days, maximum.The Commission shall come up with the final tariff in 150 days, maximum.

* * The Application submitted by the Licensee shall be justified; the audit approved financial analyses of the The Application submitted by the Licensee shall be justified; the audit approved financial analyses of the previous regulated period, as well as any additional information required by the Commission shall also be previous regulated period, as well as any additional information required by the Commission shall also be submittedsubmitted

_ _ Natural gas distribution tariff structure – Tariff Application Forms (Annex 1)Natural gas distribution tariff structure – Tariff Application Forms (Annex 1) _ The norms for basic costs and net profits of gas distribution_ The norms for basic costs and net profits of gas distribution * * Depreciation norm _ set out in Tax CodeDepreciation norm _ set out in Tax Code

* * Wage rates _ according to categories assigned to cities and regionsWage rates _ according to categories assigned to cities and regions

* * Repair expenses _ up to 5% of the fixed assetsRepair expenses _ up to 5% of the fixed assets * The volume of net profit is currently set by the Commission at 8% of the fixed assets* The volume of net profit is currently set by the Commission at 8% of the fixed assets

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Natural gas distribution tariffsNatural gas distribution tariffs

- - The norm for losses and its share in gas distribution tariff (Annex 2)The norm for losses and its share in gas distribution tariff (Annex 2) * * The average volume of normal losses in Kaztransgaz tariff – 9%; for the other companies – up to The average volume of normal losses in Kaztransgaz tariff – 9%; for the other companies – up to

5%5% * In 2006-2007, increase in gas import and supply tariffs has significantly influenced (almost doubled) * In 2006-2007, increase in gas import and supply tariffs has significantly influenced (almost doubled)

the share of normal losses in distribution tariffsthe share of normal losses in distribution tariffs

_ Differentiation of natural gas distribution tariffs by customer categories _ Differentiation of natural gas distribution tariffs by customer categories (pressure)(pressure)

* * According to the used methodology, the gas distribution tariffs are set for the high, medium and low According to the used methodology, the gas distribution tariffs are set for the high, medium and low pressure comsumerspressure comsumers

* So far, the Commission has set tariffs for 67 distribution licensees; for 21 of them the tariffs are * So far, the Commission has set tariffs for 67 distribution licensees; for 21 of them the tariffs are differentiated (by the pressure); the remaining 46 companies have only low pressure (residual) differentiated (by the pressure); the remaining 46 companies have only low pressure (residual) customerscustomers

* * Following distribution tariffs (including VAT) are set for the various companies:Following distribution tariffs (including VAT) are set for the various companies: - High pressure – from 0.6 to 3.5 Tetris- High pressure – from 0.6 to 3.5 Tetris - Medium pressure – from 2.0 to 12.0 Tetris- Medium pressure – from 2.0 to 12.0 Tetris - High pressure – from 10.0 to 17.0 Tetris- High pressure – from 10.0 to 17.0 Tetris

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B B Natural gas distribution tariffsNatural gas distribution tariffs

_ Calculation and structure of current Kaztransgaz Lt. distribution tariffs (Annex 3)_ Calculation and structure of current Kaztransgaz Lt. distribution tariffs (Annex 3) _ Monitoring of companies’ activities and their financial status_ Monitoring of companies’ activities and their financial status * * The companies shall quarterly submit information on their activities in the form determined by The companies shall quarterly submit information on their activities in the form determined by

the Commission, and annually submit the audit approved financial statementsthe Commission, and annually submit the audit approved financial statements * Majority of gas distribution companies are unprofitable. In 2007, the loss of Kaztransgaz-* Majority of gas distribution companies are unprofitable. In 2007, the loss of Kaztransgaz-

Tbilisi amounted to GEL 72.00 mln., and this mainly is due to a major tecnical losses in the Tbilisi amounted to GEL 72.00 mln., and this mainly is due to a major tecnical losses in the systemsystem

_ Major problems of the gas distribution companies_ Major problems of the gas distribution companies * * The obsolete underground networks and poorly arranged metering result in the major tecnical The obsolete underground networks and poorly arranged metering result in the major tecnical

and, accordingly, financial losses; all the companies require Commission to increase the loss and, accordingly, financial losses; all the companies require Commission to increase the loss normsnorms

* Major consumers try to leave the distribution systems and connec to the transportation system * Major consumers try to leave the distribution systems and connec to the transportation system directly; this results in the reduced revenues of the distribution companies and, therefore, they directly; this results in the reduced revenues of the distribution companies and, therefore, they rewquire increase of the residual customers’ tariffs. For instance, Kaspigazi lost the large rewquire increase of the residual customers’ tariffs. For instance, Kaspigazi lost the large cement factory (consumes 100-140 mln m3 per annum); Rustavgazi lost chemical plant (250 cement factory (consumes 100-140 mln m3 per annum); Rustavgazi lost chemical plant (250 mln m3) and cement mill (90 mln m3)mln m3) and cement mill (90 mln m3)

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(Annex 1)(Annex 1)

Natural gas distribution and consumption tariff Application FormNatural gas distribution and consumption tariff Application Form

Actual in Actual in 20072007 Forecast for 2008Forecast for 2008

## DescriptionDescription UnitUnit TotalTotal IncludingIncluding

High High

pressurepressureMedium Medium pressurepressure

Low Low pressurepressure

consumersconsumers consumersconsumers consumersconsumers

11 22 33 44 55 66 77 88

II Initial indicatorsInitial indicators

11 Received natural gasReceived natural gas 1,000 m31,000 m3

22 Natural gas lossesNatural gas losses _,,__,,_

The same information in %The same information in % %%

2.12.1 Including normalIncluding normal 1,000 m31,000 m3


33 Distributed natural gasDistributed natural gas 1,000 m31,000 m3

44 The single lenth of gas pipelines on balanceThe single lenth of gas pipelines on balance

Including:Including:

4.14.1 In operationIn operation kmkm

4.24.2 Out of operationOut of operation _,,__,,_

4.2.14.2.1 ConservedConserved _,,__,,_

55 Number of customersNumber of customers CustomersCustomers

66 Number of employeesNumber of employees PersonsPersons

77 Residual value of fixed assetsResidual value of fixed assets

Starting periodStarting period 1,000 GEL1,000 GEL

Including in operationIncluding in operation _,,__,,_


7.17.1 Gas pipelinesGas pipelines _,,__,,_

In operation m.S. moqmedebaSi myofiIn operation m.S. moqmedebaSi myofi _,,__,,_

18

Natural gas distribution and consumption tariff Application FormNatural gas distribution and consumption tariff Application Form (continued)(continued)

88 Natural gas purchase priceNatural gas purchase price

(excl. VAT)(excl. VAT) GEL/1,000 m3GEL/1,000 m3

IIII Gas distribution costsGas distribution costs

excl. VAT _ Totalexcl. VAT _ Total GEL 1,000GEL 1,000


11 Gas lossesGas losses GEL 1,000GEL 1,000

22 Payroll fundPayroll fund _,,__,,_

33 Fixed assets depreciationFixed assets depreciation _,,__,,_

44 Fixed assets repairsFixed assets repairs _,,__,,_

55 Electric powerElectric power _,,__,,_

66 Materials and Spare partsMaterials and Spare parts _,,__,,_

77 fuel and lubricantsfuel and lubricants _,,__,,_

88 CommunicationsCommunications _,,__,,_

99 Utility servicesUtility services _,,__,,_

1010 Loan interest paymentsLoan interest payments _,,__,,_

1111 Other expensesOther expenses _,,__,,_

IIIIII Taxes, excluding VATTaxes, excluding VAT GEL 1,000GEL 1,000


11 Property taxProperty tax _,,__,,_

22 Social tax accrual on wagesSocial tax accrual on wages _,,__,,_

33 Land (non-agricultural) taxLand (non-agricultural) tax _,,__,,_

44 Regulation feeRegulation fee _,,__,,_

55 Profit taxProfit tax _,,__,,_

19

Natural gas distribution and consumption tariff Application FormNatural gas distribution and consumption tariff Application Form (continued)(continued)

IVIV Total operation costs (II+IIITotal operation costs (II+III))

VV Net profit (loss)Net profit (loss) _,,__,,_

The same information as share of fixed assetsThe same information as share of fixed assets %%

VIVI Total annual revenues fromTotal annual revenues from

natural gas distribution (IV+V)natural gas distribution (IV+V) GEL 1,000GEL 1,000

VIIVII TariffsTariffs

11 Gas distribution tariff (VI / I-3)Gas distribution tariff (VI / I-3) GEL/1,000 m3GEL/1,000 m3

22 Same, including VATSame, including VAT _,,__,,_

33 Gas purchase tariff, excluding VATGas purchase tariff, excluding VAT _,,__,,_

44 Gas consumption tariff, excluding VATGas consumption tariff, excluding VAT _,,__,,_

55 The same including VATThe same including VAT _,,__,,_

VIIIVIII Accounts receivable by the end of theAccounts receivable by the end of the

periodperiod GEL 1,000GEL 1,000

IXIX Accounts payable by the end of theAccounts payable by the end of the

periodperiod _,,__,,_

XX LoansLoans _,,__,,_

20

Annex 2Annex 2Loss norms and their share in dirstribution (residual) tariffs of some gas distribution Loss norms and their share in dirstribution (residual) tariffs of some gas distribution

companiescompanies

Loss norms included in the tariffs (%)Loss norms included in the tariffs (%) 20072007

##Name of CompanyName of Company IncludingIncluding Distribution (residual) tariffs Distribution (residual) tariffs

(Tetris/m3)(Tetris/m3)

TotalTotalIn high pressure In high pressure

consumersconsumers’ tariffs’ tariffs

In medium In medium pressure pressure consumersconsumers’ tariffs’ tariffs

In low pressure In low pressure consumers’ consumers’ tariffstariffs TotalTotal

losseslosses

11 22 3 3 4 4 5 5 6 6 7 7 8 8

11

Kaztransgaz-Tbilisi Kaztransgaz-Tbilisi Ltd.Ltd.

9.09.0 1.71.7 7.57.5 9.669.66 15.2715.27 3.783.78

22 JSC KutaisgaziJSC Kutaisgazi 4.844.84 __ 3.03.0 5.05.0 14.6114.61 1.901.90

33 JSC GorigaziJSC Gorigazi 4.204.20 __ 3.03.0 5.05.0 15.1715.17 1.901.90

44 JSC MtskhetagaziJSC Mtskhetagazi 3.463.46 __ 3.03.0 5.05.0 14.6714.67 1.901.90

55 JSC BorjomigaziJSC Borjomigazi 5.005.00 __ 3.03.0 5.05.0 17.4717.47 1.901.90

66 JSC RustavigaziJSC Rustavigazi 3.823.82 1.01.0 3.03.0 5.05.0 14.0714.07 1.901.90

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Annex 3Annex 3CaCalculation of natural gas distribution and consumption tariffs by the categories lculation of natural gas distribution and consumption tariffs by the categories

of customers (pressures) – Kaztransgaz-Tbilisi Ltd.of customers (pressures) – Kaztransgaz-Tbilisi Ltd.

Actual Actual in in

20020077

Forecast for 2008Forecast for 2008

## DescriptionDescription UnitUnit TotalTotal IncludingIncluding

High pressureHigh pressureMedium Medium

pressurepressure

consumersconsumers consumersconsumers

11 22 33 44 55 66 77

II Initial indicatorsInitial indicators

11 Received natural gasReceived natural gas 1,000 m31,000 m3 432400.0432400.0 14000.014000.0 80000.080000.0 338400.0338400.0

22 Natural gas lossesNatural gas losses _,,__,,_ 38916.038916.0 238.0238.0 6000.0006000.000 32678.032678.0

The same information in %The same information in % %% 9.009.00 1.701.70 7.5007.500 9.669.66

2.12.1 Including normalIncluding normal 1,000 m31,000 m3


33 Distributed natural gasDistributed natural gas 1,000 m31,000 m3 393484.0393484.0 13762.013762.0 74000.074000.0 305722.0305722.0

44 The single lenth of gas pipelines on balanceThe single lenth of gas pipelines on balance kmkm 2420.02420.0

55 Number of customersNumber of customers consumersconsumers 290000.0290000.0

66 Residual valueof fixed assets byResidual valueof fixed assets by

the end of the periodthe end of the period GEL 1,000GEL 1,000 22333.0522333.05 227.5227.5 2368.182368.18 19737.419737.4


6.16.1 Gas pipelinesGas pipelines _,,__,,_ 16599.5016599.50 41.7241.72 1321.811321.81 15235.9715235.97

IIII Gas distribution costsGas distribution costs

Total costs excluding VATTotal costs excluding VAT GEL 1,000GEL 1,000 37299.5337299.53 198.15198.15 3207.663207.66 33893.7233893.72

IncludingIncluding

22

Annex 3Annex 3CaCalculation of natural gas distribution and consumption tariffs by the categories of lculation of natural gas distribution and consumption tariffs by the categories of

customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued)customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued)11 22 33 44 55 66 77

11 Including:Including: _,,__,,_ 11658,4611658,46 71,371,3 1797,481797,48 9789,689789,68

22 Gas lossesGas losses _,,__,,_ 17280.017280.0 58.0058.00 525.00525.00 16697.0016697.00

33 Payroll fundPayroll fund _,,__,,_ 2073.682073.68 4.154.15 219.81219.81 1849.721849.72

44 Fixed assets depreciationFixed assets depreciation _,,__,,_ 1116.71116.7 11.3911.39 118.37118.37 986.90986.90

55 Fixed assets repairsFixed assets repairs _,,__,,_ 50.050.0 0.510.51 5.305.30 44.1944.19

66 Electric powerElectric power _,,__,,_ 720.0720.0 7.347.34 76.3276.32 636.34636.34

77 Materials and Spare partsMaterials and Spare parts _,,__,,_ 615.20615.20 6.286.28 65.2165.21 543.71543.71

88 fuel and lubricantsfuel and lubricants _,,__,,_ 237.20237.20 2.422.42 25.1425.14 209.64209.64

99 CommunicationsCommunications _,,__,,_ 100.0100.0 1.021.02 10.6010.60 88.3888.38

1010 Utility servicesUtility services _,,__,,_ 706.19706.19 7.207.20 74.8674.86 624.13624.13

1111 Loan interest paymentsLoan interest payments _,,__,,_ 2742.152742.15 28.5528.55 289.57289.57 2424.032424.03

IIIIII Other expensesOther expenses

GEL GEL 1,01,00000 4297.634297.63 19.3219.32 190.15190.15 4088.164088.16

Taxews, excluding VATTaxews, excluding VAT


11 Property taxProperty tax _,,__,,_ 223.33223.33 2.282.28 23.6823.68 197.37197.37

22 Social tax accrual on wagesSocial tax accrual on wages _,,__,,_ 3456.03456.0 11.611.6 105.0105.0 3339.43339.4

33 Land (non-agricultural) taxLand (non-agricultural) tax _,,__,,_ 1.1441.144 0.010.01 0.120.12 1.011.01

44 Regulation feeRegulation fee _,,__,,_ 171.06171.06 0.920.92 14.1014.10 156.04156.04

55 Profit taxProfit tax _,,__,,_ 446.1446.1 4.54.5 47.247.2 394.3394.3

66 Other (insurance)Other (insurance) _,,__,,_ 0.00.0 0.00.0 0.00.0 0.00.0

IVIV Total operation costs (II+III)Total operation costs (II+III) aT. lariaT. lari 41597.241597.2 217.5217.5 3397.83397.8 37981.937981.9

23

Annex 3Annex 3CaCalculation of natural gas distribution and consumption tariffs by the categories lculation of natural gas distribution and consumption tariffs by the categories

of customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued)of customers (pressures) – Kaztransgaz-Tbilisi Ltd. (Continued)

11 22 33 44 55 66 77

VV Net profit Net profit _,,__,,_ 1784.411784.41 18.0518.05 188.98188.98 1577.381577.38

igive %-ad moqmedi ZiriTadi fondebis mimarTigive %-ad moqmedi ZiriTadi fondebis mimarT %% 8.08.0 8.08.0 8.08.0 8.08.0

VIVI TYotal annual revenues from TYotal annual revenues from

natural gas distribution (IV+V)natural gas distribution (IV+V) aT. lariaT. lari 43381.643381.6 235.5235.5 3586.83586.8 39559.339559.3

VIIVII TariffsTariffs

11Gas distribution tariff excluding VAT (VI / Gas distribution tariff excluding VAT (VI /

I-3)I-3)GEL/GEL/

1,000 m1,000 m33 17.1117.11 48.4748.47 129.40129.40

22 Gas distribution tariff including VATGas distribution tariff including VAT _,,__,,_ 20.220.2 57.257.2 152.7152.7

33 Gas wholesale supply tariff excluding VATGas wholesale supply tariff excluding VAT _,,__,,_ 285.75285.75 285.75285.75 285.75285.75

44 Gas transportation tariff excluding VATGas transportation tariff excluding VAT _,,__,,_ 13.8313.83 13.8313.83 13.8313.83

55 GAs consumption tariff excluding VATGAs consumption tariff excluding VAT _,,__,,_ 316.69316.69 348.05348.05 428.98428.98

66 GAs consumption tariff including VATGAs consumption tariff including VAT _,,__,,_ 373.70373.70 410.70410.70 506.2506.2

24

Natural gas consumption tariffsNatural gas consumption tariffs

_ Natural gas consumption (residual) tariff structure on example of _ Natural gas consumption (residual) tariff structure on example of Kaztransgaz-TbilisiKaztransgaz-Tbilisi (Annex 1) (Annex 1)

* * The Commission sets caps (upper limits) for consumption tariffs, which consist of supply cap The Commission sets caps (upper limits) for consumption tariffs, which consist of supply cap (upper limit), transportation and distribution tariffs(upper limit), transportation and distribution tariffs

** Gas consumption tariffs, like distribution tariffs, are set for high, edium and low pressure Gas consumption tariffs, like distribution tariffs, are set for high, edium and low pressure consumers’ categoriesconsumers’ categories

** Kaztransgaz-Tbilisi consumption (residual) tariff _ 50.62 Tetris/m Kaztransgaz-Tbilisi consumption (residual) tariff _ 50.62 Tetris/m3, 3, including VATincluding VATIncluding:Including:– – capped supply tariff capped supply tariff – – 33,718 Tetris/m33,718 Tetris/m33

– – transportation tariff transportation tariff – – 1,632 Tetris/m1,632 Tetris/m33

– – distribution tariffdistribution tariff –– 15,27 Tetris/m15,27 Tetris/m33

_ Direct consumers and their tariffs_ Direct consumers and their tariffs * * Direct consumers – mainly the industrial enterprises – are receiving gas directly from Direct consumers – mainly the industrial enterprises – are receiving gas directly from

transportation network and, therefore, their tariffs include only supply and transportation transportation network and, therefore, their tariffs include only supply and transportation componentscomponents

* The supply tariffs for direct consumers are deregulated* The supply tariffs for direct consumers are deregulated

25

# Retail tariffcomponents Tariff Share in

(Tetris/m3) retail tariff, %

I Natural gas retail consumption tariff

including VAT 50.62 100.0Including:

1 Natural gas supply (wholesale) tariffexcluding VAT 28.575 56.45

2 Natural gas transportation tariff (excluding VAT) 1.383 2.733 Natural gas distribution tariff (excluding VAT) 12.94 25.56

Including _ Normal loss costs 3.202 6.33 _ Depreciation 0.605 1.20 _ Payroll fund 5.46 10.79 _ Other operational expenses 1.818 3.59 _ Taxes (excluding VAT) 1.337 2.64 _ Net profit 0.516 1.02

II Natural gas consumption tariff excluding VAT (1+2+3) 42.898 84.75

III VAT 7.722 15.25

Kaztransgaz-Tbilisi Ltd. consumption (residual) tariff structureIn prices of 2007

Annex 1

Sps ,,yaz t r ansgaz -T bi l i si s" moxmar ebi s (sayof ac xovr ebo) t ar i fi s sqema

56,45%

2,73%

25,56%

15,25% Nat ur al gas suppl y(who l esal e) t ar i ffexc l udi ng VAT

Nat ur al gas t r anspor t at i ont ar i ff (exc l udi ng VAT)

Nat ur al gas di st r i but i ont ar i ff (exc l udi ng VAT)

VAT

26

- Applicable taxes and their rates- Applicable taxes and their rates * Property tax * Property tax -- 1%, 1%, non-agricultural land tax non-agricultural land tax –– 00..25 25 Tetris/Tetris/m2, m2, profit tax profit tax ––

15%, 15%, VAT – VAT – 18%18%

_ _ Tax allowancesTax allowances * Released from* Released from 12% 12% customs tax customs tax * gas supplies to the thermas PSs is released from VAT* gas supplies to the thermas PSs is released from VAT _ Share of taxes in consumption tariffs_ Share of taxes in consumption tariffs * Untill 2005, the share of taxes in consumption tariffs made 23-25% * Untill 2005, the share of taxes in consumption tariffs made 23-25% Since 2005, (accordin to new TAx Code) the number of taxes, as well as their rates Since 2005, (accordin to new TAx Code) the number of taxes, as well as their rates

were reduced: road, entrepreneurship, environmental taxes were abolished; social were reduced: road, entrepreneurship, environmental taxes were abolished; social tax rate was reduced from 31% to 20% and in 2008 was totally abolished; VAT rate tax rate was reduced from 31% to 20% and in 2008 was totally abolished; VAT rate reduced from 20 to 18%; profit tax rate reduced from 20% to 15%.reduced from 20 to 18%; profit tax rate reduced from 20% to 15%.

* Currently, the tax share (total) in consumption tariffs makes 17-18%.* Currently, the tax share (total) in consumption tariffs makes 17-18%.

TAXATION SYSTEM IN GAS SECTORTAXATION SYSTEM IN GAS SECTOR

27

Thank you for your attentionThank you for your attention

1 GEORGIAN NATIONAL ENERGY AND WATER SUPPLY REGULATION COMISSION NATURAL GAS TARIFF REGULATION Guliko bedoshvili Department for Tariffs and Prcing Tbilisi,

Documents

gas supply tariffs

natural gas sector slide

natural gas balance

following gas sector

gas sector authorities

gas distribution netowrks

gas distribution network

energy sector