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This is an excerpt from a paper originally published by The Orbelaini Center for Advanced Energy and Security Studies on January 27, 2017

Georgia?s Gas Transport Company and Gasprom Export have signed a two year agreement on Russian gas transit to Armenia. Unlike previous agreements, the new agreement provides for step by step monetization of gas transportation service. Although the terms of the new transit agreement are financially less profitable for Georgia, we assume, they are in compliance with international standards. In addition, the new transit agreement endangers neither strategic partnership with Azerbaijan and Socar, nor the development of Southern Gas Corridor.

As a result of long and difficult negotiations the Ministry of Energy of Georgia has reached a two year agreement with Gasprom Export on the monetization of Russian gas transit to Armenia. The agreement is signed for two years and provides for step by step monetization of Russian gas transit service across Georgia. The Agreement is concluded between Gasprom Export and Georgian Gas Transport Company.

According to the Ministry of Energy of Georgia the first year of the contract Georgia will receive 10% of Russian gas transported to Armenia in kind for the first 1 bln m3 (out of about 2 bln m3 of Russian gas supplied to Armenia per annum). The transportation service of another 1 bln m3 of Russian gas will be covered by Gasprom Export in currency according to existing standards. Starting from 2018, the second year of the contract, gas transport service will entirely be subject to monetization according to existing standards.

Georgia?s north/south gas pipeline which has been used for Russian gas supply to Armenia is 221 km. Through monetization scheme Georgia will not be able to buy as much gas as it used to receive under former contract which provided for 10% off takes of transited gas as a fee for transportation service rendered (that made about 200 mln m3 per annum). Thus, Georgia shall have to buy additional volumes of gas under commercial terms to balance the demand on its social gas market that will make it increasingly difficult to maintain existing tariffs for household consumers and power generation.

Liana Jervalidze, Analyst on Energy Security and Transit

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