Regional Gas Distribution Companies Privatization

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On December 26, 2008, SOCAR Energy Georgia, the Georgian subsidiary of Azerbaijani state oil and gas firm SOCAR, signed an agreement with the Georgian government to purchase of 23 regional gas distribution companies with connecting mains and two gas pipelines serving about 30,000 consumers. At the time of the purchase, SOCAR was the largest gas supplier to Georgia. Under the privatization agreement SOCAR Energy Georgia would take ownership over gas distributors serving regions of Georgia including Kakheti, Mtskheta-Mtianeti, Shida Kartli, Kvemo Kartli, Guria, Imereti and Samegrelo, respective gas transmission mains connecting to distributors and two gas pipelines in Adzaria region - Batumi and Kobuleti - the 8.2-km Batumi gas pipeline and the 23-km Batumi pipeline. In October 2007, the Ministry of Economic Development of Georgia requested expression of interest from companies interested in purchase of regional gas distributors and two gas pipelines - Batumi and Batumi - all together at a starting price of about $10 million. The gas pipelines were tendered under condition that the winning bidder would undertake works for full gasification of Batumi, Kobuleti and Khelvachauri as well as of the coastal line within the administrative borders of Achara Autonomous Republic (from Choloki River to the village of Sarpi). The selection criteria required that the winning bid (i) operated the available network of the gas pipelines, (ii) serviced all existing consumers, (iii) guaranteed permanent gas supply to consumers, and (iv) ensured gasification of additional localities. Initially, three companies - SOCAR, Wissol and Iveria-7 - submitted the expressions of interest for participation in the competitive bidding. SOCAR won the tender in May 2008 partly because it could supply distributors with its own gas and could guarantee a continuous supply. Under the signed contact SOCAR was to (i) invest US$40 million in the Georgian gas distribution network over the next three years, (ii) expand the gas distribution networks to supply an additional 150,000 Georgian households in the same time period, (iii) guarantee five years supply of natural gas to the companies operated, and (iv) by the end of 2010, provide 85% of gas supply in Georgia. In early March, 2009 SOCAR Georgia Gas started supply of Azerbaijani gas to the regional Gas Distribution Companies it purchased. After the privatization agreement was signed, Georgia had four large gas distribution companies - SOCAR, Wissol, KazTransGas-Tbilisi and ITERA Georgia. As of 2010 Socar claimed it had already spent US$15-16 million for gasfiociation in Georgia.