Georgia Ordered to Pay USD 81 Mln to Russian Energy Company

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) ordered Georgia to pay USD 80.5 million in compensation to Inter Rao, the Russian energy trading company. The Georgian side has appealed the decision as unfounded, the Justice Ministry told Civil.ge.

Inter Rao, and its subsidiary in Georgia – Telasi, filed an arbitration case against Georgia in June 2017. They argued the government breached its obligations under the 2013 Memorandum by not allowing tariff adjustments after Georgia’s national currency (Lari) drastically depreciated against the U.S. dollar in 2013-2016.

The Justice Ministry stressed that the state “still considers that the tariffs were set correctly in 2014,” motivating them to appeal the arbitration decision in the Stockholm Court as unsubstantiated.

The Arbitration Case and Company Claims

According to the claimants, the 2013 Memorandum set out the consumer tariff, weighted average purchase tariff, and distribution tariff for Telasi – for the whole period from 1 April 2013 through 2025 – at particular levels, but allowed for corrections in specific cases.

The company, the arbitration request said, could raise consumer tariff concurrently with any increase of the weighted average purchase tariff — cost estimates calculated annually through analyzing among others imports, losses on power transmission networks, and expenses related to transmission, transit, and distribution control.

It could also raise the distribution tariff — the difference between the two other tariffs — if the Georgian national currency depreciated against the U.S. dollar.

Based on the provisions, Telasi requested the Ministry of Energy and Natural Resources to adjust the distribution tariffs in May 2016. The Ministry, however, refused to consider any changes to the existing tariffs.

Georgia’s National Energy and Water Supply Regulatory Commission (GNERC), a state body regulating the tariffs at which Telasi acquires electricity from the generating companies in Georgia and then sells it to end customers, referred to its updated 2014 Methodology for Electricity Tariff Calculation to justify the refusal.

The updated methodology did not envisage depreciation-based tariff adjustments, unlike its previous 2011 version, that allowed for exceptions by giving preeminence to contractual and other specific arrangements accepted by the Government, and in that granted tariff adjustments in cases similar to Telasi and its Memorandum.

The companies maintained the authorities’ failure to allow for tariff adjustments and compensate for “adverse effects” of legislative changes pertaining to the tariff calculation methodology have caused them losses at no less than USD 89 million. The claimants reserved the right to modify the monetary claims and demand a larger sum of money at a later stage.

The Justice Ministry told Civil.ge that the company eventually demanded USD 200 million for compensation. Arbitration, however, did not satisfy the request “on the basis of the arguments and evidence submitted by the Government of Georgia,” the Ministry said.

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