The legal regime of pipelines is located in the transportation block of the Law of Georgia on Oil and Gas: it regulates the use of land allotments for a pipeline, the construction of non-trunk pipelines, access to the trunk network, the accessibility of transportation, the licence and the tariff. This page explains these rules for investors and carriers and shows how the land, capacity and pricing questions of a pipeline project are resolved.
The Land Question and Eminent Domain
Under a general licence for the use of oil and gas resources and the respective contract, the Agency hands to the investor a document, prepared by the National Agency of the Public Registry, confirming the right to use a land allotment. Where the plot needed for operations belongs to a natural or legal person, the investor must, before signing the contract, conclude with the owner an agreement on the transfer of the exclusive right to use the plot and submit it to the Agency in the established manner.
Where no agreement is reached, the mechanism of eminent domain applies: the investor has the right to apply to the Agency to start an eminent domain case; the Agency starts the case by filing an application in court, while all costs — including the compensation determined by the court, which is transferred to the landowner — are borne by the investor. Every participating party has the right to take part in the public hearing of the case: to present arguments, witnesses and documents, to criticize the arguments of the other party, to request cross-examination and the verification of evidence.
Construction of Pipelines and Access to the Trunk Network
The construction, operation and use of non-trunk pipelines and buildings connected with oil and gas operations are carried out in accordance with the legislation of Georgia and the contract. The investor has the right to negotiate the commercial use of the free capacities of the trunk pipelines owned by the state, and also — taking into account the requirements of the legislation — to build and use, for connection to an existing trunk pipeline, a pipeline for its contractually defined share for export purposes.
Accessibility, the Licence and Excess Capacity
Transportation must be accessible to all carriers on a non-discriminatory basis, in accordance with the normative acts established by the Agency. An application for a licence for transportation activity may be submitted by the holder of a general licence, its affiliated company or another person — only for the purpose of transporting its own raw material or petroleum products.
The licence holder makes available to other carriers the excess, unused capacity of the pipeline on a non-discriminatory basis where, taking into account justified operational factors — which include, but are not limited to, the potential of demand and production expansion — the full capacity is not regularly used for its own raw material or products, or where it concludes or offers to conclude a contract with a third party that is not its affiliated company.
The Tariff
The tariff also promotes the growth of the company's financial return through increased efficiency of operation and management, reflects short- and long-run marginal costs and prices, and regulates the surplus and the deficit of the service. These goals, taken together, make the tariff simultaneously an instrument of protection for the carrier and of development for the sector. The Agency examines the tariff application submitted by the transportation company, sets the tariff and approves the conditions of the transportation service; for the purpose of protecting the interests of the company and the carriers, it is also authorised to amend the existing tariff on its own initiative. The tariff as set protects the carrier from monopoly prices and gives the company the possibility to recover its costs — including fuel purchased at an economically justified price, operating, current and capital repairs, and the principal and interest of working-capital loans — and takes into account a substantiated and fair return on capital sufficient to attract investment in the sector.
The legal sequence of a pipeline project takes shape in this order.
Frequently Asked Questions
How is land obtained for a pipeline?
By an allotment document or an agreement with the owner; failing agreement — through eminent domain, at the investor's expense.
Is connection to a trunk pipeline possible?
Yes — taking into account the requirements of the legislation, for export purposes; negotiating the use of free capacities is also possible.
When does excess capacity become available?
Where full capacity is not regularly used for own cargo or a contract is concluded with a third party.
Who sets the tariff?
The Agency — on the basis of an application, and it may also amend it on its own initiative.
How We Help on Legal.ge
The lawyers of Legal.ge support investors and carriers in every phase of pipeline projects: from land questions and contracts to licensing, the excess-capacity regime and tariffs. Contact us — we will assess your project and plan the legal steps.