The General Licence and the Issuing Authority
The Law of Georgia on Oil and Gas regulates oil and gas operations through a system of licences, and the central figure of that system is the Agency. Under Article 15-1 of the law, the general licence for the use of oil and gas resources is issued by the Agency. The same principle is repeated at the level of activity licences: under Article 25-5, the activity licence is likewise issued by the Agency. For an investor this means that every administrative door is connected to a single authority, and it is the Agency’s decision that determines whether the project enters the implementation phase.
The general licence is not granted arbitrarily but on the basis of a contract: under Article 19, the Agency issues the general licence on the basis of the contract, within one month of its signature, and the conditions of the licence must be identical to the conditions of the contract. From this follows a practical rule: the text of the contract is not merely a commercial document — it is directly transformed into the conditions of the licence, which is why each of its provisions must be drafted with legal scrutiny. The investor pays a licence fee, and to participate in a tender or auction the applicant reimburses the costs of holding it in the manner established by the Agency. The licence fee is not compensated with compensation oil and gas.
The Duration of the Contract and the Licence
Article 16 defines the time frame: the maximum duration of the contract and the corresponding licence for the use of oil and gas resources is 25 years. The parties determine the periods of exploration and production operations within the duration of the contract, so the schedule of the concrete stages is laid down by the contract but cannot exceed its frame.
An extension is allowed at the initiative of the investor, for the period necessary and sufficient to ensure the economic and rational extraction, use and protection of oil and gas. Where the extension is necessary before the expiry of the 25-year period, it may be extended temporarily, but by not more than five years. When the duration of the contract is extended, the duration of the licence is extended automatically. Force majeure is provided for separately: the conditions of the contract and the licence do not operate where force majeure occurs, and the period of the existence of the force majeure, together with the period necessary to compensate the damage caused by delayed performance, is added to the duration of the contract. This means that an irresistible force in effect freezes and then restores the time resource, which the investor must take into account when planning the project.
The Activity Licence and the Application File
The procedures for issuing an activity licence are determined by Article 25-6. The Agency approves, by normative acts, the form of the application, the content of the licence and the general conditions of the activity; to obtain the licence an application must be submitted to the Agency in the approved form, to which must be attached: for a resident — an extract from the entrepreneurial register; for an enterprise of a foreign country — founding documentation certified or legalised in accordance with its legislation, a document confirming registration, and a document confirming the registration of a representation in Georgia.
The application must further be accompanied by a detailed description of the activity to be carried out; a detailed description of the technologies and methodological processes to be used by the applicant in the plant or means of transport; a detailed description of the raw material or oil and gas products to be used; an audit conclusion on the applicant’s financial condition; where available — a document on the applicant’s experience (qualification) and a list of the countries where it carried on its activity during the last 5 years; and a written guarantee that, if the licence is granted, complete information about the activity will be submitted to the Agency. Where the activity concerns the land of a private owner, the prior written consent of the landowner and the terms of the lease must be submitted; otherwise — information on the location and parameters of the land, the difficulties arising during negotiations and the details of the contract proposed to the landowner. Importantly: disagreement with the private landowner is a ground for the Agency to refuse to issue the activity licence.
Joint Ownership and Affiliated Companies
Where the applicant is two or more persons who jointly own a plant or means of transport with an inseparable interest, Article 25-6 regulates the order in detail: each of them must make a separate application and submit the corresponding documentation; there must be submitted between them a document defining rights and obligations and written consent to the appointment of one person as representative, on whom the licence will be issued and who will be authorised to act in the name of the others; each bears joint and several liability for the performance of the obligations connected with the operation of the plant or means of transport.
Each party holding a legal interest must submit information on the interest upon its acquisition and thereafter annually; violation of this rule may cause the Agency to suspend the activity. Where the applicant is an affiliated company, its parent company must submit a written guarantee of financial support and of the carrying out of the activity. The correctness of the corporate structure here is not a formality but the foundation of the licence’s stability.
Conditions and Duration of the Activity Licence
On the basis of the documentation submitted, the Agency decides the issue of the activity licence. The licence must indicate the conditions under which the holder is granted the right to carry on the activity: the holder is obliged to design, build, equip, repair, own and operate the plant or means of transport and to carry on the activity in accordance with the licence; it must obtain the Agency’s prior written consent for a change or modification of the method, means or type of the activity, and must give the Agency advance notice of any change in the raw material or oil and gas products used or produced.
The duration of the activity licence must not exceed 25 years, and the Agency has the right, on the basis of a renewed application by the holder and subject to further conditions, to extend the duration of the licence by not more than 10 years. The applicant pays a licence fee for receiving the activity licence. Knowledge of these periods allows the investor to plan the amortisation and payback horizon precisely: the basic frame of the activity licence is determined at two levels — a principal term of 25 years and the possibility of its extension.
Frequently Asked Questions
Who issues oil and gas licences?
Under Article 15-1, the general licence is issued by the Agency on the basis of the contract, within one month of its signature; the activity licence is likewise issued by the Agency.
For how long is the general licence issued?
Under Article 16, the maximum duration of the contract and licence is 25 years; an extension needed before the expiry of the 25-year period is temporary, but not more than five years.
What is attached to an activity licence application?
Under Article 25-6, the application is accompanied by an extract from the entrepreneurial register or the certified documentation of a foreign enterprise, detailed descriptions of the activity, technologies and raw materials, an audit conclusion and other documents.
Can a licence be refused over a disagreement with a landowner?
Yes. Under Article 25-6, the applicant’s disagreement with the private landowner is a ground for the Agency to refuse to issue the activity licence.
How We Help on Legal.ge
On Legal.ge you receive legal support in the oil and gas sector: we will assess the licensing needs of your project, prepare the contract and application documentation, analyse the deadlines and extension prospects, and protect your interests in relations with the Agency. Contact our team at the early planning stage of the project.