Composition of the Board:

Konstantine Vardzelashvili – President of the Session;

Vakhtang Gvaramia - Member;

Ketevan Eremadze – Member;

Besarion Zoidze – Member, Judge Rapporteur.

Secretary of the Session: Lili Skhirtladze

Title of the case: LTD “Russenergoservice”, LTD “Patara Kakhi”, JSC “Gorgota”, Givi Abalaki’s Individual Company “Farmer” and LTD “Energia” v. the Parliament of Georgia and the Ministry of Energy of Georgia

Subject of the dispute: The constitutionality of Article 2(d) of the Law of Georgia “On Energy and Natural Gas” (under the head of the realisation of energy (power) exceeding the amount established by “The Energy (Power) Market Rules” for energy retail customers; and Article 7(1) ofN77 Order of the Minister of Energy of Georgia of 30 August 2006 “On Approving “The Energy (Power) Market Rules” in terms of Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia

The participants of the case: Shota Michitashvili - Director of LTD “Russenergoservice” (a claimant); David Keldishvili – Director of LTD “Patara Kakhi” (claimant); Giorgi Beraia – Director of JSC “Gorgota” (claimant), Givi Abalaki – representative of Givi Abalaki’s individual company “Farmer” (claimant); Archil Mshvenieradze – representative of the claimants; Batar Chankseliani and Levan Kasradze, Alexander Khetaguri, Irakli Khmaladze and Sergo Birkadze, representatives of the Parliament of Georgia (respondent), representatives of the Ministry of Energy of Georgia (respondent); Specialists: Professor Mikheil Jibuti, President of the Georgian Economists Association; Mikheil Stepanishvili, Lawyer of Audit Company “Audit Financial Consulting”; Witnesses: Zurab Gabelaia, Member of the National Regulatory Commission of Energy and Water Supply of Georgia; Levan Guruli, Deputy Head of the Law Department of LTD “Commercial Operator of Energy”

I

1. On 28 December 2006 LTD “Russenergoservice”, LTD “Patara Kakhi” and JSC “Gorgota”, Givi Abalaki’s Individual Company “Farmer” and LTD “Energia” lodged a constitutional claim (registration number 411) with the Constitutional Court of Georgia. On 26 January 2007 the first Board of the Constitutional Court admitted #411 constitutional claim for the consideration of the merits by #1/1/411 recording notice. The constitutional claim was admitted partially with regard to the constitutionality of Article 2(d) of the Law of Georgia “On Energy and Natural Gas” (under the head of the realisation of energy (power) exceeding the amount established by “The Energy (Power) Market Rules” for energy retail customers; and Article 7(1) of #77 Order of the Minister of Energy of Georgia of 30 August 2006 “On Approving “The Energy (Power) Market Rules” in terms of Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia.

Article 89 of the Constitution of Georgia; Article 19(1)(e), Article 39 of the Organic Law “On the Constitutional Court of Georgia” are invoked as the ground for the application to the Constitutional Court.

2. Article 2(d) of the Law of Georgia “On Energy and Natural Gas” defines the notion of energy distribution. Under the aforementioned provision, the distribution of energy means “reception of energy (power) from two or more supply points being independent from each other, exploitation of a distributive network and the realisation of the amount of energy (power) exceeding the capacity established by “The Energy (Power) Market Rules” for retail customers.”

3. Article 7(1) of #77 Order of 30 August 2006 of the Minister of Energy of Georgia “On Approving Energy (Power) Market Rules” determines a particular capacity of energy, in case of realisation of which per a retail customer it is possible to conduct energy distribution activity. Under the said provision, “for the distribution of energy a respective distributor shall realise no less than 120 million kilowatt/hour of energy in a year (from August until September inclusive)”.

4. According to the constitutional claim, the impugned provisions fail to comply with Article 21(1-2) of the Constitution of Georgia under which: “1. The property and the right to inherit shall be recognised and guaranteed. The abrogation of the universal right to property, of the right to acquire, alienate and inherit property shall be impermissible. 2. The restriction of the rights referred to in the first paragraph shall be permissible for the purpose of the pressing social need in the cases determined by law and in accordance with a procedure established by law” and the first sentence of Article 30(2) under which: “2. The State shall be bound to promote the development of free entrepreneurial activity and competition.”

5. It appears from the constitutional claim that the enactment of the impugned provisions resulted in the cancellation of energy distribution licences of the claimants – small distribution companies and they do not have an access to the energy distribution market anymore.

According to the constitutional claim, the rationale of entrepreneurial activity, the promotion of which is the constitutional responsibility of the State, includes the freedom of entrepreneurial initiative and unlimited use of the object of a property for entrepreneurial purposes without any prejudice to others rights. The deprivation of a licence, therefore, amounts to paralysis of the entrepreneurial activities of the claimants’ companies.

The claimants lost their clients along with their licences and also the possibility to use functionally their distribution networks. Without the owners’ permission the networks were handed over to a competing company as a result of which the clients were handed over too. In the claimants’ view such a regulation presents forced subjugation of competition and runs counter to the provisions of Article 30(2) of the Constitution under which the State is obliged to support the development of competition.

According to the constitutional claim, the annulment of licences resulted in the limitation of the claimants’ right to use functionally their energy distribution networks, i.e. their right to use their property was restricted. The claimants observe that under Article 21, there must be “the pressing social need” for such a restriction of the right to property. The claimants argue that there can be no pressisng social need found in their case, which would justify setting a lower limit of energy to be realised by a distribution company and setting the particular amount of no less than 120 million kilowatt/hours. The claimants submit that the impugned provisions contradict Article 21(1-2) of the Constitution of Georgia.

6. On 7 October 2008 Director of LTD “Energia” Roland Khurtsidze filed #20 application with the Constitutional Court of Georgia. Through the application R. Khurtsidze withdrew his claim and requested the discontinuation of the proceedings with respect to LTD “Energia” in accordance with Article 13(2) of the Law of Georgia “On Constitutional Legal Proceedings”.

7. The First Board of the Constitutional Court of Georgia held oral hearings on the merits of #411 constitutional claim on 8, 9 and 10 October of 2008.

8. At the hearing of the consideration of the merits of the case, the claimants’ representative Archil Mshvenieradze maintained that under the impugned provision of the Law of Georgia “On Energy and Natural Gas”, an administrative body, namely, the Ministry of Energy was vested with the unlimited authority to interfere with energy distribution. While setting the lower limit of energy capacity to be realised by a distribution company, the impugned provision did not limit the administrative body with any mandatory criteria. Moreover, it is not clear what is the purpose of setting the lower limit concerned.

In relation to impugned Article 7(1) of #77 Order of the Minister of Energy of Georgia adopted on 30 August 2006 “On Approving Energy (Power) Market Rules”, A. Mshvenieradze observed that there is neither reasoning, nor calculation provided for in order to demonstrate that the benefit gained from setting the mandatory quota of energy realisation is bigger than the damage inflicted thereby.

In the claimants’ view, small distribution companies used to be better placed to react more effectively to customers’ problems in the area of their operation and there was competition in the field. The enactment of the impugned provisions only benefited large energy distribution companies since the competing small distribution companies were deprived of a licence, their activities were paralysed and the owned networks were handed over to the large distribution companies. Thus, the impugned provisions subdued competition and created privileged entities in the sphere of energy distribution.

Within the two years after the enactment of the impugned provisions, according to A. Mshvenieradze’s observation, there have not been in the sector of energy distribution any positive dynamics, improvement of service quality, reduction of a tariff or any progress even in terms of expediting the installation of individual counters, which proves that the aforementioned provision failed to solve the problems existing in the energy distribution field.

The claimants’ representative maintained that the networks owned by them could only be used functionally and since they had been deprived of the right to run distribution activity, they could not make the use of their property anymore. The claimant pointed out that for the moment of the consideration of the case, the network owned by them was used free of charge by JSC “Eenergo Pro Georgia”. The representative also believes that the said company may decide to construct its own networks instead of leasing those owned by the claimants and thus render them absolutely useless. In the view of the claimants’ representative, such a restriction of the right to property does not serve any legitimate aim. He believes since the purpose of interference in the claimants’ rights is not clear, there can be no discussion about the pressing social need and accordingly, constitutionality of the impugned provision.

9. The respondents of the Parliament (claimant) B. Chankseliani and L. Kasradze consider the claimants’ request ill-founded. They maintain that the application of Article 2(d) of the Law of Georgia “On Energy and Natural Gas” did not interfere in the claimants’ rights guaranteed by Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia.

According to the explanation of the representatives of the Parliament (respondent), the energy sector is a special body in the State, connecting numerous objects and neither link can function on its own.

In the opinion of the respondent’s representatives, the impugned provision aimed at ushering the Ministry of Energy into the field of energy regulation in order to ensure the more effective management of the sector and solution of existing problems. The introduction of the impugned provision also served the purpose of avoiding an unreasonable partition of the sector. They believe that the impugned provision contributes to the formation of a logical system of separation of the competences of agencies discharging legislative, executive and regulatory functions in the energy sector and not to the setting of either lower or higher limits for energy distribution companies. State policy in Energy sector is a prerogative of higher executive agencies of the State. Moreover, the vesting the Ministry of Energy with a function to approve “Energy (Power) Market Rules” and subject the activity of energy distribution companies to those rules in no way amounts to the interference with the claimants’ rights. The respondent’s representatives maintain that the claimants have not lost the right to possess, use or dispose of their property. Accordingly, there has not been any interference either in the positive or negative contents of the right to property guaranteed by Article 21 of the Constitution of Georgia.

The representatives of the Parliament of Georgia believe that the impugned provision neither interfered with the right to free entrepreneurship nor competition guaranteed by the first sentence of Article 30(2) of the Constitution of Georgia. They maintained that the impugned provision is of semi referential nature. The provision interprets “energy distribution” in one part of the wording and refers to “Energy (Power) Market Rules” in another. In the representatives’ opinion, the problem raised by the claimants, that the mandatory lower limit of energy realisation (12 million kilowatt/hour) determined for the energy distribution is unreasonably high and does not derive from the impugned provision. The lower limit is determined not by the impugned provision but by an order of the Minister of Energy of Georgia. Stemming from this, the representatives believe that the alleged damage suffered by the claimants is not to be attributed to the impugned provision and therefore the claims regarding its unconstitutionality are ill-founded.

The representatives of the Parliament of Georgia maintained that the impugned provision had not infringed the claimants’ constitutional rights. In case the Constitutional Court finds that the interference has taken place, the representatives will give alternative submissions on its justification. In the representatives’ opinion the impugned provision was the only appropriate means for the protection of public interests, in this case – customer rights, and for the solution of those problems extensively discussed by the representatives of the Ministry of Energy and witness Zurab Gabelaia. If the Constitutional Court finds that through the introduction of the impugned provision the claimants had to tolerate certain limitations in terms of the right to property, all that is to be attributed to the reasons and objectives of the impugned provision, to the necessity to solve the problems and unavailability of any alternatives.

10. In the opinion of representatives – Alexander Khetaguri, Irakli Khmaladze and Sergo Birkadze – of the Ministry of Energy (respondent), Article 7(1) of #77 Order of the Minister of Energy of Georgia adopted on 30 August 2006 “On Approving Energy (Power) Market Rules” did not interfere with the claimants’ rights, guaranteed by Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia.

The representatives maintained that the claimants’ right to property was intact in all its aspects, which it had prior to the application of the impugned provision. The claimants, more specifically, preserved their right to the property concerned, which is proved by the records of the Public Register; they can lease as well as sell their property.

The respondents believe that the impugned provision did not amount to the interference with the claimants’ freedom of entrepreneurship. The claimants are able to develop and widen the networks owned by them, attract new clients, after which they will be able to overcome the mandatory quota of energy realisation and resume energy distribution. The claimants’ inability to run distribution activity is preconditioned by their inactivity and not by the impugned provision. The respondents also maintain that the claimants can instead gain profit from energy transmission in accordance with Article 29(4)(c) of #77 Order of the Minister of Energy of Georgia adopted on 30 August 2006 “On Approving Energy (Power) Market Rules”. According to the respondents, the claimants could not engage into energy distribution even prior to the introduction of the impugned provision, since they had failed to meet other legal requirements stipulated elsewhere. In the opinion of the representatives of the Ministry, the claimants’ freedom of entrepreneurship was not limited by the impugned provisos. They observed that while competition denotes the management based on the market principles, without any regulation, distribution falls within natural monopolies by its nature, the sector is to be regulated by the State and accordingly, no free competition can exist therein.

The representatives of the Ministry of Energy also expressed different viewpoints in the above-mentioned context. They observed that there can be competition in the distribution sector but above the mandatory lower limit of energy realisation. They believe that it is practically impossible but theoretically feasible for small distribution companies to compete with large distribution companies if they build new distribution networks and offer better services to customers.

In the opinion of the representatives of the Ministry, the impugned provision aimed at protecting customer rights. They believe that a company’s business if it distributes less than 120 million kilowatt/hour energy cannot be profitable considering the existing tariff and therefore able to ensure stable and safe energy supply. They maintained that the impugned provision did not serve the purpose of the ejection of small companies from the distribution market. The impugned provision aimed at introducing strong, stable, perspective and developing subjects into the sector of a great impact on social issues of the population. These subjects would be able to erect their own energy networks and offer quality stable service not only to the exclusive customers as it was the case prior to the enactment of the impugned provision, but to all kind of customers.

According to the representatives of the Ministry of Energy, the impugned provision enables to average out the energy tariff, to maintain its stability and to protect from abrupt oscillation to the benefit of customers. Thanks to the impugned provision the customers were placed in equal positions irrespective their residence places.

The representatives also observed that prior to the enactment of the impugned provision the situation in the distribution market prevented from attracting large investments. As the result of the introduction of the impugned provision, large investors got interested in the energy distribution sector. The impug­ned provision also made the regulation and management of the sector more effective.

11. President of the Georgian Economists Association, Professor Mikheil Jibuti being invited before the Constitutional Court as an expert observed that the State support to free entrepreneurship and competition is manifested in direct and indirect measures for admission of economic agents to the market. The State must create such an economic environment where economic agents will be able to run their entrepreneurial activity without undue impediments and superfluous administrative obstacles.

The specialist supposes that by virtue of the introduction of the impugned provisions the legislator aimed at merging entrepreneurial subjects and streamlining their management.

The specialist did not agree with the respondents that small distribution companies, stemming from little capacity of energy distribution, would face losses a priori. The specialist believes that it is only the market, which regulates gains and losses irrespective of the size of a company. Bankruptcy threats are equally relevant both in terms of small and large companies. According to the specialist, out of economic systems those are stable, where large and average companies are present and compete each other with equal offers. The specialist observed that the avoidance of the partition of the energy market does not necessarily mean the merger of its subjects.

The specialist pointed out that the energy sector falls within natural monopolies. The sector, accordingly, cannot be left to its own devices within the market regulation area only but it is regulated by the State through normative provisions. One of the purposes of the regulation might be the protection of customers from discriminatory acts of an entrepreneur.

In the specialist’s opinion the lower limit of the energy realisation is not related to the requirements of energy safety and order in energy supply. Neither it contributes to the protection of the customers from monopolist prices but in reality presents an artificial obstacle to entrepreneurship. Those standards should instead be met through thorough supervision of strict technical safety conditions.

The specialist believes that if there were no impugned provisions the actors in the energy market would continue normal operation, which would not endanger the energy safety, provided the requirements of technical safety were met under licence terms. The control of the latter is a prerogative of the National Regulatory Commission of Energy and Water Supply of Georgia.

Finally, M. Jibuti concluded that it was inappropriate to provide for the capacity of energy realisation as a distribution licence term as it does not present either practical or theoretical solution for the objectives in the distribution regulation, does not stem from the protection of customer rights and results in the ejection of small companies from the distribution market through the introduction of normative parameters. In the specialist’s opinion this cannot be justified as the promotion of entrepreneurship and competition, since such activities run counter to the basic principles of the Constitution of Georgia on free entrepreneurship and competition.

12. Lawyer of audit company “Audit Financial Consulting” M. Stepanishvili being invited before the Court as a specialist explained the peculiarities pertaining to the sector of energy distribution. He maintained that the energy distribution market, in the Georgian context has different specifications. There are regions in Georgia, e.g. highlands, where the distribution of energy is costly considering waste and towns, where energy distribution is cost-effective in terms of technical parameters.

The specialist believes that small distribution companies will profit from distribution networks if the latter are installed in the territories entailing less expenditure. The companies in such case will not face problems in stable and safe supply of energy to customers and there will be the least risks for their bankruptcy. If a customer becomes a client of a small distribution company, large distribution companies will only be left with the area of the energy distribution, which entails more expenditure in terms of distribution. Such a tendency will result in detachment of cities from the countryside. It may happen so that energy tariff in cities will be lower than nowadays but it will increase in highlands to such an extant that customers will be no more able to pay it and accordingly there will be no more need for the distribution activity to be run by large distribution companies.

M. Stepanishvili believes that the impugned provisions allow the avoidance of the aforementioned result by enabling the customers of both categories to become clients of the same distribution company. A distribution company that supplies energy to both towns and villages is capable of averaging out tariffs. The financial losses it faces in the villages by distributing costly energy will be compensated at the expense of supplying cheap energy to the cities.

In the opinion of the specialist, a distribution company must distribute no less than 200 million kilowatt/hour energy in order to be able to supply energy to diversified customers both in the cities and villages. Otherwise it will not cover its expenses and will face losses. The specialist recalls the example of an energy distribution company – JSC “Kakheti Energodistribution”.

13. President of the Georgian Academy of Energy, Doctor of technical science Revaz Arveladze appearing before the Court as a specialist observed into his conclusion submitted to the Constitutional Court that energy generally belongs to natural monopolies and the elements of competition were introduced in the recent years only. There are only the elements of competition with regard to the generation of energy so far. As for the distribution, in the opinion of R. Arveladze, there is no and can be no competition in this sector until the invention of wireless transmission of energy when competitors will not need anymore to construct parallel energy networks.

The specialist believes that the circumstance that served as the purpose for the introduction of the impugned provisions was the desire to make the energy market of Georgia more attractive for large investors to enter, which is bound to reduce the insecurity of customers. In specialist’s opinion, for this reason it must have been deemed necessary to leave united distribution companies only on the market of energy distribution.

In the specialist’s opinion the mandatory quota of the realisation of energy set at 120 million kilowatt/hour was selected based on the consideration that distribution companies would merge and small companies would not be able to chose good clients, which would eventually cause large distribution companies financial and accordingly technical problems and make them unattractive for investors. Stemming from the abovementioned, the specialist believes that 120 million kilowatt/hour must be the capacity the realisation of which was unfeasible for any small distribution company and they would be deprived of their licence. Considering the claimants cannot use their energy networks for other purpose, they will have to dispose of them or lease them. Otherwise, they will suffer greater damage.

The specialist considers that the energy field should be generally organised in such a way as the number of participating subjects might not seriously affect the management. In that way if the claimants were to remain the market subjects, it would not entail serious changes.

14. Member of the National Regulatory Commission of Energy and Water Supply of Georgia, Z. Gabelia appearing before the Court as a witness explained to the Court that there was chaos in the energy sector prior to the introduction of the impugned provisions. The calculation of energy was disorderly, the indicators of the realised energy low and the management of the sector difficult.

Z. Gabelaia maintained that in the second half of 90s distribution activity separated from “Sakmtavarenergo” operating in Georgia and resulted in creation of approximately 60 distribution companies at the material time. In Gabelaia’s opinion the practice has shown the inefficiency of the said decision and caused the tendency of merger of large distribution companies since 2000. The enactment of the impugned provisions resulted in the merger of large distribution companies and there were only three companies holding a licence left on the energy distribution market. Hence, the influx of investments in the sector and positive effect of the solution of the existing problems.

To the question put by the Court about the alternatives of the introduction of the impugned provisions for the solution of the problems existing in the sector and the extent to which the mandatory quota of the realisation of energy set at 120 million kilowatt/hour contributed to this solution, the witness responded that he was not competent to answer this question.

The witness believes that the introduction of the impugned provisions aimed more at preventing instability of energy tariffs than at reducing the tariff. Large distribution companies tend to have larger turnovers, it would not request the regulatory commission to raise the tariff due to the replacement of one cable. Small distribution companies under such circumstances due to their small turnover have no similar guarantee for the stability of energy tariff.

The witness maintained before the Court that energy distribution falls under natural monopolies. The subjects within the sphere represent monopolists be they large or small entities and accordingly competition and free entrepreneurship cannot exist within this sector.

15. Deputy Head of the Law Department of LTD “Commercial Operator of Energy” Levan Guruli appearing as a witness before the Court observed that while the organisation, he represented had some relation to the sphere of energy distribution, due to the reason they had not taken part in the drafting and adoption of the impugned provisions, he was unable to answer the questions asked by the Court.

II

1. The claimants believe that the rule established by both impugned normative acts caused the infringement of their constitutional rights. Despite the fact that the deprivation of their licences and their ejection from the electric energy market followed the establishment of particular capacity under the rules of energy realisation, this would have been avoided if the impugned law did not entrust a sub-legislative act with such an authority. Thus, the claimants see the problem not in specific figures but in normative discretion to determine them.

Stemming from the abovementioned, the Court is prepared to review the impugned provisions as the organic causal relation. Given in a particular situation a sub-legislative act and the practice established thereupon are the forms of manifestation of the contents of a legislative provision, from this very perspective it is worth discussing the capacity of the energy realisation determined by the “Energy (Power) Market Rules”. When reviewing the constitutionality of either a law or the sub-legislative act stemming from it, it should be borne in mind that while finding a law constitutional does not at the same time amount to finding a sub-legislative act constitutional too, finding the law unconstitutional, automatically results in the unconstitutionally of the sub-legislative act.

2. The claimants’ request must in the first place be reviewed in terms of the first sentence of Article 30(2) of the Constitution of Georgia, which endorses the positive obligation of the State “… to promote the development of free entrepreneurial activity and competition.” Freedom of entrepreneurship is a significant manifestation of liberal civil turnover, it is the basis of economic order, healthy and viable market relations. Under the said obligations the State supports the principle of free economy, which not only opens the prospects of entrepreneurship for any subject enjoying legal capacity but also implies that entrepreneurship is free. It is only possible under free entrepreneurship that an entrepreneur fully participates in a commercial relation and can manifest his/her businesses skills to the fullest extent. Under the mentioned provisions of the Constitution, everybody is entitled to freely opt for any category of entrepreneurial activity and carry it out freely and without any undue impediments.

3. The State support to entrepreneurship does not only imply the normative acknowledgement of the freedom of such an activity on an institutional level. The guarantees offered to the main player, i.e. an entrepreneur are important. The State is obliged to create such a normative environment which promotes and will not eject viable subjects from the market, will act towards their strengthening. The normative credibility declared by the State does not leave a subject beyond civil (commercial) turnover, but promotes his/her interest to get involved in it. The State is obliged to respect the existence (the right to exist) of an entrepreneur. The Constitution not only protects the life of a human being but the existence of an organisational entity as well. Free entrepreneurship is impossible if the “life” of its subject is not protected. In any case, the end of a subject’s activity, be it with the normative interference or not, must be necessitated by the natural and practical reasonableness and not by artificial retaliation. An entrepreneur may protect his/her right to existence as long as he/she is committed to carry out all functions of a free entrepreneur, with the full use of all possibilities and accordingly, bearing an equal risk. An entrepreneur remains irreplaceable and inviolable (protected) while he/she is prepared to display his/her usefulness for those functions on the free market under the circumstances of free competition. The request of the claimants is being reviewed by the Court bearing in mind these considerations.

4. The freedom of a transaction, property and entrepreneurship are those organically intertwined values of major importance, which are characteristic to market economy countries. Whereas the right to property is a manifestation of the property order, likewise free entrepreneurship is only possible within the scopes of entrepreneurial order. The State must promote the establishment of such an economic order, which will both further free entrepreneurship and guarantee economic security.

With such an approach towards the values, the State instead of distancing private and public interests from each other, ensures striking fair balance and maintains peace between them. The State thereby forms such an economic order, where the entrepreneurs’ interests instead of conflicting with reasonable interests of the public serve them.

5. Stemming from Article 30, free competition is organically related to the freedom of entrepreneurship and is a basis for market economy. In particular circumstances the constitutional obligation of the promotion of competition rests with the State in those spheres as well, where natural monopolies dominate. In accordance with the demonopolisation policy the State promotes the development of free entrepreneurship and the free choice of the customers. Under the circumstances of competitive market the rules of the market themselves are in the very basis of entrepreneurship order and the State regulation becomes superfluous. The target of Article 30(2) of the Constitution is a free, competitive market. Only under such conditions it is possible for an entrepreneur to exercise all functions. Only under the circumstances of competition a subject can freely be created, act and cease its existence. Through the promotion of competition the State refreshes the activity of viable subjects on the market. This, in its turn, furthers the formation of a sound civil turnover.

The legal guarantees of the existence and evolution of competition imply the introduction of such legal provisions and institutions by the State, which promote the development of the freedom of entrepreneurship, formal equality of participants in property relations, the respect for the right to property, freedom of transaction, redress of the infringed rights, the acknowledgement by entrepreneurs of the possibility to carry out competitive activities and on the part of the State other support to competition. On these very principles are based civil and commercial law systems of the countries oriented at market priorities when regulating economy.

6. When it comes to free entrepreneurship it is worth specifying when and within what scopes the State is entitled to interfere in the process. Entrepreneurship, as a rule, is carried out based on the autonomous will of entrepreneurs but the interference within the formation of this will should not be excluded, when there is a real risk that a subject will abuse the entrusted entitlements and will act in contradiction to the traditions established in civil turnover. It is inadmissible the free will should become the ground for the formation of non-equivalent, unpro­portional and unfair relations which would cause the distancing of the participants from the traditions of turnover and would at the same time come in conflict with the acknowledged moral imperatives. Such risks are perfectly reasonably expected from the profit-oriented subjects, where there are no commercial traditions established yet. It is feasible that a subject enjoying the monopoly on the market might offer an apparently unfair transaction and due to the non-existence of free choice, force a customer into partnership. In such cases the State is authorised to interfere in internal activity of an entrepreneur and determine the scopes for exercising his/her will.

7. Energy distribution falls within the sphere of economic relations, which is to be regulated due to the existence of the subjects enjoying dominant position in the sector. The regulation, therefore, serves the protection of property interests both of customers and other subjects of entrepreneurship dependent on natural monopolists. The legislator protects the customer from the arbitrariness of distribution companies by virtue of determining energy tariffs. Such interferences on the part of the State are aimed at balancing the interests of entrepreneurs and customers and averting the introduction of unfair prices by natural monopolists. Since through the regulation, free will of an entrepreneur is limited, the State is obliged to confine the scopes of regulation in a way it would have been done by the most conscientious entrepreneur in case of non-existence of such instruments. Such an approach to the limitation of a right can ensure not only express protection of customer rights but also respect for any legitimate interests of an entrepreneur. Such a balance between interests is characteristic to all fair civil turnovers. In any case, the regulation should not cause the distancing of the participants of the turnover from the latter. The energy market as a value of distinct peculiarity should be preserved. A regulatory agency can intervene in the functions of a market without any prejudice to free and fair trade of energy.

8. The part of the legislation governing energy is aimed at promoting competitive relations. Georgia is bound with the similar obligations under the EU directives as well. Energy distribution companies are natural monopolists in their respective territories and, in this regard, a customer is, to a certain extent, unable to choose a company. However, as it became evident from the proceedings before the Court, it would not be right to consider such a subject to have no alternatives. The representatives of the Ministry of Energy of Georgia did not exclude the possibility of competition under natural monopolists. According to their observations, competition is possible in the sphere of energy distribution where the minimal amount of the energy realisation is exceeded. The Court finds it obscure why it is not possible prior to exceeding the amount. Competition seems to be feasible when energy is directly supplied to customers by a generator of this energy. Small power electric stations can supply energy directly to customers and thus compete with energy distribution companies. It is clear that the market presence of distribution companies, be they small or large, can be solved also by competition rules. Despite rather limited competition under natural monopolies, the State is obliged to act towards its promotion where there is even slightest possibility for that. Limitation is inadmissible where it sets obstacles on the way to the market for a subject willing to carry out entrepreneurial activity. Any unnatural interference in this regard would be favourable for artificial monopolies.

9. When reviewing the impugned acts, the aim motivating the legislator should be discussed in the first place. In any case, the interests implied under such an aim should be subject to normative regulation and be valuable. The legi­timate aim of the legislator should indeed be of such a nature and in no way distancing itself from normative will and failing to correspond to it. Only the constitutionality of the means of attaining a legitimate aim can be reviewed with the principle of proportionality. The aims of the legislator are often referred to directly in normative acts. In this particular case, the impugned provisions do not contain such references. The only source allowing the identification of teleological objective of the legislator is the explanatory letters attached to the draft impugned provisions and the circumstances revealed during the consideration of the merits of the case before the Court. It is worth mentioning that such notions as an objective, a motive, a reason and means are confused at times, which makes it more difficult to guess the genuine direction of the legislative will. Eventually, according to the observations of the respondents, when the impugned acts were being adopted they were aimed at ensuring energy security and protection of customer interests. In their opinion, the impugned acts secure risk-free, quality, guaranteed (permanent) energy supply at a balanced tariff.

10. The abovementioned objectives should be fully justified in the light of the energy policy of the country. The main challenge of this policy cannot be energy security and the protection of customer rights. After the collapse of the Soviet Union, the existing energy system broke down and Georgia was to face the solution of the problems in the field. In such a case the nature of legislative reforms, the way chosen by the legislator to attain a legitimate aim is of utmost importance. In any case, the legislator is obliged to distance itself from the reality according to which the end justifies the means. If the legislator is carried away with this temptation, this will misbalance the order of values and unfairness will flourish in civil turnover. It is perfectly possible that a greater value be sacrificed for a smaller value. In order to avert this the legislator must adhere to the constitutional principles of proportionality. The attainment of the objective set by the legislator must be carried out by the most painless, necessary and legally sound means. Expediency and necessity preconditions the authenticity of the means opted for. Expediency is determined by objective circumstances and implies the capability of the means employed for attaining the legitimate aim. When a means becomes useless not in the process but was such from the outset, there is the case of clear inexpediency. The application of the impugned provisions indicates that the existing means of attaining the aim was useless from the very beginning. In such a case not the end justifies the means but the means should correspond to the end. Only the most painless and bearable means can correspond to the end, the most natural and suitable means for the limited right.

11. The condition determined by the impugned acts, namely, the capacity of energy realisation per a retail customer is a conditio sine qua non for energy distribution. It is worth mentioning that in any case, where the State normatively establishes such mandatory conditions for carrying out an activity, it should thereby be promoting both formation of a stable relation and the existence of a subject of the said relation. Where the State enjoys an absolute freedom there is much temptation for abuse of power. The State in case of futile attempt will try to often change the numerical indicator of this condition and eventually arrive at unforeseen results. Such a risk was pointed out by the participants of the proceedings. This will result in permanent ejection of distribution companies from the energy market and eventually leaving there only a few monopolists. Such an approach gives rise to temporary and instable subjects, which cannot favour energy security and stability of energy supply. In such conditions it is easily possible that legislative interventions be estranged from market rules. In case of non-existence of the impugned provisions unstable subjects will leave the market based on those natural rules of the market and not artificially as it is the case in the application of the impugned provisions.

Neither the economic failure of companies can be a justifiable ground for the impugned provisions. The financial calculation adduced by the respondent is questionable. According to the calculations, in case of the distribution of less than 120 million kilowatt/hour energy the activity of the licence holder becomes unprofitable. The Court finds the specialists’ opinion more convincing. In the agreed opinion of the specialists, which completely differs from the respondent’s position, small distribution companies can successfully carry out the activities stipulated in the licence and earn profit even in case of distribution of less than 120 million kilowatt/hour energy.

An economic failure can strike not only a small company but a large one too. As an example of the latter case the pending bankruptcy procedure of JSC “Kakheti Energodistribution” was mentioned during the proceedings. The respondents’ position is therefore not entirely convincing, when they claim that large companies are more viable as they have more opportunities for the solution of problems. The fact is that large companies have greater concerns too and accordingly bigger expenditure. A company being able to solve its problems effortlessly is less likely to go bankrupt. This fact indicates that unnatural normative interference in the market causes distancing of the legislator from the sought objective.

12. It is impermissible to consider the simplification of energy system to be the motive justifying the adoption of the impugned provisions. The respondents argued that it is easier to manage large companies than a number of small companies. It is without doubt that simple and flexible management system is far more effective but it cannot serve as a justification if it is not naturally necessitated by the relations to be regulated. Under the conditions of any system of public relations management the management should be carried out in a way as to both cover the respective relation and protect the interests of the subjects of the relation. The approach taken by the respondents runs counter to the market economic rules and is dangerous in the context of facilitating the formation of a competition free market, which is abundant in artificial monopolies. The State is obliged to support the formation of the market, which in the case of multiple subjects offers opportunities for both large and small companies for carrying out free entrepreneurship activity. The management burden should not become lighter through artificially ignoring a legal interest. Through gradual ignoring of a subject of the management, the latter itself may be undermined. Despite the model of a management, it cannot be justified if it excessively interferes in the sphere of a free relation. The ejection of small companies from market by the legislator should be considered an inadequate means for the attaining the sought aim.

13. The legislator should properly foresee not only the consequences of the provisions adopted but also the material time where the necessity for a different regulation of a relation arises. When reviewing the impugned provisions it is important to take into consideration how viable the distribution companies were before the adoption of the impugned norms. Whether their activity was inefficient or distanced both from energy security or customer rights protection. In this regard there seemed to be some contradiction between the positions of the respondents’ representatives. They failed to convince the Court as to how the lesser viability of small companies is manifested. The respondents, particularly, could not adduce convincing evidence as to the companies’ failure to comply with the licence terms, to ensure stable (permanent) quality and safe supply of energy due to their being small distribution companies. It is worth mentioning that the claimants submitted to the Court the letters certified by hundreds of customers, there they requested resuming the realisation of energy by those companies.

The pieces of evidence adduced before the Court showed a doubled picture. Those pieces of evidence submitted by the respondents seem to be contradictory. On the one hand they do not exclude the viability of small companies altogether when it comes to the period before the adoption of the impugned provisions; on the other hand, they argue that if small companies are allowed to stay in market, they will cause problems for the stability of energy supply.

14. When reviewing the impugned provisions not only possible practical consequences but the actual results caused by their application too should be taken into consideration. Under Article 26(3) of the Organic Law of Georgia “On the Constitutional Court of Georgia”, “[d]uring the examination of a normative act the Constitutional Court shall take into consideration … the practice of [impugned provision’s] application…” When possible (plausible) consequences differ from real (actual) outcomes, a law should be considered detached from common sense. The time elapsed from the enactment of the impugned provisions does not prove that the impugned provisions significantly contributed to the attainment of the legitimate aim sought by the legislator. The respondents’ representatives failed to present to the court in this regard any consolidating evidence. The legislator is obliged to always recall the Constitution in the legislative procedure. The Constitutional Court of Georgia held in its #1/3/301judgment of 23 March 2005: “when adopting a normative act, the legislator is obliged to duly foresee the possible effects of its application. The prognosis of a legislator in this regard must be reasoned and justified.”

15. The respondents’ observation - about causing problems for large companies by the existence of small companies, through taking over potential payers and eventually having ramifications for the entire energy sector – cannot serve as an argument substantiating the constitutionality of the Impugned provisions. The aforementioned reasoning is incompliance with the normative objective as a matter of principle and even in the case of accepting it there can be no such threat existing as argued by the respondents. It is worth mentioning that small companies were responsible for the insignificant portion of countrywide realised energy. It is evident from #01/2374 letter of the Minister of Energy dispatched to the Constitutional Court of Georgia on 5 November 2008 that the contribution of the so called “holders of small licences” in the overall energy distribution before the impugned provisions was as follows: 2,78% in 2002; 1,56% in 2003; 1,33% in 2004; 0,92% in 2005. As it appears from these figures the portion of small companies in the energy distribution had not even amounted to one percent. Under such conditions even if the customers of these companies were potential payers it would be less likely that the companies were capable of causing problems for large companies and overall energy system (security) which would necessitate their ejection from market. If this reasoning is followed then it is absolutely feasible that in the future those companies which can nowadays overcome the lower limit set by the impugned acts will cause problems for larger companies in the future. In such a case the problem would be solved by raising the threshold and ejection of the companies having failed to reach it.

The position that subjects operating on market are to interfere with each other instead of consolidating the market and furthering good faith competition is impermissible. The honesty, solidarity and respect for others interests is in the foundation of market and not the confrontation. The problems arisen in the activity of one company may not be solved through the artificial discontinuation of another company’s existence. Large companies would have been entitled to turn small companies’ customers into theirs if they bore expenses to that end and attract them with offers. The other paragraphs of the reasoning part of the present judgment also indicate the respondents’ position is manifestly ill-founded.

16. The respondents refer to the positioning of distribution companies in equal conditions as one of the major arguments for the introduction of the impugned provisions. In their opinion, this implies that in the future the burden of supplying energy will be equally divided. In particular, the company which will reach the lower limit will have both potential payers and indigent customers, not as it is in the case of small companies, where the latter operate only in the area of potential payers. In the respondents’ view, the operation of distribution companies in a discrimination-free area, i.e. where a company will be willing to supply energy to all customers irrespective of the fact that the company may have bigger expenses and face losses in terms of individual customers (e.g. supply energy to mountainous villages with low population density). As regards the placement of customers in equal positions it means that everybody will enjoy quality, safe and stable energy supply and most importantly the tariff will be unified on the territory of a company and the so called “expensive” tariff will be less than it should be realistically stemming from the company’s expenditure. The aforementioned is attained through balancing the expenditure by a company according to all customers, as a result of which there will be an average and balanced tariff.

17. Positioning companies in equal conditions means affording them equal legal guarantees. The scopes of the interference on the part of the legislature ends where the natural laws of market start to govern relations. When distribution companies enter market they freely choose their territories and go there where they can gain profit. Any administrative interference in this choice should be considered the limitation of entrepreneurial freedom. Naturally, stemming from the interest of energy security and customer rights, it is appropriate that a distribution company is oriented to the customers of all categories but the market laws can not oblige to this effect and clearly neither the impugned acts can generate such an obligation. Clearly, under the circumstances of company merger such a result is possible but it will not be comprehensive as the companies themselves chose their customers. It is absolutely possible that normative threshold be reached by a company at the cost of decent customers only. It is likewise possible that this lower limit be surmountable with the help of the population in mountainous regions only. Following this reasoning, only the so-called “cheap” customers will get energy as nobody is entitled to force an entrepreneur to carry out non-profitable activity. It should be borne in mind that entrepreneurial activity may not be limited by public interests than strictly necessary for the normal exercise of private interests. Entrepreneurs should be afforded legal guarantees so that they could effectively carry out their activity in their territory irrespective of their losses and profits. Any normative interference distanced from and confronting natural law of market will be forced and inefficient.

18. Stemming from the arguments mentioned above, the way of balancing a tariff, which in the respondents’ opinion, the application of the impugned provisions must entail, seems to be likewise unnatural. First and foremost, the unnaturalness is revealed by the fact that it fails to be established as a general rule and in it is eventually impossible to balance a tariff, there will always be distribution companies, which find themselves in an unequal environment. The introduction of a lower limit only enables the introduction of an average tariff within a distribution network and even that cannot be attained entirely. As the respondent observed, the given quota is only 1.45% of the overall energy distribution market, which means theoretically it is possible that 68 distribution companies, hence 68 different tariffs be in the market. In this context the respondent’s observation that based on the impugned provision, the tariff will be the same for everybody is questionable. Neither there is any unified tariff for everybody nowadays. At the moment of the consideration of the case before the Constitutional Court there were three energy distribution companies in Georgia with three different tariffs and considering the particularity of their area of operation there is no future likelihood either for unifying the tariffs. The fact that small power energy stations can directly supply energy to the customers proves the respondent’s observation wrong. The activity of small power energy station is partially regulated and it is manifested in the formation of energy tariffs as well. It is, therefore, absolutely possible that different tariffs be applied in different areas of one region. In the light of these considerations the idea of a balanced tariff is highly far-fetched.

19. When reviewing any impugned act the Court should be recalling the position of the legislature towards similar events. Despite the fact that any event requires existential approach to a certain extent, the legislature should manage to elaborate common scales for the review of similar and homogenous events, which excludes double standards. When reviewing the impugned provisions it was evident that the respondents have double approaches to the similar events. On the one hand, the respondents claim that the aim sought by the legislature can be attained by virtue of increasing the capacity of the energy realised by the distribution companies; and on the other hand, the Minister of Energy Alexander Khetaguri observed that the State policy in energy sector considers increasing the minimal capacity of project power in small power energy stations. According to the respondents, the aforementioned indicator last year was 10 megawatt, today it amounts to 13 megawatt and it is bound to increase in the future. Meanwhile, the deregulation process is ongoing in terms of direct customers. In the present terms, a subject is a direct customer, who realises for its own use 30 million kilowatt/hour energy in a year (from August until September inclusive). According to the representatives of the Ministry of Energy the lower limit quota set for direct customers will be reduced to one kilowatt/hour. The Court believes that the aforementioned measures referred to by the respondent will definitely cause the emergence of smaller power energy stations and direct customers in the energy market. The said subjects of energy market can regulate the tariff in agreement with each other, which excludes any possibility for a unified and balanced tariff for customers.

20. The necessity to eject small distribution companies from the energy market in order to attract investments is unsubstantiated. Despite the fact that in the energy sector the investments are of vital importance, it is less convincing to justify the introduction of the impugned provisions based on this reasoning. The fact is that the obligation to invest derives not from the impugned acts but from the terms of energy distribution licence. Article 36 of the Law “On Energy and Natural Gas” specifically points out the obligation to invest. Namely, under paragraph 3(e) of the said Article, during the licence term the holder of the distribution licence is obliged, in accordance with the licence “to provide distribution service to a customer, in accordance with the established procedure and investment agenda of the licence holder”. Subparagraph g) of paragraph 3 provides for the obligation of “elaboration of an investment agenda and its introduction to the commission and the society”. It is evident that investment is an obligation of any distribution company and presumably if a company fails to invest the issue of discontinuation of a licence can arise. From the proceedings before the Court and parties’ observations the investment activity of small distribution companies is not clear. The arguments of the respondent relate to the investments in the overall energy sector and it does not appear that the small distribution companies presented an obstacle. Moreover, these companies have accomplished such important obligations as installation of individual counters which is the one of the major goals of investment in general. Despite the assumption that investors may be more interested in large companies, the discontinuation of small companies based on the impugned provisions is not justified. The obligation to invest is separate and existed prior to the introduction of the impugned provisions. The amount of investments is determined in accordance with the activities of the investor.

21. The ejection of entrepreneurs from market endangers the credibility of legal order. Albeit the reasons underlying legislative novelties, the constitutional principle of credibility must remain intact. This is one of the most important principles of law which is also a guarantee for the security and stability of civil law relations. The attitude towards legal order which is evident from the impugned provisions not only undermines the credibility of the entrepreneurs being ejected from market but of those as well still operating. There seems to be no guarantee that their activity will be stable and not a target of future legislative changes. While there is no perpetual legislation, any further State action in this regard must be directed towards strengthening legal order instead of distancing it from the credibility principle.

22. When reviewing the constitutionality of impugned provisions, the Constitutional Court familiarises itself with relevant legislation and jurisprudence of foreign countries. No analogy to the impugned provisions was found in the court materials. It is clear that the viability of a distribution company is established through licence instruments when starting the company. For instance, under the German law, the right to distribute energy can be obtained taking into the consideration the personal, technical, and economic faculties as well as credibility of an applicant. The key issue is that the company will be committed and able to distribute energy for a long period in accordance with the principles established by law. Through such a licence system a subject with the due capacities gets to market and this is the guarantee for the protection of customer rights.

As it is obvious from the consideration of the merits, in case of violation of a licence, the regulatory commission is entitled to force the licence holders to fulfil their obligations. Considering that there is already the aforementioned regulation in order to ensure the stability of energy supply, setting a mandatory capacity of realisation and limitation of constitutional rights for the same motive is inexpedient. Moreover, as it appeared from the proceedings the given quota of realisation does not at all exclude the risk of unstable supply of energy.

23. When reviewing the impugned provisions in terms of Article 21 of the Constitution, the interrelation of entrepreneurial freedom and the right to property should be borne in mind. It is worth mentioning that there is no free entrepreneurship without the guarantee of the right to property. The link is so tight that the existence of the former is determined by the latter; the freedom of entrepreneurship is implied within the freedom of ownership. This must be the reason why there is no separate provision in some countries’ constitutions about the freedom of entrepreneurship and instead it is implied within the guaranties of the right to property. Indeed, entrepreneurship is a manifestation of the exercise of the right to property. In the reality of Georgia the very formation of the property order allowed the introduction of the free entrepreneurship and entrepreneurial order. The property of private actors albeit the functional implications, whether it is used for entrepreneurial activity or not is the subject of the protection afforded by Article 21 of the Constitution of Georgia. Property is protected unconditionally irrespective its values and social implications.

24. Under the constitutional claim the constitutionality of the impugned provisions is to be reviewed in terms of Article 21(1-2) of the Constitution. While the first paragraph acknowledges the right to property as a basic right, the second paragraph establishes the scopes for its limitation. The first paragraph - “The property … shall be recognised and guaranteed” – “is the institutional guarantee of property and at the same time a fundamental human right” (#1/2/384 Judgment of the Constitutional Court of Georgia of 2 July 2007). It is worth mentioning that the aforementioned provision “implies not only granting legal remedies to an owner but also protection of the right to property from a limitation running counter to the scopes of paragraphs 2 and 3 of the same Article” (#2/1-370,382,390,402,405 Judgment of the Constitutional Court of Georgia of 18 May 2007).

The first paragraph of Article 21 of the Constitution, as a principle, has a subsidiary implication for the rest of the paragraphs.

As regards the limitation of the right to property as allowed by Article 21(2) of the constitution, it represents of the limitation of the contents (disposition). The legislator is obliged to set adequately the limitation boundaries. In any case of limitation “the essence of property should be maintained without prejudice to its contents” (#1/1/103/117/137/147-148,152-153 Judgment of the Constitutional Court of Georgia of 7 June 2001).

While as a result of limitation, an owner formally retains the elements pertaining to the contents of property it does not mean that the interference with property is justified. The preservation of the rationale of property depends on the scopes for the limitation of the contents of property since the contents defines essence. In any case of limitation of the contents of property, the property must remain as a property and continue bearing the burden caused by the limitation.

25. The impugned provisions are to be reviewed in terms of the above­mentioned provisions of the Constitution along with Article 30, if the violation of the latter can result in an excessive interference with the right to property. In this regard, it is worth mentioning, that despite an organic link between property and entrepreneurship, the violation of Article 30 may not always result in the violation of Article 21. It depends on the peculiarities of each particular case, the functionality of the property object and the nature of entrepreneurial activity whether the violation of Article 21 entails the violation of Article 21 as well. A victim of the violation of entrepreneurial freedom as the result of the deprivation of the right to run certain activity may successfully use his/her property for another purpose and fully exercise all the entitlements of an entrepreneur. It is different from the cases, where property only serves some particular purpose due to its functional nature. Then it suffices to prohibit a subject to run such an activity, which will result in unproportional interference with the right to property.

26. If the constitutional claim is reviewed from the abovementioned perspective, it appears that there is not only the violation of the first sentence of Article 30(2) but Article 21(1-2) is violated as well.

The peculiarity of entrepreneurial activity of the claimants preconditions that the violation of one right is resulted in an unproportional limitation of the other. While making this review the functional purpose of the claimants’ property should be taken into account. They purchased the property in order to carry out a particular entrepreneurial activity and they knew from the outset that it would only be possible to use this property effectively for this purpose. After their exclusion from the distribution activity they could not make use of their property for its primary purpose. Although the claimants were not formally deprived of their entitlement either to use or dispose of their property (namely they can lease this property or dispose of it in another way). This does not mean that their property entitlements have not been limited excessively. The possession of a property will be meaningless if the property rights of a subject are without contents. The contents of the property is guaranteed, where an owner can exercise the entitlements implied in property in accordance with the will determined by the function of a property object. The legislator is obliged to give to an owner the possibility for peaceful enjoyment of his/her property, which in the first place means the relation of the owner with the property object. That would be the manifestation of the positive contents of the right to property.

27. The ejection from market deprived the claimants the right to use the property for distribution. The road leading them cut off to their property, which endangered one element of the right to property – the right to use. Neither the fact that claimants can lease their property and use it in that way justifies the limitation. An owner is never deprived of that possibility. By barring claimants from distribution the implication of use is narrowed so that it causes distancing of the owner. The limitation of constitutional rights can be justified when the legitimate aim is attained so that the value and the owner are not estranged from each other. The limitation implies fair balancing and not such cases where one interest is replaced by another. In our case the limitation of property is unjustifiable a fortiori considering there are no full guarantees even during leasing as nobody is obliged to enter lease relations with them. Distribution companies are fully entitled to install distribution networks themselves and thus leave the claimants’ property without any function. This outcome is feasible if there are no impugned norms too but in that case it would result from the natural operation of market and not from the artificial interference therein. While in any case undesired outcomes are unfavourable for an entrepreneur this is not justified when a right is violated in a way which is unjustified and fails to meet the requirements of common sense.

28. The claimants have maintained the possibilities of disposal of their property to the same extent they used to run distribution activity. It may not concluded that the right to property has not been violated or that the limitation is justified. It is to be taken into consideration that when the limitation of the contents of the property is at stake it does not automatically mean the limitation of other entitlements of the owner. An object of limitation can be any entitlement, which determines the substance of property.

The freedom of disposal of property is at stake when it is the result of the free will of an owner and is a manifestation of the exercise of the right. When an owner’s will is manifested through external normative coercion there can be no freedom.

29. It is evident from the abovementioned that the impugned acts cannot be considered a reasonable means for the attainment of the aim invoked by the respondents. The manner used by the respondents is useless not only in that that is causes the ejection of small companies from market and groundless limitation of their entrepreneurial freedom and right to property but it also fails in a number of cases to reach the objective set by the legislator. This fact causes distancing of the legislator not only from the means but from the objective as well. Since any legal order is aimed at interrelating objectives and means this obliges the State to employ such means that will guarantee the attainment of the objective with the due respect to the principle of proportionality.

30. All mentioned above indicates that the means provided for by the impugned acts is not necessary. The respondents failed to convince the Court that the way of the limitation of the rights chosen by them was the only and indispensable means, which would limit the claimants’ rights to the least degre. The necessity of a means arises from objective circumstances and it affords no alternatives. Such an attitude excludes the artificialness of a limitation. The limitation caused by a necessity is justified by a necessary means. Only such a limitation can meet the requirements of common sense and disposition of a subject to consider the limitation of a right to be irrevocable necessity.

III

In the application of Article 89(1)(f) and Article 89(2) of the Constitution of Georgia, Article 19(1)(e), Article 21(2,8), Article 23(1), Article 25(2-3), Article 39(1)(a), Article 43(2,4,7,8) of the Organic Law of Georgia “On the Constitutional Court of Georgia”; Article 13(2), Article 30, Article 31, Article 32 and Article 33 of the Law of Georgia “On Constitutional Legal Proceedings”:

The Constitutional Court of Georgia
resolves:

1. To uphold #411 constitucional claim (LTD “Russenergoservice”, LTD “Patara Kakhi” and JSC “Gorgota”, Givi Abalaki’s Individual Company “Farmer” and LTD “Energia” v. the Parliament of Georgia and the Ministry of Energy of Georgia).

2. To declare unconstitutional Article 2(d) of the Law of Georgia “On Energy and Natural Gas” (under the head of the realisation of energy (power) exceeding the amount established by “The Energy (Power) Market Rules” for energy retail customers; and Article 7(1) ofN77 Order of the Minister of Energy of Georgia of 30 August 2006 “On Approving “The Energy (Power) Market Rules” in terms of Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia.

3. To declare invalidated from the moment of promulgation of the present judgment Article 2(d) of the Law of Georgia “On Energy and Natural Gas” (under the head of the realisation of energy (power) exceeding the amount established by “The Energy (Power) Market Rules” for energy retail customers; and Article 7(1) of #77 Order of the Minister of Energy of Georgia of 30 August 2006 “On Approving “The Energy (Power) Market Rules” in terms of Article 21(1-2) and the first sentence of Article 30(2) of the Constitution of Georgia.

4. To discontinue the proceedings related to LTD “Energia”.

5. The judgment shall be in force from the moment of its pronouncement at the hearing of the Constitutional Court of Georgia.

6. The judgment shall be final and not subject to appeal or revision.

7. A copy of the judgment shall be dispatched to the parties, the President of Georgia, the Government of Georgia and the Supreme Court of Georgia.

8. The judgment shall be promulgated in “Sakartvelos Sakanonmdeblo Matsne” within 15 days.

Board Members:

Konstantine Vardzelashvili

Vakhtang Gvaramia

Ketevan Eremadze

Besarion Zoidze