Composition of the Chamber

Zaza Tavadze – Chairman of the Hearing, Judge Rapporteur;

John Khetsuriani – Member;

Otar Sichinava – Member;

Lali Papiashvili – Member.

Secretary of the Hearing: Darejan Chaligava

Title of the Case: Citizen of Georgia Bichiko Chonkadze and Others v. Minister of Energy of Georgia

Subject of the Dispute: Constitutionality of the words “present prior to 1 August, 2008” of clause 2 of the Order of the Minister of Energy of Georgia No. 69 of 25 September, 2007 “ON THE REGULATION AND PARTIAL DEREGULATION OF THE ACTIVITY OF NATURAL GAS SUPPLY” in respect with article 14 of the Constitution of Georgia.

Participants of the Hearing: Representatives of the Claimants - Marina Tsutskiridze and Nato Papuashvili; Representatives of the Respondent – Ministry of Energy of Georgia- Nino Enukidze, Irakli Khmaladze, Vano Mechurchlishvili; Witness – Member of the Georgian National Regulatory Commission of Energy and Water Supply, Zurab Gabelaia.

I

1. On 23 February, 2009 the constitutional claim (registration No. 473) was lodged with the Constitutional Court by the citizens of Georgia Bichiko Chonkadze, Kakha Potskhverashvili, Ioseb Samkharadze, Tamaz Papuashvili, Jambul Shelutashvili and Fridon Archvadze. Pursuant to the resolution of the President of the Constitutional Court of 25 February, 2009, the constitutional claim no. 473 was allocated to the Second Chamber of the Constitutional Court of Georgia to decide the issue of admissibility for its consideration on merits. Pursuant to recording notice of the Second Chamber No 2/8/473 of 19 October, 2009, the case was admitted for consideration on merits. Hearings on the merits of the case were held on 17 November and 2 December, 2008.

2. The legal ground for submission of the constitutional claim is indicated to be the following: article 89(1) of the Constitution of Georgia, article 19(1), article 39(1) of the Organic Law of Georgia “On the Constitutional Court of Georgia”, article 16 of the Law of Georgia “On Constitutional Legal Proceedings”.

3. Clause 1 of Order of the Minister of Energy of Georgia No. 69 of 25 September, 2007 “On the Regulation and Partial Deregulation of the Activity of Natural Gas Supply” declares the activity of natural gas supply to be deregulated. Clause 2 of the same Order declares that activity of natural gas supply is partially deregulated for a particular category of consumers. The disputed norm is the words of clause 2 “present prior to 1 August, 2008”; pursuant to this norm, physical consumers of natural gas, who were subscribers before this date and who do not consume natural gas for entrepreneurial purposes (except for those people, towards who activity of supply of natural gas was deregulated prior to August, 2008), activity of natural gas supply was declared to be partially deregulated.

4. According to the constitutional claim the disputed norm contradicts article 14 of the Constitution of Georgia, which states, “everyone is free by birth and is equal before law regardless of race, color, language, sex, religion, political and other opinions, national, ethnic and social belonging, origin, property and title, place of residence”.

5. The claimants stated that they have installed gas-feed system in their apartments after August 1, 2008. In their opinion the disputed norm sets forth two categories of consumers of natural gas: 1. Individuals, who have become consumers of natural gas prior to August 1, 2008, and who were subjected to the regime of partial deregulation of activity of natural gas supply. Limitation of tariff for them is set by the Georgian National Regulatory Commission of Energy and Water Supply. Thus they pay 0.50 Lari for consuming 1 m³ of natural gas. 2. Individuals, who have become consumers of natural gas after 1 August, 2008 and who were subjected to the regime of full deregulation of activity of natural gas supply. This category of consumers purchase natural gas without any limitation on tariff and they pay 0.75 Lari for consuming 1 m³ of the natural gas.

6. The claimants think that this categorization of consumers of natural gas contradicts right to equality before law as guaranteed by article 14 of the Constitution of Georgia. They assert that when the state or, in this particular situation, Georgian National Regulatory Commission of Energy and Water Supply partially deregulates activity of natural gas supply, they regulate natural gas tariff, whereas in case of full deregulation state can not interfere in this specific activity and it cannot regulate tariff and it is set then according to the judgment of gas supply company. Due to such a resolution of the problem, individual, who installed gas-feed system after 1 August, 2008 are burdened without justification.

7. The claimants do no dispute the fact of deregulation or partial deregulation of the activity, per se. They think the problem is that disputed norm differentiates between categories of natural gas consumers and determines different regimes of activity of gas supply to them.

As representatives of claimants explain, the solution of the problem will be constitutional only if tariff of natural gas will be deregulated or partially deregulated for everyone. In their opinion this is the only way to comply with the principle of equality.

8. The claimants assert that the disputed norm subjects them to a differential treatment on the following grounds: “residence”, “property”, “social belonging”, “starting date of consumer relationship”.

The claimants state that as a result of the disputed norm, people living in residential places, where natural gas-feed system was installed prior to August 1, 2008, present the category subjected to partial deregulation regime; whereas people living in those places where natural gas-feed system was installed after August 1, 2008 were subjected to full deregulation. They think that differential treatment of a group of people on the ground of the fact that installation of gas-feed system in their cities or districts took place later than in other cities or districts cannot serve as criteria of differentiation. Therefore discrimination in the disputed norm towards them is based on the ground of “residence”.

In respect with the ground of “residence” the claimants mentioned other argument too, which was contradictory to the previous one. They pointed to the fact that it is possible that citizens living in one building pay different tariff of natural gas due to the fact that they installed natural gas-feed system in their apartments at different times.

9. The claimants explained that the disputed norm differentiates between citizens on the ground of their social belonging and property. The disputed norm applies differential treatment to those people who could not afford financially to install natural gas-feed system before August 1, 2008. They assert that this category comprises people who could not afford becoming consumers of natural gas before August 1, 2008, but later due to improvement of their financial standing they managed to install natural gas-feed system. Due to their financial hardship they were subjected to unequal regime whit those people who could afford to become consumers of natural gas before August 1, 2008.

10. The claimants state that disputed norm determines categories of people on the ground of time period. Distinction between groups of people who are treated differently is period of time when a person has become natural gas consumer – August 1, 2008. In their opinion categorization of natural gas consumers based on this criterion is absolutely groundless. They think that all the consumers of the natural gas who are physical persons shall fall under one legal regime. It shall not be allowed that unfounded and unjustified burden was imposed only on one category of consumers. Regulation in the disputed norm violates right to equality because under it people living next to each other shall pay different tariff of natural gas, whereas gas is provided on the identical terms, only because they have become consumers at different times. They think that tariff of natural gas, even if increased, shall be the same for everyone.

In view of above mentioned the claimants assert that the disputed norm contradicts not only article 14 of the Constitution of Georgia, but it also contradicts relevant articles of the European Convention of Human Rights.

11. Respondent asserts that the constitutional complaint is groundless, unjustified and it shall not be upheld. They explain the subject of the challenged provision is not an individual, a particular physical person; the term used is “consumer” and “subscriber”. They think that this is conditional designation for the purposes of this order and practically residential place is implied here. The respondent thinks that under article 2, clause “z¹³” of the Law of Georgia On Electricity and Natural Gas a retail consumer is a person who consumes natural gas from the natural gas network and installations of reception and consumption of natural gas are attached to a particular system of natural gas supply. Therefore reception and consumption of natural gas takes place in a particular joint point on technical and legal terms effective there, which is finally reflected in the relationship between the licensee of natural gas distribution, supplier and consumer. This is normal condition which is present in the sector of natural gas as well as in electricity and water supply. It is also present in provision of those services, where terms and features of delivery of service is depending on the legal and technical conditions in the particular place of delivery of the service.

Therefore the respondent thinks that the disputed norm did not subject to differential treatment group of individuals on the ground of their residence, social belonging or property. It is residential places, that fell under different regime because of installation of gas-feed system after August 1, 2008 instead. Differentiation between residential places according to date of installation of gas-feed system is not related to rights enshrined in article 14 of the Constitution of Georgia.

12. Respondent asserts that disputed norm does not divide people in categories and that why it is impossible for this norm to violate article 14 of the Constitution of Georgia. Consumers registered after August 1, 2008 who fall under regime of deregulation can be representative of any social strata and a person with any amount of property. Therefore they think that disputed norm has no relation and link to the grounds of social belonging and property.

13. In respect with the position of the claimant which deals with the categorization of citizens on the ground of their residence the respondent states that it does not matter whether a person permanently resides at certain place or moves to another place; what matters is whether that certain place had gas-feed system installations before August, 2008.

The disputed norm does not address a physical person, the respondent asserts. What matters is the fact whether a particular residential place had or not gas installations before August 1, 2008 which does not in itself amounts to disadvantaged position. At the same time, representatives of the respondent assert, that consumers are free to choose a company which is likable to them and which will provide natural gas for acceptable price.

The respondent did not agree also with arguments of the claimant and stated that price for natural gas is the same for both categories of consumers: 50 Tetri per1m³.

14. Respondent states that pursuant to the Constitution of Georgia to determine and implement state policy in the sphere of energy is the competence of the highest state organs. On June 9, 2006 the Parliament of Georgia adopted the Resolution N^o 3259 pursuant to which liberalization of energy sector, its deregulation and development of competition through gradual deregulation was stated to be main directions of state policy in the sphere of energy. To implement state policy in the energy sector is the function of the Ministry of Energy of Georgia and the disputed norm serves exactly that function.

15. They assert that order N^o 69 of 25 September, 2007 of the Ministry of Energy of Georgia was adopted to implement deregulation of the activity of supply (except for those physical individuals, who had been consumers of natural gas before August 1, 2008); deregulation is one of the crucial step forward to implement state policy in this sphere and achieve determined goals, namely development of competition and free market relationship. The respondent explained that deregulation of natural gas supply is necessary condition to develop the sector and to make it attractive for alternative suppliers. The respondent asserted that it was disputed act, which served as precondition for injection of new investments in the country and for installation of natural gas supply system. Since August 1, 2008 up to present time more than 200 000 new consumers have installed gas-feed system and the claimants were provided with natural gas as a result of precisely this disputed act.

16. The respondent stated that the goal of the disputed norm is exclusion of the possible negative effects of the process of full deregulation of activity of natural gas supply. The gradual deregulation helped to avoid range of negative outcomes which could follow from simultaneous deregulation of the whole population present at that time. In particular, to change market terms without transitional period and in the context where population had no relevant experience and necessary skills would cause uncertainty and chaos in the market. All this would obviously cause increase of natural gas price for all the consumers and would put companies in advantageous position and enable them to exploit consumers before the market and competition would regulate this relationship by itself over time.

Thus the disputed Order managed to protect interest of both new consumers and consumers present by August 1, 2008 as the latter category had maintained the same tariff despite emergence of new subscribers and they were not compelled to look for alternative means in specific cases. On the other hand the Order made it possible to provide natural gas to new subscribers through attraction of investments and purchase of additional amount of natural gas in the commercial market.

In the opinion of the respondent it is also noteworthy, that at the moment when disputed norm entered into force (24 July, 2008) the group of people towards which activity of natural gas supply was fully deregulated was actually non-existent. Namely, the order was published on July 24, 2008 and in part of full deregulation it only deals with those subscribers who registered after August 1, 2008.

The respondent stated that the regulation in disputed norm is temporary measure in the process of deregulation of activity of supply of natural gas, which will end in 2013 with the full deregulation of the sector.

17. The witness in the case, member of the Georgian National Regulatory Commission of Energy and Water Supply Zurab Gabelaia explained that there are all the legal and technical grounds present for consumer to choose one of the competitor supplier companies which is most acceptable for them in the market.

The witness explained that amount of natural gas available for a company and its price is open information. Therefore subscribers are able to reach the prospective supplier likeable to them and to negotiate with them. At the same time in case of reaching agreement with supplier, the company which owns distribution network is obliged to provide natural gas to the consumer, if there is technical means for that. If a distribution company decides that provision of the natural gas is impossible, the burden of proof is imposed on them. The witness explained that actually there was no dispute on the ground that company owning distribution network used technical excuse to deny other suppliers to provide their gas.

II

1. Right to equality before law is enshrined in article 14 of the Constitution of Georgia which states: “Everyone is free by birth and is equal before law regardless of race, color, language, sex, religion, political and other opinions, national, ethnic and social belonging, origin, property and title, place of residence”. This norm of the Constitution sets forth the fundamental constitutional principle of equality before the law. Its goal is to prevent treatment of equals unequally and vice versa.

Article 14 of the Constitution of Georgia as well as Constitutions of other states and international human rights instruments provide list of certain grounds addressing the legislator and pointing to the criteria which shall not serve as ground for unequal treatment. The grounds in the list are related to the aspects of human identity and are based on respect of human dignity and have their historical premises. Differential treatment based on these grounds emanates cases of heightened risk of discrimination and demands particular attention from a legislator. This follows from fact that any sort of hierarchy in social status of human being is unacceptable. The presence of the list of the grounds points to the heightened scrutiny of the differential treatment in these cases. However this does not exclude that there can be other cases of unreasonable differential treatment of humans which also require prohibition by the Constitution. The Constitution prohibits each case of treating unequally equals before the law (and vice versa) without reasonable and objective justification thereto. However in view of the nature of legal relationship the degree of protection of right to equality before the law differs and it’s scope shall be determined case by case.

2. To understand fully the essence of article 14 it is crucial to distinguish equality before the law from equalization. “Pursuant to this principle main goal and function of the state can not be full equalization of people as this would contradict the very idea of equality the essence of right. The idea of equality strives to achieve equality of opportunity or to guarantee the equal opportunities for self-fulfillment of people in different spheres”. (Judgment of the Constitutional Court of Georgia N^o 1/493, December 27, 2010). Right to equality does not imply to put all the people in same conditions despite of their character and capabilities. The only obligation that follows from it is to create such a legislative realm which will provide equal opportunities for those who are essentially equal in particular relationships and the opposite for those who are unequals.

It is noteworthy that right to equality is not absolute article 14 of the Constitution does not obliges the state to fully equalize essentially equal people in any case. It allows for certain differential treatment “any differential treatment towards essentially equal people does not per se amount to discrimination. In certain cases even relationships which are sufficiently analogues the differential treatment maybe necessary and even inevitable” (Judgment of the Constitutional Court of Georgia N^o 1/493, December 27, 2010).

On case of differential treatment we shall distinguish discriminatory differentiation and differentiation which is cause by objective reasons. When the differentiation of people is goal in itself this can never be considered to be caused by objective reasons, although the likelihood of the laws which provide for differential treatment as goal in itself is low as a rule. Often presence of public goal can explicated from the law which provides for differential treatment, therefore it shall be ascertained case by case whether differential treatment to achieve a public goal is cause by objective reasons.

3. In the present case the court shall find out whether the disputed norm provides regulation which differentiates between essentially equal people and if so it shall review whether this differential treatment has character of discrimination.

According to the disputed norm in clause 2 of the order N^o 69 of the Minister of the Energy of Georgia of 25 September, 2007 “on deregulation and partial deregulation of the enterprise of supply of natural gas”, the enterprise of supply of the natural gas was declared partially deregulated for those consumers who are physical persons (population-household consumer) who have subscribe for natural gas before August 1, 2008. According to clause 1 of the same order the enterprise of natural gas supply for all the other categories of consumers is declared to be deregulated.

The respondent pointed out in the final opinion that the term consumer is conditional name for the purposes of the disputed act and it implies not a physical person but a residential place. In their opinion it is those residential places which were gasified after August 1, 2008 those are treated differently, therefore the disputed norm des not treat differently physical people.

Based on the legal construction and systemic analyses of the disputed norm the Constitutional Court does not share the above argument of the respondent. The regime of partial deregulation is “maintained for those physical person consumers (population- household consumers) of natural gas who does not consume natural gas for entrepreneurial activities”. It does not follow from the order of the minister that disputed norm addresses differential treatment of residential places in any way on the contrary it has legal consequences for physical person household consumers of natural gas. The order N^o 69 of the Minister of Energy of Georgia presents a secondary legal act. It is adopted on the bases of the law on electricity and natural gas and for a purpose to implement. This order does not provide deferent definition of “consumer physical person” from other legal acts and no necessity or expedience follows from its content to give autonomous meaning to the term for purposes of disputed act. Therefore the court considers it appropriate to use provision of the law on electricity and natural gas to define the group of physical consumers of natural gas before and after August 1, 2008.

This law sets forth to types of consumers direct and retailer. Pursuant to clause z¹³ article 2 of the law retail consumer is defined to be a person who receives electricity (power) from the network of production transfer or distribution whereas s/he receives natural gas from distribution network of licensee consumes them for his own necessities and is not a direct consumer. This norm of the law underscores the term person in determination of retail consumer. Direct consumer is in legal relationship with the individual supplier of natural gas when he consumes natural gas. Whereas under article 8 of civil code of Georgia physical and legal persons can be subjects of private legal relationships; residential objects can not be participants of these relationships.

Moreover under article 5 clause 1 of the law of the Georgia of the electricity and natural gas supply of natural gas and rules of consumption is regulated by resolution of Georgian National Regulatory Commission of Energy and Water Supplies. It is this resolution that determines the institute of household consumer of natural gas and rule of subscription for consumers. Therefore to determined group of people address by the disputed norm the court considers it appropriate to use provisions of resolution N^o 12 of the Georgian National Regulatory Commission of Energy and Water Supply dated 9 July 2009. Pursuant to clause 10 article 3 of the Resolution N^o 12 household consumer is a physical person who purchases natural gas and utilizes it for only household purposes. The disputed norm declares partial deregulation of supply enterprise towards these household consumers analyses of articles 4, 5, 18, 19 of this resolution clarifies that to register as consumer person fails application on the bases of which natural gas supply agreement is concluded between them and a supplier. Therefore subject of the relationship is a physical person not a residential place moreover resolution N^o 12 allows for presence of different household consumers at different times per one residential place. Based on the analyses of above legal rules the court finds that differential treatment in the disputed norm is addressed towards group of people.

4. Differential treatment is realized through bringing one part of consumers of natural gas and through partial deregulation of supply enterprise while for the other part of consumers enterprise of supply of natural gas is deregulated. In the sector of natural gas definitions of deregulation and partial deregulation is given in the law of Georgia on electricity and natural gas. Partial deregulation on the enterprise of supply of natural gas pursuant to article 2 clause G¹ implies to supply natural gas to consumer within the arrear of limitation of tariff of natural gas set forth by the Georgian National Regulatory Commission of Energy and Water Supplies. Article 2 clause G¹ of the same law states that regime of deregulation means that there is no limitation of tariff on natural gas that aims at protection of consumers in the process of supply of natural gas. In the regime of deregulation consumer cost of natural gas is determined according to the terms of agreement between the supplier and consumer.

To review the constitutionality of the disputed norm it shall be ascertained whether it is possible that people subjected to differential treatment be considered as essentially equal for the purposes of the legal relationship in which they are distinguished. Differential treatment by the state is expressed in setting different guarantees of protection for different groups of consumers at the consumer market of natural gas. Therefore it shall be ascertained whether the distinguished groups of consumers have equal legal interest towards state protection.

5. The norm- principle of equality before law guarantees that opportunities granted by law are equally available to all human beings. Choosing the policy for development and provision for human necessities state has wide margin of appreciation whether the human lives obliged the state to provide them with a certain form of legal protection at consumer market shall be decided case by case. However if a state finds necessary such a protection it is obliged to implement this activities on equal footing. In the present dispute it is not for a constitutional court to review the issue of constitutionality of the policy of deregulation chosen by the state in the sphere of energy. Independently from this the constitutional court deems that consumers of natural gas who have entered in consumer relationship before and after August 1, 2008 have the same legal interest of protection by the imperative legal rules. The court can not identify such a distinction between these two groups of people that would increase or decrease legal interest of protection by rules in a way that would make it possible to consider them as essentially unequal.

6.There is no single standard to review constitutionality of interference in the scope of right to equality. The Norm which provides differential treatment on the classical and specific grounds or is very intensive will be subjected to the view of constitutionality through employing “strict scrutiny” in application all principle of proportionality. According to the test of “strict scrutiny” “to prove legitimate aim it is necessary to demonstrate that the state interference is absolutely necessary there is compelling state interest thereto” (Judgment of the Constitutional Court of Georgia N^o 1/493, December 27, 2010). In case if differential treatment set forth in the disputed norm is not related to the above mentioned grounds or interference is not very intensive the court will review constitutionality of disputed norm through the test of “rational differentiation”. According to this test “A. it is sufficient to show rationality of differentiation inter alia when it is manifest that differentiation is inevitable or necessary or as close to reality as possible. B. Actual and rational link is present between the objective reasons of differentiation and its outcomes.” (Judgment of the Constitutional Court of Georgia N^o 1/493, December 27, 2010).

Therefore to review constitutionality of disputed norm it is necessary to ascertain the ground of the differential treatment provided in the norm and what is the intensity of the interference in right.

7. The claimants pointed to the 4 grounds for distinction which they think are bases of differential treatment stated in the disputed norm. These are: place of residence, property, social status, time of start of consumer relationship therefore constitutional court thinks it is important to review whether differential treatment set forth in the disputed norm is based on these grounds.

8. The claimant proves discrimination on the ground of residence through practical examples. People leaving on one street maybe are provided with natural gas with the tariff set by the Georgia National Regulatory Commission of Energy and Water Supplies while people living on the other street will receive natural gas in the regime of the regulation. It is noteworthy that the claimant also presented argument contrary to this example. In their opinion people residing on different streets but also people who live in one building can consume natural gas under different regimes. In view of the nature on the right of equality its application is related to the presence of comparable rules whereas differentiation on the ground of residence implies that people residing different geographical territory have different rights. The claimants reside at specific places in Tbilisi. The disputed norm could be subject of review of discrimination on the ground of residence if the norm had established disadvantages legal regime for them compared to the people living in other territorial units of Tbilisi or people living outside of Tbilisi. The disputed norm is neutral towards people residing in any territorial unit of Tbilisi. Deregulation of enterprise of supply of natural gas is only related to the time of acquisition of status of consumer in spite of territorial unit where the person resides at that moment. The claimant can not substantiate nor is it evident from the disputed norm that any territorial unit of Tbilisi is subjected more intensely to the regime of deregulation or runs increased risk of deregulation compared to other territorial units. Therefore differentiation set forth in the disputed norm is not related to the ground of residence.

9. They claim of discrimination on the ground of property is substantiated by the claimant through the fact that mostly absence of status of consumer on natural gas until August 1, 2008 was determined with difficult financial condition and this is why they were subjected to the regime of the regulation. To check the link to this ground of differentiation the court considers it to be important to define the property status of comparable group of people. The property status of consumers registered before August 1, 2008 is diverse. People with difficult economic condition as well as people with good financial standing are among them.

Emergence of new consumers of natural gas since August 1, 2008 was caused by several different reasons. For example, building of new residential places and provision of natural gas in there. Installation of gas supply in those territorial units where natural gas was not supplied before that date and/or emergence of new consumers in those places which had installed gas supply before August 1, 2008 whereas these consumers did not acquire the status before that date according to their will or because of difficult economic condition. In the newly built houses and territories with new gas installations may leave people of any property status at the same time the court does not exclude the possibility that there are people who could not become consumers of natural gas before August 1, 2008 because of their difficult economic condition but they managed to do this after that date. Therefore regime of deregulation is applied to both people in difficult economy condition as well as people with good financial standing in this comparable groups we see the people with different property status. People with difficult economy condition are among the consumers who registered before August 1, 2008 as well as those consumers who acquired this status after that date. It is not evident from the disputed norm that it aimed or practically caused that mostly people with difficult economic condition are subjected to the regime of deregulation. The disputed rule of regulation is neutral towards the property status of consumers therefore differentiation is not based on the ground of property. 10. The claimant asserts that the disputed norm differentiates between people on the ground of their social status, because the group of consumers subjected to the regime of the deregulation of enterprise are mostly people who could not afford to become consumers of natural gas before August 1, 2008 due to their social condition and they managed to acquire the status only after improvement of the social condition. Article 14 of the Constitution of Georgia sets forth human right of equality before law despites their social status. These constitutional provision guarantees equality on this ground before the affective legislative norm it does not aim to protect human being from the social origin or any other status that existed before enactment of disputed norm. The protection of the named provision of the constitution is aimed to those people social status of which is present by the time when the norm providing for differentiation is enacted or effective.

The law can discriminate on the ground of social status of people if by that time of its adoption or within of period of its validity there is a social group membership of which is ground of discrimination. Whether it is possible to consider a certain group of people as social group shall be decided case by case. There is no unequivocal and exhaustive criteria to identify the existence of social group though it is possible to point out some of this criteria for general understanding: 1. Membership of the group is characterized by common and permanent nature which can be define by the choice of a person or by circumstances (factors) independent of him. Members of the group can not change it or it is so fundamental to their personality that demand of change is unjustified. 2. We can consider group of people to be social group if its members are closely related because of similar image behavior or interest at the same time in both cases the members of the group shall have such a character (features) which would enable outsiders to identify them as members of a specific social group. However the Constitutional Court does not exclude possibility of such group of people which does not meet these criteria but can still be considered as social group. Differentiation in the disputed norm is related to the time of acquisition of status of consumer of natural gas. Consumers who emerged after August 1, 2008 have no such common character similar image behavior or interest or any other feature on the ground of which they can be considered as social group for the purposes of article 14 of the Constitution. Therefore differentiation in the disputed norm is not related to the social status.

11. Differentiation following from the disputed norm implies giving different opportunities at the consumer market of natural gas to a specific group of people. It is noteworthy that regime of deregulation is not applied on the ground of personal property or other features of human being. The ground of differentiation is not in any ways connected to the permanent or temporary mutable or immutable character of human being. The criteria which grounds differential legal protection of claimants is the time (date) of their registration as consumers of natural gas. The claimants pointed out these ground of differentiation. Acquisition of status of natural gas consumer is achieved through establishing private legal relationship to any supplier through concluding natural gas supply agreement with them. The disputed regulation offer different standards of legal protection to the consumers in these private relationships according to the date of start of relationship. Therefore differentiation in disputed norm is related to the starting date of legal relationship, date of acquisition of status of natural gas consumer.

12. For constitutional review of the disputed norm it is important to identify intensity of differentiation “the criteria to measure intensity of differentiation will differ from case to case in view of the nature of differentiation and sphere of regulation, however in any case it is crucial to what extent essentially equal people fall under different condition, or in other words how far differentiation removes equal people from equal opportunities of participation in specific social relationship.” (Judgment of the Constitutional Court of Georgia N^o 1/493, December 27, 2010). In the present case to review intensity of differentiation it is important to ascertain how regime of partial deregulation differs from regime of deregulation for a consumer in practical terms. It is also important to pay attention to the temporary nature of differential treatment as it was already noted differentiation takes place through setting different standard of legal protection for participants of consumer relationship subscribers of natural gas before August 1, 2008 consume it for a limited tariff set by Georgian National Regulatory Commission of Energy and Water supply, whereas consumers who emerged later have no such opportunity.

Pursuant to requirement of the legislation of Georgia in setting the limitation of tariff of natural gas supply the regulatory commission is obliged to take into account various economic factors. In view of this the limitation of tariff can also be subject to changes and it is not an absolute guarantee of reception of natural gas for certain praise. The global changes at the market for example increase in the cost of imported natural gas will cause increase of praise of natural gas for consumer in both partial deregulation as well as full deregulation regimes. Limitation of tariff protects consumer from less global changes in the market (such as praise policy of supplier, amortization of internal net, etc.) which cause increase of the consumer praise of natural gas. Therefore the disputed norm separates the comparable group of consumers exactly in this segment. It is also noteworthy that the order N^o69 of 25 September, 2007 of Minister of Energy of Georgia which comprises the disputed norm is generally aimed at the development of competition in the market of natural gas. Market competition is alternative mechanism for limitation of tariff for prevention of monopolistic praises and presents certain guarantee for possibility to purchase natural gas for reasonable praise.

13. To view the whole picture of state policy direction and priorities in the sphere of natural gas it is important to analyze the legislation regulating the sector.

The basic regulatory act of activities in this sphere is a law of Georgia on electricity and natural gas of 27 June, 1997. Originally this law use to regulate only issues of electricity. Since the amendment on April 30, 1999 the scope of regulation of the law was expanded and it also comprises spheres of supply, transfer, distribution and consumption of natural gas. According to the law any activities in the sphere of natural gas including provision of supply presents regulated activity under article 2 clause y of the law the license of supply of natural gas or supply license is defined as permeation issued according to this law by regulatory commission which empowers its holder to purchase natural gas and to sell it to other supply licenses or to consumers. Under article 38 clause 3 subclause of the same law supply licensee is obliged to follow only the tariff and term of service set by the regulatory commission. The activity of natural gas supply was considered as activity which requires license according to article 6 subclause o of the law of Georgia on grounds of issuance of licenses and permissions of entrepreneurial activities of May 14, 2004.

The analyses of above mentioned norm makes it clear that state policy in the sector of energy was aimed at regulation of activities enlisted in it including activity of supply of natural gas.

14. Since 2005 state policy in energy sector was changed the law of Georgia of licenses and permissions of 24 June , 2005 which deals with the sphere regulated by licenses and permissions and sets forth an exhaustive list of types of licenses and permissions does not mentions activity of supply of natural gas among those activities that require license.

Moreover in 2005 amendments were adopted to the law of Georgia on Electricity and natural gas which added subclause Z⁶ to article 2, which allowed the regulation of certain activities in the energy sector. According to article 3 clause 4 of this law in view of the state policy in the energy sector the power to deregulate certain activities was granted to the Ministry of Energy of Georgia.

On June 9, 2006 the Parliament of Georgia adopted the resolution on the main directions of state policy in the energy sector of Georgia. According to this resolution one of the main goals of state policy implemented in the energy sector of Georgia was named development of competition and gradual deregulation in the sectors of electricity and natural gas.

On June 8, 2007 new amendments were adopted to the law of Georgia on electricity and natural gas and activity of natural gas supply was added to the list of activities provided in article 2 subclause Z⁶ which can be deregulated. Moreover subclause Z⁶ was added to article 2 which determined possibility of partial deregulation of activity and listed activity of natural gas supply among them.

The step forward to deregulation of energy sector was also to subject electro stations of small power to the regime of deregulation under the law of Georgia of electricity and natural gas. Article 59³ of the same law states that electro stations built after August 1, 2008 will be subjected to the regime of deregulation.

Analyses of the above mentioned legislative acts clarifies that since 2005 state policy in the sphere of energy is aimed at gradual deregulation. One component of implementation of this policy is the order number 69 of the minister of energy of Georgia on deregulation and partial deregulation of the activity of natural gas supply of 25 September , 2007 this order declared the activity of natural gas supply to be deregulated only well defined group of people were subjected to the regime of partial deregulation- retail consumers residing in administrative territorial units of Tbilisi and retail consumers in other territories of Georgia registered before September 25, 2007. Since the amendments incorporated in the order N^o 69 of July 24, 2008 the group of people subjected to the deregulated activities was expanded and retail consumers who registered after August 1, 2008 in Tbilisi was added to it. Regime of partial deregulation was maintained only for those physical consumers who registered as consumers of natural gas before this date.

The substance of order N^o 69 its adoption and dynamic of amendments incorporated in it clarifies that it serves implementation of policy of deregulation of activity of natural gas supply which will end in 2013 according to the statement of the respondent.

15. The disputed norm has no permanent nature it does not sets forth any rule that would allocate group of consumers in deregulated or partially deregulated regimes permanently based on the criteria of August 1, 2008 it constitutes one stage of implementation of state policy directed at deregulation of the sector. To impose absolute obligation on the state to subject everyone or no one to the regime of deregulation in transition period would exclude possibility of innovations during reform and would also diminish opportunity to reduce the painful outcomes of the reform to minimum. The less the period of application of deferential regime is the less intensive is interference in equality right. Therefore the court decides that in view of temporary character of the disputed norm the differentiation that it provides is not very intensive.

16. Despite the fact that the disputed norm does not distinguish complainants on one of the grounds enlisted in article 14 of the Constitution neither is differentiation very intensive its still constitutes interference in the protected sphere of right to equality. For constitutional justification of differential treatment it is necessary that the disputed norm complies with the rational differentiation test requirements or in other words the disputed norm shall be close to reality to the maximum level it shall be necessary and there shall be actual and rational link between objective reason of differentiation and its outcome.

17. First of all the goal pursued by the disputed norm shall be reviewed, article 30 clause 2 of the constitution of Georgia states “state is obliged to facilitate free entrepreneurship and competition” this constitutional probation implies that state obligation to facilitate free market while limitation of tariff is certain restriction of market freedom which aims at protection of market from monopolistic praises. The market is competitive when satisfaction of consumer demand is insured by the existence of alternative suppliers. Therefore necessity of limitation of tariff maybe present before alternative suppliers emerge in the market in response to the demand. Respondent explained that at present energy market of Georgia is not ready to provide alternative source of supply to all the consumers of natural gas. Therefore in case of full deregulation of the sphere market can not response to the requirement of the competition which causes high risk of chaos and monopolistic praises.

Chaos and monopoly at the market will be harmful for any consumer. The goal served by the partial deregulation regime for certain group of people is to protect not only their interest but market from monopolistic praises. Protected market represents the interest of all the consumers therefore the disputed norm aims to protect everyone including those consumers who are subjected to the full deregulation regime to different extent.

Implementation of the new policy by the state is normally followed by reforms which are painful for public or its part. State is obliged to implement their reforms in a way that would diminish ensuing negative effect to the minimum. As it was noted the simultaneous full deregulation of the sphere cares the high risk of emergence of market shocks and monopolistic praises. Therefore gradual deregulation of the sphere is reasonable goal of differentiation.

18. As it was noted in the present dispute it is not for the Constitutional Court to review the constitutionality of the policy chosen by the state in the sphere of energy. To review constitutionality of differentiation it shall be checked whether legislator objectively defined the group of people which fell under partial deregulation regime in the process of market liberalization. To evaluate plausibility of differentiation set forth in the disputed norm it shall be noted that despite considering the consumers of natural gas as essentially equal the consumers registered before August 1, 2008 kept the heightened financial interest in comparison with the consumers who emerged after this date. Degree of sensitivity of two groups of natural gas consumers towards deregulation of tariff is also different. Particularly those consumers who utilize natural gas supply service under the term of limited tariff have higher legitimate expectations towards the norms that defines tariff than those people who never utilize natural gas supply service under the terms of determined tariff because they had not been subscribers before August 1, 2008. Determination of limitation of tariff is certain guarantee provision of service for stable praise. Consumers can base their calculation of future expenses and other legally important activities on it. It constitutes certain financial interest for this people; such a financial interest is not present in those groups of people who did not utilize natural gas for limited tariff which was set by legal act. For them declaration of activity of natural gas supply is not linked to the risk of deterioration of the practical condition that is already present. Therefore, group of people who fall under the regime of partial deregulation could undergo most painfully the risks coming from full deregulation of supply activities. In view of this Constitutional Court of Georgia states that the group of natural gas consumers were separated from the group of other consumers of natural gas and subjected to the regime of partial deregulation due to objective reasons.

19. To review constitutionality of the norm the court takes into account objective reason for differentiation set forth in the disputed norm and existence of actual and rational link to its outcomes from this perspective it is important that the order of the minister constitutes temporary regulation its goal is not to separate this two groups of people permanently the respondent does not dispute necessity to deregulate tariff for all the consumers of natural gas and to eradicate existing differentiation over time. The norm can not claim that there is such an interest characteristic of group of people or any other factor that would justify their differentiation in degree of protection of the state for ever. The norm aims to prevent the risks which are related to transitional period and differentiation is proportional only for this goal in view of the aim of the norm reasonable separation of group of people and temporary character of the norm the court considers that the norm does not discriminates against the claimants and therefore it does not violate right protected in article 14 of the Constitution.

III

On the basis of article 89(1)(f) and article 89(2) of the Constitution of Georgia; article 19(1)(e), article 21(2), article 21(8), article 25(3), article 39(1)(a) and article 43 (2,4,7,8) of the Organic Law of Georgia "On the Constitutional Court of Georgia", article 7(1,2), article 24(4), article 30, article31, article 32, and article 33 of the Law of Georgia “On Constitutional Legal Proceedings”,

The Constitutional Court of Georgia
resolves:

1. The constitutional claim no. 473 (The Citizen of Georgia Bichiko Chonkadze and Others v. The Ministry of Energy of Georgia) not be uphold.

2. The judgment be in force from the moment of its public announcement at the hearing of the Constitutional Court;

3. The judgment be final and not subject to appeal or review;

5. A copy of the judgment be dispatched to the parties, the Supreme Court of Georgia, the President of Georgia, the Parliament of Georgia and the Government of Georgia;

6. The judgment be published in “Legislative Gazette of Georgia” within 15 days.

members of the Chamber:

Zaza Tavadze

Joni Khetsuriani

Otar Sichinava

Lali Papiashvili