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RECENT DEVELOPMENTS IN THE ENERGY COMMUNITY

GAS

STATUS as of October 2008

GIE – ANNUAL CONFERENCE

23rd – 24th October 2008, Bucharest

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The European Community

TREATY ESTABLISHING THE ENERGY COMMUNITYTREATY ESTABLISHING THE ENERGY COMMUNITY

The Republic of Albania

The Republic of Bulgaria

Bosnia and Herzegovina

The Republic of Croatia

The former Yugoslav Republic of Macedonia

The Republic of Montenegro

Romania

The Republic of Serbia

The United Nations Interim Administration Mission in Kosovo

THE ENERGY POLICY IN EUROPE

Generally, approach towards common principles (security of supply, competition, environment);

Currently in SEE: mostly bilateral relations;

Necessity for a common framework: THE TREATY ESTABLISHING THE ENERGY COMMUNITY

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THE TREATY AS A FRAMEWORKTHE TREATY AS A FRAMEWORK

FRAMEWORK

It does not establish principles but a concrete framework, which is part of the Acquis Communautaire; minimum soft law obligations.

THE MAIN OBJECTIVES

Create a single and stable regulatory space and stable market framework

Enhance the security of supply of the single regulatory space

Develop network energy market competition on a broader geographic scale

Via application of the EU Acquis Communautaire :

o Acquis on Energy

o Acquis on Competition

o Acquis on Environment

o Acquis on Renewables

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INVESTORS SITUATION - FRAMEWORK OF THE TREATY

From the investors perspective the Regional Approach offers the advantages of:

o Possibility of improved utilization of new infrastructure thus generating more revenues and decreasing operational risks in terms of revenue losses

o Shaving peaks of capacity needs compared to the coverage of these needs by each CP thus entailing a higher base load factor and subsequently the efficiency o Harmonised legislation

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REGIONAL APPROACH – INSTRUMENTS IN TREATY

Implementation of a harmonised (not unified) legislative basis, incl. market rules, (mostly acquis on energy) which considers in particular the regional approach like follows:

• For new infrastructure Art. 22 of Dir. 2003/55/EC

• Regulation 1775/2005/EC

o Mutual Recognition of licenses (Art. 34 of the Treaty)

o Adoption of Generally Applicable Standards

o Application of common Safeguard Measures

o Common rules with regard to Mutual Assistance in the Event ofo Disruptions

The elaboration and implementation of the legislation will be done within a common, contractually agreed timeframe;

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REGIONAL APPROACH – INSTITUTIONS/PROCESS

Monitoring of the development and implementation of the legislation, thus ensuring a harmonised approach in terms of substance and time schedule, hence an easement for the investors;

Establishment of the Energy Community Regulatory Board (ECRB) which supports in particular cross border trade/transport and also cooperates in the assessment of the application for exemptions for new infrastructure

Establishment of:

o Fora (electricity and gas)

o Investment Conferences

where investors/associations present their projects, provide significant input to the process as such but also deposit their concerns – if any – publicly in a transparent manner;

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SUMMARY INFORMATION ON IMPLEMENTATION

OF TITLE II OF THE TREATY (ELECTRICITY AND GAS)

Unbundling of networks operators and third-party access are generally well advanced

Customer protection and the appointment of a supplier of last resort need to be further addressed

Switching of the supplier should be further implemented both through the regulations and in practice

One of the difficult issues is the facilitation of cross-border electricity trade (although being gradually dealt with in more concrete terms)

The development of the gas related framework should be further encouraged and supported, although not all CPs have functional gas market

Secondary legislation needs further improvements and progress

Effective market opening remains crucial target

Implementation of Directives 2005/89/EC and 2004/67/EC till the end of 2009

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REGIONAL APPROACH –

KEY REMAINING ISSUES BY THE END OF 2008

Introduction of marked based mechanisms for capacity allocation to all interconnections

Abandon capacity priorities due to Public Service Obligation

Increasing transparency on TSOs and Regulators websites

Introduction of secondary markets for the capacity rights

The Regulators competences in the cross-border issues, including their role in the procedure of exemption for the new electricity interconnection lines as well as for the main new gas infrastructure, have to be brought in compliance with the requirements of the Treaty

Enforce penalties for infringements of the Regulation (EC) 1228/2003

Implementation of the Regulation (EC) 1775/2005

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FINDINGS

NATIONAL LEVEL with regard to the Directive 2003/55/EC

Bottlenecks Some provisions are available Some provisions are missing All provisions are available

Contracting Party

Public Service Obligation and

Customer protection

Monitoring Security of

Supply

Technical Rules

Unbundling Provisions

and Access to Account

Third Party Access

New Infrastructure

and Exemptions

Market OpeningCross Border

Mehanism

Albania

BiH

Croatia

FYR of Macedonia

Montenegro

Serbia

UNMIK

Regional Perspective

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FINDINGS

NATIONAL LEVEL with regard to Regulation 1775/2005/EC

Bottlenecks Some provisions are available Some provisions are missing All provisions are available

Contracting PartyTarrifs for

access to the network

TPA servicesCAP

CAP mehanism and CM

Transparency

Balancing rules

Regulatory Authority

responsibilites

DerogationsReporting

obligations

Albania

BiH

Croatia

FYR of Macedonia

Montenegro

Serbia

UNMIK

Regional Perspective

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Caspian or Russian gas via Greece (TGI or TAPor South Stream/’Sud’)

LNG?

Mix of gas via Croatia

Offshore?

Russian gas via Hungary and Serbia or Croatia

Caspian gas via Romania (Nabucco)

Caspian gas via Romania (White Stream & PEGP)

Russian gasvia Bulgaria (Blue Stream or South Stream/ ’Nord’)

LNG?

LNG?

INVESTMENTS

SOURCE : ECA, SEE Regional Gasification Study World Bank and KfW

Gas via Germany/Austria

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BOSNIA AND HERZEGOVINA – NATIONAL PLANS

BiH National Plans

SOURCE : Bosnia and Herzegovina and Energy Community Ring; 2nd Gas Forum, Maribor

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PLANED AND POTENTIONAL DEVELOPMENT CROATIA

Underground gas storage Beničanci

• Possible capacity of storage

400 million - 2 billion m3 • Volume of storage insure

possibility of regional

storage

LNG terminal • Development of projects is

in 5 to 7 years.

• CROATIA new supply of

natural gas on level of up to

15,0 billion m3 per year

ŽUPANJA

SISAK

SLUNJ

GOSPIĆ

GRAČAC

ZADAR

SPLIT

METKOVIĆ

KNIN

RIJEKAPAZINVINKOVCI

VIROVITICA

ZAGREB

VARAŽDIN

IVANIĆ GRAD

SLOVENIA

HUNGARY

KUTINA

SLAVONSKI BROD

D. MIHOLJAC

VUKOVAR

OSIJEKVRBOVSKO

OGULIN

OTOČAC

DELNICE

PULA

PLOČE

DUBROVNIK

ÐURÐEVAC

BJELOVAR

BOSNIA AND HERZEGOVINA

ZABOK

NOVSKA

KARLOVAC

ITALY

ROGATEC

B. MANASTIR

M. SREDIŠÆE

UMAG

PSP OKOLI 1 i 2

ŠIBENIK

BENKOVAC

SINJLNG

LEGEND:

GAS PIPELINES BAR 75

UNDERGROUND GAS STORAGE

GAS PIPELINES BAR 50

PLANED GAS PIPELINES BAR

50POTENTIAL GAS PIPELINES BAR 50

IAP • Connection to TAP

• CROATIA, Montenegro,

Albania

• Up to 5 billion m3 IAP

SOURCE : PROGRESS OF INVESTMENT PROGRAMS IN CROATIAN GAS SECTOR; 3rd Gas Forum, Ljubljana

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INTERCONNECTIONSINTERCONNECTIONS Dravaszerdahely (Hungary) – Donji Miholjac (Croatia)

o Donji Miholjac - Slobodnica

o Basic design performed

o Enviromental impact assessment performed

o Main design in progress

o Acquisition of pipelines and block valves is in progress

o Obtaining Location permit in progress

Ionic – Adriatic Pipeline

o Gas Transmission system Albania (Fier) – Croatia (Ploče)

o Political declaration between Albania, Montenegro and Croatia signed 09/07

o MoU signed between Plinacro – EGL

o Technical pre-feasibility study performed

o The Feasibility study is under preparation

o Other preparatory works are in progress

SOURCE : PROGRESS OF INVESTMENT PROGRAMS IN CROATIAN GAS SECTOR; 3rd Gas Forum, Ljubljana

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THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

DEVE BAIR MK

SKOPJE

NEGOTINO

VELES

BULGARIA

ALBANIA

Total length: 101 kmDiametar: DN530

Est. Cost: 20 mil €Preasure 54 barAn. cons. 286 mil. m3

TEC Negotino 286 mil. M3Level of doc. Projec ideaPer. of constr. 24 mounth

KLECOVCE

STIP

TETOVO

Total length: 48 km Diametar: DN400Est. Cost: 10 mil €Preasure 54 barAn. cons. 350 mil. m3

Level of doc. Projec ideaPer. of constr. 18 mounth

STRUMICA PETRIC

Total length: 25 km Diametar: DN720Est. Cost: 15 mil €An. cons. 71 mil. m3

Level of doc. Projec ideaPer. of constr. 12 mounth

Total length: 101 km Diametar: DN530Est. Cost: 20 mil €Preasure 54 barAn. cons. 286 mil. m3

TEC Negotino 286 mil. M3Level of doc. Projec ideaPer. of constr. 24 mounth

SOURCE : Basic Characteristics and current development projects in the gas pipeline system; 2nd Gas Forum, Maribor

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SERBIA

SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 3rd Gas Forum, Ljubljana

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RRegional Gas Pipelines in the Region Kolubara and Macvaegional Gas Pipelines in the Region Kolubara and Macva

SERBIA

SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 2nd Gas Forum, Maribor

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RRegional Gas Pipelines in the Region Branicevoegional Gas Pipelines in the Region Branicevo

SERBIA

SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 2nd Gas Forum, Maribor

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NEXT STEPS

FOCUS OF THE SECRETARIAT ASSISTANCE IN THE NEXT PERIOD

• Monitoring of the state of play and reporting to the PHLG and MC

• Assistance focussed on characteristic issues of implementation for each Contracting Party

• Assistance to the Contracting Parties in drafting their legal / regulatory acts through assessment, commenting and proposing (on request)

• Overall engagement in implementation of the cross-border issues, opening of the wholesale markets, attracting investments for the required infrastructure

• Engagement in dispute settlement cases pursuant to Article 90 of the Treaty and the corresponding Procedural Act

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THANK YOU FOR YOUR ATTENTION!