Gas Transit Workshop Brussels, 24th January 2007 Milan Sedlacek, SPP - preprava, Slovak Republic Gas transit regulation ( Slovakia as a country with standard TPA for transit )

1. Introduction, network description 2. Regulation of gas transmission in Slovakia 3. Practical experience with gas transit regulation 4. Summary The presentation focuses on the treatment of gas transit in Slovakia. Slovakia has standard TPA for gas transit. Only gas transmission is recognised by law. Equal treatment is an underlying principle.

Infrastructure data 2007 year: - capacity of the transmission system was nearly 94 bcm/y

Slovak transmission system

Transit flows are predominant 93 % + 7 % = 100 % The transit flows have varying degree of importance via-a-vis overall gas flows in the transit country. In some countries, transit volumes are quite substantial relative to domestic supply.

1. Introduction, network description 2. Regulation of gas transmission in Slovakia 3. Practical experience with gas transit regulation 4. Summary

Situation in transit regulation Source: Shell Till 2003:Fully negotiated conditions Unregulated Conditions agreed by parties After 2003:Fully regulated Transit no longer recognised by law Standard TPA for transmission

Access to the network

Access to the network – ctd.

Current Entry – exit tariff model

1. Introduction, network description 2. Regulation of gas transmission in Slovakia 3. Practical experience with gas transit regulation 4. Summary

Is transit always the monopoly pipeline?

Impact of competition Impact of Yamal construction (minus 18 bcm/a, 5 years)

Transit Capacity – competition effect Questions: - how does this competition fit into the image of monopolies sitting on transit lines? - who pays for the investment? Cost based regulation=decreasing volumes means increasing tariffs. - Where is the incentive to invest into new infrastructure? - Is this a risk free business for which only low rate of return is justified?

Competition effect – cost based pricing For the sake of simplicity, some generalisation in modelling was done. General tendency was correctly reflected.

A ENTRY A EXIT B ENTRY B EXIT D ENTRY D EXIT C ENTRY C EXIT Although simple and user-friendly, entry-exit system is an approximation model. Entry – Exit system in practice If A ENTRY is big to have A-D and A-C cost-reflective, than A-B is deformed If A ENTRY is small to have A-B cost-reflective, than C-D and D-C are deformed X m * n formulas, (m+n) variables min Q =  [Y i - f i ( )] 2

A final customer will often only be able to use one system, whereas there are competing transit-systems The service rendered in a transit contract may be different from a domestic transportation contract : for instance, lower balancing tolerances and higher load factor for transits ; Balancing provisions in old transit contracts: - Perfectly balanced - What physically goes in = physically goes out - Differences in magnitude of percents are not available on the spot market or storage Brave new world x old world certainty. Beware - Supplier side looks to love old world more. Difference in services

GeographicalExporting country Transit country Consuming country Ownership of transmission system Contractual relationship with adjacent TSO Contractual relationship with Shipper Scheduling of processes Allocation Quality, Units, Business rules etc. TSO #1TSO #2TSO #3 IP OBA TSO#1/TSO#2 OBA TSO#2/TSO#3 Contract Nomination, matching, re-nomination, rescheduling and confirmation analogical at each IP Based on OBA (EU rules = allocated quantity is matched/confirmed quantity) Operational issues on EU borders EASEE Gas

-OBAs -kWh -6-6 business day -daily contracts -standardised balancing and allocation rules - m degrees C business day - long-term contracts - customised balancing and allocation rules - pressure drops Operational issues on EU borders

1. Introduction, network description 2. Regulation of gas transmission in Slovakia 3. Practical experience with gas transit regulation 4. Summary

Conclusions - Growing import dependence of Europe - Gas transit is a security of supply issue - Competitive routes do exist - Stable regulatory framework is necessary plus the need of positive investment climate - Standard TPA for transit works, but sometimes there are grand complications