The consultant used the MMR ranking of gas hubs to categorise results Current state of gas hub development A ranking of EU hubs based on 2015 monitoring results Established hubs Advanced hubs Emerging hubs Illiquid hubs Broad liquidity Sizeable forward markets which contribute to supply hedging Price reference for other EU hubs and for long-term contracts indexation High liquidity More reliant on spot products and balancing operations Progress on supply hedging role but relatively lower longer-term products liquidity levels results in weaker price risk management role Improving liquidity from a lower base taking advantage of enhanced interconnectivity Liquidity partially driven by market obligations imposed on incumbents Still significant reliance on long-term contracts Reliance chiefly on long-term contracts Early stage organised market places or lack of a hub Absence of an entry-exit system in some markets Potential caveat could arise if 2016 MMR monitoring results reveal a different hub categorisation Source: ACER

At an aggregated level, only illiquid hubs deviate markedly from the other hub categories Established, advanced and emerging hubs tend to share the same most important barriers Illiquid hubs also have the same barriers as the 3 hub groups above, however those are overshadowed by more fundamental problems directly relevant to the actual existence of a market at wholesale level Source: Kantor report on barriers to trade

The most significant barriers by hub category Barriers scoring higher than 20% are colour marked Note: the % refers to the distribution of answers ranging from ‘not an issue’ to ‘severe’ Source: Kantor survey on barriers to trade

Barriers of less or minor importance by hub category Barriers scoring higher than 20% are colour marked Note: the % refers to the distribution of answers ranging from ‘not an issue’ to ‘severe’ Source: Kantor survey on barriers to trade

Summary of barriers in Emerging hubs (1/2) Most important barriers Source: Kantor survey on barriers to trade

Summary of barriers in Emerging hubs (2/2) Least important barriers Source: Kantor survey on barriers to trade

Summary of barriers in Illiquid hubs (1/2) Most important barriers Source: Kantor survey on barriers to trade

Summary of barriers in Illiquid hubs (2/2) Least important barriers Source: Kantor survey on barriers to trade

Back-up: Example of barriers: developing hubs Not exhaustive – perceived errors or already outdated information is in red Back-up: Example of barriers: developing hubs Developing hubs: CZ Developing hubs: PL CZ Potential hoarding at CZ-PL IP High multipliers Heavy storage obligations on suppliers, high prices charged and no access from other participants Imbalance cash out price not transparent PL Nominal unbundling: PGNiG and TSO are both 100% owned by the Ministry, compliance issues on information exchange within state owned companies (TSO, SSO, DSO, PGNiG) Severe storage obligations on suppliers and wholesale traders; storage is very expensive compared to other MSs Potential hoarding at CZ-PL IP Yamal (still point to point) and domestic system not integrated into a single balancing point, poor database, balancing properly is impossible 2 different licenses required to import and sell at VTP, each may take over 1 year to be granted. Dozens of documents required (although information is often already held by the regulator) and communication is bureaucratic and in Polish only Separate booking platform for capacity TSO data: low frequency, low quality TSO High multipliers Source: Kantor survey on barriers to trade Source: Kantor study

Back-up: Example of barriers: illiquid hubs Not exhaustive – perceived errors or already outdated information is in red Back-up: Example of barriers: illiquid hubs Illiquid hubs: BG, EE, EL, HR, LT, LV, PT Illiquid hubs: HU, RO, SI, SK BG No VTP No entry-exit capacity, no-entry exit tariffs No licensing regime for traders Only one predominant supplier BG-EL only interruptible capacity offered, with high probability of interruption on the BG side No daily capacity products Consultation with little notice period, NRA discusses changes with incumbent only No consultation to change TSOs’ contracts and lack of info on tariff methodology by NRA No interconnection agreement BG-EL Still m3, neighbours and rest of EU all in MWh EE/LT/LV Flows from Estonia to Latvia/Lithuania not possible No VTP in EE and LV, no exchange in LT In LT LNG terminal only used by incumbent, regasification is subsidised via TSO’s exit domestic tariffs, transmission tariff up to 70% of end users gas price, state gas companies do not disclose import prices, heavy regulated user prices, protection of state owned companies LV exemption until April, still nothing published (will it be ready in less than 1 month?) EL Lack of info on tariffs methodology by NRAs New 2017 tariff methodology discriminate LNG entry against entry from BG and Turkey (more expensive x3.5 and x4.5 respectively) HR No VTP, no exchange National production sold at low regulated prices to households Different capacity booking platforms used at HU border Ambiguity on VAT requirement to get license HR-HU exit tariff prohibitively high PT Lack of transparency in tariffs settings Political instability affects trading HU High political influence Severe SoS storage obligations and high storage fees (x3 EU supply price) No price transparency, no publication of flows by TSO Lack of regulatory transparency in frequency and minimum notice periods for changes related to consultations between market participants and the NRA Trading license can take up to 18 months and cost 50k/year Tax system on energy companies unstable and unpredictable High multipliers 2 VTPs dissolve liquidity RBP booking platform used at IPs with AT and HR, PRISMA used on the other side Cumbersome reporting obligations High exchange fees and additional cashflow burdens from VAT procedures RO No VTP, still point to point booking at some sites Lack of bilateral interconnection with neighbours Production obligations: most all RO gas is supplied by domestic gas production at regulated prices (all customers could be regulated as there is no definition) Effort to hamper exports (e.g. capacity with BG exists but is hampered by lack of compression in RO) BG-RO capacity available but not offered Not transparent tariffs SI No VTP, no exchange, high multipliers SK No independent market operator for the balancing market and non transparent definition of the price of balancing gas Virtual reverse flow is hindered Regulated end customers prices Tariffs methodology details not published Lack of regulatory transparency, e.g.: in 2016 TSO’s amendments of operational documents (internal rules and price decisions) were not consulted and approved by NRA within a day Source: Kantor survey on barriers to trade At all hubs: English not used by NRA and TSOs