The industrial consumer’s view IFIEC EUROPE 1 GTE 2 nd Annual Conference September 2004 Copenhagen Barriers to competition in the view of a consumer Peter Claes President - IFIEC Europe

The industrial consumer’s view IFIEC EUROPE 2 General The desired result is gas-to-gas competition The implementation of the gas directive 98/30/EC has not achieved this objective so far IFIEC Europe welcomes the adoption of the Directive 2003/55/EC concerning common rules for the internal market in natural gas and regrets most Member States have not yet transposed this Directive in national legislation

The industrial consumer’s view IFIEC EUROPE 3 General We believe that the prerequisites for a fully operational single gas market are: - Availability of gas from competing suppliers - Access to the gas infrastructures under non-discriminatory, harmonized and cost-reflective conditions - Gas infrastructures to include: on-shore and off-shore pipelines, LNG terminals, booster, storage & facilities for blending and balancing - Gas infrastructures to be treated as “essential facilities” - Full ownership unbundling of gas infrastructures’ services and commercial activities - Regulatory control (rTPA) - Transparency of capacity availability - Complete interoperability of existing gas networks

The industrial consumer’s view IFIEC EUROPE 4 IFIEC EUROPE VIEW There is nowhere in sight yet a true level playing field in terms of access to the gas networks, not to speak of competing suppliers willing to offer gas in all markets. Our past experience of the implementation of the previous Directive 98/30/EC does not bode well for the future. In summary IFIEC Europe believes that the objectives set by the Community, in particular with regard to the Lisbon Council agenda of improvement of the EU industry competitiveness, will not be achieved unless additional measures are put in place to force the implementation of the new Directive.

The industrial consumer’s view IFIEC EUROPE 5 IFIEC EUROPE VIEW For the above reasons we welcome and strongly support the initiative of the Commission to propose a Regulation on conditions of access to the gas transmission networks and to storage. The revised set of GGP2 are a step forward, but will remain ineffective, because non-binding and agreed on a voluntary basis. The internal gas market will only work if access conditions to the networks and to storage correspond to a minimum standard, harmonized across all countries. This apparently can be achieved only by a Regulation, based on the rules and principles adopted at the 7th Madrid Gas Forum by all participants.

The industrial consumer’s view IFIEC EUROPE 6 Main Roles & Responsibilities of TSO’s Adopt “Best Industry Practice” Ensure maintenance, safe operation and development of the essential facilities Transparent residual balancing role Facilitate non-discriminatory access to the gas infrastructures Ensure interoperability between different networks Ownership unbundling, i.e. no links to production and supply within integrated gas undertakings

The industrial consumer’s view IFIEC EUROPE 7 Tariff structure IFIEC Europe recommends tariffs’ methodologies that facilitate the development of competition Tariff methodology to be based on the following principles: - tariffs to be cost-reflective, simple, with harmonized methodology and supervised by the regulatory agency - asset valuation to be based on historical depreciated values for existing facilities and actual values for new infrastructures - application of utility-type rate of return with depreciation based on the useful lifetime of the investments - appropriate incentives schemes for the efficient long-term investment in transportation infrastructures IFIEC Europe is in favor of an Entry/Exit Tariff System

The industrial consumer’s view IFIEC EUROPE 8 Balancing regimes Balancing regimes should be designed to facilitate gas-to-gas competition and use of the grid IFIEC Europe is in favor of a daily balancing regime Whenever possible rules and charges should be harmonized across different networks to facilitate cross-border transportation Rules for balancing and charges for imbalances should: - apply to all network users without discrimination - incentivise the users with non-punitive charges. - charges to be cost-reflective and approved/supervised by the regulator TSO’s have the ultimate responsibility for safety of the network

The industrial consumer’s view IFIEC EUROPE 9 Access to Storage and Flexibility Storage and flexibility tools are essential facilities of the gas network, just as the pipelines, and should be part of the GGP, preferably in the same document. IFIEC believes that storage access and flexibility tools must be offered on a non-discriminatory stand-alone basis and bundled or unbundled according to the needs of the users. Storage is an essential strategic facility which is part of the transmission infrastructure. At this time there is no competitive market for Storage. We are faced with local monopolies, at best duopolies, which do not guarantee genuine competition.

The industrial consumer’s view IFIEC EUROPE 10 Access to Storage and Flexibility The most common case is where flexibility services do not operate in a sufficiently competitive market. Therefore regulated access with cost-based approach must be the rule. Also, direct and regulated access to specific storage sites should be guaranteed as long as available. IFIEC is not in favor of auctions, because this would result in higher commodity prices.

The industrial consumer’s view IFIEC EUROPE 11 Access to Storage and Flexibility Whenever possible the rules and methodologies should be harmonized across EU countries to simplify the task of the users and foster a true market opening. Information on the day-to-day availability of data relative to storage and flexibility tools are essential to effectively operate in the market. Likewise, it is essential that all market players have equal and timely access to information on storage capacity, utilization and availability.

The industrial consumer’s view IFIEC EUROPE 12 Multiple gas suppliers, long-term contracts and gas release programmes Long-term TOP contract will be necessary also in the future, but they must not frustrate competition and should evolve to the liberalized gas market conditions. The extent of the coverage of TOP contracts of about 90% of the European gas demand is very disturbing and, if not corrected, will freeze the status- quo for the next foreseeable future The only solution to this problem are “gas release programmes” IFIEC Europe urges Member States to utilize gas release programmes as a way to kick-start real supply-side competition IFIEC Europe is still of the opinion that: “ Even a perfect TPA system will not bring gas-to-gas competition in absence of competing gas offers”