1. Madrid, 3rd October 2006 1st SG Meeting South Gas Regional Initiative

2. 2 1. Opening 2. Gas Regional Initiatives. General presentation 3. Definition of priorities 4. Further actions. Draft action plan 5. AOB Presentation

3. 3 1. Opening Welcome. Approval of the Agenda: I. Opening: approval of the agenda. (for approval) Welcome Approval of the agenda II. General Presentation of the S-GRI (for information) Presentation about the GRI ERGEG process The South Gas Regional Initiative (S-GRI): Information on process, organizational structure, timeframe and requested deliverables by ERGEG III. Definition of priorities (for discussion) Presentation by RCC of priorities list Discussion on priorities IV. Further action. Draft action plan What happens next? Conclusions, agreed actions and timeframe V. Next meetings VI. Any Other Business

4. 4 1. Opening 2. Gas Regional Initiatives. General presentation 3. Definition of priorities 4. Further actions. Draft action plan 5. AOB Presentation

5. 5 2. ERGEG Regional Initiative. General presentation Background ERGEG published its gas roadmap for consultation in November 2005 The roadmap sets out ERGEG‘s view on the key issues inhibiting the development of competitive gas markets ERGEG proposed a gas regional initiative to push forward market integration at a practical level 26 responses were received - non-confidential responses are published on ERGEG‘s website Support from all respondents for the gas regional initiative Lack of market integration identified by DG Competition & DG TREN as key issues Launch of the gas regional initiative in April alongside a gas roadmap conclusions paper Presented in the last Madrid Forum

6. 6 AIM: foster the creation of regional gas markets as a stepping stone towards a single competitive market FOCUS: trading at and between gas hubs and other issues impacting market integration e.g. transparency, network access SCOPE: address the shortcomings identified by DG COMP´s Energy Sector Inquiry Interim Report Market concentration, vertical foreclosure, lack of market integration, lack of transparency,price formation INVOLVEMENT: ensure that all key stakeholders are involved 2. ERGEG Regional Initiative. General presentation Motivation

7. 7 2. ERGEG Regional Initiative. General presentation Goals Practical output.  Identify existing obstacles and potential solutions, to increase:  Availability of transmission capacities.  Harmonized TPA rules  Market liquidity and competition in the region  Security of supply  Develop and implement an action plan in the medium term Coordinated developments with other Gas Regional Initiatives

8. 8 (*) Initially the North and North-West REMs will be run jointly, i.e. under the lead of DTe (The Netherlands). Once the first phase of the REMs has been completed it is intended that the North REM will revert to the leadership of BNetzA (Germany) and will be separated from the North West REM. 2. ERGEG Regional Initiative. General presentation Which are the Regions RegionCountriesLead Regulator North- West Netherlands, Belgium, France, Great Britain, Ireland North Germany, Denmark, Netherlands South Spain, Portugal, Southern France Spain South- South East Italy, Austria, Slovakia, Hungary, Slovenia, Greece, Poland, Czech Republic Italy & Austria Netherlands

9. 9 2. ERGEG Regional Initiative. General presentation Structure Regional Co-ordination Committees ERGEG established RCCs. Each RCC : - comprises regulators from the region; - has autonomy, & adopts its own decision making process IMPLEMENTATION GROUP (IG) Includes TSOs, SSOs, LNG and market Operators (where appropriate) This is the ‘do-er’ for each Regional Initiative Chaired by RCC STAKEHOLDER GROUP(SG) Wide participation including market players Chaired by RCC and used for consultation MADRID FORUM Overall forum for discussing progress in progressing regional initiatives and pan- European consistency MEMBER STATES Input identifying and solving market integration issues – e.g. legislative proposals, EU COMMISSION

10. 10 ERGEG website www.ergeg.org  regional initiatives www.ergeg.org 2. ERGEG Regional Initiative. General presentation Information, Access to documents, transparency

11. 11 TimingAction April 2006Finalise scope of gas REMs May 2006ERGEG presents establishment of gas REMs to the Madrid Forum June 20061 st meeting of RCC: Establish governance structure; Identify tentative priority actions based on roadmap paper and CEER/ERGEG workplan, DG COMP Sector Inquiry, EC Benchmarking report, stakeholders´ input; report to ERGEG June/July 2006RCCs to decide/establish/convene meetings of implementation Group and Stakeholder Groups Aug/Sept 2006 Sept/Oct 2006 Post Autumn 2006 RCC to develop forward Action plan in consultation with implementation and Stakeholder Group RCC reports to ERGEG on Action Plan ERGEG compiles report for all REMs and reports to Madrid Forum RCC’s begin to implements Action Plan. Continued liaison with Implementation and stakeholders Groups 2. ERGEG Regional Initiative. General presentation ERGEG Timetable

12. 12 Regional Coordination Committee (RCC): National Regulators + EC Implementation Group (IG): RCC + TSOs, SSOs and LNG Operators. Stakeholders Group (SG) (example Spain): - National authorities: Ministry of Industry, Trade and Tourism - National industry: TSOs, SSOs and LNG op.: ENAGAS, Naturgas, BBG, SAGGAS… Shippers: Gas Natural, Iberdrola, BP, U.Fenosa, Endesa… Distributors: one distributors representative Technical Associations: Sedigas Consumers: ASCER, UNESA… Hub: N/A Suppliers: N/A - European associations (EUROGAS, EFET, etc) 2. ERGEG Regional Initiative. General presentation Composition, roles and responsibilities

13. 13 Regional Coordination Committee (RCC)  Primary drive & motivation  Establishment and lead of regional projects  including way of work, decision making, consulting stakeholders, convene Implementation Group/Stakeholder Group, involve Member State governments and EC  Reporting and monitoring of progress  Prepare/commission discussion papers, gather information, develop conclusions/way forward, develop action plan  ERGEG report to Madrid Forum 2. ERGEG Regional Initiative. General presentation Composition, roles and responsibilities

14. 14 Implementation Group (IG)  Agreed proposals need to be implemented in a practical and efficient way  Can be invited to put forward proposals for solutions, detailed actions  Regular dialogue with RCC – e.g. regular formal meetings Stakeholders Group (SG)  Stakeholders views and input crucial for progress  Stakeholders will be involved in definition of detailed objectives and timetable  Regulators will ensure full transparency and consultation 2. ERGEG Regional Initiative. General presentation Composition, roles and responsibilities

15. 15 How to consult IG and SG? Consultation Paper circulated and published on ERGEG Website Bilateral Meetings Meetings with public hearings of stakeholders, discussion Reporting to ERGEG TF GMI By chairmen Reporting to Madrid Forum By chairmen 2. ERGEG Regional Initiative. General presentation Consultation with other agents and reporting

16. 16 1. Opening 2. Gas Regional Initiatives. General presentation 3. Definition of priorities 4. Further actions. Draft action plan 5. AOB Presentation

17. 17 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities Main topics to tackle. 1. Interconnection capacity Further developments Congestion management procedures 2. Interoperability Capacity allocation mechanisms Balancing rules TSO’s coordination Gas quality (to be dealt by DGTREN) 3. Transparency 4. Implementation of Directive. Market opening 5. Hubs development and operation Description of practical cases of transit among the three countries: France-Spain and Spain- Portugal

18. 18 Main topics to tackle. 1. Interconnection capacity.  The existence of sufficient accessible interconnection capacity between countries is a prerequisite to the market emergence.  It is necessary both, to enhance investments in new interconnection capacity and to maximize the use of the existing interconnection facilities.  An appropriated coordination between TSO’s concerning the investments in infrastructures in both sides would be necessary. Stable and predictable regulatory regimes are required.  Congestion management procedures need also to be implemented and coordinated so that trade and competition are not distorted. 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

19. 19 Main topics to tackle. 1. Interconnection capacity.  For this purpose, it could be necessary to assess the existing interconnection level between countries: capacities, experience of use, possibility of backhauls, new projects: capacities, starting dates, etc..  New interconnection need also reinforcement of transmission networks in both sides of the borders  What is the capacity needed for the market? RCC ask SG his opinion about the most important issues to tackle regarding interconnection 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

20. 20 Main topics to tackle. 2. Interoperability – Capacity allocation mechanisms – Balancing rules – TSO’s coordination – Gas quality (to be dealt by DGTREN)  It is important that interoperability issues do not create a barrier to trade and competition. The S-GRI will look at the appropriate frameworks to ensure that capacity allocation mechanisms, balancing rules and/or other operational rules do not impede the creation of a regional market.  Capacity allocation rules, booking rules/procedures, capacity services, nomination and matching procedures should be harmonized or at least made compatible at each cross-border point. 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

21. 21 Main topics to tackle. 2. Interoperability (cont.)  Appropriated inter-TSO’s coordination would be necessary on technical and operational conditions. IT systems development are considered crucial to help TSO’s operation.  As France is in both, North and South Initiatives, this is an opportunity to coordinate interoperability issues among regions  Some work already developed at European level could be used as valuable input (e.g. harmonization of nomination and matching process developed by EASEE-GAS)  Gas quality issue, should be addresses according to the results of the interconnection capacity exercise. RCC ask SG his opinion about the most important issues to tackle regarding interoperability 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

22. 22 Main topics to tackle. 3. Transparency  The main objective would be to identify what information is needed by the market players to operate efficiently and effectively,  How information should be provided by TSOs on a fair and non- discriminatory basis  What regulatory arrangements are necessary to ensure proper monitoring and enforcement. It is important to assess whether both information provision and management and actualization of this information is adequate to support the functioning of an effective gas market.  Regulation on gas transmission networks contains transparency requirements, that could be considered a reference for LNG terminals and underground storages.  The views of all the stakeholders are crucial input to assess this point. 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

23. 23 Main topics to tackle. 4. Implementation of the Directive. Market opening  It will be necessary to monitor the practical implementation of the Directives provisions and the enforcement of the Regulation on conditions for access to the gas transmission networks, 1775/2005, after 1st July 2006, not only in a formal way but with the spirit of the European liberalization context.  It should be assessed if there is any article that hasn’t still been transposed into national regulation or accomplished, if that could be identified as a barrier to the emergence of a regional market.  Regulators and other agents will assess whether any modifications of legislation and system operation rules and procedures are needed to meet the requirements of the Directives or the Regulation.  Concerning the market opening schedule, it is necessary to take into account the potential impact on the creation of a regional market of the different market opening dates. 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

24. 24 Main topics to tackle. 5. Hubs development and operation  According to the ERGEG views, liquid gas hubs will be at the centre of a competitive European gas market.  A lack of hub development is currently impeding the development of competition. In fact the Gas Regional Initiatives are designed to focus on the practical issues that are constraining the development of hubs and regional markets.  The GRI are not about identifying regulatory solutions to impose on the market – gas hubs should be developed in response to demand and should be based in market solutions. It is important, however, that there are no barriers to the development of gas hubs and if they exist they should be identified and removed.  This is the underlying objective of the GRI: facilitating the development of gas hubs rather than identifying where new hubs should exist. 3. Main topics to tackle. Definition of priorities Identification of obstacles and definition of priorities

25. 25 1. Opening 2. Gas Regional Initiatives. General presentation 3. Definition of priorities 4. Further actions. Draft action plan 5. AOB Presentation

26. 26 4. Further action. Draft action plan Tentative milestones and draft action plan Agenda of the S-GRI SG members are asked to send written comments that will be published in ERGEG web site.( 1 week from today) 11th Oct. Circulate to RCC the revised version of the draft action Plan, including the inputs from the SG meeting for comments 15th Oct. ERGEG web page updated with Minutes and draft action plan End of October: Coordination meeting among different Regional Initiatives. Mid December: Presentation in next Madrid Forum of the Action plan of the three regional initiatives.

27. 27 4. Further action. Draft action plan Tentative milestones and draft action plan 1. Interconnection capacity: TSO’s have compromised to analyse future interconnection capacity between France and Spain. Steps could include: a) Analysis by the TSO’s of the current status of the interconnections  Infrastructures description.  Capacities in both directions.  Contracted and available capacities for the next year  Congestions, indicating the responsible infrastructures November 2006 b) Analysis by the TSO’s of the future interconnections needed ( Market demand and Stakeholders opinion would be used.)  Infrastructures description and existing investments plan  Capacities in both directions.  Chronogram of the projects.  Justification of the needs for new and / or extension of the existing infrastructures.  Capacity allocation mechanisms suggested for the allocation of the new capacities. January 2007- Preliminary study and reinforcement proposed until 2010 April 2007 – Final report and reinforcement proposed until 2015 by the S- GRI

28. 28 4. Further action. Draft action plan Tentative milestones and draft action plan 2. Interoperability a) Initial analysis of the regulators: Description of practical cases of transit among the three countries: France-Spain and Spain- Portugal Capacity allocation mechanisms Balancing rules TSO’s coordination Gas quality April 2007: Identification of the main interoperability problems. Priorities b) Action plan to be proposed by TSO’s From the information gathered by regulators, TSO’s will elaborate an action plan to solve obstacles to trade June 2007: Action plan agreed with regulators December 2007: First priority solved

29. 29 4. Further action. Draft action plan Tentative milestones and draft action plan 3. Transparency a) Initial analysis from ERGEG already taking place: Taking advantage of the work undertaken by Transparency TF and shippers point of view, regulators will identify main transparency requirements in the area. January 2007: Identification of the main problems b) Recommendations proposed to TSO’s March 2007: Action plan agreed with TSO’s July 2007: First results published in TSO’s web page

30. 30 1. Opening 2. Gas Regional Initiatives. General presentation 3. Definition of priorities 4. Further actions. Draft action plan 5. AOB Presentation

31. 31 5. Any Other Business …