2. Investment in Gas Infrastructure A regulator´s view Nina GRALL Seminar on Gas Industry Restructuring in SEE 4/5th October 2005, Belgrade

3. Agenda  Infrastructure – Impact on Market Development  Investment Requirements  Market/Regulatory Requirements

4. Agenda  Infrastructure – Impact on Market Development  Investment Requirements  Market/Regulatory Requirements

5. Infrastructure – Impact on market development  Strategic scope of SEE gas market Supporting diversification of EU gas supply  competition Meeting SEE´s increasing demand  Availability of grid capacities key requirement for development of national and regional gas market(s) gas-to-gas competition  Barriers for well functioning market exist where no (physical or contractual congestion) or too little (need capacity expansion) capacity is available to allow (new) suppliers to meet customers demand  Requirements Availability of domestic capacities  national SoS, increase of competition Availability of transit capacities  regional SoS, increase of competition, diversification of EU supply

6. Agenda  Infrastructure – Impact on Market Development  Investment Requirements  Market/Regulatory Requirements

7. What do investors need?  Certainty Legal binding market rules (law, regulator) Clear roles and responsibililties  Stability Stable legal framework Stable regulatory rules  Predictability Meeting the long term nature of infrastructure investment Maximum utilisation of capacity  market rules, capacity allocation  Standardised rules for the regional market  ECSEE, market rules

8. Agenda  Infrastructure – Impact on Market Development  Investment Requirements  Market/Regulatory Requirements Capacity Allocation Requirements Transparency on Available Capacities Efficient Use of Existing Capacities Meeting the Future Capacity Demand Unbundling Requirements Tariff Derivation

9. What does the market need? Regulatory Requirements – 1  Stable framework Legal binding market rules (law, regulator) Clear roles and responsibililties  Easy access to the system and non-discrimination Simple TPA modell (national and cross border)  one stop shop on TSO and regulatory level, inter-TSO cooperation Standardised TPA rules  Standard Transportation Contract Standardised allocation mechanisms and congestion management Standardised nomination procedures Non-discriminatory tariff setting Non-discriminatory treatment  Unbundling !  Transparency and information Services offered Rules applied  congestion, allocation, nomination, balancing, standard documents Tariffs and tariff derivation, tariff calculator Available capacities  forecast and historical data, calculation methodology Grid data  entry/exit points Disruption management and maintenance Mindest Standards Requirements GGP2/Gas Regulation

10. What does the market need? Regulatory Requirements – 2  Capacities Sufficient availability of capacities Efficient use of existing capacities  UIOLI, 2ndary market Meeting future capacity demand  long term planning, system expansion Fair and non – discriminatory capacity allocation Firm and interruptible capacities Short- and long-term capacities  Range of services offered Bundled and unbundled services Critieria1: Market demand? Which services does the market really need? Criteria2: Maximum flexibility for system users  Flexibility Bundled and unbundled services  storage, balancing energy Market based system  balancing energy Mindest Standards Requirements GGP2/Gas Regulation

11.  Capacity Allocation Requirements  For each round offering available capacities Open season for evaluation of market demand identifying market demand for -intake and offtake points capacity should be allocated -relative amount of capacity requested at each point; -minimum lot size to be offered -products to be offered: long term/short term down to a minimum period of […], firm/interruptible Open season shall already indicate -Allocation procedure to be applied -Indicative tariff  Following the open season results (declared demand) Percentage to be offered on a short term basis -Short term capacities not booked to be re-offered on a long term basis Percentage to be offered on a long term basis Preferred to new market entrants

12.  Transparency on Capacity Availability

13.  Efficient Use of Existing Capacities  Principle Unused capacity has to be made available to the market  Instruments 1.Users shall trade their unused capacity rights on the 2ndary market -No restriction by TSO -Not limited to approval by TSO as long as payment obligation remains with the original holder of the relevant capacities -Obligatory trading via a bulletin board of TSO  transparency! 2.UIOLI in case user does not sell unused capacities on the 2ndary market  Double sided responsibility TSO obliged to support 2ndary trade and UIOLI application User obliged to free up unused capacity Roles and responsibilities to be included in Standard Transportation Contract

14.  Meeting the Future Capacity Demand  Role of TSO „develop the transmission system in such way to meet both the required capacity and reasonable demands to ensure the long-term availability of the system“ (Art 2 Directive 2003/55/EC)  Long term planning to evaluate the future capacity demand National and on cross border basis  Open season to evaluate specific capacity demand Entry/exit points Amount of capacity  Investors´/TSOs´ role to meet the demand by capacity expansion? Tender process Open for interested investors?

15.  Unbundling Requirements  TSO as a subsidiary of parent companies has to carry out unbundled transmission functions  TSO shall have enough human and physical resources at its disposal to carry out its work independently from other parts of the integrated companies including especially personnel unbundling of staff employed from national affiliates and related companies from supply activities including sufficient financial means available to fulfil its tasks to maintain and develop the network  TSO shall have effective decision-making rights independent from the parent companies with respect to assets necessary to operate maintain or develop the network parent company not permitted to give instructions regarding day-to-day operations (individual decisions concerning construction or upgrading of the network) but economic and management supervision rights of parent company in respect of return on assets (approval of annual financial plan)  TSO shall publish a compliance programme to ensure that the unbundling provisions are met by all legal, operational and personell means compliance programme shall contain rules of conduct, which have to be respected by staff in order to exclude discrimination

16.  Tariff Derivation – 1  Treatment of new infrastructure Subject to criteria art 22 Directive 2003/55/EC Special focus on risk assessment and impact on competition  Risk assessment shall demonstrate individual risks associated with the project  political, regulatory, volume, business explanation why an special treatment would not be detrimental to competition in the relevant markets concerned sensitivity to the extent and duration of special treatment -reference to break even/pay back period? financial-business model assessing the influence of different elements and duration of special treatment on the business- positions of the project subject to variable elements -expected total entry flow, expected exit flows on national markets, expected utilisation factors

17.  Tariff Derivation – 2  Tariffs shall be derivated according to the following principles tariffs shall reflect efficiently incurred costs, including appropriate return on investment; due regard may be taken to international benchmarking of tariffs; tariffs shall avoid cross-subsidies between network users; tariffs shall promote efficient use of the network and provide for appropriate incentives on new investments; tariffs shall take into account: the duration, the load factor, the distance of transportation, the capital investment per capacity unit and volumes etc;  In case the owner of the pipeline sells his pipeline system to another company the transaction price shall have no impact on the value of the asset base taken into account for the tariff setting  Backhaul flows in case of congestion appropriate discounts shall be applied in the case of backhauls backhauls shall be defined by reference to the direction of the predominant physical flows in a network

18. Further Information Mrs Nina GRALL phone: +43 1 24724 dd 806 fax: +43 1 24724 dd 900 nina.grall@e-control.at Regulator: www.e-control.at Gas: www.e-control.at  Natural Gas  Contact  Web Tarif Calculator: www.e-control.at  Tarif Calculator

19. Thank you for your attention !