1. How TSOs can further contribute to efficient competition GIE ANNUAL CONFERENCE ATHENS 2005

2. 3-4 November 2005- 2 - MAIN ACHIEVEMENTS SINCE 2001 Separation of transmission companies (management unbundling) Progressive implementation of Directives and GGP Transparency and non-discrimination Various contributions of TSOs made within GTE Efforts made to manage a high technical complexity Virtual tariff offering versus physical constraints, investments in metering and measuring equipments, IT systems …

3. 3-4 November 2005- 3 - But there is another question which we have to face. It is the question of large infrastructure investments within Europe

4. 3-4 November 2005- 4 - TOWARDS UPSTREAM COMPETITION… EU more and more dependent on external gas sources Each supply source on the upstream market influences a regional price on the downstream market Competition among the different supply sources is necessary to create an efficient market U. K. Russia LNG North Sea Norway

5. 3-4 November 2005- 5 - VISION FOR A EUROPEAN ECONOMIC MODEL U. K. Hub South-West Hub South-East Hub North Hub East Hub UK Hub West P1 P2 P3 P4P5 P6 The price differential between two hubs reflects the lack of available capacity between these two hubs The market will be efficient if the price differentials between hubs are low enough, so that competition among supply sources is effective Therefore, investments in transnational inter- hub links are necessary for an efficient market

6. 3-4 November 2005- 6 - HOW TO DECIDE ON SUCH INVESTMENTS … (1/2) … while high investments in transmission infrastructures are needed, … and while inter-hub links require transnational investments between interconnected networks ? ERGEG roadmap objective covers “regional hubs” subject, but does not emphasize the question of the interconnection of the hubs Use of “Art. 22” is still limited to the creation of new entry points only on the edge of the European gas market Hub 1Hub 2 ?

7. 3-4 November 2005- 7 - HOW TO DECIDE ON SUCH INVESTMENTS ? (2/2) TSOs or shippers (especially in case of transit) may take the initiative If TSOs are financing, the price differentials will be reduced, but : Problem of cost allocation of transnational investments (such an investment has different consequences on each concerned national market) No regulatory framework exists for a transnational link  need for a supranational supervision ? Decision cannot be based on market price signals, as they do not exist yet If shippers are financing (as often in the past) : Except for transit, shippers objective is to capture the price differential value and to maintain the price differential between hubs However, this may incite new competing investments Therefore shippers have very low visibility on the value of such investments and only major operators may be able to take such risks Mixed financing (TSOs with shippers) will cumulate all the drawbacks

8. 3-4 November 2005- 8 - What action should be taken now ? Need to build up a supranational vision, shared by all the actors - via voluntary agreements (Madrid Forum) The urgent issue to be addressed now : The priority is to focus on transnational investment programs and the needed conditions for investments in inter-hub links