1. GIE Annual Conference, Athens, 3 November 2005 Prospects of a Regional Gas Regulatory Framework Fostering a Sustainable Market-Based Investment Climate Michael Caramanis Greek Regulatory Authority for Energy (RAE)

2. 2 The natural gas markets in the SEE region…  Small and emerging national markets in Western Balkans, more mature national markets in Eastern Balkans  In some countries gas market development has stalled, especially regarding distribution and gas fired power plants  Existing gas network interconnections are far from optimal  Long Distance pipelines used for Transit embody significant interconnection capacity but are not always open to TPA  =>There are Physical as well as Legal Barriers to market based flow of gas between the SEE countries  Limited indigenous production in the region  Very few upstream suppliers  =>Need to diversify sources and enhance upstream competition  Also significant Demand for Transit through SEE of Caspian and Middle Eastern gas to EU

3. 3 Need for Infrastructure Investment in:  Distribution networks:  Following in-depth studies showing invetments are feasible and and financially sound  Transmission networks and entry points supporting:  Transit of gas from East to West  Interconnection of existing national networks and reinforcement of existing interconnections and/or national grids  Diversification of supply sources to SEE countries and te EU (LNG Terminals may play important role)  Storage facilities  Possibly of lower priority at this point (risky, long implementation periods), but consideration at an early stage may prove beneficial

4. 4 Investor Needs Investor Needs  Quoted from GIE presentation:  Clear roles and responsibilities  Predictable and stable regulatory and legislative environment  Independent national regulatory authorities  Appropriate framework for developing infrastructure  Healthy investment climate  Quoted from EC and PHLG presentations:  Harmonization between Regulators and TSOs of Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community  Limited possibility for revision and not subject to regulatory policy change  Concerted Application of Art 22 on exemptions  Support new sources of supply

5. 5 Consumer Needs  Security of supply  Affordable gas prices obtainable from:  Enhancement of competition at a national, regional and upstream level  Access to new gas sources  Efficient and cost reflecting infrastructures  Proper allocation of the costs  Proper balancing of the risks between investors and consumers  Environmental protection  For EU Consumers SEE represents an additional source of gas supplies (4 th corridor)

6. 6 Major Priorities of Recently Constituted SEE GRG  Urgent Priority: work on the development of guidelines for the regulation of gas infrastructure investments in SEE (including long distance gas transmission pipelines) EU and SEE Regulators have joined forces with the aim of delivering the first output within 2005.  Additional Priority: Formulate and agree upon strategy for the development of a substantial SEE gas market. Long Term Institutional Arrangement: Following the entry into force of the ECSEE Treaty and the establishment of the ECRB, the tasks of the GRG will be transferred to the ECRB (perhaps evolve into an ECRB working group?)

7. 7 Regulatory Guidelines for Transit Pipelines  Consistent evaluation process applied to exemption requests (Art. 22 of the Directive 55/03/EC)  Third Party Access Regime and its implementation:  Capacity allocation and congestion management  Tariff methodologies  Balancing regime (including charges)  Transparency and monitoring  Coordinated action of implicated Regulatory Authorities (and TSOs)  Effort to Propose Guidelines and Achieve Consensus should Carefully consider the relevant legal framework (national, EU and SEE)

8. 8 Regulatory Guidelines for Transit Pipelines (cont.)… Guidelines for exemptions pursuant to Article 22:  As a minimum these should include: a) The procedure to be followed by a regulator in deciding on exemptions from all or selected Articles of the Directive (for example only from Article 18, or no exemption from Article 25, or partial exemption from Art. 25, etc.); b) The information (studies, financial data, etc.) that investors should submit in support of claims that a project fulfils the criteria of Art. 22.1 and is eligible for exemption; c) A common evaluation procedure and the criteria it will rely upon (possibly more detailed and concrete than those described in Art.22.1); d) Any additional conditions and facts to be considered, especially regarding the regional dimension (e.g. criteria for the evaluation of a project’s impact on the regional market’s competition environment)

9. 9 Guidelines for transit pipelines (cont.)… Third Party Access:  EU Directive will define the default regime;  Relevant EU practice will be incorporated and fine-tuned (Guidelines for Good TPA practice and the Gas Regulation);  Forthcoming results of the EU-Wide consultation on the process (e.g. balancing, determination of available capacities) will be taken into advisement;  Minimum (based on the specificities of the SEE markets) capacity to be reserved for TPA;  Factor into the guidelines ways to take advantage of synergies in existing and forthcoming regional gas infrastructures;  Mitigation of barriers to entry;  Define a procedure for a coordinated approach in implementing the guidelines by Regulators and TSOs responsible for new gas infrastructures; Regulatory Guidelines for Transit Pipelines (cont.)…

10. 10 Work on Guidelines for transit pipelines (cont.)… Now that the ECSEE Treaty has been signed, the establishment of the Regulatory Board (ECRB) and other Institutions under the Treaty is underway; A Gas Regulatory Group (GRG) and a Gas Infrastructure Investment Group have already been established. Now that the ECSEE Treaty has been signed, the establishment of the Regulatory Board (ECRB) and other Institutions under the Treaty is underway; A Gas Regulatory Group (GRG) and a Gas Infrastructure Investment Group have already been established.  The GRG intends to work closely with the Gas Industry (first meeting already held)  The GRG wishes to share information on planned regional transit projects  Regulators welcome the gas market economics study sponsored by the WB and believe that all parties involved will gain if Regulators are consulted regularly. The detailed study contents will be useful to the Regulatory decision making process and will be taken into advisement if applications for exemptions materialize. Collaboration with other stakeholders is imperative Collaboration with other stakeholders is imperative

11. 11 A forward looking process…  What is happening now in SEE (and not only regarding the gas market) is of great importance that transcends SEE confronting stakeholders with a historical challenge regarding the realization of investments under a Europe- wide energy market liberalization process.  It is not an easy task, but we all have to take the challenge and proceed jointly to make it happen!