1. GIE Annual Conference Bratislava, September 28-29, 2006 Author:Milan Sedlacek, SPP-preprava, a.s. TRANSIT IN CENTRAL EUROPE

2. Content 1.Infrastructure and volumes 2. Gas transit outlook till 2020 3. Operational aspects 4. Regulatory issues

3. Central European transit systems - Traditional corridor Ukraine, Slovakia, Czech republic, Austria - New Yamal corridor through Belarus and Poland - NEGP and Nabucco close to construction phase

4. Transit Capacity of SPP-Preprava 2006 year: - capacity of the transmission system is about 90 bcm/a

5. Transit Capacity – competition effect Effect of Yamal = drop of volumes Questions – - how does this competition fit into the image of monopolies sitting on transit lines? - who pays for the investment? Cost based regulation=decreasing volumes means increasing tariffs. Are these stable rules for shippers? - Where is the incentive to invest into new infrastructure? - Is this a risk free business for which only low rate of return is justified? 5 years - 18 bcm/a

6. Assessing the perspective What will be the CE transit future?

7. Assessing the perspective What will be the CE transit future? Source Wood MacKenzie

8. Assessing the future Russian gas reserves – the biggest source for Europe Source Gazexport

9. Assessing the future - parameters Main parameters: - indigenous production in Europe - consumption - trade pattern Gas consumption: Steady growth over the period to 2020, influenced by: - Economic growth - Usage of gas in power generation - Gas prices - Increased SoS concerns

10. Assessing the future – trade pattern In all principal markets large pipeline projects are competing with LNG. Share of Russian gas is increasing. Assumptions: - SPP-preprava, 1 line Yamal, 1 line NEGP - growth rate from 1.5 to 2.5 percent - filtered short-time turbulences Source Gazexport, BP

11. Outcome – optimistic scenario Result: Lack of capacities after 2020, some even in 2010. SPP-P is able and willing to invest to meet these requirements under the condition that commitment of shippers is in place.

12. Outcome – pessimistic scenario Result: Rising import dependency of Europe could lead to growth of volumes of Russian gas to be imported to Europe.

13. -OBAs -kWh -6-6 business day -electronic data interchange -daily contracts -standardised balancing and allocation rules -non discriminatory access - UIOLI - m3 - 20 degrees C - 8-8 business day - long-term contracts - customised balancing and allocation rules - „right of first refusal“ EUEUNon EU Domáci Operational issues

14. What is being offered as an answer Producers TSOs/DSOs/SSOs Consumers - Tendency to over-regulate the infrastructure part - Risk of underinvestment while main problem is rather a limited number of competition on producers side.

15. Conclusions - Growing import dependence - Growing importance of Russian gas - Some free capacities in SPP-P transmission system, ability and willingness to invest - Future of transit volumes depends on development of consumption -Introverted Europe, stable regulatory framework is necessary plus the need of positive investment climate