1. GTE Autumn Conference, Paris, 22-23 October 2003 “The Wider European Energy Policy Perspective” Address by: Dr Ria Kemper Secretary General, Energy Charter Secretariat

2. GTE Autumn Conference – Address by Dr Ria Kemper2 22 October 2003 Introduction – The Energy Charter: Inter-governmental process launched after the Cold War Founded on common commitment to market-based behaviour and non- discrimination

3. GTE Autumn Conference – Address by Dr Ria Kemper3 22 October 2003 The Energy Charter Treaty Signed by 51 European and Asian states, and by EU collectively Provides broad framework of rules on energy trade, transit, investments Helps to reduce risks for foreign investors, with benefits for host countries, investors and transit states

4. GTE Autumn Conference – Address by Dr Ria Kemper4 22 October 2003 Natural Gas Markets in Eurasia: Gas increasingly a fuel of choice in EU, but indigenous production is declining Consequent policy focus on addressing EU’s future dependence on external gas supplies

5. GTE Autumn Conference – Address by Dr Ria Kemper5 22 October 2003 Challenges: How to ensure security of gas supply in the long-term? How to extend liberalisation and competition to the Wider Europe (including gas producer-states in former USSR)?

6. GTE Autumn Conference – Address by Dr Ria Kemper6 22 October 2003 Why is liberalisation important outside the EU - 1? Huge long-term investments needed in non-EU gas production areas Liberalisation of non-EU markets will support mobilisation of investments Especially important in Russia – where lack of competition and TPA regime has limited investment in the gas sector

7. GTE Autumn Conference – Address by Dr Ria Kemper7 22 October 2003 Why is liberalisation important outside the EU - 2? : Around half of all gas produced in Eurasia is consumed in former USSR. Liberalised markets will:  increase efficiency of consumption;  stimulate investment in gas production; and  free up extra volumes for export.

8. GTE Autumn Conference – Address by Dr Ria Kemper8 22 October 2003 Therefore: EU and countries of Wider Europe have mutual interest in establishing competitive gas market across the Eurasian continent. Importance of long-term policy focus on:  open markets  transparent access to pipelines  stability of cross-border transportation

9. GTE Autumn Conference – Address by Dr Ria Kemper9 22 October 2003 Fundamentals: Investments in gas projects will come from companies, not governments Task of governments is to set the “rules of the game” and thus help minimize the investment risks

10. GTE Autumn Conference – Address by Dr Ria Kemper10 22 October 2003 Example of Russia: Russian gas industry requires huge investments over next two decades Russia has competitors for supplying EU gas market - Norway, North Africa and LNG Russia needs to complete domestic gas reforms and take on complementary international obligations

11. GTE Autumn Conference – Address by Dr Ria Kemper11 22 October 2003 The Energy Charter Process Map of the Energy Charter’s constituency (full members in green, enhanced observers in orange, other observers in blue)

12. GTE Autumn Conference – Address by Dr Ria Kemper12 22 October 2003 But – ECT’s potential not yet fulfilled: Russia has signed, but not ratified, the Energy Charter Treaty Non-ratification due to opposition of Gazprom Ratification would be fully consistent with Russia’s aim of joining WTO

13. GTE Autumn Conference – Address by Dr Ria Kemper13 22 October 2003 Transit of Natural Gas: Increasing recognition among governments of the strategic importance of transit issues, in terms of security of supply

14. GTE Autumn Conference – Address by Dr Ria Kemper14 22 October 2003 Transit Problems in Eurasia: Legacy of USSR’s demise in 1991 – unified system broken up overnight Resulting lack of transparency over access rights and transit tariffs Consequent lack of investor confidence in transit-related projects in post-Soviet space

15. GTE Autumn Conference – Address by Dr Ria Kemper15 22 October 2003 Energy Charter Transit Protocol: Under negotiation since 2000 Now close to finalisation – scheduled for December 2003

16. GTE Autumn Conference – Address by Dr Ria Kemper16 22 October 2003 Main Features of the Transit Protocol: Supports stable cross-border flows of energy in transit Defines the concept of “available capacity for transit” (without imposing mandatory TPA) Establishes criteria for setting transit tariffs throughout Eurasia

17. GTE Autumn Conference – Address by Dr Ria Kemper17 22 October 2003 What does the Protocol offer - 1? For investors in CIS countries: Clarity over terms of access to Gazprom’s network for non-Russian gas Transparent rules governing tariffs, once access is granted

18. GTE Autumn Conference – Address by Dr Ria Kemper18 22 October 2003 What does the Protocol offer - 2? For Russian gas producers: Prohibits “Unlawful Taking” of gas in transit Defines “Available Capacity” taking into account legitimate interests of gas producers who also own/operate pipes

19. GTE Autumn Conference – Address by Dr Ria Kemper19 22 October 2003 Transit Protocol will not: Interfere in commercial decision-making processes Determine which projects involving transit should go ahead, or which geographical routes should be selected

20. GTE Autumn Conference – Address by Dr Ria Kemper20 22 October 2003 Role of the Energy Charter Treaty and Transit Protocol: Complementary to the EU-Russia bilateral energy dialogue Multilateral rules, especially on transit, will increase in global importance in future years

21. GTE Autumn Conference – Address by Dr Ria Kemper21 22 October 2003 SUMMARY: Gas supply security is dependent, in part, on extending competitive market principles Need to focus on minimising risks associated with gas production and transportation Secure framework of investment and transit rules is a key element in this respect Bilateral cooperation should be complemented by a multilateral approach

22. GTE Autumn Conference – Address by Dr Ria Kemper22 22 October 2003 Producer-Consumer Dialogue: Liberalisation still perceived as a threat to producers’ interests Role of long-term supply contracts likely to change over time But security of demand for natural gas should be stronger within a liberalised market

23. GTE Autumn Conference – Address by Dr Ria Kemper23 22 October 2003 Conclusion: Producers have a legitimate stake in the EU gas market’s development EU governments therefore need to use all channels – bilateral and multilateral – to develop energy dialogue with producer countries