1. 3 November 2005 GIE Conference 20051 Gas Market Developments in SEE Balázs SÁNDOR Chairman GIE ECSEE Study Group Athens - 3 November 2005

2. 3 November 2005 GIE Conference 20052 Establishing of South East Europe process EC put forward a strategy: Developeingthe SEE electricity market All SEE countries agreed to adopt EU legislation Athens MOU on Electricity Market (2002) Extent the scope of MOU with gas andnew Directives Athens 2003 MOU Legaly binding document signed on 25th October 2005 Energy Community Treaty Croatia Bosnia-Herzegovina, Serbia and Montenegro, Romania, Bulgaria, Turkey, Albania, Macedonia Italy, Austria, Hungary, Greece, Slovenia

3. 3 November 2005 GIE Conference 20053 GIE supports the achievement of the South East Europe process GIE sees its role as a facilitator GIE support the process with them experience in creating the framework of new SEE market Regional Gas Infrastructure Financing Working GroupParticipation in the work of Regional Gas Infrastructure Financing Working Group Input and comments for: –WB Study on gas economics of SEE Region –Infrastructure Regulatory Group – GGP, GII –Update our comments on Gas Transition Strategy Paper

4. 3 November 2005 GIE Conference 20054 Main Challenge for SEE Creating a sustainable real gas market in the region on long term with: –Stable legislation (National and Regional) –Investment security guaranty –Reform the gas industry –Payments reform –Special emphasis on the social and environmental aspects –Compatible market design The creation of „new gas market should be bulild up step – by – step!

5. 3 November 2005 GIE Conference 20055 Main Charecteristic of SEE gas industry (I) Market situation – Gas consumption –Due to the different levels of development each of the countries have a special „Gas Business”. –Countries with less developed gas industries mainly use natural gas for industrial purposes. –Most SEE countries heavily depend on import gas, mainly from Russia. –All SEE countries will increase their gas consumption in the next 15 years, mainly in the power and households sector.

6. 3 November 2005 GIE Conference 20056 Main Characteristics of SEE gas industry (I) Market situation – Gas consumption –Special „Gas Business”-es. –Dominant industrial consumption –Heavily depend on import gas –High increase of gas consumption in the next 15 years, mainly in the power and households sector. Increase in consumption 15 years forward (%) EU SEE

7. 3 November 2005 GIE Conference 20057 Main Characteristics of SEE gas industry (II) Transmission Pipeline System and UGS –The national pipeline systems are developed to serve the main costumer groups and transit purposes. –The cross border capacities are weak in the SEE area. Just one import source is reachable by the countries (except Turkey) through the existing pipeline system. –New import routes or new import sources are crucial to fulfill the future demand. –Most of the SEE countries are already building or planning to build new UGS facilities.

8. 3 November 2005 GIE Conference 20058 Main Characteristics of SEE gas industry (II) Transmission Pipeline System and UGS –Pipeline systems are developed to serve mainly industrial and transit purposes. Built during ’70’s – ’80’s –The cross border capacities are weak in the SEE area. –New import routes or new import sources are crucial to fulfill the future demand. –Most of the SEE countries are already building or planning to build new UGS facilities. Age of the pipeline system (years) EU SEE

9. 3 November 2005 GIE Conference 20059 Main Characteristics of SEE gas industry (III) Legislation –The legal framework basically in line with EU Directive –The accounting unbundling principle apply by nearly all of the country –There are room for modernization of infrastructure tariff systems –The monopoly position of state owned company is very stable in transmission and wholesale

10. 3 November 2005 GIE Conference 200510 Recommendations 1.Clear roles and responsibilities 2.Healthy investment climate 3.Set up of a dedicated Gas Forum for SEE  New infrastructures should benefit as many SEE countries as possible to increase security of supply and develop gas consumption

11. 3 November 2005 GIE Conference 200511 1. Clear roles and responsibilities Roles and responsibilities should be clearly allocated especially to ensure Security of Supply Multiple players, longer chains, more interfaces Key role of the authorities to define the rules - predictable and stable legislative environment - appropriate framework for developing infrastructure - independent national regulatory authorities - clear the responsibilities of each market player Unbundling of investment decisions Transportation capacity to fit future demand Investment in “insurance” assets

12. 3 November 2005 GIE Conference 200512 2. Investment climate should enhance market development Appropriate funding arrangements in place to underpin investments Legislative environment to be predictable, stable and complete Regulatory environment based on incentives stimulates entrepreneurship, innovation and efficiency improvements over time

13. 3 November 2005 GIE Conference 200513 3. Gas Forum in SEE We see a key role for a dedicated Forum to enhance the achievement of the SEE Gas Market in particular in developing connections between SEE countries Efficiency of the voluntary process as shown by the Madrid Forum GIE proposes to reinforce the dialogue between all parties and share experiences: changing the legal framework, enhancing investments, taking credits, social policy (gas prices), environmental policy …

14. 3 November 2005 GIE Conference 200514 Main infrastructures projected Members of GIE playing key role in a main pipeline project of the region! The new transmission pipelines should benefit as many SEE countries as possible. They will increase the Security of Supply and develop the gas consumption in - the countries directly crossed by new the pipes and - the neighboring countries through new connection pipes The following main project were presented (except EGL) in the 2nd Regional Gas Infrastructure Financing Working Group meeting by GIE members

15. 3 November 2005 GIE Conference 200515 Nabucco influenced countries

16. 3 November 2005 GIE Conference 200516 Bulgaria > Serbia Interconnector influenced countries

17. 3 November 2005 GIE Conference 200517 Turkey > Greece > Italy influenced countries

18. 3 November 2005 GIE Conference 200518 Trans Adriatic Pipeline influenced countries

19. 3 November 2005 GIE Conference 200519 Western Balkan Corridor (considered) potentially influenced countries

20. 3 November 2005 GIE Conference 200520 Thank You for your Attention Balázs SÁNDOR bsandor@mol.hu