1. EU energy market liberalization (and Russia) Natalja Nemcevičiūtė Aleksandr Kozhura

2. Why liberalize? too much market concentration in most national markets; a lack of liquidity, preventing successful new entry; too little integration between Member States’ markets;

3. Why liberalize? an inadequate current level of unbundling between network and supply interests customers being tied to suppliers through long- term downstream contracts; an absence of transparently available market information

4. Micro-level the prices for energy are still rising (despite economic crisis) the fall in wholesale energy costs has not been fully reflected in end user prices 21% of the households in the EU-27 can’t afford to be adequately heated 50 million of people in the EU-27 are afflicted by energy poverty (heating, lighting, transportation, and so on) 7% to 10% of electricity is lost during transportation (a more decentralized energy production is needed) European Economic and Social Committee

5. Macro-level, Russian perspective Gazprom’s largest customers are EU-15 countries, and Gazprom is not such a critically important supplier for them (20%) New EU members (read Eastern Europe) are relatively insignificant buyers, but Gazprom is often their only source of gas (60%) Hence Gazprom can screw any East European country for any reasons without hurting its bottom line

6. Good for Gazprom, Bad for EU customers destination clauses long-term clauses large EU players (Germany, Italy, France) that prefer to deal with gas suppliers individually absence of a common energy market

7. Third energy package Legislation adopted on 21 April, 2009. The separation of production and supply in electricity and gas sector. Promotes: (1)More competitive energy market (2)More choice for consumers and smaller price (3)Smaller companies enter the market The directive is also called “unbundling”. The deadline for transposition of the Third package Directives is 3 March 2011.

8. Three options for separating supply and production activities: (1)full ownership unbundling (2)the independent system operator (ISO) (3)the independent transmission operator (ITO)

9. (1) Ownership unbundling (OU): requires that networks are no longer controlled or majority-owned by energy production or supply companies. (2) Independent System Operator (ISO): leaves ownership of the transmission networks with the supply companies, but requires that vertically integrated companies hand over the operation of their transmission network to a designated independent system operator. (3) Independent Transmission Operator (ITO): leaves ownership of the transmission networks with the supply companies, but requires that they abide by certain rules to ensure that the production/supply and transmission network operations are conducted independently.

10. Overall implications for gas suppliers Owning assets in transport, distribution, and storage facilities become a no-no (in some countries) or difficult (in other countries) It can still acquire generation, production, and retail assets

11. Baltic States: a monopoly in gas sector

12. Lithuania Lietuvos dujos is a monopoly company in natural gas sector. The sole provider of natural gas is Gazprom. Gazprom owns 37% of Lietuvos dujos. Lithuania for natural gas pays about 33 percent more than Western Europe countries even though a distance between Russia and Lithuania is much smaller. 145 millions EUR of unjustified expenses every year.

13. On May 19, 2010 Lithuania decided adopt the strictest separation of supply and transmission operations in gas sector – full ownership unbundling. Lietuvos dujos will be split into two companies, one of which will handle supply and the other the distribution of gas. Gazprom protested against plans to reform the Lithuanian gas sector as being contrary to its interests: the draft infringes the agreement of mutual investments. Gazprom threatens turn to a court of international arbitrage to claim compensation for losses if Lithuania does not start consultations over its gas sector reform. The government wants unbundling to be completed by March 2012, in line with EU deadline.

14. Estonia Eesti Gaas a monopoly company in gas sector. The 100 % of gas is supplied by Gazprom. Eesti Gaas is 37% owned by Gazprom. Estonia for natural gas pays even slightly more than Lithuania. Recently government decided to split Eesti Gaas’s transmission and distribution of gas. Expected implementation of draft by January 1, 2013.

15. Latvia Latvijas Gaze is a monopoly company in gas sector. The sole supplier of natural gas is Gazprom. Gazprom owns 34 % of Latvijas Gaze. Latvia for natural gas pays 30 % more than Western Europe countries. Latvia did not declare the intention to implement Third energy package. Gazprom promised to lower the gas price for Latvia in November.

16. Germany and Poland Germany allowed Gazprom to control the pipeline Opal another 32 years without giving anyone else access to it In Poland the Yamal-Europe pipeline will be operated by an independent company; however, the transit fees will be established by Europolgaz (50% belongs to Gazprom)

17. Natural gas prices for household consumers (in € per GJ), for second semester 2009 Source: Eurostat

18. Natural gas prices for industrial consumers (in € per GJ), for second semester 2009 Source: Eurostat