EFET comments on obstacles to trading November 2007 Obstacles to Electricity Trading in Central & Eastern Europe – latest development

EFET comments on obstacles to trading November 2007 Developments in CEE wholesale markets since last SG meeting Cross-border Capacity (Rules, ATC, AAC) Import Fees (Hungary, Slovakia) Export Fees (Hungary, Slovakia) Entry Barriers Licensing issues

EFET comments on obstacles to trading November 2007 Cross-border capacities Long term cross-border capacity reservations on the Czech/Polish, Czech Austrian and Czech/German border terminated, no impact on the level of available capacity released to the market (except of Czech/Polish border) Intraday cross-border allocations at the CEPS/VET border welcomed by traders Annual capacities continue to decrease Auction rules and capacities for 2008 still to be published

EFET comments on obstacles to trading November 2007 Import Fees Fee 1 €/MWh imposed by Slovakian and Hungarian TSO Fee explained as injection fee imposed on imports from perimeter country (Czech republic at Czech/Slovak border and consequently Slovakia at Slovak/Hungarian border) Fee related to the new inter-TSO compensation mechanism prepared under ETSO umbrella

EFET comments on obstacles to trading November 2007 EFET position Tariffs applied to transactions across borders are not permissible according the EU law (Regulation 1228/2003, 10th Florence Forum conclusion) Fee applied within a calendar year and even with retroactive effect can bring some of companies into big loss or to bankruptcy Slovakia has never invoiced, Hungary does

EFET comments on obstacles to trading November 2007 Export Fees Decrees of Slovakian and Hungarian Governments Imposition of export fees as of 01/01/2008 with exemption of transits /imports Defined as “System Services” charges – part of Transmission Tariff Size of fees 10 & 18 €/MWh enormously high 9.60% of total households tariff in SK)

EFET comments on obstacles to trading November 2007 Issues on Slovakian Decree “THE CAPACITY ALLOCATED IN THE AUCTION IS RESERVED AS OF THE MOMENT OF SATISFYING THE CONDITIONS SPECIFIED BY THE AUCTION RULES, IN CASE OF PURCHASE OF ELECTRICITY GENERATED IN THE DESIGNATED AREA FOR THE PURPOSE TO EXPORT, THE ELECTRICITY CUSTOMER SHALL SUBMIT THE ELECTRICITY SUPPLIER A CONFIRMATION ABOUT THE RESERVED CAPACITY IN THE CROSS- BORDER PROFILE.” “THE VOLUME OF ELECTRICITY DEFINED FOR EXPORT SHALL NOT THREAT THE SAFETY OF ELECTRICITY SUPPLY IN THE DESIGNATED AREA” “THE PAYMENT FOR SYSTEM SERVICES SHALL BE BILLED TO THE ELECTRICITY EXPORTER WHO CANNOT PROVE THAT THE EXPORTED ELECTRICIY WAS IMPORTED TO THE DESIGNATED TERRITORY”

EFET comments on obstacles to trading November 2007 Issues on Hungarian Decree Price Review Period 2005 – 2008 Section (2) of Decree 85/2007 (X.21) provides that the payment obligation does not apply if: ….the party (otherwise) obliged to make the payment can prove by an electricity purchase contract that the electricity to be exported from the Hungarian control zone has been imported from another control zone”.

EFET comments on obstacles to trading November 2007 EFET Position Fees represent enormous market distortion. The well functioning wholesale electricity market requires stable and predictable tariffs (some transactions for 2008 already signed) Fees are not consistent with the EU Competition Law, Regulation 1228/2003 and Florence Forum conclusions EFET has concerns regarding the compliance with Article 23 of Directive EC/54/2003compliance (Independency of regulator, tariff based on “ex ante” methodology )

EFET comments on obstacles to trading November 2007 Barriers to be addressed Administrative barriers (licenses, divergent market rules, language barriers) Regulatory uncertainties (retroactively implemented fees, unexpected fees at short notice) Divergent transaction procedures (e.g. harmonize IT platforms and scheduling processes) Market structure and time table Lack of effective clearing solutions

EFET comments on obstacles to trading November 2007 Main entry barrier – Trading license Licensing procedure itself is not an issue Cost of license somewhere high, annual fees somewhere high, but it is not the main issue Main difficulties arise from obligation to have either the registered office or the local legal entity - VAT and corporate tax issues - Legaly complicated contractual framework - Credit risk issues

EFET comments on obstacles to trading November 2007 Trading license development Positive development in Hungary: restricted trading license implemented (for the wholesale trading activities the license from the other EU member states shall be accepted) Small improvement in the Czech republic depends on the expected amendment of the Energy Law in No other changes, the implementation of the Services directive in individual EU member states could help by the end 2009