1. 1 Cross-border Investment TRIGGERS GRI NW Investment I1- Virtual Test – Stockholm September 24, 2009 By : Johan Allonsius

2. 2 Situation TODAY is different from THE PAST ! Cross border Investment

3. 33 Today - New and growing market of end users. In the past - More mature and stabilizing market of end users ; - Need for additional capacity also for arbitrage reasons.  Higher volatility of shippers’ requirements (for the additional capacity);  Higher volume risk for TSO. Consequence

4. 4 Today Need for gas as a basic product. In the past Need for gas as a basic product ; + but also need for higher SoS and increase competition. => Decision to invest not purely mathematical Consequence

5. 5 Today - Accounting and fiscal rules accept faster depreciation = in accordance with commitment period and gas consumption rhythm (e.g. Unit volume method). In the past - RAB x WACC remuneration system whereby depreciation period exceeds the commitment period. => Higher risk that investment is not paid back = risk of stranded assets. Consequence

6. 6 Today Shippers’ firm commitment period = depreciation period. In the past Shippers’ firm commitment < depreciation period. Difference : 10 to 40 years, depending on country 50 to 80 % of the investment is not paid back by firm commitments Consequence MORE IN DETAIL => Risk on STRANDED ASSETS

7. 7 Countries or TSO’s are in a different position towards this risk : e.g. France : (for the moment) : can roll in the new investment in the existing infrastructure without general tariff increase; e.g. The Netherlands : accounting rules allow depreciation over 20 years so that risk of stranded assets is reduced; The risk of stranded assets is one of the major burdens for new investments Consequence => The investment triggers are different per country e.g. Belgium : cannot roll in without causing tariff increase and cannot depreciate fast enough. e.g. Germany : investment rolled in in TSO’s asset base even with tariff increase => risk is born by the end user (discussion pending at national level);

8. 8 Triggers (not final and solely for the purpose of VT) France : 80 % of capacity should be booked during the first 10 years Netherlands : 100% of capacity should be booked during the first 10 years Belgium : 80% of the total investment should be depreciated during the firm commitment period Germany : Approval as investment budget increase of revenue cap by this amount TSO has to proof that planned project is needed. (discussions pending at national level)

9. 9 Important remark The investment triggers used in the VT are INDICATIVE. They demonstrate how burdens for investment decisions can be LOWERED and eventually OVERCOME These triggers cannot be used to force an investment in real life THE GOOD NEWS = even if triggers in the VT are negative in real live they can be positive Why ?

10. 10 Because the decision to invest depends on the combination of MANY FACTORS Some are translatable INTO FIGURES such as : Some are NOT translatable into figures such as : Not to mention the dialogue, mutual understanding and constructive collaboration between Shippers, Regulators, TSO’s and legislative bodies … Expressed requirements of the shippers, higher remuneration for the TSO, high or low depreciation rates, etc… Security of Supply, increase competition, readiness to take more risk, etc …

11. 11 Conclusions 1. The VT has identified the burdens to cross-border investments; 2. Countries or TSO’s cope with these burdens differently; 3. Countries or TSO’s have therefore different investment Triggers; 4. In the VT when the trigger is met the investment will be done; 5. If the trigger is not met the reason(s) will be transparent; 6. The elements of the trigger indicate paths to lower, and eventually overcome, the burden. At least FOLLOWING BURDEN should be AVOIDED ……

12. 12 Sugar ! One of the borders has moved again!