1. The Energy Community Disclaimer: this not an official document of any of the Parties

2. Main changes of the Transition Strategy paper (Version 09) Disclaimer: this not an official document of any of the Parties

3. Background-Scope of GIF WG Assess existing barriers to investment, hindering realisation of targets –Pipelines, LNG, storage facilities, Distribution gasification, for generation Give substantial input to the WB study on gas economics Discuss country action plans on economic increase in gas consumption and segments Establish criteria on Guidelines for Good Regional Infrastructure Regulation being taken into account by IFI, authorities and other relevant stakeholders for investment screening. Discuss and consolidate views on a regional action plan

4. Background Comments on paper received by most parties, including IEA The Treaty negotiations are finished and the signature is to take place soon The Treaty will be legally binding, establishing also institutions, notably the Regulatory Board, the Secretariat and a Gas and an Electricity Forum

5. Background (2) The Secretariat will be operational soon on an interim basis, the financial and legal director is appointed, the Director upcoming The tasks of the Working Group on Infrastructure Regulation is a likely field of activity within the Regulatory Board, once active

6. Key changes In light of the start of the WB study, the timing of the transition phases is adjusted to the likely progress of the consultant‘s work The transit potential to EU-25 was significantly underestimated in Version 03, according to recent estimaton

7. The EU-25 picture Summarised infrastructure required as Europe gas market growth from 520 bcma in 2003 to 830 bcma in 2025 Given supply diversity indicated in next slide

8. EU Diversity of Supply Management? (could this be a 2020 aspiration?) 10-20% 10% Russia Caspian/Middle East EU Nth. African LNG Norway/Netherlands 4 th Supply Corridor from 80 to 100 bcma requires about 4 - 20 bcma lines (incl. LNG), 10-15% Existing infrastructure 4 th Corridor requirement LNG requirement LNG to 100-150 bcma 27.5% Blue Stream 16 bcma Russia West 1&2 15 bcma Ukraine 5 lines Total 140 bcma EuroPol 20 bcma CAC 80 bcma - 5 lines Norway lines 93 bcma plus 50 Bcma Netherlands supply 10-15% 2 lines total 31 bcma expansion +10 bcma 27.5%

9. Gas Realities Market in region too small SECI Gas Study: develop market as ancillary market to supplying EU market World Bank ECN Study: Delivered gas prices in SEE competitive So, TPA reservation for provision of EU market and contestable local market using TPA on exiting and new local infrastructure

10. Mechanism for Operation of Network Energy Markets Outputs for 2005 Protocol on Gas Transmission and Investments Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community

11. Protocol on Gas Transmission and Investments Protocol to Athens Memorandum 2003 Title III Measure when Treaty comes into force Principles: –Harmonisation between Regulators and TSOs of Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community –Limited possibility for revision and not subject to regulatory policy change –Concerted Application of Art 22 exemptions –Favour new sources of supply

12. Regulated Asset Base Minimum harmonised principles Risk-Return Relationship Risk on investors not on local market, however must be assesible

13. Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community Stability and single regulatory process Discrimination between existing and new? Respect of the position of small shippers and new entrants Unbundled regime Use it or lose it TPA on existing bulk transition lines – relationship with dominant flows Level playing fields for new investments

14. Additonal issues: Best Endeavours Commitments Spatial Planning Tax Investment Protection based on WTO or Energy Charter including pre-investment phase

15. Activation of Gas Regulatory Group (30.09.2005) Agreed at last Ministerial Meet at early stage under aegis of Commission First Draft of Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community Chairman: Michael Caramanis, RAE

16. Next steps (1) Updated Gas Transition Strategy 1st Meeting of Regulatory Group (Sept–Zagreb) 2nd Meeting of Gas Infrastructure Financing Group (October-Belgrade) WB launch of Gas economics study and APL gas fund, based on country action plans and transit potential Meeting on gas company restructuring and distribution gasification experience (e.g. Nis gasification project) –

17. Next steps (2) Istanbul Gas Forum November 2005 Adoption of the gas transition strategy paper by PHLG in 2005 Consensus on Guidelines for Gas Infrastructure Investment Regulation (GIIR) in Energy Community at Forum and then PHLG National authorities to proceed with legal framework adaption