Message-ID: <1956201.1075856597747.JavaMail.evans@thyme> Date: Wed, 10 Jan 2001 08:59:00 -0800 (PST) From: webmaster@cera.com To: messages@cera.com Subject: Extending EU Gas Guidelines to Central and Eastern Europe - CERA Insight Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: webmaster@cera.com X-To: messages@cera.com X-cc: X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_5\Notes Folders\Cera X-Origin: Kaminski-V X-FileName: vkamins.nsf Title: Extending EU Gas Guidelines to Central and Eastern Europe URL: http://www20.cera.com/eprofile?u=3D35&m=3D2184 Overview: A comprehensive reform of gas legislation in Central and Eastern= =20 Europe is bringing the region in line with the European Union=01,s Gas=20 Directive. This is true both for the countries expected to enter the Union = by=20 2004=01)05=01*Czech Republic, Estonia, Hungary, Poland, and Slovenia--and f= or=20 candidates whose entry is not scheduled before the end of the=20 decade--Bulgaria, Latvia, Lithuania, Romania, and Slovakia. In CERA=01,s vi= ew=20 current developments regarding the establishment of a legal framework for t= he=20 internal gas market in Eastern and Central Europe look promising from an=20 investor=01,s point of view. The candidate countries presented a review of progress made in the=20 implementation of the EU Gas Directive during a two-day workshop held by th= e=20 European Commission and the World Bank in Paris in November. Many of these countries have been reforming their energy industries=20 throughout the 1990s as part of their transition to a market economy. The= =20 results have been mixed, particularly in the utility industries. The 1998 G= as=20 Directive (adopted in August 2000) now offers a compelling incentive for EU= =20 candidate countries to transform their gas industries, while providing a ro= ad=20 map to guide them. The critical points relevant to harmonization between the European Union an= d=20 candidate countries include the following: * Legal framework and regulation. The legal framework is the cornerstone of= =20 enlargement and the yardstick of harmonization in Europe. As a result, in a= ll=20 candidate countries in 1999=01)2000 energy laws were either updated or newl= y=20 established along the principles spelled out in the Gas Directive. Regulato= ry=20 bodies have been created by law and are operating in every country, althoug= h=20 issues of staffing, financial autonomy, and independence from political=20 influence are not uniformly resolved. * Third-party access (TPA) and long-term take-or-pay contracts. All candida= te=20 countries agree that TPA is a key to market competition. Therefore, all hav= e=20 adopted it or intend to do so in their new legislation. Although the=20 Commission favors regulated TPA, the specific approaches to TPA enforcement= =20 in the candidate countries remain unclear in some cases. In particular, the= =20 implementation of TPA will have to address the issue of long-term take-or-p= ay=20 contracts with Russia that were signed by all major domestic gas companies= =20 and somewhat preempt competition. Russian gas is for the most part sold to= =20 single, traditional state-owned operators that dominate their internal=20 markets. A balance will need to be struck between these incumbent dominant= =20 players and the competitive environment. This is made more complicated by= =20 their ownership of large volumes of Russian gas supplied in kind in exchang= e=20 for transit rights to West European customers. Article 25 of the directive= =20 provides for ! a derogation to companies experiencing difficulties stemming from take-or-p= ay=20 obligations. This derogation would apply to the companies of candidate=20 countries with historical and commercial links with the Russian gas industr= y.=20 Furthermore, article 26 allows derogations to those member states with only= =20 one major gas supplier, to those with an =01+=01+emerging [gas] mar= ket=20 status,=01,=01, or to those without a direct gas connection to the grid of = another=20 member state. Most of the candidate countries would in principle be able to= =20 call on one or more of these grounds for derogation when they join the=20 European Union. * Price cross-subsidies. Residential gas tariffs are artificially low and a= re=20 financed partially through higher rates applied to industrial consumers. In= =20 various countries, tariff increases and the phasing out of subsidies have= =20 been scheduled, but such decisions remain politically sensitive to enforce.= =20 This has recently been emphasized by high gas prices owing to the linkage o= f=20 imported gas to oil prices. All candidate countries have set legal framewor= ks=20 that include the phasing out of cross-subsidies as part of sector reform, b= ut=20 the actual implementation will remain politically difficult. As Table 1=20 indicates, price rebalancing is already under way in most countries expecte= d=20 to enter the European Union by mid-decade, but the legal framework itself= =20 cannot guarantee the pace of reform. The same goes for candidate countries= =20 that have only recently introduced EU-complying energy laws and whose entry= =20 to the European Union is likely to happen in a longer time frame. * Unbundling. Most countries understand that the unbundling of transmission= =20 companies from their supply businesses is the second critical element of=20 liberalization. To date, unbundling the accounts of these two businesses is= =20 all that has been adopted by the member states or in the candidate countrie= s.=20 In the future, the Commission is likely to press all EU countries for legal= =20 separation (=01&structural unbundling=018) of the businesses, and candidate= =20 countries will have to pursue their reform of the gas sector accordingly. Table 1 gives an overview of the state of play in candidate countries. As t= he=20 table shows, the countries belonging to the second group have only very=20 recently undertaken the reform of the gas sector in accordance with the=20 Directive, whereas change had been introduced earlier in the countries=20 scheduled for the first wave. **end** Follow above URL for full report. ********************************************************* Come Shoot the Rapids with us at CERAWeek2001, "Shooting the Rapids:=20 Strategies and Risks for the Energy Future" in Houston, February 12-16,=20 2001! For more information and to register, please visit=20 http://www20.cera.com/ceraweek/ ********************************************************* E-mail Category: Insight CERA Knowledge Area(s): European Gas, ********************************************************************** To make changes to your cera.com account go to: http://www20.cera.com/client/updateaccount Forgot your username and password? Go to: http://www20.cera.com/client/forgot This electronic message and attachments, if any, contain information from Cambridge Energy Research Associates, Inc. (CERA) which is confidential and may be privileged. Unauthorized disclosure, copying, distribution or use of the contents of this message or any attachments, in whole or in part, is strictly prohibited. Terms of Use: http://www20.cera.com/tos Questions/Comments: webmaster@cera.com Copyright 2000. Cambridge Energy Research Associates