Geneva, 12 March 1999
ENTERING THE
EU SINGLE GAS MARKET: CHALLENGES FOR
CENTRAL AND EASTERN
EUROPEAN COUNTRIES
"The new EU directive which promotes a
single gas market for Europe constitutes an additional challenge
for Central and Eastern European countries (CEECs). It comes on
the heels of the current restructuring that was required in
moving from a centralized planned system to a market-oriented one" stresses Mr. Wolfgang Ziehengraser, Vice Chairman
of the Board of the United Nations Economic Commission for Europe
(UN/ECE) Gas Centre. Most of CEECs have only started their process of
privatisation and for most of them the access to the EU or to its
single market will mean an increase in the price of their gas. It
is a great challenge which will require a careful preparation.
This is the reason why the
UN/ECE Gas Centre organised a task force to assist CEECs in
implementing the EU Gas Directive and to promote the transfer of
experience from EU to CEECs-based companies. This task force took
place last week at the Szirák castle in Hungary. The meeting was
co-organised and hosted by MOL, the Hungarian oil and gas
company.
During the meeting, three CEECs
cases were presented: Hungary, Poland and the Czech Republic. All
of them presented the different steps they have to implement
before full competition of their gas market can be achieved.
Despite many problems that they have to overcome, all are ready
to take up the challenges and to open up and liberalize their gas
market.
Hungary is the most advanced in
the transposition of the Gas Directive and other acquis
communautaires and will be ready at the time of accession, by
2002.
The reform and restructuring of
the gas sector in the country started in 1991 and today the
process is successfully completed. Major western European gas
companies have entered into the Hungarian gas business, as
shareholders of the regional gas distribution companies and MOL
is now a private company. An independent regulatory body - the
Hungarian Energy Office - has been established for regulation of
the gas sector. Interconnection of the gas system with the
European gas network has been accomplished with a pipeline
linking Hungary and Austria and long-term contracts were signed
with Panrusgaz, Ruhrgas and Gaz de France. Rebalancing of gas
prices, however, has still to be achieved.
The Polish gas industry has also
started its preparation to the EU accession. Restructuring and
privatization is taking place with the ongoing separation of
non-core units and distribution companies and the promotion of
foreign direct investment. The abolishing of state regulated
prices is also foreseen as well as the full operation of the
Energy Regulatory Agency. Poland is building a major gas pipeline
for additional Russian supplies - the Yamal pipeline - and is
also negotiating with other suppliers.
The Czech Republic has scheduled
price liberalization by 2002 and at the same time the regional
distribution companies should be privatized. Today the gas
industry is dominated by Transgas, the exclusive importer and
supplier of gas to the distribution companies. The latter are in
turn monopoly gas suppliers within their respective franchises to
all customer categories. Transgas' position of a state-owned
company reflects its strategic importance and the country's total
dependence on foreign natural gas sources. Since May 1998, the
Czech Republic has started receiving Norwegian gas supplies, in
addition to its long-term supplies from Russia.
The presentations and
discussions demonstrated the need for a step-by-step approach to
market liberalisation in CEECs preserving security of supply and
the financial health of the gas operators and the importance of
the EU Gas Directive as one of the elements of market
restructuring and liberalisation.
The meeting was attended by 43
participants from 17 countries, representing key officials from
MOL and the Hungarian Ministry of Economy, the European
Commission DG XVII, the European gas industry, key experts
and the UN/ECE.
A second meeting will be
organised in October by OMV, the Austrian oil and gas company.
For further information,
please contact:
Mrs. Sylvie Cornot-Gandolphe
Project Manager, Gas Centre
Energy Division
United Nations Economic
Commission for Europe (UN/ECE)
Palais des Nations
CH - 1211 Geneva 10,
Switzerland
Tel: (41 22) 917 24 43
Fax: (41 22) 917 04 30
E-mail: [email protected]
Web site: http://www.gascentre.unece.org/
BACKGROUND INFORMATION
The EU Gas
Directive
On 22 June 1998, the EU Gas
Directive (98/30/EC) was adopted. The Directive will play a
decisive role in opening up the European gas market to more
competition. It sets out various options which are open to the
Member States and a minimum but common level of liberalisation,
to be extended over a period of ten years. The Directive entered
into force on 10 August 1998 and EU Member States have two years
to adopt the Gas Directive in their national legal system.
The main objective of the Gas
Directive is to promote competition and efficiency in the EU
single gas market. This is to be achieved by four main
instruments:
- Accounting transparency of
natural gas undertakings;
- Rights of access to gas networks on
the part of third party operators;
- The legal right to TPA for >eligible' customers entering into
contractual agreements with gas undertakings of their choice,
and
- Objective, transparent and
non-discriminatory criteria for the issue of authorisations
for the activities of gas undertakings, including the
construction of new pipelines.
General requirements in CEECs
Free-market and competitive
structures for the gas industries are essential prerequisite for
integration of CEECs into the single gas market. In general,
their degree of openness and competitiveness of the markets is
quite limited. Hence, the challenges facing the CEECs gas sector
are greater than those facing the gas industries of the EU.
Globally, the transposition of EU legislation and especially the
EU Gas Directive was quoted as a big task which requires careful
preparation. For instance, Hungary mentioned the nine groups set
up to study how will be the energy sector at the time of
accession and the Czech representative underlined all the steps
necessary to be accomplished before implementation of full
competition.
Several gas sector issues are
crucial for a successful market opening in CEECs:
- the establishment of a sound
and transparent legal framework for the regulation of the
sector and operators;
- the maintainance or even
enhancement of security of supply;
- a balanced mix in the supply
portfolios;
- a sound market-based gas
pricing policy reflecting international market border prices
and domestic cost structures.
Whereas the Directive and
increased competition on the EU internal gas market will result
in lower costs and prices, the liberalisation process in CEECs
will lead to higher prices. Gas prices in this sub-region are
still below economic level. Today, prices to the industrial
consumers are close to those in the EU, whereas prices to
households cover only a fraction of the cost of service. The
situation is a burden for the gas industry, and society at large.
Therefore gas prices will have to be gradually raised to approach
economic levels (e.g., full cost recovery and an appropriate
return on investments).
CEECs also need to ensure that
after the market opening, security of supply is maintained or
even enhanced and a balanced mix in the supply portfolios can be
achieved. In the importing CEECs, efforts are being made to
better interconnect their transmission system with the European
gas network and to diversify gas sources/or gas routes.
Long-term contracts were
identified as a necessary requirement for the gas industry to
guarantee security of gas supply to consumers and as an important
vehicle to realise investments.
Finally, of utmost importance is
the establishment of a satisfactory legal framework protecting
investments and contracts and encouraging investors to continue
to take appropriate risks. The approximation of energy sector
legislation to the EU legislation will play an essential role in
this respect.
MOL
MOL Magyar Olaj- és Gazipari
Rt. is the oil and gas company of Hungary. It is a leading
integrated oil and gas company in central Europe and the largest
company in Hungary by revenues. MOL is in majority private
ownership, the state holds 25% of the shares.
MOL's principal operations cover
the exploration and production of crude oil, natural gas and gas
products; the refining, transportation and storage of crude oil,
transportation, storage, distribution, retail and wholesale
trading of oil products; the importation, transmission, transit,
storage and wholesale and retail trading of natural gas and other
gas products. MOL has the leading-domestic market share in all of
its core businesses. The Natural Gas Trade Business Unit
maintains responsibility for the entire gas business within the
company.
Gas sales volumes increased by
3% in 1998 to 12.5 Bcm. MOL sells 75% of the gas to the regional
distribution companies, the remainder is sold to 26 major
industrial consumers directly. Ever since its establishment in
1991 MOL has successfully coped with the growing natural gas
demand of Hungarian customers. The share of gas in Hungary's
energy balance was 40% in 1998, and the figure is likely to keep
on rising. Today 60% of Hungarian households are supplied with
natural gas and in ten years a further 10% increase is expected.
Domestic production meets 40% of
the market demand but the depletion of Hungary's fields and poor
expectations concerning new domestic exploration will result in a
share of 16-18% by 2010. The growing gas imports covered by long
term contracts and the security of supply require new sources
beyond the existing ones as well as new supply routes. The HAG
pipeline, put into operation in 1996 is a first step toward the
link with the west.
MOL and its Natural gas Trade
Business Unit have been challenged by the increasing quality and
quantity requirements of the dynamically growing and more
liberalised domestic gas market as well as by the work to be done
in connection with the future EU membership of the country. The
main challenges today are:
to cover growing needs by
establishing long-term contracts for new sources;
- to diversify the import routes in order to
raise security of supply (new links with the main European
transmission systems and with the ones crossing Hungary);
- to improve the security of peak management by
high-tech hardware and software;
- to meet the growing quality and quantity
needs in an ever changing and tumultuous market;
- to prepare MOL for the role of an integrated
gas company acting in the European market and to introduce
new standards of behaviour concerning this new role.
The Gas
Centre
The Gas Centre, created in 1994,
acts as a focal point and a forum of discussion and exchange of
know-how between economies in transition and market economies. It
has a unique position among other industry institutions, in that
it is firmly embedded into the UN/ECE structure, which provides
access to national governments and acts as an efficient interface
between government and industry. In this environment, the Centre
is well placed to facilitate cooperation and to promote the
awareness of governments and the private sector alike for their
respective positions.
26 major companies from 21
countries support its activities, which have been recently
extended to the creation of discussion forums for current topics
of strategic importance. Among the three topics approved by the
Board in December 1998, one deals with gas market liberalisation
and the impact of the implementation of the EU Gas Directive. The
objective of this task force group is to share information
between and to develop a common understanding among all the
countries affected by the Directive, either directly or
indirectly.