ANATOLY YANOVSKY DEPUTY MINISTER OF ENERGY OF THE RUSSIAN FEDERATION

1. ANATOLY YANOVSKY DEPUTY MINISTER OF ENERGY OF THE RUSSIAN FEDERATION Brussels, March 2012

2. Chronology of EU-Russia Cooperation and the Energy Dialogue 1994–Signing of the Agreement on Russia-EU Partnership and Cooperation and its entry into force in 1997 (for the initial period of 10 years and to be prolonged by default) 2000 – The decision of Russia-EU summit on creating of Russia-EU Energy Dialogue 2001 – Creation of Thematic groups of Russia-EU Energy Dialogue 2001 – Approval of the Nord Stream projects, Shtockman field development, and the system of Yamal-Europe gas pipeline within the scope of Russia-EU Energy Dialogue at the Russia-EU summit. 2001 – Identification of the projects of Nord Stream, Shtockman field, Yamal-Europe as the “common interest” projects and support of the construction project for Burgas-Alexandroupolis oil pipeline (First joint Synthesis Report on Russia-EU-Energy Dialogue, 2001) 2005 – Adoption of the Road Map for the Russia-EU Common Economic Space 2005 – First Meeting of the Energy Permanent Partnership Council (PPC) at the ministerial level 2007 – Assigning the TEN-E status to the Nord Stream project, beginning of construction of the first line in 2009, completion in 2011 2009 – Decision on the beginning of discussions on the New Framework Agreement 2009 – Signing of the Memorandum on the Early Warning Mechanism 2010 – Anniversary Conference “Russia-EU Energy Dialogue” 2010 – Adoption of a Joint Statement on initiative “Partnership for Modernization” 2011 – Meeting of the Government of the Russian Federation with European Commission, signing of the Memorandum on the Early Warning Mechanism and Overcoming Emergency Situations in the Energy Sector, the Joint Statement on Information Exchange, the Joint Statement on Creating a Mechanism to assess future Trends in the Gas Markets, Common Understanding on the Preparation of the Road Map of the EU- Russia Energy Cooperation until 2050.

3. Evolution of EU Energy Policy 1994– Signing of the Corfu Declaration – distribution of market shares (quotes) between internal and external suppliers of uranium products 1998 – Adoption of Directive 1998/30/ЕС concerning common rules for the internal market in natural gas 2003 – Adoption of Directives 2003/54/ЕС , 2003/55/ЕС concerning common rules for the internal market in natural gas and electricity market (second energy package) 2005 – signing of the Treaty establishing the Energy Community 2009 – Adoption of Directives 2009/72/ЕС , 2009/73/ЕС concerning common rules for the internal market in natural gas and electricity (third energy package) 2009   – Official startup of the Eastern Partnership initiative in the development of the European Neighborhood Policy (Ukraine , Moldova, Azerbaijan, Armenia, Georgia and Belarus) 2010 – Communication 'Energy infrastructure priorities for 2020 and beyond’ 2010 – Adoption of EU Energy Strategy until 2020 (20/20/20) 2011– Creation of the Agency for the Cooperation of Energy Regulators 2011– Adoption of the Road map for EU development until 2050

4. Evolution of Russian Energy Policy 1993-1997 –Privatization of oil industry 1993-1997 –Privatization of coal industry 1994 – Signing the Energy Charter Treaty (termination 2009) 1995 – Law on PSA (amendments 1999-2011) 2001-2011 – Russian electricity reform (incl. VICs unbundling, facilities privatization) 2003 – Energy strategy until 2020 2008 – Law On Foreign Investments In Strategic Areas (Legal framework, establishment of Government commission and Business Consulting Council, new law amendments – 1st and 2nd packages, 2011) 2009 – Energy strategy until 2030 2010-2011 – System of strategic and program documents (General scheme of development of the gas industry up to 2030; General scheme of electric energy objects placement until 2020 – 2030; General scheme of development of the oil industry until 2020; Long-term program of the development of the coal industry until 2030; State energy efficiency and energy saving program until 2020)

5. Structure of the EU-Russia Energy Dialogue Coordinators S. Shmatko – Minister of Energy of the Russian Federation G.H. Oettinger – Commissioner for Energy Delegated Coordinators A.Yanovsky - Deputy Minister of Energy of the Russian Federation P.Lowe – Director General, DG Energy Thematic group on energy markets and strategies Thematic group on electricity Thematic group on nuclear energy Thematic group on energy efficiency and innovations Gas Advisory Council Subgroup on scenarios and forecasts Subgroup on the Roadmap of the EU-Russia Energy Cooperation until 2050 Partnership for modernization Informal EU-Russia Consultations on Gas Issues Advisory bodies and mechanisms of partnership

6. EU-Russia Energy Cooperation Roadmap APPROACH • Aim - to make visible and facilitate the realization of the potential for long-term cooperation in energy sphere • The EU and Russian energy policies are different, but there do exist such areas where these policies converge and thereby mutually explored and mutually beneficial synergies may arise • The Roadmap should include necessary milestones and consider its practical realization issues • The adopted Roadmap should provide for some kind of generalized work plan of the EU-Russia Energy Dialog activities FORMAT PROBLEMS How to construct the mutual part of our energy future? Which part of uncertainty could and should be thus diminished? How to create the pathway to this future? How efficient may be results of our cooperation along this pathway? How to prevent this pathway from being destroyed by our policies? How to combine the flexibility and definiteness of the pathway?

7. European Companies’ Assets in Russia • Electric power industry • E. ON – 78.3% in OGK-4, OJSC • Enel – 56.43% in OGK-5, OJSC, including the share of the European Bank for Reconstruction and Development - 17.14% • Fortum – 92.9% in Fortum OJSC, formerly TGK-10 • Fortum Power and Heat Oy – 25.66% in TGK-1, OJSC • Siemens – 100% of the plant in Voronezh (production of high voltage equipment) • Siemens – 25% in Power Machines, OJSC • Siemens – 44.88% in Interturbo, LLC • Oil and gas industry • TOTAL – 49% in Total Thermokarst BV (gas-condensate field) • TOTAL – 20,5% in Yamal SPG, OJSC • TOTAL – 25% in Shtockman Development AG • TOTAL – 40% in Total Exploration and Development in Russia (Kharyaga oil field) • BP – 50% in TNK-BP • SHELL – 27.5% minus 1 share in Sakhalin-2 • SHELL – a joint venture with NK Evikhon (Salym group of oil fields - in Khanty-Mansiysk Autonomous District) • SHELL – 5.5% in the Caspian Pipeline Consortium • MOL – 50% in Zapadno-Malobalykskoye, LLC 100% in BayTex LLC, Matjushkinskaya vertical LLC, MOL - Western Siberia LLC • BASF – 25% in Severneftegazprom, OJSC (South-Russian oil and gas field) • E. ON AG – 25% in Severneftegazprom, OJSC (South-Russian oil and gas field)

8. Risks associated with the implementation of the EU’s Third Energy Package provisions • Areas of concern • Cross-border issues are left unregulated:import, export, transit and the corresponding structure on the EU’s external borders • No provision is made for robust mechanism to raise investments for infrastructure development • Exemptions to be granted to new energy transportation projects : criteria are blurry and the procedure is overly bureaucratic • Requirements set for foreign companies to be certified as transmission system operators are discriminatory • Risks arise for: • Gas exports to EU • Security of electricity supply • Long-term contracts • Large infrastructure projects • Investment protection

9. Joint Projects of Russian and European Companies in Gas Sector:NORD STREAM

10. Joint Projects of Russian and European Companies in Gas Sector:SOUTH STREAM

11. Possible measures for the establishment of joint system to ensure secure gas supply • Collaborative design of the unified system of reliable gas supply to Europe • Lifting restrictions and obstacles to the development of gas storage facilities in the EU by gas suppliers • Prompt cooperation between the parties as early as the nearest winterization season, with gradual accumulation of experience and, simultaneously, raising public awareness on the importance of the planned activities • Application in the EU of experience gained by Gazprom’s dispatch and control centers and making arrangements for their cooperation with the existing EU structures and structures being created

12. Russia & EU Power Systems Synchronous Operation BRELL: AugstspriegumaTikls (Latvia) Elering (Estonia) Litgrid (Lithuania) SO UPS, JSC (Russia) FGC UES, JSC (Russia) Belenergo(Belarus) • Power flows in BRELL synchronous zone: • BRELL mechanisms deficiency: • electric modes planning (transfer capacity, reserves) • electric modes control (congestion management) • lack of the economical mechanisms of market procedures & interaction coordination • lack of responsibilities and obligations of the parties to maintain operational characteristics • coordination of the network development plans

13. Problem solutions