RECENT DEVELOPMENTS IN THE ENERGY COMMUNITY GAS STATUS as of October 2008

1. RECENT DEVELOPMENTS IN THE ENERGY COMMUNITYGASSTATUS as of October 2008 GIE – ANNUAL CONFERENCE 23rd – 24th October 2008, Bucharest

2. TREATY ESTABLISHING THE ENERGY COMMUNITY • The Republic of Albania • The Republic of Bulgaria • Bosnia and Herzegovina • The Republic of Croatia • The former Yugoslav Republic of Macedonia • The Republic of Montenegro • Romania • The Republic of Serbia • The United Nations Interim Administration Mission in Kosovo • The European Community • THE ENERGY POLICY IN EUROPE • Generally, approach towards common principles (security of supply, competition, environment); • Currently in SEE: mostly bilateral relations; • Necessity for a common framework: THE TREATY ESTABLISHING THE ENERGY COMMUNITY

3. THE TREATY AS A FRAMEWORK FRAMEWORK It does not establish principles but a concrete framework, which is part of the Acquis Communautaire; minimum soft law obligations. THE MAIN OBJECTIVES • Create a single and stable regulatory space and stable market framework • Enhance the security of supply of the single regulatory space • Develop network energy market competition on a broader geographic scale • Via application of the EU Acquis Communautaire : • Acquis on Energy • Acquis on Competition • Acquis on Environment • Acquis on Renewables

4. INVESTORS SITUATION - FRAMEWORK OF THE TREATY • From the investors perspective the Regional Approach offers the advantages of: • Possibility of improved utilization of new infrastructure thus generating • more revenues and decreasing operational risks in terms of revenue losses • Shaving peaks of capacity needs compared to the coverage of these • needs by each CP thus entailing a higher base load factor and • subsequently the efficiency • Harmonised legislation

5. REGIONAL APPROACH – INSTRUMENTS IN TREATY • Implementation of a harmonised (not unified) legislative basis, incl. market rules, (mostly acquis on energy) which considers in particular the regional approach like follows: • For new infrastructure Art. 22 of Dir. 2003/55/EC • Regulation 1775/2005/EC • Mutual Recognition of licenses (Art. 34 of the Treaty) • Adoption of Generally Applicable Standards • Application of common Safeguard Measures • Common rules with regard to Mutual Assistance in the Event of • Disruptions • The elaboration and implementation of the legislation will be done within a • common, contractually agreed timeframe;

6. REGIONAL APPROACH – INSTITUTIONS/PROCESS • Monitoring of the development and implementation of the legislation, thus ensuring a harmonised approach in terms of substance and time schedule, hence an easement for the investors; • Establishment of the Energy Community Regulatory Board (ECRB) which supports in particular cross border trade/transport and also cooperates in the assessment of the application for exemptions for new infrastructure • Establishment of: • Fora (electricity and gas) • Investment Conferences • where investors/associations present their projects, provide significant • input to the process as such but also deposit their concerns – if any – • publicly in a transparent manner;

7. SUMMARY INFORMATION ON IMPLEMENTATION OF TITLE II OF THE TREATY (ELECTRICITY AND GAS) • Unbundling of networks operators and third-party access are generally well advanced • Customer protection and the appointment of a supplier of last resort need to be further addressed • Switching of the supplier should be further implemented both through the regulations and in practice • One of the difficult issues is the facilitation of cross-border electricity trade (although being gradually dealt with in more concrete terms) • The development of the gas related framework should be further encouraged and supported, although not all CPs have functional gas market • Secondary legislation needs further improvements and progress • Effective market opening remains crucial target • Implementation of Directives 2005/89/EC and 2004/67/EC till the end of 2009

8. REGIONAL APPROACH – KEY REMAINING ISSUES BY THE END OF 2008 • Introduction of marked based mechanisms for capacity allocation to all interconnections • Abandon capacity priorities due to Public Service Obligation • Increasing transparency on TSOs and Regulators websites • Introduction of secondary markets for the capacity rights • The Regulators competences in the cross-border issues, including their role in the procedure of exemption for the new electricity interconnection lines as well as for the main new gas infrastructure, have to be brought in compliance with the requirements of the Treaty • Enforce penalties for infringements of the Regulation (EC) 1228/2003 • Implementation of the Regulation (EC) 1775/2005

9. Bottlenecks Some provisions are available All provisions are available Some provisions are missing FINDINGSNATIONAL LEVEL with regard to the Directive 2003/55/EC

10. Bottlenecks Some provisions are available All provisions are available Some provisions are missing FINDINGSNATIONAL LEVEL with regard to Regulation 1775/2005/EC

11. INVESTMENTS Caspian gas via Romania (Nabucco) Caspian gas via Romania (White Stream & PEGP) Russian gasvia Bulgaria (Blue Stream or South Stream/ ’Nord’) Caspian or Russian gas via Greece (TGI or TAPor South Stream/’Sud’) Gas via Germany/Austria Russian gas via Hungary and Serbia or Croatia LNG? Mix of gas via Croatia LNG? Offshore? LNG? SOURCE : ECA, SEE Regional Gasification Study World Bank and KfW

12. BOSNIA AND HERZEGOVINA – NATIONAL PLANS SOURCE : Bosnia and Herzegovina and Energy Community Ring; 2nd Gas Forum, Maribor

13. PLANED AND POTENTIONAL DEVELOPMENT CROATIA • Underground gas storage Beničanci • Possible capacity of storage 400 million - 2 billion m3 • Volume of storage insure possibility of regional storage M. SREDIŠÆE VARAŽDIN HUNGARY ROGATEC ZABOK SLOVENIA ÐURÐEVAC ZAGREB BJELOVAR IVANIĆ GRAD B. MANASTIR D. MIHOLJAC PSP OKOLI 1 KUTINA i 2 VIROVITICA KARLOVAC UMAG SISAK OSIJEK VRBOVSKO DELNICE VINKOVCI NOVSKA VUKOVAR PAZIN RIJEKA OGULIN SLUNJ ŽUPANJA • LNG terminal • Development of projects is in 5 to 7 years. • CROATIA new supply of natural gas on level of up to 15,0 billion m3 per year SLAVONSKI BROD OTOČAC PULA GOSPIĆ GRAČAC BOSNIA AND HERZEGOVINA ZADAR BENKOVAC KNIN ŠIBENIK LNG SINJ ITALY SPLIT METKOVIĆ PLOČE • IAP • Connection to TAP • CROATIA, Montenegro, Albania • Up to 5billion m3 LEGEND: DUBROVNIK GAS PIPELINES BAR50 PLANED GAS PIPELINES BAR50 POTENTIAL GAS PIPELINES BAR50 GAS PIPELINES BAR75 IAP UNDERGROUND GAS STORAGE SOURCE : PROGRESS OF INVESTMENT PROGRAMS IN CROATIAN GAS SECTOR; 3rd Gas Forum, Ljubljana

14. INTERCONNECTIONS • Dravaszerdahely (Hungary) – Donji Miholjac (Croatia) • Donji Miholjac - Slobodnica • Basic design performed • Enviromental impact assessment performed • Main design in progress • Acquisition of pipelines and block valves is in progress • Obtaining Location permit in progress • Ionic – Adriatic Pipeline • Gas Transmission system Albania (Fier) – Croatia (Ploče) • Political declaration between Albania, Montenegro and Croatia signed 09/07 • MoU signed between Plinacro – EGL • Technical pre-feasibility study performed • The Feasibility study is under preparation • Other preparatory works are in progress SOURCE : PROGRESS OF INVESTMENT PROGRAMS IN CROATIAN GAS SECTOR; 3rd Gas Forum, Ljubljana

15. THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA Total length: 48 km Diametar: DN400 Est. Cost: 10 mil € Preasure 54 bar An. cons. 350 mil. m3 Level of doc. Projec idea Per. of constr. 18 mounth Total length: 101 km Diametar: DN530 Est. Cost: 20 mil € Preasure 54 bar An. cons. 286 mil. m3 TEC Negotino 286 mil. M3 Level of doc. Projec idea Per. of constr. 24 mounth Total length: 25 km Diametar: DN720 Est. Cost: 15 mil € An. cons. 71 mil. m3 Level of doc. Projec idea Per. of constr. 12 mounth SOURCE : Basic Characteristics and current development projects in the gas pipeline system; 2nd Gas Forum, Maribor

16. SERBIA SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 3rd Gas Forum, Ljubljana

17. SERBIA Regional Gas Pipelines in the Region Kolubara and Macva SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 2nd Gas Forum, Maribor

18. SERBIA Regional Gas Pipelines in the Region Branicevo SOURCE: Republic of Serbia National Investment Programs–link to the Energy Community Ring; 2nd Gas Forum, Maribor

19. NEXT STEPS FOCUS OF THE SECRETARIAT ASSISTANCE IN THE NEXT PERIOD • Monitoring of the state of play and reporting to the PHLG and MC • Assistance focussed on characteristic issues of implementation for each Contracting Party • Assistance to the Contracting Parties in drafting their legal / regulatory acts through assessment, commenting and proposing (on request) • Overall engagement in implementation of the cross-border issues, opening of the wholesale markets, attracting investments for the required infrastructure • Engagement in dispute settlement cases pursuant to Article 90 of the Treaty and the corresponding Procedural Act

20. THANK YOU FOR YOUR ATTENTION!