World Bank Support for the Gas Market in South East Europe

Henk Busz Energy Sector Manager Europe and Central Asia Region World Bank
Tirana, February 10, 2005

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Gas market liberalization under the Athens Memorandum

Athens Memorandum requires industry unbundling and development of regulatory framework Envisages phased market opening and increased gasification (Athens Memorandum 2003 sets target of 10% gas in primary energy by 2010, ECSEE Strategy presented to the Athens Forum in October 2004 talks about nominal targets for gasification)

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Increased Gasification in SEE

Lower import price would support increased gasification Opportunities for import of Caspian gas Greece-Turkey pipeline (extending to Italy, or North) Limited impact on gas price in SEE in medium term: preliminary study carried out for the World Bank

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Delivered gas prices in SEE under new pipelines

Gas price at Greece-Turkey board + gas transport across Greece + transport fees across Greece Northern route Greece-Macedonia border + gas transport to Negotino + gas transport to Albanian branch + gas transport from Negotino to Skopje + gas transport through Serbia + gas transport to Bosnia and Herzegovina Italian route Greece- Albania border + gas transport to Elbasan + gas transport to Albanian branches + gas transport from Elbasan to Skopje + gas transport from Skopje to NIS + gas transport to Bosnia and Herzegovina Transport Cost Low case 80 15 Unknown 95 97 149 98 103 138 139 191 141 145 180 182 234 183 188 Mid case 120 17.5 High case 160 20

1.95 51.6 1.38 4.45 + costs for existing network

3.98 14.25 4.07 4.45 + costs for existing network

95 91 113 103 108

138 142 156 160 164

180 184 198 188 193

comparable with delivered gas prices from Russia

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Increased gasification in SEE at current gas price

Opportunities for increased residential gasification, particularly over time GIS suggests limited CCGT to 2015 (gas price has to fall to $110 / tcm in order for gas to be competitive with potential lignite projects in Bulgaria and Kosovo) Slow pace of gasification Particularly given institutional challenges (deep institutional reform takes a long time!)

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Gas sector reform in SEE

COUNTRY Industry Organization Legislation for regulation and liberalization No No Regulato r

Albania Bosnia & Herzegovina Bulgaria Croatia Macedonia Romania Serbia Turkey

Integrated Integrated trader, transmission, supply company. Also a distribution company, another trader, and two small transmission cos. Integrated Separate transmission co. Integrated Unbundled Integrated Integrated trader and transmission company, separate distribution companies

No No

Yes Yes Yes Yes No Yes

Yes Yes Yes Yes Yes Yes

The basics are in place, but there is much to do in terms of industry restructuring, and development of regulatory and market rules.

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Gas study: terms of reference

Objectives: To assess the economics of increased SEE gasification based on existing pipelines and new pipelines linking Turkey with western Europe To consider the economics of increased SEE gasification through increased LNG imports

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Gas study: scope of work

Objectives: provide gas demand forecasts for residential consumers (network expansion and new networks) for industrial customers and provide an assessment of the economics of increased gasification based on existing sources of supply

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Gas study: scope of work

Objectives: estimate the costs associated with new pipelines various routes to the west: Italy via Greece, Italy via Greece-Macedonia-Albania and to the north (Greece-Macedonia-Serbia, Turkey-Bulgaria-RomaniaAustria) given cost estimates, and demand forecasts, assess economic viability of new pipelines
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Scope of work (cont.)

Provide an assessment of the relative benefits associated with gasification based on Russian gas, gas transiting to the region through Turkey, and LNG And of the relative benefits for SEE from consuming and transiting gas

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Scope of work (cont.)

Provide an assessment of the institutional framework for the gas sector (regulation, industry structure, etc.) And a blueprint for reform to support gas market development in the region

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Project Implementation
This will be a major project (Euro 1 million) Financed by the Italian Government through untied funds Led by the World Bank In close collaboration with countries in the region (energy ministry officials, energy regulators, gas company representatives) And the EC, IFIs, donors, CEER, industry players (through GTE [Trade Association])

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Project Implementation
Selection process for consultants currently under way Short-listing completed Final selection in March 2004 Completion of the project by the end of 2004

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Follow up
The Bank already has a Power Sector APL for support of power market development in SEE The Bank will consider developing a Gas Sector APL for finance of investments in gas infrastructure to support gas market development

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