Gastrans pipeline project: Secretariat issues opinion with request for additional conditions to Serbian energy regulator

Gastrans pipeline project: Secretariat issues opinion with request for additional conditions to Serbian energy regulator

Today, the Secretariat notified the energy regulatory authority of Serbia, AERS, of its opinion on the exemption granted by AERS to the pipeline project Gastrans on 1 October 2018. Gastrans is a project for a new pipeline on Serbian territory which is expected to be linked with new pipeline infrastructure to be built upstream in Bulgaria and downstream in Hungary. AERS had exempted the project from the provisions of the Third Energy Package related to unbundling, third party access and tariff regulation. In its opinion, the Secretariat requests a number of conditions to ensure the project does not lead to market foreclosure in Serbia and beyond.

Background

The Gastrans pipeline project is the downstream extension of a new pipeline to be built in Bulgaria, which in turn is expected to connect with the TurkStream project linking the Russian Federation to Turkey. The project aims at bringing additional volumes of Russian gas to South East Europe and Central Europe. With an envisaged capacity of almost 14 billion cubic metres of gas per year, the Gastrans pipeline intends to start operation on the Serbian segment as early as 2020, and reach its full capacity during 2022. The operator of the Gastrans pipeline in Serbia is Gastrans d.o.o., a joint venture between (a subsidiary of) Gazprom of Russia and Srbijagas, the public gas incumbent of the Republic of Serbia. 

Gastrans had applied to and received by the energy regulatory authority of Serbia, AERS, an exemption from three core principles of the so-called Third Energy Package, the European internal energy market rules applicable to Serbia via its membership in the Energy Community. No similar requests were filed by the pipeline system operators in Bulgaria and Hungary to their respective regulatory authorities. The principles in question are unbundling, third party access and tariff regulation. They are crucial instruments to make sure gas markets in Europe are transparent, non-discriminatory, open and competitive. The exemption granted by AERS is for 20 years and covers a very large part of the pipeline’s capacity.

To receive an exemption from the Third Energy Package principles, the operator of a new pipeline project such as Gastrans needs to demonstrate, among others, that the investment improves competition and security of supply, and that the exemption is proportionate to the size of the risk associated with the investment. Under the Energy Community Treaty, the Secretariat is requested to issue an opinion on whether the decision of AERS is in line with these criteria. According to the Gas Directive, AERS shall take the utmost account of the Secretariat’s Opinion when publishing its final Decision on the Exemption.

The Secretariat has been issuing opinions already in the past, in particular on an exemption granted to the so-called Trans-Adriatic Pipeline (TAP) in 2013.

Opinion

In its assessment, the Secretariat focuses on the need to create properly functioning liquid and competitive gas markets in the Energy Community based on equal rules and conditions. In general, the gas markets in South Eastern and Central Eastern Europe rely on Russian gas supplies and often have limited connections with neighbouring countries. Serbia, the territory on which the pipeline to be exempted will be built, is a striking example. While the country is fully dependent on one transportation route from the North, through Hungary, its internal gas market is highly concentrated and foreclosed, with the two shareholders of Gastrans, Gazprom and Srbijagas, in unfettered control. In assessing the impact of the Gastrans project, the Secretariat, on the one hand, concludes that a new pipeline entering the country from the South will improve security of supply by diversifying supply routes. On the other hand, it will also entrench and perpetuate the dominance of Gazprom and Srbijagas. For this reason, the Secretariat requests the Serbian regulatory authority to condition any exemption on the possibility for new market entrants to access a significant share of the pipeline capacity via auctions, and to a certain amount gas to be offered on the marketplace by the incumbents in the Serbian market. These and other additional conditions should be put in place by AERS in order to create a more liquid and transparent market in Serbia and the neighbouring countries offering non-discriminatory access and trading possibilities for all market participants.

Next Steps

The Secretariat's Opinion will be published on the Energy Community website within the next days.         

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