Gas Industry Regulatory Models. Agenda Status of the European gas transportation regulation Status...
-
Upload
brook-diana-robertson -
Category
Documents
-
view
219 -
download
1
Transcript of Gas Industry Regulatory Models. Agenda Status of the European gas transportation regulation Status...
Gas Industry Regulatory Models Gas Industry Regulatory Models
AgendaAgenda
Status of the European gas Status of the European gas transportation regulationtransportation regulation
A case study of regulation in ArgentinaA case study of regulation in Argentina
Lessons learned that can be applicable Lessons learned that can be applicable in Indiain India
Acceleration of the Process in EuropeAcceleration of the Process in Europe
Second Directive Adopted in June 2003Second Directive Adopted in June 2003
Directive Electricity (December 1996) 1999 2000 2003
Minimum Opening 26% 28% 33%Minimum Threshold 40 GWh/y 20 GWh/y 9 GWh/y
July 2004
Opening to non domestic clients
Directive Gas(June 1998) 2000 2003
20% 28%Minimum Threshold 25 Mm3/y 15 Mm3/y
July 2004
July 2007
Opening to all clients
July 2007
First Directives adopted:First Directives adopted:• in December 1996 : electricity• in June 1998 : gas
Minimum Opening Opening to non domestic clients
Opening to all clients
1st Gas Directive: general principles1st Gas Directive: general principles
Conditions for third party access must be transparent and non-Conditions for third party access must be transparent and non-discriminatorydiscriminatory
Tariffs for third party access will be negotiated or regulatedTariffs for third party access will be negotiated or regulated
Mandatory accounting separation of transport – distribution – Mandatory accounting separation of transport – distribution – storage – non-gas activitiesstorage – non-gas activities
Creation of independent Regulators to:Creation of independent Regulators to:• guarantee non discrimination• Oversee complaints and penalize abusive behaviour
2nd Gas Directive : a push to open markets2nd Gas Directive : a push to open markets
Acceleration of the market opening : Acceleration of the market opening : • 01/07/2004: Open to all non-residential clients (50% of French market)
• 01/07/2007 : Complete opening
Legal separation of activities :Legal separation of activities :• Legal separation of transportation and distribution from other activities
• Possible to operate a combined network of LNG, storage, transportation and distribution
Reinforcement of Regulator roleReinforcement of Regulator role
Third party access to storage Third party access to storage
Finance Law of 2001 : end of transport concessionsFinance Law of 2001 : end of transport concessions
Law of January 3 2003 transposing the 1998 EU Directive :Law of January 3 2003 transposing the 1998 EU Directive : Role of Public Entities
Tariffs : the CRE (regulator) proposes, le Ministry decidesTariffs : the CRE (regulator) proposes, le Ministry decides La CRE controls the separation of accountsLa CRE controls the separation of accounts
Waiver for international transit of gas End of GdF import/export monopolies
A draft energy law with a chapter dedicated to third party access A draft energy law with a chapter dedicated to third party access to storage is circulatingto storage is circulating
A future law is anticipated regarding the legal status of EDF-GDF A future law is anticipated regarding the legal status of EDF-GDF
Regulation in FranceRegulation in France
Accounting Separation
Exemption
Legal Separation
A slow evolution of separation of activitiesA slow evolution of separation of activities
Separation of Ownership
UK: total separation
Italy: participation of Eni in SNAM Should be reduced to 10% in 2004
Spain: 41%participation of Gas Natural in Enagas should fall to 35% in 2004
France: proposed law for EDF and GDF in 2004 ??
Netherlands: abandoned the proposed restructuring of Gasunie
Germany ?Belgium: legal separation complete
Tariff structures – many modelsTariff structures – many models
Entry / Exit
Exemption (up to 2008)
Distance
Postage stamp
Entry / Exit system under consideration in Germany
UK: long term reservation of capacity through bidding system
Modes of RegulationModes of Regulation
COST PLUSCOST PLUS PRICE CAPPRICE CAP
Cost plus return on investmentCost plus return on investment Regulated maximum priceRegulated maximum price
+ Reduced risk for transportersReduced risk for transporters
+ Lower rate of return necessaryLower rate of return necessary+ Productivity gains promoted Productivity gains promoted
+ Sharing of risks Sharing of risks
+ Less intervention by regulatorLess intervention by regulator
- Little incentive to reduce costsLittle incentive to reduce costs
- Incentive to over-investIncentive to over-invest
- Regulator must exercise strict controlRegulator must exercise strict control
- Higher risk for transportersHigher risk for transporters
- Possibility that quality will suffer in Possibility that quality will suffer in favour of cost reductionfavour of cost reduction
FranceFrance Great Britain, Italy, Spain Great Britain, Italy, Spain
Remuneration of TransportersRemuneration of Transporters
CALCULULATION OF CALCULULATION OF REVENUE TARGETREVENUE TARGET ModalitiesModalities
Asset ValueAsset ValueHistoric costs (France, Italy)Historic costs (France, Italy)Replacement value (UK)Replacement value (UK)
Basis for Return Basis for Return On amortized asset base (France, Italy)On amortized asset base (France, Italy)On asset base before amortization (Spain)On asset base before amortization (Spain)
Duration of ContractDuration of ContractFrance : 50 yearsFrance : 50 yearsItaly : 40 yearsItaly : 40 yearsSpain : 30 yearsSpain : 30 years
New InvestmentsNew Investments Special treatment in some cases (France, Special treatment in some cases (France, Italy, Spain)Italy, Spain)
Rates of ReturnRates of Return
EXISTING EXISTING ASSETSASSETS
NEW NEW INVESTMENTSINVESTMENTS
HYPOTHETICAL HYPOTHETICAL NEW INVEST.*NEW INVEST.*
FRANCEFRANCE7.75% applied to the 7.75% applied to the
amortized assetamortized assetUp to 12% for 5-10 Up to 12% for 5-10
yearsyears 9% average9% average
9.0%9.0%
ITALYITALY
7.94% applied to the 7.94% applied to the amortized assetamortized asset
Remuneration after Remuneration after accounting life of accounting life of assetasset
12.45% for 6 years12.45% for 6 years 10.0%10.0%
SPAINSPAIN
6.7% applied to non-6.7% applied to non-amortized asset amortized asset valuevalue
Remuneration after Remuneration after accounting life of accounting life of assetasset
Specific Specific
remuneration based remuneration based
on case by caseon case by case
9.5% – 12.8%9.5% – 12.8%
* Based on a 60 year project life – before tax and * Based on a 60 year project life – before tax and financingfinancing
Argentina – a case studyArgentina – a case study
Norte Pipeline: 22 / 0.8
Centro Oeste Pipeline: 31 / 1.1
Neuba I Pipeline: 12 / 0.4
Neuba II Pipeline: 29 / 1.0
San Martín Pipeline: 19 / 0.7
Transportation Capacity 2002 Transportation Capacity 2002 (MMm3/d / Bcf/d)(MMm3/d / Bcf/d)
TGN: TGN:
TGS:TGS:
Total System:Total System:
TGSTGS(Petrobras/Enron)(Petrobras/Enron)
53 / 1.953 / 1.9
60 / 2.160 / 2.1
113 / 4.0113 / 4.0
TGNTGN(Total/ Techint/Petronas/CMS/CGC)(Total/ Techint/Petronas/CMS/CGC)
Prior to Dec 92Prior to Dec 92 Since Dec 92Since Dec 92
YPFYPFPRODUCTIONPRODUCTION PRODUCERSPRODUCERS
TRANSPORTATIONTRANSPORTATION
DISTRIBUTIONDISTRIBUTION
REGULATORY REGULATORY AUTHORITYAUTHORITY
GAS DEL ESTADOGAS DEL ESTADO
ENERGY SECRETARIATENERGY SECRETARIAT
TGN and TGSTGN and TGS
9 Distribution Companies9 Distribution Companies
ENERGY SECRETARIATENERGY SECRETARIATAnd ENARGASAnd ENARGAS
Industry Structure Pre 1992Industry Structure Pre 1992
The Privatization GoalsThe Privatization Goals
Government Objectives for PrivatizationGovernment Objectives for Privatization Generate cash through sale of assetsGenerate cash through sale of assets Assure stable and reasonably priced gas supplyAssure stable and reasonably priced gas supply Foster future investmentFoster future investment Create a competitive natural gas marketCreate a competitive natural gas market
Regulator Objectives and FunctionsRegulator Objectives and Functions To protect consumersTo protect consumers To regulate TariffsTo regulate Tariffs To resolve conflictsTo resolve conflicts To apply sanctionsTo apply sanctions To secure fair rates of returnTo secure fair rates of return To ensure non-discriminatory accessTo ensure non-discriminatory access
Pipeline
Free market Free market Deregulated pricesDeregulated prices Export/import allowedExport/import allowed
ProductionProduction
No geographic exclusivityNo geographic exclusivity Regulated rates Regulated rates (“Price cap”)(“Price cap”) Expansion are not mandatory Expansion are not mandatory Free access through “Open Season”Free access through “Open Season” Transporters do not buy or sell gasTransporters do not buy or sell gas Reselling MechanismReselling Mechanism
TransportationTransportation
Geographic exclusivityGeographic exclusivity Regulated rates Regulated rates (“Price cap”)(“Price cap”) Profits only from distribution serviceProfits only from distribution service Roll through commodity and transport costsRoll through commodity and transport costs By-pass by large users possibleBy-pass by large users possible
DistributionDistribution
Gas Basin
Market
Industry Structure Post PrivatisationIndustry Structure Post Privatisation
Free Market Free Market RegulatedRegulated
End-userEnd-user PricePrice
GasGas PricePrice
TransportationTransportationTariffTariff
DistributionDistribution TariffTariff+ +
Expense recovery + reasonable profit.Expense recovery + reasonable profit.
Lowest end-user cost.Lowest end-user cost.
Promote growth compatible with security of supplyPromote growth compatible with security of supply
Regulated Tariffs must allow:Regulated Tariffs must allow:
Natural Gas Price StructureNatural Gas Price Structure
Ten Years LaterTen Years Later
How has the Argentine Gas Industry performed against the original objectives?
1992-2002 Evolution1992-2002 Evolution
A HEALTHY BEGINNING…….A HEALTHY BEGINNING…….
More capacityMore capacity: 65.5 to 130 MMm3/day (2,3 to 4,6 Bcf/day): 65.5 to 130 MMm3/day (2,3 to 4,6 Bcf/day) Private investmentPrivate investment: over 3500 MMusd in transport & distribution : over 3500 MMusd in transport & distribution More direct customers of transportersMore direct customers of transporters::
initial customers in 1992: 8 (all of them distribution companies) present customers: 56
More new domestic usersMore new domestic users: : 1,000,000 more than 19921,000,000 more than 1992 More dynamic transactionsMore dynamic transactions::
Beginning of secondary capacity market and traders
……………………HOWEVER………….HOWEVER………….
2002 economic crisis has frozen all development of the industry 2002 economic crisis has frozen all development of the industry and forced all regulated companies to default on their loansand forced all regulated companies to default on their loans
Consequently, the industry has fallen into crisisConsequently, the industry has fallen into crisis
373 338413
309
997
408 407
1,127
500
362
1,045
355
209306
235
626
345424
356288
240
-
200
400
600
800
1,000
1,200A
ustr
alia
Aus
tria
Bel
gium
Can
ada
Den
mar
k
Fra
nce
Ger
man
y
Hon
g K
ong
Irel
and
Italia
Japa
n
Luxe
mbo
urg
Mex
ico
Hol
land
Pol
and
Por
tuga
l
S. A
fric
a
Spa
in
Sw
eden
G. B
ritai
n
US
A
US
$/M
m3
Argentina 190 $/Mm3
($6.3 per MMBTU)
(net of sales tax)(net of sales tax)
Residential Gas Prices (End 2001)Residential Gas Prices (End 2001)
……as a result of the economic crisis, residential as a result of the economic crisis, residential gas prices are currently under 3 USD per gas prices are currently under 3 USD per
MMBTU – too low to sustain.MMBTU – too low to sustain.
Before 2001, Argentina had one of the lowest gas prices Before 2001, Argentina had one of the lowest gas prices in the world….in the world….
Conclusions and Lessons LearnedConclusions and Lessons Learned
General agreement on privatization of transportation and General agreement on privatization of transportation and distribution in a regulated environment guaranteeing distribution in a regulated environment guaranteeing transparency and equity.transparency and equity.
No consensus on regulatory model and many variations to No consensus on regulatory model and many variations to consider.consider.
In Europe, a fair return for a new investment in gas transportation In Europe, a fair return for a new investment in gas transportation is seen to be between 9% and 12%.is seen to be between 9% and 12%.
The Argentine model was effective and functional in generating The Argentine model was effective and functional in generating investment and industry growth at fair prices.investment and industry growth at fair prices.
The Argentine economic crisis clearly demonstrates the link The Argentine economic crisis clearly demonstrates the link between country risk and investment risk.between country risk and investment risk.