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World Bank

World Bank Support for theGas Market in South East

EuropeHenk BuszEnergy Sector Manager

Europe and Central Asia RegionWorld Bank

Tirana, February 10, 2005

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World Bank

Gas market liberalization underthe Athens Memorandum

Athens Memorandum requires industryunbundling and development of regulatoryframework

Envisages phased market opening andincreased gasification (Athens Memorandum2003 sets target of 10% gas in primary

energy by 2010, ECSEE Strategy presentedto the Athens Forum in October 2004 talksabout nominal targets for gasification)

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Increased Gasification in SEE

Lower import price would support increasedgasification

Opportunities for import of Caspian gas

Greece-Turkey pipeline (extending to Italy, orNorth)

Limited impact on gas price in SEE inmedium term: preliminary study carried outfor the World Bank

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Delivered gas prices in SEEunder new pipelines

comparable with delivered gas prices from Russia

Gas price at Transport Cost Lowcase

Mid

caseHigh

case

Greece-Turkey board 80 120 160

+ gas transport across Greece 15 17.5 20

+ transport fees across Greece Unknown

Northern routeGreece-Macedonia border 95 138 180+ gas transport to Negotino 1.95 97 139 182

+ gas transport to Albanian branch 51.6 149 191 234

+ gas transport from Negotino to Skopje 1.38 98 141 183

+ gas transport through Serbia 4.45 103 145 188

+ gas transport to Bosnia and Herzegovina + costs for existing network

I tal ian rou teGreece- Albania border 95 138 180

+ gas transport to Elbasan 3.98 91 142 184

+ gas transport to Albanian branches 14.25 113 156 198

+ gas transport from Elbasan to Skopje 4.07 103 160 188

+ gas transport from Skopje to NIS 4.45 108 164 193

+ gas transport to Bosnia and Herzegovina + costs for existing network

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World Bank

Increased gasification in SEE atcurrent gas price

Opportunities for increased residentialgasification, particularly over time

GIS suggests limited CCGT to 2015 (gasprice has to fall to $110 / tcm in order for gasto be competitive with potential ligniteprojects 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

The basics are in place, but there is much to do in terms of industry restructuring, and

development of regulatory and market rules.

COUNTRY Industry Organization Legislationfor regulation

and

liberalization

Regulato

r

Albania Integrated No No

Bosnia &Herzegovina

Integrated trader, transmission, supply company.Also a distribution company, another trader, and twosmall transmission cos.

No No

Bulgaria Integrated Yes Yes

Croatia Separate transmission co. Yes Yes

Macedonia Integrated Yes Yes

Romania Unbundled Yes Yes

Serbia Integrated No Yes

Turkey Integrated trader and transmission company,separate distribution companies

Yes Yes

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Gas study: terms of reference

Objectives:

To assess the economics of increased SEE

gasification based on existing pipelines andnew pipelines linking Turkey with westernEurope

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 expansionand new networks)

for industrial customers

and provide an assessment of the economicsof increased gasification based on existingsources 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 relativebenefits associated with gasification based onRussian gas, gas transiting to the regionthrough Turkey, and LNG

And of the relative benefits for SEE fromconsuming and transiting gas

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Scope of work (cont.)

Provide an assessment of the institutionalframework 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 throughuntied funds

Led by the World Bank

In close collaboration with countries in theregion (energy ministry officials, energyregulators, gas company representatives)

And the EC, IFIs, donors, CEER, industryplayers (through GTE [Trade Association])

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Project Implementation

Selection process for consultants currentlyunder 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 APLfor support of power market development inSEE

The Bank will consider developing a GasSector APL for finance of investments in gasinfrastructure to support gas market

development