ENTSOG GRIP CEE 2014-2023 / Main Report

Prospects for the development of natural gas market in the CEE region, as outlined in the Assessment Results chapter, make the infrastructure development a priority issue. The gas infrastructure in the region still requires significant investment tasks to be completed with the aim to expand national networks and connect them into one truly integrated regional gas grid. The achievement of this objective, however, will depend largely on mitigation of barriers to infrastructure development. It is worth noting that the realisation of gas investments in the CEE region encoun- ters a number of difficulties that may result in delays in many instances. In extra­ ordinary cases, they may even cause termination of the investment by its project promoter. Having this in mind, the purpose of this chapter is to summarise the main barriers that hamper and prolong investments in the gas system in the CEE region and to formulate measures which could streamline the investment process. The barriers are divided into several groups related to regulatory, market, financing and political issues. It needs to be underlined that these barriers do not represent a complete list and they may vary from country to country.

6.1 National Regulatory Framework

The establishment of a stable and predictable regulatory framework adjusted to specific circumstances and needs of a given system has a primary importance for implementing the natural gas infrastructure projects. The regulatory framework in place should encourage the long term investment with appropriate cost recovery and rate of return reflecting capital and operational risk and, herewith, enable TSOs to develop and maintain their grids in line with the principles of security of supply and market integration. When evaluating the level of revenues, a short term view focusing on revenue reduc- tion shall be replaced with a long term vision focused on a sustainable regulatory framework mitigating risk profile of the industry. Too low revenues or frequent and unpredictable changes of a regulatory framework increase the risk profile of the industry and, herewith, increase the capital costs or even lead to stranded invest- ments. In order to ensure financeability of the natural gas infrastructure projects, it shall be taken into account that investors always evaluate potential investment opportunities with risk-weighted expected returns. The investments in natural gas infrastructure are capital intensive and, therefore, high regulatory uncertainty can represent a major barrier to investment projects and can lead to the project’s delay or may even trigger a decision of not undertaking an investment. Having this in mind, the regulatory framework should stimulate the implementation of projects by granting incentives to mitigate associated risks and to ensure stable and favourable regulatory arrangements over the project’s lifetime. In certain cases a cross-border cost allocation mechanism can be a tool to support realisation of cross-border projects with the PCI status by mitigating asymmetric distribution of costs and benefits between operators and their national markets.

GRIP Central Eastern Europe 2014–2023 |

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