Open Season procedure Discussion Paper - Gaz-System · Open Season procedure Discussion Paper 2 1. GENERAL INFORMATION 1.1. CHARACTER OF THE DOCUMENT All the information, data, principles

Open Season procedure

Discussion Paper 0


Discussion Paper 1

OPEN SEASON 2009 DISCUSSION PAPER

1. GENERAL INFORMATION 2

1.1. CHARACTER OF THE DOCUMENT 2

1.2. PROCEDURE OBJECTIVE 2

1.3. INFORMATION ON THE GAZ-SYSTEM COMPANY 3

1.4. TRANSMISSION SYSTEM MANAGED BY GAZ-SYSTEM 3

2. PROCEDURE STRUCTURE 5

2.1. PROCEDURE SCHEDULE 5

2.2. PHASE 1 6

2.3. PHASE II 10

2.4. ORDERS TO PROCEED 12

2.5. LONG-, MEDIUM-, AND SHORT-TERM CONTRACTS 13

2.6. CAPACITY ALLOCATION 13

2.7. METHODOLOGY OF TARIFF RATE CALCULATION 19

2.8. CONDITIONS FOR MAKING FINAL INVESTMENT DECISION 22

2.9 SIGNING OF CONTRACTS 24

2.10 CONDITIONS 26

3. REGULATORY ASPECTS 26

4. CONFIDENTIALITY 26

5. COORDINATION WITH OTHER OPERATORS 27

6. INVESTMENT PROJECTS 28

6.1. POLAND-DENMARK CONNECTION 28

6.2. POLAND-LITHUANIA CONNECTION 29

7. ORGANISATIONAL INFORMATION – CONTACT 31


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1. GENERAL INFORMATION

1.1. CHARACTER OF THE DOCUMENT All the information, data, principles schedules and deadlines for the investment projects presented in this document do not have binding character and are solely for the purpose of conceptual discussion with potential Open Season procedure Participants. The information contained in this document has not been agreed upon with the Polish Energy Regulatory Authority, adjacent system operators and gas market participants. Gaz-System does not guarantee the correctness of the information contained in this document and will therefore not be held responsible for any misinterpretation and usage of this information. The documents referring to the Open Season procedure presented by Gaz-System after the publication of this Model Paper (Document for discussion) might differ substantially from stipulations presented in this document.

1.2. PROCEDURE OBJECTIVE The Gas Transmission Operator GAZ-SYSTEM S.A. (hereinafter referred to as “Gaz-System”) shall open the Open Season procedure to:

• Enable the development of the natural gas market in Poland; • Increase gas security of supply through the construction of new connections with

neighbouring natural gas transmission systems in Europe; • Investigate and confirm demand for transmission capacity among potential

transmission system users; • Conclude long-term gas transmission contracts enabling investment decisions to be

made and external financing to be obtained (e.g. under Project Finance form). For the purpose of accomplishing the premises outlined above, Gaz-System will act pursuant to the guidelines specified by the European Regulators’ Group for electricity and gas in the “ERGEG Guidelines for Good Practice on Open Season Procedures” of 21st May 2007 (ref.: C06-GWG-29-05c, http://www.ceer-eu.org). In September and October 2008, Gaz-System conducted the Market Screening for the following interconnections:

• The Poland – Denmark connection near Niechorze (with the system of Energinet.dk); • The Poland – Germany connection near Szczecin (with the system of ONTRAS); • The Poland – Czech Republic connection near Cieszyn (with the system of RWE

Transgas Net); • The Poland – Lithuania connection near Suwałki (with the system of AB Lietuvos Dujos).

In the result of the Market Screening, supplemented by a detailed analysis of the demand to develop the transmission network and conducted consultations, it has been agreed both with the Participants of the gas market as well as with the national regulatory authorities that an evident interest exists in increasing the transmission capacity in the scope of cross-border connections, justifying the decision of Gaz-System to implement the Open Season procedure regarding the following investment projects:

• The connection between Poland and Denmark near Niechorze (with the system of Energinet.dk);

• The connection between Poland and Lithuania near Suwałki (with the system of AB Lietuvos Dujos).

The Open Season procedure constitutes a useful instrument to assess the market demand for transmission capacity, and its effective implementation enables success to be guaranteed for the plans to develop interconnectors. It also enables economically justified grounds


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to be obtained for the requirements of investment decisions regarding the construction of a new gas infrastructure. Simultaneously, the diversification of directions of supply provides greater security of gas supply for customers in Poland and increases the level of integration with the systems of other countries in the European Union.

1.3. INFORMATION ON THE GAZ-SYSTEM COMPANY

Gas Transmission Operator GAZ-SYSTEM S.A. was established on 16 April 2004, previously as PGNiG – Przesył Sp. z o.o. At that time, 100% of the shares of the company were held by the Polish Oil and Gas Company (PGNiG). Since then the company took over the supervision of and responsibility for natural gas transportation through the transmission pipelines in Poland. On 28 April 2005, PGNiG transferred all shares in PGNiG-Przesył Sp. z o.o. to the Ministry of Treasury. The unbundling of the natural gas transmission activity from PGNiG was a consequence of the Gas Directive adopted in 2003 by the Council and the European Parliament, which obligated gas suppliers to separate the gas transmission function from the supply activity and provide other players with non-discriminatory access to the transmission network (TPA principle). As a result of this process, PGNiG – Przesył Sp. z o.o. became one of the first European companies to ensure real independence in the transmission sector through ownership unbundling, in accordance with the European directives. By virtue of the President of the Polish Energy Regulatory Authority decision on 30 June 2004, the company obtained a licence for natural gas transmission and distribution. On 8th June 2005, the Shareholders Assembly decided to change the name of the Company from PGNiG – Przesył Sp. z o.o. to The Gas Transmission Operator GAZ-SYSTEM Sp. z o.o. On 1st July 2005, the President of the Polish Energy Regulatory Authority issued a Decision by virtue of which the Company obtained the status of gas transmission operator. On 29th September 2006, the Company was transformed from a limited liability company to a joint stock company. Gaz-System is a one-shareholder joint stock company of the State Treasury entered into the list of strategic entrepreneurs for the Polish economy that is responsible for the security of natural gas supplies through transmission networks. The amount of share capital of the Company amounted at the end of January 2009 to 3,019,393,716 PLN. Whereas the Company’s revenue and net income in the 2007/2008 financial year ending 30th April 2008 amounted to 1,555 mln PLN and 324 mln PLN, respectively.

1.4. TRANSMISSION SYSTEM MANAGED BY GAZ-SYSTEM

At present, the transmission system managed by Gaz-System is comprised of the following three natural gas sub-systems:

• High-methane natural gas (E) – with a gross calorific value of 38.0 MJ/ Nm3 - Hs – 40.0 MJ/Nm3,

• Low-methane natural gas (Lw) – with a gross calorific value of 30.0 MJ/ Nm3 - Hs – 33.5 MJ/ Nm3,

• Low-methane natural gas (Ls) – with a gross calorific value of 26.0 MJ/ Nm3 - Hs – 30.0 MJ/ Nm3.

The Open Season procedure includes the potential connections with the systems of neighbouring countries with Poland and solely concerns the high-methane gas transmission system. All the information provided below is concerned with this system exclusively.

The high-methane gas transmission system managed by Gaz-System is comprised, inter alia, of the following elements:

• Over 8,800 km of high-pressure gas transmission pipelines, • 880 exit points, • 14 compressor stations.


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This system encompasses the entire territory of the Republic of Poland and possesses connections with the systems of neighbouring countries. The gas supplied thereby is derived from domestic deposits located in the south-eastern part of Poland as well as from imports.

THE EASTERN BORDER: • Drozdowicze – Polish/Ukrainian border, • Wysokoje – Polish/Belarusian border, • Tietierowka – Polish/Belarusian border.

THE WESTERN BORDER: • Lasów – Polish/German border.

THE TRANSIT GAS PIPELINE SYSTEM: The owner of which within the territory of the Republic of Poland is EuRoPol GAZ S.A.:

• Włocławek, • Lwówek.

The entry points located on the eastern border and the Transit Gas Pipeline System account for a dominant part of the total volume of gas imported to Poland. The share of the gas supply via the Lasów entry point amounts to approx.10% of the total volume of imports. At present nearly all entry points operate at their maximum capacity. Information on the technical capacity of given entry points and the currently reserved capacities is presented in the table below and on the Company website: www.gaz-system.pl

Tietierowka

Wysokoje

Drozdowicze

Lasów

Szczecin

Płoty

Lwówek

Włocławek

Figure 1. Basic gas supply points from imports.


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Table 1. Information about existing entry points to the Polish Transmission System.

2. PROCEDURE STRUCTURE

2.1. PROCEDURE SCHEDULE The purpose of the activities foreseen and being conducted by Gaz-System prior to the Open Season procedure, are as follows:

• assurance of maximum transparency of the conducted activities; • making clearer the issue of the Gaz-System Open Season procedure; • interpretation of the rules of the procedure; • discussion of any additional issues in order to give complete unbiased information

in the final Model Paper; • common consultation;

for all interested parties, potential Participants of the procedure as well as adjacent systems’ operators and regulators. The schedule of the activities prior to the commencement of the Gaz-System Open Season procedure.

February 3rd 2009 – Publication of the draft Model Paper for consultation purposes

February 11th 2009 – Gaz-System Open Season Seminar in Warsaw

Pri

or

ac

tiv

itie

s

12th – 18th February 2009

– Submission of comments on the Model Paper.

The Open Season procedure shall be conducted in two phases: • Phase 1, within which Participants submit non-binding bids; • Phase 2, during which binding bids are made for contracted capacity and gas

transmission contracts are concluded.


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The table below presents the schedule of the procedure:

15th March 2009 –

Commencement of the Open Season procedure, publication of the Model Paper – invitation to send non-binding bids.

By 30th April 2009 – Submission of non-binding bids.

1st May – 31st July 2009

– Offer analysis, calculation of indicative tariff rates, initial capacity allocation, and qualification of projects for Phase 2 of the proceedings.

Ph

ase

1

1st August 2009 – Announcement of the results of Phase 1 procedure and the simultaneous commencement of Phase 2 – invitation to send binding bids.

By 15th September

2009 – Submission of binding bids by Participants.

From 16th September to 30th November

2009 –

Verification of the viability of the investment on the grounds of binding bids. Binding capacity allocation and information on tariff rates. Dispatch of contracts to Participants. P

ha

se 2

31st December 2009 – Presentation of signed contracts by Participants.

2.2. PHASE 1

2.2.1. DECLARATION OF PARTICIPATION IN THE OPEN SEASON PROCEDURE

The declaration of participation in the Open Season procedure shall be viable only if submitted on the form available on the Gaz-System website. The non-binding order form requires the following to be specified:

1. details of the shipper declaring the intent to participate, 2. the interconnector that the bid concerns, 3. entry/exit points 4. requested firm contracted capacity in Nm3/h and estimated annual volume per each

transmission direction in Nm3, 5. terms of the contract that the shipper intends to conclude, namely, long-term

or medium-term contract, 6. date of commencement of performing transmission services.

The shippers interested in participating in the Open Season procedure is required to indicate the mandatory rules of law pertaining to that participant which Gaz-System shall have to apply in order to effectively conclude a gas transmission contract, for instance, the provisions of the Public Procurement Law. The applicable manner of concluding the contract or the documents that Gaz-System should present in order to effectively conclude the contract with the said participant should in particular be specified. This does not require Gaz-System to take into consideration the requirements indicated by the shipper declaring intent of participation in the Open Season procedure. Should, however, the requirements expected of the gas transmission operator be reasonable, Gaz-System shall undertake action in a bid to apply the specific provisions of the law applicable to the Open Season procedure Participant. However, this shall in no event effect any changes to the manner of conducting the Open Season procedure, including the rules for the allocation of transmission capacity or in the content of the gas transmission contract. Should Gaz-System be incapable of fulfilling the requirements stipulated by the shipper submitting intent of participation in the Open Season procedure, Gaz-System shall inform the said shipper of this fact in writing,


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in which case the shipper submitting intent of participation in the Open Season procedure retains the right to withdraw from participation in the Open Season procedure within a term of 10 days from the date of receipt of the notification from Gaz-System. Gaz-System retains the right to exclude a Participant from the Open Season procedure both in Phase 1 and Phase 2 should, due to the special legal regulations applicable thereto, it be impossible to conclude an effective gas transmission contract under the conditions specified in this Model Paper. In this event, the provision of point 2.2.2 – Registration Fees and 2.3.2. Bank or Insurance Guarantee, shall be applicable. Only the non-binding bids (form) signed by persons authorised to represent the given shipper shall constitute the grounds for submitting the intent of participation in the Open Season procedure. The right of the persons signing the form to represent the given shipper should be demonstrated in the form of an attachment entailing a duplicate from the proper register and powers of attorney. Furthermore, the following should be attached to the application form:

1. a certified true copy of the original license or license promise for the trade, distribution or transmission of gas or a declaration that the license shall be presented within 30 days of the commencement of the provision of transmission services, or a declaration signed by the Management Board (persons empowered for representation) of the shipper requesting to participate in the Open Season procedure, that the activities thereof do not require any licences;

2. proof of payment of the registration fee stipulated in point 2.2.2 of this Model Paper; 3. documents confirming issue of tax identification number (NIP); 4. shippers conducting economic activity within the territory of the Republic of Poland

are required to present the certificate of issue of a REGON statistical number; 5. finally, the financial statement of the shipper audited by a chartered auditor.

In signing the form, the shipper requesting to participate in the Open Season procedure accepts the conditions of participation in the Open Season procedure and the principles of conducting it specified in this Model Paper, in particular the following:

1. preserving confidentiality; 2. capacity allocation; 3. conclusion and content of the gas transmission contract.

A non-binding order shall constitute a non-binding bid, which means that the shipper requesting to participate shall not be required to conclude a gas transmission contract. A completed non-binding bid (form) should be delivered to Gaz-System to the address of the Company registered headquarters stipulated in point 7 of the said Model Paper within the terms indicated in the announcement of Phase 1 of the Open Season procedure. Applications submitted after this date shall not be considered in the Open Season procedure. Should the application form be incomplete or contain errors, particularly if all the information required has not been provided or all the required documents have not been presented, Gaz-System shall summon the shippers in question and require them to correct and/or provide the missing information/documents within a term of 10 days from the date of receipt of the summons. An application which was re-submitted due to being incomplete or containing errors shall be considered complete if, in response to the summons of Gaz-System, it shall be delivered to the address of the Gaz-System headquarters within the term indicated above and shall contain all the information and documents which Gaz-System requested, otherwise Gaz-System shall consider the application in the Open Season procedure as invalid. The grounds for registration of the shipper in Phase 2 of the Open Season procedure shall be the fulfilment of all the requirements of the application procedure stipulated in this point.


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2.2.2. REGISTRATION FEES The Participants of the Open Season procedure shall pay a non-refundable registration fee the amount of which shall be dependent on the requested contracted capacity. Registration fees shall be payable within the term indicated in the said Model Paper, to the bank account of Gaz-System, Account No.: 94 1140 1977 0000 5803 0100 1031, conducted by BRE Bank S.A. with the following annotation: “2009 Open Season procedure.” The registration fee shall be charged separately for the requested contracted capacity at each point in each direction. The registration fee shall amount to:

• for requesting contracted capacity above 100,000 Nm3/h – 8,000 PLN, • for requesting contracted capacity within the limits ranging from 100,000 Nm3/h

to 200,000 Nm3/h – 16,000 PLN, • for requesting contracted capacity above 200,000 Nm3/h – 20,000 PLN.

Bids for which the registration fee shall not be paid, shall not be subject to evaluation under the Open Season procedure.

2.2.3. VERIFICATION OF PARTICIPANT’S CREDIBILITY Within Phase 1 of the procedure, a verification of the credibility of the shipper applying to take part in the procedure shall be conducted on the grounds of the latest audited financial statement of the shipper performed by a chartered auditor. Gaz-System reserves the right, in the case of Participants with a low credibility rating (low or negative own capital, low liquidity, reservations held by chartered auditor, etc.), to the following:

• demand an additional security in the form of bank, insurance or corporate guarantees, third party or shareholder guarantee, or

• fail to classify such a Participant in the subsequent phases of the procedure.

2.2.4. NON-BINDING BIDS Participation in Phase 1 of the Open Season procedure shall constitute a vital requirement to be classified to accede to Phase 2 of the procedure. Each of the Participants shall be entitled to apply for each interconnector analysed within the Open Season procedure, for each transmission direction a maximum of two independent bids. Gaz-System shall permit the following bids to be made:

• long-term bids – for a minimum term of 15 years but no longer than a full 40 calendar years1. A long-term bid has to specify the firm contracted capacity throughout the entire requested period. The term of the bid has to begin in the first year when the investment is put in operation. Gaz-System shall carry out qualification procedures for Phase 2 based on the long-term bids. In Phase 2, Gaz-System shall make the final investment decision based on the long-term bids. Should it be necessary to introduce limitations in the non-binding bids submitted by the Participants, long-term bids shall receive preferential

treatment in relation to medium-term bids and shall be subject to reduction in second place.

• medium-term bids – lasting a term of minimum 5 years, but no longer than 14 full calendar years. Medium-term bids have to specify the firm contracted capacity

1 An exception to the order rule for a full term of a calendar year shall be the first year when the investment shall be put in operation, wherein the contract term shall be understood as the term from the moment the

investment is put in operation until the end of the calendar year.


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throughout the entire requested period. Medium-term bids may begin during the first 10 years from the planned date of putting the infrastructure into operation (they do not have to be concerned with the period starting from the first year of putting the investment in operation). Medium-term bids shall not be considered in the qualification of projects for Phase 2 of the Open Season procedure; they shall also not directly constitute the grounds for making the final investment decision. They fulfil an auxiliary role in the qualification

process for Phase 2 and in Gaz-System making the final investment decision, serving as an additional argument in the case of insufficient requested contracted capacity within long-term bids. Medium-term bids are, if such a necessity arises, subject to reduction first.

The medium-term and long-term bid of one Participant for a given interconnector in a given transmission direction cannot separately exceed 90% of the maximum technical capacity defined for the given investment project specified in point 6. Should one Participant apply for a long-term and medium-term bid, the duration of which would coincide during one or several years, the total medium- and long-term contracted capacity in the bids for a given transmission direction cannot exceed 90% of the maximum technical capacity defined for a given investment project in point 6.

2.2.5. PROJECT QUALIFYING CRITERIA FOR PHASE 2 For each of the investment projects, based on their technical specifications and transmission capacity of the Gaz-System system and the systems of neighbouring countries, a maximum technical capacity has been defined which the given interconnector is capable of providing. Information regarding the maximum technical capacity – available contracted capacity has been specified in point 6. Gaz-System shall decide whether or not to qualify a project to Phase 2 once the requested long-term contracted capacity shall ensure at least 80% of the technical capacity for a given investment project. Should no bids be made, solely medium-term bids be made or long-term bids be made that cover less than 80% of the maximum technical capacity defined in point 6, Gaz-System shall fail to qualify the investment project for Phase 2 of the Open Season procedure, in which case, the investment project shall not be undertaken in the near future. Should long-term bids be received indicating a demand for over 80% but less than 90% of the maximum technical capacity defined in point 6, the decision regarding the qualification of the investment in Phase 2 shall be made by Gaz-System on the grounds of the Company’s own market potential assessment for the given investment project and the medium-term bids submitted. Should long-term bids be received for a given project indicating a demand greater than 90% of the maximum technical capacity defined in point 6, Gaz-System shall qualify the investment project for Phase 2 of the Open Season procedure. Gaz-System declares that by allocating and qualifying to Phase 2 of the procedure, it will, if possible, strive to leave 10% of the technical capacity of each investment project for the requirements of short-term contracts (understood as shorter than 5 years) that shall not be concluded within the Open Season procedure. An exception to this rule may be the situation in which preservation of 10% of the capacity limit for short-term contracts may lead a given investment not to be qualified for Phase 2. In such a case, Gaz-System reserves the right to decide on the allocation within the Open Season procedure of the entire technical capacity of investment projects within medium- and long-term contracts.


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Figure 2. Project qualification criteria for Phase 2.

2.2.6. INFORMATION CONVEYED AFTER COMPLETION OF PHASE 1 After Phase 1 of the Open Season, Gaz-System shall announce and convey to the Participants of the procedure, comprehensive information on the following:

• Investment projects that have not been qualified for Phase 2 of the Open Season procedure,

• Investment projects qualified for Phase 2 of the Open Season procedure, • Approximate alternative tariff rates foreseen for each project qualified for Phase 2

of the Open Season procedure, • Estimated, approximate capacity allocation assuming that all the bids submitted

in Phase 1 of the Open Season procedure shall be maintained.

2.3. PHASE II

2.3.1. DECLARATION OF PARTICIPATION IN PHASE 2 In Phase 2 of the Open Season procedure, only the registered Participants can take part that effectively submitted their non-binding bids within Phase 1 of the procedure within the scope of investment projects that were qualified by Gaz-System to Phase 2. Participants that resigned from taking part in Phase 1 or that were excluded cannot take part in Phase 2. Declaration of participation in Phase 2 of the Open Season procedure may be made solely and exclusively on the form available on the Gaz-System website. In the form for making a binding bid requires the following to be specified:

1. details of the applied shipper, 2. interconnectors that the application concerns, 3. ordered firm contracted capacity in Nm3/h and the estimated annual volume for

each transmission direction in Nm3,


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The content of the application for participation in Phase 2 of the Open Season procedure has to be concordant with the provisions mentioned in point 2.3.3. A bank or insurance guarantee mentioned in point 2.3.2 is required to be appended to the binding order. Binding bid constitutes a binding offer of concluding a gas transmission contract. The Participant of the procedure shall be legally bound by the offer until the day that Gaz-System publishes the investment decision or a decision to abandon the performance of the given investment project, no longer, however, than by 30th June 2010. Completed binding bid forms should be delivered to Gaz-System to the address of the Company headquarters stipulated in point 7 of the said Model Paper within the term indicated in the information conveyed to the Participant after completion of Phase 1. Applications submitted after this date shall not be considered in Phase 2 of the Open Season procedure. Should the form be incomplete or contain errors, particularly if all the information required has not been provided or the bank or insurance guarantee was not appended thereto, Gaz-System shall summon the shipper in question and request it to correct and/or supplement the missing information within a term of 10 days from the date of receipt of the summons. An application which was re-submitted due to being incomplete or containing errors shall be considered complete, if, in response to the summons of Gaz-System, it shall be delivered to the address of the Gaz-System headquarters within the term indicated above and shall contain all the information and documents which Gaz-System requested, otherwise Gaz-System shall consider the application in Phase 2 of the Open Season procedure as invalid.

2.3.2. BANK OR INSURANCE GUARANTEE A prerequisite for participation in Phase 2 of the Open Season procedure shall be the presentation of an irrevocable, unconditional and payable on first demand bank or insurance guarantee, a specimen of which shall constitute an appendix to the said Model Paper. The amount of the bank or insurance guarantee required by Gaz-System shall constitute the multiple of the planned monthly financial obligations resulting from the performance of the transmission service. The amount of the financial obligation shall be calculated based on the total of contracted capacity requested by the Participant under binding requests for capacity as well as on the maximum indicative rates binding for the given interconnector, specified by Gaz-System on the grounds of non-binding bids submitted in Phase 1 of the Open Season procedure. The guarantee shall be valid throughout the entire term of the conducted Open Season procedure until the day of concluding the gas transmission contract as well as for the binding term of the gas transmission contract. Gaz-System shall be entitled to execute the bank or insurance guarantee to the full amount in the following situations:

• Failure to conclude by the Participant of Phase 2 of the Open Season procedure a gas transmission contract when Gaz-System allocated contracted capacity to the Participant in the amount of +/- 10% in relation to the capacity requested thereby in the binding bid;

• Termination or expiry of the gas transmission contract for reasons resting on the side of the Participant before the day the interconnector is put in operation or the term for which the contract was concluded;

• Date of commencement of the winding up or submitting a bankruptcy petition of the Participant prior to the day of conclusion or during the binding term of the gas transmission contract;

• Defaulting in payments throughout the binding term of the concluded contract within the Open Season procedure.


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2.3.3. BINDING BIDS

Fulfilment of all the requirements specified in points 2.3.1 and 2.3.2 shall constitute the grounds for registration of the Participant in Phase 2 of the Open Season procedure. Pursuant to the information conveyed by Gaz-System as well as own assessments, the Participants shall be entitled to the following within Phase 2 of the Open Season procedure:

1. confirm non-binding bids, namely, maintain the validity of each of the non-binding bids registered;

2. increase or reduce the contracted capacity specified in each of the registered non-binding bids, however no more than +/- 10% in relation to the requested capacity within Phase 1. An increase of the requested contracted capacity cannot result in exceeding 90% of the maximum technical capacity of a given investment project specified in point 6 for the given transmission direction;

3. resignation from each registered non-binding bid or all the registered non-binding bids.

Based on the binding bids submitted by the Participants of Phase 2 of the Open Season procedure, Gaz-System shall once again verify the investment projects applying the method described in point 2.8 mutatis mutandis. In the case of investment projects that comply with the economic test criteria and where a surplus of the requested contracted capacity has occurred, Gaz-System shall allocate the capacity pursuant to the principles described in point 2.6. In the case of investment projects that comply with the economic test criteria and where a surplus of the requested contracted capacity has not occurred, Gaz-System shall convey gas transmission contracts to the Participants of Phase 2 of the Open Season procedure pursuant to the provisions of point 2.9. In the case of projects that failed to comply with the economic test criteria, Gaz-System may, depending on the amount of binding long- and medium-term bids:

• offer the Participants that submitted binding bids to take up additional capacity and sign the submitted new binding bids,

• present the Participants that submitted binding bids a newly calculated approximate tariff and offer them to submit new binding bids, accepting the risk of higher tariff fees,

• abandon performance of the project.

2.4. ORDERS TO PROCEED

Gaz-System shall make investment decisions if the results of the Open Season procedure permit a guarantee to be obtained for the use of the new infrastructure by the market Participants to a degree justifying the implementation thereof, namely, after receiving signed gas transmission contracts from all the Participants taking part in Phase 2 of the procedure. The Participants of the Open Season procedure that for certain reasons resulting from their own assessment of transmission demands consider purposeful the fulfilment of selected or all the investment projects encompassed by the procedure and for Gaz-System to undertake preparatory action prior to completion of the procedure, should notify Gaz-System of this fact. The said Participants should indicate the reasons justifying earlier action to be undertaken by Gaz-System. Gaz-System shall perform an assessment of the information submitted by the Participants of the procedure and shall estimate the scope, time schedule


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and possible expenses of actions expected to be undertaken before the completion of the procedure. Should justified reasons exist for Gaz-System to undertake earlier action in the scope of selected or all the projects, Gaz-System shall undertake such actions provided the procedure Participant requesting it shall conclude an appropriate contract with Gaz-System within the said scope. Participants signing such a contract shall in no event be granted any preferential rights in the bid qualifying and capacity allocation procedure. Should it not be feasible for the investment decision to be undertaken in relation to the investment project under an order to proceed, the procedure Participant that signed such a contract shall be required to effect payment to Gaz-System of the full expenses incurred in performing the works and actions within the contract.

2.5. LONG-, MEDIUM-, AND SHORT-TERM CONTRACTS

Gaz-System, based on the results of the Open Season procedure shall be able to undertake rationally justified economic investment decisions when the level of capacity requested on the grounds of long-term contracts (at least 15-years) within a given investment project has reached at least 80% of the technical capacity of the interconnector. Within the procedure, Gaz-System shall also consider medium-term contracts (5 to 14 years) whose nature is solely indicative and may but do not have to be a prevailing factor for shipper the decision to go ahead with the investment project. Short-term contracts cannot be concluded within the Open Season procedure. However, Gaz-System plans to retain 10% of the technical capacity of each investment project and offer it under conditions compliant with the binding Transmission Network Code.

2.6. CAPACITY ALLOCATION If the amount of requested contracted capacity shall exceed in any year of operation of the interconnector 90% of the maximum technical capacity, Gaz-System shall allocate the available contracted capacity. Gaz-System declares that in allocating the contracted capacity, it shall strive to ensure the following:

• performance of the investment project; • long-term investment security; • economic effectiveness of the investment; • provision of access to the interconnector for largest possible number of shippers.

The imperative goals of the capacity allocation procedure are entailed in the following practical rules, according to which the allocation procedure has been specified:

• length of the contract – preference for long-term contracts; • date of commencement of performing the transmission services – contracts

commencing from the moment the investment has been put in operation, in the near future in relation to the present day, shall receive preference over contracts in the distant future;

• the amount of the requested contracted capacity – preference for bids for greater contracted capacity.

Gaz-System shall reduce the requested contracted capacity in the capacity allocation process so that their total shall not exceed 90% of the maximum technical capacity of the investment project specified in point 6. Medium-term contracts shall receive priority over long-term contracts regarding the said reduction. In the case of capacity allocation between the Participants that submitted long-term bids with varying duration and contracted capacity, or medium-term bids commencing at different times, including at a later date than the date of the investment being put in operation and different contracted capacity, the decisive factor in capacity allocation


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shall be the discounted value of revenue generated by the contract in consideration of the size, length and term of the contract. A reduction in the contracted capacity shall take place in the following manner:

1. in the case of medium-term bids, the reduction of all the requested contracted capacity proportionally, however no more than 10% in relation to the amount specified in the order;

2. if, despite the implementation of the reduction specified in point 1, the fulfilment of all the requests shall not be possible, the contracted capacity shall not be allocated to the Participant whose bid generates the smallest discounted value of revenue (however, this value shall be calculated only in consideration of the available capacity exceeding the requested capacity within long-term contracts);

3. if, despite undertaking the actions specified in point 2, it shall not be possible to fulfil all the remaining binding bids, Gaz-System shall implement a reduction in all the remaining requests for contracted capacity proportionally, however no greater than 10% in relation to the amount specified in the bid;

4. if, despite undertaking the actions specified in point 3 it shall not be possible to fulfil the remaining requests, the actions outlined in points 1 to 3 shall respectively be implemented until all the medium-term contracts have been eliminated;

5. if, despite undertaking the actions specified in point 4 it shall not be possible to allocate the contracted capacity to the Participants that submitted long-term bids, analogical actions to those described in points 1 to 4 shall be implemented in relation to the long-term bids, until it will be possible to allocate capacity to the mentioned bids.

If, as a result of the actions described above, Gaz-System will be incapable of allocating contracted capacity in a manner guaranteeing the investment decision to go ahead concerning the performance of the given interconnector, or two or more of the bids shall generate the same amount of discounted value of revenue, Gaz-System shall implement the following instruments:

• restrict 10% of the capacity reserved for short-term contracts, • increase the technical capacity of the investment project in relation to that described

in point 6 (redefine the investment project, which may give rise to a delay in the fulfilment of the investment),

• undertake bilateral and multilateral negotiations, • conduct an auction of the available technical capacity within the investment project.

Once Gaz-System enters into negotiations with the Participants of the Open Season procedure, it shall offer them a reduction in the capacity proportionally to the submitted bids. Should any of the Participants refuse to accept the proportional reduction in capacity, the bid of the said Participant shall not be considered in capacity allocation procedures. The contracted capacity shall then be allocated between the Participants accepting the proportional reduction in capacity.


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Figure 3. Diagram presenting the capacity allocation mechanism for medium- and long-term bids.


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Example 1. Reduction of long-term contracts with the same contracted capacity constituting 60% of the technical capacity offered within the project.


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Example 2. Reduction of long-term contracts of the same contracted capacity constituting 40% of the technical capacity offered within the project


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Example 3. Reduction of long-term contracts with the same contracted capacity constituting 50% and 60% of the technical capacity offered within the project.


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2.7. METHODOLOGY OF TARIFF RATE CALCULATION

2.7.1. MANNER OF COLLECTING TARIFF FEES

Gaz-System plans to finance investment projects considered within the Open Season procedure in relation to which positive investment decisions shall be made, with the use of external financing (e.g. in the Project Finance form). For this purpose, the transparent, eliminating any form of cross-subsidies, assignment of outlays, income and expenses is necessary concerning the assessed investment projects both in their initial phase as well as in their later operational phases. The existing model of group rates collected solely at exit points (post stamp tariff) to the transmission system does not guarantee such a separation, particularly in respect of the income generated by a given investment (especially if it is treated as an entry point to the transmission system, where fees are currently not collected at all). At present work is in progress preparing a possible introduction of an entry/exit type tariff system in Poland, however, there is uncertainty regarding its implementation, form and time of implementation. In consideration of this fact, Gaz-System declares that in order to ensure a return on the investment project by means of the income generated thereby, it is planning to adopt one of three solutions, whereby different solutions can be accepted for different investments depending on the specific nature thereof:

• creation of a special purpose vehicle for the fulfilment of the investment project, which shall create a separate tariff for the given interconnector,

• apply for a separate sub-tariff for the given interconnector or entry/exit point to/from the Polish transmission system within the Gaz-System tariff,

• establishment of the entry/exit tariff in a manner that will enable allocation of all the costs concerning a given investment project along with the return on capital employed within specific fees for entry/exit points or zones included within a given interconnector.

Gaz-System would like to point out that the described manner of calculating tariffs shall be adopted both in the situation when the rates shall be subject to approval by regulatory authorities as well as in the case when the price of transmission services shall be established independently by Gaz-System or the special purpose vehicle established to perform and operate the interconnector, e.g. in the situation of obtaining a partial exemption from TPA regime in the scope of tariffs, pursuant to the Note of DG Energy & Transport on Directives 2003/54-55 and Regulation 1228/03 in the electricity and gas internal market, or amendments to the provisions of the law. The Participants in the procedure accept that the price of transmission services may

be unilaterally established by Gaz-System or the special purpose vehicle established to perform and operate the interconnector according to the principles specified in this Model Paper and become a part of the gas transmission contract in the moment of announcement and delivery of the tariff to the Shipper. In each of the variants presented above, Gaz-System shall strive to reach a solution wherein the total costs and return on capital employed concerning the given investment project shall be collected within the specific charges solely and exclusively for that given investment project. The fees connected with the existing transmission infrastructure in the present day shall be calculated, treated and collected separately.

2.7.2. MANNER OF ESTABLISHING THE LEVEL OF TARIFF RATES

At the time of publishing this document as well as the commencement of the Open Season procedure, Gaz-System can guarantee that the manner of establishing the level of tariff rates for the contracts signed within the procedure shall be identical with the tariff method applied


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in standard gas transmission contracts in accordance with the currently binding provisions of the law.

The tariff rates that shall be applied in the future shall be calculated according to the methodology resulting from the binding regulations of the law and approved pursuant to the binding provisions. In the case of there being no legal regulations in the scope of calculation or approval of tariff rates, the rates shall be established pursuant to the methodology described in this document and in the gas transmission contract, namely, in a manner covering the operating costs and a justified return on capital employed. According to the practice to date, the tariffs are approved annually and guarantee Gaz-System the coverage of justified costs of operations (including depreciation of assets) and a justified return on capital employed in transmission activity. The return on the capital employed is determined in Poland on the level of the weighted average costs of capital (WACC). The WACC is approved by the President of the Polish Energy Regulatory Authority. It is the intention of Gaz-System for the WACC adopted for investments performed within the Open Season procedure to reflect the higher risk connected with the performance of new investment projects, therefore, for it to be greater than that accepted to date for the basic transmission activities of Gaz-System.

2.7.3. STRUCTURE OF FIXED TO VARIABLE FEES

Gaz-System assumes that the total costs and the return on capital employed connected with the performance of the given investment shall be returned within the fixed charge for rendering the transmission services depending on the contracted capacity reserved within the Open Season procedure. Gaz-System shall strive to implement such a solution in tariff procedures. This assumption shall also be adopted in the calculation of approximate rates, calculated and announced by Gaz-System during the first and second Phase of the Open Season procedure. The current – reflected in the Gaz-System tariff for transmission services No. 2 – structure of justified costs, which are recovered through the fixed and variable fees, is reflected in the ratio of 70:30. This ratio does not, however, reflect the actual ratio of fixed to variable costs incurred by the Company, which is more than 90:10, and as such is unacceptable for new investments performed under the Open Season procedure.

2.7.4. LEVEL OF LONG-, AND MEDIUM-TERM RATES

Gaz-System intends to establish the tariff for investment projects performed based on the results of the Open Season procedure for the tariff rates applied in the case of long-term contracts (at least 15 years) to be lower in comparison to rates applied in medium-term contracts (5-14 years), for which the rates should be ultimately lower than in the case of short-term contracts (not subject to Open Season procedure).

2.7.5. CALCULATED AND PUBLISHED INDICATIVE RATES The indicative tariff rates presented by Gaz-System within the Open Season procedure shall not in any manner be binding and are solely indicative. The rates provided within the Open Season procedure shall be calculated pursuant to the binding provisions of the law and to the rules presented in this document. Tariff rates for Open Season procedure projects shall be calculated with the due diligence on the grounds of the current state of knowledge and expertise possessed by Gaz-System but they may, and probably shall differ from the actual rates calculated after performance of the investment.


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Gaz-System shall use all efforts to convey comprehensive and complete information along with the calculation of the approximate rates, on the rules of calculation and factors effecting their possible change. Approximate rates shall be presented in current day prices. The top, higher level of indicative rates shall be calculated assuming 80% of the technical capacity specified in point 6 shall be used, in consideration of the possibility of changes to the amount of costs accepted for calculation in the scope of +/-20%. The lower, bottom level of indicative rates shall be calculated assuming 100% of the technical capacity of the investment shall be used, in consideration of the possibility of changes to the amount of costs accepted for calculation in the scope of +/-20%. Gaz-System once again stresses that the approximate rates cannot constitute the grounds for filing any claims against Gaz-System. The settlement of long-term and medium-term contracts concluded under the Open Season procedure shall take place pursuant to the tariffs that shall be calculated and approved in compliance with the binding provisions of the law at the time of their application. Gaz-System shall use all efforts within its capacity for the tariffs to be long-term and stable.

2.7.6. TARIFF SYSTEM CURRENTLY APPLIED IN GAZ-SYSTEM

The currently binding Tariff for transmission services No. 2 of the Gas Transmission Operator GAZ-SYSTEM S.A. has been drawn up in compliance with the provisions of the Energy Law Act of 10th April 1997 and the Ordinance of the Minister of Economy of 6th February 2008 concerning detailed principles of setting and calculating tariffs and the principles of settlement in trade in gas, in a manner that ensures:

• covering justified costs within the scope set out in Article 45 of the Energy Law; • protecting the customer’s interest against unreasonable price levels; • elimination of cross-subsidising.

The rates of transmission fees were calculated based on: • justified costs, broken down into fixed and variable costs (wherein a portion of the

fixed costs shall be recovered within variable charges); • contracted capacity for the tariff duration and planned gas transmission volumes.

Justified costs include the costs of transmission activity, including in particular: • costs by category (within the meaning of the Accounting Act), i.e.:

- materials and energy (including gas purchased to meet Gaz-System’s own consumption and imbalance deviations);

- external services (including repairs and maintenance, lease of storage capacities for the requirements of Gaz-System);

- taxes and charges; - payroll; - employee benefits; - depreciation; - other;

• justified return on capital employed in the transmission activity. Justified costs for the calculation of prices and rates are planned by Gaz–System, and then validated by the President of the Polish Energy Regulatory Authority at the tariff application approval stage. The binding tariff system is a group tariff system (post stamp tariff) within which fees are collected solely on exit points depending on the amount of contracted capacity ordered. Fixed, variable and subscription fee costs are determined by Gaz-System for individual tariff groups according to the cost allocation rules adopted by the Company and approved


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by the President of the Polish Energy Regulatory Authority, remaining unchanged for a given tariff period.

2.7.6.1. CURRENT LEVEL OF JUSTIFIED RETURN ON CAPITAL EMPLOYED

IN TRANSMISSION ACTIVITY The Tariff for Gas Transmission Services No. 2 the Gas Transmission Operator Gaz-System S.A. was established with the assumption of return on capital employed in transmission activity on a level of approximately 7.5% nominally (pre-tax). The rate of return has been calculated on the basis of the weighted average cost of capital (WACC). The basic specifications harnessed in calculating the WACC that were adopted by the President of the Polish Energy Regulatory Authority are:

• risk free rate of return Rf – 5.606%, • premium for shareholders equity (Rm - Rf) – 4.64%, • equity Beta coefficient βe – 0.286 corresponding to asset beta – βa - on a level of 0.2 • loan capital premium - 1%,

The Regulatory Asset Base in the meaning of the net value of fixed assets involved in transmission activity and the net working capital of Gaz-System was subject to compensation. The level of WACC does not reflect the level of risk and expected compensation and most likely will be higher for the new investments.

2.7.6.2. TARIFF STRUCTURE

In accordance with the Tariff for transmission services No. 2, the Gas Transmission Operator GAZ-SYSTEM S.A., imposes the following charges at the transmission system exit points:

• fixed charge (depending on the contracted capacity); • variable charge (depending on the volume of gas transmitted); • subscription fee.

The subscription fee has been determined on the basis of the justified cost of sale to the Customer, including in particular: the reading of metering systems, issuing invoices, calculating and charging payments due for the gas delivered, as well as activities related to the inspection of metering systems, adhering to contractual terms and observing the correctness of settlements. Revenue from subscription fees makes up a relatively small part of the total revenue of Gaz-System. The structure of justified costs which are recovered through the fixed and the variable charge is reflected by the ratio of 70:30. This ratio does not, however, reflect the actual ratio of fixed to variable costs incurred by Gaz-System, which is more than 90:10. The adopted ratio has been determined by virtue of the Decision of the President of the Polish Energy Regulatory Authority.

2.8. CONDITIONS FOR MAKING FINAL INVESTMENT DECISION The final investment decision shall be made by Gaz-System for each investment project separately. The final investment decision shall be made by Gaz-System on the grounds of gas transmission contracts signed by the Participants and submitted to Gaz-System. The minimum contracted capacity reserved on the grounds of long-term contracts signed by the Participants of Phase 2 of the Open Season procedure empowering Gaz-System to make the final investment decision regarding the project performance shall amount to 90% of the maximum technical capacity for the given interconnector.


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In the case of submitting signed long-term contracts confirming the demand for contracted capacity over 80% but below 90% of the maximum technical capacity specified for the given investment project in point 6, the decision regarding the final performance of the investment project shall be made by Gaz-System based on the Company’s own assessment of the developmental potential of the market for the given project and signed medium-term contracts. Should signed gas transmission contracts not be submitted, or signed medium-term or long-term contracts be submitted confirming the demand for contracted capacity below 80% of the maximum technical capacity specified for the given investment project in point 6, Gaz-System shall decide to abandon the investment. The said investment shall not be performed in the near future. Gaz-System declares that in performing the allocations in Phase 2 of the Open Season procedure it shall, if possible, strive to reserve 10% of the technical capacity of each of the investment projects for the requirements of short-term contracts (understood as shorter than 5 years) offered outside of the Open Season procedure. However, Gaz-System reserves the right to decide whether or not to allocate this capacity within medium-term and long-term contracts concluded during the course of the Open Season procedure if this shall ensure that the investment project shall be performed.

Should signed long-term agreements be submitted ensuring the reservation of only 70% of the maximum technical capacity defined in point 6, Gaz-System shall re-calculate the approximate tariff, with consideration of the actual reserved capacity and shall present it to the Participants of the Open Season procedure. Should the Participants decide to conclude gas transmission contracts accepting the risk of higher fees, Gaz-System shall decide to go ahead with the investment. In the case of investment projects that comply with the above economic test criteria described above pursuant to the established allocation rules, Gaz-System shall grant and offer the Participants a level of contractual capacity that they can use. Furthermore, Gaz-System shall calculate the updated approximate transmission fees, presenting them to the Participants. The Participants that submitted binding bids within Phase 2 shall be required to sign a gas transmission contract if the allocated contracted capacity shall be greater

or smaller by 10% from that submitted in the binding bid, or Gaz-System shall execute the bank or insurance guarantee. Should a Participant that submitted a binding bid earlier fail to sign the contract, which shall effect in non-compliance with the economic test criteria described above, Gaz-System may, depending on the amount of received signed long-term and medium-term contracts by the Participants:

• offer the Participants that have signed gas transmission contracts to take additional contracted capacity and to resubmit signed contracts,

• present the Participants that have signed contracts a newly calculated approximate tariff and offer a gas transmission contract to be concluded accepting the risk of higher tariff fees,

• abandon performance of the investment project.


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Figure 4. Diagram of the Phase 2 of the Open Season procedure.

2.9 SIGNING OF CONTRACTS The Participants of Phase 2 of the Open Season procedure that shall be allocated contracted capacity within the limits of +/- 10% in relation to the contracted capacity specified in the binding bid shall be required to sign and for Gaz-System to provide them with a gas transmission contract. These shippers shall be presented with draft contracts specifying the conditions for the provision of transmission services established under the Open Season procedure based on the bids submitted by the said shippers and resulting from the allocated capacity. Each shipper shall individually receive details on:

1. the shipper making the bid, 2. the interconnector that the bid concerns, 3. entry/exit points, 4. firm contracted capacity (Nm3/h) and estimated annual volume (Nm3) for each

transmission direction, 5. term of the contract, 6. date of commencement of performing the transmission service, 7. the pressure level established by Gaz-System in each entry and exit point.

With respect to the remaining scope, contracts shall be in conformity with the content of the specimen attached hereto. Participants in the proceedings shall sign the contracts and deliver them to the Gaz-System headquarters within 20 days of receipt of the draft contract. Should Gaz-System fail to receive a contract signed by the Participant of the Open Season procedure within the deadline specified above, Gaz-System shall consider the given Participant to have resigned from concluding the contract, in which case Gaz-System, pursuant to point 2.3.2., will execute the bank or insurance guarantee. Gaz-System shall make the final investment decision having received signed gas transmission contracts pursuant to the provisions of point 2.8. Once the investment decision is undertaken, Gaz-System shall sign the gas transmission contracts. The subject of the contract signed under the Open Season procedure shall be commissioning Gaz-System to construct an intersystem gas pipeline in order to perform services and


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warranting performing gas transmission services. Participants in the Open Season procedure must be aware that the decision regarding the performance of the investment project shall be made by Gaz-System based on the obligations of the Participant signing the contract that it shall use the gas transmission service throughout the entire term specified in the contract. The contracts shall be concluded for a definite term. Should a contract be terminated before the expiry of the term of contract for reasons resting on the side of the Contracting party, the Contracting party shall be required to cover the expenses incurred by Gaz-System for the purpose of constructing the intersystem gas pipeline in the amount falling on the given shipper, calculated pursuant to the formula specified in the contract. Regardless of the above, Gaz-System shall be entitled to far reaching rights stipulated by the provisions of the law. Also in the case of failing to use the gas transmission services for reasons resting on the side of the Contracting Party, e.g. due to insufficient storage capacity, lack of capacity in interoperating systems or the Gaz-System transmission system not encompassed by the Open Season procedure, shall be required to incur the fees (contractual penalties) by virtue of the capacity reservation in the amount corresponding the fee calculated according to the same principles as the fixed fees for transmission services throughout the entire term of the contract in accordance with the “ship or pay” provisions. The services rendered by virtue of the contract concluded within the Open Season procedure shall be performed solely and exclusively via interconnectors specified in this Model Paper. Gas transmission in the transmission system operated by Gaz-System or in another interoperating system (namely, after the points specified in this Model Paper) require separate gas transmission contracts to be concluded. The principles for concluding such contracts and provision of transmission services in the transmission system operated by Gaz-System are specified in the binding Transmission Network Code published on the Gaz-System website: www.gaz-system.pl Contracts concluded within the course of the Open Season procedure shall be amenable to the laws of the Republic of Poland. The contract shall be concluded in the Polish language. The procedure for concluding contracts shall be compliant with the provisions of the Model Paper. The provisions of the Gaz-System Transmission Network Code shall be applicable in matters concerning conclusion of the contract provided thus stated in the Model Paper. The participant with which a gas transmission contract has been concluded shall present the documents and information stipulated in point 6.1.4.2, part I of the Transmission Network Code 30 days before the commencement of the gas transmission services. The gas transmission services shall be rendered under the principles specified in the binding Transmission Network Code at the time or the regulations of the shipper performing the transmission services subject to the provisions of the Model Paper and the contract. The price by virtue of performing the transmission services shall be established on the grounds of the Tariff, each time approved by the President of the Polish Energy Regulatory Authority. Should the provisions of the law be amended or an exemption from TPA being granted, the remuneration by virtue of the services performed shall be established by Gaz-System or the participant performing the transmission service pursuant to the principles stipulated in the contract. The Contracting Party shall be entitled to transfer or make available all the rights and obligations resulting from the contract concluded under this procedure under the principles stipulated in the Transmission Network Code. For this purpose, the Shipper may use the Bulletin Board on the internet platform made available by Gaz-System in order to facilitate trading in the capacity on the secondary market.


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Gaz-System shall also be entitled to the right of transferring all the rights and obligations resulting from the gas transmission contract concluded during the course of the Open Season procedure to a third party performing gas transmission services via a gas pipeline that the contract concerns. Gaz-System shall furthermore be entitled to the right to transfer the liabilities resulting from the contracts to the party guaranteeing investment financing. 2.10 CONDITIONS Due to it being presently impossible to unequivocally determine whether all the circumstances necessary for the investment projects to be performed according to the accepted time schedule shall take place (e.g. whether the necessary expansion of adjacent transmission systems shall occur and if the appropriate environmental decisions shall be obtained), Gaz-System shall introduce conditions precedent to contracts concluded after completion of Phase 2 of the Open Season procedure. Pursuant to the said conditions, the duties and obligations of Gaz-System as well as the Contracting Party resulting from the signed contract may be subject to change. Exemplifying precedent conditions may consist in an amendment of the date of commencement of the transmission service by Gaz-System in the situation when due to prolonged procedures intended to obtain the administrative decisions required by law including, e.g. decisions in the field of environmental law, agreements with the competent authorities of neighbouring countries, the investment project shall not be performed within the planned term.

Please note that Gaz-System shall not bear any responsibility for the expansion of the infrastructure within transmission systems interoperating with the system operated by Gaz-System. Gaz-System shall use efforts to conclude interoperator agreements with the operators of interoperating transmission systems, in order to unequivocally specify and ensure the following:

1. the infrastructure in the interoperating system shall be expanded, 2. the infrastructure of interoperating systems shall be fully compatible with the system

operated by Gaz-System, 3. the same conditions and technical parameters shall occur in the interoperating

systems. Should interoperator agreements guaranteeing conditions for cooperation not be concluded, Gaz-System shall not bear any responsibility in particular for any deficiency or for the range of the expanded transmission in the interoperating systems or the possibility of performing gas transmission services from or to the interoperating transmission systems.

3. REGULATORY ASPECTS The planned Open Season procedure shall be conducted in a transparent and non-discriminative manner, pursuant to the provisions of the Regulation (EC) No 1775/2005 of the European Parliament and of the Council of 28th September 2005 on conditions of access to the natural gas transmission networks (OJ L 289, 3.11.2005) and Article 4 of the Energy Law. Gaz-System plans to base its course on the ERGEG guidelines on Open Season procedures (ref: C06-GWG-29-05c of 21st May 2007, http://www.ceer-eu.org). All assumptions, methodology and conditions concerning the given stages of the procedure shall be comprehensively consulted both with the Polish Energy Regulatory Authority, as well as with the adjacent transmission system operators and regulatory authorities competent for the said operators. 4. CONFIDENTIALITY

Any information obtained by Gaz-System during the course of the Open Season procedure shall be treated as confidential and shall not be made available to third parties. Gaz-System reserves the right to make available any confidential information obtained during the course


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of the Open Season procedure or the content of the gas transmission contract to the following:

1. the corporate organs of the Company including the Minister of State Treasury; 2. the President of the Polish Energy Regulatory Authority, competent regulatory

authorities in respect of the location of the interconnector and the European Commission;

3. participant financing the investment projects; 4. other authorities entitled to obtain information by virtue of the provisions of the law.

Furthermore, Gaz-System shall publish information concerning the proper entry and exit points within the scope resulting from the binding provisions of the law. 5. COORDINATION WITH OTHER OPERATORS Within the Open Season procedure, Gaz-System is considering plans to develop the transmission system in the scope described in point 6 without interfering in the development plans of operators of neighbouring countries. The adjacent systems’ operators are responsible for the realization of the investments related to the interconnections in the adjacent transmission systems. However, Gaz-System shall use every effort in order to ensure the most extensive dialogue possible among Operators of adjacent systems and involvement in this process of the competent Regulators proper to the given countries. In connection with the above, both Operators and Regulators from neighbouring countries alike are encouraged to share any comments concerning investment requirements and development plans. In consideration of the effectiveness of actions undertaken, Gaz-System fosters the hope of entering into close cooperation with participants interested in the said scope. The Open Season Seminar organised by Gaz-System to which all interested parties have been invited, shall constitute of such an occasion to discuss and become familiar with the developmental plans of the networks of neighbouring countries. Within the Open Season procedure, Gaz-System shall put every effort into effectively and constructively coordinating the Open Season procedure and the activities of transmission system operators in neighbouring countries. However, Gaz-System shall not be held responsible for any of the investment decisions of the said operators as well as for terms of completion of their investment tasks necessary for the connections to be established with the system operated by Gaz-System or international connections specified in point 6. Performance of the necessary agreements in the field of investment decisions and obligations of the said operators regarding the terms of completion of their investment tasks shall rest within the scope of risk and responsibility of the Participants of the procedure intending to benefit from the given connections. Should any investment decisions be made by the operators of systems in neighbouring countries, Gaz-System shall endeavour to ensure the works connected with the construction of the connections to be coordinated with one another. Furthermore, Gaz-System shall be involved in actions intended to conform and harmonise the rules for transmission via the new connections in order to limit to a minimum any hindrances in the use thereof.


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6. INVESTMENT PROJECTS

The subject of this Open Season procedure shall be two investment projects: the intersystem gas pipeline connecting the territory of Poland and Denmark, located between the Avedøre and Niechorze point, and the intersystem gas pipeline located within the territory of Poland, connecting the Gaz-System transmission system with the territory of Lithuania in the Suwałki region. Detailed information on the given investment projects shall be presented below.

6.1. POLAND-DENMARK CONNECTION The connection with the Energinet.dk system in the Niechorze region – constituting a development of the project initiated by PGNiG, making plans for the construction of a connection between the Danish and Polish transmission systems in order to transmit gas between the markets of the two countries, including gas from the deposits in the North Sea to Poland. There are plans for the new entry point to the Polish transmission system to be located in the Western Pomeranian Voivodship, in the Płoty region. It is estimated that this project could be completed in approx. 5 years time. Energinet.dk is currently in the process of conducting the Open Season procedure concerning Avedor (connection with the Balic Pipe). According to the accepted time schedule, the procedure is set to be completed (signing of binding contracts) in December 2009. Information on the development plans and time schedule of the said works has been transmitted to the interested participants by Energinet.dk Gastransmission at the Open Season Seminar along with the prepared Model Paper. Gaz-System is striving to strictly coordinate its actions with the works conducted by Energinet.dk. Entry-exit points:

• Avedøre • Płoty

Technical parameters: • Working pressure of the undersea gas pipeline (Avedøre-Niechorze) up to 150 bar

Gas pipeline diameter: 600 mm, approximate length 230-280 km • Working pressure of the Niechorze-Płoty section up to 84 bar

Gas pipeline diameter: 700 mm, approximate length: 38-45 km Planned capacity:

• Denmark-Poland direction (Approximate date of commencement of physical transmission: 2012) Estimated contracted capacity: 375 ths Nm3/h Estimated annual volume: 3 bn Nm3

• Poland–Denmark direction (Approximate date of commencement of physical transmission: 2020) Estimated contracted capacity: 300 ths Nm3/h Estimated annual volume: 2.5 bn Nm3


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6.2. POLAND-LITHUANIA CONNECTION

The connection with the system of AB Lietuvos Dujos in the Suwałki region – via which depending on the demand, gas could be transmitted between the said countries to cover the demands of customers. It is planned that the entry point to the transmission system managed by Gaz-System would be located in Polish-Lithuanian border region near the town of Budzisko. It is estimated that the performance of this connection could last approx. 5 years. The Lithuanian Operator AB Lietuvos Dujos supports the plans to build the connection with the Lithuanian system; nevertheless, they express doubts regarding the sources from which the gas will be acquired, which will be transmitted from Lithuania to Poland. Moreover, they have pointed out the instability and unpredictability of the Lithuanian law concerning the gas sector, which can significantly impede economic estimations. Entry/exit points:

• Budzisko • Rembelszczyzna or Płońsk

Technical parameters: • Working pressure of the gas pipeline up to 84 bar • Gas pipeline diameter: 600 mm, approximate length: 360-365 km • Gas compressor station located in the Suwałki region and possibly Ostrołęka • 3 system connection points (additional exit points) located in the Ełk, Olecko and

Ostrołęka regions

Planned capacity: • Lithuania-Poland direction (Approximate date of commencement of physical

transmission: 2016) Estimated contracted capacity: 270 ths Nm3/h Estimated annual volume: 1.5 bn Nm3


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• Poland-Lithuania direction (Approximate date of commencement of physical transmission: 2016) Estimated contracted capacity: 100 ths Nm3/h Estimated annual volume: 0.6 bn Nm3

The scope of services offered by the Operators in neighbouring countries is available on the

websites of the said Operators:

• Energinet.dk Gastransmission Denmark:

http://www.energinet.dk/da/menu/Forside.htm

• AB Lietuvos Dujos Lithuania: http://www.dujos.lt/lt.php


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7. ORGANISATIONAL INFORMATION – CONTACT The Gas Transmission Operator GAZ-SYSTEM S.A. Secretariat of the Development and Investment Division ul. Bohomolca 21 01-613 Warsaw Marked: “Open Season” Please address all questions concerning the Open Season procedure to the following e-mail: [email protected] The Polish language shall be the prevailing and binding language for all correspondence. Gaz-System also admits correspondence in the English language.

Documents

Open Season procedure Discussion Paper - Gaz-System · Open Season procedure Discussion Paper 2 1. GENERAL INFORMATION 1.1. CHARACTER OF THE DOCUMENT All the information, data, principles