Competition Law & Policy in Natural Gas Market

1. Competition Law & PolicyinNatural Gas Market Cengiz SOYSAL Coordinator of Dept. No. I csoysal@rekabet.gov.tr

2. ISSUES IN THE TRANSITION TOWARDS LIBERALISATION • Change in the Role of the Government • Privatization • Competition, Regulation/Deregulation/Re-regulation • Emergence of the Independent Regulatory Agencies • Turkish Competition Authority (TCA) 1997 • Energy Market Regulatory Authority (EMRA) 2001

3. Change in the Role of the Government Emergence of the INDEPENDENT REGULATORY AGENCIES Private ownership State-owned enterprises PRIVATIZATION Success of Liberalization Regulatory Governance INDEPENDENT REGULATORY AGENCIES

4. Good Regulatory GovernanceCompetition Authorities and Sector Specific Regulators Clarity of roles : There should not be confusion between the functions of regulators andand objectivesMinistries or other agencies. • Accountability: legal system - ‘formal accountability’aboutthedecisions of theIRAs Participation: contribution of regulated industry, consumers and other related partiesduringregulatoryprocess.

5. Good Regulatory GovernanceCompetition Authorities and Sector Specific Regulators Transparency:Reasoning of decisions is important to reduce the risk of unfairness. Predictability:It is important to private investors to know that ‘the rule of the game’will not change. Proportionality : The reason of the regulation (that is the market failure) and the level ofregulation Autonomy : Administrativeandfinancial (Risk of CAPTURE  PoliticalCapture, RegulatoryCapture, Self-Capture…)

6. Comparison between IRAs and Competition Authorities • Goals/Objectives • Basic Method or Approach • Timing (ex ante vs. ex post) • Frequency of Intervention • Information Available • Third Party Access - Çeaş Case (2002)

7. Scope of the CompetitionAct • Restrictive Agreements, (Article 4, 5), • Abuse of dominance(Article 6), and • mergers and acquisitions(Article 7). • AndCOMPETITION ADVOCACY • Natural Gas Sector Inquiry • ElectricityWholesaleandRetailMarketsInquiry (Ongoing)

8. Natural GasSectorInquiry“FourStep Evolutionary Model” Infancy Growth Maturity Development Demand / Infrustructure Time

9. Natural GasIndustriesandLiberalisationProcess“Four Step Evolutionary Model”

10. Evolution of Turkish Natural Gas Market INFANCY GROWTH Infancystage : 1987 - 2001 Growthstage starts : 2001 -

11. Issues Confronted in the Liberalization Process of Natural Gas Markets • Competition in Wholesale Markets • Horizontal competition • Vertical integration/arrangements • Regulatory Framework Regarding the Infrastructure • Third Party Access • Balancing • Transparency • Demand Structure • Gas sales to the power plants • Gas sales to the distribution utilities

12. Liberalization of Natural Gas Wholesale Market Developments in International Natural Gas Markets Conventional long-term contracts with take-or-pay obligations Establishing trade hubs Spot prices in price indexation (alongside oil-indexation)

13. Liberalization of Natural Gas Wholesale Market • Horizontal Competition • Liberalization of imports • Opting out from contract release method • EU EnergyCommissionerGüntherOettingerThe game of 'divide et impera' (divide and rule), or a game of this type proposed by Moscow cannot be and will not be accepted by EU member states – 2.5.2014 • Emphasizing gas release method • ConcentrationsandJointVentures(co-operationandconcentration) • DecisionPrima-Enerco, 18.7.2013, 13-46/585-256 • Gazprom/Gazprombank • Coordinatedeffects of JVs • Vertical Integration • Forward integration of the resource countries’ exporters • Vitality of sector-specific regulations on the control of vertical integration until growthstage ends.

14. Development of Natural Gas Markets in terms of Infrastructure • Third Party Access • An efficient Exemption Regime for promoting ex novo entry(for Storage and LNG investments) • Balancing • Completion of network stations investments by the distribution companies, related customers and BOTAŞ • Sophisticated infrastructure and several market players • Transparency • Data relatingto network availability, generation and storage should be available in a non-discriminatory manner to ensure a levelplayingfield • Ensure thatnocollusiontakesplace on thebasis of thepublishedinformation

15. Development of Natural Gas Markets in terms of Demand Structure Gas sales to the power companies and large industrial customers Gas sales to the distribution utilities (small industrial and commercial customers, households)

16. Interdependency between Gas and Electricity Markets • Consumption profile of power plants is different than the rest of gas customers • Power plants can facilitate wholesale gas market development • Pre-requisites: strong and flexible gas physical networks, more storage capacity, sophisticated financial and legal framework

17. Electricity Industry and Natural Gas Markets’ Development • Power plants’ integration into gas industry (backwardintegration) • Purchase Contracts between Power Plants and Gas Suppliers • Duration • Exclusivity • Right of re-sales • Interruptible vs. non-interruptible contracts

18. Gas Sales to Distribution Utilities • Balance: Competition vs. Consumer Protection • The role of the state in retail pricing of gas • Default supply / supplier of last resort practices and their improvement for more efficient retail markets