CEE gas pipeline operators seek more help for building EU's internal market

By bne IntelliNews November 3, 2014

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Central and Eastern European gas pipeline operators hope to receive millions of euros from the European Union to fund interconnectors, they announced on October 31. However, companies also complain that Brussels needs to provide more support to build the internal market that the European Commission is pushing.

Statements from Polish pipeline operator Gaz-System and its regional peers said four projects linking the country's network to neighbours could receive over €300m from the EU. The European Commission's Connecting Europe facility gave a positive opinion on a draft list of proposals selected for receiving financial backing. 

Should all the proposals be accepted, they will be eligible for EU funds to the tune of €1.3bn. "The European Commission is now preparing a formal decision on the approval of the list of projects selected for funding," the Gaz-System statement said. All projects must satisfy the EU's Projects of Common Interest, which means they must serve at least two countries. 

The bulk of the funding - a full €295m - is destined for constructing a link between Poland and Lithuania, according to a statement from Lithuanian network operator Amber Grid. That would offer the Baltic states their first connection to European networks. Cut off by their history inside the Soviet Union, all three Baltic states are fully dependent on Russian gas, although Lithuania is set to launch operations at an LNG terminal in early December. 

Poland plans to build 2,000 km of pipelines over the next 10 years, according to Reuters. The list of projects in CEE also includes links between Poland and the Czech Republic and Slovakia.

However, those projects only have the chance of receiving small sums towards the planning process. Slovakia's SPP will share €4.6m with Gaz-System, while the Czech Republic's Net4Gas stands to receive half of €1.5m for the design phase of the Stork II pipeline.

This highlights  concerns expressed by pipeline operators at an energy conference in Prague attended by bne in late October. They say that the EU must offer greater support as it pushes them to build more links across the region.

With gas a major weapon in Russia's arsenal used to pressure individual states in the east end of the EU to break with bloc policy, Brussels has accelerated efforts to build an internal market. That plan depends on a drive to build links between the various country's networks. With those in place, states that find themselves cut off from Russian supplies can import gas from neighbours or even further afield. 

However, interconnectors to provide back-up for normal supply are by their very nature underutilised, pointed out a representative from Romanian operator Transgaz, which says it is planning links to Bulgaria and Hungary. Claiming to be struggling to get clarity on EU funding, the company says this needs to change to allow it to plan the links. "Interconnectors don't pay because they're not in full use, so the EU needs to pay for this to take it off the regulated asset base."

In other words, regulation industries have to pass on the costs to the consumer if they do not get external financing. A representative from Net4Gas expanded: "We don’t have long-term shipping customers to pay for links, so the customer has to pay. The regulatory conditions on this have to change."

The Gaz-System statement said "capital expenditures for the construction of new pipelines is approximately PLN4.5bn in the period 2009-2014, of which PLN1.3bn is financing from EU funds".

Speaking to Czech daily E15, Net4Gas spokesman Milan Repka said: "Money from [Connecting Europe] will pay about 30% of the cost of preparing the project". The total cost of Stork II to the Czech company will be €86m. 

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