Polish regulator pressing throttle on gas liberalization

By bne IntelliNews December 19, 2012

bne -

Poland's energy watchdog URE is pushing hard to keep up the momentum on liberalising the country's gas sector. Ahead of a new trading exchange set to launch this week, the URE announced on December 18 that it may let prices for commercial customers float as soon as the first quarter of 2013.

"I hope that the gas exchange, which starts on Thursday, will help set a reliable reference price for gas," URE's head Marek Woszczyk told broadcaster TVN CNBC, according to Reuters. The regulator currently controls the prices paid by corporations and private consumers from state monopoly PGNiG.

That has been the cause of a year-long squabble with the state-controlled importer and distributor, which has been complaining that it's business had become loss-making due to a hike in the price it pays for Russian gas, which constitutes around 70% of consumption. However, after having secured a retroactive discount from Gazprom in November, URE agreed on December 17 to a tariff cut of 10% for households and 2-4% for commercial customers proposed by PGNiG that is due to take effect on January 1.

Analysts at Erste note that the Russian price discount will allow the supplier to make a profit in its gas trading business even at the lower tariff. URE meanwhile is clearly hoping that it will win the ongoing fight with PGNiG over the volume of gas the company will sell on the exchange - the launch of which was only announced on December 10. However, the gas tariffs were the regulator's main bargaining chip in that tussle.

PGNiG said in November that it's ready to propose releasing just 15% onto the POLPX exchange to start with, and later gradually move on to higher levels. That's the same level that utilities are now required by law to sell on the exchange. URE wants the share to be as high as possible as soon as possible.

For its part, the government sits in the middle. The economy ministry has proposed setting a level of 30% initially, rising to 50% after six months, and 70% a year after the launch of the gas exchange. While full liberalization of the market is Warsaw's responsibility under EU directives, and theoretically it should help lower energy prices - which is good for any incumbent government - it also needs to keep PGNiG on side. The company has been handed a central role in Warsaw's drive to increase energy independence, especially in the hunt for shale gas.

Commercial customers consume around 70% of Poland's total gas consumption of around 14bn cubic metres per year. Therefore, URE will clearly need to push PGNiG to commit a far greater ratio of gas than it wants to POLPX - a unit of the Warsaw Stock Exchange - before it can release its control of pricing.

"The development of wholesale gas trading on the exchange will increase the transparency and improve access to supplies of the fuel," POLPX claimed in a statement on December 10. "This, in turn, will allow market participants conclude more favourable contracts corresponding to the current EU market conditions. Thanks to the launch of the blue fuel trading platform, participants will have the information about transaction conditions, similarly to the electricity market, where more than 80% of the total wholesale trade in this commodity in Poland is currently traded on POLPX."

The WSE unit is pushing a scenario in which the new gas exchange will simply fall into line behind its power peer, although only after a bit of wrist twisting. "Undoubtedly, one of the first entities to sell on the exchange will be Polish Oil and Gas Company (PGNiG)," it pointed out. "As announced by the company, 100m cubic meters of blue fuel will initially be admitted for trading. Several independent companies operating in the gas market in Poland also expressed interest in the gas market."

However, Ireneusz Lazor, president of POLPX, admitted at the same time that, "Work on defining the rate of the [exchange] obligation is currently underway."

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