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Gas division

Legislative/Regulatory Framework

Resolutions of the Electricity and Gas Authority (AEEG) No. 248/04 and No. 134/06

The dispute between gas operators and the AEEG relating to resolution No. 248/04 continued throughout 2006, concerning the methods for updating the raw material component of the natural gas economic supply conditions and the review of the variable fee relating to wholesale sales. This resolution, due to the complex development of the dispute, has not been applied by the operators in most cases.

In November 2006 during a plenary session, the Council of State definitively sanctioned the cancellation, despite confirming that the AEEG was legitimated in adopting measures of this kind.

In June 2006, the AEEG intervened once again on the subject by means of Resolution No. 134/06, relating to amendments and additions to the criteria for updating the economic gas supply conditions. Appeals made by the operators are still currently pending against this resolution; what is more, in contrast to what occurred in relation to Resolution No. 248/04, Resolution No. 134/06 has been applied by almost all the operators (wholesalers and sales companies), even though the outcome of the dispute currently under way is still pending.

In August, the company TTPC (ENI Group), in agreement with the Italian Anti-Trust Authority (AGCM), launched a procedure for the non-discriminatory allocation of the capacity relating to the second lot of the upgrading of the TTPC methane pipeline (approximately 3.3 BN m3/year), capacity which will be available as from 1 October 2008.

As already occurred for the first lot, even if for different reasons, participation in this procedure by all the operators, HERA TRADING included, essentially proved futile, given that SONATRACH, the only possible supplier of the gas, made a unilateral decision to finalize gas supply contracts - indispensable for acquiring the necessary permits for transit in Tunisia and export to Italy - solely with its Italian branch (approximately 2 BN m3/year) and with ENEL TRADE (approximately 1 BN m3/year).

In August 2006, the MSE adopted specific measures which envisage the operator's obligation to maximize imports and for STOGIT to maximize stock volumes, with the intention of implementing action in advance so as to reduce the risk of a possible gas emergency in the following winter months. Incentives regarding the interruptible nature of industrial utilities and spot gas imports during the winter months have also been foreseen.

Following the tariff measures adopted by the AEEG (Resolution No. 134/06) and a tendentially short European market situation envisaged for the following winter, conditions were created during the Summer of 2006 so that the elevated prices applied on the European wholesale market emerged as incompatible with the sale prices set by the AEEG for the Italian domestic market.

The majority of the smaller wholesalers, who essentially base their activities on short/medium-term contracts, did not therefore find it convenient to import gas in Italy or, if they did so, they allocated it to the industrial and thermo-electric sectors not regulated by the AEEG, and which are therefore willing/obliged to pay the market price.

Even Hera Trading was compelled to allocate the majority of its imports to the wholesale market and to the thermo-electric sector.

Against such a backdrop, at the end of September 2006 a number of sales companies failed to find a Wholesale Supplier, for quantities which at national level came to around 800 million m3 on an annual basis.

Also taking into account Last Resort Wholesale Suppliers, originally identified via tender by the AEEG, who were not able to take over since they lacked the necessary quantities of gas, the MSE adopted a specific measure for the establishment of the Last Resort Wholesale Supplier, which has the task of guaranteeing the gas supply under conditions regulated by the sales companies which lack supplies, without prejudice to the right to see the additional charges for the purchase of the necessary gas on the European market at market prices covered by the system.

Significant events

The first few months of 2006 saw an emergency gas situation which was particularly serious as a result of the concurrence of several factors:

  • a particularly cold spell in Italy during the winter months;
  • improper use of stored gas for the production of electricity, necessary to compensate fewer imports and to be allocated to exports;
  • lower gas supplies from Russia as a result of an exceptionally cold spell in that country.

This situation, which did not affect Hera Trading operations, saw the gas system resort to strategic storage of important quantities for the second winter running.

In relation to the afore-mentioned aspects, the AEEG subsequently launched formal investigations into the use of the stock for the 2004/2005 gas year and the 2005/2006 gas year in relation to ten companies including Hera Trading (Resolution No. 37/06). On conclusion of the investigations, fines of Euro 135 million were imposed on five companies while the evidence acquired disclosed the inexistence of offences for the remaining five companies, including Hera Trading.

During January 2006, negotiations were concluded for a gas option covering a quantity of 500 million m3 per annum, for a period of five years, so as to avail of the gas to be imported via the capacity being acquired under the non-discriminatory allocation procedure launched in November 2005 by TAG (ENI Group) under agreement with the AGCM (anti-trust authority).

Some months after the completion of the TAG procedure, the option was exercised, albeit for a value lower than the possible maximum, after having acquired further capacity with respect to that acquired under allocation on the secondary market.

This new five-year supply is of great strategic importance for Hera Trading since it will become operative as from October 2008, at exactly the same time the outstanding gas release contracts will expire.

During April 2006, besides the renewal of the contract with STOGIT for the modulation storage service for the 2006-07 gas year, so as to reduce the risk of resorting to the strategic stock in the event of a cold spell, steps were taken to enter into an additional, albeit minor, contract with EDISON STOCCAGGI SpA.

Again during April 2006, a supply contract was concluded on an annual basis for approximately 40 million m3, featuring a delivery point at the virtual point of exchange.

Despite the particularly difficult market situation due to the tariff measures of the Electricity and Gas Authority-AEEG (Resolution No. 134/06), in July 2006 capacity was acquired on the Transitgas via auction; part of the capacity has an annual duration and part a three-year duration, effective as from October 2007.

Subsequently, the related gas supply contracts were also finalized, with a delivery point at the German/Swiss border.

During September 2006, it was possible to finalize the first contracts, for around 50 million m3 on an annual basis, directly with FLAME ENERGY which thus become operative for all purposes.

After staggered and complex negotiations, the industrial partners finalized the Memorandum of Agreement for the sale and purchase of gas via GALSI's methane pipeline with SONATRACH in November 2006. In Hera Trading's case, this involves a contract worth 1 billion m3/year, for 15 years.

This agreement created the conditions for giving a boost to the negotiations underway for the transformation of GALSI SpA into an investment company, and for the resolution of the related share capital increase, an objective achieved in the following December.