Gas

State of compliance

The majority of Third Energy Package provisions are transposed by the Energy Law of 2014. During this reporting period, Serbia adopted a package of security of supply by-laws going even beyond its current obligations under the Energy Community Treaty. Nevertheless, the breaches of the core provisions of the acquis continued, underlining Serbia’s poor implementation record. 

  • Unbundling

    Unbundling

    The Energy Law establishes unbundling requirements for transmission system operators according to all three models and certification procedures are widely in compliance with the Energy Community gas acquis. Having said that, Srbijagas continues to be engaged in both supply and transmission and the failure of the numerous action plans on unbundling of Srbijagas is evident. This is confirmed by the rejection of AERS to issue a certification to Transportgas Srbija, which acts as a shell company and is not functionally unbundled from its parent Srbijagas. Transportgas Srbija employed several people on its payment roll, but this is far from making it a functional, much less an independent transmission system operator. It applied again for the process of certification, however, without changes in its structure.

    The Ministerial Council adopted a Decision in 2016 stipulating that Serbia’s failure to unbundle Srbijagas in line with the Second Energy Package is a serious and persistent breach of the Energy Community Treaty. Proposed Measures against Serbia are to be decided by the Ministerial Council in December 2019 (Case ECS- 09/13S).

    Yugorosgaz Transport, which is a daughter company of Yugorosgaz JSC Belgrade indirectly controlled by Gazprom, was conditionally certified by the regulatory authority under Article 11 of Directive 2009/73/EC in June 2017, for a limited time of one year which expired on 20 June 2018. This certification was prolonged for a year, but on 20 June 2019 AERS revoked the certification. The independent system operator model that Yugorosgaz Transport applied for in the certification continues to contravene Energy Community law.

    The Secretariat finalised an infringement procedure for this breach of unbundling and certification rules of the Third Energy Package and submitted the case for a Ministerial Council Decision this year (Case ECS-10/17).

    The Energy Law also requires the unbundling of storage and distribution operators from activities not related to storage and distribution, if they are part of a vertically integrated undertaking. The storage system operator, Banatski Dvor, does not apply the minimum criteria for unbundling under Article 15 of the Gas Directive.

    Gastrans LLC Novi Sad, a company owned by South Stream Serbia, (51 % Gazprom, 49% Srbijagas) applied for its certification and AERS issued a preliminary decision in August 2019. The Secretariat is preparing its Opinion at present.

    As all retail undertakings in the Serbian gas sector serve less than 100.000 final customers, they are exempted from the unbundling requirements by law. Srbijagas established a daughter company, the limited liability company Distribucijagas Srbija, a shell company that does not actually perform distribution. In practice, Srbijagas still acts as a distribution system operator.

  • Third Party Access

    Third Party Access

    The Energy Law transposes non-discriminatory network access to transmission and distribution systems and storage facilities, as well as to upstream pipelines, as a principle rule.

    An entry-exit transmission tariff methodology allowing for the setting of individual tariffs for all entries to and exits from the system is implemented for both entry-exit zones in Serbia.

    The access tariffs of the storage operator Banatski Dvor have not been applied, nor published, as required by the storage access methodology developed by AERS .

    The transmission network codes adopted by both Srbijagas and Yugorosgaz Transport are generally harmonized with the requirements of Regulation (EC) 715/2009 related to capacity allocation mechanisms and congestion management procedures.

    In practice, neither Srbijagas nor Yugorosgaz Transport have ever performed capacity allocation according to the respective adopted codes. Srbijagas banned the allocation of its capacities at the interconnection point Horgos with Hungary, without a relevant explanation. As this is the only entry interconnection point to Serbia, and directly forecloses the development of the market, it represents a severe breach of the gas acquis and thus an infringement procedure initiated in 2018 materialised into a reason request before the Ministerial Council in December 2019 (Case ECS 13/17).

    AERS has exempted the Gastrans project from the provisions of the Third Energy Package related to unbundling, third party access and tariff regulation. In its Opinion 01/2019, the Secretariat requested a number of conditions to ensure the project does not lead to market foreclosure. In particular, it called for the possibility for new market entrants to access a significant share of the pipeline capacity via auctions on a long-term basis. The Exemption Decision requests that 10% of the pipelines’ capacity will be booked on a short-term basis and not be exempted. Nevertheless, the part of the non-exempted capacity was accessible to booking only to participants in the non-binding market test contrary to the Secretariat’s request that this procedure be open to all shippers.

    The draft network code of Gastrans was published for public consultation.

  • Wholesale market

    Wholesale market

    Serbia imports gas supplies from the Russian Federation via a long-term agreement with Serbian incumbent Srbijagas. The remaining supplies are produced by the only domestic producer, Naftna Industrija Srbije (NIS), which is majority owned by Gaspromnjeft of Russia.

    The existing intergovernmental agreement signed between Serbia and Russia in 2012 on the supply of natural gas to Serbia, which is implemented via a contract between Gazprom, Srbijagas and Yugorosgaz valid until 2021, included a destination clause. Following efforts by the Secretariat, the Serbian Parliament approved the deletion of the destination clause on 27 September 2018, thus removing a barrier to energy competition and trade in the region.

    On the wholesale level, bilateral contracts are concluded among suppliers and between suppliers and a producer. Additionally, purchase contracts between public suppliers and the supplier of public suppliers, Srbijagas, are still in place. Big customers must purchase gas on the market at unregulated prices, representing more than 85% of available gas quantities.

    The Srbijagas network code establishes a virtual trading point where gas may be traded, but only in theory.

    The balancing rules defined by the network code of Srbijagas are compliant with Regulation (EC) 715/2009. Imbalances are determined on a daily basis, with imbalance charges calculated based on the monthly neutral gas price approved by the regulatory authority. Serbia is one balancing zone, which in theory means that the users of the system of Yugorosgaz Transport fall under the balancing provisions of the Srbijagas network code. In practical terms, the balancing rules are not applied.

    The Exemption Decision of Gastrans diverts from the Secretariat’s Opinion which requested for additional safeguards against the market’s foreclosure, such as a gas release programme of its main shareholders active in the Serbian market. It will remain highly concentrated and foreclosed without such or similar measures in future put in place.

  • Retail market

    Retail market

    In retail gas supply, Srbijagas is also the dominant market player, accounting for some 87% of total natural gas sales in 2018. The second biggest supplier had only 3% of the retail market share. Overall, 66 suppliers are licensed for retail among which 33 are suppliers with public service obligations.

    The eligibility right to choose freely a supplier is guaranteed to all customers in line with the gas acquis. Supplier switching rules were adopted in 2015, while guidelines to ensure their efficient implementation were adopted in 2016. They are compliant with the Gas Directive.

    The Law granted households and small customers the possibility to be supplied under public supply (regulated prices included). These categories of customers are also free to opt for supply under market conditions, but the switching rate is low.

    Supply of last resort is available under certain conditions for all customers up to 60 days. Srbijagas is the appointed supplier of last resort and at the same time performs the role of supplier of public suppliers. The Law established vague criterion that this is a case “until a competitive natural gas market is established in Serbia”.

    The Energy Law and the Law on Customer Protection transpose customer protection provisions from the Third Energy Package. The Government’s Decree on the Protection of Vulnerable Customers defines vulnerable customers, who receive a discount on gas supply for which suppliers are compensated from the state budget. Customers can apply for compensation for either electricity or gas bills. However, the number of such requests in the gas sector is several orders of magnitude smaller than of those in the electricity sector.

    The Government adopted the emergency plan and the preventive action plan, including risk assessment, transposing security of supply acquis beyond the present Treaty obligations.

  • Interconnectivity

    Interconnectivity

    Srbijagas holds interconnection agreements with the Hungarian transmission system operator FGSZ and with Gas Promet Pale in Bosnia and Herzegovina, with many provisions from the Network Code on Interoperability and Data Exchange, albeit none of them was updated after the deadline for the implementation of the Interoperability Network Code expired in October 2018.

    Gastrans should connect the Bulgarian and Hungarian national transmission systems.