Gas

State of compliance

Serbia’s gas sector is governed by the Energy Law, which transposes the Third Energy Package, and numerous secondary legislation adopted by the national regulatory authority AERS. However, several important secondary acts were not updated in line with the Law. Moreover, the gap between the transposition of law and its implementation in Serbia is widening each year.
 

  • Unbundling

    Unbundling

    The Energy Law establishes unbundling requirements for transmission system operators and certification procedures in compliance with the Energy Community gas acquis. However, Srbijagas continues to be engaged in both supply and transmission and the failure of the Government’s 2016 action plan on unbundling of Srbijagas is evident. The designation of an independent transmission operator model for Transportgas Srbija, which acts as a shell company and is not functionally unbundled from its parent Srbijagas, has not even started.

    The Ministerial Council adopted a Decision (Case ECS 09/13S) 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.

    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. Nevertheless, the independent system operator model that Yugorosgaz Transport applied for the certification was in contravention of Energy Community law.

    As Yugorosgas Transport did not fulfil even the conditions set by the regulator in the disputed certification decision, the Secretariat started an infringement procedure (Case ECS 10/17) in July 2018 for breach of unbundling and certification rules of the Third Energy Package.

    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.

    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.

    In practice, 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. Transmission system operators offer annual, monthly and daily capacity, both firm and interruptible. Yearly capacities are offered for up to three years ahead. In case the total requested capacity exceeds the available capacity, allocation is done on a pro rata basis. The transfer of capacity rights (subletting) is allowed for annual capacities only.

    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, it directly forecloses the development of the market. The transmission system operators do not abide by the codes, which contributes to the foreclosure of the gas market in Serbia and breaches the acquis (Case ECS 13/17).

  • Wholesale market

    Wholesale market

    Serbia imports gas supplies from the Russian Federation via a long-term agreement with Serbian incumbent Srbijagas which accounted for 87% of total demand in 2017.

    The existing intergovernmental agreement (IGA) 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, includes a destination clause, which constitutes a restriction of the territory to which the gas may be sold. The Presidents of Serbia and Russia agreed in December 2017 to exclude the destination clause from the agreement. The Government of Serbia submitted such an amendment to the Serbian Parliament this spring.

    The remaining supplies are produced by the only domestic producer, Naftna Industrija Srbije (NIS), which is majority owned by Gaspromnjeft of Russia. The only three wholesale players present in Serbia are NIS, Srbijagas and Cestor Veks d.o.o. NIS uses the majority of its production for its own needs and does not make it available to the market.

    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 85,4% of the gas quantities available.

    The network code establishes a virtual trading point where gas may be traded. However, wholesale traders are still selling gas on the exit points to distribution networks to retail suppliers. Without third party access provided to all relevant points of the transmission system, further market development in Serbia cannot be expected.

    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 majority of the requirements of Directive 2009/73/EC and Regulation (EC) 715/2009 related to transparency of the transmission system operators are fulfilled via publication of the transmission network codes. In addition, the most important information needed for access to the system is published by Srbijagas, namely technical, booked and available capacities for all points of the system.

    The regulatory authority publishes all information on transmission tariffs and the methodology for their calculation.

  • 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 2017. The second biggest supplier had only 3% of the retail market share. In total, 66 suppliers are licensed for retail among which 33 are the 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 rest of the market (household customers and some small consumers) is supplied under regulated prices by 33 public suppliers. These categories of customers are also free to opt for supply under market conditions, but the switching rate is low.

    The Law granted households and small customers the opportunity to be supplied under public supply (regulated prices included).  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 until a competitive natural gas market is established in Serbia.

    The percentage of total sales to customers who switched their supplier decreased from 3,7% in 2016 to 0,9% in 2017.

    The Energy Law and the Law on Customer Protection transpose customer protection provisions from the Third Energy Package. AERS monitors, in particular, the right of customers to have their consumption data at their disposal, the quality of supply and complaint handling. 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.

  • Interconnectivity

    Interconnectivity

    Srbijagas and FGSZ held negotiations on adjustments to their technical agreement, a part of transit and supply contracts. Subsequently, they signed an operational agreement in July 2017. For the interconnection point between Serbia and Bosnia and Herzegovina, negotiations on an interconnection agreement have not started yet.

    Gastrans LLC Novi Sad, a company owned by the South Stream Serbia, (51% Gazprom, 49% Srbijagas) has submitted an application for the exemption from the third party access rules on the entire natural gas pipeline on the territory of Serbia to AERS. The project should connect the Bulgarian and Hungarian national transmission systems.

    According to the aligned project implementation schedule, the new Serbia-Bulgaria interconnector is now expected to be put in operation in May 2022.