Warsaw presentation

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    1. 1. UnbundlingUnbundlingDistribution SysDistribution SystemtemOperatorsOperators in thein theNetherlandsNetherlands::““the rise and demisethe rise and demiseof a dogmaof a dogma””Weero KosterWeero Koster
    2. 2. TheriseanddemiseTheriseanddemiseofadogmaofadogma The Stage: EUThe Stage: EUrequirementsrequirements The Plans: full ownershipThe Plans: full ownershipunbundlingunbundling The Process: the SenateThe Process: the Senateas lawmakeras lawmaker The Product: the currentThe Product: the currentsituation in thesituation in theNetherlandsNetherlands
    3. 3. The Stage: EU DirectiveThe Stage: EU Directive ‘‘0303 ““Legally separate entitiesLegally separate entities”” ““Effective powers in respect of assets in caseEffective powers in respect of assets in casethey are owned by vertically integratedthey are owned by vertically integratedcompaniescompanies”” ““Independent management structuresIndependent management structures”” ““Ownership questions not dealt with; noOwnership questions not dealt with; noduty to separate ownership of assetsduty to separate ownership of assets”” ““Compliance programCompliance program””
    4. 4. EU Sector enquiry report 10EU Sector enquiry report 10January 2007January 2007 Findings:Findings: Market concentration, whole sale marketsMarket concentration, whole sale markets Vertical foreclosure, unbundling gridsVertical foreclosure, unbundling grids Insufficient cross-border capacityInsufficient cross-border capacity Lack of transparency market informationLack of transparency market information Price formation not effective and transparentPrice formation not effective and transparent Competition downstream markets limitedCompetition downstream markets limited Balancing markets favour incumbentsBalancing markets favour incumbents Potential for LNG yet to be realisedPotential for LNG yet to be realised
    5. 5. EU Commission EnergyEU Commission EnergyPackage 2007Package 2007 Communication:Communication: ““An energy package for EuropeAn energy package for Europe”” Renewable Energy Roadmap & progress reports onRenewable Energy Roadmap & progress reports onrenewable electricity and bio fuels & communication:renewable electricity and bio fuels & communication:““sustainable power generation fossil fuelssustainable power generation fossil fuels”” Prospect report internal market gas and electricityProspect report internal market gas and electricity Priority interconnection planPriority interconnection plan Nuclear energy illustrative programmeNuclear energy illustrative programme Proposal future European Strategic Energy TechnologyProposal future European Strategic Energy Technologyplanplan
    6. 6. Implementation of Directive inImplementation of Directive inthe Netherlandsthe Netherlands Gas and ElectGas and Electricity Acts already went beyondricity Acts already went beyondEU requirements, e.g.:EU requirements, e.g.: Details separation producer/supplier/traderDetails separation producer/supplier/trader Requirements on composition of supervisoryRequirements on composition of supervisoryboard/ full management boardboard/ full management board andand majoritymajoritysupervisory board nosupervisory board no ““connectionconnection”” to production,to production,purchasing, supplypurchasing, supply Mandatory list of supervisory board decisionsMandatory list of supervisory board decisions shareholders no influence on duties grid managershareholders no influence on duties grid manager group companies: code against discriminationgroup companies: code against discrimination
    7. 7. The Plans: even furtherThe Plans: even furtherrequirementsrequirements March 2004,March 2004, ““Privatisation letterPrivatisation letter”” Complete de-merger of distribution grids perComplete de-merger of distribution grids per1 January 20071 January 2007 Reasons for de-merger:Reasons for de-merger: improper competitive advantagesimproper competitive advantages financing advantage compared to new entrantsfinancing advantage compared to new entrants influence independent decision makinginfluence independent decision making Remedy: full ownership unbundling of gridRemedy: full ownership unbundling of gridmanagersmanagers ““at shareholders levelat shareholders level””
    8. 8. …… and further requirementsand further requirements Grid manager must have economic ownershipGrid manager must have economic ownershipof grid, its group must have legal ownershipof grid, its group must have legal ownership Elaborate rElaborate rules preventingules preventing security rights tosecurity rights tosupport commercial activities and financialsupport commercial activities and financialsoundness of grid managers:soundness of grid managers: recapitalisation possibilitiesrecapitalisation possibilities role of private equity /institutional investorsrole of private equity /institutional investors (Most) existing group structures no longer(Most) existing group structures no longerallowedallowed
    9. 9. CoCommon vertically integratedmmon vertically integratedstructurestructureGovernmental shareholdersHolding companyGrid manager ProductionPurchasing and supply
    10. 10. The dogma: full ownershiThe dogma: full ownershippunbundledunbundled structurestructureGovernmental shareholdersHolding companyGrid managerProductionPurchasing and supply
    11. 11. …… aand some more idea’s andnd some more idea’s andconceptsconcepts Privatisation of production and supplyPrivatisation of production and supplyallowedallowed Privatisation of minority interest in gridPrivatisation of minority interest in gridmanagers under consideration, but nomanagers under consideration, but noinvolvement parties engaged in supply orinvolvement parties engaged in supply orproduction (exceptionproduction (exception ““present circlepresent circle””)) Completely independent (Completely independent (““fatfat””, but not, but not““purepure””) grid manager, with ownership grid) grid manager, with ownership gridand employees for strategic tasks and SLAand employees for strategic tasks and SLA’’sssubject to EU public procurement rulessubject to EU public procurement rules RegulatRegulator (DTe)or (DTe) advice on outsourcingadvice on outsourcing
    12. 12. The Process: Parliament andThe Process: Parliament andSenateSenate Draft Bill on de-merger/ unbundling: approved byDraft Bill on de-merger/ unbundling: approved byParliament 27 April 2006,Parliament 27 April 2006, in Senate 14 Novemberin Senate 14 November20062006 Issues abundant:Issues abundant: Violation EU law/ appropriatenessViolation EU law/ appropriateness Legal or economic ownership transferLegal or economic ownership transfer Cross border leasesCross border leases Tax issues, particularly tax groupsTax issues, particularly tax groups Lobbying activities incumbents (legal action /Lobbying activities incumbents (legal action /compromise?) and local governmentscompromise?) and local governments
    13. 13. Motion Doek and SylvesterMotion Doek and Sylvester- Objective: mandatory de-merger /Objective: mandatory de-merger /ownership unbundling will not enter intoownership unbundling will not enter intoforce “force “unlessunless””- Conditions:Conditions:- EU Directive, orEU Directive, or- Independent grid management endangered,Independent grid management endangered,through:through:- Foreign activities / Cross border alliancesForeign activities / Cross border alliances- ““Balanced” market relations distortedBalanced” market relations distorted- Non-transparent non-discriminatory relationsNon-transparent non-discriminatory relationsdistorteddistorted- No equal access to gridNo equal access to grid- Motion adopted on 21 November 2006Motion adopted on 21 November 2006
    14. 14. Motion Doek and SylvesterMotion Doek and Sylvester- Effect: the Senate takes over the legislativeEffect: the Senate takes over the legislativefunctionfunction- The wording of the MotionThe wording of the Motion “the public and“the public andindependent grid management shall beindependent grid management shall beendangered”endangered” is not very clearis not very clear- If conditions are triggered, the MEA willIf conditions are triggered, the MEA willconsult the Parliament and produce aconsult the Parliament and produce a “KB”“KB”to have the unbundling legislation enterto have the unbundling legislation enterinto forceinto force- The conditions are, and will remain,The conditions are, and will remain,unclearunclear
    15. 15. The Product: ImplementationThe Product: Implementationscheme new lawscheme new law No ownership unbundling distribution gridsNo ownership unbundling distribution grids Immediately in force: new rules prohibitingImmediately in force: new rules prohibitingtransfer ownership in distribution gridstransfer ownership in distribution grids As per 1 January 2008, new rules on:As per 1 January 2008, new rules on: transfer management 110 kV grids to TSO,transfer management 110 kV grids to TSO, ““fatfat”” grid managers, andgrid managers, and financial supervision grid managersfinancial supervision grid managers Unclear: (minority) privatisation of gridUnclear: (minority) privatisation of gridmanagersmanagers
    16. 16. Envisaged developments andEnvisaged developments andissuesissues Financing, leveraging and the role of theFinancing, leveraging and the role of theRegulatorRegulator Prohibition/ limitation of security rights in the gridProhibition/ limitation of security rights in the gridin respect of non-transmission related mattersin respect of non-transmission related matters VoluntaryVoluntary de-merger and privatisation ofde-merger and privatisation of supply,supply,trading and production companies; internationaltrading and production companies; internationalalliances ?alliances ? Partial privatisation networks ? “Partial privatisation networks ? “Circle ofCircle ofShareholdersShareholders””: further subordinate legislation: further subordinate legislation National champion NUON/Essent: NMa’s viewsNational champion NUON/Essent: NMa’s views
    17. 17. NMaNMa “vision” document“vision” document Cross border alliances of Dutch incumbentsCross border alliances of Dutch incumbentsshould be financially transparent, withoutshould be financially transparent, withoutmaterial adverse effect on Dutch independentmaterial adverse effect on Dutch independentgrid managementgrid management NMaNMa ““vision documentvision document”” on:on: National championNational champion Cross border TSO/ vertically integrated groupsCross border TSO/ vertically integrated groups So international alliances favoured ?So international alliances favoured ?
    18. 18. The “Dutch Experience”The “Dutch Experience” NRE, RWE, Intergas, Cogas, Rendo, Oxxio,NRE, RWE, Intergas, Cogas, Rendo, Oxxio,WestlandWestland Grid operators have stable revenueGrid operators have stable revenue Private equity parties are interested inPrivate equity parties are interested inthose takeoversthose takeovers Interested private equity houses:Interested private equity houses: MacquarieMacquarie  NRE, RWENRE, RWE CVCCVC KKRKKR Babcock & BrownBabcock & Brown Strategic Industry PlayersStrategic Industry Players

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