Right of Access to the National Natural Gas Transmission System

I.    Introduction
This article presents the legal provisions and the obligations of the parties regarding the conditions of third party access to the Hellenic National Natural Gas System (ESFA). Owner and operator of ESFA is the Hellenic Gas Transmission System Operator S.A. (DESFA). The ESFA includes the transmission system (pipelines etc.) as well as the liquefied natural gas terminal on the island of Revythousa (LNG) and additional facilities and infrastructure that service the transmission system. LNG facility means each facility used for the importation, offloading and re-gasification of LNG and includes ancillary services, temporary storage necessary for the re-gasification process and subsequent delivery to the transmission system but it does not include any part of LNG terminals exclusively used for storage (article 2 no. 11 of the Law 3428/2005 as well as article 2 no. 11 of the Directive 2009/73).

User of ESFA is every person that has the right to conclude contracts for the use of ESFA, inter alia the eligible customers for the amounts of natural gas that they are supplied with, as well as the importers/suppliers of natural gas. Greek Law no. 3428/2005 on the liberalisation of the natural gas market (the “Law”) does not distinguish between different types of users and the provisions on the third party access apply to all users except when special provisions are issued. Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC (OJ L 176, 15/07/2003) (the “Directive”) declares that measures should be taken in order to ensure transparent and non discriminatory tariffs for access to transportation which should be applicable to all users on a non discriminatory basis. Where a storage facility, linepack (according to article 2 no. 15 of the Directive "linepack" means the storage of gas by compression in gas transmission and distribution systems, but excluding facilities reserved for transmission system operators carrying out their functions) or ancillary service operates in a sufficiently competitive market, access could be allowed on the basis of transparent and non-discriminatory market-based mechanisms (recital 22 of the Directive). This is not the case though for the Greek LNG facilities since no competition exists and no exemption from the regulated third party access is issued.

I.    Third party access to ESFA in the liberalised natural gas market
1. Third party access to ESFA
The implementation of third party access to ESFA is a prerequisite for the development of competition in the liberalised natural gas market (ECJ C-439/06 Citiworks, 2008 I-03913, 38 και 40). “Access” means the right to use the system against a fee that the users have to pay to the occasional operator. Free access to the system is an expression of the essential facilities doctrine, because the networks of natural gas constitute an essential facility i.e. an infrastructure necessary for the transportation of natural gas and for every transaction between suppliers and customers. Further, environmental, technical and financial reasons do not offer incentives for the construction of parallel networks or make parallel network construction impossible. As a result, the gas system is a so called physical monopoly, where no competition can be established while competition is aimed and achievable on the markets of import/production and supply of gas.

In Greece like in all member states of the European Union (EU) the model of regulated access to the system has been adopted based on regulated tariffs published by DESFA prior to their entry into force. Main aim of this model is the solution to the problems caused during the determination of the access terms and conditions and in particular the access tariffs and not the restriction of the parties’ contractual freedom, although this cannot be avoided to a certain degree. This determination can be very complicated within the alternative model of negotiated access, especially when a vertically integrated undertaking has a monopoly on the market. This is the case in Greece, where the state owned undertaking Public Gas Corporation S.A. (DEPA) is active. The desirable result of the regulated access to the system is the avoidance of anticompetitive charges for the access and use of ESFA as well as the avoidance of discrimination for the benefit of certain users and in particular of the natural gas undertakings which are related with DESFA.

The general principle behind the regulation is the non-discrimination of system users, in other words, the fair treatment of the users and the different types of users in order to protect the weaker player against the monopoly of DEPA and not to hinder competition by discouraging new users from entering into the market. This principle must be taken into consideration while interpreting the provisions of national law and assessing each transaction between third parties and the dominating undertaking i.e. DESFA.

The right of free access to ESFA is reflected in DESFA’s obligation to provide free access to everyone who asks for it according to the terms and conditions adopted by European and national law. The European legislator provides in article 18 of the Directive that member states shall ensure the implementation of a system of third party access to the transmission and distribution system and LNG facilities based on published tariffs, applicable to all eligible customers, including supply undertakings, and applied objectively and without discrimination between system users. Member states are obliged according to the same provision to ensure that these tariffs, or the methodologies underlying their calculation, shall be approved prior to their entry into force by the national regulatory authority and that these tariffs - and the methodologies, where only methodologies are approved - are published prior to their entry into force.

Αccording to the Law that implemented the Directive into the national legal framework, DESFA has several obligations in the liberalised natural gas market. Its role as the owner and operator of a natural monopoly is significant. Its dominant position in the market is secured and offers DESFA the possibility to abuse it within the meaning of the antitrust rules set in article 102 of the Treaty on the Functioning of the European Union and article 2 of the Greek Law no. 703/1977 on competition.

2. DESFA’s obligations as the Hellenic Gas Transmission System Operator

Implementing the European rules on third party access, the Greek legislator issued in article 8 par. 2 of the Law DESFA’s obligation to provide access to ESFA to all users in the most cost efficient, transparent and direct way and for the period they desire without threatening the security and ordinary operation of the system. For this purpose it concludes transport contracts, LNG facility use contracts and storage facility use contracts with the users, based on model contracts that are prepared and published by DESFA in its internet site, after RAE has approved them.

The aim of fixing of DESFA’s obligations is the protection of the users and the speeding up of competition. Among these falls the obligation to provide its services with transparency, objectivity and without discrimination among users or types of users, if such discrimination is to the benefit of DESFA’s affiliated undertakings and in particular its main investor DEPA or its subsidiaries, the obligation to publish the tariffs for its services to the users as well as the obligation to fulfil its public service obligations imposed on it within the general economic interest.

As a result, DESFA has ex lege the obligation to take the necessary measures in order that the right of access to the system is exercised successfully. This cannot happen if important conditions like models of fair contracts and applicable tariffs are not present. The Law aiming at the enhancing of competition on natural gas markets imposes on DESFA not only the obligation to omit discriminations between system users, but also to take actions facilitating the entrance of new players in the relevant market. Having this in mind, DESFA was obliged, already from the entry into force of the new legal framework, to take the necessary measures to meet the demands of the liberalised gas market and the different users today, four years after the entry into force of the relevant provisions. This obligation becomes more obvious if one considers that the national provisions have implemented the respective European rules, already known to the parties since July 2004, at which date they should have been implemented and brought into force in all member states.

3. Access conditions

The conditions of the regulated access to the system must be determined a priori for the benefit of the users and for the avoidance of contravention of the relevant provisions by the system operator. The Law answers the question of how and who determines the access terms. Pursuant to article 9 of the Law, the Minister has to bring into force the Code of Operation of ESFA, after DESFA’s recommendation and RAE’s approval. This Code, which has not yet come into force*, must contain the rules for the operating, the ensuring of the maintenance and the developing of ESFA and issue the terms, the conditions, the technical details and the required operational standards for the access to it. (*The first part of this Code that sets the rules of free access to the Grid has finally come into force by Ministerial Decision on 23/03/2010 and therefore, it could not be taken into consideration when preparing this article.)

The fixing of the methodology for the calculation of the tariffs upon which the users can make use of the system is especially important for the relations of the parties. Article 31 of the Law provides that in the case of the tariffs for providing Basic Natural Gas Services, which include the services of gas transport and the operation of a LNG facility, the Minister of Development approves the Code of Tariffs, which is composed by RAE after DESFA’s recommendation and public consultation. By this Code, the methodology for the calculation of basic activities tariffs is determined after taking into consideration the development of fair competition in the gas market and the principles of fair treatment, transparency and objectivity. This provision obliges all parties to cooperate in order to secure the right of access to the system for the new entrants and to avoid discriminations in favour of DEPA who is the main user of the system at the time. DESFA plays the main role in this procedure as it is the party responsible to submit the relative code proposal to the competent organs for approval.

For the span of time until the above mentioned code comes into force, the Law provides that the ESFA shall be operated on the basis of the procedures and practices followed by DEPA at the time, after taking into consideration different rules that may apply. It is also provided that it is possible to confront other issues related to ESFA but not yet regulated by a Ministerial Decision, after RAE gives its opinion and upon a user’s request in order to secure that the operation of the system occurs with transparent, objective and non-discriminatory criteria and to ensure the security, reliability and efficiency of ESFA without discrimination between users. According to this, the Ministerial Decision no. Δ1/1227/2007 was adopted, which applies until the Code for the Operation of the System comes into force. This decision includes a model of a contract for the transport of natural gas and determines the procedure of access, the content and the conditions of the access and use of ESFA which exclude however the LNG facility. Among others, the methodology for the calculation of the tariffs and the payment conditions for the use of the system are determined.

In particular, the tariffs for the transport of natural gas and re-gasification or LNG are determined in the Ministerial Decision no. 4955/2006. However, they apply only for long term users of ESFA and not for other users who wish to use the system for a period shorter than one year or only occasionally. These users are called seasonal users i.e. users which conclude contracts with DESFA according to which they do not take natural gas from ESFA for a long period each year and in that way, they restrain their taking in the remaining time of the same year. Different tariffs apply for the use of ESFA by seasonal users, which are not defined in the above mentioned Ministerial Decision. For this type of users, DESFA has not yet published tariffs, as it was obliged to do for all users, since European and national provisions do not distinguish between users regarding their right of access to the system.

Due to the lack of the necessary tariffs and other provisions regarding access and use of the system by seasonal users, the question arises which DESFA’s position must be when a user asks for access to the system and/or the LNG facility and especially if the operator has the right to deny access, using the argument that necessary terms and tariffs have not yet been approved by the competent authorities. Under the current legal framework the answer must be negative, as the operator has the right to deny access only for certain reasons that are prescribed bellow, while access refusal based on other reasoning could bring along administrative penalties and bear tort claims against the operator.

4. Refusal of access

The right of access to the system is not an absolute one but is subject to restrictions that permit the denial of its exercise by the user. The refusal of access though applies only as an exception and only in cases exclusively mentioned in the Law due to the negative consequences that it can affect on the liberalisation of the natural gas market and the development of competition. In this context, article 3 of the Ministerial Decision Δ1/1227/2007 correctly provides that the refusal of access and use of the system is only permitted when the reasons prescribed in article 8 par. 8 a) of the Law 3428/2005 are present.

According to this last provision DESFA can refuse access only on the basis of lack of capacity, as it shall be defined in the Code of Operation of the System, or if providing access will eventually prevent DESFA from carrying out its public service obligations. The refusal must be justified in each specific case, while the interest party and RAE have to be informed. Another case of permitted refusal is the case provided for in accordance with the procedure of article 27 of the Directive, which regulates the case when a natural gas undertaking encounters, or considers it would encounter, serious economic and financial difficulties because of its take-or-pay commitments accepted in one or more gas-purchase contracts. It is then possible that an application for a temporary derogation from the provisions on third party access may be sent to the Member State concerned or the designated competent authority with respect to the procedure and under the conditions issued by the Directive. When deciding on the derogations referred to above the Member State, or the designated competent authority, and the Commission shall take into account several criteria like inter alia the objective of achieving a competitive gas market, the need to fulfil public service obligations and to ensure security of supply as well as the position of the natural gas undertaking in the gas market and the actual state of competition in this market.

The refusal of access must be decided with great caution, since it restrains the development of competition in the natural gas market and the objective justification of the refusal requires well established analysis of this matter. A refusal which produces anticompetitive consequences can hide an abuse of an undertaking’s dominant position according to the meaning of competition law. An undertaking with a dominant position in a network market which abuses its position violates article 102 of the Treaty on the Functioning of the European Union and it can be obliged to bring this abuse to an end, providing access to one or more competitors on the upstream and downstream markets of import/production of and supply with natural gas. The competent authorities have to assess whether the difficulties each time referred to by the operator for the refusal of access are serious enough in order to excuse the refusal. They have to judge whether the difficulties confronted by the operator can be balanced off by the damages caused to competition, whether access becomes more difficult or it is totally impossible and whether the upstream and downstream markets are restrained by the refusal.

III. Protection of third parties

1. Competences of RAE

The Directive declares in recital 16 that member states have to equip national regulatory authorities with the powers necessary to secure effective access to the system. National regulatory authorities should be able to fix or approve tariffs or the methodologies underlying the calculation of the tariffs prior to their application (ex ante regulation) on the basis of a proposal by the transmission system operator or LNG system operator, or on the basis of a proposal agreed between these operator(s) and the users of the network. In carrying out these tasks, national regulatory authorities should ensure that transmission and distribution tariffs are non-discriminatory and cost-reflective and should take account of the long-term, marginal and avoided network costs from demand-side management measures.

In this system of regulated access, RAE has the obligation to ensure the unproblematic access to the system in advance by securing that all conditions set up by Law are in force. It has to draft the Code for the Tariffs and to report on the tariffs for the access to the system. Further, it controls the exercise of DESFA’s activities in accordance with the terms laid down in the operation licence of ESFA and it can impose on DESFA the obligation to take any measure necessary or to undertake any change of the terms and conditions of system access granting in order to satisfy the principle of equal treatment. Thus, RAE has the power to impose by decision a concrete behaviour on DESFA if it judges this is necessary for the securing of the non-discriminatory access to ESFA. In particular, under the current legal framework and due to the lack of the Code for the Operation of the System and to legal loopholes in the regulation of the access for certain categories of system users (e.g. for the seasonal users), this power of RAE could prove to be of great significance for DEPA’s competitors. The above mentioned provision does not restrict the power of RAE in certain issues but it refers to any act committed by DESFA, like the conclusion of contracts with a user under certain conditions and tariffs, for the purpose of avoiding the violence of the rules of free market and for the enhancing of competition in the segments of import/production and supply of national gas.

In spite of the ex ante regulation of access, conflicts between the operator and the interested users will not be absent in the future. For this reason, article 3 par. 3 of the Law provides that the solution of disagreements that appear during the exercise of natural gas activities, including differences due to the right of access, falls within the permanent settlement competence of RAE. According to par. 4 of the same article every person who has a legal interest can file a complaint against DESFA before RAE asserting that the latter has violated its obligations imposed to it by law or other decrees that are issued on the basis of the Law or by the operation licence granted to it. RAE has to decide within two months. This timeframe can be expanded for another two months, if this expansion is necessary for the information gathering required for the relevant decision. Further expansion can only take place if the complainant gives its permission. The rapid action of RAE in taking a decision on time is of great importance for the competitors of the former monopolistic energy companies. Until such time as they manage to enter the natural gas market they depend on DESFA’s behaviour and in case of discrepancies they rely on RAE to solve the difference. RAE’s decisions are obligatory for the parties and an application of revocation against them can be filed before the Supreme Administrative Court of Greece.

2. Competences of the Hellenic Competition Authority

The interest parties can also be protected indirectly based on competition rules and in particular the prohibition of the abuse of a dominant position according to article 102 of the Treaty on the Functioning of the European Union and article 2 of the Law 703/1977. The Hellenic Competition Authority has to apply the above mentioned rules when it is called upon to decide pursuant to a complaint or on its own initiative if it has received information about the occurrence of such a violation.

The competence of the Competition Authority is not influenced or cancelled by the special competence of RAE in energy matters, as the first Authority aims at the protection of competition as an instrument and the unrestricted functioning of the markets, imposing to lawbreakers the respective penalties. In particular, when access to the networks is not protected by special rules for legal or realistic reasons, the application of competition law by the competent authorities is obligatory. However, competition law provisions apply only with respect to acts that offend competition and are committed by undertakings on their own initiative (Judgment of the ECJ 41/83, Italian Republic v. Commission of the European Communities, ECR 1985, p. 873, paras. 18, 19, 20). If the behaviour restricting competition is imposed on the undertaking by law or if the law sets a frame which alone restricts any possibility of competitive behaviour by an undertaking, the relevant rules do not apply since in this case the restriction is not caused by an undertaking’s initiative as the provisions require.

The refusal of access by the operator can not however be justified based on the lack of legal framework or tardiness of the competent authorities, when the operator itself omitted to act and it did not act or did not act on time violating the obligations imposed to it by law. Another opinion would lead to the approval of refusal reasons that are no provided for in the European and national law and would legalise anticompetitive behaviour of undertakings caused by intentional non compliance to their obligations in order to restrain or to impede competition. Indeed, article 102 of the Treaty on the Functioning of the European Union applies, if it can be concluded that national law leaves a door open to competition capable to be restrained by an undertaking’s initiative.

In the era prior to the regulated access to the networks the European Commission showed in its Case Marathon/Ruhrgas/GDF et alia how article 102 of the Treaty on the Functioning of the European Union applies. In this case, the oil and natural gas company Marathon filed a complaint with the Commission against five European operators (among others the German Ruhrgas and the French Gaz de France) alleging the illegal refusal of access to their systems (COMP/36.246 Marathon/Ruhrgas/GDF et alia. See also Press releases of the European Commission IP/03/1129 of 29/07/2003, IP/03/547 of 16/04/2003 and IP/01/1641 of 23/11/2001). The Commission closed the case in 2004 (Press release IP/04/573 of 30/04/2004) obliging the respective operators to offer commitments in order to meet the Commission’s concerns about the violation of the principle of fair access to the systems by realising significant changes in their existing contract models, based on which they used to provide third party access against a fee.

Also after the issuance of the rules on regulated access, the Commission took action against big energy companies like the German E.ON (Case COMP/39.388 and COMP/39.389) and RWE Gas (Case COMP/39.402) asserting that they abused their dominant position and obliging them to offer commitments. The commitments would lead to the separation of the transport system for electricity and natural gas respectively from the activities of import/production and supply by selling it to an independent person (See ΜΕΜΟ 08/132/28.02.2008 and Decision of the Commission on 26/11/2008 in cases COMP/39.388 German Electricity Wholesale Market – COMP/39.389 German Electricity Balancing Market as well as press release IP/09/410 of 18/03/2009 and decision of the Commission on 18/03/2009 in the case COMP/39.402 RWE Gas Foreclosure).

At national level, the Italian competition authority decided on February 2006 that the Italian operator of the natural gas system ENI abused its dominant position on the market, as it impeded competitors’ entry into the national wholesale market of natural gas. The violation consisted in the delayed upgrading of the system which however was necessary for the system use by third parties asking for access who were already in contract relationship with ENI for this purpose. The authority imposed a penalty on ENI which amounted to € 290 mio and obliged ENI to offer access to its competitors from October 2008 onwards and for certain amounts of natural gas (Procedure no. Α358/ENI-TRANS TUNISIAN PIPELINE. See press release of the Italian competition authority of 15/02/2006, http://www.agcm.it/eng/index.htm).

Other system operators can be put under the microscope of national competition authorities as well, if they refuse access based on reasons that are not provided for by law, if a national regulatory authority has not yet interfered solving the difference or if its competences are ex lege or de facto limited. Protection in these cases is thus indirect and less effective for competitors, as it lacks the rapid procedures before the regulatory authorities and its main aim is the general protection of competition and not the one of third competitors’ interests.

3. Competences of the Greek Courts

Further, access applicants can address their complaints to the Courts due to the urgent character of the matter of system access, which normally is combined with big costs for the interest party, asking for the definite or temporary solution of the problem. The complainant’s claim for access to the system shall be accepted and DESFA shall be obliged to conclude a contract with the applicant, if the following conditions are fulfilled: a) the system or the LNG facility is essential for the user in order that the latter can enter into the natural gas market, which normally will apply in the case of the ESFA, b) enough system capacity must be available, c) the user asking for third party access must accept to pay a reasonable and non-discriminative fee and also the user must accept the access terms and conditions which have to be non-discriminatory, d) no objective reason for the refusal of access exists and e) access refusal leads to a discrimination to the detriment of the user and restraints competition.

IV. Administrative penalties and tort claims

The illegal and unreasoned refusal of access can lead to penalties to the detriment of DESFA or other measures in order to restore even ex post the balance between the parties and to protect the free competition and the future competitors from the operator’s monopolistic behaviour. Refusal of access to ESFA can further have negative financial consequences for the interested party, who has the possibility to issue a claim against the operator and ask for compensation in case the refusal was illegal.

1. Administrative penalties

In the frame of its competences RAE imposes on lawbreakers administrative penalties on its own initiative or pursuant to a complaint. By decision, after hearing the interested parties and according to article 36 par. 1 of the Law, RAE can impose to violators of the respective provisions or the conditions of their licences based on these provisions, fines from € 150,000 up to € 500,000. RAE takes into consideration the gravity of the violation, the activity of the violator and the frequency of violations.

Further, the Competition Authority can impose fines in every event that it discovers an anticompetitive behaviour by DESFA according to articles 102 of the Treaty on the Functioning of the European Union and article 2 of the Law 703/1977. Article 9 par. 1 f) and par. 2 of the Law 703/1977 gives to the Authority the power to impose by decision penalties to undertakings up to 15% of their gross income in the current or previous year. Furthermore, according to article 29 par. 1 of the Law 703/1977, a penalty from € 15,000 to € 150,000 may be imposed on every person who personally or as a representative of a legal person violates article 2 of the Law 703/1977 as well as article 102 of the Treaty on the Functioning of the European Union (ex article 82) by abusing the dominant position of the company on the relevant market. In case of offence repetition the above mentioned limits can be doubled.

2. Tort claim for damages

The energy legal framework scopes on the one hand to the enhancing of competition in favour of the general interest, but on the other hand it protects the interests of the users and their financial freedom, providing them with the right of access to ESFA and imposing on its operator the obligation to offer system access. The unjustified refusal of access to ESFA can constitute a tort according to article 914 of the Greek Civil Code in conjunction with the relevant provisions on third party access and can lead to a claim for compensation filed by the interested user who was damaged by DESFA’s decision. The same applies for the de facto refusal when the operator does not refuse explicitly the access, but it bases its decision on the necessity to provide additional information, technical constructions or other factors that delay and in reality cancel the right of access to the system with negative financial consequences. In the latter case, only the same can apply as to the explicit access refusal, since the de facto refusal leads to the same negative results for competition, potential users of the system and finally for the consumers.

The task of national courts is in every event very difficult, but also significant as they would be called upon to decide whether the explicit or de facto access refusal by DESFA is lawful and justified and in case of a negative judgment, to award a legal compensation to the damaged party.

V. Conclusion

The access to ESFA is the basis for the creation and the development of competition in the markets of import/production and supply of natural gas. The settlement of any differences that can arise from the unjustified refusal of access, which constitutes an abuse of the dominant position by natural gas transport system operators, falls into the good will of the parties as well as the rapid and efficient supervision and involvement of national authorities. The direct application of relevant provisions, i.e. the special ones in the natural gas sector as well as the general ones in the area of competition, and their interpretation according to the principles of equal treatment, transparency and non-discrimination are the instruments which, at the end of the day, will lead to the liberalisation of the Greek market and will facilitate the entry of new players into it for the benefit of competition and consumers.

Dr. Markela Stamati, LL.M., Senior Associate
Energy & Competition Law Team
I.K. Rokas & Partners (Athens)

© 2010 IKRP

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