The document discusses the certification of the Hellenic Gas Transmission System Operator (DESFA S.A.) under Article 11 of the Gas Directive, which concerns certification in relation to third countries. DESFA was privatized in 2013 and acquired by SOCAR, a state-owned oil and gas company from Azerbaijan. This triggered the Article 11 certification process. The European Commission set prerequisites for certification, including an intergovernmental agreement guaranteeing compliance with EU law and designation of DESFA as critical infrastructure. This represents the first time an Article 11 certification is occurring, and will serve as precedent for future cases. The document analyzes legal frameworks and the process required by the Gas Directive.
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Application of Article 11 of the Gas Directive: TSOs controlled by companies from non-member states
1. Application of Article 11
of the Gas Directive –
TSOs controlled by
companies from non-
member States
George Lagaris, Lawyer
Member of the Board
Alexia Trokoudi, Lawyer
Head of Legal Department
Greek Regulatory Authority for Energy (RAE)
Vienna Forum on European Energy Law
14 March 2014, Energy Community Secretariat, Vienna
2. 2
Legal Framework
Directive 73/2009/EC concerning common rules for the internal market in
natural gas
The articles related to the certification of an ITO in the gas sector
Article 10: Designation and Certification of Transmission System Operators
Article 9: Unbundling of transmission systems and transmission system
operators
Article 11: Certification in relation to third countries
Greek Energy Law 4001/2011 Regulation of Electricity and Natural Gas
Markets: Article 65 “Certification in relation to third countries”
3. 3
A resume of articles 10 and 11,
according to the EC working staff paper (1)
(i) A TSO can only be approved and designated as a TSO following the certification
procedure laid down in Article 10 Electricity and Gas Directives in combination with the
provisions of Article 3 Electricity and Gas Regulations. These rules must be applied to all
TSOs for their initial certification, and subsequently at any time when a reassessment of
a TSO’s compliance with the unbundling rules is required.
(ii) The regulatory authorities are under the obligation to open a certification procedure
upon notification by a potential TSO, or upon a reasoned request from the Commission.
Apart from that, regulatory authorities must monitor compliance of TSOs with the rules
on unbundling on a continuous basis, and must open a new certification procedure on
their own initiative where according to their knowledge a planned change in rights or
influence over transmission system owners or TSOs may lead to an infringement of
unbundling rules, or where they have reason to believe that such an infringement may
have occurred.
4. 4
A resume of articles 10 and 11,
according to the EC working staff paper (2)
(iii) Where certification is requested by a potential TSO which is controlled by a
person from a third country, the procedure of Article 10 is replaced by the
procedure of Article 11 Electricity and Gas Directives concerning certification in
relation to third countries. The concept of control is the same as that used in the EC
Merger Regulation and should be interpreted accordingly.
5. 5
A resume of articles 10 and 11,
according the EC working staff paper (3)
▪ Under Article 11 Electricity and Gas Directives, the regulatory authority must
refuse the certification if it has not been demonstrated:
(a) that the entity concerned complies with the requirements of the unbundling
rules and
(b) that granting certification will not put at risk the security of energy supply of
the Member State and the European Union. This assessment is to be carried out
by the regulatory authority or another competent authority designated by the
Member State. The competent authority must in particular take into
consideration for its assessment the international agreements between the
European Union and/or the Member State in question and the third country
concerned which address the issue of security of energy supply, as well as other
specific facts and circumstances of the case and of the third country concerned.
6. 6
A resume of articles 10 and 11,
according the EC working staff paper (4)
The burden of proof as to whether the above conditions are complied
with is put on the potential TSO which is controlled by a person from a
third country. The Commission must provide a prior opinion on the
certification. The national regulatory authority, when adopting its final
decision on the certification, must take utmost account of this
Commission opinion.
7. 7
The differences in the procedure of certification
under articles 10 and 11
1. The Certification under article 10
2. The Certification under article 11
8. 8
1. The Certification under article 10
▪ (i) The NRA must adopt a decision within a period of 4 months from the
date of the notification by the TSO or from the Commission's request.
▪ (ii) After the expiration of the above period, the certification shall be
deemed granted.
9. 9
2. The Certification under article 11
▪ (i) Where certification is requested by a TSO owner or a TSO witch is
controlled by a person or persons from a third country or third countries, the
NRA must notify the Commission.
▪ (ii) The NRA must adopt a draft decision within 4 months from the date of
notification by the TSO.
▪ (iii) The NRA requests the Commission’s opinion, whether if the prerequisites
of a. 11 par. 5 are fulfilled or not.
▪ (iv) If the Commission does not express an opinion within 2 months, it is
deemed that the Commission does not raise objections to the decision of the
NRA.
10. 10
2. The Certification under article 11
▪ (v) Within the period of 2 months after the period of 2 months of (iv) above,
the NRA adopts a final decision.
▪ (vi) The NRA’s final decision and the Commission’s opinion are published
together. Where the final decision diverges from the Commission’s opinion,
the Member State must provide and publish, together with that decision, the
reasoning underlying such decision.
11. 11
DESFA shareholding before privatization
DEPA S.A.
(Supplier -
VIU)
GREEK STATE
HELLENIC
PETROLEUM S.A.
65% 35%
DESFA S.A.
Owner and Operator:
- Transmission System
- LNG Terminal
100%
35,5%
As part of a VIU in
the 3rd of
September 2009,
DESFA is eligible to
apply the ITO model
Certification as ITO
under Article 10 of
Gas Directive was
underway at the
time of the
completion of the
privatization tender
(July 2013)
12. 12
DESFA shareholding after privatization
SOCAR is a supplier
/producer of gas and
at the same time a
“Third Country” entity
Certification as ITO
has to be carried out
in accordance with
Article 11 of Gas
Directive (which in
fact also includes all
requirements that
have to be fulfilled
under Article 10)
GREEK STATE SOCAR
34% 66%
DESFA S.A.
Owner and Operator:
- Transmission System
- LNG Terminal
13. 13
The Greek Case: the certification of the Hellenic Gas
Transmission System Operator (DESFA S.A.) under the “third
country clause”
▪ Facts to be considered I :
DESFA is the owner and operator of the National Natural Gas System (NNGS) in Greece,
which consists of the National Natural Gas Transmission System and the LNG Terminal
in the islet of Revithoussa.
DESFA was established in 2007 in the form of a Societe Anonyme, in compliance with
the provisions of the Directive 2003/55/EC on legal, functional and accounting
unbundling. DESFA is a by 100% subsidiary of the Public Gas Corporation S.A. (DEPA
S.A.) which is a Vertically Integrated Undertaking (VIU). DESFA is the only gas TSO in the
country, so far.
The Third Energy Package was transposed into the Greek legal order by Law
4001/2011 in August 2011. As far as unbundling is concerned, the model of choice of
the Greek Government for both the gas and electricity TSOs was that of the
Independent Transmission Operator (ITO), as each TSO was part of a respective VIU on
the 3rd of September 2009.
14. 14
The Greek Case: the certification of the Hellenic Gas
Transmission System Operator (DESFA S.A.) under the “third
country clause”
▪ Facts to be considered II :
1. In the framework of an extensive privatization plan of the Greek Government,
a tender was launched in 2012 for the privatization of DEPA and DESFA
2. The tender for DESFA was concluded in July 2013. Successful bidder was the
State Oil Company of the Republic of Azerbaijan (SOCAR), owned 100% by
the State of Azerbaijan
3. One of the “conditions precedent” for the conclusion of the transaction is the
certification of DESFA as a TSO under the new ownership structure
15. 15
The Greek Case: the certification of the Hellenic Gas
Transmission System Operator (DESFA S.A.) under the
“third country clause”
▪ Socar is a state company of the Republic of Azerbaijan, in which
the Republic of Azerbaijan is the owner of the 100% shares of the
company
▪ Socar is not controlled, directly or indirectly, by any natural person
or any legal entity
▪ Socar is active in the fields of deposit extraction of oil/petroleum,
natural gas and compressed gas, in commercial carrying forward
of petroleum and petrochemical products, into the Republic of
Azerbaijan, but also internationally, and finally in selling natural
gas to industrial companies and legal entities as well
▪ SOCAR (among other activities) is a producer and supplier of
natural gas and holds minority shares in gas pipelines such as the
Trans-Adriatic Pipeline (TAP)
16. 16
The position of EC regarding “The security of supply
factor into the certification procedure under article 11”
Recital 22 of Directive 2009/73 clarifies:
“The security of energy supply is an essential element of public security and is therefore inherently connected to
the efficient functional of the internal market in gas [….]. Functioning open gas markets and, in particular, the
networks and other assets associated with gas supply are essential for public security […] Persons from third
countries should therefore only be allowed to control a transmission system operator if they comply with the
requirements of effective separation that apply inside the Community. Without prejudice to the international
obligations of the Community, the Community considers that the gas transmission system sector is of high
importance to the Community and therefore additional safeguards are necessary regarding the preservation of
the security of supply of energy to the Community to avoid any threats to public order and public security in the
Community and the welfare of the citizens of the Union. The security of supply of energy to the Community
requires, in particular, an assessment of the independence of network operation, the level of the Community’s
and individual Member State’s dependence on energy supply from third countries, and the treatment of both
domestic and foreign trade and investment in energy in a particular third country. Security of supply should
therefore be assessed in the light of the factual circumstances of each case as well as the rights and
obligations arising under international law, in particular the international agreements between the Community
and the third country concerned. Where appropriate the Commission is encouraged to submit
recommendations to negotiate relevant agreements with third countries addressing the security of supply of
energy to the Community or to include the necessary issues in other negotiations with those third countries”
17. 17
The importance of DESFA for the Greek,
SEE and EU gas markets
DESFA gas transmission network can in future
and is currently already projected to be
connected with other infrastructure pertinent
for transportation of gas to Greece as well as
other EU Member States, in ex.: Adjust
gradually to the new market rules
• the project Trans Adriatic Pipeline (TAP)
• the Interconnector Greece Bulgaria (IGB) that
will increase the gas transmission capacity
from Greece with Bulgaria Levantine gas?
• Additionally, the Revythoussa LNG terminal can
play a vital role for the security of supply as well
as the development of competition in SEE
countries
18. 18
The position of the EC for the certification of DESFA
under SOCAR
EC considers that the facts above, raise the following issues:
▪ i) The interconnections of DESFA affect EU Member States as well as members of the
Energy Community immediately interconnected with DESFA network, but also countries
that are on can be provided with natural gas through these countries, such as Romania
and Hungary.
▪ ii) Thus, DESFA plays a pivotal role for the import of gas into the EU and Energy
Community Member States, and hence, constitutes a strategic asset affecting the
security of energy supplies of the European Union.
▪ iii) Greece, through its connection to Turkey, is currently the sole entry point into the EU
for gas produced in Azerbaijan, including gas produced by SOCAR. The project TAP
pipeline and upstream connections will significantly increase the volumes of Azeri gas
that can be imported into the EU. The DESFA network, however, enables to import gas
from other sources as well, including Russian gas (through Bulgaria), LNG (through the
Revithousa terminal) and in the future gas from different sources available in Italy
(through the TAP pipeline on which commercial and physical reverse flows will be
offered). Gas can potentially flow from Greece into other EU Member State in South East,
in particular Bulgaria and Romania.
19. 19
The prerequisites set by the EC for the conclusion of the
certification of SOCAR as an ITO (1)
I. The conclusion of an intergovernmental agreement (IGA) between the
Republic of Azerbaijan, the EU and Greece, should address the issues of
security of supply.
The EC has taken the position that the IGA must guarantee the enforcing of
the Third Energy Package, and in particular:
1. Only EU law and Greek national law governs matters related to SOCAR’S
ownership of DESFA.
2. There can be no adoption of legislative measures by the Republic of
Azerbaijan affecting SOCAR and/or exercise of control of the Republic of
Azerbaijan in SOCAR that results in non-compliance by SOCAR or DESFA with
their obligations under EU law, law in order to monitor and enforce the legal
obligation on DESFA and SOCAR.
20. 20
The prerequisites set by the EC for the conclusion of
the certification of SOCAR as an ITO (1)
3. Azerbaijan accepts the sole jurisdiction of EU courts related to the application
of the unbundling rules and other regulatory rights and obligations resulting
from Greek and EU law upon DESFA.
4. The Republic of Azerbaijan will not render, allow SOCAR to render or seek to
render, the delivery of natural gas to the EU or the conditions thereof
dependent upon matters concerning the application of Greek or EU law to
DESFA.
5. The Republic of Azerbaijan will fully respect and ensure full compliance with
EU and Greek Law applicable to DESFA, including EU internal market rules
and EU legislation regarding data processing and the protection of critical
infrastructure.
21. 21
The prerequisites set by the EC for the conclusion of the
certification of SOCAR as ITO (2)
II. Actions need to be taken, in order to protect critical infrastructure
▪ The EC deems necessary to protect the critical infrastructure of
DESFA, before the certification of SOCAR as an ITO.
• RAE, in collaboration with the relevant Authorities, must initiate the
legal procedure for the identification and designation of DESFA as
critical infrastructure, according to the provision of Article 3 of
Directive EC/2008/114
22. 22
WORRIES….
- Is it realistic and possible, to conclude an IGA with all parties, meaning EU,
Greece and the Republic of Azerbaijan into the strict deadlines of the
certification procedure of Article 11?
- It seems difficult to conclude the designation of DESFA as a critical
infrastructure, taking into account that negotiations with the neighbour
countries must take place effectively….
BUT, IN ANY CASE, THIS IS THE FIRST TIME THAT THE CERTIFICATION OF A TSO,
UNDER ARTICLE 11, TAKES PLACE. EVERYTHING CONSISTS A NEW
EXPERIENCE FOR ALL PARTIES, INCLUDING EVEN THE EC.
THIS CASE SHALL BE A PRECEDENT TO BE APPLIED IN THE FUTURE…
23. Thank you for your attention
George Lagaris
lagaris@rae.gr
Alexia Trokoudi
trokoudi@rae.gr
www.rae.gr