©THE HEREN REPORTS - CEE to ease restrictions on power trading
Regulators in Central and Eastern Europe are bowing to pressure and easing the regulations that discourage new entrants into their power trading markets. Slovenia has led the way to deregulation with an expected adjustment to the energy laws to enable wholesale traders in other markets to enter without meeting expensive and time-consuming conditions to obtain trading licences. The amendments are due to be adopted at the end of June for entry into force in mid-July, encouraging new entrants into the country’s burgeoning power market with wholesale licences gained elsewhere. Hungary’s regulator is also planning to re-examine its requirement for new entrants to set up national companies to meet trading licence conditions. Speaking at the Energy Trading Central and Eastern Europe 2006 conference in Warsaw, Csabo Kovacs, representative of the Hungarian Energy Office (HEO), stated that the regulator was “ready to rethink the licensing process”. Hungary was the first of the Central and Eastern European regulators to insist that every company licensed to trade power must be a Hungary-based company. Dr Jozsef Balogh, Central European origination and trading manager for EDF Energy Merchants, told The Heren Report: “This [requirement] is totally unacceptable.” He stated that EdF Energy Merchants was regulated by the UK Financial Services Authority, and commented, “We would appreciate it if the regulators would recognise that we comply with very strict standards.” This requirement was originally designed to ensure security of supply, and has been followed to some extent by other regulators in the region. However, this has proved unpopular with market entrants. The subsidiary is not as well capitalised as the parent, which also affects liquidity in the market as the value at risk ratio must necessarily be kept smaller. Fabio Mezzetti, energy trader with Enel Trade, commented that in setting up in CEE, the company had to establish credit with counterparties on a case-by-case basis, compared to standards set in western Europe. Another issue is transparency between the parent and subsidiaries, with Balogh citing Enron as an example of the problems encouraged. Zsuzsanna Sessel-Zsebik, legal counsel for E.ON Sales & Trading, stated: “I was very happy to hear that the HEO would rescind that, but I’m also a bit sceptical, as we have to wait until this regulation is changed.” Hungary is the only country in the region to require a national legal entity, although Romania requires a secondary office, and has insisted that the entrant employs nationals. The Czech Republic and Slovakia both require that branch offices are set up, and Slovakia and Bulgaria also require a legal presence. The Hungarian power market operates on a hybrid model, with larger consumers, smaller companies and households each representing around one third of consumption. While non-household customers are free to choose, in practice it is only the largest consumers for which it is realistic to leave the regulated system. Kovacs also stated that the HEO wanted to look at long-term power purchase agreements, although he admitted there was no clear solution as to how to decrease this influence. (THE HEREN REPORTS - EDEM 10.103 / 31 May 2006)

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