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Tariff agreement once the Balticconnector pipeline is running

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World Pipelines,

The interconnected natural gas markets of Finland, Estonia and Latvia will open to competition in the beginning of 2020 once the Balticconnector pipeline is up and running. The amendments to the Natural Gas Market Act enabling such a reform will enter into force in a few weeks’ time.

The Finnish, Estonian and Latvian gas transmission system operators (TSO) signed an agreement on the removal of transmission tariffs and compensation of transmission costs between the countries. The agreement was signed in Espoo, Finland, on 14 February 2019.

“The agreement between the TSOs to remove transmission tariffs means that the first stage of building a regional natural gas market that comprises Finland and the Baltic States will be reached early next year. This arrangement between three countries marks a significant achievement in regional energy cooperation, and is the first of its kind in Europe. We have every reason to be proud of it,” says Kimmo Tiilikainen, Minister of the Environment, Energy and Housing.

The ITC (inter-transmission system operator compensation) agreement between the transmission system operators will remove gas transmission tariffs on borders between Finland, Estonia and Latvia, and will impose an equal entry fee on all import points starting from the beginning of 2020. The transmission system operators will settle the costs of transmission in the interconnector pipelines between themselves.

The agreement will promote competition in Finland’s gas markets and improve functioning of the regional market, because it evens out the regional differences in the wholesale price of gas and makes it easier for companies to buy their natural gas from different sources. Furthermore, regional arrangements will increase the Balticconnector’s utilisation ratio.

Gasum Corporation and Baltic Connector Oy represented Finland in the negotiations. By providing their strong support, national regulatory authorities – the Energy Authority from Finland – and the ministries in charge of energy affairs have contributed to the conclusion of this agreement.

Finland’s natural gas market legislation is currently being revised to support the common market. This means expanding the TSO’s rights and the Energy Authority’s powers in order to further develop a regional tariff arrangement and a regional entry/exit system.

An objective set in the energy and climate strategy of 2016 was to create a regional gas market for Finland and the Baltic states. The government proposal for an amendment of the Natural Gas Market Act, given in December, included provisions on discounted transmission tariffs for international connections to end the isolation of Finland’s natural gas market, on the creation of a regional entry/exit system with two or more EU Member States, on the power vested in the Energy Authority to approve interconnection transmission tariffs and conditions during a transition period, and on methods to account for the compensation costs in the control scheme for network pricing.

The Parliament adopted the proposal with no changes in early February. It is scheduled to be ratified at the presidential session in February and to come into force within the next few weeks.

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