Report on Unbundling of Natural Gas Market in BiH, September 2019

Gas industry reforms have introduced competition in production, import, storage, and supply, but competition in transmission and distribution is difficult due to their natural monopoly status. In the reformed gas industry, new players may enter the production and supply market and threaten the incumbent's share. A company with vertically integrated activities has inherent incentives to hamper competition in the production and supply business segment, for example, by impeding market access of new entrants or gaining advantages over competitors by cross-subsidizing the potentially competitive business activities with profits from the monopoly activities. Regulators have developed and implemented specific arrangements on monitoring and control of the relationships between activities in the vertically integrated companies to remove barriers for competition and secure non-discriminatory network access for third parties. Unbundling of TSO and DSO, or separation of gas network operation from commercial activities (production and supply), is one of the prerequisites of gas market liberalization. The main objective of unbundling is to remove any conflict of interests between producers, importers, suppliers, and storage operators, on one hand, and transmission/distribution system operators on the other hand. This means that unbundling should remove the incentive for vertically integrated undertakings (VIU) to discriminate against competitors in relation to access to the network, access to commercially relevant information, and other factors. The EU has established specific unbundling requirements for TSOs and DSOs, which are outlined in the EU Directives. The EU unbundling models include ownership unbundling, independent system operator (ISO), independent transmission operator (ITO), and certification. The EU also requires TSOs and DSOs to implement compliance programs and monitoring to ensure non-discriminatory network access for third parties. In Bosnia and Herzegovina, the current legal and regulatory framework for the gas sector is based on the Energy Community Treaty, which requires the country to implement EU energy legislation, including unbundling requirements. The country has two entities, the Federation of Bosnia and Herzegovina and Republika Srpska, each with its own regulatory framework for the gas sector. The report provides a review of the legal and regulatory requirements related to the unbundling of gas activities in Bosnia and Herzegovina, including the current situation in the country, the Federation of Bosnia and Herzegovina, and Republika Srpska. The report also describes experiences with gas unbundling from other European countries, including Serbia, Croatia, and France. The report identifies several gaps in the current situation in Bosnia and Herzegovina in relation to the EU unbundling requirements, including the need for a more detailed regulatory framework for the gas sector, the establishment of a gas regulatory authority, and the implementation of unbundling models for TSOs and DSOs. The report provides recommendations for addressing these gaps and strengthening the regulatory framework for the gas sector in Bosnia and Herzegovina. The EU unbundling models for TSOs include ownership unbundling, independent system operator (ISO), independent transmission operator (ITO), and certification. Ownership unbundling involves separating the ownership of the transmission system from the commercial activities of the company. The ISO model involves separating the transmission system from the commercial activities of the company, but the transmission system is still owned by the company. The ITO model involves separating the transmission system from the commercial activities of the company, and the transmission system is owned by a separate entity. Certification involves verifying that the TSO has implemented the unbundling requirements and is operating in a non-discriminatory manner. The EU unbundling models for DSOs include legal unbundling, functional/organizational unbundling, accounting unbundling, and information unbundling. Legal unbundling involves separating the DSO from the commercial activities of the company through a change in the company's legal structure. Functional/organizational unbundling involves separating the DSO from the commercial activities of the company through a change in the company's organizational structure. Accounting unbundling involves separating the DSO from the commercial activities of the company through a change in the company's accounting practices. Information unbundling involves separating the DSO from the commercial activities of the company through a change in the way commercially relevant information is handled. The report provides examples of unbundling in several European countries, including Serbia, Croatia, and France. In Serbia, the gas sector is regulated by the Energy Agency of the Republic of Serbia, which is responsible for implementing EU energy legislation, including unbundling requirements. In Croatia, the gas sector is regulated by the Croatian Energy Regulatory Agency, which is responsible for implementing EU energy legislation, including unbundling requirements. In France, the gas sector is regulated by the French Energy Regulatory Commission, which is responsible for implementing EU energy legislation, including unbundling requirements. The report