PROMOTION MATERIAL OF FEASIBILITY STUDY FOR NATURAL GAS

DISTRIBUTION NETWORK DEVELOPMENT IN THE REPUBLIC OF

MACEDONIA

GENERAL PART

General information about the Republic of Macedonia

The Republic of Macedonia is a country located in the Balkan Peninsula. It is bordered by the
Serbia and Kosovo to the north, Bulgaria to the east, Greece to the south, and Albania to the
west. It has a total area of 25.713 km2, and a population of 2.022.547. (source: State Statistical
Office of the Republic of Macedonia/2002 census). Macedonian terrain is mostly rugged and
mountainous. The highest mountain is Mount Korab, with an altitude of 2.764 m. 44% of the
total area is at an altitude of 500-1000 m.
The longest river on its territory is river Vardar, which divides the territory into two parts. The
three largest natural lakes are Lake Ohrid, Lake Prespa, and Lake Dojran.

Picture 1 Topographic map of Republic of Macedonia

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The country’s economic prospects are favourable. Some of the post-transition problems have
been resolved, mainly as a result of the reforms implemented in the economy. The national
currency is the Macedonian Denar (MKD).
According to the State Statistical Office’s data, the Gross Domestic Product (GDP) in 2012 was
458.621 million denars, and has decreased by 0.3% compared to 2011. The real GDP growth
rate, compared to 2011, is -0.4%. GDP per capita is 3.616 EUR.
Services, primarily trade, transport and communications, contribute approximately 60% of the
national GDP. About 30% of the GDP is contributed by the industry, mainly the metal
processing, the textile industry, construction and mining. Agriculture contributes 10-12%.
The Republic of Macedonia is connected only with one main gas pipeline. The overall quantity
of natural gas is imported from Russia through a pipeline which enters the territory of
Macedonia at Deve Bair, on the border with Bulgaria, and passes through Kriva Palanka,
Kratovo, and Kumanovo to Skopje. The main gas pipeline has an annual capacity of 800 million
Nm3, with a possibility of increase of up to 1200 million Nm3 per year.
Republic of Macedonia is a country with particularly low energy consumption per capita and
particularly high energy consumption per unit of GDP. Energy consumption per unit of GDP is
exceptionally high – 5.5 times higher than the developed European countries.
According to the State Statistical Office, in September 2013, the gross national electricity
consumption in the Republic of Macedonia was 582 984 MWh. Largest final energy consumers
in 2012 were: industry with 31,4%, households with 27,6%, and transport with 24,9% (of the
available final consumption).

Review of the current situation

The existing level of constructed gas pipeline system in the Republic of Macedonia is
unsatisfactory. So far, out of the entire planned gas pipeline network shown in the image
below, the only completed section is the one with a starting point located at the Macedonian-
Bulgarian border, in the vicinity of the border crossing point Deve Bair, and an endpoint located
in the region of Skopje, which was built and put into use in 1997.

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 Picture 2 Constructed gas pipeline (violet route)

Gas utilization systems at state level consist of two types of gas networks. The transport of
natural gas from the main metering and regulating inlet stations in the country to the individual
cities in the country is carried out via the principal gas transmission network. Cities are
connected to the gas transmission network via so-called distribution pipelines which carry the
gas from the intercity transmission network to a city area or any urban area where there is a
possibility for utilization of natural gas. Within urban areas, the gas is distributed via natural gas
distribution systems/networks which deliver the gas to the end customers. The metering and
regulating stations through which the gas is delivered to the distribution network constitute a
boundary between the transmission network and the distribution network (city gates).

Benefits for consumers from usage of natural gas

The necessity for realization of distribution system for natural gas arises from the amenities
that this energy source will offer to the end consumers as well as to the wider community. The
principal advantage for the end consumers is the significant decrease of annual expenses for
heat energy when utilizing natural gas in comparison to the existing method of heat energy
supply. Moreover, the replacement of the local heat energy sources on solid and liquid fuels
with same ones on natural gas lowers the end consumers responsibilities for control and
support of the local sources functioning.

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Regarding the industrial consumers that use the gas in their technology, the replacement of the
existing fuels, such as oil derivatives or quality solid fuels, implies significant improvement in
the technological processes as well as improvement of the products.

As the most important point in assessing the needs of energy that could be substituted with
natural gas are analysis of the cost of energy from different energy sources and different
energy systems. These analyzes show a significant reduction in the cost of providing thermal
energy with their connection to the distribution system for natural gas.

Consumers of the distribution system

Distribution system will provide natural gas to the following :

 Households
 Commercial and Service Sector facilities and
 Industry exempt from the huge metallurgy and hued metals.

At this moment the existing facilities meet their requirements for heating through one of the
available methods such as:
 Local sources of heat in the facilities
 Electro energy system of the country
 District heating systems in the country

The local sources of heat in the facilities use the following fuels:
 Woods and other biomass
 Electrical energy
 Extra light heating oil,
 Liquefied petroleum gas,

The potential energy loads for connection to the distribution system for natural gas are the
existing facilities and the new ones that would be constructed in the future.

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Through the distribution systems for natural gas, the energy need for heating, domestic hot
water and cooking will be provided.
In the existing collective residential facilities that have interior heating installation, upon
connection to the distribution system for gas the energy for cooking would not be substituted
because there will be no gas installation within the facility.

The analyses made in the study show that the project is feasible by financial performances,
which could be interesting for entities active in this field.

The analysis made in the study show that the distribution system for natural gas is competitive
compared to existing methods for heat supply of buildings.
For facility currently connected to the district heating system become connected to the
distribution system fir natural gas, the annual expenses would be decreased by 24% for IRF or
CRF, or by 30% for commercial, service or industrial facility ( Other Facilities (OF)).
The facilities that have heating on electrical energy, with the connection to the distribution
system for gas will have an annual decrease for heating expenses by 35% for residential
facilities or by 44% for other facilities.
In case of connection to the distribution system of the facilities that are heated by local sources
of heat, using the extra light heating oil (ЕLHO) then the decrease of the annual expenses would
amount to 54% for residential facilities and to 16% for other facilities.
When connected to the distribution system, facilities that are heated by local sources of heat,
using LPG, the decrease of the annual expenses would amount to 51% for residentialfacilities
and to 9% forother facilities.
If the facilities are heated by local sources of heat, using wood, then the decrease of the annual
expenses would amount to 7% for residential facilities. Facilities from the OF type that are
currently providing heating energy using wood will face an increase of expenses in case they
become connected to the distribution system of natural gas.

Adopted business concept for development of distribution systems

The connection of existing facilities to the distribution system is of essential importance for
the feasibility of developing distribution sytem. Without connection of the existing facilities to
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the system enough consumption of natural gas could not be ensured, which willeconomically
justify the development of the distribution system.

On the other hand, the investment of the owners of the existing facilities in new equipment for
use of natural gas, in circumstances where they already posses equipment for supplying heating
energy, is not likely to occur even if consumption of natural gas implies certain decrease in the
annual expenses for heating energy.
The uncertainty of the investment of the owners of existing facilities for use of natural gas, is
increasing even further if one has in mind the ratio between the required investment and the
annual savings arising from utilization of the natural gas.

In order to avoid the uncertainty of connection of existing facilities to the distribution system,
there is a proposed business concept in the study for the companies that would implement the
distributive system for natural gas. That business concept implies that these companies, apart
from the construction of the main and local distribution network, would invest additional assets
in order to facilitate the connection of the existing facilities to the distribution system of natural
gas. With this type of additional investment of the companies responsible for the realization of
the distribution system, there should be a decrease of the required investments of the
consumers regarding the connection of their facilities to the distribution system of gas.
The investment of the companies responsible for the development of the distribution system
should be on a level that would ensure reimbursement of the invested assets of the consumers
for connecting to the distribution system through annual savings from that connection to the
new system for less than three years in individual residential facilities, and as far as the
consumers of the collective residential and other facilities are concerned for less than two
years.

In this study, the proposed concept of construction of the main distribution network will enable
the connecting of the consumers right from the beginning of the second year of the
construction of the distribution system.
Thereby, the pipelines pathways of the main distribution network is positioned to enable rapid
connection to the available load from the OF and CRF.
In short term, that would provide connection of a larger load with the most convenient quality
from the aspect of revenues per unit of delivered natural gas.

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Having in mind the market advantages of the distribution systems for natural gas in comparison
to the existing methods of meeting the requirements for heating energy, the proposed business
concept for assistance in investing of the consumers that are intending to connect to the
system, as well as the proposed organization of the construction and enabling connection of
the consumers during construction, it can be expected tofulfillthe plan for connectedload and
delivered natural gas.

Feasibility of distribution system of natural gas

The basic questions that need to be answered by this Study are the following:
 In which municipalities in the Republic of Macedonia is the construction of a gas
distribution network justified
 Which model of distribution systems development is most suitable for the Republic
of Macedonia.

Feasibility analysis carried out on a municipality level.

Result: 48 municipalities feasible
32 municipalities unfeasible

Diagram 1 Percentage of feasible and non feasible municipalities

According to the analysis of the possible scenarios for establishing the regions for
implementation of the distribution systems of natural gas, explained in the executive summary
page 72-85), it is proposed on the territory of the Republic of Macedonia to have three regions
with almost equal estimated load.

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 Picture 3 View of the three regions of the Republic of Macedonia

The first region consists of 17 municipalities from the Skopje region.

The second region consists of 28 municipalities from the Eastern and Central Macedonia.
The third region consists of 35 municipalities from the Western Macedonia and the Pelagonija
region.

The diagram below presents the total loads and the structure of the loads in the three regions
of the third possible scenario.

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 Diagram 2 Overview of the load in the thre regions

For the Skopje region it is proposed the procedure for concession granting of distribution
system in all 17 municipalities from this region to start immediately. Upon completion of the
procedure for this region to start the procedure for the second region, and upon completion of
the procedure for the second region to start the procedure for the third region.

The chosen model for the project implementation is concession / PPP, where the
concessionaire / private partner overtakes all the phases of the project implementation:
Design, Financing, Construction, Operation, Maintenance and Development. The grantor /
public partner reserves the right of concession fee and the right to control the implementation
of the concession / PPP agreement.
Estimated minimal concession fee 1% of the total annual income.

The proposed procedure for granting concession agreement is a competitive dialogue, which
is implemented in three phases, as follows: phase of candidates prequalification, phase of
dialogue with the selected candidates for identifying solution adequate to the needs of the
contracting authority, based on which, the candidates submit their offers and phase of offers
submission. The tender documentation fee: EUR 5000.

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REGION 1 – SKOPJE REGION

Current situation

In the Republic of Macedonia in this moment operate only two smaller distribution systems in
Kumanovo and Strumica. In this moment there isn't distribution system of natural gas in the
Skopje region. The natural gas is available for use in the Skopje Region from year 1997. The
nonexistence of the distribution system of natural gas prevented this fuel availability to end
users. The first and maybe the biggest effect from the implementation of this project in the
Skopje region will be the significant increase of the number of consumers from all types, for
which this energy resource will be available.
During the past period, a gas network with a total length of 25,869 km was built in Skopje. This
gas network, with a maximum pressure of 12 bar, is owned and operated by the transmission
system operator. An urban network of approximately 14 km is planned to be built in Skopje,
which would complete the development stage of the gas pipeline ring in Skopje.
More than thirty industrial customers have been connected to the urban network in Skopje.
These consumers are buying the natural gas at the Macedonian border from international
natural gas traders. They have signed an agreement for transport of the natural gas from the
main metering and regulating station in Zhidilovo to the metering and regulating inlet station in
the facilities where they utilize the gas. The above companies pay a fee to the transmission
system operator for providing this service in accordance with the price for natural gas
transmission approved by the ERC.
The facilities that are connected to the urban gas networks can stay connected in the same
manner as before, but if the new distribution system concessionaire were to offer them better
terms for connection to the new distribution network, they are allowed to be connected to the
new network as well. According to that it can be concluded that the condition of the facilities
connected so far to the transmission network, does not pose any problems for the future
development of the distribution networks in the country, regardless of the adopted distribution
networks implementation model. According to this fact these consumers will be able to choose
whether to remain in the existing ways of meeting the needs of heat or use natural gas to meet
these needs.

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The expected total heat load for connection to the distribution systems for natural gas in the
Skopje Region in a period of 20 years amounts to 1720 GWh or around 51% of the total
available heat load on the level of the Skopje Region.
The dynamic and the structure of the load that is estimated for connection to the distribution
system for natural gas in the Skopje Region is presented on the following tables and diagrams.

Load (MW)
Existing New Total
IRF 307 109 416
CRF 289 101 390
OF 768 0 768
Total 1.364 210 1.574
Facilities area (м2)
Existing New Total
IRF 1.918.125 680.625 2.598.750
CRF 2.724.057 955.189 3.679.245
OF 5.525.131 0 5.525.131
Total 10.167.313 1.635.814 11.803.126
Facilities number
Existing New Total
IRF 6.138 2.178 8.316
CRF 867 304 1.171
OF 2.306 0 2.306
Total 9.311 2.482 11.793
Table 1 Connected load structure

Diagram 3 Dynamics of the connection of the existing and newly constructed load for three types of facilities
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 Diagram 4 Dynamics of the connection of facilities of various types

Diagram 5 Dynamics of increase of the useful areas in the facilities that consume natural gas

Around 190 millions m3 of natural gas will be delivered, through the distribution systems for
natural gas in the Skopje Region, for production of heating energy, required to meet the
needs of the connected consumers.

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Anticipated development plan of distribution system

In the first ten years of the development of the system, the most part of the connected load
comes from the existing facilities. This means that with the development of the distribution
system for natural gas there will be a substitute in the energy sources which were used for
meeting the requirements for heating energy.
In the second year of the development of the project, the connection of the consumers
commences.

The first group of consumers that will be connected to the distribution system are the
consumers from the CRF or OF that are close to the main distribution network constructed in
the first and second year of the project.
The construction of the main network is expected to be realized in all municipalities from the
Skopje region and in accordance with the plan the same should be finalized in the first two
years.
This will enable the connection of the most quality load anticipated for connection in the
second and third year of the construction of the system.

Having in mind the fact that the main load anticipated for the connection in the central
municipalities of Skopje, such as: Centar, Aerodrom, Kisela Vida and Karpos is practically
situated along the pipeline pathways of the main distribution network in these municipalities,
there is a probability that the same could be connected in the second or third year of the
realization of the project.
In the other municipalities such as: Gorce Petrov, Gazi Baba, Chair and Butel, during the second
and third year of the development of the distribution system is expected connection to the
distribution system of the largest individual consumers.
In the municipalities Ilinden and Petrovec the main potential load for connection are the
facilities from the industrial zones. The main connection is expected to occur in the second and
third year of the development of the project.
The remaining seven Skopje municipalities: Saraj, Shuto Orizari, Chucher Sandevo, Sopishte,
Studenichani, Arachinovo and Zelenikovo, for which the analysis on a municipal level indicated

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that the distribution system for natural gas is not feasible for the municipality area, will
haveslower dynamic for realization of the project in the first three years of its construction.
This dynamic of construction is mainly enabled by the positioning of the pipeline routes of the
main distribution network.
The second very important element which enables the planned connection dynamic is the fact
that the overall load anticipated for the connection in the second and third year is a load that
has interior installation for central heating.
Therefore for this load either a change of the part of the equipment in the local boiler room or
installation of predefined type of equipment for production of heating energy is required..
The necessary equipment for these facilities for production of heating energy would be
acquired in the first year of the construction, and in the second and third year the installation
and the connection to the system would be realized.
For each of the Skopje municipalities there is a separate dynamic planned regarding the
connection of the load with precisely defined facilities.

All analysis regarding the feasibility of the distribution system for natural gas in the Skopje
Region are developed on a municipal level.
The load that is anticipated to be connected to the distribution system of the municipality is
detally analyzed.
Based on these analysis, the routes of the main distribution network and the pathways of the
local distribution network have been positioned, as well as their dimensioning have been
calculatedfor each municipality.
This prepared technical documentation is the basis for estimation of the required investment
for each separate municipality in the Skopje Region.
Based on the estimated investments and expected connected load for each of the
municipalities a feasibility analysis for development of distribution system of natural gas were
conducted. The crutial parametars were summarized into required investment for whole Skopje
Region, available load for whole Skopje Region and quantity of estimated natural gas that can
be delivered for all the anticipated consumers in the Skopje Region.

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Financial and Economic Analysis

The projected investment for realization of natural gas distributive systems in Skopje Region
is 98.399.894 €, Net Present Value of the project for period of 20 years is 110.144.451 €, and
Internal rate of return of 21%.
In accordance with the prepared Feasibility Study for justification of Concession/PPP for
development of natural gas distribution networks in region 1 - Skopje planning region (book
A1), and a Technical solution and technical-economic analysis for development of the natural
gas distribution network in the municipalities of region 1- Skopje planning region (book A2), the
implementation of the natural gas distribution systems in this region is technically, financially
and economically feasible project.
The projected investment for the project implementation is EUR 98.399.894. The amount
covered by the system operator in the part to be invested by the consumers is in amount of
EUR 39,9 million of the operator’s total investment. This amount is divided by EUR 3,2 million
for meteringt and regulation stations, EUR 3,1 million for connections and EUR 33,6 million for
thermal energy production equipment i.e. equipment which transforms the gas into heat.
The financial net present value of the project for 20 years system operation is EUR
110.144.451, and the IRR of the project is 21,4%. The concession period is 20 years, and the
estimated period of construction of the natural gas distribution system is four years. The
discount factor of the financial NPV of the project is 5% at annual level which is recommended
in the reference instructions for preparation of this type of analyses of the European
Commission1. The NPV of the project bigger than zero shows that it is financially justified. The
internal rate of return as a financial indicator is bigger than the discount rate which indicates
that the project is justified. The ratio of the discounted revenues and discounted costs – ratio
V/S is 1.03. This financial indicator which is bigger from 1, shows financial justification of the
project.
The study also includes economic analysis which shows the total benefits of the project
regarding the society as a whole, within a period of 20 years of concession. The economic
analysis shows the economic NPV of the project, the economic rate of return of the project as

1
European Commission Guidelines for CBA Annex B: Selection of discount rate
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well as the ratio between the discounted revenues and discounted costs. During the
preparation of the economic NPV of the project discount rate of 5.5% at annual level was used
which is recommended in the reference instructions for preparation of this type of analyses of
the European Commission2. The economic NPV of the project is EUR 389.577.168, the economic
rate of return 40% and the ratio of discounted revenues and discounted costs- ratio V/S is 3.06.
The value of the economic NPV bigger than 0, economic rate of return bigger than the discount
rate as well as the ratio between the discounted revenues and discounted costs- ratio V/S
bigger than 1 indicate to economic justification of this project.
Summary results of the financial and economic analysis are presented in the table herein
below:
Financial NPV of the project 110.144.451€
Financial internal rate of return of the project 21.4%
Financial indicator V/S ratio 1.03
Economic NPV of the project 389.577.168€
Economic rate of return of the project 40%
Economic indicator V/S ratio 3.06
Table 2 Financial and economic indicators of the project

Summary

The complete concept of investment on this project and business strategy of the concessionaire
is directed towards the reducing of the risk of lack of connection of the existing facilities to the
system.
The basis for reaching the desired market position of this energetic system in comparison to the
existing energetic systems and existing methods of satisfying heat energy needs is the
assurance of connection of the existing facilities to the distribution system.
Through the connection of the existing facilities to the system, the sale of natural gas is ensured
in a long run, which presents the basis for its continuous development through connection of
existing facilities and connection of newly constructed facilities in the areas covered with the
gas network.

2
European Commission Guidelines for CBA Annex B: Selection of discount rate
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The detailed analysis of the three basic risk types: the Operational, the Market and the Credit
and the risks summary with their quantitative estimation through the risk matrix show that the
noted risks of the project and of the PPP model are on a low and medium level and by
qualitatively organized process of selecting private partner in the PPP model, by qualitative
concession granting agreement for PPP and by well-organized control over the implementation
of the PPP agreement, the indicated risks can be completely controlled on a low to medium
level.

The analysis made in this study show that even for the investor of such system it provides
attractive time for return of the invested capital and attractive profit margins.

Below is given graphical display - Disposition of natural gas distribution network in Region 1 -
Skopje Region

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Picture 4 Disposition of the distribution network in the municipalities in Skopje Region

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CONDITIONS FOR DEVELOPMENT OF THE DISTRIBUTION SYSTEM IN REGION 1

Dynamic for realization

Preparatory activities 1 year
Concession period 20 years, with two periods of construction:
- First construction period 4 years
- Second construction period 16 years

Length of the main distribution network – 244,934 km. The connection of the facilities and the
delivery of the natural gas is projected to begin in the second year of construction of the
system.

Proprietary right
Concession period:
- property: public partner
- right to use and right to perform public activity: concessioner/private partner
After the period of concession:
- property: public partner
- the whole built system should be transmitted in possession of the concession
grantor/public partner
The procedure and the expropriation costs shall be covered by the concessioner/private
partner.

Guarantees
For the realization of the project, the following types of guarantee are proposed:
1. A guarantee for the tender – bank guarantee for participating in the published public
procurement call in amount of 1% of the value of the offer, VAT excluded.

2. A guarantee for the timely and high-quality execution of the contract:

a. Period for preparatory activities and first construction period:
- In amount of EUR 7 million

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 - Timely and high-quality execution of the contract is: at the end of the first
construction period, the concessioner/private partner shall have
constructed at least 70% of the natural gas distribution network planned
with this feasibility study, whereas in each municipality, the
concessioner/private partner shall have constructed 20% of the natural
gas distribution network planned for that municipality.

b. Second construction period:

- In amount of EUR 500,000,
- For guarantee that a natural gas distribution network will be constructed
in each populated area in which at least 20-25% of population has shown
interest in the distribution network..

3. Guarantee for improvement and maintaining of the distribution network – with

deposited money in amount of EUR 250,000 for the second construction period.

If during the project realization, the concessioner/private partner proves that the construction
permits cannot be obtained due to the state authorities, the contracting parties shall foresee
extension of the first construction period.
If any of the above stated guarantees is activated, the contracting parties may terminate the
contract, but they may as well keep the contract in force. In the latter case, the
concessioner/partner shall submit, within 60 days of the activation of the previous guarantee, a
new bank guarantee.

Investments in equipment

The investment for individual residential equipment of gas for heat production (boiler with
accompanying equipment) is in an amount of approximately EUR 1,050.
For other facilities outside the household, the value of the investment in equipment of gas for
heat production is in amount of EUR 25,000.

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  Criteria for selection of concessionaire

Fundamentals conditions

- Bidding criteria is the concession fee with initial value of 1 %.

- Connection fee of 100 € for apartments of 80 m2 or 1,25 €/m2 useful area.
- Each municipality in the Skopje region has to have a realized gas distribution system. In
the municipalities with more settlements, obligation of the concessioner / private
partner is to construct distribution system for natural gas in the settlement with biggest
population.
- For each settlement where there is 20-25 % of the population interested in
development of distribution system for natural gas, the concessionaire/private partner
should provide realization of one.

Equipment investment

The investment for the equipment for heat production (boiler and additional equipment) for
the individual residential facilities is around 1.050 euros.

For the other facilities, apart from the households, the amount of the investment for heat
production equipment is around 25.000 euros.

Dispute resolution

If the contracting parties cannot reach agreement regarding the dispute within 30 days after
the written notification of the dispute was received, each of the contracting parties preserves
the right to start a proceeding in front of the permanent court – Chamber of Commerce of the
Republic of Macedonia as an arbitrary, and in compliance with the Book of Rules for the
Permanent Court - Arbitrary.
The proceeding shall be led by the arbitrary court with three arbiters. Each of the contracting
parties will select one arbiter, whereas the third arbiter shall be selected mutually. Each
decision made by the arbitrary court shall be final and binding for the contracting parties. The
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arbitrary place shall be Skopje, Republic of Macedonia. The proceeding shall be led in
Macedonian and/or English language.

Below are listed the general conditions that should be the criteria for pre-qualification of
potential concessioners.

General conditions

1. The company should have above 10 years of experience in operating natural gas
distribution systems in urban areas.
2. The natural gas distribution systems that are operated by the company should have
more than 40,000 users.
3. The company shall have annual income from the supply of natural gas to end users of at
least EUR 40 million.
4. The company shall be able to supply a natural gas to the borders of the Republic of
Macedonia from suppliers that will offer better conditions from the existing ones, which
are being provided by the suppliers that currently supply natural gas to the Republic of
Macedonia.
5. The connection tax for CRF and IRF to be EUR 100 per residential unit of 80m2 or EUR
1.25 per m2 of residential space.
6. The connection tax for the OF facilities to be EUR 1.25 per m2 for exploited surface,
7. Every municipality in the Skopje Region must have constructed natural gas distribution
system. In the municipalities that have several populated areas, the
concessioner/private partner is obliged to construct a distribution system in the area
with the greatest number of residential facilities,
8. Natural gas distribution system should be constructed in every populated area where
20-25% of the citizens are interested in having the distribution system.
9. The company shall develop the natural gas distribution system only in the region under
the concession/public private partnership.

For the realization of the PPP project on construction and managing with the natural gas
distribution and supply system, and to select the concessioner/private partner pursuant to the

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Concessions and Public and Private Partnership Act, the following criterion will be used to
select the best offer:

 The highest concession fee

The natural gas distribution system operator shall be obliged, pursuant to Article 122 of the
Energy Law, to enable access to the appropriate system to all end users of natural gas and all
users of the natural gas distribution system in the territory on which the service is rendered,
whenever it is considered to be cost-effective. The access to the natural gas distribution system
is regulated with a by-law – Network rules for natural gas distribution. Pursuant to the Energy
Law, the natural gas distribution system operator is obliged to develop Network rules and to
submit them to the Energy Regulatory Commission for its approval.3

3
Article 94 of the Energy law
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