The gas TSOs of Finland, Estonia and Latvia have reached an agreement on inter-TSO compensation system

The gas transmission system operators (TSOs) in Finland, Latvia and Estonia, namely -  Gasum Oy, JSC “Conexus Baltic Grid” and Elering AS – have today signed an Inter TSO Compensation (ITC) agreement, which enables the functioning of a single gas transmission tariff zone for Finland, Estonia and Latvia from the beginning of 2020.

The ITC agreement unifies the entry point tariffs on the external borders of the region and removes commercial interconnection points between countries. The Estonian-Finnish interconnection Balticconnector also falls under the scope of the Agreement, so it will be used for transportation of the gas across Finnish gulf without additional charges. In order to improve commercial utilisation of Inčukalns underground gas storage, transportation of gas to and from it will also be ensured without additional entry/exit fee.  The ITC agreement also foresees compensation for TSOs of eligible variable costs and sets principles of the entry revenue re-distribution among the operators.

Zane Kotāne, JSC “Conexus Baltic Grid” Chairman of the Board:  "Signing of the ITC agreement is an historical step for Latvia, Estonia and Finland, one that in future will substantially change the natural gas market at an international level.  Right now, separate payments have to be made for the use of transmission systems for transportation of the gas across the territory of each country.  The ITC agreement will make it possible to introduce the principle of two payments -- one bringing gas into the territory of the unified tariff zone, and another one for the exit of gas from the transmission system to the distribution system in one of the countries or to the country outside unified tariff area - there will be no other payments for the transportation of the gas.  This will provide financial benefits for users of the system because entry tariffs will be identical, and it will also reduce administrative burden for the wholesale market participants.  I welcome the fact that “Conexus Baltic Grid” is taking part in this historical process of the creation of integrated natural gas market in the Baltic States and Finland, because we are currently preparing the future of the regional gas supply infrastructure so as to lay foundations for market stability and to strengthen energy independence."

The agreement is expected to lead to higher market liquidity by making it easier for shippers and traders to sell gas across the whole market area.

For Elering and “Conexus Baltic Grid” the ITC agreement becomes effective on the date of signing and it will become effective for Gasum once the changes required in national legislation enabling the Finnish TSO to enter into such agreement comes into force. The ITC compensation mechanism will become effective on 1 January 2020.