Strategic Stockpiling of Hydrocarbons in Hungary

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Strategic Stockpiling of Hydrocarbons in Hungary

• Bence Novák
• Trading and Business Development Director
• MOL Group, Natural Gas Storage

16th Energy Forum Zagreb, November 2007
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After The Changes

• After studying most of the existing systems
  Hungary decided to adopt the Agency type of oil
  product stockpiling
• Act 49 of 1993 was passed by the Parliament in
  September 1993
• The Association of Crude Oil and Oil Products
  Stockpiling (KKKSz) was established by the end of
  the year by the 14 major market players.

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Organization I.

• Membership
• Pursuant to the Act all companies or persons
  conducting crude oil and/or oil product trading
  that is subject to the law are obliged to
  become a member of the Association.
• Number of member companies in 2007
• Registered (incl. lube importers) 780 (!)
• Active 30-40

• General Meeting
• The supreme decision making body of the
  Association.
• All active members take part.
• Tasks, operation principles and voting rights
  laid down in the Act.

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Organization II.

• Board of Directors / till the end 2005 /
• The Strategic non-Executive Management of the
  Association
• 2 members delegated by the Minister of Economy
• 1 member delegated by the Minister of Finance
  (Right of Veto)
• 6 members (representing the industry) elected by
  the General Meeting
• Supervisory Board / till the end 2005 /
• Safeguards legitimate operation
• 2 members delegated by the Minister of Economy
• 1 member delegated by the Minister of Finance
• 2 members representing the oil industry elected
  by the General Meeting
• Executive Management
• Operative, executive management
• headed by the General Director, elected by the
  General Meeting
• Working organization - 13 FTEs

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The Stocks I.

• Ownership
• Stocks are property of the Association
• Size Calculation is based on threefold obligation
  
• IEA net-import in the preceding year
• EU domestic sales in the preceding year
• HU special demand of Stockpiling law (Heating
  oil)
• Structure
• Three main categories crude are applied
  according to EU Directives
• Actual Stock composition (90 day stock)
• Crude Oil
• Diesel
• Automotive gasoline
• Heating oil for power-generation

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The Stock II.
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Operation KKKSZ, MSZKSZ

• Established as a non-profit organization with a
  registered capital of 0 HUF
• Shareholders Equity as of today 160m
• surplus of contribution fee
• gain on sales of stock
• dividend
• Stock building (Procurement)
• Short and medium term bank-loan
• No capital repayment, only the interests are paid

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Storage

• System Rented storage capacities
• Third party storage companies (MOL Mádoil)
• jointly or fully owned storage facilities
• (TT Zrt. KT Zrt. OPAL Zrt. Péti Terminal
  Kft. IPRV Zrt.)
• Contract Long term contracts (10 - 15 years)
• Price formula for a year
• Take or pay
• Task
• Minimizing costs
• Geographically balanced coverage
• Objective
• Acquisition of Storage Companies
• Cost optimization

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Dept vs. Market Value of Stock
Financing

• Stocks
• Short and medium term bank loans (other methods
  also allowed)
• Interest payment only
• Lenders are selected through Tendering
• HUF Foreign currency ratio (risk management)
• Shares in Companies
• Long term (8-10Y) loans
• Guaranty
• Government guaranty ? until 2001
• KKKSz Corporate guaranty (since 2001)

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Today and future (NatGas)

• Due to the extremely high share of Natural Gas in
  the household and communal heating, the
  Government was considering to extend the
  stockpiling regulations to NatGas.
• Therefore a new NatGas stockpiling law was passed
  through the Parliament in February, 2006
• Act. XXVI/2006. on Compulsory Stockpiling of
  Natural Gas
• This move is definitely the first such regulation
  in Europe, however in line with the relevant EC
  Recommendation.

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NatGas I.

• Organisational changes
• New name Hungarian Hydrocarbon Stockpiling
• Association (MSZKSZ)
• MSZKSz General meeting has two Chambers
• Oil section
• Gas section
• New members in the Boards elected from Gas
  chamber
• four at Board of Directors
• one at Supervisory Board

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NatGas II.

• Technical implementation
• A separate Nat Gas storage entity established
  (MMBF Plc.)
• Underground storage facility will be developed by
  the Storage company in S. East Hungary
• The facility should be able to hold minimum 1200
  Mcbm of Gas with a minimum output capacity of
  abt. 20 Mcbm/day, by 2010.

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MMBF Zrt.

• Owners of MMBF 62 MOL 38 HHSA
• Activities strategic storage commercial storage
• Development EPC contract
• Financing bank loan (85 leverage)

General Meeting
Board of Directors
General Manager
Vice GM
Technical
Commerce
CFO
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NatGas III.

• Financing
• The project may cost 7-800 m excluding the
  price of the Gas
• The investment (CAPEX) counts around 350-400 m
  and will be financed by long term bank loans
  taken by the Storage company
• The price of the mining right (and the cushion
  gas) is appr. 300 m
• The price of the gas will be financed by short
  and medium term loans taken by MSZKSZ
• A long term storage agreement and the NatGas
  stockpiling law will stand as a guarantee.

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Budget of the Association
EXPENSES
INCOMES

• Cost of Storage 70 72
• renting fees of capacities
• periodical replacement of
• products
• Cost of Financing 26 28
• interests
• instalment and interest of the loans on storage
  investments
• Cost of Operation 1 1.5

• Contribution fee
• Competition neutral
• Paid by member company / ? end users /
• Oil products
• Importer members are obliged to pay the fees
  based on the import volume
• NatGas
• License holders paying on the basis of sold or
  used natural gas
• Actual Contribution fee is published in the
  Official Journal of the Ministry of Economy

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Thank you for your attention!
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