MOL GROUP ANNUAL REPORT Economic, social and environmental performance
Table of contents
Gas Midstream Segment Overvi...

The Gas Midstream segment’s operating profit, excluding special items, increased by 25% to HUF 66 bn in 2011. FGSZ Ltd. remained the most important profit contributor, however the temporary freeze of gas tariffs from 1 July 2010 carried over negative effect for the first half of 2011 result of gas transmission business.

The structural modification, influencing the former Gas and Power segment, called Gas Midstream from Q2 2011. Energy generation was transferred to the Downstream segment, regarding the determinant internal sales within the MOL Group to the Downstream segment, while INA’s gas wholesale trading subsidiary has been also reclassified to this segment.



FGSZ is expected to receive ITO license among the first ones

In line with the directive 2009/73/EC, the natural gas supplier shall operate independently of both the holding companies and the subsidiaries. FGSZ has taken the necessary measures for being prepared to continue its system operation and gas transmission activities also within the framework of the new model. Therefore, FGSZ is expected to be the first company to receive the ITO (Independent Transmission Operator) license in 2012.

Stable operating profit contribution

Operating profit for FGSZ was HUF 46.7 bn in 2011, 7% higher year-on-year as higher revenues were able to compensate increased expenditures.

Domestic transmission revenue increased by 10%

Revenue from domestic transmission was HUF 73.9 bn, 10% higher than the base period

  • mainly due to surplus daily and monthly capacity bookings,
  • recognition of Croatian interconnector pipeline in tariffs
  • and from July new tariffs were calculated in virtue of the actual capacity bookings (in line with the tariff amendment principles specified by laws).

The transit transported volumes show a significant increase

Revenue from Serbian and Bosnian natural gas transit was HUF 19.6 bn which shows 12% increase compared to the base period as southward transit transmission volumes increased by 4% and favourable change in foreign exchange rate had a positive impact on revenue of transit transmission. Revenue from capacity booked on the Hungarian- Romanian interconnector increased by 51% compared to the base period because capacity booking started from July 2010.

Higher gas price and depreciation on Hungarian- Croatian interconnector increased costs

Operating costs were HUF 7.1 bn higher than the base mainly due to increased natural gas consumption of the transmission system, increased natural gas price and due to depreciation recognised on the Hungarian- Croatian interconnector recently capitalized.


Changes in the regulatory environment

Changes in regulated gas transmission tariffs

The rate of return on regulated asset base (RAB) for domestic regulated transmission activity was 8.78 % between 1 January 2010 and 3 December 2010.

However from 4 December 2010 a dual tariff system was introduced in which the transmission tariffs were calculated in virtue of the 4.5% return on RAB for the consumer group entitled to universal service while the 8.78% return on RAB remained for other consumers who purchase natural gas trough the competetive market. This dual transmission tariff system has not changed since its introduction.
In case of tariffs there is a significant step, the regulatory authority included the RAB of the Croatian interconnector pipeline into the tariff from 1 January 2011.

The regulatory authority complied with the statutory duty by 1 July 2011, the tariff maintenance mechanism defined by laws was carried out, and in case of determination of the current tariffs, new actual capacity bookings for the new gas year and increase in gas price were taken into account pursuant to the rules effective from 4 December 2010.
On the whole, this nominally resulted in a significant increase in tariff, as compared to the prior gas year’s frozen transmission tariffs.

In 2011 the average yield of the natural gas system was around 6.5% taking into account the rates used to calculate the transmission charges published by the Hungarian Energy Office.
The carry-over effect of frozen tariffs to H1 2011 was compensated by extraordinary savings and measures to increase revenues, therefore the regulated profit of FGSZ in 2011 became slightly higher than the regulated profit cap according to the regulations effective in 2011. Nevertheless, profit after tax did not reach the level of Y2010.



Strategic and commercial gas storage

With two years operational experience, the underground gas storage facility, has proved to be a reliable part of Hungary’s domestic gas infrastructure which guarantees security of supply.

Operating profit, excluding special items of MMBF Ltd. was HUF 13.5 bn in 2011. The company accounted for capacity booking fee on the 1.2 bn cm strategic gas storage and on 700 mcm commercial gas storage. In addition to storage activity, MMBF has sold the oil and condensate production of Szőreg-1 field with profit.



New supply contract with Italian ENI

Prirodni Plin, gas trading company of INA, concluded a contract for natural gas supply with Italian ENI, ensuring required quantities of natural gas for the domestic market, improving further the stability of energy supply in Croatia.

Still loss making Croatian gas trading

It booked a EBIT loss of HUF 5.1 bn loss in Q4 as a result of increasing import natural gas prices price freeze at part of eligible customers from September 2011. It finished 2011 also in the red. Fixed price level for household customers (1.7 HRK/cm, valid as of beginning 2010) and further unfavourable changes in sales price for eligible customers were the main reason behind the loss making operation.


Changes in the regulatory environment

Regulatory changes in gas trading in Croatia (Prirodni Plin)

According to regulation of Croatian State sales price for eligible customers had to be frozen on 2.13 HRK per cm as of September 2011.  Stated price applies for eligible customers, with the exception of households, conducting production activities with annual consumption less than 100 million cm of gas, and for customers that are purchasing gas for production of thermal energy for tariff customers, pursuant to provisions of the Act on production, distribution and supply of heating energy. The regulation is valid until 31 March 2012.



Significant progress for the Hungarian CCGT

In 2011, the joint venture of MOL Group and CEZ made a significant progress for the implementation of the combined cycle gas turbine technology unit (CCGT) at Duna refinery. The plant received all the permits necessary to start construction in the first half of the year. Then the first phase of the investment started in October as the main contract was signed. The second phase, the construction is subject to an additional investment decision of MOL Group and CEZ. This decision is expected to be made by the end of the first half of 2012.


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