Underground Gas Storage Remuneration Ministerial Order ITC/3995/2006

Repayment of Capital
Return on Investment
Operating and Maintenance Costs
Other Provisions

Repayment of Capital

Capital Repayment = Total Investment / Useful Life of Asset

The capital cost of the project is returned in equal payments over the useful life of the asset. The capital cost is the actual, audited cost of the project. The useful life of UGS facilities is set at 10 years and the useful life of the cushion gas is set at 20 years.

The capital cost acknowledged for capital repayment is the actual investment made once the concession is granted plus the costs incurred for up to five years prior to the grant of the concession (provided the prior costs do not exceed 50% of the total investment). The amount is formally recognized by being published in the annual gas storage Ministerial Order. Any government subsidies or tax exemptions or refunds are deducted from the acknowledged investment.

All costs incurred to complete the construction of the storage facilities can be recognized for repayment. In addition, any modifications of existing facilities to improve injection or extraction rates or storage volume can also be included in the remuneration system. Any investment required to replace fixed assets can be included in the remuneration system, but requires prior approval by the Ministry. Other investments may be included on an exceptional basis if they can be justified and are approved by the Ministry.

The pipeline to connect the facility to the national network is not included in the costs recognized for the storage facility; this pipeline is covered in Order ITC/3993/2006). The natural gas to be used for cushion gas is valued at the price established at auctions arranged for the purpose of acquiring the facility’s cushion gas. Once the facility is no longer in service, any revenue from the sale of residual cushion gas accrues to the gas system.

Within five years of the concession grant, the UGS operator must submit an application for acknowledgement of costs to the Ministry of Industry and the start-up certificate must be granted. Funds payable begin accruing upon the grant date of the start-up certificate, but do not commence until issuance of the certificate recognizing the facility for payment within the gas system.

Provisional Regime
A provisional remuneration regime may be implemented for the period between the granting of the concession and the start-up of the facility (or the termination of the concession, as the case may be). These payments are considered early payments of the remuneration owed to the developer, not additional payments. They are based on actual audited investments. There is no specific time limit on the provisional regime, though other provisions of the order effectively limit it to five years.

Extension of Useful Life Payment
After the end of the useful life (10 years for facilities, 20 years for cushion gas), assuming the facility continues to operate, a Cost of Extension of Useful Life payment commences at half the rate that was paid in the last year of the useful life and continues for the remaining period of the concession (30 years plus two possible extensions of 10 years each). Any new or additional investment will be remunerated separately from the Cost of Extension of Useful Life payment.

Repayment of Capital Example
The following chart shows the payment schedule for repayment of capital for underground gas storage facilities of an investment of €100. The annual return of capital payment for the facilities is €10 for 10 years, repaying the original investment, and an ongoing payment of €5 per year starting in year 11 and continuing until the permit expires after 50 years.

The next chart shows the payment schedule for repayment of capital for cushion gas costing €100, with payments of €5 for 20 years, and an ongoing payment of €2.5 starting in year 21 and continuing until the expiry of the permit