OPEN SEASON Phase 2 Rules. Project on the development and expansion of Bulgartransgaz EAD gas transmission system (GTS)

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OPEN SEASON Phase 2 Rules Non-binding offers for incremental capacity Project on development and expansion of Bulgartransgaz EAD gas transmission system (GTS) 27 March 2018 By filling out data on non-binding capacity demand offers at indicated existing and potential cross-border points, network user agrees that all data can be shared by receiving Transmission System Operator with neighbouring Transmission System Operators across interconnected cross-border capacities

Table of Contents I. Justification of Bulgartransgaz EAD expansion projects... 3 I.1. Introduction... 3 I.2. Long-term forecasts and plans... 3 I.3. Connection to significant market zones... 5 I.4. Synergy with or projects in country and region... 6 II. Results from Open Season Phase I... 7 III. Project for incremental capacity... 11 IV. Participation in Open Season Phase 2... 12 IV.1. Submission of non-binding offers... 12 IV.2. Expected maximum level of incremental capacity... 12 V. Indicative steps to conducting Open Season s Phase 3... 13 VI. Organizational Information... 14

I. Justification of Bulgartransgaz EAD expansion projects I.1. Introduction Bulgartransgaz EAD is an operator performing licensed activities of natural gas transmission (Transmission System Operator, TSO) Bulgartransgaz EAD operates and develops gas transmission infrastructure in country, which currently consist of two gas transmission networks and an underground gas storage facility: National gas transmission network (NGTN) - gas transmission network with main function natural gas transport to users in Bulgaria who have connected to network. It is built of approximately 1835 km high pressure main gas pipelines and high pressure gas branches and three compressor stations with total installed capacity of 49 MW. The technical transport capacity of network amounts to 7.4 bcm/year, and maximum working pressure is 54 bar. Gas transmission network for transit transmission (GTNTT) - gas transmission network with main function transit transmission of natural gas as well as natural gas transport to connected users in Bulgaria. It consists of 930 km gas pipelines and six compressor stations with a total installed capacity of 270 МW. Mainly natural gas quantities from an entry point at Bulgarian-Romanian border to exit points to Turkey, Greece and Macedonia are transported through network. The technical transit transmission capacity of network amounts to 17.8 bcm/year, and maximum working pressure is 54 bar. Underground Gas Storage (UGS) Chiren is built in lands of Chiren village on a base of depleted gas condensate field of same name. Chiren UGS has 23 exploitation wells and a compressor station with a total installed capacity of 10 MW. The current storage capacity can provide storage of 550 mcm of natural gas. The commercial withdrawal capacity is up to 3.4 mcm/day, and injection capacity is up to 3.16 mcm/day. The favourable geographical location of our country represents a natural route where natural gas flows entering from different sources and routes can be directed/allocated to different directions, depending on market interest and price signals. I.2. Long-term forecasts and plans Pursuant to Article 170(4) of Energy Act of Republic of Bulgaria, TSOs are obliged to develop natural gas transmission system in country in compliance with long-term forecasts and plans for development of gas supply and outside m when it is economically justified. Bulgartransgaz EAD annually prepares National Ten-Year Network Development Plan (NTYNDP) and takes an active part in development of European Ten-Year Network Development Plan (TYNDP) within its membership in European Network of Transmission System Operators for Gas (ENTSOG). The results of se TYNDPs show that re is a trend of

increasing consumption in Bulgaria, countries neighbouring Bulgaria as well as in countries of Central and Eastern Europe (CEE). Diagram 1 shows consumption forecast at blue transition scenario part of TYNDP based on data of TSOs in EU, a scenario which is most likely to come true in region of Bulgaria and in CEE, as well as expected level of local production and necessary import in EU to cover consumption/ local production difference: Diagram 1 The forecasts prepared by TSOs in EU and ENTSOG show a tendency where local production decreases and consumption in certain EU MS increases. While local production is expected to decrease from 1 260 TWh/y to 720 TWh/y, consumption grows with approximately 11% - from 4 770 TWh/y to 5 300 TWh/y. This results in need to import 1 000 TWh/y additionally from third countries to EU compared to 2017 (which is about 90 bcm/y). The map 1 below shows expected increasing trends in natural gas demand up to 2035: 1 The data is taken from ENTSOG s TYNDP.

Legend: Demand increase in percentage (Δ) by countries: +0% +50% < +100% +0% < +50% > +100% Balkan countries (Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Kosovo, Macedonia, Romania and Serbia (no data for Albania and Montenegro) get 222 TWh/y (37%) of additional demand in EU. 85% (188 TWh/y) of it is from Bulgaria and countries neighbouring Bulgaria Greece, Macedonia, Romania and Serbia 1. In addition, natural gas demand from Turkey and Macedonia is expected to increase with more than 180 TWh/y (about 16 bcm/y) over period. 2 I.3. Connection to significant market zones The favourable geographical location of country is a natural connection for natural gas supply and transport between markets of member-states in region Bulgaria, Greece, Romania, Hungary, Croatia, Slovenia, member states of Central and Western Europe (including Austria) and Energy Community countries - Serbia, Macedonia, Bosnia and 2 The data is from Bulgartransgaz s TYNDP

Herzegovina, etc. Bulgaria is also in an excellent geographical position to be a connecting unit for supply and transmission from/ to, which is largest natural gas consumer in South-Eastern Europe. Turkey's consumption in 2015 amounts to 43.6 bcm/year (480 TWh/y) and is expected to reach up to 59 bcm/y (650 TWh/y) by 2020. BOTAS, Turkish TSO plans in next years to increase daily capacity of Turkish gas transmission system to more than 350 mcm/d against current 200 mcm/d 3. I.4. Synergy with or projects in country and region The development and expansion projects of existing gas transmission system on territory of Republic of Bulgaria are in line with project for modernization and rehabilitation of existing gas transmission system in Bulgaria (PCI 6.8.2) and Balkan Gas Hub project (PCI 6.25.4). Development and expansion of existing gas transmission system on territory of Republic of Bulgaria toger with current Bulgarian and regional projects, part of strategic infrastructure of projects of common interest (PCI), will conceptually contribute to construction of a new gas transmission infrastructure for gas supply to markets of Member States in region of South-Eastern and Central Europe, as well as to countries of Energy Community, such as Serbia. 3 Data sourced from Bulgartransgaz EAD TYNDP

II. Results from Open Season Phase I To prepare an updated assessment of market incremental capacity demand and identifying required new projects to satisfy demand in period 21 July 2017 21 August 2017 Bulgartransgaz EAD assessed non-binding capacity demand indications by potential and existing network users as part of Phase I of Open Season. Market testing represents part of overall process of assessing project viability, which in turn is one of elements accompanying future investment proposal to NRA. At time of preparing such assessment Bulgartransgaz EAD used for a basis good practices for assessment of market demand for incremental capacity laid down in article 26 of Regulation 2017/459 establishing a network code on capacity allocation mechanisms, including elements from ENTSOG developed template for non-binding demand forecast. II. 1. Data on received non-binding long-term capacity demand indications: II.1.1. Entry from Turkey* Gas year Capacuty (kwh/d) 2019/2020 567 840 000 2020/2021 567 840 000 2021/2022 567 840 000 2022/2023 567 840 000 2023/2024 567 840 000 2024/2025 567 840 000 2025/2026 567 840 000 2026/2027 567 840 000 2027/2028 567 840 000 2028/2029 567 840 000 2029/2030 567 840 000 2030/2031 567 840 000 2031/2032 567 840 000 2032/2033 567 840 000 2033/2034 567 840 000 2034/2035 567 840 000 2035/2036 567 840 000

GWh/d 2036/2037 567 840 000 2037/2038 567 840 000 2038/2039 567 840 000 *In line with users nomination indicated daily capacity is maximum and includes both long-term, and short-term products (quarterly, monthly, daily and within-day) at calorific value 1 m³ = 10,40 кwh at 20 C. Expected period, direction and size of maximum physical flow at this IP: 700,00 Cross-border point from Turkey - entry 600,00 500,00 400,00 300,00 200,00 100,00 Non-binding incremental capacity indications 0,00 201920212023 20252027202920312033203520372039 II.1.2. Exit to Serbia* Exit capacity to Serbia Gas year Capacuty (kwh/d) Exit capacity to Serbia 2019/2020 357 672 000 Exit capacity to Serbia 2020/2021 357 672 000 Exit capacity to Serbia 2021/2022 357 672 000 Exit capacity to Serbia 2022/2023 357 672 000 Exit capacity to Serbia 2023/2024 357 672 000 Exit capacity to Serbia 2024/2025 357 672 000 Exit capacity to Serbia 2025/2026 357 672 000 Exit capacity to Serbia 2026/2027 357 672 000 Exit capacity to Serbia 2027/2028 357 672 000 Exit capacity to Serbia 2028/2029 357 672 000 Exit capacity to Serbia 2029/2030 357 672 000 Exit capacity to Serbia 2030/2031 357 672 000

GWh/d Exit capacity to Serbia 2031/2032 357 672 000 Exit capacity to Serbia 2032/2033 357 672 000 Exit capacity to Serbia 2033/2034 357 672 000 Exit capacity to Serbia 2034/2035 357 672 000 Exit capacity to Serbia 2035/2036 357 672 000 Exit capacity to Serbia 2036/2037 357 672 000 Exit capacity to Serbia 2037/2038 357 672 000 Exit capacity to Serbia 2038/2039 357 672 000 *In line with users nomination indicated daily capacity is maximum and includes both long-term, and short-term products (quarterly, monthly, daily and within-day) at calorific value 1 m³ = 10,40 кwh at 20 C. Expected period, direction and size of maximum physical flow at this IP 400,00 Cross-border point - exit to Serbia 350,00 300,00 250,00 200,00 150,00 Non-binding incremental capacity indications 100,00 50,00 0,00 201920212023 20252027202920312033203520372039 II.1.3. Demand to Turkey at existing IP Strandja/Malkoclar (in case of entry point/s from Romania, which are to be clarified by applicants and Transgaz Romania Exit capacity to Turkey at existing IP Gas year Capacity** (kwh/d) Strandja/Malkoclar 2021/2022 80 662 576 Strandja/Malkoclar 2022/2023 80 662 576 Strandja/Malkoclar 2023/2024 80 662 576 Strandja/Malkoclar 2024/2025 80 662 576 Strandja/Malkoclar 2025/2026 80 662 576 Strandja/Malkoclar 2026/2027 80 662 576 Strandja/Malkoclar 2027/2028 80 662 576 Strandja/Malkoclar 2028/2029 80 662 576

GWh/d Strandja/Malkoclar 2029/2030 80 662 576 Strandja/Malkoclar 2030/2031 80 662 576 ** A quantity of 80 662 576 kwh/d (25 C/0 C) at GCV - 11,445 kwh/m³ (25 C/0 C). Expected period and size of maximum physical flow at this IP in direction from Bulgaria to Turkey: 90,00 IP Strandja/Malkoclar - exit 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 Non-binding incremental capacity indications 0,00 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Bulgartransgaz EAD is currently building investment project A transit gas pipeline to Turkey (a looping) in section CS Losenets to PF Nedyalsko, thus providing incremental capacity at this point in direction Bulgaria Turkey (firm and/or interruptible). No new project is refore currently required within this Open Season. The residual capacity up to nonbinding nomination will be enabled with congestion management procedures and/or capacity offer at interruption conditions. The potential projects enabling, if needed, entry capacity from Romania which will be assessed by end of 2018 are in pre-investment phase.

III. Project for incremental capacity Expansion of gas transmission infrastructure in section from Bulgarian- Turkish border to Bulgarian-Serbian border With a view to realizing expected incremental capacity from Turkey (entry) to Serbia (exit) as a result of conducted feasibility (pre-investment) studies, following new and currently existing infrastructure (See model scheme) is expected to be used: The entry point is on Bulgarian-Turkish border immediately next to existing interconnection between gas transmission network for transit transmission of Bulgarian operator and gas transmission network operated by BOTAS (Turkey). The direction of physical gas flow is to CS Provadia and Serbia, and exit point is on Bulgarian-Serbian border next to Zaychar. The maximum natural gas quantity expected to enter Bulgarian territory is 54,6 mcm/d with minimum pressure of 4,5 MРa. The maximum natural gas quantity, expected to reach Bulgarian-Serbian border is 34,4 mcm/d with maximum pressure of 6,5 MРa. The expected new infrastructure has a diameter Dn 1200, and study provides as well for two new compressor stations. The initial year of transmission in line with non-binding nominations is gas year 2019/2020, and expected commercial commissioning of incremental capacity is 1 October 2019. The expected amount of investment is up to BGN 2.8 billion, VAT excluded. The expected operational costs are BGN 131.428 mln/year.

IV. Participation in Open Season Phase 2 IV.1. Submission of non-binding offers The submission of Bid Forms (Annex 1) for IPs as laid down in p. IV.2. or or cross-border points shall be made by registered post or via courier service (in original) duly signed by bidder s authorized person(s). The deadline for submission of non-binding offers is 27 April 2018. We recommend a copy to be also sent to following email: capacity@bulgartransgaz.bg The information acquired as a result of this Phase 2 shall be used for preparation of next Open Season Phase 3. IV.2. Expected maximum level of incremental capacity Based on expected nominations received within Phase 1 size of offered capacity in forward direction and start availability date reof are as follows: IV.2.1. New entry point from Turkey: Maximum incremental capacity Bulgartransgaz EAD parameters 567 840 000 kwh/d Expected date of availability no earlier than 1 October 2019 Flow direction IV.2.2. New exit point to Serbia: From Turkey to Bulgaria Bulgartransgaz EAD parameters Maximum incremental capacity Expected date of availability no earlier than Flow direction 357 672 000 kwh/d 1 October 2019 From Bulgaria to Serbia IV.2.3. IP Strandja/Malkoclar (existing): Bulgartransgaz EAD parameters Maximum incremental capacity Expected date of availability no earlier than Flow direction 80 662 576 kwh/d 1 October 2021 From Bulgaria to Turkey

V. Indicative steps to conducting Open Season s Phase 3 In line with good EU s practices Open Season procedure goes through two main stages. During first stage an assessment of market needs is carried out (Phase 1 (completed) and Phase 2). During second stage (Phase 3) a binding capacity request shall be submitted by participants of procedure and in case of a successful procedure, participants sign binding agreements (Transport Contracts). Based on analysis of need of incremental capacity following Phase 2 and if re will be need, a second furr fine-tuned option of a preliminary investment plan for new projects will be developed, including investments in pipeline network, compressor stations, gas metering stations, etc. Phase 3 Capacity allocation and Binding Agreements (planned for period 17 October 2018 31 December 2018) Launch of incremental capacity allocation procedure, including applicable tariff, longterm capacity allocation mechanisms, etc.; Submission by users of binding offers for long-term incremental transmission capacity; Economic test and analysis of economic viability of projects; Signing of binding Transport Contracts. In parallel a process of preparation of Cooperation Agreements/Memorandums of Understanding/Interconnection Agreements, or any or binding or non-binding agreements with neighboring TSOs/project companies will be in place in order to coordinate implementation time schedule of interconnected projects for a new/expansion of existing infrastructure and implementation of Transport Contracts.

VI. Organizational Information If you have questions or need clarifications please use following e-mail: info@bulgartransgaz.bg or call our contact person: Mr. Ivaylo Moynov Head of Development Unit Analysis and International Activity Division email: imoynov@bulgartransgaz.bg Tel.: 359 2 939 6192; Mobile: 359 886 315 598 www.bulgartransgaz.bg residential area Lyulin 2 66 Pancho Vladigerov Blvd. 1336 Sofia, PoB 3 Bulgaria