political backing, are not sufficient in themselves to overcome the very real difficulties of securing financing and executing the projects. As is discussed in more detail later in the chapter, these difficulties arise from the existence of significant risks (such as the risk that demand projections will not be met, thus causing revenues not to be realized and loans not to be repaid), and from factors such as the lack of a harmonized framework for gas trade. Even in a purely national gas transmission project, there are many risks to be dealt with and institutional obstacles to be overcome. Moving from national to bilateral and then to multicountry, cross-border projects adds significantly to the risks, and makes it far more difficult and complex to reach financial closure and project implementation. The obstacles and time required to bring cross-border gas projects to fruition will be minimized in situations where favorable conditions exist in three key areas: 1. National gas markets—The markets involved have well-developed gas policies and stable, predictable regulatory frameworks. 2. Cross-border framework—Harmonized mechanisms for investment in and operation of cross-border gas pipeline projects have been agreed, 3. Financing—There is a strategy to minimize and/or mitigate financing risks. These areas clearly overlap, particularly in project financing: a sound national gas sector and harmonized cross-border arrangement would mean that the major specific project risks have been attenuated, leaving more generic items (such as country risk) to be catered for in the negotiations over the financing package. Nonetheless, these three areas provide a convenient way in which to categorize and discuss the issues at stake. The subsections of this chapter address the following topics: • • • •
national gas markets necessary elements of the cross-border institutional framework risks and financing concluding observations.
The remainder of this section provides an overview of existing regional initiatives introduces lessons from some international case studies, which are referred to later in the chapter.
Existing Regional Initiatives Within the long-term goal of moving toward a single, competitive, secure market for gas throughout Europe, various regional initiatives systematically
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The Future of the Natural Gas Market in Southeast Europe