COLLABORATION PROTOCOL BETWEEN THE SPANISH AND PORTUGUESE ADMINISTRATIONS TO SET UP THE IBERIAN ELECTRICITY MARKET

This protocol is made in Madrid, on November 14th 2001, by and between:

Of the one part, his Excellency Rodrigo Rato y Figaredo, Second Deputy Prime Minister of the Spanish Government and Minister of Economy of the Kingdom of Spain; and, of the other part, his Excellency Luis Braga da Cruz, Minister of Economy of the Republic of Portugal.

Both parties hereby WITNESSETH:

Whereas in 1998, the Spanish and Portuguese Administrations commenced talks and studies aiming at progressively removing the obstacles to and fostering the creation of the Iberian Electricity Market.

To that end, on July 29th 1998, a Protocol Memorandum was signed between the Ministry of Economy of the Republic of Portugal and the Ministry of Industry and Energy of the Kingdom of Spain for cooperation in the field of electric power.

The Administrations of both countries are aware that the cooperation has been beneficial and productive and, therefore, they acknowledge the advisability of speeding up the development of an Iberian Electricity Market, which will represent a step forward in the construction of an Internal Energy Market in the European Union in line with the conclusions of the European Council held in Lisbon on March 23 rd and 24th 2000.

Both Administrations believe that the organisation of the said market will be beneficial for their consumers and must allow all participants equal, transparent and objective access to it.

For that purpose, they hereby agree the following clauses:

ONE

1. The aim of this Collaboration Protocol is to establish the measures that will allow the "Iberian Electricity Market" to be set up.

2. For the aforementioned market to be set up and become operational, this Protocol sets out the stages and procedures that are to be implemented successively, thus allowing progressive convergence of the electricity systems in Spain and Portugal.

3. The Administrations in Spain and Portugal shall also start to study the convergence of the natural gas markets in the two countries, specifically taking into account the different degrees of maturity of those markets and the need to guarantee adequate coordination between the liberalisation of the electricity and the natural gas markets.

TWO

1. The Iberian Electricity Market shall start operating on January 1st 2003 and shall guarantee all the agents established in the two countries access to the Iberian Market Operator and to the interconnections with third countries on equal and free terms and conditions of bilateral trading.

2. The Iberian Electricity Market shall be governed by the principles of free competition, transparency, objectivity and efficiency.

3. The Spanish and Portuguese Administrations undertake to take the necessary steps so that the Iberian Market Operator (whose capital must be open to companies from both countries) can act with strict impartiality.

THREE

1. The Administrations in Spain and Portugal undertake to coordinate henceforth their respective positions within the European Union with a view to promoting the development of the trans-European energy networks and the further development of the Internal Energy Market.

2. To foster the development of the Iberian Electricity Market, the electricity interconnections between Spain and Portugal shall be reinforced. More specifically, the two Administrations shall foster the construction of the "ALQUEVA-BALBOA" line with the aim of bringing it into service in 2004.

3. Likewise, the "CARTELLE-LINDOSO" line shall be reinforced through the installation of a second circuit to increase the reliability of this interconnection and with the aim of bringing it into service in 2006.

4. The interconnection capacity shall be similarly reinforced in the "Duero Internacional" (International Douro) through the construction of a new 400 kV interconnection or the reinforcing of the existing interconnections, with the aim of bringing them into service in 2006.

5. The transit capacity of the "CEDILLO-ORIOL" line shall also be increased so that it matches the "RIO MAIOR-CEDILLO" line on the earliest possible date once the ALQUEVA-BALBOA line is in service.

6. Following the signing of this Protocol, the Electricity System Operators in the two countries shall coordinate the planning and expansion of the electricity transmission networks. To do so, they shall develop a regular, smooth exchange of information about forecast scenarios, the applied methodologies and the real situation of the way the networks are functioning, drawing up a proposal for forecast demand coverage and joint planning of the Iberian network before December 31 st 2002.

FOUR

1. Before January 31st 2002, the Spanish and Portuguese Administrations must identify the legislative and administrative obstacles standing in the way of the convergence of the electricity systems in the two countries and must draw up a plan with a time schedule for such obstacles to be removed.

2. The implementation of the plan to remove any potential legislative and administrative barriers to the full development of the Iberian Electricity Market must be the subject of bimonthly information exchanges between the Spanish and Portuguese Administrations and shall take into account any decisions that might be adopted eventually at a Community level.

3. Legislation shall be adapted as and where necessary to ensure the harmonisation of the management and operational conditions for the economic agents so that the exercising of full business freedom is guaranteed on the basis of common economic principles.

4. Both Administrations also undertake to facilitate the conditions for the national agents from the neighbouring countries to operate in their respective territories.

FIVE

1. Before March 31 st 2002, the regulatory authorities for the electricity industries in Spain and Portugal must submit a model for the organisation of the Iberian Electricity Market bearing in mind the aims set out above, the applicable Community legislation, recent experience in the way electricity markets work in both countries and good regulatory practices.

2. The aforementioned model must allow for the development of a competitive, smooth-running and effective market, equipped with the necessary monitoring and control mechanisms that will guarantee the satisfaction of customer needs, short and long-term supply security and full compatibility with the goals of energy efficiency and promotion of renewable energies in the two countries.

3. When drawing up the organisational model for the Iberian Electricity Market, the regulatory authorities should involve consumer associations, producers, distributors, traders, system operators, market operators and all other interested parties in the development of the said Market.

SIX

1. Following the signing of this Protocol, Red Eléctrica de España, S.A. and Rede Electrica Nacional, S.A. should start to draw up harmonised procedures allowing for the joint operation of the two systems in optimal efficiency, economy and safety conditions and should request the collaboration of OMEL, S.A.

2. The procedures referred to above shall be adequately publicised and shall be accessible to all the interested parties.

3. Using the organisational model for the Iberian Electricity Market referred to in point FIVE above as a basis, Red Eléctrica de España, S.A., with the collaboration of OMEL, S.A., and Rede Electrica Nacional, S.A. must submit before April 30th 2002 a detailed implementation plan for the technical and organisational measures required for the start-up of the Iberian Electricity Market on January 1st 2003.

4. The regulatory authorities in the two countries shall reach an agreement on the sharing out of the costs associated with the implementation of the Iberian Electricity Market by the operators in both countries.

5. Red Eléctrica de España, S.A., with the collaboration of OMEL, S.A., and Rede Electrica Nacional, S.A. must submit to the Directorate Generals for Energy and to the regulatory authorities in the two countries on a monthly basis a report on the harmonised procedures that are drawn up. In witness whereof, the parties hereby sign this Collaboration Protocol in two counterparts as one and the same instrument on the date and in the place first stated above.

THE SECOND DEPUTY PRIME
MINISTER AND MINISTER OF
ECONOMY OF THE KINGDOM OF
SPAIN.

Rodrigo de Rato y Figaredo.

 

THE MINISTER OF ECONOMY OF
THE REPUBLIC OF PORTUGAL.

Luis Braga da Cruz.