Methodology on setting the booking prices Project Development and expansion of Bulgartransgaz EAD gas transmission system

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1 Methodology o settig the bookig prices Project Developmet ad expasio of Bulgartrasgaz EAD gas trasmissio system Art.1. The preset Methodology determies the coditios, order, major requiremets ad model of formatio of the bookig prices valid upo carryig out of the Third bidig phase of the Ope Seaso procedure (the procedure) for the Project Developmet ad expasio of Bulgartrasgaz EAD gas trasmissio system. The Methodology defies also the coditios for successful ecoomic test. The Methodology prescribes the coditios for updatig of applicable bookig prices durig the years of the bookig period. Art.2. The applicable capacity bookig prices are determied o the basis of the required reveues for carryig out of the access services related to the provisio of icremetal capacity withi the procedure. Art.3. (1) The bookig prices shall be determied for project etry ad exit poit ad they relate to the provisio by the TSO of firm capacity product for oe year ad are expressed i BGN/MWh/day/year. (2) Bookig prices are determied for the right of the successful cadidate uder the procedure to use the allocated capacity at the relevat etry ad exit poit uder coditios, stipulated by cotract cocluded with the operator. (3) The determied bookig prices shall be without Value Added Tax, which shall be accrued after the order of the applicable legislatio. Art.4.(1) By 1 March 2019 Bulgartrasgaz EAD shall have the right to adjust the iitially set bookig prices o the basis of the received ew ivestmet costs data that are directly liked with the Project ad/or the expected price ad amout of the borrowed fuds agaist the iitial assessmet o the basis of which the prices have bee evaluated. (2) The bookig prices for each year from the bookig period after the first year shall be determied by idexig the relevat price for the precedig year with a iflatio idex reflectig the chage of expeditures of the trasmissio operator accordig to the capacity bookig cotracts, cocluded withi the frames of Bidig Phase 3. For the first year of the period the determied fial bookig prices shall be applicable. Art.5. The required reveues, to be covered from the realizatio of capacity offered uder the procedure shall be determied as a share from the required reveues of Bulgartrasgaz EAD related to the occurrig icremetal capacity, obtaied upo the applicatio of the F-factor approved by the Natioal Regulatory Authority. Art.6. The required reveues, paid through prices for capacity, shall be divided i the proportio of 50% payable by the etry poit ad 50% payable by the exit poit of the Project. Art.7. The computig required aual reveues, allocated to the icremetal capacity, shall be a estimated amout for a year from the iheret coditioal fixed operatioal expeses, depreciatios ad retur, ecessary for carryig out the activity of atural gas trasmissio, related to the occurrig icremetal capacity. They shall be determied for each year from 1

2 the offerig period i accordace with the formula: ИНП t k = УПР t + A t + БВ t НВ 8); УПРt - coditioal fixed aual operatioal expeses for the t year; (accordig to Art. Аt estimated aual depreciatio of the assets related to the occurrig icremetal capacity for the relevat year (accordig to Art. 9); БВt base of retur for the relevat year (accordig to Art. 10); НВ rate of retur of the operator s capital (accordig to Art. 11),. Art. 8(1) The operatioal expeses shall be divided ito two major groups: coditioal fixed operatioal expeses, ad variable techological expeses. The expeses i each of the metioed groups shall be also broke dow by ecoomic elemets. (2) The operatioal expeses shall be determied per estimated prices as at the first year of the period for which capacity is allocated uder the procedure. (3) The operatioal expeses do ot iclude expeses which are ot related to the activity o atural gas trasmissio, fiacial expeses, expeses of occasioal ad/or extraordiary ature, as well as: 1. corporate icome tax expese; 2. expeses for future periods; 3. expeses for losses from devaluatios; 4. curret expeses for accrued provisios withi the meaig of Art. 38 of the Corporate Icome Tax Act; 5. curret expeses or liabilities to decrease the carryig amout of ivetories; 6. expeses for sactio ad/or pealties imposed by govermetal or muicipal authorities; 7. expeses for iterests for delay, pealties ad other paymets related to o-fulfillmet of cocluded cotracts; 8. expeses for doatios ad paid o-used aual leaves; 9. the expeses uder Art. 204 of the Corporate Icome Tax Act, as well as the expeses for accrued tax o them uder Art. 216 of the Corporate Icome Tax Act; 10. court expeses, other tha the state fees, related to opeig of cases for collectio of receivables. Art. 9. (1) The depreciatio expeses for each year from the bookig period shall iclude the 2

3 estimated amout of the aual depreciatio of the existig ad the ew assets, acquired durig the relevat year, related to the occurrig icremetal capacity. (2) Depreciatio expeses shall be determied by liear method of depreciatio o the basis of justified ecoomic ad techical useful life of assets i accordace with Aex 1 to the Methodology o settig the prices of access ad trasmissio of atural gas through the gas trasmissio etworks owed by Bulgartrasgaz EAD. (3) Depreciatio expeses shall be accrued after the date of puttig i operatio of the relevat asset. Art. 10. (1) The base of retur shall be the base o which the operator obtais retur o the ivested capital. (2) The base of retur for formatio of the required reveues for the bookig period shall iclude the assets related to the icremetal capacity, acquired o paid basis by the operator. The base of retur shall be determied for each year uder the followig formula: БВ t = А t 1 + Инв t Ам t Ф t + ОК t БВ t - base of retur for formatio of the required reveues for the t year from the offerig period; А t 1 estimated balace value of assets, which are used ad have useful life, as at the ed of the precedig year; Инв t ivestmet compoet for formatio of the required reveues for the relevat year from the offerig period, determied as the sum of the estimated ivestmets related to the icremetal capacity for the relevat year from the offerig period; Ам t depreciatio compoet for formatio of the required reveue for the relevat year from the offerig period, determied as the sum of the estimated aual depreciatio of the existig assets ad of the ew ivestmets, plaed for the relevat year, related to the icremetal capacity; Ф t balace value of grats for assets as at the ed of the relevat year from the offerig period, uder grat schemes, doatios, aids, etc., related to the provisio of icremetal capacity; ОК t required workig capital for formatio of the required reveues for the relevat year from the offerig period, costitutig the required capital amout used i the process of fiacig of the aual activity of the operator, related with the Project; the required workig capital shall be 1/8 of the amout of the aual operatioal moetary expeses for the relevat year from the offerig period, ot icludig depreciatio expeses ad expeses for devaluatio of ucollectible debts. (3) The value of the log-term assets/estimated ivestmets, related to the provisio of icremetal capacity, does ot iclude: 1. assets which are ot related to the provisio of icremetal capacity; 2. assets i the form of cotract works i progress. 3

4 Art. 11.(1) The rate of retur shall be determied as a omial rate before taxatio, equal to the weighted average cost of capital (WACC), calculated through the price of each idividual compoet of the structure of the operator s capital, weighted through its share. The rate of retur shall be calculated uder the followig formula: where НВ = Д СК. НВ СК 1 ДС Д ПК. НВ ПК НВ rate of retur of the capital before taxatio; Дск share of equity capital i the operator s total capital; НВск rate of retur of equity after taxatio; ДС corporate tax accordig to the Corporate Icome Tax Act, %; Дпк share of the borrowed capital i the operator s total capital; НВпк rate of retur of the borrowed capital. (2) The rate of retur o equity shall be determied o the basis of the Model of evaluatio of capital assets, through evaluatio of the followig parameters for the offerig period: - risk-free ivestmets; - risk, related to the ecoomic coditios i the coutry; - systemic risk, related to the specificity of the activity i the sector. (3) The rate of retur of capital shall be calculated for the whole capital of the compay. (4) The borrowed capital shall iclude loas ad liabilities uder fiacial lease agreemets. Upo calculatio of the average cost of the borrowed capital, the aual iterests uder the existig ad plaed loa agreemets ad the relative weight of the respective loa i the total amout of the borrowed capital, shall be take i cosideratio. Art. 12 The required aual reveues, allocated to the icremetal capacity shall be determied uder the followig equatios: t=1 НГПк (1 + НВ) t = ИНП t к (1 + НВ) t t=1 НГП к required aual reveues allocated to the icremetal capacity; 4

5 ИНП t к computig aual required reveues allocated to the icremetal capacity for the t year; НВ rate of retur of the capital. Art. 13 The required aual reveues paid through the realizatio of icremetal capacity allocated withi the frames of the Ope Seaso procedure shall be determied uder the followig formula: к НГП ОС = f НГП к НГП к ОС required aual reveues paid through the realizatio of icremetal capacity allocated withi the frames of the Ope Seaso procedure; f- F-factor, approved for the procedure by the Natioal Regulatory Authority; НГП к required aual reveues allocated to the added capacity; Art. 14 The bookig prices for the etry ad exit poit of the Project shall be determied uder the formulas: = НГП ОС Ц ОС Квх пр к изх. = НГП к изх. ОС Ц ОС Кизх. пр Where: Ц ОС bookig price at etry poit, BGN/MWh/day/year; к изх. Ц ОС bookig price at exit poit, BGN/MWh/day/year; вх К пр adjusted allocated capacity at etry poit, MWh/day/year; изх К пр adjusted allocated capacity at exit poit, MWh/day/year; НГП ОС required aual reveues paid through the realizatio of capacity withi the frames of the Ope Seaso procedure at etry poit, determied as 50% of the required aual reveues paid through the realizatio of icremetal capacity allocated withi the frames of the procedure (НГП к ОС ) (BGN); НГП ОС к изх. required aual reveues paid through the realizatio of capacity withi the frames of the Ope Seaso procedure at exit poit, determied as 50% of the required aual 5

6 reveues paid through the realizatio of icremetal capacity allocated withi the frames of the procedure (НГП к ОС ) (BGN); Art.15 The adjusted allocated capacities shall be calculated as average weighted capacities for the offerig period, upo cosideratio of their availability i time, uder the followig formulas: К вх пр = К изх пр = Where: вх. ((1+d) t t 1 t ((1+d) t изх. ((1+d) t t 1 t ((1+d) t t successive year from the offerig period; вх. allocated capacity at etry poit i the t year, MWh/day/year; изх. allocated capacity at exit poit i the t year, MWh/day/year; d discout factor, equal to the determied rate of retur of capital before taxatio. Art. 16 The coditio for successful coduct of the ecoomic test (curret value of the required reveues covered by the realizatio of icremetal capacity i the Ope Seaso procedure) shall be determied uder the formula: НСНП = Ц к ОС изх. K изх. к t + Ц вх. вх. ОС (1 + НВ) t t Ц ОС bookig price at the etry poit BGN/МWh/day/year; к Ц изх. ОС - bookig price at the exit poit BGN/МWh/day/year; вх. capacity subject to allocatio at the etry poit i the year t i MWh/day/year; изх. capacity subject to allocatio at the exit poit i the year t i MWh/day/year; t successive year of offer; umber of years of offerig the icremetal capacity; 6

7 НВ rate of retur of capital before taxatio. Art. 17 (1) Whe carryig out the procedure, the Operator shall study the cost of services related to provisio of icremetal capacity uder the procedure, (2) O a proposal by the Operator, by decisio of the Eergy ad Water Regulatory Commissio (EWRC), approves the required aual reveues from the realizatio of icremetal capacity, allocated withi Phase 1 of the Ecoomic test of the procedure ad rate of retur of the capital before taxatio valid durig coduct of the idividual phases of the procedure. (3) For each phase of the Ecoomic test, accordig to the rules of this Methodology ad takig ito accout the decisio uder item 2, the Operator shall: 1. determie the required aual reveues paid upo realizatio of icremetal capacity allocated withi the frames of the procedure i compliace with the preset Methodology; 2. depedig o the capacities offered for realizatio durig the relevat phase ad the aouced duratio of the offerig period, the operator shall determie the bookig prices for the etry ad exit poit uder the procedure; 3. determie the coditio for successful coduct of the ecoomic test. Art. 18 This Methodology has bee approved by a decisio of the Eergy ad Water Regulatory Commissio Д-1/ г. 7

FINANCIAL MATHEMATICS

CHAPTER 7 FINANCIAL MATHEMATICS Page Cotets 7.1 Compoud Value 116 7.2 Compoud Value of a Auity 117 7.3 Sikig Fuds 118 7.4 Preset Value 121 7.5 Preset Value of a Auity 121 7.6 Term Loas ad Amortizatio 122