ECONOMY ENERGY

Energy Minister: I believe we are at a crossroad on the gas market

Gas producers and distributors are to trade on the stock exchange at least 40 percent of the production, starting next year, or they will be fined with significant amounts, according to their turnover, the Romanian Minister of Energy Victor Grigorescu said in an interview to Agerpres.

The Ministry of Energy is working on an emergency ordinance to amend and modify the Electricity and Gas Law; it could be discussed in the cabinet in September.

The minister stressed that, prices would this way become more transparent, while more actors would enter the market, and this would allow consumers to get the best prices. This means the system would be reformed, as currently 98.5 percent of the gas is traded through bilateral contracts, forbidden on the energy market.

Grigorescu also said that some of the known companies on the market want to delay reforms, because they’re favored by the traditional way of trading on the market, and the changes could cost them market shares. However, in his opinion, it’s the right time for new, modern and transparent mechanisms able to stimulate the Romanian gas sector development.

The minister explained that there is hard work being done in preparation for listing Hidroelectrica. Although he was not entirely sure if the right time for listing it would be the upcoming winter or spring, Grigorescu says Hidroelectrica has good chances to be one of Romania’s best listings.

He also spoke about the situation in Oltenia and Hunedoara energy giants, but also about the Bucharest heating system.

 

What is the ministry planning in terms of changes in the Gas Law?

 

I believe “changes in the Gas Law” does not describe exactly what we’re planning to do, the reform we’re preparing in the gas sector. What we are doing is to first seriously work on the transparency of the gas market, as we pledged in or governance program: to encourage gas trading on the stock market. We intend to set a minimum percentage of centralized market trade, for both producers and distributors. If the percentage is not respected, we’ll significantly fine the companies, according to their turnover.

It’s very important that we do this and I’ll give you an example to explain the situation we’re in. Today, only 1.5 percent of Romania’s consumption was traded on the central market. The rest is subject to bilateral contracts. Our purpose is to trade around 40 percent of Romanian consumption, which is about the amount of household consumption. Therefore, the main beneficiary of this provision, would be the individual consumer; it is the first time we’re compelling the gas distributors to purchase the gas transparently, indiscriminately and fairly – not through bilateral contracts that are difficult to verify and do not offer a clear view over the gas price. It would be the first time one can see how this price forms.

It is an essential step towards a functional and attractive market, for both distributors and producers. They can now have a functional market, they can invest in exploration and production activities to reveal and sell new hydrocarbs reserves. Romania is sitting on a significant gas potential and this is one of the instruments we can offer to gas producers.

Of course we’re looking at measures beyond the Ministry of Energy, and we don’t look at it as the only measure to be taken. We are going to request the involvement of other institutions in adopting secondary legislation so that this initiative becomes reality and has a full impact; we’re going to ask our colleagues from the National Authority for Energy Regulation (ANRE) to adopt the methodology in order to create a balanced gas market and a spot gas market. This is something we asked for this summer and it’s an older wish of ours to get these to functional markets. (…)

I believe we are at a crossroad on the gas market. We’re at a moment when we know for sure that we have a strong sector, that we have reserves, that we have potential in the Black Sea and not only, because there are other deposits discovered these past few months. We’re talking about the most important infrastructure project, the BRUA 528 kilometer gas pipe. I believe it’s time to talk about evolution on the market side, of transparency and new mechanisms to develop this sector.

 

Did you have any talks with the operators on the market in this respect?

 

We had talks with almost all the operators on the market and the associations in the field. Of course, reforms may never come at the right time and maybe many want this to happen at a later stage.. But I believe that we need to be ambitious, to believe we are at the right time, and I thing we set out with and important step to establish a minimal trade percentage. It’s not something only we are doing, it’s been done in Netherlands and in other countries and it proved to be an effective strategy. This strategy should continue in the coming years, because at the end of this decade, when we’ll have a high pressure pipeline, BRUA, already built, and our reserves in the Black Sea I hope already exploited, we’ll also have a truly functional market, not necessarily benefiting only Romanians and Romania, but maybe the whole region. I believe that by taking this step we’re positioning ourselves as an avangarde legislation area in terms of gas.

 

Who exactly wants this reform postponed?

 

I think there is some kind of trend to snooze things, but this is not necessarily linked to one actor on the market. Of course, this type of transparency reform is to pull some of the known actors out of their traditional habits, because by compelling distributors to purchase gas in a set percentage on the stock exchange we bring the gas importers at the stock exchange too.

We got used to talk about what we should do in Romanian and to tell ourselves that the right moment is tomorrow. I think we all win out of this, actors on the market, producers, and finally the consumer; we gain the idea that our resources are transparent. We know what happens with gas in Romania. This is an important step for the next period of time, for the coming years. (…)

 

Where would all the transactions take place?

 

We have two platforms at the moment. I’m not going to name them, so that I wouldn’t favor anyone in particular. There are two known platforms where energy is traded and they’re ready to take over the upcoming transactions. There are gas transactions on the Public Administration Excellence Society (SEAP). There are state institutions that issued public calls on SEAP to purchase gas.

But as I was saying, I will ask ANRE to develop mechanisms for a balancing market and a spot market, so that we have all the instruments we need. From where we stand, we’re a neutral actor, we want competition, good services, and we want these platforms to develop in other directions, maybe towards Forward contracts or hedging as well as other sophisticated instruments. We want the banking sector involved in the area, because this is still an important market and there are sophisticated methods to cover the risk on a long term. We need to start somewhere and this is the right step to take.

 

What’s the timeline?

 

We think trading should start in 2017.

 

And you’re working on an emergency ordinance draft?

 

Yes. We held a round of consultations with the actors on the market. We’re going to start a public consultation and, given the internal approval procedures, we’ll submit it as soon as possible. Our intention is to do this in September.

 

What’s the situation in the Oltenia Energy Complex?

 

Oltenia Energy Complex is in full restructuring process and, even if the situation is not as complicated as in Hunedoara Complex, where we’re dealing with insolvency, Oltenia also needs a lot of work. It reported 900 million lei in losses last year. This year we approved a budget without loss, with lower spending, while we also have drops in revenue, because the energy market this year was less rewarding with the drops in prices. This restructuring, streamline budget also includes personnel cutbacks, especially in areas with significant financial losses.

I think the most complicated part is that you’re asking about the situation there. Unfortunately, Oltenia Complex is functioning in a special local environment, which proved extremely toxic for the company in the past, which ticked it, politically influenced it for personal gains or directed its resources anywhere else but for the good of the people or the good of the community. There is still strong resistance to change and it is very obvious. There are still criminal files showing up, gross political interventions in the management of the company and I am sure the cleaning process will not stop too soon.

On the other hand, there are also positive things. Oltenia Complex recently signed investment finance contracts for a series of energy groups with the Ministry of Energy, modernization contracts amounting to 21 million euros. Oltenia Complex is currently negotiation building a new energy group, in partnership with a foreign investor and I hope this project will be finished and we will be able to bring a 200 million euro investment to Gorj, with all the advantages it holds.(…)

 

What can you tell us about Hunedoara Energy Complex?

 

In Hunedoara Energy Complex the situation is a bit more complicated, because the company already declared insolvency. As you know, at the beginning of this summer, after a debate in the Mining Committee, we announced the restructuring plan, its components, what we’re about to do and we’ve been following this plan. We already notified The European Commission of our intention to include two of the four mines in the shutdown program, and we’re in the process of negotiating it and doing then paperwork. We initiated a series of cutbacks that were extremely necessary due to the situation the company is in and we approved in a previous Cabinet meeting compensation for the people who were fired; in parallel we’re developing a plan to salvage the viable assets of the company. (…)

Of course, the alternative in this situation is bankruptcy and the loss of all jobs. There are some people who talk about it easily out of recklessness or lack of knowledge, but we are living very difficult moment, with strikes and protests. The worst thing that can happen is maybe that a company in such a delicate situation, on the edge, takes such a destructive path. This would push the company into a precipice and would lead to negative consequences for the entire Jiu Valley region. (…)

 

I never said that restructuring in the Jiu Valley would be easy. I never promised anyone that we’d avoid cost reduction and cutbacks, some even painful, but I promised that we’d have a company that survives, and I for one I will keep that promise, despite obstacles. We’ll surely do what it is up to us and we’ll not back away from what’s necessary.

 

How advanced is the process of listing Hidroelectrica?

 

Our engines are fully revved up. It is, of course, a complicated process, there is a lot to do in Hidroelectrica, to clarify assets, the company’s patrimony, clarifying last years’ development directions, for instance modernization projects or expansion projects. We need to clarify aspects linked to past investments, some of them are anchored in an outdated philosophy. We need to recruit a corporate management. The current management is interim, even if Hidroelectrica has a  good Overseeing Council that could take charge of the entire process.

Hidroelectrica recently recovered from insolvency. We’re working on updating all these things, in order to be able to show investors a coherent, trustworthy prospectus the can attract a good amount of money for the company. I think Hidorelectrica has real potential of becoming Romania’s most successful listings, if we look at the price of shares.

But we need to show investors and ourselves a coherent vision of what Hidroelectrica is to become in the coming years. Of course, after four years of insolvency, it’s almost impossible to articulate this vision. Therefore I think the whole process will adjust its speed, and that despite late reflexes, it’s going in the right direction. We have involved professionals, analysis commissions, consultants looking at all this and I believe that a sum of very important aspects are becoming clearer. Progress goes on.

We’ll see; if your question is when we’re going to list Hidroelectrica, we’ll see. I’d like this to happen at the right time, meaning when we’d be able to get the best price on the market and not before all the preparations are done. We pledged in the governance program that we’d finish this process and that we’d continue these preparations. It remains to be seen if the right time will be the upcoming winter or maybe next spring, but there are technical elements we need to clarify before making such a decision. But of course, if this will happen during the mandate of this Government, we will list it. We have the elements to proceed with the listing.

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