It was only a matter of time before the government gave in to the pressure of the large industrial consumers, which threatened to scale back their activities or even relocate.
February started with taxes introduced out of the blue for the major energy, oil and gas companies, the summer came with the Nabucco failure and with Hidroelectrica’s exit from insolvency. Then came the first private managers and the stock market listings.
Besides all these events, 2013 was also a year of decline for all the major energy markets, be they electricity, oil or gas. Was it a bad sign from the industry or just a change in the structure of Romania’s economy? These are the most important events the energy market went through in 2013.
1. Hidroelectrica’s exit from insolvency
The nightmare of Romania’s largest electricity producer, Hidroelectrica, ended in late June, with the company exiting insolvency one year and seven days after the announcement that shocked the local business sector. The company fired 700 employees, terminated the bilateral contracts that cost it more than EUR1 billion in losses and returned to profit.
Banks are again willing to lend it money and people on the stock market say its year of insolvency will not be a deterrent to investors.
Remus Borza, the court-appointed trustee of the company, became EUR2.2 million richer, because of the bonus he received for getting Hidroelectrica out of insolvency within the deadline announced, June. The problem is that now that consumption and prices have gone down, even the country’s cheapest producer has trouble selling its electricity.
2. Nabucco failure
A more than ten year-wait ended this June with the announcement of Austria’s OMV: Nabucco West, the remnant of the initial Nabucco project, lost the chance of supplying gas from the Shah Deniz II gas field in Azerbaijan via a 1,300 kilometer pipeline connecting Bulgaria to Austria via Romania.
In mid last year Nabucco underwent a major change, because raising the EUR8 billion needed was really difficult. A rival project was TAP, which only crosses three countries, starts from Greece and ends in Italy and is twice shorter. TAP won, leaving Romania continuing to rely on Russia for gas imports that cover one quarter of its consumption. Romania paid one billion euros to Gazprom via brokers for the gas it bought last year alone.
3. Green power subsidy cut
The rumors about an imminent change of the green power support scheme started floating around at the end of last year.
The energy market regulator ANRE published a report in March saying that the sector that had attracted more than EUR4.5 billion investments in the harshest years of the crisis had been overcompensated but a cut could only be implemented as of the following year.
Faced with mounting pressure from the major industrial consumers, whose power bills had swollen while orders had dwindled, the government in July decided to defer part of the support for the already operational projects until 2017-2020 depending on the power generation technology used.
The projects that become operational as of next year will be subject to a less generous subsidy scheme.
4. First private managers
The year 2013 was the year with the most important appointments to management positions in energy companies based on the Government Ordinance 109/2011 about the corporate governance of public companies.
In mid May, Daniela Lulache, the former general manager of Fondul Proprietatea (FP.RO) in 2008-2009, was appointed general manager of nuclear power producer Nuclearelectrica (SNN.RO).
In June, Petru Vaduva, the former chief executive officer of Tiriac Holdings became general manager of Transgaz (TGN.RO), Romania’s gas transmission company. Virgil Metea, who had had various management positions with E.ON Romania, was appointed to general manager of Romgaz (SNG.RO), the most valuable state-owned asset left.
Also in June, Stefan Bucataru, former CEO of Teraplast Bistrita, was put in charge of Transelectrica (TEL.RO).
The process of appointing private sector managers to state-owned companies was not without criticism. For instance, the government spent EUR150,000 in Complexul Energetic Oltenia (Oltenia Energy Complex) case before the headhunters realized the best private sector manager was the one the government appointed, Laurentiu Ciurel.
5. On the stock market at last
After years of promises about the listing of the major energy companies, two of the crown jewels finally took the step. Nuclearelectrica conducted an initial public offering for 10% of its stock in September.
The IPO closed at 11.2 lei (EUR2.5), the minimum level approved by the government in June, because investment funds were not as interested as to drive the price up. Nuclearelectrica therefore raised RON281.8 million via its IPO.
On the other hand, Romgaz, the largest natural gas producer in Romania, was more successful. The IPO for 15% in the company met with tremendous interest from investors, both foreign private equity funds and Romanian retail investors, which came up with EUR2.8 billion. Demand was seven times the supply, which allowed to government to sell the shares at RON30, almost the maximum level requested, RON32 and raise EUR390 million.
The most interesting companies scheduled for an IPO next year are Hidroelectrica and Complexul Energetic Oltenia.
6. New taxes
Early in February, the government introduced a series of taxes specially tailored to the major energy companies, enforcing them overnight without discussing them with those companies first. The new taxes were levied on the monopoly over distribution and transmission of electricity and natural gas, as well as the additional revenue gas producers get from the deregulation of the gas prices.
A new set of taxes is due to come into force next year, again decided overnight. Subject to the new taxes are the special building structures and fuel sold in Romania, which will carry a tax of EUR0.07 per liter. It is yet unknown how much each company will pay as special building structure tax. According to ZF calculations, the EUR0.07 tax per liter of fuel should generate some EUR650 million in one year.
7. Pungesti riots
Shale gas has become one of the hottest topics in Romania because of the conflicts between the inhabitants of Pungesti, a town in Vaslui County (east of the country), where Chevron’s first exploration drill should be and the riot police. Chevron was forced to suspend operations on several occasions due to the violence in the area, because the locals prevented its equipment from reaching the drilling location.
The main fear about Chevron’s project has to do with how shale gas is exploited, which is thought to make a serious impact on the environment.
As Chevron, the only company that went on record stating it wanted to drill for shale gas in Romania, said, with each drill enough water and sand to fill an Olympic swimming pool are injected at depths of up to 4 kilometers along with various chemicals to fracture the rock and free the gas trapped there. This fluid then gushes out and is stored on a field the size of two football fields, while waiting for treatment.
8. Down again
Demand for electricity, natural gas and fuel fell again this year, and one of the explanations for this is the milder winter and the cooler summer, the situation of the industry and a certain change in the structure of the Romanian economy, along with investments companies made in improving energy efficiency, market experts say.
The decline in power demand overlapped with a good year for hydropower production, as well as an abundant supply of electricity generated by wind farms, which drove prices down. The situation caused trouble for the producers of thermoelectric power, whose generation costs are higher, as well as for Nuclearelectrica, which, despite its lower prices, saw its contracts terminated by clients, who chose to buy power from the spot market instead.
9. Rompetrol memorandum
This February, the government tried to address the issue about Rompetrol’s debts via a memorandum. The document stipulated that the Romanian government, which owns 44.6% in Rompetrol Rafinare (RRC.RO), should transfer 26% to the Rompetrol group, the majority shareholder of the company, for $200 million.
At the same time, KazMunayGas, the owner of the Rompetrol group, pledged to set up a Kazakh-Romanian investment fund, in which Rompetrol should own 80% and the Romanian government 20%.
The fund was supposed to invest $1 billion in energy sector projects in the coming years. In exchange for all these conditions, the Romanian government was to drop all legal disputes with Rompetrol about recovering EUR516 million, the value of the bonds that Rompetrol Rafinare had not redeemed from the Romanian government in September 2010. The government got shares in to the company in exchange for the bonds.
The Constitutional Court, however, has recently ruled that the law approving the memorandum of understanding between the Romanian state, the Ponta Government, the Parliament and the Rompetrol group was unconstitutional.
10. Investments and new players
Texas-based Lufkin, which specializes in manufacturing oil and gas industry equipment, completed a EUR130 million plant in Aricestii Rahtivani, Ploiesti, in June this year. The investment confirms Ploiesti as the capital of Romania’s oil industry.
The local market demonstrated it is still attractive for the major oil companies, as well. Azerbaijan’s SOCAR stepped up expansion and is now operating seven gas stations, according to the latest information, which required EUR15 million investment.
Russia’s Gazprom in turn opened 13 gas stations and is now building another ten. It announced it wants to have a network of 120 stations by 2015, following a EUR150 million investment. (EUR1=RON4.4749)
(English version by Loredana Fratila-Cristescu)