These can all be considered events that marked the energy sector this year, a EUR30 billion business where the largest companies in the country compete.
The government, which still owns stake in many of the strategic companies, stood out in the scandals involving it as a shareholder, through manager and minister changes, so 2015 became of one of the low points for energy investors. The ten most important events in the energy sector were as follows:
1. Oil price at a decade low
Nobody could have seen the oil drop from a high of $115 in the summer of 2014 to the low of $35 in December, the lowest level in a decade. The slump was fueled by the fierce fight of the OPEC members to preserve their positions on the market at all costs and drive out rivals like US and Russia. With Iran starting oil deliveries, the price may drop to as little as $20 per barrel, the most bearish forecast so far.
As a result, oil producers like OMV Petrom are on the ropes and slashing investment budgets is the new rule for survival, while the refining companies are having one of the best times in the last few years. The cheap oil barrel also fueled a number of huge international deals, such as the takeover of Cameron by Schlumberger. The two are oil industry service providers and have a presence in Romania, as well.
2. Green energy goes from El Dorado to nightmare
Italy’s Enel, Energia de Portugal, Czech Republic’s CEZ, Austria’s Verbund have all been forced to take an impairment of their assets on which they bet billions of euros due to the changes in the green power support scheme. The sector therefore turned from a money-maker into a black hole. Petrom is looking for buyers for its wind turbines and Monsson Group, the largest wind farm developer, decided to dismantle a 27 MW wind farm.
3. Kazakhs strike deal with Chinese for Rompetrol
The Kazakh owners of KMG International, an entity registered in The Netherlands, which they use to control Petromidia, the largest refinery in Romania and more than 730 filling stations, struck a deal with Chinese-held CEFC to transfer control over the former Rompetrol group rebranded as KMG International. Although the Kazakhs say they still own KMG International 100%, the international media is talking about the transfer of a 51% stake under an agreement put at $0.5 billion to $1 billion. KazMunayGas does not deny it did get an offer from the Chinese but will not say exactly how large the stake is.
4. From farewell to EUR630 million
Italy’s Enel reconsidered its decision to sell the electricity distribution and supply assets in Romania early this year after having set out to find a buyer for its local operations and the assets in Slovakia in the summer of 2014.
Enel management this year announced it would have a EUR630 million investment budget for Romania in 2016-2019, which it will spend primarily on the distribution infrastructure, its core business in this country.
5. Biggest fraud scandal in Romania
In a 123-page indictment, the prosecutors with the Prosecutor’s Office by the Ploiesti Court of Appeal detailed how Petrotel Lukoil, the third largest refinery in Romania, was decapitalized, and this is what the biggest scandal in Romania’s economy is based on.
From an initial EUR230 million fraud, the prosecutors arrived at an over EUR1.76 billion one. The investigation is ongoing, but this is the first time a foreign investor is involved in a scandal of such magnitude where the main suspicion is the repatriation of profits using a highly complex scheme.
6. Fight over Electrica’s money and a new minister
Electrica, the largest electricity distribution and supply company in Romania, spent a year frozen in place due to the fight between the government and private managers. Instead of turning the hefty cash reserve the company is sitting on, EUR630 million, into an acquisition and investment driver, it was only used as the fuel in the corporate scandal of the year.
The fall of the Ponta Cabinet led to a new person being appointed energy minister. The new minister is Victor Georgescu, a former member of the board of Directors of Electrica, and the first thing he did in his new position was to have Laurentiu Ciurel, general manager of Complexul Energetic Oltenia (Oltenia Energy Complex) replaced. This does not prevent all those people with a background in football, former Danube Delta governors or with a film industry background to keep their seats in the boards of energy companies even after the technocratic government of Dacian Ciolos took office.
7. Return of appetite for diesel oil and electricity
The oil price slump took the diesel oil price to a five-year low. Though hardly good news for oil companies, demand was up, so the sales volumes were 10% higher nine months into the year. Electricity consumption rose, as well, with demand higher by 4% in January-September.
8. Independence, but at what cost?
Romania became almost completely independent of Russian gas imports in 2015. Although it should be good news, its independence is only because of one reason, and that is the 10% decline in natural gas consumption in the first nine months due to the lower demand from the chemical fertilizer sector and the combined heat and power plants.
9. Good news from the Black Sea
Russia’s Lukoil in October announced it had found a 30 billion cubic meter gas deposit, which is enough for three years of consumption in Romania, in a Black Sea block where Romgaz owns 10%. This is the second announcement after ExxonMobil’s and Petrom’s in 2012, and shows the potential of the Black Sea. The problem is that the government is not doing anything to devise a strategy to use this gas to generate local value added, working instead on projects to export it.
10. Young wolves on fuel market
The rebound in demand on the local oil market also brought new competitors, expansion plans of already existing companies or new business models for the veterans of a EUR10 billion sector. Nobel Oil wants to grow to 80-90 gas stations in five years, MOL is ending the year with 12 new stations and Rompetrol is looking for dealers throughout the entire country for its 135 gas station network. Another move is the increased focus on turning gas stations into regular service centers.
(English version by Loredana Fratila-Cristescu)