The order, recently adopted by energy regulator ANRE, will create severe imbalances in the Romanian energy market, leading to an immediate price increase in the competitive market, with negative effects on Romania’s economy, investor confidence in the predictability of energy policies and the market value of affected companies. Romanian households will be negatively affected as higher electricity prices instead of competitive ones will ultimately be passed through by increasing prices for various products.
The order does not treat all electricity producers equitably, placing the burden of subsidizing the consumers benefiting from especially regulated power supply under the responsibility of those power producers with the lowest costs of production (such as Hidroelectrica and Nuclearelectrica, companies controlled by the Romanian state).
Establishing the regulated profit rate in an arbitrary way at 5% has no economic basis, generates financial losses for the affected producers and is not aligned with the text of the Government Emergency Ordinance 114/2018. Thus, the order punishes energy producers which have increased their efficiency while creating an unfair advantage for poorly performing companies. Fondul Proprietatea strongly recommends using a market reference price to set the price for electricity, such as, for example, the day-ahead market price.
The order may lead to more electricity imports at prices which cannot be capped, thus further penalizing Romanian consumers and Romanian producers.
On the other hand, the order gravely affects companies by forcing them to sell on the regulated market, FP said.
Imposing specific quantities of electricity to be sold by electricity producers to suppliers through regulated contracts, while at the same time setting the level of the regulated prices at below market prices, will result in serious negative consequences for the financial situation of the companies forced to sell electricity through such regulated conditions. The most negatively affected will be Hidroelectrica and Nuclearelectrica.
The maximum quantity of electricity to be sold on the regulated market (up to 65% of the expected available energy for hydro and nuclear power producers) is excessively high, most likely causing Hidroelectrica and Nuclearelectrica financial losses from unrealized revenues and profits amounting to hundreds of million lei. These measures would lead to lower amounts to be received by the Romanian state these two companies in the form of dividends.
Forcing electricity producers to sell a disproportionately high volume of the expected annual production on the regulated market, while they still have to meet existing obligations from contracts previously concluded on the competitive market, exposes them to the risk of having to buy electricity from the free market to cover the energy requirements of the regulated market. Producers would thus record losses resulting from the purchase of electricity from the competitive market at a higher price than the price they will have to sell in the regulated market. Among others, this type of practice was one of the reasons that lead to Hidroelectrica’s insolvency in 2012.
The measure also reduces the cash available to the companies which could be used to finance investments, negatively affecting the long term stability of the energy sector.
The order establishing regulated energy prices flagrantly violates local and European legislation in force. Both the Romanian Law 132/2012 on electricity and natural gas and the EC Directive 72/2009 concerning common rules for the internal market in electricity categorically require that regulated price mechanisms must be non-discriminatory to all electricity producers, economically justified, and transparent. The order fails to meet any of these three mandatory conditions.
Launched in December 2005, Fondul Proprietatea was established to compensate Romanians whose properties were confiscated by the former communist government.