On his laptop, Cirstea scans the offers on European energy exchanges. One click is enough for several megawatts to cross the border into Hungary.
“Romania’s exports are going very well lately. The price abroad is high. For instance at the beginning of October, when there was a sudden cold weather spell all across South-Eastern Europe and consumption increased, in Hungary the short-term price of energy was around 250 lei/MWh,” says Tudor Cirstea. On October 1 the average weighted price on the Romanian spot market was RON71/MWh, according to data of energy bourse operator OPCOM.
But how much money can be made from energy wholesale? Data from the National Energy Regulatory Authority (ANRE) shows that last year the wholesale electricity market was worth around EUR4.2 billion, which included bilateral contracts, spot market contracts and exports.
Freepoint Commodities got its license as an energy wholesaler in Romania in March 2012 and that year it had a turnover of $20 million.
Cirstea, 39, is the only employee of the company’s Romanian office, with the other activities being done from London, the headquarters for Freepoint’s European operations.
“I have tens of colleagues in London. I am here rather for logistical reasons, because someone is needed here.”
But the company’s plans for fast development in Romania were thwarted by the decision of the Romanian authorities to ban buy-sell energy contracts from being sealed outside of the centralized market managed by OPCOM.
“For the moment our original plans involving Romania cannot come true because it is very difficult to do trading here. For our first year we were planning to reach revenues of $20-25 million and hoped to then climb towards $50 million. But now we have to be more modest,” Cirstea says.
The decision that froze the market
Since last year, under the Energy Law, bilateral energy contracts can no longer be sealed outside of centralized platforms, i.e. outside of the OPCOM energy bourse. Before the law came into force only state-held electricity producers were required to sell their electricity on the bourse, but since the law came into force all market participants have had to do their trading through the bourse.
The problem is, say traders, that the Romanian bourse lacks the mechanisms that would allow it to trade electricity in real time. For instance, on the platform of bilateral contracts the auction notices are sent by fax and it takes more than a week between the notice is sent and the time the auction takes place.
“In Europe at the moment Romania is a black stain where bilateral contracts between two private companies cannot be concluded, which I don’t find normal.”
He says the authorities knew that bilateral contracts between private companies and the Romanian state were sealed at suspiciously low prices because those contracts were reported to the energy regulatory authority, so it is the fault of the Romanian authorities that they could not stop the theft. Cirstea adds that the state ended up banning all bilateral contracts, which hurt all companies.
“The shady deals can only involve state-run companies. It is they who should be forced to trade transparently and only on OPCOM,” Cirstea explains.
However, the latest case of corruption, the one in which hydro-power producer Hidroelectrica almost answered a buy offer submitted to OPCOM, which would have cost it around EUR66 million, shows that not even transactions on the energy bourse are sheltered from political influence.
In the past a small number of companies, especially traders, bought energy directly from Hidroelectrica at less than the market price and sold it at higher prices.
Market to unfreeze this spring
Regulatory authority ANRE has announced that as of February 2014 companies on the market will be able to meet on an over-the-counter trading platform , which will allow the real-time selling and purchasing of energy packages to be delivered in the medium and long term.
This will be done through a software application similar to that used by traders on Western European markets.
This is basically a table that includes the sell and buy offers introduced by participants, ordered based on the amount offered and on delivery dates. The transactions require one click on the desired offer.
Potential interest in gas
Globally Freepoint operates in electricity, gas, emissions, coal, petroleum, as well as precious metal trading.
“In Romania we have only identified opportunities on the electricity and CO2 emissions market and the next segment we are looking at is that of gas and petroleum projects.”
In August Freepoint and two other companies invested $110 million in Whistler Energy, a US petroleum company. The capital inflow allowed Whistler to buy concession rights over two oil and gas fields in the Gulf of Mexico, plus an offshore platform. In exchange Freepoint gets the right to sell the hydrocarbon production on the platform. In the past this production amounted to up to 30,000 barrels per day (equivalent to about $3 million at the current prices of crude oil.
Freepoint plans to use the same strategy in Romania.
This strategy has already been applied in Romania by major international trader Mercuria, which has invested $50 million in Amromco Energy, the third largest local producer of natural gas, with the aim of later selling production, after liberalization of the gas market.
The liberalization of the energy market will mean increasingly high turnover and increasingly more clients for energy suppliers in the coming years. But Cirstea rejects the notion that Freepoint could move from the wholesale to the retail market.
“We don’t do anywhere in the world supply [to an end client] and we will not start such an experiment in Romania.”
(English version by Daniela Stoican)