The price starts at 0.52 lei (EUR0.11) per kilogram instead of the RON0.63, last week’s asking price, so it is a bargain for the last remaining pieces of what used to be Europe’s sole producer of heavy water, a key component of the nuclear power generation chain.
While the Energy Minister urges people on Facebook to not despair and reassures that good things are happening in Romania, the system is coming apart the seams close the start of the winter season.
RAAN was declared bankrupt this June, after having filed for insolvency in the fall of 2013, due to RON680 million debt, and accumulating another RON70 million ever since.
Complexul Energetic Hunedoara (Hunedoara Energy Complex), the only company still mining the black coal in Valea Jiului (Jiu River Valley) went insolvent this June, too.
Complexul Energetic Oltenia, on the other hand, says it is not doing as bad, though debt keep piling up and solutions to turn things around are nowhere in sight.
A solution to ‘save’ Bucharest’s heating system, too, was found last week and that was for heating provider and distributor Elcen and RADET to file for insolvency at almost the same time.
Meanwhile, the National Uranium Company, the sole local uranium mining company, halted production and the reactors of the nuclear power plant in Cernavoda are running on Canadian fuel. Nuclearelectrica, the country’s second cheapest electricity generation company, has slipped into the red, hit by the drop in electricity prices. The company accounts for 20% of Romania’s electricity production. Wind power plants are in the red, too.
“Goods things are happening in Romania, which we must be proud of,” Energy Minister Victor Georgescu wrote on the wall of his personal Facebook account on September 15, after paying a visit to the offshore drilling rigs of OMV Petrom. Petrom is no longer a state-run company and the Energy Ministry only holds a minority stake in it.
Where it all started
“It pains me and gives reason to worry when I see what is going on, especially in the energy generation sector,” says Carmen Neagu, chief executive officer of EnergoBit, one of the most prominent experts in the energy industry, who has an over thirty-year experience in the business.
“I think we are now reaping the results of steps that were not taken at the right time. Breaking up the system into smaller and smaller companies led to this.”
Romania is one of the few countries that paid the smooth running of its energy system as the price for compliance with the obligations set by the EU. Energy generation companies were broken up into smaller entities by resources and pitted against each other, distribution operations were separated from production and so on and so forth.
“This separation could have been done less aggressively and we have such examples around us, like CEZ (Czech state-run vertically integrated company i.e.). We just squandered the very valuable legacy built by professionals, which we did not know how to manage,” Neagu says.
Insolvency is not a cure for everything
While undertaking restructuring programs comes with political costs, the authorities saw insolvency as the solution. People in the industry, however, question the wisdom in that.
“Hidroelectrica is one example, but not all energy companies are in its position. Things were going well there, and the insolvency only helped it clean up,” believes Ion Lungu, chairman of the Association of Electricity Suppliers in Romania (AFEER).
The latest example of insolvency seen as a solution is what happened in Bucharest last week. Heating distributor RADET filed for insolvency, and one day later heating generation company Elcen followed suit, making people in the city wonder whether they will have to endure the cold in their homes this winter or not.
“I meet with experts and tell them we have one of the best heating systems in terms of design, concentrically built and we are just squandering it,” Neagu says.
Do not despair!
Almost 33% of the energy generated on Romania on Wednesday came from coal mines. The companies generating it were Complexul Energetic Oltenia and Complexul Energetic Hunedoara. The former posted more than RON960 million lei losses last year, while the latter went insolvent on RON1.6 billion losses. Both are held by the Energy Ministry.
Energy Minister Victor Grigorescu in early August said the coal accounts for 30% the electricity generated in Romania, but coal mining companies are insolvent.
“I have a question: how come these companies are in free fall? Surely there have been some flaws in the system for decades, some just looked at them idly and are now complaining about them today,” said Victor Georgescu, who has been energy minister for one year.
“The most important thing in an insolvency is the restructuring plan. Why not devise it before getting there?” Carmen Neagu wonders.
The problem here is the market is not good today, either. Power prices are at an eight-year low, consumption is flat and producers are barely coping with costs. The region is no longer offering any lucrative export options, either.
“The market trend is really bad for producers. The system needs a lot of investment but given today’s prices, the money isn’t coming, so we are on a downward spiral (…), Ion Lungu says.
The Energy Ministry should reveal the energy strategy this month, something the industry has been expecting since 2008.
“We must not despair, but think things medium and long-term,” the energy minister writes on Facebook. (EUR1=RON4.4493)
(English version by Loredana Fratila-Cristescu)