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04/12/2016

Ukraine crisis, anti-corruption drive, boost Romanian energy reform

Energy

Ukraine crisis, anti-corruption drive, boost Romanian energy reform

Local power plant, Bac?u. Romania, 2001.

[Sludge G/Flickr]

Recent investigations of “smart guys” contracts have helped reduce corruption within the Romanian energy sector, and have accelerated the country’s market liberalisation, at a time when the Ukraine crisis has forced Bucharest to assume a more important role in region. EurActiv Romania reports.

The Romanian energy sector has undergone important changes in recent years. Through consistent judicial and legislative efforts, both the fight against corruption and the legal framework regulating the sector have greatly improved.

A 2014 report of independent think tank Expert Forum notes that with the adoption of new legislation in 2012, the Regulatory Authority for Energy has become more independent of political pressure, and that some of its activities have become more transparent. The report contends that there still remains a need to increase the transparency and quality of the Authority’s actions, though, as well to tackle remaining corruption issues.

Market liberalisation

As an EU member, Romania had to start the process of liberalising its energy sector. Almost immediately, Romanians were confronted with predictions of higher prices. The government subsequently postponed the process.

Asked by EurActiv Romania to comment on what an open gas market will mean for Romanians, Expert Forum analyst Otilia Nu?u said that gas consumers should be able to switch suppliers.

Romanians do not understand is that they are not required to purchase energy exclusively from the company that manages the distribution grids (EON or GDF), Nu?u explained.

She added that customers would be able to purchase from any of the 120 suppliers in the market, and that the distribution companies managed by EON and GDF will be required to ensure access to gas from suppliers, at regulated distribution tariffs.

What is needed is a well-designed social safety net, where the government can provide targeted income support for consumers who are too poor to afford price increases.

Romanians must also change their understanding of consumer protection. It does not mean “cheap gas”, but affordable energy, of good quality, without unexpected interruptions, with information about what is supplied.

Vulnerable consumers

A key element Romania’s energy strategy concerns the protection of vulnerable consumers from fluctuating prices. As the European debate on the Energy Union picks up momentum, many suggest that Romania should use its own natural resources, an advantage which gives its significant breathing room to assume a more forceful role in promoting the issue.

During a recent debate on the Energy Union organized by the European Parliament’s Information Office in Romania, Victor Bo?tinaru, MEP and vice-chair of the S&D group, noted that despite being rich in energy resources, Romania has had a small presence in the overall European debate. He argued that finding a solution for vulnerable consumers needs to become a priority.

The same problem was highlighted by the former Romanian Energy minister, Razvan Nicolescu. During the same event, he noted that Romania should have significant input, as it is a supplier. Nicolescu argued that this leverage should be used to support an EU-wide definition of the vulnerable consumer.

Infrastructure Concerns

Beyond the legislative framework and price rates, an essential problem for Romania’s energy sector lies with the state of its transport infrastructure. Although recent improvements have been accomplished, there are many elements that have not yet been addressed.

The ongoing debate over the Energy Union pushes the topic of energy infrastructure further into the spotlight, particularly as the level of funding is not insufficient only in Romania, but at EU level as well.

In this sense, the Vice-President of the European Parliament, Adina V?lean (EPP), has drawn attention to the fact that the EU cannot cover the costs of infrastructure development. Participating in the debate on the Energy Union, she encouraged the usage of EU funds in conjunction with other financial mechanisms that can help attract private resources.

Similarly, Otilia Nu?u explained that although some improvements can already be seen, there is great need for better usage of EU funds in Romania.

Romania should be able to export gas, which requires investment for reverse flows on Arad-Szeged (Romania-Hungary), compressors to be able to export to Moldova on Iasi-Ungheni (Romania-Moldova), reverse flows with Ukraine, and an interconnector with Bulgaria on both directions.

Electiricity transmission operator Transelectrica must also invest to better integrate future renewables and export to Moldova. The main challenges are to have good tariff regulations and to make best use of available funding, including from EU, Nu?u said.

Energy security in the region

The situation in Ukraine has raised many concerns and has turned the eyes of Ukrainian officials towards Romania. The country`s important energy resources makes it an important partner for escaping Russia’s energy supply monopoly.

In a recent interview with EurActiv.ro, Teofil Bauer the Ukrainian ambassador in Romania, said that Romania’s energy sector reforms are very important for his country. “Romania will become an exporter of energy resources, and we, as a neighboring country, are very interested in working with Romania in this field,” Bauer said.

Indeed, Romania has important resources, which could be exploited for the export market. However, some suggest that the country is still far from assuming a key role in the area.

”What concerns us is not the reliance on Romanian gas, but to ensure that we do not rely too much on a single supplier which can abuse market dominance. Romanian gas (Petrom, Romgaz, and the new reserves) must compete with Gazprom. In a few years, the gas that we import from Hungary will no longer be from Gazprom only,” Nu?u said.

Asked to explain what is expected from Romania in the context of the Energy Union, she said that this new initiative of the Union is not much more than a renewed urgency in implementing the Third Energy Package and building a single European energy market.

“Romania has only to gain from the Energy Union. […] Forcing the energy companies to compete means, for example, that “smart guys” contracts (long term contracts for energy from state owned companies to preferred buyers, non-competitively, at below market price) could no longer be renewed. Market liberalisation means that preferred consumers could no longer get energy at regulated prices, or use regulated prices as fake price references to purchase cheap energy from state-owned companies,” Nu?u added.

According to Nutu, the Ukraine crisis has triggered a new sense of urgency to solve longstanding problems. The solution is the faster implementation of the single European energy market, so that countries are better interconnected, and can purchase gas from more sources and routes, she said.

Background

Romania is one of the most energy-independent countries in Europe as a net exporter of power, although it must import oil and some of its gas.

Romania's energy sector needs about €100 billion worth of investment in power, oil and gas production, mining and related infrastructure by 2035 to be more self-sufficient, the country’s energy ministry recently estimated.

Romania uses a mix of gas, coal, hydro, nuclear and renewable energy to generate electricity. But roughly 55% of all generation plants are 30 to 40 years old and need to be replaced gradually or the country risks losing its energy independence, the draft said.

Part if the plans are adding two more units to Romania's sole nuclear plant in Cernavoda on the river Danube, at a cost of roughly €6.5 billion, as the best way to replace ageing power plants.