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05/12/2016

Romanian state-owned hydro firm hit with heavy fine

Trade & Society

Romanian state-owned hydro firm hit with heavy fine

Romania generated 34% of its energy needs through hydropower in 2010. That figure dropped to 27% in 2013.

[Phillippe Teuwen/Flickr]

Romania’s Competition Council has hit state-owned energy firm Hidroelectrica and ten other companies with fines totalling €37 million after an investigation into anti-competitive contracts. EurActiv Romania reports.

The decision was based on direct contracts that Hidroelectrica closed with ten other companies, for the delivery of electricity below market prices. The firm, which deals mainly in hydropower, was fined €4.6 million and cooperated with the Competition Council’s investigation, which began in 2012.

The Council handed out the largest fine of €16 million to Swiss electricity trader Energy Financing Team AG. Electricity trader Alpiq Romindustries and aluminium manufacturer Alro Slatina were fined €4.8 million and €4.7 million respectively.

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It was determined that Hidroelectrica handed out contracts without resorting to an objective selection process and promised output that simply could not be met, sometimes pledging 175% of what was realistically available. Their haphazard position was exacerbated by seasonal droughts. Between 2003 and 2012, the company was unable to meet power demands on 450 separate occasions.

The long-term nature of the contracts also meant that Hidroelectrica’s competitors were unable to make competitive offers to the state-owned company’s ring-fenced clientele. This, together with the firm’s inability to meet demand, bumped up the average Romanian household’s electricity bill.

“Essentially, all of Hidroelectrica’s power output has been delivered based on long-term contracts and thus the other market participants didn’t have access to this source of cheap electricity,” said Bogdan Chiri?oiu, the Competition Council’s president.

“Moreover, the contracts were concluded under the conditions in which all parties involved knew about the hydrologically increased risk, i.e. the insufficient amount of electricity available. Thus, to honour its contracts, Hidroelectrica purchased substantial quantities of electricity from the competitive market at a higher price than that charged to its partners,” he added.

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Hidroelectrica cancelled all of its contracts in 2012 and, as a result, filed for insolvency. It has since resumed trading electricity on the free market, where it returned to profit, even posting record figures in 2014. Surprisingly though, the company is still insolvent, pending unresolved legal proceedings.

In June 2015, the European Commission concluded an in-depth investigation into whether the contracts signed by Hidroelectrica had involved state aid and whether Romania was, therefore, in breach of EU law. The executive determined that the agreements had been concluded on market terms and that the prices agreed upon, whether they were below the benchmark market price or not, could not be attributed to the Romanian authorities.