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EditorialBy Apostolos Komnos, publisher

Romania, June 2012. Shale gas, alongside with natural gas resources in the Black Sea could provide, at least for a while, the much desired independence of Romania from Russian imports, said the experts attending WEC Central & Eastern Europe Energy Forum - FOREN 2012. Bucharest government says it will review the problem of shale gas, but only at the end of the year, after the parliamentary elections. The reason: the pressures generated by environmental lobbies which insist on the danger, real and/ or potential, involved in such exploitation.France, June 2012. Participants at an international conference on energy held in Deauville pointed out that the development of shale gas exploitation on large scale in the U.S.A. has reduced dramatically gas prices on the American market, and this fact obviously encourages the economic recovery overseas. France itself is in great need of recovery with low costs, but Paris government which has come to power also by the help of the environmentalists, does not dare yet to take a clear decision on the controversies on hydraulic rock splitting.Poland, June 2012. The Polish Chamber of Commerce, launching a study, attacked the EU targets on cutting off the CO and CO2 emissions by 2050. The study points out to the fact that, in a coal-dependent country like Poland, compliance with these targets would result in a 400% increase in electricity prices after 2020, a GDP slump of 10% by 2030 and additional expenses of € 22 billion Euro per year after 2050. The PCC’s secretary-

general does not hesitate to accuse Brussels of acting “in a communist style” because it is ready to sacrifice the (economic) reality for the sake of an (environmental) ideology.Germany, July 2012. The General Manager of Vattenfall Europe, the fourth larger producer of electricity in Germany, estimated that the electricity bill for private German customers will be 30% higher in 2020 than it is today, because individuals will be the ones to pay the cost of forced development of renewable energies. Vattenfall Europe announces also its intentions of requesting compensations from the government, in Berlin Constitutional Court, for the company’s loss, after German nuclear program stopped subsequent to the Fukushima disaster. E.ON and RWE intend also to demand huge compensations, in the billions of Euro, for the same reasons.Has the protection of the environment really become a luxury which Europe (still) in crisis cannot afford? Are the United States and China right when they say development is a priority and reject the pollution reduction targets considered globally too ambitious? Looking at how Chinese and American economies are evolving compared with European one, the answers are obvious. Imagining how economies could evolve if non-polluting technologies would have been consistently applied, the answers become more diverse. Waiting for the times when ecology will be a partner for economy, we are still living in times when ecology seems to be the opponent of economy. And vice versa.

01EcologY vERSUS EconomY?

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News

02Petrom: A new unit at PetrobraziPetrom opened a modernized crude oil distillation unit at Petrobrazi refinery, which had been shut down six weeks for this purpose since May – it is said in a press release, posted on the company website. The investment in the modernization program of the unit went up to almost € 100 million.Neil Anthony Morgan, Petrom Executive Board member, responsible for Refining and Marketing, stated: “Romanian refineries produce gasoline in excess compared to the demand, whereas for diesel, around 30 percent comes from imports. The upgraded unit is very important in the refinery’s modernization process because it will allow us to improve the product mix in order to respond to the market demand”. A series of other modernization and maintenance projects have also been conducted. The modernization project of the crude oil distillation unit started in 2009. Petrom will invest € 600 million in the Petrobrazi refinery by 2014 in order to increase efficiency. Out of this amount, approximately € 400 million has already been invested. The increasing of diesel production is the main objective at this stage of modernization.

Nabucco West was selected as the Central European route for gas delivery from the Shah Deniz II gas field in Azerbaijan – it was announced in a press release of Nabucco Consortium, quoted by Hotnews. If this project is accomplished, the gas pipeline will be 1,300 km long, and 470 km of it will transit the Romanian territory. The Nabucco West Proposal, supported by all six shareholders, was submitted by Nabucco Gas Pipeline International GmbH on May 16, 2012. The project has its starting point in Bulgaria and it would receive Azeri gas through TANAP (Turkey – Azerbaijan) gas pipeline. “This decision is an important milestone for the Nabucco project and a major step towards the final investment decision. Nabucco delivers freedom of choice to gas consumers and will contribute considerably to the security of supply in Europe”, said Reinhard Mitschek, Managing Director of Nabucco Gas Pipeline International GmbH. Nabucco West is designed as a gas pipeline with 122 cm in diameter and 1,300 km length, and it will pass through Bulgaria, Romania, Hungary and Austria, having a technical capacity of up to 23 million cubic meters per year. About 470 km of pipes will be laid in Romania. The pipeline will have pick-up stations in every transit country and it will meet the basic principles of the original Nabucco concept.

Nabucco going through hard times

Polish protests

The Polish Chamber of Commerce attacked the EU’s goals to reduce Carbon emissions by 2050, launching a study – it is said on website EurActiv.com. The study leads to the conclusion that compliance with these targets would result in a 400% increase in electricity prices after 2020, a GDP slump of 10% by 2030 and additional expenses of € 22.7 billion Euro per year after 2050. “The effects will be catastrophic for the Polish economy and budget,” said Bolesław Jankowski, co-author of Warsaw government’s energy strategy between 1991 and 1995. More radical, Marek Kłoczko, the PCC’s secretary-general, accused the EU of behaving like Communists in pushing an ideological environmentalism above economic realities.Poland, whose economy relies on the burning of coal, had several other attempts to block Brussels in ratifying the agreements on reducing CO2 emissions, requiring an 80-95% drop in carbon monoxide and dioxide emissions. The conclusions of PCC’s study have been disputed by Krzysztof Berbeka, an economics professor at Cracow University, who stated the study hides the fact that the implementation of non-polluting technologies could create 350,000 new jobs by 2020. Some environmental NGOs, such as the Polish Climate Coalition, pointed out that the study was funded by Tauron and PGE, two companies that control Poland’s electricity output and distribution networks.

5Natural gas, the resource of the futureNatural gas reserves identified in the whole world support the global consumption for the next 200 years – said La Tribune daily newspaper, quoting the conclusions of a conference on energy issues, hold in Deauville (France) at the end of June. The publication presents also the opinion of specialists at the International Energy Agency (IEA) concerning the fact that global demand for natural gas will increase by 17% in the next five years. “Natural gas is, at the same time, abundant, acceptable and affordable in terms of prices, thus it has a triple A rating”, stated Philippe Boucly, CEO of GRTgaz, the company managing the entire French natural gas transmission network, who referred to European countries ratings.Natural gas consumption increased by 2% worldwide in 2011, but European Union recorded a decrease of 11%, because of the economic crisis mainly, according to experts who attended the conference. They pointed out also to the fact that the development of shale gas exploitation on large-scale in the U.S.A. has reduced dramatically gas prices on the American market and this promotes the modernization of industry overseas, while Europe continues to be blocked by controversies upon hydraulic fracturing of rocks.

A solution to the differences between the EU, on one hand, and China and other countries, on the other hand, concerning the reduction of pollutant emissions in air transport, is unlikely before October 2013 – it is said on EurActiv.com website. The source quotes Senior EU officials, according to whom Brussels will not retreat from the implementation of ETS (Emission Trading System) rules, that took effect on January.The Federal Aviation Administration (FAA) from the U.S.A supported the European Union’s goals to cut pollutant emissions, indicates EurActiv.com, but air carriers from China and India have refused so far to comply with these regulations. US airline industry contests also ETS. Beijing has even threatened to cancel some contracts for purchasing of Airbus planes, if its companies will be sanctioned for pollution in European airspace.The International Civil Aviation Organization, that assembles 191 countries, is working on a draft of a global agreement for reducing the aircrafts’ pollution. The ICAO officials said that a final agreement is not likely to be settled until March 2013. This will then be discussed at the plenary meeting of the Organization, scheduled for October next year.

The General Manager of Vattenfall Europe, subsidiary of Swedish company Vattenfall and the fourth largest producer of electricity in Germany estimated that the electricity bill for German individuals will be 30% higher in 2020 than it is today! Tuomo Hatakka told the Frankfurter Allgemeine Zeitung daily newspaper, in an interview, that private customers will, thus, support the cost of forced development of renewable energy.German Chancellor Angela Merkel has decided to pull out all nuclear power plants, since this summer until 2022, because of the environmentalists’ pressing in the wake of the Fukushima disaster. Hatakka declared that Vattenfall Europe does not oppose renewable energy, but that it plans to request compensations for the company in loss, from German government, in Berlin Constitutional Court, because the decision had a negative effect upon the ownership of the company’s own plants. Other large power suppliers, E.ON and RWE, have already filed for complaints. E.ON estimated that it will suffer € 8.0 billion in damage by shutting down its nuclear power plants.

Air transport – the conflict continues

Nuclear Energy – German producers require compensation

6The soar of renewable energies

The first short-term report issued by the International Energy Agency (IEA) on renewable energies estimates a 40% growth in production from such sources by 2017. The report, published on July 5 and quoted by La Tribune newspaper, states that renewable energy production will expand, globally, with 1840 TWh by 60%, more than the growth in the previous five years.In hydro power (that currently represents 80% of the worldwide renewable energy), the growth rate will be even higher than 100%. However, the percentage of hydro power will decrease to 68% of the total renewable energy produced in 2017, because of the faster development of wind power plants (that will reach a level of 460 GW installed power in 2017) and photovoltaic plants (that will go up to 230 GW installed power). The development of renewable energy, supported initially by rich countries, began to be more dynamic in emerging countries which are looking for solutions in order to achieve energy independence, according to IEA. Thus, two thirds of the estimated growth will be in countries such as India, Brazil and especially China.

European Commission presented on July 11 its proposals for cutting automobile carbon dioxide emissions at a level of 92g per km by the end of 2020 and a level of 157g/km for utility vehicles. The 2015 target is established at 130g/km for personal cars. The result can only be the use of technologies more complicated than today, more expensive and, probably, less reliable, says La Tribune daily newspaper.The European Automobile Manufacturers’ Association (EAMA) considers the new proposals as being “the toughest in the world”, while the car emissions in Europe are already more stringent than those in North America, China or Japan. “These rules will increase manufacturing costs in Europe, creating a competitive disadvantage for the region compared with producers in other countries”, EAMA also stated and reminded that most European manufacturers have already registered losses and they are in a worse position then other major producers.Given the Brussels policy, experts estimate that in 2020 the European car market will be composed of up to 80% classic propulsion cars, 15% of hybrid propulsion and 5% full electric vehicles.

OPEC forecasts Car pollution– Brussels does not yield

Global oil demand growth will slow in 2012 - it is said in an OPEC report, published on July 12. OPEC estimates that global oil demand will have an average of 88.68 million barrels a day this year and it will reach a level of 89.5 million barrels a day next year. According to this report, OPEC member countries do not intend to increase their own production in order to meet the increasing demand because that will be too low to be sustained by non-OPEC producing countries. Besides the sovereign debt crisis in Europe and the possible exit of Greece from the euro zone, the oil cartel is concerned about the decelerating economic growth in OECD emerging markets, as well as over the slow economic recovery in the U.S.A. These trends will be, however, balanced by the dynamism of Japan and non-OECD emerging markets. The report published on July 12 states that Iran production was down to 2.963 million barrels a day, the lowest in more than 20 decades. Saudi Arabia had produced, instead, 10.1 million barrels a day, in June.

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UAE exported on July 15 the first quantities of oil through the pipeline that bypasses the Strait of Ormuz, said the Emirates News Agency, WAM. Oil has been sent to Pakistan from the terminal at Fujairah, Oman Sea port. Thus the way has become operative for Gulf oil exports together with the avoidance of the strait that Iran has threatened on several occasions to block.Arab Emirates, producing 2.5 million barrels per day pledged to export oil through this 360 km long pipeline, starting with August. Tehran is seen as lacking the most important trump it put its stake on in the negotiations with the West, whereas international markets will be less uncertain, which experts say should lead to lower oil prices.Taking into account pipelines that Saudi Arabia wants to build from production fields located in the east of the country, the capacity of the pipelines that bypass the Ormuz Strait would rise to 6.5 million barrels per day, about 40% of the oil quantity transiting currently through it.

The Ormuz Strait can be bypassed

Clean technologies are dirty

In order to reduce fuel consumption new generations of commercial aircraft rely, more and more, on raw materials which are themselves dirty and extremely pollutant for the environment - it is said on EurActiv.com website, as a first conclusion of the International Air Show held at Farnborough this July. At the moment, China and Russia are the world dominant suppliers of titanium, a needful metal in airplane frame construction, and of so called “rare earth elements”, raw materials used in electronic components and aircraft guidance technology.Titanium and “rare earth elements” are produced with technologies involving both high extraction costs and extremely high levels of pollution. This is the reason for which the production of these raw materials usually comes from less developed countries, explained the experts. The World Trade Organisation (WTO) has several times demanded China to ease exports of rare earth elements, because of the pressure of United States, Japan and European Union. The Beijing replied by saying that the acceleration of extraction of these materials would lead to an increase in pollution, which is very true, but WTO prefers to conclude that the ecological argument is actually a pretext.

On July 12 Russian President Vladimir Putin refused to accept the reduced price of natural gas supplied to Ukraine. The former Soviet republic which depends heavily on gas imports from Russia, has long wanted to review this agreement signed in 2009 with Moscow, according to EurActiv.com website. Ukrainians accuse the Russians of having set an exorbitant price for natural gas, but President Viktor Yanukovich’s talks with Vladimir Putin, held in Yalta, in Crimea, have brought no result whatsoever.“There are issues that we were unable to agree on, but ... we hope to reach an agreement,” Putin told reporters who asked him how the meeting with his Ukrainian counterpart worked. Russia is willing to drop price if Ukraine agrees that the Russian giant Gazprom totake over the pipelines carrying Russian gas to Europe or if Kiev agrees to join the Customs Union created by Moscow and opened to countries drawn from the former Soviet Union. In response, Ukrainian President Viktor Yanukovych said that Ukraine is considering joining the Customs Union. Ukraine refuses, however, to cede control over the pipeline network especially before elections scheduled for October.

Russian-Ukrainian disagreements remain constant

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03EuropE - bEtwEEn thE russian monopoly and uncErtain altErnativEsalthough, except for the north stream, in the recent years nothing relevant has been done in order to diversify the supply routes to Europe with natural gas, either from russia or elsewhere, future pipeline projects have generated lately a genuine “cold war” in the economic sphere. that at least verbally.

Natural gasBy Diana Medan

9Western NabuccoNabucco consortium, quoted by Hotnews, recently announced that Nabucco was selected as Central European route of delivery of gas from Shah Deniz II gas field in Azerbaijan. The pipeline would have a length of 1300 km. The starting point is in Bulgaria on its border with Turkey, where it will be connected with the pipeline transporting gas from TANAP (Turkey - Azerbaijan). Furthermore, the pipeline will cross Romania, on a stretch of about 470 km, then Hungary, the final destination being Austria. Western Nabucco proposal was presented in mid-May of Nabucco Gas Pipeline International GmbH, based in Vienna, and was supported by all six shareholders - Transgaz Romania, OMV Austria, Bulgaria Bulgaria, Turkey’s Botas, MOL Hungary and Germany’s RWE.The recent announcement is only a moderate success, given the Western Nabucco stands for the limited version of the original project, which involved a pipeline of 3,900 kilometers, on the route Turkey - Bulgaria - Romania - Hungary - Austria. Problems became apparent early this summer when the group MOL has not approved the budget of the Nabucco consortium, because they considered that its funding was uncertain. Experts note that MOL may sell its stake to German company Bayerngas. Feasibility of the original version of Nabucco was questioned by another partner, also RWE Germany. The highlight of the declarations was reached by estimating that Nabucco could be canceled completely by the end of June, information released by the

Russian news agency Itar-Tass, amid earlier announcement made by giant BP (British Petroleum), that they do not consider Nabucco as a the route to deliver of Azerbaijani gas anymore.Eventually, Shah Deniz consortium, led by BP and Statoil Azerbaijan’s state company, has chosen the new version of the Nabucco project. Following the decision, Nabucco remains one of the two companies (the latter being Trans-Adriatic Pipeline) that will carry Caspian

gas to Europe.,, We are pleased to announce that our option is Nabucco West, together with our previous TAP option. This is another milestone in the development of Shah Deniz Stage 2 and in the transportation of gas resources from the Caspian Sea to Europe, “said Rashid Javanshir, president of BP for the region of Azerbaijan, Georgia and Turkey.

On his side, Reinhard Mitschek, executive director of Nabucco Gas Pipeline International GmbH, emphasized that Nabucco gas gives consumers freedom of choice and will make a significant contribution to secure the supply in Europe”.And yet ... uncertainty exacerbated by various delays and why not, paradoxically the recent collapse of the initial project, made the parties concerned to take appropriate „safety measures” by participating in other projects as well.

South Stream and Russian monopolyMonopoly of Russian gas in Europe seems increasingly difficult to break. In September the construction of the South Stream pipeline will start, through which Russia plans to deliver gas to Europe bypassing Ukraine, this was announced early July by an official representative of Gazprom, according to Itar-Tass. In this case there is a one year delay in the deadline for implementation of the pipeline. Construction of the South Stream is expected to conclude in December 2017, according to Leonid Ciugunov, head of coordinate projects of Gazprom. The pipeline is designed to carry 63 billion cubic meters of natural gas annually from Russia to Europe via the Black Sea, bypassing transit countries like Ukraine and Belarus.In order to provide the required amount of natural gas, the gas transporting system in Russia will be improved in two stages by 2019, and approximately 2,500 km of pipeline and 10 compressor stations with a total power of 1473 MW wil be installed. Russian Gazprom owns

“We are pleased that our option is Nabucco West, together with our previous option, TAP. This is another milestone in the development of Shah Deniz Stage 2 and the transport of gas resources from the Caspian to Europe “- Rashid Javanshir, president of BP Azerbaijan.”

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50% of South Stream, having as partners the Italian group ENI with 20%, the French group EDF with 15% and Germany’s Wintershall, with 15%. Also, Gazprom has taken profit from the experience of the already accomplished project North Stream pipeline connecting Russia directly wth Germany, via the Baltic Sea.One of the key sectors of Russian economy is obviously the natural gas industry, since Gazprom, the giant state-controlled company, is providing about 15% of world natural

gas supply. If global development and production of shale gas has significantly reduced prices in the U.S., Europe remains under Russian domination. Eastern European countries, including Romania, are considering exploiting shale gas deposits, using the same technology used in the U.S., but the controversy seems to be lengthy, the environmental specialists’ opinions being different and additional costs rather high.

Romania has its own energy aspirationsLike other countries, especially from Eastern and Central Europe, Romania makes no exception to the desire to reduce its dependence on Russia. Gas consumption in Romania is now provided at a rate of about 70% by the two major domestic producers, Petrom and Romgaz, the rest being imported from Russia. But experts warn that current gas reserves of Romania cover only the next ten years. According to the specialists participating in June, at FOREN (Regional Energy Forum for Central and Eastern Europe), a solution would be the unconventional gas, nevertheless buried at depths of 3,000 meters, and the reserves in the Black Sea. Most optimistic forecasts indicate even a possible

independence of Romania from imported gas after 2020. However, exploitation of unconventional gas, particularly shale gas, remains controversial because of concerns about long term environmental implications.Last year, in Bucharest, the executive director of the Nabucco consortium, Reinhard Mitschek, announced that if the Nabucco project will start, in Romania between 1,2 to 1,5 bilion euro will be invested in Romania in infrastructure projects and logistics. But only hard facts will ultimately prove the viability of the much-discussed Nabucco project. The gas supply in Europe and, therefore in our country, remains at the fragile border between the Russian monopoly and uncertain or expensive alternatives.

OMV Petrom recently announced it will invest, up to 2014, between 800 million and 1.2 billion euro per year, mostly in exploration and production. ,,We believe that Romania has significant potential for energy supply, which can reduce dependence on imports “, said in a statement Mariana Gheorghe, CEO of Petrom. On the short-term, the start of the commercial exploitation of the electric plant in Brazi (860 MW) is planned in the second half of 2012. On the medium and long term, Petrom will explore opportunities in exploiting renewable ressources and will assess further investment in the related infrastructure of the Nabucco project.

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04The Black Sea - IN STeady progreSSFollowing the ratification of the new concession holders in Romania’s Black Sea as part of the 10th bidding round in 2011 and Exxon’s successful deepwater Domino discovery in January 2012, the Romanian government has now passed the long awaited new gas law on 10 July 2012. The law was passed to bring Romania in line with EU directives and IMF obligations but also to stem the tide of increasing imports of expensive Russian imports. The lower made in Romania regulated price encouraged inefficient consumption of gas and, at the same time, discouraged the development of domestic supplies. The only beneficiary from both these effects was Gazprom who enjoyed selling gas at over $500/1000m3 to Romania (whereas the domestic price was limited to $160/100m3).

Oil & gasBy Diana Medan

13With the new gas law Romania will gradually liberalize the gas market so that non household users will pay European prices by the end of 2014 or possibly 2015 if it is determined that European prices remain too high and that household users will gradually pay European prices by the end of 2018. The importance for Black Sea development is that concession holders and investors will now be in a better situation to have the confidence to free up funds to explore, appraise and develop offshore gas fields in Romania’s Black Sea. Under the old regulated price regime, these very expensive offshore investments were simply not economically viable. Sterling’s modest Ana and Doina fields alone are estimated to cost $600mm to develop. Now rather than pass the benefits to Gazprom, Romania will reap the benefits of inward investment, employment, royalty and taxes and self sufficiency and possibly even become an exporter of gas.2013 is expected to be the start of very active investments with all the concession holders are likely to be involved in exploration drilling activities. Inevitably these exploration activities will lead to discoveries and, bringing these discoveries to development and production, is now commercially possible.The new gas law had other important provisions for aspiring offshore producers, including the framework to allow for access to Romania’s transmission system. One of the challenges for developing offshore gas in Romania is how to bring the gas from its landing point and gas plant to the market. The TransGaz

NTS system is some 200 km away from the coast and it would be a huge challenge to try and make the connection. The most obvious solution is to allow the Black Sea gas to access the Transit lines which have ample capacity and are only 20 km from the Romania coast. These Transit lines, of which there are 3 and have 27bcm pa capacity already have a connection to the NTS system. The new gas law appears to include the Transit lines into the regulation for access.With this new gas law, two of the biggest hurdles for developing offshore fields appear to have been addressed. There still remain challenges to overcome before Romania can realize all the benefits of a thriving Black Sea producing region. In particular all the regulatory procedures for developing the offshore platforms and pipelines and obtaining permits for their operations are still not fully developed.In particular the competent authorities and the procedures for companies obtaining compliance for health, safety and environmental issues needs to be put in place. Onshore there is a competent authority that provides a Certificate of Urbanization and eventually clearance for a construction permit and rezoning of the lands. This is a well developed procedure. Offshore, however, such procedures have never been put in place. Furthermore it is also not clear how companies will be able to obtain operating permits for all facilities including the onshore gas plant, once they have been constructed and commissioned.Under the direction of the National Agency for Mineral Resources the

offshore Concession Holders have been instructed to form an industry association to provide, amongst other things, views from the industry and offer support to the government for implementing best practices and procedures. The concession holders work in many offshore regions that have matured their regulatory procedures including the North Sea and the Gulf of Mexico. Bringing the best of these practices rather than trying to reinvent them could allow Romania to put in place the procedures in a timely manner. There must however be the political will to ensure the government enacts these procedures.The new gas law is a very important step forward for Romania. In practice its implementation will need to be efficient and effective for these developments offshore to move forward. Additionally the government now needs to turn its attention to the last great obstacle, the implementation of the competent authority and framework for obtaining permits and consents.

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05Hidroelectrica – tHe ‘trojan Horse’ of tHe capital marketthe listing on the Bucharest stock exchange (Bse) of major state-controlled energy companies is facing major challenges. after the central authorities announced plans and deadlines in this regard, a number of factors have inflamed the capital market, the culmination being the crisis of the national brand - Hidroelectrica. leader in the electrical energy production in romania, Hidroelectrica entered insolvency in june. the news upset local business circles, medium and long term effects that are generated by this decision having major implications.

HydroelectricityBy Diana Medan

15“The plan one makes ...sometimes fails”Faced with the lack of liquidity as a result of the pressure of the International Monetary Fund (IMF), the Romanian government decided earlier this year to sell minoritary share packages from the major companies owning solid assets: Transgaz, Romgaz, Transelectrica and Cuprumin, each with 15% of share package, Hidroelectrica and Nuclearelectrica with 10%, Petrom with 9.84% (after failure of a previous attempt). The plan also included the sale of minority shares in Tarom, the Romanian Post, or CFR Marfa. In May, the IMF announced that the privatization program has recorded some “slippage”, some auctions failing, and others being always postponed. The fund decided to focus on six companies, Transgaz, Romgaz, Hidroelectrica, Nuclearelectrica, Tarom and CFR Marfa respectively. The Minority packages of shares in Transgaz, Romgaz and Tarom should be listed on BSE by mid this year, but domestic political tensions and theHidroelectrica blow have complicated everything.

Postponing the listing of Transgaz because of “legislative failure”With regard to Transgaz, the authorities show more pessimism, even if the Government recently announced the start of the Stock Exchange listing procedures through a memorandum. This has as objective the development of the project of secondary public offering of selling of the shares issued byTransgaz on the capital market. (...)A package of 15% of Transgaz

Medias shares to be sold on the capital market “ announced the government. The delay from the time limit initially decided is attributed to “legislative failure”.The Economy Minister Daniel Chiţoiu, quoted by Agerpres, said that: ‘The approval of this legislation was conditioned by the prospectus of emission. We succeeded in a short time, with the support of the parliamentary majority, to adopt the Electricity Law, the National Gas Law

and the Law for Regulating Electricity and Gas. This was a condition for improving not only the performance, but also the energy economic environment”. Is Romgaz facing problems?The Ministry of Economy has

recently launched for debate a draft emergency ordinance which stipulates that the period of listing of shares belonging to state companies is extended by one year, until December 31, 2013.Listing Romgaz has not been advancing because of some shocking declarations made by the Ministry of Economy who is the majority shareholder, with 85%. The Ministry accuses the company of mismanagement and unnecessary spending. ,,With regard to public acquisitions, in public procurement, deviations from the legality and regularity, unjustified payments for purchase of machinery and equipment amounting to 123.1 million lei have been found”, marks a statement of the ministry. The boomerang effect is decreasing confidence of potential investors in local capital market and, under such conditions, listing price being one more problem.Previous estimations mentioned the amount of 300 million euro that could be obtained by selling the 15% of the shares , which is considered a record transaction for BSE. Romgaz registered last year a turnover of 4.21 billion lei, up by 18% compared to 2010, and profit increase by 58%, to 1.03 billion lei. But, like in any sale process, the psychological factor intervenes as well and trust loses ground.

Moody’s decision affects Transelectrica sharesNot evenTranselectrica, the only company whose secondary share package was listed on the BSE in March 2012, escapes unaffected by the new circumstances. Moody’s

“We succeeded in a short time, with the support of the parliamentary majority to adopt the Electricity Law, the National Gas Law and the Law for Regulating Electricity and Gas. This was a condition for improving not only performance, but also the energy economic environment” - Daniel Chiţoiu, Minister of Economy

16downgraded the company’s rating one step, to “Ba1 default “and the ratings were placed under surveillance for further reductions. “The decision reflects the agency’s downward revision of expectations regarding the potential support that Transelectrica can expect from the main shareholder, the Romanian government, “said Richard Miratsky, Moody’s vice president and main analyst for Transelectrica. Experts point out that most of the debt of Transelectrica is in foreign currency, while most of the revenues are in local currency, which exposes the company to currency fluctuations and to strong dependence on Romania’s rating Hidroelectrica – a shocking decisionJune 20 represented a fatidic day for the Hidroelectrica insolvency. The Board of Directors announced that the company has problems and argued that to blame for this situation are the „catastrophical” management and the drought. “It was and it is a very rich company which has become, in time, completely devoid of liquidity” said Remus Vulpescu the special administrator of the society. In turn, Remus Borza, the insolvency practitioner, quoted by the press, said “insolvency of Hidroelectrica was not established a week ago, but somewhere 1-2 years ago. The former directors should have taken this decision”This triggered a tough battle for countering the effects of unprofitable contracts, concluded with the so-called “smart boys” of the energy field, traders who, for many years, have benefited from preferential agreements, deeply not favouring the producer.

Cancelled or renegotiated contractsOn June 26 the juridical administrator of Hidroelectrica denounced the contract with Euro-PEC, which received between 300,000 and 400,000 MWh annually. On July 18 Hidroelectrica denounced two more contracts with the Energy Financing Team (EFT). According to a report of the company, taken over by the HotNews,”the problematic” traders have bought energy in 2011 at an average price of 130 lei / MWh, while the energy stock exchange OPCOM energy prices exceeded 200 lei / MWh. On the spot market (day-ahead market), the average price in 2011 was of 221 lei / MWh.A new agreement with Electromagnetica has also been concluded,the price being set at 198 lei / MWh in 2012, an increased one from 140.2 lei per MWh. Starting with 201,3a price formula will be applied for Electromagnetica that represents the weighted average market price on the next day, on OPCOM and the prices on the Centralized Market of the Bilateral Contracts on OPCOM.

Huge lossesAccording to the document that denounced the contracts with EFT AG and EFT Romania, Hidroelectrica lost a total of over 111 million since 2006 to the end of May 2012. The money comes from the difference between the sales price established in the direct contracts and the price Hidroelectrica would have obtained if the energy had been sold on the spot market of the energy Stock Exchange OPCOM. Moreover, according to calculations made by Ziarul Financiar, consequently to its problematic contracts Hidroelectrica lost in total

“The insolvency of Hidroelectrica was not established a week ago, but somewhere 1-2 years ago. The former directors should have taken this decision.” - Remus Borza, insolvency practitioner of Hidroelectrica

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more than 1.5 billion euro over the last ten years and that no matter the political colour of governments that have succeeded.

And the story continuesNot only „the times” but also „the time” has become an important decision factor. According to estimates, because of the drought during August-December 2012 the production of Hidroelectrica will be of only 4.9 million MWh, while the obligations are of 6.4 million MWh. To these there can be added the quantities delivered on the balancing

market, of approximately 500,000 MWh, states a report by the special administrator, Remus Vulpescu. The coverage of contractual obligations from its own production of electricity will be of only 68%, according to the report.In addition, Hidroelectrica sued the National Regulatory Authority (ANRE) in order to cancel its order where quantities and prices for the energy delivered to the regulated market were decided. Specifically, Hidroelectrica asked ANRE to increase the price for the energy delivered on the regulated market

from 72 lei / MWh to more than 120 lei / MWh.

However, there are encouraging signsIn any case, after giving up the damaging contracts, it seems that the sale of the hydro energy on the Stock Exchange is beneficial... A press release of the company announces, for example, that they have successfully traded two packages of electrical energy on the PCCB-OPCOM:,, At the bids for the two packages, each offer being 12,240 MWh, for the period August 1 to December 31, 2012a record number of bidders attended, 21 for the first package and 16 for the second package”. According to the release, the prices obtained were 255.7 lei / MWh, provided by SC Repower Supply Romania and, respectively, 256.5 lei / MWh, provided by CEZ Trade Romania, both being above the average market price that is 220 Euro / MWh. Given the production forecast for the period August-December 2012, Hidroelectrica PCCB-OPCOM will offer all the energy available, the company adds.

The Property Fund - collateral victimBy law, the Property Fund (FP), which has major packages of shares at the state energy companies proposed for the listing public offers of some minoritary share packages, is obliged to reduce to zero the value of holdings in a company in insolvency. The crisis of Hidroelectrica would thus diminish the net asset value (NAV) of the FP to 3.29 billion lei, which means about 21% of total Fund assets. This has already led to a decrease in FP share price and could reflect dramatically in dividends next year. “We estimate that the insolvency process will take several months to 18 months,”

said Greg Konieczny, manager of the Fund. Currently, FP prepares secondary listing on the Warsaw Stock Exchange (BVV) which should take place in early September. The aims of this listing are diversifying ownership and increasing quotation, amid higher demand of FP titles. Experts also considered that listing BVV could attract the attention of the international investors and other Romanian companies present in the FP portfolio. However, forecasts are too optimistic, the current period not being favourable for risky investments.