2016 is the fourth consecutive year when Hidroelectrica is recording a remarkable profit, this time with a gross profit of 1.5 billion lei. Given that the number of employees decreased by more than a third compared to the number registered in 2011, their yield places Hidroelectrica on the first position among the state-controlled companies. The outstanding financial development in previous years has been overshadowed by the long period of insolvency, with all the limitations imposed by this statute. Hidroelectrica’s prospects are now open, so we discussed with Mr. Ovidiu Agliceru, the President of Hidroelectrica’s Management Board. This conversation allows us to anticipate somewhat the most likely moves that are being prepared by Romania’s largest electricity producer.

Dear Mr. Ovidiu Agliceru, you were part of the team that took the company out of insolvency and you lived all the changes that made Hidroelectrica a point of reference in terms of profitabilty. How has the situation and management’s concerns changed with the exit from insolvency?

During insolvency, Hidroelectrica underwent profound changes in the organization’s mentality. More specifically, Hidroelectrica has started to function as any private company, based on the principle of economic

efficiency. When exiting insolvency, Hidroelectrica benefited from all the studies and analyzes that had been carried out until that moment, materialized in the company’s reorganization plan, which we continued to strictly follow. In particular, insolvency has led to profound changes in investment, re-engineering, exploitation of production capacities and maintenance. And this was not by chance, because it is precisely these areas that had pushed Hidroelectrica to insolvency, as the report on the causes of insolvency clearly proved.

Regarding the exploitation and power generation regimes, the transformation consisted of the fact that Hidroelectrica switched from a quantitative to qualitative production. Even when in insolvency, Hidroelectrica has begun to produce as much as needed, when it had been needed. This quality of the energy we produce materializes in higher sales prices; instead of selling in the band at the lowest prices, to sell on the peak of consumption, when prices are good, to enter the balancing market and the market of system technological services.

In order to do this, Hidroelectrica was forced to change its maintenance strategy. We have decided that it is more important for Hidroelectrica to have an increased availability of production capacities, not as before, when it was more important to “complete” the maintenance plan, in order to meet the needs of those who made the repairs, and detrimental to the company’s interests.

So you answer those who assert that the financial performance came with the cost of postponing maintenance of aggregates and equipment…

For them, the answer is simple: investments have nothing to do with the profit and loss account. In other words, regardless of the value of the investments in one year, the value of the profit remains unchanged. This is the simple accounting reality. And with regard to repairs, the situation is similar: 70% of maintenance costs are capitalized and are not recorded as expenses; so the repairs too, have no impact on profit.

What’s most important, however, is that in operation, the company repaired what it was needed, when it had to do it and how much it had to do it.

We have currently 2500 MW refurbished and 1000 MW upgraded production capacities; all of these plants are equipped with diagnostic facilities that show us in real time all anomalies in the behavior of the equipment. As a result, we no longer make repairments on a previoulsy scheduled program, after a certain number of functioning hours, but according to the results of the technical analysis. This has made possible the increase of the availability at an historical level in 2016 – 93%, compared to 91.5%, the maximum reached in the previous years. It is also true that our branch Hidroserv has entered into insolvency last year, and as a sole shareholder we are doing all the necessary analyzes. In addition, I can tell you that in 2016, we had contracted 2 million hours of work with Hidroserv. They provided 1.1 million! If Hidroserv had provided all the two million of labor hours, it would have had 4 million lei profit at the end of last year, not 46 million lei loss (true, cumulated from previous years).

How are you involved in streamlining Hidroserv?

Hidroserv has a special administrator acting independently, based on the criteria established by the shareholder in the management mandate. If it does not meet these criteria, what we can do is replace him. I am convinced that Hidroserv has all the chances to survive, to benefit from an efficient reorganization plan, because from today [May 29, 2017] he has a new special administrator, Mr. Valeriu Băbău, a man who have worked for 30 years in operation and maintenance. Over the past two months, he has done a complete analysis of the Hidroserv situation, so he knows what he has to do for streamlining Hidroserv. Moreover, Hidroelectrica supports Hidroserv. We proposed in the budget submitted to the shareholders a contribution to the share capital of Hidroserv worth 20 million lei, this year, in order to finance the restructuring process.

As a result of the transformation you are talking about, Hidroelectrica has had very good figures in the recent years, 2017 included.

The result is that we have very good figures, because what we solved during insolvency is now being perfected continuously through iterative processes, taking much smaller steps this time. We are now in the fine tuning phase.

Is there any room for an increase in efficiency?

Yes, but in the fine tuning area. At the moment, Hidroelectrica only invests in what is profitable, no investment is being made just for the sake of it. Of course, there are still those works that have been posing difficulty since before insolvency…

Are you referring to those investments with no direct impact on the energy area?

Those with a low or very low energy component. They have been identified, they are about 17 in number and must be solved on a case-by-case approach, depending on their situation and the characteristics of each particular investment. There is no general recipe for this.

One of the publicly discussed options was that some of these historical investments were to be transferred outside Hidroelectrica, to the Ministry of Waters or to the Ministry of Environment. Is this option still standing?

For some investments, yes, for others, no. That’s why I’m saying they have to be handled punctually. There is an investment called Paşcani, a small plant of 9 MW that was with the Romanian Waters; tens of millions of lei were spent, after which it was returned to Hidroelectrica, which spent about 80 million euros. To complete that immense accumulation, Hidroelectrica should still spend another 100 million euros. An investment of 180 million euros for a 9 MW plant will never be amortized! It should go back where it was and probably there it could benefit from European funds.

For this to happen, a decision is to be made by the majority shareholder. Is there any availability and understanding in this respect?

The majority shareholder has the availability, on the other hand, the other entities, which should be the recipients of such investments, are more reserved. Well, this is a matter beyond our powers, as the executive branch in Hidroelectrica.

Let me give you another example, this time a situation where the investment is justified. There is an investment objective, called Subcetate Simeria, where, out of the total of 7 hydroelectric plants, three were executed to date: Subcetate, Plopi and Bretea. Both hydro-units at Bretea were put into operation this year and are now in the testing phase. At the time of reception, in a very short time, we will celebrate the commissioning of a 12 MW hydroelectric power plant with an average annual energy of 23 GWh. This will be the first hydroelectric power plant in Romania to operate without personnel and is an example of an investment that was worth to be completed. The cost was high as well – RON 200 million, for 12 MW, for a derivation power plant, located on a plain, with no accumulation lake. But it was worth it, not from the perspective of money already invested, but strictly from the point of view of the investment needed to be executed. Well, the other four power plants downstream from Bretea – Strei, Călan, Băcia and Simeria Veche – are not energetically efficient. And now let me give you an example of abandonment which is effective. There was no money spent on the Strei hydroelectric power plant, no stone was moved, no study was paid, so the abandonment of the Strei plant does not mean any loss.

And is the decision strictly to be made by Hidroelectrica?

No, because the investment objective of Sub­cetate Simeria has been approved, with its all seven hydroelectric plants, through a Government Decision, and any change, any optimization of the indicators for this investment has to be done by the institution that approved it. In Hidroelectrica’s General Assembly of Shareholders, our proposed was unanimously endorsed, then we submitted the documentation to the Government, and now we are in the process when the necessary normative acts are drafted and the adopted.

But each investment objective has to be approached by itself, and over the past two years, 30 people in Hidroelectrica worked non-stop to analyze these historical investments and they proposed solutions for each one. In total, we are talking about 2 billion euros left to be invested in unprofitable energy objectives. With them, IPO would be impossible because the company’s value would be reduced by two billion euros.

At which stage are the listing procedures and what obstacles do you anticipate that you will need to overcome?

The listing can be made just before the end of this year if the unprofitable investment situation is solved together with the other two simpler issues: the appointment of a final Supervisory Board and the appointment of a definitive Directorate. If not, in the first half of next year or, basically, at any time, immediately after these three issues are resolved.

I would like to point out that although Hidroelectrica is a state-owned company, we work like private companies. All the things we talked about are the result of the work of around 3270 employees of the company who have changed their mentality and work in the 202 hydropower plants to produce when it is needed, as much as it is needed. This is the essence of the energy quality of Hidroelectrica: to produce a lot, within a short amount of time, when the price is peaking.


16.07.2017 · ROMANIA