Since publicly presented in late December 2018, GEO 114/2018 stirred massive reactions on all levels (media, industry, experts, politicians). It was only 2 months later that the reasons for changes introduced in respect to the energy sector seem to be clearer, as some comments from Niculae Havrileț, former president of ANRE and currently personal adviser for the Energy minister, suggested that it was at major gas suppliers’ request that GEO 114/2018 have been initiated. We asked for some clarification from Mr. Frank Hajdinjak, CEO of E.ON România about what was that the company specifically raised in the Government attention and how he sees the impact of GEO 114/2018 if applied in the form adopted by the Government.
Dear Mr. Frank Hajdinjak, can you confirm the information that GEO 114/2018 appeared, at least in part, as a result from a request endorsed by the major natural gas suppliers operating in Romania?
We have always advocated the liberalization of the market, and we considered this to be a very important step towards creating real competition and getting the right prices for consumers. At the same time, however, We also warned that Romania was not ready for total liberalization. We said that the deregulation of the natural gas market must be phased in order to avoid the chaos that can be created for consumers as a result of sudden price increases.
First of all, it was important to have a liquid wholesale market that can offer the products and conditions appropriate to the expectations of consumers, along with all the tools needed to develop alternative offers. There are still important market components that are needed to get a fully functional model, namely the balancing market and a whole range of products to be offered on the trading platform. All of these components are now available on the electricity market after many years of development, but have not yet been designed and implemented on the natural gas market.
The functioning of the market in recent years could not be anticipated, precisely because some of the fundamental characteristics of a liberalized market have not been implemented. The vulnerable consumer mechanism did not work, as no other regulations or other self-regulatory mechanisms in the liberalized market did not work.
We have drawn attention to these dysfunctions and the expected impact on prices and consumers since the liberalization, calling for the implementation of the mechanisms needed to have a functioning market. The need to make corrections comes from the organization of the wholesale market in Romania, where we have the oligopoly of the two major producers, and where the lack of competition has led to an excessive increase in purchase prices in the last year after the full liberalization of the market on 1 April 2017.
As far as the final prices are concerned, we did not request any price increases other than those caused by the increase in the purchase price of natural gas and the electricity we buy from the market.
In fact, the purchase price for electricity and natural gas has increased, and we have demanded that this increase be reflected in the final price, because we cannot buy at the market price, and then sell to the final consumers at a lower price – that it would make no sense in terms of economics. That’s all I’ve asked for.
With all the negative impact on various segments of the industry (E&P, centralized markets, regional trade, etc.), at least, the price freezing for domestic natural gas buys some time for the authorities to design and implement a sound system addressing the vulnerable consumers. How would such a system look like, in your opinion?
Authorities should urgently rethink their social policies in order to funnel financial support for electricity and gas consumers in a situation of energy poverty. In recent decades, the population has been protected by price regulation, but this was also in the benefit of those consumers not needing help in paying utility bills.
The fact that at present we have not defined the vulnerable consumer, which is the one who should benefit from the authorities’ support in order to pay the energy bills, is also reflected in the investment programs of the natural gas and electricity distribution operators, which are limited to maintain investments up to the level covered by the price predetermined by the political factor.
Are there any changes introduced by GEO 114/2018, in respect to energy, that are under the risk of being revised, sooner or later, on the ground of breaching the EU legislation (free market, competition, else)?
Last week, the Commission decided to send a letter of formal notice to Romania for failing to correctly implement certain requirements of the Gas Directive (Directive 2009/73 / EC) and the Security Regulations for the Supply of Natural Gas [Regulation (EU) 2017/1938]. These instruments have the role of ensuring competition on the EU gas markets, while guaranteeing safe delivery to home consumers and other consumers requiring special protection. Following the review of the legislative measures adopted by Romania in December 2018, the Commission concluded that the newly regulated wholesale price system on the gas market in Romania is contrary to the legal requirements of the European Union. The Commission also considers that these measures are not adequate to meet the objective of protecting households against excessive price increases.
We believe that, as far as household customers are concerned, the Romanian authorities should work together with all market operators to define a program for liberalization focusing on an effective scheme to support vulnerable consumers.
As far as economic agents are concerned, the concept expressed in GEO 114 should be subject to a full review, because it could even be counterproductive given that it will support exports, in the context of the significant price differences from neighboring markets.
With all the changes introduced by GEO 114/2018, there are many issues to be improved for a flexible and safer natural gas market in Romania; among these the gas storage market, the regional natural gas flows, the volume and flexibility of domestic output, the Network Code. What are your perspective for the next two years in respect to the natural gas market in Romania (supply and trading)?
In respect to the natural gas segment, the challenge is to be able to provide the necessary gas from domestic production, which forces the companies in this industry to turn to import gas at prices on the European market.
Depending on the domestic strategy of producers, there may be a risk of a decline in natural gas production. In this case, the decrease in production can only be compensated for by imports, especially during the winter, but also during the summer, for storage, if there is not enough domestic resources to cover the mandatory quotas. Also, in the context of lower commodity prices, we also expect an increase in consumption over the next period, which will make necessary gas imports.