"Without Government Emergency Ordinance 114, the investment decisions for the Black Sea would have already been made"

14 sep. 2019 English Section
"Without Government Emergency Ordinance 114, the investment decisions for the Black Sea would have already been made"

The lack of legislative predictability and instability have caused investors not to make investment decisions concerning the extraction of natural gas in the Black Sea, says Virgil Popescu, vice-president of the Commission for Industries and Services of the House of Deputies.

He said: "Through the offshore law, a good law, I would say, which has been long debated in the Parliament, on the financial side the state wins, and does so quite satisfactorily, and even though investors have been displeased, I don't think there was a problem on the financial side. The problem which arose was ordinance 114 and I think that if it hadn't existed then the investment decisions in the Black Sea would have been made. In changing the legislation, we have nothing but drive investors away".

The deputy said that even though we are the second gas producing country in Europe, we sit around and do nothing.

Concerning the information that a modification of the offshore law were sought, Virgil Popescu said he didn't know anything, but that he was always willing to talk and find solutions to that the natural gas in the Black Sea were extracted.

"Nobody has talked to me about the amendment of the offshore law. I don't know which article was going to be changed, the certain thing is that the financial side doesn't need any further improvements. It is a well negotiated part, the state earns enough, so do investors. There may be things that require modifications, such as the requirement on the OPCOM exchange. I am willing to talk at any time in such a way that we find a solution so that as high a percentage as possible of that natural gas can be extracted and consumed domestically because Romania also needs natural gas and energy", Virgil Popescu explained.

The representative of the Commission for Industries also added that he doesn't believe that the decision for making investments in the Black Sea Oil&Gas will be completed with natural gas extraction.

"I think that an exit is being prepared over there, a nice one with authorizations. Though I do hope I am wrong. At any rate, the quantity over there is rather small. The bulk of the natural gas is in the Neptun block, where ExxonMobil and OMV have partnered. Furthermore, has announced the Romanian government, which is keeping silent, that it wants to open up the data room to take in other investors, so they wouldn't be the ones making the investment, but they'd prefer to sell instead. I think this is where we should all try and work together and see what we can do to convince them not to leave.

One idea would be to get Romgaz as well involved in this joint venture, to have a consortium as big as possible from which the Romanian state would profit as well and would have access to that resource", Virgil Popescu further said.

In his opinion, if we don't successfully start the exploitation of natural gas in the Black Sea in a relatively short amount of time, given the technological evolution, we may be left with the natural gas unexploited.

The deputy further said: "15-20 years from now that natural gas, this transitional fuel may not be worth as much. And then who stands to lose? Romanians again. I think that that natural needs to be extracted and introduced into the national circuit and, obviously, we need a very clear strategy for their consumption within the country. Besides, it fits very well with the need to develop a new capacity for the production of electricity, it fits the development of the network for the distribution of natural gas, given that only 35% of the grid is developed in the country and it also fits with the development of the petrochemical industry. So we really have uses for them. I really don't understand why we're running in place".

Virgil Popescu brought up the issue of the needs for natural gas this winter, as there is the risk of Russia halting the transit of natural gas through Ukraine.

He said: "We have had an inquiry to the Ministry of Energy and the Ministry of the Economy and they have told me that they are very ready to deal with this situation. We can import natural gas through Medieşu Aurit, but as far as I know we do not have an agreement for interconnection with Ukraine. Transgaz and the Ukrainian transport company have not reached an agreement on where to place the measurement point, the Ukrainians want it on their side, and we rightfully want it on our side. The two ministries have also told me that natural gas can also be imported through the border with Hungary, but we haven't completed BRUA. Another idea, also from the two ministries, was importing natural gas through Giurgiu, on the border with Bulgaria, but we didn't have an interconnection point over there either. I don't know what the people in the Ministry are thinking and which route we can use for the imports".

Also, Virgil Popescu reminded that the storage capacity has increased to almost 3 billion cubic meters, except we are unable to extract more than 25-30 million cubic meters a day, because we do not have strong enough compressors.

The deputy pointed out that Romania was a net importer of energy because Romania only has production capacities on paper, the country actually consume more than it produces.

"I have seen that over the last 3-4 years approximately 28 MW out of renewables have been commissioned. The Iernut plant of Romgaz is still under construction. And it is natural. Who's going to come in to make investments in Romania with an unpredictable, unstable legislative framework, and which requires the mandatory sale of the electricity on the OPCOM. Whoever comes in and invests needs financing and for that they need to sell their output, and they can't do that on the OPCOM market. I think that the restriction in the electricity law concerning the OPCOM should be lifted, at least for new investments in electricity", Virgil Popescu further said.

He also said that the new European regulation which would come into effect on January 1st, 2020 lifts those barriers and the regulation is applied as-is, without the need for its transposition into legislation.

"In the coming weeks I will be submitting a draft law, which has already been written, to eliminate that restriction from the law of electricity and natural gas, to avoid having any surprises when it comes to the interpretation of the law. It is not normal that we don't have new investments in electricity over the last few years. We want to be a regional hub, but we are net importers", Virgil Popescu further said. He also thinks that we need to go back to where we were, i.e. to the liberalized market.

He said: "We have succeeded in abrogating most of the articles in Ordinance 114, especially for electricity. The 2% tax has been eliminated, it has practically returned to 0.1% and we have succeeded in abrogating the article which capped the prices of energy and natural gas, by proposing a transition period of 90 days in the Commission. In the talks which subsequently took place between the energy providers and the political groups I understood that a longer transition period is sought. For me, transitions means a shorter period of time. We would agree to a delay until April 2020, but I think that the 2021 deadline, which I'm led to believe is currently being discussed is not a transition. It seems to me that we are slowly returning to regulated prices".

Virgil Popescu stressed that OUG 114 has created major disturbances in the market, during which time some profited, and others lost.

"In my opinion, it was Romanians that lost through OUG 114 first of all. I did not see a drop in the price of electricity, nor in that of natural gas, on the contrary, a slight increase was seen. Natural gas producers have been forced to sell for 68 lei MW, the producers of electricity have had a 5% imposed for the electricity sold to household consumers at a lower price, so essentially the producers were forced to lower their price. For household consumers the price remained unchanged and so we ask ourselves, who benefited? That difference went to the distribution-supply chain. I don't think that was the goal, to transfer from the potential profit of producers to suppliers and distributors. I think we need to make order in the market and the Ordinance 114 needs to be abrogated, at least where electricity is concerned and a reasonable transition delay needs to be approved, like, say, April 2020", Virgil Popescu further said.

The president of the Commission also said that there is still interest from some players in the market for Ordinance 114 to be abrogated, while others want for its elimination to drag on as long as possible, because they have noticed that they benefit from it.

"I don't think it's normal that out of a legislative error we give some the opportunity to keep winning. I don't know if the rumors in the market are real, the ANRE needs to clarify how certain suppliers have recouped their losses through this ordinance. I don't think that that was the goal of OUG 114, to make some companies good to sell. I think we need to stabilize things and the liberalized market needs to function properly. We have had a liberalized market and a very good one for electricity, we have laid the foundation of the liberalized market and essentially we have gone back several years through OUG 114".

Virgil Popescu also mentioned that the Ministry of Energy hasn't reacted following the information in the media concerning the infringement we are risking. The European Commission recently sent an additional justified notice to Romania, due to the fact that it hasn't completely eliminated the restrictions placed on natural gas trade between the EU member countries as stipulated in the EU norms concerning the internal market in the natural gas sector. Moreover, the European Commission has asked us to define a vulnerable consumer.

"There are villas around Bucharest with heated pools that get gas subsidies for their natural gas bills, which is outrageous. It is a waste of financial resources which are currently being handed out to everybody. In the talks, the Ministry of Energy and the ANRE are saying that the Government doesn't have the administrative ability to define the vulnerable consumer by October 2nd, 2020. I don't understand how it's possible that we can't know who are the people who do need these subsidies", Virgil Popescu further said.

He thinks that there is currently an invisible battle between producers, as well as between suppliers and the government.

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