In anticipation of the National Energy Strategy: Insolvencies and bankruptcies

The Energy Ministry has completed the sectoral discussions in the working groups on the future Energy Strategy of Romania. As expected, the discussions have not brought up surprising things. In fact, it was an overview of the problems the sector is facing, things very well known by all experts in the field. The future document, which the Minister of Energy wants to complete by autumn, risks becoming useless, given that the next government will want to lay its own development vision on the Romanian energy sector.

Victor GrigorescuWe do not know what guidelines does the current Minister of Energy have for the sector, but we know that this year is a lost one to Romanian energy. No investment project has started and restructuring meant only bankruptcies and insolvencies. The current leadership of the ministry is not to blame for this, but may be criticized for lack of involvement. Just waiting for the strategy to come out, as its mere appearance would solve the problems is an error. In fact, all governments that ruled from Victoria Palace are guilty of this. We are talking about a lack of long term vision and fear to assume the social costs of actual restructuring of the energy production from coal.

CHEAP ROMANIAN OIL, JUST A MEMORY

Estimates show that oil production will fall on short and on medium term, and the production costs will be increasingly higher, because the resources will come from great depths. This means that Romania will produce expensive oil. “We must be realistic and take into account that, on the short term and even on medium term, we are to face a decline in domestic oil production. Oil from domestic production is not cheap, is not able to compete on the international market and even the prospect of an increase in domestic output will result in increasingly expensive crude oil, as it will originate from great depths, based on modern technologies, obtained with high costs,” said Alexandru Patruti, expert in mineral resources and member of the Advisory Council for developing the energy strategy.

Also in decline are the prospects for natural gas domestic production. “The resources of gas in the Black Sea, if their exploitation is decided upon, will be available only with the allocation of large financial resources, which will lead to high prices of these quantities of gas, which will not boost the Romanian petrochemical industry. Although exploration works are conducted for over 30 years in the Black Sea, gas exploitation has not started in any offshore block,” pointed out Alexandru Patruti.

Given the decline in oil prices, the exploitation of offshore oil will be postponed for the time being, so that Romania can count only on the onshore ones.

WHAT WILL HAPPEN TO THE MINES IN JIU VALLEY?

A dramatic situation is recorded at the Hunedoara Energy Complex. The accumulated debts of over RON 1.5 billion could be paid in 34 years. In addition, the company no longer meets the legal environment framework to operate. The biggest problem identified at the Hunedoara Energy Complex by the ‘Pit Coal’ working committee is the acute lack of investments during the last 20 years, no upgrading and no modernization of extraction. Therefore... there’s nothing new under the sun. After the Revolution, the investment levels in mining fell to 5% of those before 1989 and after 2007 no investment has been initiated. The mechanized complexes provide, according to specialists of the Committee for mining, double the productivity against conventional mining methods, used in most of the current mines in Jiu Valley. Thus, in the last year, 70% of the production cost of coal was for ‘live labour’, which means that the extraction is done with old technologies, of more than a quarter of a century. Also, another issue addressed by the working group is that the closure of mines by present methods would no longer allow their reopening, making more cost effective to dig a new shaft than opening one closed through backfilling. The Hunedoara Energy Complex’s de-capitalization and the insolvency had been planned since its establishment, since, year after year, budgets of incomes and expenditures were approved anticipating losses, says the report of the complex’s official receiver, the GMC SPRL company, in regard to the causes of insolvency. According to the same report, the energy production costs in the complex are two times higher than the market price, which led to the gradual de-capitalization of the company.

HEATING SYSTEM, COLLAPSING

The centralized energy supply system with thermal energy is quickly fading away under the authorities impassive eyes. Heating at national level might disappear in the next decade due to the disconnection of localities. In 1989 the number of localities connected to the centralized heat supply (SACET) was of 315. In 2015 there were only 64. Among the conclusions of the debates organized by the Ministry of Energy was one idea of cutting VAT on heating, on the pattern of other European Union countries such as Hungary (general VAT rate of 27%, 5% VAT for heat), France (general VAT rate of 20%, 5.5% VAT for heat), Greece (23% and 13%), Ireland (23% and 13.5%), Latvia (21% and 12%), Lithuania (21% and 9%), and Luxembourg (15% and 12%). It also proposed a programme for the rehabilitation/modernization SACET units (Systems for supplying centralized heating), while gradually restricting the individual heating sources that are more polluting, with a lower degree of efficiency, often posing danger of fire and poisoning. The rehabilitation and modernization programme would take six to eight years.

During the debate organized by the Ministry of Energy it was also noted the need to move all SACET units under a single authority and the central coordination of their development, financing and operation, while maintaining these heating systems under the local authorities’ ownership. In addition, it was proposed metering the total heat consumption and abandoning the splitters. These proposals are not new, they are submitted on the table whenever such problems regarding the heating system are discussed, but no one tried, really, to solve the problems. Patch-ups were preferred.

In 2009, some 1,595,175 apartments were connected to the local heating systems, and after further disconnections, at the end of last year there were 1,281,122 apartments connected, of which 563,352 or 44% were in Bucharest. Moreover, of the 67 localities in Romania where households are connected to central heating, Bucharest, Timişoara and Cluj-Napoca manage to sum up about half of the total subscribers nationwide. The situation of disconnections from SACET units is caused by a combination of factors. The first factor is given by the financial crises during 1996-2000 and 2008-2009. A second cause is the massive increase in energy prices. The third one is the influence of the aggressive marketing of individual heating distributors on people. On the other hand, the average income of those living in these apartments represent about 16% of the EU average, while the price of utilities is almost equal to the European average. The question is how this problem will be solved by the new strategy.

RENEWABLE ENERGY, DRIFTING

2016 could seal the bankruptcy of 40% of renewable energy producers. They complain that the legislative changes in recent years have led them to the verge of bankruptcy, development generated by the authorities.

“Somebody should have thought which energy sources to be replaced (when the green energy entered the market – our note). First, the coal, the most expensive one. We pay the inefficient operation of an inefficient sector with 30,000 employees with a very dangerous social potential for any government. It is cross-subsidy. Therefore we have a problem with the green certificates, because we have ballasts,” said Niculae Havrilet, ANRE President, during a conference on energy issues.

The electricity producing capacities from renewable sources reached a total installed power of 5.142 MW at the end of 2015, according to data centralized by Transelectrica.

INSOLVENCY ALSO IN THE NUCLEAR SECTOR

The nuclear sector is also going through hard times. The National Administration for Nuclear Activities is insolvent and will soon reach bankruptcy and the Uranium National Company is likely to follow suit. The construction of reactors 3 and 4 of the Cernavoda nuclear power plant has been delayed until the international energy groups were fed up looking at Bucharest’s indecision and withdrew from the project. The project could become a Chinese business, but it remains to be seen what conditions the Asians would impose in order to invest...

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