New play. Same plot. Same actor.

click to LinkedIn article

Almost ten years ago I was writing this article regarding the “Fear of the Smart Guys” play, which had the Romanian State as lead actor, playing two different roles - the Legislator-State and Shareholder-State. The State performance in such play had a decisive influence on the evolution of the Romanian energy sector for a decade.

The play was essentially about the Shareholder-State which was unable to implement an effective corporate governance system in its own companies, in order to prevent decisions that were detrimental to such companies and its shareholder. To compensate for such poor management, the Legislator-State took over and imposed by law, for private and public companies to the same extent, what was meant to be an internal policy for the sale of electricity by state-owned producers. This is how the famous PPA ban was implemented, as a solution to prevent the execution of PPAs like those concluded by Hidroelectrica with traders, suppliers and industrial consumers at prices below market price.

Ten years later, a new play is preparing to be staged, having the same actor State playing the same two roles.

The play starts with the scene filled with big Romanian and international private investors which are intensively involved in developing new renewable projects. One can clearly sense the tension as they struggle to deal with a permitting blockage affecting big projects (over 50ha). The blockage had been caused by an incorrect interpretation given by the Ministry of Agriculture to the legal provisions that were meant to do the exact opposite - simplify the permitting process. Months pass and no solution is given by the Legislator-State, to which all characters in the play turn for help.

And, suddenly, the Legislator-State enters the scene. It shouts loud and clear that the market is blocked. However, instead of putting forward a solution for the entire market, the Legislator-State comes up with a 3-step plan to help the state-owned companies catch up with the private investors in the development of renewables:

1. Declare the PV and wind projects developed by state-owned companies as “projects of national interest”;

2. Remove the 50ha limitation only for “projects of national interest”;

3. Decide that the state-owned lands may be awarded directly, without a public tender, for developing “projects of national interest”.

And, thus, we see once more the State mixing roles and using its legislative prerogatives to overcome deficiencies of the Shareholder-State in ensuring the competitivity of the state-owned companies in developing renewables.

The emergency ordinance envisaged to be passed by the Government significantly distorts competition by establishing discriminatory conditions for public entities against private investors. There are no sufficient elements to differentiate between the renewable projects declared/to be declared of national interest and those developed by private investors that would justify such a preferential legal regime. The distortions on the energy market can be even more material considering that Hidroelectrica (which is the beneficiary of the first project declared of national interest) has a dominant position on the balancing market.

We can only hope to see, in the next acts, the Competition Council stepping in and preventing the adoption of such ordinance. And we can only hope that the Legislator-State will intervene, instead, with adequate and proportional solutions that will solve the blockage for the entire market.