Energy and gas firms come knocking on banks’ doors

The economic crisis looks set to impact the business of local energy and gas companies next year. Many energy market specialists and gas producer representatives expect energy and gas consumption to decrease, while the most optimistic of them say that consumption might stagnate at this year's level.
Romgaz, Romania's largest natural gas producer, is part of the pessimists' team and estimates a slump in gas sales as a direct result of lower activity brought about by the economic turbulence. “We see what is happening in the automotive, siderurgy and chemical industries, where production is falling due to the crisis. This will impact our gas sales to large consumers, which are expected to decrease,” says Lucian Stancu, deputy general manager of Romgaz.
Despite the gloomy horizons, gas companies have announced millions of euros of investment plans for next year, in the modernization of the gas distribution system.
E. ON Gas Distribution has set for 2009 an investment budget of about EUR 51 million (RON 190 million) for the modernization of its gas distribution system.
“We have a multi-annual investment plan which involves the replacement of about 40 percent of the total network in the coming years. In addition to these investments, we are putting our money into the development of software and computing equipment, procurement of meters, vehicles and other equipment,” said Adela Botan, spokesperson for E.ON Gaz Distribution. According to her, this broad investment plan launched by E. ON Gas Distribution will reach around EUR 280 million (RON 1 billion) by 2012, the financing coming from the company's own resources.
This year alone, E.ON Gas Distribution has planned investments of EUR 52 million (RON 192 million) for the rehabilitation and modernization of about 750 km of pipeline from the gas distribution system.
Meanwhile, officials from the French gas distribution company, Distrigaz Sud, told Business Review that the firm would keep the same priorities as far as investments are concerned, namely the renewal and development of the distribution network in order to meet customers' needs. Distrigaz Sud's investment budget for this year reached EUR 81 million (RON 300 million) of which 50 percent was allocated to the replacement of used pipes, 20 percent to system expansion and the remaining 30 percent to other investments.
The company's plans to self-finance next year's investments seem daring, when taking into consideration that the company has recently been faced with a significant increase in the purchase price of imported gas and in the amount of gas kept in reserve this year for supply to the public throughout the winter season. “Because of this situation, Distrigaz Sud was forced to take out a loan. However, the company's debt rate is small, as Distrigaz Sud is a solvent company. If banks tighten lending conditions in the future, there is the risk that we will report higher financial expenditures,” Distrigaz Sud officials told Business Review.

Bank backup
All distribution branches of Electrica have plans to invest next year EUR 107 million (RON 397.3 million) in the development and modernization of the energy distribution network. Next year's investment budget has increased by EUR 27 million (RON 100 million), a 25 percent hike compared with this year. “All the investments that Electrica will make by 2012 will go into the development and energy distribution system and reaching performance indicators, which will lead to fewer energy cuts for consumers,” said Electrica officials. According to them, the money for investments next year comes from three main sources: 43 percent from the firm's own funds, 25 percent from bank or supplier loans and 32 percent from a broad equity advance from Electrica and the Property Fund to the share capital of the distribution branches. “The works financed through loans have started this year and are being carried out by companies with high technical and financial potential like ABB, Siemens, Areva, Romelectro, Energobit and Electroalfa,” said Electrica officials.
The Czech energy company CEZ has taken a big step towards becoming a significant energy producer on the local market this year. The company has acquired a 900 MW wind project in the Dobrogea region, signed an agreement with local energy company Termoelectrica for a 400 MW project in Galati and has a 9.15 percent stake in the company which will invest in nuclear units 3 and 4 at Cernavoda. CEZ's stake in these projects reaches EUR 1.86 billion. Officials said that just some of the money will come from company revenues.
“CEZ will finance all the projects announced for the local market through a financial mix, meaning partly the company's own financial resources and partly from other sources,” Doru Voicu, business development manager at CEZ Romania, told Business Review.
Recently, Termoelectrica and EDF SUEZ through its company Electrabel, inked an agreement to build a EUR 400 million, 400 MW electrical plant in Borzesti, estimated to be operational by 2012. Valentina Siclovan, business development manager of EDF SUEZ Group for South East Europe, said that the company would establish the structure of the financing for this project, which would “most probably be a combination of cash and loans”, in the first quarter of next year, after the feasibility study of the project is completed.
GDF SUEZ has also joined the team in charge of constructing the third and fourth reactors at the country's sole nuclear power plant in Cernavoda. This summer a consortium including Termoelectrica, E.ON and Enel signed a memorandum to build a thermo power plant at Braila. Costs stand at EUR 1 billion.
Recently, these deals have been called into question, as Termoelectrica failed to pay a EUR 400 million debt. Up until now, only the German utility company RWE power has said that, “The contribution for the Cernavoda project will be covered by RWE's own resources.” As the company has announced plans to further invest on the local energy market, it remains to be seen how deep its pockets are.

By Dana Ciuraru