Energy projects look shaky as well of cash runs dry

In November last year, the economy minister at that time, Varujan Vosganian, sat at the same table as high-ranking officials from six international companies and signed a memorandum of understanding regarding the investment in nuclear units 3 and 4 from Cernavoda – a giant project not only size-wise, but also in terms of cost. By the time the agreement was inked, the investment cost had hiked from EUR 2.2 billion to EUR 4 billion, because of constant increases in the prices of raw materials and the low number of specialized firms for these projects, said officials at RWE, a partner in the project. According to the agreement, the state's stake in the project company was set at 51 percent, meaning it would have had to come up with a bit more than EUR 2 billion. “The government will put in about EUR 2 billion. Some of the money will come from Nuclearelectrica funds, and some from the money made from state privatizations. We estimate that the project will be completed in six years,” Vosganian told Business Review in November last year. A year later, the state finds itself penniless and unable to manage such a stake in a gigantic project like nuclear units 3 and 4. The state secretary with the Economy Ministry, Tudor Serban, told BR that Nuclearelectrica would not be able to afford this ongoing investment and that other investors might receive a larger stake. “We cannot afford important projects such as nuclear units 3 and 4, because Romania has a problem regarding financing. We cannot rely only on the support of the state, because any money we give can be seen by Brussels as state aid, including financing for this project,” said Serban. He added: “Currently, the state can provide guarantees, when a company wants to take out a loan from the bank. Our intention is to lobby Brussels for Romania to be able to directly allocate money from the state budget to the giant energy projects.”Even if Romania does not in the end hold a majority stake in this project, the costs will be significant as the country finds itself in the position of having to borrow from banks with operations on the local market, because loans from international financial institution are being used to patch up the budget expenses black whole. Financial analysts say the cost of borrowing from banks is higher because they have limited exposure on the local market and can impose harsh conditions, taking into account as well the state's weak negotiating position during this period. Nuclearelectrica GM Pompiliu Budulan announced that three lenders have expressed their intention to finance the project. “On the list of the banks interested in investing in nuclear units 3 and 4 are French group BRD-Groupe Societe Generale and its local subsidiary, Royal Bank of Scotland, and Export Development Corporation (EDC), a development bank from Canada,” said Budulan.The information was confirmed by BRD's corporate client manager, Ribiana Crasan, who said, “BRD-Groupe Societe Generale is interested in financing this project.” The bank lent Nuclearelectrica EUR 430 million in the past for the construction of the second nuclear unit at Cernavoda.
Nabucco's financial expectations from Romania
Another important project of which Romania is a part through its state-owned company Transgaz is the trans-national gas pipeline, the Nabucco project. As the project advances, financial expectations arise from this side as well for Romania. The project is evaluated at approximately EUR 8 billion and Romania's stake is 16.67 percent. “Every shareholder in the project will also contribute financially to it according to their stake. We expect that, as in the case of other project finance transactions as well, each shareholder will have to provide certain guarantees, the extent and quality of which shall be discussed with the financing banks in due course,” Christian Dolezal, spokesperson for Nabucco, told Business Review. Such guarantees are expected no later than next year, when the project company announced will initiate negotiations with the European Investment Bank, the European Bank for Reconstruction and Development and International Financial Corporation – the World Bank's financial arm – for the necessary financing. The pressure on this project is huge as Europe is desperately trying to find alternative ways to ensure its gas supply and to escape its reliance on Russia. Just recently, officials of the Russian state-owned gas producer Gazprom announced their intention to increase the price of the gas delivered to European countries by USD 30. In such an instable political climate it is hard to see the light at the end of the tunnel for such an important energy project, at least as far as Romania is concerned.
dana.ciuraru@business-review.ro