Fondul Proprietatea: Hidroelectrica risks losing up to RON 1 billion due to new regulation

Anca Alexe 22/07/2019 | 08:11

Fondul Proprietatea (FP) warns of the dire consequences for Hidroelectrica’s profitability, and overall business performance, as a direct result of the implementation of the ANRE Order no. 10/2019 (“Order 10”) regarding regulated energy prices and quantities for electricity sold by producers on the basis of regulated contracts, issued by the National Regulatory Authority for Energy (ANRE).

According to Order 10, Hidroelectrica, the most profitable state-owned enterprise (SOE), will bear the burden of the regulated energy market, thus being unfairly punished for having increased its efficiency, FP warns. 

“Order 10, issued by the ANRE on February 1, 2019, has prompted electricity producer Hidroelectrica to submit to a shareholders’ vote at the upcoming General Shareholders’ Meeting, on July 23, 2019, the suspension of its previously approved  energy trading strategy as long as Order 10 and Government Emergency Ordinance  no. 114/2018 (“OUG 114”), for which Order 10 sets the implementation methodology, are in force, as well as to reduce to only up to 35 percent of its next year expected annual production the level of electricity to be contracted one year ahead through the centralized electricity markets administrated by OPCOM,” Fondul Proprietatea explains.

The proposed measures were deemed necessary by management because Order 10 “is unclear as to the exact quantity Hidroelectrica could be required by ANRE to sell on the regulated market for the period January 2020– February 2022”.

“The document only specifies quantity of up to 65 percent of its next year’s expected production that Hidroelectrica could be required  virtually in a discretionary manner to sell at regulated prices, with a profit margin of only 5 percent. To this day ANRE has not clarified the electricity volumes that Hidroelectrica and other concerned companies are required to provide for that period at a regulated price, leaving them in a state of prolonged uncertainty. A reply by ANRE to Hidroelectrica’s request sent in May 2019, for an estimation of the energy quantity to be assigned by ANRE to the  company to be sold through regulated contracts at regulated prices has failed to result in any clarifications being made,” FP says.

Even though ANRE has not yet specified the quantity of energy that Hidroelectrica has to reserve for the regulated market for the period between 1 January 2020 and 28 February 2022, Fondul Proprietatea warns of the severe risks the company faces in case it fails to deliver the required quantity:

  • A fine up to 10 percent of the previous year’s turnover for not delivering to suppliers of last resort (SoLR) the necessary quantity of energy for household consumers who benefit from regulated prices. Based on the estimated company turnover for 2019, of RON 3.5 billion, such a fine would amount to RON 350 million.
  • A hydrological risk. In case of being compelled to sell 65 percent of its estimated energy on the regulated market and being unable to produce the estimated quantity due to the hydrological situation, Hidrolectrica will be obliged to buy more expensive energy from the competitive market and sell at a cheaper price in order to fulfill its contractual obligations on the regulated market.
  • Potential loss in revenues. As a direct result of OUG 114 and Order 10, Hidroelectrica will be unable to offer a significant quantity of energy on the competitive markets managed by OPCOM, although there is a price increase trend on these markets. Thus, Hidroelectrica will be unjustly deprived of potential revenue.


More than six months after coming into force, OUG 114 and the subsequent Order 10 issued by ANRE continues to wreak havoc on the Romanian energy market, introducing severe distortions in the electricity market. The most significant impact is being absorbed by companies such as Hidroelectrica which has made huge efforts in recent years to improve its efficiency and improve the operational and financial performance of the company. The lack of clarity brought by these unwelcome regulations has put Hidroelectrica in the situation where it is impossible to implement is business strategy as approved by shareholders and raises the risk that the company may again suffer losses such as in the times of the  «smart guys». If ANRE decides to request  from the company the maximum quantity to be sold at regulated prices, that is 65 percent of its energy output, the company would stand to lose as much as RON 1 billion. While the benefits for household consumers remain insignificant, it is obvious that, as the country’s most profitable SOE, Hidroelectrica’s losses will be the loss of each and every Romanian. This uncertainty introduces not only massive negative consequences for the company’s financial performance but also for the proper functioning of the domestic wholesale electricity market,” said Johan Meyer, CEO of Franklin Templeton Investments Management Limited UK Bucharest Branch and Portfolio Manager of Fondul Proprietatea.

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