Government vs. Capitalism: Romanian regulator tries to block the sale of energy assets by limiting property rights

The Romanian energy regulator (ANRE), controlled by left-wing ruling party PSD, has proposed to limit the property rights of energy assets owners, aiming to limit the exit from the local market of large foreign investors. Local experts warn that the measure could lead to “rapid self-destruction” of the local energy sector and call it a “Venezuela-style policy.”

A draft order by ANRE requires companies that have licenses in the production, distribution or supply of electricity and gas in Romania distribution to notify the local regulator about any intention to sell their assets or reduce the share capital by at least 5 percent 12 months before these decisions are put into practice.

The measure seems to mirror government’s worries regarding the exit of some big players from the local market, such as Czech group CEZ or Italy’s Enel.

Local experts warn that such a measure could have a severe impact on the energy market.

“The Romanian energy sector is about to follow the Venezuelan model, and this means entering a path of rapid self-destruction,” says Razvan Nicolescu, a former Energy minister and current energy consultant at Deloitte.

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According to the expert, the draft bill violates the property right guaranteed by the Romanian Constitution.

“The principles of the right to property and that of the market economy are guaranteed by the Romanian Constitution and the Treaty on the functioning of the European Union. Tomorrow someone can tell me that I cannot sell, donate or inherit my car, land or apartment unless I announce it a few years in advance, limiting my right to dispose of my property,” Nicolescu warned.

The expert finds it “shocking” that a Romanian public institution could propose such a measure in 2019.

Regulatory upheaval

A recent BR analysis showed that OUG 114/2018 caused major upheaval in the energy market, and especially in the gas sector.

“When the government representative presented us with the draft ordinance, my first reaction was: my God, you’re selling us to the Russians! Because this was like a door wide open to Russian gas,” a source from the energy market told BR.

In effect, the two major gas producers in Romania – Romgaz and OMV Petrom – are being forced to sell gas at capped prices and pay extra taxes, while there is no regulation governing imported gas – meaning that such a measure hits local producers and favors gas imports from Russia.

Through OUG 114/2018, internal gas producers’ sale price to suppliers and heating plants was capped at RON 68/MWh for three years, while electricity prices were also regulated for household consumers.

And the effect was soon evident: in the first months of this year, Romania increased its reliance on Russian gas, as imports from Gazprom jumped, and at much higher prices, official data show.

The measure is also a consequence of the fact that the Romanian government has never managed to identify the energy-vulnerable consumers in order to subsidize only those who need protection from high prices.

“With emergency ordinance 114, we erased five years in terms of energy price liberalization; we returned to 2014,” an energy expert told BR.