Gas prices spark a summer of discontent

Newsroom 07/07/2008 | 16:20

Alexei Miller, CEO of Gazprom, the Russian energy giant, recently made a shocking statement that sent ripples across international markets. “Soon, the price of oil will surpass USD 250 per barrel,” said Miller. It is a surprising statement and comes at a time when the international oil market is very unstable, with skyrocketing oil prices registered in the past few months. Just last week the price oil surpassed USD 140 per barrel. The price of gas sold on the international markets, meanwhile, is linked to the price of oil. Thus the international fluctuations have effected the imported gas acquisition prices in Romania.
After the gas price increase in February of 8.5 percent, the local distribution companies E.ON Gaz Romania and Distrigaz Sud asked the Energy Regulatory Agency (ANRE) for a 24 percent hike in April. Then they were rebuffed but the Agency relented in July.
Indeed, ANRE announced that starting July 1, gas prices will go up by 12.5 percent for Distrigaz Sud and 11.6 percent for E.ON Gaz Romania; electricity prices will go up 4.4 percent.
ANRE officials justified their decision by highlighting the increase in imported gas prices during January – June and also by the heavy losses reported by the gas distribution companies in this period. ANRE officials said that last year the gas price increase in Europe reached 25 percent and a similar rise is expected for this year.

Gas distributors, tough negotiators
Gas distributors were already pushing for a fresh price increase on the same day the 12.5 percent gas price hike took effect.”There is no doubt that the gas price will continue to grow and at the end of the year we will have a higher gas price. From the beginning of the year, Distrigaz Sud registered more than EUR 22 million losses because of the delay in the gas price increase. For us it is necessary for a tariff increase of 20 percent from October 1 and we will make such a request to ANRE,” said Bernard Arnaud.
The company currently acquires imported gas for USD 480 per 1,000 cubic meter, but by the end of the year specialists estimate that the price will go up to USD 620. At the end of last year, Distrigaz Sud imported gas for USD 370 per 1,000 cubic meters.
Frank Hajdinjak, GM of E.ON Gaz Romania, said that his company will also ask for another gas price increase by the end of the year in order to cover the company's losses. He said that the company may encounter problems during the winter to cover the gas demand.
“We will have problems with the storehouse. If it will be a harsh winter we are afraid that we will not be able to meet the demand. Towards the end of the year we will ask for another gas price increase,” Hajdinjak said. E.ON Gaz Romania officials say that since the beginning of the year the company reported losses of more than EUR 11 million.

Populist rumblings from Parliament
After ANRE's announcement, the Industry Commission in the Deputies Chamber analyzed the situation and reached a “surprising” conclusion: Romanians pay the highest price for gas and energy. Romania imports are one-third of total national consumption, while the rest comes from local production. According to Iulian Iancu, head of the commission, people are forced to pay the high prices while some companies use gas sourced from local production, which is much cheaper than imported gas.
Iancu blames ANRE: “To change the situation we must change the primary and secondary legislation and members of ANRE, if necessary. We must use gas from local production in order not to see prices of USD 500 per 1,000 cubic meters, but only USD 210, the price of gas produced locally by Petrom and Romgaz.”
Gergely Olosz, president of ANRE, responded, saying that cheap energy is given to the population and if local energy demands are not met only then is imported gas used. Iancu said he will lobby to modify the law to ensure Romanians will only pay tariffs related to local production.

Unions unleash threats
Costlier gas and electricity will increase companies' production costs, and they will pass the extra expense onto their customers, said Ovidiu Nicolescu, the head of CNIPMMR. Romanian analyst Ilie Serbanescu predicts the country will witness another hike in prices
by the end of the year. He also believes that inflation will rise by 1.5 percent.
Union leaders demanded a raise in minimum salary up to Lei 600 due to the escalating energy and food prices under threat of protest. Indeed, public gatherings have already occurred in some major cities.
Prime Minister Calin Popescu Tariceanu said however the unions' demands cannot be met due to inflationary fears. Economy Minister Varujan Vosganian concurred, saying inflation may reach 6 percent by end-year, well above the government's 3.8 percent target.

By Dana Ciuraru

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