Romanian tax may slash margins on spread deals
Traders with an interest in spread deals between Romania and Hungary would have to switch their focus to far curve contracts for chunky margins when a new cogeneration fee kicks in at the beginning of next month.
Romanian market players are expected to dig deeper into their pockets from 1 April when an estimated €4.40 (New Lei 18.50/MWh) cogeneration levy is slapped on top of the existing basket of taxes - currently hovering around €7/MWh - which participants have to pay when exporting electricity (see EDEM 9 March 2011).
ICIS Heren understands that the regulator is also looking to reduce the system fee by New Lei 10/MWh (€2.42/MWh). The watchdog is yet to confirm this tax.
Traders say that they would have to pay a grand total of €9/MWh on exported electricity with the new arrangements. Under these circumstances, spread deals on monthly and quarterly contracts would offer slim pickings, making the Romanian market less appealing than in the past.
For instance, the spread on the February front-month contract assessed on 4 January was €11.70/MWh, according to ICIS Heren data. Even after subtracting the average €7/MWh levy that acts as an export fee, the Romanian contract still traded at a €2.70/MWh discount to Hungary.
Three months on, the margin on the April Baseload cross-border spread contracted to an average €0.62/MWh, if the cogeneration tax is added.
Cal '12 spread widens...
In contrast, price differentials on the Calendar Year 2012 Baseload contract are substantially more appealing even when taking in consideration the new tax arrangements.
The Romanian Cal '12 traded at a €12.05/MWh discount to Hungary (€5.05/MWh if the €7/MWh tax is taken in consideration) on 4 January, according to ICIS Heren data.
That discount has now increased to €7.28/MWh, even taking into account the new €9/MWh fee.
Concerns over capacity shortages have boosted curve prices in Hungary during recent sessions (see EDEM 29 March 2011), including the likelihood of cogeneration plants closing and concerns over nuclear availability (see separate story).
...but could come under pressure
On the other hand, sources report strong buying interest on the Hungarian Cal '12 Baseload contract, despite the launch of the 400MW gas-fired plant at Gönyü in western Hungary later this year.
Meanwhile, Romanian traders point to robust delivery prices on OPCOM, the local Day-ahead exchange. The average Day-ahead settlement for working days in February was €46.95/MWh, 12% higher this year than the same period a year ago. Despite rising temperatures month on month, the Day-ahead Baseload average in March was €46.87/MWh, 23% higher than the same period a year earlier.
"It is very likely that the high prices we see on Opcom at the moment will have a psychological effect on traders in the long term," a trader active on the Romanian market said. "If they see these prices they will factor them in for the longer-dated products," he added. AS
Other Related Stories