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EU to probe Romania’s cheap hydro electricity deals

21 Oct 2011 17:18:50 | edem

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The European Commission is investigating a number of contracts for cheap electricity supplies signed by Romania's Hidroelectrica with industrial clients, EU competition commissioner Joaquín Almunia told a conference in Bucharest on Friday.

Some of the clients who reportedly bought cheap energy from Hidroelectrica include ArcelorMittal's steel mill and aluminium company ALRO. Their combined consumption is around 8% of the country's total production.

"We are currently looking into potential aid to the Romanian steel and aluminium producers ArcelorMittal and ALRO, through reduced electricity tariffs offered by Hidroelectrica," Almunia said.

"More recently, we also started looking into potential state aid issues in Hidroelectrica's contracts with some electricity retailers and other industrial clients.

"Reduced electricity tariffs hamper the development of genuinely liberalised electricity markets. When electricity prices are not set freely on the market, the whole functioning of the electricity market is distorted and electricity prices for the rest of the consumers become higher. Industrial consumers from other sectors of the economy are also affected, having to bear the additional costs caused by the distortion in the electricity prices," he said.

Hidroelectrica was unavailable for comment on Friday at press time.

Long-term deals

Earlier this year Hidroelectrica decided to renew a number of long-term deals with its customary clients until 2018, locking in nearly 80% of the production that remained after it served the regulated market in bilateral contracts (see EDEM 5 July 2011).

The state-owned company reportedly signed a number of deals with clients seven years ago. These contracts were expected to end in 2010 and 2011, a source from Romania's trade union federation BNS told ICIS Heren in July.

After the expiry dates, Hidroelectrica had two options: sell the production on Opcom, as required by law or renegotiate bilateral deals on an annual basis after their end dates, as stipulated in the clauses of the initial contracts.

Price spikes

The source explained that clients who had renewed their contracts with Hidroelectrica were now buying electricity at prices below Romania New Lei 110.00/MWh (€26.00/MWh), nearly New Lei 200.00/MWh below prices seen recently on Opcom. On Thursday, the Friday Baseload contract outturned at New Lei 334.82/MWh, the highest Day-ahead contract for a working day since 2008, according to ICIS Heren data.

Earlier this autumn, Hidroelectrica declared force majeure after hydro resources reached critical levels following a prolonged dry spell (see EDEM 27 September 2011).

Some traders active on the Romanian market said the company had to buy electricity on Opcom in order to honour its contractual obligations. This has reportedly led to the three-year record spikes on the exchange. AS

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