Romania’s Hidroelectrica insolvency bid shocks electricity market

Hidroelectrica, thought to be one of Romania’s most profitable state-owned companies, has filed for insolvency, sparking shock among participants active on the electricity market.

In a statement, the Ministry of Industry as majority shareholder said the decision had been taken by the company’s Administration Council, which had filed an insolvency request to the Bucharest Tribunal.

The company said on Monday: “Given the extensive drought at the end of 2011 and the beginning of 2012, which led to a 10% decrease in company revenues, the losses incurred as a result of a depreciation in the national currency, a 27% loss in cash flows in 2012, an increase of up to New Lei 470m [€105m] in debt payable after 90 days and financial losses of New Lei 121m in 2011 and New Lei 112m in the first five months of 2012, the Administration Council of Hidroelectrica decided on 15 June to file for insolvency with a view to organise its commercial activity according to a plan that will be subsequently approved.”

Hidroelectrica further stated that once the overhaul plan is approved, it would expect to resume commercial activity outside legal supervision.

A Bucharest-based analyst said the announcement was either “a bad joke” or a disaster, describing Hidroelectrica as one of the “most viable state-owned companies in the country”.

“This latest twist of events will cast a stain on the company’s reputation just as it prepares to list 15% of its shares. No serious investor would want to touch it,” he said.

Hidroelectrica has been at the centre of a media storm for more than a year after it renewed a series of long-term contracts at prices half of the official market price (see EDEM 5 July 2011).

Following an exceptionally dry summer last year, Hidroelectrica struggled to honour the terms of its contracts and was forced to declare force majeure in September 2011. (see EDEM 27 September 2011)

The company subsequently came under pressure from the EU and the International Monetary Fund to cancel the contracts and return the captive generation to the market (see EDEM 25 April 2012).

But so far only three minor contracts have been discontinued (see EDEM 29 December 2011).

“I imagine they are trying to get rid of the long-term contracts and couldn’t think of a better way to do so than file for insolvency,” a source active on the market said.

Last week, the Romanian Parliament passed a series of amendments to its electricity and natural gas law. The law initiators had stated that the amendments would seek to centralise trading to a sole platform, deterring any bilateral deals similar to those signed by Hidroelectrica from happening again.

Despite repeated attempts by ICIS to clarify whether trading would happen on a centralised platform – a move that would virtually eliminate the need for over-the-counter trading – no parties involved in passing the amendments could be contacted (see EDEM 18 June 2012).

Hidroelectrica has also been earmarked for an initial public offering for 15% of its shares after the government renounced earlier plans to merge it with less profitable companies such as Termoelectrica into a large national energy champion (see EDEM 10 October 2011). AS