Companies that gambled by trading in Romanian electricity contracts after recent controversial amendments to the country's energy law have ceased active trading amid speculation that the regulator ANRE could slap them with "monster fines".
At the end of July, the Romanian government approved the conduct of electricity trading in a "centralised manner" but did not define what that would involve or say whether all counterparties - both state generators and private companies - would be covered by the law (see EDEM 19 July 2012).
ANRE was supposed to come up with secondary legislation to clarify the new amendments but has yet to do so and was unavailable for comment at the time of writing.
In a meeting with ANRE on 10 July, traders failed to prise the clarification from the regulator but were told to move all trading activity to the OPCOM exchange until receiving the clarification (see EDEM 20 July 2012).
Speculation about possible punitive action against companies trading over the counter (OTC) are making traders reconsider their positions in Romania.
One Romanian source said his company has stopped trading in the country and that he has heard that others have done likewise or will do so soon.
"I hear rumours about monster fines but we really hope they won't do it," another trader said, adding that his company is also planning to stop its trading activities in Romania. "On the other hand, ANRE has until the end of the year to come up with the secondary legislation," he said.
Platforms for bilateral trading
OPCOM is planning to launch different types of screen for bilateral trading, local media reported this week, but the exchange failed to reply to requests for comment.
However, the Romanian trader said he was at a meeting on Thursday when the OPCOM project was presented. He said the traders present agreed it was a "bad product and they [OPCOM] have to come up with something else".
Another trader said the project would be a desperate attempt on OPCOM's part to try to fix what the law has damaged. "They will create those platforms to substitute bilateral trading," he said, adding that he doubted there would be any liquidity on the platforms. "They should just allow free trading but they would never recognise their mistake."
Another trader said he questioned whether such an arrangement would be in line with European law.
But, according to Romanian market specialist Jean Constantinescu, the use of Opcom platforms for bilateral transactions would be mandatory only for state-controlled companies, allowing discretionary business decisions, and thus in line with EU rules.
"I think other bilateral trading between private market players will, of course, be allowed," he said.
Letters to the government
Romania's Electricity Traders Association (AFEER) made a last attempt to urge the government to reconsider the law by sending a letter to the economy ministry on 14 August. The letter, seen by ICIS, included seven points:
1. The centralised structure goes against the principles of a liberalised, functional and competitive market. Furthermore, suppliers have placed orders on the centralised market but no producer has responded;
2. The new law gives suppliers only 21 days to balance their portfolios in case they lose customers. But, as trading can be done only on a unique centralised platform, that is too short a time for suppliers to find energy;
3. Although the government tried to curb electricity being sold cheaply to preferential customers, the new centralised platform is unlikely to stop it;
4. The new, "distorted" framework creates supplementary problems regarding financial guarantees when applying for a trading licence;
5. Companies based outside Romania but holding trading licences are banned from the intra-day and Day-ahead market;
6. The current legal text fails to clarify cross-border transaction methods and therefore goes against European directives;
7. New renewable-energy generators need long-term supply contracts to guarantee bank loans but cannot conclude such contracts as they are not yet licence holders;
In a response dated 24 August, also seen by ICIS, the economy ministry said the law is fair and any potential distortions are caused by market participants. It denied that the law has any harmful effects on the market.
The European Commission is aware of the issue and is analysing Romania's transposition laws, as it does with all other laws, a spokeswoman said on Friday.
The European Federation of Energy Traders was unavailable for comment.
However, a Romanian participant said that both organisations have been informed about the situation by AFEER.
Traders reported that the idea of launching a financial screen on which electricity would be traded as a financial rather than a physical product is gaining popularity. "It's not a new idea but people are starting to take it more seriously now," one Romanian source said.
He said: "We won't be trading energy per se. It is going to be a financial product so the energy law will not apply. There will be the same screens, products and set-ups but the difference will be that there would be a cash settlement and there won't be any energy flow - only the cash difference will be paid and received."
Another Romanian trader said: "In the past, there have been serious discussions about it. If OTC trading really is banned in Romania, I can imagine that a financial screen will be launched very quickly."
A third market participant said his company could soon begin negotiations with its clients about the start of such trading. IP/AS