Romanian electricity exchange OPCOM is planning to offer electricity contracts with delivery periods lasting longer than one year in a bid to attract financial institutions to its reformed wholesale power market, ICIS has learned.
An OPCOM statement sent on Friday said the exchange has invited companies to comment on its draft plans for a new platform for physically delivered bilateral contracts.
But despite details having finally emerged, the controversy among traders surrounding the scheme is far from dead.
The PCCB-DC platform will award contracts through a "competitive dialogue mechanism" (described below). Both sellers and buyers will be able to initiate auctions independent of licence type, according to the statement.
"All the companies licensed by [regulator] ANRE will be able to participate either as a seller or a buyer," it said, adding that the platform would not restrict sell offers to producers.
OPCOM has developed the product in cooperation with large consumer companies.
It is hoped that the contract length will pull financial institutions back into the market, many of which have backed away from energy trading due to a diminishing of risk appetite amid the eurozone debt crisis.
OPCOM intends for the auction initiator to submit initial offer conditions and a contract with the qualification criteria for participants as well as price adjustment formulas for successive delivery years, if considered necessary.
This would give flexibility to the initiator and should maximize the number of participants, OPCOM said.
The process will be divided into three stages:
1. Responding participants will be qualified according to the criteria set by the initiator.
2. The initiator starts a dialogue with the qualified companies discussing the clauses and conditions mentioned in the initial offer.
At the end of the dialogue stage the initiator will decide on the final offer conditions and terms of the contract, and the auction terms will be announced.
3. Those companies that successfully qualified will be able to participate in the electronic auction organised on the centralised platform administrated by OPCOM.
The platform will be open for continuous trading.
Traders previously expressed scepticism about the success of such a platform on OPCOM (see EDEM 7 September 2012).
According to one Romanian participant, the first stage of the process will have room for discrimination.
"There is fear that they [the initiator] won't specify the exact requirements and leave unspecified conditions in the text, meaning you may not know what these conditions are," he said.
He added that the particular platform would only be suitable for large consumers - because of their involvement in the development process - and that a separate platform would have to be developed for suppliers and trading houses.
Another trader said that the process was so complicated it could be open to manipulation.
"Why should it be simple when it can be complicated?" a third trader remarked.
He suggested that, as an alternative, OPCOM could encourage people to sign bilateral framework agreements, similar to the European Federation of Energy Traders model, under which clauses are strictly defined.
"Or you can follow the example of other exchanges where they [OPCOM] are the central counterparty and offer an entire list of standard physical products, including options, where any supplier or producer can use them as hedging instruments for their own portfolio," he added.
A fourth trader noted that if all data is published transparently on OPCOM then the project could work, but he added that traders were not sure what the ultimate goal of the project was.
Another source noted that the scheme was only a "slight improvement" of the existing bilateral platform and it was still unclear whether this would stand as the only platform for trading in Romania.
A sixth trader described the proposals as "open to manipulation" and "not suitable for the free market".
OPCOM was unavailable for further comment on Friday.
Last week traders reported that companies are ceasing trading in Romania amid speculation that regulator ANRE could slap them with "monster fines" (see EDEM 7 September 2012).
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). IP