New Romanian tax rules catastrophic for domestic, EU energy markets – industry associations
LONDON (ICIS)–Romanian and European energy associations have raised fundamental concerns over Romanian government moves to impose a retroactive taxation regime which, they say, could have “catastrophic consequences” for the domestic and regional electricity and gas markets.
The European Federation of Energy Traders (EFET) as well as the Romanian energy producers association HENRO, energy non-governmental association CRE, industry lobby groups ACUE and FFPG, urged the Romanian parliament to alter the proposals urgently, saying they were in direct conflict with European legislation.
In separate letters sent to Romanian and EU officials on Tuesday, and seen by ICIS on Wednesday, EFET and the Romanian associations warned that the “spillover effect of the regulations, even if for a brief period of time, would be destructive […] undermining cross-border activities.”
Earlier in September, the Romanian government adopted an emergency ordinance, introducing a 98% tax that would retrospectively apply to wholesale electricity and gas transactions in Romania.
The ordinance also introduces a retroactive 100% tax rate for Romanian electricity exports as well as a 100% windfall tax on the difference between the reference price set at New Lei 450.00/MWh (€93.00/MWh) and the actual price at which the output was sold.
In the case of electricity suppliers, the government will compensate them up to New Lei 1,300/MWh, which means that if they had paid higher prices to buy electricity to supply end consumers, they would not be compensated. The difference between the reference price and the actual market price is likely to be paid by the supplier.
Responding to the ordinance, EFET said the retrospective taxes would have a “catastrophic” impact, pushing local companies into insolvency and cutting Romania off from neighbouring power markets. It said they could also lead to “huge instability” and a chain of regional bankruptcies.
The federation stressed other adverse effects
– Risks to security of gas and electricity supplies in Europe stemming from the fact that Romania is integrated into European power coupling mechanisms and is a sizeable market which can impact the region
– Disruptions to the energy transition amid a deteriorating investment environment
– Harming retail competition and ultimately the prospect of cheaper end consumer prices because the ordinance would force many participants out of business
– Undermining price and investment signals
– Significant impact on cross-border trading and flows since power exports are no longer permitted to be profitable, even for quantities that have been contracted in the past and need to be delivered
– Trades of physical forwards are expected to disappear entirely from Romanian electricity and gas markets
– Potentially higher prices for energy because contracts concluded prior to the publication of the ordinance at lower prices would have to be terminated.
The letter sent by the Romanian associations insist the measures are also unconstitutional and in breach of EU free market principles as many consumers would lose their retailers of choice and would have to be taken over by suppliers of last resort.
The Romanian government insisted that the measures were necessary to support the green transition in the long-term and protect end consumers in the short term considering the latest record energy price rises.
However, both EFET and the Romanian associations have insisted that the measures would simply destroy Romania’s chances of developing more energy and natural gas production and block it from making progress towards a cleaner economy.
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