Another regulation, which increases gas prices, without bringing any future expectation

by Dumitru Chisalita, Energy Expert

Open letter to ANRE President Niculae Havrilet on the occasion of the meeting with consumers of “Fair Gas Price” (PretCorectLaGaze) Caravan, at the Central University Library “Eugen Todoran” in Timisoara, on May 29th 2015.

Dear Mr. President,

I welcome your initiative to introduce the obligation for gas suppliers to inform gas consumers, through the draft ORDER approving the Regulation on the activity of information of end electricity and gas customers.

The first condition allowing a company to exercise a certain control over prices is the situation in which consumers are not informed or information about the good provided by the company is not perfect. For buyers, trying to get a better price requires information, knowledge, understanding etc. Their absence gives the opportunity for sellers to get high prices for gas sold.

Companies naturally tend to impose a monopoly in order to secure profit

The free market, competition, mean time and money for the seller and the “most dangerous thing for a seller” – infidelity. No well-positioned company wants such risks.

Gas market liberalization involves the elimination of the monopolistic position of companies acting in this field, eliminating the possibility to influence the gas price in the market, directly or indirectly, but first requires consumer information.

As long as consumers are not attracted in this game, they will not see the advantages of price negotiation and will not have a minimum set of knowledge, they will remain “trapped” even in the liberalized market.

Even if this initiative comes with a great delay – gas market liberalization, agreed by the Government of Romania in 2012 with the World Bank, EU and IMF, set the obligation for ANRE and gas suppliers to implement a number of measures, before January 1st 2015, the date of market liberalization for non-household customers.

Supporter of principles of activity liberalization, of transparent activities and of fairness, I believe that only the way in which gas market liberalization was transposed in Romania, complicity and duplicity of authorities determined that fair principles cause opposite effects.

Promoting the free market means thinking more about the future, without forgetting the past, having the courage of being driven by innovating ideas after they pass the analysis of sustainability.

As initiator of the Fair Gas Price campaign, I see myself forced to notice that this Order, in the presented form, will not lead to a more informed consumer or to a consumer coping with a liberalized gas market.

To support this statement, I mention the following:

The draft Order creates the obligation for the supplier to inform only its own end-customers, obligation already set under other regulations in force, their implementation leaving much to be desired. Information that must be sent to customers does not refer to essential elements, which would ensure a dynamism of the market and development of competition. In fact, no company, even forced, will open the way for its own customers, teaching them how to leave to competition, how to refuse the price offered, how to negotiate their contracts etc. Essentially, the draft Order involves the same obligations as before, but the main issue is that it entitles suppliers to increase their expenses with information activities to 1% of their own annual costs. It means that it creates the legal formula to increase gas prices, but also the opportunity to siphon this money or direct these amounts to other areas (various other campaigns). It creates large discrepancy between the suppliers operating on the regulated market and those operating in the free market. Thus the suppliers in the free market will diminish their profits through these expenses, while for suppliers in the regulated market ANRE will increase gas prices in order not to diminish their profits. In fact, the only ones to pay these costs will be household customers. Gas market functioning, commercial mechanisms and procedures determine the need to teach Romanian consumers, and it cannot be done only by publishing extracts from the regulations in force.

The presented draft Order is conceived in such a way as to say: “look, something has been done”, but essentially nothing is changed. Moreover, this “nothing” will remove money from the pockets of household consumers. It is another regulation which increases gas prices, without bringing any future expectation.

In the free market, the price is formed following a negotiation between suppliers and customers. Depending on their capacity to negotiate, a selling price is obtained. This price has direct (visible) components and indirect (invisible) components. While we suppose that suppliers are aware of these issues, customers are less likely to know them.

In this context, we believe it’s necessary to hold public national campaigns to disseminate information, teach and promote the culture specific to a free gas market, without increasing the price of gas for household consumers.

The liberalized gas market without informed consumers, encouraged to intervene, supported to negotiate, able to analyze various offers, determined to act responsibly, cautiously and without allowing constraints, will only be another disappointment for the Romanian people.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net