The population “protected by authorities” pays by up to 27% more for gas than gas sold to unprotected consumers

by Dumitru Chisalita

Romanians have been cheated for years by authorities and politicians, in terms of gas prices. Romanians are very easy to please. The recipe is easy: showing a calendar with price increases and then offering the solution of freezing the prices. The public opinion has gladly received the statement of ANRE President that “The price of gas from domestic production for the population could increase 3% as of 1 July 2016, but could even stay at the current level“. In Romania, the regulated gas price is treated as the price that the state, through its institutions, establishes in order to protect household consumers. Politicians and state institutions deceive the population, spreading the idea (not to use the word “lie”) that gas price regulation is meant to protect the population. Misinformation and manipulation of public opinion favor certain companies to gain large amounts of money. The so-called protection by setting a regulated price for the population only gets more money out of the population’s pockets. The sad thing is that this theft, made by some companies, is not even split with the state that favors this practice (i.e. part of the undue money collected from the population doesn’t even come back as taxes or other fees paid by these companies).

The special price of gas for the protection of the population is, paradoxically, higher than the price of gas in the free market!

An analysis of gas prices shows that during 1999-2014:

• The price of gas in the regulated market, VAT included, although it did not stop being determined administratively by the state, recorded an increase by 18.20 times.
• The price of gas in the free market, VAT included, increased by 12.80 times.

In fact, what makes the difference between the regulated gas market and the free one:

1. The regulated market

• Puts the equal sign among all customers
• Forces customers to unconditionally accept all the commercial conditions (price, modality of payment, guarantees), even if they are different and have different possibilities.
• The price is set based on costs, regardless if justified or affordable, without benefiting from discounts in case of early payments or constant consumption.
• The market where naturally the price is superior to the price in the free market.

1. The competitive market:

• Allows each customer to customize the offer (to reach a fair gas price, to establish a suitable period of payment etc.)
• Leaves the possibility for the consumer to try to negotiate everything.

But beyond all these, the most important aspect is that in the free market an informed consumer no longer increases the profit of “wise guys” in the gas sector. Many consumers, journalists, analysts etc. wonder how come the import gas price and the domestic production fell in the past 2 years and the price of gas to household consumers, who are protected, increased. The explanation is simple, because “wise guys” suppliers turn it into profit and externalize it outside Romania.

Here’s what happened on 1 July 2015 [1]:

• the price of gas from domestic production that suppliers should sell to the population was increased by RON 7/MWh, of which RON 2.3/MWh remains with producers (which use it to discover other fields) and RON 4.7/MWh reach the state budget (overcharges, taxes etc.),
• the price of gas paid by the population increased by RON 9/MWh, of which RON 2/MWh remains with suppliers (which only “thicken” the pockets of companies) and RON 7/MWh is paid by suppliers to domestic producers.

Suppliers, under the umbrella of the calendar for the elimination of the administrative price to producers, each time received a higher price from the authorities.

It can be noticed that by 1 July 2015 the same supplier:

• in the free market purchased gas at a price of around RON 78/MWh and sold it at around RON 118/MWh.
• for the population, gas was purchased at a price of RON 53/MWh (“subsidized” price) and was sold at RON 118/MWh.

Thus, under the patronage of state institutions, profits made by some gas suppliers with which it had to protect the population were by up to 6 times higher than the profits made in the free market. Paradoxically, in Romania it is more profitable to sell gas to the population (which is reportedly protected) than in the free market. But it is made with the complicity of authorities and politicians. In order to convince how we are stolen from the position of protected customers, for the first time I show to the public two bills from the same area, from the same type of household consumer, one purchasing gas from the free market, at the price of RON 102.45/MWh, the other one from the regulated market, at a price of RON 130.1/MWh! The population “protected” by the Romanian authorities pay in a year by RON 829[2] more than people who don’t want to be protected (quit the free market). Each citizen “protected by authorities” pays by up to 27% (RON 27.65/MWh) more for gas than gas sold in the free market.

It can be noticed that after 1 July 2015:

• in the free market gas was purchased at a price of around RON 78/MWh and sold at around RON 109.6/MWh.
• for the population, gas was purchased at a price of RON 60/MWh (“subsidized” price) and was sold at RON 130.1/MWh.

Thus, under the patronage of state institutions, profits made by some gas suppliers that had to protect the population were by up to 7 times higher than the profits made in the free market.

[1] Prices/tariffs used in the analysis are approximate average prices taken over from data presented publicly

[2] It was considered at the level of household consumer living in a house of 120sqm

For the Romanian version click here.

Image courtesy of graur codrin at FreeDigitalPhotos.net