Energy Strategy for Romanians: 8 barriers in the way of investments in the energy sector and as many potential solutions

by Dumitru Chisalita, energy expert

Negative impact of barriers in the energy sector in making investments falls upon the energy sector, but also on the entire economy.

1. Access to land

Access to land to conduct certain permanent or temporary activities takes up to 18 months in Romania, unlike other EU countries where it takes several months.

Moreover:

• such elements cause costly delays in carrying out the investment phases and generate large administrative and compliance costs.
• difficult conditions to exercise the easement rights established by the legislation, which involve a considerable amount of time until settlement;
• due to the lack of cadaster and land registration in the Land Book, often owners of land necessary for exploration and exploitation activities cannot be identified. In such conditions, concluding a convention on the amount of rent due for exercising the easement right established under the Petroleum Law is impossible.

Solutions:

• reducing the amount of paperwork to be signed;
• simplifying the procedures for access to land following legislative changes;
• incentives for members of local communities through participation to financial gains resulting from the development of oil/energy activities;
• carrying out information campaigns on risks and benefits of energy activities.

2. Approval and permitting processes for investment works

A significant number of investors decided to no longer invest in Romania when they discovered the long, complicated and costly procedures for getting permits, authorizations, approvals, licenses etc.

Moreover:

• The response to a request lasts from a minimum of 30 days to several months after the provision of documents;
• There are disruptions of investments and additional costs are generated;
• The Romanian state loses due to the lack of updated situation of natural resources and their actual exploitation;
• Investors refocus on states with a lower degree of bureaucracy;
• Cumbersome procedures within the authorities involved;
• Limited powers of regulatory agencies and shortage of human resources and materials they face;
• Duration of ratification of concession agreements is very high, because the endorsement circuit includes numerous ministries. Moreover, the entire permitting circuit must be entirely resumed when the holder initiates a change of the operation plan, but also when there are changes in the top of authorizing ministries – even if they do not concern the type of operations in discussion.

Solutions:

• legislative clarification;
• clarifying and consolidating the powers of NAMR/ANRE/Ministries;
• simplifying the process of “ratification” of petroleum concession agreements and amendments thereto;
• strengthening NAMR role as regulatory authority and partner of oil companies.

3. Non harmonization between the laws on energy and other Romanian and EU laws

There is a major lack of harmonization in the Romanian legislation, but also between the Romanian legislation and the European legislation. Conceptually, energy legislation was largely drawn up 10 years ago, being subsequently supplemented, updated and harmonized, without taking into account the new requirements – market liberalization, privatization of energy companies, listing on the stock exchange, integration in the unique European market – a new concept being required, necessary to be properly rebuilt from the foundation.

Moreover:

• Lack of harmonization between various normative acts governing the prospecting and exploitation activities;
• Lack of harmonization of legislation in the energy sector with the legislation on constructions and environment;
• Local authorities interpret the law according to local “customs”.

Solutions:

• 2015 is the year of a new beginning, due to: regional geopolitics, obligations imposed by the EU in the gas and electricity markets, but also due to new concept of security, fiscal review necessary in the gas sector, future positioning in terms of unconventional gas. Thus, a new vision is needed, consisting of issuing an Energy Code including all the elements necessary for the operation of the energy sector and harmonization of the entire legislation with the new approach (an Energy Code).

4. Stability of the legislative framework and predictability in the energy sector

Lack of a long-term stable, transparent, predictable and competitive framework determines aversion to invest or unprofitable investments which do not bring added value in the long term.

Moreover:

• the current regime of imposing taxes and royalties starts from the necessary revenues to the state budget, not from the principles of a balanced and stimulating taxation of the industry, beneficial for both the state and investors.
• information about concessions and reserves are treated as state classified information, although, under the law, they are confidential information. A faulty regulation does not make substantial differences between the two categories, contrary to international practice and economic interest of the state;
• The energy sector requires a proper institutional and legislative framework. It needs a stable, transparent legislation, attractive for all participants, and an institution to supervise its implementation.

Solutions:

• Taxation should be only a method of balancing the account balance. It must be easy, stable, predictable, easily managed and corroborated with short and long-term realities and optimizations, but also balancing energy poverty and energy security;
• Simplifying and making transparent the system for the circulation of information on petroleum concessions.

5. Inappropriate public policies

Incapacity to produce coherent, clear documents, pointing out the main priorities in line with sectorial needs, which had to be identified until now.

Moreover:

• it’s necessary to have tax policies stimulating investments in this sector, increasing economic efficiency and the degree of use of infrastructure, protecting vulnerable customers, promoting new strategic directions (new forms of energy, discovery of new resources, innovation and research, new technologies etc.);
• it’s necessary to harmonize energy, fiscal, social policies, but also to harmonize them with some policies specific to various areas of activity.

Solutions:

• structuring processes and those responsible for processes and sub-processes, and preparing public policies specific to each sector, harmonized with the strategic objectives of Romania and with an unitary coordination;
• making a map of related specific public processes and policies.

6. Energy market

Romania is a country that relies in transactions on human relations, contracts being only a form of protection. In fact, the Romanian gas market is currently a reactive market in which we don’t know that happened to our own gas, owned and paid for, except at the end of the month, when we are before a fait accompli.(?)

Moreover:

• Lack of mechanisms to allocate the amounts sold make determine the situation in which the amounts sold cannot be individualized according to the law;
• The lack of the transmission and distribution network code setting the responsibilities and rights of the parties, as well as the manner in which gas flow continuity must be ensured, penalties charged or ? from which the client benefits;
• Lack of storage facilities code, as detailed rules on the injection/extraction from storage facilities.
• Lack of gas market code (lack of market model) – the gas market in Romania works “randomly”, absence of rules on correlation between trading actions and transmission actions, distribution and storage, make it impossible to monitor gas flows from the acquisition point to the delivery point;
• The lack of knowledge of firm/interruptible/backhaul capacities, in points of transmission, distribution and storage systems;
• Lack of balancing operator makes the gas market in Romania work, almost exclusively, depending on outside temperature, contracts becoming, for this reason, useless;
• Lack of mechanisms to ensure the flexibility of supply by developing secondary mechanisms through which to manage the proper execution of contracts;
• Lack of cheap guaranteeing systems, reducing high risks related to each transaction;
• Lack of systems to send and store information, allowing continuous monitoring, at least daily (in European countries monitoring is made hourly and there are functional systems in this regard), and making possible the proper development of contracts signed;
• Lack of preventive/reactive plans for emergency situations, through know to know the consequences of what may determine the malfunction of contracts in emergency situations;
• Legal restrictions allowing the direct or indirect “manipulation” of the price and which make the free market not able to work, except imposing high risks on those who trade gas;
• Reengineering of the transmission and distribution system, of interconnections and storage, not adapted to the liberalized market, in which rights and obligations must be on both sides;
• Lack of state involvement in promoting the culture, knowledge and dissemination of information specific to the gas market.

Solutions:

• changing the primary and secondary legislation, to ensure market functioning;
• Roadmap for real market liberalization (for the advantage of the consumer);
• immediate implementation of necessary elements, without which market functioning is illusory (network code, balancing operator, setting capacities, system re-engineering etc.);
• forcing each gas supplier in Romania to prepare its own sale policy, which should be made public and allow the monitoring of correctness of transactions and challenging any suspicions on the conclusion of contracts;
• developing mechanisms to stimulate the sale of gas on the centralized platforms;
• developing programs to disseminate information on gas market liberalization and the way in which the consumer must integrate in it, as to benefit from its advantages.

7. Planning and management in the energy sector

Processes carried out in the past 15 years in the energy sector: market liberalization, unbundling of former integrated energy companies, privatization of energy companies, lack of data in the market needed to substantiate a unitary decision, with the reason of classifying them at the level of companies and sectors, separating positions coordinating the energy sector between various institutions (NAMR, ANRE) determine the lack of unitary national coordination of energy resources and lack of forecasts and energy planning.

Moreover:

• National planning on energy resources would eliminate the inefficient allocation of resources and coordination of crisis situations when market forces cannot cope or when they develop extreme speculative actions. Developing policies, rules, regulations, institutions to ensure energy security, in order to offset speculations and cover the unprofitable activity (or at the limit of profitability), which the market fails to appropriate.
• Lack of forecasts on demand for energy forms in the short, medium and long term and energy mix on the principle of ensuring sources with minimum costs in accepted risk conditions;
• Absence of an entity responsible with the monitoring of energy strategy implementation and of strategic plan implementation.

Solutions:

• Immediately defining an entity with legal access to all data in the energy sector, under the obligation of confidentiality, preventing crisis situations by overall analysis of energy problems (gas, oil, electricity, coal), sending the proper warnings and which would have the competence of intervening in crisis situations for the proper dispatching of sources available to properly overcome such situations.
• Managing a national operational database, reuniting all forms of energy and their impact on the society.

8. Failure to comply with the corporate rights of investors

Investments, including in the energy sector, are made by companies with Romanian or foreign capital and which face multiple bureaucratic difficulties.

Moreover:

• Investors often face great difficulties in using power of attorney in the General Meetings of Shareholders;
• Romanian legislation requests the existence of special power of attorney stipulating the exact vote of the shareholder for each point on the agenda of the General Meeting of Shareholders;
• The attorney-at-fact must follow the voting instructions;
• It determines the obligation to issue a new power of attorney for each meeting and for each issuer, which restricts the investors’ capacity to react ad-hoc to current events and to debates within the general meetings of shareholders and does not allow them to use the power of attorney issued at the time of opening the securities account;
• The power of attorney must be in original, stamped and signed, without further formalities. When the shareholders empowers a credit institution – custodian (?);
• Time to prepare the power of attorney is, in practice, extremely limited and sometimes makes it extremely complicated, if not even possible, its issuance by foreign investors. (?) It is especially determined by the fact that, in order to get the power of attorney, the agenda of the Meeting must be known, which, in some cases, becomes final only 10 days before the meeting, while the power of attorney must be delivered 48 hours before the meeting;
• Also, voting procedures within the general meeting of shareholders are difficult and require a long time of preparation and a lot of documentation to be submitted for votes to be considered;
• Vote by correspondence or electronic vote require time and effort to be used, so it remains complicated to be used by investors;
• Often, companies do not submit the reports in English.

Solutions:

• The introduction and acceptance of a discretionary General Power of Attorney – with or without validity period – or acceptance of General Power of Attorney received by custodians and brokers at the time of account opening;
• Not requesting for the exercise of voting rights in the General Meeting of Shareholders – regardless of voting method – additional documents, except for ID and Power of Attorney;
• Updating and using the database of the central depository of shareholders and legal or authorized representatives, to serve as evidence of ownership and representation, combined with brokers and custodians’ recognition as authorized representatives of their clients;
• Simplifying the vote by correspondence and the electronic vote.

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Blog: www.dumitruchisalita.ro.

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