Law and lawlessness in the gas market

by Dumitru Chisalita

www.dumitruchisalita.ro

In the gas sector, the law has become a whim, being applied occasionally and only arbitrarily. Indifference to the law, “banging fists on the table”, “flexing muscles”, manipulation and credulity of Romanians characterize actions in this market. Following the loss by ANRE of the lawsuit in trial court on forcing suppliers to store gas in 2015, ANRE has not determined on 10 January 2016 (as the legislation in force required) the level of minimum gas stocks that gas suppliers had to store, thus admitting its own abuse, the violation of European regulations and of the legislation in force. That, until 16 March 2016, when this institution did not issue an Order on the minimum gas stock which suppliers had to store (as provided by the legislation in force), but sent a letter to customers, saying that it had published a table on the website with the amount of gas which each supplier had to store. Thus, ANRE, institution which should oversee compliance with legislation, continued to violate European Regulation 994/2010, Law 123/2012, Law 160/2012, ANRE Order 14/2015, showing lack of interest even before the court. ANRE continues to violate European Regulations and the legislation in force, forcing again all suppliers, one month from the actual start of gas storage, to store gas. Launched with great fanfare, the draft Regulation on gas supply includes, besides the absurdity to copy word by word Law 123, an aberration introduced at the initiative of large gas suppliers, namely that customers are required to pay for imbalances in the transmission system. Given the lack of commercial relation between consumers and the transmission operator, the commercial relation being exclusively between consumer and supplier, the latter being paid to provide a number of services to the consumer, including to optimize, through the portfolio of customers, the linearization of gas flows through the transmission system and ensure the flexibility negotiated with the consumer. The provision in the Regulation on supply only transfers under the law the payment of imbalances to the consumer, evading a contract clause which the supplier has in the transmission contract and cancelling the supplier’s role as intermediary, which should help liberalize the flows through the transmission system. Thus, ANRE turns the supplier into a simple “carrier of invoices”, from the transmission operator to the consumer, from the distributor to the consumer etc., but guaranteeing its profit. On 3 March 2016, ANRE President said “it is possible not to increase the price of gas for the population as of 1 July”, invoking the evolution of gas prices in the market. On 7 March 2016, the same person said: “Gas prices for the population could increase by 3% as of 1 July”; in an ANRE report in early April 2016 it was shown that gas prices for the population should increase by 7-8%, due to commitments “before international institutions, reflected by the provisions of GD no. 488/2015”, “price increase for domestic production, increased value of minimum mandatory stocks and adjustment of regulated tariffs for distribution, regulated supply, transmission and storage services”. As I know the President, I believe the first opinion is his, while the other words were “put in his mouth”. On 3 March 2016, ANRE President said: “We will analyze together with the IMF and the World Bank the stage of liberalization of the gas market and we will propose an early liberalization, given that gas prices for household consumers in international markets and on the domestic exchange is lower than the we price forecast by us”; after one month, this normal intention, supported by facts and which would determine a reduction in gas prices for the population, was eliminated, continuing the sale of gas at regulated prices to the population (i.e. by increasing the price). ANRE came up with its own view in early March 2016 and will apply interests imposed by others, in terms of the regulated market and increase in gas prices for population. Amendments to the Network Code of the Gas Transmission Subsystem were published on 20 January 2016, ANRE paradoxically deciding to be applied retroactively. Another paradox of the act amending the Network Code was the fact that allocation in entry points in the transmission system wasn’t actually an allocation, but a statement of the user of the transmission system. Beyond abnormality of the situation that a supplier (in an office) which doesn’t even have an allocation instrument in the gas sale-purchase contracts (in these contracts having in general a clause by which the parties appointed TRANSGAZ to make this allocation in the entry points in the NTS), to “tell” TRANSGAZ what it transported in the previous month, there is also the fact that art. 1678 of the Civil Code. Changing the philosophy of capacity, by moving from daily capacity to monthly capacity, violated the Methodology for setting capacity tariffs, given that variables underlying the establishment of the methodology of daily/hourly reservation of capacity were changed, determining the invalidation of capacity tariffs which the transmission operator can apply in contracts for transmission services. The gas network code became the model how to make the law lawless. On 13 January 2016 were published the Methodological Norms for the application of the Tax Code, which extend GO 7/2013 on the establishment of the tax on additional revenues obtained as a result of price deregulation in the natural gas sector until 31 December 2016. The lack of any analysis of the impact of extension of legislation designed in 2013 for 2016 leads to blocking the sale of gas from domestic production, due to price imposed by Government Ordinance 7/2013, higher than the price of imported gas. The implementing rules of the Fiscal Code (GD 1/2016) established that the price of natural gas from domestic production relating to the quantities traded in the competitive market for non-household consumers cannot be lower than RON 72/MWh. Any dialogue on this issue is refused, even by flooding the Romanian market with import gas and with disregard of Romanian producers (asked to pay taxes) while gas importers are exempted. The low level of oil royalties in the last ten years, the high price of oil and gas until 2014 determined important profits for operators in this period. Only after this period has passed, the authorities plan to introduce an overcharge of 35% applied to the upstream profit. Unfortunately, this intention will no longer bring the expected money, but may lead to cutting investments. The policy to bring money at any price in the short run usually leaves deep marks in the long run. 1 year has passed since the moment when the Regulatory Committee of ANRE was left with only 4 members (out of 7 provided by law), after the mandate of 3 of them had expired. In 1 year, the Parliament couldn’t appoint other 3 members of the Regulatory Committee, due to major interests to control this institution. The Regulatory Committee of ANER is the body that approves all the regulations in the gas and electricity market, approving prices in the regulated market, tariffs, licenses, permits etc., i.e. controlling a market of over EUR 10bn/year. A year of selection of members of the Regulatory Committee of ANRE has proven lack of interest to consumers and interest for money in the sector of the elected officials. The list could continue, but I stop here: Too much to die, too little to live (Romanian proverb).

Image courtesy of Stuart Miles at FreeDigitalPhotos.net