Population deceived by gas suppliers

by Dumitru Chisalita, expert in the gas industry

Under the guise of setting a low price for the population, some suppliers using the way in which the regulated gas price is determined in Romania, with help from dummy companies whose shareholders are still suppliers, they outsource significant profits realized at the expense of the population and to the detriment of the state. In Romania, gas pricing for the population is based on a method that relates costs that a supplier claims to have to the amount sold to the population, plus a fixed profit margin guaranteed by the state. Thus, the supplier “brings to ANRE invoices justifying its costs”, which must be paid by the population, through a price determined by state institutions (a price which had to protect the population is inflated with invoices with fictitious costs).

A brief analysis based on the little publicly available data shows the following:

1. tariffs and taxes are similar in the market of household customers and the free market;
2. costs with gas acquisition (gas purchased from producers and resold) are higher in the free market than in the market of household customers;
3. the profit of gas suppliers selling gas to the population is guaranteed by the state (respectively, the state guarantees their profit, by imposing a high price to the population), unlike the profit of suppliers selling gas in the free market, which is not guaranteed, respectively these companies may register losses or even go bankrupt.
4. costs with the additional operational services (accounting, legal, IT, courses, studies etc.) for gas sold to the population are up to 6 times higher compared to gas sold in the free market.

The mechanism invented by some gas suppliers, 10 years ago, to “squeeze” money, is the following:

• the supplier has established several limited liability companies (directly or indirectly) or satellite companies which it controls for legal, accounting or IT services, studies, courses, training, consultancy, counseling etc., which are not covered by the gas legislation or the specific legislation in the field of public procurement (GO 34) – in fact it has built an instrument to get money out of its own company,
• the supplier has concluded service provision agreements with these companies (which it controlled), at skyrocketing values, thus outsourcing revenues from the gas market and which are paid by the population,
• the supplier subsequently presented these invoices to ANRE, justifying that a higher price had to be set for the population, so as to cover these costs,
• the population thus received a price higher by up to 27% compared to the price in the free market,
• the supplier pays the invoices of its limited liability companies, obtaining besides the profit guaranteed by the state (7%) up to 2 times more profit by this engineering (scam). All based on the price paid by the population.

A different analysis shows that the share of costs with operating activities of suppliers selling gas to the population, such as accounting, legal activity, IT, training of human resources etc. in the total cost is up to 5 times higher compared to the share of the same costs at the supplier selling gas in the free market. Thus, costs reported to the amount supplied are higher at suppliers (by outsourcing these services to third companies which they control) selling gas to the population compared to suppliers selling gas in the free market:

• by up to 3 times for accounting,
• by up to 2 times for the legal activity,
• by up to 5 times for the IT activity,
• by up to 2.5 times for classes and personnel training,
• by up to 7 times for consultancy.

The explanation is simple, the supplier in the free market has no where to “squeeze money” and has no interest to inflate costs with these services, as it would incur them from its own pocket, unlike gas suppliers that sell gas to the population, and which under the guise of regulated prices take money from the population but also deprive the gas producers and the state budget from important amounts. All these take place with ANRE’s support. Institution whose Regulatory Committee (which has been coordinating and approving prices for household consumers from 2012) is eminently political, all members of the Committee representing a political color. In 2012, a lawmaker answered to Commissioner Oettinger (alarmed by the fact that ANRE had a Regulatory Committee eminently political, affecting the consumers in Romania) that the election of members of the Regulatory Committee of ANRE was the Romanians’ business and that given that each party received a position it meant the will of the Romanian people. Thus, the “will of the Romanian people” – actually of politicians, tasked to approve the price paid by the population, determined, during 2012-2016, that each Romanian should pay by RON 1,500-4,000 more, thus determining the undue collection by suppliers from the pockets of household consumers, of up to USD 1bn. Some companies in the gas sector are continuously controlled by various institutions, while the major attack to the pockets of the population, which some suppliers in the gas market have been applying for years, is overseen by the same institutions.

For the Romanian version click here.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net