The GEO 64 saga or how chaos surged in the gas market

by Dumitru Chisalita

GEO 64, amending the gas law, although it has received the endorsements from all the Senate and Chamber of Deputies committees in the form approved by the Government, hasn’t been validated in Parliament, as a result of the position of the Committee for Industries and Services of the Chamber of Deputies, on the need to include amendments to the gas law in GEO 64, diluting the provisions of transparency, competition and non-discrimination, i.e. those that would ensure the functioning of the market.

You can see here the entire process:

http://www.cdep.ro/pls/proiecte/upl_pck.proiect?cam=2&idp=16158.

The GEO 64 saga started in October 2016, when voices appeared in the Parliament of Romania on moving to the enactment of the Emergency Ordinance no. 64/2016 after several days from its approval and even before the issue of the Government Decision setting the mandatory percentage rates for trading on centralized platforms. The emergency of discussing it in the Parliament determined at the time my concern (expressed in an article called the Gas Halloween) that some lobbyists have done their job well this time and there is a danger of extracting the key words from the GEO, so that it remains only general and continue allowing the current practices. The choices knocking at the door probably constituted the reason for this idea not to be carried out at the time.

The first session of validation of GEO 64 followed, in June 2017, when a version of gas law amendment was proposed, under the pretext that it was an amendment to GEO 64. As the Intelligent Energy Association claims in the Starting Over in the Gas Market Project, the gas law has to be entirely changed, but not by eliminating certain provisions that could make a market adrift as the Romanian gas market is functional, but by rethinking all the activities, so as to reach the single goal: FAIR TRADING.

What did the new document submitted for approval in Parliament contain:

• An article that limited the obligation for suppliers in regulated regime to purchase gas supplied to household consumers in conditions of minimization of the cost of resources allocated, only for around 10% of the purchased gas (i.e. exclusively for the imported gas);
• It unreasonably introduced contracts regulated by ANRE for gas traders, in conditions in which they are active exclusively on the free market (non-regulated).
• It introduced the obligation to establish a (National) Metering Operator. An excellent idea that would have many beneficial effects on gas market functioning and a strong impact in cutting costs to end-customers, by eliminating the quantitative tricks that are currently used by operators with the artificial inflation of costs in bills. But, because it’s important to notice how a good idea is killed after being launched, this operator was to be responsible for monitoring the exclusive metering of gas for end-customers, i.e. in the place on the production-transmission-distribution-end-customer chain where we believe that there are the fewest problems with observing the metering rules on the production-consumption chain. At the same time, this obligation to establish the operator hits the effective implementation of another article, which shows that operators may transfer the service of metering and management of measured data to an economic operator. Meaning that if one or several operators fail to transfer the service, things will become even more complicated than they are today, respectively chaos will surge in the market.
• Another controversial article was forcing the transmission and system operator to install gas chromatographs into more than 1,100 metering points, to measure the gross calorific value in real time, by 31 March 2018 at the latest. This legislative obligation was aimed to introduce a business worth more than USD 50mln, useless in terms of significant improvement of gas metering, as well as with an increase in the price to end-consumers by up to 1%;
• Another controversial article was forcing the gas market participants (i.e. including households) to notify to the transmission operator all the contracted amounts. An action impossible to put into practice, but which will accentuate the chaos.
• Another disputed article was doubling the profit margin ceiling for services in the gas market, element that would have caused a new increase in gas prices to end-consumers by up to 1.75%
• Another novelty is the elimination by law of BRM from the market and nomination by law of OPCOM as the only exchange. I wrote an article One or two gas exchanges? This is not the question,  in which I extensively explained that the proper functioning of an exchange depends on the increase in the volume of gas traded and in the number of transactions. For this purpose, the existence of several exchanges on the same market reduces the number and volume of transactions, by splitting them on several exchanges. Eliminating one exchange to the detriment of the other, through any other measures besides making them compete for a definite period, is abnormal.

A session of validation of GEO 64 followed, in October 2017, after the rejection by the plenary of the submitted document. The new approach of the Committee is to maintain the elimination of requirements to prepare a methodology to ensure competition, non-discrimination and transparency on the gas market, cancelling all the obligations that the suppliers should have and that could subsequently be controlled/verified.

The new document brings the following elements:

• It resumes the idea of eliminating BRM as gas trading platform from the Romanian gas market and sets the existence of two trading platforms, one on the wholesale market, nominating OPCOM, and another on the retail market, where BRM would operate. Through this intelligent approach, the potential accusation of nationalizing the gas exchange is eliminated, the legislator’s approach appearing this time as natural.
• It establishes the obligation to trade on the exchange 70% of the amount supplied on the gas market, a measure that is useless without the mechanisms of competition, transparency and non-discrimination. Applying the mechanisms provided by GEO 64 is likely to bring in a short period of time an amount that can account for 70% of gas traded, in a voluntary manner, on the exchange (the condition is that the exchange evolves and offers the appropriate products).
• The idea of establishing the Gas Metering Operator is eliminated, and idea that could have determined the correctness of metering, the realization of allocations by an entity independent from market players (each with their private interests), the accurate determination of technological consumption (currently, an important tool for influencing the profit) etc.
• It eliminates the obligation to install gas chromatographs at all the metering points of the transmission operator, which is unnecessary and raises the gas price to end-consumers.
• It eliminates the article that forces gas market participants to notify the transmission operator on the contracted amounts. (it was a measure impossible to put into practice, given that, as the article was written, it forced even the household customers to make these reports)
• It maintains the increased limit of the profit margin for gas transmission, distribution and storage operators, to 10%

This form of GEO 64, which has nothing left from the principles of GEO 64, was also rejected by the plenary of the Parliament in October 2017, thus ensuring further instability on the gas market.

Translation from Romanian by Romaniascout.

Image courtesy of  Asociatia Energia Inteligenta.