Romania Energy Center (ROEC) is Romania’s first independent English language energy studies think tank. ROEC connects three epistemic communities – academia, business and decision makers – and supply high quality in-depth studies, reports and analysis. According to Eugenia Gusilov, Director Romania Energy Center, an overview of the energy sector indicates major changes underway globally and a backlog of unfinished business domestically. “On the oil & gas side, Romania is caught between two unfavourable trends: onshore, it is a mature region (which means declining production), offshore – potential medium-to-high cost projects may not be favoured by the current price and oversupplied market. The energy strategy, a useful document in itself, is more descriptive than prescriptive and lacks strong policy signals as to what constitutes a priority.”
Each CV starts with a brief personal statement. What are the key data on Eugenia Gusilov’s business card?
Eugenia Gusilov: I am an energy analyst, a beautiful profession which is still little understood and valued in Romania. There are economic and financial analysts or journalists specialized in economics (energy included) or political analysts, but the notion of an ‘energy analyst’ does not have very strong roots in Romania. It involves rigorous approach, high-level research abilities (be good at data mining), interdisciplinary knowledge (economy, law, statistics, etc.), constant reading, and most important – freedom of thought and ability to see what others don’t in order to formulate recommendations/solutions, spot trends, forecast.
The key data in my professional background are the US academic experience (I pursued a Master in International Affairs – International Energy Management and Policy – at Columbia University in New York during 2008-2010 on a Fulbright scholarship) and the entrepreneurial experience of establishing the think tank Romania Energy Center (ROEC) with everything that it entails from concept, transition from idea to reality and subsequent development of the project. Aside from these two milestones, my 3 year experience in research and analysis for the Romanian Diplomatic Institute (affiliated to the Romanian MFA), where I have worked on area studies (economic and political developments in the former Soviet Union countries) – represents an important stage in my professional development.
How was the idea of setting up an English language energy studies think tank in Romania born? What are the goals and role of the organization?
Eugenia Gusilov: The idea was born in 2010, out of the realization that there was no such entity in Romania, being also a direct result of my contact with the American world where thinks tank are numerous, very active and have a consistent input in the formulation of public policies. In Romania, the project was met with a lot of scepticism and pessimism, while the work of winning public confidence was (and still is) an ongoing and long-term effort. As opposed to the US, in Europe the think tank sector is less developed. In Eastern Europe, entities with such a role appeared only after 1989, but did not call themselves ‘think tanks’, but ‘research institute’, ‘academic society’, or ‘research center’ instead. Only since 2009-2010 did we witness the establishment of entities in Romania which defined themselves explicitly as ‘think tanks’ and ROEC’s activity contributed significantly to the spread of this concept. In 6 years of existence we have shown what is the added value that a think tank can bring, but significant obstacles remain regarding the understanding of the role of such an organization. First, in order to qualify as a ‘think tank’ you need to engage in research and analysis, publish (the analytical production of a think tank consists of studies, reports, policy papers, briefs, op-eds, etc.) and disseminate the results. If you do only research and analysis, you are not a think tank, but rather a research institute. A think tank is very active in disseminating the research results, has frequent contacts with the media, business and academic communities, and is present with points of view and positions on current affairs topics. A think tank does not conduct strict theoretical research, but focuses on current issues, supplies analysis relevant for here and now, offers key input that shapes public policy.
Secondly, a think tank is not an organizer of commercial events. Of course, think tank’s experts participate in academic/business events or can (co)organize roundtables, presentations, conferences, but this is a secondary activity, subordinated to the main one which is research and analysis. A third difficulty is the lack of a framework for cooperation between decision makers and specialized think tanks. In fact, this framework is yet to be built. There is no tradition or culture of working between authorities and think tanks in Romania, which makes the contacts sporadic and rare. I would say that we do however have a progress, in the sense that compared to a couple of years ago, we are no longer seen as an oddity, but there is still a long way to go until we can talk about a functional relationship. For instance, a ministry can organize a tender for a study, but cannot organize a Call for Proposals, (CfP) to award a grant. Meaning that there exists a commercial framework (tenders for companies), but there is no framework for think tanks (such as a grant competition for writing a study on a topic of interest to the respective institution). An exception would be RoAid –Romania’s Cooperation Program for Development (managed by the MFA and UNDP) which has annual CfPs for civil society organizations for communication and advocacy projects. But Calls for Proposals for analytical material, calls where think tanks could submit proposals and compete in a transparent process, are extremely rare. In the US, government institutions (agencies, departments, embassies) frequently launch CfP under conditions which allow the participation of project proposals from universities and think tanks, in Romania we either do not have this possibility at all, or (where it happens to exist) it is not a widespread practice, but rather an exception. As long as we do not have an official interaction format defined between think tanks and authorities, the contacts will be limited to individual communication, reading our analysis and/or attending our events, and that’s it.Our goal as an organization is to conduct research at the highest academic standards, to produce original analysis, on difficult or ignored topics, by which to contribute to an informed public discussion and formulation of sustainable public policies that would result in economic development and more investment. Unfortunately, an independent think tank is seen as ‘exotic’ in Romania, but I think that, in time, we will overcome this perception and all relevant actors will come to appreciate the expertise and insight of such an organization. By writing in English, we ensure our ideas a global exposure, are fighting the image of a country considered home to academic cheating and imposture, basically we are the living proof of the fact that you can have analytical capacity in Romania which is comparable to what exists in Western countries, you can have new ideas originate and quality analysis made here. Currently, we have a great cooperation with business, academia, and civil society, and we are open to build a working relation with the decision makers. In order for that to happen, however, the authorities need to recognize the existence of solid expertise in the non-governmental sector and be willing to access it.
What did last year, so rich in geopolitical events, mean for ROEC? What did last year mean for Romania in terms of energy?
Eugenia Gusilov: Last year meant for ROEC the publication of two flagship Special Reports which represent the fruit of our partnership with NATO. The first, titled “Black Sea in Access Denial Age” (Jan. 2016), the second “NATO Warsaw Summit and Beyond” (out in October) – both unique in terms of research effort, depth and novelty of analysis, and human resource involved, as well as geopolitical topics covered. Both can be read on our website and are an example of the highly diversified level of expertise held by ROEC, including on international affairs, military and regional security topics.
As far as energy is concerned, a positive thing for Romania is the conclusion of work on the energy strategy document. But, as a state secretary in the Energy Ministry said in March 2016, “we would be naive to expect substantial changes during this mandate”, given that in 2016 we had a caretaker government which by definition means a limited mandate, without any spectacular measures. Consequently, many important decisions were postponed for 2017.
During FOREN 2016, organized by Romanian National Committee of the World Energy Council (CNR-CME), it was stressed that Romania has a privileged status in the region, with a diversified energy mix, which if used rationally, will allow a safe and sustainable supply in the medium and long term. Moreover, given a proper approach to available resources, Romania can have a deciding role in the energy security of Central and Eastern Europe. What is the present situation and what prospects are there? To what extent does Romania use these benefits?
Eugenia Gusilov: In energy, Romania has many advantages, but does not always use them to the full extent. The diagnostic analysis of the energy sector was covered in the 2014 strategy draft exercise as well as in the 2016 one, and is a useful reading in both cases. In the question you raised, the unknown part is ‘if used rationally’, therefore in our case the problem is that of a modern, efficient and visionary management, meaning a serious approach, active diplomacy, timely decision making, work with qualified people, modernizing those institutions that manage key energy sectors (such as NAMR). Having mineral resources is of little use, if poor management or decisions not taken block the activity in the sector, or worse, if through lack of professionalism or indecisiveness you keep potential investors in a perpetual limbo. Yes, Romania can have a role in supplying energy security to the region, but in order for that to happen it needs to exit institutional inertia, attract new and highly qualified people in the public sector, and send clear energy policy signals to business. Romania’s prospects depend on the ability of the state to trace clear future development directions, be a responsible partner to the private sector, understand the global, European and regional changes and respond adequately.
In a world characterized by a rapid and continuous transition, we expect fast changes, in sync with global developments. How do you see the situation in Romania, compared with countries in the region? The Environment Ministry is set to issue its opinion on the national energy strategy in 6 months, after a year in which nothing actually happened, the Royalties Law and the NAMR 11th round are delayed, so we’ve lost another year…
Eugenia Gusilov: Oftentimes, Romania is in counter step with outside developments and/or things happen slow or very slow. Even if you have many advantages as a country, it doesn’t mean you have to become passive or expect things to get settled by themselves. In the times we are living, the speed of reaction is essential. If you’re not spot on, you can lose opportunities, if you don’t have a granular understanding of developments around you, your actions won’t be timely or there is the risk of taking a wrong decision. Herein is the difference that a think tank analysis (which is conducted in a different time horizon, not under the pressure of immediate decision-making, but has the due time necessary to study and monitor the market, actors, trends) can make in supplying critical insights and solutions to decision makers.
Some of the unsolved issues mentioned are linked: you can’t organize the 11th round without updating the petroleum fiscal package (royalties law) first, because if you hold the tender before the new royalties law is passed, the current ones would apply, and then, why did we bother working on a new fiscal package at all? This is what a vicious circle looks like.
Of course, everything is relative, and if you look at how our country fares compared to other countries in the region (with bigger problems or unlucky to be as geologically endowed as us), things don’t look that bad; on the contrary Romania can be the object of regional envy. However, if a country is serious about being a leader in the region, it has to be very active (both domestically and outside). You have to possess not only mineral resources, but know-how, will to take action, power of conviction (fitting arguments, supplied by research and analysis) with which to mobilize foreign partners, secure financing for infrastructure projects, convince neighbours to join your initiatives, etc. Maybe, for some, what I say sounds too critical, but I think Romania can do more and deserves better. Time waits for none, if we don’t move fast, others will, or events will happen or new technologies will appear which can close the window of opportunity or cancel the competitive advantage we currently have.
How will a 5% growth, estimated by the new government for 2017, be possible under current conditions of reduced investment, according to a NBR analysis of early this year? Are there any positive signals to encourage investments in the energy sector?
Eugenia Gusilov: It is too early for a categorical statement in this regard, the new government just got sworn in, the new ministers have not yet fully assumed their roles, but indeed a 5% target is very ambitious. The European Commission fall forecast indicates a more moderate growth expectation for Romania: of 3.9% in 2017 and 3.6% in 2018.
As far as the signals to encourage investments, the energy section in the 2017-2020 government program does not look bad, in fact it shows an understanding of the issues that the energy sector is facing. However, planning is one thing and implementation is another. Much will depend on the minister in charge and his team. Ultimately, what matters is what the government will actually do in its daily activity, on all the topics and subtopics on which investors have been expecting decisions for years. We are in need of clear and firm signals. Expectations are high, further delay is not an option. The biggest risk for Romania is loss of investment due to uncertainty and procrastination.
NBR says that, in order to consolidate the economic situation, a balanced mix of macroeconomic policies is required, including progress of structural reforms. Energy policy decisions must be taken based on serious modelling and impact studies. Which, in your opinion, are the pluses and minuses of the current national energy strategy for 2016-2030?
Eugenia Gusilov: I fully agree with the NBR point of view regarding modelling-based and impact studies-based decision making, this is our philosophy as well, the very reason why we exist as an organization. There has to be, however, a degree of awareness that in-depth studies cannot be made in a hurry, in the span of one week, that they require an appropriate timeframe. The quality of an analysis is directly influenced by the time available. When the time is too short, quality suffers. Few understand this aspect.
Regarding the 2016 energy strategy, it is of course a useful exercise, as was the draft from 2014, written during the mandate of minister Răzvan Nicolescu. It is regrettable however that every time we have a new minister, everything achieved under the previous one is thrown away and the effort starts anew. To the point, among the pluses of the 2016 document, I would say it is good that it was completed, that there was a wide (although not inclusive) expert consultation process, that work included scenarios and sensitivity analysis, and that it is based on quantitative modelling. Among the minuses I would mention the superficial treatment of a key topic – heating (especially, district heating, but also the situation in the countryside where 90% of households rely on firewood, a state of affairs labelled in the strategy as having to do ‘with tradition’…). The document looks more like an energy outlook and is too descriptive instead of offering a list of priority projects and an actionable roadmap. If you don’t have a priority list, how do we know that the attention of next governments will focus on the truly critical problems and won’t be wasted on non-essential/cosmetic issues? I think such a priority exercise would have been useful, so that no matter what party comes to power, it could choose its ‘to do’ topics in energy from a pre-established list of issues considered zero-priority, instead of promising to fix all the ills of the energy system at once. The time and effort of any government is limited, and the strategy could have delineated the red flag topics in order to help decision makers focus on what truly matters.
The development of the internal energy market is influenced by the new interconnection projects in the region. Support for the Projects of Common Interest (PCI) is an important point on the European agenda. What are the most important consequences for Romania?
Eugenia Gusilov: The interconnection projects in our region are late, but will create eventually an integrated market. Whether it wants it or not, Romania shall be part of the regional market, it cannot remain an energy island for much longer. A stronger Romanian lobby at EU level would be needed to support the PCIs relevant for our country. It is not enough to just be on an eligible list, considerable additional efforts are needed for projects of interest to have higher chances of being selected for financing sooner rather than later. The PCI list is updated every 2 years. In the 2015 CfPs for Connecting Europe Facility (CEF), only one Romanian project was selected – the development of the national gas system, BRUA segment on Romanian territory (work stage 1) with up to 179,320,400 EUR of financial assistance. In the 2014 CfPs for CEF, another Transgaz project was selected – FEED studies for Corbu, Haţeg and Horia compressor stations (1,519,342 EUR). Both Transgaz projects are part of the Southern Gas Corridor. In 2016 however, no Romanian project was selected (results of first call/2016, those for the second 2016 call are not yet known).
The oil price drop, as well as the rich supply of oil and natural gas on the world market, has substantially reduced investments in E&P. At the same time, hydrocarbon production in Romania is on a downward trend. What should the incentives focus on?
Eugenia Gusilov: The timing is bad; developments on the international market do not favour us. Romania is not insulated from what occurs globally. We are going through a period of oversupply, it is a buyer’s market and it could stay that way until 2025. BP Energy Outlook 2017 (out on January 25) indicates a major shift in the global oil supply in favour of the holders of large scale and low cost resources (Middle East, US, Russia) which could crowd out the high cost producers. In such moments, the state has to show flexibility, you can’t increase the fiscal burden when the price is going down, but you can devise a sliding scale mechanism that would adjust taxes depending on the changes in price, ensuring that you don’t have a taxation system that is cut off from reality.
For Romania, and for the EU, the introduction of the Black Sea reserves in the regional economy is of great importance. How do you see the developments in the Black Sea region?
Eugenia Gusilov: The competition for market has increased, while demand has slowed down. We have a soft market (many sellers, high storage levels) which means higher cost resources risk of becoming ‘stranded’, and not reach the market too soon. That is, oil/gas fields with a lower production cost will be developed first. From statements made before 2014 by companies present in the Black Sea, we know that, in the Romanian sector, the production costs in the deep water segment are not particularly small, that the Black Sea presents a difficult environment, making the exploitation of deep water gas resources costlier. Therefore, there is a risk that the final investment decision (FID) will be taken only when commercial (above ground) conditions will be more attractive. On the other hand, until we do not have in place the new fiscal package for the petroleum sector, I don’t think we shall see any FID on the part of the operators. No company will commit to develop offshore fields in conditions of uncertainty regarding fiscal provisions. Two very important factors (market price and new fiscal regime) will determine the economics (profitability) of Black Sea projects and the moment when they will be brought on stream.
On the other hand, positive developments on the gas infrastructure front (on the Romanian segment of BRUA, on Tuzla-Podisor, the completion of the Giurgiu-Ruse gas interconnector last year) are good signs. Infrastructure = commitment. In the medium and long term, the Black Sea gas will reach consumers, but it could be a few years later than initially expected (2018-2019).
What new projects and activities does ROEC have in mind for 2017?
Eugenia Gusilov: 2016 was an excellent year for ROEC and we have very high expectations for 2017, a year in which ROEC will continue to work with companies looking to invest in Romania or those already present here on things such as legal monitoring, impact analysis, regulatory framework, risk and market analysis. We shall continue our ongoing partnerships with academia (ASE and Bucharest University) and shall conclude new ones. We have already identified new topics which we shall approach in a critical, yet balanced manner. As always, ROEC projects and events will be interactive, fill informational voids, and supply unusual perspectives. We start the new year with optimism.