Oana Ijdelea, Partner Ijdelea Mihailescu: Good Regulatory Practices to Support Business Development and Investment in Romania
Oana Ijdelea, Partner Ijdelea Mihailescu, provides an outline of good regulatory practices to support businesses and underlines the essential role of natural gas in energy transition.
Ijdelea Mihailescu is an independent law firm at the forefront of the Romanian legal services market. The firm provides integrated legal services and solutions, for the following core practice areas: M&A, Energy & Natural Resources, Environmental Law, Regulatory & Compliance, Real Estate & Construction and Dispute Resolution. Acknowledged by clients as highly effective problem solvers, the team has been involved in virtually all ground-breaking energy and natural resources projects implemented in Romania over the past decade.
Dear Oana, how do you asses the Romanian legal services market compared to other European/global peer markets?
Oana Ijdelea: The legal services market in Romania continues to evolve in a highly competitive environment in 2021, being faced with new challenges raised by the emergence of new technologies and the acceleration of the general digitalization trend, in the wake of the COVID-19 pandemic. While it appears that the market’s fragmentation has slowed down in the last year, with less new entries and spin-offs being registered compared to previous periods, the pressure on fees continued to increase, mainly due to a difficult economic environment impacted by the pandemic, which translated into cost cutting measures, including smaller legal budgets from clients.
On one hand, the pandemic may be “blamed” only to a certain extent for the increased fee pressure, as this situation is due mainly by pre-existing causes, such as the market fragmentation trend which facilitated the development in the last decade of a fiercely competitive legal environment in Romania, with clients being often enticed to favour the cost over quality. On the other hand, the significant economic impact of the pandemic put an additional strain on law firms, either local or international, both in terms of maintaining their existing client relationships as well as for developing a new client base.
On the positive side, the pandemic accelerated dramatically the digitalization of the legal sector, many law firms in Romania being now fully equipped and technically adapted to ensure remote working conditions, organizing remote meetings with clients, etc. To their credit, the Romanian courts and a fair deal of public authorities were also quite responsive and implemented promptly systems and facilities allowing remote communications and interactions.
Overall, the Romanian legal services market remains a mature and highly competitive market, being faced with virtually the same challenges other legal markets, all of which are reshaping the global economy and are expected to also impact in the foreseeable future the way legal services are delivered. While some traditional sectors of the Romanian legal market were more severely impacted by the recent events, I expect that certain insufficiently explored areas, such as Data Privacy, TMT, Cybersecurity, New Technologies will experience a significant growth in the demand for legal services, driven by the emergence of new technologies and the corresponding enactment of dedicated European and Romanian rules and regulations.
What do you consider best regulatory practices to support business development and investment in Romania?
Oana Ijdelea: All governments should ensure in their policymaking, as a rule, that regulations are necessary, fair, effective, affordable and, last but not least, that they enjoy a broad degree of public confidence. Bearing in mind this greater purpose, policymaking and enforcement should be observant of the five principles which are the international basis of good regulatory practice: proportionality, accountability, consistency, transparency and targeting.
As such, it would be more than satisfactory if the Romanian authorities would just settle to observe the existing international standards of good regulatory practice, which are essentially based on the 2012 OECD Recommendation of the Council on Regulatory Policy and Governance. Given that Romania has applied for OECD membership since 2004, I am of view that implementing the OECD’s recommendations would not only support business development and investment in Romania but also its candidacy for OECD membership, as it should emphasize the country’s commitment to adhere to OECD’s rules and policies, even before accepted as member.
Romanian policymakers already have a ready-to-use toolkit for best regulatory practices, all it remains to do is for them to make good use it.
What do you see as the main points that differentiate Ijdelea Mihailescu from your competitors?
Oana Ijdelea: Clients are not looking anymore for being provided with legal services only but are looking for professionals who have a perfect understanding of their industry or business, which enable them to provide broader solutions, encompassing strategic advice as well as advice on other aspects than legal ones.
On this background, Ijdelea Mihailescu definitely has a competitive edge over competitors, notably regarding our Energy & Natural Resources practice, with some of our accomplishments being first-to-market successes. Most importantly, we provide far more than plain legal assistance and clients rely on us for both execution and advice.
Another particular strength of our team is the expertise in relation to the drafting and enactment process of the primary and secondary legislation and in undertaking the related advocacy efforts.
Our firm has the ability to deliver top quality cross-practice legal advice through multidisciplinary teams of lawyers specialized in complementary areas with relevance for each project. To help develop and expand our cross-border capabilities, we have connected with peers who share our vision and values and established work relationships with top law firms across the globe. As an acknowledgement of our reputation and standing on the Romanian legal market, Ijdelea Mihailescu has been, since January 2019, the exclusive member of TAG Law, one of the largest and most respectable law alliances in the world. Clients can thus be provided with practical and cost-efficient solutions and may benefit of the technical capabilities and market knowledge of a team exposed to sophisticated local and cross-border transactions.
Experts say customer-centric companies are 60% more profitable than companies that don’t focus on clients. How do you manage to meet customer needs and build stronger relationships?
Oana Ijdelea: It goes without saying that client satisfaction is the primary driver behind our law firm’s policy and philosophy.
To ensure that clients are satisfied with what we deliver, first and foremost, we look to gain from the very first stages a clear understanding of the client’s goals and what exactly it wants to achieve. Also, we do our best to understand the technicalities of the client’s industry and project.
For example, I remember the amazement of one of our clients when he found out that for the purposes of the kick-off meeting for a mandate which entailed the solving of a highly sensitive regulatory matter, I went over the weekend to visit their facilities outside of Bucharest in order to understand the on-site limitations. Having a clear picture and the same representation of matters as our clients is crucial in providing valuable advice.
Second, I think earning the client’s trust is crucial for an effective and fruitful relationship. In this sense, we are providing our clients with tailored and fit for purpose advice, creative strategies and practical legal solutions which add value to the client’s business. Nurturing the relationships with our clients with a view to grow them into long-term relationships is, in my view, a strategy capable to create value that goes beyond billed legal services.
Your name has been associated for a very long time with the development of offshore gas resources and with the Midia Development in particular. How would you define this project and your role in relation to its development?
Oana Ijdelea: Without hesitation I can say that working for Black Sea Oil & Gas (a venture of Carlyle International Energy Partners and the European Bank for Reconstruction and Development) and its joint venture partners in relation to MGD Project has been the professional ride of my life so far (big smile).
MGD Project, the first new offshore infrastructure and gas production project in the Black Sea to be developed in the last 30 years in Romania, is a trailblazing undertaking as it sets the legal and regulatory precedent for other projects to follow, supports large regional infrastructure i.e., BRUA and offshore infrastructure, and contributes to the security of supply of the county (making-up for the decline in onshore gas production) and of the region. Once in production, the project will provide over 10% of the yearly domestic gas needs, making Black Sea Oil & Gas the largest gas producer in the entire Black Sea.
Looking forward, it will be a steady contributor to energy transition and lays the foundation for offshore green hydrogen production and offshore wind infrastructure.
My work for the MGD Project started in 2010 and a couple of years later I have been appointed at the helm of all advocacy and legal efforts and undertakings necessary for the delivery of the project. Later-on, with the founding of Ijdelea Mihailescu, I took the lead of the law firm’s energy team advising on MGD Project.
As it evolved from a piece of paper to reality, the entrusted mandate encompassed every single legal aspect imaginable, with no repetitive tasks involved. Given its novelty and uniqueness, the project required a direct involvement in the execution of the advice and the ability to do this proved to be key.
The legal efforts had to absorb and adequately manifest the intimately interknitted ramifications of the technical, factual and governmental affairs facets of the project in order to be made fit for purpose. Among others, it required for many blockages and hurdles to be removed via new and proper legislation to be put in place, the design and implementation of an ingenious, flexible and permanently forward-moving regulatory process, securing of land and access rights onshore and offshore, the obtaining and preservation of a solid social license from the community, the performance of a fully ESIA process observant of both the EBRD Policy and the Equator Principles, the execution of a complex EPCIC and related drilling contracts, the acquisition of additional participating interest from one of the partners, the entering into of long term gas sale contracts, as well the entering into of many commercial and complex financing arrangements and a very hands-on and unwavering advice on dispute resolution and preliminary arbitration matters in relation to potential conflicts with the state and commercial counterparties.
I am proud to say that some of these multidisciplinary efforts such as the design, performance and finalization of the most extensive integrated onshore and offshore land acquisition and securing of land rights, permitting and regulatory process for a single project, including the obtaining of the first Offshore Construction Permit, first OSD Acceptance and first Set-Up Permit of an onshore & offshore upstream pipeline are legal pioneering work for Romania’s oil & gas industry.
Noteworthy as well, is the contribution over the last decade, as part of the subject matter experts of the offshore gas industry, to the drafting and enactment process of the primary and secondary legislation in unregulated areas (e.g., the Offshore Law, BRUA Law), transposition of EU Directives (e.g., the Offshore Safety Directive, the new EIA Directive) as well as amending and updating existing legislation (e.g., the Electricity and Gas Law, the Petroleum Law, the Construction Law, the Urban Planning Law), relevant for the development of offshore gas projects.
What are the main socio-economic benefits of these projects for Romania?
Oana Ijdelea: It goes without saying that mega projects like these have the ability to improve the security of energy supply in Romania for the upcoming decades and compensate to a significant extent the rapid depletion of onshore reserves.
Moreover, such projects could make Romania the largest producer of natural gas in the EU, be a steady contributor of natural gas used as transition fuel in the context of the energy transition to a carbon-free neutral energy system under the 2030 targets of the ‘Fit for 55’ package and further the 2050 ones set by the Green Deal strategy and create an estimated 30.000 new jobs over the next 20 years.
Based on your experience, are there any major factors that prevent projects of this type from coming to fruition?
Oana Ijdelea: The first and foremost obstacles which could prevent other offshore projects from coming to fruition are the lack of a competitive, balanced, and stable fiscal regime and the interference with the free market principles.
A country’s fiscal regime existing at the date of entering into a concession agreement with the Government is one of the main pillars based on which companies draft their business plans, make huge investments in exploration, and take the final investment decision to develop. As such, from the entry into a petroleum agreement, investors have a legitimate expectation that the fiscal and royalties’ framework remains stable throughout the life of the concession and that the Government will not put forward at any time abrupt changes to the existing legislation, which would unilaterally deprive of effects the stability agreed in their respective petroleum agreements.
In this context, the terms most frequently used in recent years in the oil & gas industry to describe the taxation regime in Romania have been “instability” and “unpredictability”.
Over the past 7 years, numerous pieces of legislation have added new taxes and/or amended and repealed existing ones such as the “famously brutal” EGO 114 of 2018. Although these contested amendments were gradually repealed or ceased automatically to apply by mid-2020, they left an economic environment shaken and distrustful towards the Government.
Rightly so, the most important source of discontent of the offshore industry remains the dedicated taxation regime enacted by the Offshore Law which was put in place with full disregard of both the already existing legislation and the stability clauses of the petroleum agreements and which places a greater fiscal burden on offshore operators compared to their onshore peers, although the necessary investments, production costs and operational risks in the offshore are significantly higher as compared to onshore.
I seize the occasion to note that industry bodies, like the Romanian Black Sea Titleholders Association (ARCOMN) and the Oil & Gas Employer’s Federation (FPPG), have constantly challenged the current offshore fiscal regime and repeatedly engaged dialogue with the Government and Parliament asking the promoting of those amendments to the law which would allow for major new production projects to take-off.
I believe that the window of opportunity for moving forward with new major offshore investments is slowly closing. The Government has a last chance to seize the moment and regain the trust of investors, correct the detrimental fiscal regime put forward in 2018 and allow for the natural resources to be put into good use. Unfortunately, legislative initiatives which aim to increase the producers’ taxation like the recent draft law registered with the Senate under no. B413/2021 are not at all helpful.
During the Energy Tech Day 2021 event you pointed out the essential role of natural gas in energy transition. Existing studies agree that natural gas helps avoid greenhouse gas emissions in the short term, while unintended long-term effects might also hinder the transition into renewables. How do you think Romania will cover the way from coal to RES via natural gas?
Oana Ijdelea: I strongly believe that natural gas plays a key-role as bridge fuel and ensure the energy transition towards an emissions-free economy in the following decades, as it can replace the more polluting fossil fuels, such as coal and lignite and limit the emissions of carbon dioxide.
According to the National Recovery and Resilience Plan, Romania is planning to exit coal by 2032 at the latest and to pass a law by mid-2022 to address the closure of mines and adopt socio-economic measures to support coal communities and the reskilling of workers. It is hardly conceivable that Romania will be able to stick with this ambitious timetable without using natural gas to replace the coal fired capacities which will be closed-down.
Also, although the final place natural gas will occupy in the greater scheme envisaged by the EU through the Green Deal and ‘Fit for 55’ packages is still to be established, as some member states are fiercely pushing for rules to exclude natural gas from further EU funding and to phase out financing for ‘carbon-intensive’ energy projects, while others argue that wind and solar are too variable to power the grid single-handedly and therefore it is vital to use gas as a bridge fuel in the energy transition, it is clear that natural gas will play a major role for Romania
There is no doubt that, with a view to play a role in the transition process, the oil & gas industry will also need to reform with a view to gradually cut the greenhouse gas emissions. This is an ambitious objective which could be achieved by implementing innovative technological solutions, both by member states and producers alike, like: (1) reducing the use of diesel generators to power oil & gas projects with renewable energy facilities developed on site (e.g., solar power plants, onshore and offshore wind power plants), (2) large-scale use of carbon capture and storage (CCS) and carbon capture, use and storage (CCUS) technologies for the reduction of CO2 emissions in power plants using fossil fuels, but also in other industries such as ammonia, concrete, steel and iron industries, (3) the development of blue hydrogen production – by using gas in the steam methane reforming process (SMR) combined with CCS/CCUS technologies. Furthermore, once the hydrogen production costs will be gradually reduced going forward into the 2050 deadline, the blue hydrogen production could be replaced gradually with green hydrogen using renewable energy in the electrolysis process and therefore replacing eventually the methane.
I think that an alignment between the public sector and the industry initiatives and interests is paramount to ensure a swift transition (which would include natural gas) to a clean-energy economy. This will require, on one hand, a new regulatory framework dedicated to support and promote the use of new, less pollutant technologies, and, on the other hand, new business models will need to be launched, coordinated with the objectives set out in the Paris Agreement and the Green Deal. On the private sector side, multinational energy companies have already adopted measures to cut CO2 emissions and diversified their portfolio by including green energy projects in their business strategy. On the public sector side, the legislation and policies must be amended and supplemented to support and stimulate investments in renewable energy projects, energy storage and hydrogen production to ensure a smooth transition from natural gas.
Energy market reforms, efficiency measures for a reliable, cost-efficient, and decarbonised energy system are vital for Romania. Is the Romanian energy market prepared for a prosperous and climate-resilient future?
Oana Ijdelea: Romania has many advantages to place the country’s energy market in a top spot for a climate-resilient future. First, we have one of the most diverse energy mixes in the EU, with a balanced split between various energy sources. Second, the country has significant gas resources which may support a swifter transition towards a clean-energy economy. On top of that, Romania’s moderate climate and location enables the development of additional large solar and wind power plants going forward towards the 2050 deadline.
Disregarding these advantages, I anticipate that the costs generated by the energy transition will be enormous, and in this context, it is vital to access as many as possible of the EU funds provided to facilitate this process. This is a matter where the Romanian authorities will be mainly responsible, as there will be plenty of EU funds available in the coming years (the Recovery and Resilience Plan only allocated EUR 240 billion for the energy transition).
Regarding a further development of renewable energies, the Commission established for Romania a 38% ERES target until 2030. However, such projects will be difficult to achieve without putting in place support schemes to incentivize investments, such as a capacity mechanism systems or contract for difference (CfD) schemes. On a side note, the feasibility of a CfD scheme is analysed as we speak by the Ministry of Energy.
Among positive evolutions registered so far, I note the amendment of the Energy Law to enable producers to enter bilateral PPAs outside the centralized power exchange. However, this carve-out from the general obligation to trade electricity on the centralized exchange is criticized, as it applies only to capacities installed after 1 June 2020 (a possible discrimination vs. older capacities) and is in conflict with the EU regulations allowing all operators to enter directly in bilateral long term PPAs.
Furthermore, a draft law regulating the operations for the exploitation of offshore wind energy is currently pending approval in the Parliament. If approved, the law could boost the development of offshore wind, especially since it provides a subsidy scheme for producers.
On a side note, the Government could push forward the development of the offshore wind sector by abiding to its commitments regarding the project ‘Cross-Border Maritime Spatial Plan for the Black Sea – Bulgaria and Romania – MARSPLAN-BS II’. I believe that once completed, this will serve both wind and petroleum sectors, since operators and authorities would benefit of clear regulations for performing economic activities offshore.
Combined with a clear regulatory framework provided by the offshore wind law, these measures could really uplift a new wave of renewables on the Black Sea coast.
What would you consider to be your significant achievements for 2021?
Oana Ijdelea: Having achieved an optimum balance between my professional and private life is for sure my greatest achievement for this year and I am pleased about how I was able to accommodate the (new) role of motherhood without making any significant sacrifices or cutbacks in my professional life.
Of course, the full support of my family and of my team played a very important part for which I am truly grateful. My work has always been an essential part of my life and of who I am and the fact that I was back full time after one week of giving birth in November last year made me a very happy “working mom”.