Italian giant Enel, one of Europe’s largest companies with a market capitalisation of USD 52 billion, ten times that of OMV Petrom, has officially announced that it is withdrawing from Romania. Enel is one of the largest private energy investors, with operations in the electricity distribution and supply sector, as well as electricity generation from renewable sources, present on the domestic market since 2005.
The Italian group’s official explanation for this radical decision refers to the fact that the Romanian market no longer offers room for growth. The financial data of Romanian entities, however, could be a strong reason for the decision. Enel serves 3 million customers in Romania. This is the second departure from the electricity market, the first being that of the Czech group CEZ, and it adds to the growing string of large companies exiting the Romanian energy market and beyond.
Francesco Starace, Enel’s CEO, explained the reasons why Enel decided to leave Romania by the end of 2023, saying that it is not because of the legal and regulatory framework, but because there is not much room for growth in our country at the moment. “We have reached – more or less – a position in the customer and production segment that no longer offers many possibilities for growth. The reason we are leaving is not that we don’t like the legal and regulatory framework in Romania, which is no better or worse than others.”
“We have seen all European governments take action in the context of high gas prices across Europe. I don’t think Romania has done better or worse than others. We have to deal with this situation as best we can,” the Enel CEO added. Francesco Starace said that “the room for further potential growth in the country is very limited. But it’s not a judgement on that, just that the room for potential additional growth in the country is very limited. You could say it’s more of an acknowledgement that we’ve done a good job, that Romania has a good base, and a sale monetises, in a good way, the value we’ve created. It is a positive judgement of Romania, a recognition of the good work done there,” he added.
Information about the Italian utility group’s desire to leave Romania had been circulating for some time, but the official announcement was made with the presentation of Enel’s strategy for 2023 at Capital Markets Day, the company’s annual event.
Enel in Romania
Enel is one of the largest private energy investors, with operations in the electricity distribution and supply sector, as well as electricity generation from renewable sources, present on the domestic market since 2005. The E-Distributie companies operate networks with a total length of approximately 128,000 kilometres in three major areas of the country (South Muntenia – including Bucharest, Banat and Dobrogea) and cover a third of the local distribution market.
Enel Energie and Enel Energie Muntenia are among the main energy suppliers in the country, and their offer includes both electricity and natural gas, as well as home support services. Enel Green Power Romania is one of the largest producers of renewable energy in the country, with an installed capacity of 534 MW through its 12 wind and photovoltaic plants located in Dobrogea, Banat, Oltenia and Muntenia.
Enel X Romania is part of Enel X, Enel’s global business line dedicated to the development of innovative products and digital solutions.
Warning released in May 2022
The Enel Group reported operating losses of EUR 115 million in the first half of the year in the Romanian retail sector and EUR 51 million in the local infrastructure and networks business. On a group-wide basis, Enel estimated that the Romanian government’s “adverse” energy measures had a total negative contribution to EBITDA of EUR 270 million. In May 2022, after quarterly losses in Romania of EUR 154 million, Enel’s CFO, Alberto De Paoli, said that price cap rules and those related to distribution tariffs in Romania “seriously affect” the results in this country. “It doesn’t make sense to invest in an excessively punitive environment,” he said.
The Italian group’s Romanian entities, Enel Energie and Enel Energie Muntenia, major electricity suppliers on the domestic market, borrowed hundreds of millions of euros from their parent company in August 2022 due to the liquidity crisis generated by the skyrocketing price of electricity they purchase for customers on the wholesale markets, combined with the long delays with which the Romanian state reimburses suppliers for the costs of price caps for end-customers.
Enel plans in Europe
Romania is not the only market Enel has announced it is pulling out of, as it will sell assets valued at EUR 21 billion to reduce its net debt and focus on six core markets. According to Enel officials, the largest debt reduction of EUR 12 billion is expected in 2023. Thus, the bulk of the divestment plan – which will cover, among others, assets in Argentina, Peru, and Romania – will be implemented by the end of 2023.
In Europe, Enel plans to focus on the Italian and Spanish markets. Enel aims to reach a target of EUR 51-52 billion for net debt by the end of 2023, from EUR 69 billion at the end of September 2022. The sale of assets is also part of Enel’s strategy to rotate assets in order to increase funding for new investments.
Who is interested in taking over the business
According to the Greek press, one of those interested in taking over the Italian group’s business in Romania is the Public Power Corporation of Greece (PPC). In September 2022, PPC announced that it was preparing to buy assets in Romania. PPC has a market capitalisation of 2.28 billion, after a consolidation carried out to complete plans to acquire the Italian energy company operating in Romania. The deal was valued at EUR 1.3 billion, according to Greek media.
Georgios Stassis, Chairman & CEO, PPC, said that there is a possibility of acquisition in Romania, one of the two markets (along with Bulgaria) where the company is looking to expand with a focus on renewable energy sources. Georgios Stassis was CEO of Enel Romania from 2016 to 2019, from where he moved to the Public Power Corporation of Greece.
Recently, the Romanian press wrote that investment funds Brookfield Asset Management and Amber Infrastructure Group would also be interested in the acquisition of Enel’s business.
Headquartered in Toronto, Brookfield Asset Management is one of the world’s largest alternative investment funds, with over $750 billion in assets under management at this time.
For its part, the UK-based Amber Infrastructure Group manages assets of around £9 billion (over EUR 10 billion) and invests mainly in infrastructure. The Fund also coordinates the Three Seas Initiative Investment Fund (3SIIF), the investment division aimed at developing transport, digital and energy infrastructure in this region of Europe, whose initiators, co-founders, and investors are EximBank, on behalf of the Romanian Government, and Bank Gospodarstwa Krajowego (BGK), the Polish development bank.
Exclusivity Agreement with Greek company Public Power Corporation
Enel announces on December 14, 2022, it has entered into an Exclusivity Agreement with Greek company Public Power Corporation in relation to the potential disposal of all the equity stakes held by Enel Group in Romania (‘Target Assets’). During the exclusivity period, until the end of January 2023, the parties will negotiate the transaction documentation and PPC will carry out appropriate due diligence on the Target Assets. Upon completion of such due diligence, PPC’s board of directors will determine whether PPC will submit a binding offer to Enel. The parties will inform the market should they enter into a binding agreement on the transaction.
Energy companies that have left the Romanian market
Enel’s exit from the Romanian energy market is not the first of its kind. The most resounding was that of US giant ExxonMobil, which sold its 50% stake in the Neptun Deep offshore project to Romgaz. The gas field is valued at 42-84 billion cubic metres of gas, but no investment decision has yet been made by OMV Petrom, the second partner in Neptun Deep.
Earlier, in 2015, the US company Chevron had also left Romania and decided to stop looking for shale gas in our country after drilling only one exploration well.
In March 2021, the Czech company CEZ sold its Romanian assets to the investment fund Macquarie Infrastructure and Real Assets (MIRA). It is the largest international infrastructure manager and part of the Macquarie Group, which is in the top 10 companies in Australia by market capitalisation. MIRA also has 12.5 GW of renewable energy capacity and 200,000 kilometres of electricity distribution networks in Australia, Austria, Finland, Spain, and the United States in its investment portfolio.
More recently, the US investment fund Carlyle, which owns the other gas exploitation in the Black Sea – Midia Gas Development, with reserves valued at around 10 billion cubic meters, has decided to strategically re-evaluate the project, and is looking for a partner who will continue to assume the investment risk. Which could also mean that the US company is looking for a buyer for the Black Sea project.