Gas suppliers in Romania risk insolvency

GEO 114/2018 taxing and capping gas prices entered into force on 29 December 2018 and it already produces effects, basically determining retroactive actions.

Licensing tariffs are introduced on the gas market, established at 2% of the turnover achieved by companies from activities subject to licenses granted by ANRE. Thus, operators licensed in the gas sector are forced to pay in 2018 a difference to the licensing tariff paid according to the old methodology (which for gas was not related to turnover) up to 2% of the turnover posted in 2018. Thus, gas producers, importers, storage operators, the transmission operator, distribution operators and gas exchanges (BRM and OPCOM) must pay to the Romanian Energy Regulatory Authority (ANRE) in the near future 2% of the turnover posted in 2018 (the difference between the license tariff paid by operators in 2018 and 2% of the turnover posted in 2018) and 2% of the turnover for 2018, related to 2019. In fact, gas operators will face the payment of 4% of the turnover achieved in 2018, which will determine the insolvency of about 80% of gas suppliers according to their financial data posted in 2017 (except for gas producers, importers and operators supplying gas in regulated regime). Basically, about 200,000 household customers and around 3,000 non-household customers will remain without gas suppliers, following the fact that their gas suppliers will go bankrupt.

The interpretation (hope) that the new licensing tariff of 2% of the turnover will apply only as of 2019 cannot stand in the way in which GEO 114/2018 was written, as it clearly establishes which articles are applied within 30 days from the entry into force of the GEO and the articles that apply on different dates, explicitly established in the GEO. Moreover, the author of the GEO has anticipated the losses that suppliers (it is true, in the way in which it was written, it was intended that this provision referred exclusively to suppliers that also have the capacity of producers) will incur as early as 2018 (even if the GEO applies for only 3 days in 2018), establishing in art. 61 para. 12 that “Differences of acquisition costs in 2018 and 2019 of suppliers, not recovered from the prices practiced, will be recovered by 30 June 2022, according to ANRE regulations.”

This article 61 para. 12 of GEO 114/2018 basically makes impossible even the recovery of acquisition costs in 2018 and 2019, suppliers facing the situation of paying licensing tariffs that exceed the gains from the licensing activity for 2018, of resorting to loans and being prohibited to attempt to recover these costs in 2019, being forced to wait for the recovery of these costs gradually, during 2020-2022.

An atypical situation will apply to foreign-domestic gas importers, these importers being licensed as gas suppliers in Romania, but selling gas at the import point, without paying duties for gas; they will have to pay 4% of the turnover posted in 2018 (2% related to 2018 and 2% related to 2019).

In fact, the increase in licensing tariffs on the gas market is by over 30 times. Given the chain of these costs, a chain price increase should be made for transmission, distribution and storage tariffs to end-end-consumers, even under the conditions of capping gas prices. We believe that ANRE will not perform these increases in the immediate period, using its own legislation and the power it has to amend the secondary legislation, determining in a first phase a significant number of small distribution operators, with Romanian capital, to enter insolvency and probably be taken over by multinational companies and causing an explosion of gas prices within several years (explosion which will be determined by all the delays in the recognition of costs introduced by this GEO taxing and capping prices, plus interests and penalties for the delay period).

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