GEO 114/2018, consequences

Under the aspect of capping gas prices, GEO 114/2018, substantiated on a non-existent legal provision, has the technical ‘advantage’ that it can only be challenged by the absent Ombudsman. I wish to mention however that there is another way to challenge this ordinance (I will provide details in due course). I will try to show some of the many problems arising from the implementation of the GEO that establishes a cap on gas prices.

After the approval of the mentioned document, people are boiling, but waiting. Everyone waits for a move from the ‘adverse’ side (the authorities expecting to be ‘attacked’ by market participants/market participants expect the GEO not to be applied), making the need for the development of a secondary legislation for the implementation of the GEO disappear.

GEO 114/2018 raises many questions as to the practical way in which the implementation of this ordinance can be approached from an operational point of view. I believe that the most confused are the colleagues from Romanian Energy Regulatory Authority (ANRE), not the institution itself, but the responsible employees who over the 19 years of existence of ANRGN/ANRE have faced many challenges determined by directives/laws thrown into the market (most often for populist reasons or to support certain interests) and they had to put them into practice, but I believe that this challenge is ‘the worst’ of all times.

Without initiating an analysis, I ask myself the following questions:

  • Given the introduction of the gas basket, the Network Code must be suspended as of 1 April 2019. What will replace the current Network Code and especially when the new secondary legislation is proposed?
  • How will the gas basket be established? Will there be a single gas basket or two baskets: one for population and one for non-households?
  • What happens with the obligation to store gas? What type of gas will be stored? Gas according to a basket or only gas from domestic production?
  • How will the obligation to sell a certain share of the gas (from domestic production) on the exchange be applied, given the cap on the price of domestic production and the higher demand than supply on the market?
  • How will differentiation be made between customers who want to buy gas from domestic production, given that the demand is higher than the supply, and the gas price is capped and well below the price of imported gas? First come, first served? Only some will have access to gas, which they will resell at a much higher price to the other customers! Pro rata? It’s a measure that is applied only in extreme situations, when other methods reach their limits. It determines multiple manipulations in the market.
  • How will the price for imbalances in the NTS related to the component of domestically produced gas of the gas basket be determined? Gas from domestic production cannot be sold above the capped price and it means that there will be an invitation to imbalance.
  • What happens with gas contracts signed before 28 December 2018, with delivery in 2019? How about those signed before 31 March 2019 with delivery after 1 April 2019?
  • Will gas exchanges in Romania be able to give a price reference?
  • How will the gas exchanges (especially BRM) survive?
  • Given the freedom of suppliers (other than producers) to sell gas to end-consumers (except for household consumers) at any price, we will probably face the absurdity of an increase in gas prices in conditions of capping the price of gas as commodity. Will prices also be capped to end-consumers?
  • Romania exports gas. Will this gas be sold by producers at the level of the capped price?
  • In the situation where a market player requests and obtain in court the suspension of the GEO establishing the cap on gas prices (with great chances of success), for the period when the GEO produced effects, who will pay for the damages? In this regard, to what extent are there chances that the institutions or persons who establish the implementing procedures of the GEO be held liable?
  • Will ANRE (and maybe even the employees) cope with the numerous lawsuits in which it could be involved after the preparation of the secondary legislation for the implementation of the ordinance?

These are only some of the questions raised by the GEO 114/2018 regarding the cap on gas prices. I am convinced there are more – therefore I invite all stakeholders to present them to prepare a blacklist of the implementation of this ordinance.

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