Dancing on a high wire with the insolvency of Hidroelectrica in the balance

• "The clever boys" in the energy sector have great odds of seeing their rights reinstated

• If the court decides that Hidroelectrica should exit insolvency, the energy maker is at risk of going bankrupt, the receiver says

At the end of last week, the Bucharest Court of Appeal admitted the evidence brought by the companies in the Alpiq group and by the Hidrosind union, which have filed an appeal against the decision of the Court of Bucharest to admit the insolvency of Hidroelectrica. The companies in the Alpiq group, as well as the Hidrosind union, have filed requests for intervention against the decision to begin the insolvency procedure at Hidroelectrica, but they were rejected by the Court of Bucharest.

On Thursday, the Court of Appeal rejected the evidence of Euro Insol, the receiver of Hidroelectrica, and will announce its ruling in this case on October 11th. The ruling will be non-disputable.

Extremely outraged, Remus Borza, the manager of Euro Insol, gave us the following statement: "I think that it is unacceptable that the judges have accepted the evidence of the two companies of Alpiq and of the Hidrosind union and that they rejected ours. The challengers are not parties in this case, and the appeal shouldn't have been admitted. The judges even rejected our report on the causes of the insolvency, which was approved by 99% of the creditors of Hidroelectrica".

Arin Stănescu, the CEO of the National Union of Insolvency Practitioners (UNPIR), said: "Mr. Borza is right. The judges of the Court of Appeal shouldn't have admitted the appeal because the Alpiq companies and the union were not parties in this lawsuit. From my point of view, if the companies and the union consider themselves creditors of the company, the only avenue of attack is the non-administrative procedure (ed. note: this is also the case of Hidroelectrica SA, which filed for its own insolvency) is the opposition. I have to mention that some of the judges interpret the law in a different manner and that we have cases where this kind of appeal or request for intervention are admitted".

• Borza: "I hope the judges will apply the law in an unequivocal manner"

Remus Borza made harsh statements concerning the judges of the Court of Appeal: "It is hard to serve justice when a judge has a lower salary than a driver at Hidroelectrica. I don't want to be misinterpreted, but this is the reality of the Romanian legal system. I hope that the judges will implement the law in an unequivocal manner. The legal system in Romania has been crooked and blind many times. The insolvency of Hidroelectrica is a decision which is assumed at the highest political level and it is a proven fact. 99% of the creditors voted in favor of the report concerning the causes of the insolvency. The shareholders of the company and the lender banks want that reorganization".

The receiver of the company explained that if the court will rule in favor of those who disputed the filing for insolvency of Hidroelectrica, then the company will be forced to resume supplying electricity to the "clever boys" at prices below market, without any profit and it runs the risk of going bankrupt: "< The clever boys > have caused approximately 1 billion Euros in losses to Hidroelectrica. If the court decides that Hidroelectrica should exit insolvency, there is a high chance of the suppliers asking for compensation for the period when the contracts were denounced. There is also the possibility of the creditors asking for their money. The problem is that Hidroelectrica is still affected by the hydrological draught and it is still lacking liquidity".

Lawyer Gheorghe Piperea also said that Remus Borza is not exaggerating when he says that Hidroelectrica is at risk of bankruptcy: "If the judges decide, Hidroelectrica will return to its initial state. < The clever boys > will see their rights reinstated. An important part of the hydroelectric energy will be sold to them again at very low prices. The judges will definitely ask for compensation and Hidroelectrica will clearly not have the means to pay them. And there are also the creditors, which have very high amounts to recoup. If the company can't honor its payments on time, it is obvious that there is a great risk of it becoming insolvent again, this time at the request of the creditors, but this will result in bankruptcy, not reorganization".

This summer, Remus Borza decided to denounce the direct contracts of Hidroelectrica SA with Energy Holding, Alpiq RomEnergie, Alpiq RomIndustrie, Euro Pec and EFT, after the negotiations to raise the price of energy it sold to the market average failed. Euro Insol renegotiated the prices of the ongoing contracts concluded with Alro, Electromagnetica, Elsid Titu and Electrocarbon Slatina.

According to the receiver, the contesters claim that Hidroelectrica had no reasons to enter insolvency and that the goal of the insolvency was merely to denounce the contracts they were involved in. The report on the reasons of the insolvency state that at the date it entered insolvency, with losses and negative cashflows due to the hydrological draught, as the company had very large short term debts.

The report states that the insolvency was not caused exclusively by the contracts with the "clever boys", but also by the sale below production cost of the hydroelectric energy on the regulated market, by the buying of expensive energy from the third parties, by the draught, by the costs of processed water, by the major investments with a low hydroenergetic component, by the collective labor contract, and by the costs generated by the Hidroserv companies and the flawed management.