E.ON Romania: Fertilizer Subsidies Inflate Gas Price For Households

Fertilizer producers and thermo-electric plants may only procure gas from Romania"s domestic gas production until 2010. This decision of the Government will, nevertheless, inflate the price of natural gas for household consumers, who will be therefore forced to buy imported gas for double the price, E.ON Romania Chief Executive Frank Hajdinjak told BURSA.

"It is clear that, if the major industrial consumers only buy domestic gas, all the imported gas will go to the regulated market, to household consumers and small businesses, but in a higher quota than the current 10 per cent. According to our estimates, the domestic production is not sufficient to cover the demand on the regulated market, so imports may go up to 50 per cent of the gas consumption basket. The Russian gas that Romania imports will become approximately 20 per cent more expensive as of 1 January, from the current 290 USD / 1000 cubic metres. Therefore, the impact of this increase in the ratio between imported gas and the overall gas consumption of the household consumers will be devastating," Hajdinjak told BURSA.

"Moreover, the impact of the measures to assist the chemical industry and the thermo-electric plans is not included in this calculation. The annual consumption of these businesses easily exceeds 4 billion cubic metres. Considering that the annual production of Romgaz is 5.5 - 5.7 billion cubic metres, it is clear that there will not be sufficient gas left for household consumers," Hajdinjak added.

The price adjustment requested by E.ON is based on the decision of the National Energy Regulatory Authority (ANRE) not to recognise certain costs within the unit price. Frank Hajdinjak claims that such losses amount to tens of millions of lei at group level. As a matter of fact, E.ON last summer initiated a lawsuit against ANRE to recover such costs.

"I have always said that the shareholders believe that they are not recovering the investments made in Distrigaz Nord and Distrigaz Sud over the past 3-4 years, after privatization, because of discretionary law enforcement. The privatization contract stipulates a pricing policy that enables us to recover investments within a certain period of time. However, this policy is applied in a way which we consider to be incorrect," Hajdinjak added.

Another problem that E.ON would like solved in the near future is the enormous debt of the State-run energy-intensive companies to E.ON. For example, the authorities have so far failed to find a solution to pay the debts of the public railway company (CFR) to electricity suppliers, whereas State-run thermo-electric plants continue to consume tremendous volumes of natural gas and be late with their payments.