EXCLUSIVE - CONSTANTIN NIŢĂ, THE DELEGATE MINISTER FOR ENERGY: "We will honor the schedule of the listings of energy companies, agreed with the IMF"

Romania will follow the schedule of the listings of the energy companies, as promised to the international financial institutions, said Constantin Niţă, the delegated minister for Energy, in his first interview since his appointment. The secondary offer of Transgaz and the listing of Nuclearelectrica, Romgaz, Electrica and of the Oltenia Energy Complex will take place this year and the next. Also, according to the commitments made to the IMF, these companies will have professional managers.

Minister Niţă also said that he would change the current state aid scheme for the production of renewable energy, by adjusting the maximum value of the green certificates and of the number of certificates granted. Constantin Niţă is also reviewing the possibility of exempting industrial companies from the obligation to pay for these certificates, as well as the introduction of a balancing tax.

The delegated minister for energy will also draw up a draft law by which the production of energy will no longer be organized by types of resources, but rather, by a mix of such resources, to allow producers to compete with equal odds on the free market.

Reporter: Romania needs to implement numerous structural reforms in the energy sector, according to the commitment made to the IMF. Because of the delays which have appeared in the past years, the implementation of professional management has overlapped with the privatization through the Stock Exchange. How will you complete the two projects, considering that the new managers come with a whole new approach of the strategic directions in companies, for which they need a few months of preparations, and the investors need to know about them on time?

Constantin Niţă: I think that the private investors will be happy that we are implementing professional management in the companies that we are listing. Professional management is a plus for the companies. Managers that compete for a certain company study it in advance. They have a specific business plan when they come in for the job interview.

So, in my opinion, the implementation of professional management will not be an obstacle for the listings. On the contrary, the signal sent to the market by appointing the professional managers will be a positive one.

Reporter: The government has committed to a rather tight schedule when it comes to the implementation of these structural reforms in energy. Concretely, how are you going to act to honor it?

Constantin Niţă: We will be able to comply with the calendar which we have committed to. My position is that we need to stick to the commitments taken before the IMF. We are opening up the companies in the energy sector to the private capital. The money obtained from the listings will be used for investments. The purpose of the listings is the capitalization of the companies. The private capital will participate in the management of these companies, the market will have more faith in them. The secondary offer of Transgaz will be completed by April 15th, and the listing of Nuclearelectrica by mid-May. This will by the listing of Romgaz and of the Oltenia Complex starting in autumn, and we have also made it our goal to get Hidroelectrica listed as well.

Reporter: The government has also pledged to privatize the distribution and supply of electricity. When and how will this happen?

Constantin Niţă: We are only privatizing Electrica SA. We won't be privatizing each division of Electrica individually, like it happened in the previous years. We will sell 51% of Electrica SA on the Stock Exchange, and the government will keep 49% of the shares. I think that this strategy is a lot better and we will obtain bigger profits than if we were to sell each division separately. We will invest the money earned from the sale in the energy sector, in major projects such as the hydroelectric plant of Tarniţa. In the previous years, the money from the privatizations was spent on insignificant things. I will watch every leu, to make sure that they go where they should. You know the critical report of the Court of Auditors about the privatizations in the energy sector. Not even the post-privatization monitoring was done adequately.

Reporter: When do you estimate the listing of Electrica SA will take place?

Constantin Niţă: This autumn. The government will remain a significant minority shareholder. We can't sell everything. We need to remain involved in the distribution and provision of energy, so we can continue to make strategies in that sector. Some of the privatized branches of Electrica have problems, consumers are complaining about bad services, and nobody holds those responsible liable. These things need to stop happening. With a substantial minority stake, the state can have a say in that area.

Reporter: Companies in the energy sector are faced with numerous problems, from lack of effectiveness, to operational problems due to the renewable energy, especially wind farms. How will you deal with these problems?

Constantin Niţă: There is a problem concerning the balancing system due to the input in the system of the wind energy. In 2007-2008, when the law concerning the stimulus of the green energy was drawn up, nobody anticipated that we would have this boom, amid the generous state support scheme and the drop in price of the production technologies. Well, now it has happened and the renewable energy is causing us big problems in balancing the system. Now, coal-based units, which need to work continuously, are being used for balancing the system. It's normal that there are technical problems and high costs caused by the frequent shutdowns and start-ups of the units.

There are several solutions to deal with this problem. One of them is to make additional investments in new transport and production capabilities. Unfortunately, the state owned companies do not have money. And I am referring here to Transelectrica SA, which needs to develop the transport system, and the project for the development of the pumping hydroelectric plant of Tarniţa-Lăpuşteşti. These projects involve additional investments of 2-3 billion Euros. The state and the companies can't afford them. So what we are left with is the option of implementing them through public-private partnerships.

Another solution is the amendment of the law, so that we come up with a balance between the number of green certificates issued, the existing transport capacities, and the degree of bearability of the state aid scheme, by all the categories of consumers. We need to find an optimal solution, to harmonize the interests of all the consumers with those of the investors.

Reporter: The law concerning the stimulation of investments in green energy provides the priority takeover of this energy in the national system, provided the safety of the national transport system is ensured and within the limits of the balancing capability. Why isn't this provision implemented or why don't the competent state institutions come up with clarifications?

Constantin Niţă: It is obvious that in the past years, no attention was given to the capacity of the balancing system and that of the transport system. The management system of Transelectrica did not work very well in the past years, it was a crony system, which we need to eliminate. I can assure you I will do this within the briefest delays.

These things have caused some of the decisions concerning the authorization of the wind plants to be made completely nonsensically. Transelectrica has issued licenses for over 20,000 MW of wind energy. It is huge, compared to what the transport system can handle now. Even the 1,800 MW which are currently functional in the wind farms represent a problem. We have estimates that by the end of the year an additional 1,700 MW will be made functional by the end of the year. We have exceeded the transport and balancing capacity.

That is why I want to introduce a balancing tax for the producers of green energy. Otherwise, we run the risk of destroying the current capabilities which are designed to work continuously, not for the adjustment of the system. We need to clearly set, through the law, the manner of operation of the renewable capabilities.

We have told the investors in the production of green energy that we don't want to eliminate them from the market, we don't want them to withdraw their investments in Romania, and we don't want to destroy the classic production capabilities. The fair thing is to have a balance in the market, which consumers would benefit from as well.

Industrial operators such as ArcelorMittal or Alro, which are great consumers of energy, pay a lot of money for the support scheme. They are major employers. We can't afford to treat them badly just so some entities can earn a lot of money.

So I have notified investors in renewable energy that they will earn less. There needs to be a modification of the scheme which is fair to everybody. Therefore, we will no longer modify the minimum price of the green certificates, but we can't subsidize the current maximum tariff of 55 Euros per certificate because this year we would reach a total amount of approximately 500 million Euros - the equivalent value of these certificates, which will be borne by all the consumers through their energy bills. We are not a country rich enough to support this kind of subsidies. With all the respect for this type of clean energy, but this type of investors needs to understand that, just like it happened and is going to happen in many European countries, our scheme needs to be adjusted in a fair manner.

Reporter: So you are considering a modification of the maximum price of certificates as well as a modification of the price of certificates granted, depending on the type of technology?

Constantin Niţă: Yes, we will change the support scheme and the maximum value of the certificates. Germany has abandoned nuclear energy and has attracted numerous investments in wind and solar energy. Now Germany has come to the point where it will reduce the value of green certificates by 30% and freeze any investments in the sector for two years.

Reporter: Germany has exempted the industry from the payment of the support scheme for the green energy. Are you considering such a measure?

Constantin Niţă: Yes, because there is a risk of the industry being destroyed.

Reporter: The problem with exempting the industry from this scheme is how to distribute the burden among the other consumers.

Constantin Niţă: It remains to be seen how we are going to implement these measures which we have enumerated. We are still conducting an assessment. At any rate, it won't be just one measure taken in the field of renewable energy. There will be many changes.

Reporter: How quickly do you want to implement these measures?

Constantin Niţă: Very quickly. Investors need to know what is waiting for them. We can't treat consumers like dirt nor drive investors away.

Reporter: At the Hunedoara Complex there are major issues concerning the effectiveness and the functioning of the system. What solutions are there to deal with them?

Constantin Niţă: The Hunedoara is one the biggest problems in the system. No investments have been made in the last 20 years in the mining of coal or in the production capacities of Mintia. Therefore, the electricity production costs at the Hunedoara Complex are very big. The complex is outside the market and the solution can only come through a reorganization of the entire production system. We can't have several producers focused on just one type of fuel. Coal can't compete with water and with nuclear plants in terms of the production costs. That is why the mix of production inside a company needs to be reorganized. I want to draw up a law for the reorganization of the energy production. We are already working on the draft and within the briefest delay we will put it up for public debate. To achieve performance in the system, we need companies that start off with equal odds of competing on the free market. I have to announce all those who oppose this kind of reorganization, including the Proprietatea Fund, that they must come join us in order for us to get performance in the energy system. I don't want just dividends, I want strategies for development and long-term performance.

Reporter: OK, but we have just completed one reorganization in the system. And there are also the listings scheduled this year. How will you combine these projects with the plan of reorganization based on a different production mix?

Constantin Niţă: We definitely need to make another mix. The resources mustn't compete among themselves. There will probably be 3-4 holding-like companies, maybe autonomous, we will see. We are just starting with this project.

Reporter: Did you review the opportunity of selling the micro-hydroelectric plants which Hidroelectrica still owns? What decision did you make?

Constantin Niţă: In the last few years, Hidroelectrica has sold over 60 such micro-hydroelectric plants. It is left with many such units, which it is in no hurry to upgrade. Based on the analysis made by Hidroelectrica, these micro-hydroelectric plants represent about 5% of the total output and need retooling. Since there aren't enough funds, they need to be sold or they need to enter a public private partnership. Under no circumstances will we keep units which aren't effective. We either make them effective, or we sell them. In order to increase efficiency, you need to invest in these plants and that requires money. Or, Hidroelectrica doesn't have the necessary money. Everybody knows the causes of its insolvency. Those who brought Hidroelectrica to its current state need to answer before the law.

Reporter: But the decision to hold the former Board members of Hidroelectrica liable has been postponed in the General Shareholder Meetings of the company. The decision to sell the micro-hydroelectric plants has also been postponed.

Constantin Niţă: We are not opposed to the sale of the micro-hydroelectric plants nor to holding the former managers responsible.

Reporter: There are many problems at Transelectrica as well. The company is going through a constant state of uncertainty when it comes to the temporality of the management. The financial results reflect that. Why change the members of the Supervisory Board if you are going to implement professional management shortly anyway?

Constantin Niţă: Because the current Supervisory Board did not see that last year, over 200 employees of Transelectrica went traveling abroad. There have been 400 such trips. I still find it an extremely lavish spending of the company's money. From my point of view, no one from the current Supervisory Board and Directorate should stay.

Reporter: What other problems did you uncover at Transelectrica? You recently announced audits at all the companies in the system.

Constantin Niţă: There are some ongoing audits. I am waiting for the results. No company will escape the audits. I have the agreement of PM Victor Ponta to clean up what I can, especially since I am not part of the energy sector. People who do their job well, based on effectiveness criteria, will stay as managers of the company, those who don't - they will leave.

Reporter: In short, what are your priority objectives for the energy sector, for such a brief period of time?

Constantin Niţă: I have several objectives. These include the diversification of the supplies of natural gas and electricity. I am referring to new interconnections with the neighboring states. The European Union is extremely interested in us getting this done so that Romania can buy and sell electricity and natural gas without any restrictions.

Another important objective is for the Romanian energy market to function increasingly better, especially as a regional stock market. It is an ambitious project and we need to implement it. I have already talked to the Polish minister of Energy and he will be coming to Romania to add the finishing touches to the project. I will also go to Hungary, at the end of March, also to discuss the project of a regional market.

I also want to put all companies on an equal footing, based on principles of economic efficiency, by stopping theft, incompetence and political cronyism. Once the professional managers are appointed, and the listings are done, I am hoping we will be able to improve the activity of energy companies. Last but not least, I want to switch to a new mix of energy in the producer companies.

Reporter: In the agreement with the FMI, we have made a commitment to restart talks with Russia in order to negotiate a better price for imported natural gas. What is the current stage of these talks?

Constantin Niţă: We have already begun the talks. We are waiting for the Russians' response. I hope that we can reach an agreement. The price of natural gas on the international markets is dropping, due to the output of shale gas by the US. Over there, the price is 113 dollars per thousand of cubic meters. In Romania, the price of imported natural gas is about 420 dollars per cubic meters. We will need to see what decision we are going to make when it comes to the exploitation of shale gas because we have the experience of the US, which have many benefits. We need to think very carefully together with the environmental specialists, to see whether we can enter this market as well.

Reporter: Thank you!