Expensive energy coming soon?

• The Competition Council believes that the restructuring of the energy production, by creating two big energy companies will affect corporate budgets and household spending alike

The council of competition has serious doubts that the restructuring of Romania"s energy production into two energy companies is an approach that is compatible with a normal competitive environment.

More to the point, the concentration of energy production into the hands of two companies could seriously affect corporate budgets as well as household consumers, by the pricing that the two companies could impose on suppliers and consumers.

Bogdan Chiriţoiu, the chairman of the Competition Council, said the following for BURSA: "We have requested that the officials of the two companies, - Electra and Hidroenergetica - explain how these two companies would be more efficient and how this would benefit consumers. Basically, we have to see what practical benefits would all consumers draw from this restructuring. The companies claim that the restructuring and streamlining would lead to lower prices. At the current stage of our analysis and investigation, the possibility and the opportunity that the two companies would have to raise prices without any justification is a cause for concern, especially as their market shares are big enough to prevent their customers from switching to different energy providers. What"s more, we need to make sure that viable structures aren"t thrown in with unprofitable ones, simply for the purpose of keeping the latter alive. We anxiously await additional data from companies and we have put our preliminary conclusions up for public debate".

The competition watchdog was not convinced by the claim that Electra and Hidroenergetica would have enough motivation to improve their production costs, due to private players coming into the market. Besides, given the fact that the two units would have a joint market share of 90%, the coming of real competition into the market would be problematic.

The Competition Council also states, in a preliminary document issued before the completion of the investigation of the energy market: "There is the opportunity for setting up a dominant position on the market of wholesale production and distribution of electricity. The behavior of companies, could lead, among other things, to insufficient liquidity in the markets, which would prevent the creation of a real energy price, as well as providing market players with inaccurate signals in this respect. In the context of a shrinking number of competitors on the energy production market, the new company might be tempted to price energy in a discriminatory and non-transparent manner, by exploiting the lack of alternative providers".

Electra and Hidroenergetica have filed with the Competition Council their points of view on the elimination of the aforementioned risks, generated by the future concentration of economic power. The officials of the two companies have committed to sell on the centralized energy exchange managed by OPCOM at least 5-10% of their annual output. Furthermore, they said that in the current market context, where consumers and providers are no longer to pay the price of energy once it exceeds a certain level, only units that will succeed in producing energy at an affordable price would successfully continue to operate. Electra and Hidroenergetica will compete with each other and it will be in their interest to streamline their costs and to modernize their units given the private investments in the energy sector which were announced, as well as the option available to suppliers of importing cheap energy from other countries.