KOOPMAN, THE EUROPEAN COMMISSION: "The Hunedoara complex needs a deep restructuring"

The Hunedoara energy complex needs a deep restructuring to be able to survive on the domestic energy market under competitive conditions, Gert-Jan Koopman, deputy general director in the State Aid Department of the European Commission.

He told us: "Most likely, the Commission will approve next week the state aid for the Hunedoara Complex. But this aid depends on the presentation of a viable plan for the restructuring of the company. In my opinion, the restructuring needs to be deep, for the company to be capable to sell energy at the market price".

The European official also told us that the only successful privatization in Romania is that of Electrica (ed. note: the state sold 51% on the Stock Exchange 51% through a share capital increase): "We are talking about privatizations, not listings of majority stakes. The Romanian state needs to reconsider its privatizations program and make it more effective. We are awaiting the sale of the majority stakes in CFR Marfă, Oltchim, as well as of the government's stake in the Postal Office".

Gert-Jan Koopman further said that the privatization isn't a goal in itself, but a means to make a company more effective, where the state can not do it. He also thinks that state-owned companies have come to a point where they need to be restructured to be sold at a good price.

The Commission "is watching" companies with a state owned capital that have benefited from state aid. Its monitoring is focused on the Hunedoara Energy Complex, The Oltenia Energy Complex, Oltchim, CFR Marfă and the Romanian Postal Office. Mr. Koopman emphasized that state aids can not be granted indefinitely and that their goal is to reintegrate companies in the economic circuit and prepare them for becoming competitive.

The Ministry of Energy has drafted a government decision for the granting of a state aid of 98 million lei to the Hunedoara Energy Complex (CEH). The money, which will be granted from the funds raised from privatizations, is needed for the acquisition of emission certificates which CEH needs to buy by the end of this month to fulfill its legal obligations. The project stipulates that the aid will have to be returned if the company doesn't present a restructuring plan in autumn.

Sources from the Hunedoara complex yesterday told us that the company has no real chance of a turnaround and that that ship has sailed in 2013 in that regard: "In the beginning, our authorities and the Commission have agreed to the wiping of the historic debts of the old National Hard Coal company, the merger of four viable mines with the Mintia and Paroşeni electrical plants and the shutting down of three unprofitable mines by 2018. The Natinal Hard Coal Company was supposed to remain an empty shell, to be liquidated. The mines that became part of the closing program benefit from a state aid by 2018".

The Hunedoara Energy Complex currently has almost 6,500 employees, which activate in four mines of the Valea Jiului valley (Lonea, Livezeni, Lupeni, Vulcan) and two thermoelectric plants, which in 2013 have covered approximately 7% of the nationwide energy consumption.

Our sources state that the initial restructuring plan would have yielded results had the split of the National Hard Coal Company and the merger of the viable mining units with the two thermoelectric plants not been delayed in 2012-2013. Also, according to the quoted sources, another negative factor was the collapse of the price of energy on the free market starting in 2013, the beginning of the market liberalization process, as well as the difficult commercial collaboration between the two new companies created as a result of this spin-off and process. The streamlining process began late, and the mines that were considered unviable did not benefit from the needed investments which had been promised, amounting to over 60 million Euros.

In a response offered to Mrs. Deputy Carmen Hărău, the Minister of Energy states: "A significant problem that affects the effectiveness of the Hunedoara complex is the weight of staff expenses, which have accounted for 40.26% in the structure of the production cost of electricity and for 65.3% in the production costs for coal. Ever since the merger with the mining activity, in July 2013, the company was posting total losses of 102.1 million lei and overdue debts of 191.3 million lei".

In the process for the elaboration of the energy strategy, the Ministry wants to find solutions for increasing the efficiency of the company and to get a competitive price on the market for the energy which was produced. The authorities have rejected the proposed solution of liquidating the Hunedoara energy complex, claiming that there are solutions for a turnaround and reaching a profitability threshold by 2018.

In the response provided to deputy Hărău, the Minister of Energy states that the company needs to invest, using its own sources, 60 million Euros for increasing the efficiency of viable mines and another 300 million for retooling the electrical plants.

The company has ended last year with losses of over 350 million lei and overdue debts of approximately 370 million lei, of which those to the state budget alone account for 290 million lei.