Restructuring to hike the price of energy for the "clever boys"

The restructuring of the energy production under the banner of two major companies will void the direct contracts concluded between Hidroelectrica SA and certain private energy suppliers, the so called "clever boys". Mihai David, general manager of Hidroelectrica said: "Even if the company disappears, the contracts will remain in place. But the suppliers will no longer buy hydroelectric energy, but rather a mix of energy, at a different price, which is higher than the current one. It is only natural we change the price because it is illegal to sell energy below the production price".

When asked how these contracts will be divvied up between the two national energy companies, Mr. David said that it will be done in direct proportion with the hydroelectric capacity of the two companies. Head of Hidroelectrica estimates that the State has to discuss each of these contracts individually because Alro is one of the suppliers to whom Hidroelectrica provides energy directly: "First of all, the central authorities need to make a strategic decision on whether they will support the aluminum industry or not, as electricity serves as raw material for this specific industry. If they decide to support the industry, than the pricing and the contract concluded with Alro can be renegotiated".

An alternative would be to have the state take on the risks of the industry and have the price of electricity vary based on the international price for aluminum. There are other industries which are large electricity consumers and which could be supported in this way".

Mihai David said the production cost for electricity produced by Hidroelectrica is approximately 20 Euros/MWh. He said that Alro now pays approximately 25 Euros/MWh for the energy it acquires from Hidroelectrica, which allows it to remain competitive. Raising that price to 44-45 Euros/MWh (the production price for the two new energy companies) would cause aluminum production all over the country to shut down. "The cost of aluminum produced domestically would exceed the international quotations. All countries have a special strategy when it comes to selling energy to the aluminum industry. The Romanian state will have to decide as well on what it will do to support the industry", Mihai David added.

Officials of energy companies have a lot of work on setting clear regulations concerning the trading of energy by the future energy companies. Tudor Şerban, secretary of state in the Ministry of the Economy, said that the current producers will sell their available energy on the OPCOM markets. He said he expects the conclusion of energy contracts for 2010 to go smoothly, even though the current energy companies will disappear as legal entities.