Stormy negotiations between "Hidroelectrica" and "Alro"

• On Friday night, the two companies signed the agreement for the provision of energy

On Friday night, the receiver of "Hidroelectrica", Remus Vulpescu, and the officials of "Alro" have signed the addendum concerning the increased energy price which will be supplied to the aluminum maker. The BURSA newspaper published the information exclusively, on its website, on Saturday morning.

Mr. Vulpescu said that "Alro" will pay somewhere between 180 and 205 lei/MWh for hydroelectric energy, according to the quote of aluminum on the London Metal Exchange. The contract will be valid until 2018 for an annual volume of 3TWh.

Remus Vulpescu said that the price will not go below 180 lei/MWh, regardless of the evolution of the price of aluminum. "Hidroelectrica" currently produces energy at a price of 125 lei/MWh, which may rise in the near future due to the hydrological draught.

"Alro" will pay for the hydroelectric energy at least three months in advance, and has agreed to retroactively pay 11 million Euros for the first semester. That amount represents the balance between the current and the old price. According to Mr. Vulpescu, over the last few months, "Alro" paid approximately 114-116 lei/MWh for hydroelectric energy, due to the drop in the price of aluminum on the international markets.

The aluminum maker is the largest consumer of electricity in Romania. The plant consumes banded energy, meaning it generates few imbalances in the system. Most of the major consumers need energy during peak hours and incur additional costs with the generated imbalances.

• Disagreements over the price formula

The agreement with "Alro" was one inch away from being signed on Wednesday night, after nine hours of harsh negotiations, according to unions in the aluminum plant.

Except that, after Remus Borza, the receiver of "Hidroelectrica", came to an agreement with the representatives of "Alro" on the price increase, the Proprietatea Fund opposed it, and the signing of the agreement was postponed (the information was published exclusively on the website of the BURSA newspaper, on Thursday morning).

Also on Thursday, there was a range of harsh accusations made by the "Alro" and Cartel Alfa unions, which said that the Ministry of the Economy and the Proprietatea Fund have unduly blocked the signing of the agreement. The unions claimed that "Alro" would be forced to shutdown without the energy from "Hidroelectrica" and that Franklin Templeton (the manager of the Proprietatea fund) wants to do a hostile takeover of "Alro".

The Proprietatea Fund labeled these accusations as speculation and declined to comment on the situation created in the negotiations with "Hidroelectrica".

After two days of silence (Thursday and Friday), Remus Vulpescu explained to the BURSA newspaper, why the signing of the agreement was postponed: "I was appointed by the shareholders of Hidroelectrica - the Ministry of the Economy and the Proprietatea Fund - in the position of receiver and I represent the company's interests. Until Wednesday there was a consensus between the shareholders on the insolvency of Hidroelectrica. On Wednesday night, there was a divergence between shareholders and we have preferred to postpone the signing of the agreement with Alro for the new price of energy because I thought that the issue could be dealt with\".

He said that the discrepancy arose because of the pricing formula included in the contract, as the Proprietatea Fund did not want the prices paid by "Alro" to fluctuate depending on the quote of aluminum on the London Stock Exchange, but rather on the prices of our energy exchange.

• From backstage

Sources from the Ministry of the Economy claim that on Friday, Remus Vulpescu talked to the banks which are the creditors of "Alro", which expressed their concern over the deadlock of the negotiations and the outlook for the closing of the plant.

Our sources claim that on Thursday and Friday, talks were held at the Ministry of the Economy on the calculation formula.

On Friday, the BURSA newspaper exclusively published an article announcing that "Alro", on Thursday, challenged at the Court of Bucharest the decision of the receiver of "Hidroelectrica" to activate the force majeure clause.

The force majeure clause was activated by "Hidroelectrica", due to the draught, starting on August 7th, with the approval of the Chamber of Commerce and Industry of Romania. Thus, "Hidroelectrica" will honor all its contracts to supply energy, subject to the output obtained.

The law stipulates that a company which is insolvent can only enter new contracts if the receiver agrees (unless its right to conclude contracts has been taken away).

The receiver has full powers only when it cases to denouncing flawed contracts.

Many insolvency specialists told us that the Proprietatea Fund couldn't have possibly blocked the agreement between "Hidroelectrica" and "Alro", as it was a minority shareholder of the energy maker.

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Florian Mateiţă, insolvency expert:

The Proprietatea Fund would not have had the right to decide in the negotiation between "Hidroelectrica" and "Alro"

The Proprietatea Fund (FP) couldn't have blocked the negotiations between "Hidroelectrica" and "Alro" concerning the price of energy (ed. note: - like Remus Borza, the receiver of "Hidroelectrica" said last week), Florian Mateiţă, insolvency expert said.

According to him, the special receiver of "Hidroelectrica, Remus Vulpescu, is the person which has been appointed by shareholders to represent the interests during the insolvency procedure, and was therefore the only one who would have been entitled to file requests with the court for the blocking of the negotiations with "Alro". The Proprietatea Fund, which is a minority shareholder in the two companies, couldn't have rendered a ruling in the negotiations between "Hidroelectrica" and "Alro" since in the case of the former, it didn't have the quality nor the interest to do so (as long as the negotiated measures are in favor of "Hidroelectrica"), and in the case of the latter, it had no decision power. From the position of minority shareholder of "Alro", it could have threatened with filing lawsuits, says Florian Mateiţă.

The expert has the following to say about the idea of a hostile takeover of "Alro" by the Proprietatea Fund, mentioned by the unionists: "The reasoning based on which the unionists have explained the < behavior > of the Proprietatea Fund in the negotiations is wrong. The revenues of the Proprietatea Fund come from dividends and from the growth of its stock portfolio, so it is only natural that it would use all of the opportunities to get as much as possible out of these circumstances which they did not create. More likely, the unionists should be worried about the measures to increase the labor productivity which will be taken to compensate for the increase of the price of electricity, rather than talk about the liquidation of Alro!" (V.M.)