The "clever boys", annihilated through the insolvency of Hidroelectrica

The Ponta government seems to have found a solution to get rid of the direct contracts between Hidroelectrica and "the clever boys" in the energy sector. Thus, Hidroelectrica has files for its insolvency with the Court of Bucharest claiming it has run out of cash, market sources say.

Government sources told us that last week, prime minister Victor Ponta went ballistic, saying that "either the problem of the < < clever boys > > gets dealt with, or Hidroelectrica gets placed into insolvency". The alternatives reviewed by the members of the Executive, with the help of a famous law firm, were the termination of the contracts or declaring the company insolvent. Apparently, the termination of the contracts, which have all their appendixes confidential, could have cost the Romanian state a lot.

According to insolvency specialists, if the authorities will confine themselves to insolvency, they would then have to convince the judges and the future receiver to decide the termination of the direct contracts, concluded at bellow-the-market prices, to sell the energy on the centralized market, where it can make more money.

Another scenario making the rounds in the market yesterday stated that the termination of the direct contracts can not be achieved in this manner, as Hidroelectrica is not in such a desperate situation, liquidity-wise.

Thus, some lawyers claim that only bankruptcy could help the country's biggest energy producer get rid of the notorious direct contracts, and the bankruptcy of the cheapest energy maker, which has a market share of approximately 30% of the national output of energy is a big price to pay, even if we were to get rid of those contracts.

Sources from the Ministry of the Economy said that the insolvency will only serve as a deterrent for the "clever boys", to determine them to accept a significant price hike, of more than 30%, for hydroelectric energy.

Hidroelectrica SA is the largest producer of electricity in Romania. The company is controlled by the state, through the Ministry of the Economy. Hidroelectrica has government-backed loans taken from the World Bank and the EBRD, and (as an example) it owes "Apele Române" alone 120 million Euros for the processing of water and over 180 million Euros to Termocentrala Rovinari (the Rovinari Thermoelectric plant).

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Last Friday, Hidroelectrica filed for insolvency. The Court of Bucharest will issue a ruling on that matter on June 20th. On May 8th, the Minister of the Economy, Daniel Chiţoiu, was saying that the government wants to bring the contracts concluded by Hidroelectrica with the "clever boys" to the competitive market, by eliminating their set prices. According to Chiţoiu, the state has over 1 billion Euros to recoup from the "clever boys", as the European Commission will consider the contracts concluded with Hidroelectrica as state aids.

The state owned energy maker sells about 75% of its output at below market prices through bilateral contracts.

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The Ministry of the Economy yesterday stated the following, in a press release: "The decision concerning the filing for insolvency was made by the Board of Directors of SC < Hidroelectrica > SA, and in its position of shareholder, the Ministry of the Economy does not interfere in any way in the legal proceedings involving state owned companies in order to avoid interfering in any way with the courts".

• • Lawyer Piperea: The reorganization allows the ending of the contracts with "the clever boys"

Lawyer Gheorghe Piperea claims that if the Government intends to put Hidroelectrica into insolvency with reorganization, then this could lead to the termination of all of the company's contracts, including that of "the clever boys". He said that the solution would come as a surprise if the Romanian authorities were looking to annihilate "the clever boys" in the energy sector. Naturally, the insolvency will prevent the company from being listed on the Bucharest Stock Exchange or its successful privatization.