Preparing power for sale

Ahead of a massive sell-off in the state’s energy sector, key decision maker and Minister of economy, commerce and business affairs Ion Ariton responds to The Diplomat

November 2010 - From the Print Edition

Romania is poised to sell significant assets in its energy estate to raise billions of Euro to fund the country’s desperate lack in transport infrastructure.
Three large deals should hit the Bucharest Stock Exchange next year, according to new Minister of economy, commerce and business affairs Ion Ariton, who is responsible for Romania’s energy strategy.
The most anticipated sale is 15 per cent in the state gas producer Romgaz Medias, which is a profitable company and a partner in the AGRI Project - a plan for a liquefied natural gas (LNG) transit between Romania and Georgia. In the past, Gazprom has shown interest in buying the company.
Similarly attractive is a 15 per cent of state gas transport agency Trangaz Medias, which is one of the shareholders in the proposed Nabucco pipeline - a gas corridor between central Asia and central Europe via Turkey and Romania.
In addition,15 per cent of power grid company Transelectrica is for sale - this is an important force as Romania drives up domestic production and international connections to ensure export opportunities for its electricity.
Another major sale is the state’s 9.84 per cent of oil and gas giant OMV Petrom - which is majority owned by Austria’s OMV, who will probably be first in the queue to buy up the portion.
These listings are likely to take place in April 2011 at the earliest.
But the sales could go deeper. At present three electric energy distributors and three electric energy suppliers owned by the state have not yet been privatised - Transilvania Nord, Transilvania Sud and Muntenia Nord - which cover almost half the country. State energy company Electrica is the main shareholder of these companies with 78 per cent of the shares.
These three companies will merge into one - Electrica Furnizare - and should be operational by February 2011.
The Minister is opening the door to private involvement in these businesses and does not rule out further sales.
“The maximising of the state revenues will be closely followed in the case of these operators, either by selling share packages or by attracting investments,” says Ariton.
The Ministry may also sell its minority shares in the already-privatised electric energy distributors and suppliers. “Wherever the privatisation contracts will allow, Electrica will sell shares to buyers using a put option,” says Ariton. The state can sell up to ten per cent in these companies to each firm’s employees.
The Ministry is no longer the main shareholder of gas distribution companies. GDF Suez owns the southern section - the former Distrigaz Sud and E.ON owns the northern section - the former Distrigaz Nord. But Ariton says that through its division, the Office of State and Privatised Participations in Industry (OSPSI), the Ministry is “considering” both the sale of up to ten per cent of shares to the company’s employees as well as selling minority share packages in the former Distrigaz Nord and Sud on the capital markets.

Gas horizons

Minister Ariton is backing Romanian President Traian Basescu’s support for a new liquefied natural gas (LNG) connection between Georgia and Romania - AGRI - as a speedy and effective method of transporting gas from Azerbaijan to central Europe.
“AGRI can be considered the fastest and most efficient project of the southern corridor, among those under development at present,” says Ariton.
With partners including gas producers Romgaz, Azerbaijan’s Socar, Georgia’s GOGC and possibly a company from Hungary, the next stage will be registering the AGRI LNG Project Company in Bucharest, to draw up a feasibility study.
“If the conclusions of the study will be favourable, then the company could start the stage of attracting foreign investors in the view of implementing this project,” says Ariton.
However the main project for Romania to become a regional energy transit country is the Nabucco pipeline, which is backed by Austria’s OMV - owner of OMV Petrom - one of Ariton’s former employers.
Like AGRI, Nabucco diversifies Europe’s gas consumption from a reliance on Russian sources by opening a route between central Asia and Europe.
Meanwhile Russian oil and gas giant Gazprom has established a rival project, South Stream, which aims to transport gas from Russia by pipeline to Bulgaria, and could see an extra branch to Romania - Russia and Romania are now investigating the possibility as to whether this is financially and politically viable.
Recently Gazprom head Alexei Miller visited Romania to meet with Ariton and Prime Minister Emil Boc on the same day that OMV boss Wolfgang Ruttenstorfer met with President Basescu.
Minister Ariton says the Nabucco pipeline remains “the priority”, but the Ministry will continue to analyse “any initiative which can contribute to the growth of energy security of Romania and the EU.”
Nabucco was boosted by the recent establishment of an appraisal process by the European Bank for Reconstruction and Development, the European Investment Bank and the Wold Bank’s investment arm - the International Finance Corporation, which could lead to four-billion Euro in financing. This is a financial boon lacking for AGRI, South Stream and a Bulgarian-Georgian plan for a Compressed Natural Gas (CNG) link.
By the end of the year Romania will sign a new accord to show support for Nabucco - a Project Support Agreement between Nabucco Romania and the International Nabucco Company.
But at the same time Romania is not shutting the door on South Stream.
“Romania has a huge chance to be an open gate towards all EU member states and help them use all the energy resources outside the Union, especially in the Caspian Sea region,” says Ariton. “This is why, in accordance with all international regulations, we provided Gazprom with all the technical details they asked for, to enable them to finish their studies related to South Stream.”

Diversifying energy

Romania is witnessing a promising development of diversified energy production - private players are constructing gas-fired and wind power projects, while the state is planning to further develop its hydro and nuclear estate.
In conventional energy, OMV Petrom is building a 0.5 billion Euro gas-fired power plant in Brazi, Prahova county, which could account for up to nine per cent of Romania’s electricity supply.
Meanwhile the Czech Republic’s CEZ is building a one billion Euro 600 MW wind farm in Constanta county, which is already part-operational. In addition OMV Petrom (with 45 MW) and Portugal’s EDP Renovaveis (with 228 MW) also have wind parks under construction in the region - where Spain’s Iberdrola Renewables also has grand plans.
Ariton says that across all of Romania he is “intensely promoting” projects which produce electric energy from renewable sources – and declares these projects of “strategic importance”.
At the end of August, Hidroelectrica started the investor selection process and set up of the project management company for the construction of an (estimated) one billion Euro 500 MW pumped storage hydro-power plant in Tarnita-Lapustesti, Cluj county, although it remains to be seen whether financing is available.
In nuclear power, the Romanian state will decide in 2011 on the make-up of the company which is set to construct two nuclear reactors in Romania’s existing site in Cernavoda, Constanta county, in a four billion Euro deal for 1,500 MW in installed power.
Currently the Romanian state has a participation of 51 per cent share in the project company EnergoNuclear (EN), but in May then-Economy Minister Adriean Videanu said the state would reduce its percentage to between 20 per cent and 34 per cent.
Since then one shareholder, CEZ, has put up for sale its 9.15 per cent stake. Other shareholders include GDF Suez, Enel and RWE (each with 9.15 per cent) and Iberdrola and ArcelorMittal (each with 6.2 per cent).
“The investors’ agreement was extended until the end of December,” says Ariton. “At the end of this period we will be able to announce the updated percentage of each investor, including the percentage of the Romanian state.”
The company will select a contractor in 2011 and the Ministry estimates the completion of the project development to take five years and ten months - this is likely to push back the commissioning date from the initial 2015 to 2017 at the earliest.

Written by Michael Bird

Who is Ion Ariton?

Following a career as a local politician in Sibiu, Ion Ariton became Senator for the Democratic Liberal Party (PDL), where for two years he acted as president of the Senate’s commission for budgets, finance, banking activities and capital markets.
A member of the Democratic Party (which subsequently became the PDL) since the 1990s, 54 year-old Ariton was Sibiu Prefect between 2005 and 2007.
A trained economist, Ariton was previously a commercial and general director in Petrom’s Sibiu branch between 1993 and 2003.
A key zone for energy, Sibiu county contains the town of Medias - which headquarters both the Romanian gas transport company Transgaz and gas producing company Romgaz.
Since March 2009, Ariton has been a member of the Parliamentary group of friends of Iran.

Building giants

Minister Ion Ariton “hopes” that by the end of 2010 the Government can set up two new state-owned energy champions - Electra and Hidroenergetica - that bundle Romania’s energy production estate.
The next steps will be to privatise the management of the companies and list them on the local stock exchange.
In this process, the Government will break apart state thermo power company Termoelectrica, retain nuclear power company Nuclearelectrica inside Electra and split Hidroelectrica.
“Termoelectrica is in a large and complex process which should turn it into a profitable company,” says Ariton. “All the viable assets will be withdrawn from the company as independent entities by March 2011. A bankruptcy procedure will be initiated for the rest of the assets. At the end of the process we will be able to know which power stations will completely close.”
Electra will include thermo power plants Turceni and Rovinari, Nuclearelectrica, the National Company of Lignite Oltenia and branches of Hidroelectrica from Ramnicu Valcea, Sibiu, Targu Jiu and Hidroserv Ramnicu Valcea.
Hidroenergetica will contain thermo power plants Electrocentrale Deva and Bucuresti, branches of Termoelectrica Paroseni and Termoserv Paroseni, the majority of the remaining branches of Hidroelectrica and Hidroserv, the Romanian portion of the Irongate (Portile de Fier) hydro power complex on the Danube (which is co-owned with Serbia) and the National Coal Company.