Investor: Romania's Hidroelectrica risks losing up to RON 1 bln due to new regulation

An order of the Romanian energy market regulator ANRE could lead to dire consequences for state-owned power producer Hidroelectrica’s profitability, and overall business performance, minority shareholder Fondul Proprietatea warns.

The ANRE Order no. 10/2019 sets the regulated energy prices and quantities sold by the producers based on regulated contracts.

“Hidroelectrica, the most profitable state-owned enterprise, will bear the burden of the regulated energy market, thus being unfairly punished for having increased its efficiency,” Fondul Proprietatea representatives claim.

Hidroelectrica could be obliged to sell up to 65% of its next year’s expected production at regulated prices, with a profit margin of only 5%, although the regulator’s order doesn’t clearly set the quantity. However, failure to comply with this order could lead to severe penalties, including a fine of up to 10% of the previous year’s turnover. Moreover, if hydrological conditions prevent Hidroelectrica from delivering the required amounts, the company could be forced to buy the electricity from the competitive market to fulfill its contractual obligations.

“If ANRE decides to request from the company the maximum quantity to be sold at regulated prices, that is 65% of its energy output, the company would stand to lose as much as RON 1 billion,” said Johan Meyer, CEO of Franklin Templeton Investments Management Limited UK Bucharest Branch and Portfolio Manager of Fondul Proprietatea.

Fondul Proprietatea holds 20% of Hidroelectrica, which is the most valuable asset in its portfolio. The Romanian state controls the remaining 80%.

(Photo source: the company)