The Committee for Industries and Services has finalized the Report on the DRAFT of Law on the approval of Government Emergency Ordinance no.64 / 2016, in another new step towards the amendment and completion of the Law on electricity and natural gas no.123 / 2012, in the Chamber, which is the decisional body. The measures proposed by The Committee for Industries and Services have sparked numerous critical comments, synthesized by energynomics.ro in the most extensive press dossier on this topic. In an interview published in the latest issue of energynomics.ro Magazine, Aristotel Jude, State Secretary between December 2015 and January 2017, the one who worked out and promoted, in co-operation with the team of the Ministry of Energy, the Emergency Ordinance 64/2016, answered a few questions we asked him in relation to the Law for the Ordinance approval. In his opinion, at this stage, it is not viable for the natural gas market that all the natural gas transactions should be concluded on the centralized market. At the same time, Aristotel Jude thinks the average price for the natural gas purchase in Romania will be set around RON 65-66 MWh.
The natural gas market liberalization is the most debated topic recently. How do you see the course of this process?
The liberalization of the natural gas market started on the 1st of January, 2015, when the natural gas supply to our non-domestic clients passed from the regulated field of the market into the free, competitive market. Thus, the State had no other intervention in forming the natural gas price set for non-domestic clients. The natural gas purchase and, later, supply price for non-domestic clients is set, since 2015, at the point where the demand meets the offer.
On the other hand, the supply of natural gases to households remained a regulated segment, which is to also come into a free, competitive system, starting with June 30, 2021. Basically, by April 1, 2017, in the process to build up the final regulated price for the natural gases supplied to the domestic clients, there were two decisions inveolved: an administrative one, and a regulatory one which decisively influenced upon this price:
- the administrative intervention, that set, at the suppliers’ level, the price for the natural gas purchase from the domestic output meant to be supplied to the household and heat manufacturers for people’s consumption, and
- the ANRE administrative intervention, regulating by order the (final) price for the natural gas supply to the domestic clients.
The natural gas supply to the domestic clients remains in the regulated segment even after the 1st of April. ANRE continues to keep control over the final trading price, and the suppliers have to prove to the regulating authority that they have purchased natural gas for the domestic clients in competitive and transparent conditions, as well as to bring evidence for the lowest price in such conditions. The liberalization of the natural gas supply to the domestic clients has to be achieved in 2021, with the provision that at least 2 years should pass from the removal of State intervention in setting the administrative price for the purchase of natural gas from the domestic output meant for the domestic clients and the passing of the natural gas supply to the domestic clients from the free, competitive market; during such period, the premises for the setting of a real and correct price on the Romanian market should be set (inclusively by measures provided by GEO 64/2016: stimulation of transactions on the centralized market, the modality of purchase by the suppliers of the natural gas meant for the domestic clients and control exerted by ANRE).
What exactly happened from the 1st of April, 2017?
In fact, the State intervention was removed, namely the intervention administratively determining the price for the purchase of natural gases from the domestic output meant for the domestic consumption. Such removal was absolutely necessary to settle the infringement procedure carried on by the European Union as regards the de facto existence of an export ban. Moreover, this decision set the premises for the development by Transgaz of the BRUA project, by the conclusion of the financing grant with the European Commission, respectively the Innovation and Network Executive Agency.
We have to admit that, until the 1st of April, there was no real competition among the domestic clients suppliers, as they benefited from the legal provisions which provided, at an administrative price, the natural gas quantities required by their domestic clients. Actually, until the 1st of April, 2017, two suppliers were holding jointly an approximate share of 90% of the regulated market. Eliminating the obligation of the natural gas producers to make available to the suppliers the quantities of natural gas resulting from the production activity, necessary to cover the natural gas consumption of the households, created the conditions of real competition between the companies that supply natural gas to household customers. Nothing can be more beneficial to the gas market than real and transparent, non-discriminatory competition between suppliers.
There appeared some information regarding a boom in prices right after the 1st of April. Do you expect the price rises to be maintained or is it likely for this to have been just a punctual question?
Before I answer, I should state that had we not removed the liberalization calendar, the price for the natural gas purchase from the domestic output meant for the domestic consumption would have went up to RON 72 MWh, which would have meant an obvious rise of 20%. At present, there is a chance that the price should go down below this level, which in fact has happened: recently, natural gas sale-purchase agreements have been concluded on the centralized market at a price of RON 68.5 MWh.
I don’t think we are to see rises of the price for the natural gas purchase from the current domestic output, whatever the destination, beyond the free market price at the removal of State intervention, respectively RON 72 MWh. There are more arguments in this regard:
- from the 1st of April, in the mass of building up the price for the purchase of the natural gases from the domestic output there entered a substantial quantity, about 4 billion cubic meters, which the producers used to make available to the suppliers, by effect of law
- the competition among the suppliers (producers included) becomes a transparent one
- a certain obligatory quota to be traded on the centralized market was established
- the suppliers have to purchase the natural gas for the domestic clients in conditions of minimizing the cost of the resources granted, transparently, upon an equal and non-discriminatory treatment of the bidders. In other words, by means of two categories of procedures: bids organized as internal procedures or on the centralized markets.
We are to ascertain that the liberalization of the price for the purchase of natural gas from the domestic output meant for the domestic clients will have a positive impact in the natural gas market, respectively the prices for the supply to the domestic clients will not rise to the level at which they would have come if the liberalization calendar had been maintained. I dare to say that the average price for the natural gas purchase from the primary source in Romania will be set somewhere around RON 65-66 MWh.
What is the impact the domestic clients could experience?
The rise of the regulated price for the supply of natural gases to the domestic clients will be felt in 2018, only in the margin of the natural gas purchase price increase, which, as we have already shown, will be much lower than what could have been reported if the liberalization calendar had been maintained.
Regarding such potential rise, we should state that the State holds the levers required to financially support the vulnerable consumer. At the moment of adopting GEO 64/2016, the legislation provided measures for the families and lonely people with low incomes to benefit, during the cold season, by aids granted to fully, or as the case may be, partly cover the expenses with the heating of the dwelling (heat, electricity and natural gas). For this, see GEO 70/2011, on the social protection measures during the cold season, in force by the 1st of February, 2018. Thereafter, Law 196/2016 regulating the minimum income of inclusion, the benefit of social assistance granted to families and lonely people finding themselves in difficulties, with a view to prevent and fight poverty and the social exclusion risk, will come into effect.
However, I insist that, in order to benefit from the removal of the administrative price for natural gas from the domestic output, a few essential measures provided by the Emergency Ordinance 64/2016 are required:
- The conclusion of transactions on the centralized markets, in the share set by the GD-s subsequent to GEO 64/2016
- The compliance by the suppliers with the obligation to purchase the natural gas supplied to the domestic clients, in conditions of minimising the cost of the granted resources
- The efficient and correct fulfilment of the ANRE responsibilities, in relation to the way the suppliers comply with the obligations of trading on the centralized markets and the how the reduction of the price for the purchase of the natural gas meant for the domestic clients is justified
- The working out and approval by ANRE of the regulations required to guarantee conditions of competitiveness and purchasers’ transparent and non-discriminatory access to the natural gas quantities bid on the competitive market.
In my opinion, it is essential that ANRE should establish a minimum number of transactions and the packages of obligatory quantities to be bid on the centralized markets by producers and suppliers. Smaller the packages of quantities and higher the number of transactions, the premises for the access of all market participants to the minimising trading of such quantities will be ensured.
We cannot talk about a real price of the natural gas on the centralized markets if, by one or two transactions, a producer or supplier can fulfill his obligation of trading on the centralized market or if, by the dimensioning of the packages of bid quantities, only one or two suppliers are granted access. For this reason, I think it is highly necessary to focus our efforts on the working out of the regulatory documents subsequent to GEO 64/2016 in order to guarantee non-discriminatory access to the centralized markets, not on the change or reforming of the trading obligations regulated by GEO 64/2016. I have confidence that ANRE will settle this issue as well.
Should I presume that the amendment suggested by the Board for Industries and Services of the Chamber of Deputies to trade the entire volume of gas produced domestically at the stock exchanges seems inopportune to you?
I should bring forward some basic principles regarding the amendments made by the Committee of Industries and Services of the Chamber of Deputies. Whenever the approval of a government ordinance by a law is under debates, such debates should be exclusively limited to the provisions of that ordinance and not extend over issues not envisaged by the ordinance or not related to it. Any issue different from the provisions of the ordinance should be the object of other legal initiatives.
I salute the intent of the Board of Industries and Services of the Chamber of Deputies to bring changes to Law 123/2012 – the part on natural gas. I also consider that it is absolutely necessary not only to amend Law 123/2012 – the part on natural gases, but also to rewrite the entire law, so that the implementation of a viable market model in the field of natural gas should be guaranteed. But this is a complex process that should be the object of a real and transparent public debate, where all the participants to the natural gas market, not only a part of them, should be able to express their opinions on the market model suggested to be implemented in the field of natural gas.
The necessity to rewrite the natural gas law
No market, including that of natural gas, will be able to operate when there are no regulations or regulations are not enforced for establishing, transferring and exercising of the ownership of the goods which are the subject of the transactions or services traded on that market.
At present, for technical reasons, the rules set out in the Civil Code can not be applied the natural gas market for the transfer of ownership of natural gas quantities, considering the quality of natural gas as goods of the same nature. This is because a separate and distinct measurement of the quantities of natural gas to be handed over to each and every one supplier or final consumer is taking place neither when entering or exiting the national transport system (NTS), nor later on at the entry into the distribution systems, so that the transfer of ownership can be operated. What is happening is a measurement of the total amount of natural gas to be delivered to the NTS and into the distribution systems, regardless of the number of suppliers and/or end-users to which a particular producer/supplier supplies natural gas. Well, the way, the place and the moment of ownership transfer are essential issues for the functioning and stability of any market of products or services, including natural gas, throughout the legal circuit, starting with contracting and ending with the delivery of the products, from the manufacturer to the final consumer.
Regulating the transfer of ownership of PVT together with transfer title services is a solution to ensure the functional nature of the gas market.
It is equally true that Law 123/2012 – the natural gas part, must ensure the implementation of a feasible and functionally compatible market model with the EU market. In the process of rewriting the natural gas law, we must obviously take into account EU directives and regulations.
In connection with the market model, PVT and property transfer services, there is much to say, so I hope that we may have the chance of a separate approach or discussion, maybe even at a conference. I would add that it is vital how PVT and proprietary transfer title services will be regulated by the natural gas law for ensuring the functional nature of the gas market.
In addition, in order to ensure that administrative sanctions are enforceable in the event of non-compliance with the obligations imposed on system operators, system users, suppliers and consumers on natural gas transactions and related services (eg transport, storage etc.), their obligations should have as primary source legal normative acts and not administrative acts (orders, decisions etc.), and the organization of the execution of the obligations in question should be regulated by administrative acts of a normative nature.
At the same time, in Law 123/2012 – natural gas, we have regulated the rights and obligations of the natural gas producer. In fact, the natural gas producer does not participate in the natural gas market as a producer, but by the supplier. As a result, the status of the producer should be subject to the Oil Law governing the exploration, development and exploitation (production) of natural gas resources / reserves, while the gas law to regulate natural gas supply and supplier status, including those of suppliers who also have the quality of the producer.
But I stop here on the reasons that lead to the need to rewrite the natural gas law. We can develop them on another occasion.
When talking about transparency, competition and non-discrimination, it is hard to oppose the obligation of trading the entire quantity produced or supplied on the centralized markets. At the same time, we should admit that transparency, competition and non-discrimination can be also guaranteed outside the centralized markets, by trading procedures regulated at the level of each natural gas supplier or manufacturer.
The trading on the centralized markets is aimed at providing a benchmark for all natural gas transactions on that market. This is the scope and role of stimulating transactions on the centralized markets achieved by GEO 64/2016. Before imposing an obligation for the conclusion of natural gas transactions only on the centralized markets, I think that it is necessary that this solution should be carefully analysed and experimented as partial trading of the quantities, as regulated by GEO 64/2016.
Besides, the obligation to conclude natural gas transactions only on the centralized markets may only be imposed after a thorough analysis of the impact on the investments in exploration, development and exploitation. Such obligation affects the financial predictability of the manufacturers and the possibility to attract financing from the part of banking institutions or investors. Therefore, it burdens or even prevents the adoption of the decisions related to investments in the natural gas development and exploitation. Such obligation may affect or delay the developments in the Black Sea and, consequently, the viability of the ongoing investments in the natural gas transport system of Romania.
Besides, if the obligation that all natural gas transactions be concluded on the centralized markets was established, this would imply that we count on at least 180.000 users of the centralized platforms – the number of the existing non-domestic clients in Romania in 2015. Even from this perspective, the idea is entirely unfeasible.
This interview firstly appeared in the printed edition of energynomics.ro Magazine, issued in June 2017.
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