If market regulations suffer major changes, then obviously exposure to risk increases, Cosmin Ghiţă, CEO of Nuclearelectrica – SNN, told at the 2019 Energy Strategy Summit, an event organized by energynomics.ro.
Predictability, whether we are talking about the cause – economic policies, tax measures, legislative measures, market regulations, whether we are talking about the effect – the ability of some systems or economic entities to exploit potential development prospects at both macro and micro level, remains an essential tool in developing company and investor strategies, Ghiţă argued.
Predictability creates a set of opportunities that management evaluates and integrates into the company’s activities or, looking from a capital market perspective, opportunities that investors look at as inputs for assessing the risk of assets or financial instruments held or of interest.
Both categories try to pursue flexible strategies based on optimal risk exposure. From the perspective of SNN, a listed company, both categories become interdependent by micro-level decisions, being simultaneously subject to macro-level changes.
“I will give you the specific example of SNN: predictability means primarily stability, coherence and strategic continuity, reducing exposure to risk. Risk concerns areas as operations, production, investment, financial result, human resources. SNN is a market participant whose results largely depend on the market, price, regulations that determine a certain market and market participants behavior,” Ghita says.
The sales strategy is designed to take into account both the opportunity and the risk, the predictability mainly coming from regulations. Strategies are done in the medium and long term and are correlated with other company objectives, investments, human resources – otherwise there is a lack of continuity, and continuity is the basis of either stability or growth.
“If market regulations suffer major changes, then obviously exposure to risk increases, the targets that depend on, say, the market factor, in turn, come into a risk area associated with timely implementation. If market regulations are not correlated to regional markets, then there appears a discrimination of local market producers. And an increase in risk exposure means more expensive operating conditions and plans that are more difficult to carry out. One issue that specifically affects nuclear industry is long-term planning,” Ghita argued.
The Unit 1 project took shape in 1968 and its commissioning materialized in 1996. After 12 years, Unit 2 came into operation. “We have very long planning deadlines. Now we have started planning for the refurbishment of Unit 1, which we hope to take place between 2026 and 2028. It is very important for the major investment projects in the Romanian market to provide a regulatory framework that can allow us to plan this type of business, an interest stability, investment flow and the possibility of developing serious plans that can enable us to grow.”
Uncertainty is a major factor in the economic environment at an international level per se, but a stable, predictable economic policy is essential to growth and development.
”In the nuclear industry, its specificity being projects with a long implementation horizon, therefore an acute requirement for predictability and stability, predictability means that we can do the following in the planned time and budget: increasing the production capacity by upgrading, maintaining the high level of nuclear safety by investing planned timely and in accordance with the requirements and standards applicable to operating units, attracting and retaining qualified staff for present and future projects; ensuring the predictability of feedstock supply, analyzing diversification opportunities in consonance with core business and planning long-term actions and strengthening the horizontal industry that can be achieved only in the presence of medium and long-term orders and retaining technical capabilities (we return to the qualified staff) correlated with strengthening research and development that also needs predictability to undertake impact projects,” Ghita said.