For far too many years, Romania has avoided to adopt a strategic document that would offer the energy companies and the financing institutions a clear perspective on large-scale projects or the country objectives regarding one energy field or another. We talked to Oana Mogoi, Head of Energy Sector at ING Bank Romania, about the role of the financiers in this ever-changing inconsistent context.
Mrs. Oana Mogoi, what is the share of the funding granted to the energy-utilities sector in ING Bank portfolio?
ING has a sectoral approach segmented by important industries one of which is the energy. We are looking at this sector consistently; this requires a continuous analysis of the market and the applicable regulatory framework and also translates into a substantial share of our client portfolio in this sector. Thus, ING participates proactively in the support and development of the energy sector, which is crucial to the Romanian economy and national security.
What are the most dynamic segments in the energy sector in terms of funding requests submitted to your bank?
We noticed increased dynamics in the areas that need lesser investment efforts and are not very dependent on the regulatory area. I would remind you here about the trading and supply of gas and electricity as well as the marketing of oil products. Gas and electricity transport and distribution are the steadiest as they benefit from regulated income; however, here too, there are signals about the decrease in the invested capital return. The development projects for electricity production or oil and gas exploitation capabilities are among the most affected because they require increased investment effort which should rely on a long-term vision.
At this point, we can see there is no consistent interest on the part of investors due to a low degree of transparency, predictability and stability of the legislative and tax system. What we also see is a slow market opening process, one such instance being the 11th round of bidding for granting oil concessions, which is long-overdue.
Are there initiatives on the of part of authorities (the Government, the Parliament, regulators) that, once launched, might, in your opinion, cause the banking system to become heavily involved in the energy sector? Is the energy strategy one such tool?
This being a strongly regulated sector, the authorities’ role is of major importance. Consequently, the legislative framework should be an engine that accelerates growth in this sector by providing clarity, transparency and stability as well as a balanced return on the invested capital in order to increase the investors’ trust and interests.
Thus, first, we need to make sure we rely on a long-term vision for the energy sector development. Such vision would rely on an analysis based on scenarios and impact surveys that are capable to provide a clear direction to the investors and a fair risk distribution among the parties involved. This is the only way to attract quality investors that are willing to share the same long-term vision and to participate proactively in market development. Therefore, the first ingredient of financing is a stable and predictable legislative framework, followed, naturally, by an increased interest on the investors’ part.
Their trust in the planned investments is yet another aspect the banks are considering. This is why the adoption of a final energy strategy undertaken by all the relevant players is a first step in the development of this sector; this is the foundation for the legislative framework. Legislative initiatives should provide the players with impact surveys aligned with such strategy, thus avoiding the conflicts that may arise from insufficiently substantiated initiatives.
Furthermore, the market should offer flexibility and enable investors to cut off project risks by specific instruments. For instance, I would like to bring again into question the possibility to fix income by electricity sale contracts concluded freely between the parties, without any restrictions as to their execution date and the ability to choose their respective counterparties, at their discretion, in compliance with the free market rules.
As a general rule, the slow pace of the great energy projects, such as Hidro Tarnița, the new nuclear reactors etc., is criticized by the observers of the Romanian energy sector. But there are also those who consider it will all work out for the best because the focus should be the investments in energy efficiency, rather than the new generation capabilities. What do you make of these dynamics of the investment projects in energy efficiency?
Energy efficiency is a duty we all need to undertake because it is related to the protection of resources and the creation of a sustainable economy, and this should not be treated as an impediment to large energy projects development.
The impact of energy efficiency should however be quantified when projections being made on the energy consumption so that the development of new projects may reflect the alignment of production with consumption and of energy imports with exports.
In terms of the dynamics of the energy efficiency projects, important steps were taken, but it is still too soon to about a uniform approach in creating an economy based on the restriction of resource consumption.
At present, it is safe to say we have the ability to reach the goals of carbon emission decrease. However, we should be aware that this is due primarily to a decrease in industrial consumption following the disappearance of a significant portion of the Romanian industry, and less to the energy efficiency measures. For this reason, and assuming the industry status will be maintained, the true challenge lies in reaching the future goals by consistent and significant efforts in the field of energy efficiency.
What are the most frequent reasons for the refusal of an energy project loan?
For reasons of refusal to exist, there should be projects in the market. The lack of these projects became a status quo in this sector these past years. But, assuming things were different, the main reason is the lack of sustainability of the business plan in some sensitivity scenario, this aspect being closely linked to the stability and clarity of the legislative framework. The more ambiguous this framework, the more projections need adjusting to avoid situations such as the inability to make payments on account of a decrease in the potential legislative changes, with direct impact on project cash flow.
Another reason would be an insufficient shareholder contribution in project financing as well as a perception different from the bank’s regarding the risks the projects are facing.
How could the companies prepare themselves to successfully obtain a business credit for new ventures or for upgrades?
It all goes down to a sustainable business plan that should highlight all the important aspects in the development of a project.
It is also about involving professionals from the technical to legal, financial and fiscal areas for they would provide a vision based on the hypotheses relied upon when preparing the business plan. Furthermore, the bank and the investor should share the same view on the main risk and the allotment of same between the parties involved.
At ING, is the funding of the companies in this industry thought in terms of loans and credit lines only or are there other forms of involvement (capital contribution, support in issuing corporate bonds, etc.)?
Irrespective of the funding form, what counts for ING is the sustainability, in a broad sense, of projects and initiatives aimed to reduce carbon emissions, up to the final goal of creating a self-supporting company. Concretely, in addition to bank loans, ING may support project development by issuing bonds on the local as well as external EU markets, and, in some cases, by granting quasi-equity / mezzanine loans.
ING, the most digitalized bank on the market at present, provides the companies with innovative digitalization solutions for payments and earnings through complex and performing platforms that are also very easy to use. We invest constantly in the development of these platforms in order to offer our customers with a unique experience.
There is also a possibility of partnerships in which ING promotes the services and the products of various companies on these platforms – for instance, the users of the HomeBank platform may also access various offers through ING Bazar.
This interview firstly appeared in the printed edition of energynomics.ro Magazine, issued in June 2018.
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