Energy Industry Review - April 2018 by Energy Industry Review

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Focusing on quality of life

Lavinia Iancu CEO and Publisher

ealth for all has been World Health H Organization (WHO) guiding vision for more than seven decades. Itâ&#x20AC;&#x2122;s also the impetus behind the current organizationwide drive to support countries in moving towards Universal Health Coverage (UHC). Experience has illustrated, time and again, that UHC is achieved when political will is strong. In this 70th anniversary year, WHO is calling on world leaders to live up to the pledges they made when they agreed the Sustainable Development Goals in 2015, and commit to concrete steps to advance the health of all people. The Organization will maintain a high-profile focus on UHC via a series of events through 2018, starting on World Health Day, on 7 April, with global and local conversations about ways to achieve health for all. Under these auspices, corroborated with the regulations of the European Union for greening the economy, protecting the nature, health and quality of life, the energy sector has a difficult mission: reducing environmental impact. For example, on 1 January 2018, the implementation phase of Directive 2001/80/EC regulating the emissions of large combustion plants started in the Energy Community. This means that fossil fuel firing power plants have to reduce their emissions of sulphur dioxide, nitrogen oxides and dust significantly. The directive also requires that operators as well as the contracting parties monitor the emissions of these pollutants and report those to the Energy Community Secretariat. With the aim of facilitating the reporting process, the European Environment Agency has recently agreed for the Secretariat to make use of its tools for the reporting and assessment of data submitted by the contracting parties. According to the European Environment Agency 2017 report â&#x20AC;&#x201C; Air quality in Europe, the concentrations of particulate matter (PM) continued to exceed the EU limit values in large

parts of Europe in 2015. A total of 19% of the EU28 urban population was exposed to PM10 levels above the daily limit value and approximately 53% was exposed to concentrations exceeding the stricter WHO Air quality guidelines (AQG) value for PM10 in 2015. This represents an increase compared with 2014, but the magnitude of the change may be considered as being within the expected year-to-year variability. Regarding PM2.5, 7% of the urban population in the EU28 was exposed to levels above the EU limit value, and approximately 82% was exposed to concentrations exceeding the stricter WHO Air quality guidelines value for PM2.5 in 2015. Currently, Romania is in infringement procedure, triggered by the European Commission for exceeding, for several years, the limit values of harmful substances present in the air in three urban agglomerations in the country. At European Union level, as well as at the level of Romania, energy taxes are the most important source of environmental taxes. Romania is characterized by extremely high primary and final energy intensity compared to the average of the European Union (approximately four times higher). Although plans for air quality and plans for maintaining air quality for the period 20162020 were initiated, they were not completed last year. Following the audit conducted by the auditors of the Court of Auditors, it resulted that many analysers in monitoring stations have been defective for long periods of time and many of the interior and exterior public information panels, which were supposed to show the general daily air quality indices, are rather non-functional than functional, and the funds allocated for equipment maintenance were insufficient. The question is: is there in Romania a strong political will to align to the global trend on ensuring the quality standards of life? We are waiting for the following decisions and measures of government officials to prove it. 3

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contri bÂu tors Dumitru Chisalita

Content 34

The Romanian Ministry of Energy, as competent authority for energy infrastructure projects of common interest, issued on 21 March the comprehensive decision on BRUA gas pipeline.

Judicial Technical Expert in Oil & Gas

LUKOIL opens the public dialogue window in Romania Within the first edition of the series of public dialogues planned by the company, Gleb Ovsyannikov, Public Affairs Director of LUKOIL Group, presented the social responsibility actions currently carried out by the company globally and regionally, as well as its plans for the future.

page 18

Daniel Vlasceanu Partner at Vlasceanu, Ene & Partners

Whatâ&#x20AC;&#x2122;s next for the BRUA project

BVB best Oil and Gas performers in 2017

page 20 With profits totalling over RON 5 billion and an aggregate turnover of over RON 45 billion, the seven companies making up the oil and gas industry on the Bucharest Stock Exchange (BVB) mark, at sector level, another year of growth.

Ioan-Corneliu Dinu Scientific Counsellor at World Energy Council Romanian National Committee

page 22

Lavinia Tanase Energy Research Associate at Florence School of Regulation, European University Institute page 24

Eugenia Gusilov Director & Founder at Romania Energy Center page 82 4

Bouygues Construction and Colas to acquire InTec and the Kraftanlagen Group Alpiq has signed an agreement with Bouygues Construction on the sale of the Engineering Services business, which comprises InTec and the Kraftanlagen Group, for CHF 850 million.

Romanian mining revives - From the black hole of the economy to profit The mines closed one by one by the Romanian state, as owner, are starting to be reopened by foreign companies. Pulled out of bankruptcy, they are put to work again using the latest technologies.

Almost 8 years of successful operations performance in Romania

Alin Dumitrescu, Country Manager NA Solid Petroserve, talks about the future of the business in Romania and in the European region.

78 EUR 2.7bn to create the markets of the future The European Commission announced it will spend EUR 30 billion of the EU research and innovation funding programme Horizon 2020 during 2018-2020.

First professional training center for Smart Cities in Romania The program offers those interested, partners or end-users, the possibility to specialize in several stages, in line with the current market requirements. 5

NEWS

MODERNIZATION OF GAS INFRASTRUCTURE AT DEPOMURES STORAGE FACILITY COMPLETED

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he Romanian Ministry of Energy, as competent authority for energy infrastructure projects of common interest, has announced the completion of an investment in the gas pipeline network related to Depomures gas storage facility, in Targu Mures. The investment, worth RON 8.9mln, was carried out by Depomures and is part of the projects of common interest approved by the European Commission. The construction permit was issued by the Romanian Ministry of Energy in September last year. This pipeline was designed for both gas injection in Depomures storage facility and for gas extraction and its delivery into the national gas transmission

system. “Although it seems a local project, it is extremely important for the entire national gas transmission system. This investment, completed and already operational, replaced an infrastructure more than 30-year-old. Often, during periods with peak consumption, there were situations in which gas stored there couldn’t be extracted and did not support to the full capacity the national transmission system. Through this investment, we eliminated these vulnerabilities in terms of gas supply in periods with high demand,” Energy Minister Anton Anton said. The new pipeline has a length of over 3 kilometres and is designed to ensure a pressure of 100 bar. Depomures gas storage facility has a capacity of 300 million cubic metres.

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NEWS

DISCUSSIONS ON SOUTHERN ROUTE FOR RUSSIAN GAS SUPPLIES TO EUROPE

working meeting between Alexey Miller, Chairman of the Gazprom Management Committee, and Pasquale Terracciano, Ambassador of the Italian Republic to the Russian Federation, took place in Moscow on March 20. The parties discussed the state and prospects of bilateral cooperation. It was noted that Gazprom had been a reliable supplier of gas to Italy for several decades. The Italian Republic is currently the thirdlargest importer of Russian gas. According to preliminary data, Russia’s gas exports to Italy grew by 99 per cent in March 1–19, 2018, compared to the same period of last year. Particular attention at the meeting was paid to the diversification of gas export

routes from Russia to Europe. The parties reviewed the ongoing efforts to establish a southern supply route stretching across the Black Sea. Alexey Miller informed Pasquale Terracciano of the completion of over 50 per cent of the offshore section of the TurkStream gas pipeline. It was highlighted that the second string of the pipeline would provide European consumers with 15.75 billion cubic meters of gas annually. In 2017, a total of 23.8 billion cubic meters of Russian gas was delivered to Italy. Gazprom’s main partners in the Italian market are Eni and Edison. On March 21, 2017, Gazprom and Eni signed a Memorandum of Understanding to develop the southern corridor for gas

supplies to European countries, including Italy. On June 2, 2017, Gazprom, Edison, and DEPA inked the Cooperation Agreement aimed at establishing a southern route for Russian gas supplies from Russia to Europe, which would run across Turkey to Greece and further to Italy. TurkStream is the project for an export gas pipeline stretching across the Black Sea from Russia to Turkey and further to Turkey’s border with neighbouring countries. The first string of the pipeline is intended for Turkish consumers, while the second string will deliver gas to Europe. Construction of TurkStream’s offshore section commenced on May 7, 2017.

IEA TO PARTNER WITH ISA FOR A GLOBAL SUSTAINABLE DEVELOPMENT

n the occasion of the founding conference of the International Solar Alliance (ISA) in New Delhi on 11 March, analysis from the International Energy Agency (IEA) demonstrates that the ISA’s vision to mobilize more than USD 1,000 billion of investment by 2030 for the deployment of solar energy at affordable costs is ambitious yet achievable. The IEA’s market forecasts show that if all eligible countries join the Alliance, then the cumulative installed solar capacity in ISA countries could surpass 8

700 GW by 2022, which is more than 80% of global solar capacity by that time, and almost double current capacity. This achievement would be a critical step in aligning global solar deployment with the IEA’s Sustainable Development Scenario (SDS) targets. In the view of the IEA, the ISA can play a particularly important role in further accelerating deployment and reducing costs of solar in developing countries, where investment risks remain one of the main barriers. Moreover, ISA can be crucial in accelerating energy access, with

potential positive impacts improving the quality of life of hundreds of millions of people. The IEA commends the objectives of the ISA to create aggregated demand for solar PV and mitigate investment risk. Financial risk management approaches are most effective when they are complemented by transparent and sound regulatory and policy frameworks for investment. The IEA strongly supports any plans to provide clarity to regulatory issues, promote common standards, attract investment and develop innovative financing models. energyindustryreview.com

NEWS

ATLAS COPCO AWARD FOR AN INNOVATIVE DRY PUMP

his year the prestigious John Munck Award recognizes the development of an innovative dry pump. The pump is used in the semiconductor manufacturing process and improves service life and reliability. The John Munck Award for technical innovations is this year presented to Paul Neller, Andy Mann, Phil North, Dave Manson, Brian Murphy, Allen Park and Jonathan Youn, who work in the Semiconductor division in Atlas Copco’s Vacuum Technique business area. They are presented the award for developing the iXM dry pump. The pump, used in the semiconductor manufacturing process, improves service life and reliability and is smaller, more

silent and more energy efficient than its competitors. “The team has developed a product with a high level of technology and innovation that will help our customers. They have shown such commitment and I am happy to present them the award,” said Mats Rahmström, Atlas Copco’s President and CEO. The vacuum pump was developed in South Korea, where a large part of the world’s semiconductors is manufactured. The John Munck Award, established in 1991, is presented each year to a product developer, designer or a team for outstanding contributions to the overall quality of an Atlas Copco product. The award will be presented to the winners at the Annual General Meeting on April 24, 2018. 9

NEWS

ITRON SMART METERS TO HELP ROMANIAN UTILITY TO ADDRESS WATER LOSS

tron, a world-leading technology and services company dedicated to the resourceful use of energy and water, announced on March 14th that the Romanian water utility, CUP Dunarea Braila, will install nearly 30,000 Itron Flodis/Flostar M water meters equipped with radio modules to address water loss. CUP Dunarea Braila is the regional water and wastewater operator in south-eastern Romania, which serves more than 280,000 people in 104 towns. To modernize the current water infrastructure, the utility has decided to install Itron’s Flodis/Flostar M meter

equipped with smart radio modules to replace the utility’s lower precision meters. With the support of local Itron partner Vestra (Elsaco Group), these meters will be deployed for residential, commercial and industrial customers. Mobile data collection allows the utility to reduce meter reading time and cost and avoid manual reading mistakes. Smart meters store and transmit enhanced, advanced data. The utility can use this precise information and data analysis to monitor water usage, reduce water loss, detect fraud and optimize water network efficiency. “This project will enable us to improve water delivery to our customers. These meters

will help reduce water losses due to leaks or measurement inaccuracies by providing accurate water usage data,” said Silviu Mangiurea, General Manager of CUP Dunarea Braila. “We are pleased to work with Itron to update our infrastructure with technology to improve our operational performance and customer service.” “Designed to provide accurate readings in tough conditions, the Flodis/Flostar M water meter will equip CUP Dunarea Braila to accurately measure water consumption and optimize reading processes,” said Mathias Martin, Itron Vice-president of sales, EMEA. “We are confident in the proven success of these meters, with millions in service around the world.”

ABB TO ENABLE EXPANSION OF SOLAR PARK IN DUBAI

BB has won an order worth more than USD 90 million from Dubai Electricity and Water Authority (DEWA), the leading power utility in United Arab Emirates (UAE), to build the Shams 400 kV substation that will integrate solar power from upcoming phases of the Mohammed bin Rashid Al Maktoum solar park into the city’s electrical grid. This will be ABB’s second substation for the park, exemplifying the company’s commitment to deliver reliable power to consumers and serve the building and infrastructure sector alongside utility and industry customers. 10

The Mohammed bin Rashid Al Maktoum solar park, located inland 50 km south of Dubai, has been a central part of Dubai’s renewable strategy. When completed in 2030, the park will occupy 214 square km, generate 5,000 MW and reduce carbon emissions by approximately 6.5 million tons. ABB is responsible for the design, supply, and installation and commissioning of the Shams 400/132 kV substation, which once completed, will have an overall capacity of more than 2,000 megavolt amperes (MVA). When Phase-3 of the project is finished in 2020, which is the same year that Dubai will host Expo 2020, the total

solar power generated through Solar Photovoltaic will exceed 1,000 MW, and significantly lower carbon emissions. The ABB substation includes supply of 400 and 132 kV gas-insulated switchgear, power transformers, protection, automation and control systems as well as surveillance and communication systems. The substation will also be IEC 61850 enabled, to support open and seamless communication with all intelligent devices. In 2017, ABB delivered its first substation connecting the second phase of the MBR Solar Park and integrating 200 megawatts (MW) of electricity to the transmission grid. energyindustryreview.com

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NEWS

MOL-JSR SYNTHETIC RUBBER PLANT CONSTRUCTION COMPLETED

OL Group and Japan Synthetic Rubber Corporation (JSR) announced on March 19 the inauguration of their synthetic rubber plant (S-SBR) in Tiszaújváros, Hungary. The plant employs cutting edge technology and will manufacture annually 60,000 tons of synthetic rubber creating more than 100 new jobs. The new unit will produce 60,000 tons of solution polymerization styrenebutadiene rubber (S-SBR), a highly sought after chemical product globally. The most important feedstock of S-SBR is butadiene, which is produced by MOL at an adjacent plant commissioned in 2015. Featuring a characteristic molecular structure, S-SBR is highly valued

worldwide as a raw material of a fuelefficient tire known as an ‘eco-friendly tire’, due to its excellent industry-leading properties suited to fuel-efficient tires and wet grip performance. MOL and JSR Corporation reached an agreement in 2013 to establish a joint venture with 51% held by JSR and 49% by MOL. The construction of the plant started in 2015. “MOL has further extended its petrochemical value chain with one of the world’s most innovative product. We are proud that year after year MOL is able to produce more specialized and more profitable products. There is a lot of work ahead of us, but we are well on track to reach our strategic goal and become a leading chemical company in Central Eastern Europe by 2030,” Zsolt

Hernádi, Chairman-CEO of MOL Group, affirmed. One of the cornerstones of MOL Group 2030 - Enter Tomorrow strategy is to expand the company’s petrochemicals value chain and produce more valuable products used in the automotive industry, as well as for packaging, construction and electronics. As such the company plans to invest around USD 4.5 billion until the end of the next decade into petrochemical and chemical growth projects. Prime Minister of Hungary Viktor Orbán, Zsolt Hernádi, ChairmanCEO of MOL Group, and Koichi Kawasaki, Executive Managing Officer, JSR Corporation, have inaugurated the synthetic rubber plant of the two companies.

JOINT OFFSHORE DIGITALISATION

n integrated operations support centre and a drilling operations centre will help reach Statoil’s ambition of increasing value creation from operated fields in Norway. The investment in these new centres will be more than 2 billion USD from 2020 to 2025 before tax. Established in Bergen, the centres will be connected stepwise to all Statoil installations on the Norwegian continental shelf (NCS), starting this year. “The possibilities provided by digitalisation will change our industry and 12

the way we work and create higher value for us and society. The centres are good examples of how we keep applying digital technology to work smarter, safer and more efficiently,” stated Statoil’s Chief Operating Officer (COO) Jannicke Nilsson. Up to 2020, Statoil plans to invest in the range of 1-2 billion kroner in digital technology to create higher value and improve operations. The two new centres will help improve production efficiency and production potential on the NCS. In December, Statoil also opened an operations support centre in

the USA, that is currently monitoring the company’s over 1100 onshore wells. “Digital technology contributes to continuous operational improvements on our existing fields. In new field developments oil and gas production will to an increasing extent be carried out from unmanned, robotised, standardised and remote-controlled installations. Many operations will be carried out by fewer risk-exposed working situations. We will be able to control the maintenance work in a better way and improve safety and operational quality,” Jannicke Nilsson added. energyindustryreview.com

NEWS

PURCHASE AND SALE CONTRACT BETWEEN TRANSGAZ AND VESTMOLDTRANSGAZ CONCLUDED

n March 28, in the presence of the Minister of Economy of the Republic of Moldova Chiril Gaburici, and the Minister of Economy of Romania Danut Andrusca, Transgaz’ Director General Ion Sterian, the representatives of Eurotransgaz Ltd. and of the Chisinau authorities signed the contract for the sale-purchase of the State Enterprise Vestmoldtransgaz. Together with the delegates of the companies and of the institutions involved in the transaction, Ambassador of Romania to the Republic of Moldova Daniel Ionita, employees of the Ministry of Economy and Infrastructure and of the Public Property Agency of the Republic of Moldova as well as representatives of Tuca, Zbarcea & Asociatii and of the Romanian Commercial Bank Chisinau, who provided assistance for the preparation and conclusion of the contract, attended the ceremony held at the Ministry of

Economy and Infrastructure of the Republic of Moldova. The event marks the end of a stage in the privatization process of SE Vestmoldtransgaz through an investment contest and outlines one of the most significant transactions recently made by the Government of the Republic of Moldova, for a purchase price of Moldovan lei 180,200,000 and an investment plan of up to EUR 93,000,000 over the next two years. On the occasion of the contract conclusion, the Romanian Minister of Economy Danut Andrusca underlined that “Transgaz has asserted its place and role in the portfolio of the Ministry of Economy. As of today, the company has turned into a regional economic player. The investment will create new jobs, added value and will increase the energy security of both countries. It is a long-term binding and tangible contribution to the diversification of gas supply sources and routes to the Republic of Moldova.” 13

NEWS

AKKUYU NUCLEAR DESIGNATED STRATEGIC INVESTOR IN TURKEY

renewed ‘Strategic Investment’ certificate was issued to JSC Akkuyu Nuclear following the company’s submission of an application to Turkey’s Ministry of Economy. The certificate was issued on the basis of the Law on “On amendments to the law on taxation, certain laws and regulations in the status of law”, which came into force on 27 March 2018 after being approved by the Turkish parliament, the Mejlis. “JSC Akkuyu Nuclear’s preferential status will positively affect the overall economic efficiency of the project, which in turn will contribute to the growth of the company’s attractiveness for Turkish and international investors,” said JSC Rusatom Energo International (REIN) CEO Anastasia Zoteeva. Russia and Turkey signed an intergovernmental cooperation

agreement on the construction and operation of Turkey’s first nuclear power plant in 2010. Built on the Akkuyu site in Mersin province in southern Turkey, the Akkuyu NPP meets the latest safety and efficiency requirements in the global nuclear industry with its Generation III+ design featuring four Russian VVER1200 reactors. Each of the NPP’s power units will have a capacity of 1200 MW. The total cost of the project is estimated at USD 20 billion. The Akkuyu Nuclear Power Plant is the world’s first nuclear power plant project implemented on this coinvestment model, maintaining that project company Akkuyu Nuclear JSC is not only responsible for safety during the construction and operation of the nuclear power plant, but is also invested first-hand in the economic efficiency of the future station as its owner and

the operating organisation. According to intergovernmental cooperation agreement, the commissioning of the first power unit should take place no later than 7 years after the issuance of all construction permits by the Republic of Turkey. The NPP project is currently being funded by the Russian side. According to the agreement, at least 51% of shares in the finished project should belong to Russian companies and up to 49% of shares can be available for sale to outside investors. Negotiations with potential investors continues. REIN is a ROSATOM subsidiary established in 2011 to promote Russian nuclear technologies on the global market. Since May 2015, the company specialises in managing foreign nuclear power plants construction and operation projects on the basis of project companies.

OMV’S EXPLORATION SUCCESS IN NORWAY

MV Norge recently announced an ‘exploration success’ at well 6506/11-10 located offshore Norway. “This is our second exploration success as operator following the Wisting discovery, and the first HPHT exploration well we have drilled on the Norwegian Continental Shelf,” Knut Mauseth, Managing Director of OMV (Norge) AS said. The preliminary result is based on data gathered from both reservoir intervals and indicates a discovery size for Hades of 20 to 115mn 14

recoverable boe, and for Iris an estimated discovery size of 20 to 130mn recoverable boe. “I am extremely pleased with the well result and this is a testament to our drilling competency and exploration capability within OMV. Hades and Iris could be of significant size and the licensees will evaluate and further investigate the potential of the discoveries,” Knut Mauseth. The exploration well is located in the Norwegian Sea, close to the existing infrastructure of the producing Morvin field and the Åsgard field, 244 km northwest of Kristiansund. The water

depth in the area is 342 meters. The license was awarded in connection with APA 2015 (APA – ‘Awards in Predefined Areas’). The well 6506/11-10 is the first well in PL 644 B. “The Hades and Iris exploration discovery well is very pleasing and is the result of excellent geosciences work,” Gary Ingram, Vice President Exploration of OMV, underlined. The Hades and Iris exploration well has been drilled with an excellent HSSE performance by the semisubmersible drilling rig Deepsea Bergen. energyindustryreview.com

NEWS

ROMANIAN OIL & GAS TAXATION INCREASED TO 17.4%

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he Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) bring in the attention of the public opinion the results of a study analysing the development of effective taxation applied to oil and gas industry in Romania. The study made by Deloitte Romania reveals the fact that the average taxation of the industry - royalties level and similar taxes (supplementary tax on income as a result of liberalization of the natural gas prices, special construction tax, tax on crude) has increased in the period 20142016 from 15% to 17.5%. Starting with 2017, due to the elimination of the special construction tax, the average effective taxation decreased to 13.9% in Romania. The trend is contradictory to that of many European states where the effective average rate decreased as a response to the decrease of the oil and natural gas prices that affects the industry in the past years.

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“This study contributes to correct information and clarification on the royalty regime at a European level in a time when false, incorrect information is circulated in the public space, contravening with regards to the development of major investment projects in the oil and gas industry that benefit the Romanian economy,” stated Harald Kraft (photo), ROPEPCA President. Deloitte analysis was performed on data from public sources and shows that the average effective rate of royalties and similar taxes decreased in 2016 compared with 2015 in 9 European countries: UK, Norway, Denmark, Hungary, Ireland, German, Spain, Italy and Albania. Another conclusion of this study is that the effective tax rate determined gas upstream activity in Romania has a much higher value than that of oil production, the difference mainly resulting from the supplementary tax applicable to natural gas.

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NEWS

ANTONIA, THE FIRST VIRTUAL CIVIL SERVANT IN ROMANIA

he city of Cluj-Napoca, one of the top smart centres of Romania, sets the tone in terms of the use of robots in the service of the community. Thus, Antonia, the first virtual civil servant in Romania, will be operational from mid-April within the City Hall. It will initially have to redirect the citizens’ online requests, according to the type of application ticked and, in the course of time, to provide support to citizens, 24 hours a day, in their interaction with the City Hall. On the occasion of the event dedicated to the advanced technologies ‘Trends and Trendsetters in Deep Tech, Entrepreneurship and Policies’, part of the Start-up Europe Week, Mayor Emil

Boc made the announcement. Along with the topics approached, on innovation, progress of technology and society in the new digital era, he announced the development project of the first virtual civil servant in Romania. The robot was named Antonia, inspired by the alreadyknown global model - Sophia, the first robot in the world to receive citizenship (in Saudi Arabia). The project team is coordinated by the Computerization Strategies Service alongside the Citizens Information Centre. So far, Cluj-Napoca City Hall has implemented 47 procedures and applications that can be included in the concept of Cluj-Napoca Smart City. “Thus, the work of other civil servants is reduced, by instantly redistributing to the corresponding service the application filled

by the citizen, simplifying more and more processes and the interaction of Cluj citizens and visitors with the City Hall,” Emil Boc believes. For now, the virtual civil servant is in tests and will be available from April 15. “Last but not least, the key component is what specialists call ‘machine learning’ and beyond, artificial intelligence. There are concepts that we have to seriously consider with the Cluj-based IT community and see together the best solutions for increasing the quality of life through technology,” the Mayor of the city also mentioned. The Cluj-Napoca City Hall will soon launch a new digital city portal, which aims to improve communication between the citizen and the public institution, as well as to eliminate bureaucracy.

STATOIL ENTERS OFFSHORE WIND IN POLAND

tatoil has signed an agreement with Polenergia to acquire a 50% interest in the twoearly phase offshore wind development projects in Poland. The two projects - Bałtyk Środkowy III (BSIII) and Bałtyk Środkowy II (BSII) have a planned capacity of 1200 MW with the potential to power more than 2 million Polish households. Statoil is also entering into a 50/50 joint venture with Polenergia to further mature these projects with Statoil being the Manager for the development, construction and operational phases. “We are very pleased to have entered into a partnership with Polenergia, which 16

is an experienced energy company with a growing renewable portfolio and in-depth knowledge of the Polish electricity market. Statoil has an ambition to grow significantly within renewable energy investing up to EUR 10 billion in profitable renewable energy towards 2030. This acquisition strengthens our presence in the Baltic Sea area giving opportunities for scale and synergies in a longer perspective,” stated Irene Rummelhoff, Executive Vice President of New Energy Solutions in Statoil. The Bałtyk Środkowy II and III wind farm areas are located in the Baltic Sea approximately 27 and 40 kilometres from the port of Łeba in water depths of 20-40

metres. Statoil is already developing the Arkona offshore windfarm together with E.ON in the German part of the Baltic Sea. The company is also operating three offshore wind farms off the UK coast. Offshore wind already has a strong foothold in Europe with over 15 GW installed capacity, with a potential to reach between 50 and 70 GW by 2030. Polish Baltic Sea has a potential in excess of 8 GW, where the first 4 GW could be in operation by 2030. The closing of the transactions with Polenergia is subject to consent of the President of the Office of Competition and Consumer Protection in Poland. energyindustryreview.com

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OPINION

WHY BRUA PROJECT IS SO IMPORTANT Dumitru Chisalita – Judicial Technical Expert in Oil & Gas

ver the past few weeks, a true hysteria has sparked regarding BRUA project, the gas pipeline that should carry the gas from the Black Sea, proving once again that we are able to open a debate in the natural gas sector only when a scandal breaks out. The difference between debate and scandal is that, following the scandal, to a large extent, the projects have stopped. The numerous examples in the recent years in all activity sectors validate the statements made here. The lack of facile and appropriate communication, based on permanent transparency and not only when, in order to approve a project, it is necessary to hold a public debate, determines us not to learn anything from the lessons recently experienced by Romanians first-hand and especially at their expense. When BRUA project was started, from our positions, we showed that in Romania the development of a STAR transmission system prevents major vulnerabilities of a project dedicated to a single transmission corridor. We showed at the time that this type of construction (a single dedicated transmission route) has proven its vulnerability through the ‘economic blackmail’ that those from one end or the other of the pipeline can exercise on the transmission activity, thus being able to impose their conditions or even bankrupt the transmission activity. It is known how a company, controlling an entire market through the customer portfolio held, to which gas was intended, in order to obtain more advantageous commercial clauses, has blocked for almost two years the functioning of the transmission system Blue Stream, after its completion, causing huge losses for the transmission 18

operator. Owners of gas sources that were to be transported through Nabucco were those who decisively contributed to stopping the huge European project Nabucco. This behaviour determined me in 2012 to claim that Romania had to commit in a STAR project, allowing it to carry gas to various foreign transmission directions and from various foreign transmission areas, thus avoiding the possibility that one party could block a project at a certain point, during construction or at any time during the functioning of the project started. Unfortunately, we are in such a situation. Today, in BRUA project there are procurement contracts for services and equipment signed for the construction of the pipeline, there are loans hired, there are other sources attracted, and stepping back would mean being in a similar situation as that with the Brasov – Comarnic highway, meaning without a gas transmission pipeline and with the money spent. This situation would throw the gas system in Romania at the verge of despair. Blocking BRUA project will not affect gas producers in the Black Sea, but rather the Romanian gas consumers. The gas transmission system in Romania was continuously neglected in terms of re-engineering and it permanently operates in a phase of pre-failure. With over 70% of the pipelines and equipment morally and physically worn out, with an increased failure to adapt to the current consumption requirements, with an annual repair plan below 20% of the scheduled repairs (not the repairs that would be necessary to be realized immediately), with tariffs loaded with costs due to past failed projects, if all the costs involved by stopping BRUA project were to burn this transmission system, without any prospect for new revenues, this would bring us in a serious energyindustryreview.com

OPINION

situation. Failure to complete BRUA project is a higher danger for Romania than its implementation for Russia. Thus, today I am in the situation of supporting this project, but only with a massive change of the strategy for the development of the gas transmission system in Romania, pragmatic and based on realities, with a detailed and real analysis of vulnerabilities, with the full elimination of pride dominating the present and with a continuous and professional communication with the internal and external environment. In this context, it is necessary to clarify the various questions that have emerged lately and focus our analyses and public debates, so necessary, to the areas that are truly important: the development of national transmission systems able to meet consumption demand, focusing on activity efficiency, diminishing the costs and reducing the transmission tariffs, increasing safety in system operation etc. We need to admit that Hungary plays smart a strategy started since 2000, that it knew to pursue and adapt depending on times, but without losing its target: the diversification of gas sources and an important regional role in the gas market. The excellent energy diplomacy of Hungary, doubled by an excellent ability in communication continue the ‘game’, also relying on how the ‘debate’ of the project evolves in Romania. This perspective is important to be debated and not the issue of ‘selling Romanian gas to Hungary’. How would the situation of Romanians change if gas was sold to Austria, Slovakia, Ukraine etc.? The construction of transmission pipelines is preceded by a number of commercial actions to determine the interest of potential customers, and to validate the feasibility of the project with the purpose, at least theoretically, not to load the cost at the level of other consumers (in this case the Romanian consumers). Thus, auctioning the capacity on entry/exit points in a transmission system is a normal practice, carried out in several stages. The transmission capacity represents the maximum gas amount tradable that a pipeline has the possibility to carry, respectively the maximum gas amount that can be introduced at an entry point in the transmission system and the maximum gas amount that can be extracted at the exit point from the gas transmission pipeline. The transmission capacity is contracted by the gas shipper, which does not have to be the owner of the gas that it carries. At the same time, the practice recommends, in order to avoid the hoarding (blocking other players on the gas market), that a shipper who does not use the capacity booked to lose it, the transmission company being forced to put it again for auction for other shippers. In December 2017, Transgaz organized such an auction for binding transmission capacity booking in Csanadpalota point, and in February 2018 an auction was held for booking non-binding transmission capacity in Tuzla point (the point of takeover of amounts of gas from the fields exploited in the Black Sea).

I would make some comments on the organization of both auctions. • In my opinion, more stringent elements could have been introduced in the auction documentation on the existence of non-binding prior agreements that shippers should have with the owners of gas sources and/or customer portfolios, for the contractual period, which perhaps would have determined more fierce competition in the auction. At the same time, it should be mentioned that in the auction procedure organized by TRANSGAZ winners of the auction for capacity booking must make proof within a certain period of time of contracting the gas to be transported by the pipeline. • The absence from the capacity booking contract, concluded between the winning companies and Transgaz of the ‘use or lose’ clause, which can prevent the same monopolistic situation as the one in which Romania is until 2030 in Isaccea and Mediesu Aurit points for gas coming from Russia. Thus, it is important to establish that currently the two Hungarian companies that won the auction won a right, to use the Csanadpalota transmission point, in order to carry amounts of gas both from Romania to Hungary and from Hungary to Romania, for a period of 25 years, without having documents attesting agreements on owning the future amounts to be transported through this point from Romania to Hungary and the vice versa. The immediate future of this action can lead to several of the following potential scenarios: • terminating the capacity booking contracts concluded, in the event of failure to contract the gas amounts by the companies that won the auction; • terminating the capacity booking contracts concluded following the negative economic analysis that Transgaz will conduct in 2019 at the latest; • assigning the rights by the companies that won the right to use the capacity booked to third parties (e.g. companies that own gas resources in the Black Sea); • conclusion of gas acquisition contracts between the companies that contracted the transmission capacity and the companies that have gas resources (e.g. companies that own gas resources in the Black Sea); • refocus on the companies that own gas in the Black Sea to other transmission routes and markets. In my opinion, however it is much more important to analyse how Romania will be influenced in the long run by the current actions: • rewriting the energy map of Europe; • reducing the degree of energy security; • increasing the degree of vulnerability of consumers; • the prefiguration of a captivity in terms of energy. 19

OPINION

More changes to the construction legal framework Daniel Vlasceanu – Partner at Vlasceanu, Ene & Partners

The current period is characterized by several important enactments and proposals for normative acts regulating the construction sector. We would like to discuss only two of such acts that already entered into force/were released for public consultation in the last weeks. PROPOSAL FOR AMENDMENT OF THE APPLICATION NORMS TO THE CONSTRUCTION LAW In March 2018, the Ministry of Regional Development released for public consultation a draft order (the ‘Draft Order’) for amending the Application Norms (the ‘Application Norms’) of Law no 50/1991 regarding construction authorization. The purpose of the Draft Order resides primarily in the correlation of the Application Norms with other normative acts relevant to the construction sector (e.g. Law no 50/1991 regarding construction authorization and Law no 350/2001 on urbanism). However, several changes do worth a closer consideration as their implications point out the direction preferred by the current legislator: Authorizing’ constructions erected without a permit There are plenty of situations when existing constructions lack the construction permit, especially if they were built by state authorities during communist times (e.g. pipelines, wells, industrial parks, hospitals, public institutions etc). As such, there had to be a procedure to address these cases. The Application 20

Norms currently contain (under Article 59) the so-called ‘reenter into legality’ procedure which is applicable to constructions erected without permit. It requires to perform a technical expertise and obtain an environmental permit in order to bring such constructions into legality. At the same time, Article 5 under the 2010 Methodology for the evaluation of the environmental impact sets forth that the evaluation of the environmental impact cannot be made after a project was completed. Since the Application Norms refer specifically to completed constructions, it renders that Article 59 of the Application Norms is clearly contradicting Article 5 of the Methodology for the evaluation of environmental impact. If adopted, the Draft Order would remove such contradiction as it proposes to have the ‘re-enter into legality’ procedure applied only to constructions that do not require an environmental permit (point 49 of the Draft Order). Urbanism certificate At the moment, Article 30 of the Application Norms uses a rather unclear language describing when the urbanism certificate is required. In practice, the authorities always ask for an urbanism energyindustryreview.com

OPINION

certificate. The proposed language under Point 30 of the Draft Order clarifies this aspect and stating that obtaining an urbanism certificate is always mandatory condition for starting the construction/ demolishment permitting. Deadlines There are numerous examples of major projects delayed due to lack of proper response from the authorities. Along the same line, the Draft Order intends to induce a clearer disciple regarding response time of the authorities (e.g. verification of the documentation for urbanism certificate must be performed within 10 days – as per the proposed amendment of Article 10 under the Draft Order). Enabling the implementation of online consultation techniques We salute the legislator’s intention to introduce online consultation of the registry of all urbanism certificates (point 34 of the Draft Order) as well as the obligation to publish on the authority’s website the restrictions of the urbanism documentations in place (point 36 of the Draft Order). It would be a step closer to normality towards bringing the public administration into the modern days.

NEW REGULATION FOR LAND REMOVAL FROM AGRICULTURAL CIRCUIT On 28 February 2018, the Ministry of Agriculture issued Order no 83/2018 approving the Regulation for land removal from agricultural circuit. Such a regulation is extremely important for energy operators as most of them operate/facilities objectives located extramuros (Romanian: extravilan). Just to state a matter of principle, the obligation to remove the land from agricultural circuit is provided under the urbanism certificate (and the decision approving such removal has be included subsequently in the documentation necessary for obtaining the building permit).

Relevant changes (compared to the previous framework): • The obligation of the authority issuing the decision for land removal from agricultural circuit to obtain the endorsement of the competent Land Registry Office (‘LRO’) was repealed. • For areas smaller than one hectare (i.e. 10,000 sq. m), the term for issuing the decision for removal from agricultural circuit was extended from maximum 20 working days to 30 working days (as of receipt of the complete documentation - Article 7 of the Order). • For areas between 2-100 ha the decision for land removal must be issued based on the endorsement of the Ministry of Agriculture. It has to be issued within five working days after receiving the Ministry’s endorsement, yet there is no maximum deadline for the Ministry’s endorsement... • For areas larger than 100 ha, same as before, the Government must issue the decision for removal from agricultural circuit. However, the necessary consents have been reduced (now only the Ministry of Agriculture’s consent is sufficient).

FINAL CONSIDERATIONS Judging by the numerous legal initiatives observed in the first three months of this year (including a proposal to amend the Law no 50/1991 regarding construction authorization), one may reasonably state that the construction sector undergoes a sparkling legislative period. We salute the legislator’s intention to correlate the relevant normative acts as well as to impose a stricter disciple regarding the authorities’ reaction time. At the same time, we can only hope that the legal framework to be put in place will enable practical solutions and not facilitate more problems (as we have signalled in our comment published in the February 2018 edition when analysing the proposed amendments to Law no 50/1991).

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OPINION

NATURAL GAS, RANKING SECOND IN THE ENERGY MIX Ioan-Corneliu Dinu â&#x20AC;&#x201C; Scientific Counsellor at World Energy Council Romanian National Committee

t is well known that until 2035, according to I science-based forecasts of studies and analyses of specialists in the gas industry and not only, natural gas will rank second in the global energy mix. Therefore, the global demand for natural gas will obviously increase in the following 15 years much faster than necessary, as well as demand for fossil fuels, such as coal, wood etc. The various support schemes will encourage all gas developments, given the energy flexibility of natural gas that can be used in various contexts, replacing fossil fuels with major emissions during direct combustion. Natural gas was the answer to the European Unionâ&#x20AC;&#x2122;s 2013 crisis, when commodity prices were permanently resettled, prices dictated by markets and the correspondent exchanges, all of which keep a fair balance. From the discoveries of new fields in 2010, one of natural gas in Israel and others of oil in the perimeter of the so-called New Persian Gulf (the area between Greece, Turkey, Israel, Syria and Lebanon), both the respective markets and exchanges realized and supported a steady balance. Examples of hydrocarbon resources revival show that the nations themselves, the large oil and gas producers, make efforts to fall within the matrix of raw materials prices in the rigid circle of trade dictated by balance 22

between supply and demand, between producers and buyers, the two entities that usually share the same boat. Turning back to the political and financial crisis of the European Union and focusing on energy, the current situation could be characterized as a path to a truly economic conception, to energy security provided by what we call the geopolitical umbrella, all these being defined as a harmonious collection of regulations and norms. It is expected that one of the important missions - the decarbonization of the atmosphere - will be accomplished by this clean hydrocarbon, natural gas. It is more than axiomatic that this raw material natural gas - is usually bought by economic operators and more rarely by public institutions to which gas comes through organized distribution. In parallel, consumer safety is pursued as a key point, safety as an implicit guaranteeing function for producers. From the intersection of these commands, the surname of natural gas as one of the fuels of the future appears very justified. Letâ&#x20AC;&#x2122;s not forget that some authorized specialists in the gas sector and engine manufacturing specialists claim that propulsion using natural gas represents the future on two interrelated paths that determine each other, cutting costs and reducing emissions. The truth exposed is recognized and disseminated in energyindustryreview.com

OPINION

scientific environments, which in turn develop in two directions, which cannot be overlooked, such as the international directives on anti-pollution, directives accepted by the vast majority of countries, on the one hand, and the agreement and technical availability of automotive engineers on the other hand. It’s about promoting technological innovation for the implementation of natural gas autonomy for full propulsion, either in absolute or in liquefied form etc. At the same time, we shouldn’t forget one of the most revolutionary technologies, emerged after a high-level scientific and technical research, that of conversion of carbonic anhydride into natural gas using solar energy. The process, known by specialists and permanently improved, uses nanodevices to convert the carbonic anhydride mixture into fuel together with other compounds, chemical additives adjacent to the process itself. Let’s remember that the research was conducted by Professor Craig Grimes from the Pennsylvania State

University, a professor who, together with the team, is studying the functional solar power supply of the nanodevice based on the energy balance equation, also known as solar energy + CO2 = methane... or another type of fuel. Conversion of carbon dioxide into organic compounds, such as methane, propane, ethane etc., is done by virtue of nanoparticles using titanium dioxide as a catalyst, process assisted in full ultraviolet radiation defined as electromagnetic waves, ensuring the cycle of reactions from the nano physico-chemical path. Analysing the aspects of the natural gas sector presented above, we can state that regulation and competition in this sector, both cultivated especially in the field of research and innovation, will make both the performing technologies and the principles promoted by the novelty elements lead to successful application of nanotechnologies. And, from here, benefits such as low costs, low emissions, rational consumption, all completing this puzzle more and more full of details of sustainable energy efficiency.

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Office Ploies‚ ti Romania ILF Consulting Engineers Romania 16 Negru Voda Str. RO-100149 Ploiesti ‚ Tel.: + 40 (344) 401-333 Fax: + 40 (344) 401-334 romania@ilf.com 23 www.ilf.com

OPINION

Gas, a FROG to the EU? Lavinia Tanase - Energy Research Associate at Florence School of Regulation, European University Institute

ll of us have read the news on the ruling of the A Stockholm Arbitral Tribunal in the Naftogaz vs Gazprom arbitration case on the gas supply and transit contracts1 from the direction of the behemoth towards the West. Gazprom is upset, has lodged an appeal against the ruling on the supply contract, will do the same for the transit contract until the end of March’18 and also asks for the early termination of both contracts with the Ukrainians. Such a gripping turn of events, right? While all this ‘battle’ is taking place, the EU seems to have simmered down its interest in gas, and focuses more and more on decarbonizing and digitalizing the energy markets, on the role of electricity and the potential to use it to cater to a wide variety of needs (transportation, heating, industry). At the same time, however, the EU puts forth a proposal for an amendment to its 3rd Gas Directive, the one which regulates the conditions for access to the European market of pipelines from 3rd countries. Some say this might be related to Nord Stream II and its huge potential future impact on EU’s energy market. The US have ardently opposed to the construction of the pipeline, “as undermining Europe’s overall energy security and stability.”2 The same US have become a rampant net gas exporter in a super short period of time and may develop into the world’s largest LNG exporter by 2020.3 And to top it all, guess what?! Romania seems to have huge gas reserves in the Black Sea basin and might actually have the potential to becoming a major gas producer in the CEE region?! 1 Oxford Institute of Energy Studies, After the Gazprom – Naftogaz arbitration: commerce still entangled in politics, March 2018 2 Foreign Policy, What’s good for Russian Gas is good for America, February 6 2018 https://www.youtube.com/ watch?v=wb2K8C4KbOI 3 IEA, World Energy Outlook 2017 24

Even though the hot topics now are the increase in variable renewables and electricity produced from vRES (solar, wind), gas ought not be disregarded, primarily for its quality of being the least environmentally damaging fossil fuel used by generators in the production of electricity, and secondly, for its incredibly valuable advantage of flexibility. This background also led the Council of Energy European Regulators to ask the Norwegian consulting company DNV GL to conduct a research project on the ‘Future Role of Gas from a Regulatory Perspective’. The study is also known as ‘FROG’ in the industry.4 While the decarbonization trend might trigger significant changes along the gas value chain, the EU national regulators started themselves questioning the role of this abundant resource in today’s highly digitalized, technologically embedded, always on the move sector. In particular, the study focused on the potential future role of gas, its infrastructure and the consequent regulatory implications and measures that may be required. This is what the researchers found: 1. In recent years, gas has underperformed in electricity generation, due to the high promotion of RES, which happened on the basis of large support schemes granted by the MS to the RES generators.5 2. Gas will continue to be used and play an important role in electricity generation, as gas fired generation is necessary to back-up generation from renewables and to foster the stability of the system against the intermittency of RES. Gas will frequently be called upon as back-up for intermittent RES during times of peak demand. 3. Gas’s use is predicted to decline after 2030 as the power sector reaches full decarbonisation. 4 CEER, Study on the Future Role of Gas from a Regulatory Perspective, 6 March 2018 5 Feed-in-tariffs, feed-in-premiums, quotas, tax credits and grants

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4. Renewable gases6 could be a possible valid alternative to the use of traditional natural gas. ENTSO-e and ENTSO-g have indicated that by 2040 that renewable gases may cover up to 12% of gas demand. 5. If up to now, the focus has been on fostering competition in the wholesale gas markets and ensure non-discriminatory access to the pipelines, the future trend in the gas area might be on developing tools for further market integration. Specifically, a new mechanism to uphold the merger of trading hubs or markets currently managed by different TSOs. This could actually be comprised in the text of a network code. 6. In the last few years gas has become increasingly important in the transportation sector, in its liquefied (LNG) or compressed form (CNG). CNG is used in cars, vans, trucks, while LNG in land and maritime transportation represents the most innovative development of gas. LNG is used for bunkering activities, as fuel for ships and as fuel for heavy-duty vehicles. The use of CNG for light-duty vehicles is at competition with electric vehicles. Regardless, the competition of natural gas and other fuels/electricity in the transportation sector will always be strongly affected by environmental regulation, as the vehicles’ manufacturers are and will be bound by emission targets. 7. Biogas production and use has found momentum in many countries across the EU. For example, in Germany and Italy, biogas and biomethane producers are granted regulatory incentives to perform and subsidize their activity. They can contribute to decarbonisation targets and reduce the carbon footprint of the activities in which it is used. 8. On a growing streak have been the biogas plants which are further enhanced to bio methane plants. The latter can directly inject bio-methane into the natural gas transmission network. For instance, in 2016 France recorded the largest increase of biomethane injected into its national gas grid. 9. Hydrogen is expected to become an important future energy carrier.7 It can be transported by trucks, rail cars or through pipelines. On the one hand, it can be used to accommodate the RES surplus, absorb and store electricity by converting 6 Include biogas, biomethane, hydrogen, synthetic gas. 7 Power to gas is the process through which electricity is transformed into gaseous energy – hydrogen or methane.

it into hydrogen. Later on, it can be converted back to electricity or directly injected into the network. Nonetheless, hydrogen in itself represents an alternative source of energy worthy and capable of fostering the achievement of environmental targets. 10. Bio-methane is mostly injected in distribution networks, and exceptionally in the transmission network. Incentives for network tariffs should be adequately designed. 11. The transport of hydrogen via pipelines of natural gas network should be a regulated activity. The potential large hydrogen transportation network shall be accompanied by storage capacity to allow for system flexibility. Currently, small quantities of hydrogen are blended into the transportation pipelines. However, if the percentage increases, aiming at full conversion, then the regulators will need to amend the technical specifications for blended natural gas and also maybe modify the relevant Interoperability and Data Exchange Network Code. In this case, also, the regulators will need to update or create the design of commercial and access arrangements to the new system. In terms of market, network operators may be given the option to purchase hydrogen. 12. Decarbonisation could provide gas with a much longer life in the power sector. As we can see, the focus is on the use of gas through its decarbonized version of renewable gases. Momentarily, since the regulatory framework of the gas market, the 3rd Energy Package does not cover the decarbonisation trend, the EC will have to table a legislative framework also for gas, in the first quarter of 2020.8 The future therefore belongs to electricity and gas, used jointly to ensure security of supply, affordability and competitiveness of energy. The coupling of the sectors will be enhanced by the high utilization of renewable gases, especially hydrogen. Traditional gas, however, will not be disregarded from regulation and it may secure a larger market share in the transportation sector. The gas security of supply will continue to be an issue, especially for Central Eastern European countries, which are dependent on Russian gas and which are not equipped to receive LNG, as back-up. Coming back to the metaphor in the title, I’d say that gas is a frog only from the perspective of geopolitics, as it can ‘jump’ and change its position very quickly and unannounced. 8 Klaus Dieter Borchardt (Director – DG ENER) said in an interview for the Florence School of Regulation in January 2018 http://fsr.eui.eu/need-know-eu-energy-market-20182019-one-interview/ 25

ALIN DUMITRESCU - COUNTRY MANAGER, NA SOLID PETROSERVE

Almost 8 years of successful operations performance in Romania NA Solid is a Canadian oilfield services company specializing in wireline and well production testing services for the oil and gas industry. As of 2010, NA Solid opened service operations in Romania, providing well testing, slickline/ BHP data acquisition and early production facility installation and operating services. Alin Dumitrescu, Country Manager - NA Solid Petroserve, talks about the future of this business in Romania and in the European region. 26

energyindustryreview.com

INTERVIEW

ear Mr. Dumitrescu, you have been quite familiar with the oil and gas industry since 1995. How did you get started in the well services sector? Where did you begin? Why did you choose to work for NA Solid? I graduated from Petroleum and Gas University of Ploiesti in 1990 and started my career as an Engineer Trainee; I worked in the drilling sector with Bascov Drilling Company. Then, in 1992, I moved on to the production sector working for OMV Petrom, within their Baicoi Asset. In 1995, the well services division of OMV Petrom - BOSS Campina was formed, and I was among its first employees, where I worked until 2002 as Supervisor and Deputy Manager of Well Completion and DST/Well Testing Subdivision. I consider this period working in the well service sector to have been very important for my overall career development, as here the management imposed a way to work that was less bureaucratic, and where individual responsibilities and decision-making had to be assumed quickly due to the work environment. Technical knowledge accumulated on numerous jobs performed with a large variety of downhole tools and surface equipment, on different wells, from shallow to very deep, and on both onshore and off-shore jobs also proved to be very significant for my professional development as a Petroleum Engineer. In 2002, I joined NA Solid Petroserve Ltd., working in different positions, including Supervisor, Service Coordinator and eventually Operations Manager of the Company’s Tunisia branch. Since 2014, I became Vice President Operations and Country Manager of NA Solid Petroserve’s Romanian Branch. I chose to work for NA Solid as I saw an opportunity to develop an international career, working in the same sector for a young and very ambitious private company, where I could also learn from the Canadian expertise on well testing services. From the beginning there was a good collaboration with the Owner and top management of NA Solid, and I have seen that they had a good understanding of the Company’s needs in order to position it as a high-quality service provider in the oilfield services sector. 28

FOCUS ON THREE AREAS OF UPSTREAM OPERATIONS Which segment is your company’s core focus? As an oilfield service company specializing in well surface production testing and slickline well servicing, our service capabilities focus on three areas of upstream operations. The first of these areas relates to supporting rig operations (i.e. drilling, completion, well intervention/workover operations), involved in proving oil and gas reserves, and establishing related surface productivities. Here our services include surface equipment and personnel required for DST operations, well clean-up, short and extended-term production testing, bottom-hole pressure tests (both memory and real-time), and mechanical wireline-conveyed BHP surveys, plug and sleeve work. Our second area of service capabilities relates to the design, installation and operation of early production facilities (EPFs). An operating company’s decision to utilize EPF services is typically based on the need to fully establish reserves and well/field production capabilities, and at the same time continue to generate production revenue while they continue to plan, procure and install permanent field development facilities. In such cases we find operators will typically request the option to purchase an EPF equipment installation that NA Solid has supplied, should its design, throughput capabilities and operating performance meet their longer-term requirements. Over the past 8 years of operating history here in Romania, three of the EPFs that NA Solid has supplied, installed and operated have ultimately been purchased by our clients. Our third area of service capabilities lies in the provision of slickline equipment and services related to production operations. For such services work, Solid has three truck-mounted, fully-equipped double-drum combination wireline units. Our combination wireline units offer both slick and braided line service capability, as well as mono-conductor e-line capability for such operations as real-time BHP surveys. We have a broad range of slickline tools, equipment and PCE (pressure control equipment), along with highly skilled and experienced operators; enabling us to offer our clients safe, high-quality slick and braided line services.

As an oilfield service company specializing in well surface production testing and slickline well servicing, our service capabilities focus on three areas of upstream operations. Since the establishment of our Romanian Branch, we began to source an increasing amount of our new equipment needs from within Romania and offsetting European countries.

energyindustryreview.com

INTERVIEW

According to experts, the oil and gas industry will continue its slow recovery, as upstream companies are going to increase production in 2018. How did this year start for NA Solid? Like the rest of the oilfield services industry, Solid has witnessed over the past few years the sharp downturn in operating services activities related to low and unstable oil and gas prices. While the opening quarter of 2018 has been mostly the same story, over the same period we have begun to see what appears to be a slow, but gradual upswing in operations-related planning and activity for the current year ahead. In the same manner, for our services we are beginning to see some increasing potential for new work opportunities developing through this year and beyond. Certainly, the future for service companies such as ours will continue to rely on the motivation for oil and gas producers to maintain the existing production capabilities, as

well as to invest in replacing the existing reserves and adding new ones. As such, we see continued caution on the part of producers for at least the next two years before any significant recovery affecting companies like NA Solid begins to take place. More precisely, what is the strength of NA Solid as a Service Company on the Romanian market? For all of our services we offer here in Romania, NA Solid is a very strong competitor. Here I would like to point out that the real key to our strength in delivering the high level of safe, quality services that we are known for is our people, and hereâ&#x20AC;&#x2122;s why: â&#x20AC;˘ Clients that we have performed jobs for in the past, as well as for ongoing services work we continue to perform are routinely renewing their contract option to continue using Solid for their new jobs and projects, as well as for extending and/or diversifying jobs or project work already completed.

INTERVIEW

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Our management team consists of wellexperienced people with strong educational backgrounds; all of whom have shown their abilities and high level of competence throughout the work they do on the job every day. NA Solid’s management team consists of personnel of varied qualifications, training and competencies; providing us with strong coverage in all areas of our business (technical, economical, financial, HR, HSEQ). We work hard to maintain lower costs than our competitors, while continuing to maintain the high level of quality we provide in the services we perform. Certainly, the size of our company, our streamlined organizational structure, efficient work solutions, good supply chain and an efficient logistics system are all key factors here. Our organizational structure enables NA Solid to respond quickly to client requests. Both our equipment and work methods are standardized, providing us the flexibility and consistency to effectively manage and execute from initiation to conclusion all the work that we perform. All NA Solid employees are highly skilled and qualified for the work they perform. Without exception, all of our operational staff are oil & gas industry professionals; well-experienced for the highly demanding work areas they are in (well servicing, procurement, quality, HSE, HR etc.). Our personnel competency levels are maintained at the highest industry standards through continuous training, both in-house and/or external. Personnel throughout our organization maintain a high level of awareness of the importance of safe operating practice in everything they do. This is well demonstrated in our proven track record of accident-free, safe work performance throughout our operating history here in Romania.

What does NA Solid service fleet include? Our well testing service fleet includes 3 equipment packages, consisting of: • High pressure 3-phase horizontal separator units, equipped with Vortex Cluster inlet, Coriolis-based mass-flow measurement systems for oil, water and gas phases, data acquisition integrated with ESD system for upstream and downstream parameters and 30

flow rates, Hi/Low-pressure/level shut down and alarms system; • Indirect fired line heaters, 3.5 MMBTU capacity; • Choke manifolds 3 1/16” 10,000 and 15,000 psi working pressure; • ESD valves 3 1/16” 10,000 and 15,000 psi working pressure, including control panels; • Low pressure/high volume 2-phase vertical separators, single or dual compartment, 175 to 250 psi working pressure; • High pressure pipe packages 3” x 10,000 and 15,000 psi working pressure; • Low pressure pipe packages, different sizes from 2” to 6” ID; • Flare stack systems and knock out drums; • Land oil burner systems; • Pressurized storage tank system with a total capacity of 250 cubic metres, 80 psi working pressure; • Transfer pumps with a range from 80 to 500 psi working pressure; • Auxiliary equipment, power generators 30 to 190 KVA, air compressors, lab cabins and workshops. NA Solid Petroserve’s wireline equipment fleet consists of: • 3 x truck-mounted Dual-Drum Combination Wireline Units equipped whit a front split drum for slick line 0.108” and 0.125” size, 25,000’ capacity, a rear drum for braided or e-line, 25,000’ capacity, BOP hydraulic control System, 10,000 psi On-Board Grease Injection System, 10 kW Hydraulic-Driven Generator, data acquisition system; • 2 x truck-mounted cranes 12 and 18 tons capacity supporting downhole data acquisition services; • Light weight pressure control equipment 5,000 and 10,000 psi working pressure, 3” to 4 1/16” size; • Large variety of slick line tools; • BHP data acquisition that include both piezo and quartz electronic memory recorders, downhole shut in tool for 2 7/8” and 3 ½” tubing sizes.

KEEPING OPEX WITHIN BUDGET Your company also provides complete deliverability analysis services (oil well inflow performance relationship; gas well absolute open flow potential), including program

NA Solid’s role for the most part is utilizing our surface production and slickline equipment setups to obtain and provide our clients with data they require in order to evaluate a production well’s reserves and deliverability potential. We are also prepared to provide our clients with advice on well testing program design aimed at determining a well’s stabilized flow potential under varying flow conditions. energyindustryreview.com

INTERVIEW

design recommendations upon client request. What techniques do you recommend to maintain production on target while keeping Opex within budget? NA Solid’s role for the most part is utilizing our surface production and slickline equipment setups to obtain and provide our clients with data they require in order to evaluate a production well’s reserves and deliverability potential. We are of course also prepared to provide our clients with advice on well testing program design aimed at determining a well’s stabilized flow potential under varying flow conditions. Throughout the conduct of a well surface production testing job, our clients rely on us to employ the best operating practices in the setup and safe operation of our well testing equipment installation to achieve stabilized flow regimes. Our objective is to provide our clients with consistent, reliable production test data that enables them to optimize well and field production rates in line with their expectations for the producing property being evaluated. With regards to keeping Opex within budget, utilizing an EPF approach for example provides an operator with the opportunity

to fully evaluate reservoir limits, recovery and deliverability capabilities before committing to capital expenditures required to install permanent production facilities, storage and fluids transportation systems. The extra time provided by employing a temporary production facility enables an operator to determine optimal surface facilities design; thus, optimizing Capex required to develop a producing property, while continuing to generate production revenue up until permanent facilities can be installed. Another example for keeping Opex within budget is offered with NA Solid’s fully self-contained metering-unit separators. Equipped with highly-accurate Coriolis mass-flowmeter liquids measurement systems, our metering-unit separators also come SCADA-equipped, are designed to provide in-line testing capability that can be rigged-in, pressure-tested and ready to work within a matter of hours. In-line production testing using NA Solid’s metering-unit separators offers substantial savings to operators in reduced peripheral equipment normally needed for produced fluids storage, pumping and venting/flaring required with conventional well test equipment setups. 31

INTERVIEW

FUNDAMENTAL REQUIREMENTS FOR EFFECTIVE HEALTH, SAFETY AND ENVIRONMENTAL PERFORMANCE The data acquisition system you mentioned provides all flowing system parameters, using accurate sensors placed on key points of the well test process. Based on this data, how can operators enhance operational quality, safety and performance? Electronic data acquisition systems are an integral part of all NA Solid well testing equipment packages. The use of such systems enables the well test operating team consisting of both NA Solid’s operating crew and our client’s representatives, both on and off-site, in order to have immediate, real-time access to key production test operating parameters monitored at various locations throughout the well testing equipment setup. Such access provides the onsite crew with the ability to make flow control adjustments in due time, and our clients with the ability to make more timely decisions pertaining to the well testing operation currently underway. The application of electronic data acquisition systems on surface production well testing setups reduces both testing crew time requirements for gathering well test operating data, and eliminates the possibility for human error during the data entry process. The quality, frequency and volume of well testing data gathered and stored as part of a surface data acquisition setup are also infinitely greater than data manually acquired through manual entry. Centralized real-time access to key operating parameters enables our operators to quickly assess ongoing test flow performance and make critical flow control adjustments as needed to maintain stabilized operating performance. Such centralized access can also be extended to include real-time BHP data from downhole pressure recorders, should NA Solid’s e-lineconveyed BHP services also be utilized as part of the well testing equipment setup. Providing quick access to and notification of key operating parameters, including information from strategically-located fire, fluid level and atmosphere monitoring sensors is also a fundamental requirement for effective health, safety and environmental (HSE) performance throughout the conduct of a surface well production testing operation. 32

Where are your tools designed and manufactured? What is your overall equipment capacity? During our first few years of operations in Romania most of our equipment was provided from Canada, by our Canadian parent company. Since the establishment of our Romanian Branch, we began to source an increasing amount of our new equipment needs from within Romania and offsetting European countries. Sourcing is of course based upon particular application requirements, certification standards and associated cost and availability considerations. As for equipment capacity, NA Solid’s Romanian Branch maintains 3 complete packages of well testing equipment to cover a wide variety of applications in oil and gas well production testing, the types of which are as summarized above. On the slickline services side, we also maintain 3 completely tooled and equipped combination truck-mounted wireline vans capable of servicing virtually any slickline servicing requirement from low to high pressure (15K), and either sweet or sour well conditions. Our combination wireline vans are particularly useful on new well completions, where changing between slickline and braided or e-line-conveyed downhole tools that often occurs can be done from the same truck, without the need to rig down and changeout wireline units.

We are optimistic as to the future of our slickline services business both in Romania and offsetting markets in the European region, particularly in view of the dual slickline/e-line service capabilities that each of our combination slickline service vans present.

HIGHLY-MOBILE WIDE-AREA SERVICE COVERAGE The wireline services market is estimated to reach USD 14.84 Billion at a CAGR of 6.5% come 2020, says Research and Markets. How do you see the future of this business in Romania, as well as in the European region? Over the past 8 years of NA Solid’s presence in Romania, while somewhat secondary to the utilization levels of our well testing services division, our slickline services division offers one of the most modern and well-equipped truckmounted slickline service fleets in the country. We are optimistic as to the future of our slickline services business both in Romania and offsetting markets in the European region, particularly in view of the dual slickline/e-line service capabilities that each of our combination energyindustryreview.com

INTERVIEW

slickline service vans present. Being fully-equipped, NA Solid’s truck-mounted units offer a highly-mobile wide-area service coverage. Both high-pressure and sour-service conditions are within NA Solid’s slickline service capabilities. Our trucks are equipped with 0.108”, 0.125” slickline, and either 7/32” braided line or mono-conductor e-line. NA Solid offers a wide range of slickline services including conventional slickline-conveyed plug and sleeve flow control operations, both memory and real-time bottom-hole pressure surveys, and mono-conductor e-line-conveyed services including production logging and caliper tool surveys. We also offer heavy wireline services for fishing and swabbing. Now, after more than 7 years in Romania, what are the milestones and achievements that mark NA Solid’s journey in our country? NA Solid Petroserve is extremely proud of its nearly 8 years of highly successful and safe operations performance history in

Romania. Ten key events and achievements that standout the most over this period to date are the following: • April 2010 - the first well testing operation performed by NA Solid in Romania; • November 2011 - first EPF facility installed; • October 2012 - first inline test performed; • November 2012 - second EPF facility installed; • March 2013 - first well testing operation on a critical sour well performed by NA Solid in Romania; • April 2014 - NA Solid Romania Branch opening; • April 2014 - third EPF facility installed; • November 2015 - first well testing operation on a HP/HT well performed by NA Solid in Romania; • December 2015 - NA Solid Petroserve Ltd Romania Branch received ISO 9001, 14001 and OHSHA 18001 Certification; • September 2016 - completed first well testing/EPF operation on high flow rate well.

OIL & GAS

What’s next for the BRUA project Adrian Stoica

he BRUA project is being developed in the context of diversifying the European gas supply sources, increasing the security of Romania’s natural gas supply through access to new sources, facilitating access for the Central and South-Eastern European market to gas resources in the Caspian region. Currently, Transgaz has started the construction of the first phase of the project, also benefiting from the financial support of the European Union. However, it remains to be seen whether the gas pipeline will also reach Austria. 34

THE ORDER TO START WORKS HAS BEEN ISSUED The Ministry of Energy, as competent authority for energy infrastructure projects of common interest, issued on 21 March 2018 the comprehensive decision on BRUA gas pipeline. This step gives Transgaz the right to actually start the works. “We have issued the comprehensive decision together with the fulfilment, by Transgaz, of all the legal conditions necessary to build this European gas pipeline. This is an important moment, as it gets us closer to the role desired by Romania in the region. Through BRUA, Romania will be able to tap on the huge potential of gas fields in the Black Sea and we will thus become a factor of energy security in this part of Europe,” Energy Minister Anton Anton has stated. The project will ensure: bi-directional energyindustryreview.com

OIL & GAS

gas transmission capacities of 1.5bcm/y to Bulgaria and will develop new transmission capacities of 1.75bcm/y (Phase I) and 4.4bcm/y (Phase II) to Hungary.

GAS COMPRESSOR STATIONS CONSTRUCTORS Deadline for the completion of Phase I of BRUA gas pipeline is, according to the schedule, 2019. In order to build the three gas compressor stations of 10 MW each (Jupa, Bibesti and Podisor), Transgaz signed on 23 March the execution contract with a consortium consisting of eight companies, which in turn will have six subcontractors. Leader of the association with which Transgaz has signed the contract is INSPET Ploiesti, and the other associates are: Petroconst, Moldocolor, Habau PPS Pipeline

Systems, Irigc Impex, Sutech, Tiab and Roconsult Tech. The duration of the contract is 60 months, starting with the award date. The value of the contract is RON 288,742,446.15, plus VAT, according to the legal provisions in force, without various and unforeseen expenses, broken down as follows: RON 96,271,656.97 for execution works at Podisor gas compressor Station; RON 96,446,619.30 for execution works at Bibesti gas compressor station; RON 94,692,759.24 for execution works at Jupa gas compressor station; RON 1,331,410.64 for maintenance services at the 3 compressor stations mentioned above. The actual construction of compressor stations will start on 14 April. “Transgaz is one of the most important companies in the portfolio of the Ministry of Economy and is definitely one of the most

active companies. Transgaz is currently involved in several gas pipeline projects that will turn the company into a Romanian multinational at regional level. The most important strategic project is by far BRUA,” Economy Minister Danut Andrusca has stated. In turn, Ion Sterian, General Manager of Transgaz, highlighted the strategic importance of starting works at Phase 1. “Implementing BRUA Phase 1 infrastructure will increase Romania’s energy security and open new opportunities for the involvement of energy equipment and services providers. BRUA Phase 1 will ensure the creation of new jobs for execution works and for operation on Romania’s territory. Investment in the 3 gas compressor stations is further proof of this flagship company’s ability to achieve ambitious strategic projects,” Ion Sterian has mentioned. Phase 1 of the project involves 35

OIL & GAS

TECHNICAL SHEET BRUA project aims at developments of transmission capacities in the system between interconnections of the Romanian gas transmission systems and the similar systems of Bulgaria and Hungary; specifically, it consists of building a new pipeline from the south of Romania to the western border, on Podisor-Bibesti-Jupa-Horia route, with an approximate length of 529km and building three compressor stations. The project emerged as a necessity in the second half of 2013, based on the following arguments: • Failure to select Nabucco project as preferred route for gas transmission from the Caspian region to the Central European markets; • Ensuring adequate transmission capacities between the cross-

construction on Romania’s territory of a gas transmission pipeline that will facilitate connection between the existing pipelines, from Podisor to Recas, on Podisor-Corbu-Hurezani-Hateg-Recas direction. The BRUA project Phase 1 is not related to gas from the Black Sea, but to LNG terminals from northern Greece and gas carried by the Southern Corridor from the Caspian region.

WHO WILL SUPPLY THE TUBULAR GOODS Also, Turkey’s Toscelik Spiral Boru won on 23 March the tender organized by Transgaz for the delivery of tubular goods for the BRUA gas pipeline, the value of the contract being EUR 126mln, after the value initially estimated was around EUR 166mln. Turkey’s Toscelik Spiral Boru Uretim Sanayi Anonim Sirketi participated in the tender with four subcontractors and five third party supporters. The list of bidders for this project included also other six companies: 36

border interconnection points ROBG and RO-HU, in order to increase the degree of interconnection at European level; • Ensuring transmission capacities in order to capitalize on certain gas volumes from the Black Sea on the Central European markets. In the context of CESEC (Central East South Europe Gas Connectivity) initiative, there have been discussions with DG ENERGY representatives, and at their recommendation it was decided to split the project and implement it in two phases. The BRUA project Phase 1 is considered a priority project at regional level, included in the list of CESEC projects, due to the fact that it brings a significant

• •

• • • •

ArcelorMittal Galati, with three subcontractors; The association between Borusan Mannesmann Boru Sanayi Ve Ticaret A.S. and Noksel Celik Boru Sanayi, with five subcontractors; Erciyas Celik Boru Sanayi, with four subcontractors; Moldocolor, with a supporter; TMK-Artrom Slatina, with five subcontractors; The association between Umran Celik Boru Sanayi A.S, leader, Emek Boru Makina Ve Ticaret A.S, Cis Gaz SA and Valro Trade SRL, with two subcontractors and two third party supporters.

LAND EXPROPRIATION EXPEDITED In order to expedite the construction of the interconnector, the Romanian Government wants that land on the route of the BRUA pipeline be removed from the agricultural circuit without being necessary to obtain landowners’ approval, being about over 17.000

contribution to increasing gas supply security and the degree of regional interconnectivity. Based on these considerations, its implementation is supported by the European Commission through specific funding programs. The BRUA project Phase 2 is considered a commercial project, the final investment decision for its implementation following to be made based on economic tests revealing its economic efficiency.

PHASE 1

The project will consist of building a new gas transmission pipeline linking Podisor Technological Node and GMS Horia and of installing three gas compressor stations along the route (CS Jupa, CS Bibesti and

plots of agricultural land located in the unincorporated area of localities to be crossed by the pipeline. “Land set out in the annex to the draft Government Decision is temporarily removed from the agricultural circuit during the validity of the construction permit for the pipeline, without being required to obtain the consent of the landowner,” reads the explanatory memorandum, which accompanies the draft legislative act. The route of the pipeline follows in general the south-east - west direction and will cross the territory of 10 counties: Giurgiu, Teleorman, Dambovita, Arges, Olt, Valcea, Gorj, Hunedoara, Caras-Severin and Timis. Moreover, Law 185/2016 on certain measures necessary to implement projects of national importance in the field of natural gas stipulates that land in the unincorporated area affected by works related to such projects is temporarily removed from the agricultural circuit during the validity of the construction permit for the pipeline(s), without being required to obtain the prior consent of the landowner. energyindustryreview.com

OIL & GAS

CS Podisor), as well as the realization of all the related facilities. Implementing the project involves the construction of the following objectives: • Podisor-Recas gas transmission pipeline 32” x 63 bar with a length of approx. 479 km; • 3 gas compressor stations, each station being equipped with two compressor units with the possibility of providing bidirectional gas flow. Upon completion of Phase 1: • Gas flow will be ensured to Hungary through Horia-Csanadpalota interconnector, with a capacity of 1.75bcm/year (200 thousand Smc/h), at 40 bar at the border; • Gas flow to Bulgaria will be ensured through Giurgiu-Ruse interconnector, with a capacity of 1.5bcm/year (171 thousand smc/h), at 30 bar at the border.

THREE CONSORTIA WILL INSTALL THE PIPELINE In November last year, Transgaz signed the execution contracts for BRUA Phase 1. Works were split in three lots, thus signing three contracts. For two lots, the tender was won by two consortia led by Austria’s Habau PPS Pipeline Systems and for a lot by a consortium led by INSPET SA Ploiesti. INSPET is also associate in one of the associations led by Habau PPS Pipeline. The value of contracts is RON 1.28bn, excluding VAT. WHAT WILL FOLLOW? Transgaz mentioned, in a press release, that booking the transmission capacity is a prerequisite to start investment in BRUA Phase 2. Only based on those contracts, which show interest in the gas that would be transported, Transgaz may move to project implementation. In the event of booking future (incremental) capacities, booking will

Total estimated value for Phase 1: EUR 478.6mln. Estimated deadline for completion: 31 December 2019. For the BRUA project, Transgaz managed to obtain two grants from the European Union, through the Innovation and Networks Executive Agency (INEA). The first grant, of EUR 1,519,342, representing 50% of the estimated eligible expenses, was granted to finance the design for the three compressor stations within the project (Podisor, Bibesti and Jupa), and the second grant, worth EUR 179,320,400, representing 40% of the estimated eligible expenses, was granted to finance works for the implementation of the BRUA project Phase 1.

PHASE 2

Implementing the project involves the construction of the following objectives:

be made through a binding open season procedure. Preparing the Binding Open Season Procedure was carried out during 2015-2017 through the collaboration of the regulatory authorities in Romania (ANRE), Hungary (HEO) and Austria (ECONTROL), of the transmission operators in the 3 countries (TRANSGAZ, FGSZ and GAZ CONNECT), as well as of the European Commission. The open season process was held during 16 October-29 December 2017. The common report on the first bidding round was published on the websites of Transgaz and FGSZ on 29.12.2017, in compliance with the Procedure’s timetable. According to the report, the first bidding round was successfully completed. Within this process, Transgaz has permanently liaised with the European Commission and ANRE, which have validated the decisions, which all parties have considered in the interest of Romania both strategically and economically.

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•

Recas-Horia gas transmission pipeline 32” x 63 bar with a length of approx. 50km; The amplification of the three gas compressor stations (CS Podisor, CS Bibesti and CS Jupa) by installing an additional compressing unit in each station; The amplification of the existing gas metering station GMS Horia.

Upon completion of Phase 2: • Gas flow to Hungary will increase through Horia-Csanadpalota interconnector to 4.4bcm/year (502 thousand smc/h) at 40 bar at the border; Total estimated value for Phase 2: EUR 68.8mln. Estimated deadline for completion: 1 October 2022, in correlation with the timetable of the Binding Open Season Procedure for capacity booking.

Regarding the second phase of the project, things are however quite unclear, after Budapest announced in July last year that the interconnector would no longer reach Austria, but would stop in Hungary. According to Hungarian officials, from here gas will be redirected to Slovakia, Ukraine, Serbia and Croatia. For now, the officials in Bucharest remain silent on this subject. The only comment came from the former Energy Minister, Razvan Nicolescu, currently senior expert at Deloitte. BRUA project will change compared to the version in which it was launched and a new project will appear, named BRUSA (Bulgaria-RomaniaHungary-Slovakia-Austria), he has stated during an energy conference. “In my opinion, I don’t think BRUA or BRU will be implemented. After phase 1 of the project, the vision will change slightly and another project will appear, about which there haven’t been discussions so far and which is named BRUSA: Bulgaria-RomaniaHungary-Slovakia-Austria,” Razvan Nicolescu has stated. 37

OIL & GAS

LUKOIL opens the public dialogue window in Romania Transparency and credibility in social responsibility practices are two concepts increasingly targeted by the large corporations. Transparency is even more important today as access to multiple communication platforms has increased, facilitating bidirectional communication.

Quality education 69600 employees completed training courses in 2016 – 66.5% of LUKOIL employees

Fuel quality 86% - the conversion rate reached at foreign refineries 72.7 - is the light petroleum output reached at the facilities abroad

Refining investments Heavy residue complex is the largest investment in Bulgaria in 10 years: USD 1.5bn investment. 38

Companies get involved in community problems and become sensitive to the needs of society and, particularly, they start communicating in an efficient manner. For this purpose, Prahova Chamber of Commerce and Industry hosted on 29 March 2018 the public dialogue event organized by PETROTEL-LUKOIL refinery (member of the Russian energy group LUKOIL), the first in a series of meetings that the company plans to hold twice a year with the representatives of public authorities, in order to learn from them what are the projects of major interest in which the refinery could get involved. PETROTEL-LUKOIL ranks second in the top of Prahova-based companies in terms of turnover, being at the same time an important player in the oil and gas industry and one of the main employers in the county. “PETROTEL-LUKOIL is a constant presence in the tops of the most prestigious companies in the county, which is confirmed by both awards received over time at the Gala of Prahova Top Companies and nationally. The company, which is also a member of Prahova Chamber of Commerce and Industry, is a very important player in the local economy, being the second in Prahova in terms of turnover,” the President of CCI Prahova, Aurelian Gogulescu, has mentioned. The refinery has proven over time that it is interested in investing in environmental protection and social projects. Among them, we can mention programs such as afforestation on Ploiesti Eastern Ring Road, arranging energyindustryreview.com

OIL & GAS

New projects in Oil & Gas sector Currently, LUKOIL runs new oil and gas projects in Russia, Iraq, West Africa, Uzbekistan, Mexico, Norway and Romania.

37% Reduction in the contaminated land area

Solar park and wind farm in Romania A 9 MW solar park was commissioned in 2014 at the Romanian refinery, along with the 84 MW Land Power wind farm. The power generated by solar parks and wind farms is supplied to the grid and is subject to market rate payment.

â&#x20AC;&#x153;PETROTEL-LUKOIL is a constant presence in the tops of the most prestigious companies in the county, which is confirmed by both awards received over time at the Gala of Prahova Top Companies and nationally. The company, which is also a member of Prahova Chamber of Commerce and Industry, is a very important player in the local economy, being the second in Prahova in terms of turnover.â&#x20AC;? Aurelian Gogulescu, President of CCI Prahova

Solar park in Bulgaria A 1.25 MW solar park was commissioned in 2011 at the Bulgarian refinery. The power it generates is supplied to the national grid and is subject to a preferential payment rate.

$ 177 million Social investments, sponsorship and charity spending of the LUKOIL Group in 2016 39

OIL & GAS

Specific emission, tons of CO2/ ton of crude oil

PETROTEL-LUKOIL REFINERY COMPARED TO EUROPEAN REFINERIES

0.4 0.3 0.2 Petrotel-Lukoil

0.1

European refineries

0 SOURCE: BEST AVAILABLE TECHNIQUES (BAT) REFERENCE DOCUMENT FOR THE REFINING OF MINERAL OIL AND GAS - 2015

several playgrounds for children, as well as the constant support given to the Petroleum-Gas University of Ploiesti for the development of research programs, humanitarian campaigns and beyond. Within the first edition of the series of public dialogues planned by the company, Gleb Ovsyannikov, Public Affairs Director of LUKOIL Group, presented the social responsibility actions currently carried out by the company globally and regionally, as well as its plans for the future. The main areas of interest of the group are geological exploration, exploitation and processing of hydrocarbons, fuel distribution and energy from renewable sources. LUKOIL also focuses on using associated petroleum gas, an area in which the company will continue to seek solutions; for the moment, the associated petroleum gas utilization rate being 95%. Moreover, LUKOIL was the first oil company in Russia to endorse, with the support of the European Bank for Reconstruction and Development, the ‘Zero Routine Flaring by 2030’ initiative. “PETROTEL-LUKOIL is one of our best refineries in Europe, if not the best,” Gleb Ovsyannikov has pointed out. “Concern for our employees is part of social responsibility, an area in which, in each of the past two years, we have invested USD 177mln,” the Russian official has stated. Added to this amount are other USD 3 billion, money invested over the past five years in ecological projects. Improvement of environment quality remains a constant concern, materialized in investments of over USD 33 million, the Deputy General Manager of the refinery, Dan Danulescu, has added. CSR KEY DIRECTIONS: support of orphanages and children’s educational institutions; educational programs; preservation of cultural and historical heritage; religion; sports; 40

support of medical institutions; support to the indigenous people of the Far North; social and cultural projects contest; community funds and social agencies; targeted assistance

CSR KEY PROJECTS • • • • •

•

ARAI & AKNIET GRANTS Kazakhstan (8 years – 7,000 applications – 750 social business projects implemented) CYCLING CITY Bulgaria (Developing cycling infrastructure in Burgas to promote healthy and sustainable life) CANCER SCREENING in Italy (Free medical examinations in collaboration with Azienda Sanitaria Provinciale) LUKOIL Children’s Champions Cup (Over 3,500 children from 40 countries participate under slogan ‘Play against racism’) PROJECT FOR THE AFFORESTATION of areas that need redevelopment in Ploiesti city or around Ploiesti (a project with the aid of volunteers) with a duration of 5 years and extension for 3-5 more years, based on Forest Department and Local Administration intervention. The project is a co-work of ROTARY CLUB and PETROTEL-LUKOIL, Mayor of Ploiesti, Forest Department of Romania and last but not least volunteers all over the city DEVELOPMENT OF PLAYING PLACES in city of Ploiesti, based on modern concept and on anti-trauma rubber surface and modules age-oriented; Project on 10 years, already covered 6 years and 4 main areas, located in entertainment areas as memorial gardens, parks, as well as inside schools’ courtyards, dedicated to lessons in the open space energyindustryreview.com

Technology of the future: Low Pressure 4.0

Intelligent and straightforward blower control: the Sigma Air Manager 4.0 is the solution for blower station automation. This sophisticated controller delivers maximum energy efficiency and cost savings whilst making the station ready for Industrie 4.0 applications. he Sigma Air Manager 4.0 is the T core component of a blower station and the key technology needed in order to take advantage of the Industrie 4.0 services of the future. It acts as the central mastermind and controls the individual machines with maximum efficiency whilst perfectly adjusting the flow capacity to match flow rate demand. All it needs from the process control system is the desired differential pressure value – the SAM 4.0 then ensures optimal control of all blowers. Partial-load bridging and individual solutions are therefore things of the past, along with complicated setups. Now, all applications are supplied by one central blower station with master a controller that analyses operating data in seconds and simulates various scenarios in order to select the most efficient solution. The result? Previously unimaginable energy efficiency. All components within the station are optimally matched and controlled to meet the customer’s specific needs. Real-time process monitoring provides valuable operating data, which are forwarded for detailed evaluation. The analysis results help to predict potential faults as early

as possible and prevent them by taking timely action. The SAM 4.0 offers communication in 30 languages whilst the easy-to-operate 12-inch colour touchscreen display shows at a glance whether the station is operating in the ‘green zone’ for optimal energy performance. It’s incredibly easy to display and analyse a wealth of data, such as operating status, pressure curve, flow rate and power, as well as maintenance and any fault messages. And, thanks to a network connection, this can be done not only at the machine itself, but also conveniently from a PC at the office or elsewhere. This powerful capability therefore provides peace of mind and lays the foundation for predictive maintenance; it also enables sophisticated energy management per ISO 50001. The master controller also makes it possible to take advantage of new options for predictive maintenance of blowers. Previously, maintenance could only be performed on the basis of a regular scheduled service date and repairs would be made only after a fault message had occurred. The SAM 4.0 now makes it possible to initiate maintenance before

a fault occurs, thereby avoiding costly downtime and consequential damage. The sensors and Sigma Control 2 controller integrated into the machine collect process data, which are immediately forwarded to the Sigma Air Manager 4.0. Specialised software is then used to transfer the information to the Kaeser Data Center for real-time analysis. The Kaeser Data Center performs central monitoring and processing of operating messages. Required predictive maintenance measures are then initiated as needed based on this information. Ultimately this enables maintenance and necessary repairs to be performed at the precise moment they are actually needed. This saves time, minimises costs and ensures reliable blower availability, which in turn benefits all associated downstream processes. KAESER KOMPRESSOREN S.R.L. Address: 179 Ion Mihalache Blvd., 011181 - Bucharest Tel.: +40 21 224 56 81 Fax: +40 21 224 56 02 Web: www.kaeser.com Email: info.romania@kaeser.com 41

OIL & GAS

2017 EARNINGS

BVB BEST OIL AND GAS PERFORMERS With profits totalling over RON 5 billion and an aggregate turnover of over RON 45 billion, the seven companies making up the oil and gas industry on the Bucharest Stock Exchange (BVB) mark, at sector level, another year of growth. After a 2016 that represented an exit from the crisis, figures brought by the publication of preliminary financial results for 2017 indicate a continuation of the positive trend in the sector, supporting the positive expectations of specialists for 2018. 42

he local oil and gas industry is in full upswing, if we take into account the financial results reported by companies of the sector listed on the Bucharest Stock Exchange (BVB) for 2017. Although they can still suffer changes (the results published being only preliminary), the figures reported by the seven companies in the field, traded on BVB, show that the industry has taken another significant step forward on the recovery path. Thus, in 2017, the aggregate turnover achieved by the seven companies exceeds the threshold of RON 45 billion, by no less than 20% higher than the turnover posted by the same seven companies in 2016; at the same time, the sum of profits recorded by the same seven companies was approximately RON 5.14 billion, by more than 70% higher than total profits of 2016 (see the charge ‘Yet another growth year for the oil and gas industry on BVB’). It should be noted that, unlike the previous two years, none of the profile companies posted losses. Even Rompetrol Well Services - company part of The Rompetrol Group owned by KazMunayGas - managed to be in the black in 2017 (see the table ‘Profits in the oil and gas sector on BVB’). energyindustryreview.com

OIL & GAS

LEADERS OF THE SECTOR: OMV PETROM AND ROMPETROL RAFINARE The main drivers of these positive evolutions at industry level are the companies OMV Petrom (ticker SNP) and Rompetrol Rafinare Constanta (RRC); these two companies accounted for more than 80% of the total turnover at industry level. However, also SNP stands out by the fact that it makes alone almost half of the aggregate profit at industry level (see the table ‘Profits in the oil and gas sector on BVB’). The largest player in the local profile industry and one of the players of regional importance in the field, SNP (OMV Petrom) moved from losses of RON 690 million in 2015 to a profit of over RON 1 billion in 2016, reaching a profit of approximately RON 2.5 billion in 2017; at the end of this latter year, the company also reported a turnover of RON 19.4 billion, up approximately 16% compared to the turnover reported in 2016 (see the chart ‘Growing turnover

PROFITS IN THE OIL AND GAS SECTOR ON BVB The seven oil and gas companies listed on the BVB have finished 2017 with profits over RON 5bln. Company / RONbln

2015 Profit

2016 Profit

2017 Profit

OMV Petrom

(690)

1.038

2.489

Romgaz

1.194

1.024

1.868

489

594

602

268

214

101

(30)

(6)

Profits sum

2.020

2.957

5.141

Losses sum

(720)

(6)

Transgaz Conpet Rompetrol Rafinare Oil Terminal Rompetrol WS

The table shows the profit of each oil and gas company listed on the BVB. SOURCE: BVB, COMPANIES’ WEBSITES

YET ANOTHER GROWTH YEAR FOR THE OIL AND GAS INDUSTRY ON BVB The seven oil and gas companies listed on the BVB have registered significant growth (both turnover and profit).

Oil & Gas turnover evolution, 2015-2017 (RONbln)

Oil & Gas profit evolution, 2015-2017 (RONbln)

2015

2016

2017

2015

2016

2017

The graphs show turnover and profit evolution, at industry level, over the last three years. SOURCE: BVB NOTE: THE PROFITS SUM INCLUDES ONLY THE POSITIVE RESULTS. THE NEGATIVE RESULTS (LOSSES) ARE NOT REGISTERED. 43

OIL & GAS

GROWING TURNOVER FOR THE KEY PLAYERS IN THE INDUSTRY OMV Petrom and Rompetrol are the main drivers of these positive evolutions at industry level.

Company/RONbln

2015 Turnover

OMV Petrom

2016 Turnover

2017 Turnover

18.145

16.647

19.435

Romgaz

4.052

3.411

4.585

Transgaz

1.663

1.862

1.748

413

411

15.913

15.348

19.095

138

161

158

Rompetrol WS

Turnover sum

40.374

37.870

45.472

Conpet Rompetrol Rafinare Oil Terminal

The graph shows the evolution of the turnover for each of the seven oil and gas companies listed on the BVB. SOURCE: BVB, COMPANIESâ&#x20AC;&#x2122; WEBSITES

for the key players in the industryâ&#x20AC;&#x2122;). Its growth is determined by the higher sales in all business segments due to improved economic conditions. A strong positive effect was brought however by the improved costs. Thus, production costs at Group level stood at USD 10.90/boe in 2017, by 7% below the level in 2016, mainly due to elimination of the tax on special constructions, lower costs with materials and services and as an effect of administrative reorganization; the production cost in Romania was USD 10.89/boe, by 8% lower than in 2016. On the other hand, the average daily hydrocarbon production at Group level was 167.6 thousand boe/day (in Romania being 160.6 thousand boe/ day, by 3% below the level in the previous year). Total oil, gas and condensate production at Group level was also lower than in 2016, due to natural decline, sale of marginal fields and intervention to key wells in Kazakhstan. Hydrocarbon sales volume at Group level also recorded a decline by 3% compared to 2016, due to a decrease in volumes, in both Kazakhstan

OMV PETROM PRODUCTION INDICATORS Total oil, gas and condensate production at Group level is lower than in 2016, due to natural decline, sale of marginal fields and intervention to key wells in Kazakhstan. Q4/17

Q3/17

Q4/16

Key performance indicators

2017

2016

15.14

15.31

15.66

Total hydrocarbon production (mn boe)

61.18

63.74

165

166

170

Total hydrocarbon production (kboe/day) 3

168

174

6.68

6.84

7.16

Crude oil and NGL production (mn bbl)

27.33

29.15

1.30

1.3

Natural gas production (bcm)

5.18

5.29

45.73

45.79

45.93

Natural gas production (bcf)

182.95

186.96

14.3

14.6

14.8

Total hydrocarbon sales volume (mn boe)

57.8

59.9

60.77

51.36

47.89

Average Urals price (USD/bbl)

53.23

42.1

52.61

44.05

41.55

Average Group realized crude price (USD/bbl)

45.77

35.58

The table shows the main figures regarding production, reported by OMV Petrom for 2017. SOURCE: COMPANY REPORT 44

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OIL & GAS

and Romania. On the other hand, total sales of refined products at Group level stood at 5.07 million tons, by 3% higher than the level recorded in 2016, which reflects especially the higher demand for products in the domestic market. At the same time, retail sales at Group level were by 6% higher than in 2016, reaching the level of 2.7 million tons, as a result of the same positive evolution of demand in the domestic market (see the chart â&#x20AC;&#x2DC;OMV Petrom production indicatorsâ&#x20AC;&#x2122;). The increased demand was moreover one of the main drivers for the financial results of the second giant of the profile industry on BVB, i.e. Rompetrol Rafinare; the consolidated results of Rompetrol Rafinare (including here Rompetrol Rafinare SA, Rompetrol Downstream SRL, Rompetrol Gas SRL, Rompetrol Quality Control SRL, Rom Oil SA, Rompetrol Logistics SRL, Rompetrol Petrochemicals SRL) indicate for 2017 a gross turnover of over USD 4.15 billion (the equivalent of over RON 19bn), up 16% compared to 2016 - calculated in USD (calculated in RON, the increase in turnover in 2017 vs. 2016 is by around 24%, due to RON depreciation). In terms of profit, RRC had a worse year than in 2016. The net profit reported was USD 21.9mln, by 62% lower than in 2016, when it reported USD 57.1mln; we are talking however about a decline determined by an extraordinary non-repetitive transaction given by the change of accounting policy for tangible assets, namely the shift from the cost model to the revaluation model. On the other hand, from here on, this evaluation model will provide a more transparent image of the assets of companies within the Group. The company had a good evolution in a favourable economic environment. Brent oil prices moved from the beginning of 2017 until March around USD 55/bbl; in the following months, until July, they were characterized by a rising volatility, leading to pluses and minuses of up to USD 5/bbl, dropping even below the threshold of USD 45/bbl in the second half of June - the minimum of 2017. In this context, a number of unplanned stops and the higher demand at global level led to a decline of stocks and increasing fears that the market might not be supplied enough. Against this background, OPECâ&#x20AC;&#x2122;s actions, as well as those of oil producers outside the cartel have decisively contributed to the strengthening of demand and led to a rebalancing of prices. In terms of refined products, 2017 was a good year for automotive diesel markets, largely due to increased demand; in addition, the decline in stocks in Europe and the US has led to a significant reduction in the permanent global inventory. The impact of Hurricane Harvey and the fall in US diesel supply on the global market led to a significant increase in the value of the differences between diesel prices and Brent crude oil prices. The magnitude of these 45

OIL & GAS

ROMPETROL PRODUCTION INDICATORS Petromidia refinery managed to register results at historical levels for a number of the key technological and operational indicators. Operational indicators

Q4 2017

Q4 2016

2017

2016

1.681

1.509

11%

5.662

5.408

Raw material processed at Vega Kt

109

11%

373

354

Gasoline production Kt

468

424

10%

1.488

1.448

Jet & diesel fuel production Kt

875

766

14%

2.979

2.751

Fuel internal sales Kt

567

506

12%

2.128

1.884

13%

Fuel exports Kt

715

623

15%

2.111

2.118

Fuels – export %

56%

55%

50%

53%

Fuels – internal %

44%

45%

50%

47%

Raw material processed at Petromidia Kt

The data show the evolution of the key operational indicators reported by Rompetrol Rafinare for 2017. SOURCE: BVB, COMPANY WEBSITE variations has been felt most strongly in Europe - a market on which large volumes of average distillates from the United States are absorbed. In this environment, Petromidia refinery managed to register results at historical levels for a number of the key technological and operational indicators. Thus, the amount of raw material processed was approximately 5.66 million tons, with an equivalent of 16.8 Kt per day - up 5% vs. 2016 and a historical high from 1979 to date; it also recorded a record level of motor gasoline production (1.46 million tons) and diesel fuel production (2.74 million tons). Equally spectacular evolutions in terms of amounts processed were also recorded by Vega refinery - the oldest refinery in Romania (see the charge ‘Rompetrol production indicators’).

ANCHORS OF THE SECTOR: SNG AND TGN While SNP and RRC are by far the largest companies in the field - and 46

those that set the tone at national level, Romgaz (SNG) and Transgaz (TGN) are the companies that give a consistent plus of stability, when it comes to profits achieved. In other words, although at great distance from leaders in terms of turnover, SNG and TGN represent a healthy and stable component of the market when it comes to profits. Thus, Romgaz for example reported for 2017 a net profit of approximately RON 1.9 billion, up 82% compared to 2016 and by 54% higher than the profit reported in 2015, at a turnover of RON 4.6 billion - which also increased by 34% compared to 2016. The growth comes amid an increase by 32% in revenues from gas sales - from both own production and purchased. An important driver of turnover growth is also the increase in revenues from electricity sales (38%) and revenues from storage services (by 46%). According to the report published on BVB website, the operational and financial performances of Romgaz in 2017 are the best from the listing on the two markets

(BVB and LSE - admission to trading on the two stock exchanges taking place in 2013). Gas production stood at 5.158 million cubic meters, by 22% (or 939 million cubic meters) higher than production achieved in 2016, growth being stimulated by the lower temperatures from the beginning of 2017 and an increase in gas demand for electricity production (see the table ‘Romgaz production indicators’). The increase by 14.5% in the amount of electricity produced by Romgaz in 2017 was determined on the one hand by the lower production from hydro and renewable sources, amid an extended heat wave, and on the other hand by the repair and maintenance programs at some thermal power groups and temporary lack of availability of certain production capacities in the thermal power and nuclear areas. Revenues from gas storage increased by over 46%, to the (estimated) level of RON 505mln, following the sale in energyindustryreview.com

OIL & GAS

ROMGAZ PRODUCTION INDICATORS Gas production stood at 5,158 million cubic meters, by 22% (or 939 million cubic meters) higher than production achieved in 2016. Q3 2017

Q4 2017

Q4 2016

Δ Q4 (%)

Main indicators

2017

2016

Δ 12 monts (%)

1.192

1.406

1.185

18.7

Gas production (BCM)

5.158

4.219

22.2

1,191

1,393

1,023

36.2

Condensate production (tonnes)

5,742

5,864

-2.1

0.083

0.103

0.084

22.6

Petroleum royalty (BCM)

0.371

0.292

27.1

465.8

398.3

726.3

1,863,8

1,628.3

14.5%

9.7

537.0

509.9

5.3%

1,745.5

1,440.9

21.1%

774.3

121.8

65.0

87.4% Invoiced UGS injection services (million m3)

1,497.6

1,367.4

9.5%

-45.2% Electricity production (GWh) Invoiced UGS withdrawal services (million m3)

The data show the evolution of the key operational indicators reported by Romgaz for 2017. SOURCE: BVB, COMPANY WEBSITE 2017 of an amount of own gas from the storage facilities higher by 56%. Revenues from electricity sales were also on the rise, reaching the value of RON 464mln, by 38% higher than those achieved in 2016 - the market share in the electricity production segment being 2.95% according to Transelectrica information. It should be noted that at the end of 2017 the company had cash, bank deposits and government bonds of RON 3 billion, lower than the level recorded at the end of 2016 (when the level of liquid assets was RON 3.17bn). The decline was generated by the distribution of additional dividends in 2017; we are talking however about an amount that, even in (slight) decline, keeps the company in a very good financial position, leaving room for a potential distribution of additional dividends in 2018 as well. The same still good financial situation is also visible in Transgaz’s case. That despite certain slightly negative evolutions of some of the key financial and accounting indicators. Thus, Transgaz’s total assets reached at the end of 2017 the level of RON 5.25bn, by 2% lower than

the value recorded in 2016, following a reduction of fixed assets by 2.13% and the reduction by 1.69% of current assets. In parallel, Transgaz’s total debts at the end of 2017 increased by 0.55% compared to 2016, mainly due to long-term loans worth RON 69.9mln. Moreover, the long-term debts of the company reached RON 1.25bn, from RON 1.21bn in 2016, according to an analysis report available on BRK Financial Group’s website. Regarding the current debts of the company, they fell by 12.08% in 2017, the mentioned report also shows. A slightly negative evolution was also recorded by the operating income of the company (operating income before the balancing and construction activity according to IFRIC12), which fell by 3.7% compared to 2016, following the reduction by 1.64% in revenues from the domestic transmission activity (their weight in total operating income was 77% in 2017). Revenues from the balancing activity reached at the end of 2017 RON 129.06mln, by 124.8% higher than the value recorded in 2016 (RON 57.4mln). Thus, the company’s operating

result reached at the end of 2017 RON 677.97mln, down 1.9% compared to the value obtained in 2016, while the financial result increased by 86.2%, reaching RON 41.99mln in 2017, from RON 22.55mln in 2016. Following these evolutions, Transgaz recorded at the end of 2017 a net profit of RON 602.18mln, up 1.3% compared to the profit obtained in 2016 (see the chart ‘Transgaz key indicators’).

AT THE BOTTOM OF THE RANKING While last year the less visible companies in the sector, such as Conpet (COTE), Oil Terminal and/or Rompetrol Well Services were the ones that brought spectacularity in financial evolutions (Conpet reported in 2016 a higher profit than in 2015, when it had a historical high profit, and Oil Terminal reported a profit of RON 15.4mln in 2016, by over 2.5 times higher than in the previous year), in 2017 their results, maybe as it was expected, are rather modest. Thus, COTE - the national transmission operator for crude oil and 47

OIL & GAS

TRANSGAZ KEY INDICATORS Despite slightly negative evolutions of some of the key financial and accounting indicators, Transgaz continues to have a good financial situation. Revenues and costs (thousand RON)

Obtained 2016

Operating revenue before the balancing and the construction activity, according to IFRIC12

Estimated 2017

Increase

1.815.385

1.748.372

-4%

57.404

129.056

125%

118.504

63.950

-46%

32.231

190.577

491%

1.125.268

1.070.401

-5%

56.093

129.056

130%

118.504

63.950

-46%

9.683

148.590

1434%

GROSS PROFIT, of which:

713.975

719.957

•

from operation

690.117

677.971

-2%

•

from the financial activity

22.547

41.986

86%

594.565

602.179

Revenues from balancing Revenue from the construction activity, according to IFRIC12 Financial revenue Operating costs before the balancing and the construction activity, according to IFRIC12 Costs related to Balancing Cost of assets built according to IFRIC12 Financial costs

NET PROFIT

The data show the evolution of the key operational indicators reported by Transgaz for 2017. SOURCE: BVB, COMPANY WEBSITE petroleum products through pipelines and railways, reported for 2017 a declining turnover (from RON 381.6mln in 2016 to RON 376.6mln in 2017), amid sales worth around RON 411mln, at the same level as in the previous year. The company also reported a profit of RON 83.54mln, by only 4% higher than that achieved in 2016 (when the profit achieved was RON 71.5mln). The total amount of volumes transported in 2017 reached 6,819.72 thousand tons, up 5.5% compared to the budgeted amount and down 3.7% compared to the amount transported in 2016, amid a lower demand for transmission services. Total revenues 48

from transmission fell in 2017 by 2% compared to 2016, following the reduction of the total amount transported, according to another report, drawn up by the same company - BRK Financial Group, previously mentioned. The report, available on BRK Financial Group’s website, also highlights that, in comparison with the proposed budget, revenues from transmission recorded an increase by 2.3% (plus RON 8.4mln). Specifically, in the country transmission subsystem the revenues from transmission fell by 3.8% in 2017 vs. 2016, while in the import transmission subsystem they grew by 6%. On the other hand, the profitability

of the company improved during 2017, BRK analysts also show. The operating profit increased by 4% and the net profit went up 3% compared to 2016, although the turnover plunged 1.4%. Compared to the budget provisions, EBITDA reached the level of RON 128.12mln, by 1.9% higher, mainly due to an increase in transmission revenues, they also say. Oil Terminal, the largest operator at sea, specializing in the circulation of crude oil, liquid petroleum and petrochemical products and other products and raw materials, through import, export and transit, had an evolution downright disappointing. The company reported for 2017 a profit of only RON 5mln energyindustryreview.com

OIL & GAS

(in significant decline compared to the amount of RON 15mln reported in 2016), amid a decrease in turnover (from RON 161mln to RON 158mln). The turnover fell 1.6% compared to 2016, generated by the decrease by 4.6% of the physical program of services performed in 2017 compared to 2016, according to companyâ&#x20AC;&#x2122;s report. Unlike it, Rompetrol Well Services could be a pleasant surprise this year. The company seems to have overcome in 2017 the unfavourable context in which it evolved over the past two years (reporting losses of RON 30 million in 2015 and RON 6 million in 2016), and recording profit. Thus, the company posted in 2017 a net profit of around RON 2mln, at a turnover of around RON 40mln (in turn climbing by around 30% compared to the turnover posted in 2016). And this

evolution seems to position it favourably for 2018.

EXPECTATIONS AND PERSPECTIVES The evolution of Rompetrol Well Services (PTR) - more precisely companyâ&#x20AC;&#x2122;s profit amid an increase in turnover, may be a sign that the profile industry has finally and decisively overcome the crisis, entering a new growth cycle. Moreover, such a perspective can also be supported by the expectations and estimates expressed by OMV Petrom officials regarding 2018, in the report in which the results for 2017 were published. Thus, OMV Petrom specialists estimate for 2018 an average Brent oil price of around USD 60/bbl and a demand

in continuous growth for petroleum products. At the same time, they say, Romania will register in 2018 a demand for natural gas and electricity at least at the same level as in 2017. It is true that there could be new risks in terms of the legal framework on taxation and royalties - OMV Petrom specialists estimating that a new draft law on royalties will be put up for public debate this year. On the other hand, the profile industry could - or should feel a positive boost given by a number of other events - such as the recently announced takeover by Transgaz of the company Vestmoldtransgaz from the Republic of Moldova, or a potential success of the approach through which the same Transgaz aims to take over (in a consortium) the similar operator in Greece, DESFA.

OIL & GAS

Dauletabad Gas Field

Towrgondi

Herat Farah

Spin Buldak

Nimroz Kandahar

Multan Quetta Fazilka

A NEW SILK ROAD

TAPI to revitalize trade between Central Asia and South Asia 50

energyindustryreview.com

OIL & GAS

Turkmenistan ranks fourth in the world in terms of gas reserves, currently being among the main suppliers of ‘blue fuel’ in Central Asia. Given the favourable geopolitical situation and the rich hydrocarbon reserves, the Turkmen state benefits from special possibilities to increase gas exports to multiple directions, especially to the European and Asian markets. Daniel Lazar

n Turkmenistan, the gas mains I are conceived for long-term supply of natural gas, which creates the conditions for implementing the international agreements on gas supply. They contribute to the successful implementation of the state energy strategy, which ensures the stable transmission of energy resources to the global markets. An important aspect of the energy strategy of Turkmenistan is the expansion of the geography of routes for the export

of Turkmen energy resources to the global markets, including by creating a multi-option transmission infrastructure. In this field, of special importance is the implementation of major investment projects, among which an important place is held by the construction of the gas pipeline Turkmenistan-AfghanistanPakistan-India (TAPI). This project will have an effect of boosting sustainable development, contributing to social and economic growth and ensuring energy security in the region - factors which, in turn, are the ‘backbones’ of the modern architecture of the energy space. The project includes complex works of design, acquisition, construction, operation and maintenance of a pipeline with a length of 1,814 kilometres that will carry gas from Turkmenistan to Afghanistan, Pakistan and India. A section of 214 kilometres of the gas pipeline crosses Turkmenistan, a section of 774 kilometres will be installed in Afghanistan and one of 826 kilometres will go through Pakistan. It is expected that after the full commissioning of TAPI gas pipeline up to 33 billion cubic metres of gas will be exported annually, for 30 years. India and Pakistan will each buy 14 billion cubic metres/year, while the remaining of 5 billion cubic metres/year

will be supplied to Afghanistan. In a relatively short period of time, there was significant progress in the implementation of TAPI project, especially in terms of key agreements, such as the Agreements with the host countries and the Agreement on gas transmission. A strong impetus for promoting the project was given by the consortium TAPI Pipeline Company Ltd and later by the election of the State Concern Turkmengaz as leader of this consortium. TAPI construction started in December 2015, in Mary region. The Presidents of Turkmenistan and Afghanistan, high-ranking officials of India and Pakistan took part in the solemn ceremony on the occasion of the welding of the first joint symbolic golden link of the new gas transmission artery. The laying of the 214-kilometre section of the gas pipeline in Turkmenistan was carried out by the State Concern Turkmengaz. TAPI resource base in the initial stage will be the largest field - Galkynysh. As part of the development of this field, the State Concern Turkmengaz, together with its foreign partners, carries out various works aimed to provide ‘blue fuel’ for TAPI at a high-quality level. 51

OIL & GAS

Key points about the project • TAPI Natural Gas Pipeline will deliver 33 billion cubic metres gas annually from Turkmenistan to Afghanistan, Pakistan and India. • The length of TAPI natural gas pipeline is 1,814 km. • Total construction cost of TAPI pipeline is estimated to be USD 10 billion. • The total life of the project is expected to be 30 years. • Afghanistan will receive annually approximately USD 400 million as a transit fee from TAPI project. • The project will create thousands of new job opportunities.

Courtesy of Embassy of Turkmenistan in Bucharest, Romania

A SHORT HISTORY The TAPI project was originally conceived in the 1990s with a view to monetize Turkmenistan’s gas reserves through gas exports via Afghanistan to Pakistan and India. The project will serve to connect the resourceful gas fields of Turkmenistan to energy deficient power economies in the Indian subcontinent by providing steady supply of natural gas to these countries. The project also has the potential to increase the regional co-operation between the participating countries and further promote security and political stability in the region. In 2002, the governments of Turkmenistan, Afghanistan and Pakistan 52

requested the Asian Development Bank (ADB) to become the Secretariat for a proposed Turkmenistan-AfghanistanPakistan (TAP) Natural Gas Pipeline Project. In March 2003, India was invited to join the project. In its secretariat role, ADB has been assisting the government parties with the preparation of relevant studies in order to guide each government’s decision-making process in further developing the project and establishing the project’s legal framework. TAPI project entered an active phase in 2010, when the Intergovernmental Agreement (IGA) between the four states was signed in Ashgabat.

Then, during 2012-2016, the legal framework of the project was successfully supplemented with the Gas SalePurchase Agreements with all the buyers, as well as with the agreements on shares and investments. In 2013, the Governments of Turkmenistan, Afghanistan, Pakistan and India designated the state-owned companies - respectively Turkmengaz, Afghan Gas Enterprise (AGE), Interstate Gas Service (ISGS), and GAIL - to promote and invest in TAPI project. Additionally, ADB was appointed by the client as the Transaction Advisor (TA) to market the project and attract a suitable client to participate in the Project. In energyindustryreview.com

OIL & GAS

accordance to the transaction advisor’s technical studies the total cost of the project was estimated USD 10 billion.

THE CONSTRUCTION OF THE AFGHAN SECTION BEGINS On 23 February 2018, in the Serhetabat district of Mary region and in the Afghan city of Herat, there were festivities marking the beginning of the Afghan phase for the construction of the Turkmenistan-Afghanistan-PakistanIndia (TAPI) gas pipeline, the installation of the electric power line and optic fibre communication line along the route Turkmenistan-Afghanistan-Pakistan (TAP), a well as the commissioning of the Serhetabat-Turgundi railroad. The events were attended by President of Turkmenistan Gurbanguly Berdymuhamedov, President of Afghanistan Mohammad Ashraf Ghani, Prime Minister of Pakistan Shahid Khaqan Abbasi and Indian Minister of State for External Affairs Mobashar Jawed Akbar. Speaking on the occasion, the Pakistani Prime Minister said that the TAPI gas pipeline project was a historical opportunity to re-establish regional ties. “I assure you of Pakistan’s full commitment to the project,” he told the attendees of the inauguration ceremony. “We are turning TAPI into a reality and there will not be one gas pipeline here but several pipelines,” he added. “We will achieve six percent growth this year and you are all aware of the reality of the China-Pakistan Economic Corridor (CPEC), which is to provide the most efficient connectivity to the region.” During the meeting with President Gurbanguly Berdimuhamedov, the Pakistani official highlighted the importance of the TAPI gas pipeline project, especially with regard to Pakistan’s rising energy needs. Berdimuhamedov and Abbasi talked matters of mutual interest, the security situation in the Central and South Asian region, as well other issues pertaining to the TAPI gas pipeline project. Further, Abbasi underscored that the China-

Pakistan Economic Corridor (CPEC) is a significant part of the One Belt One Road Initiative. TAPI is progressing as scheduled, and in 2019 it is planned to start gas deliveries through the pipeline. Besides the participating countries, which fully support TAPI, the Asian Development Bank is an important and long-term partner of the project. It participates in the project since its inception and continues to provide full support, including by granting low interest loans. Thus, an agreement was reached between the Government of Afghanistan and the Asian Development Bank, on funding the Afghan share capital in TAPI Pipeline Company Ltd.

BENEFITS This mega project is expected to give a strong impetus to the development of economies in the region, will help improve the living conditions of the region’s population and, with the construction of a new social and industrial infrastructure, there will be opportunities to create additional jobs. TAPI will contribute to the formation of electricity, transport, communications and social infrastructure, gas representing not only energy, but also progress. Furthermore, the construction of Turkmenistan-Afghanistan-PakistanIndia gas pipeline (TAPI), the installation of the electric power line and optic fibre communication line along the route Turkmenistan-Afghanistan-Pakistan (TAP) and the commissioning of Serhetabat-Turgundi railroad are meant to promote the social and economic development of Afghanistan, its consistent integration into the system of world economic relations, the country’s involvement in regional and international cooperation as an equal partner. Representatives of the Turkmen, Afghan, Pakistani and Indian governments are working very closely, as TAPI project is extremely important for the development of the region’s economy, primarily for the industrial sector, for

large and small businesses. Thus, local contractors will be involved in delivery and construction works. Countries participating in the project will receive a cheaper, more economic and greener energy source as well as additional gas transit revenue. The implementation of TAPI project will have a positive impact on the socioeconomic development not only of the participating countries but also of the countries in the region as a whole. Turkmen gas will help meet the growing need for ‘blue fuel’ in India and Pakistan, where demand for energy may double by 2030. After the implementation of the TAPI project, India will have its first trans-national gas pipeline. Currently, the country buys gas in liquefied form and transports it with tanker trucks. Bangladesh has also expressed interest in this project.

INVESTMENT OPPORTUNITIES TAPI will serve as a source of power and energy for industries, which could use its gas as their power supply. Establishing gas based medium capacity power plants and gas-consuming industries will be productive and useful investment. Such power plants and grids will provide solid investment opportunities for domestic and international manufacturers and provide small industries the chance to grow and create needed jobs. Moreover, TAPI as a large pipeline construction project will create significant windows of opportunities for companies to participate in the construction of the pipeline and offer employment opportunities for many. Through TAPI project, Turkmenistan contributes significantly to the development of friendly relations and mutually beneficial cooperation to ensure prosperity and sustainable development both on a regional and global scale, playing an active role in revitalizing the Silk Road, which for thousands of years has bound the peoples of Eurasia and has played a significant role in the progress of human civilization. 53

APRIL’S READING

Energy Transition Framework for Cities Mid-size cities leading the way NV GL, the world’s largest D resource of independent energy experts and certification body, has published a new report into the activities of cities around the world that are driving the global transition to a sustainable, decarbonized energy future. The report ‘Energy Transition Framework for Cities’ finds that while megacities attract the headlines, significant innovation and leadership is occurring in mid-size cities, which are more numerous and comprise a greater portion of the world’s population in aggregate. Surveying the activities of ten of the most forward-looking and pioneering cities globally, the report identifies best practices that other cities can use to achieve sustainability and economic development goals, as well as opportunities for partnerships to accelerate the energy transition. Cities consume about 75% of the world’s primary energy and contribute around 60% of global greenhouse gas emissions. Yet until recently, many municipalities didn’t see energy policy as part of their statutory powers. However, cities are now becoming significant players in the energy markets and actively accelerating the shift to a cleaner, more efficient and decarbonized energy supply to address increasingly urgent community concerns. In Energy Transition Framework for 54

Cities, DNV GL examines the policies and initiatives of 10 pioneering cities from the Americas, Europe, the Middle East, Asia and Australia who are at the vanguard of this transition, assessing these activities in seven key dimensions. It finds that cities are increasing their staff and resources through the creation of new programmes, partnerships and services focused on energy generation, procurement and use. While cities have had a great deal of success setting aggressive climate and energy targets and implementing programmes in their own operations, other areas related to financing and resilience remain challenging for them. Although specific strategies and approaches are varied, the Energy Transition Framework described in the report identifies best practices and recommendations for cities to adopt in their own planning processes. “At DNV GL, our vision for a safe and sustainable future requires a broader view across multiple dimensions of the energy transition. Driven by inconsistent international leadership and enabled by changes in technology, energy markets and regulation, cities have emerged as significant players in the energy transition. But there are some challenges they cannot face alone. As our report highlights, utilities, energy providers and other companies have a big opportunity to step up and help cities meet these challenges. Together, we can enhance the lives of millions

by creating more livable and sustainable cities,” says Richard Barnes, Executive Vice President and Regional Manager, Energy North America at DNV GL. “It’s clear that there is no single correct path to a decarbonized energy future for cities. Some cities have been driven by their citizens and others have implemented top-down initiatives. For instance, in Bristol in the UK, the vision of one person – the mayor – was picked up by the whole community. But by drawing on the commonalities across leading cities, we believe the best practices in our report provide a roadmap for other cities who want to embark on the energy transition journey to improve quality of life, sustainability and resilience in our cities for generations to come,” adds lead author Betty Seto, Head of DNV GL’s Sustainable Buildings and Communities Department. The Energy Transition Framework for Cities is compiled with input from over 20 experts from across DNV GL based on decades of experience in sustainable buildings and communities. In the United States alone, DNV GL has more than 350 experts and data analysts specialized in climate planning, energy efficiency and energy management, sustainable buildings and vibrant communities. Through their programs, they have supported hundreds of cities and their energy partners across the world. www.dnvgl.com/publications/energytransition-framework-for-cities-113038 energyindustryreview.com

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CONSTRUCTION

Bouygues Construction and Colas to acquire InTec and the Kraftanlagen Group Alpiq is splitting off the industrial business, creating added value for the Group and thus strengthening its core business. In connection with this, Alpiq has signed an agreement with Bouygues Construction, based in Guyancourt (France), on the sale of the Engineering Services business, which comprises InTec and the Kraftanlagen Group, for CHF 850 million. Closing is expected in the second half of 2018. The sale is subject to customary conditions including the approval by the relevant antitrust authorities in the EU and Switzerland. 56

here are two main reasons for the transaction: firstly, the challenging situation of Swiss production on the free market means that Alpiq currently does not have the funds to enhance the Engineering Services business and thus to strengthen its number one position in various markets. Alpiq is therefore no longer the right owner for the Engineering Services business with its operations in the industrial market. Secondly, the transaction allows Alpiq to create added value for the Group and thus strengthens its core business.

ENGINEERING SERVICES BUSINESS IN INDUSTRIAL HANDS IN THE FUTURE â&#x20AC;&#x153;With Bouygues Construction as the new owner of InTec and Kraftanlagen Group it is a win-win situation that offers both companies and their employees new business prospects. InTec and the Kraftanlagen Group give the new owner access to committed employees who are dedicated to the needs of their customers on a daily basis and an attractive portfolio of innovative, profitable businesses in growth markets,â&#x20AC;? Jasmin Staiblin, CEO of Alpiq, stated. energyindustryreview.com

CONSTRUCTION

Bouygues Construction can successfully develop the business further, make the necessary investments and tap the existing potential. These are the ideal prerequisites for InTec and the Kraftanlagen Group to be able to capitalise on their leading positions under a new umbrella structure. The transaction opens up new prospects for 7,650 employees (4,000 employees and 420 apprentices of which are in Switzerland).

ALPIQ FOCUSES ON ITS CORE BUSINESS This divestment allows Alpiq to focus on its core business, which comprises power production in Switzerland as well as international activities consisting of the flexible, diversified power plant portfolio, the new renewable energies and the strong market presence in energy trading. In addition, Alpiq intends to increase efficiency by making its core business more digital and systematically enhancing its customer portfolio with smart solutions, also outside of Switzerland. After the Engineering Services transaction is closed, the following divisions will remain at Alpiq: Digital & Commerce (international energy trading, customer business with structured products, customer business with digital solutions), international thermal power production and new renewable energies as well as Generation Switzerland (power production in Switzerland). Operating through the companies Alpiq Intec AG, Kraftanlagen München GmbH, Alpiq Engineering Services specialises in hard and soft services in construction and in energy, industrial and transport infrastructures. It employs around 7,650 people, and it reported sales of approximately 1.7 billion Swiss francs in 2017, chiefly generated in Switzerland (57%), Germany (24%) and Italy (12%). This acquisition positions Bouygues Construction as a leading player in energy and services in Europe and is therefore fully in line with its development strategy for this growth market. Through this operation, Bouygues Construction will strengthen its roots in Switzerland in businesses that closely complement those of its subsidiaries, Bouygues Energies & Services Switzerland, Losinger Marazzi, VSL and PraderLosinger. Meanwhile, the acknowledged know-how of Alpiq Engineering Services will also enable Bouygues Construction to expand its portfolio of offers, particularly for carrying out complex projects in industry and energy production. Last but not least, Alpiq Engineering Services will offer an opportunity for entering major new European markets, particularly in Germany and Italy. “Alpiq Engineering Services and Bouygues Construction share the same values and the same culture of innovation and operational excellence. Above all, it’s the quality and the day-to-day commitment of the men and women of our company that ensure our successes. Through the combination of our skills and the complementary nature of our businesses, this acquisition establishes Bouygues Construction as a benchmark player in energy and services in Europe,” Philippe Bonnave, Chairman and Chief Executive of Bouygues Construction, said.

“Alpiq Engineering Services and Bouygues Construction share the same values and the same culture of innovation and operational excellence. Through the combination of our skills and the complementary nature of our businesses, this acquisition establishes Bouygues Construction as a benchmark player in energy and services in Europe.” Philippe Bonnave, Bouygues Construction

CONSTRUCTION

At the same time, Colas Rail’s acquisition of Alpiq Engineering Services’ rail activities will strengthen its expertise in the field of catenaries, a high-value-added business, and give it access to new growth markets. “This acquisition will enable Colas Rail to develop in the Swiss and Italian markets in particular, and to strengthen its presence in Central Europe and the United Kingdom. Alpiq’s recognized expertise in railway power supply will supplement Colas Rail’s portfolio of solutions and knowhow, and will strengthen its leadership as a leading player in the rail sector,” Hervé Le Bouc, Chairman and Chief Executive of Colas, mentioned.

TERMS OF THE OPERATION This acquisition will take place on the basis of an enterprise value of 850 million Swiss francs (700 million Swiss francs for Bouygues Construction and 150 million Swiss francs for Colas Rail). The closing of the operation is scheduled for the second half of 2018, subject to the approval of the European and Swiss competition authorities. The price paid at the closing for the acquisition of all shares will be paid in cash.

ABOUT BOUYGUES CONSTRUCTION IN SWITZERLAND For around 25 years, Bouygues Construction has been a leading player in construction and services on the Swiss market, primarily through two companies. Losinger Marazzi specialises in the development and construction of high value-added projects. Bouygues Construction’s Swiss subsidiary has acknowledged know-how in mixed-use operations, which include offices, retail units, housing and other businesses. Sustainable construction is at the heart of Losinger Marazzi’s strategy. It is currently building several econeighbourhoods (Greencity in Zurich, 58

ABOUT BOUYGUES CONSTRUCTION Bouygues Construction is a global player in construction, with operations in more than 80 countries. It designs, builds and operates projects in the sectors of building, infrastructure and industry. As a responsible and committed leader in sustainable construction, Bouygues Construction sees innovation as its primary source of added value: this is ‘shared innovation’ that benefits its customers at the same time as improving its productivity and the working conditions of its 47,350 employees. In 2017 Bouygues Construction generated sales of EUR 11.7 billion. Colas, a subsidiary of the Bouygues Group, is a world leader aiming to promote transport infrastructure solutions for sustainable mobility. With 55,000 employees in more than 50 countries on five continents, the Group performs some 80,000 road construction and maintenance projects each year. In 2017, consolidated revenue at Colas totalled EUR 11.7 billion (48% outside of France). Net profit attributable to the Group amounted to EUR 328 million.

Quai Vernets in Geneva and Eglantine in Morges). It is also responsible for the construction of technically complex buildings, such as the Rolex Learning Center at the Swiss Federal Institute of Technology in Lausanne and the Jan Michalski Foundation for Writing and Literature in Montricher. Major figures: 6 regional branches (Geneva, Vaud, Bern, Lucerne, Zurich, Basle); over 800 employees; 800 million Swiss francs of annual orders. Bouygues Energies & Services is one of the leading players on the Swiss property and facilities management markets. It manages approximately 4 millions square metres of facilities throughout Switzerland. In particular, it is responsible for managing essential sites for customers who are leaders in the finance sector and in industry. Major figures: 8 regional branches (Zurich, Zug, Basle, Bern, St Gall, Geneva, Lugano, Lausanne); approximately 1,500 employees; 150 million Swiss francs of annual sales. Other subsidiaries of Bouygues Construction also operate in Switzerland, such as PraderLosinger in the public works sector. In addition, the head office and R&D teams of VSL, the Group subsidiary specialising in post-tensioning systems, are located in Switzerland.

ABOUT COLAS RAIL Colas Rail, the rail subsidiary of the Colas Group, is involved in designing, financing, operating and contracting major transport infrastructure (railways, catenaries, signalling, ventilation, smoke extraction, instrumentation and control, freight, etc.) in France, the rest of Europe and a number of other countries, through project-based operations and numerous speciality businesses. With 11 distinct businesses, Colas Rail employs 5,300 people in 22 locations around the world. It generated consolidated revenue of EUR 948 million in 2017. energyindustryreview.com

CONSTRUCTION

Bosch’s triple-digit million investment in Romania SH Hausgeräte GmbH, a Bosch B Group company, is continuing its expansion in Europe and will invest a triple-digit million sum in the coming years in a new site in Romania. BSH has been active in Romania for almost 20 years. The Romanian BSH subsidiary has now acquired a plot covering around 40 hectares to build a washing machine factory. Construction of a production hall, a logistics center and administration building will already get underway this year. BSH plans to start production of the first washing machine in 2020. Once additional production facilities have been set up, the factory will have an annual production capacity of more than one million washing machines for the European market from 2022. Over the next few years, BSH will create around 700 jobs at the new Romanian plant. “Our growth strategy calls for consistent further development of regional markets and 60

the expansion of production capacities. The new site in Simeria offers ideal conditions for producing modern washing machines and for the required logistics. It will be an excellent addition to our manufacturing network,” said Michael Schöllhorn, Chief Operating Officer at BSH. Alongside Germany, Spain and Poland, the new site will in future be the fourth washing machine factory in Europe. BSH will then operate a total of nine washing machine factories worldwide.

ABOUT BOSCH GROUP The Bosch Group is a leading global supplier of technology and services. It employs roughly 400,500 associates worldwide (as of December 31, 2017). According to preliminary figures, the company generated sales of 78 billion euros in 2017. Its operations are divided into four business sectors: Mobility Solutions, Industrial Technology,

Consumer Goods, and Energy and Building Technology. As a leading IoT company, Bosch offers innovative solutions for smart homes, smart cities, connected mobility, and connected manufacturing. It uses its expertise in sensor technology, software, and services, as well as its own IoT cloud, to offer its customers connected, cross-domain solutions from a single source. The Bosch Group’s strategic objective is to deliver innovations for a connected life. Bosch improves quality of life worldwide with products and services that are innovative and spark enthusiasm. In short, Bosch creates technology that is ‘Invented for life.’ BSH Hausgeräte GmbH is one of the world’s leading household appliance manufacturers, with sales of about 13.8 billion euros in 2017 and over 61,800 employees. BSH produces in about 40 factories and is represented by over 80 companies in approximately 50 countries. energyindustryreview.com

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POWER

EC opens investigation into restructuring support for CE Hunedoara 62

energyindustryreview.com

POWER

he European Commission has opened an in-depth investigation to assess whether various public support measures from Romania in favour of energy producer Complexul Energetic Hunedoara are in line with EU rules on State aid to companies in difficulty. On 21 April 2015, the Commission approved temporary rescue aid of EUR 37.7 million (RON 167 million) to the Romanian energy producer Complexul Energetic Hunedoara (CE Hunedoara), which has been in financial difficulty since 2013. In the context of this decision, Romania committed to submit a restructuring plan aimed at ensuring

the future viability of CE Hunedoara, if the company were unable to pay back the rescue aid in six months’ time. In addition, in a separate decision dated 20 April 2015, the Commission concluded that CE Hunedoara had to repay around EUR 6 million of incompatible State aid. EU State aid rules only allow a state intervention for a company in financial difficulty under specific conditions, requiring in particular that the company is subject to a sound restructuring plan to ensure its return to long-term viability, that the company contributes to the cost of its restructuring and that any competition distortions are limited. At this stage, the Commission has doubts whether the proposed restructuring plan could restore the long-term viability of the company without continued State aid: • First, CE Hunedoara entered into insolvency proceedings in 2016 (currently suspended), with more than EUR 500 million debt owed to various State bodies. This includes part of the rescue loan Romania granted CE Hunedoara in 2015, a loan financing the repayment of the incompatible State aid but also additional loans of around EUR 73 million, which Romania has granted to CE Hunedoara since 2015 to keep the company afloat. • Second, the restructuring plan does not foresee a discernible contribution of CE Hunedoara to the costs of restructuring nor measures to limit possible distortions of competition as a result of the significant State support. The Commission will now investigate further to find out whether its initial concerns are confirmed. At the same time, the Commission will continue to work closely with Romanian authorities to find a viable solution for CE Hunedoara’s assets that will ensure they continue to supply electricity, reduce costs for consumers and limit the burden on Romanian taxpayers. The opening of an investigation

gives interested third parties the opportunity to submit comments. It does not prejudge the outcome of the investigation.

BACKGROUND CE Hunedoara is a Romanian Stateowned electricity and heat producer, which also operates hard coal mines to fuel its power plants. Headquartered in Petrosani, Hunedoara County, CE Hunedoara has a market share of approximately 5% of Romanian electricity generation, and employs around 6,600 people. CE Hunedoara was incorporated in 2012 with assets previously held by other insolvent and liquidated State-owned companies (Electrocentrale Paroseni and Electrocentrale Deva, and later on Compania Nationala a Huilei Petrosani). It has been loss-making since 2013, and in January 2016 entered into formal insolvency proceedings under Romanian law. In the meantime, the insolvency proceedings have been suspended pending an appeal by trade unions before a Romanian regional court. Under the Commission’s 2014 Guidelines on State aid for rescue and restructuring, companies in financial difficulty may receive State aid provided they meet certain conditions. Aid may be granted for a period of 6 months (‘rescue aid’). Beyond this period, the aid must either be reimbursed or a restructuring plan must be notified to the Commission for the aid to be approved (‘restructuring aid’). The plan must ensure that the viability of the company is restored without further state support, that the company contributes to an adequate level to the costs of its restructuring and that distortions of competition created by the aid are addressed through compensatory measures. The non-confidential version of the decision will be made available under the case number SA.43785 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. 63

POWER

EU funding for cross-border energy infrastructure The European Commission is making EUR 200 million of funding available for projects in the areas of electricity, smart grids, cross-border carbon dioxide network and gas infrastructure, as part of the first call for proposals under the Connecting Europe Facility (CEF) Energy in 2018. The money is intended for projects that will strengthen the EU’s internal energy market, enhance security of energy supply, and help make Europe’s clean energy transition a reality. The call for proposals will be open until 26 April 2018. he CEF provides EU funding T for infrastructure projects. It supports energy projects that help to achieve the EU’s broader energy policy objectives of increasing competitiveness, enhancing security of energy supply, and contributing to sustainable development and protection of the environment, including by the integration of energy from renewable sources and by the development of smart energy networks and carbon dioxide networks. To be eligible for CEF funding, projects must have been designated as Projects of Common Interest (PCIs). PCIs are considered essential for completing the EU’s internal energy market, and are required to have a significant impact on at least two EU countries. They must also boost competition on energy markets and help energy security by diversifying sources, and contribute to the EU’s climate and energy goals by integrating renewables. Since 2014, a total of EUR 2.5 billion in CEF grants has been awarded to 113 64

actions in the electricity, smart grids and gas sectors. Proposed projects applying to the CEF can be either studies or construction works and will be evaluated against several criteria. These include their state of maturity, their cross-border dimension, and the extent of positive externalities relating to technological innovation, security of supply or solidarity between countries. Projects submitted in response to this call will be evaluated in the coming months, and the results will be communicated in August 2018. A further call will also be launched in June 2018.

ABOUT CEF ENERGY The EU’s energy infrastructure is aging and, in its current state, not suited to match future demand for energy, to ensure security of supply or to support large-scale deployment of energy from renewable sources. The upgrading of existing, and development of new energy transmission infrastructures of European importance will require investments of

about EUR 140 billion in electricity and at least EUR 70 billion in gas. Despite the regulatory measures and policies that are currently put in place to facilitate such investments, under current market and regulatory conditions some energy projects are not commercially viable, and would normally not make it into investment programmes of infrastructure developers. CEF is engineered to address both groups of factors behind the investment gap in the energy sector. Financial instruments, by bringing in new classes of investors and mitigating certain risks, will help project promoters to access the necessary financing for their projects. Grants to contribute to the construction costs will be applied to fill in the gaps in commercial viability of the projects that are particularly relevant for Europe. A total budget of EUR 5.35 billion is made available for energy projects for the 2014-2020 period, of which EUR 4.7 in the form of grants managed by the Innovation and Networks Executive Agency (INEA). energyindustryreview.com

POWER

Fossil fuel firing power plants to reduce their emissions On 1 January 2018, the implementation phase of Directive 2001/80/EC regulating the emissions of large combustion plants started in the Energy Community. This means that fossil fuel firing power plants have to reduce their emissions of sulphur dioxide, nitrogen oxides and dust significantly. The directive also requires that operators as well as the Contracting Parties monitor the emissions of these pollutants and report those to the Energy Community Secretariat. ith the aim of facilitating the W reporting process, the European Environment Agency has recently agreed for the Secretariat to make use of its tools for the reporting and assessment of data submitted by the Contracting Parties. The European Environment Agency provides sound, independent information on the environment for those involved in developing, adopting, implementing and evaluating environmental policy as well as the general public. The Agency already operates according to an established process and possesses a set of tools for reporting the emissions of 66

large combustion plants, an experience that is also highly valuable in the Energy Community context. The Directive on the limitation of emissions of certain pollutants into the air from large combustion plants (LCP Directive, 2001/80/EC) applies to combustion plants with a rated thermal input equal to or greater than 50 MW, irrespective of the type of fuel used (solid, liquid or gaseous). According to the European Environment Agency 2017 report – Air quality in Europe, the concentrations of particulate matter (PM) continued to exceed the EU limit values in large parts of

Europe in 2015. For PM with a diameter of 10 µm or less (PM10), concentrations above the EU daily limit value were registered at 19% of the reporting stations in 20 of the 28 EU Member States (EU28) and in five other reporting countries; for PM with a diameter of 2.5 µm or less (PM2.5), concentrations above the limit value were registered at 6% of the reporting stations in three Member States and three other reporting countries. A total of 19% of the EU-28 urban population was exposed to PM10 levels above the daily limit value and approximately 53% was exposed to concentrations exceeding the stricter WHO AQG value for PM10 in 2015. This represents an increase compared with 2014, but the magnitude of the change may be considered as being within the expected year-to-year variability. Regarding PM2.5, 7% of the urban population in the EU-28 was exposed to levels above the EU limit value, and approximately 82% was exposed to concentrations exceeding the stricter World Health Organization (WHO) Air quality guidelines value for PM2.5 in 2015. This represents a decrease compared with 2014 but is within the expected year-to-year variability. energyindustryreview.com

18 20

10-14 June 2018

Vox Maris Grand Resort Costineยบti, Romania

14th Edition

5 Scientific Sessions I Regional Energy Day I Keynote Addresses I Round Tables I Workshops I Exhibition

www.cnr-cme.ro/foren2018

POWER

Triple profit for Nuclearelectrica For 2018, Nuclearelectrica (SNN) has planned investments of RON 244.8mln, and for 2019 - of RON 338.2mln. According to the draft revenue and expenditure budget of the company, for this year the company relies on a net profit of RON 295.27mln, estimated to increase to RON 314mln next year and to RON 320mln in 2020. Nuclearelectrica ended 2017 with a net profit of RON 303.05mln, almost three times higher than in the previous year, when it stood at RON 111.367mln. The plans are ambitious, but last year the company achieved only 27.6% of the major investment objectives included in the program.

T • •

• •

he main investments scheduled by Nuclearelectrica during 2018-2019 target: • Spent Fuel Intermediary Storage Facility (including SICA U#2) - RON 29.3mln; Modernization and extension of the physical protection system - RON 68.9mln; Improvement of Cernavodă NPP’s answer, respectively of nuclear security functions in case of beyond design base events, following the nuclear accident at the Fukushima 1 nuclear power plant, Japan - RON 80.1mln; Extending the life of U1 by retubing the reactor and retrofitting the main systems - RON 99mln; Increasing the reliability of the EVA 8000 storage system that centrally stores production data

•

of Cernavoda NPP’s IT system by replacing it - RON 18.8mln; Increasing the safety in the operation of the power discharge system at Cernavoda NPP by upgrading the exhaust power transformers and securing a backup transformer for two units - RON 11.2mln.

INVESTMENTS IN 2017 Nuclearelectrica has fulfilled only 27.6% of the major investment objectives in company’s program for 2017, and the degree of realization of the annual investment plan in terms of value cumulated since the beginning of the year is 40%, the report of company’s directors for last year shows. In conditions in which the investment plan hasn’t been fulfilled, Nuclearelectrica proposes shareholders to distribute over

90% of the net profit for 2017, which was RON 303mln, as dividends. “The low degree of realization of the value plan of the investment program for 2017 is also explained by the share of amounts provided in the investment program related to the Head Office, postponed for 2018 (...) Most of the investment projects have accumulated delays both in the course of the procurement procedures and in their implementation, which explains the low degree of realization of the investment program of Cernavoda NPP,” the directors’ report shows.

RESOURCES FOR MAJOR INVESTMENTS Company officials mention in their report that “in the medium and long term, SNN must preserve its funding sources in order to implement significant investment projects.” energyindustryreview.com

POWER

Among the major projects, Nuclearelectrica considers retrofitting Unit 1 of Cernavoda NPP, with an estimated value of EUR 1.2-1.5bn. For Unit 1, whose lifetime is nearing its end, retrofitting needs to be completed by 2025-2026, but the process itself must begin 10 years ahead. For example, technical studies should be completed in 2018. For the retrofitting of Unit 1 alone, investments of RON 99.4mln are provided in 2018 and 2019. There is also an investment in the detritiation facility with an estimated value of EUR 170180 million, with the final investment decision being subject to approval by the General Meeting of Shareholders in the near future. It is necessary to reduce tritium emissions to the environment.

ACQUISITIONS FROM THE FOREIGN MARKET In order to ensure stability, predictability and continuity of production, Nuclearelectrica would buy uranium octoxide from the market to process it at the Feldioara plant. The proposal is found in a document prepared by the Institute for Studies and Power Engineering (ISPE), at company’s request, within the strategy of the nuclear energy producer to diversify its sources of raw material supply necessary to produce nuclear fuel. The strategy, which will be subject to shareholders’ vote on 25 April, was necessary as the current situation is against ESA (Euratom Supply Agency) recommendations. Nuclearelectrica has only two qualified suppliers of uranium dioxide: Cameco Inc. Ltd. (Canada) and the National Uranium Company, but as the latter has a difficult financial situation and will undergo a restructuring program, Nuclearelectrica risks not being able to provide the continuity and predictability of nuclear fuel production. With the approval of the strategy, Nuclearelectrica will purchase uranium octoxide from the market, process it at

Feldioara to obtain uranium dioxide, which it will convert to nuclear fuel at FCN Pitesti. Legislative changes will be necessary for this purpose, the quoted document also shows. Until then, SNN will initiate a procurement procedure for about 720 tons of uranium dioxide (UO2) needed for a period of 36 months, by concluding a framework contract with the two qualified suppliers. “This procurement contract for the necessary UO2 will clearly specify the conditions of delivery, as well as the fact that these deliveries will be made exclusively based on SNN request,” the company’s report also states.

STATUS OF THE ALFRED PROJECT A Memorandum of Understanding was signed on 14 March between Nuclearelectrica (SNN) and the Partnership for Research and Education for Advanced Nuclear Systems (CESINA), represented by the Institute for Nuclear Research within the Autonomous Nuclear Energy Administration (RATEN ICN). Signing this Memorandum aims at the involvement of both signatory parties in accelerating the development and use of advanced technologies with low emissions of carbon dioxide, improving new technologies and reducing costs by coordinating national research efforts, and also the interest and involvement of SNN in the development of nuclear technologies of the future, as a means of sustainable use of nuclear energy in Romania, complementary to the current nuclear program. ALFRED project is a reference research project for Romania, being the main component of a unique research infrastructure to be built on the platform of the Pitesti-Mioveni Institute for Nuclear Research, and the Ministry of Energy supports and promotes nuclear research, identifying opportunities for cooperation and development of nuclear programs in Romania. “This partnership consists of identifying opportunities for cooperation in punctual

programs, tailored to the expertise and needs of both parties, for the development of the ALFRED project - the IV generation reactor in whose development Romania is involved through ICN Mioveni,” IulianRobert Tudorache, State Secretary in the Ministry of Energy, has mentioned. “Signing this Memorandum is an important step for Romania’s efforts in the ALFRED project. This partnership can only be beneficial, as it brings together the experience of researchers from both companies. It is the interest of each state to research and develop the latest, most efficient and safest nuclear systems, and from this point of view Romania is among the main players at European and global level. ICN Mioveni and Nuclearelectrica can collaborate for the development, design, testing , licensing and construction of the ALFRED project, developed by the international consortium FALCON. For the Ministry of Energy and for this Government, research in the nuclear sector and ensuring a mix that guarantees Romania’s energy security, but which also transforms us in a country with a leading role in the region in this field, are a priority,” the official highlighted. “The signed agreement represents a very important step towards the increase of the national capabilities in the nuclear field necessary for the implementation of the project. The high expertise and existing experience of SNN regarding the authorization, design, commissioning and operation of nuclear installations brings an essential component in the implementation of the ALFRED project. At the same time, the entire project ensures significant opportunities for the nuclear industry which will bring an important contribution to the construction of the experimental installations and of the demonstration reactor, thus creating the premises for the development of the national industry in a highly technological field,” – Constantin Paunoiu, RATEN ICN Director, added. The Memorandum of Understanding is valid for 3 years and can be extended through the agreement of the parties and does not imply financial costs to SNN, considering SNN’s contribution through the expertise of its specialists. 69

POWER

ENGIE and the CEA renew their cooperation sabelle Kocher, CEO of the I ENGIE group, and Daniel Verwaerde, Administrator General of the CEA (the French Alternative Energies and Atomic Energy Commission), have signed up to continue their Research and Development agreement in the nuclear energy field. In extension of the cooperation which has linked ENGIE and the CEA since 2007, a new agreement has been signed, which commits the partners for two years in the following technical fields: • Improvement in the performance and safety of reactors; • Development of knowledge about change phenomena in materials, equipment and components, including reactor vessel and internals; • Dismantling, deconstruction and clean-up of nuclear facilities; • Control over radiation protection and discharge and waste management. In 2018, the work will consist in finalising studies on molecules used to improve the flexibility of operating the coolant circuits of reactors and developing new technologies for conditioning waste. This research will supplement the very positive outcome of the work undertaken over the past five years by ENGIE and the CEA, in particular through R&D projects related to the issues of clean-up and dismantling. 70

The extension of the cooperation agreement with the CEA confirms ENGIE’s wish to continue to develop its technical and human skills in the nuclear industry. Being an actor for over 50 years in nuclear energy ENGIE covers, through its experience and expertise, the entire nuclear energy value chain. The Group operates seven nuclear units in Belgium. In addition to this expertise as a nuclear operator, ENGIE is strategically placed and active in the delivery of services - engineering and design, installation, fuel management, maintenance, the management of radioactive waste and decommissioning -, with 7,000 engineers and technicians who have specific nuclear skills and it recorded turnover of EUR 860 million in 2017. For a long time, the Nuclear Energy Division of the CEA has carried out research on industrial issues aimed at improving the operating life, performance, availability and safety of reactors as well as waste management, clean-up and dismantling. Relying on this research, the CEA contributes its expertise, its skills and its experimental resources as well as its software platforms, tailored to the R&D studies undertaken in its cooperation with ENGIE. ENGIE is committed to take on the major challenges of the energy revolution, towards a more decarbonised, decentralised and digitized world. The

Group aims to becoming the leader of this new energy world by focusing on three key activities for the future: low carbon generation in particular from natural gas and renewable energies, energy infrastructures and efficient solutions adapted to all its clients’ needs (individuals, businesses, territories, etc.). The customers’ satisfaction, innovation and digital are at the heart of ENGIE’s development. ENGIE is active in around 70 countries, employs 150,000 people worldwide and achieved revenues of EUR 66.6 billion in 2016. The Group is listed on the Paris and Brussels stock exchanges (ENGI) and is represented in the main financial indices (CAC 40, BEL 20, DJ Euro Stoxx 50, Euronext 100, FTSE Eurotop 100, MSCI Europe) and non-financial indices (DJSI World, DJSI Europe and Euronext Vigeo Eiris - World 120, Eurozone 120, Europe 120, France 20, CAC 40 Governance). The main subsidiary of the Group in Romania, ENGIE Romania, supplies natural gas and electricity, and through its subsidiaries distributes natural gas, provides energy services to all categories of customers and produces electricity. ENGIE Romania and its subsidiaries serve approximately 1.65 million customers, operate a network of 19,100 kilometers in 19 counties in the south of Romania and Bucharest and have 3,700 employees. energyindustryreview.com

POWER

Euratom Programme 2021-2025 objectives ne of Europe’s main goals in O the run up to 2050 is to reduce its CO2 emissions by up to 95%. To do this, the power sector – which accounts for a significant share of EU emissions – will need to be fully decarbonised. Low-carbon technologies, such as nuclear and renewables, will play a key role in this transition. By combining these two, Europe will have access to the energy it needs, when it needs it, whilst at the same time achieving its carbon reduction goals.

LOW-CARBON NUCLEAR Already today, nuclear accounts for 50% of the low-carbon electricity generated in the EU, avoiding approximately 700Mt of CO2eq emissions each year! Looking ahead, nuclear will remain an important contributor to achieving the EU’s climate change goals. Indeed, the IEA/NEA Technology Roadmap (2015) concludes that global nuclear capacity needs to more than double by 2050 if the 2°C ceiling of the Paris Agreement is to be respected.

MAKING THE MOST OF RESEARCH TO ACHIEVE OUR CLIMATE GOALS In order to maintain low-carbon nuclear electricity production in the EU, a mixture of new build and long-term operation of existing nuclear power plants will be needed. A strong nuclear research and training capability is essential to

underpin these operations and Euratom believes that R&D activities should focus on, for example: • Development of new reactor concepts that are more efficient, more sustainable and more economic; • Improving the safety and efficiency of current light-water reactors (LWR); • A better understanding of ageing phenomena and how to control and mitigate them; • • Improving reactor components and fuel to make them better able to withstand radiation and higher temperatures; • Development of waste management and disposal techniques for nonstandard waste streams; • Development of new recycling technologies for fast reactor fuels; • Maintenance of shared, large research infrastructures of common interest, which can be useful for training and encouraging researcher mobility. Significant investment in research facilities, as well as in human resources and equipment, will be needed to achieve these aims. Development of new reactor concepts, in particular, demands the building of expensive pilot plants and ultimately demonstration reactors. If Europe is truly committed to decarbonising its economy, then this should be reflected in the budget allocated to nuclear R&D. Indeed, in the

latest Nuclear Illustrative Programme (PINC), published in 2017, the European Commission itself states that “Continuing to pursue research and development is instrumental to maintain the EU at the forefront of nuclear technology and develop the highest standards of safety, security, waste management and non-proliferation. This implies continued investment on research and training/education, as well as on nuclear research infrastructure”. As a partner in this project, FORATOM has committed to developing a communications strategy aimed primarily towards both industry and policy makers. It will focus on ensuring that adequate emphasis is placed on attracting, developing and retaining nuclear talent. Euratom is a complementary research programme for nuclear research and training. Euratom aims to pursue nuclear research and training activities with an emphasis on continually improving nuclear safety, security and radiation protection, notably to contribute to the long-term decarbonisation of the energy system in a safe, efficient and secure way. FORATOM is the Brussels-based trade association for the nuclear energy industry in Europe. FORATOM acts as the voice of the European nuclear industry in energy policy discussions with EU Institutions and other key stakeholders. The membership of FORATOM is made up of 15 national nuclear associations representing nearly 800 firms. 71

RENEWABLES

ANRE reduces the obligation of green certificates acquisition Adrian Stoica

he National Regulatory Authority for Energy (ANRE) has established for the first quarter of the year a 30% lower quota of green certificates (GC) that energy suppliers and other economic operators must purchase. Renewable energy producers accuse the measure, which would actually target the reduction of influence on bills to end-consumers, with the risk of distorting the market by increasing the excess of green certificates in the market. Through a press release issued on 12 March, the Renewable Energy Producers Organization in Romania (PATRES) calls on the Committee for Industries and Services of the Chamber of Deputies to adopt the amendments to GEO 24, in order to ensure fairness between energy producers from renewable sources and to avoid generalized collapse of producers who cannot sell their green certificates. 72

“The Renewable Energy Producers Organization in Romania - PATRES took note, with surprise and concern, of the decision of the National Regulatory Authority for Energy to establish a mandatory quota for green certificates acquisition for economic operators, related to the first 3 months of 2017, at a value of 0.21 green certificates/MW (according to ANRE Order no. 30, published in the Official Journal no. 187/28.02.2018),” the quoted document shows. “We find that ANRE has opted for a mandatory quota of green certificates for the first quarter of 2017 of 0.21 GC/ MWh, a reduced level compared to that provided under the Order 119/2016, of 0.32 GC/MWh, with a major impact on economic operators. It is a major decrease, by almost 30%. Consequence: losses of energy producers from renewable sources will increase. Basically, producers will no longer be able to sell 1.25 million green certificates related to 2017, plus the over 11 million in excess in the market at this point,” PATRES

President Viorel Lefter has stated. From year to year, the mandatory quota of energy from renewable sources supported has been reduced so that the impact of green certificates in the energy bills of end-consumers does not increase. Thus, the quota for 2017 was set at 8.3%, below the level in 2016 and well below the quota of 16% initially provided under Law 220, law based on which investments have been made in the renewable energy sector. PATRES reported that “the successive reduction of the quota leads to a very low degree of absorption of green certificates, which will amplify even further market distortions and will cause huge losses for producers.” Moreover, for 2017 and 2018, of the total green certificates in the market, only half are covered by the quota and have buyers. The imbalance will increase strongly in the following years, reaching the situation in which out of 5 certificates valid in the market, only one will be energyindustryreview.com

RENEWABLES

purchased. Basically, the support scheme has already fully collapsed and producers receive a virtual aid that they cannot materialize. “We express our hope that, through the amendments to be brought to GEO 24, together with other non-functional aspects, two fundamental problems will be solved, namely: liquidity and degree of absorption of certificates in the market and how the aid is distributed, some producers managing to sell all their certificates, while others don’t sell anything , a situation which we consider unfair. Our call to authorities is to create the regulatory framework to support all producers of RES-E. We use this opportunity to welcome the openness and support of ANRE and of the specialized Parliamentary Committee, led by Iulian Iancu, on proposals to improve/correct GEO 24, amending

Law 220. It is our last chance to save from bankruptcy numerous RES-E producers. Romania needs renewable energy, which is also proven in periods of crisis from last year and in cold days from this winter, when the contribution of renewable energy was considerable, with beneficial effects in energy prices,” PATRES President also mentioned. Another important aspect that must be considered by authorities: according to the recommendation adopted on 17 January by the European Parliament, EU Member States must reach, by 2030, a target of 35% of energy from renewable sources. The final decision belongs to the European Commission, after negotiations with the Member States. Romania in 2015 reached a level of 24.7%, but in the context in which

investments in renewable energy have been systematically destroyed, for our country it will be very difficult to reach in the future a share of over 30% without restoring investor confidence.

ABOUT PATRES The Renewable Energy Producers Organization in Romania started its activity in 2014, at the initiative of a group of producers of energy from renewable sources, dissatisfied with the frequent changes and mismatches of the legislative system with the realities and needs of producers. Currently, PATRES includes 100 companies energy producers from all the spectrum of renewable energy, with an installed capacity of about 1,000 MW.

RENEWABLES

EBRD and Energy Community Secretariat Policy Guidelines for renewable energy auctions he European Bank for Reconstruction and Development (EBRD) and the Energy Community Secretariat have issued on March 26 joint Policy Guidelines to help countries design and implement competitive selection processes for supporting renewable energy. The Policy Guidelines have been prepared in collaboration with the International Renewable Energy Agency (IRENA). Across the world countries are using competitions to set the level, and select the recipients, of support for renewable electricity. These competitions are driving down the cost of renewable energy with great success, in many cases to below the cost of conventional power. But careful design of these competitions is crucial, both to ensure their success and to avoid distorting the rest of the energy market. The Policy Guidelines set out best practice for the key design principles for such competitions. “Our cooperation with EBRD and IRENA has set a new standard. Merging forces, that is knowledge of the rule of law, practical expertise and financing , made it

possible to design Policy Guidelines that will truly ensure the cost-effectiveness of renewable energy deployment. Renewables support schemes must be compatible with state aid rules to allow fair competition on the market. Only such an approach will pave the way for a sustainable energy future in the Energy Community and wider,” Janez Kopač, Director of the Energy Community Secretariat, said. “We have seen first-hand how successful competitions can be in stimulating innovation and efficiency, resulting in record low prices for renewable energy. This is a very exciting development in the fight against climate change. We are delighted to have been able to partner with the Energy Community Secretariat, and benefit from the support and guidance of IRENA, in setting out the key parameters to make such auctions successful,” Harry Boyd-Carpenter, Director of Power and Energy Utilities at EBRD, added. Through collaboration with IRENA, the Policy Guidelines have benefitted from its extensive work and expertise on designing different elements of renewable energy auctions. “One of the most significant recent policy

developments is the growing popularity of renewable energy auctions,” said IRENA Director-General Adnan Z. Amin. “Countries are turning to auctions as an instrument of choice to reach a competitive price for renewable energy electricity while achieving socio-economic and environmental benefits. These policy guidelines provide a critical design tool for countries as they seek to accelerate sustainable and affordable renewable energy solutions.” The Policy Guidelines are already being reflected in the policy work of the EBRD and the Energy Community Secretariat – most notably in Albania and former Yugoslav Republic of Macedonia, where the EBRD is providing assistance to authorities that is underpinned by the Policy Guidelines; and in Ukraine, where the Policy Guidelines are informing the discussions on the policy framework for supporting renewables. Further assistance is planned to help Energy Community countries transition to support frameworks that rely on competitive procurement. The Bank expects them to provide important guidance for its work throughout its countries of operations. energyindustryreview.com

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METALS & MINING

ROMANIAN MINING REVIVES

FROM THE BLACK HOLE OF THE ECONOMY TO PROFIT

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METALS & MINING

The mines closed one by one by the Romanian state, as owner, are starting to be reopened by foreign companies. Pulled out of bankruptcy, they are put to work again using the latest technologies. The most illustrative example is that of gold mines that the Romanian state has renounced to exploit since 2005 on the grounds that the deposits were exhausted. Now, foreign companies show that things are quite different.

gold mining potential in Cavnic area, Maramures County. Company’s manager, Nigel Munro Ferguson, has recently met with local authorities to find together the possibilities of reopening the mines in the area. Ferguson is not at the first attempt to take over mines in Romania, initially targeting a number of copper mines, but the discussions carried out at the Ministry of Economy haven’t been completed yet.

Adrian Stoica

SAMAX TO MINE FOR GOLD IN APUSENI MOUNTAINS

OFZ HAS BOUGHT A MANGANESE MINE Slovakia’s OFZ has recently bought a manganese quarry. Located in Vatra Dornei, the quarry had been part of the defunct company MinBucovina, entered into bankruptcy in 2008 and it was subsequently taken over by another company that, in turn, went into insolvency. Against a price of EUR 1mln, the representatives of the Slovak company, which produces ferro-alloys, say that this quarry will provide about one-fifth of the manganese demand for at least 20 years. According to the Slovak company, the mine is a stable source of manganese for the company, and purchasing it will allow OFZ to annually make savings of half a million euros.

VAST RESOURCES CONTINUES INVESTMENTS British company Vast Resources will invest USD 2.6mln to develop the metallurgical complex near Sucevita mine, in Suceava County. Vast Resources, company listed on AIM market of the London Stock Exchange, owns in Romania 100% of the gold project Manaila, Suceava County, and 80% of the polymetallic mine from Baita, Bihor County, for which it is waiting to get the operating license from NAMR. The money announced

to be invested represents part of the first instalment of the financing agreement of USD 9.5mln concluded in January this year by the British company with Mercuria Energy Trading SA. “By concluding this first phase of the agreement, Vast Resources will allocate USD 2.6mln to develop the mines managed in Suceava and Bihor counties. Company’s priority for this year remains the construction of the metallurgical complex near the mine in Suceava, whose purpose is to contribute to reducing transport costs, streamlining the entire process and increasing the production capacity,” a communique of the British company reads. The second instalment of the agreement signed with Mercuria Energy Trading, worth USD 5.5mln, is expected to be traded in July this year, according to the plan announced by the company, which reported early this year through the voice of Andrew Prelea, CEO of the company, that for 2018 the investment budget allocated for Romania was USD 9.5-10mln. Shareholders of Vast Resources, a company listed on the alternative market of London Stock Exchange, include internationally renowned companies such as Barclays or Investec Wealth & Investment.

THE AUSTRALIANS EYE THE MINES IN MARAMURES Australia’s Okapi Resources Limited wants to develop mining projects with

SAMAX Romania could soon start gold mining from Rovina perimeter, located in Hunedoara County. For now, the Executive is expected to approve the concession license for the activity of mining for copper ore with gold content in Rovina perimeter. SAMAX Romania will have to pay taxes and royalties. The annual tax on mining exploitation is RON 34,180/sq km. Royalty is 5% of the value of mining production for non-ferrous ores and 6% for noble metals. Moreover, local taxes also have to be paid. The surface of the mining site is 27.678sq km. “Consequently, the annual value of the tax on mining activity is RON 946,034.04. The value of the mining production estimated for the concession period of 20 contractual years is USD 3,697,911,600 for gold and USD 1,772,194,945 for copper. Consequently, the value of royalty owed to the state budget for the concession period is USD 221,874,696 for gold and USD 88,609,737.25 for copper,” the decision prepared by the Government shows. In total, the Romanian state would have to collect from royalties during the 20 years of concession a value of USD 310,484,443.25. The deposit in Rovina, near Rosia Montana, contains gold-copper ore of porphyry copper type, easier to exploit through the floatation method - a technology that does not involve the use of cyanide. The gold deposit in Rovina is the second largest in Europe and is valued at around USD 5 billion. 77

TECH

EUR 2.7 billion to create the markets of the future Last year, the European Commission announced it will spend EUR 30 billion of the EU research and innovation funding programme Horizon 2020 during 2018-2020, including EUR 2.7 billion to kick-start a European Innovation Council. 78

orizon 2020, the EU’s EUR 77 H billion research and innovation funding programme, supports scientific excellence in Europe and has contributed to high-profile scientific breakthroughs such as the discovery of exoplanets and gravitational waves. Over the next 3 years, the Commission will seek greater impact of its research funding by focusing on fewer, but critical topics such as migration, security, climate, clean energy and digital economy. Horizon 2020 will also be more geared towards boosting breakthrough, market-creating innovation. “Artificial Intelligence, genetics, blockchain: science is at the core of today’s most promising

breakthrough innovations. Europe is a world leader in science and technology and will play a major role in driving innovation. The Commission is making a concerted effort – including with the European Innovation Council which takes its first steps today – to give Europe’s many innovators a springboard to become world leading companies,” Carlos Moedas, Commissioner for Research, Science and Innovation, stated.

SUPPORTING BREAKTHROUGH, MARKET-CREATING INNOVATION Since the beginning of its mandate, the Juncker Commission has been energyindustryreview.com

TECH

working hard to give Europe’s many innovative entrepreneurs every opportunity to thrive. Now, the Commission is launching the first phase of the European Innovation Council. Between 2018 and 2020, the Commission will mobilise EUR 2.7 billion from Horizon 2020 to support high-risk, high-gain innovation to create the markets of the future. Moreover, Horizon 2020 will make better use of its ‘crack the challenge’ prizes to deliver breakthrough technology solutions to pressing problems faced by our citizens.

FOCUSING ON POLITICAL PRIORITIES The 2018-2020 Work Programme will focus efforts on fewer topics with bigger budgets, directly supporting the Commission’s political priorities: • A low-carbon, climate resilient future: EUR 3.3 billion; • Circular Economy: EUR 1 billion; • Digitising and transforming European industry and services: EUR 1.7 billion; • Security Union: EUR 1 billion; • Migration: EUR 200 million. EUR 2.2 billion will be earmarked for clean energy projects in four interrelated areas: renewables, energy efficient buildings, electro-mobility and storage solutions, including EUR 200 million to support the development and production in Europe of the next generation of electric batteries.

BOOSTING ‘BLUE SKY’ RESEARCH At the same time, Horizon 2020 will continue to fund ‘curiosity-driven science’ (often referred to as ‘blue sky science’ or ‘frontier research’). The annual Work Programme of the European Research Council for 2018 will enable support for excellent researchers with nearly EUR 1.86 billion. Marie Skłodowska-Curie Actions, which fund fellowships for researchers at all stages of their careers, receive a boost with EUR 2.9 billion in total over three years.

ENHANCING INTERNATIONAL COOPERATION The new Work Programme also strengthens international cooperation in research and innovation. It will invest over EUR 1 billion in 30 flagship initiatives in areas of mutual benefit. Examples include working with Canada on personalised medicine, with the US, Japan, South Korea, Singapore and Australia on road transport automation, with India on water challenges and with African countries on food security and renewable energies. SPREADING EXCELLENCE Between 2018 and 2020, EUR 460 million under Horizon 2020 will be allocated specifically to supporting Member States and associated countries that do not yet participate in the programme to their full potential. The aim is to tap into the unexploited pockets of excellence in Europe and beyond. In addition, the programme also continues to promote closer synergies with the European Structural and Investment Funds.

SIMPLIFYING RULES OF PARTICIPATION FURTHER Another novelty is the introduction of the lump-sum pilot, a new, simpler approach to providing financial support to participants. It will shift the focus of exante controls from financial checks to the scientific-technical content of the projects.

OPEN SCIENCE The programme marks a step change in promoting Open Science by shifting from publishing research results in scientific publications towards sharing knowledge sooner in the research process. EUR 2 billion will be channelled to support Open Science, and EUR 600 million will be dedicated to the European Open Science Cloud, European Data Infrastructure and High-Performance Computing.

BACKGROUND Horizon 2020 is the EU’s biggest ever research and innovation framework programme with a budget of EUR 77 billion over seven years (2014-2020). While most research and innovation activities are still underway or yet to start, the programme is delivering. Horizon 2020 researchers have contributed to major discoveries like exoplanets, the Higgs boson and gravitational waves, and at least 19 Nobel Prize winners received EU research funding prior or after their award. As of October 2017, Horizon 2020 has in total funded more than 15,000 grants to the tune of EUR 26.65 billion, of which almost EUR 3.79 billion went to SMEs. The programme has also provided companies, in particular SMEs, with access to risk finance worth over EUR 17 million under the ‘InnovFin - EU finance for innovators’ scheme. Furthermore, 3,143 ERC Principal Investigators in host organisations and 10,176 fellows under the Marie Skłodowska-Curie Actions have received grants worth almost EUR 4.87 billion and EUR 2.89 billion respectively. Simultaneous to the adoption of the Horizon 2020 Work Programme 20182020, the Euratom Work Programme 2018 has been adopted, investing €32 million in research into the management and disposal of radioactive waste. It will also develop a research roadmap on safe decommissioning of nuclear power plants to reduce environmental impact and costs. Spanning seven years (2014-2020) and with a budget of EUR 77 billion, Horizon 2020 is the biggest EU research and innovation funding programme ever. It is implemented via multi-annual work programmes. On 27 October 2017, the European Commission presented the final Work Programme for Horizon 2020, covering the budgetary years 2018, 2019 and 2020 and representing an investment of around EUR 30 billion. 79

TECH

ÂŠELKO

First professional training center for Smart Cities in Romania 80

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TECH

ELKO Romania, company member of ELKO group, specializing in the distribution of a wide range of IT equipment and solutions, announces the opening of the first local training center Allied Telesis in Romania. The program offers those interested, partners or end-users, the possibility to specialize in several stages, in line with the current market requirements. Trainees have access to the entire range of certifications Allied Telesis, available in the same form around the world. The first courses were organized on 15-16 March in Bucharest, at ELKO Demo & Training Center.

ertifications granted by Allied C Telesis are carried out in three steps: Certified Allied Telesis - Technician (CAT), Certified Allied Telesis - Professional (CAP) and Certified Allied Telesis - Expert (CAE). “We are aware that the professional approach of the projects requires a permanent effort in educating and training both us and our partners. Therefore, we considered our development and investment in education and training essential. Allied Telesis is one of our solution partners, and ELKO Demo & Training Center is the place where the representatives of integrators can see the solutions in place, benefit from training sessions and get certifications to help them offer and differentiate themselves,” Gabriela Gheorghe, General Manager of ELKO Romania, believes. “Last year, in Europe, on average 20% of the companies with more than 10 employees needed to hire specialists with IT training. About half of them had difficulties in finding staff with the necessary knowledge and skills. In this context, in which the acute need for specialists in IT solutions is shown in Romania, to the same extent as throughout the European Union, Allied Telesis and ELKO Romania have opened the first professional training center. Together, we strive to help raising the level of training in the field of wired and wireless communications networks, whether traditional structures, campus or new IoT approaches. The technologies studied allow

graduates of these courses to approach their projects in a new and creative way with optimized results in terms of their subsequent implementation and operation. Obviously, the certification obtained following the final exam is recognized throughout the world and we already have several thousand members of the club of those who hold an Allied Telesis certification,” said Calin Poenaru, Country Manager, Allied Telesis.

ABOUT ALLIED TELESIS For almost 30 years, Allied Telesis has been delivering reliable and smart connectivity solutions for any environments, from enterprises to complex projects of critical infrastructure, all over the globe. In a world heading to Smart Cities and Internet of Things, the networks must evolve quickly to keep up with the new challenges. Smart technologies from Allied Telesis, such as Allied Telesis Management Framework™ (AMF) and Enterprise SDN, take care that network evolution keeps up with changes, so that the network provides effective and secure solutions for people, companies and ‘smart things’ - now and in the future.

ABOUT ELKO ELKO Group is one of the largest distributors of IT products and

solution in the region, representing 210 producers and providing an extensive range of products and services to more than 7,700 companies, computer manufacturers, retailers, system integrators from 30 countries in Europe and Central Asia. The group’s turnover amounted in 2016 to USD 1,460 million. ELKO Romania is part of ELKO Group and specializes in the distribution of a wide range of IT equipment and solutions: mobile solutions, components, IT and storage infrastructure solutions, video surveillance solutions, industrial equipment, software, peripherals. The company sells its portfolio products exclusively through its partners, reseller companies (resellers, retailers, e-tailers, companies that design, install and resell IT solutions, communication and video surveillance systems), addressing all IT & Telecom distribution channels.ELKO Romania is a distributor with a unique position in this region, the company’s mission being to connect the expertise and knowledge of the partners, thus achieving complex and effective integrations, with the best solutions possible. Due to the high technological level and extensive flexibility, the products of Allied Telesis represent the basis of solutions arising from the concept Internet of Things (IoT). 81

ANALYSIS

Does Romania need a capacity market? Eugenia Gusilov - Director & Founder at Romania Energy Center

A capacity mechanism creates a two commodities market: one for energy and one for availability of energy. Romania’s electricity market was designed as a very competitive energy-only market. Officially Romania does not have a capacity mechanism notified to or approved by the European Commission. However, in 2013, before the adoption of the new Environmental and Energy State Aid Guidelines (EEAG) - which came in effect on July 1, 2014, the Romanian government adopted Government Decree 138 which was advocated as a Capacity Mechanism. Since it pre-dated the adoption of the EEAG in 2014, it hasn’t been notified to the European Commission. Consequently, since mid-April 2013 until December 2017, in Romania there was a measure in place that functioned as a Capacity Mechanism but was in effect a masked state aid to coal power plants granted without public consultation and an adequacy assessment, in short - a support scheme which managed to stay under the radar of the European Commission. Is there a real need for a capacity mechanism in Romania? Only an in-depth adequacy assessment can answer the question.1 1 Text first published as ROEC Policy Brief - “Capacity market vs energy-only market. The case of Romania”, March 2018.

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ANALYSIS

n ‘energy only market’ is a wholesale electricity market where generators obtain revenues from sale of electricity, balancing power and ancillary services. In such a market, supply and demand determine profitability of generation activities and future investment incentives. According to a European Commission Staff Working Document from 2016, “Current liberalized electricity markets in the EU are imperfect examples of energy-only markets, given that in most Member States some or all generators obtain revenues through channels other than market prices, for instance in the form of subsidies and payments that affect their incentives to invest in generation capacity.” Situations when markets fail to incentivize the building of sufficient generation capacity to meet demand (through high enough prices during tight supply) generate the so called ‘missingmoney problem’. Even after reforms are enacted, there may be a ‘residual missing money problem’ left. Which is when the introduction of a Capacity Mechanism (CM) can be considered in order to address residual market

failures. Since capacity mechanisms are ‘support schemes that remunerate the availability of electricity generation’ on top of revenues obtained from the sale of electricity, they are a form of last resort market intervention which may involve state-aid. Because they may involve state aid, they have to be checked for compatibility with Guidelines on state aid for environment and energy (EEAG), so notified to the European Commission, which has to approve them. The EU legal framework for Capacity Mechanisms is defined by the 2014 state aid rules and, going forward, by the final provisions of the Clean Energy for All Europeans package. Until 2015, there was only one case of Capacity Mechanism approved (SA.35980 for the UK) under the new provisions on capacity markets in the new Environmental and Energy State Aid Guidelines (EEAG) - the first time when the Commission assessed a capacity market under EEAG. No cases at all were approved in 2015, 2 CM schemes were approved in 2016, and 2 in 2017. In February 2018 the European Commission (EC) approved 6 more

capacity mechanism cases: SA.48648 (Belgium), SA.45852 (Germany), SA.42011 (Italy), SA.46100 (Poland), SA.48490 (France) and SA.48780 (Greece) which will be published in the State aid register. In fact, two of them (Italy and Poland) already appear in the register (see last 2 positions in the table above). In 2016, the Commission conducted a sector inquiry on existing and planned CM. The inquiry covered 11 countries (Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden) and found 25 past, existing and planned CM, which can be divided into: • Targeted mechanism (2/3 of existing mechanisms); • Market-wide mechanisms (most of the ones being planned); • Demand-response /interruptibility schemes. The difference between a CM and ancillary services. CM are not the same as ancillary services. The difference lies in the level of volumes and purpose: “when they are used in small volumes relative

CAPACITY MECHANISM CASES PUBLISHED IN THE STATE AID REGISTER

Case number

State Member

Title

Last Decision date

SA.35980

United Kingdom

Great Britain capacity mechanism

23.07.2014

SA. 38968

Greece

Transitory electricity flexibility remuneration mechanism (FRM)

31.03.2016

SA. 39621

France

French country-wide capacity mechanism

08.11.2016

SA. 44464

Ireland

Irish Capacity Mechanism: reliability option scheme

24.11.2017

SA. 44465

United Kingdom

Northern Irish Capacity Mechanism: reliability option scheme

24.11.2017

SA.42011

Italy

Italian capacity mechanism

07.02.2018

SA. 46100

Poland

Planned Polish capacity mechanism

07.02.2018

SOURCE: DG COMPETITION, STATE AID CASES, EXTRACTED ON FEBRUARY 21, 2018 83

ANALYSIS

TAXONOMY OF CAPACITY MECHANISMS (CM)

Market-wide

Targeted Volume-based

Price-based

2: Reserve 1: Tender

Volume-based

Price-based

6: Market-wide capacity payment

4: Central buyer

3: Targeted capacity payment

5: De-central obligation

SOURCE: DG COMPETITION Targeted mechanisms: capacity required is identified centrally, support provided only to “top up” capacity (what is needed beyond what the market brings). There are 3 types of targeted mechanisms: 1. Tender for new capacity - beneficiary receives financing to build a power plant with ‘top up’ capacity. 2. Strategic reserve (SR) – ‘top up’ capacity contracted and held outside the market, used in emergency situations, or specific conditions, as a transitional measure; 3. Targeted capacity payment schemes – price of capacity is set by a central authority and paid only to some capacity providers. Market-wide mechanisms: capacity as a separate product from electricity, all capacity providers are paid. There are 3 types of market-wide mechanisms: 1. Central buyer models (a central buyer is in charge of buying capacity for supplier/consumers; procurement through a central bidding process in which the price is determined by the market); 2. Decentralized obligation schemes (electricity suppliers are obligated to make their own arrangements. No central bidding process. Market price); 3. Market-wide capacity payments (fix price set on an administrative basis and available to all market participants).

SOURCE: FINAL REPORT OF THE SECTOR INQUIRY ON CAPACITY MECHANISMS, 30 NOVEMBER 2016, P. 50-52 to the overall level of capacity in the market and only to provide short term corrections to enable system security, they will more likely be considered ancillary services.” (Final Report of the Sector Inquiry on Capacity Mechanisms, p. 53). Therefore, by contrast, it is understood that CM are for big volumes and long-term market failure corrections.

ROMANIA FOCUS Each market has unique and specific conditions; therefore an adequacy 84

assessment has to be conducted to determine whether there is in fact a need for further intervention in the form of a capacity mechanism. While Romania was not covered by the 2016 inquiry on CM, a few things can be said. The electricity market reform conducted in mid-2000 in Romania established a very competitive and wellorganized electricity market. The basic principles of how the electricity market in Romania works are laid out in the 2004 Commercial Code of Wholesale Electricity Market.

Transelectrica is the Transport System Operator (TSO). According to the Commercial Code, Transelectrica operates and monitors the activity on 3 markets: the balancing market (BM), the market for technological services for the system (or ancillary services), and the market for allocation of transfer capacities on interconnection lines. The ancillary services are procured independently by the TSO (Transelectrica) which determines the volumes and types of services it needs, as stated in the ANRE electricity market energyindustryreview.com

ANALYSIS

monitoring report of November 2017: “in order to fulfil its obligations as system operator, CNTEE Transelectrica S.A. forecasts and contracts reserves (ancillary services) from qualified participants, which it uses by integrating them into the balancing market. These services are: secondary reserve, fast tertiary reserve, slow tertiary reserve, and reactive power.” Transelectrica has a dispatch obligation, with procurement for ancillary services conducted in a transparent manner. By law, the TSO recoups the costs of the ancillary services and own cost of operation by charging a regulated tariff for system service to the consumers. The 2004 Commercial Code (as written) was well designed to cover RES market integration. However, in 20122013 Romania experienced a RES-E boom and the priority access into the grid for RES (granted by European legislation) put competitive pressure on the coal-fired power plants owners - Complexul Energetic Hunedoara (Hunedoara) and Complexul Energetic Oltenia (Oltenia). No longer able to benefit as they did before from state aid measures (such as debt relief, crosssubsidies from hydro or coal mining subsidies) due to stricter state aid rules, Oltenia and Hunedoara lobbied the government which on April 3, 2013, approved a decree (GD 138/2013) that introduced something resembling a capacity mechanism. GD no. 138/2013 mandated guaranteed access into the grid for electricity produced by Mintia TPP (owned by Hunedoara) that would ensure the continued functioning of min. 200 MW as well as electricity produced by Oltenia for at least 500 MW. Both coal-fired generators (Hunedoara and Oltenia) were designated as mandatory suppliers of ancillary services, Hunedoara up to 400 MW and Oltenia up to 600 MW. This measure was to be applied from April 15, 2013 until July 1, 2015. Subsequently, another decree (GD no. 941 of October 29, 2014) extended the application of these provisions until December 2017, but only for Hunedoara. The measure was argued and presented

as a Capacity Mechanism (Market-wide - Central buyer model) for coal-fired TPPs. However, Romanian experts at the time did point out that GD 138/2013 served no actual real need and was a market distorting and discriminatory measure to all the other electricity producers. Subsequently, in the Explanatory Note for GD 941, the measure was further argued as an “associated capacity reserve absolutely necessary to ensure system adequacy”. Specifically, “the level of losses in the network is influenced by the distance between production and consumption centres, so by how the load is distributed and covered by existing generators, by the volume and destination of international power exchanges. From this point of view, in the central and N-W areas, CE Hunedoara is the only big electricity producer with a total installed capacity of 1225 MW”. The note pointed to the lack of a planned new power plant running on traditional fuels that would ensure an available reserve capacity for the proposed period (2015-2017) and invoked the “4M – Market Coupling” project (power market coupling between Czech Republic, Slovakia, Hungary and Romania, which was expected to determine a surge of cross-border exchanges, at Romania’s Western border. The initial measure stipulated by GD 138/2013 (involving government intervention, therefore potential state aid) was granted before the adoption of the new Guidelines on state aid for environment and energy (which came in effect on July 1, 2014). Judging by the fact that it does not come up in the EU State aid register (when you search for the key word “Capacity mechanism”), it probably hasn’t been notified either, since it predated the adoption of the EEAG in 2014. Consequently, since mid-April 2013 until December 2017, in Romania there was a measure in place that looked like and was dressed up as a Capacity Mechanism but was in effect a masked state aid to coal power plants granted without any prior public consultation and without an adequacy assessment, in short - a support scheme which managed to stay under the

radar of the European Commission. More recently, two Romanian Energy Regulatory Authority (ANRE) Decisions from 2016 specify regulated prices and quantities for purchase of ancillary services by the TSO. For instance, ANRE decision #1034 of June 22, 2016 established hourly values for specific quantities for reserves (secondary, fast tertiary, and slow tertiary) to be purchase by the TSO (Transelectrica) from Hunedoara (coal-fired generator) via bilateral contracts with regulated price and quantities in the period July 1, 2016 June 30, 2017. Similarly, ANRE decision #1035 of June 22, 2016 approved a regulated price for the purchase of ancillary services by Transelectrica from Hidroelectrica for the period July 1, 2016 – June 30, 2017. While for Hidroelectrica the measure is somewhat justified (since it is the main supplier of services on the ancillary services market and there is a risk of abuse of dominant position), for Hunedoara it is not. In conclusion, although Romania does not have a Capacity mechanism notified to the European Commission to be checked for compliance with 2014 EEAG rules, it uses both regulated and market-based components. During 2013-2017, the GD no. 138/2013 and no. 941/2014 introduced a Marketwide - Central buyer model where the TSO had the obligation to purchase a certain volume of electricity from specific generators (coal fired power plants), but without the provision of a fixed price. On the other hand, ANRE decisions #1034 and #1035 of June 22, 2016, although framed as provisions for ancillary services, both could be interpreted as a CM (Targeted capacity payment scheme, with a central body – ANRE – setting a regulated price for an estimated hourly volume, but only for two producers (Hunedoara and Hidroelectrica). The two ANRE decisions from 2016 do not fall into the Market-wide capacity payments, because the fixed payment is not available to all market participants. 85

ANALYSIS

ASSESSMENT OF CARBON-INTENSITY LEVELS BY FOSSIL TECHNOLOGY

550g

Combined cycle gas

1300g Hard coal 714g

330g 360g 400g 440g Record set by Avg. fleet E.ON’s Irshing IV efficiency in in 2011 1980s Avg. fleet Avg. fleet efficiency in efficiency in 2000s 1990s

821g

Record set by 1990s Siemens’ Leunen plant plant at 46% at 40% efficiency in efficiency 2013

900g

1027g

1970s 1950s plant at plant at 32% efficiency 36.5% efficiency 910g

600g Open 400g cycle gas ESTIMATED RANGE 500g

Oil & diesel

gCO2/kWh

Lignite

Estimated* RWE Neurath 1100MW units in 2012

1000g

1100g

1300g

1980s 600MW units

1970s 300MW units

1970s 150MW units

800g ESTIMATED RANGE * RWE have not published CO2 intensity data of their lignite capacity

SOURCE: SANDBAG - SMARTER CLIMATE POLICY Furthermore, the year 2017 saw an unusual situation on the Romanian electricity market which has falsely signalled an insufficient power generation capacity. First, in January 2017, there was a perfect storm: peak electricity demand (9,700 MWh compared to Romania’s average electricity demand of circa 7,000 MWh), cold weather, and a lack of cheap hydroelectricity. This, together with alarmist statements from then Energy Minister Toma Petcu, sent the prices of coal-fired electricity to 650 lei/MWh (4 times higher). A second crisis occurred in July, but for other reasons (a dry summer and a lack of wind lead to more coal-fired electricity production, which is more expensive). This generated huge variations on the balancing market (up to 12% instead of the usual 5%). That has caused former ANRE President Nicolae Havrilet accuse a capacity problem: “In practice we took notice that if we do not have cheap RES resources (available- EG), hydro, wind, we depend on coal which is expensive. The declared generation capacity of 22,000 86

MW does not exist, not even the 14,000 MW which supposedly should be operational at any moment, is not available. Here we have a joint analysis with Transelectrica, the operator of the balancing market, which shows that starting with a demand of 7,500-8,000 MW, there are supply problems”. During peak demand Romania seems to have a deficit of production capacity from non-RES. In that sense, the Brazi gas-fired power plant (860 MW) owned by OMV Petrom does have an important role to play. However, Brazi TPP worked at 50% of its capacity during 2017 due to some technical issues. The 250 MW gas-fired TPP currently under construction by Romgaz at Iernut will be equally important for the overall system stability going forward. Market analysts, on the other hand, consider that the 2017 electricity price spikes were not at all due to insufficient capacity, but due to commercial practices which excessively favoured transactions on the spot market instead of the term market. To conclude, there are some elements

of a Targeted capacity payment for the ancillary services market (e.g.: ANRE decisions 1034 and #1035 of 2016) in place, but it may not be enough to address big variations in the system. When the sun doesn’t shine, the wind does not blow, there are extreme weather conditions and/or a dry hydraulic year, Romania relies on coal for ‘top up’. However, if the proposed 550 g CO2/kWh limitation on capacity mechanism will enter into force, coal TPPs will no longer be able to play that role. Therefore, the opportunity for a future Targeted Capacity Mechanism could be considered, either for existent/ soon-to-be available capacity (for instance, Brazi and Iernut could be granted Strategic Reserve status) or in the form of tenders for new future “top up” power plants based on non-intermittent energy sources. As events in 2017 illustrate, there are premises for Romania to build a case for a future Capacity Mechanism involving state-aid for traditional power generation, especially for more flexible gas-fired units. energyindustryreview.com

ANALYSIS

Infringement against Romania due to pollution Adrian Stoica urrently, Romania is in C infringement procedure, triggered by the European Commission for exceeding, for several years, the limit values of the harmful substances present in the air (sulphur dioxide, dioxide nitrogen and nitrogen oxides, suspended particulate matter and lead) in three urban agglomerations in the country - Iasi, Bucharest and Brasov. Although environmental and energy taxes levied by the state are above the European average, the results take time materialize. The most important environmental tax bases are: energy products, motor vehicles, resource use fees, waste storage fees, the taxation of measured or estimated polluting gases or greenhouse gas emissions. The main four categories of environmental taxes are: Energy taxes (including transport fuels) - include taxes on energy products used for both transport and stationary purposes (for energy and industrial processes). The most important energy products for transport are gasoline and diesel. Transport taxes (excluding transport fuels) - mainly include taxes on ownership and use of motor vehicles. Taxes on other transport equipment (e.g. airplanes) and related transport services (e.g. charter or regular flights tax) are also included in this category, if they comply with the general

definition of environmental taxes. Pollution taxes apply to emissions from movable and immovable sources and to the sale of certain goods (batteries, hazardous chemicals, tires, plastic bags, plastic and cardboard packaging). Thus, there are taxes that apply to emissions into the air and water, solid waste and noise. This category does not include taxes of CO2, as they are included in the category of energy taxes. Resource taxes are the taxes that apply to the exploitation of natural resources (water, minerals, wood etc.) other than those used as energy sources. However, there are differences of opinion whether extraction of natural resources is in itself harmful or not, although there is a general agreement that it can bring environmental issues, such as soil erosion and pollution. The most important effects of air pollution are due to emissions generated by transport and agriculture, as well as electricity production. Environmental taxes have recorded an upward trend in Romania over the recent years. While in 2010 they accounted for 2.09% of GDP, in 2015 they represented 2.43% of GDP, according to a report of the Court of Auditors on air quality in Romania. From this point of view, Romania ranks 19th in Europe, on the same footing as Portugal, out of

32 countries. Although there has been a decline in annual average concentrations in recent years, this trend has been driven mainly by the decline in the economy and less by measures taken by authorities. With the rebound in economic activity, pollution has started to increase slightly after 2015, especially with regard to emissions of nitrogen dioxide, lead and particulate matter. At European Union level, as well as at the level of Romania, energy taxes are the most important source of environmental taxes. Romania is characterized by extremely high primary and final energy intensity compared to the average of the European Union (approximately four times higher). Although Romania has a significant technical potential for the use of renewable energy resources, a very small part is used, except for hydro resources from large hydropower plants. In 2010, the value of energy taxes stood at EUR 2.23bn in Romania, and in 2015 it reached EUR 3.5bn, amount placing our country the sixth in the European Union, after the UK (EUR 46.85bn), Poland (EUR 9.76bn), Sweden (EUR 7.79bn), Denmark (EUR 6.03bn) and Norway (EUR 4.57bn). As percentage of GDP, the weight of energy taxes increased in the mentioned period from 1.76% to 2.19%, finally exceeding the EU average, which was 1.87% in 2015. 87

ANALYSIS

EU MEMBER STATESâ&#x20AC;&#x2122; ENERGY TAX REVENUES IN 2010-2015 (EUR MILLION) Country

2010

2011

2012

2013

2014

2015

230,876.52

241,200.75

250,034.85

254,633.58

263,480.73

275,392.45

Belgium

4,873.6

5,125.1

5,002.1

4,766.9

5,028.5

5,303.1

Bulgaria

926.79

982.75

995.15

1,032.46

-1,016.03

1,155.86

Czech Republic

3,314.98

3,574.58

3,349.04

3,115.36

3,037.51

3,230.8

Denmark

5,744.82

5,958.73

6,077

6,242.98

6,167.01

6,023.8

Germany

46,499

49,294

48,864

48,141

48,688

48,326

Estonia

378.95

395.74

431.91

420.94

463.78

491.19

Ireland

2,508.32

2,693.95

2,620.59

2,704.26

2,801.1

2,992.25

Greece

4,216

4,310

4,802

5,141

5,214

5,189

Spain

14,420

13,808

13,292

16,158

16,135

16,987

France

29,999

31,278

32,102

34,052

34,613

38,823

Croatia

980.29

817.3

767.85

893.85

1,003.6

1,126.06

Italy

35,387

40,031

45,781

45,070

47,870

45,423

352

384

363.2

380.9

413

404.3

Latvia

358.78

390.91

425

435

495.29

507.68

Lithuania

492.23

497.11

515.93

537.71

580.48

622.94

Luxembourg

887.58

950.95

968.23

928

899.66

864.31

2,144.93

2,088.89

1,958.11

1,939.05

1,999.85

2,127.99

92.72

107.35

108

107.7

128.07

138.24

12,009

12,014

11,623

12,590

12,648

12,815

Austria

4,585.28

5,007.55

5,030.73

5,093.46

5,023.85

5,216.4

Poland

8,279.22

8,475.71

8,638.13

8,400.24

9,107.86

9,764.82

Portugal

3,190.86

3,050.26

2,842.76

2,854.93

2,883.47

3,191.98

Romania

2,235.53

2,247.69

2,268.2

2,531.43

3,113.04

3,508.44

Slovenia

1,083.6

1,049.14

1,126.18

1,103.26

1,124.2

1,157.04

Slovakia

1,077.03

1,114.03

1,082.75

1,092.43

1,118.16

1,181.25

Finland

3,222

3,928

4,007

3,975

4,001

4,165

Sweden

7,719.06

7,855.21

8,248

8,267.93

7,568.06

7,798.58

33,897.93

33,770.8

36,744.48

36,657.8

40,338.91

46,857.43

135.93

139.150.39

148.85

159.27

180.43

16.66

19.04

17.9

16.8

Norway

4,460.85

4,552.7

4,568.23

4,783.46

4,759.77

4,574.06

Switzerland

4,398.55

4,796.24

4,965.42

4,914.53

FYROM

142.83

147.14

152.98

125.09

Serbia

787.14

886.89

810.76

969.54

1,095.96

1,200.17

EU (28 countries)

Cyprus

Hungary Malta The Netherlands

UK Island Liechtenstein

SOURCE: EUROSTAT 88

energyindustryreview.com

ANALYSIS

PERCENTAGE OF ENERGY TAX REVENUES IN GDP IN EUROPE (%) Country

2010

2011

2012

2013

2014

2015

1.8

1.83

1.86

1.88

1.87

Belgium

1.33

1.35

1.29

1.22

1.25

1.29

Bulgaria

2.42

2.38

2.37

2.46

2.38

2.55

Czech Republic

2.12

2.18

2.07

1.97

1.94

Denmark

2.36

2.4

2.39

2.41

2.33

2.22

Germany

1.8

1.82

1.77

1.7

1.67

1.59

Estonia

2.58

2.37

2.41

2.23

2.35

2.43

Ireland

1.5

1.56

1.49

1.5

1.45

1.17

Greece

1.87

2.08

2.51

2.85

2.93

2.95

Spain

1.33

1.29

1.28

1.58

1.56

1.58

France

1.5

1.52

1.54

1.61

1.62

1.78

Croatia

2.18

1.83

1.75

2.06

2.34

2.57

Italy

2.21

2.44

2.84

2.81

2.95

2.76

Cyprus

1.82

1.95

1.87

2.1

2.35

2.29

Latvia

2.02

1.93

1.91

2.1

2.08

EU (28 countries)

Lithuania

1.76

1.59

1.55

1.54

1.59

1.67

Luxembourg

2.22

2.21

1.83

1.69

Hungary

2.18

2.07

1.98

1.91

1.94

Malta

1.4

1.57

1.51

1.41

1.52

1.49

The Netherlands

1.9

1.87

1.8

1.93

1.91

1.89

Austria

1.56

1.62

1.59

1.58

1.52

1.53

Poland

2.29

2.23

2.22

2.13

2.22

2.27

Portugal

1.77

1.73

1.69

1.68

1.67

1.78

Romania

1.76

1.69

1.7

1.75

2.07

2.19

Slovenia

2.99

2.84

3.13

3.07

3.01

Slovakia

1.59

1.58

1.49

1.47

1.5

Finland

1.72

2.01

1.95

1.99

Sweden

2.09

1.94

1.95

1.9

1.75

1.74

1.85

1.8

1.78

1.79

1.78

1.82

Island

1.36

1.32

1.36

1.28

1.23

1.19

0.35

Liechtenstein Norway

1.38

1.27

1.15

1.22

1.27

1.31

0.96

0.95

FYROM

2.01

1.95

2.02

1.53

Serbia

2.64

2.65

2.56

2.83

3.29

3.58

Switzerland

SOURCE: EUROSTAT

However, Romania is in the last places of the ranking in terms of transport taxes, but this is not due to the existence of a limited or new national car fleet, but to the fact that during the analysed period the legal framework regulating this tax had shortcomings and inaccuracies that led to large amounts of refunds. While in 2010 transport taxes brought to the budget EUR 400mln, in 2015 they value fell to EUR 372mln. Also, as percentage of GDP, they fell from 0.32% to 0.23%. Even with a percentage of 0.23% of GDP, Romania surpassed in terms of these taxes countries such as Luxembourg (0.14%), Belgium (0.7%) and Poland (0.21%). Although plans for air quality and plans for maintaining air quality for the period 2016-2020 were initiated, they were not completed last year. Following the audit conducted by the auditors of the Court of Auditors, it resulted that many analysers in monitoring stations have been defective for long periods of time and many of the interior and exterior public information panels, which were supposed to show the general daily air quality indices, are rather non-functional than functional, and the funds allocated for equipment maintenance were insufficient. Furthermore, there was a lack of performance indicators to measure the degree of achievement of air quality monitoring objectives. The concern of local authorities for air quality monitoring is proven by the delays recorded. For example, at the end of last year, the Air Quality Plan (AQP) for Iasi Municipality was returned for the third time by the territorial Environmental Protection Agency to the Mayorâ&#x20AC;&#x2122;s Office of Iasi for additions and restoration. In the agglomeration of Bucharest, the technical assistance contract for the elaboration of the Integrated Air Quality Plan (IAQP) was just under way. Also, in the urban agglomerations Galati, Bacau, Ilfov, Brasov, Braila and Cluj, the plans were not ready and they were still in various stages of elaboration. Moreover, the County Councils of Mehedinti and Harghita hadnâ&#x20AC;&#x2122;t even initiated these plans. 89

EVENT

Roundtable Guest speaker: Flavius Dordea - Technical Expert in the gas sector

MAJOR TOPICS •

Transparency, efficiency and competition on the market of services adjacent to the natural gas market

•

Professionalism and responsibility in the design, execution and approval of gas installations

•

Current legislative provisions and necessary modifications in order to increase the quality of works

SHORT CV OF THE GUEST SPEAKER Flavius I. Dordea is an engineer with 20 years of experience in the natural gas industry. He holds a Bachelor’s degree in ‘Technology Engineering’ and a Master’s degree in ‘Optimal Utilization of Natural Gas’. The international professional experience includes the analysis of international natural gas transmission and transit capacities, the design, construction, commissioning and testing of gas compressor stations and of high pressure natural gas transmission and distribution pipelines.

Note: The event will be held between 10:00 and 13:00 in Romanian. There is no participation fee, but the number of places is limited to 40.

21 May 2018

The Intelligent Energy Association and Energy Industry Review organize on 21 May 2018, at the Chamber of Commerce and Industry of Bucharest, the Roundtable with the topic ‘Rethinking the design-execution-operation of gas sector objectives to boost transactions.’ OBJECTIVE Gas market liberalization has also outlined the idea of a new market of services that accompany the activity of gas utilization: design; inspection and approval of projects; construction of pipelines and installations; acceptance; operation of installations; inspection of installations; expertise, decommissioning and restoring the affected land to the initial state. This situation has determined the elimination of activities that were previously integrated in gas production, transmission or distribution companies and the emergence of private companies that execute these works for a charge. Lowering the standards in the design, approval, control of the quality of the execution or inspection of gas installations leads to the emergence of technical risks. Preventing these technical risks can be achieved by adapting the existing legislation, increasing awareness and quality of works. At the same time, accepting the technical risks increases the probability of major failures, with direct consequences on the conditions of natural gas transactions.

The Intelligent Energy Association Smart energy means: energy efficiency, energy management, smart grid, smart metering, trading platforms, limiting energy poverty, creation of the single energy market, market liberalization, dissemination and education of consumers, valuing the extrinsic energy resources, exploiting the added value of current energy systems etc. All these, addressed through a synergistic point of view - technical, economic, commercial, legal, political, social and ecological, can meet the future requirements of Romanians. Its purpose is to promote this concept in order to guarantee: for the society the necessary energy utilities, feasible in obtaining and delivering, sustainable in society, safe to use and predictable in approach. The Association aims to carry out public campaigns, make available for suppliers and consumers a platform to learn the synergistic importance of the supplier-consumer relationship, a platform of analyses and one of mediation/expertise in the energy sector. So far, the Association has been carrying out two public campaigns: ‘FairGasPrice’ and ‘Starting Over in the Gas Market’. energyindustryreview.com

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ENERGY SUMMER SCHOOL 2018

Smart Transformation in the Energy Sector ear Andrei, first of all what is D this project scope and to whom is it addressed? We believe the energy sector is undergoing deep changes. For this reason, these days, maybe more than ever, young professionals that are studying, working or that are just being interested in the energy field for its interconnections with the economy, society and environment, need a broader grasp of the sector. We find it essential to debate about the challenges and prospects of the energy sector as a whole and to understand how to shape a smart transition to the world of tomorrow. The EPG Summer School is targeting master and PhD students, as well as young professionals interested in studying and working in the energy sector proper, or seen from the related disciplines of economics, law, political science, environmental studies and so on.

The first edition of Energy Policy Group’s Energy Summer School will be held between 23 – 27 July 2018 in Bucharest, with a focus on ‘Smart Transformation in the Energy Sector’. Andrei Covatariu, EPG Senior Research Associate & Summer School Director, highlights the purpose, main topics and targets of this bold endeavour. 92

What concepts and themes will be discussed on this occasion? First of all, the global trends on the energy markets and in policy making have to be well understood, in their interdependent dynamics and against the background of the energy sector’s greatest externality: global warming. An in-depth discussion of the oil and gas sector, with its current challenges and prospects, as well as of alternative fuels for transport (electricity, biofuels, natural gas, and hydrogen) will take place in order to put the future of mobility in the energyindustryreview.com

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right perspective. Then, the basics of the nuclear sector will be discussed, against the backdrop of the ongoing transition to a clean and safe power generation system. Special attention will be given to grid digitalization, smart technologies, energy efficiency and emerging products and services (demand-response and storage, just to name a few), while also considering requirements of sustainability and affordability. Who will be the lecturers? The Summer School has an international dimension, both in terms of attendees and speakers/lecturers. We have invited reputed national representatives of the energy sector, along with speakers from abroad, who will present different regional perspectives. We are proud to have as lecturers representatives of energy utility companies, energy consultants, diplomats, policy makers, association members and NGO representatives. What attendees need to know before joining this program? It is important to know that the EPG Summer School will draw a balance between interactive seminars and debates

led by international and Romanian experts, field trips to the Cernavoda Nuclear Power Plant and the EFdeN house, and also activities that include a Design Thinking Workshop and a World Energy Simulation Game (a role-playing exercise that enables people to try out the policies and investments that will allow them to reach their goals on climate change). The summer school will be a great opportunity from people all over the world to interact, debate and connect, forming what we believe will soon become a stand-alone community of alumni and lecturers. Speaking about future plans, what are your short-term and long-term goals? We are quite happy with the way things are evolving â&#x20AC;&#x201C; including the applications submitted so far and the feedback received â&#x20AC;&#x201C; which follows from the welldesigned concept of this first edition. I am sure that the program scheduled for July 23-27 is only the beginning of a longstanding project and I strongly believe that the EPG Summer School will soon become part of the top energy-related summer schools in Europe. 93

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THERMAL ENERGY FORUM

ROMANIA’S NEED FOR HEAT he European Commission T wants the EU not only to adapt to the clean energy transition, but to lead it. For this reason, the EU has committed to cut CO2 emissions by at least 40 per cent by 2030 while modernising the EU’s economy and delivering on jobs and growth for all European citizens. The proposals have three main goals: putting energy efficiency first, achieving global leadership in renewable energies, and providing a fair deal for consumers. According to the Commission, in the future consumers across the EU will have a better choice of supply, access to reliable energy price comparison tools and the possibility to produce and sell their own electricity. In this context, The Diplomat Bucharest organized the fourth edition of its national forum exclusively dedicated to thermal power – ‘Thermal Energy Forum’ - to discuss the impact of the European proposals on the Romanian energy efficiency services sector, the objectives set for Romania for the horizon between 2030 and 2050, and ways to optimize the future support scheme for promoting high efficiency cogeneration. The conference was structured into two sessions, moderated by Valeriu Binig, partner in the Advisory Services practice with EY. 94

Valeriu Binig, EY: The forum is beginning to gain consistency and prestige “We are now at the fourth edition and we are happy that the forum is beginning to gain consistency and prestige,” said Valeriu Binig, Partner, Business Advisory, EY Romania, in the opening of the event. “There are many things to say, but there are also many things to keep and take to the office after this event. In my opinion, the messages that are included in today’s presentations are very important. I’ve seen some spectacular developments. There is a debate today whether we should have a national heat-supply strategy or local decision-makers should develop local energy concepts, subject to a local political consensus with central government support.” “We will have some presentations in this direction of supporting a national policy that I personally would see as a set of guidelines, but not necessarily a national strategy, so that we get more time before we come up with a national strategy,” Valeriu Binig added. What is happening now is an evolution in utilities, as large companies take advantage of the fact that they have an entry into that household and are trying to switch from selling energy as a commodity to selling energy services. Moreover, they began to diversify. We see cable operators who want to provide electricity. We see electricity suppliers that also offer natural

gas. We see natural gas suppliers who offer electricity, but at the same time start to offer services related to how the household ensures its thermal comfort, Valeriu Binig pointed out. According to Valeriu Binig, the big companies have realized that they are in a competition: “The residential sector starts to consume more primary energy than the industrial sector, it is a clear target for utility operators. It is a competition for switching from energy to service, the competition for the multi-utility concept. In this context, I have not seen much diversification and commercial aggressiveness from those who supply heat. We understand that this is a difficult financial situation and an adverse legal situation, but it is likely that, as we begin to see the signs of stabilization, we should also see an orientation from the companies providing the centralized heat supply service for providing new services.” Razvan Grecu, ARPEE: Centralyzed heating system to collapse in the coming years under the current conditions “Thermal Energy Forum is a special event for the Romanian Energy Efficiency Association and we are very glad to support it with all our efforts, especially as an area where the potential of energy efficiency is very high,” said Razvan Grecu, President of ARPEE. energyindustryreview.com

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“From this point of view, we try to draw attention to the fact that it is an area of interest. Our main message is that we need an urgent action to stabilize this area and give it a chance to grow. Thermal energy will, in one form or another, remain an important component of Romania’s energy balance. There is undoubtedly something that will continue to exist in the energy market. It is important to see what form and if we want to have a strong heating sector in centralized systems, we need to take action in this regard.” Razvan Grecu believes ARPEE goal is to promote as much as possible the energy efficiency component at the legislative level, as well as energy efficiency measures along the entire energy chain. “We cover a large part of the entire energy chain, from natural gas and electricity production, to the distribution of heat, natural gas and consumption in various forms. Among the association members we have companies active in the field of energy efficiency solutions and we try through all our possibilities to promote companies in the energy sector. Climate change evolutions have a significant long-term impact on the production and consumption of heat. We observe that social references change not only in the field of thermal energy, but also in the field of electricity and other types of services. We notice that today we have consumers who prefer to have greater control over the production and consumption of electricity. This will also happen in the thermal energy sector,” he added. According to Razvan Grecu, the thermal energy sector is very exposed to the dangers of fossil fuel consumption: “We have new technologies that appear and develop at a very high pace. We are also talking about the development of digitization, as well as the penetration of digital technologies, of thermostats that give consumers much more control over the way heat is used. There is also a pressure from the legislation. We are in full debate at European level regarding the clean energy package. We do not know exactly how this package will look like in the end, but there is a possibility that in centralized systems we could have the obligation of renewable energy shares, which would represent a major change for the system in the future.” Razvan Grecu underlined that the

centralized heating system will collapse in the coming years under the current conditions: “Municipalities will not be able to endlessly finance such systems. Investments should come from those companies, not from other sources. There is a need for a substantial change of regulation. We have a sector that is regulated like 30 years ago. It is a system that does not lead to sufficient incentives for companies that invest. It is time to give up populism and to have a regulation that allows investment to be recovered in a reasonable period. Final prices need to be more flexible, to be incorporated into today’s market. It is a significant problem in the sector at this time.” Ion Campeanu, State Secretary of Environment Ministry: The economic impact of funding measures should be seen as a component of a more complex strategy Energy efficiency of buildings is also an important desiderate in fighting climate change and a means of reducing the costs associated with the use of individual properties, said Ion Campeanu, Secretary of State, Environment Ministry. “The economic and social impact of funding measures in this area should be seen as a component of a more complex strategy that includes public awareness of the need for environmental protection. Romania has the largest representation of dwellings, dwellings owned by those living in them (90 per cent), few social housing (0.9 per cent), the difference

being covered by dwellings given for rent.” According to Ion Campeanu, the Energy Union is the main vector and major EU contribution to a global and comprehensive transition to a lowcarbon economy: “Concerning global policy, the are two main directions: the Paris Agreement, which offers a clear and ambitious direction for investment in low-carbon innovation and Agenda 2030 for Sustainable Development (Agenda 2030) with sustainable development objectives (ODD). The Paris Agreement offers a clear and ambitious direction for investment in low-carbon innovation. The implementation of the ambitious Paris commitments on climate change assumed by the EU is currently a priority and largely depends on a successful transition to a clean energy system, given that two thirds of greenhouse gas emissions are generated by energy production and use. Ion Campeanu also mentioned that the National Strategy for Sustainable Development of Romania - 2013-20202030 provides for the rational and efficient use of non-renewable primary resources and the gradual decrease of their share in final consumption: Supporting R & D-innovation activities in the energy sector, focusing on increasing energy and environmental efficiency; reducing the negative impact of the energy sector on the environment and complying with the obligations assumed for this 95

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reduction. Currently, the Inter-Ministerial Committee for Coordination of Environmental Protection Integration into National Sectoral Policies and Strategies is working on updating this Strategy by including ODD in Agenda 2030. Razvan Constantinescu, ANRE: The future support scheme to be harmonized with the legislation ANRE was co-opted by the Ministry of Energy in a working group for a future support scheme, according to Razvan Constantinescu, Director ANREDGEPTDFE-DPC. “Discussions and debates are not final, but they are accelerating because current state aid concerns the 2014-2020 period and it is possible that we will end up with notification of the future scheme in 2019,” said Razvan Constantinescu. “For now, as investments or economic conditions do not generate profits, it is very difficult that we will be able to sustain in terms of costs our investments that can not be competitive on the energy market.” Regarding the new scheme, the similarity is that it will still be an operating aid similar to the current methodology, the financing system will be of the same nature. Razvan Constantinescu affirmed the future support scheme needs to be harmonized with the legislation in place, this being a challenge for the working group: “We want to offer a reasonable approach for all the sensitive things.” Corina Murafa, Centre for the Study of Democracy: 21% of Romania’s households are in energy poverty “Together with colleagues at Babes Bolyai University last year, we dedicated our research to the phenomenon and produced a general report on energy poverty in Europe and Romania, including on-site reports,” stated Corina Murafa, Energy policy expert, Centre for the Study of Democracy. “The phenomenon is at the intersection of low incomes and high utility bills and low energy efficiency. When these three factors meet, it results in the household being unable to provide the necessary energy services at reasonable costs. Through energy services, in general, 96

we mean heating and less power supply for lighting,” explained Corina Murafa. At European level, there are a number of measures to fight energy poverty, both in the short and long term. The shortterm are both financial and non-financial. When we talk about financial issues, we talk about subsidizing energy costs, but not only. Non-financial measures are multiple and go from a code of conduct for energy service providers up to a break in payment to these vulnerable consumers. In the long term, two essential measures are discussed: energy efficiency and consumer information. Corina Murafa said that 21 per cent of Romania’s households are in energy poverty: “If the most commonly used indicators in Europe were to be applied in Romania, the number of Romanians considered to be in energy poverty would be up to 19 per cent, while the aid with the heating from the central budget currently cover less than 5 per cent of the population. In Romania, although all aid only refers to thermal energy, there is no uniform definition. By Law 123/2012, the vulnerable customer is defined as “the final customer belonging to a category of household customers who, due to age, health or reduced income, are at risk of social marginalization.” “Six years later, in violation of the European recommendations in the 3rd Energy Package, Romania has no action plan,” said Corina Murafa. “Non-financial measures are also lacking. Supply regulations (ANRE) provide for non-financial measures for vulnerable customers due to age or health, but there are no normative acts that include criteria for categorizing consumers as vulnerable for these reasons. The only facilities are the financial ones (heating aids) to grant only those vulnerable on the low income criterion. Therefore, it goes against European recommendations prescribing non-financial measures. Non-financial measures can not be operationalized.” According to Corina Murafa, financial aid is insufficient, poorly targeted and fragmented: “Somewhere in around 670,000 households benefit from heating aid, but the total budget of the Ministry of Labor for heating aid is only 28 million Euro, or 0.33

per cent of the total budget of the ministry. On average, heating aid reaches 4 Euro per month. Access to heating aids can be bureaucratised by mayors. Article 14 (4) and (5) of GEO 70/2011 does not clearly specify what justifications can the mayoralties require from the beneficiaries. Mayors are exceedingly zealous. Our on-site reports have shown utility bills are a priority; there are difficulties in correctly estimating their own financial needs in the household; invoice reading is limited to the payment amount; consumers are open to being counseled; there is a great discrepancy between the forms of heating and the kind of help we give, somehow as discrimination for the poor.” Doru Visan, Ministry of Energy: Thermal energy - an important chapter in the ongoing 2030 Energy Strategy The energy industry sector is a vital strategic infrastructure for national energy security, said Doru Visan, Secretary of State, Ministry of Energy: “Currently, of the three sub-sectors of this Romanian industry, (electricity, natural gas, thermal energy) the last one is by far the sector which faces the heaviest conditions. The issue of thermal energy is an important chapter in the ongoing 2030 Energy Strategy, which we found undefined. It is necessary for the development elements of the heat distribution strategy distributed in the centralized system to be based on thermal energy demand, depending on the resources available locally. Here, the key contribution of local communities to defining both the potential and the demand for heat, based on the degree of dispersal and supportability of local consumers, and the efficient use of available resources, is needed.” According to Doru Visan, most mayors and local authorities do not see the opportunity for the raw materials they have to capitalize on: “The draft strategy highlights the development of high efficiency cogeneration and, respectively, the increase of the energy efficiency of the houses through their renovation. Romania has an important heritage of buildings built during the 19601990 period, with a low degree of thermal insulation, the final energy consumption being above the European Union average. Also, homes built after 1990 have low energy energyindustryreview.com

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performance, only those built after 2000 have improved performance. This is the reality that we have to manage. For this reason, the third Energy Efficiency Report, drafted by the European Commission at the end of 2017, points out that in 2015 in Romania, the residential sector was the largest energy consumer, accounting for about 33 per cent of total energy consumption, well above the European average of 25 per cent. This means the need for local authorities to become more involved in this area.” Subsidies from the state budget and local energy budgets are huge, and with this money we could have modernized all the district heating systems in the country, according to Doru Visan: “We have an oversized system with inadequate financial support, so it’s totally under-funded. We spend very, very much money on the operating component, which is generated by massive losses of inefficiency. If you had the figures, you would be scared of the size of it. We attract money through local subsidies and from the state budget, by rectification. With these money we could modernize all systems. Together with ANRE, we are working on the specifications for a new support scheme for high-efficiency cogeneration, both for the support of those in the scheme and for the investment and operating component facilities for those who will enter the scheme.” Gheorghe Piperea, RADET: RADET was running at higher costs than earnings “There are some lessons I learned from the two entities in insolvency, namely RADET and ELCEN,” said Gheorghe Piperea, Judicial administrator of RADET. “The first and most important lesson we have learned is not to let this opportunity of the crisis pass us by. There are essential things that we want to change from now on, from the insolvency phase, so that on the way out of insolvency, following the merger, the new entity will start on a secure, reliable basis to strengthen the public service of thermal energy, an alternative for the citizens of an increasingly crowded city that is expanding more and more.” “One of the biggest and most exciting challenges we have encountered was the emergence of so-called prosumers. They are

no longer simple consumers of energy services, but they are consumers who produce their own energy. The second lesson I have learned is that an entity, no matter how big, how important, no matter how large its business figure is and its importance to society, the contracts must be disciplined. Until the moment of insolvency, the contracts of these two entities were purely chaotic,” stated Gheorghe Piperea. Furthermore, Gheorghe Piperea noticed the subsidy has almost never been paid in time. “The grant is about 50 per cent of the total payout we have to receive at RADET. Thus, if the grant was not paid in time, no claim to ELCEN could be paid in time. From 2016, together with all the other RADET stakeholders, we signed a convention that was repeated this year. So an advance payment of about 420 million RON was made by the City Hall directly to the gas supplier, which ensured continuity in gas supply for last winter and this winter.” Gheorghe Piperea also noticed that the heating tariff has not changed since 2011: “We succeeded in obtaining approval to increase this tariff only in 2017 through a procedure that lasted between 5 and 7 months, a very bureaucratic procedure that was solved after intense discussions with authority in the field. After we have solved this issue, RADET has balanced its payments so that current debts are paid for, and some of them are paid in advance. The 2011 tariff brought us into the absurd situation in which RADET was running at higher costs than earnings. This situation has now been balanced.” According to Gheorghe Piperea, the thermal energy distribution system is still quite functional, but it is an outdated system that has to be replaced in its entirety or at least gradually. “This has not been done, which is why we have found that every year only because of this pipeline system RADET has 30 per cent loss. We also found that the technology that produces thermal energy and electricity at ELCEN is also outdated. There are very few new or refurbished things. We are waiting for bureaucratic procedures to take place within two weeks. Simply replacing the cogeneration system within 2-3 CETs can lead to a drastic reduction in costs so we can gradually reduce the subsidy. It is possible that in 2-3 years, this

subsidy will be eliminated without this having an impact on the costs that the population has to pay.” The city of Bucharest owns more than 4,500 kilometers of pipe through which the thermal energy is distributed. It is the second largest system of such pipelines in the world, after Moscow, this being an extraordinary advantage. “If we set it up from all points of view, this system can become a giant battery, a battery through which we can store a huge amount of energy,” said Gheorghe Piperea. “We intend to lay the foundations for expanding sources of heat supply because there are sources around Bucharest. The two entities RADET and ELCEN can quickly turn into an investment hub with very many jobs and I hope that this will start in the period of insolvency.” Catalin Dragostin, Energy-Serv: Combining wind and thermal energy “We have the ambition to succeed in developing the first city in the European Union fully heated by wind power,” said Catalin Dragostin, General Manager of EnergyServ. “This is possible and I hope we can achieve it. Problems associated with wind energy production and management were combined with the problems associated with thermal energy. We have managed to find an innovative method of combining the two markets by helping each other. We thought of an energy storage system that would be cheap, safe and efficient, combining both electricity and heat.” The answer to this problem is called Thermal Energy Storage. How does that work? Catalin Dragostin explained: “We take electricity, we store it in the form of high temperature thermal energy that we later redistribute as CHP, because cogeneration is the most efficient method of producing thermal and electrical energy. This technology is different from what we are accustomed to in the energy industry. There are organic liquid turbines. It’s different. We take the wind energy through a boiler with thermal oil, the efficiency is around 99%, almost nothing is lost. We have been using this system for five years. Thermal Energy Storage is very simple, and easier than steam turbines where huge temperatures are needed”. 97

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Stanel Necula, Termoficare Oradea: Investing in modern systems and automation There is still interest in the district heating and home heating area, said Stanel Necula, General Manager of Termoficare Oradea: “As far as Oradea is concerned, there are only the following options in the urban heating area - investments for the client, organization of the system and how the system is managed. Termoficare Oradea has already begun to perform through the measures we have adopted. Conceptually, we are talking about how Termoficare Oradea has returned to the customer and the result are measurable by modernizing the company’s management. Steps towards technology lead to solving human resource problems. I know people with specialized training are hard to find and no one comes in their place. From this perspective, we make the effort to bring young people into the company, but unfortunately for us their knowledge is not appropriate for the heating sector or they have no interest in this industry.” According to Stanel Necula, Termoficare Oradea manages the human resource by investing in modern systems and automation: “Oradea has invested hundreds of millions of Euro in primary networks and computer systems. We want to achieve the performance of making the heating system in Oradea to bring money to the local budget. We need to think about where we want to get in the medium and long term. Cities from Western Europe do not use individual heating except for isolated cases. We are on the right track, but still quite far away.” Liviu Popa, RADET Constanta: Redesigning the Palas CET source RADET Constanta is the local operator that distributes and supplies the thermal energy produced in CET Palas. Ministry of Energy through Electrocentrale Constanta produces hot water without cogeneration in the Palas CET and transports it through an oversized network to the thermal points of the municipality. About 95 per cent of the energy produced in Palas CET is bought by RADET. 98

Constanta Municipality through RADET ensures the distribution and supply of secondary thermal energy to approximately 62,000 apartments with around 160,000 people. Without redesigning the Palas CET source, there is no future but the insularity of the city and the location of new sources on high-density islands, or production sources in some of the current hotspots, said Liviu Popa, General Manager of RADET Constanta: “The transport network could be upgraded with European funds if it had been in the administration of the local authority. The Ministry of Energy does not give it to the City Hall or modernize it.” RADET Constanta, still the largest operator in the country, except for RADET Bucharest, has the following features: manages the largest and most advanced centralized automated system in the country, with a functional SCADA system; has a pump station equipped with a pump drive that provides variable speed according to the heat demand; heat adjustment is based on the evolution of outdoor temperatures and wind speed. The command is given by the temperature sensors and the wind guides located on each thermal point; control of equipment and measurement of parameters at thermal points is done by transmission of data on fiber, from a central dispatcher working in SCADA system. Reading part of customer mounted meters is done automatically. The price of heating energy to the population has increased steadily over the past 10 years. The year 2011, when it was decided to eliminate the subsidy to the heat supplied to the population, was a turning point in the dynamics of the customer portfolio, said Liviu Popa. “The shock of the cost increase for heating an apartment as a result of removing the heating subsidy has led some consumers to turn to an alternative source, and the trend continues.” According to Liviu Popa, decreasing the amount of thermal energy sold as a result of disconnections causes the system to increase its losses because the

system’s dimensions remain the same, its energy transfer to the environment remains relatively constant so that the share of loss per unit of energy sold increases proportionally to the increase in the level of disconnection. Ivantie Ruset, Colterm Timisoara: Heat production rose by about 6.9% from 2016 SACET is made up of a unitary technological and unitary assembly consisting of constructions, installations, equipment, specific equipment and measuring means for producing, transporting, distributing and supplying thermal energy on the territory of the localities, comprising thermal power plants or district heating plants, transport networks, thermal stations, distribution networks, construction and auxiliary installations, connections to the delimitation/separation points of the installations, measurement, control and automation systems. According to Ivantie Ruset, Commercial Director of Colterm Timisoara, in 2017 heat production rose by about 6.9% compared with 2016: “In 2010, the project ‘Rehabilitation of the centralized heating system in Timisoara city in order to comply with the environmental protection norms regarding air pollutant emissions and for increasing the efficiency in the supply of urban heating’ was initiated. The project had a total value of 205 million RON without VAT, of which 85 million RON represented the contribution from the national budget.” Altogether, Colterm accounts for 60,695 consumers, of which 59,270 apartments and single-family houses, respectively 1,425 businesses and institutions. “Of these, 160 apartments benefit from individual metering , with the horizontal distribution of the thermal agent, and today, thanks to the undeniable advantages of the new system, the number of requests is constantly increasing. Our specialized staff make sustained efforts to provide fast and high quality services, which will lead to the increase of the satisfaction of all our clients,” said Ivantie Ruset. energyindustryreview.com