Energy Industry Review -March 2018 by Energy Industry Review

Comment The Transgaz factor

Lavinia Iancu CEO and Publisher

ately, players have been trying to place L their pieces on the regional chess board in favourable positions and are now preparing their future moves. Some have signalled their intentions early, through various actions, others have even stated them. The latest developments, referring only to the beginning of this year, show a regional energy market in full swing. Major infrastructure projects are taking shape in Romania, starting with 2018. • The construction of the Bulgaria-RomaniaHungary-Austria gas pipeline (BRUA) - an investment estimated at EUR 480mn, whose priority objective is to increase Romania’s energy security. The pipeline will connect the gas trunklines from the four countries. Last year, Transgaz signed the execution contracts for the first phase of the natural gas pipeline of 479km, between Podisor and Recas localities, and three compressor stations located in Podisor, Bibesti and Jupa. • The construction of Tuzla - Podisor pipeline, part of phase two of the BRUA project (investment estimated at over EUR 278mn), which would make the onshore connection between the offshore gas blocks from the Black Sea and the national transmission system. • The construction of Onesti - Ungheni pipeline, which will be connected to Iasi - Ungheni gas pipeline. • The construction of Ungheni - Chisinau pipeline. On 27 February, a Romanian Government delegation led by Prime Minister Viorica Dancila carried out a working visit in Chisinau. On this occasion, Moldovan Prime Minister Pavel Filip announced that Transgaz had won the tender for the privatization of the gas transmission operator from the Republic of Moldova - Vestmoldtransgaz. • The interconnection of transit systems with the National Transmission System (NTS) • The rehabilitation of the NTS and of the distribution systems In early February, on the occasion of celebrating 10 years since its listing on the stock exchange,

Transgaz announced that it planned to implement 9 projects worth a total of EUR 1.6bn by 2026. Also, in early February, Transgaz signed a Memorandum of Understanding with Eustream, the operator of the Slovak gas transmission system. Transgaz used this occasion to express its approval regarding the cooperation with the other TSOs in the Czech Republic, Ukraine, Hungary and Bulgaria. This cooperation would be necessary in order to develop the Eastring gas project on the territories of Romania and Slovakia. Transgaz is also interested in the privatization of DESFA, the Greek gas transmission operator. This is the second time when the Romanian operator tries to join DESFA’s shareholding. It seems the odds are in its favour now, the stake being serious as Greece represents a key player in the diversification of gas supply in the region. The Trans Adriatic Pipeline (TAP) - 2/3 completed, will go through Greece and connect to TANAP pipeline, thus enabling Caspian gas to reach Europe. Invited for the first time to attend the Ministerial Meeting of the Southern Gas Corridor Advisory Council (a priority energy project for the EU, estimated at USD 41.5bn), Romania proposed the inclusion in the future plans for the expansion of the Southern Corridor of the infrastructure offered by the BRUA project, together with the interconnector between Romania and Bulgaria, for the transmission of natural gas from the Southern Corridor, through Romanian territory to Central Europe. The proposal comes to support the consolidation of the principle of diversification of gas supply routes and sources, as well as the important role of the Southern Corridor in increasing Europe’s energy security. More recently, the name of Romania’s President Klaus Iohannis appears on Brussels’ list for the position of President of the European Council, given that Romania will take over the responsibility of the European Union’s Council Presidency starting January 1st 2019. Romania currently has some important aces up its sleeve. It would be a shame not to be able to capitalize on them. 3

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contri bu tors

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Industry players and energy experts debate over the impact of regulatory changes on Romania’s gas market.

Dumitru Chisalita Judicial Technical Expert in Oil & Gas

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Scientific Counsellor at World Energy Council Romanian National Committee

Future Energy Leaders Romania member page 24

Improving the energy performance of buildings Currently, about 35% of the EU’s buildings are over 50 years old. By improving the energy efficiency of buildings, we could reduce total EU energy consumption by 5-6% and lower CO2 emissions by about 5%.

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Andrei Covatariu

Transgaz new plans The National Gas Transmission Company Transgaz SA plans to invest a total of EUR 1.62 billion in the period of 2017 – 2026.

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Ioan-Corneliu Dinu

Romania to support Republic of Moldova’s European path Prime Minister Viorica Dancila conveyed, during the meeting in Chisinau with the Moldovan Parliament Speaker Andrian Candu, Romania’s firm support for the pro-European path of the neighbouring country.

Daniel Vlasceanu Partner at Vlasceanu, Ene & Partners

NAMR Order to establish the new gas reference price

Europeâ&#x20AC;&#x2122;s biggest gold mine gets bigger The KittilĂ¤ gold mine in Lapland (Finland), will be expanded - Agnico Eagle mining company announced on February 15th. The Canadian company said investment worth 160 million euros will be made on projects including the construction of a one-kilometre-deep mine shaft.

Top priority for the Romanian capital market Claudiu Doros, Director General SIF Moldova, evaluates the opportunities and challenges faced by Romanian companies in the energy sector for the next years.

78 Driving to the future

Go for Growth, or go home

New disruptive technologies and services are rapidly transforming the entire landscape of the automotive industry.

A business that doesnâ&#x20AC;&#x2122;t go anywhere is a dead business. That being said, where is your business going? 5

NEWS

EBRD TO FINANCE ROMANIA’S SECTION OF REGIONAL GAS PIPELINE

n a boost to the development of regional European energy markets, the EBRD is providing a RON 278 million (EUR 60 million) loan for the construction of a new gas pipeline between Romania, Bulgaria, Hungary and Austria (BRUA). With a total length of 1,318 km, BRUA gas corridor will offer better interconnection between the countries along its route. It will boost the energy market by enabling new links with major gas infrastructure projects such as the Southern Gas Corridor, through TAP and TANAP, other central European gas hubs and future offshore production sites in the Black Sea. The project will also ensure a greater integration of European gas markets and increase the security of supply. Promoting the diversification of the routes and sources of supply, the pipeline will also support the development of local economies and competition on regional energy markets to the benefit of consumers. The EBRD funds will be extended to Romania’s Transgaz which is building the Romanian section of the pipeline. The total project cost is EUR 479 million. In addition to the EBRD financing, Transgaz is investing EUR 149 million, the European Union is providing EUR 179 million in grants and the European Investment Bank is contributing a EUR 50 million loan. The balance will be covered by other lenders. The first phase of the project includes the construction of a 479 km pipeline between the technology node Podisor near Bucharest and the one in Recas some 30 km away from Timisoara in the west of the country, as well as auxiliaries, state-of-the-art hardware and software

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supervisory systems and communication technologies and three gas compressor stations to be placed along the route. “This is a truly special event, for our company and for the EBRD, as well. We are proud to have partnered with the EBRD in better securing the financing of the Romanian section of the BRUA project. As one of the currently largest infrastructure projects backed by the European Commission, BRUA is going to bring muchneeded connectivity between Bulgaria, Romania, Hungary and Austria. Transgaz attaches high value to the EBRD’s powerful drive to create significant opportunities for the natural gas transmission system operators along the BRUA route that will help bridge the gap between the east-west and the north-south gas corridors,” Director General of Transgaz Ion Sterian stated. In his turn, Matteo Patrone, EBRD Regional Director for Romania and Bulgaria, added: “We are proud to partner with Transgaz in this crucial endeavour. This project is perfectly in line with our strategic objectives in Romania. While the cooperation with Transgaz has set the bar very high, we trust further opportunities to support the development of strategic infrastructure in the country will materialise both in the energy and transport sectors.” “We are pleased to support the BRUA pipeline, which will allow more integration of the gas markets in south-eastern Europe and increase price transparency. Transgaz deserves praise for planning the pipeline based on the best environmental and social practices,” EBRD Director for Natural Resources Eric Rasmussen commented. The EBRD is a leading institutional investor in Romania. It supported 29 projects with EUR 546 million of debt and equity investments last year. Of this financing, 93 per cent was provided to the country’s private sector.

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NEWS

ENERGEAN TO SECURE ITS SALES FROM THE PRINOS OIL FIELD

nergean Oil & Gas recently announced the extension of the Prinos long-term offtake agreement with BP until 1 November 2025. All of the Group’s production of crude oil from the Prinos basin is currently sold to BP under the offtake agreement, which was originally signed in 2013 and covered the period until 31 July 2021. The extension of this agreement secures Energean’s sales of crude oil from the Prinos basin for a further four years, helping safeguard the Group’s cash flow. Energean is implementing a new investment programme to further increase production from the Prinos and Prinos North oil fields, as well as to develop the Epsilon oil field, which is also a part of the Prinos licence. The new programme, to be financed by a USD 180 million reserve-based lending facility, consists of drilling of up to 25 wells and the installation of two new

platforms up to 2021. This will be executed by both the Energean Force, Energean’s owned and operated offshore drilling rig, and the jack-up GSP Jupiter that will drill the first 3 Epsilon wells. “We are very pleased to extend our agreement with BP, a relationship that started in April 2013 and is now developing into a strategic partnership that secures cash flow from our production in Greece. BP has consistently lifted Prinos cargoes in the past four years and has established the Prinos crude in the international markets. Increasing our production from Greece, the USD 1.6 billion capex Phase 1 development of the Karish and Tanin gas fields, offshore Israel, and the exploration of the Eastern Mediterranean remain our focus and we believe the extended BP offtake agreement further strengthens our position to deliver maximum value from the Prinos licence,” Energean Oil & Gas CEO, Mathios Rigas, commented.

The Group has 2P reserves of 50.0 MMbbls of oil and 6 Bcf of gas and 2C resources of 22.9 MMbbls of oil and 11.5 Bcf of gas at its Prinos Basin and Katakolo fields, and its associate, Energean Israel, has 2C resources of 32.8 MMbbls of liquids and 2.4 Tcf of gas. The Company received approval in August 2017 from the Israeli Government of the FDP for the Karish and Tanin fields, aiming to use an FPSO and produce first gas in 2021. The Company is also pursuing an ongoing investment and development programme to increase production from the Prinos and Prinos North oil fields and develop the Epsilon oil field, located in the Gulf of Kavala, Northern Greece. The Company has secured a 25-year exploitation license for the Katakolo offshore block in Western Greece. Energean also has significant exploration potential in the other licences held in offshore Israel, Western Greece, and Montenegro.

AUSTRIA INCREASING RUSSIAN GAS IMPORTS AFTER RECORD YEAR IN 2017

working meeting between Alexey Miller, Chairman of the Gazprom Management Committee, and Rainer Seele, Chairman of the Executive Board of OMV, took place in St. Petersburg on February 22nd. The parties addressed the ongoing and future bilateral cooperation in the energy sector. Particular attention at the meeting was paid to gas supplies. It was noted that in 2017 Austria had set a new record for Russian gas imports at 8

9.1 billion cubic meters, a rise of 50.3 per cent from 2016 (a total of 6.1 billion cubic meters). In early 2018, the demand for gas is still on the rise in the country. According to estimates, from January 1 through February 21, 2018, Gazprom delivered to Austria 1.8 billion cubic meters of gas, a rise of 60.6 per cent against the same period of 2017 (1.1 billion cubic meters). The parties also discussed the progress of the Nord Stream 2 project.

It was highlighted that the permit had already been received for the construction and operation of the new gas pipeline’s offshore section in German territorial waters and the onshore section in the area of Lubmin near Greifswald. OMV is Gazprom’s main partner in Austria. The companies cooperate in gas production, transportation and supplies. Nord Stream 2 is the construction project for a gas pipeline with the annual capacity of 55 billion cubic meters from Russia to Germany across the Baltic Sea. energyindustryreview.com

NEWS

AGGREKO’S NEW MSHO PACKAGE

ggreko has launched a mobile, modular power package for utility support and off-grid locations, using HFO as its primary fuel source. Aggreko’s Medium Speed HFO (MSHFO) power package brings its trademark containerised, scalable power online quickly, while lowering the overall cost of energy. With more than 50 years’ experience providing diesel and gas fuelled mobile, modular power, HFO was the natural extension that the company’s experts at its Dumbarton research and development facility have been working on for a number of years. Aggreko recently installed a 28MW site in Madagascar to provide 25MW of power using its 1.8MW MSHFO generators, developed in partnership with German engine manufacturer, MAN Diesel and Turbo. Aggreko’s manufacturing experts developed a ‘Ship Light’ solution that spreads the weight of the 76 tonne engines, cooling and alternator systems across three standard 40ft containers, which means they are transported using standard shipping methods. This saves time and money and minimises heavy load restrictions on road transport networks. The final configuration of generator comprises two of the 40ft containers and all the components are assembled onsite by Aggreko’s teams of highly trained and specialised MSHFO Installation and Commissioning technicians. The generators have undergone thousands of hours of rigorous testing in extreme situations around the world. Aggreko is the leading global provider of mobile, modular power and heating and cooling, with nearly 10GW of power in its fleet worldwide, using diesel, gas and renewable-hybrid fuels, as well as HFO. “We know that nothing happens without

power – no lights for children to read by, no power for life-saving hospital equipment or for factories to manufacture products,” said Aggreko’s Group Business Development Director, Dan Ibbetson. “Reliable power enables communities to grow and thrive and we are proud to bring that power – uninterrupted, reliable and cost-effective power, generated using available resources.” “It’s about flexibility,” said Dan Ibbetson. “In off-grid locations, or where the grid is unstable, MSHFO can provide reliable and cost-effective power. It provides power where there would otherwise be none.” Aggreko’s MSHFO generators can save up to 34 percent in energy generation costs compared to diesel plants. And by renting, customers avoid capital expenditure, save time getting their plant up and running and benefit from flexible, reliable power that can be ramped up or down according to need. Aggreko has worked closely with MAN to develop a MSHFO engine that are tailored specifically for its mobile and modular business model. “The new MSHFO package offers instant, flexible and reliable power supply right when and right where it is needed”, says Wayne Jones, Chief Sales Officer at MAN Diesel and Turbo. “Aggreko’s plants can be a tremendous help – even lifesaving - wherever a permanent energy infrastructure is not available or has been damaged e.g. due to extreme weather conditions. We are very proud to be a part of this project and look forward to a long-lasting partnership. With more than 26 GW in engines for power generation installed across the globe, our machines are worldrenowned for their reliability, built to last and used to withstanding even the most rugged ambient conditions.” Aggreko’s MSHFO package can be configured in multiple configurations, to provide the broadest range of power output, tailored to customers’ individual power demands. 9

NEWS

EIB TO SUPPORT EUROPE’S LARGEST BATTERY FACTORY

he Board of Directors of the European Investment Bank (EIB) has approved a loan request from Northvolt AB. The financing, a facility of up to EUR 52.5 million, is projected to be supported by InnovFin – EU Finance for Innovators’ Energy Demonstration Projects facility, with the financial backing of the European Union under Horizon 2020 Financial Instruments. The parties will now finalise negotiations and, after signature, Northvolt is expected to begin construction of its demonstration line in the coming months. This facility will serve to show the commercial viability of the concept and to qualify

and industrialize products together with Northvolt’s customers. The produced batteries are targeted for use in transport, stationary storage, and industrial and consumer applications. The demonstration site will also comprise a research facility and in total the Västerås operations will employ between 300-400 people. The launch of the demonstration plant is a key step towards the establishment of Northvolt’s largescale li-ion battery factory in Skellefteå, eventually targeting a production of 32 GWh worth of battery capacity annually. “The Bank is fulfilling one of its main purposes by supporting this type of research

and development in Europe. With the growing momentum of clean energy and electric mobility, batteries will become ever more important. Europe is currently lagging behind when it comes to battery manufacturing and this highly innovative and strategic project deserves European backing to fill that gap,” Ambroise Fayolle, Vice-president of the EIB, commented. “Europe is moving rapidly towards electrification. Northvolt’s objective is to build the world’s greenest battery to enable the transition. With the support from the European Investment Bank and the European Union, we are now one step closer to establishing a competitive European battery manufacturing value chain,” Peter Carlsson, CEO of Northvolt, added.

E.ON PARTNERS WITH SIGHT MACHINE TO EQUIP FACTORY WITH ARTIFICIAL INTELLIGENCE

.ON takes Artificial Intelligence to the world of manufacturing companies. Customers from the industrial and commercial sectors will thus be able to intelligently increase the efficiency of entire machine parks and save energy costs at the same time. In order to make this future possible, E.ON has entered into a partnership with the US company Sight Machine. Sight Machine is a software start-up based in San Francisco that has created an Internet of Things enabled digital manufacturing platform, which uses artificial intelligence, machine learning, and advanced analytics to help address 10

critical challenges in quality, productivity and visualisation. Sight Machine’s expertise in the field of digital manufacturing is now being integrated with E.ON’s expertise in the energy industry to develop unique digital solutions for the European market that will enable the optimisation of energy and core manufacturing processes in unison. E.ON is the first energy company with which Sight Machine will cooperate in Europe. Alongside the partnership, E.ON Scouting and Co-Investment has made a venture capital investment into Sight Machine. E.ON will use the technology to expand its own Optimum Platform.

With Optimum, E.ON customers are already able to visualize their energy flows and rapidly identify potential improvements. Through the partnership, manufacturing and energy data are now turned into actionable information; customers will see improvements in operations, leading to increased profitability and reduced CO2 emissions. Now machine uptime and utilisation will be improved through predictive maintenance, while production bottlenecks, quality issues, and energy optimisations will be identified by pulling and analysing available data from across manufacturing facilities. energyindustryreview.com

Achieving Operational Excellence NA Solid Petroserve Ltd. is a Canadian oilfield services company specialized in wireline and well testing services for oil and gas industry. Originally registered in Alberta Canada, Solid has been an active service provider, for over 15 years in Tunisia and Romania providing our customers with quality wireline and well testing services at competitive prices. NA Solid Petroserve Ltd. has made a commitment towards achieving operational excellence. Our goal is to deliver the highest possible value to our customers by providing the highest quality services and technical support. NA Solid Petroserve Ltd. provides full service capability for all types of slickline-conveyed BHP and downhole flow-control equipment. Our wireline service fleet includes fully-equipped wireline service trucks, along with truck-mounted cranes. We are committed to Health, Safety and Environmental concerns of our employees, contractors, clients and surrounding communities. Our goal is to build and maintain long-term service relationships with our customers.

NA Solid Petroserve Ltd. offers a variety of well testing equipment packages and services to meet virtually any well production testing program requirement.

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EPF solutions provided by NA Solid Petroserve Ltd. enable our customers to generate early cash flow while continuing to evaluate reservoir potential. Real time data acquisition of well production parameters (pressure, temperature, flow rates etc.), combined with analysis of produced fluids enable real-time monitoring and appraisal of reservoir performance. Downhole Measurements include QuartzElectronic Memory and Surface Read-Out Gauges and also a downhole shut in tool, to allow for a quicker well build up and better pressure data quality.

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NEWS

EU TO INCREASE THE SHARE OF RENEWABLE ENERGY IN ITS ENERGY MIX

he European Union (EU) can increase the share of renewable energy in its energy mix to 34 per cent by 2030 – double the share in 2016 – with a net positive economic impact, finds a report by the International Renewable Energy Agency (IRENA), recently launched in Brussels. Presenting the findings during a launch event, ‘Renewable Energy Prospects for the European Union’ – developed at the request of the European Commission – IRENA’s Director-General Mr. Adnan Z. Amin highlighted that achieving higher shares of renewable energy is possible with today’s technology and would trigger additional investments of around EUR 368 billion until 2030 – equal to an average annual contribution of 0.3 per cent of the GDP of the EU. The number of people employed in the sector across the EU – currently 1.2 million – would

grow significantly under a revised strategy. Raising the share of renewable energy would help reduce emissions by a further 15 per cent by 2030 – an amount equivalent to Italy’s total emissions. These reductions would bring the EU in line with its goal to reduce emissions by 40 per cent compared to 1990 levels and set it on a positive pathway towards longerterm decarbonisation. The increase would result in savings of between EUR 44 billion and EUR 113 billion per year by 2030, when accounting for savings related to the cost of energy and avoided environmental and health costs. “For decades now, through ambitious long-term targets and strong policy measures, Europe has been at the forefront of global renewable energy deployment,” said IRENA Director-General Adnan Z. Amin. “With an ambitious and achievable new renewable energy strategy, the EU can deliver market certainty to investors and developers, strengthen

economic activity, grow jobs, improve health and put the EU on a stronger decarbonisation pathway in line with its climate objectives.” Welcoming the timeliness of the report, European Commissioner for Energy and Climate Action Miguel Arias Cañete commented: “The report confirms our own assessments that the costs of renewables have come down significantly in the last couple of years, and that we need to consider these new realities in our ambition levels for the upcoming negotiations to finalise Europe’s renewable energy policies.” The report highlights that all EU Member States have additional costeffective renewable energy potential, noting that renewable heating and cooling options account for more than onethird of the EU’s additional renewables potential. Furthermore, all renewable transport options will be needed to realise EU’s long-term decarbonisation objectives.

CHELPIPE TO PRODUCE PIPES FOR GAZPROM’S PROJECTS

italy Markelov, Deputy Chairman of the Gazprom Management Committee, and Andrey Komarov, Chairman of the Board of Directors of ChelPipe, signed at the Russian Investment Forum in Sochi (February 15 – 16, 2018) a roadmap for the development and batch production of pipes for offshore projects. In accordance with the document, ChelPipe will adopt the technology to 12

produce pipes from the 25Cr Super Duplex steel and the UNS N06625 nickel alloy. Thanks to these materials, the equipment used in offshore environments will acquire such characteristics as ultra-high strength and corrosion resistance. No pipes of this kind are produced in Russia at the moment. It is planned to deliver, test and certify prototypes under Gazprom’s requirements in the course of 2018. The

pipes will be used in the manufacturing of domestic equipment for subsea production systems, including manifolds and X-mas trees. Russian R&D organizations are currently developing subsea production systems (SPS) commissioned by the Ministry of Industry and Trade with support from Gazprom. The first SPS prototypes are expected to be presented in 2019, with comprehensive testing slated for 2020. energyindustryreview.com

NEWS

MOL STEPS INTO THE SOLAR POWER BUSINESS

OL Group recently announced plans to build solar power plants in three of its industrial sites located in Hungary. The project supports MOL Group’s strategic objective to build its industrial capabilities, while supporting company’s wider sustainability goals. MOL has a long-standing experience in conventional energy production, however, as part of its 2030 strategy it aims to prepare for beyond the fuel age and explore opportunities arising from alternative energy technologies. The photovoltaic power plants are planned to operate at the total capacity of 18.38 MWp, which is the equivalent to the consumption needs of more than nine thousand households. Apart from

covering parts of the energy needs of its own operation, the project provides an excellent opportunity for MOL to acquire expertise in the solar technology field and seize future opportunities in this promising market. The green electricity generated by the solar facilities is expected to eliminate nine thousand tons of carbon dioxide emissions per year. This will contribute to the fulfillment of MOL’s sustainability goals of reducing direct and indirect greenhouse gas emissions as well as increase its earnings from alternative energy sources in line with the company’s Sustainable Development 2020 strategy. This expansion will also further contribute to improving MOL Group’s already strong sustainability performance, as it consistently achieves

high scores across leading ESG research and rating houses, including Dow Jones Sustainability Indices, MSCI, Sustainalytics and Bloomberg. “The project is a true reflection of our ambition to become one of the leading innovators in the region, envisioned in the 2030 strategy. At MOL we recognized that solar power will play an important role in the future energy systems, and thus we started to build our industrial capabilities by tapping into this dynamically growing business. The photovoltaic plants are for us also an excellent way of utilizing the potential of unused areas of our sites, while supporting our commitment to decrease the environmental footprint by reducing carbon emissions from our operations,” Sándor Fasimon, Chief Operating Officer at MOL, said.

MANAGENERGY - LEADERS IN ENERGY TRANSITION

anagEnergy is the European Commission initiative for helping regional and local energy agencies to become leaders in the energy transition and to increase sustainable energy investments in regions and cities. Information, know-how, visibility and networking opportunities are provided, together with support to local and regional energy agencies in delivering new services or boosting existing ones. Energy agencies are in a unique position to support the energy transition. In the regions and cities in which they are located, their role as project developers, aggregators, and facilitators for public authorities places them at the forefront

of energy investments in Europe. The focus of ManagEnergy, originally launched in 2002, is now on sustainable energy investments. A completely new website, social media presence, and communication tools will inform sustainable energy actors on the most recent developments in the area of energy efficiency policies and financing opportunities. Master Classes (by leading experts), Expert Missions (capacity building for selected energy agencies and their stakeholders), and annual Networking Events in Brussels will raise the skills of local and regional energy agencies in project financing and development. The ManagEnergy Master

Classes consist of tailor-made 3-day programmes in Brussels, delivered by leading energy experts and targeting senior and management level energy agency staff. Focusing on topics such as market facilitation, project development, financing solutions and other related topics the Master Classes will include lectures, workshop activity, case studies and guest lectures from agencies and representatives from the financial sector. Three different modules will be provided - Module 1: Market Facilitation and Project Aggregation; Module 2: Involving Banks and Mobilising Private Investment; Module 3: Developing and Using Financial Instruments. 13

NEWS

POLAND’S MAJOR REFINERS TO MERGE

n February 27th 2018, Krzysztof Tchórzewski, Minister of Energy as the State Treasury’s representative, and Daniel Obajtek, President of the PKN ORLEN Management Board, signed a letter of intent to begin the process of the acquisition of control of Grupa LOTOS S.A. by PKN ORLEN S.A. By signing the letter of intent, PKN ORLEN and the State Treasury agreed to commence, in good faith, negotiations to execute a transaction whereby PKN ORLEN will acquire, directly or indirectly, at least a 53% interest in Grupa LOTOS’s share capital. As part of the transaction, PKN ORLEN is to purchase Grupa LOTOS shares from its shareholders, including in particular from the State Treasury, in accordance with the Polish Act on Public Offering, the Conditions Governing the Introduction of Financial Instruments to Organised Trading, and

Public Companies of July 29th 2005. The acquisition will be possible on condition that relevant amendments are made to the provisions of the Act on the Management of State-Owned Assets of December 16th 2016 whereby the State Treasury is forbidden to sell Grupa LOTOS shares. “The concept of merging PKN ORLEN and Grupa LOTOS has been spoken of for over a dozen years, but there has not been enough determination to achieve this objective, perhaps because an important business decision such as this was underpinned by emotions rather than hard facts and figures,” says Daniel Obajtek, President of the PKN ORLEN Management Board. “Consolidation processes have been carried out on that market for many years, and to be competitive we have to make up for the lost time and be ready to embrace new challenges facing the petroleum sector. The consolidated company will be better positioned to compete on the open European market. The model of the proposed transaction, as well as its timeline

and detailed terms, require thorough analysis and will now be worked out,” added Daniel Obajtek. The parties to the letter of intent want the transaction to create a strong and integrated corporate group, better positioned to compete in international markets and resilient to market fluctuations, by exploiting operational and cost synergies between PKN ORLEN and Grupa LOTOS. “The business decision to build a strong, integrated fuel and petrochemical group is needed for multiple reasons: the future of the two companies’ business, creation of shareholder value, national energy security, and the interests of retail customers. With this front of mind, we are determined to smoothly and effectively follow the process through to completion with the support from the State Treasury as the major shareholder, while respecting the rights of all shareholders and taking care of employees,” Daniel Obajtek explained.

SCHLUMBERGER AND SUBSEA 7 PLANNING JOINT VENTURE

chlumberger and Subsea 7 recently announced that they have entered into exclusive negotiations to form a joint venture that builds on the success of Subsea Integration Alliance, which was established in 2015. Subsea Integration Alliance currently combines the subsurface expertise, subsea production systems (SPS) and subsea processing systems of OneSubsea with the subsea umbilical, riser and flowline systems (SURF) 14

capability of Subsea 7. To help reduce the total cost of ownership and enhance customer efficiency throughout the asset lifecycle while maximizing total production, the proposed joint venture will further strengthen the front end engineering, design and execution of integrated projects, and will build on the expertise from both companies creating a unique Life of Field offering that includes autonomous subsea technology, digitally enabled remote surveillance

and production monitoring, and inspection, maintenance and repair services. In addition to contributing resources related to early engagement and tendering, OneSubsea and Subsea 7 will assign their respective Life of Field businesses to the joint venture. The joint venture will be owned 50% by Subsea 7 and 50% by Schlumberger. Both parties expect to account for their investments in the joint venture under the equity method of accounting. energyindustryreview.com

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NEWS

HIGHEST US MONTHLY CRUDE OIL PRODUCTION IN ALMOST HALF A CENTURY

S crude oil production reached 10.038 million barrels per day (b/d) in November 2017, according to EIA’s latest Petroleum Supply Monthly. November’s production is the first time since 1970 that monthly U.S. production levels surpassed 10 million b/d and the second-highest U.S. monthly oil production value ever, just below the November 1970 production value of 10.044 million b/d. U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tight rock formations including shale and other finegrained rock using horizontal drilling and

hydraulic fracturing to improve efficiency. EIA estimates of crude oil production from tight formations in November 2017 reached 5.09 million b/d, surpassing a previous high of 4.70 million b/d in March 2015. These formations also produce considerable volumes of natural gas associated with the crude oil. Liquid production - both crude oil and condensate - from tight rock currently accounts for about 51% of total production. A decade ago, in November 2008, production from tight formations accounted for only 7% of total U.S. production. Non-tight oil production has been mostly constant over the previous decade.

Tight oil production can be sensitive to changing oil prices. After increasing relatively steadily since 2011, tight oil production began to decline after the West Texas Intermediate (WTI) crude oil price decreased from USD 105 per barrel (b) in June 2014 to a low of USD 30/b in February 2016. WTI prices were about USD 60 a barrel in January 2018. Production continued to increase through these price fluctuations in three formations in the Permian Basin—the Spraberry, Bone Spring, and Wolfcamp plays that span parts of western Texas and eastern New Mexico - and in the Bakken formation in the Williston Basin in North Dakota and Montana.

ODFJELL DRILLING’S 45TH ANNIVERSARY

n 8 February 2018, Odfjell Drilling celebrated its 45th Anniversary as a separate company. The business was founded in 1973 but boasts maritime roots that stretch back to 1914 and experience of the petroleum industry that began in the mid-1960s. Since its foundation, Odfjell Drilling has demonstrated its ability to conduct successful drilling operations in some of the most demanding environments on the planet. The foundation of Odfjell Drilling & Consulting Company A/S on 8 February 1973 was, however, the culmination 16

of a bold initiative in an area that was practically unknown territory in a Norwegian context. When the first licence round for the Norwegian Continental Shelf was announced in 1965, the shipping company Odfjell saw opportunities in the North Sea and joined Norwegian Oil Consortium (NOCO), which was awarded ten blocks. However, in the early seventies, the company decided to turn its focus from oil production to drilling and initiated together with Aker the first Norwegian designed drilling rig, the Aker H3. When Odfjell in 1973 decided to hive

off the offshore business into a separate company and founded Odfjell Drilling and Consulting Company, the company had already two Aker H3 units in order. The first Deep Sea Driller was delivered in 1974, the second Deepsea Saga in 1975. Odfjell Drilling operates two separate business units with area-specific expertise and proven performance levels within their fields. Drilling & Technology is a leading contractor in the production drilling and engineering market. Odfjell Well Services (OWS) is a major North Sea player and a global provider of casing and fishing services, well bore cleaning and tool rentals. energyindustryreview.com

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OPINION

A brief history of the RomanianHungarian relations Dumitru Chisalita – Judicial Technical Expert in Oil & Gas

statement of the Hungarian Foreign Minister, after a high-level meeting in Romania, highlighting the exclusive interest to purchase gas from Romania, but through a pipeline built by Romanians, basically certifies the lack of interest in BRUA project. As Hungary is a country that over time has proven a high pragmatism and has pursued its national interest, I propose that we review the relationship between Romania and Hungary in the gas sector. Natural gas discovered accidentally in Transylvania when it was a Hungarian territory was lifted to industrial level by the visionary intervention of Germany’s Deutsche Bank, which established the first company for the production, transmission, distribution and use of natural gas in Europe, in 1915. The company was owned by Deutsche Bank with a 45% stake, while 15% was owned by the Hungarian state and 40% by Hungarian and Austrian natural and legal persons. After the end of World War I, in accordance with the provisions of the Versailles Treaty, a company located on the territory acquired by Romania and whose capital belonged to the countries declared victorious in the World War I could be liquidated, its goods passing to the patrimony of the Romanian state. However, certain political circles in Romania have decided to first put under forced administration the gas company and only then liquidate the company. This position of Romanian politicians gave time to shareholders to fall back and obtain, 9 years after signing the Versailles Treaty, when a relaxation was obtained towards the countries declared to have lost the war, from the victorious 18

countries a judgment of the Court in Paris stating that the gas company was not subject to the Versailles Treaty. Thus, Romania was forced to repurchase what rightfully belonged to it for an amount 4 times higher than its value at the actual takeover. In 1940, the Vienna Award changed the border with Hungary, making the Tg. Mures Distribution Division of the gas company, with all its assets and the transmission pipeline Seuca Tg. Mures, for a section of 9km, operate on the Hungarian territory. This situation existed until 1944. The Tg. Mures Distribution Division, belonging to the Romanian gas company, operated in this entire period the transmission pipeline and ensured gas supply to the city of Tg. Mures, placed on the Hungarian territories according to the Vienna Award, from the Deleni field, which remained on Romania’s territory. In fact, during 1940 - 1944 Romania exported gas to Hungary, at prices imposed by it. On 12 June 1952 a convention was signed between the Romanian and Hungarian governments, agreeing to supply gas to Hungary through a 10-inch pipeline built west to Satu Mare. Gas deliveries started on 1 October 1958. Thus, Hungary benefited for 23 years from gas from Romania at an advantageous price. An agreement was signed in 1998 to build an interconnection between Romania and Hungary, in order to import gas from the North Sea via Hungary. This agreement determined the construction of a pipeline from Arad to Horia on the Romanian side, which remained non-operational for 10 years, due to the fact that the deal failed especially because of Hungary’s intention to ensure gas resale in Romania. In 2010, Horia pipeline was extended to the Hungarian energyindustryreview.com

OPINION

transmission system, achieving the interconnection between the transmission systems of Romania and Hungary, to allow gas imports from Hungary, but subsequently Hungary obtaining the possibility to import gas (today limited) from Romania. In 2003, the GRANT AGREEMENT TENE/2003/57100/Z/03 was concluded with the European Community on the one side and OMV Erdgas GmbH on the other side, which represented the beneficiaries (MOL Hungary, BOTAS Turkey, Bulgargaz EAD, Transgaz Romania) and which laid the foundations of NABUCCO project. Hungary has chosen to play its national interest very well in this project, even risking some sanctions for its withdrawal from the project. In 2012, it chose to exit the first from Nabucco project, when it understood that this move would bring gains. In September 2016, the Ministry of Economy signed with the EC the Funding Agreement through the Connecting Europe Facility, allocating EUR 179.32mln for the first phase of BRUA project. Then, the ministry informed that Transgaz could implement, by 2020, the first phase of the transmission corridor Bulgaria-Romania-Hungary-Austria, with a length of around 550km, on Giurgiu – Podisor – Corbu – Hurezani – Hateg –

Recas – Horia corridor, and build three compressor stations, located on the pipeline route (Corbu CS, Hateg CS, Horia CS). Hungary played smart in this project as well, waiting until the tenders were almost over in Romania for BRUA ST1 and then changing its tune, showing that it was no longer interested in BRUA. In late July 2017, Transgaz informed that BRUA gas pipeline would no longer cross Hungary, the operator of the gas system in this country, FGSZ, proposing that the volume of gas coming from Romania be distributed from Hungary to Slovakia, Ukraine, Croatia or Serbia. On 5 February 2018, the Foreign Minister of Hungary declared gladly that “It is the first opportunity in decades that Hungary has to buy large amounts of natural gas from a different source than Russia. The Romanian side agreed to build compressor stations allowing gas supply to Hungary as of 2020”. Thus, Hungary imposes again its supremacy, even only at a declarative level, as Romanian representatives in the gas market say. We need to understand the intelligence, the professionalism and fortitude with which Hungarian politicians have managed to score for Hungary in the gas market and we congratulate them for wanting more than others.

OPINION

NEW GAS REFERENCE PRICE LINKED TO THE VIENNA HUB

Is it now the right time for it?

Daniel Vlasceanu - Partner at Vlasceanu, Ene & Partners

simple rule internationally accepted in the oil and gas industry is that the state is entitled to a share of the value of the extracted molecules. The so-called ‘government’s take’ has various shapes: it can be royalty on production, it can be a tax on income, it can be a share of the profit (under the production sharing systems), it can be a tax on supplementary income etc. Government’s take must always be balanced and adapted to the factual situation as the fiscal regime is a two-way street: both the state and the investors must be happy (if one side takes too much, the other will seek alternatives). One essential condition for sanctioning new projects currently under consideration in Romania (especially offshore) relates to a clear and stable fiscal framework. Since 2013 there have been several working groups analysing royalties related scenarios and a reasonable draft law on royalties was put forward in October 2017 (but only to be withdrawn two months later). There have been turbulent discussions in last years around the implications of the 2012 report of the Romanian Court of Accounts (which, among others, ascertained the need for a new 20

computation formula of the reference price). Within this context, the National Agency for Mineral Resources (NAMR) issued in mid-February 2018 the Order no 32/2018 (‘Order no 32/2018’) establishing a new computation method for the reference price of the natural gas extracted in Romania. Order no 32/2018 repealed the old computation formula set under point II. of Annex 1 of NAMR Order no 98/1998 (that was anyhow suspended by the NAMR Order no 21/2008 approving the reference price for natural gas extracted in Romania). Why is the reference price relevant? Because Article 49 paragraph (4) of the Petroleum Law no 238/2004 sets forth that the royalties are computed based on the reference price established by NAMR. As such, changing the gas reference price (i.e. increasing it) means changing (i.e. increasing) the royalty paid by the gas producers. One of the immediate direct consequences of Order no 32/2018 will be that certain marginal gas fields will have to be relinquished (as they will turn out uneconomic). The fundamental change brought by the new Order no energyindustryreview.com

OPINION

32/2018 is the computation formula which makes reference to the average stock exchange index for trading natural gas displayed on the Central European Gas Hub AG (CEGH), for the previous month. There have been pros and cons expressed in relation to this reference. Details of such opinions (of both the investors and of the NAMR) may (at the date of writing this opinion) be consulted on the NAMRâ&#x20AC;&#x2122;s website (at www.namr.ro/legislatie/ propuneri-legislative/consultare-publica). We would only point out that the gas producers (prior to Order no 32/2018) used to pay royalty by considering their actual sale price and not the old reference price frozen at a value (i.e. RON 495/1,000 cubic meters) which little exceeds half of the current sale prices (so, no prejudice caused to the state budget!). However, using an external reference price is not completely uncustomary in the industry (for example, some oil sale contracts concluded in Romania refer to the Ural oil price). But the core question is whether the CEGH gas index is relevant for Romania? When BRUA (hopefully) will come onstream, one might think yes. But what about until then? How

could such connection be justified as long as Romania is not a gas exporter? How could producers be asked to pay royalty on a price they cannot influence? One note to be mentioned based on Article 5 paragraph (2) of the Technical Instructions regarding the takeover and sale of petroleum corresponding to the royalty (included under Annex 2 of NAMR Order no 98/1998) that was not amended: the royalty will continue be computed taking into consideration the highest value between the gas sale price and the reference price. To conclude: while we do understand it was mandatory to amend the reference price and that it is not unconceivable to refer to external prices for various computation purposes, we do not favour (for the time being) the link to the CEGH index and consider that the sale price actually achieved by the producer could have been a better choice under the circumstances. From a different angle, given this increase in the royalty, we are eager to see what will the future royalty law bring forward as in the end investors will take all these aspects (royalty, reference price, supplementary income tax etc) into consideration when analysing existing projects/taking final investment decisions for new projects.

OPINION

Renewable Energy Sources paramount for Italyâ&#x20AC;&#x2122;s National Energy Strategy Ioan-Corneliu Dinu â&#x20AC;&#x201C; Scientific Counsellor at World Energy Council Romanian National Committee

he chapters related to the production of energy from renewable sources were given special attention in the Italian National Energy Strategy. From the list of these sources, none is missing, neither the most used nor the sources that are still the subject to research, innovation, achievement, promotion. The development of these topics intensively studied by energy experts is obviously in a two-way relation with the level of investment in the energy sector in general and in the wind sector in particular. In Italy, the regulatory and bureaucratic difficulties linked to aid schemes have slowed down, even blocking investments at some point. These constraints, according to Italian specialists, have diminished the significant increases in this type of electricity production. According to data provided by the Global Wind Energy Council (GWEC), it appears that, from the point of view of this type of production, Germany ranks third, 22

GWEC specialists believe that, with the implementation of measures under the Paris climate agreement, wind energy production will explode in the next 15 years. They anticipate that even 2,110 GW will be achieved, five times more than the current level.

after the US and China. Steve Sawyer, GWECâ&#x20AC;&#x2122;s SecretaryGeneral, says that by 2030 20% of global energy demand will be provided by wind power. The installed capacity in the EU is thus dominated by Germany with 47%, followed by Spain with half of this figure. The ranking continues with the UK, France and Italy, with 10% GW installed. For Italy, the installed capacity growth was continuous, the country continuing the moment of opportunity provided by mini-wind farms installed in agricultural areas. The small agricultural firm was and is interested in two arguments: one related to the technical balance between sowing, fertilized, groomed material etc. and profit after harvesting and selling most of the production; and the second argument is related to energy expenditure, watering, harvesting and transportation equipment, and even greenhouses when needed. Starting from the energy needs, miniwind farms installed in agricultural areas energyindustryreview.com

OPINION

benefiting from wind are a saving solution in terms of cumulated energy consumption management. The installed power of a mini-wind power configuration does not exceed 25 KW on each pillar supporting the corresponding propeller. The advantages of using mini-wind farms in agricultural associations could be: reduced costs compared to other forms of electricity generation, coverage of investments related to the installation of these types of mini-wind farms is very rapid, but also the possibility of using the energy produced within the agricultural company, by selling it in the network, i.e. the unused amounts, if the wind manifests its presence for sustained periods of time. Thus, it’s about a great flexibility in terms of energy production and its use, a defining binomial for energy efficiency. Anyway, the general theme of the mini-wind power installation is ample, not being limited to the agricultural field. Another example is the use of these installations, with a suitable construction form, on high-speed motorways. In this way, the flow of air determined by the passage of cars, trucks and other vehicles that run at high speed on motorways can be transformed. Experts in energy calculations have estimated that 10% of wind power could come from this method.

Parallel to the multitude of advantages of electricity generation with wind power installations, the disadvantages are also obvious, the balance being anyway inclined, perhaps, to the positive side of the use of wind force in the areas where it is truly efficient. However, the supporters of this method are complaining about the long absence of strategic approaches, norms concerning the future of the wind power generation system and, of course, state aid schemes. It is argued that wind power generation should be seen as complementary to photovoltaic production, both being part of what was established to be a necessity in Paris two years ago, that is the even more intensive use of renewable sources in electricity generation. With the promotion of electric propulsion in the automotive industry, the future trajectory imposed in Paris is beginning to be more than obvious, as a global necessity. As I mentioned at the beginning of the article, I emphasize that in 2017 the Government of Italy approved the National Energy Strategy, a programmatic document that contains important strategic elements for the future development of the country’s energy sector, the production of RES (Renewable Energy Sources) being treated on all levels as essential.

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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 23 romania@ilf.com www.ilf.com

OPINION

ENERGY POVERTY, AN OLD AND NEW ISSUE Andrei Covatariu – Future Energy Leaders Romania member

he simplest definition of energy poverty is the lack of access to modern energy services. To better understand the concept, it’s very important to distinguish the main issues related to this phenomenon – energy access and fuel poverty. Energy access represents the lack of physical connection to the energy grids (centralized or decentralized), the lack of infrastructure. On the other hand, fuel poverty refers to

the situation of “not being able to afford energy services and/or to keep adequately warm at affordable prices”. The real effects of energy poverty are numerous and very hard to measure. However, the most common are related to social marginalization, health conditions, psychological issues, lower educational level or low level of employment. Fuel poverty specifically causes a ‘cycle of debt’ (indebtedness resulting from unaffordable energy costs and the effort to avoid disconnection)

FIGURE 1 - ROMANIA HAS ONE OF THE LOWEST ELECTRICITY PRICES IN EUROPE €/MWh 300

Taxes & Levies Network Energy

250 200 150 100 50

DK DE IT IE BE ES PT UK EU AT CY NL SE EL LU LV FR SI FI SK NO PL HR RO TR CZ MT LT EE HU BG

0 SOURCE: CLEAN ENERGY FOR ALL EUROPEANS 24

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OPINION

FIGURE 2 - ROMANIA HAS ONE OF THE LARGEST SHARES OF THE ELECTRICITY BILL IN THE TOTAL AVERAGE MONTHLY EXPENDITURES

SOURCE: CLEAN ENERGY FOR ALL EUROPEANS and even energy theft, with physical security risks and legal consequences. According to a recent IEA Report on Energy Access, 1.1 billion people around the world lacked electricity access in 2016, although things have been improving, taking into account that the number has dropped from 1.7 billion, in 2000. Actually, the agency forecasts that the number will continue to decrease and will reach 674 million, by 2030, India being the main driver of this impressive evolution. In Europe, things are different, electricity grid access is not a significant problem (Word Bank or Index Mundi have in their statistics a 100% electricity rate). However, a significant share of Europeans deals with major affordability issues. And the numbers are quite shocking. 150 million of EU citizens have energy affordability issues (29.4% of the Union’s population), without even considering non-EU member states. Moreover, 10% of Europeans are actually unable to keep their home adequately warm, bigger issues being recorded in the Central and Eastern part of the continent – because fuel poverty has a lot in common with poverty itself. In Romania there is still a part of the population which has no access to the grid, recent studies mentioning a number of about 30,000, out of a total of 7.18 million points of delivery. Romanians face fuel poverty problems as well. Although Romania has one of the lowest electricity prices in Europe

(Figure 1), it also has one of the largest shares of the electricity bill in the total average monthly expenditures (Figure 2), in 2015. Hungarians face even worst conditions. The financial support received by vulnerable consumers for heating (the only financial measure in force in today’s Romania) is highly underrated. A significant share of vulnerable customers uses electricity for heating, because they have no district heating access and/or because their building is extremely energy inefficient. For this reason, their energy bills have sky-high levels in the winter time. In these conditions, with no real alternative, some of them have no other choice than to steal electricity, to withstand winter conditions. In order to tackle fuel poverty in Romania, the solutions identified up to this point will work and will produce measurable effects only if they are implemented together and simultaneously. Among the most significant measures, we still need well targeted financial aid as well as flexible financial solutions. In addition, we need new household appliances and, in general, energy efficient consumers of electricity. We need energy efficiency measures for the apartments and buildings and we also need technological innovation. Only by changing our own perspective with that of a vulnerable consumer, understanding the difficulties and obstacles in accessing electricity, we can make a difference for those less lucky. 25

energyindustryreview.com

CLAUDIU DOROS -DIRECTOR GENERAL, SIF MOLDOVA

Top priority for the Romanian capital market Shareholdings in the energy sector represent an important segment of assets managed by SIF Moldova SA - one of the most representative financial investment companies in Romania. Claudiu Doros â&#x20AC;&#x201C; Director General, highlights the key preconditions for the development of the Romanian capital market and companyâ&#x20AC;&#x2122;s plans for the following years. 27

INTERVIEW

ow do you see the evolution of Financial Investment Companies (SIFs) on the Romanian market in the years passing from the establishment of the first Private Property Funds (FPPs)? What is SIF Moldovaâ&#x20AC;&#x2122;s position on this market? The role of FPPs and later of SIFs in the process of formation of an important segment of Romanian private capital and subsequently of the domestic capital market is well known. But, beyond the chronological references of our evolution the establishment of FPPs (1992), their transformation into SIFs (1996), the listing of SIF shares on BSE (1999) and, very recently, the approval of SIF Moldova as AIFM - Alternative Investment Funds Manager, according to Romanian and EU legislation, I consider it relevant to analyse our performances relative to the quality of the initially allocated portfolios, the evolution of the capital market and the dynamics of the applicable legislative framework.

Thus, comparison with the portfolios initially allocated to the other SIFs reveals that, at the beginning of the activity, we had a lower quality portfolio, as potential for gain and growth, as the region of Moldavia was perhaps less developed than the other historical regions, and the textile industry (national allocation) was and has proven to be a sector with low added value. Subsequently, the decisions made regarding the portfolio management, the capital investments, the involvement in the portfolio companiesâ&#x20AC;&#x2122; management, the increase in the quality of our own human resources targeted and ensured the transformation of FPP II Moldova into SIF Moldova and, currently, into an AIFM positioned mainly on the Romanian market, as a closed-end fund with predominantly equity investments, medium risk and temporary liquidity placements in fixed income instruments. Listing SIF2 shares on BSE was another significant milestone in our evolution, with positive implications, on both SIF

energyindustryreview.com

INTERVIEW

Currently, a ‘zero’ priority is increasing liquidity, an essential condition for the development of the Romanian capital market and thus for the upgrade to the status of emerging market, not only formally, but also functionally and not only for a short term, but permanently.

Moldova and SIF2 titles’ performance and on the Romanian capital market as a whole. This entire path, accelerated by the development and implementation of coherent multi-annual strategies tailored to the dynamics of the capital market and economic environment, has constantly generated performance. The results estimated for 2017 show that the financial indicators provided in the draft budget have been exceeded, both at the level of the net profit of RON 165mln and in terms of investments of RON 272mln, performance reflected in shareholders’ benefits and representing favourable prerequisites for supporting the investment strategies in the directions presented in the annual programs and multi-annual strategies. I mean, especially on two main pillars - finance and energy. Investors have validated on BSE our strategy and performances, and their increased interest has materialized in the rising price of SIF2 shares, by 81% in 2017, growth continued in January 2018. Also, the discount, i.e. the difference between the unitary net assets and the market price, fell from 50% in early 2017 to 22% at the end of the year. Therefore, the value of our assets is more accurately recognized, around EUR 400 million equivalent. Moreover, in the sector in which it carries out its activity, financial investment companies, and in relation to the results for 2017, SIF Moldova has the highest values in terms of net profit and market capitalization (company’s value on BSE). With an exposure of around 20% of the total asset on energy companies (at the end of 2017), of which over 8% on OMV Petrom issuer, SIF2 Moldova is one of the players with a strong voice in their market evolution. For this reason, you probably monitor carefully this sector. In this context, what is in your opinion the explanation for the relatively poor evolution of the energy index (BET-NG), especially in the last part of 2017? (it closed the year around 660 points - just over the level of around 620 points at which it opened the year of 2017). First of all, I confirm that our analysts dedicated to the portfolio of listed shares monitor very carefully the energy sector and the included companies, decisions to increase our exposure or, on the contrary, reduce it through sales, being made regularly, depending on the

estimated and realized results of each company. Secondly, of course, in general, the market price of companies in the sector and the performance of the related index are influenced by several objective and subjective factors, intrinsic or unrelated to the management of companies, but, particularly, there are several elements that have led to a poor performance of certain companies or their market price. Thus, we recall the sharp growths in energy prices on the profile market, which led to losses for ELECTRICA and automatically a decline and capping of EL titles on BSE, as the management of this company did not manage to anticipate these causes or offset them through hedging policies. Also, closely related, but also due to the regulatory risk produced by capping tariffs, TRANSELECTRICA had an underperformance in terms of financial results, with a negative effect on TEL titles. Especially these two companies have ‘pulled down’ the index, but SIF Moldova has reduced its position in due time, before selling all these shares from its portfolio. Nothing prevents us from continuing to monitor their evolution or reinvest here when we anticipate positive results. Let’s not forget the too often changes in the management structures, at executive level or in the Board of state-owned companies, changes which are far from providing the continuity and predictability necessary for performance anywhere in the world and which have raised question markets on the necessary competences for a good corporate governance and expected results for such large companies which have a favourable position on their markets. Another interesting company (and share) is SNP Petrom, which has a decisive position in the market and in the structure of the index. Although the forecasted results for the end of 2017 are particularly good, helped by the positive evolution of oil prices and steps taken in the direction of exploration in the Black Sea, the share has not performed enough, but we are expecting it to do so. Probably the ‘threat’ of additional sales by Fondul Proprietatea, once the lock-up period is over, has capped the evolution of SNP titles and implicitly of the BET-NG index. It’s no secret for investors following our regular reports that we have maintained important holdings in our portfolio of shares 29

INTERVIEW

in ROMGAZ and TRANSGAZ. These two companies, very important for Romania, helped by the local and regional context, as well as by a relative management stability, have managed to show performance and deliver good financial results. They have also generated appealing dividends for shareholders. Our analyses show they will continue this trend. Additionally, how do you appreciate and explain the evolution of BET-NG index in the first part of 2018 (when it went up to around 720 points)? (SIF2 has holdings of around RON 330mln in energy companies - of a total asset of RON 1.2bn). Amid the general market trend, we continue to have optimistic expectations on dividends granted by issuers in this sector, as I have already mentioned. There is also a positive evolution of the activity of these companies maintained over a medium and long term. Hence the higher prices and the growth of the BET-NG index. 30

Through the investment strategy for 2014-2018 proposed to investors, SIF2 has undertaken to consolidate its shareholdings in the energy sector. What are SIF2 Moldovaâ&#x20AC;&#x2122;s plans for the following years in terms of the energy sector listed on BSE and what are the guidelines they will be built on? SIF Moldova has maintained important shareholdings in the energy issuers, given the solidity of these businesses, their dominant position, the long-term sustainability and the estimated dividend flow, in conditions of superior fundamental indicators than those of other regional and EU companies in the sector. We maintain our investment interest in this sector, but decisions will be adopted punctually, based on the close monitoring of evolution and perspectives of issuers and of the sector. Given the national macroeconomic assembly, what are your estimates/expectations on the financial results energyindustryreview.com

INTERVIEW

(business evolution in general) for companies in the energy sector in 2018? What are your expectations/estimates on Romania’s economic evolution in the coming years? The official data show a spectacular economic growth, with good prospects for the coming years. The forecasts for 2018 indicate a sustained growth pace. But we also pay attention to the economic growth engine, in this case consumption, and we direct our policies and investment targets to issuers that, by nature of their activity, are favoured by this context. However, we have a prudent optimism in terms of medium-term evolutions, because we cannot ignore the possibility of a deterioration of the macroeconomic environment, with influences on the capital market. In this context, applying AIFM regulations on risk management, including those related to financial instruments, is essential for us.

ROMGAZ and TRANSGAZ have managed to show performance and deliver good financial results. They have also generated appealing dividends for shareholders. Our analyses show they will continue this trend.

Companies in the energy sector have been among the best positioned issuers on BSE in terms of dividends paid in 2017 (considering in this case including the payment of additional dividends, made at the express request of the Romanian state). How do you believe companies in this sector will behave in 2018? What are your estimates in terms of dividends related to this year? As I briefly pointed out, the results for 2017 recorded by issuers in the energy sector certify the existence of contrasts between the sub-sector Oil & Gas, which performed amid an increase in oil and gas prices, investors maintaining their optimistic expectations regarding dividends to be distributed, and the sub-sector related to electricity, transmission and distribution, with modest financial results, which compromise chances of granting dividends with a reasonable yield in 2018, for the year ended. Following the latest reports on the detailed portfolio structure, we can notice the lack of entities such as SNN (Nuclearelectrica) and/or EL (Electrica). What is the investment strategy of SIF2 Moldova regarding these companies? We are in the phase of analysis and development of the investment program for 2018, following to submit for analysis

and approval by our shareholders the main investment objectives within the General Meeting scheduled for 26/27 April 2018, according to the financial communication schedule. As you very well observed, we don’t have SNN shares, because, until the recent good evolution, between the listing price and the market price, over the recent years, there have been a big decline, which would have led to losses of return in our portfolio. EL shares were sold before the declines in the second half of 2017, for the previously mentioned reasons. What are in your opinion the chances to upgrade the Romanian capital market to the status of Emerging Market and to which extent do you believe this could have a favourable impact on the evolution of profile companies? I believe that, currently, a ‘zero’ priority is increasing liquidity, an essential condition for the development of the Romanian capital market and thus for the upgrade to the status of emerging market, not only formally, but also functionally and not only for a short term, but permanently. I don’t have enough elements to estimate the chances for this to happen, other than those well known, and which have proven to be insufficient. It is obvious that, as shareholders in BSE, we put our hope in the personal dynamism of the new Director General - Adrian Tanase, but he must be supported by market players and authorities, because the Stock Exchange belongs to Romania and it does not reflect yet sufficiently the state of the economy. What do you think are the opportunities and challenges faced by Romanian companies in the energy sector for the next years? As I have mentioned, the sector is not unitary as performance and it should be analysed in detail on sub-sectors and at the level of each company. Opportunities could be generated by favourable macroeconomic evolutions, the consolidation of positions on the domestic and regional market, and challenges may occur from the need for massive investment programs and from adaptation to the dynamics of the economic and legislative environment, taxation policies being likely to have a significant impact. Regional integration may play a significant 31

INTERVIEW

role, in conditions of extremely refined prior analyses in terms of added value of investments for business growth and risk control. In your opinion, what are the chances for the long-awaited listing of Hidroelectrica to take place? What are the elements that could speed this process? How about those that could delay it? I am not hiding the fact that we analysed Hidroelectrica listing in the development of the activity program for 2018, as well as in 2017 and 2016... Therefore, currently it is difficult to estimate what is the timing of this project, in absence of concrete positions and estimates of the management and political decision-makers. How do you interpret the statements of OMV (majority shareholder of Petrom) officials on the intention to internationalize the company? We monitor closely the statements of OMV officials and analyse their potential consequences on company’s development

and performances, in order to substantiate our future position. Its excellent corporate governance structure gives us hope that any step will be for the benefit of the Romanian company and all its shareholders, not only its majority shareholder and the group it is part of. In this context - of discussions on ‘internationalization’, how do you appreciate the steps taken by Transgaz (which enters the Moldovan market and participates in the privatization of DESFA – Greece’s profile operator)? What chances of success do you assign to these steps? With what results in the coming years? As I have previously mentioned, Romanian energy companies have the resources and potential strength to grow in the region, even more so in the Republic of Moldova. In absence of detailed information, which is normally presented to shareholders, we cannot estimate at this point the chances of these steps or the results, but we monitor the intentions made

energyindustryreview.com

INTERVIEW

Shareholdings in the energy sector, included in the CORE portfolio, will be subject to the strategic approaches established for this portfolio and will continue to represent an important segment of assets managed by SIF Moldova.

public. We ask the management to verify whether the substantiation and execution of this project are prepared and applied based on economic and technical criteria carefully analysed and in detail, to ensure a long-term success. As you know, there has been and there is still a number of steps for the establishment of the so-called Sovereign Investment Fund (FDSI), which would have an important structure, made up of energy companies. How do you appreciate the establishment of such an investment vehicle and what are the effects (positive and/or negative) that it could have on the Romanian energy sector? As we have all seen, this project seems to be still in the crystallization phase, following the exploration of various options in terms of structure. If materialized, such a fund can become an important player in the Romanian economy, an ‘anchor’ investor that can generate a multiplier effect, with potential beneficial effects for large infrastructure projects and for the capital market. The way in which it will be established (I would prefer ‘sovereign’ to mean exactly that and no other innovations) and in which it will be managed, and in this case, I refer to a mixed management, with state representatives and Board members from the private environment, with expertise accumulated in Asset Management, is decisive. Undertaking and complying with the international corporate governance principles are aimed at creating and maintaining confidence for investors that could assume an association with FDSI for financing and developing generous projects, whether they are banks or investment funds. Finally, any investment must be recovered with profit, so that each investor can fulfil its objective and be able to resume the investment cycle. I like to believe that those who work in the FDSI project are specialists who know this ABC and make the necessary calculations. Otherwise, it would only create another inefficient structure in which assets would be buried, whether we are talking about money or non-performing companies that cannot generate resources for the ambitious projects we need. What are the main opportunities and challenges for SIF2 Moldova in the coming

period - as a relevant player (investor) for the Romanian capital market (and, in the alternative, for the Romanian energy sector)? The key elements of our strategies remain: • Solid investment policy – the basis for the long-term increase in the value of managed assets, a key element in strengthening investor confidence; • Predictable dividend policy remunerating the capital invested at a higher level than the returns offered by money market investments; it is designed to meet the short-term interests of shareholders. At the same time, low money market returns favour investment, which serves the medium and long-term interests of shareholders; • Capital operations - by carrying out Share Repurchase Programs in order to reduce the share capital. • Managing the shareholdings in the portfolio will be realized based on the coordinates of the multi-annual strategy 2014-2018, i.e.: • Growth for the Majority Shareholdings portfolio - a ‘private equity’ approach within the existing majority shareholdings (real estate, agriculture, other sectors); • Recalibration for the CORE portfolio the listed portfolio providing liquidity to SIF Moldova assets, representing the main income generator; • Restructuring for the SELL portfolio – continuing the restructuring/sale of the ‘historic’ share portfolio. The process of dynamic recalibration of the CORE portfolio will continue, in line with the performance of listed companies included in it, as well as the identification of new investment opportunities within the Majority Shareholdings portfolio, in areas with a proven growth potential, such as the real estate and agriculture sectors. We consider new residential projects, in quality locations, to capitalize on the expertise already accumulated in the field. Shareholdings in the energy sector, included in the CORE portfolio, will be subject to the strategic approaches established for this portfolio and will continue to represent an important segment of assets managed by SIF Moldova. 33

OIL & GAS

HOT TOPIC

NAMR Order to establish the new natural gas reference price The National Agency for Mineral Resources (NAMR) has decided to increase the reference price of natural gas extracted in Romania, setting a new calculation formula. The new reference price will represent the minimum value below which the price used to calculate royalties cannot be lowered. 34

he Order approving the T Methodology for determining the reference price mentions that it will includes the average price of transactions performed in the month prior to the period for which the reference price is calculated at the Central European Gas Hub (CEGH) AG, operator of Baumgarten hub, whose majority shareholder is OMV, expressed in EUR/MWh. It will be multiplied with the value of the average annual gross calorific value of natural gas in Romania in the year prior to the one in which the evaluations are made, expressed in KWh/Smc, and with the average RON/EUR exchange rate, expressed in RON, in the month prior to the period for which the reference price is calculated. The new reference price will be calculated monthly. The current

reference price has not been changed since 2008, being set at RON 495/ thousand cubic meters, i.e. RON 45.71/ MWh, although the market price has reached RON 89-90/MWh. We recall that in March 2017 a working group was established, which proposed two versions: version I - the method of Platts price, respectively an evaluation based on the closing price of a foreign exchange published by Platts magazine and version II - the hub price method, i.e. an evaluation based on prices and volumes traded on a foreign exchange. â&#x20AC;&#x153;Under the Order approving the Methodology for determining the reference price for natural gas extracted in Romania, NAMR fulfils the decisions of the Court of Auditors of 2010 and 2015, maintained by the judgment of the High Court of Cassation energyindustryreview.com

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and Justice no. 972 of 4 March 2015. The Court of Auditors found that, by failure to update the reference price of natural gas since 2008, the Romanian state lost, during 2008 - 2015, around RON 7bn. The Court of Auditors has also requested to update the reference price for natural gas extracted in Romania,” a press release of the agency reads. NAMR President Gigi Dragomir said the new reference price did not mean doubling the price of gas for endconsumers, but fair conditions for both producers and the Romanian state, in conditions in which the price of gas has been liberalized, but a reference price is maintained at the level of 2008. “Given that, according to the calculation formula, the new reference price is close to the one at which transactions have been carried out on the gas market in the recent months, we see no reason for an increase in the price of gas for end-consumers,” NAMR President added. According to NAMR, the state budget annually collects petroleum royalties worth approximately RN 1bn, calculated at the reference price from 2008. Domestic gas producers have requested that the price either be related to trading prices on the Romanian Commodities Exchange or give up the introduction of an administrative price, in the context of a liberalized market.

ROPEPCA’S PUBLIC POSITION The Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) stands against the National Agency for Mineral Resources (NAMR) Order approving the Methodology for establishing the reference price for natural gas extracted in Romania. According to this Order, the reference price for natural gas extracted in Romania will be calculated according to the trading prices of the hub from CEGH Vienna, based on a calculation formula made together with the Petroleum-Gas University of Ploiesti. The Romanian natural gas producers have so far paid the royalty for the gas produced at the level of the revenue generated, a basic principle for any tax applied to income. It is to be understood that the so-called ‘reference price’ is nothing but a minimal value for the royalties’ base, which cannot be undercut. Other public institutions, including ANAF, take into account the income generated from the sale of gas for calculating various other taxes. Why does NAMR disregard the same basis for calculating the royalty? The proposal to relate the royalty for the gas produced in Romania to a virtual figure from abroad, a figure much higher than the domestic prices, shows a lack of sovereignty and a total indifference regarding the way the natural gas market in Romania functions. ROPEPCA considers that the National Agency for Mineral Resources decided to issue this Order without taking into account the positions expressed by the main indigenous natural gas producers during the public consultation held on February

“We believe that an external market does not represent the Romanian market, we have nothing to do with the Baumgarten hub in Austria where the gas is sold several times and is not correct for paying royalties in Romania.” Harald Kraft, ROPEPCA

7, 2018, but basing this order exclusively on the conclusions of a study signed by a university professor belonging to the Petroleum-Gas University of Ploiesti. ROPEPCA requests the University to communicate whether the opinion expressed by the author of the study is also the point of view of the prestigious educational institution and whether it is relevant in the context in which it does not take into account the expertise of the natural gas domestic producers. 35

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During the public debate organized by NAMR, natural gas producers expressed a unitary position, supported also by independent persons such as university professors or journalists in the field who were present. “The reference price must be represented by the market price in Romania. We believe that an external market does not represent the Romanian market, we have nothing to do with the Baumgarten hub in Austria where the gas is sold several times and is not correct for paying royalties in Romania,” President of ROPEPCA Harald Kraft said. “A fair approach would be to pay royalties at the market price realized by the producer in Romania, not from outside,” Harald Kraft added. According to the press release issued by ROPEPCA, the Association reiterates the main arguments presented at the public consultations, at the invitation of NAMR, arguments to be taken into account when drawing up the new methodology for establishing the reference price for natural gas. “In order to be effective and enforceable, we believe it is important that the reference price for natural gas is established based on a relevant market calculation for Romania and reflecting the effective prices realized in the upstream sector in Romania. In this regard, we would like to draw attention to the fact that the variable referring to the external HUBs, proposed in the draft order, is not applicable to the current market conditions in Romania. We believe that, as is the case in international practice when the reference price is based on exchange indices, the chosen index must be representative for the domestic sales of gas. Considering that at present (i) Romania does not export gas, so it is not really related to the European market, and that (ii) compared to other markets, the Romanian market is not liquid enough, it cannot report, for the moment, to the external HUBs for gas trading , including CEGH. Also, prices from HUBs outside Romania do not reflect the actual value achieved by natural gas producers in Romania, which is significantly lower due to the costs of delivering natural gas from the reference points to external 36

HUBs. As an example, the temporary fluctuations on the Romanian market reported to the European HUBs can be of EUR 4-5/MWh or even higher. Moreover, natural gas producers have a legal obligation to sell part of their domestic production on the centralized market in Romania, which makes the reference to an external hub even less relevant. We consider that determining the reference price based on a market index that does not reflect the prices for the natural gas extracted from Romania, such as the price at the CEGH hub, is inconsistent with the Petroleum Law no. 238/2004, which stipulates in art. 49 para. (2), that ‘the petroleum royalty is fixed as a percentage of the value of the gross production extracted’. It is worth mentioning that, in general, transactions at a HUB are predominantly made through intermediaries who, most often, sell the product bought before from a producer. In such cases, the quotations used include also the profit of intermediaries, as well as the transport expenses. We believe that it is not fair for this element to be a part of the calculation of the reference price. Secondly, we consider that the use of the reference price of the Day Ahead Natural Gas Market (‘DAM’) is not applicable to long-term contracts. Thirdly, we believe that mentioning , as a calculation element for the reference price, the country average gross calorific value at the value of the year preceding for establishing the reference price can be discriminatory for producers who sell lean gases and have an income based on the reduced calorific value of their product. Last but not least, we would like to draw attention to the fact that by communicating a reference price which is related to an external market and which surpasses the level of the domestic market, NAMR is issuing an alarm signal, which cannot be in the interest of consumers.” ROPEPCA brings together 17 of the most important holders of oil concession agreements concluded with the Romanian state. The members of the association hold most of the oil concession agreements for Romania’s onshore exploration, development

and production blocks, representing cumulated investments of 650 million euros in 2016, a turnover of almost 2.9 billion euros, contributions to the state budget of 300 million, and are responsible for creating and maintaining 14,800 jobs.

“A REFERENCE PRICE THAT DOES NOT REFLECT ROMANIA’S MARKET REALITIES” The Oil and Gas Employers’ Federation (FPPG) also disapproves NAMR’s decision to determine the reference price of natural gas calculated depending on trading prices on CEGH hub in Vienna, based on a study conducted by the Petroleum-Gas University of Ploiesti, which does not reflect Romania’s market realities. “In conditions in which Romania does not export natural gas and no molecule reaches the Baumgarten hub, determining the reference price based on CEGH index does not properly reflect the value of natural gas extracted in Romania and consequently is against the Petroleum Law no. 238/2004, which stipulates in art. 49 paragraph (2) that ‘the petroleum royalty is determined as a percentage rate of the value of gross production extracted’. The economic theory and professional standards applicable in Romania and internationally require the determination of the market value based on sale-purchase transactions relating to the respective goods. Thus, the value of natural gas in Romania is the one obtained through transactions performed by producers, not an artificially established price. Romania thus becomes an isolated case worldwide, where the reference gas price is calculated on the basis of transactions made in another country where there are no deliveries of natural gas extracted in Romania. Hub price indices are not used even in European countries where there are important gas trading hubs (e.g. the UK, the Netherlands) to calculate the specific royalties/taxes, such countries taking into account prices actually realized by gas producers. The same happens in producing energyindustryreview.com

OIL & GAS

countries without hubs (e.g. Norway, Denmark). Alternatively, in other European countries (e.g. Germany, Austria) a reference price is calculated based on transactions actually realized in the respective countries. Moreover, using the benchmark of the DayAhead Market (‘DAM’) is not relevant for contracts concluded for a long term, which are subject to other terms and a different pricing mechanism. The current formula uses the CEGH index without deducing the transmission costs. Even if in the future there will be deliveries of gas extracted in Romania to Baumgarten hub, the value of gas sales made by producers will be the CEGH price minus the cost of transmission from Romania to Austria. Thus, producers pay royalties reported to an incorrect value, formula which contradicts the international practice and even regulations previously issued by NAMR to determine the reference price for crude oil, which take into account the transmission costs (e.g., Order 98/1998). Producers in Romania will thus pay royalties reported to a price not realized, to an administrative price without any connection to realities of the value of gas traded on the domestic market.” FPPG firmly rejects NAMR’s statements on the absence of data from titleholders. All data requested by NAMR has been provided and, moreover, producers provide ANRE monthly with reports on gas transactions performed. These reports could provide credible information to determine the value of gas in Romania, as weighted average. Prices realized based on salepurchase contracts are also those admitted by the tax authority to determine taxes and fees. FPPG mentions that producers have so far paid royalties at the maximum between the price realized and the reference price, the State thus collecting the fair contribution in relation to the value of resources exploited, in accordance with the applicable legal provisions. Producers in the oil and gas industry are among the largest taxpayers to the state budget, with a significant positive impact in the economy through

investments made and through the number of direct and indirect jobs created and maintained over time. All these points of view have been expressed by the entire industry within the public consultation organized by NAMR on 7 February 2018, the Agency having no solid counterarguments against fundamental economic principles. The Oil and Gas Employers’ Federation remains available for a real dialogue with NAMR, other authorities involved and specialists in the field for the analysis and amendment of this new methodology for determining the reference price, so that royalties are calculated correctly based on the value realized by producers from the sale of natural gas. The Oil and Gas Employers’ Federation (FPPG) is a Romanian legal entity of private law, non-lucrative, non-governmental, autonomous, independent from the public authorities, without a political nature; it is representative at the level of the activity sector ‘Energy, Oil & Gas and Energy Mining’. FPPG has constantly supported the principles of stability, predictability and competitiveness of the legislative framework applicable to the energy sector in Romania, as well as the responsibility of companies in the field in terms of safety, health and security of operations and staff. FPPG is a founding member of the Concordia Employers’ Confederation, the only Romanian employers’ confederation affiliated to IOE (International Organization of Employers).

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“THE GAS EXCHANGE IN ROMANIA IS ENTIRELY IMMATURE” Regarding the statement of a NAMR official, according to which “the gas exchange in Romania is completely immature”, Dumitru Chisalita, Judicial Technical Expert in Oil & Gas, has the following opinion. “We believe that a signal has been given on the refusal to develop the gas exchange

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OIL & GAS

in Romania, as the normative act, recently published in the Official Journal, does not mention the reference on the Vienna Gas Exchange as being temporary, period in which the evolution of gas exchanges in Romania and the analysis of a potential review of this decision could be monitored. Romania, country with the third largest gas production in the European Union, accepts indefinitely that the most important reference price on the gas market in Romania be the one determined in a country that does not exploit any cubic meter of gas, where all gas, in a physical form, is from the same source, and the exchange is owned 50% by the one supplying most of the gas traded there. Given the need for a unitary approach of principles in the same market, we believe that if the Romanian gas exchange is fully immature to determine the price at which around 10% of the country’s production is sold (i.e. gas owed to the State as petroleum royalty), for the other 90% of the gas sold from domestic production, using the gas exchange in Romania for trading a quota of the production sold is not ‘fair’ either. Thus, maybe gas producers should request the amendment of the Gas Law, which forces them to trade gas on a fully immature exchange. The same situation is valid for gas suppliers required by law to purchase/sell gas on a fully immature Exchange. The price of gas determined on the Vienna exchange, according to contracts for Q1 - 2018, are by around 1.4% higher than the weighted average price of gas set on the Romanian Commodities Exchange, which apparently gives the opportunity to say that the respective exchange was chosen because it is more expensive, to bring more money to the State budget.” In expert’s opinion, there are several potential consequences of this decision: 1. The reference price determined in this way will be a strong reference for the price at which gas will be sold in Romania, which may determine higher gas prices than those determined exclusively based on supply and demand, outside any official reference. 2. This reference price, which does 38

not have a correspondence in the country, will bring numerous suspicions at the level of audit bodies, in the event where a producer sells gas even through transparent methods, at a price lower than the official price set as reference. 3. Choosing the Vienna exchange for determining the reference price for natural gas extracted in Romania, underlying the calculation of the gross production of natural gas and the equivalent value of the petroleum royalty, will produce money for this exchange; the Romanian institutions/companies will be forced to purchase from the Vienna Exchange Price Reports, Analyses, Forecasts etc. (this money could have stayed in the country and contribute to the development of Romanian exchanges). “In my opinion, the material gain that Romania could obtain resorting to price references on the Vienna Exchange is clearly lower than the great losses, given by the signal of lack of interest for achieving in Romania a Functional and Free Gas Market and a performing Gas Exchange,” Dumitru Chisalita concluded.

BRM REQUESTS SUPPORT FOR A FAIR AND BALANCED DEVELOPMENT The Romanian Commodities Exchange (BRM) considers that the gas market in Romania deserves support in its development process from Romanian state institutions and official regulators. BRM management took note with surprise and concern of the NAMR decision to use as reference price the trading prices on the CEGH Vienna hub, in conditions in which the domestic market has managed, in less than one year, to register consistent and significant volumes in gas trading. As a result, BRM requires the support of decision-makers for the domestic gas market, in order to ensure a fair market balance and to offer a real chance that the Romanian market

can develop rapidly into an important one, corresponding to the volumes following to be traded in the coming years. “The Romanian Commodities Exchange has entered the 26th year of operation in the Romanian market and we have developed the necessary mechanisms to provide the transparency and professionalism required from us by market players. We are not the only player in this category and we believe a reference price imposed from a foreign market only affects the local capacity to further develop the exchange products necessary for a market important for the entire area. We are also affected by the fact that the Romanian market has been characterized as immature at the level of public authorities and we find it difficult to understand why there are no investments in the local capacities, either public or private. We don’t request authorities to favour us, but their permission to use the local experience and the capacity existing in the market to be able to develop fairly and in a balanced manner, according to regulations in force and national interest. We hope the decision to relate to prices in Vienna will be changed and the entire market in Romania will receive a fair chance, for which we have all worked over the recent years. If we don’t give to ourselves the opportunity to develop transparent and functional markets, it means we admit and accept that we lack at national level the necessary knowledge for such a thing , but the reality flagrantly contradicts such an assumption,” Gabriel Purice, President - General Manager of the Romanian Commodities Exchange, pointed out.

FINAL REMARK The representatives of the PetroleumGas University (UPG) of Ploiesti have stated that the institution had not taken any official action and had not conducted any study on the methodology for calculating the reference price of natural gas, denying the allegations. They have also specified that UPG had not recommended to NAMR a methodology for determining the reference price depending on trading prices at the CEGH hub in Vienna. energyindustryreview.com

OIL & GAS

Romania to support Republic of Moldova’s European path

n 27 February, a delegation of the Government of Romania, led by Prime Minister Viorica Dancila, carried out a working visit to Chisinau. It was aimed at reconfirming Romania’s support for the European path of the Republic of Moldova, as well as continuing the joint projects and consolidating the collateral economic relations. The Romanian Prime Minister appreciated the increased involvement of the Parliament in Chisinau in pursuing reform efforts and applying the European commitments. She also mentioned the positive evolutions recorded so far in the European file of the Republic of Moldova, evolutions to be capitalized in the perspective of Romania’s presidency of the EU Council in the first half of 2019. Prime Minister Viorica Dancila conveyed, during the meeting in Chisinau with the Moldovan Parliament Speaker Andrian Candu, Romania’s firm support for the pro-European path of the neighbouring country, both by supporting the European aspirations of the Republic of Moldova at the level of the European Union states, as well as by strengthening the bilateral cooperation on the investment dimension. 40

TRANSGAZ WON THE TENDER FOR VESTMOLDTRANSGAZ’S PRIVATIZATION During the discussions, the commercial and economic cooperation between the two parties was also assessed. “The Republic of Moldova has increased its exports to the EU market and reached a share of over 65%, the most important trade exchanges being with Romania. Last year, we exceeded the figure of USD 1.303 billion, Romania ranking first not only in terms of trade exchanges, but also when we talk about investments. We welcome the entry in the market of the Republic of Moldova of Banca Transilvania and the opening in Chisinau of the representative office of the gas transmission operator Transgaz and its decision to participate in the investment contest for the privatization of the state-owned company Vestmoldtransgaz. On this occasion, I would like to announce that yesterday, 26 February, the Commission for conducting privatization contests announced the results of the contests, in which SRL Eurotransgaz, whose single shareholder is Transgaz SA Romania, became the winner of this competition. Through this exercise, we must admit that Transgaz Romania and, if you want, the Romanian state after all, have confirmed their serious and good intentions to contribute to the consolidation of the energy security of our

state. I believe there is no doubt about how important energy security is for the Republic of Moldova. If so far, we talked about the possibility to import gas from a single source, this investment will ensure a diversification of gas import sources, which is the basis of the energy security of a state,” the Prime Minister of the Republic of Moldova, Pavel Filip, stated. There were also discussions on the construction of bridges, vital projects for the economy of the Republic of Moldova. Pavel Filip expressed his gratitude for the inclusion of Targu Neamt - Iasi Ungheni motorway (including the construction of the bridge in Ungheni) in the national construction project of Romania. “Interconnection projects, including the operationalization of the Ungheni - Chisinau interconnector, are a priority not only for Bucharest and Chisinau, but are a major project, with regional relevance on the agenda of the European Union, within the framework of the Eastern dimension policy,” Viorica Dancila said. “We welcome the progress recorded in terms of energy interconnection, in terms of natural gas, and we are interested in the completion as soon as possible of negotiations between Transgaz and the partner in the Republic of Moldova,” the Romanian Prime Minister also mentioned. energyindustryreview.com

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process control system and the Sigma Air Manager 4.0 immediately calculates how to achieve optimal operation of each individual blower. Simultaneous operation of multiple blowers is therefore not only efficient in the partial load range, but is now even easier thanks to clear interfaces and is more effective due to equal machine loading. Kaeser Kompressoren will be present at the IFAT (held from May 14 to May 18, 2018 in München) in Hall A1, Stand 143/242 (main booth) and in Hall C3, Booth 133 (portable compressors). 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

Transgaz to invest EUR 1.6 billion in projects by 2026 The National Gas Transmission Company Transgaz SA, ticker TGN, plans to invest a total of EUR 1.62 billion in the period of 2017 - 2026, the company’s general manager Ion Sterian said during a press conference hosted by Bucharest Stock Exchange (BVB) to celebrate a decade since Transgaz was listed on the Main Market of BVB. 42

“Listing on the stock exchange is an important alternative for financing, an efficient mechanism of transparency and reporting, a vote of trustworthiness offered to the company’s management to demonstrate its ability to perform. I wish TGN shares one more decade of performance,” said Deputy Prime Minister Viorel Stefan. energyindustryreview.com

OIL & GAS

“Transgaz is currently involved in seven major gas pipeline projects and two other strategic projects that will make us turn into a multinational company at a European level. We have investment projects worth more than EUR 1.6 billion, which once completed will make Transgaz one of the top four energy companies in Europe,” Transgaz Director General Ion Sterian stated. According to the president of the National Regulatory Authority for Energy (ANRE), Transgaz projects can make Romania a pole of energy stability in the region. “The BRUA project and

the interconnection with the Republic of Moldova can be a guarantee that Romania is a pole of stability in the energy field and a provider of economic and social development. I want the Black Sea gas to be used mainly in Romania, as it represents an opportunity for development and it brings added value as it is also consumed by industrial clients,” ANRE President Dumitru Chirita affirmed. “We want to see as many companies as Transgaz getting listed, being able to attract significant investments and EU funds so that they grow and become regional leaders. To support the development of Romanian

companies, the Government can apply for an EU fund incentive to cover 50% of the listing cost on the stock market, similar to what is already happening in the UE, which would provide additional support for companies that would thus have easy access to capital, finance the development of their activity, generate investments and jobs, and all these will be transferred to the welfare of the Romanians,” President of the Board of Governors of BVB Lucian Anghel mentioned. Transgaz can be an example for other state-owned companies to take advantage 43

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Official openning - Transgaz 10 years of performance on BVB

of going public. “The company where the majority shareholder is the Romanian state is now worth almost RON 5 billion, 55% more than 10 years ago. Transgaz greatly illustrates how the state can increase its wealth by listing the companies in its portfolio,” CEO of BVB Adrian Tanase added. Deputy Prime Minister Viorel Stefan has also underlined the advantages of listed companies. “Listing on the stock exchange is an important alternative for financing , an efficient mechanism of transparency and reporting , a vote of trustworthiness offered to the company’s management to demonstrate its ability to perform. I wish TGN shares one more decade of performance,” said Viorel Stefan at the 44

event organized to celebrate 10 years of presence on BVB for Transgaz. Not only can the state gain from the growth in the price of shares in the companies where it is a shareholder but also the investors who bought shares. “If we also consider the dividends, an investor who bought Transgaz shares in 2008, when the company went public, would have had today a return of over 140%. If the investors had chosen to reinvest the dividends gained from TGN shares, the return would have increased by about 290%,” Adrian Tanase pointed out. “TGN shares are for portfolio investors and are very attractive due to the business field and position of the company in the energy market, robust financial profile and

the company’s ability to generate steady and predictable revenues coupled with an attractive dividend policy,” Ion Sterian concluded. The value of dividends paid to TGN shareholders exceeded RON 545 million in the financial year 2016, while the gross dividend per share reached RON 46.33, which is almost five times higher than in 2007, the year before the listing of the company on the Main Market of BVB.

MEMORANDUM OF UNDERSTANDING ON EASTRING Transgaz and the Slovak natural gas transmission system operator Eustream signed on February 9, 2018, a energyindustryreview.com

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Memorandum of Understanding (MoU) on the Eastring pipeline project. The present MoU was signed by Transgaz’ Director General Ion Sterian and the Chief Executive Officer of Eustream Rastislav Nukovic. By concluding this Memorandum, the parties inter alia express their consent to cooperate with other TSOs from the Czech Republic, Ukraine, Hungary and Bulgaria in order to appraise possibilities for the development of the Eastring project on the territories of Romania and Slovakia. On such occasion, in his capacity as Transgaz’ Director General, Ion Sterian emphasised the positive perception and appreciation the Slovak partners enjoy in Romania and expressed his confidence that Eustream’s openness to collaborate with Transgaz will yield favourable outcomes in terms of the regional cooperation by facilitating the proper conditions for the integration of the gas networks. Ion Sterian considers that the relationship between Transgaz and Eustream will facilitate exchanges of technological experience in fields such as design and research, gas transmission system operation and development, gas dispatching, pipeline maintenance, SCADA implementation and upgrading, implementation of the EU energy regulations. The Slovak peers highlighted the joint objective to increase the safety of supply at European level and the need to have a solid base for further achievements to be made by the gas transmission system operators of Slovakia and Romania. Transgaz and Eustream already have a more than three year-long record of effective cooperation on the Eastring project. Similar Memoranda on Eastring have already been signed between Eustream and Bulgarian Bulgartransgaz as well as Memoranda on the political level between Slovak and Bulgarian/Hungarian government representatives. Eastring is the project of bi-directional gas pipeline interconnector between Slovakia and the external border of the EU on the territory of Bulgaria. It will offer direct and most cost-effective transmission route between West EU liquid hubs and the Balkan region/Turkey – an area with a potential to be a highly liquid region offering gas from various sources. Eastring pipeline has repeatedly obtained the status of the Project of Common Interest (PCI) for the European Union. At the beginning of last year, the European Commission approved the financial support for the Eastring project by funding its feasibility study under the Connecting Europe Facility (CEF). The main purpose of the Feasibility Study, which will be completed in June 2018, is to define all necessary technical, economic, financial and environmental details of the future pipeline including optimal routing as well as to carry on the in-depth market testing. 45

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4 Ministerial Meeting of Southern Gas Corridor Advisory Council th

energyindustryreview.com

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The Fourth Ministerial Meeting of the Southern Gas Corridor Advisory Council took place on February 15th in Baku. The main institutional, infrastructural and financial actors involved in the project attended the event and they confirmed the commitment to begin South Corridor’s operations by 2020 and its strategic connotation for Europe in terms of diversification of supplies and access to lowcarbon energy sources.

he meeting was attended by: European Commission VicePresident for Energy Union Maros Sefcovic, Georgian First Deputy Prime Minister Dmitry Kumsishvili, Turkish Minister of Energy and Natural Resources Berat Albayrak, Bulgarian Energy Minister Temenuzhka Petkova, Italian Deputy Minister of Economic Development Ivan Scalfarotto, Representatives of Greek Ministry of the Environment, Energy and Climate Change Mikhail Verroiopolos, Ludovikos Kotsonopoulos, Albanian Deputy Minister of Infrastructure and Energy Enis Aliko, Acting Special Envoy and Coordinator for International Energy Affairs at the U.S. Department of State Sue Saarnio, British Prime Ministerial Trade Envoy for Azerbaijan Baroness Emma Nicholson, State Secretary of the Ministry of Economy of Montenegro Nikola Vujovic, Secretary of State at the Croatian Ministry of Environment and Energy Ivo Milatić, Advisory of Minister of Foreign Trade and Economic Relations of Bosnia and Herzegovina Nedo Kapetina, Advisor of Turkmen President Yagshygeldi Kakayev, Secretary of State at the Romanian Energy Ministry Iulian-Robert Tudorache, TANAP Director General Saltuk Duzyol, TAP CEO Luka Sueppati, BP regional president Gary Jones, as well as Snam, Enagas and Fluxys companies, Director of the Energy Division in the East Asia Department of the Asian Development Bank (ADB), Ashok Bhargava, Azerbaijan Country Director for the Asian Development Bank (ADB) Nariman Mannapbekov, Project officers Yagut Ertenliche and Sabina Jafarova, EBRD Managing Director for Eastern Europe and the Caucasus Francis Malige, EBRD Director for Caucasus, Moldova and Belarus Bruno Balvanera, EBRD Director of Natural Resources Eric Rasmussen, EBRD Director for Energy and Natural Resources, Russia, Caucasus and Central Asia Aida Sitdikova and Principal Banker Veronika Krakovich and Head of EBRD’s Resident Office in Baku Ivana Fernandes Duarte, AIB delegation

led by Vice President Vazil Hudák, IFC Director for Europe & Central Asia Tomasz Telma, IFC Regional Manager for the South Caucasus Jan van Bilsen and IFC Country Representative for Azerbaijan Aliya Azimova, Kf W CEO Klaus Michalak, Practice Manager of Europe and Central Asia, Energy and Extractives Global Practice of the World Bank Sameer Shukla, WO Task Team Leader Abdulaziz Faghi, the Country Manager for the WB Azerbaijan Office Naveed Hassan Naqvi, Multilateral Investment Guarantee Agency Director for Global Development Marcus Williams. The Southern Gas Corridor, worth USD 41.5 billion, is one of the priority energy projects for the EU. It envisages the transportation of gas from the Caspian region to the European countries through Georgia and Turkey. At the initial stage, the gas to be produced as part of the Stage 2 of development of Azerbaijan’s Shah Deniz field is considered as the main source for the Southern Gas Corridor projects. Other sources can also connect to this project at a later stage. As part of the Stage 2 of the Shah Deniz development, the gas will be exported to Turkey and European markets by expanding the South Caucasus Pipeline and the construction of Trans Anatolian Natural Gas Pipeline and Trans Adriatic Pipeline. “The Southern Gas Corridor has a strategic importance for the European energy security, especially in the most vulnerable parts of Europe, such as SouthEast Europe and Southern Italy,” European Commission Vice-President for Energy Union Maros Sefcovic underlined.

TAP AT A GLANCE The Trans Adriatic Pipeline (TAP) will transport Caspian natural gas to Europe. Connecting with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border, TAP will cross Northern Greece, Albania and the Adriatic Sea before 47

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TAP will be 878 kilometres in length (Greece 550 km; Albania 215 km; Adriatic Sea 105 km; Italy 8 km). Its highest point will be 1,800 metres in Albania’s mountains, while its lowest will be 820 metres beneath the sea. TAP’s shareholders are: BP (20 percent), State Oil Company of Azerbaijan (20 percent), Snam (20 percent), Fluxys (19 percent), Enagas (16 percent) and Axpo (5 percent).

FINANCING THE PROJECT

At the end of the meeting, Iulian-Robert Tudorache signed the Ministerial Statement in which Romania’s support for implementing the Southern Gas Corridor is recognized.

coming ashore in Southern Italy to connect to the Italian natural gas network. The project is currently in its construction phase, which started in 2016. Once built, TAP will offer a direct and cost-effective transportation route opening up the vital Southern Gas Corridor, a 3500-kilometre long gas value chain stretching from the Caspian Sea to Europe. TAP will start near Kipoi on the border of Turkey and Greece, where it will connect with the Trans Anatolian Pipeline (TANAP). From there, TAP will continue onshore, crossing the entire territory of Northern Greece, its longest stretch, then onwards east to west through Albania to the Adriatic coast. The offshore section of the pipeline will begin near the Albanian city of Fier and it will traverse the Adriatic Sea to tie into Italy’s gas transportation network in Southern Italy. 48

“I’m glad to come to Baku with a positive message about the European Investment Bank (EIB) 1.5 billion euros loan for the construction of the Trans Adriatic Pipeline, which is the single biggest contribution of an international financial institution to this project,” European Commission Vice-President for Energy Union Maros Sefcovic underlined. The European Bank for Reconstruction and Development (EBRD) plans to allocate loans worth up to 1.2 billion euros for the Trans-Adriatic Pipeline (TAP) in 2018, Bruno Balvanera, EBRD Director for the Caucasus, Moldova and Belarus, affirmed. “The amount expected will be in the range of up to 500 million euros in a direct loan and up to 700 million euros in a syndicated loan, subject to final internal approvals. It’s expected to be approved towards the middle of the year,” he added.

ROMANIA’S FIRST PARTICIPATION Romania’s delegation, led by Iulian-Robert Tudorache, State Secretary within the Ministry of Energy, attended the event, to support the project, with the hope that part of the gas could also reach the future BRUA pipeline. “It is Romania’s first participation in this annual event held in Baku, which marks the significant progress the project has made, particularly the inauguration of the TANAP segment in Turkey, expected this year,” the Ministry of Energy mentioned. In his intervention, Iulian-Robert Tudorache assured the members of the Southern Gas Corridor Advisory Council of the constant support of our country for the implementation of this project and for its expansion plans. Romania has proposed the inclusion in the future plans for the expansion of the Southern Corridor of the infrastructure offered by BRUA project, together with the interconnector between Romania and Bulgaria, for the transmission of natural gas from the Southern Corridor, on the Romanian territory, to Central Europe. The proposal comes to support the consolidation of the principle of diversification of gas supply routes and sources, as well as the important role of the Southern Corridor in increasing Europe’s energy security. At the end of the meeting, Romania signed, with the other members, the text of the Ministerial Statement, in which, inter alia, Romania’s support for implementing the Southern Gas Corridor and its contribution to the connection of this project to Central Europe are recognized. energyindustryreview.com

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Romanian-Hungarian cooperation on energy and infrastructure 50

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Minister of Foreign Affairs, Teodor Melescanu, had a meeting on 5 February 2018, with the Hungarian Minister of Foreign Affairs and Trade, Péter Szijjártó, in Bucharest, during a working breakfast. On this occasion, an exchange of views on the developments in the bilateral relationship and the perspectives of continuing the dialogue on subjects of common interest took place.

he Romanian party reiterated its commitment to the development of the bilateral relationship in the spirit of a real strategic partnership and based upon the mutual respect between the two neighbouring countries, members of the European and Euro-Atlantic area, as well as in accordance with the Strategic Partnership between the two countries. At the same time, the emphasis on economic cooperation, including bilateral sectoral cooperation, was highlighted on the basis of ongoing projects in areas such as energy and infrastructure. With regard to energy cooperation, the importance of diversifying supply routes and sources was highlighted with a view to ensure energy security at regional and European level.

HUNGARY TO SECURE GAS SUPPLY FROM THE BLACK SEA The Romanian-Hungarian cooperation may bring a historical progress in terms of Hungary’s energy security, Péter Szijjártó stated after the meeting with Teodor Melescanu, the MTI Hungarian press agency informs. The parties agreed that by 2020 Romania would create the necessary technical conditions for gas exports to Hungary and from 2022 it would be possible to transport a significant amount of gas produced in the Black Sea to Hungary, after the Hungarian companies contract the whole transmission capacity, of 4.4 billion cubic meters, of this route. “It’s for the first time in the recent decades when Hungary can buy large amounts of gas from a new source, unrelated to Russia,” the Hungarian Foreign Minister showed. The Romanian side has committed to build, by 2020, the compressors for allowing the delivery to Hungary of 1.75bcm of gas per year and extend the capacity by 2022, so that the Hungarian side can purchase 4.4 billion cubic meters of gas per year extracted by ExxonMobil and OMV. “The Government of Hungary has made the decision to build the missing pipeline section between the gas distribution point in

Budapest and Vecsés, near the Capital. As the Hungarian-Slovak link will arrive in Vecsés, Hungary thus builds the missing portion of the North-South gas corridor, bringing its contribution for gas transmission to take place, in Central Europe, not only in the East-West direction, but also North-South, an extremely important aspect in terms of national security,” the Hungarian Foreign Minister explained. According to Szijjártó, there is also an agreement reached by Hungary and Romania that the first high speed train, of TGV-type, be built between Budapest and Cluj-Napoca. He also announced that the Hungarian Government had approved a budget of one billion forints to conduct the feasibility study for the railway between Budapest and ClujNapoca. The Romanian side wishes to extend this line to Bucharest. “We have nothing against it,” Péter Szijjártó mentioned. There is also an agreement on the ten small and temporary border crossing points, built on the border between Hungary and Romania, so that two of them can soon become permanently open, the legal and technical preparations necessary for this purpose being already initiated by the two governments, the Hungarian Foreign Minister announced. 51

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ALUMNI UPG, a community of graduates

he Alumni Association of the Petroleum-Gas University of Ploiesti - ALUMNI UPG was established in early 2017, having an educational, social, cultural and scientific nature. Now, all graduates of the PetroleumGas University of Ploiesti can join the ALUMNI association, which aims to facilitate communication between all members of the association, both in the country and abroad. All graduates of the Bachelor’s and Master’s Degree Programs of the UPG, regardless of the graduation year or the specialty graduated, may be members of ALUMNI. “If you are a graduate of UPG Ploiesti, we invite you to join us by filling in the registration form. We are many and we are spread all over the world. Let’s find ourselves in a community, all those who have graduated from UPG Ploiesti” - reads the official webpage upg-ploiesti.ro/alumni “UPG is a higher education institution with recognized prestige across all continents and lives naturally through its students and graduates. In 2018, our university celebrates its 70th anniversary, and so far, it has more than 44,000 Bachelor’s Degree graduates, over 11,000 graduates of Master’s Programs and more than 800 Doctors in science. Many of our graduates have held over the years and are currently in key positions in 52

important energy fields and not only, in their countries of origin or in any other country in the world. Together, through the ALUMNI UPG association, we can efficiently perform in promoting the image of our university and yours as well, as our graduates, we can directly intervene and improve education, scientific research and pragmatic orientation to the real needs of the global economy, through all its components,” the President of the Association Prof. Mihail Minescu, Ph.D. Eng. states. By creating and maintaining a database of UPG graduates, accessible to all users through the above-mentioned website, the association aims to represent an interconnection platform. The purpose of ALUMNI UPG is to help build and consolidate relationships between UPG graduates in all promotions and all forms of education, promote collaboration between UPG and its graduates, promote the image of UPG and its graduates; continuously improve the education system and adaptation as quickly as possible of the training of engineers, economists and philologists to market requirements, promote scientific research and support the activities of UPG graduates. In order to achieve the objectives, the association will carry out the following activities: organization of meetings, reunions, conferences, seminars, symposiums and roundtables; setting

up and supporting clubs, cultural associations for students and graduates; organizing a database, regularly updated, with the members of the association and data about them; creating and managing a website to facilitate contact between graduates, access to the database and information of interest to UPG graduates; editing of magazines, informative materials and a directory; collecting and administering funds from which annual scholarships are awarded to UPG students who achieve notable professional and scientific performance; providing moral and logistic support to members of the association; supporting the activities of the professional counselling department for UPG students and graduates; carrying out projects and programs for the modernization and improvement of UPG courses and infrastructure, as well as for the development of cultural and artistic projects; supporting the improvement of teaching staff and their involvement in the real industrial and economic environment; granting awards and distinctions to its members and prominent personalities of the university or business environment; collaborating with other organizations in the country and abroad; encouraging and supporting the cultural and artistic activities of UPG students and graduates and awarding prizes for this kind of activity. energyindustryreview.com

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IMPROVING THE ENERGY PERFORMANCE OF BUILDINGS Buildings are responsible for 40% of energy consumption and 36% of CO2 emissions in the EU. While new buildings generally need fewer than three to five litres of heating oil per square meter per year, older buildings consume about 25 litres on average. Some buildings even require up to 60 litres. Currently, about 35% of the EUâ&#x20AC;&#x2122;s buildings are over 50 years old. By improving the energy efficiency of buildings, we could reduce total EU energy consumption by 5-6% and lower CO2 emissions by about 5%.

energyindustryreview.com

CONSTRUCTION

n 19 December 2017, a provisional political agreement on new rules for improving the energy performance of buildings was reached between negotiators from the European Parliament, the Council and the Commission. The Commission’s proposal forms part of the implementation of the Juncker Commission priorities – in particular ‘a resilient Energy Union and a forward-looking climate change policy’. Pending its formal

the distinction between sectors, we are also establishing a link between buildings and e-mobility infrastructure, and helping stabilize the electricity grid. Let’s stay on high gear,” Vice-President responsible for the Energy Union Maroš Šefčovič said. “As the first agreement on a proposal of

Commissioner for Climate Action and Energy Miguel Arias Cañete added.

MAIN ACHIEVEMENTS •

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endorsement by the co-legislators, the agreement signals the closure of the first of 8 legislative proposals part of the Clean Energy for All Europeans package brought forward by the European Commission on 30 November 2016. It also shows that the work towards the completion of the Energy Union is on the way and that the work initiated by the Juncker Commission is being delivered. The improvements agreed include measures to strengthen the energy performance of new buildings, to accelerate the rate of building renovation towards more energy efficient systems and tapping into the huge potential for efficiency gains in the building sector, the largest single energy consumer in Europe. “The fight against climate change starts ‘at home’, given that over a third of EU’s emissions is produced by buildings. By renovating and making them smart, we are catching several birds with one stone – the energy bills, people’s health, and the environment. And as technology has blurred

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Creates a clear path towards a low and zero emission building stock in the EU by 2050 underpinned by national roadmaps to decarbonise buildings. Encourages the use of information and communication technology (ICT) and smart technologies to ensure buildings operate efficiently for example by introducing automation and control systems. Supports the roll-out of the infrastructure for e-mobility in all buildings (although to a lesser extent than in the Commission’s proposal). Introduces a ‘smartness indicator’ which will measure the buildings’ capacity to use new technologies and electronic systems to optimise its operation and interact with the grid. Integrates long term building renovation strategies. Mobilises public and private financing and investment. Helps combatting energy poverty and reducing the household energy bill by renovating older buildings.

NEXT STEPS the Clean Energy for All Europeans Package, this is a step in the right direction. But I would have preferred to see a more ambitious commitment to e-vehicles charging points for non-residential buildings. This would have been more consistent with our commitments under the Paris Agreement and the European clean mobility strategy. But the new buildings directive will help create local jobs, save consumers money and improve our quality of life. I now call on the European Parliament and the Council to show ambition and complete the rest of the proposals of the Clean Energy for All Europeans Package,”

Following this political agreement, the text of the Directive will have to be formally approved by the European Parliament and the Council. Once endorsed by both co-legislators in the coming months, the updated Energy Performance of Buildings Directive will be published in the Official Journal of the Union and will enter into force 20 days after publication. Member States will have to transpose the new elements of the Directive into national law after 18 months.

BACKGROUND The Energy Performance of Buildings Directive (EPBD) is part and parcel 55

of the implementation of the Juncker Commission priorities to build ‘a resilient Energy Union and a forward-looking climate change policy’. The Commission wants the EU to lead the clean energy transition. For this reason, the EU has committed to cut CO2 emissions by at least 40% by 2030 while modernising the EU’s economy and delivering on jobs and growth for all European citizens. In doing so, the Commission is guided by three main goals: putting energy efficiency first, achieving global leadership in renewable energies and providing a fair deal for consumers. The building sector in the EU is the largest single energy consumer in Europe, absorbing 40% of final energy, and about 75% of buildings are energy inefficient. Likewise, and depending on the Member State, only 0.4-1.2% of the stock is renovated each year. This opens a vast potential for energy efficiency gains in Europe as well as economic opportunities: the construction industry generates about 9% of European GDP and accounts for 18 million direct jobs. Construction activities that include renovation work and energy retrofits add almost twice as much value as the construction of new buildings, and SMEs contribute more than 70% of the value 56

added in the EU building sector. Significant upfront investment is required for the refurbishment of buildings. The EPBD is a substantial element of the European Commission’s work to make buildings more efficient and boost renovation. This work is accompanied by enabling tools for example the revised guidance for energy performance contracts (EPCs) which will help the building sector increase the necessary investments. Furthermore, with the extended European Fund for Strategic Investments (EFSI 2.0) the Commission focus more on sustainable investments in all sectors to contribute to meeting the EU’s climate targets and to help to deliver on the transition to a resource efficient, circular and low-carbon economy. At least 40% of EFSI projects under the infrastructure and innovation window should contribute to the Commission’s commitments on climate action in line with the Paris Agreement objectives. Under the existing Energy Performance of Buildings Directive: • Energy performance certificates are to be included in all advertisements for the sale or rental of buildings; • EU countries must establish inspection schemes for heating and

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air conditioning systems or put in place measures with equivalent effect; All new buildings must be nearly zero energy buildings by 31 December 2020 (public buildings by 31 December 2018); EU countries must set minimum energy performance requirements for new buildings, for the major renovation of buildings, and for the replacement or retrofit of building elements (heating and cooling systems, roofs, walls and so on); EU countries have to draw up lists of national financial measures to improve the energy efficiency of buildings. Under the Energy Efficiency Directive: EU countries make energy efficient renovations to at least 3% of buildings owned and occupied by central government; EU governments should only purchase buildings which are highly energy efficient; EU countries must draw-up longterm national building renovation strategies which can be included in their National Energy Efficiency Action Plans. energyindustryreview.com

CONSTRUCTION

Production in construction up by 0.1% in euro area n December 2017 compared I with November 2017, seasonally adjusted production in the construction sector increased by 0.1% in the euro area (EA19) and by 0.6% in the EU28, according to first estimates from Eurostat, the statistical office of the European Union. In November 2017, production in construction grew by 0.2% in the euro area and by 0.5% in the EU28. In December 2017 compared with December 2016, production in construction increased by 0.5% in the euro area and by 1.5% in the EU28. The average production in construction for the year 2017, compared with 2016, increased by 2.4% in the euro area and by 3.5% in the EU28.

MONTHLY COMPARISON BY CONSTRUCTION SECTOR AND BY MEMBER STATE The increase of 0.1% in production in construction in the euro area in December 2017, compared with November 2017, is due to building construction rising by 0.5%, while civil engineering fell by 1.1%. In the EU28, the increase of 0.6% is due to civil engineering rising by 1.5% and building construction by 0.5%. Among Member States for which data are available, the highest increases

in production in construction were recorded in Romania (+4.5%), France (+4.2%) and Hungary (+3.9%), and the largest decreases in Slovakia (-5.5%), Spain (-4.4%) and Bulgaria (-3.0%).

ANNUAL COMPARISON BY CONSTRUCTION SECTOR AND BY MEMBER STATE The increase of 0.5% in production in construction in the euro area in December 2017, compared with December 2016, is due to building construction rising by 1.4%, while civil engineering fell by 2.6%. In the EU28, the increase of 1.5% is due to civil engineering rising by 1.8% and building construction by 1.5%. Among Member States for which data are available, the highest increases in production in construction were recorded in Hungary (+35.0%), Slovenia (+21.2%) and Poland (+18.3%), and the largest decreases in Spain (-13.4%) and Bulgaria (-4.1%). GEOGRAPHICAL INFORMATION The euro area (EA19) includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

The European Union (EU28) includes Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and the United Kingdom. Estonia, Ireland, Greece, Croatia, Cyprus, Latvia, Lithuania and Malta are not required to supply monthly data under Council Regulation 1165/98.

METHODS AND DEFINITIONS The index of production in construction approximates the evolution of the volume of production within the sector, broken down into building construction and civil engineering. Seasonally adjusted euro area and EU series are calculated by aggregating the seasonally adjusted national data. Eurostat carries out the seasonal adjustment of the data for those countries that do not adjust their data for seasonal effects. This monthly index is calculated only on the basis of the data of those countries reporting monthly data. Missing observations from Member States for recent months are estimated for the calculation of the euro area and the EU aggregates. 57

CONSTRUCTION

TRANS ADRIATIC PIPELINE 2/3 COMPLETED The Trans Adriatic Pipeline (TAP) is now two thirds completed. This includes all engineering, procurement and construction scope, announced TAP Managing Director Luca Schieppati at the 4th Southern Gas Corridor (SGC) Advisory Council in Baku, Azerbaijan.

he high-level event, organised under the auspices of Ilham Aliyev, the President of the Republic of Azerbaijan, brought together the Vice President of the European Commission in charge of Energy Union Maroš Šefčovič, as well as several Ministers and government officials from TAP’s host countries and beyond. They underlined TAP’s key contribution to diversifying and securing Europe’s energy mix and reinforced their commitment to the timely implementation of the project.

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Luca Schieppati presented TAP’s achievements and progress as of endJanuary 2018, as follows:

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TAP remains on track to deliver world-class health and safety performance across Greece, Albania and Italy. The TAP teams have collectively worked over 23 million manhours and driven approximately 65 million kilometres without a major incident. TAP’s contractors have cleared approximately 92% of the project route in Greece and Albania (700km out of 765km). Also, over 67% of welded steel pipes are already laid in the ground (backfilled), while almost 400km (over 51%) are reinstated. In Italy, works are ongoing in the micro-tunnel area: following the completion of the temporary road

and the area preparation, the digging of micro-tunnel pit is currently under way. • All 55,000 pipes have been received in Greece, Albania and Italy. • More than 5,800 people are currently working for the project across TAP’s host countries - over 85% of which are employed locally. • TAP has implemented a wide range of social and environmental investment (SEI) programmes in the communities along its route. In total, TAP will invest over EUR 55 million in SEI in Greece, Albania and Italy. “In parallel with construction activities, we are also focusing on commercial and operational readiness, ensuring that TAP will provide the best services and flexibility energyindustryreview.com

CONSTRUCTION

KEY FACTS AND FIGURES ABOUT TAP’S MICRO-TUNNEL IN ÇOROVODA Çorovoda Micro-Tunnel • Overall length of the micro-tunnel is approximately 1.5 km. • Length of East tunnel is 560 m. • Length of West tunnel is 600 m. • Internal tunnel diameter: 1.8 m. • The geology of the terrain is mainly rock (Flysch).

to its customers,” TAP’s President Walter Peeraer stated. “I am pleased to confirm that, nearly two years since construction started, the TAP project remains on schedule. Benefiting from the continued support of all parties involved, we are confident that TAP will be operational in early 2020, bringing much-needed gas supplies to support Europe’s transition to a more secure, diversified and sustainable energy mix,” he added. TAP is committed to responsibly delivering a world-class project along its entire length in Greece, Albania and Italy. TAP continues to work to complete this strategic project safely, avoiding or minimising impact on the environment and the hosting communities. TAP will promote economic development and job creation along the pipeline route; it will also be a major source of foreign direct investment. With first gas sales to Georgia and Turkey targeted for late 2018, first deliveries to Europe will follow in 2020.

STARTING WORKS ON A 1.5 KM MICRO-TUNNEL IN ALBANIA On 12 February 2018, the Trans Adriatic Pipeline (TAP), organised a ceremony to mark the start of works for the 1.5-kilometre micro-tunnel, which will connect the east and the west segments of the pipeline in Albania. The ceremony held at the TAP construction site, where the boring of

•

Construction works will last approximately 4 months (2 months of excavation for each tunnel), and will be arranged around 24h work shifts. Local employment: approximately 50 workers from Çorovoda.

the micro-tunnel will commence, was attended by the Deputy Minister of Infrastructure and Energy, Enis Aliko; the Mayor of Skrapari, Nesim Spahiu; TAP Project Manager for Albania, Karl Roberts; Spiecapag Project Manager, Guillaume Batut; Bessac Project Manager for Çorovoda micro-tunnels, Dylan Mognol, and other representatives of the energy sector in Albania. Skrapar’s landscape poses many challenges to the pipeline construction, given the mountainous heights, the geological composition and the difficult terrain with numerous steep slopes. The micro-tunnel will enable the pipeline to bypass the Osumi River and a new road. It is the safest and most environmentally friendly option for crossing this challenging mountainous segment. On this occasion, the Deputy Minister of Infrastructure and Energy, Enis Aliko, stressed the importance of the TAP project for the Albanian economy: “It is the first time that this kind of operations and techniques are executed in Albania, part of an important project such as TAP. Moreover, I would like to congratulate TAP on the safety standards applied during the construction of the pipeline.” “TAP is a key project part of the Southern Gas Corridor, enabling the future gasification of the Western Balkans and bringing a new source of gas to Europe. The microtunnel will be constructed using state-ofthe-art technology with minimal human intervention, making it the safest method for

Micro-Tunnel Boring Machine (MTBM) • Name of the MTBM: ‘Karl Gega’. • Type of MTB Machine: slurry MTBM. • Excavation diameter: 2.2 m • Total weight of the MTBM: 74 t. • Total length of the MTBM: 12.5 m. • Jacking force: 1,400 t.

the environment,” TAP Project Manager for Albania, Karl Roberts, added. In his welcoming speech, Spiecapag Project Manager Guillaume Batut, said: “So far, with the support of the Albanian Government and all the Municipalities along the TAP route we have managed to overcome all challenges. I have no doubt that with the same support for TAP, Spiecapag and Bessac will successfully complete the micro-tunnel project.” The Mayor of Skrapari, Nesim Spahiu, mentioned the importance of TAP investments for the region: “TAP is one of the most important investments in Albania and for the Skrapari region. It has an enormous contribution, especially for road infrastructure, employment and social and environmental investments. The Skrapari Municipality has a very good relationship with TAP and TAP’s contractors, always finding solutions for the local community.” The micro-tunnel will be comprised of a 560-metre East tunnel and a 600-metre West tunnel and it will have a 1.8 metre diameter. The construction works for the micro-tunnel are expected to last approximately four months and about 50 more new jobs will be created locally. The tunnel boring industry tradition requires that every tunnel boring machine is given a name. Thus, TAP decided to name the boring machine ‘Karl Gega’, in honour of one of the most renowned infrastructure and transport engineers in Europe. 59

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Forte Partners earns highest environmental award for the Bridge

The Bridge, a new office project developed in Bucharest by Romanian company Forte Partners, received the LEED platinum certification, with the highest score awarded by the US Green Building Council (USGBC) to a property in Romania. 60

he project was evaluated on seven important criteria for the Leadership in Energy and Environmental Design: Sustainable Sites, Water Efficiency, Energy & Atmosphere, Material & Resources, Indoor Environmental Quality, Innovation and Regional Priority Credits. The Bridge is strategically located at 15 Orhideelor Street, 6th District, Bucharest, along with the primary axis of the Center-West submarket enjoying excellent visibility from the inner-city ring road and great access by all means of transport. The award-winning building has prime visibility while offering optimal flexibility and efficiency. The Bridge Business Park is a project

made of two buildings, built in two phases. The Bridge Building won the award for ‘Best Office Lease of the Year’ – 18.000 sqm at CIJ Awards 2017. Phase 1 of The Bridge was delivered in December 2017 and has a total of 36.000 sqm leasable area that was fully let upon completion. Phase 2 of The Bridge has a total of approximately 22.000 sqm leasable and is set to be completed by the end of 2018. The Bridge was designed to take into consideration the latest trends for green buildings, aiming for a high LEED certification (minimum Gold) since its conceptual phase. The second Phase of The Bridge is aiming for the same certifications as the first building. energyindustryreview.com

MARCH’S READING

Electricity Storage his academically reviewed T FactBook by the A.T. Kearney Energy Transition Institute, ‘Electricity Storage,’ captures the status of storage technologies and future developments in electricity storage. It details the main technological hurdles and areas for research and development, as well as analyses the economics of a range of technologies. This FactBook is one of a series of academically reviewed FactBooks on energy sources and technologies published by the A.T. Kearney Energy Transition Institute, a non-profit energy transition research organization established in 2011. This publication seeks to provide stakeholders with a balanced, unbiased assessment of electricity storage technologies and developments. Integrating intermittent sources of energy requires additional flexibility resources and gives new momentum to electricity-storage solutions. Power systems are challenging to operate, since supply and demand must be precisely balanced at all times. By storing primary energy sources, such as coal and gas, or water in hydro dams, system operators have avoided the need to store electricity. But wind and solar photovoltaic systems make demand–supply matching more difficult since they increase the need for flexibility within the system, but do not themselves contribute significantly to flexibility. The increased need for flexibility is reflected in residual load variations (demand minus intermittent output). Flexibility management can be optimized by perfecting models for forecasting output from wind and solar plants, fine-tuning market regulations, and refining the design of power systems. But additional flexibility will be needed in the

Download location: www.energy-transition-institute.com/Insights/ElectricityStorage.html form of demand-side participation, better connections between markets, greater flexibility in base-load power supply, and electricity storage. Electricity storage is a three-step process that involves withdrawing electricity from the grid, storing it, and returning it at a later stage. It consists of two dimensions: the power capacity of the charging and discharging phases, which is the ability of the storage system to withdraw or inject electricity instantaneously from or into the grid; and the energy capacity of the storing phase, which measures how much energy can be stored and for how long. As a consequence, electricity storage has very different uses, depending on the combination of the power rating and discharge time of a device, its location within the grid, and its response time. The primary purpose of electricity

storage consists of ensuring power quality and reliability of supply, whether it is to provide operating reserves, uninterrupted power-supply solutions to end-users, or initial power to restart the grid after a blackout. A secondary purpose of electricity storage is driven more by energy requirements. This involves levelling the load-storing power in times of excess supply and discharging it in times of deficit. Levelling enables the deferral of grid investment on a congestion node and optimal utilization of low-operating-cost power plants and presents opportunities for price arbitrage. The increased penetration of variable renewables is making these applications more critical. It is also creating a new application, known as intermittent balancing, to firm their output or avoid curtailment. For these reasons, variable renewables have resulted in renewed interest in electricity storage. 61

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Ministry of Energy puts plans worth billions on paper The Ministry of Energy estimates to collect this year RON 1.073bn from the implementation of privatization strategies at the companies Rompetrol Rafinare and Electrocentrale Bucharest, according to the note substantiating the revenue and expenditure budget of the privatization activity carried out by the ministry. Also, RON 1.5bn would reach ministry’s budget in the form of dividends from companies carrying out their activity under its subordination. The ministry’s list of priorities includes the listing of companies Hidroelectrica and Oltenia Energy Complex, as well as the recruitment of private managers for 10 companies subordinated to it. HIDROELECTRICA’S LISTING COULD BE DELAYED AGAIN IN 2018 According to the amendments to the privatization strategy of Hidroelectrica, approved by Government Decision in 2013, a 10% stake would be listed, after initially it was planned to list 15% of the shares. Although the authorities seem optimistic on the completion of this action, the representatives of Fondul Proprietatea have an entirely different 62

opinion and say the listing will not take place this year. “We don’t expect Hidroelectrica’s listing to take place. We are actively engaged in this process, but for certain reasons listing did not take place and such a process requires a strong political will at the highest level to move forward. Of course, certain conditions must be fulfilled, one of them being the election of a Supervisory Board with full mandate,” Johan Meyer, CEO Franklin Templeton Investments, said during a meeting with the press for the presentation of fund’s

results for 2017. He claimed a potential listing wouldn’t be affected by the current market conditions, this being an appealing asset for investors.

EC OLTENIA, ENVIRONMENTAL ISSUES Regarding the listing of Oltenia Energy Complex, it has no clear deadline announced for completion, after last spring the Intermediation Union proposed an analysis of the opportunity to launch an IPO in H1/2018. The financial situation of the complex does not seem very good, and the representatives of Fondul Proprietatea claim the largest energy producer in the country is in an extremely difficult situation. “Of all companies in which we are shareholders, we are very concerned of the situation at Oltenia Energy Complex. We have seen that high energy prices from last year have helped, but they are at the limit of surviving or not as company,” Greg Konieczny, Manager of Fondul Proprietatea, said during a meeting with the press. EC Oltenia estimates for 2017 a gross profit of RON 186.4 million, after in 2016 it posted losses of RON 139.8 million. The situation at Oltenia Energy Complex could become even more complicated in the future, when the company could be forced to energyindustryreview.com

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decommission a production capacity with an installed power of 1,500MW for retrofitting. The measure could be imposed as a result of harsher environmental conditions, after the European Commission adopted last summer an Implementing Decision on best available techniques for large combustion plants, under the European Directive on industrial emissions. The Decision, which was published in the Official Journal of the European Union on 17 August 2017, will come into force four years from publication. The new provisions establish very strict limit values for emissions of nitrogen oxides, sulphur dioxide and particulate matter, as well as maximum mercury emissions. Monitoring requirements for carbon monoxide, hydrochloric acid and hydrogen fluoride have also been imposed. Under these circumstances, the energy complex will have to replace 84 coal dust burners related to 14 energy boilers. Also, non-catalytic nitrogen emission reduction installations will have to be installed. “The implementation of these installations in all respects (contractual, technical, installation, commissioning) until August 17th, 2021 in addition to being virtually impossible to complete, regardless of the financial effort that the EC Oltenia would be willing to do, will have a considerable impact on the electricity supply of the National Energy System consisting of unavailability, during 2020 - 2021, of a installed power of at least 1,000 MW and maximum 1,500 MW over the entire period (minimum 3 energy groups of 330 MW switched off simultaneously),” reads a document developed by Oltenia Energy Complex. In order to avoid this situation, the document mentions that it is necessary to request a new transition plan from the European authorities, granting an additional period for compliance with the respective legislation, of three years, until 2024. “This would ensure the time necessary to implement the above mentioned measures, by permanently switching off for the mentioned period of a single energy group of 330

SEEKING PRIVATE MANAGERS FOR STATE-OWNED COMPANIES A new procedure to recruit and select professional managers for 10 energy companies has been started recently. Nuclearelectrica, National Uranium Company, Hidroelectrica, Electrocentrale Group, Autonomous Administration for Nuclear Energy Technologies (RATEN) Mioveni, Midia Power Plant, Electrocentrale Constanta, Hunedoara Energy Complex, Jiu Valley Mine

MW, compared to 1,000 - 1,500 MW in the version of compliance by 2021, with a period of at least six months, by rotation, in order to technically realize the necessary works, without substantially affecting the electricity production capacity of EC Oltenia and, respectively, the amount of electricity necessary for the National Energy System,” the document also mentions. During 2018 – 2020, EC Oltenia aims to carry out an investment program worth a total of RON 2.4bn.

ELCEN INCREASED ITS GROSS PROFIT BY 78% Electrocentrale Bucharest (ELCEN), the main thermal energy producer of the Capital, in insolvency, estimates for 2017 a gross profit of around RON 65.5mln, up 78% compared to the profit posted din 2016, when it amounted to RON 36.8mln. According to company estimates, ELCEN revenues increased by over 9% last year, to RON 1.862bn, while expenses fell by 1.25%, to RON 1.647bn. Compared to the budget approved for 2017, ELCEN revenues were higher by almost 5%, and expenses were lower by almost 11%. In January this year, the General Council of Bucharest Municipality (CGMB) approved the merger by acquisition with ELCEN Bucharest.

Closure National Company, CONPET are the companies that will implement the provisions of GEO no. 109/2011, according to the document prepared by the Ministry of Energy. Thus, the Ministry of Energy provided the amount of RON 2.5mln for services contracted with an independent expert, natural or legal person specializing in the recruitment of human resources.

PRODUCTION RECORDS AT ROMPETROL RAFINARE Rompetrol Rafinare reported for 2017 a consolidated net result of approximately USD 22 million, amid historical production records realized by both Petromidia Navodari refinery and Vega Ploiesti refinery. Consolidated EBITDA last year amounted to over USD 210 million, increasing by 13% compared to 2016, and the gross turnover of the company exceeded the value of USD 4 billion (+16%). The Romanian state currently owns in Rompetrol Rafinare, through the Ministry of Energy, a 44.69% stake. Government approved in May 2013, by draft law, the Memorandum of Understanding between the Romanian state and The Rompetrol Group N.V. (TRG), signed in Bucharest on 15 February the same year, according to which TRG would purchase from the Office for State Ownership and Privatization in Industry (OPSPI) 26.6969% of the shares issued by Rompetrol Rafinare in exchange for USD 200 million. Of this amount, USD 175mln represents the price of the shares put up for sale, and USD 25mln the premium agreed by the parties for TRG to acquire the absolute voting majority in RRC (Rompetrol Rafinare Petromidia - Ed.). 63

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The national power grid operator, Transelectrica, has scheduled investments of over RON 1.7bn by 2020. Refurbishing of power grids and substations, increasing interconnection capacities, upgrading the IT and telecommunications infrastructure will be the main projects to be funded by the company in the following three years. Adrian Stoica

TRANSELECTRICA TO RAISE THE STAKES 64

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or this year, the investment budget of the company amounts to RON 420.77mln, and for the following two years the investment value will reach RON 1.295bn. According to the income and expenditure budget of the company, which will be adopted by shareholders in early March 2018, the following investments will continue this year: –– –– –– –– –– –– ––

––

400 kV OHL interconnecting Resita - Pančevo; Refurbishing Bradu substation; Banat Axis with 400 kV OHL Portile de Fier – Anina - Resita and 400/220/110 kV Resita substation; Replacement of AT and transformers in substations; Upgrading the 110 kV and 20 kV Suceava substations; Extending the Medgidia substation; Refurbishment of Turnu Severin Est, Domnesti, Ungheni substations; Upgrading the Raureni, Arefu, Dumbrava, Bacau Sud and Roman Nord substations; Upgrading the installations from Focsani Vest substation; Components replacement of EDS SCADA system.

In the period 2018 - 2020, the company expects to start refurbishment works at 12 substations in the country, integrate production from nine new power plants and eliminate congestion, as well as works to increase interconnection capacity, dispatching, upgrade the IT infrastructure. The investment for switching to 400kV voltage the Portile de Fier - Resita - Timisoara - Sacalaz Arad Axis and to the overhead line 400 kV Gadalin – Suceava will also be started within these projects.

first of the six projects of common interest of Transelectrica included on the third list of projects of common interest (PCI) on energy infrastructure, adopted in November last year by the European Commission. OHL Cernavoda - Stalpu will contribute to increase the interconnection capacity between Romania and Bulgaria and to integrate wind energy from Dobrogea area. The project of Cernavoda - Stalpu line is part of the Black Sea Corridor Cluster. The 400kV Cernavoda - Stâlpu line will have a length of around 160 kilometers, and for its commissioning it is necessary to build the 400kV Stalpu substation and extend the Cernavoda and Gura Ialomitei substations. According to the 10-year development plan of Transelectrica, the 400kV OHL Cernavoda - Stalpu will be completed in 2020. Besides this line, the Black Sea Corridor Cluster also includes the 400kV Smardan - Gutinas and Suceava - Gadalin overhead lines. The designed route of the 400kV double circuit OHL Cernavoda - Stalpu crosses the territory of three counties (Constanta, Ialomita, Buzau) and is split into 2 sections: • The section between the 400/110kV Cernavoda substation and the 400/110kV Gura Ialomitei substation (Ialomita County), with length of 53.2 kilometers double circuit and 5.5 kilometers simple circuit; it also includes the 2 panels crossing the Danube (2.5 kilometers) and Borcea arm (1.7 kilometers); •

The section between the 400/110kV Gura Ialomitei substation and the 400kV Stalpu (Buzau County) substation, with a length of 101km, double circuit.

FUNDING FOR CERNAVODA - STALPU

RESITA - PANČEVO LINE HAS CROSSED THE BORDER

Transelectrica will receive from the European Commission a grant worth EUR 27 million to build the 400kV OHL Cernavoda - Stâlpu. This is the

Regarding the 400kV OHL Resita (RO) - Pančevo (Serbia), it is part of the Mid Continental East Corridor. The section on Romania’s territory of 400kV

OHL Resita - Pančevo, mostly completed at the end of last year, is realized in double circuit and crosses 11 localities of CarasSeverin County: the city of Resita, the communes of Ezeris, Lupac, Dognecea, Goruia, Ticvaniu Mare, Berliste, Ciudanovita, Gradinari, Varadia and Vrani. 400kV OHL Resita - Pančevo has a length on the territory of Romania of 63 kilometers and a number of 206 poles. The length of the line on Serbia’s territory is 68 kilometers. The contract for building 400kV OHL Resita - Pančevo was signed in June 2014, and its total value, on the signing date, was RON 81,389,615.

ROMANIA - SERBIA INTERCONNECTION The Mid Continental East Corridor project also includes the 400 kV OHL Portile de Fier - Resita and the extension of the 220/110kV Resita substation by building the new substation of 400kV, switching to 400kV of 220kV OHL Resita - Timisoara - Sacalaz - Arad, including building the 400kV Timisoara and Sacalaz substations. The aforementioned projects are integrated into the plans of the European Transmission and System Operators (TSOs) to develop the transEuropean networks and ensure their interoperability. The Mid Continental East Corridor project is necessary for the priority corridor on electricity: ‘Northsouth electricity interconnections in Central Eastern and South Eastern Europe (NSI East Electricity)’ interconnections and internal lines in north-south and east-west directions to complete the EU internal energy market and integrate renewable energy sources. Given the contribution to the implementation of EU’s strategic priorities on trans-European energy infrastructure, the Mid Continental East Corridor project was included by the European Commission in the first list of Projects of Common Interest (PCI) in the Commission Delegated Regulation no. 1391/2013, forming the ‘Romania Serbia Cluster’. 65

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In its Utilities 50 2018 report, Brand Finance ranks State Grid as the most valuable brand in the world and Enel as the strongest one. According to this new top, the 10 most valuable brands in 2018 are: State Grid, EDF, Enel, Engie, ICEPCO, Innogy, Iberdrola, SSE, Tepco, Veolia.

10 WORLDâ&#x20AC;&#x2122;S MOST VALUABLE UTILITIES BRANDS 66

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STATE GRID ELECTRIFIES UTILITIES RANKING State Grid, the electric utility giant from China, has made a commanding entrance to the league table. With a brand value of USD 40.9 billion, over four times more than France’s EDF, it is by far the most valuable utility brand in the world. The company’s service covers the majority of China’s land area, with a population of more than 1.1 billion. The brand’s success is supported through strategic investment, innovative technology, responsible operations, and environmental stability efforts. State Grid is committed to an electrification revolution in China that would connect all networks across the country. The brand is known for investing in ‘Smart Grid’ electrical systems using Ultra High Voltage (UHV) lines, among other projects which enable a cleaner and more efficient transmission of electricity. State Grid is also admired in China for their sense of corporate social responsibility. Their tagline ‘Your power, our care’ aligns with the government’s projection of the national brand which underscores the need for state institutions to balance authority with consideration. Three smaller Chinese brands have also made an entrance into the Brand Finance Utilities 50 league table this year: GD Power Development (28th, USD 1.4 billion), Datang Power (33rd, USD 1.2 billion), and CGN (39th, USD 1.1 billion). “The success of Chinese brands can be attributed to the government policy of promoting green and renewable energy solutions. As China takes on a global leadership role, also in environment protection, corporate brands benefit from the momentum. The largest of Chinese utilities brands, State Grid, is leading the way with its commitment to greener solutions, setting an example of a responsible approach that other global players can follow,” David Haigh, CEO of Brand Finance, commented. EUROPEAN UTILITY GIANTS REORGANISE The changing landscape towards an evergrowing renewables and alternative energy offering has resulted in a need for European utilities companies to consider the best ongoing strategy for the use of their brands. E.ON and RWE have both chosen to divide their business and use distinct brands for the two sets of operations in the past year.

RWE, a European giant in the utility market, separated its operations into two segments: Innogy and RWE. Innogy oversees renewables, grids, and retail, whereas RWE is centred towards conventional power generation and energy trading. As a result, RWE dropped out of the Brand Finance Utilities 50, replaced by Innogy which entered the table in 6th place. E.ON demerged its business into two sections, renewable energy networks and fossil fuel. The latter was rebranded as Uniper, and entered the table in 11th place. As a result of the split, E.ON dropped from 4th to 13th with its new focus on green energy.

ENEL EMERGES AS THE STRONGEST BRAND Enel has done the converse to these two brands and over the last few years has been embarking on an overhaul of their brand in an attempt to change consumer perceptions towards a more environmentally friendly option. Enel, one of the world’s leading integrated electricity and gas operators, emerged as the strongest brand this year with a brand strength index (BSI) score of 82.8 and a brand rating of AAA-. Enel has undergone a strategic repositioning and brand refresh, successfully establishing itself as a consumer focused and environmentally-friendly energy provider as well as a considerate employer. The brand also expanded its global presence through the consolidation of its rebranding process initiated in 2016, and the launch of many flagship initiatives around innovation and sustainability. Examples include the opening Innovation Hubs in San Francisco, Tel Aviv, Moscow or Madrid, the massive deployment of EV charging infrastructure in Italy or the launch of pioneer nanotechnology for wastewater treatment in Latin America. In addition, the brand boosted its capability to deliver value on new services with the acquisitions of Demand Energy and Enernoc, two leading US-based providers of smart energy solutions. The second strongest utility brand behind Enel, with a brand strength score of 82.4 and a brand rating of AAA-, is Saudi Electricity Company. The brand also grew 62% in value to USD 1.9 billion, jumping from 41st to 19th in the table, which can be attributed to the expansion of their service to 502,000 new customers and 150 new residential communities. 67

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Power Sector Vision to accelerate clean energy transition

n the occasion of the Power Sector Vision event, eurelectric President and CEO of the Italian energy group Enel Francesco Starace presented Maroš Šefčovič, VicePresident of the European Commission, with the Vision Declaration for the electricity industry in Europe signed by national associations and CEOs of major European power companies. The new long-term industry vision was first unveiled in December, 2017 and commits the sector to accelerate the clean energy transition and to achieve carbon-neutral electricity mix in the EU well before mid-century. “With this vision, the power sector reaffirms its commitment to lead the transition towards a fully sustainable European energy future, while delivering value to customers and to society as a whole,” said Francesco Starace. “Our industry sees a great opportunity in the progressive electrification and decarbonisation of Europe’s energy consumption. To achieve such ambitious goals, we will need the support of policy makers to create a stable environment for long-term investments,” he added. “At the onset of the Energy Union, our objective was to ensure energy security in all Member States. Subsequently, our efforts centred on delivering clean energy. We are now striving for our economies to be powered in this clean, sustainable way. The electricity sector is not only affected by 68

these ongoing ‘tectonic’ changes, but it is also their driver and enabler. I therefore welcome your clear vision, which includes a carbonneutral future well before 2050 and boosted electrification of transport. For the Paris Agreement to succeed, we all need to step up a gear,” Maroš Šefčovič, Vice-President of the European Commission in charge of Energy Union, welcomed the Vision Declaration and stated. The eurelectric vision statement commits the industry to enable and sustain a vibrant, competitive European economy - reliably powered by clean, carbon-neutral energy - and a smart, energy efficient and truly sustainable society for all citizens of Europe. The industry commits to leading a cost-effective energy transition by: INVESTING in clean power generation and transition-enabling solutions, to reduce emissions and actively pursue efforts to become carbon-neutral well before mid-century, taking into account different starting points and commercial availability of key transition technologies; TRANSFORMING the energy system to make it more responsive, resilient and efficient. This includes increased use of renewable energy, digitalisation, demand side response and reinforcement of grids so they can function as platforms and enablers for customers, cities and communities;

ACCELERATING the energy transition in other economic sectors by offering competitive electricity as a transformation tool for transport, residential uses as heating and cooking and industry; EMBEDDING sustainability in all parts of our value chain and take measures to support the transformation of existing assets towards a zero-carbon society; INNOVATING to discover the cuttingedge business models and develop the breakthrough technologies that are indispensable to allow our industry to lead this transition. Kristian Ruby, eurelectric’s Secretary General, expressed satisfaction that the entire sector stands united against the increasing urgency of climate change, air pollution and depletion of natural resources. “Today, the sector repositions itself to accelerate the energy transition and embed sustainability in all parts of the value chain. We strongly urge policymakers to do their utmost to ensure a fair transition, both socially and geographically, and provide the necessary support and funding to address any socio-economic impacts,” Kristian Ruby mentioned. Along with the new vision, eurelectric also unveiled a new visual identity to complete the transposition and reflect the deep evolution of the industry, which has the ambition to put customers at the centre and lead the energy transition. energyindustryreview.com

20 18

10-14 June 2018

Vox Maris Grand Resort Costineยบti, Romania

14th Edition

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EIB agrees € 6.5bn backing for energy projects At its first meeting of 2018 the Board of the European Investment Bank approved a total of EUR 6.5 billion of new financing for 36 projects in 17 European Union countries and schemes in Africa, Asia and Latin America. ENGAGEMENT WITH CIVIL SOCIETY The Luxembourg meeting of the EIB’s 28 EU Member State shareholders and the European Commission followed a day of discussions between Board members and representatives of more than 90 different civil society organisations. “We value regular and intensive engagement with civil society. It strengthens the EU Bank’s contribution to the economy and society everywhere. It builds on detailed consultation concerning specific projects and covers broader issues about strategy and the EIB’s overall role. Our exchange with NGOs and other civil society organisations is always fruitful, including when we come to different conclusions about specific initiatives. Yesterday was no exception. We learnt a lot,” said Werner Hoyer, President of the European Investment Bank. APPROVAL OF EIB DIVERSITY AND INCLUSION STRATEGY The Board approved the EIB’s 70

Strategy for Diversity and Inclusion that sets out priorities and targets for ensuring that the EIB itself better reflects society. “A diverse and inclusive organisation increases staff engagement and will strengthen the impact of our activity. The EU Bank is committed to protect equal opportunities and foster a more inclusive work environment. The new Diversity and Inclusion Strategy reaffirms this commitment and sets out a clear path to achieve these goals over the next four years,” President Hoyer added.

NEW FINANCING APPROVED BY THE EIB BOARD “New financing approved today demonstrates the EIB’s firm commitment to improving education, energy, transport, housing and water needs and ensuring that businesses can expand. This includes both new initiatives to transform the global green bond market and improve daily life in western, central and southern Africa,” President Hoyer highlighted.

APPROVAL OF EUR 1.5 BILLION FINANCING FOR TRANS-ADRIATIC PIPELINE Following detailed discussions, the European Investment Bank Board approved EUR 1.5 billion of financing for the Trans-Adriatic Pipeline (TAP) that will cross Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian natural gas network. The project is part of the Southern Gas Corridor, an initiative identified by the Council of Ministers, the European Commission, and the European Parliament as a strategically important component within the European Union energy policy (Project of Common Interest). BACKING EXPANSION OF GREEN BONDS TO SUPPORT SUSTAINABLE INVESTMENT Building on the European Investment Bank’s role as the first and largest issuer of green bonds worldwide the board approved support for a new USD 2 billion initiative to strengthen use of green bonds in emerging market in cooperation with a number of international financial institutions. This will address the limited issuance of green bonds in developing countries most vulnerable to a changing climate. energyindustryreview.com

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SUPPORT FOR RENEWABLE ENERGY AND SECURITY OF ENERGY SUPPLY Reflecting the EIB’s commitment to support both renewable energy and strengthen security of energy supply, in addition to the Trans-Adriatic Pipeline, financing was approved for a new 17MW wind farm in Lower Austria, construction of a hydropower plant on the Nenskra river in Georgia and medium sized renewable energy projects across Africa. New backing for energy distribution includes modernisation of distribution and roll-out of smart meters in Spain, improving reliability of existing distribution networks in Italy and construction of a new waste to energy plant in the Scottish city of Dundee. IMPROVING TRANSPORT INFRASTRUCTURE The board also approved financing for construction of the new Line 4 of the Athens Metro and trains for the new route, expansion and upgrading of Iceland’s main airport at Keflavik, a 7 km extension of the light-rail network in Morocco’s political and administrative capital Rabat including construction of 13 new stations. In line with the EIB’s broad engagement to support transport across sub-Saharan Africa new financing was also approved for financing a rapid transit bus network in the Senegalese capital Dakar, including construction of 23 stations and acquisition of 144 new buses. The board also approved support to upgrade the Great North Road, a key access route to Indian Ocean ports in landlocked Zambia.

STRENGTHENING SUPPORT FOR URBAN INVESTMENT New investment totalling EUR 970 million to improve services, provision of social housing, sustainable infrastructure and reduce energy use in cities across

Europe was also approved. This includes new financing for urban development investment across Greece, renovation of cultural facilities in Innsbruck, and support for urban infrastructure in the north-western Romanian city of Oradea and towns across Poland. The EIB will also back for a four-year social housing construction scheme in Hamburg and finance retrofitting and building of new housing units with a housing corporate in Rotterdam.

SUPPORTING BUSINESS INVESTMENT WITH LOCAL PARTNERS The board agreed more than EUR 1.3 billion of new financing to support investment by companies across Europe. This includes support for leasing activity in Poland, financing for export-focused firms and climate related investment in the Czech Republic and new credit lines with leading local banks in Finland, Italy, Spain and Portugal. IMPROVING INTERNET ACCESS, EDUCATION AND WATER SERVICES Future financing to improve highspeed internet services in the greater Toulouse region and construction of a new university campus in Helsinki was agreed. Reflecting the EIB’s unique technical and financial experience supporting water investment worldwide new projects in Friesland and the Rwandan capital Kigali were also approved.

INVESTMENT PLAN FOR EUROPE Financing for four projects approved by the EIB board will be backed by the Investment Plan for Europe and support overall investment totalling EUR 4.1 billion. The approvals included the financing of high-speed internet in France and a windfarm in Austria, as well as support for smaller companies in Poland and for the Trans-Adriatic Pipeline.

SMART FINANCE FOR SMART BUILDINGS At its meeting (6 February, 2018), the Board of the European Investment Bank (EIB) approved the creation of a brand new financial instrument, the Smart Finance for Smart Buildings initiative. The aim is to make investments in energy efficiency projects in residential buildings more attractive to private investors, through the intelligent use of EU grants as a guarantee. This new instrument, together with other EU policy initiatives for smart buildings, aims to unlock a total of EUR 10 billion in public and private funds between now and 2020 for energy efficiency projects. It is estimated that this could support up to 220,000 jobs, and help establish a renovation market for small businesses worth up to EUR 120 billion. In addition, up to 3.2 million European families could be taken out of energy poverty. “I warmly welcome the EIB board’s decision. The building and housing sector accounts for 40% of Europe’s energy consumption, but it needs much more investment, and this initiative will help reduce the gap. It will also create local jobs and reduce energy poverty by using EU funds intelligently in a cost-effective way. This shows that ‘energy efficiency first’ is more than just a slogan: practical solutions such as the one approved by the EIB Board strongly support our transition to a low carbon economy and help us attain our Paris Agreement commitments,” Commissioner for Climate Action and Energy, Miguel Arias Cañete, underlined. The Smart Finance for Smart Buildings facility will improve use of public EU funding and will multiply the effect of the EU money invested. It will help to de-risk investments in the buildings sector, giving investors and financiers a better understanding of the risks and benefits of energy efficiency investments. Moreover, it will offer assistance with project development, as many households lack the skills and capacity to set up, implement and finance ambitious energy efficiency projects. 71

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Eco-labels, the next level The European Commission will submit in May this year a new legislation on green investments, as part of its sustainable financing action plan. Introducing a unique system of rules and incentives for expanding green investments is the new challenge launched by Brussels in terms of avoiding money laundering through this investment type. Adrian Stoica

nder its new action plan, the European Commission will explore several opportunities to develop incentives to support the development of green investments. Among the first ideas launched in the public space are the wider use of eco-labels, this system following to also be applied for the future investments. These would be applied to bonds and investment funds. In parallel, a support system for green investments will be introduced. As a first step, it is considered to reduce capital requirements for green investments, including mortgages for energy efficiency or low emission cars.

THE NEW SYSTEM AND THE RELATED RISKS Lowering capital requirements is considered one of the most controversial proposals, since it could be used by financial institutions to reduce their capital reserves, directing them towards 72

dubious green investments. Commission Vice-President Valdis Dombrovskis, responsible for social dialogue, financial stability and capital markets, has recently warned that any measure in this regard “would have to be closely calibrated, and based on a clear EU classification”. The European Securities and Markets Authority (ESMA) could be appointed to supervise the new system. Currently, only the European Investment Bank (EIB) uses a system to assess the extent to which investment projects are green, but European Commission officials have announced that the system the European executive will introduce is not a copy of the indicators used by the EIB to achieve this classification.

CHINA, THE LEADER IN RENEWABLE INVESTMENTS Global investments in renewable energy rose last year by 3 percent, to

USD 333.5 billion, but below the USD 360 billion record in 2015, according to a study by Bloomberg New Energy Finance (BNEF) quoted by the international press. Chinese investments in renewable energy totalled USD 132.6 billion in 2017, up 24 per cent from 2016 and a record high. Europe invested USD 57.4 billion last year, down 26 per cent from 2016, while the US invested USD 56.9 billion, a 1% increase over 2016. The advance comes amid the increase in photovoltaic capacity, reaching USD 160.8 billion, up 18 per cent from 2016, with more than half of the investments made in China, according to BNEF data. The surge in renewable energy investment last year is all the more remarkable as the cost of capital for solar energy has continued to decline. Photovoltaic systems last year were about 25 per cent cheaper per megawatt than they were two years ago, according to Jon Moore, BNEF’s General Manager. energyindustryreview.com

The use of the oceans as an energy source with Bosch Rexroth systems and solutions Oil & Gas Production - energy efficient operations in a compact solution In order to prevent the worldwide increasing demand for energy from leading to unjustifiable consequences for mankind and the environment, in particular caused by global warming, it is necessary to harness energy more and more from renewable sources. In demand are ecologically and economically sustainable and efficient methods of power generation. The use of the oceans as an energy source can offer a meaningful contribution to the future energy mix in many regions. Especially where ample resources are found close to important power consumers (two thirds of the global population live in coastal areas). In this case investments in electricity infrastructure and line losses can be minimized.

Rexroth Performance Promises Anyone who has actually experienced the mighty power of ocean waves and currents will have an idea of the potential energy lying dormant in the seas. Many companies are currently working on a wide range of concepts for largescale power generation systems from this renewable energy source. We are still just at the start of this development and, as was the case a few decades ago with wind energy, Rexroth is supporting numerous projects at this early stage with power take-off solutions. These are based on Rexroth hydraulic component and system solutions, which are already proving to be exceptionally robust and reliable in a variety of marine applications. Rexroth supports in an early phase with customized systems and solutions for power take-off (PTO) and auxiliary drives. In the Applications Center ‘Ocean Energy’, Rexroth is combining all the experience and know-how in this area and focusing them on the development of system solutions for marine energy devices. This way Rexroth supports the OEMs already in the forefront with ‘wave-to-wire’ computer simulations. In an interactive process, Rexroth specialists optimize the PTO for the particular device, plan and deliver ready-to-install hardware modules. The product portfolio offered for marine energy is

based also on Rexroth hydraulic component and system solutions, which proved themselves extraordinary robust and reliable in various marine applications e.g. Axial piston motors A4VSO or A4VSG for driving a generator (up to 1.000 cubic centimeters per revolution), electro hydraulic pitch drives for tidal energy converters, hydraulic cylinders optimized for being used as linear pumps in wave energy converters.

Bosch Rexroth Sales 2 Aurel Vlaicu st. 515400 Blaj Romania Tel. 004 0258 807 872 www.boschrexroth.ro 73

RENEWABLES

CEZâ&#x20AC;&#x2122;s wind park, record production in 2017 74

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CEZ’S WIND FARM • In 2016, CEZ Group produced in Romania approximately 11% of total renewable energy necessary for the Romanian state to fulfil the 20% target imposed under the European Directive 2009/28/EC. • CEZ’s wind farm realized by the end of 2011 a total annual production of 620,000MWh - CEZ thus becoming the largest private energy producer in Romania. • In October 2013 a record production, of 1.25TWh, was recorded in CEZ’s wind farms. The value became the reference from that moment. • In April 2015, a new daily production record was recorded. 234 wind turbines operated at the full capacity of 2,500kW and generated 13,547MWh of green energy.

ind energy production W achieved by CEZ’s wind farm in December could ensure green energy for the localities of Filiasi, Dabuleni, Calafat, Campulung and Curtea de Arges (according to data presented by the National Institute of Statistics at the end of 2016), i.e. over 46,000 homes, for one year. What does it mean? That Romania has all chances to reach its target assumed before the European Union for 2020, and all the houses of Romanians could use mainly green energy.

According to the National Institute of Statistics, electricity production realized by wind power plants in Romania had increased in late November 2017 by 13% compared to the similar period of 2016. CEZ’s wind farm alone - located in Constanta - reported at the end of 2017 a realized amount of over 1,323GWh, by 14% higher than in 2016, benefiting from an average wind force of 7.25m/s (when wind force drops below 3-4m/s or reaches 25m/s the wind turbine stops to protect its integrity). It is important to mention that although the wind farm includes 240 turbines of 2.5MW each, it reported a capacity factor of 25.18%. It means that of the 240 turbines, approximately 61 generated green energy.

GREEN MONTH AND RECORD DAY The green month, which recorded the largest amount of wind energy produced by CEZ’s farm, is December, with over 154GWh. This energy is sufficient to supply electricity for a year to approximately 46,000 homes. However, it seems the green day is not necessarily part of December, because on 21 April

CEZ’s wind farm reached its record in terms of green energy, with over 12GWh of green energy. It should be mentioned that during the interval 15:00-16:00 alone 567.87MWh were produced, when the average wind force was 14.67m/s, which means that company turned on the light in approximately 170 homes.

WHY NOT ALL THE 240 WIND TURBINES ARE OPERATIONAL? Electricity generated by a wind turbine of industrial utility is normally ‘collected’ and transported through the high voltage electric lines, resulting a mix of electricity also produced by conventional power plants, hydropower plants and other types of power plants. A production that is too high (all 240 turbines operational) could lead to an overload of equipment capturing and distributing the produced electricity. If the wind speed is too high or the extreme weather conditions require it, a decision can be made to diminish production to the level imposed by the National Energy Dispatch, according to procedures determined between the Dispatch Centre and the producers. 75

RENEWABLES

ENELâ&#x20AC;&#x2122;S FIRST STORAGE PLANT IN GERMANY 76

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Enel, through its renewables subsidiary Enel Green Power Germany (EGP Germany), has signed an agreement with German wind energy company ENERTRAG AG and Swiss energy storage solutions company Leclanché SA to build and manage a 22 MW lithium-ion battery storage plant in Cremzow, in the German state of Brandenburg. The project is Enel’s first storage plant in Germany and its construction will involve an investment of around 17 million euros.

he storage plant will provide T frequency regulation services to Germany’s Primary Control Reserve (PCR) market to rapidly stabilise the grid, and will later be integrated with ENERTRAG wind farms. The first 2 MW section of the Cremzow plant is expected to be operational in April 2018, while the launch of the entire plant is planned for the end of this year. “The project in Cremzow is an important milestone for us because, after the success of similar projects in Italy and Chile, it will further demonstrate how beneficial storage is for energy systems, in particular when

coupled with renewables,” said Antonio Cammisecra, Head of Enel’s Global Renewable Energies division, Enel Green Power (EGP). “Storage is increasingly becoming a key tool in ensuring grid stability and is also a pathway towards the widespread adoption of renewables worldwide, facilitating their integration into power grids.” “Commercial batteries and their ability to provide balancing power will be one of the key enablers for the next phase of the energy transition towards renewables. The Cremzow project will play an essential role in safely phasing-out lignite in the state of Brandenburg. As a next step, the Cremzow battery will address the proof of black start capabilities of ENERTRAGs renewable regional power plant in the Uckermark area,” Joerg Mueller, Head of ENERTRAGBoard, added. “We are delighted to have been chosen by Enel Green Power and ENERTRAG to develop and deliver this large pioneering energy storage project in Germany”, affirmed Anil Srivastava, CEO of Leclanché. “Battery energy storage systems have a very significant role to play in stabilising grids as the world transitions to greater use of variable renewable energy sources. They also help reduce the huge waste of renewable energy that is curtailed when grids are at capacity.” The facility will be owned by a special purpose vehicle (SPV) in which EGP Germany has a 90% majority stake and ENERTRAG the remaining 10%

stake. Leclanché will act as engineering, procurement and construction (EPC) contractor for the project, in charge of integrating battery and power conversion systems and energy management software. The project will provide the grid with a real-time primary frequency regulation service contributing to its stability. When the grid’s frequency decreases due to high power demand, the battery will rapidly deliver its stored energy, while in response to frequency increases due to low demand, the battery is charged with the surplus energy. Furthermore, the integration with ENERTRAG wind farms will allow for the use of surplus energy produced by the facilities to charge the battery, cutting back on the need to curtail wind power generation when it is higher than demand on the grid. The German PCR market has evolved greatly in recent years with the early 2017 auction of approximately 600 MW of PCR attracting bidders from Austria, Belgium, France, Netherlands and Switzerland, whereby confirming the market’s cross-border appeal. The introduction of battery storage systems is an important development in the German PCR market: in 2017, BESS (Battery Energy Storage Systems) provided about 200 MW of PCR, equal to about 31% of the market. 77

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DRIVING TO THE FUTURE Adrian Stoica

4 disruptive technology-driven trends connectivity | autonomy | car-sharing | electrification ew disruptive technologies and N services are rapidly transforming the entire landscape of the automotive industry, a century-old business. From driving to self-driving cars and fossil fuel to electric propulsion, the increasing demand for connected mobility, supported by the ongoing digital revolution, is paving the way to the next level of customer experience.

CONQUERING THE WORLD The new concepts for the car of the future are spreading all over the world. The global car market is going electric. 78

Electric cars also gain more and more ground in Europe, last year around 125,000 fully electric units being sold, according to estimates of LMC Automotive. Europeans’ passion for ‘green cars’ will increase in the coming years, so sales will reach 600,000 cars in 2020, and by 2022 their number will reach the one million milestone, according to the analysis of LMC Automotive. The competition of major manufacturers to gain market share in this new segment is becoming more and more fierce, especially as the demands of potential customers are increasingly sophisticated. Estimates and analyzes of car market

specialists are very optimistic about the expansion of cars that consume watts instead of fuel to move, especially as consumer confidence in electric cars will increase rapidly as battery prices will fall, their range will increase and charging times will be increasingly short. Currently, Norway, France and Germany are some of the largest markets for electric cars.

PLUGGED, AUTONOMOUS, JOINTLY USED AND ELECTRIC In the future, mobility will be defined by four concepts - plugged, autonomous, jointly used and electric. energyindustryreview.com

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Last year, Renault Zoe and Nissan Leaf were the most sought-after models in Europe, but interest will increase more and more as three famous European brands, Jaguar, Porsche and Audi, will launch electric cars in the coming years. U.S. manufacturer Tesla will also have a word to say in market architecture, with the launch of its new model – ‘Model 3’, which experts expect to be in 2020 the most sold purely electric model in Europe, with 43,000 units. Model 3 would dethrone Renault Zoe, which will have sales of 31,000 units, the following places following to be held, according to estimates, by BMW i3, with 30,000 units, Nissan Leaf, with 26,000 units, and Volkswagen ID EV, with 20,000 units.

FORD IS CATCHING UP RAPIDLY U.S. car manufacturer Ford Motor

Co announced that it would increase its investments in electric vehicles to USD 11 billion by 2022, following to provide at the time 40 hybrid and fully electric models. The figure is significantly higher than investments of USD 4.5 billion by 2020 previously forecasted by the second largest U.S. electric car manufacturer. According to Ford officials, the company intends to add 16 fully electric models and 24 hybrid models to its global offer by 2022.

GM PROMISES 23 NEW MODELS General Motors, Ford’s main rival, has also announced that it planned to introduce at least 20 electric models by 2023. The CEO of General Motors Co, Mary Barra, has made a daring promise

to investors, that the car manufacturer from Detroit would make money from selling electric cars by 2021. GM relies on combining the own technology of batteries, a flexible and low-cost design of vehicles and large production, mainly in China. The company has already managed to launch an electric car whose price is only USD 5,600, considered the cheapest in the world. It has the shape of a box and looks like a Smart for Two from the older generations. The length is only 1,488 mm, the width is 1,506 mm and the height is 1,670 mm. It is provided with an electric engine of 29 kWh and has a declared range of approximately 155 kilometers. The maximum speed is 100 kilometers per hour, and the torque can reach up to 100 Nm. Such a car can be fully charged within seven hours and a half. 79

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BMW, ‘NUMBER ONE NEXT’ Germany’s BMW has kept its promise made early last year and delivered in 2017 100,000 hybrid and fully electric cars. Although the target set by the Bavarians seemed at first a venturesome idea, the promise was fulfilled. Their strategy, called ‘Number One Next’, provides by 2020 the group will launch no less than 25 fully electric and PHEV models, including a fully electric Mini in 2019, an X3 with zero emissions in 2020 and an autonomous and electric production vehicle. MERCEDES-BENZ RAISES THE BAR Mercedes-Benz, the main brand of the German car group Daimler, announced on 21 February this year the intention to invest EUR 2.6bn in research and development by 2019, amid efforts to produce series electric trucks starting in 2021. Mercedes-Benz, the main brand of the German group, is currently testing eActros electric trucks with a range of up to 200 kilometers. “In 2018 and 2019, Daimler Trucks will invest, on average, approximately EUR 1.3 billion per year in research and development,” Daimler stated in a press release. The company mentioned that the focus would be put on the development of electric mobility, connectivity and autonomous driving technology for commercial vehicles. The German group also informed that by 2020 MercedesBenz would test trucks equipped with 11 sets of batteries and two engines to see whether the 100% electric vehicles can 80

replace the diesel engine models. The two versions of trucks tested by MercedesBenz, with a weight of 18 and 25 tons respectively, will also be made available for a test group of customers during this year. By 2022, the company plans to electrify its passenger vehicle lineup, offering more than 50 battery-electrics, plug-in hybrids and 48-volt mild hybrids in all sizes and segments. The first Mercedes-Benz EQC series model will come off the line in Bremen, Germany, next year. Daimler recently said that its profit growth would be dampened this year by spending on new technologies such as electric and autonomous vehicles.

VOLKSWAGEN THROWS IN EUR 40 BILLION In November, Germany’s Volkswagen announced that it would spend EUR 40 billion for electric vehicles, autonomous vehicles and new mobility services by the end of 2022. Volkswagen expects electric vehicles to conquer the market and wants to create a division exclusively dedicated to electric cars. The e-mobility division aims to deal only with the development of electric cars and become leader. But for this it needs to dethrone Tesla. Volkswagen wants to reach an annual production of at least 100,000 units under the ID brand. Audi, Seat and Skoda brands are also included here. For 2025, Volkswagen aims to reach one million electric vehicles sold, and to achieve this goal investments could reach

over EUR 10 billion. Volkswagen last year announced that around 2020 it planned to release in the market a compact electric vehicle of with the size of a Golf car with a range of approximately 600 km.

TESLA LAUNCHES ELECTRIC TRUCKS Tesla has also joined the race to launch electric trucks in the market. At the end of last year, the Americans from Tesla presented the model of a large-size electric truck. Tesla Semi truck has a driving range of 800 kilometers when it is “charged at full capacity and has a cruising speed”, Tesla CEO Elon Musk said at the time. Tesla has not provided details about the costs and manufacturing site of the new model. The company wants to start the series production at the end of 2019. But Tesla does not stop here, moving to the next level: it wants to use chips capable of using artificial intelligence. Artificial Intelligence is one of the popular domains among major technology companies at this time. The ambition of Tesla CEO Elon Musk is to give people the possibility, within two years, to sleep in their cars during travel, thus fully eliminating the human factor for driving.

CHINA’S BYD COMES WITH ITS OWN SOCKET The Chinese car manufacturer BYD (‘Build Your Dreams’) is building its own vehicle factory in Morocco, in the city energyindustryreview.com

TECH

of Tangier, across from France’s Renault factory where Dacia brand is produced. The Chinese company wants to build in that area electric cars for Europeans. In order to implement the project, estimated at USD 1 billion, the Chinese company has associated with the American billionaire Warren Buffet. Production is expected to start this year. BYD has already opened the first vehicle factory in Europe, last year, in Hungary, where it invested around EUR 20 million, for the production of electric buses and batteries. BYD has also announced an investment of EUR 10 million in France, also for electric buses. Overseas, BYD has built an electric bus factory, and in Canada it plans to produce utility vehicles such garbage trucks, also propelled electrically.

In the Chinese market it has a joint venture with Daimler, together with which it produces vehicles under Denza brand.

FARADAY CLAIMS IT OUTPERFORMS TESLA In early January this year, China’s Faraday Future announced that it created the fastest electric car in the world, its model FF91 being presented as faster than the Model S of Tesla Motors, during an event in Las Vegas. The start-up supported by the Chinese billionaire Jia Yueting relies on the contribution of other investors invited at Las Vegas. FF91 can accelerate from zero to 100 km/h in 2.39 seconds, according to the

company. This speed surpassed that of Tesla’s Model S, of 2.5 seconds for the P100D model set in the fastest mode, ‘Ludicrous’. The 1,050 horsepower of FF91 can provide a range of about 600 km.

RENAULT’S SOLUTION French manufacturer Renault couldn’t miss this competition. It reviewed upward its profit and sales targets for a medium term, as part of the ‘Drive The Future’ plan, aimed to protect the position in the field of electric vehicles of the French car manufacturer and cope with rival competition in the case of cars without driver. Renault announced that it planned to register an increase in sales by 44%

PIONEERING CYBER SECURITY AND SAFETY IN AUTOMOTIVE INDUSTRY Bureau Veritas has been verifying data protection procedures for over 30 years now, and offers mechanical and electronic testing across a range of industries. As such, Bureau Veritas is in a strong position to offer inspections for one of the most technologically complex and safety-critical areas of the smart world: connected cars. Bureau Veritas is responding to a development known as ‘vehicle to everything’, V2X, in which cars communicate with people (V2P), infrastructure (V2I), and other vehicles (V2V) as part of a connected road traffic environment. If this sounds far-off, it’s closer than you might think: General Motors has already launched Cadillacs with V2X radio capability; Volkswagen, Toyota, and Ford are set to follow in 2019/2020. Meanwhile, an alliance of carmakers is developing a 5G LTE standard for the next stage in mobile network technology. Tomorrow’s connected car will therefore be constantly transmitting

and receiving data: safety sensors will communicate with the engine, the driver, and other vehicles. Meanwhile, the car as a whole will share data from a range of devices with the manufacturer, with traffic management networks, and potentially with licensing authorities, maintenance providers, and all manner of other partners. The spread of platform-coordinated car-sharing, as car ownership increasingly gives way to a user-based model, will also mean that entire fleets of vehicles will be sharing detailed data with – and about – thousands of people per car and per lifecycle. As such, all participants of the automotive value chain, from suppliers of components and carmakers to dealerships and, increasingly, tech companies will need credible proof that safety and compliance have been ensured. Bureau Veritas has already shown itself to be a strong automotive partner to many of them. Working with the U.S. Transport and Environment

Authority and Groupe PSA, for instance, it helped to implement a portable emissions measurement system which gathered data about actual fuel consumption from 60 vehicles over 40,000km to provide real-world economy and emissions findings. Bureau Veritas is expanding on this position in automotive, producing a robust set of guidelines for cybersecurity in connected vehicles and acquiring Silicon Valley-based electrical and electronics TIC (testing, inspection, and certification) body SIEMIC; this complements its existing holding in 7Layers, a German specialist in mobile and wireless certification. Bureau Veritas will be able to add automotive cybersecurity to its existing certification services in the industry, offering wholevehicle certification as cars become ever more connected – and ever more complex. With an end-to-end cutting-edge offering, Bureau Veritas is strongly placed to service tomorrow’s autonomous vehicles.

TECH

IMPACT CONNECTED CAR IMPACT Connected Car is an acceleration programme funded within the framework of INNOSUP, part of the EUâ&#x20AC;&#x2122;s Framework Programme for Research and Innovation Horizon 2020. It aims to respond to societal and industrial needs in the landscape of the connected car. The programme closed its first call with over 218 applications coming from 41 countries (164 cities), among which Spain, Poland, Italy and France take the lead.

THREE-STAGE SMARTIZATION PROGRAMME

The selected start-ups will enter a three-stage smartization programme and will receive up to EUR 60,000 in equity free funding. Top performing companies will have the opportunity to obtain further funding of up to EUR 200,000 from participating venture capital investors. As in other IMPACT programmes,

by 2022, benefiting from the recent investments in Iran, India, and from the recovery of the car market in Russia. The company will launch eight models of 100% electric vehicles and 12 electrified models, in the following six years.

BEST-SELLING CARS IN 2017 At the level of 2017, the worldâ&#x20AC;&#x2122;s most sold electric car was the Chinese car produced by BAIC EC, produced in China by BAIC Motor (Beijing Automobile Industry Holding Co.). BAIC Motor is currently the car company with the largest market share in China (about 25%), extending its sales to other Asian countries. Owned by Beijing Municipality (through BAIC Group), BAIC Motor has among shareholders Daimler AG, with 10% of the shares. At the same time, BAIC is the company that 82

IMPACT Connected Car supports, connects and funds companies with innovative projects in the fields of wireless chargers, cyber security measures against hackers, smart mobility and zero emission transportation. Not only are these developments important for the continued safety and welfare of citizens and infrastructure, but also this market is expected to represent a EUR 141 billion business opportunity by 2020.

bought the remains of the Swedish brand Saab, transforming it into an electric car, under the Senova brand. 37,900 cars of the BAIC EC180 series were sold in 2017, most of them delivered on the Chinese market, which this year increased by 50% compared to last year. The BAIC EC180 model is a very small car, with a length of 3.67 meters, a width of 1.63 meters and a height of 1.51 meters. Built on a cheap platform, with rigid suspension and drum brakes, the car weighs just 1 ton (1,050 kg) and is propelled by an electric engine of 54 kW, which has an instantaneous torque of 180 Nm. Its selling price in China, with the subsidies granted by the state, is approximately EUR 19,000. The second-best-selling electric car in the world in 2017 was Nissan Leaf, the former leader, the Japanese electric car being the most sold electric vehicle

the entrepreneurs will have access to an international network of more than a hundred recognised mentors, such as Ken Stewart, CEO of Karma Automotive, and Carintia Martinez, Director of Information Systems at Renault, as well as founders and investors who are experts in different key areas of knowledge, both in the digital sector and in the automotive industry. The selected companies will be showcased at top international events organised over the course of the year by 4YFN and Mobile World Capital Barcelona. With funding of EUR 2.1 million, IMPACT Connected Car aims to boost SMEs and start-ups innovating and developing smart mobility solutions. The programme provides a direct link between entrepreneurs and large corporations, as well as addresses the fragmentation in the automobile industry, which until now has hindered its digital transformation.

in history, with more than 250,000 units in the seven years since its launch. In the first nine months of 2017, Leaf was sold in 35,700 units, less than the previous year, due to a change of generation. The new Leaf was already launched last autumn and already has very good results. The third model sold globally is Tesla Model S, the revolutionary car, especially through the dashboard technologies, and the most expensive electric vehicle in the top-selling list.

WRAP-UP However, at the North American International Auto Show (January, 2018), the automobile manufacturers reminded the world that while electric might be the future, gas-powered cars have plenty of life left in their tanks. energyindustryreview.com

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METALS & MINING

2018 - FAR FROM AN AVERAGE YEAR According to ‘2018 PRECIOUS METALS FORECAST SURVEY’ by the London Bullion Market Association (LBMA) of analysts’ predictions for the gold price this year suggest a wild ride for bullion after a fairly uneventful 2017. The LBMA, a standards-setting body for the industry, says the analysts polled are divided on the paths that precious metal prices will take in 2018.

“It was the best of times, it was the worst of times, it was the age of wisdom…” Strongly divergent views dominate this year’s forecasts with the 34 analysts divided on the paths that precious metal prices will take in 2018. Opinions differ as to the level of US real interest rates, the likely impact of geopolitical factors and the pace of global economic growth. The contributors are divided as to what will have the greater impact and hence we have received forecasts for gold as high as USD 1,510 and as low as USD 1,120 and it’s a similar story for the other metals. “With gold forecast in a trading range of USD 390, silver USD 9, platinum USD 518, palladium USD 750 we could be in for a dramatic year in precious metals.” Somewhat surprisingly the mean of 84

all the contributors’ forecasts is rather staider. The outliers cancel each other out leaving the average price for each metal in 2018 little different from those seen in the first half of January. Rhona O’Connel of Thomson Reuters GFMS is the only analyst to see a spike above the USD 1,500 mark but for an average over the course of the year Adam Williams of Metal Bulletin and Frederic Panizutti of MKS, a refiner, are the most bullish with predictions of a USD 1,365 average. “For the professional investor, equities, the dollar and geopolitical risk remain gold’s key drivers. Our forecast discounts three fed rate hikes, although any overheating may prompt additional tightening and constrain gold’s upside. Equities are supportive, correction

fears point to defensive gold positions, while perceived strength prompts purchases for the Efficient Frontier. An equities slump would bring a short-lived gold fall as investors liquidate for cash but would reinforce gold’s longer-term role as a risk hedge. We see a continued bull market but with the chance of at least one sizeable correction. There is an argument that cryptocurrencies have undermined gold investment in some quarters. It is debatable whether this will persist given the price action in at least one cryptocurrency and this ultimately may benefit gold as a tangible asset. In the physical markets, Indian demand is expected to be comparable to 2017, as a stronger rupee constrains local prices and the economy improves, while the government is likely to take a more benign view towards the market. Middle Eastern tensions may encourage the local wealthy to retain gold, possibly in safe and liquid locations such as Singapore. There is pent-up demand in China. It may need a good early price performance for it to be unleashed, although the possibility of property and inheritance taxes would be gold-friendly,” Rhona O’Connel argues. “Stronger and more concerted global growth, combined with a more stable Indian bullion market after years of government intervention recently, are likely to lead to a recovery in demand for gold jewellery. Concerted economic growth should ultimately boost inflationary expectations as well as lead to a return of investor interest in commodity baskets – base metals are already rallying strongly, as are oil prices energyindustryreview.com

METALS & MINING

Gold Average: USD 1,318 High: USD 1,510

Range: USD 390 Low: USD 1,120

Average gold prices range from USD 1,215 to USD 1,381, but the overall mean is expected to be broadly in line with the price in the first half of January. However, a trading spread of USD 390 suggests that the gold price could be in for an interesting journey in 2018. Silver Average: USD 17.81 High: USD 23

Range: USD 9 Low: USD 14

Silver is forecast to be the best performing of the four metals. The most bullish forecast is for an average price of USD 20 and the most bearish USD 16. But the overall view is that the silver price will end up between the two extremes at USD 17.81, representing a 4% increase on the average price in the first half of January.

and precious metals prices. On top of this, geopolitical issues remain and look set to escalate – it seems unlikely that the US and Japan will allow North Korea to continue to threaten their nations, while changes in Saudi Arabia may lead to greater friction between Saudi Arabia and Iran. With many other asset classes already at record price levels, there is a risk of corrections either while geopolitical developments unfold or as inflation and interest rates rise to the extent that investors take profits. Investors may well see gold as offering a relatively cheap safe haven while corrections unfold in other markets,” Adam Williams considers. “In 2017, gold further recovered, ending the year 12% higher. In 2018, we expect gold to climb moderately. On one side of the argument, there is a general expectation for a 50bp Fed interest rates hike and the recent US corporate tax cut, which in theory could be in favour of a stronger US dollar on the back of assets repatriation. On the other side, the tax cut could result in lower US Treasury income and, logically, a widening budget deficit, putting pressure on the US dollar. A

Platinum Average: USD 1,000 High: USD 1,250

Range: USD 518 Low: USD 732

Analysts forecast a bullish outlook for platinum prices in 2018, up 3.1% to an average price of USD 1,000. As with gold and silver, the analysts sit firmly in two camps, with average price forecasts ranging from USD 862 at the bottom end to USD 1,140 at the top, with the overall average more or less in the middle. Palladium Average: USD 1,080 High: USD 1,500

Range: USD 750 Low: USD 750

Palladium was the best-performing metal in 2017 with a 16.7% increase in price, but analysts do not foresee a similar outcome in 2018. Indeed, they forecast that palladium will be the worst-performing metal this year, 1.5% lower to an average price of USD 1,080 in 2018.

further risk is a major correction in global stock markets. Jewellery and industrial demand are set to be on the rise on improving global growth. As the demand side is set to improve, the supply side will remain under pressure. This combined with ongoing geopolitical tensions and the official sector expected to be a net buyer prompts us to set the yearly average at USD 1,365.00/oz,” Frederic Panizutti explains.

WHO WILL WIN THE DEBATE AND TAKE HOME THE PRIZE? The aim of the Forecast Survey is for contributors to predict, as accurately as possible, the average price and range (average high and low price) for the year ahead for gold, silver, platinum and palladium. The Forecast Survey is published in January each year. The leading precious metals analysts are required to submit their average price forecasts for the year ahead as well as the range (low and high price). Analysts can submit for all metals

(gold, silver, platinum and palladium) or any combination of them. As well as the forecast numbers analysts are required to provide commentary to support their price predictions. An ounce gold bar is awarded to the contributor whose price forecast is closest to the actual annual average price in each metal category. In the event of a tie the average forecast range is taken into account. The LBMA’s Public Affairs Committee is responsible for approving all applications to contribute to the Survey. The decision whether to approve an application is based on a combination of the relevant expertise, the analytical and forecasting ability of the individual concerned, as well as the reputation and standing of the institution that they represent. Such an application process protects the integrity of the Forecast Survey and helps ensure that it continues to remain one of the most prestigious Forecast Surveys in the international precious metals market. Source: www.lbma.org.uk 85

METALS & MINING

EUROPEâ&#x20AC;&#x2122;S BIGGEST GOLD MINE GETS BIGGER 86

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METALS & MINING

The Kittilä gold mine in Lapland (Finland), will be expanded Agnico Eagle mining company announced on February 15th. The Canadian company said investment worth 160 mill. euros will be made on projects including the construction of a onekilometre-deep mine shaft.

“The shaft will make it possible to utilize the deeper parts of the gold deposit in an economically sensible way, and it will improve our energy efficiency as well as decrease our emissions. The efficiency advantage of the shaft combined with the raised production rate will improve the competitiveness of the Kittilä mine,” Agnico Eagle Finland’s Managing Director Jani Lösönen stated. The new shaft will have hoisting capacity of 2.7 mtpa (2.0 mtpa of ore and 0.7 mtpa of waste), while the mill expansion involves installation of a secondary crushing circuit, new thickener and reactor capacity, and minor modifications to the existing grinding circuit and autoclave. The improvements will boost average

annual gold production by 50,000 to 70,000 ounces per year starting in 2021. The company estimated the Kittilä mine would be in operation until 2035. The Kittilä mine is located in the Lapland region of northern Finland, approximately 900 km north of Helsinki and 150 km north of the Arctic Circle. With a mine life estimated through 2034, Kittilä is Agnico Eagle’s longestlife mine; its proven and probable gold reserves contain 4.5 million ounces (30 million tonnes at 4.64 g/t gold) as of December 31, 2016. Ore has been mined from underground since 2010. The 4,500-tonne/day operation is expected to produce about 190,000 ounces of gold in 2017, and to average 205,000 ounces of gold annually from 2018 through 2019. The Kittilä property covers 215 square km, stretching 25 km along the Suurikuusikko Trend, a major goldbearing shear zone. The mine area includes a group of six gold deposits along a 4.5-km segment of the trend. The largest of the deposits are the Suuri, Roura and Rimpi zones that contain most of the current reserves and resources at Kittilä. The other deposits are the Etelä and Ketola zones and the new Sisar Zone. The Company is carrying out studies to evaluate the economics of increasing throughput rates at Kittilä to 2.0 million tonnes per year from the current rate of 1.6 million tonnes. This increased mining rate scenario could be supported by the development of the Rimpi and Sisar zones.

OPERATIONS UPDATE In the third quarter of 2017, payable gold production totalled 50,415 ounces at a total production cost per ounce of USD 750 and a total cash cost per ounce of USD 753 on a by-product basis. During the quarter, the mill processed 429,000 tonnes of ore (4,659 tonnes/day), with production costs of EUR 76 per tonne and mine-site costs of EUR 77 per tonne. 87

METALS & MINING

In the first nine months of 2017, payable gold production totalled 149,192 ounces at a total production cost per ounce of USD 738 and a total cash cost per ounce of USD 739 on a byproduct basis. During the first nine months, the mill processed 1,291,000 tonnes of ore (4,728 tonnes/day), with production costs of EUR 76 per tonne and mine-site costs of EUR 76 per tonne. Geology The region around the Kittilä mine is underlain by mafic volcanic and sedimentary rocks of the Kittilä Greenstone Belt oriented nearly vertical. This greenstone belt is similar to those hosting our Canadian deposits in Quebec’s Abitibi region and Nunavut. At the contact point between iron-rich and magnesium-rich rocks lies a 100- to 200-metre-thick structural zone known as the ‘Suurikuusikko Trend’. This trend hosts the Kittilä deposit, where multiple mineralized zones have been traced over a strike length of more than 25 km. Mineralization Work has focused on a 4.5-km segment of the Suurikuusikko Trend that hosts the six main zones of the known gold reserves and resources – Ketola, Etelä, Suuri, Roura, Rimpi and Sisar. The Sisar Zone is located to the east of the main Kittilä ore zone, and in close proximity to existing underground infrastructure. Kittilä ore is refractory, making gold extraction relatively difficult because the gold is generally locked inside the two main sulphide minerals – arsenopyrite and arsenic-rich pyrite. Mining Underground mining operations began at Kittilä in early 2010 at the Suuri and Roura deposits. The underground method is open stoping followed by delayed backfill. Approximately 13.5 km of tunnels are developed each year to ensure sufficient ore production is available to keep the mill supplied. 88

After extraction, stopes are filled with cemented backfill or paste backfill to allow the safe mining of adjacent stopes. Ore is trucked to the surface crusher using underground haul trucks via the 4,400-metre-long ramp access system. Processing Approximately 4,500 tonnes of ore/ day are fed to the processing plant. The ore is treated through grinding, flotation, pressure oxidation, and carbon-in-leach circuits. Kittilä has Agnico Eagle’s only pressure oxidation circuit (autoclave), which is required because of the ore’s refractory nature. Gold from the leach circuit is stripped from the carbon and recovered from solution using electrowinning, and then smelted in a furnace and poured into doré bars. Gold recovery of 86% is expected over the life of the mine. Exploration The main exploration ramp to the north is now completed and is being used for testing the extensions of the Roura and Rimpi Zones. Two internal ramps are being driven southward off the main exploration ramp for converting Sisar Zone and Rimpi deep mineral resources between 800 and 1,000 metres below surface. The Company is evaluating increasing throughput rates at Kittilä to 2.0 million tonnes per annum (an increase of approximately 25%). This increased mining rate scenario could be supported by the development of the Rimpi and Sisar Zones. The Kittilä mine in northern Finland is the largest primary gold producer in Europe. Kittilä achieved commercial production on May 1, 2009, becoming Agnico Eagle’s first mine to open outside of Canada. Since open-pit mining was completed in 2012, Kittilä has been an underground-only operation.

ABOUT AGNICO Agnico Eagle is a senior Canadian gold mining company that has produced

precious metals since 1957. Its eight mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these countries as well as in the United States and Sweden. The Company and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983. Agnico Eagle operates eight mines located in Canada, Finland and Mexico. Our operations continue to execute on our business strategy of delivering high quality growth while maintaining high performance standards in health, safety, environment and community development. Agnico Eagle beat its 2017 guidance of 1.68 million ounces by producing a record annual gold output of 1.71 million ounces. All in sustaining costs for the year were USD 804 per ounce, lower than the most recent guidance of USD 845 per ounce. The company grew its mineral reserves last year (net of production) by 3.1% to 20.6 million ounces, with grades increasing by about 7.7%, due to the conversion of resources to reserves at Amaruq, in Nunavut, Canada. Gold production is expected to increase in 2018 and 2019 as the Meliadne mine in Nunavut starts up and production at Meadowbank, also in Nunavut, extends into 2019. Production is expected to reach about 2 million ounces in 2020. Lower gold grades in the mining area for 2018 and 19 has meant lower expected production from the mine in the next two years – 10,000 ounces less this year and 20,000 next year. As a result, the Toronto-based company approved a plan in 2017 to increase throughput 25% from 1.6 million tonnes per annum to 2mtpa by 2021. Higher rates will be achieved through a new 1.4-kilometre shaft and a modification to the 4,500 tonnes per day mill, as well as other infrastructure and service upgrades. energyindustryreview.com

METALS & MINING

Atlas Copco has a new mining division

tlas Copco, a leading provider of sustainable productivity solutions, has decided that Epiroc will be the name of the company that the Group will dividend out in 2018 provided shareholder approval. “With Epiroc we have found a short, distinct and timeless name that is spot on for the mining and civil engineering business,” said Annika Berglund, Senior Vice President Corporate Communications and Governmental Affairs. On January 16, 2017, Atlas Copco Board of Directors announced that it will prepare a proposal to the Annual General Meeting 2018 to split the Group into two companies; Atlas Copco, focused on industrial customers, and another one now named Epiroc - focused on mining and civil engineering customers. The plan is to have both companies listed on the Nasdaq Stockholm stock exchange. Epiroc was selected out of almost 1,000 names evaluated. Epi is a prefix meaning ‘on’ or ‘at’ in Latin and Greek. Roc signals stability and durability, and rock is one of the most important materials that the company works with. The work to split the Atlas Copco Group that began in January 2017 is proceeding according to plan. From January 1, 2018, Epiroc AB is the parent company of all Epiroc companies but still part of the Atlas Copco Group. “A huge amount of work has been carried out in 2017 to prepare for the split, including creating new legal entities around the world, recruiting to new functions and launching the Epiroc brand,” said Hans Ola Meyer, CFO,

who is project leader for the split together with Håkan Osvald, SVP General Counsel. “Thanks to the professional work by many, we are on target to complete the split by mid-2018, provided shareholder approval,” Håkan Osvald added. The first half of the project to split the Group is now almost concluded. This includes the creation of the legal group forming the Epiroc Group, which is necessary to achieve the split. Atlas Copco AB now owns 100% of Epiroc AB, which owns 100% of Epiroc Rock Drills AB, which in turn owns 100% of all Epiroc subsidiaries that will form the Epiroc Group. The second half of the project has now started. This involves preparing Epiroc to get approved by Nasdaq Stockholm as a company listed on that stock exchange and with its shares traded there. To be accepted as a listed company includes having a professional Board of Directors, an experienced Group Management, and other Group functions in place. Epiroc’s Board and Group Management are in place, and other requirements are now in the process of coming into place. The President and CEO of Epiroc Per Lindberg will be a member of Atlas Copco’s Group Management and report directly to Mats Rahmström, CEO and President of Atlas Copco, until the listing. Atlas Copco’s Board is responsible for both companies until Epiroc is listed. At the Annual General Meeting on April 24, 2018, shareholders will vote on the Atlas Copco Board’s proposal to dividend out Epiroc. Provided they

approve, already the first quarter 2018 financial report, published on April 25, will show Epiroc as a so-called discontinued operation, effective as from January 1, 2018. Consequently, the numbers in the Q1 2018 report will reflect only the continuing operations of Atlas Copco, while Epiroc will be shown as discontinued operations. All Atlas Copco documents, presentations and communications online and offline will be updated, and all references to the Mining and Rock Excavation Technique business area will be removed from April 25, assuming approval at the Annual General Meeting. “Atlas Copco is a large industrial organisation and the board of directors saw the benefit in having a more mining-focused company. With this new set up, Epiroc will be much more focused on our industry, with the ability to advance our innovations at a quicker pace. Epiroc is devoted to providing customers with products and services that enhance their productivity, energy efficiency, safety and ergonomics. We are a new company that has over 144 years of mining experience,” said Jason Smith, General Manager, Epiroc Customer Center. Epiroc is a leading productivity partner for the mining, infrastructure and natural resources industries. With cutting-edge technology, Epiroc develops and produces innovative drill rigs, rock excavation and construction equipment, and provides world-class service and consumables. The company was founded in Stockholm, Sweden, and has passionate people supporting and collaborating with customers in more than 150 countries. 89

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ANALYSIS

GAS NETWORK CODE IN ROMANIA

Transaction, a must for the future of the gas sector Dumitru Chisalita â&#x20AC;&#x201C; Judicial Technical Expert in Oil & Gas

A fully functioning and interconnected internal energy market is crucial for maintaining security of energy supply, increasing competitiveness and ensuring that all consumers can purchase energy at affordable prices. Europeâ&#x20AC;&#x2122;s cross-border gas networks operate according to rules that regulate who can use them and under what conditions. In the past, these rules were drawn up nationally. However, with increased interconnections and trade between countries in the internal energy market, EU-wide rules have become increasingly necessary to effectively manage gas flows. These rules, known as network codes or guidelines, are legally binding European Commission implementing Regulations. They govern all cross-border gas market transactions. 92

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ANALYSIS

ach year, the European Commission draws up an ‘annual priority list’ of areas to be included in the development of network codes for electricity, with input from a public consultation. The Commission, with further input from the Agency for the Cooperation of Energy Regulators (ACER) and the European Network of Transmission System Operators for Gas (ENTSOG), adopts proposals for network codes. The proposals for network codes are checked by a Gas Cross-Border Committee of specialists from national energy ministries and then adopted with the approval of the Council of the European Union and the European Parliament.

REBUILDING THE GAS SECTOR The natural gas sector in Romania is characterized by numerous failures, dissatisfactions, abuses, disorientation etc. The fact is that Things must change. But how? What? Where? Who? When? Any vision on the natural gas sector has to start from the need to rebuild it, from scratch, step by step, by placing the TRANSACTION in the centre of the future construction of the new gas sector. Last year, the Intelligent Energy Association launched a country project called ‘Starting over in the gas market in 10 steps’, in order to build a real market and remove the pseudo market that is first of all detrimental to gas consumers. Recently, within the Round Table Meeting organized by the Intelligent Energy Association together with the Energy-Center. ro publication, with the topic: “We can have a fair gas price only with an objective Network Code and a functional market”, carried out at the Chamber of Commerce and Industries of Bucharest (CCIB), the participants answered 3 essential questions: 1. Do we need a Network Code in Romania? 2. What are the causes of non-functioning of the current Network Code in Romania? 3. What should we do to have a functional Network Code in Romania? If at the first question the answer was unanimously positive, even if some participants put it under the sign of obligation imposed by the European Union, at the second question there were several causes resulting from the speeches, which we summarized below. 1. Physical configuration of the current NTS and adjacent systems 2. Legislative framework antagonistic to the Network Code 3. Incomplete and incoherent text of the Network Code 4. Nonexistence of flexibility mechanisms in the Romanian gas market 5. Lack of IT platforms and modality for data transmission 6. Sabotage of the Network Code implementation process 7. Incompetence

1. Physical configuration of the current NTS and adjacent systems What is currently named NTS is in fact a mixture of transmission systems: closed (local, of source-consumption type), semi-closed (regional) systems and a ‘0’ transmission system. Thus, rules suitable for the ‘0’ system are not appropriate for the closed or semi-closed systems (differences of technical, hydraulic, operational, functional nature etc.). Moreover, the current code treats systems that do not communicate physically as if they would communicate physically, respectively there is a manipulation of the idea of physical balance in the NTS, but in reality, it is only an arithmetic illusion. The Code will be applicable only on a homogeneous system. But re-engineering is required not only for the NTS, but also for the other adjacent systems. 2. Legislative framework antagonistic to the Network Code • Lack of equitable, fair, non-discriminatory mechanisms in line with the provisions of the Civil Code, for the allocation of the amounts supplied for: –– Individualizing the quantities sold; –– Allowing suppliers to monitor their own commodity on the procurement-transmission-storage-transmission circuit, and being able to request them to be disciplined in the market and in the transmission activity; –– Having an alignment with the allocation modality in the Transmission Network Code and allowing the matching of quantities; –– Having an alignment with the modality of allocation of distributed or stored quantities. • Lack of Distribution Network Codes, as a set of rules, determining the responsibilities and rights of the parties, as well as the manner in which gas flow continuity must be ensured in the transmission system to the end-consumer, penalties charged or from which the user of the distribution system benefits. • Lack of the market model, containing clear rules, procedures and instructions in terms of gas trading and interaction of suppliers with shippers (allowing the monitoring of the flow in real time throughout the sourceconsumer circuit). Among the many elements that should be defined by this document, mechanisms for ensuring the flexibility and instruments for quick access of all participants thereto and the development of cheap systems to guarantee commercial operations are primary. • Lack of policies against energy poverty and for supporting vulnerable customers by real methods, but also allowing the elimination of preferential prices and of the regulated market. • Lack of a Competent Authority at the level of the entire energy system (not only in the gas sector), which would 93

ANALYSIS

•

define preventive/reactive plans for emergency situations, monitor and intervene according to principles that would not affect the commercial activity. Direct and indirect manipulation of the gas market using the primary or secondary legislation, an approach entirely incompatible with the idea of MARKET RULE.

3. Incomplete and incoherent text of the Network Code Lack of the following principles from the text of the Network Code: • Trade mechanisms that facilitate capacity trading through transparent, flexible, fair and easy to apply mechanisms, including intraday. • Only the one who makes a mistake pays and only for its act in relation to responsibilities undertaken under contracts with the transmission operator. • The price of the mistake is the one set by the Romanian market at the time of making the mistake (not before or after the deed). • Speculative lawful purpose, allowing the apparition of counterparties in the market to punish indolence of certain users. • Commercial balancing, seconded by physical and hydraulic balancing. • The way in which the transmission operator will pay for its mistakes (failure to meet contractual conditions in terms of making available the booked capacity and ensuring the continuity in supply, if it is due to other network users), in relation to those who make mistakes, the price of the transmission operator’s mistake being also necessary to be determined by the Romanian market at the time of the mistake. • The equitable, fair and non-discriminatory allocation of the transported amounts, in line with the Civil Code, for entry points and exit points into/from the transmission system. Note: This allocation should not be mistaken, but aligned with the modality of allocation from supply contracts (which are not subject to the Transmission Network Code, being a rule that should result from a future Gas Market Code) and complementary to the allocation of quantities distributed or stored (which are not subject either to the Transmission Network Code, Distribution Network Code and Storage Code being necessary). 4. Nonexistence of flexibility mechanisms in the Romanian gas market • Lack of possibility to store gas throughout the year depending on supply and demand, in: –– Underground storage facilities; –– Transmission/distribution pipelines; –– Systems placed at consumers. • Lack of mechanisms for sale in interruptible regime • Lack of mechanisms for interruptible capacities 94

• • •

Lack of introduction of gas titles as exchange element, for gas sale by gas consumers or/and as guarantee element Lack of introduction of receipt as exchange element or/and as guarantee element Stimulating the development in the market of new products ensuring higher flexibility (loaning, parking)

5. Lack of IT platforms and modality for data transmission • Lack of computerization of the activity in the gas market by developing systems for the storage and transmission of information between operators, suppliers, balancing market operator, gas exchanges, competent authority etc. • Lack of platforms for booking/trading in the main and secondary market of: –– Transmission capacity; –– Distribution capacity; –– Storage capacity. • Lack of sale/nomination/allocation platforms: –– Gas sale/purchase; –– Transmission services; –– Distribution services; –– Storage services; –– Pipeline storage services; –– Flexibility services (loaning, parking, limitation of price volatility by stop-limit etc.). • Lack of system balancing platforms with the existence of at least 5 sub-platforms: –– Trade balancing by buy/sell orders ex-ante for the day ahead/intraday; –– Trade balancing by placing bonds (anticipative) for the day ahead/intraday; –– Ex-post trade balancing by buy/sell orders; –– Physical/hydraulic balancing of the system by placing orders (anticipative) for the day ahead/intraday; –– Physical/hydraulic balancing of the NTS by placing bonds (anticipative) for the day ahead/intraday. • Lack of matching platforms, clearing platforms, platforms for tracking bad-payers, for trading gas titles and receipts etc. 6. Sabotage of the Network Code implementation process In my view, the history of the 10 years of failure of the Network Code couldn’t be achieved without sabotaging this process. 7. Incompetence Another important aspect of non-application of the Network Code is due to misunderstanding of the free market philosophy, rules and role of a Network Code, doubled by the incompetence of certain people who believe that ‘gas flows anyway’. The Intelligent Energy Association will continue its steps, aiming to carry out analyses and debates on set of rules ensuring market functioning in Romania. energyindustryreview.com

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ANALYSIS

Evolution is part of any business. Whether we go faster or slower in any given direction is due to a multitude of factors and underlying conditions but at the end of the day, it all comes down to our willingness to persevere. And a business that doesnâ&#x20AC;&#x2122;t go anywhere is a dead business. That being said, where is your business going? Are you currently facing challenges or obstacles and what may be the difference between the two? Experts say itâ&#x20AC;&#x2122;s a matter of perspective. But you should be happy either way. The bumpy road is usually less travelled, but the roads that are the least travelled could prove to be the most rewarding. If the business or the industry is not growing then we have an issue. But if due to our own inactivity our business is not growing, then we have a problem.

, H T W O R G R O F E GO M O H O G OR Vlad-Adrian Iancu

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ANALYSIS

et’s take a look at a couple of businesses which are doing well, just to get the ball rolling. One thing all the winners have in common? They set goals and look to the future. And that’s exactly what BP Global is doing with their ‘BP’s view to 2021: five things to know’. They understand that in order to know where you are going, you first have to know where you’ve been. Thus, safe in the understanding that they had great results in 2017, even surpassing the market’s expectations, the investors can turn their eyes to the future. The first topic that they touch on is safety. No matter the time period, safety, efficiency and reliability will get the job done. Their results show a continued drop in work safety incidents but they say the job is never done. While the recordable injuries remain below their five-year average, BP’s group Chief Executive Bob Dudley insists that progress is still being made in that department. Growing also means bettering, and BP intends on getting more bang for their buck by improving their portfolio with 35 percent higher margins on average. In their projections this would add up to 900,000 barrels per day from new projects come 2021. With a hefty offering of more than 20 projects, 13 of those already under construction, and six final investment decisions due in 2018, BP aims at focusing on lower costs and higher margins. Major project start-ups are also in the pole position, presently contributing with a 12 percent production increase and further growth expected. We have to remember that this is still a numbers game. BP’s downstream business expects to deliver upwards of USD 3 billion increase in earnings between 2016 and 2021, with two-thirds due to BP’s marketing business, with the rest owed to manufacturing. This seems very feasible as the results for 2017 were deemed the best on record, growing almost by a quarter compared to 2016. Counting on the diverse offering

By investing around USD 500 million annually just on renewables, new technology, exploration and research, BP is set to continue to spearhead the transition of global energy needs towards clean energy. the brand presents, Chief Executive for Downstream Tufan Erginbilgic is confident that growth in existing markets and expansion to new material markets in Mexico, India, Indonesia or China is more than likely. But evolution should not be undertaken chaotically, without control and concern for our future. Nobody wishes for a Pyrrhic victory. Thus, BP targets a two-pronged approach. On one hand they keep the focus on expansion, while also investing in smart ways to lower the carbon footprint their big industry steps may inflict. The lower carbon future should not be just a fancy dream we talk about, we should make it into a reality. Judging by the activities undertaken across their business field, BP is committed for real. The priorities that they have laid out include the reducing of their own operation’s emissions, investing in new thoughtful business and developing products that will enable customers to reduce their own emissions. By investing around USD 500 million annually just on renewables, new technology, exploration and research, BP is set to continue to spearhead the transition of global energy

needs towards clean energy. As Lamar McKay, Deputy Chief executive, states: “At BP, we want to be part of the solution”. This means not only focusing on the future, but also on today, according to him. Solutions seems to be derived from advanced mobility studies and digital transformation, a muchdiscussed topic. Bottom line is that if you want to get to see tomorrow, you still have to be around for it. Profit will make or break a business and that’s why BP considers the shareholders’ satisfaction a top priority. When you perform well and deliver, as they did in 2017, the expectations increase. And they seem primed to meet those too. Another company which has its eyes on growth is Deloitte and they set out to analyse the top strategies of tech companies as they prepare the plans for 2018 in their own ‘2018 Technology Industry Outlook’. The review focuses on opportunities, strategies and risks companies might face this year, in the view of Paul Sallomi, Vice Chairman of Deloitte. It appears the competitive edge will be gained by way of innovative technologies like cloud, cognitive computing and data analytics. By combining these solutions, companies benefit from more cost control and the ability to drive revenue. As cloud applications and services drastically change the market it is no surprise that they are expected to pass the 50 percent adoption point. Riding the coattails of this change is also the flexible consumption trend which enables consumers to pay on the go. Even though it is still in its early years, cognitive computing is already proving to be an asset for companies in enhancing services and products, making better and more informed decisions and improving operations. As cloud and cognitive computing go hand in hand, companies have easier access to it and use it to analyse and find patterns in qualitative data. This means that in the near future apps will become real learning tools for most people, with many anticipating new jobs 97

ANALYSIS

being created on the basis of adopting cognitive technologies. Speaking about strategies, it seems that the old adage of ‘Buy or build’ has now evolved into ‘buy, build – or partner’. As partnerships are now only one click away, it wouldn’t be so odd to hear about age old competitors working together in areas where they don’t compete head to head, in order to achieve the new concept of cooperative competition which basically describes the situation where everybody has something to gain from everybody else’s gain. Since no company can truly hold all the answers, these new technological and informational partnerships may very well hold the key to new business models where the best solution is produced together. Nobody said it was going to be easy, so only the most adept companies will benefit from this new dynamic, provided that the customer experience remains pristine. Of course, for the reserved and cautious, the merger and acquisition system will still provide plenty of options of obtaining the top capabilities. As this will become a diagonal way of climbing the business ladder we should not be surprised by divestitures, a necessary tool when companies have outgrown their past endeavours. As we know, sacrifice is necessary when growing, but risk does not have to be. Of course, digitalization opens a lot of doors, but it may also allow some uninvited guests. According to a recent report, 27 percent of connected third party cloud applications which employees brought into enterprise environments present a high cyber security danger. As this may cause losses in the range of millions of dollars, companies will have to use more than one security vendor and product. But the threats will not only be of a digital nature. As every country has a specific data protection policy, the cloud solution builders and users alike will need to carefully navigate the regulatory environment. It seems that the best asset for business will be a sort of sixth sense that will luckily foresee the biggest 98

industry disruptors. Keeping your eyes open and your mind ready for unexpected things, such as industry hopping might be the key. Speaking of predictions, there is one man who regards them as a team effort. In a LinkedIn article titled ‘Changing for the better… and not going back’, Lorenzo Simonelli, the Chairman and CEO of Baker Hughes, a GE Company, wonders about the success of an energy think tank. The Florence based Annual Meeting that he is referring to, amounts yearly circa 1,200 industry leaders. This should most likely prove enough brain and financial power for a change and Mr. Simonelli ponders that we’re already seeing it happen. As the industry is now standing on far more solid ground, some early risers have already taken in the concept of competitive collaboration. Companies will not only have to work with one another, but with customers as well if we are to see a reduction in tenderizing costs and a growth in cost efficiency and high performance. It seems that all the leaders agreed that the world of tomorrow will be built on sustainable solutions and on the very delicate dynamic of ‘me and you’ not ‘me versus you’. This will allow not only for open communication but also for platform crossing and flexibility. Everybody agreed that the main link here will be the digital revolution. Just to complete a full circle we will now go back to BP on the subject of global energy trends in their ‘Energy Outlook 2018’ presented by Spencer Dale, Chief Economist. Their outlook proposes that by 2040 the world GDP will more than double, our population will reach approximately 9.2 billion with increased urbanization, we’ll see a 35 percent increase in energy demand with China and India leading it, a more diverse energy mix, rising industrial demand and sadly a carbon emission rise of 10 percent. As China and India take the lead on energy growth, amounting to approximately 25 percent, there are a number of players bent on making the

global energy market more and more competitive. According to the report, thanks to efficient use of energy, it is possible that by 2040, the EU will have a GDP level that is three times greater than it was in 1975 but the level of energy it will be using will theoretically also be the same as in 1975. But energy abundance still comes with a price. Granted, 10 percent carbon emission raise is less than expected given the last quarter of a century but still far from the Paris agreement. Speaking about the energy mix, coal, gas, oil and fossil fuels are still alive and kicking, amounting to 25 percent of global energy by 2040. According to the report’s ‘evolving transition’ scenario, renewables will increase five times over, amounting to 14 percent of primary energy. Being compared to nuclear power, renewables are set to flourish being backed by failing costs, increasing competitiveness, technological improvements and government support. As gas overtakes coal, the demand for oil and liquid fuels is envisioned to continue to grow, eventually reaching peak demand. In an extreme scenario presented by the report, conventional cars will be banned by 2040, which means oil demand would be reduced by about 10 million barrels on a daily basis. The void would have to be filled by autonomous vehicles which would see a great frequency of use and help replace oil demand with electricity. It’s really good that these matters attract more and more attention every day, but we should not forget about action. We all know growing is difficult and usually demands sacrifice and a considerable amount of effort. Whether it’s worth it, this is a decision each of us will have to make. Just take care, the world, industry and business will not cease to grow just because we refuse to grow. If we don’t take the opportunity, somebody else will. It would be a pity to miss out on something that happens naturally anyway. energyindustryreview.com