May 2020 – On 18 May 2020, Romania's National Energy Regulatory Authority ("ANRE") published in the Official Gazette the Order no. 79/2020, on the obligation to offer natural gas on centralised markets in Romania (the "Order"), which introduces a gas release programme (the "Programme") on the Romanian market (available in Romanian here). The Order will enter into force on 1 June 2020.
Gas release programmes have generally been used in European energy markets as an instrument to counterbalance the monopoly position of incumbents in the energy sector and to ensure the opening of wholesale markets to competition. To a lesser extent, such programmes have also been offered as commitments by parties involved in merger cases.1
Irrespective of the Order, Romanian Energy Law no. 123/2012 (the "Energy Law") already includes provisions on quotas for producers (i.e., at least 50% of annual sales) and other gas market participants to trade gas on centralised markets. In this regard, the Order clarifies that the quantities traded under the Programme will be included as part of the trading quotas under the Energy Law.
Centralised gas trading in Romania has been conducted mainly on the Romanian Commodities Exchange (BRM) and to a lesser extent on the state-owned OPCOM exchange. In this regard, ANRE also granted in September 2019 an additional license to operate a centralised gas market (to Tradex Platform) and has recently published for public consultation a draft order regulating the gas trading activity on the centralised market to be administered by Tradex (available in Romanian here).
The Programme should be observed by also considering local context, as the Romanian market is highly concentrated. In 2019, the two major local gas producers accounted for approximately 94% of production.2
As regards its rationale, the Programme is meant to ensure fair reference prices and increase liquidity and transparency on the forward markets, leading to a more flexible trading of natural gas in Romania. The measure is also related to the liberalisation of the natural gas market in Romania (concerning prices applicable to households) starting 1 July 2020, as per Government Energy Ordinance no. 1/2020 on certain fiscal and budgetary measures and related amendments to certain normative acts. For more information on suppliers' obligations under the gas market liberalisation process see our article here.
Main elements of the Programme
The Order includes the following highlights:
- the Programme is set to apply between 1 June 2020 and 31 December 2022 (with delivery starting on 1 July 2020) and it pertains to gas producers with an annual production exceeding 3,000,000 MWh;
- it includes a 30% annual gas quota to be offered for sale in a transparent, public and non-discriminatory manner on centralised markets in Romania, distributed as standardised products at monthly, quarterly, seasonal (i.e. cold/warm season), and yearly levels;
- the gas quantities to be offered under the Programme are set considering the 2019 production levels for each of the concerned producers, minus: (i) the quantities for technological consumption, as sanctioned by the National Agency for Mineral Resources; and (ii) 3% of output, representing the average yearly gas reserve decline determined for 2020. The producers concerned and the gas quantities to be offered under the Programme are annexed to the Order;
- the gas quantities to be offered under each type of standardised products will generally include 30% for monthly products; 20% for quarterly products; 20% for seasonal products and 30% for yearly products;
- the quantities under the Programme will be offered on electronic platforms administered by the centralised market operators under a double auction procedure;
- the maximum starting price of the standardised product offers will be set by ANRE following a more complex mechanism considering several factors (e.g. for the 1 June-31 December 2020 period, a percentage of the settlement price published by the Central European Gas Hub AG for the Austrian market for the respective product and the weighted average price of similar products sold in Romania; or a percentage of the weighted average price of similar products sold in Romania in the six months before the action for the 2021-2022 period);
- the Order includes the obligation to publish daily all transactions made and monthly reporting obligations to ANRE within the responsibility of the centralised market operators;
- the standard sale-purchase agreement to be used under the Programme has also been drafted by ANRE and is annexed to the Order.
In the context of the sharp fall of oil and gas prices and declining demand due to the COVID-19 pandemic, most energy companies have either put on hold or completely given up implementing more capital-intensive investment projects. On the other hand, the Romanian authorities have announced that the energy industry would be one of the pillars for national economic recovery after the pandemic, while the European Union is placing increasing emphasis on the European Green Deal as a solution for both tackling climate change and ensuring a sustainable economic recovery.
We can, therefore, see important regulatory changes impacting the Romanian energy sector, either already enacted or in the pipeline. Apart from the gas release programme introduced by the Order, the government has very recently adopted amendments to the Energy Law allowing power producers to conclude bilateral contracts outside centralised markets for electricity from generation capacities to be commissioned after 1 June 2020. At the same time, the authorities intend to implement a "Contracts for Difference" support mechanism to encourage investments in low-carbon generation technologies over the next 24 months or so.
1. See for instance the European Commission's 21 December 2005 decision in Case M.3696 E.ON/MOL.
2. As per ANRE's December 2019 report on the results regarding the monitoring of the natural gas market.
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