Romania exclusive: Secret electricity trading deals between Oltenia Energy Complex and Slovenia GEN-I

13. January 2015. / SEE Energy News

In may the Oltenia Energy Complex (OEC) sold on OPCOM’s exchange two significant packages of energy at a surprising price for many market actors – 201.93 lei/MWh; the electricity was directed to export to Serbia and Hungary. The average price at OPCOM is around 175 lei/MWh. It might look like OEC finally managing to sell electricity above its cost, and even higher than Nuclearelectrica or Hidroelectrica. Actually, the true price is below the production cost and unfavorable to the company, which is against the law. Moreover, the contract with a private energy supplier raises some questions, as it has some unique details among all the contracts closed on the bilateral contracts market (PCCB).

Local experts from Energy-Center exclusive reports detailed the trade closed between OEC and GEN-I Bucharest-Electricity Trade and Sales on the bilateral contracts market; Report and digest of the report we transmit will include only partial details of the report.

Report mentioned some odd details of the contract, especially in Annex 3. We also questioned the existence of collusion between the parties prior to the offer on the exchange. Of course, we had no proof of it; the contract clauses, though, could lead to such a suspicion.

Therefore, the contract in question seems negotiated before uploading it on OPCOM’s trading platform; it looks dedicated to a specific customer, while it has legal coverage on the free market. Such deals between a big producer and a big consumer are not unprecedented; those involve tried to cover the traces of their negotiation behind close door by transparently bidding on PCCB. Some of them were exposed; others were not. Let’s get back to OEC’s contract of May 7.

Two packages were offered; each was 50 MW power, with a plus/minus 20 percent allowance, namely a firm minimum power of 40 MW, and a maximum of 60 MW, over one and a half years starting on July 1, 2014. The bidding began at 190 lei/MWh, which in theory covers OEC’s production costs and leaves a margin. The final price, with three competitors bidding, was 201.93 lei/MWh, 10 lei above the initial asking price. Media hastily reported OEC’s big hit.

Was it a hit? What is the actual price paid to OEC for the energy to be exported, what is the actual production price, and who is the actual winner of this deal, if we take a close look at the contract?

Before answering these question, let’s mention that OEC signed many selling contracts in 2013 at an average price of 184-185 lei/MWh, for 2014 terms, and most of these contracts were cancelled. The reason was that the selling price was below OEC’s production cost – a fact proven at the end of 2013, when the Complex posted a loss. None of the 2013 contracts, however, included provisions similar to the one of My 7, 2014; an in-depth look at it prove that the energy is still sold with a loss for the producer.

OEC should get 70 million euros, over one and a half years, from the private supplier GEN-I Bucharest-Electricity Trade and Sales, for the two equal packages of 50 MW power. OEC had previously closed a deal with a different private electricity supplier on September 23, 2013 for 1.64 TW at 184.01 de lei/MWh, to be delivered between October 1 and December 31; the overall price was 67 million euros. A couple of days later, another contract involved 2.18 TW, over January 1 to March 31 2014, at 184.03 lei, leading to a 90 million total amount. Note that the energy was also due to export, but without any of the clauses of the May 7 contract.

Now let’s get back to the supposedly very good price of the recent contract – we are talking about 201.93, following OEC’s ask of 190 lei/MWh.
To find out what the actual price is, one just has to look into the contract’s annexes – or rather the contracts’, as there were two of them. As far as we know, these two contracts are a premiere in Romania, in this form.

Starting from the 190 lei/MWh ask, we deduce the tariff of the transmission to the grid (Tg) of 12.32 lei/MWh; then the capacity allocation tax (ATC) of approximately 8.8 lei/MWh (we shall provide further details on that); the cogeneration tax of 18.36 lei/MWh. We end with an actual price of 150.52 lei/MWh.

Now the final bidding price of 201.93 lei/MWh. After the aforementioned deductions, we end with 162.45 lei/MWh. Moreover, considering the average of peak hours delivery of electricity and the average of off-peak hours, in combination with the 20 percent allowance of the power mentioned in the contract, the price could further drop 10 percent, at constant output.

So where’s OEC big deal with this pair of 50 MW power packages?

Let’s see OEC’ production cost, as announced by its management. Gabriel Dumitrascu, president of the supervisory board of the Complex, said last month that it was 170 lei/MWh. The difference to the selling price is obvious. So is there any reason to suspect a contract dedicated to someone?

Our next article will reveal contract clauses assumed by the parties in the May 7 contract, which will reveal even more complications behind the appearences.

Back to the deal closed by Oltenia Energy Complex (OEC) on May 7, for two electricity packages of 50 MW plus/minus 20 percent power each, at 201.92 lei/MWh, with bids starting at 190 lei/MWh. We will now look into a couple of contract clauses which seem intriguing, to say the least. Note that OEC intends to sell two more 50 MW power electricity packages at the exchange on May 20, in identical conditions except the slightly higher starting price of 194 lei/MWh. Could it be a sign that we were hit a soft spot from the beginning, when we asked who is actually making money out of these deals?

We must also mention the reply we got to our previous article from OEC Marketing Manager, Mr. Ionel Ilie. He says, ”the free market has prices resulting from demand and supply. Have you questioned the production costs of those who sell on the day-ahead market? Do you know how many coal producers survive in our country? Do you know their costs? How about the hydrocarbon producers? Do you know the difference between the peak and off-peak consumption? Do you think that an energy unit can be switched off overnight? Have you ever heard about the technical minimum? Do you know the selling price of OEC’s available surplus on the balancing market? Are you aware that on the balancing market the STS [system technological services] are impossible if UD [the dispatching unit] is operating? You mix up the price and the production cost, while this organization of the producers has been carried out by “experts” you praise. Who can order buyers to buy at a higher price?”

It’s easy to see that our calculations concerning the energy selling price are not contradicted; they are barely mentioned. We will answer Mr. Ilie with arguments in our next article. For now, back to the contract stipulation; the key of the whole issue is in Annex 3.

It mentions that the contract price ”includes the tariff of the transmission to the grid (TG), according to the ANRE [Romanian Energy Regulatory Authority] No. 96 of December 18, 2013, namely 12.32 lei/MWh; the ATC (Available Capacity for International Connection) component, if it is below 2 euro, and the cogeneration tax. The ATC component used for the calculation is the one valid for Serbia and Hungary over the contract period.”

The ATC component is paid by the seller; if it exceeds 2 euro/MWh and the buyer is unwilling to cover the difference, ”the seller or the buyer can unilaterally terminate the contract with no liability for damages.” One thing to know is that when the exported energy amounts are large, ATC is higher. Thus, the contract can end anytime, if the aforementioned situation occurs. A well-devised protection method, since no penalty is involved.

Even more important is the provision on the cogeneration tax. ”The seller covers the cogeneration tax paid by the buyer to Transelectrica only for the first two months. To this effect, the buyer must invoice to the seller the tax for the purchased amount of energy, based on justification documents proving that the whole amount has been exported. If this tax is not eliminated, the seller can unilaterally terminate the contract without paying the penalty for unilateral termination, if the buyer still has to pay the tax.”

As far as we know, the cogeneration tax is regulated, and Transelectrica is the only company authorized to issue invoices for it. What is the legal basis for the buyer invoicing the seller the tax? Secondly, this is another possibility to terminate the contract, if the buyer does not cover the cogeneration tax. Some details are necessary.
Since several months now, the electricity traders in Romania are arguing and asking the authorities to eliminate the cogeneration tax from the export price of electricity, to ensure competitiveness, all the more so that it is an internal tax, concerning the end clients in Romania. It goes, as everybody knows, to the energy producers who use high-efficiency cogeneration. In other words, it has no justification whatsoever for the exports. So far, the authorities have not responded. How does the contract in question legally settle the issue of the cogeneration tax?

Energy-Center exclusive reports detailed the trade closed between OEC and GEN-I Bucharest-Electricity Trade and Sales on the bilateral contracts market; we mentioned some odd details of the contract, especially in Annex 3. We also questioned the existence of collusion between the parties prior to the offer on the exchange. Of course, we had no proof of it; the contract clauses, though, could lead to such a suspicion.

So were we right or wrong? The cancelling of Tuesday’s bidding pleads our case!

We resume here just a few of the observations on the OEC – GEN-I contract.

The staring price, the final price and OEC’s gain seemed most important. We already wrote that ”OEC signed many selling contracts in 2013 at an average price of 184-185 lei/MWh, for 2014 terms, and most of these contracts were cancelled. The reason was that the selling price was below OEC’s production cost – a fact proven at the end of 2013, when the Complex posted a loss. None of the 2013 contracts, however, included provisions similar to the one of My 7, 2014; an in-depth look at it prove that the energy is still sold with a loss for the producer.”

Based on the asking price of 190 lei/MWh, we concluded:”Starting from the 190 lei/MWh ask, we deduce the tariff of the transmission to the grid (Tg) of 12.32 lei/MWh; then the capacity allocation tax (ATC) of approximately 8.8 lei/MWh (we shall provide further details on that); the cogeneration tax of 18.36 lei/MWh. We end with an actual price of 150.52 lei/MWh.

Now the final bidding price of 201.93 lei/MWh. After the aforementioned deductions, we end with 162.45 lei/MWh. Moreover, considering the average of peak hours delivery of electricity and the average of off-peak hours, in combination with the 20 percent allowance of the power mentioned in the contract, the price could further drop 10 percent, at constant output.

So where’s OEC’s big deal with this pair of 50 MW power packages?”

Had our calculations been wrong, the auction on Tuesday would have produced a buyer. Apparently, it was all too blatant; so we have to wait for another deal behind the scenes. Of course, there’s little time left until the European Parliament election. The major interest, though, is for the presidential one later this autumn. OEC is a basin with tens of thousands of voters. Who can afford ignoring them? Let’s stop here, as we are not into politics; our paths simply cross sometimes.

Note: We transmit the digest of the received report which was submitted to us from Romanian NGO EC

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