SEE Energy Handbook 2014

1. Introduction to the Energy Market

The Romanian energy market has developed significantly in the past 13 years; a period during which the legislation was harmonised with the EU legal framework. Some of the most important privatisation processes in the energy field have been carried out, more specifically the privatisation of electricity and gas distribution and supply companies, as well as of one of the largest Romanian company acting in the oil sector. The Energy market has been and continues to be one of the most attractive sectors for investors, specifically due to Romania’s remarkable potential for energy sources.

However, as a rapidly evolving and relatively young energy market (compared to other EU markets) regulations do not always keep pace and may be incomplete or not correlated with the market. The preferred sub-sector in the last years was the electricity market (specifically the renewable field), but due to reshaping of the renewable energy support schemes and new discoveries of gas resources in the Black Sea at present the oil & gas industry appears to be the new winner.

2. Electricity

2.1 Market overview

Following its full liberalisation in 2007, arising from European requirements, the Romanian electricity market has been constantly developing and expanding. A new electricity law was passed in 2012,in view of securing the implementation of the third energy legislative package adopted at the European level.

The complete liberalisation of the market has not been achieved yet. However, progress has been made and future legislative changes are envisaged to align the Romanian market to European requirements. It is worth noting that Romania was one of the first European markets to develop an independent platform for energy transactions which currently supports the bilateral contracts market, the day-ahead market, the green certificates market, the emissions certificates market, the intra-day market and the OTC market. The main participants in the electricity market are: electricity generators, electricity suppliers, electricity distributors/ distribution networks operators, electricity transporter/ transportation network operator, eligible consumers and captive consumers.

2.2 Regulatory overview

The principles of the electricity market are currently regulated by the Electricity and Gas Law No. 123/2012 (published in the Official Gazette No. 485 of 16 July 2012), (“Energy Law”) and detailed in secondary legislation including government decisions, and decisions and orders issued by the relevant regulatory authority (the National Regulatory Authority for Energy – ANRE).

Other relevant legislation regarding the field of electricity includes: ANRE Order No. 48/2013 on the approval of the Regulation for granting licences and authorisations in the electricity sector (published in the Official Gazette No. 445of 22 July 2013 and entered into force on 24th September 2013) (“Electricity Licensing Regulation”), ANRE Order No. 59/2013 on the approval of the Regulation for the connection of users to public electricity networks (published in the Official Gazette No. 517 bis of 19 August 2013 and entered into force on 18th December 2013) (“Interconnection Regulation”) and Law No. 220/2008 regarding the system for promoting production of energy from renewable energy sources (published in the Official Gazette No. 577 of 13 August 2010), as subsequently republished, amended and completed (“Renewables Law”).

The Energy Law establishes the general framework for electricity regulated activities, electricity licences and authorisations and the main rights arising therefrom, electricity market principles and the main competencies of the involved authorities (i.e., the relevant ministry – currently, the Ministry of Economy, the Romanian Energy Regulatory Authority – ANRE and the Department for Energy – a governmental structure functioning within the Ministry of Economy). According to the Energy Law, the carrying out of electricity related activities is usually subject to obtaining specific licences or authorisations from ANRE. The Electricity Licensing Regulation details the conditions and procedure to be followed for the granting of the main authorisations and licences. In addition the granting of other authorisations/ licences is contemplated in other secondary legislation.

The Government determines the national energy strategy which defines the objectives of the energy sector and the best ways of achieving such objectives in the medium or long-term. The Ministry of Economy following the directions set out in the energy strategies and based on the Government programme, determines the energy policy consisting of measures for stimulating investment and research and development activities. The Ministry of Economy also initiates legislative projects in the field, supervises the application of and compliance with the measures regarding environmental protection.

ANRE is the Romanian regulatory authority for energy, acting as an independent body responsible for regulating and ensuring a competitive electricity and gas market environment. ANRE must accomplish the objectives provided under the Government Emergency Ordinance no. 33/2007 regarding the establishment and organization of ANRE, which refer, amongst others, to ensuring sustainable development of the national economy, diversification of the energy resources, establishment and functioning of a competitive energy market, granting nondiscriminatory and regulated access to the energy market and to the public electrical networks to all participants, ensuring transparency with respect to the determination of any tariffs, taxes and prices in the energy sector, environment protection etc.

In its capacity as regulatory authority in the electricity sector ANRE has attributions related to (i) regulatory aspects; (ii) authorisation, supervision and control functions; (iii) reporting and information and (iv) mediation and jurisdiction function. Thus, it elaborates, determines and supervises the implementation of the national mandatory regulations necessary for the efficient functioning of the internal market in the energy sector, on the basis of transparency, effective competition and consumers’ protection principles. ANRE acts in close cooperation with the Competition Council, the National Authority for Consumers’ Protection, ministries and other relevant public administration organisations, consumer and professional associations, employers’ associations and syndicates.

2.3 Regulated electricity market activities

Pursuant to the Energy Law, the implementation of new energy capacities as well as the refurbishment of existing ones is based on establishment authorisations. Furthermore, generation, transportation, providing of system services, distribution and supply, as well as the management activities of the centralised electricity markets are carried out on the basis of licences granted in accordance with the law and in the case of public assets and public services also based on specific concessions granted by the relevant authorities. The performance of any activities without the possession of proper authorisations/ licences is subject to specific sanctions.

ANRE grants the following types of authorisations and licences for electricity related activities:

Establishment authorisations – must be obtained for erecting new electricity generation capacities, including co-generation capacities, or for the refurbishment thereof, if the installed electricity power of the capacities in question exceeds 1MW;
Licences for: (i) the commercial exploitation of electricity generation capacities and of thermal energy capacities in cogeneration; (ii) the performance of the electricity transportation service; (iii) the performance of the system service; (iv) the performance of the electricity distribution service; (v) the performance of centralised markets management activities and (vi) the performance of electricity supply activity

2.4 Material provisions of electricity market law and licensing regulations

The applicable regulations set out the documentation to be prepared and criteria to be met by each applicant/ project for certain licences and authorisations. The criteria taken into account by the regulatory authority upon the analysis of the file are determined by the activities to be performed and are mainly related to the available technical and organisational, financial and human resources capabilities. Moreover, foreign entities are required to have a secondary office in Romania throughout the performance of the licensed/ authorised activity.

In general any changes which might occur with respect to the authorisation/licence holders (e.g., changes of the statute regarding the share capital or the patrimony, split-off, merger, transformation, change of name ) must be notified to ANRE within 30 days as of their occurrence (with the exception of merger and de-merger which must be notified with 60 days prior to the date when the merger/de-merger is effective) and ANRE will decide either to annul the existing authorisation/ licence and issue a new authorisation/ licence or the amendment of the conditions joining the authorisation/ licence. This requirement is further detailed in the case of each specific licence in the conditions attached to the licences issued to each applicant.

Pursuant to the general terms of the standard licences granted for performing activities of supply the titleholders of such licences have the obligation to notify ANRE of any intention of their shareholders to perform operations which may result in the disposal of the fixed assets necessary for the performance of the relevant activity or which may result in a 25% decrease of the value of the existing share capital of the titleholder.

Additionally, the titleholders of the mentioned licence must notify ANRE of any share transfer operation between the existing shareholders or between the existing shareholders and third parties. When receiving a notification as mentioned above, ANRE will have to analyse whether following the notified change the titleholder will still be able to perform its obligations under the licence and will communicate to the titleholder its decision. The possibility to transfer the rights granted under a licence is provided in the case of most electricity licences (transportation, distribution, generation, supply). The transfer must be made by means of a contract stipulating the rights and obligations of the parties and is subject to the prior approval of ANRE, under the sanction of annulment. The transferor will remain jointly liable with the transferee in respect of the transferred obligations. Any operations on the market shall have to be performed in compliance with the unbundling principles, implemented in the Romanian legal framework in accordance with the EU directives.

In addition to the regulatory rules briefly mentioned above, merger control and corporate governance rules shall accordingly apply.

2.5 Trading and supply of electricity

Exchanges between operators take place on the electricity market which is divided into the wholesale market and the retail market. According to the provisions of the Energy Law, on the wholesale market, all transactions with electricity must be carried out on the centralized platforms managed by OPCOM in a nondiscriminatory and transparent manner. The platforms managed by OCOM include the centralised market for bilateral contracts, the centralised market with continuous negotiation (forward), the day-ahead market, the OTC platform, intra-daily market. On the competitive segment of the electricity market, the prices are the result of the interplay between the demand and the offer. Thus, on the wholesale market, power purchase agreements have to be executed in the centralised electricity markets. This includes the centralised market for bilateral contracts, the centralised market with continuous negotiation (forward), the day-ahead market, OTC platform, intra-daily market and the balancing market. A market participant cannot enter into negotiated wholesale electricity bilateral agreements outside the organised specific markets. Furthermore, market participants wishing to conduct cross-border trading activities may also participate in public auctions for the allocation of available cross-transfer capacity.

From perspective of electricity trading and supply the specific obligations of licenses suppliers in relation to ensuring the reliability of the transmission grid are also relevant. For this purpose the license holders (i.e. generation, transmission and distribution, supply operators) have to be registered on the balancing market, to notify the daily transmissions of electricity, and additionally trade the electricity available after notifying of the daily transmissions transactions. They must also provide financial guarantees to the transmission and system operator for all the imbalances which may occur between the programmed and effectively generated electricity, between projected and actual transactions, etc. The licence holders may choose to delegate the balancing responsibility to another entity.

All electricity markets transactions are settled by the settlement operator, functioning as an independent entity. Apart from the above mentioned markets, during the period of the support scheme for electricity generated in cogeneration units (i.e., 2010 – 2023), operators of cogeneration units (i.e., combined heat and power units) may sell any electricity unsold in the centralised electricity market by regulated agreements at regulated prices. The regulated prices for electricity produced by cogeneration are set by ANRE every year at the level of 90% of the average transaction price of electricity registered for the previous years on the day-ahead market, based on the principles previously mentioned.

In respect of the electricity supply prices and tariffs, please note that although the Romanian electricity market was fully liberalised as of 1 July 2007, the market continues to include regulated segments, such as: the supply to household consumers (regulated until 31st December 2017), consumers who have not exercised their eligibility right at the entry into force of the Energy Law benefiting of the universal service, non household consumers with an average number “on paper” of employees lower than 50 and an annual turnover or a total value of the assets from the accounting balance sheet (according to the annual financial reports) below 10 million Euro.

Household consumers and the above mentioned non-household consumers are the beneficiaries of an universal electricity supply service having the right to be supplied with electricity at reasonable, transparent, easy comparable and nondiscriminatory prices. The Energy Law regulates the concept of supplier of last resort representing the supplier who provides the universal electricity supply service to the clients mentioned above. Even after the removal of regulated prices, ANRE will have the right to endorse the prices at which the supplier of last resort intends to sell electricity to the above mentioned clients.

The regulated prices or tariffs must: (i) be non-discriminatory, objective and transparent, based on methodologies approved by ANRE; (ii) cover economically justifiable costs; (iii) allow consumers who do not exercise their eligibility the right to choose the price or tariff which they deem most favourable, out of those offered by the supplier, while complying with the conditions set out by ANRE and (iv) ensure a reasonable rate of invested capital-earning capacity, in accordance with ANRE methodologies.

ANRE has issued specific methodologies regulating the electricity prices applied for the household consumers and assimilated household consumers and for end consumers who do not exercise their eligibility right. The network and system operation tariffs continue to be regulated in accordance with methodologies for determining transport and system, and distribution related tariffs and terms as approved by ANRE.

For electricity transmission services ANRE determines regulated revenue based on price cap methodology (de tip plafon), which sets out the value of the revenue required for the performance of the transmission services. When determining the regulated revenue, ANRE takes into account: a) the performance standard imposed on the transmission system; b) the evolution of the quantity of transported electricity; c) the investment and development plan relating to the grid; d) the regulated rate of rentability; d) the justified costs of the transmission operator (e.g. operation and maintenance costs; costs for the acquisition of the energy for the technological consumption; etc). The tariffs are differentiated based on geographical areas, depending on the impact of the injection or extraction of electricity in/from the nods of the electricity transmission system.

For the distribution service, ANRE has developed a methodology setting out the electricity distribution service tariffs which regulates the prices and tariffs for distribution services based on the following principles: (i) ANRE determines the regulated revenue for the distribution service based on a tariffs basket cap methodology (cos de tarife plafon); (ii) for the calculation of distribution tariffs any justified cost associated with distribution activity is only considered once; (iii) the calculation of the prices and tariffs takes into account the justified costs of the distribution activity, the expenses related to development and environmental protection, as well as a reasonable profit margin. ANRE may limit tariffs by limiting the level of the prices/tariffs which comprise the basket cap tariff. The tariffs for distribution operators are determined annually E.

2.6 Transmission and grid access

The general principle applicable to grid access is non-discriminatory access for all electricity market participants to the public transmission/distribution networks, regulated third party access being the right to connect to and use, in accordance with the conditions provided by law, the transmission or distribution networks. The Energy Law sets out the obligation of the transmission/ distribution operators to grant access to the relevant networks. However, applicants are required to cover the specific costs of interconnection and also part of the costs required for the enhancement of the network. Access can be denied only for just cause if the connection affects the safety of the National Power System, through the non-observance of the technical norms and the performance standards or in case the transmission/distribution network operator does not have the required capacities.

Pursuant to the Interconnection Regulation, interconnection to the electricity networks is based on an interconnection permit issued by the transmission/ distribution operator, the payment of the interconnection tariff by the applicant and an interconnection agreement between the applicant and the transmission/ distribution operator. The interconnection permit is a standard permit. However, the interconnection agreement may be and is often subject to negotiations between the parties.

The tariffs for interconnection to the public electricity networks are determined based on a methodology approved by ANRE, and they generally have three components: a) a component relating to the costs of the interconnection installation; b) a component relating to the placing under tension of the use installation and c) a component relating to the reinforcement of the grid upstream from the interconnection point.

2.7 General approvals and permits for electricity generation facility project implementation

For the implementation of an electricity generation facility project, the following main categories of permits need to be obtained:

Permits for the prior construction phase which usually include: urbanism certificates, environmental permits and/or approvals, approval in principle from the local public authority, land planning documentations;
Permits for the construction phase, usually including: building permits, interconnection permits and establishment authorisations (issued by ANRE);
Permits for the operation phase which may include: environmental authorisations and other operating permits, the electricity generation licence as well as other relevant electricity licences, such as, for example, the electricity supply licence

Depending on the actual features of the project, the range of applicable permits may vary significantly. Furthermore, in the case of electricity generation facilities envisaging the use of renewable energy sources for the generation of electricity and/or thermal energy, additional special permits will apply.

2.8 Forthcoming developments

While most of the secondary regulations have been updated, so as to be correlated with the Energy Law, there are still some secondary regulations which have not been amended to be in line with the Energy Law. In terms of investments in conventional and nuclear energy, we note mainly the intended construction of Tarnita-Lapustesti Pump-Storage Hydro Power Plant and the intended construction of nuclear power generation units 3 and 4 at Cernavoda Nuclear Power Plant by EnergoNuclear (a project company established for this purpose) as well as refurbishing projects for thermo generation capacities. The mentioned projects are in the inception stages and will be expecting investors in the near future.

3. Renewable Energy

3.1 Market overview

Romania benefits from significant potential in various renewable energy sources: wind, solar, hydro, biomass, etc. While in the past years investors have focused mainly on wind, lately there has been a move towards solar projects. In promoting its resources, Romania was quick to adopt supporting mechanisms for all renewable energy sources consisting mainly of a system of mandatory quotas combined with green certificate trading.

3.2 Support schemes

The main support schemes for renewable energy in Romania are:

Promoting system of green certificates consisting of a system of mandatory quotas combined with green certificates (“GC”) trading;
Financing scheme based on Environmental Fund resources;
Financing scheme based on EU structural funds; and
Support for joint implementation projects through Emission Reduction Units (“ERUs”)

GC promoting system

In Romania the main system for promoting electricity generation from renewable energy sources (“E-RES”) functions as a staid aid scheme (and for generation units exceeding a certain level as individual state aid) and consists of a system of mandatory quotas combined with GC trading. Based on such system, every year each electricity supplier must purchase a number of GC equal to the mandatory quota provided by the relevant regulations multiplied by the quantity of electricity yearly supplied to end consumers. The transport system operator issues GC to the relevant generators in consideration of the quantity of E-RES generated and delivered into the network. Under such a system the GC certifies the generation from renewable energy sources of a certain quantity of electricity which may be traded distinctively from the associated electricity in a parallel market ) and which represents a benefit for the E-RES generators in exchange for delivering “clean” electricity into the network. The GC are traded on the centralized green certificates market managed by OPCOM.

Last year the support scheme was changed quite significantly : (i) in the case of projects functioning at 31 December 2013 by suspending for a few years the issuance of a certain number of GC / MWh determined depending on the renewable energy source, for the future projects by reducing the number of GC/ MWh depending on the renewable energy source as follows: intending to obtain funds from the Environmental Fund are set out in the Ministry of Environment and Forests Order 714/2010 (published in the Official Gazette No. 341/2010). According to information publicly available, the financing scheme provided under Order 714/2010 was brought to the attention of the Competition Council as a state aid scheme with a duration until 31 December 2011. No publicly available information is available on the approval of a similar state aid scheme for the period after December 2011.

On an annual basis one or more financing sessions can be organised by the Administration of the Environmental Fund, relating to type of projects and within the limits of the amount established at the opening of the financing session. The framework of the financing sessions is determined by a decision of the president of the Administration of the Environmental Fund. While no session is currently ongoing, the 2014 annual budget approved for the Administration of the Environmental Fund sets the amount of RON 70 million for this type of projects.

“Rondine” Programme

The Administration of the Environmental Fund also acts as the operator of the “RO06 Renewable Energy” – Rondine Programme. This programme was established on the basis of the 2012 Memorandum of Understanding entered into by Romania with Norway, Iceland and Liechtenstein on the implementation of the 2009 – 2014 Financial Mechanism of the European Economic Area. Under this programme, the amount of Euro 8,387,406 has been allocated for the development of hydropower and geothermal projects. An additional amount of Euro 4,270,000 may be allocated by the donor States under this programme. The Administration of the Environmental Fund has announced a financing session opened for the period 20 March – 20 May 2014, the conditions of which are set out in the financing guide published at www.rondine.ro.

EU structural funds

Currently, no structural funds are available for entities who envisage developing electricity generation capacities from renewable energy sources. Under the partnership agreement submitted by the Romanian Government to the European Commission, Romania identified proposed priorities for funding elements such as: a) promoting the production and distribution of electricity and thermal energy from renewable energy resources (biomass, geothermal, micro hydro); b) improving energy efficiency in enterprises by high efficiency low power cogeneration systems rated less than 8 MW, etc. The exact type of projects which will be funded through structural funds will be detailed in the operational programmes to be adopted by the Romanian Government, once such programmes have been e approved by the European bodies.

The state aid scheme for the granting of structural funds for electricity generation projects from renewable energy sources was approved by Government Decision No. 750/2008 (published in the Official Gazette No. 543/2008) only until December 2013.Thus, currently, there are no structural funds available for the development of electricity capacities generation from renewable energy sources.

ERUs

ERU’s may be issued for Joint Implementation (“JI”) projects that have been developed or are in the process of being developed in line with the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “Convention”). Pursuant to this international framework and enactments adopted by Romania for its implementation, JI projects could be carried out, amongst others, for the promotion of power generation using renewable sources (including wind farm projects).

4. Natural Gas

4.1 Market overview

The Romanian gas market has undergone significant transformation in recent years due to sector reorganisation and restructuring and the development of the regulatory framework as a result of the sector’s dynamics and the implementation of the European Union’s regulations in the national legislation. The restructuring of the natural gas sector is a consequence of the commitment of the public authorities to adapt to the realities of the natural gas sector, as well as of the collaboration with European structures.

The liberalization of the natural gas market, in accordance with European rules requirements, has as goals the creation of a real competitive environment allowing consumers the possibility to choose their natural gas supplier and increasing investments in the gas sector. New regulations continue to be implemented in order to achieve the full liberalisation of the natural gas market.

The natural gas market is still divided into the competitive market and the regulated market. On the former, the prices for supply of gas are formed freely, irrespective whether the transactions are wholesale or retail. The regulated market includes regulated activities such as transmission, distribution or storage as well as regulated supply. The contractual relationships on the regulated market are based on regulated framework agreements and prices and tariffs determined and approved based on specific procedures approved by ANRE.

The regulated prices for the supply of gas are being gradually phased-out, as follows: (i) supply to non-household consumers should last until the 31st of December 2014, with the option that such a measure be postponed for one year (if it is considered that the market stability would be endangered by the liberalization) and (ii) for household consumers shall apply until the 31st December of 2018.

The participants in the natural gas market are: natural gas producers (entities possessing an oil agreement and supply licence); natural gas suppliers (entities possessing a supply licence for natural gas); national transmission system operator (the national company Transgaz – entity possessing a transmission licence for natural gas, as well as the concession for natural gas transmission and related public property items); natural gas distributors (entities possessing a licence for natural gas distribution, as well as the concession for natural gas distribution); natural gas underground storage operators (entities possessing a storage licence, as well as a concession agreement for natural gas storage and related assets); clients (wholesale, final, or any other entity purchasing natural gas).

4.2 Regulatory overview

Electric energy and natural gas law no. 123/2012 as amended and completed (published in the Official Gazette No. 485/2012) (“Energy Law”) is the main legislation governing the natural gas sector. In the case of transport and upstream activities the provisions of the Energy Law are complemented by those of the Petroleum Law No. 238/2004, as amended and completed (published in the Official Gazette No. 535/2004) (“Petroleum Law”). Further regulations are included in secondary legislation, such as: ANRE Order 34/2013 approving the Regulation for granting of set-up authorizations and licenses in the natural gas sector (published in the Official Gazette No. 427/2013) (“Natural Gas Licensing Regulation”), ANRE Decision No. 1271/2004 approving the Framework conditions for the validity of the natural gas distribution licence, Framework conditions for the validity of the natural gas supply licence and Framework conditions for the validity of the functioning authorisation for the natural gas distribution objectives/ systems, as amended and completed (published in the Official Gazette No. 1165/2004), ANRE Decision No. 1362/2006 approving the Framework conditions for the validity of the natural gas transmission licence (published in the Official Gazette No. 27/2007), ANRE Decision No. 824/2004 approving the regulation relating to the regulated access to the underground storage of natural gas (published in the Official Gazette No. 562/2004) (“Storage Regulation”), Government Decision No. 1043/2004 (published in the Official Gazette No. 693/2004) (“Transmission System Access Regulation”), ANRE President Order no. 16/ 2013 approving the Network Code for the natural gas national transmission system (published in the Official Gazette No. 171/2013) (“Network Code”).

The Energy Law sets out the general framework for carrying out activities specific to the natural gas sector in competitive and transparent conditions. To this end, the Energy Law sets forth the main principles regarding:

Competences of the relevant authorities for the natural gas secto
Concession of transmission, storage and distribution services;
Authorizations and licenses required for regulated activities;
Production, transmission, distribution, underground storage and supply of gas as well as the operating of centralized markets;
Access and connection to the network;
Liquefied petroleum gas (LPG), compressed natural gas for vehicles (CNG) and liquefied natural gas (LNG);
Ensuring the quality of equipments, installations, machines, products and procedures used in the natural gas sector;
New infrastructure;
Public service obligation;
Natural gas market;
Prices and tariffs;

The Government, the Ministry of Economy and other specialised institutions of the central public administration undertake measures to achieve the objectives included in the energy strategies and monitor the level of compliance. The Ministry of Economy develops policy in the natural gas field and ensures its compliance. At present, the regulatory authority in the field of natural gas is ANRE which functions as an autonomous public institution. ANRE develops, applies and monitors compliance with the mandatory regulations at the national level necessary for the functioning of the natural gas sector and market in an efficient, safe, competitive, transparent, non-discriminatory manner, protecting the consumers and the environment.

According to the Energy Law, natural gas related activities are usually performed on the basis of on specific licences or authorisations issued by ANRE and in the case of public assets and public services also based on specific concessions granted by relevant authorities. The Natural Gas Licensing Regulation further details the conditions and procedure for granting the main authorisations and licences.

4.3 Regulated natural gas market activities

In order to set up, operate and/or make changes to production, transmission, storage, and distribution capacities of natural gas, and to carry out the supply, transmission, storage, and distribution activities in the natural gas sector, Romanian or foreign entities must possess authorisations and/or licences issued by ANRE based on specific regulations. Concessions must be awarded by public tender by the relevant authorities in relation to the use of public property assets required for the transmission of natural gas and storage (facilities and systems), and the public services of transmission, storage and distribution of natural gas.

ANRE issues the main types of permits for the natural gas sector:

Set-up authorisations for new upstream pipelines auxiliary to the production of natural gas, transmission, storage, distribution systems;
Licences for performing activities such as supply of natural gas, operation of transmission, distribution or storage systems and operating centralized markets

4.4 Material provisions of the natural gas market law and licensing regulations

Similar to the electricity market, the applicable regulations require that certain documentation is prepared and criteria are met by each applicant/ project for certain licences and authorisations. In principle, the applicant for a natural gas authorization/ license must be a legal person with its registered office in Romania. In the event that the applicant is a foreign legal person without a stable office in Romania, the Natural Gas Licensing Regulation expressly requires the establishment of a secondary office in Romania as a mandatory pre-condition, in order for a foreign entity to apply for a natural gas authorization/ license (however, no further provision is made as to whether such secondary office must be a subsidiary, a branch or any other type of secondary office opened in Romania).

ANRE shall analyze the submitted documents, in order to assess their conformity with the legal requirements and will notify the applicant, within 30 calendar days from the submission of the request, in the event of any shortcomings. The authority decides on the granting/ refusal of the authorization/license within 30 days from the date of the submission by the applicant of the complete documentation.

Reasons for the refusal to grant an authorization/license must be objective and non-discriminatory, the refusal is issued and grounded through a decision of the ANRE President and the applicant may challenge the decision in the administrative disputes court, pursuant to the law.

4.5 Exploration and production

The exploration and production of natural gas are governed by petroleum laws and corresponding regulations, as detailed below.

4.6 Transmission and access to the system

Access to the transmission system is pursuant to nondiscriminatory procedures and criteria of the transmission system operator. Access may be refused only in certain cases, namely if: (i) the capacity of the objective/ system is insufficient (i.e., the capacity of the national transmission system is insufficient); (ii) the access to the system impedes on the fulfilment of the public service obligations and the safety in exploitation; (iii) the access to the system may lead to serious economic and/or financial difficulties related to the “take-or-pay” contracts for the license/ authorization holder to whom access is requested from; (iv) the quality of natural gas which is to be introduced in the systems and/or in the gas storage facilities does not comply with the requirements imposed by the regulations in force and also (v) in the event that there are no objectives/ pipes as components of the systems to which the connection is envisaged to be made or in the event of failure by the applicant to pay the connection tariff. The transmission system operator cannot refuse to grant access to the system and has the obligation to finance the necessary works to the extent that the performance of the objectives/necessary pipes for connection is economically justified and confirmed as such by ANRE. In certain cases when the establishment of certain objectives/ pipelines is not economically justified for the system operator, the applicant may contribute in a certain portion to the financing of the relevant
objectives/ pipelines. Secondary legislation regulating the access to the network is yet to be adopted/ amended. The right of obtaining access to the transmission system is currently detailed in the Transmission System Access Regulation and the Network Code.

Besides connection to the transmission system, in order to benefit from transmission services, an interested entity must also reserve a capacity in the entry and exit points of the transmission system. The relevant capacity reservation is done an a “first-come, firstserved” basis among all entities requesting reservation of capacity. Refusal of capacity reservation may be based on the following grounds: (i) the grounds for refusal of access to the transmission system provided by the Energy Law, as mentioned above; (ii) in the event that the transmission network user does not meet the legal conditions related to the requested capacity type; (iii) the user does not meet the financial and technical criteria required for the signing of the transmission agreement or (iv) the user has outstanding debts related to the performance of the previous transmission agreements, except for debts arising as a result of the fulfilment by the user of its public service obligations.

4.7 Trading and supply

The natural gas market continues to be formed of two segments: the competitive segment and the regulated segment. The competitive segment of the market is related to the trading of natural gas between suppliers and eligible clients. In the competitive segment prices are formed freely, based on supply and demand and competition mechanisms. The regulated segment of the market consists of natural gas supply at regulated prices and is based on regulated framework contracts at regulated tariffs: natural gas transmission, underground storage and distribution. For this segment of the market, the tariffs and prices systems are set by ANRE based on specific methodologies.

In relation to the regulated segment, until the full liberalisation of the domestic natural gas market and convergence of the price of domestic production with the price of imported natural gas and in order to ensure non-discriminatory access for all consumers to domestic sources of natural gas, the supply of natural gas to consumers will be a “mix basket” consisting of quantities of current/ stored domestic production and imported gas (current/ stored). The “mix basket” shall be determined in such a manner as to ensure full coverage of the consumption demands at national level. The structure of the “mix basket” for non-household customers is proposed monthly by a specialized department of the transmission operator and approved by ANRE. For domestic customers and heat producers, the “mix basket” is set monthly by ANRE.Import gas price is determined on the basis of an indexation formula on oil prices and certain petroleum products listed on international stock exchanges.

The Government has imposed special taxes on the additional income obtained as a result of deregulation process in natural gas prices. Thus, companies operating both as natural gas producers and as suppliers have to pay a special tax amounting to 60% of additional income minus corresponding royalties and investments in the upstream segment. This special tax will continue to apply until 31st of December 2014.

4.8 Forthcoming developments

Although the Energy Law and subsequent secondary legislation have implemented Directive 2009/73/EC concerning the general rules for the internal market in natural gas and repealing Directive 2003/55/EC, there are still areas in which legislative developments and updates are expected. Certain steps have also been taken towards ensuring physical capabilities for the export of gas to other countries and in this respect there are several cross-border interconnection projects at various stages of development. As a current alternative, entities wishing to export gas to other countries have the possibility of using the back-haul procedure. Another development of interest is the possibility that a certain percentage of natural gas transactions shall be mandatorily done in a centralized market.

5. Upstream Market

5.1 Market overview

Oil-related activities can be carried out by Romanian or foreign legal entities, in compliance with the conditions provided by the regulatory framework. The oil market is open to all interested participants who are able to prove their financial and technical capabilities for carrying out oil-related activities. The market involves certain major players, either at a global or regional level , such as ExxonMobil and OMV Petrom SA. The interest in Romania’s gas production capabilities has increased recently with the discovery of certain important reserves in the Black Sea. The possibility of shale gas exploitation is also considered by certain companies.

5.2 Regulatory overview

Unlike the natural gas sector, the Romanian oil market is regulated only to a certain extent. Oil-related upstream activities (e.g., exploration, development, and production) are mainly regulated by the Petroleum Law and the subsequent Methodological Norms for its implementation, approved in Government Decision No. 2075/2004 (published in the Official Gazette No. 1170/2004) (“Methodological Norms”). The main regulations are supported by a variety of secondary legislation. The Petroleum Law contains the main principles applicable for carrying out oil activities; the principles of the regime of classified information; the main types of oil activities and concessions related thereto (petroleum agreements); and the main rights and obligations arising from the oil concessions together with the situations in which such may be suspended or revoked. The Methodological Norms describe in more detail the public procedure for the granting of oil concessions and the regime of the various types of oil concessions as well as the rights and obligations of the titleholders.

The National Agency for Mineral Resources (“NAMR”) is the specialized authority for the oil sector. It is a body of the central public administration and is legally authorised and functions under the authority of the Government. The main duties of NAMR are: (i) the management of the state oil resources; (ii) negotiation of the terms and conditions of oil agreements and conclusion of such agreements on behalf of the state; (iii) secondary regulations; (iv) receipt, verification and registration of data and information regarding oil resources and reserves, ensuring the storage, systematisation and valorification; (v) monitoring and verification of oil production for the purposes of calculating royalties; (vi) monitoring the application of measures relating to surface and underground protection during the oil operations; (vii) monitoring compliance by the titleholder of the petroleum agreements, the applicable laws and regulations and ordering measures for compliance with such; (viii) approving the abandonment plan and termination of concession based on compliance with the provisions of the environment recovery plan as approved by the competent environmental authorities. NAMR is responsible for maintaining the Petroleum Book, a registration document comprising all data about the legal regime of the areas: the development and exploitation perimeter; ownership; topographical situation of the works related to the oil activities; the oil and production resources/ reserves; and data regarding the demarcation of oil perimeters and operations in the prospecting and exploration stages.

5.3 Regulated oil market activities

NAMR is responsible for granting concessions for petroleum activities (such as exploration, development, exploitation, storage, transmission, etc.) and public assets related thereto. The concession is awarded by public tender for a term of 30 years with the possibility of extension for another 15 years. NAMR may also grant prospecting permits which allow the titleholder to undertake exploration activities in a specific concession block for a maximum period of three years. The term of a prospecting permit cannot exceed 3 years.

The concession takes the form of a petroleum agreement concluded between NAMR and the Romanian or foreign legal entity who has been awarded the public tender. The concession enters into force subject to specific governmental approval. The titleholder of the concession pays an oil royalty for the entire duration of the concession. The percentage of the royalty payable by the titleholder of the petroleum agreement is determined in consideration of the type of activity undertaken by the titleholder (i.e., production, and transmission, underground storage of natural gas).

The current oil royalty payable for the performance of oil production activities varies between 3.5% and up to 13.5%, percentage applied to the value of the extracted oil quantities. The main types of petroleum agreements are:

Exploration-development-exploitation petroleum agreement;
Development-exploitation petroleum agreement;
Exploitation petroleum agreement;
Development petroleum agreement;
Underground storage of natural gas petroleum agreement – please note that the performance of the natural gas storage activity requires both an ANRE licence and a NAMR petroleum agreement;
Petroleum agreement for the concession of the national oil pipeline system;
Petroleum agreement for the concession of the oil terminals

The granting of oil petroleum agreements is based on transparent and non-discriminatory criteria. The transportation of oil is performed through main pipelines on a contractual basis in compliance with national and international legal provisions. The transportation agreements may not include unjustifiably restrictive conditions, or conditions endangering the security of supply and the quality of services. The transport of oil through the national transport system is a public national interest service for which Conpet possesses the concession. Conpet has the status of ordinary transport operator under the Petroleum Law and is thus obliged to ensure non-discriminatory treatment for all its clients and perform oil transport on the basis of tariffs regulated by NAMR.

The national oil transportation system is public property of the state and the concession for its use is the subject of a public tender procedure. Nevertheless, within the duration of the concession agreement, any investments made from the concessionaire’s own resources and which relate to the operation of the national oil transportation system (such as modernisation and developments of the transportation system) shall be deemed to be assets in the public property of the state.

5.4 Material provisions of the oil market law and licensing regulations

A titleholder of a petroleum agreement may transfer to another legal entity, in full or in part, the rights and obligations acquired on the basis of the petroleum agreement only with the prior approval of NAMR, under the sanction of nullity of the transfer. The approval of the transfer shall be made provided that the transferee can prove that it has the technical and financial capacity necessary for the performance of the oil activities in compliance with the conditions provided in the petroleum agreement. For the approval of the transfer the following cumulative conditions must be met:

The petroleum agreement must be in force;
The Romanian legal entity to which the petroleum agreement shall be transferred (i.e., a Romanian based company or a Romanian based secondary office of a foreign company) has no outstanding debts towards the state budget, social security state budget or other related state budgets;
The obligations undertaken by the titleholder on the basis of the petroleum agreement have been fulfilled or the transferee undertakes to fulfil also the non-fulfilled obligations;
The transferee has the legal and technical capacity required for undertaking the obligations under the petroleum agreement;
The transfer does not affect the conditions of the concession, as established in the petroleum agreement;
The transferee is specialised in carrying out oil activities or has appointed an authorised firm in the role of operator which possesses the appropriate technical capacity in relation to the oil operations provided in the transferred agreement

5.5 Forthcoming developments

An important discovery of natural gas resources in the Black Sea has created optimism for both investors and authorities, despite the fact that the size of the reserve has not yet been accurately determined as there are still exploration operations being performed. Exploitation of such reserves are expected to commence at the end of the current decade.

Further developments are also expected in relation to Romania’s shale gas potential given the fact that it was ranked third in the list of European countries with highest estimated potential of shale gas prepared by US Energy Information Agency. The interest in Romania’s shale gas potential comes both from investors seeking favourable opportunities and from the authorities which tend to regard shale gas as one of the sources which could sustain Romania’s future energy independence.

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