SEE Legal Energy Guide 2012

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1. Introduction to the energy market

The Romanian energy market has developed significantly in the past 10 years; a period during which the legislation has been 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 companies 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. The investments are also encouraged by the constant legislative developments aimed at implementing the EU legal framework applicable to Romania as a EU member state and in order to fulfil the measures under the Kyoto Protocol of which Romania is also a member. 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 recent years appears to be the electricity market, specifically the renewable field. It is expected to expand even more once the relevant framework setting forth the applicable incentives will be stabilised.

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 2007, creating premises for a competitive environment for energy investments.

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 and the emissions certificates 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 Law No. 13/2007 (published in the Official Gazette No. 51 of 23 January 2007), as subsequently amended and completed (“Electricity Law”) and detailed in secondary legislation including government decisions, and decisions and orders issued by the relevant regulatory authority.

Other relevant legislation regarding the field of electricity includes: Government Decision No. 540/2004 on the approval of the Regulation for granting licences and authorisations in the electricity sector (published in the Official Gazette No. 399 of 5 May 2004), as subsequently amended and completed (“Electricity Licensing Regulation”), Government Decision No. 90/2008 on the approval of the Regulation for the connection of users to public electricity networks (published in the Official Gazette No. 109 of 12 February 2008) (“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 Electricity 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 authorities involved (i.e., the relevant ministry – currently, the Ministry of Economy, Trade and Business Environment – and the Romanian Energy Regulatory Authority – ANRE). According to the Electricity Law, electricity related activities are usually subject to the obtaining of a specific licence or authorisation from ANRE in order to be carried out. The Electricity Licensing Regulation further details the conditions and procedure for the granting of the main authorisations and licences, following that the granting of other authorisations/ licences is detailed 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, Trade and Business Environment, 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, Trade and Business Environment also initiates legislative projects in the field, supervises the application of and compliance with the measures regarding environmental protection and creates programmes regarding the promotion of electricity exports.

ANRE is the Romanian energy regulatory authority, acting as an independent body responsible for regulating and providing a competitive electricity and gas market environment. ANRE must accomplish the objectives provided under the Electricity Law, 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 non-discriminatory 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.

ANRE in its capacity as regulatory authority in the electricity sector 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 Electricity 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:

(a) Establishment authorisations – must be obtained for erecting new electricity generation capacities, including co-generation capacities, or for the refitting thereof, if the installed electricity power of the capacities in question exceeds 1MW;

(b) Licences for: (i) the commercial exploitation of electricity and thermal energy generation capacities; (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 the scope of activity) must be notified to ANRE within 30 days as of their occurrence 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 such as generation, distribution, supply and management of centralised markets, 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 licences must notify ANRE of any share transfer operation between the existing shareholders or between the existing shareholders and third parties. In addition, the titleholders of a license for management of centralised markets must notify ANRE in advance of any transaction as a result of which an entity other than Transelectrica, the national transportation network operator, will become a shareholder of the titleholder.

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. Transactions performed in the absence of ANRE’s approval may trigger the suspension/ annulment of the licence.

The shareholding structure of the titleholder of the management of centralised markets licence (i.e., currently, Opcom) cannot include a shareholder, other than Transelectrica, the transportation network operator, which holds a participation quota of more than 5%.

The possibility to transfer the rights granted under a licence is provided in the case of most of the electricity licences (transportation, distribution, generation, supply), with the exception of the management of centralised markets licence. 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 in the electricity market which is divided into the wholesale market and the retail market. In the wholesale market, power purchase agreements are generally executed either directly based on negotiations between the parties or in the centralised electricity markets (which include the centralised market for bilateral contracts, the centralised market with continuous negotiation (forward), the day-ahead market and the balancing market).

In the competitive segment of the electricity market, prices are negotiated by the parties or based on centralised markets rules.

Thus, in the wholesale market, power purchase agreements are generally 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 and the balancing market. A market participant may enter also into negotiated 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.

The holders of licences in the field of electricity (i.e., generation, transmission or distribution, supply operators) have specific obligations in relation to ensuring the reliability of the transmission grid. For this purpose they must be registered in the balancing market, to notify the daily transmissions of electricity, and additionally trade the electricity available after the 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, an independent entity.

Moreover, during the period of the support scheme for electricity generated in cogeneration units (i.e., during the period 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 and 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.

The Electricity Law expressly prohibits cross-subsidies between regulated activities, and between the regulated and nonregulated activities of an economic operator.

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:

(a) The supply of power to household consumers and consumers, the maximum power (as approved by the technical connection permit) of which does not exceed 100kVA, until such consumers exercise the right to select their supplier for the first time; or

(b) The supply of power by the supplier of last resort, i.e. suppliers which are obliged to provide electricity supply to consumers whose supplier is no longer able to fulfil its obligations set forth under the electricity supply licence and electricity supply agreements where such consumers do not have any other available supply source upon cessation of their supplier’s activity.

In order to control tariffs for electricity sold to consumers who do not exercise their right to eligibility, ANRE approves the regulated costs or revenues for the sale or purchase of electricity to such consumers. These prices and tariffs are based on the following principles: (i) the methodologies for establishing regulated prices and tariffs for wholesale electricity are adopted after consultation with all interested parties; and (ii) calculation of the prices and tariffs takes into account the justified costs of the supply activity, expenses related to development and environmental protection, as well as a reasonable profit margin.

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 the consumers who do not exercise their eligibility right to choose the price or tariff 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 capitalearning capacity, in accordance with ANRE methodologies.

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 power transport services ANRE determines the 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. The prices and tariffs takes into account justified transport costs, expenses for development and environmental protection as well as reasonable profit quota. ANRE may limit the tariffs by: establishing a maximum limit for the price or tariff; or limiting the revenue of the regulated activity for the purpose of avoiding an uncontrolled increase of the prices for customers. The tariffs are differentiated based on geographical areas.

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), according to which ANRE determines an upper limit of the average of the distribution operator’s tariffs. The average is determined by taking into account the quantity of electricity distributed by the distribution operator by categories of consumers and intensity levels); (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: establishing an upper limit of the price or tariff; or by limiting the revenue of the regulated activity in the aims of avoiding an uncontrolled increase of prices for customers. The tariffs for distribution operators are determined annually in a specific order approved by the president of ANRE.

ANRE also determines the methodology for calculating the tariffs for interconnection to the public electricity networks. The interconnection tariffs must include only the costs effectively related to the interconnection which include installation of the related interconnection and sometimes also for upgrading the public network to which the interconnection is required.

2.6 Transmission and grid access

The general principle applicable to grid access is nondiscriminatory 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 Electricity 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 frequently 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.

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. Both the interconnection permits and the interconnection agreements are standards forms and depend mostly on the practice of each network operator, however, the interconnection agreement may be and is often subject to negotiations between the parties.

The applicant pays an interconnection tariff which covers mainly the interconnection work related to the part of the interconnection installation which will become part of the public interest network and will be transferred into the ownership of the network operator. The interconnection tariff shall not cover the part of the interconnection installation remaining in the applicant’s ownership and the applicant shall be solely responsible for the construction thereof.

It should be noted that the delimitation point between the two parts of the interconnection installation (i.e., the part belonging to the network operator and the part belonging to the applicant) is agreed by the parties and is usually established at the limit of the applicant’s property.

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:

(a) 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;

(b) Permits for the construction phase, usually including: building permits, interconnection permits and establishment authorisations (issued by ANRE);

(c) 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.

3. Renewable energy

3.1 Market overview

Romania benefits from significant potential in various renewable energy sources: wind, solar, hydro, biomass, etc. However, in recent years investors have focused mainly on the wind 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 and various more recent financing schemes.

Initially promoted at the level of government decisions in 2003, the system of green certificates has been revised and changed through the Renewables Law initially adopted in 2008. This law provides for considerable changes from the initial system: an increased number of green certificates; regulation of the terms during which the system would apply to different projects, etc.

While the Renewables Law has been well received by investors, its applicability has been suspended until approval by the European Commission of the state aid scheme. While the Renewables Law has not been fully effective until present, the most important developments in the renewable energy field relate to the amendments made to the law in the summer of 2010 and, more importantly, by the amendments envisaged to be made in 2011 to the Renewables Law. The proposal for legislative amendment currently being discussed by authorities and market players has been drafted in the context created by the process of notification to the European Commission of the renewable energy green certificates support scheme regulated by the Renewables Law. In this respect, the draft law envisages significant changes to the green certificates support scheme, mainly to bring the system in line with the European framework.

The European Commission has recently issued its approval for the green certificates support scheme envisaged in Romania. The amendments arising from such approval together with the relevant secondary regulations to be issued for approval will lead, on the one hand, to the long-awaited effective application of the rules for the granting of more green certificates for renewable energy generated from certain renewable technologies, and on the other hand, additional criteria and limitations for the granting of green certificates. Furthermore, the correlation between various state aid schemes available in the field shall be addressed once the draft law is approved.

3.2 Support schemes

The main support schemes for renewable energy in Romania are:

(a) Promoting system of green certificates consisting of a system of mandatory quotas combined with green certificates (“GC”) trading;

(b) Financing scheme based on Environmental Fund resources;

(c) Financing scheme based on EU structural funds; and

(d) 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”) consists of a system of mandatory quotas combined with GC trading. Every year each electricity supplier in this system 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 (either based on bilateral contracts or on a centralised market) and which represents a benefit for the E-RES generators in exchange for delivering “clean” electricity into the network.

Currently the promoting system is affected by certain malfunctions of the legislative environment. Thus, while at the end of 2008 a new legal framework was approved through the Renewables Law it has still not been implemented in respect of the number of GC to be issued to relevant generators. This is due to delays in confirmation/ approval from the European Commission. In practice the previous system as regulated by Government Decision No. 1892/2004 (published in the Official Gazette No. 1054/2004) is still applied in respect of the number of GC to be issued.

Environmental fund financing scheme

Generators of energy from renewable energy sources can also access (subject to the fulfilment of eligibility criteria) specific financial allowances from the Environmental Fund (a financial economic instrument designed to support the implementation of environmental protection projects).

The conditions which must be observed by applicants 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. This information was further transmitted to the European Commission. Thus, a new notification to the Competition Council with respect to the duration of the financing scheme will need to be submitted in order to apply such a state aid scheme from the 1st January 2012.

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.

EU structural funds

According to European and applicable national regulations, structural funds are available in Romania for seven major areas: Environment, Transportation, Regional Development, Human Resources, Development of Administrative Capacity, Increase of Economic Competitiveness and Technical Assistance.

For each of the abovementioned areas a sectoral operational programme (“SOP”) has been issued by the relevant authorities for the purpose of detailing the manner of allocating the funds.

Each SOP includes several priority axes and each priority axis includes two or more domains of major intervention. A domain of major intervention comprises several operations. As a general rule, for each operation a state aid scheme shall be approved through a Ministry of Public Finance Order.

Pursuant to such approval, an announcement for the submission of projects shall be published (“call for projects”), setting out the period during which the projects may be submitted to the competent management authority.

Moreover, the management authority shall provide a guide containing a complete description of the conditions to be fulfilled by both the applicant and the project in order to provide access to structural funds in a specific domain of major intervention and the relevant procedure regarding the application and the granting of funds (i.e., the Applicant’s Guide).

Calls for projects may be either with a definite term or continuous submission. The call is limited to the financing of electricity generation from renewable energy sources covered under SOP “Increase of economic competitiveness” priority axis 4 “Increasing energy efficiency and security of supply in the context of combating climate change”, main domain “Valorisation of renewable sources for producing green energy”.

The call for projects for 2011, according to the schedule of the calls for projects made available by the management body, was scheduled to be launched in June 2011.

The state aid scheme for the granting of structural funds for electricity generation projects from renewable energy sources has been approved in Government Decision No. 750/2008 (published in the Official Gazette No. 543/2008). However, it does not apply to projects the total costs of which exceed EUR 50 million. Financing is granted to a limited number of beneficiaries and subject to the fulfilment of specific eligibility conditions in what concerns the applicant and the project itself.

ERUs

ERU’s may be issued for Joint Implementation (“JI”) projects 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 may be carried out, amongst others, for the promotion of power generation using renewable sources (including wind farm projects). JI projects may be developed on the basis of two permitting modules (I and II).

4. Natural gas

4.1 Market overview

The Romanian 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 Community’s regulations in the national legislation. The restructuring of the natural gas sector was also a consequence of the development of the undertaking of the public authorities to adapt to the new structures of the natural gas sector, as well as to the new form of collaboration with European structures.

The natural gas market was fully liberalised in 2007 in accordance with European requirements and in the aims of creating a real competitive environment, in order to give consumers the possibility to choose their natural gas supplier, and to increase investments in the sector. However, new regulations still need to be implemented in order to achieve the full liberalisation of the natural gas market.

The principles underlying the functioning of the natural gas market aim to: (i) promote and assure the competition on the natural gas market; (ii) ensure freedom of eligible consumers to choose their natural gas supplier, based on negotiated salepurchase agreements for natural gas; (iii) ensure free access of the participants to the natural gas market, to natural gas transport, underground storage and distribution systems; (iv) ensure the natural gas transport, underground storage and distribution public services; (v) undiscriminating treatment for the participants to the natural gas market.

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); natural gas transporter/ national transmission system operator (national company Transgaz – entity possessing a transport licence for natural gas, as well as the concession for natural gas transport 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); eligible consumers and captive consumers (consumers which for regulatory reasons cannot choose their supplier or have not exercised their eligibility right).

4.2 Regulatory overview

The Gas Law No. 351/2004, as amended and completed (published in the Offi cial Gazette No. 679/2004) (“Gas Law”) is the main legislation governing the natural gas sector. In the case of transport and upstream activities the provisions of the Gas Law are complemented by those of the Petroleum Law No. 238/2004, as amended and completed (published in the Offi cial Gazette No. 535/2004) (“Petroleum Law”). Further regulations are included in secondary legislation, such as: The Regulation for granting authorisations and licences in the natural gas sector approved by Government Decision No. 784/2000, as republished, amended and completed (“Natural Gas Licensing Regulation”), ANRE Decision No. 1271/2004 for the approval of 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 for the approval of the Framework conditions for the validity of the natural gas transportation licence (published in the Official Gazette No. 27/2007), Government No. 824/2004 of the National Energy Regulatory Authority 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”).

The Gas 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 Gas Law sets forth mainly:

(a) Natural gas market general principles;

(b) Regulated activities and the rules regarding the unbundling of regulated activities from not regulated activities;

(c) Licences and authorisations necessary for carrying out certain activities on the gas market, as well as

(d) The main competencies of the involved authorities (i.e., the relevant ministry – currently, the Ministry of Economy, Trade and Business Environment – and the Romanian Energy Regulatory Authority – ANRE).

The Government, the Ministry of Economy, Trade and Business Environment and other specialised institutions of the central public administration take measures to achieve the objectives included in the energy strategies and monitor the level of compliance. The Ministry of Economy, Trade and Business Environment 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 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.

The main duties of ANRE in the gas sector are: (i) to elaborate, approve and apply the regulations for the organisation and functioning of the natural gas market, in order to ensure the continuity and safety of natural gas supply to consumers; (ii) to ensure the full liberalisation of the natural gas domestic market; (iii) to develop, approve and apply the criteria and methods for approving the prices and for setting the regulated tariffs in the natural gas sector; (iv) to establish validity terms of the licences specific to the sector, and the way in which they are granted; (v) to elaborate and approve the framework agreements in the natural gas sector; (vi) to monitor the natural gas domestic market for compliance with regulations regarding the organisation and functioning of the natural gas market.

According to the Gas Law, the natural gas related activities are usually performed based 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, transport, storage, transit and distribution capacities of natural gas, and to carry out the supply, transport, storage, transit and distribution activities in the natural gas sector, Romanian or foreign entities must possess authorisations and/or licences issued by the Regulatory Authority 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 transportation of natural gas and storage (facilities and systems), and the public services of transport, storage and distribution of natural gas.

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

(a) Authorisations issued in relation to natural gas field facilities for the production, transportation, storage, transit, distribution and dispatch of natural gas, including: establishment authorisations, functioning authorisations and modification authorisations;

(b) Licences issued in relation to carrying out specific natural gas activities including: supply licences, transportation licences; storage licences, dispatch licences, distribution licences and transit licences.

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.

The Natural Gas Licensing Regulation requires that authorisation/ licence holders must notify ANRE within 30 days of occurrence of the following situations: changes of the statute of the authorisation/ licence holder as a result of split-off , merger, transformation, change of the scope of activity, change of name, headquarters or change of the share capital or of the patrimony, as well as any other changes that affect the conditions in which the authorisation/ licence was issued. In the notification the authorisation/ licence holder requests ANRE to amend the relevant authorisation/ licence. ANRE will analyse the situation and, if the request is grounded, will make one of the following decisions:

(a) Appropriate amendment of the authorisation/ licence by granting a new authorisation/ licence with an amended content;

(b) Granting of amendments to the conditions associated with the existing authorisation/ licence.

In the event that the above procedure is not possible the authorisation holder (but not the licence holder) will request approval from the ANRE to transfer the authorisation to another legal entity. In such a case the transferee will have to provide prior proof that it meets the conditions for being authorised provided by the Natural Gas Licensing Regulation.

Only natural gas authorisations may be transferred to other entities while the natural gas licences cannot be transferred by their holders.

Licence holders are able to conclude agreements with third parties for certain licensed activities without, however, being allowed to transfer the rights and obligations granted under the licence.

4.5 Exploration and production

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

4.6 Transmission and access to the system

Access by third parties to upstream pipelines, storage deposits, transport and distribution systems is based on the principle of third party access in a regulated system and based on the conclusion of agreements between the applicant and the relevant operators. Access to the national transmission system, the distribution system and the upstream pipelines comprises two components: connection to the system and use of the system. The connection is based on a tariff paid by the applicant and the use thereof is also subject to the payment of specific tariffs.

Access by third parties to upstream pipelines, storage deposits, transportation and distribution systems may be refused only in the following situations: (i) there is insufficient capacity; (ii) the facilities/ pipes comprising the systems to which connection shall be made do not exist; (iii) access to the system affects the fulfilment of public service obligations and exploitation safety; (iv) the requested use equipment does not meet the minimum requirements regarding the safety and environmental protection set out in the applicable legislation; (v) access to the system may lead to serious economic and/or financial difficulties arising from the regulated activity of the authorisation/ licence holder requesting the access; (vi) the quality of the natural gas to be supplied into the systems and/or storage deposits does not comply with the requirements imposed by the applicable regulations; (vii) the applicant fails to pay for the services provided by the system operator, in accordance with the contractual clauses.

A licensed operator which refuses access due to lack of capacity or lack of the facilities/ pipes (systems) to which the connection is to be made must finance the necessary work, if such is economically justified, in order to grant access to the applicants. If the installation of such facilities/ pipes is not economically justifiable for the licensed operator, the applicant will contribute to a specific extent and in cooperation with the licensed operator in the financing of the facilities/ pipes, in accordance with the conditions of an agreement in which the applicant agrees to the transfer of the respective facilities/ pipes into the ownership of the operator from the moment of commissioning thereof.

4.7 Trading and supply

Prior to its complete liberalisation, 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 consumers. In the competitive segment prices are formed freely, based on demand and supply and competition mechanisms. The regulated segment of the market consists of natural gas supply at a regulated price and is based on framework contracts to consumers and natural and/or legal monopoly activities, based on regulated tariffs: administration of commercial contracts and the contractual balancing of the domestic market, natural gas transport, underground storage, distribution, transit, with the exception of transit through dedicated major pipelines. For this segment of the market, the tariff and prices systems are set by ANRE based on the methodologies developed for this purpose.

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 mixed supply consisting of quantities of current/ stored domestic production and imported gas (current/ stored). The supply shall be determined in such a manner as to ensure full coverage of the consumption demands at national level. The natural gas mixture is determined monthly and established separately for the following categories of consumers:

(a) For household consumers and thermal energy generators – the quantities used for thermal energy in cogeneration units and thermal units destined for public consumption. The mixture is determined by ANRE, in order to ensure the same final regulated prices for the abovementioned consumers until the following year, by reference to this year;

(b) For non-household consumers (with the exception of thermal energy generators) – the mixture is determined by Transgaz, the transmission system operator, based on a complete and balanced coverage of the internal market demands and is endorsed by ANRE.

The Natural Gas National Dispatcher organised within Transgaz monitors for compliance with the structure of the mixture approved on the basis of applicable regulations by all licensed operators and eligible consumers in the natural gas sector. In the case of captive consumers, the obligation to comply with the structure of natural gas mixture belongs to the supplier. The supplier must ensure the entire gas needs of the consumer and eligible consumers, respectively, or cover its needs from other suppliers.

Thus, in the natural gas sector the following two price categories apply to each segment of the natural gas domestic market:

(i) Regulated – determined by ANRE, based on its own methodologies, for the supply to consumers who do not exercise their right to choose the supplier. The supply of natural gas at regulated prices is based on framework contracts. Although the natural gas market is fully opened, the regulated prices continue to be applied as long as the consumers do not exercise their right to choose their supplier.

(ii) Negotiated – based on supply and demand as a result of competition comprising the trading of natural gas between suppliers and eligible consumers.

The tariffs related to the services carried out in the natural gas field, as a natural monopoly, are regulated by ANRE on the basis of specific methodologies for this purpose. They comprise natural gas transport, distribution and underground storage activities. The regulated prices and tariffs in the natural gas sector are approved by order of the president of ANRE and are published in Romania’s Official Gazette.

5. Upstream oil market

5.1 Market overview

Underground oil resources located in Romania and the Romanian sector of the Black Sea continental platform are exclusive public property and belong to the Romanian State. Oil-related activities can be carried out by Romanian or foreign legal entities, in compliance with the conditions provided by the regulatory framework and only within areas specifically established for this purpose by the competent authority.

The oil market is open to all interested participants which are able to prove their financial and technical capabilities for carrying out oil-related activities. Currently, the market is dominated by OMV Petrom SA which still owns a significant share of the market. However, more and more foreign companies have begun to participate in the licensing rounds or enter farm-in or transfer agreements allowing them to acquire interests in petroleum agreements in Romania.

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”) has the greatest competence in the oil field. It is a body of the central public administration and is legally authorised and functions under the auspices 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; (ix) in the absence of a prospecting permit or a petroleum agreement – certification of the performance of activities and informing the competent authorities in this respect.

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, transit, 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 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, transit and transport, 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:

(a) Exploration-development-exploitation petroleum agreement;

(b) Development-exploitation petroleum agreement;

(c) Exploitation petroleum agreement;

(d) Development petroleum agreement;

(e) 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;

(f ) Petroleum agreement for the concession of the national oil pipeline system;

(g) Petroleum agreement for the concession of the oil terminals.

The granting of oil petroleum agreements is based on transparent and non-discriminatory criteria.

The transit of oil is performed through main pipelines on a contractual basis in compliance with national and international legal provisions. The transit agreements may not include unjustifi ably 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. Such investments will be reimbursed by the Romanian state upon termination of the concession agreement.

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:

(a) The petroleum agreement must be in force;

(b) 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;

(c) 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;

(d) The transferee has the legal and technical capacity required for undertaking the obligations under the petroleum agreement;

(e) The transfer does not affect the conditions of the concession, as established in the petroleum agreement;

(f ) The transferee is specialised for 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.

 

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