Cristian Bușu is a secretary of state with the Ministry of Energy since 10 November 2015 and one of the closest collaborators of minister Victor Georgescu. We talked to Cristian Bușu about the results obtained in his area of responsibility: external partnerships, listings, fundings for the energy industry. “When I lifted the carpet, I found countless things that were not going right. It is a huge effort for us to maintain and find recovery solutions for companies which in early 2016 were already in a critical situation. The payment of salaries and the relationship with unions in themselves are a daily effort that doesn’t necessarily show, but that takes time and energy”, told us Cristian Bușu about what can’t be seen. Below is a dialogue about what can be seen.
The ministry announced the unblocking of the state aid scheme in the National Investment Plan. What prevented the operationalization of the National Investment Plan so far and what’s new that allows you to trust that the plan will become operational?
Like in all projects in public administration, bureaucracy is the one that placed obstacles in the smooth functioning of the National Investment Plan. Among the most important reasons is probably the lack of training of our staff who had to deal with such a project for the first time. The fact is that, three years after initialisation, at the beginning of 2016, we were very close to losing the funding scheme. We managed to unblock it, we have already signed contracts with CE Oltenia for the investments in Işalniţa and Rovinari, and with OMV Petrom.
Among the novelties we introduced in 2016, I would mention that we have replaced the framework contract with three framework funding contracts for specific investment situations, namely: investment put into operation at the time of conclusion of the funding contracts, ongoing investment and new investment.
What are the next steps and when will the money get to these two companies?
I would like to remind you that NIP approved 29 investments. Many of them were never accomplished (18) or no longer fulfill the requirements to qualify for support. Three funding applications have been submitted and approved, specifically two from Oltenia Energy Complex and one from OMV Petrom. We signed the contracts, and the first payment will reach the companies by the end of this year. The next payments are spread annually untill 2020.
What are the prospects that other companies included in the NIP to submit funding applications? What conditions must be met?
We have over RON 853 million available, representing the equivalent value of the certificates sold in 2013-2015. This money can be used to provide grants for 25% of the eligible costs of investment projects of energy producers included in the National Investment Plan, which result in reduced emissions of greenhouse gases.
Of course I would like to have as many companies as possible in the program, but this is their responsibility. Elcen, for example, has a project postponed and another under evaluation, but we also wait for CHPs in the country. Also, for investment in the Iernut plant we expect the funding application to be made later this year. It is important to meet all the mandatory requirements. There is a special committee within the Ministry of Energy and we are available to companies who want to find out more. The essential thing is that the mechanism runs until 2020, for up to 25% of the eligible expenses with investments in upgrading the generation sector, thus reducing CO2 emissions. Investments are monitored for 5 years from the date of commissioning, i.e. the date of signing the funding contract in the case of completed investments.
A major highlight of the summer was Hidroelectrica resuming solvency and relaunching discussions re listing. What stage have these procedures reached now?
Currently, there is a privatization commission and we have a consortium who is putting up the listing syndicate. The actual listing depends on meeting some mandatory steps.. One is the need to clean up the company from certain complex functions. And I refer to energy constructions initiated 40 or 50 years ago, which are now completely obsolete in energy terms. One should spend EUR 30-40 million to produce 1 to maximum 4 MW, which is out of question, because with this money one could now generate much more energy. Specific analyses showed that some of these initiatives are no longer justified in terms of energy, but could be interesting for other state entities who could take over some of these complex functions, such as irrigation for agriculture or water course harnessing to avoid floods.
The impact of maintaining these complex functions within Hidroelectrica is huge on the company and could endanger the listing procedure. From an accounting perspective, the company should include all the amounts necessary to complete works that make no sense in terms of energy – and it’s about billions of lei we are talking about. The law also prevents us from assigning such assets free of charge, therefore the procedure is not very simple.
Having clarified these issues, we can leave on a road-show to present the company before potential institutional investors. The listing syndicate is to decide which is the best moment, what is the price per share that can be expected, under what terms and so on.
What is at stake in listing Hidroelectrica? Attracting capital? Will the money stay in the company?
For me, the most important advantage is the increased transparency and the guarantee of corporate governance, which will make Hidroelectrica a company with modern management, relying on the right principles. Exchange regulations impose numerous practices that increase the transparency of listed companies and contribute to better performance.
Have BVB officials publicly requested the listing to bring to market a stake as high as possible of the company shares? What is the level that you feel is best and why?
We have already determined that the stake to be sold by the state is 15%. If we tried to change this percentage, we should repeat the whole process (new syndication, a new tender etc.) which would mean another year and a half. What we want to do with Proprietatea Fund, which owns nearly 20% of Hidroelectrica, is that they in turn sell a stake of 5 to 8%. We are still discussing the size and shape of the package of this sale – will they come in the same syndicate with us or form a separate syndicate etc.
I do not expect Proprietatea Fund to sell a large stake at once, because there are diverse and complex strategies that may be more profitable for a private investor.
Is it still appropriate to list the company on the London Stock Exchange in the current European context, after the pro-Brexit vote?
My opinion is that we should have a dual listing, but there are two types of arguments on this issue. In terms of the capital market, the ideal for us is to move from a frontier market to an emerging market status. In order to do so, we must meet certain technical conditions, such as a certain level of daily trading volumes, number of companies in the same industry etc. If we list Hidroelectrica and another company we are likely to succeed in this transition to the status of emerging market.
I think we should have a dual listing, without equally splitting the stock proposed for sale. We could sell 5% in London and the rest in Bucharest. Thus, we receive maximum visibility, including a developed market – in London or elsewhere – without reducing much of the benefits the capital market in Romania needs.
If it be London or another exchange, that is for the syndicate to decide, taking into account all circumstances.
How much do you expect to get from the listing?
I can not advance any amount. It is the syndicate’s duty to analyze and propose a price per share, which will also allow us to determine the value of the listed stock. But, again, this is not the most important thing. The main advantage obtained is transparency, leading to a more efficient management and increased efficiency of the company to achieve an even greater value. Think about it like this: I would rather not have 100% of a company worth 1 billion, but 85% of a company worth 2 billion.
You referred to the change of management quality after listing. In the ministry, you are also responsible for the procedure of selecting new managerial teams in the subordinated companies. What is the current status in this struggle to attract talent in state-owned energy companies?
In the first wave, we focused on three companies: SAPE, Oil Terminal and CE Oltenia. We now have shortlisted the people selected for each company and one week from now General Meetings of Shareholders are to be convened in each company to make the final decision.
Why was it necessary to amend law 109 this year? What are the main changes and what impact is expected from the implementation thereof?
One important change is that we now have a multi-annual letter that specifies which are the needs of the decision makers for a certain company. Even with changing governments and policy makers, this public and transparent document maintains the performance criteria for the executive and non-executive management. In the past, remember that we had so many cases of dismissals, changes, interims and interims for interims – a total nebula. Now things will be much clearer and stronger.
The quality of management should increase in all state companies. What are the next companies on the list, in the energy sector?
RATEN and Electrocentrale Grup top the list, but all state companies need a truly professional management. We have already started this process in the case of Hidroelectrica and we expect that in the coming months we can come up with proposals to shareholders.
Another project under the spotlight this year was the BRUA interconnector. I would start from the money: in addition to European funding, what will be allocated and by whom in achieving BRUA?
From a financial standpoint, I see no problem. Transgaz, like other state companies, has a very solid financial standing: no debts, a significant liquidity available and the possibility to borrow money at very convenient costs. Transgaz leadership will choose a formula that will include their own money, money borrowed and potential institutional partners from among large investment banks.
When are works to be started on site?
The BRUA project should be declared project of national interest, which will greatly reduce the risks of interruptions of work that could be raised by any potential objections on environmental protection or possible archaeological discoveries along the pipeline. We expect the pipeline works to begin in October, and in March works will start on the compressing station.
The first phase of works (2017-2019) aims to develop a 1.75 billion cubic meters per year (bcm / year) transmission capacity towards Hungary. In the second phase (2019-2020), transmission capacity will be increased to 4.4 bcm / year. Transgaz announced that it will complete by the end of this year the main pipe for interconnection with Bulgaria on the Ruse-Giurgiu direction, and in the Spring the reserve pipeline will also be ready.
What is the impact you anticipate on the market? I think of the horizontal oil and gas industry, which needs the orders that a project of this scale might produce. What potential is there to maintain as much of the investment as possible in the country?
At the Government level, of course, we want every penny to stay in the country. For the operator, Transgaz, the main interest is the lowest cost with the best quality. We’ll see how Romanian companies respond. It is clear that a procurement process will be initiated, everything will be transparent and open. What is certain is that the works on site will be performed by Romanians.
In the end, one observation and one question. The Cioloș Government is the first in the history of Romania that is completely technocratic, in the sense that no member of the Cabinet is a member of any political party. This allowed the central government decisions to become independent from political power pillars. What will be left of this approach after this term, with the return of a political government?
What we are trying to do is to blow so much damage to the system of practices and procedures that we found at Victoria Palace that they cannot be reinstated. Thus, the changes that we introduced last year could be perpetuated until the benefits of a fair and transparent administration become visible to everyone.
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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued in September 2016.
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