The public heating services sector is frequently a hot topic in Romania. There are constant talks about the financial difficulties faced by actors in this sector and about restructuring in hope of growing efficiency. Meanwhile, the relevant infrastructure is getting older, and the number of consumers connected to the system continues to shrink.
This reality paradoxically coexists with the interest of certain private entities to invest in the sector. Unfortunately, only few of them manage to successfully implement their plans. Beyond economic and technical arguments, our experience has shown that the absence of clear and coherent legislation aligned with the real and current needs of the sector strongly contributes to limiting investments in this sector.
The relevant legislative framework regulating public utility services in general (mainly Law 51/2006 on community public utility services) and heating services in particular (mainly Law 325/2006 on public heating service) has not been refreshed, or substantially revised for almost 10 years. Numerous legal provisions are based on assumptions which no longer fully match the current realities or are simply unclear or inconsistent, which makes them very difficult or even impossible to implement.
As an example, the centralized system for heating supply (SACET) is seen as an integrated and compact system that includes the heat production, transmission, and distribution and supply components. As a rule, such components are managed all together by one legal entity. Although the possibility to separately delegate the management of these services seems to be accepted in theory, the legislative framework is not adapted to truly support this scenario.
Moreover, the existing legislation seems focused on operating SACET in its current form, with some potential upgrading and refurbishments. It does not really support the development of greenfield projects and their integration with the existing systems. This results in substantial investments, particularly in heat production capacities, being blocked.
Thus, the basis for developing a new production capacity is unclear, particularly if the developer does not fully takeover the management of the entire heating service along with the operation of SACET. Things get even more complicated if, for example, the old production capacities are still operational. Although a new plant can be much more efficient, both technically and economically, the implementation of a structure that works under these circumstances generates so many legal uncertainties, that it can be discouraging.
At the same time, the framework regulating the procedure for the delegation of centralized heating service has not been updated, nor brought in line with other regulatory fields which evolved in the meantime, such as the legislation on concessions. Some of the requirements for participation to delegation tenders (e.g. to hold certain licenses issued by National Regulatory Authority for Community Services (ANRSC)) seem to restrict competition and the access of a larger number of entities to such procedures. Generally, the delegation procedures for the centralized heating service are burdensome, unclear and applied inconsistently by local authorities.
In certain cases, several regulatory authorities have decision-making powers in relation to the public heating service (e.g. ANRSC as a rule, but also the National Energy Regulatory Authority (ANRE) for heating produced in co-generation units). This results in unpredictable situations and inconsistent practices.
Numerous uncertainties
Things are even more complicated given that numerous potential investors work on business plans that involve bank loans. For the financing banks, the numerous uncertainties arising out of an unclear, inconsistent and generally outdated legislative framework translate into a negative decision on funding or into an opportunity to tighten the funding conditions.
Among the main aspects considered by sponsors and financers are the prices/tariffs that may be applied in order to recover the investment, as well as the possibility to access certain support schemes in view of increasing the reliability of incomes originated from an activity widely exposed to non-payment by consumers. Unfortunately, this is yet another matter in relation to which the legal provisions fail to provide the required comfort.
For example, the provisions of Law 325/2006 (on public heating service) establishing the pricing rules applied by heating producers are unclear and may lead to various interpretations (e.g. it is unclear if and under what circumstances the agreements for delegation of service may set prices differing from those approved by ANRE/ANRSC).
Consequently, the rules fail to ensure long-term predictability, which is exactly what the investments in this field need. Furthermore, the fact that producers of heating from co-generation units must have their production prices approved by ANRE on an annual basis makes it complicated to prepare long-term business plans built on predictable assumptions.
————————————-
The full version of this article can be read in printed edition of energynomics.ro Magazine, issued on December 2015.
In order to receive the next issue (March 2016) of energynomics.ro Magazine for free, we encourage you to write us at [email protected] to include you in our distribution list.
