Natural Gas: The Road to Becoming a Gas Exporter
Romania has a petroleum history reaching back more than 150 years, as the country was the first to produce crude in the world and the first to build a modern oil refinery.
Currently, more than 90% of Romania’s gas consumption is produced from internal sources, and it is expected that the country will soon become a gas exporter, due mainly to recent discoveries in the Black Sea, but also to new onshore discoveries.
The main focus of both Government and industry (which includes big players such as ExxonMobil, Hunt Oil, Lukoil, and OMV) lies in: (i) developing a proper legal framework for offshore projects; and (ii) ensuring energy security by developing the National Transmission System (NTS) and proper interconnections with neighboring countries.
As far as offshore developments are concerned, not only are there almost no rules addressing the specific nature of the industry, but certain provisions under existing legislation constitute real blockages for these projects. On the other hand, the implementation of the Bulgaria-Romania-Hungary-Austria gas pipeline (which is aimed at diversifying the regional gas supply by connecting the area with future major projects such as TAP) and the NTS’s plan to take over gas production in the Black Sea starting with 2020 faces no delays. Later, the new infrastructure could carry Azeri gas expected to arrive on Romanian shores via the AGRI project.
Improving energy efficiency is also on the short to-do list of the NTS’ operator, through upgrades of the system itself.
In addition, the Government intends to put in place a new royalties regime and has been threatening to impose higher royalties on the industry for several years, while key players have been rightfully invoking the need for a stable tax and royalty regime and the protection of the stability clauses under existing concession agreements and related legislation.
Electricity: The Road to New Renewable Sources and Ensuring Energy Efficiency
Romania has exceeded the 2020 EU Renewable Energy Target since 2014 as a consequence of an extremely investor-friendly renewables incentives scheme implemented in 2008, based on granting green certificates to producers and obliging suppliers to acquire them.
This scheme resulted in an uncontrolled raise of electricity prices. Consequently, in 2013, the Government drastically reduced the level of support. This change of legislation caused major grief among wind and solar energy producers (with many threatening to file ICSID claims (although no actions were actually taken)) and put a halt to new projects.
Since the financial viability of solar and wind power projects was severely affected, in order to avoid a total collapse of the industry, the legislation was finally relaxed last year. Although these amendments benefit producers they do not seem sufficient to stimulate new projects.
The country’s main goals for the next period appear to be: (i) the modernization of the electricity grid (which would lead to investments of about USD 600 million by 2030, including technologies that make the transition to “smart grids”); (ii) a new support scheme for bioenergy (a highly discussed topic in recent years in light of Romania’s poor performance in terms of waste management; and (iii) the development of hydro and nuclear power.
Environmental: A Slow but Hopefully Firm Road to Meet EU Standards
For more than a decade, Romania has been implementing relevant environmental EU legislation and attempting to comply with all rules imposed by Brussels. However, it has not been a smooth road. The main challenges lie in: (i) improving compliance with waste management and disposal regulations (currently more than 70% of waste goes to the landfill, despite a maximum 25% quota); and (ii) improving the administrative capacity of the competent authorities, in particular with regard to water and waste management, and the establishment, protection, and management of protected natural areas.
Romania’s new Environmental Impact Assessment Law, which transposes Directive 2014/52/EU, is expected to come into effect this year. This too will be a bumpy ride as significant changes to the draft were proposed by the private sector. Fortunately, the Government recently informed the industry that the most controversial provision (a 1% tax for the review of EIA studies) included in the initial draft (although no equivalent exists in EU law) will be removed.
Important changes are expected in waste management legislation. Currently two draft laws providing clarifications to the existing legal framework and setting additional obligations to waste producers and/or collectors in different stages of the approval process.
By Anca Mihailescu, Partner, and Bogdan Rotaru, Associate, Ijdelea Mihailescu
This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.