Fondul Proprietatea: Gas price capping breaks local and EU legislation, jeopardizes investments, Romania’s future gas independence

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Fondul Proprietatea (Property Fund) has reacted to the recent announcement by the Finance Ministry regarding the intention to cap the gas price at RON 55/Mwh for the domestic production until June 30, 2021. In a release on Friday, the fund informs:

Fondul Proprietatea expresses significant concerns regarding the intention of the Government to cap the gas prices from internal production at around 70% of the current market price, following the recent publication of a draft Government Decision by the Ministry of Public Finance.

If adopted, the Government Decision would flagrantly breach already approved legislation, as well as Romania’s obligations as EU member state to observe the free market principles and liberalise the gas market. This will have a highly detrimental impact on the economy and market attractiveness for investors, severely discouraging foreign direct investments in the country. Romania’s energy independence will be put at risk and the country may have to rely on external sources of gas at higher prices that the Government will have no control over, the release reads.

Moreover, if the measure would be applied to all consumers, including industrial consumers, this would raise again the issue of discriminatory treatment and potential state aid, as well as result in smaller contributions to the state budget from the gas industry.

Commenting on the dire implications of such a proposal, Johan Meyer, CEO of Franklin Templeton Investments Limited and Portfolio Manager of Fondul Proprietatea, said: “As financial investors we are very surprised and worried that the Government may be erasing years of building credibility in front of the international community through a single decision. Local individual investors, Romanian pension funds, and international institutional investors invested in good faith in the Romanian capital market, in companies like Romgaz and OMV Petrom and are seeing their value being destroyed by the Government with this draft decision. Through the announcement of this ill considered decision the Government managed to erase more than RON 600 million in the value of its own investments in Romgaz and OMV Petrom, while the total value destruction for the two companies was over RON 1.45 billion in a single day.”

Johan Meyer further added: “Arbitrarily capping gas prices would throw Romania back in time, as the Ministry of Finance’s proposal backtracks the entire liberalization process that took years to complete and jeopardizes any future investment in the Black Sea, which is essential for Romania’s energy independence. Moreover, this measure contravenes the EU free market principles and will put Romania in a very bad light shortly before the upcoming EU Council Presidency. Such short term thinking without due regard for the long-term implications for the Romanian economy will not protect consumers, but will ultimately expose them to even higher gas prices in the future.”

Given the serious and wide-ranging consequences such a decision would have, Fondul Proprietatea urges the Government to withdraw the proposal and safeguard the free market fundamentals of the Romanian economy and the commitments taken in relation to the European Union. These are critical to ensuring sustainable and long term development for the country.

Fondul Proprietatea also firmly believes that a functioning capital market needs the Government’s commitment to be mindful of potential impact of its decisions on the future of the companies and on the investment community. The Fund will also take any necessary steps to protect Fondul Proprietatea’s shareholders rights, the release concludes.

The Finance Ministry argues that the draft to cap the gas price from domestic production is necessary because the liberalisation of sale price for natural gas, imposed after April 1, 2017, has led to the continuous growth of prices, by 29.5% and the estimated growth in March 2019 is of 33.75%.

The grounding note reads that the sale price of natural gas by domestic producers on the centralised market during April 2017-August 2018 has grown from RON 70.92 to RON 77.72.

“There are two operators which increase the prices one by one, and the other one reacts immediately. The assumed investments haven’t been completed, but the price is increasing unjustifiably, people suffer and the economy suffers. And some call it a communist measure. I had no connection with communism,” Finance Minister Eugen Teodorovici said on Thursday,





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