In an entirely surprising manner, the GEO on the establishment of certain measures in the field of public investments and fiscal-budgetary measures, the amendment and supplementation of certain legal acts and the extension of certain terms introduces the return to the obligation for all consumers to consume domestic-imported gas, according to a percentage established by ANRE. This practice had important consequences on the gas market, which we will analyze next.
Market manipulation through the domestic production-import gas basket during 2001-2012
Starting with 2001 the principle of domestic consumption – import fairness was introduced in the Romanian gas market for all gas consumers. The procedure involved the submission to the market operator within TRANSGAZ, by all consumers and distribution operators/suppliers on the regulated market of consumption forecasts for the following month, the submission by gas producers of the maximum available gas quantities that could be extracted from domestic production, and the Market Operator calculated by difference the necessary gas quantity to be imported for the following month, so basically it determined the import gas percentage mandatory to be purchased by all consumers for the following month. This percentage calculated by the Market Operator was subject to ANRE approval and became mandatory for all gas consumers in the following month.
The table below presents the domestic production-import percentages established by ANRE during 2007-2011
|Coefficient approved by ANRE||Coefficient proposed by Transgaz||Coefficient approved by ANRE||Coefficient proposed by Transgaz||Coefficient approved by ANRE||Coefficient proposed by Transgaz||Coefficient approved by ANRE||Coefficient proposed by Transgaz||Coefficient approved by ANRE|
It can be seen that between the percentage calculated by the Market Operator and the market percentage endorsed by ANRE there are differences, which have not been explained by ANRE in the published reports, but which determine economic benefits for some companies (the large industrial gas consumers) and economic disadvantages for other companies (gas producers). As a result of the difference between the calculation of the Market Operator and that endorsed by ANRE, the real market price was influenced; indicatively, the variation of the average market price through the approval by ANRE of a certain percentage, other than that calculated by the Market Operator, determined the following changes in the average market price:
“-” means the administrative decrease in the average market price through the percentage approved by ANRE, different than that calculated by the Market Operator
“+” means the administrative increase in the average market price through the percentage approved by ANRE, different than that calculated by the Market Operator
Changing the percentage calculated by the Market Operator by ANRE determines the following consequences:
- practice allowing certain persons to manipulate the average gas price in the market depending on certain interests;
- artificial decrease in the gas demand by ANRE, for the following month, aspect which endangered in each winter the operation of the national transmission system and gas supply to consumers;
- artificial increase in gas quantities imported in Romania, through percentages calculated above the real demand;
The following chart presents the monthly domestic production – import percentages during 2007-2012, as well as the “normal” percentage of imported gas necessary to ensure gas for end-consumers and the operation of transmission-distribution-storage systems in normal conditions.
It can be noted that during 2007-2012 the import percentage in the same month varied greatly compared to the normal value and it also varied significantly even compared with its calculation in the same month from various years, aspect apparently difficult to understand as gas demand and production present approximately constant values at the level of the same month. However, the import percentage approved by ANRE has recorded significant variations, from 100% to 300% within the same month from different years. Following the difference between the import percentage approved by ANRE and the “normal” demand for imported gas to ensure the normal operation of the transmission system and ensure gas supply to consumers, the real average market price is influenced. Indicatively, in the table below you can see such an influence.
“-” means the decrease in the average market price through the percentage approved by ANRE compared with a “normal” demand for imported gas to ensure the normal operation of the transmission system and ensure gas supply to consumers
“+” means the increase in the average market price through the percentage approved by ANRE compared with a “normal” demand for imported gas to ensure the normal operation of the transmission system and ensure gas supply to consumers
The adjustment of the domestic production – import percentage is made administratively with ANRE’s approval, using gas extracted from the storage facilities, considering such gas as being imported gas or domestically produced gas, so as to result in the approved domestic production-import percentage.
ANRE did not understand the theory taught at the first course of economics: “Even the most monopolistic economy has failed to control both price and quantity”, only by manipulating the results – we might add.
The consequence of such approach:
- practice allowing certain persons to manipulate the average gas price in the market depending on certain interests;
- method of artificial increase/decrease in the demand for imported gas on the Romanian market;
- increase in the cost of stored gas for some companies (in general for those with state capital), by manipulating the import percentage determining during 2008-2010 the impossibility to extract and sell the import gas quantities purchased and stored in the storage facilities, gas which added additional costs through multiannual storage tariffs, leading to the reduction in the profit of these companies;
- extraction of the cushion gas from the storage facilities, through the blatant violation of laws in Romania and increasing the costs of storage services for many years ahead;
- endangering the gas storage activity in Romania, through the companies’ refusal to store gas, which subsequently cannot be used depending on the own needs, following the intervention, often brutal, of state institutions, by manipulating the import percentage and “coloring” gas held by these companies in the underground storage facilities according to certain interests;
- decreasing the average gas price in the market, by subsidizing (charging with costs) following the exchange of imported gas with stored gas (considered from domestic production) and thus determining the reduction of the import percentage;
- affecting the security of gas supply from import as a result of unpredictability, given by the administrative intervention of ANRE in setting the domestic production-import percentage and refusal of Romanian companies to conclude medium or long-term contracts for the acquisition of imported gas;
- increasing the price of imported gas following the unpredictability relating to gas supply in Romania by foreign suppliers;
- violation of laws even by those who should see to their compliance – ANRE.
Fairness of domestic-import gas consumption for all consumers is a good principle, which must continue in Romania, but through mechanisms ensuring:
- the impossibility of intervention of certain persons in market price manipulation;
- eliminating crossed subsidies between the various categories of consumers, masked through the domestic-import percentage;
- eliminating the sacrifice of state-owned companies to maintain low prices for certain categories of consumers;
- ensuring the predictability of the domestic-import percentage by setting a domestic-import percentage for longer periods (at least one year) and allowing each company to prepare its own strategy for managing it.
Romanians have paid up to 3 billion dollars in addition for gas imported during the existence of the domestic production-import basket
Gas exporters treat each national market particularly, placing the offer, including through intermediaries, which maximize their interest in the respective market. Thus, an exporter that has relations with a company activating on several markets takes full advantage of opportunities it offers in each market and will conclude contracts for each market with separate clauses and prices.
Analyzing the average gas price in Eastern Europe, gas price in Romania during the existence of the gas basket presented a comparative average value (including transmission costs) by approximately 16% higher compared to the average price of gas imported in Hungary, by 30% higher than the average price of gas imported in Moldova and by approximately 25% higher than the price of gas imported in Bulgaria. Even if the average price to the end-consumer is comparable, slightly inferior in Romania, the import gas price recorded significant differences.
I believe that this aspect was mainly due to:
- terminating the conventions with Gazprom and destroying the relation between the import gas price and gas transited through Romania;
- the existence of the gas basket, which determined, by keeping the domestic gas price at a low level, gas imports in Romania above the average import price in other countries.
Making a correlation between the average domestic gas price and the import gas price we can notice that the increase in the domestic gas prices led to a decrease in import gas prices, respectively the import gas price adapted to the affordability of Romanian consumers. Summer gas, discounts of gas exporters on the Romanian market, new price formulas were the measures by which they reacted and adapted the offer for imported gas to the new changes in the Romanian market, respectively to the increase in domestic gas prices and the decline in gas demand. The gas basket, thought as a measure to ensure fairness in the market in 2000, turned after 2004 into a tool for keeping a low price for the end-consumer, contributed, together with the termination of the convention between Romania and Russia, to gas imports in Romania at superior prices and the additional payment by Romanians of approximately USD 1.6-3bn in 10 years, respectively the payment by 15-25% more for the imported gas.
The domestic-import gas basket during 2007-2012 was a mechanism used to subsidize gas for certain consumers by other consumers
It can be noted that over time the gas basket has varied greatly, even during the same month, which apparently is difficult to understand because the demand at the level of the same month cannot show significant variations, from 100% to 300%, except in some special situations caused by market manipulation. These variations were also due to the influence of large industrial consumers which in fact made the game on the Romanian gas market, decreasing or increasing gas prices for the other consumers through their behavior on the market, game which was legalized by ANRE through specific decisions and orders. To exemplify how these differences in the basket occurred within the same calendar month, we will present an example:
Gas demand was established at the beginning of a calendar month based on statements of industrial consumers and distribution operators. We consider that it was: 700 mcm/month.
The monthly available quantity from domestic production for the same month was: 500mcm; at an average price of RON 45.71/MWh (RON 0.47/cu m)
The necessary import difference resulted is: 200mcm (700mcm demand – 500mcm available from domestic production), resulting a percentage for imported gas of 28.5%; at an average price of RON 150/MWh (RON 1.57/cu m)
This percentage had to be purchased by all market customers, the average price on the market thus being: RON 45.71/MWh * 71.5% domestically produced gas + RON 150/MWh * 28.5% imported gas = RON 75.3/MWh. ANRE established quarterly, based on this principle, the unitary cost of gas, i.e. the regulated price for end-consumers.
The industrial consumer X that has stated that it would consume monthly 100mcm consumers by 100mcm more.
Consumption at the end of the month was 800mcm instead of 700mcm the base demand based on which the average price was determined.
Sources from domestic production were still 500mcm (this being the maximum available amount), thus resulting that the difference was covered with import sources: 300mcm (the initial 200mcm + the subsequent 100mcm), resulting that the real import percentage was not 28.5%, but 37.5% of imported gas.
The real average market price was in fact: RON 45.71/MWh * 62.5% domestically produced gas + RON 150/MWh * 37.5% imported gas = RON 84.6/MWh
Thus, there was a difference between the price established by ANRE and the unitary cost of gas, which for our example was lower by RON 9.3/MWh (RON 0.097/cu m or around RON 140-291/building/year), meaning that the costs were higher by 12.4% than the price established by ANRE. In fact, in all these years, consumers, including household consumers, took money out of their own pockets to subsidize the consumption of special industrial consumers (for our example RON 9.3 for each MWh consumed). These costs were classified by ANRE as deferred costs, and ANRE management started on 15 September 2012 an action to recover them, by increasing the price at the end household customer in 2012, following to apply new price increases so that by 2014 the claimed EUR 500,000,000 could be recovered – respectively to increase by RON 8.1/MWh consumed in the following years (RON 0.085/cu m, i.e. paying in the following 2 years around RON 255-510/building/year in addition). In other words, after during 2005-2010 consumers had paid in addition RON 9.3 for each MWh consumed to put it in the pockets of special industrial consumers, it was time to pay other RON 8.1/MWh for two years (2012-2014) to put them in the pockets of certain distribution operators.
Translation from Romanian by Romaniascout.