February 6, 2019 / 2:54 PM / a year ago

Romanian domestic power prices capped by regulator

BUCHAREST, Feb 6 (Reuters) - Romania’s energy market regulator ANRE has approved a plan to cap electricity prices for households and some industrial consumers for the next three years, it said on Wednesday, as part of measures in a contested government decree.

The emergency decree approved in December without an impact assessment or public debate introduces a slew of new taxes, including a 2 percent duty on turnover for energy companies and a cap on gas and electricity prices.

Producers will also be required to sell electricity at prices no higher than 5 percent of production costs.

Companies that could face the biggest impact from the new regulations include state-owned hydro and nuclear power producers Hidroelectrica and Nuclearelectrica, which will be required to sell up to 65 percent of their output on the regulated market.

The new taxes and price caps, which led asset prices sharply lower last month, have attracted widespread criticism from businesses including investment fund Fondul Proprietatea , which holds minority stakes in a number of energy companies.

“The proposed measures are extremely short sighted, aimed at short-term benefits at disproportionately high costs,” said Johan Meyer of Franklin Templeton, which manages the Fondul Proprietatea fund.

“They will lead to lower sustainable profits for affected companies, impacting both taxes and dividends to the state budget and will destroy future investments in the energy sector and jeopardise Romania’s energy security.”

Romania uses a mix of gas, coal, hydro, nuclear and renewable energy to generate electricity, but more than half of all generation plants need to be replaced gradually or the country risks losing its energy independence.

Government policy towards investors has been unpredictable and unstable, making it hard for energy developers to draft long-term strategies, deterring investment.

Investment in gas production could also be a casualty of the emergency decree.

Romanian-based Black Sea Oil & Gas, controlled by private equity firm Carlyle Group, said that a final investment decision on its offshore gas project was complicated by the new taxes and sales restrictions..

On Wednesday oil and gas group OMV Petrom, majority controlled by Austria’s OMV, said it has postponed an investment decision at its deepwater gas field.

“The current legislative environment does not provide the necessary prerequisites for a multibillion investment decision,” OMV Petrom said. (Reporting by Luiza Ilie Editing by David Goodman)

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