Romania to set up energy firms by year-end

BUCHAREST (Reuters) - Romania's plan to overhaul its energy sector should be complete by the end of the year despite legal challenges that have so far put the proposal on hold, Economy Minister Adriean Videanu said on Thursday.

Videanu had initially estimated that the plan to restructure mostly outdated, inefficient producers into two state-owned energy generators to lower energy costs and better compete across the region would be completed by mid-2010.

But various energy unions have filed a lawsuit opposing the restructuring, which the government approved earlier this year after repeated delays, saying the plan could protect loss-making state enterprises by merging them with profitable units.

The European Union state's competition watchdog, whose decision is binding, is also looking into the plan to ensure the overhaul and the two large energy producers that come out of it would not distort Romania's power sale and distribution market.

"We must wait to see what the court decision is," Videanu said. "Energy experts have said ... this restructuring is the best solution."

"But the economy ministry and the government as a whole are prepared to take measures ... so that these two companies are registered and functional by the end of the year."

The renewed investment comes as the region's biggest utility has decided to scale back ambitious expansion plans due to the world financial crisis, which has sapped energy demand.

Czech power group CEZ confirmed it planned to cut investment and focus on its domestic market after a local newspaper report put the potential cuts at over $5 billion.

INVESTMENT PLANS

Romania's restructuring would create a firm called Electra, with a market share of about 48 percent, to include Romania's two nuclear reactors, lignite-fired and hydro power plants.

The second firm, Hidroenergetica, would have a 44 percent market share and include hard coal mines, hard coal-based producers and hydroelectric plants.

Investors and analysts have criticised the repeated delays of the reform at a time when some power producers are in dire need of investment or risk shutting down. But Videanu said the potentially lucrative power market held appeal to investors.

"Despite very delayed reforms, Romania's energy system is still attractive for potential financiers," Videanu said.

As an example, on Thursday the head of Romanian state-owned hydro power firm Hidroelectrica, Mihai David, said he would seek private partners in September to build six power plants worth some 1.5 billion euros.

David also said a struggling hard coal-fired power plant in western Romania was in advanced talks to build a new power group worth around 400 million euros with investors that include Japanese firm Itochu.

Videanu added that Romania should make an investment decision by September on two future units at its sole nuclear power plant in Cernavoda.

Romania, which currently holds a 51 percent stake in a partnership with major regional power firms to build the two units, has said it will lower its participation to a minority one and renegotiate its deal with the foreign partners.

(Reporting by Luiza Ilie; Editing by Michael Kahn and Jane Baird)