January 15, 2010 / 12:24 PM / 11 years ago

Romania prepares energy sector restructuring

* Government to merge power producers in 2 major firms

* Some say plan could lead to higher power prices

* Power sector faces massive investment needs

By Luiza Ilie

BUCHAREST, Jan 15 (Reuters) - Romania is readying a controversial plan to consolidate local electricity producers into two state-run energy companies, a proposal officials say will boost output and turn the country into a power exporter.

While the centrist coalition government predicts the plan, to be approved at a cabinet meeting in coming weeks, will lead to lower energy costs, critics say the proposal lacks details and question whether prices really will fall.

“At present you have unbalanced companies ... so I understand why they want to change,” said Michael LaBelle, an independent energy expert based in Budapest.

“But to have only two big holding companies that are still dominant players on the Romanian market causes a lot of concern that...the end result is not really going to be more competition and lead to sustainable lower prices.”

Restructuring has been repeatedly postponed in recent years as successive governments have struggled to define their sell-off goals, facing labour and political pressures.

Meanwhile, Romania urgently needs to upgrade its coal-fired power and heating plants to meet stringent EU environmental standards or risk hefty fines and even closure. Other units need retrofitting to make them more efficient.

Government officials have said their plan would create competitors for regional power giants like Czech CEZ CEZPsp.PR, which is building a 600 megawatt wind project worth 1.1 billion euros ($1.59 billion) in Romania.

“The restructuring is what will create the basis for performance in the Romanian energy sector,” Economy Minister Adriean Videanu said late last year. “We want the two companies to be strong, bankable and to make the investments they need.”

Analysts say the restructuring, which merges costlier coal-fired energy with cheaper hydro and nuclear power, could end up protecting money-losing firms by merging them with profitable ones and scare off foreign investors.

“Implementation of the proposal would subject Romania to a major security of supply risk,” said a note from the World Bank.

“In addition...it would likely discourage private domestic and foreign investment at a time when more...is needed.”

The restructuring would create one company 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 would be named Energetica and have a 44 percent market share, with hard coal mines and plants, and hydroelectric units. Officials say stakes worth 15 percent in each of the two firms would eventually be listed on the bourse. (Reporting by Luiza Ilie; Editing by Michael Kahn and Keiron Henderson)

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