WOOD Flash – Romanian energy: changes in energy regulations and impact on our coverage

Yesterday (1 September), the government adopted some changes to the protection scheme for gas/power consumers, which was approved in March. The changes to the March ordinance had been published in the Official Gazette already, with the ordinance becoming effective as of yesterday. The provisions of the new ordinance will be valid from 1 September 2022 to 31 August 2023. The new provisions affect the whole energy chain negatively, in our view. For the companies under our coverage, we see the largest impact on the power producers, Hidroelectrica (from Fondul Proprietatea’s portfolio), and Nuclearelectrica, with the new ordinance slashing all the upside from power prices above RON 450/MWh. Petrom will see a sizable impact on downstream gas from the cap on the trading profit; and, on upstream, from the cap on the transfer price of gas between upstream and the power plant. However, the main part of the upstream profit comes from oil, and upstream and downstream oil are not affected by these regulations, and these make up at least 70% of the EBIT. Romgaz will lose due to the reduction of the regulated price for heating companies, but less than 10% of the total volumes sold was going towards these companies, so we see a rather marginal impact on Romgaz from the new regulations. In the case of Electrica, the cap on the compensated price, at RON 1,300/MWh, could become an issue in 2023E, if power prices do not drop as a result of these new regulations, in our view.