Dancing on a high wire with the insolvency of Hidroelectrica in the balance

ALINA TOMA VEREHA (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section /

According to some estimates, if the appeal gets admitted, Hidrolectrica will need to pay 2.8 billion lei to the "clever boys", an amount resulting from the energy deficit, as the company is contractually required to generate 19.8 TWh and it only generates 12 TWh.

According to some estimates, if the appeal gets admitted, Hidrolectrica will need to pay 2.8 billion lei to the "clever boys", an amount resulting from the energy deficit, as the company is contractually required to generate 19.8 TWh and it only generates 12 TWh.

"The clever boys" in the energy sector have great odds of seeing their rights reinstated 

If the court decides that Hidroelectrica should exit insolvency, the energy maker is at risk of going bankrupt, the receiver says

At the end of last week, the Bucharest Court of Appeal admitted the evidence brought by the companies in the Alpiq group and by the Hidrosind union, which have filed an appeal against the decision of the Court of Bucharest to admit the insolvency of Hidroelectrica. The companies in the Alpiq group, as well as the Hidrosind union, have filed requests for intervention against the decision to begin the insolvency procedure at Hidroelectrica, but they were rejected by the Court of Bucharest.

On Thursday, the Court of Appeal rejected the evidence of Euro Insol, the receiver of Hidroelectrica, and will announce its ruling in this case on October 11th. The ruling will be non-disputable.

Extremely outraged, Remus Borza, the manager of Euro Insol, gave us the following statement: "I think that it is unacceptable that the judges have accepted the evidence of the two companies of Alpiq and of the Hidrosind union and that they rejected ours. The challengers are not parties in this case, and the appeal shouldn't have been admitted. The judges even rejected our report on the causes of the insolvency, which was approved by 99% of the creditors of Hidroelectrica".

Arin Stănescu, the CEO of the National Union of Insolvency Practitioners (UNPIR), said: "Mr. Borza is right. The judges of the Court of Appeal shouldn't have admitted the appeal because the Alpiq companies and the union were not parties in this lawsuit. From my point of view, if the companies and the union consider themselves creditors of the company, the only avenue of attack is the non-administrative procedure (ed. note: this is also the case of Hidroelectrica SA, which filed for its own insolvency) is the opposition. I have to mention that some of the judges interpret the law in a different manner and that we have cases where this kind of appeal or request for intervention are admitted".

Borza: "I hope the judges will apply the law in an unequivocal manner"

Remus Borza made harsh statements concerning the judges of the Court of Appeal: "It is hard to serve justice when a judge has a lower salary than a driver at Hidroelectrica. I don't want to be misinterpreted, but this is the reality of the Romanian legal system. I hope that the judges will implement the law in an unequivocal manner. The legal system in Romania has been crooked and blind many times. The insolvency of Hidroelectrica is a decision which is assumed at the highest political level and it is a proven fact. 99% of the creditors voted in favor of the report concerning the causes of the insolvency. The shareholders of the company and the lender banks want that reorganization".

The receiver of the company explained that if the court will rule in favor of those who disputed the filing for insolvency of Hidroelectrica, then the company will be forced to resume supplying electricity to the "clever boys" at prices below market, without any profit and it runs the risk of going bankrupt: "< The clever boys > have caused approximately 1 billion Euros in losses to Hidroelectrica. If the court decides that Hidroelectrica should exit insolvency, there is a high chance of the suppliers asking for compensation for the period when the contracts were denounced. There is also the possibility of the creditors asking for their money. The problem is that Hidroelectrica is still affected by the hydrological draught and it is still lacking liquidity".

Lawyer Gheorghe Piperea also said that Remus Borza is not exaggerating when he says that Hidroelectrica is at risk of bankruptcy: "If the judges decide, Hidroelectrica will return to its initial state. < The clever boys > will see their rights reinstated. An important part of the hydroelectric energy will be sold to them again at very low prices. The judges will definitely ask for compensation and Hidroelectrica will clearly not have the means to pay them. And there are also the creditors, which have very high amounts to recoup. If the company can't honor its payments on time, it is obvious that there is a great risk of it becoming insolvent again, this time at the request of the creditors, but this will result in bankruptcy, not reorganization".

This summer, Remus Borza decided to denounce the direct contracts of Hidroelectrica SA with Energy Holding, Alpiq RomEnergie, Alpiq RomIndustrie, Euro Pec and EFT, after the negotiations to raise the price of energy it sold to the market average failed. Euro Insol renegotiated the prices of the ongoing contracts concluded with Alro, Electromagnetica, Elsid Titu and Electrocarbon Slatina.

According to the receiver, the contesters claim that Hidroelectrica had no reasons to enter insolvency and that the goal of the insolvency was merely to denounce the contracts they were involved in. The report on the reasons of the insolvency state that at the date it entered insolvency, with losses and negative cashflows due to the hydrological draught, as the company had very large short term debts.

The report states that the insolvency was not caused exclusively by the contracts with the "clever boys", but also by the sale below production cost of the hydroelectric energy on the regulated market, by the buying of expensive energy from the third parties, by the draught, by the costs of processed water, by the major investments with a low hydroenergetic component, by the collective labor contract, and by the costs generated by the Hidroserv companies and the flawed management.

The lawsuits of Hidroelectrica:  

Case no. 22456/3/20122 the Bucharest Court of Appeal Bucharest, appeal filed by S.C. ALPIQ ROMINDUSTRIES SRL, S.C. ALPIQ ROMENERGIE SRL, the Branch of Hidroelectrica HIDROSIND, hearing: October 4th, 2012;

Case no. 26502/3/2012 Court of Bucharest, Filed by: the Petrom Energie National Union, the HIDROSIND Hidroelectrica union - opposition against the beginning of the insolvency procedure, hearing: January 23rd, 2013;

Case no. 26503/3/2012 Court of Bucharest, Filed by S.C. ALPIQ ROMINDUSTRIES SRL - opposition against the beginning of the insolvency procedure, hearing: January 23rd, 2013;

Case no. 31384/3/2012 Court of Bucharest , filed by S.C. ALPIQ ROMENERGIE SRL, a dispute of the decision of the receiver to denounce the Contract no. 89CE/08.04.2008, hearing: January 23rd, 2013;

Case no. 29088/3/2012 Court of Bucharest, Contestator S.C. EFT AG, EFT ROMANIA SRL, a dispute of the decision of the receiver to denounce the Contract RO no. 22E/March 25th, 2004 Contract 12E bis/February 28th, 2003, hearing: January 23rd, 2013;

Case no. 29713/3/2012 Court of Bucharest, filed by S.C. ENERGY HOLDING SRL, a dispute of the measure of the receiver to denounce Contract no. 33CE/January 14th, 2004, hearing: January 23rd, 2013;

Case no. 31379/3/2012 Court of Bucharest, Filed by S.C. ALPIQ ROMINDUSTRIES SRL, a dispute of the decision of the receiver to denounce the Contract no. 89CE/November 20th, 2004, hearing: January 23rd, 2013;

Case no. 34807/3/2012 Court of Bucharest, Filed by S.C. PEET ELECTROCENTRALE PAROSENI S.A., a dispute of the decision of the receiver to denounce the Contract no. 92CE/July 30th, 2008, hearing: January 23rd, 2013.

Case no. 34739/3/2012 Court of Bucharest, filed by S.C. ELECTROCENTRALE DEVA S.A., a challenge of the report concerning the causes and the circumstances which led to the occurrence of the insolvency, hearing: July 23rd, 2013.

Out of the total of 623.329.779 Euros equivalent loans intended for investments contracted by Hidroelectrica, by mid-September, 112,662,622 equivalent Euros was repaid, and a balance of the equivalent of 377,441,456 Euros coming due in 2021 - to the International Bank for Reconstruction and Development (BIRD), according to the report of the receiver of Hidroelectrica.

There is an undrawn amount of 24,985,700 Euros of the loan from Unicredit, intended for the rehabilitation of 5 plants downstream from Slatina - lower Olt river.

There are no overdue payments for the loans taken out for investments, as the repayments will be made according to the schedule agreed with the lender banks.

The funds attracted for the funding of the current activities in the form of lines of Credit were contracted at a value of approximately 205.25 million Euros, with a 1 year maturity. Hidroelectrica took steps to reduce its exposure to these lines by closing some of them or reducing the limit of others, as the currently contracted level is approximately 179.69 million Euros, of which 170.17 million Euros are used.

Companies Alpiq RomIndustries and Alpiq RomEnergie don't stand a chance of winning the lawsuits by which they are requesting that the court annul the insolvency of Hidroelectrica, but in the legal system, anything is possible, according to Remus Borza. He claims that the state itself was one of the "clever boys" at Hidroelectrica, leading a "reckless" policy, through unprofitable contracts and investments in favor of other institutions. This year, Hidroelectrica will book losses of 100 million Euros, compared to a negative result of 124 million lei in 2011, and revenues will fall by approximately 800 million lei.

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