"For decades, the people of Bucharest have been misled by ELCEN"

Recorded by MELANIA AGIU and RAMONA RADU
English Section /

"For decades, the people of Bucharest have been misled by ELCEN"

The people of Bucharest have been misled by ELCEN for years, says lawyer Gheorghe Piperea, the receiver of RADET, referring to the method used for calculating the cost of heating.

"ELCEN produces electricity and thermal energy, and in the tariff that it charges people for heating, they include both the costs of electricity and heating. Normally, those two types of products should be separate and they should not charge those of us who buy their electricity from other providers for their own electricity via the gigacalorie price, because that means that some customers pay for their electricity twice".

In his opinion, there is the possibility that ELCEN will stop producing thermal energy in autumn. In this context, lawyer Piperea says: "I would launch a competitive bidding or tender selection process in which other companies of providing thermal energy would participate, and ELCEN would compete with them. (...) We will have to buy thermal energy from the market if ELCEN is unable to supply it anymore, and in my opinion that is a very serious matter, of national security, which should be discussed by the Supreme Country Defense Council. (...) In the medium term, we should, calmly and intelligently start reviewing our suppliers of thermal energy".

(Interview with lawyer Gheorghe Piperea, receiver of RADET) 

"I would launch a competitive bidding or tender selection process in which other providers of thermal energy would participate, and ELCEN would compete with them"

Reporter: What is the current situation of the RADET?

Gheorghe Piperea: Theoretically, RADET is bankrupt, but legally speaking, even though its bankruptcy has been decided, that ruling has been suspended by the Bucharest Court of Appeal. Therefore, it is as if a reorganization plan hadn't been discussed and hadn't been invalidated by the judges. We are again in the monitoring period. That is not something to brag about, but it isn't a disaster either, because in the monitoring period, the public autonomous company has been financially stabilized - namely, it was breaking even in March 2019. At the time we had no losses and since then, the situation hasn't deteriorated.

The problems are caused mostly by the ELCEN, which has also determined, in an absolutely shocking self-destructive manner, - the bankruptcy of RADET. At the same time, ELCEN keeps putting pressure using all kinds of demands, with blackmail, in order to get what it will never be able to get from the Mayoralty - meaning the debt of 3.7 billion lei (ed. note: which RADET had to pay to the ELCEN), which should have been canceled through the merger between the two state companies.

ELCEN saw fit to try and recoup that amount from the mayoralty, which announced very adamantly that it would not pay that amount, especially when there is a ruling of the Court of Cassation, from February 2017, which very clearly states that the debt does not exist. The mayoralty owes ELCEN nothing, the records of the Ministry of Finance only show the debt that RADET owes ELCEN. As part of the insolvency procedure - specifically, if the reorganization plan is eventually approved by the Bucharest Court of Appeal, part of the debt to ELCEN will be paid according to the payment schedule of the reorganization plan, and we had proposed 5% of the total. On the other hand, in the case of bankruptcy, the debt gets completely erased.

Going back to the financial situation of RADET, I want to state again that the debtor has stabilized. The problems originate from ELCEN and sadly, from the Mayoralty, which has seen the allocations from the central budget be diminished from one year to the next, which has caused delays in the payment of the heating subsidies for the citizens of Bucharest, or the complete inability to do so.

Had we received that subsidy in due time, not only would we not have run into financial problems, but we could have made more investments then we were able to do so far.

With RADET as cash strapped as it was, it has made investments of several tens of million of lei in the pipeline system, which is in the same state it was three years ago, when the company filed for insolvency. I want to mention that they were already 20 years past their operating lifetime. Obviously a significant part of them has been repaired, but they are still in a critical state.

Going back to the question - on the current state of the company - we are waiting for the trial at the Bucharest Court of Appeal, in autumn, and if our appeal is denied, then the RADET will indeed go into final bankruptcy. If the appeal gets upheld, then we will go back to the state of things which existed in March - we will have a preliminary reorganization plan, which will be amended in due time in order to also resolve the issue of the debt of ELCEN, which in my opinion can only be resolved through a merger, which will result in the extinction of this debt.

I want to emphasize that at the present time, that is the only solution. Either it is the RADET, or the company which will take over the RADET group, which is called Termoenergetica.

I want to say again that if the appeal we have filed gets rejected, the immediate result will be that the entire receivable of 3.7 billion lei, which ELCEN is demanding, will be canceled.

Reporter: So in both cases, the ELCEN isn't going to get its money back...

Gheorghe Piperea: Exactly! Hence the self-destructing behavior. First of all, 70% of the turnover of ELCEN stems from the sale of the heating agent to RADET. The bankruptcy of RADET means that immediately, 70% of the turnover of ELCEN will vanish. But that is not all, because once it is no longer able to sell thermal energy, there will be two more huge negative consequences. One - ELCEN will no longer be eligible for the co-generation bonus. Because over the last 10-15 years, ELCEN has been collecting from the Romanian government 100-120 million Euros every year, for the retooling of the thermal energy installations, money which it has done nothing with, so far.

Secondly, once it is no longer able to sell thermal energy to RADET, it will no longer be eligible for funding - any kind of public funding: public, grants, from the EU.

Of course, once you cut your turnover to 30%, you also lay off people, bearing all the related social consequences. To say nothing of the fact that ELCEN has its own creditors, of which the Tax Administration alone has a 1 billion lei claim. RADET has no debts to the ANAF, either current or old ones. On the other hand, ELCEN does, some of which are Social healthcare Contributions. Do you know what the result is when a company hasn't paid Social Security Healthcare Contributions? Their employees aren't eligible to go to a hospital and get free or subsidized treatment or medications.

I would like to point out that out of the total of 3.7 billion lei, no less then 3.5 billion lei are penalties. It all started with an overdue debt of 2008, which the Mayoralty of Bucharest was somehow supposed to pay together with the Ministry of Development. The initial amount kept accruing penalties, which at one time were as high as 1% a day.

Reporter: What is the initial amount of the debt which RADET owes ELCEN?

Gheorghe Piperea: The actual debt owed by RADET to ELCEN is, in reality, of 200 million lei, but the lawsuit is still ongoing and it also involves the ANRE and has been going on for years. For now, a receivable of 3.7 billion lei is being included on the list of creditors by us, without being challenged, but it is being disputed by the mayoralty, which thinks that in fact, it should amount to no more than 200 million lei. The judge has not yet issued a ruling, as an expertise was ruled to be necessary, but which hasn't been performed yet.

Reporter: You have complained several times about the manner in which the contract between ELCEN and RADET was designed...

Gheorghe Piperea: Yes, it is true! The payment terms are completely irrational - RADET has 20 days from the days the invoices are issued, not from the day the thermal energy is delivered, in order to collect the bills from the consumers. We have collection rates of over 95%, we have no serious issues with payments by the consumers, like other heating public enterprises in other countries have. Except that the invoice issued by ELCEN is issued with a maturity which falls on one day and it usually arrives earlier than the maturity on my invoice. As a result, even if I were to collect 100% of the invoices from the apartment owner associations, I would be unable to pay ELCEN the entire amount, because that amount collects penalties during the minimum payment delay of 15 days (which sometimes can go as high as 45 days).

This contract has been fixed somewhat, and we changed its insolvency procedure, but that's the way it has always worked.

Reporter: Sierra Quadrant claims that the amendment of the legislation is the last chance for "the heating system to avoid a collapse". What is your opinion on that claim?

Gheorghe Piperea: Sierra Quadrant (ed. note: the receiver of ELCEN) has proposed, in a general shareholder meeting, to get a success fee of 2.75% of the amounts collected by ELCEN.

They claim that if the company goes bankrupt, then the state will be forced to repay the VAT pertaining to the invoice of 3.7 billion, which means approximately 500 million lei. Well, that is the amount they apply the 2.75% to - the fee which they would be entitled to. Thus, they have determined the bankruptcy of RADET and what is the worst is that the lawyers and legal advisers of ELCEN have said that in front of the judge and that is absolutely irresponsible to say, namely that they support the bankruptcy of RADET.

Of course, the law allows amounts granted as fees, as high as 10%, when some efforts are made to recoup money for the creditors, but what money did they bring in or are going to bring in? Because in fact, this positive VAT adjustment follows from the law (if accepted by the tax administration), and second of all, it is owed exclusively to the insistence in asking the syndic judge to declare the bankruptcy (if the bankruptcy hadn't been declared, that VAT adjustment wouldn't have existed, nor their fee of 2.75%). So the blame for the RADET bankruptcy lies 100% with ELCEN, and that bankruptcy is cunningly and to their own interest being sought, because there are other amounts which they claim they could recoup. For example, I am talking about the amount of 1.4 billion lei from the sale of the assets, even as there is an evaluation which states that the assets of ELCEN would not fetch more than 800 million lei in a sale. And I'm saying even that would be a tall order, because once RADET and then ELCEN go bankrupt, they won't even be worth 400 million, becoming just mere plots of land occupied by huge industrial constructions and which need to be removed for the plots of land to be usable, perhaps for real estate. And they have established a fee of 2.75% for that 1.4 billion lei as well.

And completely laughable, the third financing source of the reorganization of ELCEN would be, in their mind, the amount of 1.2 up to 3.7 billion lei, recouped from the Mayoralty following a lawsuit which - get this! - they themselves admit could take as long as 12 years.

Sierra Quadrant and CITR have drawn up an advertising budget, because they often pop up with all kinds of wacky ideas, such as that the legislation is not good and if it isn't changed, then the system will enter collapse. There are many things which I could criticize as well where that legislation is concerned - there are a number of discussions taking place for its modification (for instance the amendment of the ordinance concerning the acquisition of the shares from the Ministry of Energy to the Mayoralty is being sought), but it is one thing to criticize the legislation and another to say that because it is bad, you can't do your job as a receiver. That is in fact an admission of your own inability or incompetence.

Just like them, we are working with the same legislation and yet, we have stabilized RADET, cash strapped as we were we have made investments, we are employing 3,000 people etc. Moreover, the moment when they got it into their minds that they would get that amount from the Mayoralty, everything changed, they have kept us in place for a year (and that can be found even by the syndic judge) with the reorganization plan which we had submitted since February 2018. That procedure has been deadlocked because they got the impression that being the main creditors, they could force us to dance to their tune. That is a complete misunderstanding of the concept of receiver, which is appointed by law and has to abide by it, to be independent and impartial.

I want to emphasize that a reorganization plan cannot be changed in the project phase. It needs to be approved, confirmed by the judge and then it can undergo modifications. At any rate, the manner in which the reorganization of ELCEN has taken place is completely unwise. Instead of a merger (which was a lot faster, and simpler), they asked for a transfer of the business, which would take at least one year and a half, maybe even two years of formalities - evaluation, the obtaining of new licenses, permits etc. - and in spite of it all, that was the option that was chosen because unlike in the case of a merger, the business transfer does not involve the wiping of that debt, but rather the preservation of the entire receivable, meaning that we would still be going through a legal battle 12 years from now on, and more than that, the VAT adjustment and reimbursement which Sierra Quadrant and CITR want to make a commission on.

Reporter: If the Court of Appeal were to declare the bankruptcy of RADET in autumn, what will happen to the Bucharest heating system?

Gheorghe Piperea: The heating system of Bucharest will move from the bankrupt RADET to the new company of the Mayoralty, Termoenergetica, a process which is under way. Afterwards, Termoenergetica needs to merge with ELCEN.

Perhaps until that happens, the Mayoralty of Bucharest is going to buy the shares of ELCEN from the ministry, for 1 Euro. The Municipality buys the shares of ELCEN at a symbolic price of 1 Euro, but gets shares in a company which owes 2 billion lei or whatever amount is left if it draws up a reorganization plan and cancels some of those debts.

ELCEN will have no choice when it comes to the merger with Termoenergetica.

There is no other solution, and the expense by Termoenergetica with acquiring RADET means almost nothing compared to the expenses which come afterwards, because, afterwards, the 3,500 - almost 4,000 kilometers of pipelines from the RADET system need to be modernized, repaired and maybe in that time the distribution system gets changed - instead of having four giant CETs (Heating Plants), there would be several by block and most importantly, maybe the sources of thermal energy will be reviewed as well.

For instance, at the moment, given that is not at all certain that ELCEN is going to provide us with energy in autumn or that it will still be capable of producing thermal energy, I would launch a competitive bidding process in which other economic agents that would supply heating would participate as well, and ELCEN would be competing with them.

Frankly, I am not at all convinced that we will be buying thermal energy from ELCEN this autumn, and we cannot afford to leave 1.2 million people of Bucharest without energy this winter. That is why we are going to be buying it from the market, if ELCEN becomes unable to supply it, and that in my opinion, is a very serious matter, of national safety, which should be brought up for discussion by the Supreme Defense Council of Romania. In the medium term, with the required calm and intelligence (which exists but isn't being used), we need to rethink the supply sources.

Reporter: What would be the alternatives?

Gheorghe Piperea: In 2017, in the first months since I took over the term from RADET, I was talking about a very ambitious plan which I haven't forgotten about and which I hope will be implemented, of putting up solar panels on the rooftops of Bucharest blocks, which would heat up the water at least in summer, so that we wouldn't be forced to absorb the losses every summer, which amount to approximately 30-35 million Euros. In Bucharest there are 8,500 blocks of flats and it would be a huge boom, because for that materials are needed, services, etc.

I would also go for a source of energy which unfortunately is being ignored by everybody in Romania, but particularly by the public authorities: recyclable, organic waste.

Every year, in Bucharest, we have 1 million tons of organic waste, which keeps adding up and of course nobody uses that, or they don't use enough of it.

Out of one million tons of organic waste you can make enough biogas to heat up a large part of the Capital.

And there are also geothermal energy resources which can also be exploited, but that takes calm, for the partners in the contract and in the business not to issue every day a new scaremongering message to the press or which would send all kinds of unjustified and undeserved barbs and for a strategic mind to exist which would organize these things and then see them through over the course of five-ten years.

Speaking of jabs - how do you feel the ANRE felt when, just a few hours before the folks at ELCEN were supposed to go and discuss their contract with RADET, they said in the media that the ANRE was pushing them into bankruptcy because it was requiring them to operate below the production cost? The ANRE had a very harsh reaction.

Concerning the costs - ELCEN also produces electricity and thermal energy, and in the price it charges consumers for heating, they include the costs of generating heat (which are far lower) but also the costs of the electricity they generate. Normally, those two types of products should be separate and they shouldn't be charging consumers for the costs of electricity, because consumers pay for their electricity distinctly and including those costs in the price of one gigacalorie would essentially mean that consumers would pay for their electricity twice. This is a huge management mistake, and I could even say that it is a misleading practice to the detriment of consumers, which generates major class action lawsuits. In my opinion, for decades, the people of Bucharest have been misled.

In this context, ELCEN is saying that the ANRE is pushing it into bankruptcy because it is forcing it to charge below production costs the gigacalorie rates. They should adjust their production costs, so that they no longer have such production costs which then consumers have to pay via their heating bills, and then they won't be "forced" to pay below production cost!

Reporter: Thank you!

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