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"We are negotiating accessing 80 million Euros from the Management of the Environmental Fund"

Adelina Toader (translated by Cosmin Ghidoveanu)
Companii #Energie /

"We are negotiating accessing 80 million Euros from the Management of the Environmental Fund"

For 2018, the Complexul Energetic Oltenia (the Oltenia Energy Complex) will pay 1.4 billion lei, 42% of their turnover, for the acquisition of CO2 certificates, considering that their price has gone from 8.5 Euros to 21 Euros on the German exchange.

The company is currently in advanced talks with the Ministry of the Environment and the Administration of the Environmental Fund to raise 80 million Euros for energy efficiency, and amount which will allow the company to reduce its costs with CO2 certificates.

Sorin Boza, the president of the Directorate of the Oltenia energy Complex, granted us an interview in which he discussed the effects of the Government Emergency Ordinance 114 on the company, the development plans of the company, as well as the strike which CE Oltenia recently faced.

(Interview with Sorin Boza, president of the Directorate of CE Oltenia)

"Last year we realized that in five years we would no longer have employees"

CE Oltenia pays 42% of the business turnover for CO2 certificates

The company plans to make investments of 595 million lei, for the current year

The wage increases after the strike amounted to 135 million lei

Reporter: To what extent will the activity of the Oltenia Energy Complex be affected by the Government Emergency Ordinance 114?

Sorin Boza: I am not affected by that ordinance. OUG 114 represents an incredibly small amount compared to the amount I pay for the CO2 certificates. For the purchase of these CO2 certificates, for 2018 alone I will have to pay 1.4 billion lei, with a compliance deadline by April 30, 2019. Until then, I need to buy certificates of that amount, which represents almost 42% of the total turnover. So the effects of the Emergency Government Ordinance are negligible. If I am forced to pay money through that ordinance, I will do it, it doesn't represent something that would affect much, considering that we have other taxes which are a lot bigger, which are effectively strangling us.

Reporter: Are those taxes affecting the investment projects?

Sorin Boza: Unfortunately, this year's investment plans are a lot smaller than last year's, but not because of that emergency ordinance, but because of the high cost we have to pay for those certificates.

Last year, the investment plan initially amounted to 820 million lei and it has reached 692 million lei after the rectification, of which 603 million lei have been spent, meaning 87.18%.

As far as I know, we were ranked first in terms of the completion of investments, among all the energy companies in the country.

We have invested almost one billion Euros over the last six years, in order to be environmentally compliant. The Oltenia Energy Complex is a company that currently complies with every EU and implicitly Romanian environmental regulation.

This year, despite the fact that we have to pay this huge amount of 1.4 billion lei, we try to keep up the high level of investments. We have an investment plan of an estimated 595 million lei, for the current year.

This year we will access for the first time funds from the AFM (Management of the Environmental Fund). Part of the costs of CE Oltenia which we pay for the CO2 certificates go towards these funds. There is a paragraph (10C) which allows us, for energy efficiency, to access those funds. We have already submitted the documentation and we are in advanced talks with the Ministry of the Environment and the AFM to benefit from an amount of approximately 80 million Euros for energy efficiency. These investments will help us decrease atmospheric emissions and thus, to the drop of the number of CO2 certificates. After the completion of investments, we estimate a 20% reduction in their number.

Also, the new investment plan which is now in the process of being created and which CE Oltenia is participating in, we will be requesting funds from that plan for the construction of a natural gas-based unit in Craiova. That doesn't mean that we will shut down the coal-based unit, we are going to keep it, but we will only use it for the capacity market, and the natural gas group will be new, retooled and modernized. We are looking for outside solutions, because as far as the internal ones are concerned, we are confined to 595 million lei. We are looking for solutions to reduce the costs of CO2 certificates, because that is the future if one wants to endure the in the market.

Reporter: What development plans does CE Oltenia have for 2019?

Sorin Boza: In the last 4-5 years, CE Oltenia has not conducted any expropriation, which means that in 2018 it has had very low means of development. The company could have been better supported in the past years. Last year we have conducted three expropriations through three Government Decisions, - Roşiuţa, Roşia and Jiu Sud. For this year we are preparing 12 Government Decisions, of which 3 for expropriations and 9 for the exit from the forest fund of some plots of land. Through these decisions we will create the conditions for adequate exploitation of our quarry, which will allow us to be at ease in terms of production and exploitation over the next 7-8 years.

There are many voices speaking about the insolvency of CE Oltenia, but if we are preparing only expropriations and we have plans for development, it is clear that that is the message that needs to reach the public. Otherwise, had we been thinking about shutting down the company we wouldn't have been making expropriations for the development of the company and we would have stopped the investment plan. But the ill-intentioned people don't see that the actions we are taking now are taken with the future in mind, rather than the present. Works on an expropriated surface can only begin one year after the Government Decision, because the land needs to be prepared. That takes about 8-12 months until it becomes useful for the company. It is a costly action, but it is meant to secure the future.

Reporter: What financial results did the Complex have last year?

Sorin Boza: As you know, a company is judged based on the financial and operating results. The operating result of CE Oltenia shows that we are a company which ended 2018 with a positive result. The negative financial result that we had last year comes from the booming cost of the CO2 certificates. Last year, when we shaped up the budget, we took into consideration a certificate cost of 8.5 Euros, in line with the predictions of the EU. However, we have concluded 2018 with a certificate cost of 21 Euros, but that was out of our hands, we don't set that price. The certificates are acquired from the German exchange EEX. Unfortunately, the EU estimates have been incorrect and the difference from 8.5 Euros to 21 Euros times the total number of 13 million certificates led to a huge loss.

The EU was saying that certificates would reach the price of 21 Euros only in 2025, yet it happened in 2018.

Reporter: To which fact has this increase in the cost of CO2 certificates been owed?

Sorin Boza: It is a move on the exchange, which affects every energy producer in Europe. From my point of view, I think there have been three elements that have led to that rise, which the EU should have anticipated anyway.

Personally, I think that this hike has been caused by the withdrawal of the US from the Paris agreement, saying that they do not recognize that certificate market and they would never pay. Like any exchange, it influenced by any element. I think that Trump's statement whereby he was announcing the withdrawal of the US was an element that has influenced this market. The Brexit has been another element. The certificate package has not been allocated to the UK anymore after the announcement of the Brexit and it has been divided among fewer participants.

One third reason that I see behind this is the major rise of the price of certificates, which has provided the opportunity to many European investment funds to invest money in them. The influence of such funds that have played the exchange for gains only has led to that increase. These are the elements that I think are responsible for the "explosion" of the price of these CO2 certificates.

The greatest danger I see for the future is the unpredictability of this cost for the next 3-4 years. If I look at the estimates of the EU which stipulated that the current amount of these certificates would only be reached in 2025, one can't know what they're going to cost one year from now.

Perhaps by the end of the year or next year it's going to reach a record price that will affect all of the company's financial results. Moreover, I think it's a damn shame that ours has been the only voice where this increase is concerned, considering that far more companies pay these certificates. Perhaps, because of paying smaller amounts, they haven't reached the level where they would feel choked off, but if these hikes continue, then they will definitely be affected. From my point of view, a common voice was needed, because there is strength in numbers.

The 2018 turnover has increased over 2017, by approximately 15%, to approximately 3.8 billion lei.

Even though we have been forced to raise the costs of paying for these CO2 certificates, we have concluded the year with a B rating from most lender banks and Eximbank, which is a good rating which places us among stable companies. In 2016, the company had a D financial rating. The fact that we have been granted this B financial rating shows us and our partners that we are a stable company. Moreover, this is the second consecutive year where we have no debts to the state budget - we have paid every debt owed to the state, taxes, suppliers, partners, we have no debt.

We currently have 13,000 employees. The first decision I've made when I became CEO, on December 21st, 2016, was to halt the restructuring plan. This year we have agreed with the social partner to only lay off 200 people, and in general, there have been people with medical issues, and we will do the same this year as well.

Reporter: How is the workforce crisis being felt in the Oltenia electric plant?

Sorin Boza: We have a lot of problems with the workforce, because our employees' median age is rather high, 49.8 years. Last year we have realized that in 5 years we would be left without employees. We have been the first company in Romania which has developed the first dual education project, setting up six classes- 5 in Gorj and one in Dolj, for the professions we are seeing a shortage of employees for - excavaror and bulldozer operators, welders, electricians, machinists for heavy machinery. There are currently 160 children registered for these classes that last three years. Next year, when they graduate, we will have 160 new employees, and the registrations continue, to maintain the necessary number of employees.

Reporter: What is the stage of the current negotiations you are having with Chinese company Huadian for the building of the energy group in the Rovinari thermoelectric plant?

Sorin Boza: We are in talks with the Chinese partner and we are waiting for the results of the negotiation.

Reporter: What amount have you allocated for the wage increases after the January strike?

Sorin Boza: First of all I would like to say that this was a strike that caught us by surprise because we had a collective labor agreement which was supposed to be renewed in March. We were prepared to raise those wages, but the people have made that move before the end of the contract. That is why our first measure was to declare the strike illegal and as a matter of fact, the judge has declared it illegal. I agree that our people's wages are low. We need to look at what's happened over the last few years when the wages in the local administration have increased, which meant a mayor's driver would be paid 4500 lei, and the stretcher bearer would be paid 6,000. It is normal for our workers to feel frustrated. But the manner in which they acted wasn't fair. I agree that wages had to rise and we had to do something, but I am sure that the same solutions could have been found through a civilized discussion. We were prepared to make that raise, but we need to comply with the collective labor contract in order to be fair. My decision, which was accepted by everybody, was to raise the wages only for the working staff, who account for 86% of the employees. We have found solutions together, which we have agreed upon, we have signed an addendum to the contract which is already submitted and will come into effect on March 1st. We have granted wage increases for various types of activities. Thus, the workers' wages have increased by 1,000 lei, 700 for team leaders and 500 for workshop leaders. This has been the second wage increase that I've made in the last two years. I would like to say that the 2017 wage increase was the first in the last six years. In 2017 we spent 80 million lei on wage increases, and 135 million in 2018.

Even though it had troubles due to the halting of mining during the strike, CE Oltenia was present in the market with all the energy groups, has not caused any imbalance in the national system and we have secured every contract during that period, operating the thermoelectric plants with the coal stocks that we had on hand.

We have had a drop in inventory of approximately 260,000 tons of coal, because we haven't produced, but rather consumed, but we haven't affected the market. We had a stock of 711,000 tons of coal on the day the strike began. According to the decision concerning the safety stocks for the winter, we were supposed to have 640,000 tons, but we had gone over that threshold.

Reporter: Thank you!

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