Planned natural gas price hikes in Romania to cut GDP by 5%, employment by 10% - Deloitte

By bne IntelliNews March 19, 2014

The natural gas price hikes, scheduled by the Romanian government upon its negotiations with the IMF and the EU, would slash EUR 6.3bn [nearly 5%] of the country’s GDP together with 0.5mn workplaces [10% of the country’s employment], according to a report drafted by Deloitte Romania* and presented by its director for energy projects Valeriu Binig, Agerpres news agency reported.

The [regulated] price of domestic natural gas will soar by 143% in the next two years and consequently the end-user price for industrial user will increase by 72%.

Romania would return to recession in case it sticks with the natural gas market liberalisation process, Binig concluded.

The report was drafted however at the request of local industrial natural gas consumers under the CONIPROM association, most of whom use gas to produce fertilizers that are then exported at high profit margins given the low regulated price of the natural gas in Romania.

IntelliNews Comment: The government indeed decided to increase gradually the regulated price of the domestic natural gas - which currently accounts for some 80% of the domestic consumption. The prices are planned to converge towards the price of the imported Russian gas – which is debatably equivalent to the market liberalisation.

But once the regulated price pushes down the consumption [this is a visible effect already], nothing will stop local producers OMV Petrom and Romgaz from selling their output on the domestic market at lower prices. Furthermore, in case the domestic consumption drops below the domestic production – a scenario that is not impossible, the whole domestic production will be traded on the exchange at true market prices.

There are indeed problems related to the low diversification of supply [only two major producers] and no functioning market. Formally, gas trading started at Romania’s energy market OPCOM and the commodity market BRM – but full market functioning requires much more.

* “Deloitte” is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, and tax services to selected clients. These firms are members of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee. – www.deloitte.ro

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