Mr. Aureliu Leca,
President General Manager
Romanian Electricity Authority - RENEL
Bd. Gen. Gh Magheru, RO
70164 Bucuresti 1
Phone : 40 1 659 60 00, 650 72 20
Fax : 40 1 312 02 91
Telex : 11279 renel r
On the Web : http://www.renel.ro
Succeeding to supply clean energy to more than 8 million customers, we are looking for a permanent increase of our clients satisfaction. We offer a range of profitable projects in generation, transmission and distribution of power and heat for potential foreign investors. Based on the free and nondiscriminatory access to the internal market, the recent legal framework provides new incentives for investors. RENEL's current modernization and rehabilitation programs are strongly supported by the international financing institutions.
Generation, transmission and distribution of power and heat.
Strategy Interview with
Mr. Aureliu Leca,
President General Manager of RENEL
Question: Your company is the most known and solid in your sector. Could you give to our readers a brief historical background of your company as well as your professional experience?
Answer: In 1993, after leaving RENEL, I rejoined Politechnical University of Bucharest and over there, starting 1992, I was the chair- holder of the UNESCO chair on engineering sciences and I focused on energy and environment. This was the first step. Being in that position I asked UNDP, and they accepted, to put up an UNDP training center on energy management as a new UNDP project. I collected money from different sources, mainly international donators, and by that project I started to train policy makers and decision takers about energy policy in a country like Romania. I succeeded to train also the former opposition, which now have the majority. So, in last March, I have been asked to join RENEL, with one main task, and Im going to be here as long as Im useful related to this task, to reshape the power sector. So, the first thing before my appointment, I had rounds of discussion with the former Minister of Trade and Industry, Mr. Popescu Tariceanu and he asked me what would be my views about the perspective of the power sector and I gave him a ten pages document and I said that first of all we have to setup a Ministry of Energy in Romania. It was not possible to setup such an institution because the cabinet was already formed, so at least a department of energy and resources. The idea was very simple, we had no institutional framework, by that time, dealing with energy. So, my approach was very simple : all countries facing oil crisis reacted in a certain way, setting up special institutions devoted to energy efficiency, mix fuels and so on. And a transition to a free market economy, in my opinion, represents at least two or three oil crisis at the level of Romania, so we have to reengineer all the power sector and we didnt have anything to start with in 1989. This was the first issue I asked for, to put up a proper institutional framework. Secondly, I suggested to start drafting an energy strategy of the country for the next 15 years. This has been done during the summer, with full support of RENEL and our people, and now the draft is at the level of the cabinet, on the waiting list to be approved. The third issue I asked for was to prepare the energy law. We had an energy law in Romania in 1924, very good for that moment. So, during the same summer, our people, mainly lawyers and technicians, have drafted the energy law which is also on the cabinet waiting list. The energy law is particularly important because it should make clear option between two concrete different alternatives: the first one is ownership, the state or to accept the private owners in this sector, and the second one is to choose between monopoly or competition. So, we were, of course in the favor of competition and mixed properties between private owners and the state. The last issue, and Im going to get through with this introduction, is that my aim here is to try to reshape RENEL, but this issue is very much linked with the first three issues because you cannot change this company without having a certain background, a certain backup. We have been working with Behtel International which came to Romania through USA as an assistant to the Romanian Government and we presented in July a model and the program to reshape RENEL.
About the company, RENEL represents the Romanian Electricity Authority and it has been setup, considering the present statute, in November 1990. It is organized today as a monopoly, it is the power utility of Romania and more or less is the successor of the former Ministry of Electrical Energy of Romania. Considering the general features of this company, we are responsible for 96 supplies of electricity for all the country and about 40 % of the heat distributed in Romania, we have about 8 million consumers, all kind of, the installed power is about 20000 MW and the generation of electricity unfortunately decreased from 83 billions KW/h in 1990 to 62 billions KW/h in 1996 due to economic recession and also due to the large program of reshaping the Romanian economy. The employees are too many today, its still an inefficient company, unfortunately, because not very many changes happened here in the last 7 years and because it inherits the situation of the former economic system. Being organized as an Autonomous Regis we have been advised in 1992 to choose the French model. This solution was, at least in my opinion, but not only, a big mistake, because this structure preserved the structures, relations, inefficiencies of the former Ministry of Electrical Energy, without having the possibility to change and to correct all this problems. In the same time, in this very large company, having turnovers of about 2.53 billion $, trade unions found the best place to flourish. So, for many reasons, institutional, economic, organizational, the power sector organized like it is today should be reshaped. And this is one of the main goals which has been clearly stated by the new Government after the last elections in November
Q: So, this is the main aspect of your strategy to reshape?
A: Well, definitely. What we have to do, my colleges and myself, is to reshape the monopoly, which is a structure extremely resistant to changes. So, what we try to do, working with new people who run the Ministry of Trade and Industry, is to create a new environment, considering the institutional framework, legal framework and organizational framework for the power sector. So, considering the power sector, the Government released during the summer, in June, a special Ordnance stating that all the autonomous Regis, and first of all monopolies existing in the power sector, will be abolished and replaced by commercial companies. And RENEL is supposed to be one of them. This hasnt happened yet because of the trade unions resistance to the accomplishment of this task. As far as we are concerned, we have been working with Behtel International, which is a reputed consulting company, and we got this support through USA, and we defined together a target structure and a program to restructure the power sector. According to our knowledge, in the coming weeks, the cabinet will approve the abolishment of RENEL as a monopoly and will transform it into a commercial company. For the future in the new created commercial company, the name is probably going to be National Electricity Company, first of all well change the statute. Instead of being a state own monopoly is going to be transformed into a joint-stock company representing the private property of the state, but being run as close as possible by the principles of market economy. And, from that moment, we will start the process of reshaping the company. First of all, the most difficult problem we have was to change the mentality. This process time-table, in our opinion, should be at least four years, which is very challenging because nothing happened in seven years and we would like to reshape everything and first of all people , in four years.
Q: So, its sort of a transition period.
A: Definitely. So, in this period of time, we will start with changing the financial management. The first measure we already took was to replace the former structure, in which you cant identify any cost, with cost centers. We have 37 subsidiaries for generation and 42 subsidiaries for transport, transmission and distribution of electricity. All of them will be transformed right now in cost centers. Each cost center its going to have autonomy, independence and own budget, trying to have all the attributes of an independent commercial company. In the meantime we hope that the energy law will pass through the Parliament and by the new law is going to be created a new regulatory authority in Romania, which should be a non-political, independent, non-discriminatory institution which is going to supervise how the energy market is created, developed and operates. In the same time well make an administrative-technical-financial and legal separation between generation, transmission and distribution, so, three different activities with three different categories of specificity.
Q: Thats the process of diversification and specialization.
A: Exactly. Romania stated in 1995 that, as a country, is going to join European Union; all 15 countries of the European Union released an energy directive by which the energy market is going to be created in a certain way. So, the power sector in Romania should be very much in line with this energy directive if Romania wants to join European Union. So, we have to implement in the same time all these principles. We have to create, and Im going to provide you with all the description, a grid company which will be the successor of this National Electricity Company. So, this grid company will represent high voltage network with a dispatching and commercial operator. And this is going to be organized as a joint-stock company, state owned at the beginning, probably being the last one to be privatized, because it represents the infrastructure. On the generation side we definitely encourage having competition between different producers. We have now two power plants of special importance. One is a nuclear power plant which is using a Canadian technology and its the only nuclear plant in Central and Eastern Europe having western technology, 700 MW first unit and we are looking to finalize the financing for the second unit; they will represent together probably 10 % of the generating capacity in Romania. Its going to have a special statute, being guaranteed by the Government. The other special power plant is the largest hydro power plant we have in Romania, on Danube, "The Iron Gates", which represents another10 %, and it will be also organized as a special unit. It produces today the cheapest electricity, much less than 1, namely 0.1, cent per KW/h. So, it shall be used with a special regime, being so cheap. All the others 37 power plants we have will be organized in three commercial companies, well balanced, competing each other, each of them representing about 30 % of the total market and no one being able to control the market. In the same time we will create IPP-s, Independent Power Producers, which will represent the foreign and domestic investment in the power sector, in the generating area. And also we will import electricity because the grid is going to be open and any producer outside Romania will be able to sell electricity to any consumer in Romania through the transmission network. On the distribution side we will setup, from the present 42 distribution subsidiaries, probably about 15 distribution companies, organized as commercial companies.
Like the power plants, they will be organized at the beginning as joint-stock state owned companies but being subjects to privatization. These distribution companies will supply electricity to two kinds of consumers : small consumers will be captive consumers, according to the energy directive of the European Union, and these small captive consumers will be protected by the regulatory body, and large, mainly industrial, consumers, which will be considered as eligible consumers, having the right to buy directly from any producer and paying the transmission tax. So, by this model, we want to introduce competition in the generation and in the supply of electricity. This model has been accepted by different multilateral institutions like The World Bank, The European Bank for Reconstruction and Development and so on, by letters sent directly to the prime-minister saying that they accept that this probably the best model for us, not very simple, in line with the principles of these institutions and that they are ready to offer financing support for the power sector.
Q: In the world economy, in the global market, I feel this project will be very competitive.
A: Well, on the paper it looks very nice, but it is really my nightmare how to do it. Because the problem which really concerns us is that we have to reshape, more or less to reengineer, the people. So, the changing of management is a problem we have to deal very careful with. I have setup in RENEL a special task force which is in charge with this restructuring process, its called Comity for Strategy and Reform of RENEL, 15 smart and skilled people which are exclusively in charge with identifying all the sub-programs for this transition period. In the same time we have to find foreign experts, foreign support for the missing expertise like change management, financial management and human resources management. For these issues we had some discussions with different consulting institutions to find solutions, to implement teams in RENEL to work on this.
Q: You talked about foreign investors. As we say in the United States, contacts mean often contracts. So, what are you doing in order to encourage this?
A: Of course, a foreign investor coming to Romania to invest in the power sector should be interested enough to make this decision. So, there are some issues that must be solved, related to this kind of decisions. First of all its the legal environment. Even today there is no main obstacles in making such kind of decisions, but there is a Governmental concern to improve and to simplify the legal environment by which a foreign investor can invest in Romania, particularly in the power sector. The next issue is the price of electricity. Starting March 1 the price of electricity has been raised to
5 cents per KW/h at the consumer level. This price is quite high for Romanian consumers because energy has been always cheap or very cheap in Romania. Romania was a country very rich in oil and natural gas, I dont know if you know the oil history but all over the world it started from Romania in 1857, even two years before Texas. Being so rich we used this kind of extremely valuable energy resources careless. In the same time, in the former political regime, we practiced a lot of subsidies which also generated a lot of inefficiency. So, right now, all the industrial consumers which were created in the former Romania, based on the principle of self sufficiency approach, no matter the quality of their products, they protest. So, the new price of 5 cents per KW/h its also determined to impose them to take care by themselves.
In the same time, RENEL, as a supplier, is ready to promote the DSM project by which RENEL invests in the consumers side to improve their efficiency. Next, we have to identify what kind of projects should be offered to the foreign investors and we almost finished a list cost study in cooperation with SEP from Holland, Tractebelle and EDF. According to this list cost study we have to identify the best projects, candidates for becoming Independent Power Producers created by auctions or direct contracts with different investors interested in entering in the Romanian power sector. So, these represents all kind of projects, thermal, hydro, different fuels, unfinished power plants or from the new power projects. In the same time we are interesting in privatizing the distribution. I know that distribution is the most attractive for foreign investors because the money are collected in that area. So, right now, what we want to define is the best approach first of all for Romania. The best approach, I think, is to restructure the power sector first and then to privatize, because if we make it the opposite way is going to collapse.
Q: And, if you could tell us also about the contract between Behtel and RENEL?
A: Behtel is a consulting company and they have been working with us for designing the restructuring program of the power sector.
Q: And, are there big US investors in your sector?
A: Frankly speaking, up to now, we have already about one billion $ engaged in different projects, mainly rehabilitation and unit one of the nuclear power plant, but right now, considering the future of the power sector, we have been visited by very many companies, from all over the world, from Japan to the United States, starting to ask questions about the power sector. We gave the explanations and the program itself will start in few weeks from now, when the Government is going to take the decision of abolishing RENEL and setting up the new commercial company of the power sector. We had, for example, discussions with Arco, Western House, with which right now we have some points to clarify because it changed its profile and owner and we want to know whom are we going to work in the future, we have also two IPP, one its a co-generation power plant for the City Hall of Bucharest and the owner is the Bucharest City Hall and it is a join venture with ABB Sweden and Amoco, with investments from different companies including EBRD London. Also, we have a project, which is about to be finalized in RENEL, a co-generation power plant, with two partners, RENEL and Isenberg from Israel and right now, as I told you, we are about to finish the list cost study and to start auctions for different projects.
Q: Now I would like to ask you a more personal question. What has been your most satisfying personal achievement since you are being General Manager of RENEL?
A: I would say that Im a person which is never satisfied with what he succeeds to do. So, I would say that my satisfaction was acceptable when we succeeded to present to the Government a strong and solid program for restructuring the power sector. And right now Im waiting for the answer. I think my best day in RENEL it would be when the Government would say OK, start doing that.
Q: As a final issue, what will be your final message to our readers?
A: Well, I think that Romania is a country of opportunities, with very good people which misses very little to improve the situation in the country. This very little belongs not to education but to certain missing issues of the culture. Romania has been the most oppressed country after Russia and you know that the higher is the oppression, the lower is the culture. So, Romania was a real closed country. I had the advantage that I lived in the short time between 1965 and 1971, 1965 when Ceausescu, the former leader of Romania, took the power and 1971 the moment when he visited China and he started to implement in Romania the Chinese cultural revolution. That period of six years was a real hope for Romania. Within this very short period of time I had the chance to be a Fulbright fellow in the United States, in Gainesville, Florida, in nuclear engineering. All the time after 1971 Romania was a real closed and oppressed country and the attitude of the people was dramatically changed. We performed well in removing this Romanian spoiled environment and change it into a competitive one. What we have to do right now is to reshape the country and, in my opinion, the most difficult task belongs to the current leaders. History is written by leaders. That was my goal, working for UNDP, to train decision makers, at least on the power sector.