The European Commission announced on 19 December 2016 its decision not to raise objections to Romania’s intention to amend its green certificates support scheme for promoting electricity from renewable sources. The decision was issued on 16 December 2016, three weeks after the registration of the Romanian government’s notification, and should be made available on the Commission website after redaction of any confidential information.

Background information on the support scheme

Romania’s green certificates renewable energy support scheme was initially approved by the Commission in July 2011 through decision no. C (2011) 4938 and was intended as means of assisting Romania in reaching, by 2020, the mandatory renewable energy target of 20% set under Directive 2009/28/EC. In national legislation, the scheme was introduced through an amendment to Law no. 220/2008. According to the scheme, electricity producers are entitled to green certificates for each MWh generated from renewable sources such as hydropower, wind, solar, geothermal, biomass, landfill gas or sewage treatment plant gas. The state-issued certificates granted to producers are further sold to electricity suppliers on centralised markets operated by the Romanian Power Exchange (‘OPCOM’). Electricity suppliers have a legal obligation to acquire a certain amount of green certificates, determined each year by the National Energy Regulatory Authority (‘ANRE’). Green certificates are, at the end, invoiced by suppliers to end-consumers.

The support scheme, as approved initially, is believed to have attracted investments of over EUR 7 billion in local power generation capacities, the most substantial being the development by CEZ Group of a 600-MW wind farm in the Cogealac-Fântânele area of Dobrogea.

The support scheme is open until 31 December 2016, which is the time limit set for new beneficiaries to enter the scheme. All beneficiaries of the scheme were initially intended to receive green certificates during a support period of 15 years for new installations, 10 years for upgraded or refurbished hydro installations, 3 years for existing hydro installations and 7 years for second-hand installations. The initial budget estimated by the Romanian government for the support scheme was EUR 19.5 billion for its duration.

Further developments and amendments to Law no. 220/2008

In retrospect, one could say that the green certificates support scheme, in its initial version, was the victim of its own success. In its infant stage the support scheme attracted investments that exceeded all expectations, causing imbalances that translated into an excess of green certificates on the market and significantly increasing costs for end-consumers.

The adjusting measures later implemented proved too harsh and resulted in great losses suffered by investors, especially following depreciation of their assets. These measures mainly aimed (i) to limit the payments towards producers (e.g. by reducing the number of green certificates per MWh; temporarily suspending from trading some of the green certificates; reducing the validity term of green certificates to only 12 months following allocation or closing the loop for new operators) and (ii) to reduce the costs for end-consumers (e.g. by partially exempting energy-intensive users from the green certificates support scheme – a measure which, nonetheless, has led only to a redistribution of costs within consumer categories).

Latest changes approved by the European Commission

The latest changes to the support scheme are encompassed in the notification sent to the Commission in November 2016 and were cleared by the European governing body on 16 December 2016. The amendments to Law no. 220/2008 are expected to be introduced through a Government Emergency Ordinance (‘GEO’). A first draft of the GEO was published for public consultation by the Romanian Ministry of Energy in late October 2016, and a revised version was made available on the ministry’s website on 17 November 2016.

The changes to the support scheme aim to correct the imbalances encountered on the green certificates market while ensuring that prices charged to end-consumers remain at a bearable standard. The main changes include:

• a new way of determining the green certificates quota for a fair distribution of the burden held by end-consumers. The entire amount of green certificates estimated to be issued during the 2017-2031 period (also including the green certificates temporary suspended from trading during 2013 and 2014) will be divided by the number of years left until the end of the support scheme. This annual, static quota will be reviewed every two years;

• increasing the validity period of green certificates. Green certificates issued after 1 January 2017 will be valid until 31 December 2031;

• the extension of the temporary suspension from trading of green certificates until 31 December 2024 for solar technology. Also, the green certificates reinsertion period for wind and hydro producers will be extended to 8 years, starting 1 January 2018 until 31 December 2025, and the reinsertion period for solar producers will be extended to 6 years, starting 1 January 2025 until 31 December 2030. The green certificates reinsertion will be made in equal monthly instalments;

• green certificates will be registered in the accounts of beneficiaries only after being traded and no longer upon issuance. This measure is intended to prevent cash flow difficulties for electricity producers;

• electricity producers and suppliers will trade green certificates starting 1 July 2017 exclusively on a dedicated centralised market operated by OPCOM that will ensure the anonymity of parties involved. In addition, producers and suppliers will be forbidden from entering into additional acts to currently applicable bilateral contracts for the sale of green certificates in order not to circumvent the new trading rules. Violating these rules will be sanctioned with a fine between 1% and 5% of the turnover achieved during the year preceding the sanctioning decision;

• repeated transactions of green certificates will be prohibited (i.e. as a general rule, only one transaction per certificate is allowed) as a measure against market speculation;

• setting new minimum and maximum trading values for a green certificate to EUR 29.4 and EUR 35, respectively. Also, the penalty for electricity suppliers not acquiring the compulsory amount of green certificates each year will be lowered from EUR 110 to EUR 70 per green certificate; and

• introducing provisions limiting the medium impact on end-consumer invoices to EUR 11.1/MWh.

Preliminary reactions

The anticipated changes have been welcomed by investors in the renewable energy sector, most of whom recorded heavy losses following the initial amendments to Romania’s green certificates support scheme. These new measures could revitalise a sector that had initially drawn substantial foreign investment and made Romania one of the most attractive countries in the world for renewable energy projects.

Making the support scheme functional again is also paramount to attaining the objectives set by the Romanian Energy Strategy for the 2016–2030 period published in December 2016, where the 2030 target for the share of electricity generated from renewable energy sources in the final consumption of electricity is 27%.

Nonetheless, it is too early to tell how the new government to be formed after this month’s parliamentary elections will implement these changes and whether such measures have the potential of making Romania a hot-spot again in the renewable energy sector. Any decision to further alter the changes approved by the Commission would need to be notified again to Brussels before being enacted.

After years of expectations and controversies, on 25 November 2016, a new Law no. 233/2016 regarding public-private partnerships (“PPP Law”) was published in the Romanian Official Gazette. It will enter into force on 25 December 2016.

It is well known that the old law regulating public-private partnerships (Law. no. 178/2010) has not generated the effects expected by public authorities, as well as by the business environment. No public project initiated under this law has actually been achieved, mainly due to the regulation’s deficiencies.

Once the new legislative package on public procurement entered into force on 26 May 2016, it was widely suggested that a specific PPP law was unnecessary because public projects can be implemented under concession law provisions.

Without attempting to exhaustively present all aspects addressed by the new PPP Law, please find the most relevant aspects below:

1. Regulating contractual public-private partnerships

One major criticism of the former PPP law was that it exclusively regulates institutional public-private partnerships as projects can only be implemented via a project company in which the state is a shareholder.

In practical terms, the former law excluded contractual public-private partnerships in which the project company was wholly owned by a private partner.

Pursuant to the new PPP Law, a contractual public-private partnership can be created based on an agreement between the public partner, the private partner and the project company, even if the project company is wholly owned by the private partner.

2. Financing public-private partnership projects

Another major criticism of the former law was the limitation stipulated by it on the public partner contributing financial resources to the development of the project.

One key problem with the old law was connected to the limited possibilities for financing the investments in this type of projects

The new PPP Law stipulates that financing can be provided fully either from financial resources secured by the private partner, or from financial resources secured by the private partner together with the public partner. The private partner can secure the financing from its own resources, as well as from the resources of other financers.

Furthermore, unlike the old regulation which stipulates that the public partner can only participate in the project with a “contribution in kind”, the new PPP Law stipulates the option for the public partner to contribute to the financing of the project with public financial resources resulting from post-accession, non-refundable external funds and the national contribution pertaining to them.

The contribution of the public partner to a public-private partnership project has to be made in accordance with the regulations regarding State aid, the use of public funds and in compliance with the limits provided for by law as regards public budget deficits and public debt.

The new PPP Law also stipulates the option for the public partner to assume payment obligations towards the private partner and the project company and to make cash contributions to the share capital of the project company.

3. Guarantees offered to financers

Besides increasing the options for the public partner to contribute to the financing of the project, the new PPP Law gives the public partner the possibility to offer guarantees in favour of the financers of the public-private partnership project which are credit institutions or other financial institutions.

The new legal provision also allows guarantees to be granted over the shares or stock held by the private partner in the project company, in favour of the financers of the project.

In addition, the new PPP Law also regulates the possibility for the project company to create guarantees over the receivables and rights held by virtue of the public-private partnership agreement, however exclusively in favour of the project financers.

The terms regarding the assumption or cancellation of guarantees, that have been provided in the event that the public-private partnership agreement is terminated before the period for which it has been concluded ends, can also be agreed in the public-private partnership agreement.

4. Preparing public-private partnership projects

The new PPP Law stipulates more flexible terms for determining the technical and economic indicators of the project.

The first step to be made for the initiation of a public-private partnership project is to prepare the feasibility study and, in this regard, the public partner has the possibility, according to the new PPP Law, to contract technical, economic and legal consultancy services.

The feasibility study has to highlight the following elements: the viability of the project, risk distribution structure, the categorisation of the project in relation to the public deficit and public debt, the financial viability and economic efficiency of the project.

The proposal for the risk distribution and financial viability of the project are the main elements which will be of interest for investors and financers, being the essential indicators for the decision on whether or not to participate in the project awarding procedure.

Consequently, the public partner not only has to substantiate the necessity of the PPP project, but also has to make it sufficiently attractive for investors and financers.

5. PPP agreements

The new PPP Law expressly stipulates that the PPP agreement is an administrative agreement.

Unilateral termination of the PPP agreement by the public partner was the subject of debate during the approval of the new Law, although the necessity of establishing certain conditions for such a decision has been asserted.

The new PPP Law stipulates that, due to exceptional reasons relating to public interests, the public partner may unilaterally amend or terminate the public-private partnership agreement, however, only if the following conditions are met: (i) this possibility, including the categories of exceptional reasons relating to public interests, have been included in the awarding documentation, as well as in the PPP agreement, in a clear, precise and unequivocal manner; (ii) the amendment of the agreement does not alter the generic nature of the initial agreement; (iii) the private partner and the project company are notified in advance with regard to this unilateral amendment or termination.

In light of this, the new PPP Law establishes the right of the private partner to receive an equitable compensation if the unilateral amendment or termination of the agreement causes damage for the private partner.

6. Conclusion

The new PPP Law has the very difficult task of meeting the expectations of all persons interested in this kind of project, since the old law not only caused reluctance both at the level of the business environment and the European Commission, but did not lead to the accomplishment of any PPP projects either.

Although the new PPP Law could be a start for the development of PPP projects, it should not, however, be forgotten that the coherent application of this Law depends, to a great extent, also on the norms for its application.

The norms for its application are very important since the law stipulates that the mechanism of the public-private partnership and the conditions for the public partnership assuming liability for the project will be detailed by these norms.

The Ministry of Finance will draft the application norms and submit them for government approval within 90 days of the new PPP Law entering into force.

Considering the huge interest awakened by this area, we expect the legislative bodies to adopt coherent and uniform laws which will enable the development of this kind of project, which is currently essential for the economic and social development of Romania.

A new law, no. 233/2016 on public private partnerships, has recently been published in the Official Gazette of Romania and will enter into force on 25 December 2016, The Government will have 90 additional days to prepare and issue the methodological norms required for the implementation of the new law, which is expected to be fully applicable towards the end of March, 2017.

The new public private partnership (PPP) law lays out the foundation for what Romanian legislators hope will become one of the key drivers for bridging the infrastructure gap between Romania and the EU. The law comes at an opportune time as studies show that private sector capital is on the rise worldwide, with insurance companies, pension funds and sovereign wealth funds managing more than USD 45 trillion. A 2012 study done by Russel Investments found that 12% of the 146 global institutional investors surveyed expected to increase their investment in public infrastructure—a trend that is likely to continue and grow.

PPP Units

The new law builds on a sound set of best practices for the public sector in terms of the selection and management of PPP projects. For example, the law allows public entities that aim to carry out projects through PPPs to set up internal units with dedicated employees that will be focused on these type of projects. Until such specialisation takes place (and afterwards), public entities can collaborate with experts in areas required for the analysis and implementation of each specific project.

PPP Initiative & planning

The initiative for a PPP project belongs exclusively to the public entity. The launch of any such project can only be made after a substantiation plan has been drawn up. This plan, which forms the core of each PPP project, must detail both the economics of the envisaged project as well as the allocation of risk between the public and private partners. The specifics of such plans will be detailed in the methodological norms that will be enacted by the Government in the coming months.

Selection procedure

A public private partnership will be implemented only after the selection of the private partner, which is to be done through a competitive procedure. The type of competitive selection procedure will be chosen based on the object of the PPP project and on the conclusions of the substantiation plan. The available selection procedures are those currently regulated under the laws on public procurement, sector acquisitions and concessions of public works and services.

PPP implementation

The partnership can be implemented either (i) through a contract concluded between the public entity, the private partner and a project company that will be wholly owned by the private partner, or (ii) through a contract concluded between the public partner, the private partner and a jointly owned project company. The public partner may contribute to the PPP project either in-kind or in cash, e.g. contributions in cash to the share capital of the project company. Under the new PPP law, the public partner can make cash contributions only from financial resources linked to EU non-reimbursable funds.

PPP Contract

The PPP contract will regulate the relationship between the public and private partners in areas such as the establishment of the project company, the deadlines for carrying out the project, the parties’ contributions, the allocation of risk, the duration of the agreement, the payments to be made to the private partner, profit sharing and sub-contracting. The PPP contract may be unilaterally terminated by the public partner only exceptionally and only if such cases were specifically mentioned in the project’s tender documentation.

Not the end…

It expected that the methodological norms for the application of the law will bring additional clarity regarding how the law is likely to be implemented. In the interim, we hope that the Romanian Government and other public entities will shed additional light on their PPP project strategy.

We will prepare a follow up, with more details on the subject as soon as the implementing norms are approved and published in the Official Gazette.