Wednesday, December 14, 2011

Romania Hidroelectrica aims to cancel contracts

By Luiza Ilie

BUCHAREST, Dec 13 (Reuters) - Romanian state-owed utility Hidroelectrica wants to end highly criticised bilateral contracts under which it sells most of its power below market prices, a spokesman said on Tuesday.

The move is part of a wider plan to reform state-owned firms under an aid deal led by the International Monetary Fund, spokesman Radu Scutea told Reuters.

Hidroelectrica, which has installed capacity of some 6,400 megawatts and is Romania's cheapest power producer, has most of its electricity production locked into contracts with a handful of companies at prices that its former manager Constantin Trihenea said were below production costs at half the market price.

The contracts -- including with a local unit of steelmaker ArcelorMittal -- are under investigation by the European Commission and contested in court by minority shareholder and Fondul Proprietatea, an investment fund created to compensate Romanians whose assets were seized under communism.

The contracts expire in 2015-2018, Trihenea has said.

Hidroelectrica's output totalled 19.8 terrawatts last year and accounted for a third of the country's power production.

"Hidroelectrica has notified 15 companies that it plans to cancel bilateral contracts at the first legal and contractual possible deadline," Scutea said by phone.

Scutea said negotiations would follow and that there was no set deadline at which all contracts could be terminated but that Hidroelectrica will seek legal ways out, if for example the firms do not pay bills for two or three consecutive months.

"If and whenever a situation will be created that would allow Hidroelectrica to unilaterally cancel contracts, it will do so," he said.

"This is part of stipulations agreed with the IMF and it ensures that ... at least when these contracts expire, if not sooner, such a practice will no longer happen."

In September, Hidroelectrica declared force majeure due to drought and said it would cut deliveries to clients for the rest of the year.

Romania has agreed with the IMF and European Commission to open its gas and electricity markets in stages, by 2013 for industrial consumers and by 2015 for households.

Some 40 percent of the country's power comes from coal-fired power plants and a fifth from its sole nuclear power plant in Cernavoda. (editing by Jane Baird)

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