In 2017, Hidroelectrica ranked first on the list of the most valuable companies in Romania. It is a major producer of electricity, with 208 hydropower plants, which also makes it a key player in national energy security. And despite a past of insolvency, a new team has restored its financial health in record time through an ambitious restructuring plan, resulting in historic profits and turnover. Going forward, Hidroelectrica is taking steps towards becoming a publicly traded company and has goals to become a major player in Europe’s green energy transformation.
What have been your most significant policy decisions since you became president in 2017?
It is an honor for me to preside one of the best companies in the energy sector. We come from a past of insolvency, but we introduced a restructuring process to give back a healthy company to the shareholders, and this was successfully achieved. After that, it was important for the company to re-enter the normal process as we produce a very significant share of the electricity in Romania. There are peaks years when we produce 20 TWh, and this is one of the main risks we have to handle. During the insolvency, we had to go from a negative to a positive balance sheet. It was a challenge to restart the business, which had several open projects that were not economically viable but played social functions as well. We are proud of our record profit of 2.2 billion LEI (€464 million) and our record turnover in 2018. Yet, there is room for further improvement. Contrary to the general streamlining measures that we took, we also decided to improved wages in order to stimulate workers. We wanted to make them feel like if there are better results, they will be better paid as well. That strategy has worked.
What does the national energy sector look like?
Romania has a balanced mix of resources: coal, hydropower, nuclear, and for the last 10 years there has also been a rapid development of renewables like solar and wind. We have a huge potential in biomass as well, but it’s reliant on a government support scheme, due to the costs. Biomass could also be a good solution for small communities for their central heating needs.
What does a company like yours need to thrive?
The energy sector should have predictability. When you organize a five or 10-year business plan, you need a predictable environment so you can start to build. Based on the market opportunities, you have to choose a certain direction. For us, specifically speaking, the first main thing is to secure our assets. We are entering a re-evaluation phase now for all our different assets, including storage plants. We are now in the process of refurbishing all the main plants from the most to the least efficient, in order to secure our existing facilities. Recently, for instance, we have commissioned Hydropower Unit II at the Beresti Hydropower Plant and Hydropower Unit I at Calimanesti HPP.
How is the energy landscape changing in light of recent legislation, and how does it affect you?
Right now, an important share of our production is still based on coal, but because of EU targets on de-carbonization and national legislation, little by little, old power plants have started to be decommissioned, and we expect this trend to continue. This will be an opportunity for us. Financially, the company is growing year by year, and because we have all this money, we want to expand and develop, aiming to strengthen our position as a 100% green company. We try to identify economically feasible projects. Also, the price of electricity has been growing in Romania and across the EU due to the price of the allowances. There is a lot of debate about the implementation of EU directives on water management and the environment. This, for example, will make us decide whether we continue to sell the micro plants or close them down for good. For now, we are focusing on the big plants. We are in a tendering process for another flagship plant located on the base of the famous Transfagarasan road, which is a tourist attraction with spectacular views. By the way, and I would like to underline this, the beauty of our dams and power plants gives an important boost to the local tourism, thus contributing to the wealth of the nearby communities.
How can German investors be a part of this growth in the energy sector?
There is an opportunity for German investors to participate in our rehabilitation work. For example, the rehabilitation of Vidraru is an €82 million project and might be tempting for German companies. We are still at the initial phase of the tender and we hope to attract companies from outside Romania. Our strategy is to start the rehabilitation with the big plants and continue with the smaller ones. At the same time, we are revamping transformers, substations, lines and other elements.
How does the re-introduction of a regulated market affect you?
We approved a business plan, but a government ordinance changed the rules in energy and we were forced to rethink everything again. Last year we were 100% on a competitive market and now they’ve reintroduced a regulated market, which was quite unfair from our perspective. We are fighting to change the legislation and hope that the government will reconsider this emergency ordinance and go back to the free market. There are price increases, yes, but this is the price of de-carbonization, it is the price to pay for a cleaner country. We are one of the best dividend payers, and we believe we need a free market.
Where do you position Hidroelectrica in the EU, and what can you contribute to the future?
Building more plants is not easy. We have a lot of battles with environmental groups, even though we provide green energy. Two projects that were almost finished were recently blocked by the courts and we have to restart the authorization process all over again. It isn’t a happy situation, but we are trying to overcome it and we continue to invest: we have work in progress for around 220 MWh across the country; we commissioned a 12.6 MWh plant in late 2018, and we have other projects in cooperation with other companies. We have also signed an MOU with an Austrian company to develop new plants and technologies and to exchange experience on EU legislation in order to ensurebetter compliance for Hidroelectrica. We want to learn how it was done in Western Europe.
Romania is trying to work with central European countries, although it’s not an easy process as governments try more or less to protect their own national interests. We believe that these days it is important to have interconnection capacities. It will happen, maybe not so fast, but it will, and it should be a European goal, because energy has an important role in the development of countries.
How are you retaining talent?
We want to keep the experts inside the company by adapting our benefit policy to the standards of the sector. We also aim and struggle to attract new people. We have programs and partnerships with prestigious universities and high schools in order to attract, from early stages, our future specialists. We encourage students to be curious about our work and ultimately to attend engineering schools. We periodically have open door programs for the youth, we offer consistent scholarships and we also give the students the chance to enroll in our team after graduation. It is an important opportunity for them to work on the big projects of the industry.
How many EU companies have your kind of capacity for green energy?
Compared to the EU big players, our 6,444 MW installed power might not be that impressive. We have the potential to be big, and we are moving in that direction, as for us this is the natural thing to do. We have a lot of challenges ahead, such as trying to operate plants remotely. We have 208 plants with different automated systems and we want to move towards central operation to make the company more competitive and to be prepared for future challenges.
Are institutional investors moving increasingly towards green companies?
Yes. In the aftermath of the Volkswagen emissions scandal, a lot of people started to buy electric cars, which will lead to more electricity consumption. Everyone will need to increase the installed capacity as the market matures, in order to keep up with the need to develop the infrastructure. It’s important to squeeze every green megawatt and to invest in more green projects. We want to keep our green label.
What about internationalization? Are you eyeing opportunities?
We have commissioned studies to identify opportunities. It all depends on the moment. There is a lot of mergers and acquisitions going on right now, or sales. For example, the Czech CEZ Group recently announced it is exiting Romania and there could be opportunities there for us. It depends on the turnover and legislation in each country. But that is one of our targets: to diversify and to serve the final consumers because we are not just producers, we are also final suppliers. Last year, we focused on industrial clients such as the Bucharest transportation company and cement factories. Because we can avoid the whole distribution and trader chain, we are able to offer competitive prices. We eventually also want to target households, but first need to build the infrastructure. We feel there is room for opportunities there.
Is this the right time for acquisitions, then?
It is the best time. We have the capacity to generate cash flow and expand right now, and combined with our IPO, which will provide an injection of money, we aim to fill the gaps in the energy sector.
Where are you at in terms of the IPO project?
We are in a very good position. Last year we finalized the financial statement and got a clean opinion from the auditor. We took a set of proposals to the shareholders, and we are preparing the ground in case they take a favorable view. It is their decision to make, and we will be ready. We want to go ahead with the IPO, as we are one of the last big companies in Romania that is not yet listed on the stock exchange.
What is the investment climate in the country like right now?
Romania is a good opportunity. The real Romania offers a good business environment despite the political debate. For any potential investor, there are many possibilities for cooperation in the energy sector. We want to see as many professionals as possible working in the field as well as good competition. We want to send a signal to all potential investors to come see us, talk to us and work with us. We have a lot of work going on and there are plenty of contracts to offer as we need contractors for the rehabilitation of out capacities.
What are the critical skills that someone in your position needs?
There is the private sector, where you can make decisions fast without the bureaucracy and with the flexibility to choose the best suitable solution. And then, there is the state perspective, which involves a lot of bureaucratic processes, which means you have to optimize procedures and try to lower the time gap from wishful thinking to reality. It is not an easy process, but it gives you a broader perspective.