The state-owned Complexul Energetic Oltenia is one of the largest electricity producers in Romania and a key player in the country’s energy security, ensuring over 30% of the national electricity consumption. Last year, the company had an investment program of around €175 million, and in 2017 it recorded turnover of €630 million, up by 28.5 % from the previous year. Despite the good figures, President Sorin Boza warns about the tremendous costs of paying for CO2 emission permits and proposes a system that would return some of that money for re-investment in equipment to help meet EU environmental targets while ensuring a sustainable future for its 13,000 direct employees.
How did you come to head one of Romania’s largest energy companies?
In 1995, I went to work for the Lafarge Group, which was an incredible career experience. I left 18 years later to work for a major metallurgical company for a year, after which I was contacted by the Romanian government. After some negotiations I eventually became a member of the board of this company, managing the strategy and development division and later presiding the directorate in December 2016.
Can you describe the company in a nutshell?
Complexul Energetic Oltenia is the biggest state-owned company in Romania. It has 13,000 employees plus 20,000 subcontractors. The company has four big power stations: Rovinari, which is the most important one, Turceni, Isalnita and Craiova. We also have a big advantage, which is the fact that we are using lignite from our open-pit quarries. We don’t need to go underground, which is dangerous and costly. We have a capacity of close to 25 million tonnes of lignite a year, representing 95% of all lignite production in Romania. In the last two years, this company has ranked in the first two positions on the producer list of Romania.
By 2030, the European Union has set a target to reduce CO2 emissions by at least 40% compared to 1990. As a coal-based company, how are you dealing with this?
Regarding the energy strategy for Romania, it is necessary to keep coal to maintain the safety of the electricity supply. Today, everybody reacts badly to coal, but in the last five years, we have invested close to €1 billion to produce clean energy by introducing power unit rehabilitation programs that enable us to respect all EU environmental rules. It was not easy to do this, and we had to take out bank loans, but it’s been done.
The EU’s Emissions Trading System (ETS) charges power plants for every tonne of carbon dioxide (CO2) they emit by auctioning pollution permits. How does this affect the financial situation of the company?
The strange thing is that after making the kind of investment I’ve mentioned, the CO2 problem has become worse. The forecast was that in 2019, the cost of CO2 in the EU Emission Trading System (ETS) would be close to €10 per tonne, and we made our calculations based on this forecast. Yet last year, the price of EU allowances was raised to over €20. I consulted with European colleagues at the association of European coal producers, Euracoal, and when we asked for an explanation for this incredible increase and what the future forecast might be, we were told that in 2022 the price could be in the range of €40. It’s a shock because even today these costs are coming close to representing 45% of total turnover. And my question is: Romania is located near neighbors like Ukraine, Serbia and Turkey, which are not paying these fees like we are. I’m afraid it is possible to see big companies moving out of Romania to nearby countries where they will not pay this amount of money.
What should other company leaders like yourself be proposing to Brussels? What is the right kind of policy?
I had the opportunity last year to meet twice with Energy Commissioner Arias Cañete and I explained that our proposal is: I will pay, let’s say, €250 million, but the European Parliament must give me back half this amount to invest in my equipment so that the next year I don’t have to pay that much again, because otherwise, I will have no money left to invest in CO2 emission reduction.
In Germany coal is accepted and used. What is the sentiment here?
I’m pretty sure that Germany is moving away from coal, but you cannot do this overnight: you need to create a project to prepare the areas and train people to work in a different line of business. You need money and time to rethink the activity. Germany is asking the EU for a lot of money for the reconversion of its coal industry. Romania should be in the same position, and we need 10-15 years to move from one project to another one.
What does your company mean for the energy security and strategy of Romania?
It gives stability to the energy system. We have had winters where the temperature was -25ºC and plants were at maximum capacity. The coal business has the possibility to balance the entire system, so that if the wind is running low, immediately the coal system can compensate for that. Romania is interconnected with other countries, but there was a time around two years ago when a third country decided not to export, so we were unable to import from them. So coal-fired energy remains the main pillar for the safety of the National Energy System, and we need to invest in sustainable development. That is why we need to change and invest money to reduce CO2 and respect all EU environmental rules and limits that will be introduced in 2021. We are on the way to being prepared for these targets in time, but for this, we need money to reinvest into the environment. With this money, I can invest in a new gas-based group each year, and in 11 years I can replace all the coal units. I think that is the key to success.
How can this company transition smoothly to a different model while keeping coal as the core business for several years?
Everybody needs to move in this direction, but my first concern is for my people in the company. We are located in three areas of the country, and 13,000 people earn a salary from this company that goes to take care of their families. My first concern is for them.
Are there opportunities to partner with foreign investors to create new lines of business in the coming years?
Absolutely. According to the latest figures, the total investment needed for reconversion is around €22 billion for Romania alone. Germany was asking for €40 billion to replace coal. Currently, our power units are fitted with equipment by Siemens and several other producers from Germany, and we already have partnerships for a new project next year for a gas unit that will replace two units of coal. But how can I keep investing in reconversion if I am paying €250 million a year in permits? It is a problem, but we are here to solve the problem. I have a four-year mandate that ends next year, and until then I will do my best to find a solution for a sustainable future and to take care of the families that depend on this company.
Why should investors come to Romania and why now?
To investors, my main message is that they should come immediately because this is a safe country that is a member of the EU, and we need help from our partners. We need their experience to apply to our business. Our door is open. To politicians, I would say that even if de-carbonization is a trending word right now, we need to take care of our people, and take care of each country’s energy independence, and we need time and money to prepare for this. We cannot continue to pay hundreds of millions of euros year after year for emission permits. A part of this amount should come back for reinvestment in modern equipment. This is the key to success.