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BRUA, to be or not to be!

Over the past few weeks, a true hysteria has sparked regarding BRUA project, the gas pipeline that should carry the gas from the Black Sea, proving once again that we are able to open a debate in the natural gas sector only when a scandal breaks out. The difference between debate and scandal is that, following the scandal, to a large extent, the projects have stopped.

The numerous examples in the recent years in all activity sectors validate the statements made here. The lack of facile and appropriate communication, based on permanent transparency and not only when, in order to approve a project, it is necessary to hold a public debate, determines us not to learn anything from the lessons recently experienced by Romanians firsthand and especially at their expense.

When BRUA project was started, from our positions, we showed that in Romania the development of a STAR transmission system prevents major vulnerabilities of a project dedicated to a single transmission corridor. We showed at the time that this type of construction (a single dedicated transmission route) has proven its vulnerability through the “economic blackmail” that those from one end or the other of the pipeline can exercise on the transmission activity, thus being able to impose their conditions or even bankrupt the transmission activity. It is known how a company, controlling an entire market through the customer portfolio held, to which gas was intended, in order to obtain more advantageous commercial clauses, has blocked for almost two years the functioning of the transmission system Blue Stream, after its completion, causing huge losses for the transmission operator. Owners of gas sources that were to be transported through Nabucco were those who decisively contributed to stopping the huge European project Nabucco. These behaviors determined me in 2012 to claim that Romania had to commit in a STAR project, allowing it to carry gas to various foreign transmission directions and from various foreign transmission areas, thus avoiding the possibility that one party could block a project at a certain point, during construction or at any time during the functioning of the project started. Unfortunately, we are in such a situation.

Today, in BRUA project there are procurement contracts for services and equipment signed for the construction of the pipeline, there are loans hired, there are other sources attracted, and stepping back would mean being in a similar situation as that with the Braşov – Comarnic highway, meaning without a gas transmission pipeline and with the money spent. This situation would throw the gas system in Romania at the verge of despair. Blocking BRUA project will not affect gas producers in the Black Sea, but rather the Romanian gas consumers.

The gas transmission system in Romania was continuously neglected in terms of re-engineering and it permanently operates in a phase of pre-failure. With over 70% of the pipelines and equipment morally and physically worn out, with an increased failure to adapt to the current consumption requirements, with an annual repair plan below 20% of the scheduled repairs (not the repairs that would be necessary to be realized immediately), with tariffs loaded with costs due to past failed projects, if all the costs involved by stopping BRUA project were to burn this transmission system, without any prospect for new revenues, this would bring us in a serious situation. Failure to complete BRUA project is a higher danger for Romania than its implementation for Russia.

Thus, today I am in the situation of supporting this project, but only with a massive change of the strategy for the development of the gas transmission system in Romania, pragmatic and based on realities, with a detailed and real analysis of vulnerabilities, with the full elimination of pride dominating the present and with a continuous and professional communication with the internal and external environment.

In this context, it is necessary to clarify the various questions that have emerged lately and focus our analyzes and public debates, so necessary, to the areas that are truly important: the development of national transmission systems able to meet consumption demand, focusing on activity efficiency, diminishing the costs and reducing the transmission tariffs, increasing safety in system operation etc.

We need to admit that Hungary plays smart a strategy started since 2000, that it knew to pursue and adapt depending on times, but without losing its target: the diversification of gas sources and an important regional role in the gas market. The excellent energy diplomacy of Hungary, doubled by an excellent ability in communication continue the “game”, also relying on how the ‘debate’ of the project evolves in Romania. This perspective is important to be debated and not the issue of “selling Romanian gas to Hungary”. How would the situation of Romanians change if gas was sold to Austria, Slovakia, Ukraine etc.?

The construction of transmission pipelines is preceded by a number of commercial actions to determine the interest of potential customers, and to validate the feasibility of the project with the purpose, at least theoretically, not to load the cost at the level of other consumers (in this case the Romanian consumers). Thus, auctioning the capacity on entry/exit points in a transmission system is a normal practice, carried out in several stages. The transmission capacity represents the maximum gas amount tradable that a pipeline has the possibility to carry, respectively the maximum gas amount that can be introduced at an entry point in the transmission system and the maximum gas amount that can be extracted at the exit point from the gas transmission pipeline. The transmission capacity is contracted by the gas shipper, which does not have to be the owner of the gas that it carries. At the same time, the practice recommends, in order to avoid the hoarding (blocking other players on the gas market), that a shipper who does not use the capacity booked to lose it, the transmission company being forced to put it again for auction for other shippers.

In December 2017, Transgaz organized such an auction for binding transmission capacity booking in Csanadpalota point, and in February 2018 an auction was held for booking non-binding transmission capacity in Tuzla point (the point of takeover of amounts of gas from the fields exploited in the Black Sea).

I would make some comments on the organization of both auctions:

  • in my opinion, more stringent elements could have been introduced in the auction documentation on the existence of non-binding prior agreements that shippers should have with the owners of gas sources and/or customer portfolios, for the contractual period, which perhaps would have determined a more fierce competition in the auction. At the same time, it should be mentioned that in the auction procedure organized by TRANSGAZ winners of the auction for capacity booking must make proof within a certain period of time of contracting the gas to be transported by the pipeline,
  • the absence from the capacity booking contract, concluded between the winning companies and Transgaz of the “use or lose” clause, which can prevent the same monopolistic situation as the one in which Romania is until 2030 in Isaccea and Medieșu Aurit points for gas coming from Russia.

Thus, it is important to establish that currently the two Hungarian companies that won the auction won a right, to use the Csanadpalota transmission point, in order to carry amounts of gas both from Romania to Hungary and from Hungary to Romania, for a period of 25 years, without having documents attesting agreements on owning the future amounts to be transported through this point from Romania to Hungary and the vice versa.

The immediate future of this action can lead to several of the following potential scenarios:

  • terminating the capacity booking contracts concluded, in the event of failure to contract the gas amounts by the companies that won the auction,
  • terminating the capacity booking contracts concluded following the negative economic analysis that TRANSGAZ will conduct in 2019 at the latest;
  • assigning the rights by the companies that won the right to use the capacity booked to third parties (e.g. companies that own gas resources in the Black Sea),
  • conclusion of gas acquisition contracts between the companies that contracted the transmission capacity and the companies that have gas resources (e.g. companies that own gas resources in the Black Sea).
  • refocus on the companies that own gas in the Black Sea to other transmission routes and markets.

In my opinion however it is much more important to analyze how Romania will be influenced in the long run by the current actions:

  • rewriting the energy map of Europe,
  • reducing the degree of energy security,
  • increasing the degree of vulnerability of consumers,
  • the prefiguration of a captivity in terms of energy.

Translation from Romanian by Romaniascout.