“Energocom” received money and authority
In the context of the energy crisis of 2021, Energocom’s powers were expanded, as a result of which the company was charged with the obligation to ensure natural gas supplies in an emergency situation, including by creating insurance reserves.
In order to manage the crisis, the Commission for Emergency Situations (CES) first allocated additional funds to the enterprise in the period 2021-2023, increasing Energocom’s authorized capital to 7.8 billion lei. At the same time, most of the funds were earmarked for the purchase of natural gas “for uninterrupted supplies to the population”.
At the same time, the parliament approved the project “Security of Natural Gas Supply”, which allowed signing a loan agreement with the European Bank for Reconstruction and Development (EBRD) for 300 million euros, aimed at diversifying the sources of supply.
In 2022, Energocom JSC also received 243.6 million lei in subsidies, allocated through the Ministry of Infrastructure and Regional Development, to compensate the difference between the purchase price of electricity and the regulated sale price.
Compliance with legal requirements
During the energy crisis and state of emergency, natural gas purchases were carried out according to three scenarios: EC regulations, EBRD regulations, and the current regulatory framework.
Initially, the procurement was carried out in accordance with EC Regulation No. 1 dated 22.10.2021 through the Company’s working group. Following the results of 5 tenders, about 17.1 million m3 of natural gas were procured for a total amount of 261.2 million lei without specifying prices and suppliers. The processes were monitored by a group consisting of representatives of several state institutions, but without the possibility to influence procurement decisions.
During the audit it was noted that only the first 5 procurements followed this principle. Subsequently, based on another 6 EC decisions, Energocom JSC purchased about 54.7 million cubic meters and 2 million MWh of gas for a total amount of about 4.5 billion lei. At the same time, prices, suppliers and volumes were specified directly in the EC decisions.
Within the EBRD loan (406 million euros), including the repeatedly attracted tranches, 6.2 million MWh of gas were purchased, worth 8.04 billion lei. The purchases were carried out by the company’s working group in coordination with the EBRD experts and in accordance with the Bank’s pre-qualification criteria. At the same time, about 3.6 million MWh were purchased through open tenders, worth 2.9 billion lei.
As a result of the audit, it was found that Energocom JSC procured natural gas, including in emergency conditions, in accordance with the requirements and rules established by the EC, the EBRD and the legal framework in this field. At the same time, “the company did not fully ensure the integrity of the documentation on natural gas procurement, which does not contribute to ensuring traceability and control over each transaction carried out within this process,” the auditors note.
Creation of an insurance reserve
Similarly, Energocom did not measure natural gas reserves “at fair value,” which “affected the transparency of the financial statements.”
The audit found that although the reserve stock was created in accordance with the law, the cost recovery process was hampered by ongoing litigation, which could have affected the company’s financial stability. At the same time, the accounting of the 541.4 million lei reserve stock, as well as its management under the lifting of the state of emergency, was not regulated anywhere. This would then lead to “risks to its quantitative and qualitative integrity and could cause difficulties in decision-making in case of other emergencies”.
Unregulated pricing
The audit found that unregulated electricity prices provided the company with profits in all three years analyzed, while natural gas sales did not do so until 2021-2022. “The losses recorded in 2023 from natural gas supply activities were due to the application of below-cost selling prices in order to prevent further tariff increases for end consumers,” the auditors note. But Energocom JSC did not become a victim of circumstances. The sources of coverage of these losses “were determined by grants provided under the Norwegian Nansen Program”.
The audit found that subsidies for electricity supplied at regulated prices were allocated in accordance with the relevant regulatory requirements, while the assigned receivables of SA Termoelectrica, amounting to 1.3 billion lei, were recorded in the accounting records without being assessed for impairment. The debt recovery process was also delayed due to the late signing of the payment schedule.
Registration and activity of subsidiaries
Although Energocom S.A. established a branch and a subsidiary in Romania to facilitate access to the European natural gas and electricity markets, their activities did not have a significant impact on the company’s operations during the audited period. The financial strategy failed.
The audit concluded generally that “certain activities, procedures and processes” within the scope of the audit “did not fully” comply with the provisions of the legislation, “even in the regulatory derogation regime then in force”.
