Analysis. Why PPPs for Romania’s energy sector remain unexplored

With Romania’s investment requirements in the energy sector forecasted to reach EUR 15-30 billion by 2030, according to its updated energy strategy, the authorities will need to have all financing options on the table, including public-private partnerships (PPPs).

While the current government claims that investments in clean coal and renewable energy are priorities, there are still no investors willing to put their money into large-scale electricity production units, such as the two new nuclear reactors at Cernavoda, which have a price tag of at least EUR 6.5 billion.

Although some players on the local market claim that the era of risky investments in big electricity production units is gone, the government is courting the Chinese to develop the nuclear sector. So far, negotiations haven’t brought any tangible results, and the minister of energy, Toma Petcu, said in mid-March that talks with the Chinese would continue until the third quarter of this year.

In 2011, the project was also included on the list of investments that would be financed through PPPs alongside the hydro-electric and pumped storage plant in Tarnita, which would cost over EUR 1 billion to build, and other investments in road infrastructure. However, investors have not yet come forward, for which the old PPP legislation was blamed.

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With a new PPP law in place, the country could start thinking of rolling out pilot projects to get some energy investors on board, but the authorities’ plans seem to ignore this option. In the new energy strategy, PPPs are mentioned as one of the avenues for funding R&D in the energy sector. Meanwhile, the government thinks that the central heating system could be upgraded using PPPs, but such investments have remained on paper for years.

Unused energy potential

According to the World Bank, PPPs could work for the electricity generation and transmission sector, while the European Commission, the executive arm of the European Union, backs PPPs in the research of energy-efficient buildings.

George Costache, CEO of Siemens Romania, the technology group, told BR that PPPs represent a viable solution for the development of infrastructure across the world.

“As in any business relation, it is based on mutual trust and on legislation that protects both sides. In Romania, we believe that the potential of PPPs hasn’t yet been exploited. Such partnerships provide a solution for the medium and long term and can support the development of infrastructure,” said Costache.

Anca Albulescu, partner and head of the real estate and construction department at law firm bpv Grigorescu Stefanica, suggested that partnerships with private players could be used in the case of energy projects for which public funding is insufficient.

“The mechanisms of the new law might also be implemented for long-awaited energy projects considered unviable in the absence of a significant public contribution during the construction phase, as well as the operation phase,” Albulescu told BR.

How the Austrians leverage the power of PPPs for cities

The municipality of Vienna could serve as an example of good practice in terms of PPPs, as it has attracted private companies to a research project for the development of smart cities.

Aspern, a district of Vienna, is being expanded through a research project that has a five-year budget of EUR 38.5 million. The public authorities have been able to attract Siemens, which has the biggest stake in the project, at 44.1 percent.

Through this initiative, the Austrians want to develop new tech solutions that could be deployed across cities in the coming years. The construction phase of the project runs through to 2028 and the whole development will cost EUR 5.5 billion.

Locally, Alba Iulia should become the first Romanian city to develop a pilot project for smart city solutions that should be completed in 2018. The municipality has secured European funding and attracted private partners for this initiative, aiming to launch solutions for smart tourism, business, education and management.