Cutting a swathe through the market

With energy being a highlight of investors’ business interest in recent years, the local market is still attracting attention from large firms. Eric Stab, chairman and CEO of GDF SUEZ Energy Romania and president and CEO at GDF SUEZ Energy Eastern Europe, told The Diplomat – Bucharest about the company’s ongoing projects, which one is on hold and why, and where there is local potential to capitalize upon

July 2012 - From the Print Edition

The actors on one of the most rewarding markets in terms of profits, albeit tight in terms of competition, whether they are authorities, operators, suppliers or distributors, should keep pace and momentum on their rapid journey. Managers are constantly calling for a stable legal framework that addresses the needs and rules to be respected by all parties involved.
This is the view of Eric Stab, the recently appointed Chairman and CEO of GDF SUEZ Energy Romania, who tells The Diplomat – Bucharest what he expects of a market where the signals are positive in terms of potential and room left for investments, but one with many challenges and tight margins.

Network needs

The new CEO gave a short briefing of the company. “What is known today as GDF SUEZ Energy Romania is the result of the privatization of Distrigaz Sud, in 2005, when Gaz de France acquired a 51 percent majority stake from the Romanian state. Since then, the company has changed a lot, within a process of full integration. For instance, only this year, we are making investments reaching some EUR 110 million in all development areas of the company’s operations.”
At the moment, the manager says, the company invests EUR 35-40 million a year in the network alone. “We have focused on modernizing the company and invested in new, state-of-the-art equipment and tools for the energy distribution network, as we found it in not such a great shape. Our priority is also to improve efficiency and develop effective processes to serve our customers, besides developing new products,” said Stab.

Medium-sized consumers bring new business

Currently, GDF SUEZ Energy Romania sells and distributes gas to approximately 1.4 million clients, managing a network of around 17,000 km, and is leading the regulated energy market with a share of 50 percent, while, on the free market, it is the third biggest natural gas supplier in Romania, with an 11 percent market share. On the regulated market, the room for increasing its position on the household customer side is limited, so the company needs to find other ways to consolidate the business.
Stab added, “This is why we are now focusing on electricity sales and on energy services. As to electricity sales, we have concentrated on B2B customers, with a medium-sized consumption, ie with not such large industrial operations. In the services sector, at this stage, the focus is on household equipment maintenance, for in-house pipes, boilers and other gas equipment that has to be checked regularly. The second area of focus is to develop, step by step, energy-efficiency solutions to convey to our customers.”

Money blows into Braila

A very significant target among GDF SUEZ Energy Romania’s priorities is the development of renewable generation. For instance, in the middle of March, the company announced the start of construction of a wind park located in Gemenele in the Braila County, south-east Romania.
“Basically, at the moment, we are completing the foundations of the wind turbines that we are expecting to be delivered in July. Our target, ambitious as it is, is, after erecting the turbines, to start operations by the end of November this year. We are working hard on it, as you can imagine,” said Stab.
The wind park near Braila is the first such park developed by the Franco-Belgian company in Romania and it is estimated to have a total installed capacity of 48 MW, comprising 21 turbines of 2.3 MW each. The wind turbines will be delivered by Siemens while the civil engineering construction and electrical works are done by Viarom and Energobit.

Why renewables?

“We believe that the scheme that has been put in place to support renewable projects locally is interesting enough to attract investments and is also a way to address some challenges that the country is facing, especially regarding the aging electricity generation fleet. Our plans are to carry on with our investments in the area of renewables, as we have further projects in the pipeline and we hope to find the right conditions in order to develop them.” Stab said.
According to the manager, the local context and authorities should ensure correct conditions for making these projects happen in terms of keeping a coherent and transparent regulatory framework, with credible rules put in place and then not tinkered with, which generates uncertainties and impacts business interest in projects.
“For the Braila project, we are still working on the financing aspects. For part of it, the company will use its own cash. To some extent, this is also a ‘sacrifice’ done by the company’s shareholders, who give up on dividends to help it develop its activities in the capital intensive field of renewable projects. But we are also seeking external financing for the Braila project. We are holding talks on this matter, but more details cannot be provided at this stage of the discussions,” he said.

Power plant at Borzesti on hold

Back in 2008, when the market was quite different from now, GDF SUEZ signed an agreement with Termoelectrica to build a brownfield-type power plant at Borzesti. At that time, Termoelectrica announced a total installed capacity of 400 MW and an investment of around EUR 400 million. The project was supposed to be put into operations this year. But the GDF SUEZ Country manager says that the project is on hold, at best, if not entirely scrapped, as the current market context does unfortunately not permit such investments and risks.

Tough market, tight margins

Competition on the free eligible market in Romania is fierce, with many suppliers fighting for customers, and also defined by tight margins, says the manager. “The topic of energy market liberalization is complex and should be understood correctly, as it encompasses different concepts, including deregulation. For instance, regarding the customer segments that would remain regulated for some more time, we need certain guarantees. The fair thing is to be able to pass commodity costs into the regulated tariffs but, at the moment, this remains an issue,” he said. “Regarding the relationship with our suppliers, we keep a very strict track of payments and we cannot say that we have met significant, worrying delays or deterioration in consumers’ payment behavior in this respect.”

Who is Eric Stab?

Eric Stab is chairman and CEO of GDF SUEZ Energy Romania and GDF SUEZ country manager for Romania. As president and CEO of GDF SUEZ Energy Eastern Europe, he is supervising the group’s energy activities in Austria, the Czech Republic and Slovakia. Stab joined the Gaz de France Group in 1991 and held various management positions in Germany, France and the UK until 2008 when he was appointed to the helm of GDF SUEZ’s energy activities in Eastern Europe and made chairman of its Romanian affiliate. He holds a master’s degree in management from ESCP Europe in Paris and is a graduate of the Stanford Executive Program.