TEL or Sustainable Investment in an Eastern European Energy Company


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A presentation by Cristina Loghin at TBLI CONFERENCE EUROPE 2008.

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  • TEL or Sustainable Investment in an Eastern European Energy Company

    1. 1. TEL or Sustainable Investment in an Eastern European Energy Company TBLI CONFERENCE EUROPE 2008 Workshop: TBLI in Emerging and Transition Economies in CEE Amsterdam, November 14, 2008
    2. 2. Romania – a small picture <ul><li>EU member since 01.01.2007 </li></ul><ul><li>The 7 th largest country in EU: </li></ul><ul><ul><li>238,391 km 2 (5.5% of EU); </li></ul></ul><ul><ul><li>21,154,226 inhabitants (4.5% of EU); </li></ul></ul><ul><li>Capital: Bucharest </li></ul><ul><li>Currency: </li></ul><ul><ul><li>Leu (RON) </li></ul></ul><ul><ul><li>National Bank convergence plan: in ERM II in 2012, € in 2014 </li></ul></ul><ul><ul><ul><ul><li>function of the impact of international financial crisis; </li></ul></ul></ul></ul><ul><li>Macroeconomic evolution in 2008 (prognosis): </li></ul><ul><ul><li>economic growth – 9.1%; </li></ul></ul><ul><ul><li>GDP – 505 bln lei; </li></ul></ul><ul><ul><li>inflation rate – 5.8%; </li></ul></ul><ul><li>Macroeconomic issues & risks 2008: </li></ul><ul><ul><li>a financial system affected by the external turbulences; </li></ul></ul><ul><ul><li>the credit cost will be increased; </li></ul></ul>Indicator s 2005 2006 2007 GDP (bill lei) 288.18 344.54 404.71 GDP growth (%) 4.1 7.9 6.0 Inflation (%, annual rate) 8.6 4.87 6.57 Current account deficit (% of GDP) 8.7 10.3 13.9 Exchange rate (lei/€) the last trading day 3.6771 3.3817 3.6102 Average exchange rate (lei/€) 3.6234 3.5245 3.3373
    3. 3. in the energy flow in the energy market Transelectrica’ roles … Metering Operator OMEPA (TEL branch) Day ahead market ~10% Billateral contract market ~12% POWER EXCHANGE OPCOM (TEL 100% owned subsidiary) Balancing Market & Ancillary Services Market TEL CE Hydro Nuclear Thermo PRODUCERS TRANSELECTRICA SUPPLIERS DISTRIBUTORS Regulatory Authority
    4. 4. … and activities <ul><ul><ul><ul><li>TSO = Transmission and System Operator = Natural Regulated Monopoly </li></ul></ul></ul></ul>Transmission services ~30% System services ~36% Balancing services ~27% Others: ATC, green certificates etc. ~7% Revenue-cap Methodology Use Transmission Grid Infrastructure Regulated Asset Base = RON 2,690 mill WACC = 7.5% for 2008-2012 Functional system services: Revenue-cap Methodology Use Dispatch Infrastructure Regulated Asset Base = RON 66 mill <ul><li>Technological system services: </li></ul><ul><li>power reserve </li></ul><ul><li>capacity reserve </li></ul><ul><li>efficient cogeneration </li></ul>Market admin. – tariff ATC – auction ITC – computation (revenues/expenses) Green certif. – prices <ul><ul><ul><ul><li>All tariffs approved by ANRE -> justified costs + a reasonable level of profitability </li></ul></ul></ul></ul>
    5. 5. the shareholders … <ul><li>public company </li></ul><ul><li>73 , 303 , 142 shares </li></ul><ul><li>- 5% threshold not reached by shareholders </li></ul><ul><li>- application of Law no. 10/2001 provisions for ex-owners of properties subject to expropriation under the communist regime (1945-1989) – residual small volumes of secondary shares transferred form Government’s stake to entitled individuals’ accounts, as private transactions within an stock compensation plan ran by the Romanian Government, so free-float rose accordingly (with a 6 months stock lock-up lag). </li></ul><ul><li>Administration Board </li></ul><ul><ul><li>– 7 members </li></ul></ul><ul><ul><li>– the General Director is also the President of the Board </li></ul></ul>
    6. 6. … and the share <ul><li>10 lei/share par value </li></ul><ul><li>16.80 lei/share IPO value </li></ul>
    7. 7. company‘s responsibilities … What should an utility public company be responsible for? <ul><li>Shareholders‘ perspective </li></ul><ul><li>Financial performance -> to maximize the shareholder value (within what is legally allowed) -> self-interest </li></ul><ul><ul><li>Value </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>Long-term strategies and development (growth opportunities) </li></ul></ul><ul><li>Stakeholders‘ perspective </li></ul><ul><li>Security of supply (energy) -> responsibility </li></ul><ul><li>Commitment to a truly sustainable performance -> satisfaction among all stakeholders -> right thing to do </li></ul><ul><ul><li>Environmental impact </li></ul></ul><ul><ul><li>Social impact </li></ul></ul><ul><ul><li>Governance </li></ul></ul>
    8. 8. financial targets … <ul><li>Macroeconomic issues </li></ul><ul><li>Law: </li></ul><ul><ul><li>Natural regulated monopoly (justified costs + a reasonable level of profitability ) -> tariff methodologies </li></ul></ul><ul><ul><li>Ensures the Romanian Power System reliable and stable operation </li></ul></ul><ul><ul><li>Energy Strategy </li></ul></ul><ul><ul><li>Dividend policy </li></ul></ul><ul><li>Shareholders: </li></ul><ul><ul><li>Return on the capital invested </li></ul></ul>requirements answers <ul><li>Fair input data and computation for the methodologies </li></ul><ul><li>Cost efficiency factor (↓ cost with 1.5%/yr) </li></ul><ul><li>No blackouts in the Romanian Power System </li></ul><ul><li>Support through own investments the renewable targets </li></ul><ul><li>Rating, Audit etc. </li></ul><ul><li>Payout ratio -> min. 50% </li></ul>Financial performance
    9. 9. … and non-financial/extra-financial ones <ul><li>People = Human Capital </li></ul><ul><li>treating right the employees -> a fair day's pay for a fair day's work </li></ul><ul><li>treating right the community -> give back some of the gains through sponsorships, donation or projects that go towards the common good </li></ul>integrates Environmental, Social and Governance factors <ul><li>Planet = Natural Capital </li></ul><ul><li>to minimize the ecological impact in all areas </li></ul><ul><li>Profit </li></ul><ul><li>making a honest profit instead a profit at any cost </li></ul><ul><li>made in harmony with the other two principles (People and Planet) </li></ul>Triple Bottom Line In ordinary times? All the time!!
    10. 10. … environmental <ul><li>ISO 14001/2004 </li></ul><ul><ul><li>New technologies </li></ul></ul><ul><ul><li>Decrease the pollution </li></ul></ul><ul><ul><li>Decrease the negative impact of the equipments to the environment </li></ul></ul><ul><li>Energy Strategy of Romania -> Sustainable development </li></ul>requirements answers <ul><li> </li></ul><ul><li>Investments </li></ul><ul><li>Waste management </li></ul><ul><li>Co-existence btw power equipments and environment </li></ul><ul><li>Investments in order to support the connection of renewable generation to the grid </li></ul>Environmental
    11. 11. … social <ul><li>Sponsorship fund allowed – acc. to the Fiscal Code: </li></ul><ul><ul><li>≤ 3‰xTurnover </li></ul></ul><ul><ul><li>≤ 20%x Profit tax </li></ul></ul><ul><li>Donations: </li></ul><ul><ul><li>“ Polytechnica” University </li></ul></ul><ul><ul><li>schools </li></ul></ul><ul><li>Prizes for writers, Paul Dimo Prize </li></ul><ul><li>Floods affected people </li></ul><ul><li>Retired employees </li></ul>requirements answers Social
    12. 12. … governance <ul><li>Bucharest Stock Exchange - Governance Code (?) </li></ul>requirements answers <ul><li>Internal regulations, rules, procedures </li></ul><ul><li> </li></ul>Governance
    13. 13. company‘s responsibilities … What should an utility public company be responsible for? <ul><li>Shareholders‘ perspective </li></ul><ul><li>better strategy and decisions </li></ul><ul><li>appropriate risk management </li></ul><ul><li>stability </li></ul><ul><li>moderation </li></ul><ul><li>Stakeholders‘ perspective </li></ul><ul><li>balancing all interests </li></ul><ul><li>involvement </li></ul><ul><li>respect for the company </li></ul><ul><li>good feeling about the company </li></ul><ul><li>Joint shareholders‘ & stakeholders’ perspective </li></ul><ul><li>RESPONSIBILITY (NO NEED FOR A BLACKOUT) </li></ul><ul><li>KEPT INFORMED </li></ul><ul><li>TRUST </li></ul><ul><li>ETHIC </li></ul><ul><li>MORALE </li></ul><ul><li>WELL MANAGEMENT </li></ul><ul><li>PRUDENTIAL BEHAVIOR </li></ul>During a crisis? All the time!!
    14. 14. investors‘ responsibilities … What should the investors be responsible for? <ul><li>Company’s perspective </li></ul><ul><li>Decision based on logic and analysis not on greed, emotions and panic </li></ul><ul><li>Balance between long term (stability)/short term (liquidity) investments </li></ul><ul><li>Trust </li></ul><ul><li>Loyalty </li></ul><ul><li>Better understanding, acceptance and support of the strategy and decisions of the organization </li></ul><ul><li>Constructive cooperation -> ideas, lobby, know-how transfer </li></ul>During a crisis? All the time!!
    15. 15. Thank you for your attention! Cristina LOGHIN Head of Capital Market & Investor Relations Department Business Development Unit CNTEE TRANSELECTRICA SA [email_address] [email_address]