Hidroelectrica, Romania's largest energy producer, owned by the Romanian state, has filed for insolvency. The court will decide based on its request on June 20. Media reports suggest insolvency could be a way of canceling contracts with 'smart guys', contracts at low energy prices.

The company ended 2010 with a turnover of EUR 778 million and a net profit of EUR 70 million. With over 5,000 employees, Hidroelectrica lowered its net profit by 18 times in 2011.

Earlier this year, the Competition Council in Romania started an investigation into the contracts signed by state-owned electricity producer Hidroelectrica with the so-called ‘smart guys’ in energy. The Council is currently working with the European Council to investigate the legality of these agreements, as the EC is also analyzing the possibility of state aid for contracts between Hidroelectrica, the largest electricity producer in Romania, and energy traders outside the market.

The nickname ‘smart guys’, earned by firms that signed direct contracts with Hidroelectrica at below market prices, was first used by Romanian president Traian Basescu two years ago. He recently said he was in favor of publicizing the contracts between Hidroelectrica and these companies.

The International Monetary Fund (IMF) asked for the renegotiation of these contracts, a process that started end-2011 and should have ended in March this year.

Some of the beneficiaries of the direct contracts in 2010 were Alro Slatina, Luxten Lightining, Energy Holding, Europec, Electromagnetica, Electrocarbon, ArcelorMittal Galaţi, among others.

These come before a planned initial public offering for 10 percent in Hidroelectrica. A consortium led by French lender BRD Societe Generale will intermediate the sale of 10 percent in Romania’s energy producer Hidroelectrica on the Bucharest Stock Exchange. Citigroup and Intercapital Invest are part of the consortium that will broker the Initial Public Offering.

Hidroelectrica will be listed through a social capital raise. The company will issue a 12.49 percent share stake, of which 2.49 percent can be subscribed by Fondul Proprietatea and 10 percent sold on the Bucharest Stock Exchange. Fondul Proprietatea already owns 19.94 percent in the company.

editor@romania-insider.com