TEL or Sustainable Investment in an Eastern European Energy Company

TBLI CONFERENCE EUROPE 2008

TEL or Sustainable Investment in an Eastern European Energy Company


Workshop: TBLI in Emerging and Transition Economies in CEE

Amsterdam, November 14, 2008

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Indicators 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

Romania – a small picture

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• EU member since 01.01.2007 • The 7th largest country in EU:

• 238,391 km2 (5.5% of EU); • 21,154,226 inhabitants (4.5% of EU);

• Capital: Bucharest• Currency:

• Leu (RON)• National Bank convergence plan: in ERM II in 2012, € in 2014

– function of the impact of international financial crisis;

• Macroeconomic evolution in 2008 (prognosis):– economic growth – 9.1%; – GDP – 505 bln lei;– inflation rate – 5.8%;

• Macroeconomic issues & risks 2008:– a financial system affected by the external turbulences;– the credit cost will be increased;


in the energy flow in the energy market

Transelectrica’ roles …

Metering Operator

OMEPA (TEL branch)

Day ahead market~10%

Billateral contractmarket~12%

POWER EXCHANGE

OPCOM(TEL 100%

owned subsidiary)

Balancing Market & Ancillary Services Market

TEL3

CE

Hydro

Nuclear

Thermo

PRODUCERS

TRANSELECTRICA

SUPPLIERS

DISTRIBUTORS

Regulatory Authority


… and activities

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TSO = Transmission and System Operator = Natural Regulated Monopoly

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 millWACC = 7.5% for 2008-2012

Functional system

services:Revenue-cap MethodologyUse Dispatch Infrastructure

Regulated Asset Base

= RON 66 mill

Technological system

services:• power reserve• capacity reserve• efficient cogeneration

Market admin. – tariff

ATC – auction

ITC – computation (revenues/expenses)

Green certif. – prices

All tariffs approved by ANRE → justified costs + a reasonable level of profitability


the shareholders …

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• public company

• 73,303,142 shares- 5% threshold not reached by shareholders

- 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).

• Administration Board

– 7 members

– the General Director is also the President of the Board


… and the share

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• 10 lei/share par value• 16.80 lei/share IPO value


company‘s responsibilities …

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What should an utility public company be responsible for?

Shareholders‘ perspective• Financial performance → to maximize the

shareholder value (within what is legally allowed) → self-interest

• Value• Profitability• Long-term strategies and development

(growth opportunities)

Stakeholders‘ perspective• Security of supply (energy) → responsibility• Commitment to a truly sustainable

performance → satisfaction among all stakeholders → right thing to do

• Environmental impact• Social impact• Governance


financial targets …

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• Macroeconomic issues• Law:

• Natural regulated monopoly (justified costs + a reasonable level of profitability) → tariff methodologies

• Ensures the Romanian Power System reliable and stable operation

• Energy Strategy• Dividend policy

• Shareholders:• Return on the capital invested

requirements answers

• Fair input data and computation for the methodologies

• Cost efficiency factor (↓ cost with 1.5%/yr)• No blackouts in the Romanian Power

System • Support through own investments the

renewable targets• Rating, Audit etc.• Payout ratio → min. 50%

Financial performance


… and non-financial/extra-financial ones

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People = Human Capital

• treating right the employees → a fair day's pay for a fair day's work

• treating right the community → give back some of the gains through sponsorships, donation or projects that go towards the common good

integrates

Environmental, Social and Governance

factors

Planet = Natural Capital

• to minimize the ecological impact in all areas

Profit

• making a honest profit instead a profit at any cost

• made in harmony with the other two principles (People and Planet)

Triple Bottom Line

In ordinary times?

All the time!!


… environmental

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• ISO 14001/2004• New technologies• Decrease the pollution• Decrease the negative impact of the

equipments to the environment

• Energy Strategy of Romania → Sustainable development


• http://www.transelectrica.ro/RaportMediu• Investments • Waste management• Co-existence btw power equipments and

environment

• Investments in order to support the connection of renewable generation to the grid

Environmental


… social

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• Sponsorship fund allowed – acc. to the Fiscal Code:

• ≤ 3‰xTurnover• ≤ 20%x Profit tax

• Donations:• “Polytechnica” University • schools

• Prizes for writers, Paul Dimo Prize• Floods affected people• Retired employees


Social


… governance

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• Bucharest Stock Exchange - Governance Code (?)


• Internal regulations, rules, procedures• http://www.transelectrica.ro/CodEtica.pdf

Governance


company‘s responsibilities …

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What should an utility public company be responsible for?

Shareholders‘ perspective• better strategy and decisions• appropriate risk management• stability• moderation

Stakeholders‘ perspective• balancing all interests• involvement• respect for the company• good feeling about the company

Joint shareholders‘ & stakeholders’ perspective• RESPONSIBILITY (NO NEED FOR A BLACKOUT)

• KEPT INFORMED• TRUST• ETHIC

• MORALE• WELL MANAGEMENT

• PRUDENTIAL BEHAVIOR

During a crisis?

All the time!!


investors‘ responsibilities …

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What should the investors be responsible for?

Company’s perspective• Decision based on logic and analysis not on greed, emotions and panic• Balance between long term (stability)/short term (liquidity) investments• Trust• Loyalty• Better understanding, acceptance and support of the strategy and decisions of the

organization• Constructive cooperation → ideas, lobby, know-how transfer

During a crisis?

All the time!!


Thank you for your attention!

Cristina LOGHINHead of Capital Market & Investor Relations DepartmentBusiness Development UnitCNTEE TRANSELECTRICA SA

[email protected] [email protected]

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Economy & Finance

TEL or Sustainable Investment in an Eastern European Energy Company