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Electricity, gas, fuel prices capped in Romania

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A new military ordinance adopted by the Romanian authorities caps the tariffs for electricity and thermal energy, natural gas, water supply, sanitation and fuels.

This is the 4th military ordinance adopted in Romania since the president declared the state of emergency in the country amid the novel coronavirus pandemic.

Article 8 of the new ordinance stipulates that “during the state of emergency, prices for electricity and heat, natural gas, water supply, sanitation and fuels cannot be increased above the level practiced at the date of the issuance of this military ordinance, these can only be reduced according to supply and demand.”

The measure comes into force after the military ordinance is published in the Official Gazette and is valid during the state of emergency.

The same military ordinance stipulates that, in order to keep their families safe, the drivers of vehicles over 2.4 tons have to spend the time between trips in quarantine or isolation. They have three options: they can isolate themselves in spaces provided by the employer, they can self-isolate at home, or they can choose to stay in spaces made available by the public authorities. These provisions also apply to aircraft pilots and seafarers, and the measure will come into force starting March 31.

To ensure the production, transport and distribution of electricity and natural gas, the employers in this sector also have to take measures of preventive isolation for the essential personnel. This measure came into force on March 31.

According to analysts from energynomics.ro, there are some perverse effects.

One of those perverse effect of price capping is that operators in the regulated market will line up at the maximum level; this might lead to price increases over the levels that the market would have produced otherwise. First, because the companies will try to recover any perceived losses related to the period when the capped price was lower than the one they expected to receive from the market, and then because they will try to save financial resources for any future periods like that – thus, the economic actors will most likely align to the capped price.

Even worse, there is the scenario in which production / acquisition costs increase, but firms cannot recover their capital because of the capped price; the result is an undermining of the commercial interest to carry on the respective activity – this pathway directly leads to shortages, either by restricted domestic production, or by restricted imports, and/or because of some players (traders, suppliers, etc.) withdrawal from the market.

The only hope is that such measures will be of short duration!

Price capping appear as a direct result of the lack of trust that the governors have in companies and in their behavior. The capping are also driven by the lack of trust that the authorities have in the bodies that can check for abusive behavior, among which the National Authority for Consumer Protection and the Competition Council. The price capping was also discussed for the medical products market and for the food market. “Capping the shelf price – if we, the state, only impose a capping we create two negative effects, encouraging the black market and chasing away from the market the weakest producers. As a state, we have no right to make them vulnerable”, said Agriculture Minister Adrian Oros. In his turn, the president of the Competition Council described the product requisitioning and the price capping as “most brutal means, which it is not to be taken easily”: “If we see a 10-20% [price]increase, well, it is an exceptional period, there are disruptions of the production and logistics chains, so certain price increases may occur correctly during such a period. (…) But if we see very large increases, and we have such a situation with some products, with 100% increases, then we will have to come up with other means of intervention. Measures such as product requisitioning and price capping by the authorities are foreseen in emergency legislation.”

Finally, the political contest – which is a competition of populism often – also factors in measures such as this price capping. Suspension of credit repayment, price capping for food and medicine, exemption from paying the rent, as well as regulating the technical unemployment under state of emergency or state of siege are foreseen in several bills initiated by PSD parliamentarians, writes www.profit.ro. PSD, ALDE and ProRomania have also submitted to the Parliament a draft law with a series of fiscal facilities, deferral and rescheduling of payments granted to companies and their employees. The project envisages measures already announced by the Government, such as the deferral of payment of social insurance contributions related to the income from salaries and the income assimilated to the salaries or the deferral of payments for utility services (water, energy, gas, waste collection, telephone and Internet services, TV cable).

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