Press release: 19 April 2021

Lawyers act as billions promised to Romania’s biggest coal operator breach State aid rules

ClientEarth lawyers and Bankwatch Romania have called on the European Commission to reject a multibillion-Euro state subsidy set to support the restructure of Romania’s incumbent energy company, Oltenia Energy Complex (OEC).

The environmental groups warn that using public money to restructure the company constitutes unlawful State aid as the current plan undermines the European Green Deal’s objective to decarbonise the energy sector and the EU’s 2050 carbon neutrality target. Instead of setting out a coal phase-out date and helping OEC transition to renewable energy production, the aid will enable OEC to continue burning fossil fuels by modernising some of its coal assets as well as converting parts of the company to burning fossil gas. 

The observations come in response to the Commission’s decision to open an investigation into whether the €1.3 billion restructuring aid should be granted by the Romanian government.

ClientEarth State aid lawyer Juliette Delarue said: “The current plan is shockingly contradictory to what the aid should be used for, which is to help OEC transition to an economically viable, forward-facing energy company. Instead, the plan goes against State aid rules by being neither coherent nor far-reaching, encouraging OEC to maintain its status quo and continue promoting fossil fuels.

“Not only does the plan jeopardise Romania’s 2030 climate targets, but it will do nothing to help communities modernise the energy system and help secure resilient, good-paying, local jobs. We expect the Commission to notice this and act accordingly.” 

The groups’ observations show that the restructuring aid will also give OEC an unfair competitive advantage, which the company would not be able to obtain under normal market conditions. The aid will be used to pay for EU Emissions Trading System (EU ETS) allowances, which OEC has been unable to afford alone for several years. The Romanian government has already paid OEC €241 million to cover its EU ETS allowances without waiting for the Commission’s approval. However, if the Commission finds that the EU ETS payouts violate EU law, OEC may be forced to reimburse the full amount paid out to date.

The company’s restructuring is the result of years of structural deficit due, in part, to the constant increase of the price of annual ETS allowances, which now amounts to almost half of OEC’s annual income. The restructuring aid comes just a year after the two organisations submitted a complaint against the Commission’s decision to approve a €251 million rescue loan granted by the Romanian government to cover OEC’s EU ETS allowances due for 2019. 

ClientEarth and Bankwatch Romania also alerted the Commission to a series of Government Decisions, which the Romanian state used to illegally transfer over €6 million from its budget to OEC. The money was used to cover compensation owed by the company for forcing inhabitants from several villages in Gorj county from their homes for coal mine expansions.

Alexandru Mustață, Bankwatch Romania’s campaign coordinator, said: “Oltenia Energy Complex produces over 90% of Romania’s coal-fired electricity and is the largest polluter in the country. On top of this, as the economy in Gorj is completely dependent on two of OEC’s plants and all their mines, the company’s restructuring plan should also support the just transition of this region. In reality, the plan jeopardises economic redevelopment by pumping money into fossil fuel production and avoiding committing to a coal phase-out date. Instead of flogging a dead horse, the Romanian government should cut its losses and help OEC and the communities it supports to transition to a more sustainable future.” 

The European Commission will review the observations submitted by interested parties on the investigation procedure and will then have up to 18 months to take a final decision. In theory, OEC should not receive any of the aid until the Commission has reached a decision.


Notes to editors:

Around 20% of Romania’s power market is owned by Oltenia Energy Complex (OEC). The company also provides district heating for Craiova, a city of approximately 200,000 inhabitants. In 2020, due to a decrease in demand for power caused by the Covid-19 pandemic, OECs market share dropped to 14.5%. 

The Restructuring and Decarbonisation Plan notified to the European Commission in August 2020 is not published yet. Based on the Commission’s opening decision, the plan would mean that out of the four power plants that OEC owns, five units will be shut down between 2021 and 2026 and two will be externalised. The plan also anticipates the closure of three out of nine lignite mines. OEC will also build 1325 MW of fossil gas power plants and only 109 MW of solar renewable energy (in contrast to the 725 MW announced by the company in previous plans), which is roughly 4% of the company’s electricity production.

The Commission also highlights that OEC’s plan is based on an optimistic projection that the price of ETS allowances will reach €31 in 2030. However, the reality is that the market is very different. The ETS price reached €43 in April 2021 and experts expect it to rise to over €50 in 2030.  

About ClientEarth

ClientEarth is a non-profit organisation that uses the law to create systemic change that protects the Earth for – and with – its inhabitants. We are tackling climate change, protecting nature and stopping pollution, with partners and citizens around the globe. We hold industry and governments to account, and defend everyone’s right to a healthy world. From our offices in Europe, Asia and the USA we shape, implement and enforce the law, to build a future for our planet in which people and nature can thrive together.

About Bankwatch Romania

Bankwatch Romania is an NGO established in 2012, whose purpose is to prevent the negative environmental and social impact of public and private projects and to promote sustainable alternatives and public participation in decision-making. The main area of activity is pollution reduction in the energy sector, with an emphasis on decreasing the use of fossil fuels.