Romania caps electricity & gas prices, imposes windfall tax for producers

Romania

On 29 October, the Romanian parliament passed Endorsement Law no. 259/2021, which approves and puts into action Government Emergency Ordinance no. 118/2021 on establishing a compensation scheme for electricity and natural gas consumption for the 2021-2022 winter season.

The Law complements the legal framework for subsidising vulnerable consumers,which was passed in September. (See Romania passes law on protection of vulnerable energy consumers on cms-lawnow.com).

Given recent price increases of electricity and gas internationally, the government decided to put a compensation mechanism in place from November 2021 to March 2022 so that current electricity and natural gas prices for household consumption will not aggravate the level of energy poverty.

The Law targets household customers whose maximum consumption during the winter period does not exceed 1500 kwh of electricity and 1000 cubic metres of gas. It also provides a scheme for granting monthly state compensation to household customers for the payment of invoices for consumption of electricity and natural gas during November 2021-March 2022.

According to the Law, prices billed to the end consumers will be capped at a maximum of RON 1/kWh for electricity of which the electricity price component will be maximum RON 0.525 i/kWh. The natural gas cap will be maximum RON 0.37/kWh of which the natural gas price component will be maximum RON 0.250/kWh. Bills will be compensated with a maximum of RON 0.291/kWh for electricity and a maximum of 33% of the value from the beneficiary owner's supply contract for natural gas.

The difference between the average price from 1 April 2021 to 31 March 2022 and the maximum ceiling of RON 250 /MWh, representing the price of natural gas, and the maximum ceiling of RON 525/MWh, representing the price of active electricity, will be compensated from the budget of the Ministry of Energy through a separate position of budget expenses.

Upon request, vulnerable consumers also have the possibility to postpone the payment of bills from one to six months without additional costs.

The Law also provides compensation for small and medium companies, individual medical practices and other liberal professions (regardless of the form of these organisations), authorised natural persons, individual enterprises, family enterprises, public and private hospitals, schools, kindergartens, etc. At the same time, companies that are final consumers will be exempted from paying distribution and transport tariffs, green certificates, cogeneration contributions and excise taxes.

Also, in the context of increasing electricity prices, in addition to the facilities listed above, this Law includes a windfall tax for electricity producers. Until 31 March 2022, the additional income obtained by electricity producers and resulting from the difference between the average monthly selling price of electricity and the price of RON 450 /MWh will be taxed at 80%. (This 80% tax does not apply to electricity producers based on fossil fuels, including cogeneration).

Within 15 days of the entry into force of this Law, the Tax Office (ANAF) will issue the specific procedure by way of legislation.

For more information on this law and the Romanian energy sector, contact your CMS client partner or local CMS experts: Varinia Radu, Ramona Dulamea, Raluca Diaconeasa and Andrei Tercu.