FREE

No energy independence without good governance

This brief highlights key results of the latest edition (2013) of the International Energy Security Index and uses some of its findings to focus on and discuss Romania. The analysis underscores that Romania’s potential gains from a relatively rich resource endowment are likely to be offset by poor energy resource management and lack of a coherent energy policy.

Without good governance, Romania’s energy independence dream will be shattered.

Analysis of 2013 International Index of Energy Security Risk (IIESR)

The Institute for the 21^st Century Energy affiliated with the U.S. Chamber of Commerce has published in 2012 the inaugural edition of the International Index of Energy Security Risk (IIESR). The 2013 edition keeps the focus on the same 25 countries as in 2012 and does not include Romania with a detailed country analysis. According to this International Index (where the lower the score, the lower the energy security risk for a country^[1]), of the 25 large energy-consuming countries analyzed, the most energy secure in 2013 were Norway, Mexico, New Zealand, U.K., Canada, U.S., Australia, Denmark, and Germany.^[2]

Scores and Rankings for 25 large energy using countries

The International Energy Security Index takes as baseline the year 1980, with a 1,000 Risk Score as the OECD average. The Index score is calculated based on 29 individual metrics, grouped in 8 categories: global fuels, fuel imports, energy expenditures, price and market volatility, energy use intensity, electric power sector, transportation sector and environmental. For instance, the energy use intensity category includes the following metrics: energy consumption per capita, energy intensity, and petroleum intensity. While the electric power sector category includes: electricity diversity and non-carbon generation as metrics. See Appendix 2 in the 2013 IIESR edition^[3] for all metrics used.

Although only 25 countries are the focus of detailed analysis, the IIESR index (both 2012 and 2013 edition) does present also the scores for the top 75 energy consuming countries (including Romania). A score comparison of Romania against the OECD average over the entire period monitored (1980-2012) shows that, from 1980 until 2008 Romania’s energy security risk was consistently higher than that registered in OECD. Only in the last 4 years (2008-2010, and 2012) did Romania beat the OECD average. See graph below.

 

One of the findings of the 2012 Index was that:

“In general, countries with large energy resource bases and efficient economies enjoy the greatest comparative energy security. Countries that are not rich in energy resources but exhibit a high degree of energy efficiency also score reasonably well. Conversely, countries that do not use energy efficiently, even with large energy resources, do not score as well.”^[4]

Unfortunately, in Romania’s case, the latter applies. Romania has a significant energy resource endowment (new discoveries in the Black Sea, an estimated 1.5 Tcm of unproved shale gas), but in the absence of good governance that will count for little, if the resource rent will continue to be the object of political dispute and as before, captured by a select few. There is little transparency and accountability for squandering resources and public money in Romania. In the 2013 Corruption Perception Index, Romania ranked 69 out of 177 countries with a score of less than 50 (on a scale where 90-100 points mean a ‘very clean’ country and 0-9 points mean a ‘highly corrupt’ country) indicating a serious problem. In addition, the mineral resource wealth does not trigger down to the general population which has one of the lowest standards of living in the European Union (EU), if to be judged by the level of the minimum wage. Here are a few statistical data to support the statement:

 

1. Romania has the lowest minimum wage in the EU;

2. In 2011, biomass (largely firewood) was the most used fuel (48%) for heating in the residential sector, meaning that almost half of Romanian homes rely on rudimentary firewood to heat their homes! See figure below.

 

3. Romania has experienced a severe drop in electricity demand since the early 1990s (the average daily electricity demand is now hovering around 6 – 6.5 GW against the background of 21.5 GW of installed power generation capacity (in July 2014)^[6]. This is caused by underlying market fundamentals (slow economic growth), unfinished restructuring of Romanian economy, and the aftermath of the 2008 global crisis.

 

Missed opportunities:

• No energy strategy in place to date (early October 2014);
• Gas storage capacity way below potential (Romania has many depleted oil and gas reservoirs, but there was little investment made to expand the current 3.6 Bcm storage capacity due to state regulation (revenue cap) that discourages private investments in this sector);
• Slow progress on gas interconnectors;
• No progress for building a Romanian LNG terminal (AGRI project seems dead in the water) compared to countries such as Poland, for instance, that is pressing ahead with the construction of its LNG terminal at Swinoujscie despite cost-overruns and delay;
• Insufficient focus on energy efficiency (a fairly recent topic, therefore an area with a relatively untapped energy savings potential).

 

Main Risks to Energy Security in Romania

Risk	Consequences
Wasteful energy use	Historically inefficient consumption pattern perpetrated low awareness of energy efficiency concept; fixation on subsidizing low-income groups via price control, instead of consumption control.
Poor governance	Slow (and sometimes incompetent) public administration
No accountability	Corporate governance at SOEs yet to produce the targeted effects
No/low transparency	More opportunities for corruption & bribe taking/giving
Corruption	Widespread poverty and energy poverty, state capture
Geopolitics (Ukraine driven)	Possible natural gas import supply cut off in winter 2014-2015, but since Romania’s natural gas consumption dropped as a result of the natural gas market liberalization process, the effects are expected to be limited.

Source: compiled by the author

 

Instead of a conclusion

Based on all of the above, it is the opinion of this brief’s author, that Romania’s energy security risks do not come so much from outside (geopolitically induced), but mostly from within in the form of corruption, poor management at SOEs, lack of transparency and accountability for decision making. Romania’s below ground endowment could indeed put it in a position to either improve its own energy security or contribute to increased energy security in the South East European region, but there will be no long term energy security in Romania or the region without good governance.

---

Footnotes:

1. The higher a score is, the higher the energy security risk is. And vice versa: the lower a score is, the lower the energy security risk for a country. ↑
2. It is not a coincidence that these top energy secure countries also rank high in another Index: the 2013 Corruption Perception Index, where Denmark and New Zealand share the first place as least corrupt (out of 177 countries), while Norway ranks 5^th, Australia 9^th, Canada – 10^th, Germany – 12^th, U.K – the 14^th, and U.S. – 19^th. See: http://www.transparency.org/cpi2013/results ↑
3. IIESR 2013 edition, tables A2-1 through A2-26, p. 76-101. ↑
4. IIESR 2012 edition, p. 7. ↑
5. Renovating Romania – BPIE April 2014, apud. Valentina Dimulescu, Energy Efficiency in Romania’s Residential Sector, ROEC Research Paper, August 2014, p. 4. ↑
6. Eliza Gheorghe, The Chinese-Romanian Nuclear Cooperation, ROEC Policy Brief No.6, September 2014, p. 5. ↑