The European Commission announced on Monday that it has opened a comprehensive investigation to determine whether Romania’s public support provided to Complexul Energetic Hunedoara (CE Hunedoara), a state-owned electricity and heat producer, complies with EU state aid rules regarding at-risk companies.
In a press release, the Commission said it has doubts about whether CE Hunedoara’s “proposed restructuring plan could restore the long-term viability of the company without continued State aid.” The EU executive said it was concerned by CE Hunedoara’s debts and ability to contribute to restructuring costs.
CE Hunedoara has around a 5% market share of Romania’s national electricity production, according to the Commission. In addition to providing electricity and heat, the company operates coal mines and uses the coal to fuel its power plants.
CE Hunedoara has struggled with financial difficulties since 2013. In accordance with Romanian law, it began formal insolvency proceedings in 2016. The Commission says the insolvency proceedings have since been suspended “pending an appeal by trade unions before a Romanian regional court.”
In April 2015, the Commission granted Romania permission to provide €37.7 million in temporary rescue aid to CE Hunedoara. By providing the funds, Romania committed to submitting a restructuring plan to ensure the future viability of CE Hunedoara in the event the company could not pay back the loan within six months. In a separate ruling in the same month, said the company must pay back around €6 million in “incompatible state aid.”
According to the Commission, state intervention is only permitted for a company facing financial difficulties under specific conditions. Rescue aid may be granted for up to six months. After this time, aid must either be paid back or the Commission must be notified of a restructuring plan in order for “restructuring aid” to be approved.
EU state aid rules also require a company to have “a sound restructuring plan to ensure its return to long-term viability” in the absence of state support. The company must contribute an “adequate” amount to restructuring costs as well as limit any competition distortions that may have been created by the aid.
When CE Hunedoara entered into insolvency proceedings in 2016, it owed more than €500 million to various state organisations. The amount includes a portion of the “rescue loan” from the Romanian government in 2015, a loan to finance the repayment of €6 million in “incompatible state aid,” as well as about €73 million worth of additional loans provided by the Romanian government in order to prevent CE Hunedoara from going under.
Regarding the company’s contributions to the restructuring costs, the Commission raised concerns that “the restructuring plan does not foresee a discernible contribution of CE Hunedoara to the costs of restructuring nor measures to limit possible distortions of competition as a result of the significant state support.”
The Commission said it will explore these concerns during the investigation proceedings. The EU executive also said it will continue to collaborate with Romanian authorities during the investigation in order “to find a viable solution for CE Hunedoara’s assets that will ensure they continue to supply electricity, reduce costs for consumers and limit the burden on Romanian taxpayers.”