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Romania: Impact on the energy sector of government-imposed price controls and essential personnel isolation measures in response to COVID-19

30 March 2020 – Confronted with a rapid spread of COVID-19 cases — fuelled in part by a high number of citizens returning from high-risk countries — the Romanian government has introduced additional measures to contain the spread of the pandemic and its social impact through the recently enacted Military Ordinance No. 4 regarding measures to prevent the spread of COVID-19 (“the Ordinance”), published in the Official Gazette on 29 March 2020.

1. Measures included in the Ordinance that impact the energy sector

Among additional free movement restrictions and quarantine measures, the Ordinance introduces measures regarding the energy and utilities sectors, as follows:

  • for a period determined by the employer, preventive isolation measures at the workplace or in dedicated areas inaccessible to external parties are to be introduced for personnel holding essential positions that ensure the functioning of the production, transmission and distribution of electricity and natural gas; the maintenance of specific equipment and installations; and other supply activities, i.e., the extraction, production or processing of resources and raw materials and/or semi-finished energy products necessary for the functioning of the National energy system as per the relevant contingency plans in place during the declaration of a state of emergency in Romania. The measures are applicable as of 31 March 2020 at 12:00 (EET); and
  • during the state of emergency, prices for electricity, heat, natural gas, water supply, sanitation and fuels cannot be increased over the levels applicable on the day of issuance of the Ordinance; these can only be decreased based on supply and demand. Although the measure appears to have been adopted for social protection purposes and should therefore refer to prices paid by final customers, the hasty adoption of the text leaves room for interpretation. Moreover, the Ordinance does not distinguish between vulnerable and non-vulnerable consumers. Therefore, it can be expected that further clarifications will be brought through secondary legislation for the application and enforcement of this measure, also involving the National Energy Regulatory Authority.

2. Brief remarks on the price controls included in the Ordinance

The possibility of introducing price controls for certain goods and/or services since the establishment of the state of emergency in Romania on 16 March 2020 has been addressed by the authorities through presidential Decree No. 195/2020 (“Decree No. 195/2020”).

Decree No. 195/2020 also provides that during the state of emergency the exercise of certain rights, such as the right to property and economic freedom, will be restricted considering certain criteria regarding the spread of COVID-19 and the measures necessary to contain the outbreak.

More specifically, with regard to potential price controls during the state of emergency, Art. 15 of Decree No. 195/2020 provides that during the state of emergency prices for medicines and medical equipment, basic foodstuffs and public utility services (electricity, heat, natural gas, water supply, sanitation, fuels, etc.) can be capped to the price average of the three months before the state of emergency was declared.

However, the price controls under the Ordinance consider the price levels applicable on the day the Ordinance was issued, i.e., 29 March 2020, and not the average prices for the three months prior to 16 March 2020 (i.e., the 15 December 2019-15 March 2020 period).

This inconsistency between the price ceilings under Art. 15 of Decree No. 195/2020 and the Ordinance (which should be merely implementing the Decree) could give rise to debate and uncertainty in respect of its application.

It should also be noted that Romanian Competition Law No. 21/1996 (“the Competition Law”) allows the government to adopt price ceilings. Art. 4(3) of the Competition Law enables the government to adopt through a government decision temporary measures to stop an excessive increase in prices or even to impose a ceiling on prices for particular economic sectors during extraordinary circumstances such as crisis situations, a major imbalance between supply and demand, or clear market failure. The measures can be adopted for an initial period of six months than may be prolonged for additional periods of three months, as long as the initial circumstances persist. The law does not include further limitations regarding the government’s freedom to act. However, the price controls under the Ordinance do not appear to be based on the Competition Law but rather on the specific legislation governing the current state of emergency.

For more information contact Iustinian Captariu, Partner, at , or Cătălin Graure, Senior Associate, at .