TPA was created in Austria in the 1970s and today it is active in 12 countries, offering accounting, audit and tax advisory services. In terms of energy, the core of their expertise and the majority of their work is in the renewables sector.
In addition to abundant gas resources, Romania also boasts good solar and wind potential – what is your assessment of the country’s renewables capabilities?
In terms of resources, Romania fares better than most European countries. We already have many hydro-technical installations compared to our neighbors and there is still room for further development. The potential for wind power is also tremendous. In 2010, more than 400 projects have been submitted for EU funding, and many of them can still come to fruition. The challenge remains with attracting investment, which is due to the current tax regime and lack of state incentives, but we expect this to change in the next few years. There is great pressure on the government to address this matter, otherwise investors will likely look for opportunities elsewhere.
What Romania does not really have at the moment are biomass and biogas projects, which is atypical in the EU. We do have the raw resources technically, but in the case of biomass for example unlike in the West, we are not able to make full use of this resource due to the ageing heating and pipe systems. Similarly in the case of biogas the resources are available, there is a lot of organic waste in households, but we need to figure out a system for them to be collected and ensure we have the proper technology to process them. The legislation in the field also needs to be thought out in a way that allows for profitability.
How has the renewable energy sector evolved in recent years?
If we do not account for hydro energy, which has a long history in Romania, all other types of renewable energy cam to the table rather late but made up for it by developing very fast. Taking wind energy as an example, in just three-four years this sector has generated a production potential similar to what Austria has achieved throughout 15 years. This boom was caused by the feed-in tariff model chosen by the government, that of green certificates, that guaranteed preferential prices for clean energy fed into the network for a period of 15 years. This naturally attracted abundant investment. The support scheme was motivated by the targets set by the European Commission for renewable energy.
Unfortunately, this development came to an abrupt end because consumers were unhappy with the added costs, especially big consumers whose competitiveness on international markets decreased. This led to changes in legislation, for example the renewable energy quota was reduced and some of the big consumers were excluded from paying for green certificates. This was a big hit for the renewables market, which saw a high number of green certificates but not enough buyers. Since 2017 the state aid scheme ended for newcomers to the clean energy industry, and resulting in a not too competitive business climate for the older investors. Naturally, this decreased the appetite for investment in this sector.
How does Romania compare regionally in terms of the fiscal and regulatory environment?
Other countries in the region pose challenges as well, but they seem to hold an advantage in terms of legislative stability. As an investor you want to be able to plan ahead for at least five years and that does not seem feasible in Romania at this point, where more than 200 fiscal changes are made on a yearly basis. This is problematic especially because we are talking about long term investments, where transparency and predictability are essential.
The recent GEO 114/2018 has also decreased Romania’s attractiveness from this perspective, by adding a 2% turnover tax for companies in the energy business. This means that even businesses that are losing money will have to pay it, and it is especially harmful to the renewables sector where few companies manage to remain profitable. Discussions surrounding the GEO are still ongoing though, and we trust that it will be withdrawn, as was the case for other measures in the past after more careful consideration.
How is TPA supporting the market during these uncertain times and what are your key objectives for the coming years?
TPA can help with anything from assistance in setting up the company, accessing EU funds, to providing due diligence through our lawyers, for land or companies, in case of acquisitions. In addition to this, we are active in several groups in the Coalition for the Development of Romania, such as the energy, EU funds or tax groups. Through this we are trying to be a partner in dialogue for the government and put forward ideas that can help the industry.
In terms of objectives, we want to attract more investors to Romania of course, but we must be honest and transparent in this process and acknowledge where Romania needs to improve. There are projects that are not profitable at present, for example, but this opens the opportunity to buy them at reasonable prices and then benefit from the changes we expect in the market over the next several years. Our message to investors is “if you have courage and a little patience, this could be an excellent time to come to Romania”.
