EC probes power deal for Romanian aluminium producer Alro

The European Commission is investigating the electricity supply arrangements between Romanian hydropower producer Hidroelectrica and aluminium producer Alro Slatina and seeking comments from interested third parties, the EC said Wednesday.

Alro, a unit of the Netherlands-based Vimetco group, is the largest aluminium producer in Central and Eastern Europe, excluding the CIS, with total cast aluminium output of 261,000 mt in 2011.

In January 2011 the EC initiated an ex officio inquiry into potential state aid involved in the directly-negotiated long-term contract for the supply of electricity between the two companies. The contract was concluded in 2005 and successively amended until 2010.

Alro Slatina is the largest industrial electricity consumer in Romania. Hidroelectrica, Romania's second-cheapest electricity producer, is owned 80.06% by the Romanian state through the Ministry of Economy, Trade and the Business Environment, and 19.94% by the investment fund Fondul Proprietatea.

The initial supply deal in 2005 saw Hidroelectrica agree to supply Alro with 3 TWh of electricity through 2013, the EC noted. The contract allowed for periodical price indexation, it said, adding that the initial price indexation system was modified twice. On January 1, 2007, when Romania joined the EU, the price was indexed on the basis of a formula based on Hidroelectrica's own production costs; as of 2010 onwards, the price is indexed on the basis of a formula based on the aluminium price quotations on the London Metal Exchange.

Last month, Alro announced that it had concluded negotiations with Hidroelectrica for the supply of 3 TWh/year of electricity until 2018. The two parties agreed on a formula for the electricity price, based on a series of factors, including the aluminium price at the London Metal Exchange and the Romanian energy market, OPCOM.

"Romania and the potential aid beneficiary ALRO Slatina argue, in essence, that the 2005 contract did not entail state aid, and that the successive modifications of the price indexation formula do not constitute substantive alterations of the 2005 contract," the EC said Wednesday in a notice in its Official Journal.