The core business of Electrica Sa consists of electricity distribution and supply based on licenses granted by Romania's National Energy Regulatory Authority (ANRE), and the operation and development of distribution, telecommunications and IT systems consistent with the existing generation and transmission facilities. The utility also may conduct other activities to support its core business, in accordance with applicable legislation.

As a natural monopoly, Electrica SA was obligated to provide an economic public service offering nondiscriminatory access to its networks for all customers and power generators in Romania. Geographically, Electrica SA covers the entire territory of the country, providing services to end users and all participants to the wholesale electricity market. A summary of Electrica SA's system statistics is shown in Table 1.

The Electrica SA tariff structure for customers and the users of the wholesale electricity market services is regulated by ANRE and based on cost analyses and cost estimates made by the generators (Termoelectrica SA, Hidroelectrica SA, Nuclearelectrica SA, IPPs, auto producers), the grid operator, Transelectrica SA and Electrica SA. Tariffs for end users are differentiated by voltage levels that include rates for on- and off-peak use of energy.

Regulation allows customers to select the tariff system by negotiating with the supplier. However, electricity tariffs for captive customers remain uniform throughout the country, with the exception of low-income domestic customers who may opt for a social tariff that is applicable if monthly consumption does not exceed 60 kWh.

Electrica SA has above-average internal technical and commercial losses on the 110-kV, medium-voltage (MV) and low-voltage (LV) systems that in 2001 averaged around 13% of energy purchased. A preprivatization European Bank for Reconstruction and Development (EBRD) loan of 100 million euros will be used to reduce the internal system losses, and plans are in place to refurbish the LV distribution networks in Romania's urban districts of Ilfov, Teleorman, Giurgiu and certain areas of Bucharest. Electrica SA has made efforts to secure service connections and metering equipment in residential areas where electricity thefts prevail. Investment in these areas will increase the market value and attractiveness of Electrica SA's subsidiaries Muntenia Sud and Oltenia.

MISSION AND MAJOR GOALS

The general goals of Electrica SA include:

• Defining a flexible structure that is able to meet market requirements

• Improving the economic situation of the company to achieve profitability

• Meeting the regulatory performance indicators for electricity distribution and supply.

The major strategic goal is to achieve managerial restructuring and modernization, and to establish all businesses on the principle of economic efficiency. To accomplish this, the future new organizational structure, in accordance with a govermental decision, will be the result of:

• Unbundling electricity distribution and supply costs

• Consolidating the internal territorial structure

• Increasing revenues by the diversification of services and attraction of new clients in the professional services field.

MIDTERM STRATEGY

Key objectives of the organizational strategy are the restructuring of the company to improve managerial activities, reduce costs, increase service quality and customer satisfaction, and attract private capital in the electricity distribution and supply business in Romania. The legal base for the development of the restructuring program is a government program, approved by Romania's Parliament, that foresees the reorganization of the distribution and supply business into eight regional companies, privatizing two companies per year starting in 2002.

Since August 2001, Electrica SA has operated as a nationwide group of companies with eight electricity distribution and supply branches. This transformation represents an acceleration of the sector restructuring and reform process designed to attract capital.

Electrica SA is the sole shareholder of the newly established subsidiaries: Electrica Moldova, Electrica Muntenia Nord, Electrica Dobrogea, Electrica Muntenia Sud, Electrica Oltenia, Electrica Banat, Electrica Transilvania Nord and Electrica Transilvania Sud.

The subsidiaries of Dobrogea and Banat were privatized by the end of 2004 with ENEL, and the subsidiaries of Moldova and Oltenia were privatized in 2005 with Eon, respectively CEZ. Electrica SA has secondary offices or branches for maintenance and electric energy services in the cities where each of the subsidiaries is based.

The main characteristics of the subsidiaries are shown in Table 2. The subsidiaries operate as profit centers, with their own budgets and objectives based on licenses for distribution and supply activities. The activity carried out by the managerial teams of the branches for maintenance and electric energy services is assessed based on well-defined performance indicators established by the management of Electrica SA.

ELECTRICITY DISTRIBUTION

Midterm targets for electricity distribution are:

• Rehabilitation of an additional 14 110-kV MV substations whereby electricity is received from the generation and transmission company

• 14 new 110-kV/20-kV substations

• Implementation of EMS, DMS and SCADA systems

• Real-time surveillance of 110-kV MV power transformer operation

• Thermo-vision preventive maintenance for 110-kV overhead lines and substation

• On the MV side, oil-insulated transformers will be replaced by dry transformers, and MV and LV overhead lines will be equipped with compact top hamper and pre-insulated conductors (to protect vegetation by removing the need for excessive wood cutting). Furthermore, conductors with larger cross sections will be used, small capacity MV/LV transformers will be installed to bring MV closer to customers, and branch-line joints will be used in urban MV distribution networks

• Staged implementation of automation of the distribution network in parallel with reducing the length of MV overhead lines by the installation of reclosers, disconnectors and remote-controlled capacitors.

Special attention will be given to electrification in rural areas, where demand is increasing because of household appliances and other equipment. However, rural electrification represents for Electrica SA a financial effort that cannot be economically sustained (some electrification work can result in unacceptably long periods of amortization such as hundreds of years). These projects could be financed from the special fund, using the resources that could be allocated to the priority investments of the society. With these conditions, it is necessary to fund these works from the local budgets, with the support of local authorities. The electrification program, increase in the capacity of existing installations and such should be coordinated with the development of rural areas and the involvement of local administrations responsible for improving population comfort (drinking water, sewers, sanitary systems and education/culture systems).

ELECTRICITY SUPPLY

Investment is foreseen in the following supply activities:

• Information systems for management of customers, electricity purchased, distributed and sold data

• Improvement of quality services. For example, electricity metering, billing and collection by promoting self-metering systems and externalization of metering activities in the area of services

• Promoting programs for the reduction of commercial losses (installation of metering-protection blocks and reconnections)

• Load-curve analysis at industrial and tertiary customers' premises to improve the methods for short-term demand forecast, correlated with the regulated tariffs

• Enhancing metering, billing and collection process automation. This program started with the implementation of a modern system for Bucharest and gradually will be rolled out to other areas in the next 7 to 10 years, subject to the availability of investment capital

• The creation of consultancy.

To meet the goals established for the electricity distribution and supply activities, investment programs amounting to US$250 million annually will be required.

IT AND TELECOMMUNICATIONS

Several IT management systems have already been implemented or are progressing at various rates (for example, management information systems, finance-accounting management systems, systems for management of repairs, investments and projects, human resources and customer relations). An intranet-type information system comprising geographic information system, computer-aided design of electric networks also will be installed. In January 2002, Electrica SA began to install its most important project, the financial-accounting management system — SAP R/3 — in five subsidiaries, and completion in all eight subsidiaries was done in 2003. With the promotion of process information, the following strategic objectives should be met:

• Improved reliability of the distribution network

• Improved quality of supply for customers

• Improved decision-making processes, with a faster, more accurate response on network operational conditions

• Reduced supply interruption times, operation and maintenance costs, and damage payments to customers.

The successful implementation of management and process information systems depends on an adequate telecommunications infrastructure. Hence, the modernization of the existing telecommunications infrastructure is an important factor in the utility's strategy, because it offers the opportunity to diversify business by setting up joint ventures to develop the telecommunications infrastructure and operate on the market as an independent operator.

REACHING THE GOALS

Electrica SA is in the process of restructuring its portfolio of activities — redefining it and building an unmistakable identity throughout the Romanian market. The goal of the restructuring process is to establish economically viable distribution and supply companies, which will maintain in their portfolio the core activities and will contract out all services required to meet their obligations.

Sustaining the infrastructure and business development programs means huge investment, which calls for attracting private capital in the electricity distribution and supply activities. Privatization through capital increase is not an end in itself; it represents an instrument, by which capital can be attracted. It is the result of a political decision — Electrica SA acting to increase the economic efficiency of its activity and the market value of its subsidiaries.

Through a high-performance management, an understanding of problems and a positive, supportive attitude of the trade unions can and will be reached. Once the goal is met, Electrica SA will have an efficient operation to the satisfaction of its customers.

Achievement of the goals must be sustained by an improvement of the legal and regulatory frame, especially with regard to the rules for wholesale electricity market operation and the regulatory mechanisms for tariff setting for natural monopoly activities.

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Dr. Gheorghe Indre was chief of the Strategy department of Electrica SA. He received his MSEE degree in 1979 and his Ph.D. in electrical engineering in 2002 from the Politehnica University of Bucharest, Romania.

Dr. Stefan Gheorghe was project manager of Electrica SA. He received his master's degree in 1981, his Ph.D. degree in electrical engineering in 1994 from Politehnica University of Bucharest, Romania, and his MBA degree in 2005 from OPEN University Business School, United Kingdom.
stefan.gheorghe@electrica.ro

Table 1. Electrica SA System Statistics

Voltage	Overhead lines	Underground cable
110 kV	18,388 km (11,430 miles)	263 km (163 miles)
MV (20 kV, 10 kV and 0.6 kV)	90,869 km (56,475 miles)	28,402 km (17,650 miles)
LV (0.4 kV)	120,898 km (75,140 miles)	48, 595 km (30,200 miles)
110-kV MV substations	856
MV/LV substation	434
Transformer and substations	65,660
Electricity sales in 2001 HV MV LV Total	10,740,574 MWh (28.8%) 12,463,324 MWh (33.4%) 14,117,430 MWh (37.8%) 37,321,328 MWh (100%)

Table 2. Statistics for Each Subsidiary

Electrica SA subsidiaries	Number of customers	Electricity sales in 2001 (MWh)	Domestic customers (%)	Domestic consumption (% of total sales)
1. Moldova	1,293,073	4,151,548	94	23
2. Muntenia Nord	1,199,546	6,430,131	94	15
3. Dobrogea	590,299	3,590,835	92	17
4. Muntenia Sud	1,064,431	4,255,897	96	32
5. Oltenia	1,359,908	7,375,215	93	14
6. Banat	832,527	3,796,503	93	2
7. Transilvania Nord	1,089,197	3,814,018	93	22
8. Transilvania Sud	1,022,578	3,907,181	92	22
Total	8,451,559	37,321,328	93	20