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Is pasture land disappearing in Romania? When looking at recent legislative changes and media appearances of the Minister Delegate for Energy, one would presume that Romania is rapidly being deprived of specific agricultural land – pastures and/or meadows.

Concerned with the presumed accelerated loss of agricultural land, the authorities have enacted, through a specialised act, Government Emergency Ordinance no. 34/2013, regarding the organisation, management and exploitation of permanent pastures and for the amendment and supplementation of Real estate law 18/1991 (“GEO 34”).

GEO 34 appears to have been urgently needed due to some incapacity of putting into effect of a previous act, law 214/2011 regarding organisation, management and exploitation of pastures (“Law 214”). Law 214 contained inconsistencies that made it impossible to apply and therefore made it necessary for the authorities to remedy the situation, by means of GEO 34. In addition, an explanation of the urgency of GEO 34 was that important EU funds were to be applied for in two days from its entry into force. Of course, the Ministry of Agriculture had a month from the entry into force of GEO 34 to prepare the secondary legislation.

Nevertheless, looking ahead, we must point out the important aspects regulated by GEO 34:

Its purpose is the regulation of the organisation, management and exploitation of permanent pastures. A permanent pasture is agricultural land that has been used for grazing and growing forage for animals and declared as pasture land. In practice, if land has been declared as pasture land and has remained with this status for five years, then it becomes a permanent pasture, according to GEO 34.
GEO 34 has a general and uniform coverage, as it regulates all sorts of pastures, whether publicly owned or private, all across Romania.
The most important restriction – GEO 34 forbids the removal from the agricultural circuit of pasture land. Effectively, this would translate into a complete prohibition to build anything on pasture land.
This restriction is permanent and is passed to whatever successors, therefore, changing the ownership of pasture land does not allow avoidance of this restriction.
As expected, there are still some exceptions to this restriction. In several particular cases, the removal of pasture land from the agricultural circuit is allowed:
- for the emplacement of public-interest projects;
- for objectives of national security;
- works which are part of local/county/regional development projects;
- for the emplacement of constructions serving agricultural works;
- for mountain refuges;
- for the emplacement of renewable energy projects, as long as:
  - these do not hinder the “good exploitation of the pasture”, and
  - these projects have been declared of public utility works of local, county or national interest, by decision issued by the competent authority.
With all exceptions, come conditions. In case of the works at point 5 above, these are related to maintaining sufficient pasture land for raising animals.Before detailing precisely how this works, we must state that, further to the entry of Romania in the European Union, officially in 2007, the country had to adopt various measures relating to good agricultural and environmental conditions (GAEC, as referred to in EU Regulations) as a pre-accession obligation.One of these obligations was related to the protection of permanent pastures, for both environmental reasons, as well as for the support of agriculture – raising animals.To this end, at the date of 1 January 2007 Romania declared an overall permanent pasture land surface of around 4.5 million hectares, composed of the surfaces declared in turn by all the administrative units that compose Romania (communes – especially, cities and the state).
Nowadays, if an interested investor would want to build anything on pasture land, which would be understandable, given that such land is usually clear, flat land, without trees or ruins of buildings on it, located not too far from communes’ utilities, not to close to peoples’ houses, than this investor should check with the competent authorities who is the owner of the pasture land and what was the declared surface of pasture land in 1 January 2007.

Further, this investor would have to convince and prove to the Local/County Council or Romanian Government that his project is of public utility and would benefit the local, county or national interest so much that it a decision is given in this respect.

In continuation, the next hurdle is the removal of the pasture land from the agricultural circuit, which must not result in the reduction of the above-mentioned surface of pasture land, as it was declared in 2007, for the respective administrative unit.

In case the removal from the agricultural circuit of this pasture land would result in the reduction of the respective surface, the investor must find, acquire and reintroduce in the agricultural circuit other land surfaces, to balance this reduction.

Here, a problem may arise. GEO 34 does not specify whether one who does not find any land in the respective administrative unit, may buy and reinstate land surfaces as pasture land in other administrative units, e.g. if one does not find any land to buy in a commune, would he be allowed to go and purchase land from neighbouring communes.

Or, going further with the example, can one buy, or already own land, somewhere else in Romania, straight across the country, like, wanting to build near Bucharest and reinstating pastures in Satu Mare or Suceava?

This problem is not clear, because GEO 34 makes only a short mention about this. It is specified that the reinstating of land is made prior to the removal from the agricultural circuit, in a manner that the surface of pasture land does not decrease at a local, county or national level, as the case may be.

Therefore one solution would be in the sense that we should look at the overall surface declared by the local, county or national level and be allowed to reinstate land in other places in Romania. The principle is that we should be able to do what is not expressly forbidden.

Another solution would be that the overall surface must be maintained at the same level, local, county or national. Where no land can be found, it would mean that no pasture land can be removed from agricultural circuit and no constructions and investments made.

This would be the strictest interpretation and probably the safest.

Further to the publication by the Ministry of Agriculture of the official methodology for removal of pasture land from the agricultural circuit, which has not happened yet, we may have a clearer position on this matter.

There is already a draft methodology for removal of pasture land from the agricultural circuit (“draft methodology”) published for public debates on the website of the Ministry of Agriculture, but it is not official yet.

Should this draft be officially adopted, it would still not be that clear. The draft methodology makes the addition that it is allowed to have the land reinstated composed of one or more “different emplacements”. The matter of whether the land to be reinstated as pasture must be emplaced in the same commune or even county is not dealt with as the draft methodology states basically the same words (e.g. the pasture surface must remain the same at a local, county or national level as the case may be), therefore, interpretations remain as above.
The rest of GEO 34 deals with the use, management and actual exploitation of pasture land by the authorities and by those raising animals and the various conditions and with the sanctions imposed in cases when GEO 34 is not observed.

It deals almost exclusively with pasture land situated in the extravilan of localities. This matters because one can mostly build only on land which is in the intravilan, and this restriction is from around 1991. Therefore, the draft methodology covers mostly cases which are not practical.
Another would be that for most projects, whether real estate or renewable energy or other, it is necessary and advisable to obtain a PUZ from the relevant authority (zonal urbanism plan with special urbanism derogations specifically for the project) prior to and as a condition of starting an investment.An effect of the issue of a PUZ is that the surface of land covered by it enters the intravilan area. It does not lose its quality of agricultural land, pasture land, but it falls under different provisions of the draft methodology.The draft methodology states that the removal from agricultural circuit of pasture land situated in the intravilan is made once the building permit is obtained, in cases of pasture land introduced in the intravilan up to 23 November 2012.This is somewhat retroactive and unclear. It is not specified what happens with pasture land situated in the intravilan before the said date that has been removed from the agricultural circuit with payment, or what is to happen to such pasture land that has not been removed from the agricultural circuit.
Also, in an equivocal and circular manner, for pasture land introduced in the intravilan after 23 November 2012, the draft methodology simply mentions that the removal from the agricultural circuit shall be made in the conditions prescribed by law, without identifying the “law” and with disregard to the fact that it should be the “law” that regulates this.
A final comment, for now, would be that the draft methodology is at times in conflict with GEO 34 which it should help explain and apply.In one case, GEO 34 states that other land can be recovered and reintroduced as pasture land, in exchange for the surface of pasture land removed from the agricultural circuit, at the latest by the time set in the approval for the definitive removal. The draft methodology reduces this term. It states that the recovery must be done by the date of applying for the approval for removal.In another example, the draft methodology forbids the emplacement of constructions only on pasture land situated in the extravilan area, an area slightly less than that of GEO 34 which covers all areas of pasture land, not just extravilan areas.

On a related document, we must point out that the draft application norms for GEO 34 deal only with the use and exploitation matters, without going into the problem of removal of pasture land from the agricultural circuit.

it is also worth mentioning that if the draft application norms are adopted in their current form, they will have retroactive effects.

To be more precise, it is stipulated that pasture land which was registered as such in 1 January 2007 and was subsequently removed from the agricultural circuit or had its functionality as pasture changed, must be reintroduced as pasture land, or other land must be reintroduced in the agricultural circuit as pasture land, in order to not affect the surface of pastures declared in 2007. This is an obligation of the “holders of the pasture land”. No clear methodology for this is yet in discussion.

the owner of the land that changed its use from pasture land into other type of agricultural land or who removed it from the agricultural circuit, and still continues to be the owner;
only the “previous” owner, that made such changes to the land and further sold the land, due to the fact that the person who bought the land did not acquire pasture land, and does not now hold pasture land;
the “current” owner, who bought land that was previously, at some point, pasture land.
both the “previous” and the “current” owner, as a joint obligation.

Unfortunately, although some are extreme, these possibilities exist.

To summarise, pasture land has a clear economical value, both for agriculture and the protection of the environment, as well as for its construction potential.

There are ways to get pasture land into a legal buildable condition, however, there are hurdles to go through, some of which are not yet clear and structured. The Government, should it consider some advice, could make matters clearer for everyone, including the various authorities involved in the process.

The change in the regime of the pasture land did accomplish what it set out to do, it scared off many investors in renewable energy projects, but also dragged along real estate developers, therefore, just as an example, there will still be some time before any Formula 1 racetrack is built near a major city in Romania. As regards the protection of the interest of people who raise animals, we have no signs yet.

The support scheme for renewable energy in Romania, in force since 2011, was expected to be revised periodically to prevent overcompensation in new projects in this field. Recent changes are contained in Government Emergency Ordinance 57/2013 (the “GEO”) and also in some other measures. The GEO should be approved by a law, whether amended or not, but no decision is expected to be taken until after the summer.

What has not changed

It should first be understood what has not changed, given the volume of comments in the media about proposed changes to the support scheme in recent months.

Although the energy regulator ANRE reported in March 2013 that current allocation levels of green certificates per MWh did lead to overcompensation of some (but not all) of the supported methods of renewable energy generation, there has been no reduction of the number of green certificates per MWh allocated for new projects.

The GEO is to introduce a new procedure for the adjustment of such allocation levels. The timetable for such procedures and discussions with a member of the supervisory board of ANRE suggest that no changes to allocation levels will be made before 31 December 2013 at the earliest, and possibly not until 31 March 2014. It is also expected that any recommendations by ANRE for reductions in levels of support will normally specify a date on which such proposed adjustment will take effect (if approved by the Government).

It had also been proposed in the draft of the GEO to give large consumers of energy a partial exemption from the obligation to purchase green certificates in proportion to the amount of energy purchased, which would have reduced the demand for green certificates in the market. The form of the GEO as published however makes any such actions conditional upon obtaining EU approval. Given that the European Commission is already investigating whether similar provisions in Germany constitute unlawful state aid, it is perhaps doubtful whether EU would ever be open to give easily such consent.

Change to the support scheme (decided or only proposed?)

Hold-over of green certificates

Turning to what the GEO is intended to change with effect from 1 July 2013, the main point is probably the “holding over” of various numbers of green certificates allocated to wind, solar and small hydro producers. The GEO envisages that the held-over green certificates will be recovered in stages during the period commencing on 1 April 2017 for solar and small hydro producers and on 1 January 2018 for wind producers. In each case recovery of the held-over green certificates is to be completed by 31 December 2020. The details of when producers will receive the held-over green certificates are to be established by ANRE.

These measures are to apply to existing projects and as such should be distinguished from the adjustment of levels of green certificates allocated to new projects, as described above.

We understand from discussions with a senior representative of ANRE that ANRE would not expect that projects will be subject to both the proposed holding-over of green certificates and also any reduction in green certificates allocated to new projects, as described above, but the current wording of the GEO is ambiguous on this point. Discussion of proposed amendments and clarifications by the Parliament has now been postponed until after the summer, so it appears unlikely that there will be any definitive clarification of this point for the next couple of months. Investors in new projects may however take some comfort from the reported attitude of ANRE, given the role of ANRE as the initiator of any proposals to reduce allocation levels for new projects. It is indeed difficult to see how there could be a logical argument that overcompensation exists at a time when the current allocations of green certificates are subject to partial hold-over.

The hold-over mechanism was not previously envisaged by Romanian renewable energy legislation and consequently was not approved by the EU when the support scheme was reviewed as state aid.

Further, Romania is a party to the Energy Charter Treaty and to various bilateral treaties on the protection of investments. Even if held-over green certificates are eventually issued, the recipients will have lost the present benefit of receiving cash from the sale of those green certificates at the time that they were originally expected to have been issued. Further, the market price achievable on the eventual sale of the held-over green certificates may be less than if they had been sold in the normal course. The GEO makes no mention of compensation for losses, so it may be argued that the hold-over of green certificates for existing projects breaches the legitimate expectations of investors in those projects and therefore the requirement for such investors to be treated in a fair and equitable manner.

We would expect that any action against Romania for breaches of such treaty obligations relating to protection of investments would primarily be of interest to larger investors in existing projects. Such investors would need to prove that the holding-over of green certificates has caused loss. There are expectations that the price of green certificates will rise, at least in the short term, due to the reduction in the overall volume of available green certificates and also to the prohibition of bilateral off-market contracts for the sale and purchase of green certificates.

It should therefore quickly become apparent after 1 July 2013 whether Transelectrica will start to apply the holding-over of green certificates, notwithstanding the absence of EU approval for these measures, and also what will be the effect of this on the price of electricity as well as on the price of green certificates. Given that bilateral off-market power purchase agreements have already been prohibited for some time, the energy market may also allow producers that are not “locked in” to contractual electricity prices to look for increased market prices for energy to compensate, at least in part, for any reduced income from the sale of green certificates. At least for now, it is hard to estimate what effect the holding-over of green certificates will actually have on the income of renewable energy producers.

Limits on accreditation for green certificates

Another important change is that accreditation for green certificates will be given only to the extent that there is capacity in the Romanian annual plan for renewable energy for the particular technology concerned. New projects which are completed in one year may therefore not be accredited for green certificates as soon as they are commissioned. However this does not appear to shorten the total period during which such projects will benefit from the allocation of green certificates.

Whilst this may represent primarily a matter of timing and cashflow, there may be a risk that the level of allocated support for new projects will be reduced during the period between the commissioning of the project and the date when it receives accreditation.

The GEO also contains no provisions for dealing with a situation where a project is covered by only part of the available capacity in the national plan for that year.

These issues may be addressed by ANRE in practice but we believe that a more prudent approach may be to develop smaller, separate, projects, rather than one large single project. This should reduce the chances of projects being denied accreditation on the grounds of exhaustion of the relevant allowance in the annual plan.

We also expect to see investors show more interest in the types of supported renewable energy technology which have been less developed than wind, solar and micro-hydro, particularly since only wind, solar and micro-hydro technologies are affected by the hold-over of green certificates. Levels of support for technologies such as biogas and biomass have not been cut or suspended and indeed such technologies will also benefit if the prices of green certificates and of energy rise, as has been suggested may be the effect of the GEO.

Trading of green certificates

Green certificates have previously been tradable on the OPCOM market and also off-market under bilateral agreements. The GEO will restrict such trading to the OPCOM market, on which only registered renewable energy producers and energy suppliers may participate.

Although ANRE is to re-calculate the annual quota of green certificates to be purchased by energy suppliers for 2013, we suspect that the measures will make it harder for energy suppliers to secure the number of green certificates that they need to purchase to avoid being penalised, since the security of long-term bilateral agreements will no longer be available. If so, the prices achieved by green certificates which are traded on the OPCOM market may be expected to rise as energy suppliers compete to secure their quotas of green certificates. In the absence of the security of having bilateral contracts signed in advance of the deadline for suppliers to acquire the required green certificates, we would certainly expect green certificate prices to rise on the OPCOM market as the deadline approaches in each year.

Positive imbalances of power produced

All dispatchable projects will no longer receive green certificates in respect of energy which is delivered into the grid in excess of what had been predicted and notified to Transelectrica. Further, an ANRE order has set the threshold for qualification as dispatchable more than 5MWh for wind and solar projects. Building smaller, non-dispatchable projects should avoid this risk.

Agricultural land

There are two separate restrictions on the use of agricultural land for renewable energy projects.

First, the GEO specifically excludes from the support scheme any solar projects which are constructed on land which had agricultural permitted use on 1 July 2013, i.e. even if the permitted use of the land is subsequently changed for the solar project. There have been reports that this deadline may be extended to 1 January 2014 but in any case, it is understood that many planned solar projects will have met the deadline of 1 July 2013.

Second, another Government Emergency Ordinance, 34/2013, imposes a general requirement from 1 July 2013 that the declared amount of pasture land should be maintained. There are exceptions for renewable energy projects, but these require such projects to be classified as being of local or national importance and also require an equivalent quantity of land to replace the land used for the project as pasture land.

Financial guarantees for approval of connection of renewable energy projects to the grid

Grid operators are now to be authorised to require applicants for permits to connect renewable energy projects to the grid to provide a financial guarantee. The form of such guarantee is to be prescribed by ANRE but this is presumably to give some assurance that the project will be built and the connection made. It is notable that no such guarantees are to be required for non-renewable sources and this may well raise competition and market distortion objections to this measure.

Conclusion:

Uncertainty and hasty legislation are always unwelcome and the GEO both contains provisions which are interpretable and introduces measures which may be easily challengeable. It is also at least unwelcome that Parliament will not complete its review of the GEO until after the parliamentary holiday. As explained above, there are however reasons to think that the income of renewable energy producers in general may not suffer as much as had first been feared.

There are also reasons to consider that smaller projects of up to 5MW will be preferred for development and that producers using biogas or biomass may even find that the market becomes more attractive for them.

The effect on the market should be evident quite quickly and we suspect that investors in new projects who are prepared to accept the risks of doing business in markets such as Romania may be able to do some good deals, particularly where the financing of projects is not over-dependent on short-term income from green certificates. The removal of the more speculative proposed projects may also make it easier to get serious projects built and connected to the grid. Even as grid parity gets closer, we suspect that investors who move now will have better chances to benefit from the support scheme than those who wait in the hope of getting more certainty.

Whether the GEO will necessarily lead to substantially lower electricity prices for Romanian consumers is another matter altogether.