Press release – the position of SNN Board of Directors regarding the press release of the Ministry of Energy dated 13.04.2017

Press release

Bucharest, 14 April 2017

With regards to the press release issued by the Ministry of Energy on 13.04.2017, which states the discontent of the Ministry with the current Board of Directors of Societatea Nationala Nuclearelectrica SA (“SNN”) concerning the legal and responsible approach in the commercial relationship with the Nationla Uranium Company (“CNU”) and invokes the opinion of a minority shareholder regarding the financial results of SNN during the mandate contract 2013-2017, the Board of Directors of SNN presents the following public statements which it considers to be an appropriate approach in compliance with the principles of corporate governance:

Aspects related to the termination of the contract with CNU

SNN did not terminate the contract with CNU, the contract was rightfully terminated to the CNU’s refusal to deliver the raw material as per the clauses of the contract, thus, out of CNU’s fault;
SNN, considering its legal obligations applicable to companies with majority state owned capital to which is added the interest of the company and its shareholders, cannot purchase raw material at a price significantly higher than the market price;
The procurement of goods from an affiliated party (CNU and SNN being under the control of the Ministry of Energy), at a price significantly higher than the market prices, when it has the possibility to purchase the same goods from a third party at a much lower price, would represent a violation of the legislation in the field of public procurement, fiscal policy, corporate governance and financial control;
Only for 2016, the estimated impact of the procurement of raw material from Cameco Inc. versus CNU is in amount of 60 million lei. In other words, the procurement of raw material from CNU would have decreased the company’s profit with the stated amount, to which is added the fiscal effect of non-deductible transfer prices much higher than the market prices, to all the shareholders’ disadvantage;
Recognizing the importance of maintaining and developing of an integrated nuclear fuel cycle, SNN constantly acted towards maintaining contractual relations with CNU, both by concluding short term contracts (of 6 months) with Cameco Inc. for UO2 powder supply, based on competitive procedures between the two qualified suppliers of SNN in order to allow CNU the possibility to recover economically and financially, and by inviting the Ministry of Energy, as shareholder of CNU to discussions aimed at identifying alternative solutions to maintaining the capacity to ensure raw material from internal sources, invitation left without any reply;
All the supply contracts for uranium raw material are three party contracts, the third party signing the contracts being Euratom Supply Agency, European body with a clear role with regards to the European uranium market, including the role of facilitating non-discriminatory access to all the participants and users on the uranium products market;
At the public intimation of the Ministry of Energy in December 2016, the Council of Competition launched a verification of the aspects notified by the Ministry of Energy which expressed a series of concerns related to the contracts concluded between SNN and Cameco Inc. The Council of Competition considered that the contracts and the procurement procedures were a legal and fair practice, sending a written report in this regard to the Ministry of Energy. Thus, the conclusion of the Council of Competition, the only public institution in Romania authorized to evaluate and make determination in the field of competition, is that the prices in the analysed contracts are market prices and there is no consideration of an abuse of power in the case of Cameco Inc.
The decision of the Ministry of Energy to notify the Prime Minister and request an investigation by the Control Authority of the Prime Minister with regards to the uranium procurement procedure is an additional measure to verify the legality of the these contracts in the contexts of CNU’s problems. SNN made available to the representative of the Control Authority all the requested documents and information in order to clarify these concerns by offering verbal and written explanations. The information was made available during 17.03.2017 – 23.03.2017, thus far SNN not being informed on the completion of the investigation or of its conclusions.
At the time of receiving the mandate in 2013, the members of the Board of Directors undertook to act in SNN’s best interest and in the interest of its shareholders, to approach with responsibility and objectivity the situations which pose a major risk for the company, moreover given the fact that SNN is a nuclear power producer whose priorities and interests impose an administrative conducts in line with international practices and standards. The violation of the legislation and/or the inappropriate management of risks related to the supply of raw material and uncompetitive practices are aspects and approaches which are not viable in any state, and a responsible Board of Directors would not take responsibility for such a behaviour, moreover considering the fact that CNU’s current problems appear to be accumulations of historical problems and not the result of SNN’s actions. We consider it high time that the authorities concentrate on identifying the causes which lead to the current situation of CNU, at the level of CNU.

(2)Ministerul Finanţelor Publice este autoritatea administraţiei publice centrale de specialitate care are responsabilitatea elaborării şi implementării politicii în domeniul gestiunii financiare. Ministerul Finanţelor Publice îndrumă metodologic, coordonează şi supraveghează asigurarea bunei gestiuni financiare în utilizarea fondurilor publice şi în administrarea patrimoniului public.

(2)Ministerul Finanţelor Publice este autoritatea administraţiei publice centrale de specialitate care are responsabilitatea elaborării şi implementării politicii în domeniul sistemelor de control intern/managerial, precum şi al gestiunii financiare. Ministerul Finanţelor Publice îndrumă metodologic, coordonează şi supraveghează implementarea sistemelor de control intern/managerial, precum şi asigurarea bunei gestiuni financiare în utilizarea fondurilor publice şi în administrarea patrimoniului public.
(la data 16-Dec-2010 Art. 5, alin. (2) din capitolul I modificat de Art. I, punctul 3. din Legea 234/2010 )

Aspects related to the financial performance of SNN

As regards to the financial results of SNN, a simple comparison of the net profit for the period prior to 2013 and the mandate period of 2013-2017 is sufficient in order to notice the significant increase in profit for each financial year starting with 2013, thus for 4 full years (2013, 2014, 2015 and 2016);

By analysing each year related to the mandate period, fluctuations may be notices, which are determined first and foremost by the market factors such as energy price and currency risk (financial result);

SNN is a participant on the market, whose sales income depends primarily on the request and offer mechanism which forms the market price. If the energy price drops, the sales revenues will be impacted as well, SNN having fixed costs and a constant baseload production which do not allow the company to have additional income in contrast with other conventional producers (such as income from system services).

The effect of certain unfavourable fiscal changes cannot be ignored, such as the tax on special constructions which was later replaced by the tax on non-residential buildings applied to the nuclear reactors, which in their turn, impacted the profitability of the company, as the respective amounts were transferred to the state/local budget.

During the mandate contract, the production mix sold on the regulated market and respectively on the competitive market changed gradually, as per the market liberalization calendar, SNN being a participant to the regulated market, in compliance with ANRE decisions.

The Board of Directors constantly notified the energy market imbalances requesting the authorities to promote primary and secondary legislation changes in order to create a fair market climate for all the producers, as it is the responsibility of the administrative management of any company to try and correct a certain framework is it impedes the optimal development of the company. There were no identifiable concrete legislative measures to support these requests.

Considering the fact that during the past years, most of the conventional energy producers had major financial difficulties, including insolvencies, SNN obtained good financial results, exceeding the annual indicators approved by the shareholders;

As a nuclear produces, the priority of the company is nuclear safety, and from this point of view, the responsibility of the administrative management implies timely investments and operating and maintenance costs, without significant cost cuts in the nuclear safety area. A nuclear power plant cannot be operated in the same conditions as a hydro or a thermal power plant for example, but based on a different work ethic which places nuclear safety on the top, as per the principles to which Romania as a state adhered;

The efforts of the administrative management from an operational point of view are reflected in the international results of the company, as SNN is one of the best nuclear power companies at the international level in the nuclear industry (WANO, INPO acknowledgement) and from the financial and investment point of view, in the performance indications, which the Ministry of Energy approved, as the major shareholder of SNN, during the General Meetings of Shareholders.

SNN’s Board of Directors constantly acted in the interest of the company, fact which is appreciated by the private investors of SNN and considers that a constructive approach from the majority shareholder of the company is necessary for the company and for a correct public perception of its activity, even in the context of a transfer of mandate.

SNN Board of Directors