Vol. 7, No. 5, June 2011
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Vol.7, no. 5, June 2011
Fresh from attending his son’s nuptials, Prince Charles of Wales recently met Prime Minister Emil Boc during a private visit to Romania, when the heir to the British throne toured several villages in Transylvania. His description of the region as “a place of extraordinary beauty, rich in culture” has boosted Romania’s image, judging by the international media coverage of his visit, in a way the Boc cabinet has not managed to do with the 900 million Euro leafbrand that has been promoted worldwide.
14
Cheaper check-in Two stars are the new five stars
20
Moldovan mission The highs and lows of doing business with Romania’s eastern neighbour
32
Latin links Italian investment investigated
6. Boc’s back
46. Nabucco no-go
The PM is re-elected president of the PDL
Work on the high-profile pipeline pushed back to 2013
8. Restructure on the way
50. Divine intervention
Government plans to reorganize several state-owned companies
UK investment fund bids for Cathedral Plaza
10. privatisation won’t fly 47. Insignia of the times Only a minority stake in national airline Tarom will be sold
We test-drive the latest limousine by Opel
11. Tough job
54. tiff at start
7,000 public sector workers face the axe
Transylvania International Film Festival to be held in Cluj-Napoca
editorial
306 Calea Mosilor, 56 Bl., A Staircase, 2nd Fl., Apt. 7, 2nd District Bucharest, Romania www.thediplomat.ro Publishers Adrian Ion
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Mirela Gavra
Statistically speaking, we’re fine
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Editor-in-chief Dana Verdes
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ISSN: 1584-8469 All rights reserved. No part of this publication may be reproduced or transmitted by any means without the prior permission of the Diplomat Media Group. Copyright 2011 Diplomat Media Group SRL
The Diplomat June 2011
The March statistics on net salary income show an 80 RON hike in absolute value. This is up on the February figures, but down year on year. Are we to understand that we are fine or are we kidding ourselves... statistically speaking? It probably depends whom you ask, the authorities or a professor for instance. But to be realistic and objective, what’s really important is that the trend should continue. If next month the same statistics reveal that we have reached a peak and are free-falling, then we have a problem. And the general outlook does not seem too bright. Take for instance the calls from the International Monetary Fund (IMF), which is insisting on the privatisation, reorganisation and even bankruptcy of several state-owned companies. This might look good on paper and should have been done years ago, but would you think so if you were one of the 7,000 employees about to lose their jobs? What do the official statistics matter to these thousands of soon to be ex-employees and how will the numbers help them as they struggle to stay above the breadline? Another piece of good news is that social security contributions will soon be reduced. But again there are big questions. Will those cuts directly affect employees’ salaries or be deducted by employers? What’s clear is that the decision should be aiming to encourage consumption. And what is more worrying is that foreign direct investments in Romania fell more than 20 percent in the first quarter of this year compared with the same period of 2010. If we look at the trend, it’s been downhill from as far back as 2009. Let’s not forget that some European countries have recently emerged from the crisis, and are perhaps not even talking about it anymore.
But then they didn’t have a president who stated on national television, as Basescu did, that their country is no longer in recession. This slide in FDI indicates that Romania is no longer sufficiently attractive to investors, as reform that means only cuts and not actual profound reorganisation puts us even further from the “light at the end of the tunnel”. Recently, we have read that the Transylvania highway is a not a priority for Romania. Which invites the question: which highway is the priority for Romania? What serves a debate over which highway we should build when we remain light years behind our neighbours, especially from the West, which have not made one highway a priority, but all possible highways that could pass through their countries? We have to understand that working on Transylvania highway does not mean we cannot work in parallel on another three highways. Given the layoffs we’ve been talking about, there are plenty of workers available... And money is also available. Romania boasts the “distinction” of being in last place for actual payments from EU funds. While until now we could console ourselves that our neighbours from the south, the Bulgarians, were making even slower progress, this is no longer the case and Romania is left playing catch-up. The worst results were in infrastructure, precisely where the big problem was that the priority “was not correctly set”. But otherwise, we’re fine...
Dana Verdes
politics Fin Min: We are not considering any VAT cut
Emil Boc re-elected ruling party president
Romania’s Government is not considering lowering the rate of value added tax, Finance Minister Gheorghe Ialomitianu said, in reply to National Housing Agency (ANL) official Romeo Dragan who suggested VAT on construction materials could be lowered. “Dragan is not part of the Government and we are not considering any VAT cuts,” said Ialomitianu, according to media reports.
Former Youth Minister indicted for abuse of office
Emil Boc shows calm after being reconfirmed at the helm of PDL
Monica Iacob Ridzi, former Romanian Youth and Sports Minister (photo), has been indicted on corruption charges, specifically abuse of office, according to media reports. The case will be heard at the High Court of Justice with the trial scheduled to start on September 7. The penal investigation into Ridzi was launched after press reports in June 2009 claimed festivities organised by the Youth and Sports Ministry marking Youth Day on May 2, 2009 - which had a budget of about 600,000 Euro - were awarded without public tender to some private companies.
Bucharest referendum to be held on June 26
The General Council of Bucharest has decided that the referendum on the capital city law will be held on June 26. Moreover, the seven initial questions have been replaced by two: “Do you wish to have general counsellors elected through uninominal vote like district mayors?” and “Do you want a city with seven administrations controlled by 217 counsellors elected on party lists?” The referendum will cost 10 million RON and the council also voted on the allocation of the money.
The Diplomat June 2011
President of the Democratic Liberal Party Emil Boc has been reconfirmed president of the Democratic Liberal Party with 62 per cent of votes, while his main rival, Vasile Blaga, received 34 percent of the ballots of over 1,400 delegates who voted at the National Convention of the Democratic Liberals. After his re-election, Boc reaffirmed that Romania’s modernisation and winning the 2012 elections were the main priorities of the PDL leadership. “The current leadership also has the difficult task of keeping the PDL the winning party in Romania’s politics. To this end, we will have to continue the policy we have had in place since 2004, solving people’s issues.
We are in a serious competition against the Socialist Alliance, but I am more hopeful that ever before that thanks to the new team the National Convention has given me, we can keep the Socialist Alliance in opposition and win back Romanians’ votes in 2012,” said Boc. The National Coordinating Council of the ruling Democratic Liberal Party also elected 15 party vice-presidents, who include Elena Udrea, Anca Boagiu, Sever Voinescu, Monica Macovei and Teodor Paleologu. “We have emerged stronger from the internal elections. There is nobody and nothing that can tear this party apart. We were, are and will be a winning party,” Boc concluded. ■
Russia slams Romania for accepting American anti-missile shield Russian President Dmitri Medvedev criticised Romania’s decision to host the American anti-missile shield, saying the move was bound to make Russia accelerate the development of its nuclear potential and that this might propel the world into another Cold War, according to the Russian newspapers. On the Romanian side, Foreign Affairs Minister Teodor Baconschi said that he hoped that Russia would make a constructive contribution to the system and that the shield was purely defensive. He added that he believed the anti-mis-
sile shield could mean more American investments in Romania, and that it would make Romania more important in the region, from a strategic standpoint. In February, 2010, Romania agreed to host the SM-3 missiles starting 2015. The Romanian elements of the anti-missile shield will be located at a former airbase in Deveselu, in Olt County, southern Romanian. The cost of the implementations is believed to reach 400 million USD, plus a further 20 million USD annually for system operations. ■
politics Government to invest 283 million Euro in modernising 16 railway stations
percent of what they spend coming from the state budget, money which should, normally, go on investment, salaries or pensions.” Commenting on the possibility of lay-offs resulting from the process of restructuring, the premier said this was not decided but could happen. “This is not the objective of the reforms, but we will carry out a cost and profit analysis to establish the number of employees required for the state-run and autonomous companies to be efficient.” The restructuring program will be on the agenda when state officials meet the present mission of the IMF to Bucharest. ■
The Romanian Government has approved a 283 million Euro program aimed at modernising 16 railway stations. The works will be financed through non-refundable funds granted by the European Commission, the European Regional Development Fund and the state budget through the Transport and Infrastructure Ministry budget. The project involves the refurbishment and modernisation of railway stations in Giurgiu, Alexandria, Slatina, Ramnicu-Valcea, Pitesti, Resita Sud, Sfantul Gheorghe, Targu Mures, Zalau, Bistrita, Piatra-Neamt, Botosani, Vaslui, Braila, Calarasi and Slobozia.
The schedule for the restructuring of the state-run companies undergoing analysis by the government and the IMF mission to Bucharest will be established by the end of July, said the premier, Emil Boc. For each state company a decision will be made on how best to proceed: restructuring, improvement of management or privatisation. The premier said it was urgent these staterun firms were profitable. “Each state-run company and each autonomous company will undergo a process of evaluation and analysis,” said Boc. “Unfortunately, some of them are inefficient, have no funds or management to support them. They consume public money, with as much as 50
Basescu: We will not see an increase in consumption
European Commission could punish Romania for telecom infringements
Romanian Senate Committee to ban smoking in public spaces
EU official Neelie Kroes warns Romania as it delays to apply EU norms on the telecom market
Romania has managed to exit the recession but not the crisis, says President Traian Basescu. “We will register economic growth but I am not counting on an increase in consumption,” he added. The president said that the main priorities were to increase exports and attract new investments. “Ninety percent of the investments were made in quarter one. I am optimistic that contracts for highways will be signed tomorrow. It is essential to create new jobs,” he said.
Romania could ban smoking in enclosed public spaces, except penitentiaries, and smokers could have special bars and clubs that allow smoking, according to a bill adopted with amendments by the Senate’s health committee. Senators in the committee approved the bill, according to the media, but adopted an amendment allowing smoking in bars, restaurants, clubs and other units exclusively for smokers. The bill will be debated by the Senate first, but will have to be adopted by the Chamber of Deputies before it can become law.
Romanian PM targets restructuring of state-run companies
The Diplomat June 2011
The European Union has warned that it will consider launching infringement procedures against countries that have failed to apply EU regulations on the telecom market. European citizens have the right to change their telecom operator in one day without losing their telephone number according to new EU regulations in the telecom sector adopted at the end of 2009, which should have been incorporated into national legislation by this date. Romania is one of the countries that did not implement the legislation. “Citizens and companies should take maximum advantage of the opportunities offered by the new EU legislation to obtain
competitive telecom services. If they cannot exercise these rights, we will take the necessary measures to remedy the situation,” said the deputy president of the EC Committee in charge of the digital agency, Neelie Kroes. Customers should be able to change their telecom operator, landline or mobile, in one working day without losing their telephone number. In addition they should sign a maximum two-year contract and operators are obliged to offer contracts for 12 months. Contracts also need to include better information about the minimum levels of service quality. ■
economics Investors show highest confidence since 2007, finds Deloitte study
Central Europe’s Private Equity (PE) professionals are more bullish today than since the confidence peak of April 2007, at the height of the pre-crisis boom, according to the Deloitte Private Equity Index. The study found that identifying new investments will be the primary focus of PE practitioners over the next six months, with a strong focus on the Visegrad Four (the Czech Republic, Hungary, Poland and Slovakia). The two most attractive sectors for new investment were found to be manufacturing and food & beverage.
World Bank might lend Romania 400 million Euro in September
Romania could get a 400 million Euro loan from the World Bank in September, according to Catalin Pauna, the chief economist of the World Bank’s bureau in Romania, quoted by Bloomberg. The loan depends on Parliament’s approval of the implementation of co-payment in the health insurance system in Romania and the positive results of expected reforms in public expenditure and the implementation of the unified wage law, over the next three years.
Romania and Ukraine clash over Krivoi Rog shares
The State Property Fund of Ukraine set up to oversee the privatisation of Krivoi Rog plant has said the Ukrainian Government must agree terms with the countries participating in the privatisation, especially Romania, which has asked for 1 billion USD for its 28 per cent shares owned in Krivoi Rog. The construction of the Krivoi Rog plant started in 1993, involving countries including Ukraine, the former German Democratic Republic, former Czechoslovakia, Hungary and Romania. Before 1989, Romania invested 800 million USD in Krivoi Rog plant.
10 The Diplomat June 2011
Tarom will not be privatised, only minority stake will be sold, says Government The Romanian Government has conveyed in the former letter of intent submitted to the International Monetary Fund (IMF) its decision to privatise the energy plants of Turceni, Rovinari and Craiova. But it will sell only a minority share package in Tarom, says Mediafax newswire, quoting government officials. Following this decision, the Government will sell at most a 20 percent share package in Tarom through a stock exchange listing or by selling the minority shares to a strategic investor. In the same letter, the Government
states it has also decided not to sell minority stakes in the Timisoara airport. The state will continue with the sale of minority sale packages in Petrom (10 percent), Transelectrica (15 per cent), Transgaz (15 percent) and Romgaz (15 percent). In the letter to the IMF, the Government said that it would start work to identify a strategic investor for Tarom. The same letter reports that the Romanian Government has renounced its intention to sell Oltchim Ramnicu-Valcea if its privatisation fails this year. ■
Central Bank urges adoption of Euro in 2015, Government undecided In a contrast with the indecision shown by the Romanian Government over the replacement of the national currency with the Euro, the Romanian Central Bank (BNR) has spoken out in favour of adopting the European currency in 2015. The Euro might enter circulation in January 2015 and operate alongside the national currency, the RON, for 11 months, a long period of common circulation compared with the two-month or lower intervals allowed by the other European countries which use the Euro. Countries like Slovenia, Slovakia and Estonia had a transition period of just 16 days until the Euro became their currency. ■
The Euro could be adopted in 2015
Jeffrey Franks: VAT and other tax reduction must wait five-ten years Gross Domestic Product (GDP) which The reduction of VAT and other taxes can only happen in the long term, once Roma- would not allow a reduction in taxes. nian improves the management and col- “There is no space for this in 2012, we lection of taxes through the fiscal frame- have to be realistic about this. The IMF advises the Romanian authorities to work, said Jeffrey Franks, International Monetary Fund mission chief to Romania. maintain as much as possible economic stability in 2011 and 2012,” said Franks. The official thinks that such a reduction The official added that Romania needs a will be possible in Romania within five to simpler and more realistic tax collecting ten years’ time. For 2012, Franks argues that the bud- system which can only be achieved by uncovering the black market. ■ get deficit must drop below 3 percent of
economics Government to axe 7,000 jobs this summer, targeting railways, energy, Post Office
Some 7,000 people to be layed-off from state-owned companies by fall
The Romanian Government has committed to axe 7,000 jobs by autumn, from railway companies, energy and the Romanian National Post Office Company. In a recent letter of intent to the International Monetary Fund (IMF), the government added that it would reduce the operational costs of the targeted companies and start re-negotiating the ongoing contracts. The “black list” comprises the National Company for Highways and National Roads, CNADNR, where 600 positions will be lost, the National Freight Railway Company CFR Marfa which will eliminate 3,000 jobs and also reduce the number of regional centres from eight to four, the National Passengers Railway
Transport Company, CFR Calatori, which will see at least 1,000 jobs go, and the National Railway company, CFR, which will axe 1,500 roles. The positions will be cut by the end of June. Other companies affected include Interventii Feroviare, Electrificare CFR and Telecomunicatii CFR, where 400 jobs must be got rid of by the end of August. The Romanian National Post Office Company will have to fire 70 people from administrative positions and reduce the number of mail offices by more than 900 units by the end of July. Meanwhile, the energy plants of Turceni and Termoelectrica will lose 500 employees this summer. ■
Transylvania highway ‘not a priority’ for Radu Berceanu, former Minister of Transportation The former Minister of Transportation Radu Berceanu has said that the construction works for the Transylvania highway are not a priority for Romania. He based this view on the continuous delays and issues related to the Corridor 4, speaking at a debate held by the CND, the Romanian Development Commission. The statement came in response to Marilena Bogheanu, director of the Regional Development Agency of SouthWest Oltenia, who placed Romania on the same track as other European regions and stressed that Transylvania was a highway hot spot, where many European corridors converge. In the meantime, the current Minister of Transportation, Anca Boagiu,
has signed the first five contracts worth 692.7 million Euro for the construction of several segments of the Pan-European transport corridor 4, from a total of nine contracts. The remaining auctioned packages will be signed this month, after details are resolved. The five contracts signed so far represent 98 km of road, with the completion deadline set for 2013. The four remaining contracts, subject to litigation, are worth 562 million Euro and total 85 km. The contested segments are the second package of the TimisoaraLugoj highway, previously won by the Italian company Tirrena Scavi-Societa Italiana per Condotte d’Acqua-Cossi Construzioni. ■
Central Bank raises inflation forecast to 5.1 percent
The Romanian Central Bank (BNR) has revised upwards its forecasts for annual inflation in 2011 and 2012 to 5.1 percent and 3.6 percent, respectively, following a statement by Governor Mugur Isarescu. According to the governor, the prediction for the end of this year will not result in a possible increase in thermal energy prices in the second part of the year. The annual inflation targeted by the BNR stands at 3 percent at the end of year, with a variation of plus/minus 1 percent.
Romania could have to give 1.5 bln Euro back to EU for unfinished projects
Romania could be obliged to return 1.5 billion Euro if projects financed by the European Union are not completed this year. The warning came from Jeffrey Franks, the International Monetary Fund mission chief to Romania, who said that Romania must make progress with the absorption of European funds. The official advised that low-priority projects be abandoned in favour of economic fields with a higher absorption potential. Franks urged the authorities to apply supplementary measures and new regulations, in order to complete some of the ongoing EU-financed projects.
Vimetco might sell 21 percent stake in Alro Slatina on stock exchange
Vimetco, a global producer of primary and processed aluminium products, has announced its intention to sell up to 20.96 percent of its shares in Alro Slatina, the largest aluminium producer in Central and Eastern Europe, via a Secondary Public Offering on the Bucharest Stock Exchange, targeting both local and international investors, a company release reads. The offer is being intermediated by UniCredit Bank, with brokerage firms UniCredit CA IB Securities Romania, Raiffeisen Capital & Investment and ING Bank.
11
appointments Kinga Agnes Daradics
has been appointed managing director of MOL Romania, replacing Szabolcs Ferencz, who has been promoted to lead a new Corporate Affairs division at MOL. Daradics started her career with MOL in 2003 and led the gas cards division. MOL is a multinational company active in the oil and gas industry with its central headquarters in Hungary, Budapest. The group has 128 filling stations in Romania.
A ngus S later has
joined telecom company Vodafone Romania as chief marketing officer (CMO), effective from June. Slater joined Vodafone in 2003 and has worked across all areas of marketing in countries including the UK, Germany, Japan and the Netherlands.
12 The Diplomat June 2011
Steve Warner has been appointed managing
director of MSD Romania, replacing Agata Jakoncic, who was recently promoted to regional director of MSD Balkan Region. Before coming to Romania Warner served as marketing and sales director for MSD South Korea.
Jens Hoesel is the new
general manager of Bergenbier Romania. Hoesel has 16 years of professional experience in the beer industry, 13 of which were spent with AB InBev. He has previously served as chief sales officer for the StarBev Group and general manager of AB InBev Holland.
Victor Geus has been appointed general
manager of the GlaxoSmithKline (GSK) Consumer Healthcare division for Romania, the Adriatic, Balkans and Baltic region. He will coordinate, from his Bucharest office, the operations of the newlyformed regional hub, which includes 13 other countries.
Utku Ogrendil has
been appointed managing director of Provus-RomCard Group, after Polish private equity fund Innova Capital took over the majority stake of Provus card processing company and its subsidiary RomCard in January this year. Prior to this position, he coordinated the retail activities, cards and alternative channels of Credit Europe Bank, where he was vice-president.
R azvan Iorgu has
been appointed managing director of CB Richard Ellis Romania. With 10 years of expertise on the Romanian market, Iorgu has worked for real estate company Eurisko. After the firm was taken over by worldwide company CBRE, Iorgu became the chief operating officer for the company’s Bucharest office.
investments AUSTRIA
Lacerta opens new 8 million Euro winery
Premium wine producer Lacerta Winery has inaugurated a new facility in Dealu Mare, Buzau County, in eastern Romania, built with an 8 million Euro Austrian investment. The complex spans over 2,000 sqm and hosts production facilities, cellars and an events hall. It also has a modern tasting hall, which tourists are invited to visit and taste the wines. The Lacerta Winery vineyard was built on an 82-hectare land plot and produces nine types of wine, six white and three red.
JTI to close last factory in Austria and relocate to Romania or Poland
Japan Tobacco International, JTI, plans to shut down its Austrian factory by the end of the year and move production to Romania or Poland, according to Kurier.at. The 240 employees at the factory in Hainburg will lose their jobs as will 80 workers in the Vienna administrative headquarters. The remaining employees, about 500 in total, will be redeployed to retail sales, research and distribution. No comment on the possible relocation has been made by JTI Romania representatives.
PORTUGAL
TURKEY
Prio Foods, part of Martifer Group, has launched a new crushing unit for vegetable oil production in Lehliu, Calarasi County, built with a 93 million Euro greenfield investment. The facility can store 316,000 tons of oil and 340,000 tons of meal. The Prio Extractie plant, which has 15 vertical silos and two laboratory units for oilseed analysis and processing, currently employs 90 people. The company wants to increase the number to 200.
A private ophthalmology hospital has been opened in Bucharest, funded by a Turkish investment of 20 million Euro. European Eye Hospital has eight surgical theatres, 12 consultation rooms and a capacity of 600 patients per day. The Turkish company estimated that 30,000 ophthalmologic operations will be carried out annually along with 25,000 laser surgeries. The hospital, where 30 surgeons will work, will also perform cornea transplants. The clinic, of 10,000 sqm, will have a mobile check-up clinic for patients in disadvantaged areas.
Prio Foods launches new oil crushing unit in Lehliu
GERMANY
Bosch to open new production facility in Romania
Automobile technics producer Bosch plans to build a new factory in Romania and develop its Rexroth factory in Blaj. In 2010, the Blaj plant had 470 employees, 35 per cent more than in 2009. Bosch Rexroth makes components for carmakers, mobile equipment and machinery for renewable energy production. In Romania, it is present in Timisoara, Blaj, Sibiu, and Bucharest. At the beginning of the year, the firm had a total of about 1,200 employees in Romania.
Turks invest in private eye clinic in Bucharest
FRANCE
France Telecom to invest half a billion Euro in Orange Romania by 2015
France Telecom-Orange Group has announced plans to invest between 500 and 600 million Euro in the growth of its local subsidiary by 2015, according to Thierry Millet, Orange Romania GM. This year the company has allotted a budget of 110 million Euro. The investments will focus on a network modernisation program including more than 2,000 sites, which will lead to a 20 per cent cut in energy consumption.
13
hotels
Hampton by Hilton and Hello Hotel, two of the most affordable brands that are making headway on the market
Hoteliers find budget segment most hospitable Hotel chains active in Romania are changing their strategies in a way that might seem counterintuitive – they are giving up on building big, expensive fourand five-star hotels, and are focusing more on the economy segment. Behind this unexpected move lie the preferences and increasing price-consciousness of their guests, who in recent years have started abandoning luxury spas and hotels and going more for last-minute offers and cheaper accommodation. Cerasela Marin
R
adu Enache, owner of Continental Hotels, looks disappointedly over his hotel chain’s financial results for last year, where the bottom line is losses of 4.8 million Euro. After investing tens of millions of Euro in building and renovating four- and five-star hotels, hoteliers say that they have found more profitability in two-star facilities.
say is because of the lack of maturity of Romanian tourism, both from a political point of view, and in terms of visitors’ purchasing power. “If anybody asks me what I want to develop at this stage of the crisis, I will say in a heartbeat that it’s two-star Hello Hotels,” says Enache. “The concept is very well structured and I think that at this time
“Romania is a strategic market for us. This being an economy brand, I think it will be very well received A ,H H in Romania,” M arybelle
Bucharest’s Hello Hotel – a two-star economy class concept – has proved to be the most profitable, which the owners 14 The Diplomat June 2011
rnet
ampton by
ilton
it is more accessible than the Romanian tourism offer, and it answers better to the demands of Romanian tourists.”
Enache says that the pulse of the economy is reflected in his current operations. “Unfortunately, we don’t get many four- and five-star clients, most of them go to one- and two-star hotels. That is especially bad since their numbers have decreased, and we’re fighting for these tourists. We are dropping prices and cannibalising the whole market, in the hope that we are going to make it out alive.”
Low-cost hotels lobby successfully for investments
The Continental Hotels chain has made significant investments across the country. The most recent was the renovation of the hotel situated on Calea Victoriei in Bucharest, which cost the owner almost 9 million Euro. But the Grand Hotel Continental Bucha-
hotels
Low budget hotels as Days Inn and InterCity Hotel are winning market share away from high-end facilities
rest investment was started before the crisis, and expectations were great. At that time, Continental Hotels announced plans to develop 10 Hello Hotels by this year, an investment worth 130 million Euro. Today, the company has halted all investments, even with building permits piling up in its offices. “We are all set to
invest, but the legislation and the economy have to convince me that it’s worth it, that I’m not about to commit professional suicide,” Enache says. The company owns plots of land in Romania’s main cities, including an 8,820 sqm plot in Bucharest’s Marasesti area, near Carol Park. “We want to keep build-
ing Hello’s, and give up four-star hotels, especially since the economic outlook suggests that it is better to develop two-star hotels,” says the Continental Hotels owner. “It is an investment that we can develop practically on any type of terrain, the only condition being that we have to approve of the location.”
15
hotels New kids on the block ■ Hampton by Hilton has announced two projects for Romania. Hampton hotels are present in 83 countries, with over 605,000 rooms in 36,000 hotels. Hampton by Hilton is Hilton Worldwide’s first economy brand. ■ The Wyndham chain, which also owns the Ramada and Howard Johnson brands, is expected to launch the first Days Inn hotel in Romania this year. The hotel will probably open in Sibiu at the end of this year with 125 rooms. ■ The Holiday Inn chain, a brand belonging to the Intercontinental Hotels group, has expressed its wish to enter the Romanian market. The first option to build its hotel is in Bucharest city centre. ■ The NH Hotels chain, which has two hotels in Romania, in Bucharest and Timisoara, is considering expanding, its targets being Bucharest and Cluj. ■ The German Steigenberger chain is considering launching its Intercity Hotels economy brand on the Romanian market. Officials are also analysing the option of launching a five-star hotel in Bucharest. Hello Hotels’ occupation rate was over 60 percent last year, while the five-star Grand Hotel Continental in Bucharest was on average only 45 percent full in 2010. A night’s stay at the two-star Hello Hotel costs 38 Euro, without breakfast, while a guest will have to pay 143 Euro to stay at the Grand Hotel Continental, in a single room with breakfast included. “We dropped prices significantly and we tried to include optional services or to offer them at promotional prices,” Enache adds.
Three-stars go far
The popularity of three-star hotels – which are more to the taste of the Romania tourist – has reached foreign investors, who want to bring economy brands to Romania. Representatives of Hampton by Hilton have already announced two local projects. “Romania is a strategic market for us. This being an economy brand, I think it will be very well received in Romania,” says Marybelle Arnet, vice-president of development for Europe & Africa, Hampton by Hilton. Arnet adds that Romania is one of eight strategic markets in Europe, because it’s a big country, with major regional centres. Hampton hotels – Hampton Inn, Hampton Inn & Suites and Hampton by Hilton – are present in 83 countries, with over 16 The Diplomat June 2011
2011 In two years, hotel room rates have halved. While in 2008 prices ranged from 35 Euro for a twostar room to 185 Euro for five-star accommodation, this year rates go from 15 Euro for a two-star room to 78 Euro for a five-star one.
605,000 rooms in 36,000 hotels. Hampton by Hilton is Hilton Worldwide’s first economy brand. Hilton is present in Romania through the Hilton Sibiu and Athénée Palace Hilton hotel in Bucharest. “There is still big potential for development outside Bucharest, especially when we’re talking about the Hampton brand,” Adela Cristea, development director Europe & Africa, Hilton Worldwide, tells The Diplomat – Bucharest. “Cities like Brasov, Cluj, Timisoara and Craiova have great potential on the hotel market, but they’re not developed enough to justify an investment in a five-star Hilton hotel. That’s why the market is more prepared for a three-star international brand that offers quality at an affordable price.” This year Hilton Worldwide will also open three hotels under the DoubleTree by Hilton brand, in Bucharest, Ploiesti and Oradea. Cristea adds that the price per room in a by Hilton hotel will vary between 70 and 90 USD, depending on the market and on the location’s potential. The company has ambitious plans and intends to have 20 Hilton Worldwide hotels open in five years.
Plenty of room at the inn for lowcost hotel investments
Also expected this year is the launch of the first Romanian Days Inn hotel. The brand belongs to
the Wyndham chain, which also owns the Ramada and Howard Johnson brands. The property will probably open in Sibiu at the end of this year and will have 125 rooms. Trend Hospitality officials did not want to give away any details on the project for the moment. Trend Hospitality, the company that represents Wyndham in Romania, had been saying since 2009 that it wanted to bring Days Inn to the local market, but the official launch was delayed several times. Representatives of the Holiday Inn chain have also expressed their wish to enter the Romanian market. “A Holiday Inn Hotel in Bucharest city centre would be perfect for us, because the city fits very
hotels well with our brand,” says Peter Vermeer, vice-president of development, Benelux & Eastern Europe, InterContinental Hotels Group. “We already have a possible location marked.” Holiday Inn, a brand belonging to the Intercontinental Hotels group, is the most well-known hotel brand in the world, with a 1,241-unit chain and a total of almost 230,000 rooms. The brand is currently undergoing a re-launch process, both image and service-wise. In Romania, Holiday Inn had a franchised hotel in Sinaia, as more than 80 percent of Holiday Inn hotels are franchises. Another company contemplating the opening of new hotels in Romania is NH Hotels. The chain, which has two properties in Romania, in Bucharest and Timisoara, is considering expanding, its targets being Bucharest and Cluj, according to Jurian Schouwe, development manager at NH Hotels. “When you want to make this kind of investment you have to look for the right location. It is all about positioning, and if you have found the right place to build your hotel, things should go in the right direction, even in times of crisis,” Schouwe says. “We
NH hotel is 50 Euro in Bucharest and 65 Euro in Timisoara. Soon it will also be possible to see a five-star hotel from the German Steigenberger chain in Bucharest. “We have plans to extend and we consider Romania a very interesting market,” says Franco Peruza, in charge of business development for SEE at Steigenberger Hotels. Peruza adds that the firm sees a good future in Romania for its Intercity Hotels economy brand. These properties are situated close to train stations or airports. Steigenberger currently owns 77 hotels, with a total of 13,500 rooms.
Doing more with less
Radu Enache, Continental Hotels owner
must not underestimate the market.” Right now, the hotel chain has 393 units, with a total of around 59,000 rooms. About 90 percent of NH hotels are in Europe, with the remaining 10 percent situated in America. In Romania, the price of a room in an
Although more and more investors are expressing their intention to open hotels in Romania, local hoteliers are complaining that the market is showing no signs of rebounding, and that prices per room are the same as they were 10 years ago. “We’re a sector that can’t make a comeback as long as the economy doesn’t,” says the manager of Continental Hotels. “And when I say this I don’t mean a comeback for exports, but one for income, because that’s what generates tourism.”
17
hotels plains about the lack of support from the authorities. “We get frequent inspections from the Consumer’s Protection Authority, the Environment Agency and the Fire Department, which are totally arbitrary. These inspections are so frequent that I think it’s more appropriate to keep them at the door until we get our lawyer. We’re no saints, but this is not the way to do it,” says Enache.
A slow recovery for the hotel scene
In two years, prices per room have more than halved. While in 2008 rates ranged from 35 Euro for a two-star room to 185 Euro for a five-star one, in 2011 the cost ran from 15 Euro for two-star accommodation to 78 Euro for a five-star room. The market correction was extremely powerful, Enache says, adding that he had to cut back on people to cut costs. “We reacted to the crisis immediately. We
18 The Diplomat June 2011
analysed all elements of risk and we cut expenses in the personnel, training, stocks, and marketing areas. That kept us afloat. For example, we postponed training our staff again for one year, trying to find other solutions. We cut expenses by a total of 30 percent. Then, we reduced staff from 1,300 to 900 employees and we also outsourced some activities,” Enache goes on. The Continental Hotels owner also com-
The hotel market isn’t likely to see a significant increase this year, compared to 2010, but the first positive results started to show in the occupancy rate in the first months of this year. Customers are still price-sensitive and they mainly look for last-minute offers that help them save on travel expenses. The cost of accommodation is still low compared to 2008, but the rebound in other sectors of the economy has also brought more business tourists to Bucharest and increased hotel occupancy rates. “We are expecting an increase this year. If the numbers go up by 10 percent, then we will make a profit. That’s our target,” concludes Enache. ■
moldova
Marian Lupu, the Republic of Moldova’s interim President, visited Romania at the end of April at the invitation of President Traian Basescu in order to attract Romanian investors by publicising the positive economic measures meant to boost trade between the two countries
Mission: modernise Moldova as eastern neighbour invites investors At the EU’s border, speaking the same language as Romanians, and with a relatively small market, where services, trade and production are only nascent, the Republic of Moldova seems like a natural expansion option for companies present on the Romanian market. The Diplomat – Bucharest takes a look at the business opportunities and drawbacks that Moldova presents. Cerasela Marin
T
he interim President of the Republic of Moldova, Marian Lupu, wants to turn the country across the Prut River into an investor hub. German, Dutch, French, and – last, but not least – Romanian investors are expected to change the way the Moldovan economy is developing. “We don’t want economic growth based on consumption, as most of the country’s income comes from those Moldovans working
20 The Diplomat June 2011
abroad,” states Lupu categorically. Romania is only in ninth place, with just 8 percent of all investment made in Moldova. So what makes Romanians avoid Moldova? “I’m more than certain that this low level of investment is mostly determined by animosity and deficiencies in the political dialogue between our countries,” interim President Lupu tells The DiplomatBucharest in an interview. “Even though
Romania’s level of investment in low, I’m convinced that the situation will change. We are seeing a positive trend in our bilateral relations and we are having a normal dialogue again.” The theme of flawed communication is also brought up by Marcel Raducan, Moldovan Construction and Regional Development Minister. “Until now we’ve built flower bridges, we’ve talked nicely, but we
moldova haven’t had any real results,” Raducan says. “Those times are gone and now we have to talk openly and get down to business.” Romanian investors in Moldova are mainly foreign capital companies which, after entering the Romanian market, now the eastern border of the European Union, have directed their attention even more to the east, the direction in which Europe is going. The biggest Romanian names on the Moldovan investors’ list are for now Banca Comerciala Romana (BCR), Raiffeisen Leasing, Rompetrol and Petrom, according to the country’s Economy minister. Alessandro Amato, the Italian who brought the Cellini brand to Romania, says that entering the Moldovan market was a good experience for his operations in the region. “We saw a 20 percent increase in turnover for our operations in Moldova, but we’re talking about a retail product like Swarovski,” Amato says. “We’re happy and we intend to expand in the future, maybe even this year.” The Cellini owner admits that the main problem in Moldova is bureaucracy, which often delays investment plans. “Another surprise for me was to see that Moldovans are closer culturally to Russia, and prefer to speak Russian rather than Romanian,” adds Amato, who this year is betting on luxury watches to grow his business in Chisinau. Romanian investors are also afraid of high-level corruption in Moldova. “The state has a big influence on companies, and transparency levels leave much to be desired,” says the manager of a Romanian company that has just recently entered the Chisinau market. “Russia is more influential that Romania and the private sector is underdeveloped.”
government officials. Construction, real estate, retail and software are just a few of the areas that can tempt Romanian investors. “To give an example, the legal framework for construction investment is even more permissive than for a Moldovan investor, if we refer to construction permits,” says Raducan. But the biggest opportunity for investors is the privatisation of the state-owned Banca de Economii. “The privatisation of this equity interest is still a sensitive political matter and this is why the Moldovan government selected BNP Paribas as advisor to assist in it,” says Octavian Cazac, partner at Turcan Cazac law firm. “Our law firm assists BNP Paribas on the legal side.” Another strategic asset is Moldtelecom, which holds 98 percent of the fixed line telecom market. Privatisation has come under discussion every year for the past 10 years at least. “As we speak the Ministry of Economy has retained the International Finance Corporation (IFC), a member of the World Bank Group, to help it shape a framework whereby a private co-investor will be persuaded to buy into Moldtelecom, but the state will remain shareholder; possibly majority shareholder,” Cazac adds. Moreover, the government is only now exploiting the country’s capacity to establish public-private partnerships (PPPs). For instance, this year a PPP is planned in Moldova’s healthcare system. “Once this pilot project is successfully signed the government will clone it, as too many areas of public services are in need of private investment,” adds the lawyer.
What aces are up Moldova’s sleeve?
It is not only bureaucracy and corruption that are scaring away investors. Most blame the political crisis, which dates back to 2009, for the impossibility of expanding on Moldovan territory. The revolution
Romanian managers’ business cards increasingly bear the words ‘Romania & the Republic of Moldova’, say Moldovan
Strong points
■ 6.9 percent economic growth last year ■ recovery of industrial production and trade to pre-crisis levels ■ financial aid from the IMF and the EU for development and financing the external deficit ■ simplification of regulations for foreign direct investments ■ 0 percent tax on corporate profits ■ average income of about EUR 170 ■ the banks have liquidities
Barriers that deter investors
Weak points
■ Europe’s poorest country ■ political volatility ■ Transnistrian crisis ■ underdeveloped private sector ■ excessive bureaucracy ■ lack of transparency when it comes to bank ownership structure ■ high-level corruption among the public sector and the police ■ lack of natural resources, which leads to dependency on neighbouring countries
in April 2009, the failure of the referendum in September 2010 and the impossibility of forming a government coalition and finding a stable president have all affected investors’ confidence, which has dropped dramatically. “What’s history should remain history and it would be better if we focused on the current legislative framework,” Lupu argues. However, it’s hard to get things on the right track, when another of Moldova’s urgent problems – Transnistria – will be back in the press in June, when representatives of the breakaway region, the Republic of Moldova, Ukraine, Russia, and the Organisation for Security and Co-operation in Europe (OSCE) will sit around the negotiation table, with the United States and European Union as key observers. “There is no other way than a peaceful way to negotiate this matter,” says interim President Lupu. “The Transnistrian conflict is not about religion or ethnicity – it is and has always been about ideology. There are all kinds of financial and economic interests, but all in all the nature of this conflict makes me absolutely convinced that it can be solved.” The interim president also said that the June negotiations – which will take place in Moscow – will be a new start in official discussions on the matter. The Transnistrian problem could have repercussions on another sector of Moldova’s economy – electricity. The Cuciurgan power plant is an important electricity producer for Moldova, a country with few resources and with a low potential for investment in these types of projects. “We depend on our neighbours for electricity,” said interim President Lupu. “Moldova only produces 30 percent of the energy it consumes, and 70 percent of our power comes from imports, especially from Ukraine and from the Cuciurgan power plant in Transnistria. We’ve been involved in intensive talks and submitting joint projects to interconnect our energy systems,” he adds. The interim president is also analysing the possibility of developing renewable energy projects in his country, but financing is scarce. “Moldova’s money is in limited supply and we can’t finance big research projects in this field. We’re hoping for foreign investments in this sector too.” President Lupu adds that the cost of green energy is pretty high and could be too much of a burden for the population. “Energy projects are a priority, they are in our area of interest and we’re inviting foreign investors to invest in this sector, which is liberalised, according to our legislation,” he adds. ■ 21
Following our previous announcement in The DIPLOMAT’s March issue, we bring into the attention of the industry interested in the Romanian business environment the critical elements regarding other stipulations from the same legislative deed, since these become impediments that obstruct the normal operation of the economic activity.
Government Decision 1037/2010 transposing Directive 2002/96/CE into national legislation:
part II
the industry under threat!
The Ministry of Environment elaborated and promoted a draft decision, adopted by the Romanian Government as GD 1037/2010, regarding waste electrical and electronic equipment (WEEE), meant to improve transposition of the relevant European Directive into national legislation. However, the final result is significantly worse than the law it replaces, since it sistematically ignores the current European models and practices, as well as the proposals brought forward by the main actors involved in the management of electrical waste, and it even exposes Romania to an ”infringement” procedure in the field.
The new GD eliminated sanctions for producers that are not registered with the National Environment Protection Agency (ANPM), and this fact will favor the “free riding” phenomenon especially for small producers that supply equipments on a business to business manner. This will encourage unfair competition through the fact that producers that will not want to take on legal responsabilities will be able to do this without the menace of a sanction, thus “avoiding” supplementary costs associated to the management of WEEE. Art. 13 Paragraph 1, Letter E of the tions for not complying registra- according to specific legislation, that GD 448/2005 contained significant tion obligations. Thus, an important implies the assumption of the costs sanctions, all the way to suspending instrument at the disposal of control for WEEE management. By evoidthe activity of producers that did not authorities has dissapeared, through ing registration, currently not sancregister within the producers’ direc- which could be imposed applying the tioned, will allow avoiding taking on tory from ANPM and that did not legislative deed. Registering produc- legal responsabilities and in the same communicate the registration number ers, although theoretically mandatory, time decreasing costs obtained for not to the retail networks they had con- becomes rather voluntary because of complying with regulations. tracts with. This obligation, explicitly lack of sanctions. It leads the way to The lack of financial resources provided by Art. 12 Paragraph 1 of significantly accentuating ”free rid- for financing „non-historical” the GD 2002/96/CE has as main pur- ing” phenomenon. Among the effects WEEE: pose surveilling the way in which can be included: • if for EEE introduced on the market producers comply with their legal Encouraging unfair competition until January 1st 2007 („historical” obligations. – precisely the registration process WEEE) the legislation stipulated GD 1037/2010 eliminated sanc- asks producers to prove they are that is the obligation of existing pro-
22
ducers to provide their management, for the other equipments put on the market after this date the obligation becomes individual, the producers have to provide a guarantee in this respect (a blocked banking account, a recycling insurance, membership
to a collective organization); • in the case of WEEE coming from equipments put on the market by unregistered producers, these resources do not exist, so a question arises: who will finance the management operations?;
• increase in the degree of imprecision in the official data referring to the actual quantities put on the market; • difficulties in surveilling producers in meeting their obligations.
Art. 5 Paragraph 1 Letter C of the GD1037/2010 stipulates in general terms that municipalities are compelled to turn in collected WEEE to producers or collective organizations. However, there is no mechanism to make this happen and there is no legal provision referring to creating one in the future. Apparently correct, the stipulation directory, of the obligations for from Art. 5 Paragraph 1 Letter C of WEEE take-back from municipal the GD 1037/2010, according to which collection centers of each collective local authorities should deliver colorganization or individual producer, lected WEEE to producers and collecby using geographical and tempotive organizations, will not be appliral distribution models to ensure a cable due to the lack of a coordination non-discriminatory treatment for and compensation mechanism. the participants in the process; This type of mechanism is specific • Transmitting apportionments as to EU member states where there are take-back dispositions of WEEE several collective associations that from municipal collection centers; manage the same waste categories. • Operating possible compensations The main functions of such an organamong participants; • Reporting and monitoring the quanism are: • Periodic inventory of WEEE suptities towards ANPM; plies from municipal collection • Managing financial guarantees. centers; Unfortunately, GD 1037/2010 does • Determination, based on the mar- not contain any element that could ketshare established by ANPM’s indicate such an organism will be
established in the near future. Currently, there is no requirement or minimum performance criterion for the local authorities regarding collected quantities. Reducing to the absurd, local authorities can organize even a formal collection system with 0 performance in order to accomplish their obligations from GD 1037/2010 and avoid sanctions. This is another element that indicates the intention of the ones that elaborated GD 1037/2010 to transfer the entire responsability for the 4 kg/capita towards to registered producers, under the threat of suspending their activity for not accomplishing their duty, indirectly exempting local authorities from the obligations they have.
23
Restrictions imposed to colective associations regarding the use of funds creates uncertainty and affects the property rights guaranteed and protected by the Constitution. Art. 8 Paragraph 12 of GD right, as it is stipulated in Art. 44 from producers come from billing 1037/2010 stipulates: „Money col- Paragraph 2 from the Romanian Con- costs of WEEE management and are lected by collective organizations stitution, that states: „Private property the only sources of income. Therefore, from producers, representing costs is guaranteed and protected equally if they will be required to spend the mentioned in Paragraph(10), will be by the law, regardless the owner”. money only for „collecting, treatOn the other hand, should be taken ing and non-poluting elimination” if used exclusively for financing operations of collecting, handling, trans- into consideration the fact that money WEEE and „financing education and port, treatment, capitalization and collected by collective organizations information campaigns for the connon-poluting disposal of WEEE from from producers represent a mutual sumers with regards to the collecting private households and for financing benefit for the service they deliver of WEEE”, would mean that for other education and information campaigns the producers, taking their respon- types of expenses, inevitably necesfor consumers regarding collecting sabilities in WEEE and executing sary in current activity, they would not WEEE, according to laws. several services in exchange for be able to use they resources, having Firstly, this restraint in using these amounts. So, the funds we are an immediate effect, namely ceasing funds of collective organizations discussing about are from the begin- operational activity. It is not possible has an unconstitutional characteris- ning to the end part of the budgets of that „allowed” expenses should be tic, by breaking stipulations reffering independant legal entities, which are made without a general management, to property protection. The money not going to be restrained in using investments in fixed assets or for sortcollected by collective organizations their money, as they already are for ing facilities, reconditioning and not from producers are part of their pat- public funds – see the state budget, only, that are now in the „forbidden” rimony, and thus being object to the the local budgets for everything that area. Execution of market research, private property right. By limiting means „public money”. consumer surveys of public opinion, through this legislative deed the way By applying exactly this stipulation research and development projects and destination of spending the money could lead to blocking the operation of for new technologies and processes, that are the exclusive property of the a collective organization dedicated to including involving technical unicollective organizations means bring- its mission in the name of producers. versities, are as many other types of ing severe prejudices to the property This happens because money cashed expenses that are “forbidden” by the new legislation. ■
Romanian Recycling Association RoRec Bucharest, April 2011
24
operational leasing
Choose a car, drive it away, let someone else pick up all the costs of unexpected repairs and maintenance, and when you’re done simply give it back. Operational leasing is a popular service outside Romania, but has been in the country for less than a decade. So what’s it all about? Magda Purice
Operational leasing firms trumpet benefits in drive for market share W ith no more than eight years of history on the Romanian car leasing scene, the operational leasing segment currently has a market share of 20 percent of the total car leasing market, doubling the potential estimated few years ago. And it could progress further, since on the developed markets of Western Europe operational leasing makes up 30-40 percent. Forming a mature and clearly-positioned auto niche, the companies operating on this segment are making big strides and have started setting clearer strategic development priorities in their mission to gain bigger market shares.
26 The Diplomat June 2011
Operational leasing players find power in numbers
The Romanian operational leasing market’s potential is estimated at 8,000-10,000 new units per year. According to the companies operating on this segment, the number of vehicles grew by 14 percent in 2010 compared to 2009, reaching 31,859 units and a total value of 200 million Euro. Companies in the field estimate an average growth of 10-30 percent in their market share this year. According to official data provided by the Romanian Operational Leasing Companies Association (ASLO), the segment could see
a boost of 15 percent this year, to reach 37,000 vehicles and an overall turnover of more than 250 million Euro. So far, 1,000 companies, many of them multinational, have contracted operational leasing services on the Romanian market. All these growth estimations and the current development prognosis call for a more structured approach. “Financial leasing and company-owned vehicles still make up a higher percentage in the CEE region but this trend is slowly shifting in favour of full operating leases. More and more multinationals are mandating this shift and with the clear benefits of a full operating
operational leasing lease we should see the gap between the two regions narrow over the coming five years,” says Shane Dowling, general manager of ALD Automotive Romania. In March this year, the operational leasing companies established ASLO, an organisation with the clear goal to function as an information tool for players in this segment and to lobby before the authorities and business partners. The founders of ASLO represent 70 percent of the Romanian operational leasing market. So far, the association is made up of ALD Automotive, Arval Service Lease Romania, DiRent Group, Fleet Management Services, LeasePlan Romania and Porsche Mobility. For the first two years, ASLO’s president is Bogdan Apahidean, general manager of LeasePlan Romania, with two vice-presidents, Christian Busch, general manager of Arval Service Lease Romania, and Daniel Ivan, general manager of Fleet Management Services. “The operational leasing segment is a relatively young market in Romania and so the specific services and the resulting business benefits for the owners of car fleets are not entirely and clearly understood. Through ASLO, we intend to clarify the concept of operational leasing and create the necessary background for developing these services,” says Apahidean. The association was established as a response to a growing segment with complex business operations within the general economy and with more and more companies entering the segment. “ASLO has to act efficiently between the companies it represents and the business community and authorities. The association will focus on ensuring the right conditions necessary for developing a prosperous business environment for operational leasing companies and will create communication channels with
in the field to promote it and to help the market better understand it. This product know-how transfer from an association of experts towards end users will surely boost product development,” says Kurt Leitner, CEO of Porsche Finance Group. Theofilos Romaios, CEO of Hertz Lease Romania, stresses the lobbying role of the association within the legislative framework regarding the status of operational leasing. For instance, at the moment, relocation or any changes in the registered office data for an operational leasing company immediately require the fleet to be registered again, resulting in supplementary and significant costs for the company. The main functions of this association also include the provision of centralised market data about the progress of the operational car leasing market in Romania to its members and promoting the benefits of the service to potential clients. There are smaller companies that have recently entered the operational leasing market that still don’t know how to join ASLO, fear the costs will be prohibitive or believe Kurt Leitner, CEO of Porsche Finance Group that an invitation or recommendation is needed. business partners and authorities. Also, it will track and analyse automotive and tax regulations and propose recommendations Complementary services, on draft legislative documents,” says Busch not in competition of Arval Service Lease Romania. The two different financial services, operaASLO is also perceived as a tool to tional leasing and financial leasing, are not lobby for an improved framework for this in competition, but offer different benefits segment and a prevention instrument for its for different needs. The difference is the members in case of sudden changes in the same as between usage and property. “In economy. Due to the frequent amendments the case of financial leasing, and here we to legislation in all economic segments, refer to the traditional financial leasing a young market like operational leasing offered on the Romanian market, the user was crying out for a sole representative becomes the owner of the car at the end of so players can speak with one voice. “The the contract. With operational leasing the association is there to push and develop the client does not have this option, but rather big potential operational leasing has on the uses the car for the duration of the contract market, first of all by using its know-how and pays monthly instalments according to
“The difference between operational and financial leasing is the same as between usage and property,”
Pros and cons of the operational leasing market Pros
■ Cash flow and budget planning: a fixed monthly fee for the entire duration of the contract ■ Improved balance sheet ratios: the fleet is included in the lessor’s balance sheet ■ Saved time: simplify the activity of fleet management and decrease the accountancy work volume ■ Concentrating on core activity: improve your capacity to finance your core activ-
28 The Diplomat June 2011
ity by releasing important financial resources ■ Residual value risk: acquiring your fleet through operational leasing, the residual value risk is immediately transferred to the leasing company ■ No unexpected maintenance and repairs: the leasing company covers any maintenance or repairs, scheduled and nonscheduled ■ Non-stop mobility: a replacement
vehicle will be available in the event of an accident or breakdown, ensuring total mobility
Cons
■ No ownership of the fleet for the client ■ No purchase option for the client ■ Apparent higher value of monthly rate (a false premise, since the monthly rate includes all the fleet service management)
operational leasing usage, but returns the car to the dealer at the end of the contract,” explains Leitner of Porsche Finance Group. The two products should not be placed in opposition, since they are different financial products, according to Effie Valsamaki, general manager of DiRent Romania. “Financial leasing is a different name for a loan. With car operational leasing, by
medium sized and large fleets is that the client is not involved in selling the used cars,” adds Romaios of Hertz Lease Romania In brief, operational leasing is a modern and economically efficient form of investment funding and does not require large financial means. During the rental period (of the leasing contract) the lessor remains the owner of the vehicle, while the lesee
“Romanians’ mentality, the insufficient development of the second-hand market and poor infrastructure are real problems when calculating the costs,” D P , CEO S N K G udy
erry
naming it leasing, the car represents the collateral itself, while for financial leasing, we are talking about collateral in advance. In simpler terms, operational leasing is a long-term rent,” says Valsamaki. ”One of the most important benefits of an operational leasing contract applied to
of
ixt
ew
opel
roup
may use it for his own purpose, paying the lease payment. Besides the technical differences between the two products, which to choose between the two forms of financially managing a fleet depends on the size of the company. “Firms often go for lease long-term assets rather than buy
them, for a variety of reasons: tax benefits, more flexibility in terms of adjusting to changes in technology and capacity needs,” says Christian Busch of Arval. According to Shane Dowling, of ALD Automotive Romania, operational leasing is a solution in tune with the economic climate. “The
29
operational leasing
“This market needs a specialized sales force capable of explaining which are business advantages R ,H L R CEO to clients,” T heofilos omaios
operational leasing market offers a unique and complex product that suits the needs of companies in the current financial environment better than financial leasing. The dropping of the ‘zero advance payment’ is more a practice of financial leasing companies and lately of some smaller or local operational leasing players who have ceased to offer these benefits due to the financial market situation.”
Firms battle urge to own
Multinational or medium-sized companies, players on the operational market in Romania agree that for a young, developing segment, this niche calls for education and clearer communication to the market, including clients, through the voices of experts and the sales force. One of the main challenges on the local market is the typical mentality of Romanian general managers, entrepreneurs and, especially, key decision makers with no multinational expertise, who tend to choose a service they understand from experience and seem to be reluctant to go for operational services. “The local market doesn’t know operational leasing services in depth. As a company with expertise in the region, we sense the differences. The sense of property is very solid in Romania, but the lack of information on the market must be remedied by well trained sales
experts capable of explaining the services to clients correctly,” says Romaios. The general urge to own an asset, house or car is another of the impediments to this segment. “Romanians’ mentality – they are used to buying cars and not to leasing them, even if it is more efficient – the insufficient development of the second-hand market and the state of the infrastructure are real problems when calculating the costs. While in Romania, the share of operational leasing is around 12 percent of the leasing market, in other countries in Central and Eastern Europe it reaches 30 percent and even more in the West (60-70 percent); therefore we are confident there is a lot more growth to come,” says Dudy Perry, CEO of Sixt New Kopel Group. Besides the specifics of the market, the legacy of last year’s economic woes also affected operational leasing. “The increase in VAT and the fall in earnings both on the private and state sectors have dented the revenues of our current and potential clients. Also, we have had to face some anticipated sending back of car fleets from our clients, due to the crisis,” says Ivan of Fleet Management Services. According to Kurt Leitner of Porsche Finance Group, the decline in the car leasing market in the last couple of years is strongly connected to the smaller budgets and the postponement of vehicle replacement. “All in all, the leasing market is strongly dependent on the evolution of the car industry and, consequently, on the country’s economic situation,” says Leitner. The overall economic downturn has a positive side too, mostly in operational leasing companies’ relationships with their business partners. “In the last two years the automotive market was affected and this meant, indirectly, better services, more discounts and, in the end, a more competitive offer from dealers. Operational leasing companies responded to this situation by offering more quality leasing services to
“The gap between the local operational leasing market and CEE region market will narrow S over the comingALDfive years,” D , A R hane
owling general manager of
30 The Diplomat June 2011
utomotive
omania
ertz ease omania
final customers,” says Perry. His view is echoed by Christian Busch of Arval, who adds, “Times of crisis always bring changes. It happened to the auto dealers too, and changed their approach towards operational leasing companies.”
New conditions demand new strategies: the importance of TCO
Following a very cautious business approach taken by companies in all segments in 2010, players on the operational leasing segment have learned from the past and established strategies fit for the moment. For instance, Fleet Management Services’ approach is characterised by selectiveness regarding new business and a focus on long-term contracts. “The economic background between the last part of 2009 and the beginning of 2010 set a preventive approach for our business. Therefore, we decided to review the business plan and consequently, our client portfolio. We applied a more selective strategy in choosing our clients and as a result, we managed to expand contracts with key-clients on the long-term,” says Ivan of Fleet Management Service. Each company can only base its business on steady business figures and dynamic cash-flow, resulting from solid contracts and financially secure business partners. The rules apply without exception to the operational leasing companies
operational leasing
“Romanian operational leasing segment is young, but promising,” B A , ogdan
pahidean
LeasePlan Romania GM
seeking financial safety in their balance sheets. “We believe in long-term commitments, that’s why we sign three-year contracts. To sum up, more contracts, more profit and our business has been profitable since 2009,” says Busch of Arval. As services companies, operational leasing firms base their competitiveness and market differentiation on tailored services. This is one of the reasons why this segment slightly increased during 2010, while overall financial leasing registered a downfall. A trend started in the last two years identified by ALD Automotive Romania is that companies have decided to extend their operational leasing contracts to the maximum length and not renew their vehicle fleets, allowing the client to avoid increased costs of fleet renewals during a period of low residual values and high liquidity costs. “Such contract extensions have played a very important role for both the supplier and the client. It allowed the supplier to further depreciate the expiring assets and minimise the losses in a period of improved secondhand values. In most cases this proved to
be the right solution; still it may happen that very high mileages have a negative effect on costs. In this situation, choosing to end a contract and start a new one, with sometimes even a lower monthly rate, is the best solution,” says Dowling of ALD. Catalin Gavra, general manager of Total Fleet Solutions, a newcomer to the operational leasing market in Romania, senses that, “compared with the last few years, when local companies rejected from the very start the possibility of switching to other leasing services instead of the ones they knew, at the end of 2010 and this year, the growth registered by the company speaks for the changed perception of the market.”
Operational leasing market players
Brand anatomy
Arval Service Lease Romania
Unlike the operational leasing divisions of car producers and financial groups which, naturally, have their own car brands in their fleets, operational leasing services firms have multi-branded fleets. Arval is one such. “Our clients come from many areas – pharma, consultancy, banking, distribution – so we have to adapt to their needs. Either they need utility vehicles (up to 3.5 tons), or cars for the top/middle management, according to each company’s car policy,” says Busch. According to several companies including DiRent, the local car brand Dacia has started to become more and more popular with clients. “We have noticed that models from the Renault/Dacia and Porsche groups are sought after by our clients due to their competitive TCO (Total Cost of Ownership). Also, we have observed that over the last year BMW has become rather popular; this manufacturer is focusing more on low CO2 emissions, safety and cost effective maintenance programs,” says Dowling of ALD Automotive Romania. Brands such as Ford, Skoda, Opel and Volkswagen are among the most popular within the fleet of most operational leasing companies including Hertz Lease, due to clients’ likes and the consultancy services provided by the company. An average of 15 percent of the entire fleet of each company is dedicated to executive management vehicles, comprising brands such as Range Rover, BMW, Audi, Mercedes and even Bentley, in the case of Porsche Mobility, part of Porsche Finance Group. The fleet of Sixt New Kopel Group comprises small vehicle brands like Suzuki Alto and Splash, Opel Corsa and Ford Fiesta, while for the mid-range vehicle class, the company leases a fleet featuring the Opel Astra, VW Golf, Ford Focus and Skoda Octavia. ■
ALD Automotive Romania
Stakeholders: BRD Groupe Société Générale and ALD International, the holding of the ALD Automotive group Fleet: 5,300 vehicles Turnover in 2010: 28 million Euro Turnover estimated for 2011: 32 million Euro Employees 2010: 67 employees Employees, end of March 2011: 62 employees Client portfolio: 230 companies
Part of BNP Paribas Group Employees: 36 Fleet: 3,500 Client portfolio: 220 companies Turnover in 2010: 21 million Euro
DiRENT Group
Greek company Fleet: 630 Turnover in 2010: 4.3 million Euro
Fleet Management Services Romanian company Fleet: 2,100 Client portfolio: 65 companies Turnover in 2010: 2.5 million Euro
Hertz Lease
Turnover 2010: 7.9 million Euro Fleet: 1,875 Employees: 25 Client portfolio: 133
LeasePlan Romania
Dutch company Employees: 41 Fleet: 4,820 Client portfolio: 160 companies Turnover in 2011: 25.6 million Euro
New Kopel Group
Turnover 2010: 25 million Euro Fleet: 7,000 Employees: 200
Porsche Mobility
Part of Porsche Finance Group Romania Fleet: 5,627 Client portfolio: 240 companies Source: ASLO (alphabetically listed)
31
italy
Latin links lead to lucrative opportunities
Romania’s accession to the Schengen area could boost Italian-Romanian trade by 1 billion Euro, believes the Italian Ambassador to Bucharest, Mario Cospito, as infrastructure, energy, IT&C and high-quality agricultural produce are proving fertile commercial territory for companies from the boot-shaped Italian peninsula. Cerasela Marin
I
taly supports Romania’s efforts to join the Schengen area, but has described it as “not a tragedy” if the country joins up a bit later, H.E. Ambassador Mario Cospito tells The Diplomat – Bucharest, speaking from his country’s experience when joining the Schengen area. “Italy also had some trouble with two big airports, when it was preparing to join. As a result, Italy was accepted into the Schengen area a few months later than scheduled. So it’s no tragedy; we don’t have to be so dramatic about this,” said Cospito. Joining up could translate into possible business worth hundreds of millions of Euro. If Romania joins the Schengen area and comes out of recession it is expected that trade could reach 11 billion Euro, representing a 10 percent hike compared to last year’s results. “I believe that economic recovery will bring to Romania a series of Italian semiprocessed products and equipment in addition to the currently traded products on the local market, which include shoes and food products. We also see growth potential in Romania in sectors such as computer science and high-quality agricultural foods,” states the Ambassador. Currently, Italy exports machinery, tools and textiles to Romania, despite competition from local companies in these areas. Also, cautiously, Italy is screening for demand for agricultural food products, even if their trade level is “not the desired 32 The Diplomat June 2011
one,” as the Ambassador puts it. Going the other way Romania exports raw materials and half-processed wood products, textiles and mechanical parts to Italy. “It’s interesting to note that the trade deficit between the two countries is very small,” said Cospito. “Think that only five years ago, our share of the exchange was 70 percent. Now it’s 51 percent for Italy against 49 percent for Romania.”
Infrastructure and energy tempt Italian investors
in this sector. Besides wind power projects, the firm is also interested in the Cernavoda Nuclear power plant. “Another field which is just as attractive is infrastructure,” the Ambassador said. “I’m happy that out of the five auctions recently organised by the Romanian government, four were won by Italian companies or groups of companies.” Agriculture is also of great interest to Italian firms. As all suitable farmland in Italy has been fully exploited, Italians have switched their attention to Romania, growing wheat, fruit, vegetables, wine, and even rice in the Danube Delta. The significant presence of Italian firms in Romania is mainly due to the cheap labour force, but also to the linguistic
30,000
In the past few years Italy has been a notable presence in the energy sector, in transportation and agriculture. Italian electricity company Enel is keen on investing further
There are about 30,000 companies with Italian majority shareholders registered in Romania and Italy is Romania’s second largest trade partner, after Germany. About 800,000 Romanians are employed by Italian companies and around 3,000 trucks travel every day between the two countries.
italy similarities. The step that Romania took by adopting its new Labour Code is huge, the Italians say, and the results can only be good. “There are also fiscal incentives,” the Ambassador added. The tax on profits – of 16 percent – is quite attractive to foreign companies. But Romania has to align its regulations to those of the EU, and that isn’t always good for foreign investors.
ning up losses. “There are still some sectors where the state’s presence is very strong,” said Cospito. “I don’t mean to say that starting tomorrow all state-owned companies should be privatised – this should be done in a controlled manner – but I noticed that in Italy, when we started talking about privatisation, things began to get better.” The Ambassador gives the example of the Italian railway system. “About 10-15 years ago, the railway system was controlled by the state and it was a disaster. After we privatised it, it became one of the best performers, and whoever wants to travel by train in Italy will find a truly modern railway system,” said Cospito.
PPPs not yet a reality in Romania
Romania has to think seriously about public-private partnerships (PPPs) in order to sustain durable development, but also to attract more foreign investors, believes the Italian Ambassador to Bucharest. “PPPs are a magic formula for development and are being used everywhere. There are some sectors where public-private partnerships have become indispensable, and where things can’t move forward without this type of agreement,” the Ambassador argued. Infrastructure (highways, airports and railways), energy (thermal and nuclear power plants) and even tourism can become more competitive if the authorities work with private companies. “For example, in
H.E. Mario Cospito , Italy’s Ambassador to Romania
the tourism sector there are regions that can’t grow unless they receive both public and private capital. The Danube Delta is one such region where a public-private partnership could develop, following the environmental rules, of course.” Another measure Romanian authorities should take to boost the economy is to privatise state-owned companies that are run-
Political cooperation
The Italian Ambassador to Bucharest hopes that most of the issues Italy and Romania are facing will be resolved, sooner or later, if there is communication on a political level between the two countries. Italy’s president, Giorgio Napolitano, will visit Romania in September, and its prime minister, Silvio Berlusconi, is also expected to come to Bucharest for the inter-government summit scheduled to take place here. “Unfortunately, political problems on
33
italy who are doing them, but they also disrupt the power supply to honest consumers by damaging the network, which results in losses that once again are borne by end customers,” says the general manager. Last year, Enel Romania made a major increase in its investments, which have grown from about 160 million Euro to more than 280 million Euro. From a financial standpoint, Enel posted consolidated revenues of 970 million Euro, an EBITDA of 208.8 million Euro and EBIT of 86 million Euro. CAPEX reached 284.4 million Euro in 2010. Most of the challenges the firm faces are related to the complexity of the business. Several years are required to get the entire network up to date. “To give you a practical example, when we do modernisation work
reactors at the only nuclear plant in Romania, Cernavoda. “We believe in and support Romania’s potential as a regional energy hub, and continue to be involved in local projects, such as the construction of reactors 3 and 4 at the Cernavoda nuclear power plant,” says Enel’s GM.
Astaldi: Building a solid business with large local infrastructure projects
Construction company Astaldi Romania has recently won public auctions for two of the most complex infrastructure schemes in the country. The company – which last year managed 314.8 million Euro of projects – will build the fourth segment of the Orastie-Sibiu highway, as well as the fifth line of the Bucharest subway.
“Enel will upgrade the electricity infrastructure this year, an investment of about 280 million Euro,” L D’A , E R GM uca
both sides have postponed this summit, which is set to be organized at the beginning of June,” said Cospito. Italy is celebrating 150 years since its unification and will mark the occasion with an extensive cultural, social, academic and political calendar of events.
Enel: Investing in power infrastructure, the main priority
Italian energy group Enel has announced hundreds of millions of Euro worth of investment plans. Company officials say they will start upgrading the electricity infrastructure in Romania’s regions this year, an investment of about 280 million Euro. “Enel will continue its investment programme this year. We started to see good results in the first four months in terms of quality of service to the final customers,” says Luca D’Agnese, Enel Romania GM. “The frequency of interruptions has been reduced by 20 percent and their duration has decreased by 35 percent, compared to 2010.” D’Agnese adds that the challenging investment programme established previously will continue with 800 million Euro over the four years, a sum aimed at securing a proper service quality for end customers, especially since one of the most frequent problems the company faces is illegal connections to the power grid. “Not only do these actions jeopardise the lives of those 34 The Diplomat June 2011
on the Bucharest network, there is a long and complex permitting process we have to comply with first,” says Enel’s GM. “Most of the time we have to work closely with other utilities to ensure that construction works are done at the same time.” Another difficult issue, according to Luca D’Agnese, is the high level of debt that the Romanian Railways Company (CFR) has amassed. “This in turn can create cash flow difficulties that affect our business and our consumers.” Besides the investments in upgrading the infrastructure, Enel is proceeding with the development of its Galati project, namely to build an 800 MW clean coalfired power plant. “We have completed the feasibility study and we are continuing the process of acquiring licenses and permits from the relevant authorities,” says D’Agnese. “At this point we are in an advanced stage of obtaining initial agreements and licenses and hope to be able to move onto the next stage, which is receiving construction permits.” The project will employ over 2,000 people in the construction phase and over 100 in the operational stage. “We also have a minority stake in a similar project in Braila, where the other shareholder is E.ON,” D’Agnese adds. Meanwhile, Enel is keeping its stake in Energonuclear (current ownership: Nuclearelectrica with 84.65 percent; Enel, 9.15 percent; and Arcelor Mittal, 6.2 percent) for the construction of the third and fourth
gnese
nel
omania
According to Astaldi information, the value of the Oradea-Orastie highway project reaches 114 million Euro, and Astaldi has a 70 percent stake. The contract covers the design and construction of 17 km of new highway, which includes the Western Sibiu junction. Work is planned to start in June and is expected to be finished in two years. Astaldi has a 39 percent stake in the 215 million Euro subway project. The contract involves the design and construction of six km of new metro line, running completely underground, between Raul Doamnei station and Opera. “Works are scheduled to start at the end of H1, and are planned to be completed in 25 months,” say company officials. Astaldi Group is currently involved in nine projects throughout Romania. In Bucharest, the company is doing phase three of the modernisation of Henri Coanda International Airport, a 110.2 million Euro contract, and also the Lia Manoliu national stadium, a 140 million Euro investment. The stadium is being built in co-operation with the German company Max Bögl, and Astaldi holds a 40 percent stake in the joint venture. Also in the capital, Astaldi Group is working on the innovative cablestayed Basarab bridge – a 120 million Euro project. Meanwhile, the Italian company is responsible for the Medgidia-Constanta segment of the Sun Highway, for which it will get 74.8 million Euro. On top of this,
italy Astaldi did 15 percent of the repair work on the Arad-Oradea national road, a contract worth 55 million Euro, and worked on the renovation of the Bucharest-Constanta railway, a 178 million Euro project.
Indesit sees business fall back to 2002 level
Home appliance importer Indesit Romania estimates that consumption has gone back down to the 2002 level, and a market rebound is possible only after 2012. “We basically lost six years of market evolution, going back to when we sold 1.4 million units as in 2008. We’ll need another six years to reach the level the market was than,” said Giuseppe Parma, country manager at Indesit Romania. According to him, the market has dropped 50 percent in 24 months.
Cellini, Gucci, Swarovski keep their sparkle despite crisis
Sales of the Gucci brand – launched in December last year in Romania – have more than exceeded the expectations of the owner, Italian luxury retailer Sodo Migliori. The company reported a 20 percent hike in sales for the first four months of the year. “Sales did so well that the stocks have been depleted and we have had some supply issues,” Alessandro Amato, co-owner at Sodo Migliori, tells The Diplomat-Bucharest. According to him, a slight increase in sales was also reported for the Italian footwear and apparel brand Paul & Shark. “Most sought after were the casual products;
“Our ability to adapt to our clients’ needs allowed us to finish the financial year with positive results,” G S , B I R GM iulio
imonelli
What’s more, Romanian customers are moving towards semi-automatic appliances, such as the type of washing machine sold just after the communist era. “They have given up buying state of the art washing machines. One of the trends of this past year was the purchase of semiautomatic machines.” In fact, Romania is the cheapest country in Europe when it comes to money spent on home appliances. “On average, customers pay 1,000 RON for a refrigerator, a washing machine or a gas cooker, unlike other countries, where the prices are almost double,” said Parma. The reason is simple – people don’t have money, and producers are adapting to the market. Another factor that contributed to the market drop was the banks cutting down on consumer loans. “We’re running all sorts of offers and promotions each month, so we can revitalise the market,” said Parma. Last year, Indesit’s turnover remained at the same level as in 2009, which is about 25 million Euro. Indesit Company is the second biggest producer of home appliances in Europe, by market share. It has been present locally since 1996 with a representative office. The office has 11 employees and coordinates commercial activities, logistics, marketing and services. Product distribution is done through specialised partners, on a country level.
anca talo
omena
the shirts and the vests sold best. We will most likely see a slight increase this year too,” says Amato. Overall, the business grew by about 10 percent, though profit was hit hard by last year’s investments, which reached several millions of Euro, and by the government’s measures. “The increase in VAT was a big shock, for us as well as for the other players. This tax made commerce in Romania harder. It wasn’t the best decision for retail,” he said. Alessandro Amato – who also controls the Cellini and Swarovski chains – says that his business registered growth in the Swarovski products sales. Regarding the Cellini brand, Amato says that Bucharest still has the potential for two other shops, and that cities like Timisoara, Cluj, Constanta and Iasi are being lined up for new store launches. “We’ll try to find main street locations, with more charm and a higher value than commercial centre stores. In three to five years we’ll see luxury brands changing locations to main boulevards, where you can set up street stores.” For this year, Amato sees a slight growth in turnover and jewellery prices, if the price of gold continues to rise. “Last year, gold went up about 27 percent in Euro, and for this year I estimate another 10 percent hike. If gold goes up more than 10 percent, we’ll certainly see prices growing,” Amato predicts.
Banca Italo Romena: Focus on SME lending
Banca Italo Romena reported 10 million Euro in net profit last year, 18 percent lower than 2009’s results, according to bank officials. Last year, the lender focused on keeping customers and increasing its market share by offering consultancy services to its clients, most of them small and medium enterprises (SMEs). “Our ability to adapt to our clients’ needs allowed us to finish the financial year with positive results. Our market share grew from 1 percent to 1.09 percent,” says Giulio Simonelli, the bank’s recently appointed GM. Last year, the lender’s deposits exceeded half a billion Euro, up 65 percent from 2009. From this sum, 71 million Euro are funds gathered from clients while 136 million Euro came from bonds. However, the total volume of loans given went down slightly, from 988 million Euro in 2009, to 960 million Euro in 2010. The share of bad loans of the total grew from 2.01 percent in 2009 to 2.87 percent in 2010, due to difficulties encountered in the local economy. The bank also signed a partnership agreement last year with Generali Insurance, for bank assurance and the intermediation of insurance policies that complete its financing products aimed at individuals, as well as companies. “We will go on supporting the SME sector and we will pay more attention to individuals, in order to have a better position in Romania,” adds Simoneli. ■ 35
event report
Romanian Forum 2011
With difficulties in accessing loans, no state-run research centres, unhelpful agricultural policies and almost no voices speaking up for Romanian interests in European forums, the local agricultural scene could fall 20 years behind against the European market if urgent measures aren’t taken. Over 130 decision makers from state institutions joined Romania’s top farmers and landowners to debate the pressing issues and come up with solutions for the local agricultural sector at Romanian Agri Business Forum 2011, organised by The Diplomat – Bucharest. Cerasela Marin and Magda Purice
Cultivating Romania’s agri potential I
neffective policies in the agricultural sector, the lack of a transparent exchange of information between financial institutions, the authorities and the beneficiary – the Romanian farmer – the low investment yields on this sector and the need to build farmers’ alliances and associations in order to access loans more easily and quickly are just some of the current issues facing Romanian agriculture. Loans for the sector are available both through banks and loan institutions such as the National Credit Guarantee Fund for SMEs and the Rural Credit Guarantee Fund. Still, the banks’ interest rates and the problem of co-financing investment projects are among the main impediments to the development of Romanian agriculture. Representatives of the National Federation 36 The Diplomat June 2011
of Farmers (FNPAR) believe that more loans would be accessed if the rates were lowered to 2-3 percent. However, Banca Transilvania issued in April alone half of the entire value of comfort letters sent out in the whole of 2010. According to bank representatives, more than 90 percent of the letters materialised into loan agreements. Romania is the seventh state in the EU, out of 27, in terms of size and population, and yet the investment ratio and yields in this sector are the EU’s lowest. There are many factors behind this poor productivity. Farmers are still working the land using traditional methods, modern technology is non-existent, and in many cases the farmers’ need to sell their produce fast, because of lack of storage space, drives down prices in the market.
“The issue of title deeds for land also holds up agricultural developments,” said Bryan Jardine partner at Wolf Theiss. With five different types of measurement systems used to calculate agricultural terrain, the technical issues of property deeds must be carefully considered by investors. Furthermore, legal changes are often a problem for all players in a transaction involving agricultural land. Still, there are hopes that more loans will be granted once the new Civil Code comes into force this year. Romania is seen as a powerful generator of agricultural investments and business opportunities within the region as a result of some major global trends: higher demand for agriculture production, the growing need to reduce dependence on fossil fuels, the promotion of environmen-
event report
Romanian Forum 2011
Jonathan Ramsay, public affairs lead for Europe and Africa at Monsanto: We have a commitment to double the yield in our core crops. So that’s using fewer natural resources while producing more. We believe that biotechnology is an important tool.
Ciprian Glodeanu, senior associate and head of real estate and energy departments at Wolf Theiss: Regarding the legal framework for agricultural properties, Romania can be considered safe as long as players on the market make it safe.
Viorel Matei, president of the National Federation of Farmers (FNPAR): Our problem is co-financing investment projects. The banks have huge interest rates which reach as much as 10 percent. No farmer would have any problem accessing a loan if the interest were lower, say up to 3 percent.
tally-friendly projects and life enhancement issues and development in emerging markets. Besides the loans obtained through European projects, Romanian investors must take into account EU regulations and develop their projects within the larger economic context. These topics were all raised at the Romanian Agri Business Forum 2011, a one-day conference organised by The Diplomat – Bucharest on 11 May, at Radisson Blu Hotel in Bucharest. The conference was organised under the auspices of the Ministry of Agriculture and Rural Development of Romania (MADR) and National Federation of Farmers (FNPAR), with the support of product and services companies DuPont, Monsanto, Pioneer, law firm Wolf Theiss with Bryan Jardine mediating the second section and travel agency Happy Tour. The event was supported by the Romanian Payment and Intervention Agency in Agriculture (APIA), Dana Bucur, agribusiness consultant at Agriland 2000, the British-Romanian Chamber of Commerce and the Royal Danish Embassy.
this year, compared to the whole of 2010, both loans and the eligibility of projects are on an upward trend, according to a Banca Transilvania official. Meanwhile, 10,000 SMEs are expected to benefit from loan guarantees this year through an online application developed by the National Credit Guarantee Fund for SMEs, IFN.
rialised into bank loan agreements. This year’s value stands at 70 agricultural projects involving animal farms, warehouses and agricultural equipment. Due to the reduction in the evaluation period – with a comfort letter sent out within three to four days – the loans granted in this segment are visibly higher than last year.
Ciprian Glodeanu, senior associate and head of the real estate and energy departments at Wolf Theiss
Sabina Manolescu, deputy director of FNGCIMM – National Credit Guarantee Fund for SMEs, IFN
Crymhilde Galos, senior relationship manager of European programmes at Banca Transilvania
Ileana Bratu, director at the Rural Credit Guarantee Fund, NFI SA
Loans rear local farming projects
With the current legal framework and a new Civil Code expected to come into force this year, loans in this major economic field should see a boost, according to Ciprian Glodeanu, senior associate and head of the real estate and energy departments at Wolf Theiss. At the same time, with a significant volume of comfort letters issued in April 38 The Diplomat June 2011
Regarding the legal framework for agricultural properties, Romania can be considered safe as long as players on the market make it safe. There are inconsistencies in the title deeds between legal documents and the actual situation. So far in Romania, about four or five kinds of measurement systems have been used to calculate agricultural terrain. Before embarking on a transaction in this segment, an investor must take into account both legal and technical aspects. Once the new form of the Civil Code comes into force this year as expected, we hope to see a revival of loans in the agricultural sector.
Banca Transilvania issued comfort letters worth 150 million RON in April, compared to some 300 million RON throughout 2010. Over 90 percent of the issued letters mate-
The fund has made over 22,000 loan guarantees in the past two years worth about 1.65 billion Euro, in support of credits which reach 3.1 billion Euro. We estimate that more than 10,000 SMEs will benefit from fund guarantees this year through an online application. An advantage of this tool is that the main reason loan applications are turned down – the lack of guarantees – is mostly eliminated. The fund recently launched a new product which offers guarantees for beneficiaries who access European structural funds. What is new about this financing instrument is that it can be issued within two days for a guarantee of up to 2.5 million Euro.
The guaranteed volume issued by the fund in 2009 and 2010 doubled since 2006. The fund issued guarantees for projects involving production, investments and co-loans
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event report
Romanian Forum 2011
Vasile Iosif, DuPont Romania GM: DuPont has identified several major trends worldwide which can be translated into development opportunities: the increase in agricultural production, the decrease in dependence on fossil fuels and environmental and life protection.
Lucian Buzdugan, general manager at Trei Brazi: You can’t have competitive agricultural production without someone guiding you, doing research, bringing you up to date with the latest world scientific achievements, and coming up with the best solutions.
Chavdar Dochev, operations director Bulgaria, Romania and Moldova at Pioneer Hi-Bred: We estimate that over 100 Romanian farmers will produce corn and sunflowers for Pioneer in 2011. So far this year, over 35,000 farmers have sowed Pioneer seeds.
for SAPARD (Special Accession Program for Agriculture and Rural Development) and the European Agricultural Fund of Rural Development (FEADR), worth over 1 billion RON last year.
which reach as much as 10 percent. No farmer would have any problem accessing a loan if the interest were lower, say up to 3 percent. Indeed, we do have the guarantee fund, but that’s also for those who already have money to finance their projects. We are talking about the Young Farmer program, but the available funds are too low. With 6,000 Euro one can’t even buy a tractor. We don’t have laws that encourage and stimulate young farmers, to give them the opportunity to replace us. There is no chance for the youth at this time.
opportunities: the increase in agricultural production, the decrease in dependence on fossil fuels, environmental and life protection and development in emerging markets. Likewise, water will become a major restrictive parameter in agriculture in the near future, while countries also face restrictions in expanding their agricultural areas. Meeting the global objective to reduce famine in large areas will require twice the volume of water currently used for agriculture
Daniela Giurca, general manager with the Ministry of Agriculture
There is room for small, as well as for big farmers, but they have to grow and do business together. Romania needs a long term vision and I believe it will have it. Romanian farmers have to get organised, and the Ministry needs to identify a representative partner. Agriculture needs a lot of money, but looking at what the EU allows us to give, what our current budget allows for, I think the situation is acceptable. Of course, compared to the EU per area subsidies, ours are a lot smaller, but this is because Romania has a different history. There is indeed a difference in productivity, but let’s not forget that over 50 percent of the area subsidised is being cultivated by large commercial farmers, who own more than 100 hectares. I doubt that it is these people’s fault. It is clear that the black market has had a significant influence on prices.
Viorel Matei, president of the National Federation of Farmers (FNPAR)
Our problem is co-financing investment projects. The banks have huge interest rates
40 The Diplomat June 2011
Global trends sow the seed for homegrown agriculture investments
Global demographic trends and economic evolutions – such as the increase in agricultural production and reduced dependence on fossil fuels – determine development opportunities for agricultural investors in Romania. Companies such as DuPont, Pioneer Hi-Bred and Monsanto have identified Romania’s great potential to generate business opportunities in this sector. Meanwhile, representatives of European and local farmers’ associations put the Romanian agricultural scene in the context of the wider European background and regulations.
Vasile Iosif, DuPont Romania GM
DuPont has identified several major trends worldwide driven by population growth, which can be translated into development
Chavdar Dochev, operations director Bulgaria, Romania and Moldova at Pioneer Hi-Bred
Pioneer’s main investments in Romania have targeted new technologies and development. The company completed a 40 million Euro investment in a production plant in Ganeasa, Ilfov, near Bucharest.
Pekka Pesonen, secretary general at COPA-COGECA
Romanian agriculture has huge potential and it needs to be used, both for national gain and for the benefit of the European community. That is especially the case because Romanian agriculture receives European financing and should take advantage of it to ensure subsidies in advance. We have to consolidate and improve production on a European level, and also strengthen the role that agriculture plays in Europe’s economy, so that we can guarantee food security for EU
event report
Romanian Forum 2011
Crymhilde Galos, senior relationship manager European programmes with Banca Transilvania: Banca Transilvania issued comfort letters worth 150 million RON in April, compared to some 300 million RON throughout 2010. Over 90 percent of the issued letters materialised into bank loan agreements.
Sabina Manolescu, deputy director of FNGCIMM – National Credit Guarantee Fund for SMEs, IFN: The fund approved over 22,000 loan guarantees in the past two years worth about 1.65 billion Euro. We estimate that more than 10,000 SMEs will benefit from fund guarantees this year.
Martin Schuldt, GM at Cargill Grain & Oilseed Supply Chain Europe: Romania has significant potential in agriculture due to the regional trends: the growing demand for agricultural products in the Black Sea region, good regional infrastructure and, overall, growing demand worldwide for agricultural production.
consumers and generate new jobs. Also, Romanian farmers need to join the European farmers’ association and build alliances in order to protect their interests on a European level. They need to take part in debates. You have to do this for yourselves, to regain your place in the EU family. Young farmers must be encouraged through national programs and financing. Also, small farms need help to become competitive.
still has the lowest investment yields in Europe. If the current development pace in the sector is maintained, agriculture in Romania will close the gap with the other countries in 20 years’ time. This warning came from Yves Picquet, president of the AIPROM.
Hungary has a value of 50-60 Euro, and the figure is even higher in Western European countries. Romania has major investment potential for agriculture but it might take 20 years to reach it if the current development rhythm stays the same. Currently, less than 30 percent of farmers and agricultural projects in Romania get loans.
Romania’s agricultural potential ‘delayed by about 20 years’
Despite the fact that Romania is the seventh largest country in Europe in terms of population and size – resulting in a large agricultural area – the country
42 The Diplomat June 2011
Yves Picquet, president of the Romanian Crop Protection Industry Association, member of the European Crop Protection Association (AIPROM)
Compared with other European countries, Romania has a low ratio – around 20 Euro of investment in agriculture – if we calculate the proportion of potential agricultural land and the investment market. For instance,
Martin Schuldt, GM at Cargill Grain & Oilseed Supply Chain Europe
Romania has significant potential in agriculture due to the regional trends: the growing demand for agricultural produce in the Black Sea region, good regional infrastructure – both around the Constanta Harbour area and along the Danube Delta – and, overall, growing demand worldwide for
Romanian
event report
Forum 2011
agricultural production. Currently, Romania has the lowest yields for corn, wheat and sunflowers. For instance, wheat yields are estimated at an average of 2.4, corn 3.4, and sunflowers 1.4 compared to the European yields of 3.6 for wheat, 5.3 for corn and 2.3 for sunflowers.
Nicolae Sterghiu, director of the Agriculture and Payments Intervention Agency
Romania has an area of 8.7 million hectares eligible for European financing, 6.2 million hectares of which are arable land. Of course, the country is bigger than that, but that’s what the EU calculated. So as the EU allocated EUR 700 million for 2010, that means that we got 80 Euro per hectare. Subsidy requests by farmers were for a total of 9 million hectares, which led to that 5 Euro per hectare adjustment that the farmers really felt. This is where that adjustment came from, from the fact that the area declared by the farmers was bigger than the area that was approved. In the media we keep seeing shock news that Romania will be fined millions of euro by the EC. Where do these numbers
come from? Romania has to be in control of at least 5 percent of the area for which the request is submitted. Because of the error rate, this went up to 10 percent. Following the inspection, the resulting cultivation area was more than 10 percent smaller than in the past years (around 11 percent in 2010). The error rate that the EU accepts is 2 percent, which is our target for this year. And that’s where that EU fine comes from. In 2010, through the measures we took, the error rate dropped to 4 percent.
Nicolae Sitaru, president of the Romanian Agricultural Producers’ Associations League (LAPAR)
We mustn’t forget about irrigation, because if we get hit by another drought like the one in 2003, the entire agriculture system will go down. All irrigation projects and investments must be re-launched such as for instance the Siret-Baragan project, which has been abandoned for 25 years.
Local farmers seek to raise international voice
Romanian farmers must have a representative at European level but the frequent
changes in the industry policies and government organisation give Romania the least support at this level. European representatives of COPA – COGECA and local representatives of the National Federation of Farmers (FNPAR) are trying to find a solution to unite European expectations, Romanian potential and the solid ground of current business opportunities.
Viorel Matei, president of the National Federation of Farmers (FNPAR)
Romanian farmers want to be European farmers, but in reality they aren’t, because they’re not organised. When political changes take place, when ministers change, the role of Romanian professional organisations in promoting agricultural policies also changes. Romania is the seventh state in the EU, of 27, with potential for production, as well as a right to vote, which unfortunately it cannot use. Why? Because every minister, every governing party will promise to support agriculture until they get to where they want to be. When that happens, they forget who promoted and supported them. We currently have the greatest agricul-
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event report
Romanian Forum 2011
Daniela Giurca, general manager with the Ministry of Agriculture: There is room for small, as well as for big farmers, but they have to grow and do business together. Romanian farmers have to get organised, and the Ministry needs to identify a representative partner.
Yves Picquet, president of the Romanian Crop Protection Industry Association (AIPROM): Romania has major investment potential for agriculture but it might take 20 years to reach it if the current development rhythm stays the same.
tural potential, but also the least support in the EU. At a COPA – COGECA level, out of 87 work groups, we are only part of two. It’s in Romania’s best interest to be where the policies for the future of the community are drafted. The government should understand that Romania should renounce at any hidden agenda. Romania must accept its position as an active player in agriculture and it must also understand that it has to follow European rules. Romanian farmers will no longer be represented in the EU because we are stubborn and we refuse to pay the outstanding EUR 200,000 that every country pays to COPA – COGECA. The FNPAR risks being booted out of the European organisation because the state can’t help the farmers’
federation pay this sum by the end of June. Do you think that paying EUR 200,000 for getting to be part of all the European work groups, on all projects, is a lot?
44 The Diplomat June 2011
Nicolae Sitaru, president of the Romanian Agricultural Producers’ Associations League (LAPAR)
After 1989, Romanian farmers had an aversion toward associations. They were seen as similar to the old CAPs, and the mere word “association” scares some of them. What the people who keep their distance from these organisations don’t know is that together we can be very strong, we can buy products at more affordable prices, and we can make every farmer turn in a bigger profit.
Nicolae Sitaru, president of the Romania Agricultural Producers’ Associations League (LAPAR): Wheat production is shamefully small – just 2.4 tons per hectare, while corn and sunflower production reach 3.4 and 1.4 tons per hectare, respectively.
GMOs fertilise controversy
The growing of genetically modified organisms (GMOs) along with the pros and cons of using pesticides on crops have long been the subject of heated debate, with giant companies, such as Monsanto, flagging up the benefits of research and technologies in the field, and local managers of associations and companies also in favour.
Jonathan Ramsay, public affairs lead for Europe and Africa at Monsanto
People don’t really think that we have to produce more, but we think it’s very important, in fact we have a commitment to double the yield in our core crops. We mean to reduce the footprint of this yield
Romanian
event report
Forum 2011
by one third. So that’s using fewer natural resources while producing more. We believe that biotechnology is an important tool. What people are really amazed by with us is the effort we put into the improvement of our seeds. We are analysing those seeds, taking them to producers and growing them in double time, using three-season growth, in the southern hemisphere. In biotechnology, the latest products are now helping to protect the yields, the seed quality. Nobody wants to have bugs in their food and no farmer wants to have weeds. We must accept that we do have to meet our needs and produce enough.
Nicolae Sitaru, president of the Romanian Agricultural Producers’ Associations League (LAPAR)
There is this whole controversy about growing GMOs. If anyone from the government discovers that there is even a minor risk involved, we’ll be the first to ban these crops, first of all because we’re consumers too. We definitely don’t want to grow dangerous
crops, we want to be efficient. We want to grow profitable crops, so that the standard of living goes up, because, as you all know, the country is still poor, a fact which does us no credit. We need laws to be approved on time, because good measures have often been adopted too late and didn’t have the desired result. That is without mentioning that sometimes we have laws that are downright nutty! We were talking about growing GMOs. If a European authority allows them, it means that the products aren’t dangerous. In the United States, too, corn production has doubled in the last 13 years, to 10 tons per hectare, while we have only 3.4 tons per hectare. It won’t be long until we’re so inefficient that American corn will be cheaper to buy in Constanta Harbour than our own corn.
Lucian Buzdugan, general manager at Trei Brazi
Research in agriculture has been neglected by the authorities. It wasn’t given any attention. Actually, the only attention went on destroying research in Romania. I’m not exaggerating when I say “destruction”,
especially since this can be proven by the low number of research facilities in the country. While some of these aren’t really active any more, others ended up in the hands of dealers that cash in a lot of money, without paying anything back. Our company had to develop its own testing facility, which can compete with two research facilities combined. Right now production has gone beyond the research stage, and a solution could be public-private partnerships – for producers to finance research facilities and to get the best results. You can’t have competitive agricultural production without someone guiding you, doing research, bringing you up to date with the latest world scientific achievements, and coming up with the best solutions. This is one reason why per hectare production is so low. Weeds are a big problem in Romania, and a hybrid pesticide-resistant type of corn might be the salvation, because corn still grows on large areas. It could also help the public, because we don’t have any more people to work the fields. ■
45
energy Concorde Developments invests 350 million Euro in two local wind farms
Concorde Developments Group will invest 350 million Euro in two wind projects in Romania. The projects will be implemented in cooperation with the Romanian Government and the EU. The first project, worth 90 million Euro, has a 45 MW/h capacity and is located in Tulcea. GCD is also negotiating with a group from Greece to purchase their wind project of 120 MW/h in the same area of the country. This project will add another 260 million Euro in net value.
Enel Distributie Banat and Dobrogea to give out 32.5 million Euro in dividends
Enel Distributie Banat and Enel Distributie Dobrogea will grant 32.5 million Euro in dividends, which amount to 60 percent of the net 2010 results. Enel Distributie Banat will grant dividends worth 19.5 million Euro, while Enel Distributie Dobrogea will give out 13 million Euro. The two companies are owned by Enel Investment Holding BV, Electrica and the Property Fund. Enel has invested over 1.8 billion Euro in Romania since entering the local market in 2005.
Nabucco construction start delayed to 2013
Nabucco Gas Pipeline International, the project company for the construction of the Nabucco gas pipeline, has postponed the start of construction by one year, until 2013, while the date of the first deliveries was pushed back to 2017. Construction works were initially set to start in 2012, with deliveries commencing in 2015. The companies partnering in the 7.9 billion Euro project are Romanian Transgaz Medias, Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Turkish BOTAS and German RWE.
46 The Diplomat June 2011
IMF: Gas price liberalisation to start for companies in 2013 Gas prices will be liberalised in stages until 2013 for companies and from 2013 to 2015 for the public, said Jeffrey Franks, the head of the IMF assessment mission, recently. “The decision was for prices to be adjusted over a longer period of time, as a first step for companies and later for households. For companies, the decision was for the adjustment to occur gradually,
until 2013, and for households, until 2015,” said Franks. Previously, he said the authorities would align to the European definition of household consumers and the categories receiving subsidies. In addition, the head of the European Commission mission in Romania, Istvan Szekely, said that formulas for the liberalisation of gas prices would be established in the coming period.■
Hidroelectrica and Nuclearelectrica to be listed after IMF pressure Under IMF pressure, the Economy Ministry is promising to float stakes of 15 percent each in Hidroelectrica and Nuclearelectrica next year. However, in the past two years, effective listings have proved time-consuming. The listing of the stakes in Hidroelectrica and Nuclearelectrica along with the sale of stakes the state holds in Petrom, Transgaz, Transelectrica and Romgaz, all promised by the government for the 20112012 period, would turn the Bucharest Stock Exchange (BSE) into one of the hottest capital markets in the region, say experts. The sales would amount to almost 1.9 billion Euro, specialists estimate. However, despite the repeated declarations from authorities and the IMF pressure there has been little progress. Since 2005, the state has listed just two companies on the BSE, Transgaz and Transelectrica, in the wake of initial public offerings of about 105 million Euro.■
Stock options: two energy firms could float
Russia dangles gas price carrot over Distrigaz sale Romania would have had a better price for gas if it had decided to sell Distrigaz to Russian group Gazprom, said Igor Sidorov, economic councilor of the Russian Embassy in Bucharest. He added, according to media reports, that Romania could have direct commercial ties with Russian group Gazprom if it offered something in return, in order to import gas directly from Russia at a lower price. “Romania wouldn’t necessarily get a better price for gas if intermediaries were eliminated, but if it offered something to
Gazprom group, if it took a step towards Gazprom, it might,” Sidorov said during a meeting of economy ministers from Black Sea Economic Cooperation Organisation countries, held in Bucharest. He added that if Romania had sold Distrigaz Sud to Gazprom, which wanted to buy it, the state would have got a better price for gas than it has now. Distrigaz Sud was taken over by French group Gaz de France in 2005. HotNews.ro reported that Romania currently pays the most for gas exported by Gazprom in Europe. ■
driving
Vital statistics
Insignia tested version ■ Engine: 2.0 CDTI 160 CP ■ Body: 4 doors ■ Equipment level: Sport ■ Displacement: 1956 ■ Gearbox: 6 manual ■ Pollution norm: EURO 5 ■ Traction: 4x4 ■ Price: 28,595 Euro including VAT
The insignia of the bourgeoisie Opel is starting afresh with a new design for the Insignia, its mid-range model that is the latest salvo in the carmaker’s ongoing battle with Ford and Volkswagen. So will it cruise the reviews or stall at the first fence? The Diplomat – Bucharest got behind the wheel and gave it a spin. Bogdan Verdes
I
n the past few years, Opel has made noticeable progress, launching new models – each with different innovations – as the carmaker aims to up its market share, especially on the German market, where it is engaged in an all-time epic battle with Ford and Volkswagen. The Diplomat – Bucharest tested the Insignia model, which is Opel’s contender in the mid-range segment, successor to the Vectra. The name change and the brand new fluid design illustrate the Russelsheim producer’s intentions to start afresh. The Insignia is available in three body styles: four-door limo, five-door limo and sports tourer. Our driver road-tested the first model as it is probably top choice on the local market thanks to Romanians’ wellknown taste for classic limousines. Viewed from the outside, the car has a well thought out design, the large tyres creating added value for the entire picture, as do the xenon lights and the dynamic line. A significant impediment remains the awkward access to the trunk – the dynamic
line of the car being a factor – for instance, the form of trunk lid results from the intersection between irregular curb lines. Moving to the interior, the leatherseated chairs catch the eye with lots and lots of adjustments. The majority of these are electrical and identical for both the driver and the right-side passenger seat. This is noteworthy as for the majority of mid-range models – because of budget constraints – carmakers deprive the buyer of adjustments for the right side chair. The back seats are well-designed for two passengers but a possible third would face a squeeze. The dashboard has a modern design and the massive centre console has lots of buttons, maybe too many for someone who should be watching the road rather than testing them. What’s really disappointing is that they are lacking a design sparkle, a quirk that could add elegance to the console. The plastic used above the dashboard is of high quality, but is jarring compared with that
used for the interior design of the doors, which betray the points where the carmaker has made some savings. However, the audio system easily qualifies as a plus for the Insignia and one forgets about all the little problems when listening to good music on long drives. The gearbox is well tiered, but the Common Rail Diesel Turbo Injection (CDTI) engine is very noisy. The car responds well to bends, but let’s not forget that the tested model was the all-wheel drive version, and the sports model clearly has the best feel. There is a flipside. The average fuel consumption is quite high for a diesel engine, 8 liters per 100 kilometers not being ideal. However, we have to take into account that the tested car had less than 1,000 kilometers on the clock and consumption tends to decrease after the car has finished grinding. Insignia – the plural form for emblem or symbol – is a token of personal power or status, an elitist note in keeping with the not inconsiderable cost of the vehicle. ■ 47
business leader Marriott used this less hectic period to carry out renovation works and line up a fresh look and better services ready for market recovery. The number of Vienna Lounge couches has been increased to 106 and classic Romanian cakes – Carpati and Savarina – were added to the menu. The equipment in the largest conference room was also updated with seven independent video projectors and screens embedded in the walls, a state-of-the-art centralised audio system, IPod-controlled 50 intelligent lights with infrared commands, new wallpaper and carpeting. Investments will continue this year as well. The JW Steakhouse Who is Igael Porecki? restaurant – a concept July 2009-present which is present in sevGM at JW Marriott eral Marriott properties Bucharest Grand Hotel around the world – was September 2002-June 2009 opened recently after a GM at two Marriott 1.5 million Euro investHotels in Georgia: ment. “This winter we are Tbilisi Marriott Hotel and planning to redo the ConCourtyard by Tbilisi Marriott stanta Ballroom and next 2004-June 2009 year we hope to renovate Resident manager of the the rooms,” says Porecki. Marriott Warsaw Hotel “Renovating Constanta May-September 2002 Ballroom will require GM at the Renaissance an investment of about Tel-Aviv Hotel 700,000 Euro.” The JW Marriott GM gives the main reason for the investments as the need to offer customers better supplementary services, which could persuade them to return to the hotel, instead of cutting rates further, which would dent the profitability of the business.
Always room for improvement
As the hotel industry sees some signs of recovery, Igael Porecki, GM of the JW Marriott Bucharest Grand Hotel, reveals the hotel’s strategic key‑solution to get itself out of the crisis and what the status of new Courtyard hotel investment is. Cerasela Marin
J
W Marriott Bucharest had a good year in Romania in 2010, believes Igael Porecki – the Israeli who has been at the helm of the internationally-known hotel since 2009 – and the outlook for 2011 seems encouraging. “This year is going to be much better than 2010. We are more optimistic and we have more requests and more demand,” says Porecki. “The first four-five months are going according to our plan and budget, by a fair 10 percent over last year.” But this is a rare success story, as the local hotel market, just like the rest of Romania’s economy, has seen its share of hard times in the last two years. “The entire travel
48 The Diplomat June 2011
industry has suffered a lot – not only hotels, but also airlines – and everybody reduced their rates in 2010.” The cost of a room at the JW Marriott, for example, is about 20 percent down compared to its 2008 level. “In 2011 we’ll see an increase in demand for Bucharest, but we won’t see an increase in the rates,” says Porecki. “The market is not yet ready to pay more for the same products.”
Capitalising on the crisis
But the decline in occupancy rates during the crisis, although it affected hotel revenues, has had some positive effects as well. JW
Courtyard courts expansion
But expansion is still on the cards. In the future the Marriott chain will increase its presence in Romania with a Courtyard hotel. The property will include 198 rooms and Porecki says it is now in the construction approval stage. “I know that there are negotiations with some investors. It’s not only Courtyard that we want to develop, but the Renaissance brand also, which is very similar to the Marriott,” Porecki adds. “This is a process. We went through a crisis, banks were not so willing to give money to investors, and maybe this will change next year.” The manager goes on to talk about the chain’s expansion possibilities in other cities in Romania, with the Courtyard concept “a better suited brand to the local market, mostly oriented towards business travel. Marriott as a company is looking to have hotels in Sibiu, Timisoara and maybe in Arad. Five-star facilities only in the main cities, like Bucharest, while in the secondary cities we are looking at four-star hotels.”
business leader A good hotel needs a good location. That’s why Marriott, which manages over 3,600 hotels worldwide, is very careful when it chooses where to site its units. “We do not want to add new hotels to the network if the location is not perfect, and the land plot isn’t big enough,” says Porecki.
International events are key
In 2011, the GM’s role is to predict how client preferences will change as the economy tentatively recovers. It is clear that in times of crisis guests who choose to stay at a fivestar hotel have high standards and high expectations. “The business is very challenging. Clients are getting more and more demanding and they know exactly what they want. You can’t fool the guests,” he says. “Years ago, clients were not so demanding, but now they are exposed to a lot of five-star hotels and competition. Go to all the websites that people are writing on today. If you want to go somewhere, you go online and you look for a recommendation. The world has become transparent.” What’s more, the hotelier must stay focused to meet both the budgetary con-
straints and the owners’ expectations – as they still have obligations to the bank. “I call it surviving, even in good times. Also, everybody has to be happy – employees, owners and the Marriott,” adds the general manager. On the other hand, Porecki knows very well what advantages the hotel he manages has. “JW Marriott is a very strong brand. Also, the size of the hotel is a big bonus for us. As you can see, on one side we have people having lunch, on the other side we have an exhibition; we also have meeting rooms. And we have the best parking facilities in Bucharest accommodating 500 to 600 cars, which is very convenient for big events.” In fact, an increase in the number of events would help the hotel industry to recover. “We have many five-star hotels, very nice, modern hotels that not many cities have, and we are still very attractive to Europeans,” says Porecki. “A few weeks ago we hosted a big conference for a large European company with about 350 participants. The reason they chose Bucharest was its facilities: we have a lot of five-star facilities, and the same conference is much cheaper here than in London, Paris or Frankfurt. This is a big
advantage now for Bucharest and I hope that more international organisers see Bucharest as a destination.” As an example JW Marriott Bucharest’s manager recalls the 2008 NATO summit, when many of the foreign delegates stayed at his hotel. “Although I wasn’t managing the hotel at that time, I know that US President George W Bush stayed here.”
Risky business prospers in Europe
Although the crisis has had a huge impact worldwide, the Marriott brand is enjoying good results across Europe. “For Marriott in general, there are cities, especially in Germany and also in France, where the hotels are now where they were in 2008.” But one has to keep in mind that the hotel industry is risky, and depends on many variables. “For example, a few months ago we opened a beautiful Renaissance hotel in Tripoli, Lybia. That hotel is now closed because of the conflict. It’s the same in Egypt, we have seven-eight hotels in Egypt and everything has fallen because of the political crisis,” says Igael Porecki. “It’s a risky business which depends on wars, natural disasters and economic crises.” ■
IN THE NAME OF EXCELLENCE WE STAND UNITED Centrul Medical Unirea and Euroclinic become the largest private health care network
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real estate Dinu Patriciu Global Properties exits from Swedish portfolio
The investment holding company Dinu Patriciu Global Properties (DPGP), managing a portfolio worth 1.3 billion Euro, has sold an office space portfolio of seven buildings containing over 75,000 sqm it owned in Karlstad, Sweden, to Hemfosa Fastigheter. The transaction was carried out through the investment fund Karolinen Fastigheter AB Sweden and was assisted by consultancy companies CBRE, Linklaters and Ernst & Young. DPGP controls 117 real estate assets in Germany, Romania, Poland, the Netherlands, France and Belgium, 90 percent being located in Germany and in Romania.
Impact launches rotating-wall studios in Greenfield project
Local real estate company Impact Developer & Contractor has 20 studios with a rotating-wall design to sell within the company’s Greenfield project. One such unit delivers an area of 27 sqm and costs 40,000 Euro, including VAT, according to Impact. The concept of a rotating-wall design - named Kaleidoscop - might also be used in two-room apartments, according to Dan Ioan Popp, president of the company. Greenfield, the company’s main project in Bucharest, comprises 670 homes in five residential wards on 10 hectares of land. Since 2006, when construction started, Impact has invested over 60 million Euro in developing the Greenfield project.
British investment fund offers 70 million Euro for Cathedral Plaza A British investment fund, a client of Willbrook Management International, is interested in acquiring the controversial Cathedral Plaza project for 70 million Euro, following a “very tempting financial offer” according to Daiana Voicu, managing director of Willbrook Management International, the British company in charge of the development and management of Cathedral Plaza. “A pre-sales agreement has been reached and the sale contract will be signed when the developer meets certain performance standards, such as a minimum occupancy rate and the completion of interior arrangements. The trading has to be finished by the end of the year, by when we have to meet the performance criteria established in the pre-contract. The British
fund is a client of Willbrook International and has other investments in Romania,” said Voicu. Since 2006 Cathedral Plaza, located near Saint Joseph’s Cathedral in Bucharest, has been the subject of litigation between Willbrook and the local Romanian-Catholic archbishopric, the latter claiming the construction is illegal as it endangers the structure of the cathedral. The project is a 19-storey skyscraper, with four underground levels, and a height of 75 meters. It is being constructed about eight metres from the Cathedral of St. Joseph in Bucharest. Cathedral Plaza is owned by Millennium Building Development, a local holding company for US and Israeli investors, through Miller Global Properties of Denver. ■
Alpin Aparthhotel in Brasov sells 85 percent of residential units
Romania faces funding gap of 2 bln USD in commercial property
Romania has an absolute funding gap of 2 billion USD, representing some 6 percent of its invested stock, according to the latest DTZ Research study. In terms of the relative funding gap, Romania ranks third, after Ireland, with 19 percent, and Hungary, with 8 percent. In the region, the global decline is driven by a reduction of the US, the UK and Spanish gaps, only in part offset by increases in Japan, Ireland and France. According to the research’s regional overview, the European debt funding gap stands at 118 billion USD over the next three years, representing a 6 percent reduction on the company’s previous estimate.
50 The Diplomat June 2011
High-end facilities get demand despite being expensive
The five-star Alpin Aparthhotel, the residential apartments division of hotel compound Alpin Resort in Poiana Brasov, has announced it has sold over 85 percent of its flats since 2009. According to Daniela Esanu, general manager of Alpin Resort Hotel, the division sold an average of three apartments per month between 2009 and 2010. The flats cost from 250,000 Euro to 350,000 Euro. “At 16 months from completion, the occupancy rate of the complex increased by 35 percent in Q1 of 2011, compared with the same period of 2010,” said Esanu. The company invested
over 15 million Euro in refurbishment works at the compound and registered a turnover of 70 million Euro in 2010. The residential apartments managed by Alpin Aparthhotel can be rented for between 225 Euro and 275 Euro, depending on the type of apartment. Alpin Resort Hotel is a hotel compound in Poiana Brasov addressing both leisure and business tourism. It comprises 114 executive five-star apartments. The complex also has a spa centre, Alpin Spa Vitarium, two restaurants ranked at four and five stars, a bar/club and entertainment areas. ■
real estate Patriciu launches first Macro store of 100-unit network planned for 2011
Cushman&Wakefield rent out first Calzedonia shop in Romania
Cushman&Wakefield consultancy company has managed the rental transaction for the first Calzedonia shop in Romania, one month after the scheduled opening time. The Italian retailer rented 200 sqm, including storage space, in the centre of Bucharest and the shop will be run by Futura Lenjerie, the company which owns the Calzedonia franchise in Romania. According to representatives of the Italian company, a regular Calzedona shop generates revenues of 370,000 Euro a year in Italy.
Businessman Dinu Patriciu plans to invest half a billion euro in new retail chain
Mercadia Holland BV, the retail company controlled by Romanian businessman Dinu Patriciu, has opened the first Macro store in Brasov, following an investment of 500,000 Euro. By the end of 2011, the company plans to re-launch the 53-discount store network MiniMax under the new brand of Macro and extend it to 100 units. According to company representatives, Brasov will see three Macro openings this year. Regarding mic.ro, the convenience store network launched in 2010 and con-
trolled by the group, Patriciu said that it plans to develop a countrywide web of 2,500 shops, including mobile units. Company representatives said the total investment in Mercadia group reaches 76 million Euro and is estimated to top 250 million Euro. Mercadia Holland BV owns the majority share packages in Mic.ro Retail, Bet Café Arena gambling and betting house with 70 locations opened in Romania and iLearn, the HR consultancy services company. ■
CB Richard Ellis Romania sees business grow in T1, 2011 The local office of real estate consultancy company CB Richard Ellis managed office transactions worth 8.77 million Euro in the first three months of 2011, the firm has announced. This accounted for over 22,000 sqm of office space and a market share exceeding 30 percent, representing both tenants and properties. The company completed retail transactions worth 12.3 million Euro in T1 of 2011, and signed evaluation contracts for 600,000 sqm of real estate space. Among the most important transactions for the company’s industrial department were the sale of 31 hectares land by the A1 highway, the re-negotiation of a rental contract for 3,600 sqm in Timisoara and the sale of a 4,000 sqm industrial space in Brasov. In northern Bucharest, the company managed the rental of 6,000 sqm for the expansion
of logistics centre Miniprix. The firm saw two major management changes this year, after Radu Lucianu, the managing director, and Ionut Bordei, the head of the land department and residential development at CBRE, left the company, following the termination of their contracts. The management is currently made up of Razvan Iorgu, as managing director; Catalina Jigman, head of the office agency and GCS; Luiza Moraru, head of the retail department; Marian Orzu, manager of the industrial department; Laura Bencze, research manager; Adrian Nicolescu, manager of the valuation and advisory department; and Mircea Draghici, project manager for hotels. The new land department is led by Ovidiu Ion, who previously headed up the company’s appraiser valuation department. ■
Fashion retailer C&A signs rental contract with Iulius Mall
Fashion retailer C&A, controlled by COFRA Holding AG and present on the Romanian market since 2009, has announced it will open three more units in the malls owned by local business man Iulian Dascalu: Palas commercial centre in Iasi, Iulius Mall in Timisoara and Iulius Mall in Suceava. The new shops will have areas ranging from 1,225 to 1,700 sqm. So far, the retailer has opened outlets in Family Centre Botosani, Atrium Centre Arad, Aurora Mall Buzau, Gold Plaza Baia Mare, Polus Centre Cluj-Napoca and three units in Bucharest, in AFI Palace Cotroceni, Sun Plaza and Militari Shopping Centre.
UniCredit Business Partner rents 10,000-sqm building in Novo Park
UniCredit Business Partner, the back office division of UniCredit, has rented a 10,000 sqm four-level building in the Novo Park complex owned by Genesis Development and located in northern Bucharest, in the Pipera area. According to Gabriella Golfre Andreasi, general manager of UniCredit Business Partner in Romania, the company has established its HQ in Novo Park. The complex has tenants including Kraft, Procter & Gamble, Hewlett-Packard, Raiffeisen, Infineon, Garanti Group, Yokagawa, ITC Networks/Luxoft, Eurest, Ringier and Veolia Water. Novo Park comprises seven office buildings, totalling an area exceeding 70,000 sqm.
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events Birthday bash: Local law firm Biris Goran celebrated its first five years of activity with clients and business partners. With strong expertise in tax and commercial law, the company now ranks among Romania’s top legal firms.
Bucharest Inter-war Ball: The Bucharest Inter-war Ball organised by Fundatia Calea Victoriei took place on May 26 at the Cercul Militar National (Military Club) in Bucharest, as part of a series of cultural events to mark Bucharest Month (May 9-June 9). The ball included a concert of famous inter-war songs, a play, and Charleston and foxtrot dancing sessions. The night was organised under the auspices of the Central Bank.
Marathon effort: The Bucharest Running Club Association has announced that this year’s Bucharest International Marathon will be held on October 9. Fifty runners from five countries – Romania, Spain, France, Israel and England – have already signed up. Anyone interested in participating can register on the competition’s website www.bucharest-marathon.com and come to the Marathon Expo at Constitution Square on October 7 and 8 to get the kit needed to participate.
Photo by Daniel Angelescu
Party fit for a king: Two thousand guests, including big names from public life, the diplomatic and cultural communities, attended a Garden Party in honour of King Michael on May 12. The event was held to mark Monarchy Day in Romania. Guests included SIE director Mihai Razvan Ungureanu, former Prime Minister Calin Popescu Tariceanu and His Excellency the U.S. Ambassador to Bucharest Mark Gitenstein.
Home help: To celebrate the 100th anniversary of the Whirlpool Corporation, 100 employees from Whirlpool Europe, Africa and Middle East gathered in Oradea to build a home for a family who has given a home to orphans. The team built the house for a family of 11, two parents who are raising seven orphans along with two of their own children. The building project is the first in a series of volunteer actions. 52 The Diplomat June 2011
events Sealing the deal: Yorgos Ioannidis, CEO of Romtelecom, Dominic Bruynseels, CEO
of BCR, and Stefanos Theocharopoulos, CEO of Cosmote Romania, (left to right) shook hands as telecom companies Romtelecom and Cosmote Romania won the bid to supply communication services to Romanian lender BCR for the next three years. This is the biggest contract on the market, according to Romtelecom, which did not disclose its value.
Royal seal of approval: The private healthcare network Regina Maria received the official recognition of supplier from the Romanian Royal House on May 13 during an event at Elisabeta Palace. The certificate was presented to Wargha Enayati, Regina Maria GM, by His Majesty King Mihai I of Romania.
Real winners: A jury of 30 professionals from the property industry rewarded the best
performers in the real estate sector at the sixth annual South Eastern European Real Estate Awards 2010, held on May 19.
Biodiversity strategy finds local ambassadors: The European
Commission’s Environment DirectorateGeneral (DG) has launched the second stage of the communication campaign for its biodiversity strategy for 2020. The event was held to coincide with May 22, the International Day for Biological Diversity, in the USA, which promotes and communicates biodiversity issues worldwide.In Romania, the European Union’s initiative to stem the loss of biodiversity is supported by celebrities, environmental activists, NGOs and authorities. “Biodiversity in Romania is endangered due to human actions, habitat shrinkage, over-exploitation and hunting tourism. What we do now greatly affects the lives of future generations,” said Serban Copot, director of Generatia Verde NGO.
Night at the Museum: Over 20 museums in Bucharest and another 30 across the country took part in Museum Night on May 14. Culture fans enjoyed renowned exhibitions, theater, dance, film and music shows, open-air movie projections and other interactive events. Visitors could make use of the special transport line connecting all the museums with help from a printed map of events in Bucharest. 53
city life
Transylvania International Film Festival begins fantasy short will receive the Best Shadows Short Award. As in previous years, a selection of films from the festival will be screened later in Sibiu, central Romania, between June 15 and 19. TIFF is one of the top film festivals in Romania and in previous years has been graced by guests such as Vanessa Redgrave, Catherine Deneuve and Wim Wenders.■
The tenth annual Transylvania International Film Festival (TIFF) will be held this year between June 3 and 12, in ClujNapoca, north-western Romania. Over 700 Romanian and foreign guests are expected to gather to watch the 220 feature-length and short films. The event will also feature special screenings, national, international and world premieres,
workshops and master-classes held by big names from the film industry. Awards are up for grabs for Best Film (the Transylvania Trophy), Best Director, Best Cinematography, Best Screenplay and Best Actor. The jury will also present a Special Jury Award, while the most popular film in the competition will take home the Audience Award. Meanwhile, the best horror and
Sting will be an Englishman in Bucharest
Wind of Change blows Scorpions to Zone Arena
UK musician Sting returns to Romania for a concert on June 6, in Bucharest’s Constitution Square. The former Police frontman will rework some of his best known hits with a live band and a symphonic orchestra. The British singer, who previously performed in Romania in 1996 and 2009, will extend his Symphonicity world tour in Europe this summer. Following sold out concerts in North America, Europe and Australia, Symphonicity will include new shows in France, Germany, Italy and Eastern Europe. Fans will be treated to renditions of classic tracks such as Roxanne, Next To You, Every Breath You Take, Englishman in New York and Desert Rose. The Bucharest concert is being organised by Emagic and tickets cost between 135 and 395 RON. ■ 54 The Diplomat June 2011
Legendary German rock band the Scorpions will play Zone Arena in Bucharest on June 9 as part of their farewell tour, Get Your Sting and Blackout World Tour. The first concert was held in Prague in March last year and the tour will continue until the end of 2012. Ticket prices in Romania range between 128 and 350 RON. The Scorpions, who hail from Hanover, Germany, are best known for their 1980s rock anthem
Rock You Like a Hurricane and their singles No One Like You and Wind of Change. Guitarist Rudolf Schenker founded the band in 1965. He and Klaus Meine turned 62 last year. During a career spanning more than four decades, the rock group won the hearts of millions of fans around the world and have sold over 75 million albums worldwide over the course of their career.■
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