Vol. 8, No. 2, March 2012
The magazine for informed internationals
Private money reshapes the city Bucharest upgrades as infrastructure gets facelift
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Vol. 8, no. 2, March 2012
Prime Minister Mihai Razvan Ungureanu announced at the beginning of February the make-up of the new government, after a meeting with the Democrat Liberals. The new cabinet includes three ministers from the UDMR party, with Marko Bela as vice-premier, while the UNPR secured two ministerial briefs, Foreign Affairs and National Defense. The Democrat Liberals have the largest portfolio, nine ministries, while the independents Leonard Orban and Catalin Predoiu maintained their positions at the helm of the European Affairs and Justice Ministries, respectively. The cabinet passed the Parliament vote, despite the opposition’s refusal to support the new government.
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Distribution revolution Top IT distributors are adapting to survive the crisis
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Capacity for change Energy players are trying to push for fairer deals and fewer fees
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Eyeing expansion Omnilogic GM Gabriel Marin is focusing on the Adriatic area
7. GOS MUST GO
13. RETAIL REBOUND
9. HR PROGRAM HALTED
15. DRIVING FORCE
11. ELECTRIC DREAMS
41. MERCEDES LAUNCH
12. ON TRACK
46. MOVIE MUSIC
The PM calls for less reliance on Government Ordinances The EC has suspended POSDRU over management failings Domestic energy liberalization is put back another two years CFR has signed EUR 479 mln of modernization deals
Major retailers are set to spend EUR 150 million on expansion in 2012 Auto parts firm Bosch will invest EUR 77 million in its Cluj plant German model M Klass reaches the third generation Hollywood hits will fill the air at Sala Palatului this month 3
editorial
Funds and games
Calea Mosilor Nr. 306, Bl. 56, Scara A, Etaj 2, Apt. 7, Sector 2, Bucuresti, Romania www.thediplomat.ro Publishers Adrian Ion adrian.ion@thediplomat.ro
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The Diplomat March 2012
W
e all rejoiced when Romania joined the European Union. The year was 2007 and we all hoped that our lives would change significantly, obviously for the better, especially in terms of income. Undoubtedly one of the most important mirages which drew us into the EU’s trawl was the non-refundable European funds – not simply for the sake of spending some money, but to really invest in the country so we might move closer to the living standards of Western countries. The economic crisis has made a strong imprint on Romania, but salvation could have come just from the fact that we have at our disposal the cheapest available resource: EU funds. But even the National Bank governor, Mugur Isarescu, says, “EU funds have not increased. Net inflows from the EU have remained about the same level. [...] It shows us a missed opportunity.” It is a shame that since 2007 the Romanian authorities have proved unable to increase the rate of absorption of EU funds, considering sufficient a few token efforts to attract an extremely low sum in absolute value each year. Instead it was much easier for us to borrow, under the careful and “protectionist” guidance of International Monetary Fund representatives. The bottom line of this monetary market is that we were the customers and unfortunately instead of choosing the best offer, which required more work from us, namely to attract EU funds, we chose the least economically advantageous, but fastest option – the IMF loan. Unfortunately by doing so, we haven’t escaped the worst, as it is almost time to repay this money, plus the related interest. Fortunately, the new government says it intends to increase Romania’s absorption rate of European funds, but it could be too late. Assuming that even at the last minute we were able to attract more funds, the loans still remain and any kind of “early repayment” is practically impossible in the context of estimations for economic growth of less than 2 percent, which still seem optimistic.
In other words, to meet the difficult challenge of repaying this loan it is no longer sufficient just to pay lip service to absorbing EU funds; Romania must really put its back into it. I’m afraid that all the talk will remain just pretty words, which would hurt the country and the local political climate even more. The authorities should have given impetus to the establishment of the Ministry of European Affairs, which promised that the absorption of European funds would increase visibly. Unfortunately nothing happened and a new statement like this would just underline the public conviction that an increase of the absorption rate to 20 percent will not occur in any case. It’s been a month since the new government was sworn in and nothing has changed. Will there be any good news before the end of the year and is this target a realistic one? The immediate impact would be a decent standard of living for Romanians, as almost one in two of us are at risk of poverty or social exclusion, according to Eurostat. The same research found that 31 percent of the population are in dire financial straits. I have never understood why we must always lag behind, given that Romania is a rich country with resources, but to paraphrase a joke, “too bad it is populated”. I’m curious what effect these loans from the IMF, which plunge future generations into debt, can be having when most of Romania’s economic indicators suggest more bad news. Can we say that we are satisfied with economic growth of just one digit (and a small one at that)? Unfortunately the conclusion is that we have to settle for too little, not only individually, but of more concern, at a macro level. We appreciate the honesty of Prime Minister Ungureanu, who admitted, “We are the country with the lowest absorption rate of EU funds.” But it is not as though we did not know this fact and, even sadder, have to live with its consequences every day. ■
“It is a shame that since 2007 the Romanian authorities have proved unable to increase the rate of absorption of EU funds. ”
politics Government to approve tax amnesty for public servants
Newly appointed Prime Minister Mihai Razvan Ungureanu and his cabinet have included on this year’s agenda the approval of a draft law giving a tax amnesty to Romanian public sector workers. This comes after the Magyar political faction (UDMR) called for the measure for public functionaries obliged by the Court of Accounts to repay their salary raises. According to UDMR sources, around 300,000 public clerks have had to pay back raises, in the absence of a law which could absolve them.
USL sets out four conditions to return to Parliament
Social democrat (PSD) and national liberal (PNL) MPs last month began “an undetermined parliamentary protest”. PNL president Crin Antonescu named four conditions necessary for the “strike” to cease, including for the current Government to assume the role of legislator of Parliament, and not to govern through emergency ordinances, as well as government liability measures or penalties for the president of the Chamber of Deputies, Roberta Nastase, and deputy Sever Voinescu, who, according to the opposition, should lose their positions within the Chamber’s hierarchy, due to former accusations as fraud in voting session for the pensions’ law from 2010.
Coalition to support European fiscal treaty, opposition invited to join dialogue The ruling coalition has said it will sign a protocol agreement to support Romania’s signing and ratification of the EU fiscal treaty. The document will be also open to the opposition, who have been invited to take part in the dialogue, according to the Government. Following the talks held by Emil Boc, president of the Democrat Liberals, with President Traian Basescu, “the coalition will submit to the opposing parties the subject of the European treaty as well as other subjects of public interest, including those raised when the new Government was named”, read a statement. Kelemen Hunor, the leader of the Magyar faction, said that the Social Democrat Union should sign the agreement to be made between the politi-
cal parties as “a first step to a constructive dialogue in 2012”. All EU countries, except Great Britain and the Czech Republic, signed a new fiscal treaty drawn up to commit the signatories to budgetary discipline. After attending the informal working sessions of the European Council, President Basescu said that the new stability pact should be incorporated into the Romanian Constitution by the end of 2013. PM Razvan Mihai Ungureanu said that he will advise the USL leaders to sign the document too. “I hope the protocol will be signed by the presidents of all parliamentary parties, including social democrats, national liberals and conservatives,” he said. ■
Ungureanu cabinet approved by Parliament, opposition goes to Constitutional Court
MEP: Boycotting Dutch products not a solution for Schengen
Euro MP Cristian Presa has said that he doesn’t believe a boycott of Dutch products is the solution to securing Romania’s accession to the Schengen zone. Instead he argues that diplomatic, subtle measures could reverse what he describes as the unfair decision taken by Holland in denying Romania entry to the free travel area. The reaction comes after MEPs Sebastian Bodu and Jacek Saryusz-Wolski asked citizens of the 12 states which have joined the European Union since 2004 to boycott Dutch products, as a response to the country’s veto of Romania’s Schengen entry.
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The Diplomat March 2012
The recently formed Romanian Government, led by newly appointed PM Mihai Razvan Ungureanu, has received the green light from Parliament, which approved it with 237 votes in favor and only two against the new line-up. Just 232 votes were required. The opposition, represented by the USL (Social Liberal Union), said it would contest the vote in the Constitutional Court, on the grounds that it had breached procedure. The USL said in a statement, “The current Government is the result of a breach of validation procedures by both chambers of Parliament. Even if the approval of the specialized commissions is only advisory, it still must be secured. In
the case of some ministries, this was not the case because the commissions were not quorate.” The Government is formed of three ministers from the UDMR party, with Marko Bela as vice-premier, while the UNPR secured two ministerial briefs, Foreign Affairs and National Defense. The Democrat Liberals have the largest portfolio, nine ministries, while the independents Leonard Orban and Catalin Predoiu maintained their positions at the helm of the European Affairs and Justice Ministries, respectively. The Cabinet passed the Parliament vote, despite the opposition’s refusal to support the new government.■
politics Romania part of plan to buy 5 pilotless surveillance planes
Prime Minister pledges to use fewer government ordinances Prime Minister Mihai Razvan Ungureanu has called for the reduction of Government Ordinances (GO) and the strict compliance of constitutional relations between the Executive and Parliament, including the response deadlines for interpellations. The PM voiced his sentiments in discussions with the state secretaries on the topic of the ministries’ relations with Parliament. The new PM has also asked the work schedule for state employees to be modified and harmonized, so the working day
starts at 8am and ends at 4pm. The request was made through a memo issued by the general secretary of Government which harmonized the work schedules for ministries, prefectures and other state institutions. According to data from the Deputies Chamber, the Romanian Government issued a total of 125 Government Emergency Ordinances (OUG), 30 Government Ordinances (GO) and 1,278 Government Resolutions in 2011. ■
IMF and EC chiefs invited to Bucharest for working visit
Romania and 12 other North Atlantic Organization Treaty (NATO) member states will invest EUR 3 billion in acquiring and operating five American-produced pilotless Global Hawk aircraft, as part of a common aerial surveillance program in Europe. The countries will also spend around EUR 2 billion on the functioning of AGS (Alliance Ground Surveillance), a global surveillance system operated from the Sigonella air base in Sicily, Italy. The launch of the Alliance Ground Surveillance program was inked at the end of February this year by ministers of defense from the 28 member states of the North Atlantic Organization Treaty.
Basescu advocates presidential mediation to resolve arguments
President Traian Basescu has advised the ministers of the new Government led by Prime Minister Mihai Razvan Ungureanu to use presidential mediation for any dispute which might occur, and assured them of his support. The president gave the example of his relations with the former Government which, he said, helped it get through difficult times. He added that the Executive needed political strength to be convincing in implementing tough decisions and to face the hostile atmosphere of recent months.
EC: Romania should focus on balancing justice resources New PM Mihai Razvan Ungureanu invited Jeffrey Franks, the head of International Monetary Fund’s mission in Romania, and Istvan Szekely, the head for Romania of the General Directorate of the European Commission, on a “working visit” to Bucharest, which took place over 21-22 February. The discussions centered on current economic topics other than the letter of intention, according to statements by government officials. At the beginning of last month, the IMF reached an agreement with the Romanian
authorities following the fourth evaluation of the fund’s stand-by prevention accord and decided to assign a new tranche of EUR 505 million, after the IMF’s board gives its approval, according to a statement by Franks. The money will be assigned to Romania at the end of March. Romania received a EUR 3.6 billion bailout from the IMF in March. After the resignation of former PM Emil Boc in early February, Franks said that he saw no reason why Romania’s ongoing agreement with the IMF would not continue. ■
Romania should seek to balance its resources in the field of justice, in order to correctly apply the Criminal Code and Criminal Procedure Code, according to Mark Gray, spokesperson for the European Commission (EC), explaining the Mechanism of Cooperation and Verification (MCV) reports for Romania and Bulgaria. The MCV report on Romania praises the new Civil Code and developments in sentences in corruption cases, mentioning the National Anti-Corruption Directorate (DNA) and National Integrity Agency (ANI).
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economics Over 6.6 million Romanians ’in dire straits’
Over 6.6 million Romanians are in severe poverty of a total of almost 9 million people living in or at risk of ending up in poverty, the highest figure in the EU, according to data from a Eurostat report. The study found that 41.4 percent of the population is at risk of poverty and social exclusion, representing 8.89 million people out of a population of 21.47 million, according to the EU’s statistical office. The data were collected in 2010. The EU countries with the highest percentages of the population at risk of poverty are Bulgaria (42 percent), Romania (41 percent), Latvia (38 percent), Lithuania (33 percent) and Hungary (30 percent).
Government to attract EUR 6 billion of EU funds by end of 2012
The Government is aiming for a 20 percent absorption rate of European funds by the end of 2012, by attracting EUR 6 billion, and to fast track accession to the Schengen area by boosting the political dialogue with the member states blocking accession. PM Ungureanu’s government program indicates that the effective absorption of EU funds reached 5.55 percent at the end of 2011. The EUR 6 billion of EU funds will be divided as follows: EUR 2.5 billion to agriculture, of which EUR 1.2 billion will take the form of direct payments, EUR 1.3 billion for rural development and EUR 3.5 billion in the form of cohesion funds.
Posta Romana to lay off 600 employees
The Romanian Post will fire at least 600 employees by the end of March and will further reduce the number of post offices by over 135 units, as agreed between the Government and the International Monetary Fund (IMF) after the last round of negotiations. In discussions late last year, the IMF tasked the Government with starting collective redundancy procedures for employees of the company, with the number of workers to be dismissed yet to be determined at that time. The Romanian Post had losses of EUR 29 million in 2010. It is currently controlled by the Ministry of Communications, which owns 75 percent of shares, and the Property Fund, with 25 percent.
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The Diplomat March 2012
IMF board approves release of EUR 505 mln to Romania The International Monetary Fund (IMF) expert mission will recommend its board approve the next EUR 505 million tranche from the stand-by accord, after it judged Romania was meeting its targets under the bailout agreement and had agreed the next steps with the authorities, said the IMF delegation chief, Jeffrey Franks. “The experts have agreed. All quantitative targets were met and we reached an agreement on future policy. We expect a board meeting in late March,” said Franks. In March of last year, the Bucharest authorities decided to extend the agreement with the IMF concluded in 2009 to secure a EUR 3.5 billion bailout. The agreement with IMF includes EUR 1.4 billion of preventive support from the European Union and a EUR 400 million loan from the World Bank, money that was not part of the previous accord. The
World Bank granted the loan in December last year. The IMF approved in December the third assessment report of the implementation of the economic and fiscal program agreed with Romania and made available a new sum, equivalent to 430 million Special Drawing Rights (EUR 507 million). The total amount available to Romania thus rose to 1.35 billion Special Drawing Rights (the equivalent of EUR 1.6 billion). Mugur Isarescu, the BNR governor, said Romania should not conclude a new agreement with the IMF after the completion of the current one, scheduled for 2013, because it would not give a good signal regarding the markets, and the EU could plug the gap. The BNR official said that new anchors can and should be agreements at EU level, like the Fiscal Stability Pact. ■
Isarescu: BNR cannot support Romania’s GDP alone Romania’s economic collapse was caused by a dramatic reduction of foreign direct investment after 2008, and the central bank cannot support solely through interest rates the return to growth, with the only solution being to attract European funds, said the BNR governor, Mugur Isarescu (photo). He added that Romania had seen major quantitative changes in recent years, consisting of a EUR 14 billion decrease in foreign direct investment and external borrowing in the medium and long term, from EUR 16 billion in 2008 to around EUR 2 billion in 2011. The National Bank of Romania raised the inflation forecast for this year from 3 to 3.2 percent, due to the base effect, and estimates an annual price increase of 3 percent to December 2013. “By the fourth quarter of 2013 we see some variation of inflation that we target, December to December, but within the range (...) over 80 percent of this year’s variations comes from the base effect.
Forecast changes are minor, but our term of projection is scrupulous,” said Isarescu. He noted that unlike previous data, new information indicates that the minimum inflation expected in the first quarter of this year will be 2 percent. ■
economics EC cuts Romania’s 2012 economic growth forecast to 1.6 percent
EC discontinues POSDRU payments due to management concerns project selection procedures and checking at the first level. In addition, according to Prime Minister Mihai Razvan Ungureanu, Romania is the country with the lowest absorption of EU funds in the EU. The PM said this indisputable fact must be changed by correcting deficiencies, meaning improving relations with the beneficiaries and processing their requests more quickly. According to data presented by the Minister of European Affairs, Leonard Orban, Romania had absorbed EUR 1.211 billion of structural and cohesion funds by February 10, representing 6.3 percent of the allocation. ■
The European Commission (EC) has revised its forecast of Romanian GDP growth for this year down to 1.6 percent from 2.1 percent estimated in the autumn, mainly because of the negative effects of the wider turbulence on the financial markets and the crisis in the euro area. The Commission also revised its estimates of GDP trends in the euro area this year from plus 0.5 percent to minus 0.3 percent, highlighting the impact of the state debt crisis which has led many states to implement austerity measures unfavorable to growth. For the EU as a whole, the EC expects economic stagnation this year.
The European Commission’s General Directorate for Employment and Social Affairs (DG EMPL) has annulled the payment deadline for applications under the Sectoral Operational Program Human Resources Development, POSDRU, according to the European Commission representation in Romania. The DG EMPL has made clarifications on the progress made by the POSDRU. The body states in its 2011 annual report that the Romanian Audit Authority had identified some major deficiencies in the management and control system for the human resources development operational program. These deficiencies relate to the
PM wants tax evasion bodies to hand over 1.5 percent of GDP in two months
Franks: Romania can postpone sale of shares in state companies
Minister Fuia wants ban on foreigners purchasing farm land to remain after 2013
Romania can postpone the sale of shares in several state companies this year, because the large number of necessary approvals from the authorities mean the approval process is taking longer than expected, said the head of the IMF mission in Romania, Jeffrey Franks. He did not name the companies concerned and said the State would try to sell shares in other companies before a new attempt to sell the stake in Petrom that failed to publicly trade through a secondary offering last summer. The Government has committed to the IMF to sell shares representing 15 percent of Romgaz, Transelectrica and Transgaz, at least 10 percent of Hidroelectrica and Nuclearelectrica, 10 percent of OMV
Prime Minister Mihai Ungureanu has asked ministers and heads of authorities involved in combating tax evasion to pay to the budget income representing at least 1.5 percent of GDP, especially from initiatives against smuggling alcohol and plant products, within two months. GDP is forecast to reach RON 579.6 billion this year, which makes the figure required RON 860 million. Budget revenues are expected to reach RON 195.3 billion (33.7 percent of GDP) within two months, up 0.4 percentage points from last year, mainly from social security contributions, VAT and excise duties.
Minister of Agriculture, Stelian Fuia, wants foreigners to be prevented from buying agricultural land in Romania after 2013, when the ban in the Treaty of Accession to the European Union expires. Foreigners can currently buy land only through companies registered in Romania. Fuia said that although he had assumed the obligation to open the market on January 1, 2014, the ministry’s intention was to secure an extension by modifying the treaty.
10 The Diplomat March 2012
Petrom and up to 20 percent of Tarom, and to privatize CFR Marfa. In December, the Government and IMF agreed that CFR Marfa would be sold to a strategic investor, in a process to be completed by the end of October and to involve the EBRD and IFC, the World Bank’s investment division. The State will publish the prospectus for the sale of shares in CFR Marfa by mid-June, and the privatization should be completed by the end of October 2012. The Government has already selected intermediaries for offers from Transelectrica, Transgaz, Romgaz and Tarom, and the Ministry of Transport and Infrastructure has published the announcement for the selection of the broker for the privatization of CFR Marfa. ■
energy IMF: Bilateral contracts that cost Hidroelectrica millions of euro should immediately cease Directly negotiated bilateral energy contracts that benefit certain groups at the expense of the public should be immediately stopped, since such arrangements cause losses to Hidroelectrica of EUR 175-275 million each year, said Jeffrey Franks, IMF mission chief for Romania. In his opinion, it is essential that the regulators ensure a stable market and protection against abusive practices. The International Monetary Fund (IMF) has required the Government to quickly finalize the renegotiation procedure of Hidroelectrica bilateral agreements.
The Romanian energy producer is in negotiations with companies that have electricity supply contracts made through direct negotiation, such as Energy Holding and Swiss Alpiq. Hidroelectrica intends to increase prices by 25 percent in 2012, while lowering the quantities delivered by up to 20 percent. Most of the production of hydropower, 70 percent, is sold through direct contracts, many of which were signed in early 2000 and extended until 2018, despite controversy over the prices they stipulate. ■
CNH’s liquidation procedures to be underway by end of September The IMF has asked the Government to start the liquidation measures of the National Coal Company (CNH) by the end of September, after non-viable assets are separated from those considered valuable, according to the letter of intent agreed following the IMF’s local mission in January-February. The document stipulates that the Government is obliged to transfer the CNH’s viable assets to the National Agency for Fiscal Administration (ANAF) no later than February. Last fall, the Romanian Government and the IMF agreed that assets from the Petrila, Paroseni and Uricani mines would be transferred to the ANAF, to compensate for the company’s budgetary debts. The three mines
are to be closed by 2018. According to the agreement with the IMF, the CNH mines considered viable will be included in the Hunedoara Energy Complex, along with thermo power plants Paroseni and Mintia. The CNH is listed among the companies being monitored by the IMF. ■
Electricity tariff liberalization for public delayed until 2017 The period over which energy prices for the public will be gradually liberalized has been extended by two years to 2013-2017, said Istvan Szekely, the chief of the European Commission in Romania. For industrial consumers, regulated tariffs will be phased out by the end of 2013. He added that the market should decide prices and that international financial institutions will encourage the Government to reach this target, but that changes must be gradual, transparent and predictable. In turn, Jeffrey Franks, head of the IMF’s mis-
sion in Romania, said that the adjustment of electricity tariffs for industrial consumers will begin in the coming months, and for the public over 2013 to 2017, with the State ensuring the most vulnerable consumers are protected. Regarding gas prices for the public, Franks said that the adjustment should start gradually from 2013. Under previous agreements with international institutions, regulated energy and gas tariffs were to be phased out by the end of 2013 for industrial users and by 2015 for domestic ones. ■
Transelectrica’s SPO to be completed by end of March
The secondary public offering (SPO) through which the State wants to sell a 15 percent stake in state-owned energy network operator Transelectrica will be launched in early March with subscription to be completed before the end of the month, Dan Weiler, executive director of the corporate finance and investment banking division of BCR, said recently. He added that the subscription period will be ten working days, and there are plans for tours to London and two other cities in Europe to be organized by the offer launch time.
Energy Complex Rovinari to borrow EUR 40.5 mln for modernization works
State-owned company Energy Complex Rovinari has announced that it wants to borrow EUR 40.5 million (RON 176 million) for investments to reduce pollution. The loan will be contracted following a complex negotiation that Rovinari is organizing on March 15, said the company. Funds will be used to build an installation for the desulphurization of burned gases in power unit 4. The company is controlled by the Ministry of Economy.
Petrom shares’ 26 percent hike may prompt State to resume SPO
The strong growth registered recently by OMV Petrom could determine the State to resume the sale of its 9.84 percent share package, which failed to attract a buyer last year. Petrom shares recently reached RON 0.367/ share, closer to the minimum price required by the State last year of RON 0.37/share, having increased in value by 26 percent since the beginning of the year. Analysts say there are two main factors behind the appreciation: rising oil prices and investor speculation. Petrom may report a record profit for last year despite the fine received from the Competition Council, and analysts expect that dividends will bring a return of over 6 percent on the share price.
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infrastructure Water pipeline in Maramures to get EUR 120 million upgrade
The Ministry of the Environment and Forests has signed a EUR 120 million contract targeting the expansion and repair of water infrastructure in Maramures County. The non-refundable financing from cohesion funds is estimated at over EUR 92.6 million and the project will be implemented from 2012-2015. This is the largest investment project in Maramures. Baia Mare will account for EUR 48 million of the entire value. The works are planned to start in the first quarter of this year.
Tarom listing delayed to June
The listing of the national airline Tarom on the Bucharest Stock Exchange will most likely take place in late June, two months later than scheduled under the commitments made to the International Monetary Fund (IMF). According to the letter agreed by the Government and the IMF after the latter’s last mission in Bucharest, the prospectus setting out the sale of 20 percent of the State’s shares in Tarom will be published by the end of May, and the procedure will be completed by the end of June. The IMF has agreed to the extension, but urged the Government to return a Boeing 737-800 aircraft the company hired four years ago, or to renegotiate the rent. The initial understanding between the Government and the IMF was for the stake to be sold by the end of 2011.
15 suppliers call for Romstrade’s insolvency
Construction company Romstrade, controlled by Romanian businessman Nelu Iordache, has been asked by 15 companies to file for insolvency, as of the beginning of this year. The companies are owed money for work performed for Romstrade in the last two years. In 2011, the firm won several road infrastructure projects in Southern Romania, totaling an estimated value of EUR 250 million. Among the suppliers which have called for Romstrade’s insolvency are Romanian firms such as: builder Agroindustrial Construct, construction material producer Macofil and road construction company Felicon Impex.
12 The Diplomat March 2012
CFR signs EUR 479 million of contracts for modernization works National railway company CFR has signed a total of EUR 479 million of contracts with different construction consortiums, for modernization works on the railway network. The first such deal, worth EUR 248 million, was signed with a consortium formed of companies Astaldi, Swietelsky, Alstom, Euro Construct and Dafora, which will modernize the Curtici-Arad route, with the completion deadline set for one year and three months. The second deal, worth EUR 208 million, covers upgrades to the Sighisoara-Atel (Sibiu) track section, which will be carried out by a consortium made up of FCC Construction, Alpine and AZVI. The
execution time is set for three years. The two contracts are 85 percent financed by EC funds, with the State putting up the rest. Another EUR 6.3 million deal has been signed by CFR with a consortium formed of Sociedad Anonima, De Obras Y Servicios, Copasa and Labracom Construct Oradea. It covers modernization works at Zalau railway station, set to last for one year and five months. Three more railway stations will be modernized for a total of EUR 16.6 million with the completion date for works set for two years’ time. The financing for the contracts will be almost 70 percent secured by the EC.■
Sibiu-Pitesti highway to get EU financing The highway between Pitesti and Sibiu will attract financing through the European program, POS-T 2014-202 (The Sectorial Operational Programme – Transport), as a substitute for the previous option of the Ministry of Transportation finding financing through a public-private partnership. According to Anca Boagiu, the former minister of transportation, the road will complete the pan-European Corridor 4, once the financial resources are in place. The route was the only portion in Corridor 4 for which the authorities had not secured funding. Meanwhile, the national road company (CNADNR) has signed up the Roma-
nian company Vectra Service to carry out the construction of the second section of the Brasov ring road, under a contract worth EUR 22.7 million, while the site supervision has been assigned to the company Elgis Romania, in a EUR 760,000 deal. ■
Competition Council investigates 11 construction firms The Competition Council has begun a series of checks on 11 construction companies suspected of collusion over the securing of road maintenance contracts in Bucharest. The firms to be investigated include Tehnologica Radion, controlled by businessman Theodor Berna; Euro Construct Trading 98, owned by Dan Besciu and Sorin Vulpescu; Straco Grup, which belongs to Alexandru and Traian Horpos; Delta ACM 93, owned by Florea Diaconu; and the Austrian company Strabag. “We have proof that the companies colluded to submit formal offers to six auctions, without competing in a real way. Hence, the contracts were divided up
according to a rota,” said Bogdan Chiritoiu, president of the council. The accusations center on contracts worth EUR 347 million won between 2011 and 2014 by the 11 companies which signed them in April last year following a fast and limited auction, with the lowest price being the key criterion. Under the contracts the construction companies had to maintain and repair important streets in Bucharest such as Calea Victoriei, Magheru Boulevard, Calea Dorobantilor, Timisoara Boulevard and Barbu Vacarescu. Some of the firms under suspicion have denied the accusations and say they will sue. ■
real estate AFI Business Park Cotroceni gets EUR 13.4 mln loan for first office building AFI Europe, a member of Israeli AFI Group, has announced that it has inked a EUR 13.4 million financing agreement with UniCredit Bank Austria. The money will be used to fund the development of the first A-class office building of a total of five within the AFI Business Park Cotroceni complex. By the time of completion, the office compound will deliver 70,000 sqm of lettable area. Construction of the first office building started last June and completion is due in August this year. The first development stage of the project, AFI Business 1, will have a built area of 14,000 sqm and a rentable area of 11,000 sqm structured on ten levels above ground
and two underground levels. The site will offer 185 parking spaces, to add to the mall’s existing 2,500. AFI Europe started its local operations in 2005, by developing AFI Palace Cotroceni. In Romania, the company will also develop AFI Palace Ploiesti, the retail park AFI Palace Arad and AFI Palace B.NOI mall. ■
Benevo Capital buys former industrial platform in Bucharest for EUR 23 mln The real estate investment company Benevo Capital, which has Canadian shareholders, has acquired the former industrial platform of the Vulcan plant in Bucharest to develop a retail park on it. The site was owned by Romanian businessman Ovidiu Tender. “We plan to develop a modern retail park in South Bucharest, an area which delivers a large population density and a low existing offer of such projects,” said Michael Topolinski, executive manager and one of the shareholders of Benevo Capital. The company acquired the 77,000sqm platform and plans to build a 35,000-
sqm retail park, comprising a DIY unit, a 10,500-sqm hypermarket and a 10,000sqm commercial gallery. In Q4, 2011, Benevo Capital completed another acquisition, by purchasing 64 apartments within the Cosmopolis residential complex developed by the Turkish investors of Opus Development in north-east Bucharest. The investment company is also involved in developing a new mall in the Bucurestii Noi area of the capital, in partnership with investors CD Capital and NEPI (New Europe Property Investments). ■
Record investments in retail due this year from Mega Image, Lidl and Profi Up to EUR 150 million in total is set to be put into retail expansion this year, through investments by retailers such as Mega Image, Lidl and Profi. If existing plans materialize, the three will launch around 170 units on the local market. Lidl, operated by the Lidl & Schwarz group, said it would open 66 new branches by yearend, giving it a total of 200 retail units in Romania. The firm is looking for locations in towns exceeding 30,000 inhabitants, available land plots of more than 4,000 sqm and buildings delivering more than 800 sqm. Meanwhile, supermarket chain Mega Image, operated by Belgian group Delhaize,
plans wide expansion for this year. At the end of January, the retailer announced the opening of the tenth proximity unit and the fifth opening this year under the Shop & Go brand in Bucharest. In 2011, it enlarged its network by 33 units under the brands Mega Image and Shop&Go, within a total network of 110 supermarkets so far. Also, Profi owned by the investment fund Enterprise Investors, which currently has a 107-store network in Romania, announced a rebranding campaign through which the network will become a “proximity chain” instead of a discounter. Its plans target another 25 new stores in Romania this year. ■
City Business Center Timisoara acquired by NEPI
South African investment fund New Europe Property Investments (NEPI) has bought the A-class office park City Business Centre (CBC) in Timisoara for EUR 45.6 million, marking the largest transaction in the local office market sealed in February this year. The legal advisor was Reff & Associates, the law firm affiliated to Deloitte Romania. Construction works for the fourth building, due for delivery this summer, are underway, while the fifth building is due for delivery by the end of 2013.
Raiffeisen evolution and Strabag start work on Promenada mall
Austrian real estate developer Raiffeisen evolution and construction company Strabag have recently started work on Promenada Shopping Center in the Floreasca area of Bucharest, a EUR 95.5 million investment, with financing from Raiffeisen Bank International. The development, which will have a rentable area of 35,000 sqm, will be structured on four levels, providing 120 stores and 1,300 parking spaces underground. The shopping center is located in the vicinity of SkyTower owned by Raiffeisen Property International GmbH, which acquired it from Raiffeisen evolution at the end of 2011.
Cora expands with EUR 210 mln syndicated loan
The European Bank for Reconstruction and Development (EBRD), ING and Rabobank have granted a syndicated loan of EUR 210 million to Belgian retailer Cora for its expansion in Romania. The retailer, owned by Louis Delhaize group, plans to open 17 hypermarkets in Bucharest and other Romanian cities. The money will be supplied by the EBRD, which is lending up to EUR 140 million, while ING and Rabobank will put up EUR 70 million. The Belgian group owns seven hypermarkets operated under the Cora brand and also owns the Mega Image chain in Romania.
13
appointments CORNELIU FECIORU has been appointed to general manager of the German brick producer Wienerberger’s operations in Romania. He is also now part of the board of Wienerberger Romania. Fecioru has over 15 years’ experience in management positions at Lafarge Romania and Gebruder Weiss. He is a graduate of the Technical University in Iasi and has a master’s degree in management from the UK’s University of Hertfordshire.
GILLES ANTOINE has been appointed country general manager of L’Oreal Romania, succeeding Richard Matalon in this position. Frenchman Antoine started his career at L’Oreal, in France, 17 years ago, in the sales organization. In 2009, he returned to France as deputy general manager for consumer products, Latin America, and he was in charge of the commercial activity and development of a number of countries such as Peru and Columbia.
MIRCEA VASILESCU is the new president of the Soros Foundation in Romania, taking up a two-year mandate and becoming the sixth president in the foundation’s 22 years of activity in Romania. Since 1998, Vasilescu has been editor-in-chief at Dilema Veche and also leads the monthly publication Dilemateca. He has a strong academic background, as a PhD lecturer in the Literal Studies department of the Faculty of Letters, University of Bucharest. The board of the Soros Foundation that Vasilescu will lead is formed of Armand Gosu, Mariea Ionescu, Irina Margareta Nistor, Dragoș Pislaru, Marian Popescu and Catalin Stefanescu.
TOMAS SPURNY has been appointed CEO of Banca Comerciala Ro mana (BCR). His mandate star ts on April 1, when Dominic Br uy nseels, the cur rent CEO whose mandate is ending, will hand over control. The appointment comes after the BCR supervisory board took several decisions regarding the structure of the bank’s management board (executive committee).
ROMEO JANTEA is the new VP and of chief sales officer (CSO) at Uniqa Asigurari. He brings extensive expertise in management and insurance, having spent nine years as a general manager in the local insurance industry. Between 2002 and 2006, Jantea was at the helm of BCR Asigurari. The board of Uniqa Asigurari is currently formed of Florin Golovatic as president, Jantea as vice-president and Ileana Horvath, member. Within the Uniqa Asigurari de Viata division, Paul Cazacu, 34, has been named vice-president and chief financial officer (CFO) of the board. Another appointment is Nicolae Ani, 43, who becomes member of the board and chief insurance technical officer (CITO). Also sitting on the board of Uniqa Asigurari de Viata are Remus Lapusan, president, and Paul Cazacu, vice-president. 14 The Diplomat March 2012
MONIA DOBRESCU has been appointed partner of law firm Musat & Asociatii. Hers is one of four partner appointments made by the company, taking its total to 16 partners. Alina Elena Popescu, Ionut Bohalteanu and Iulian Popescu, each of whom has eight to nine years of experience at the firm, have also become partners. The 16 partners have different practice areas and along with 100 attorneys deliver consultancy services for all business practices, such as M&A, privatizations, banking law, energy and natural resources, telecommunication and IT. CIPRIAN GLODEANU was promoted as Partner in the Austrian law firm Wolf Theiss. Specialized in energy,real estate, and infrastr ucture, he advised international and domestic companies involved in leading real estate and renewable energy transactions
CRISTIANO TORTELLI has been appointed president and CEO, for Central and Eastern Europe, Russia and CIS, at GE Energy. He has extensive experience in the global energy sector. Tortelli assumes responsibility for GE Energy’s growth and expansion in these regions. He will be based in Moscow, Russia. Prior to the role, Tortelli was the global sales general manager for the turbo-machinery business of GE Oil & Gas, based in Florence, Italy. He joined GE Oil & Gas in 2000 in the industrial plant division as commercial operations leader for Africa and the Middle East. VASILE ANDRIAN becomes partner of audit and consultancy services company Mazars, the second Romanian to be named partner at the firm. Andrian coordinates the audit and financial advisory department of Mazars and joins two other partners, Jean-Pierre Vigroux as managing partner and Gabriel Sincu, head of tax & outsourcing. He is a specialized authorized auditor and is also a member of the ACCA (Association of Chartered Certified Accountants), Chamber of Financial Auditors in Romania (CAFR) as well as Romanian and international financial audit and commercial consultancy associations such as the IIA and AAIR. Andrian has 14 years of experience in the field, having worked for Coopers&Lybrand and PricewaterhouseCoopers until 1999. MARTIN EVRY returns as partner of the audit department of Ernst & Young Romania, after being assigned to develop the Ernst & Young Serbia audit team for one year. Evry joined Ernst & Young in 1987, where he ran the Swaziland office for eight years, before coming to Romania in 2006. He specializes in audit for international and local corporations, especially in fields such as industrial production, FMCG, retail and construction. Since 1986, Evry has been a member of the International Accounting Standards Board (IASB) and of the Chamber of Financial Auditors of Romania.
investments GERMANY
Bosch to put EUR 77 million into Cluj factory
ITALY
Enel Distributie Muntenia to invest EUR 12.4 mln in modernizing power network
German auto parts manufacturer Bosch will lease an area of 215,000 sqm in Cluj County, where it plans to develop a production unit, in an investment totaling EUR 77 million. According to government officials, the investments will benefit from state aid. Bosch will install its production facilities at Tetarom III, the industrial park where Finnish mobile producer Nokia previously had operations. Cluj County Council will assist Bosch with connection to utilities and provide auto and pedestrian access to the leased space.
Enel Distributie Muntenia has announced it will invest about EUR 12.4 million in modernization works at powers stations in Bucharest, Giurgiu and Ilfov. Enel will organize a tender on April 6 to assign the works, which are estimated to last around 18 months. The Italian group entered the local market in 2005, by acquiring the former power divisions of Electrica, Electrica Banat and Electrica Dobrogea, followed by Electrica Muntenia Sud.
RUSSIA
ROMANIA
Alro Slatina to build EUR 276 million gas plant
Russian company Vimetco, owner of the Alro Slatina aluminum plant, could obtain EUR 207 million of financing from the European Bank for Reconstruction and Development (EBRD) for a gas plant project. In total, the project will cost EUR 276 mln and will partially cover the energy needs of Alro and Alum Tulcea. It will have a capacity of 250 MW and construction will start this year, with completion in 2014. This would be the second conventional electricity production greenfield in Romania.
Domeniile Coroanei Segarcea plants EUR 40 million investment in wine industry
Domeniile Coroanei Segarcea will operate at full capacity this year, after the company completely rebuilt the 300 hectares of vines in the vineyard. Businessman Mihai Anghel has owned Domeniile Coroanei Segarcea for the past eight years, after he acquired the vineyard from the State in 2004. While at that time sales of wines produced on the 300 hectares at Segarcea amounted to EUR 200,000, at the end of last year turnover was twenty times higher.
Necsulescu family has EUR 10 million for investments in Jidvei
Wine producer Jidvei has scheduled investments of EUR 10.7 mln this year, the major projects being replanting the surfaces with vines, the purchase of machinery and irrigation. The company’s projects also include a wine cellar, a local restaurant in the village of Jidvei and a grape-processing station in the village of Tauni (Alba). In 2011 Jidvei made EUR 6.5 mln of investments, mainly in replanting. The firm, which is controlled by the Necsulescu family, also exports the wine to European countries, the US and Asia.
Auto parts manufacturer RAAL Bistrita to invest EUR 3 million
The manufacturer of automotive cooling systems RAAL Bistrita, which has clients such as John Deere, Class and AGCO, has budgeted investment of about EUR 3 million for this year for the purchase of new machinery to increase production capacity. Last year, the firm invested EUR 1 mln in equipment and machinery. Over 98 percent of all its sales go to export. The Bistrita-based firm currently has customers in over 20 countries. Its most important agreements are with companies in Germany, the USA, UK and Italy.
15
energy trading
T
Biased energy contracts fuel market concerns A lack of standardized contracts and products for bilateral contracts through the official energy market operator platform, the elimination of fees when exporting energy, VAT-free trading for nonresident players and the depoliticization of the energy market are just a few of the issues local energy market traders have put on the debate table. By Dana Verdes 16 The Diplomat March 2012
he complete liberalization of the local energy market is not yet close to an end, but Romania is taking important steps in this sense, albeit with some reluctance. Directly negotiated bilateral contracts still provoke discontent among market players and have also been called into question by International Monetary Fund officials. Market specialists say that the main difference between the bilateral contract platform of the energy market operator, OPCOM,and other platforms, such as the ICAP or TFS, is that these platforms use standardized products and contracts such as EFET Agreement, which is transparent and universal, leaving little or no room for interpretation. “In Romania such platforms do not exist. Instead, we have the centralized market of bilateral contracts (PCCB), which is a market devised for the producer. It has a major disadvantage: the contracts are not standard and nor are the durations. The producer has its own contracts which you either sign or youdon’t, leaving little room for negotiation. Moreover, there is a minimum energy sale price.This is why the market is less liquid,” Ion Lungu, general director at CEZ Trade Romania, told The Diplomat – Bucharest. According to him, a major frustration for local suppliers is that energy producers do not respond to suppliers’ offers. “Lots of fair prices have been presented. Producers explain their lack of answer by saying that there is a ministry order preventing it.But this is open to interpretation as the order states that all energy transactions must be done through the PCCB, but doesn’t specify that the initiative should come from the producer or whether it can respond to offers made on the market by a supplier,” added Lungu. “There have been some answers from producers to certain offers presented by suppliers and here we can include the ‘smart guys’ from the energy sector.”
What energy is for sale?
What is at stake is cheap energy. In the Romanian energy production field, hydro and nuclear energy are the most interesting to market players, as thermo electricity is produced at high costs, while renewable energy projects cannot support themselves from energy trading alone and are subsidized by a support scheme. Energy production at the two Cernavoda units in 2011 reached 11,747,204 MWh (gross), a quantity that accounts for 19 percent of total electricity production in Romania. The company has announced that it plans to sell 10,634,000 MWh this year, given that the planned stops scheduled in
energy trading
“In 2011 the average annual trading price was RON 221.20/MWh, up 40 percent from 2010. A similar trend was seen in almost all EU spot markets,” Victor Ionescu, OPCOM CEO Unit 1 will be relatively lengthy, at 45 days. “For the bilateral contracts signed for 2012 on the PCCB, Nuclearelectrica obtained an average price of RON 204.52/ MWh. Until now, the regulated price remains the same as in 2011, but the percentage of production through the regulated market has increased. The regulated price set by the ANRE has increased since April 2011 by about 3.8 percent. The prices of contracts on the competitive market (except the day-ahead market, DAM) were constant throughout the year, because Nuclearelectrica usually signs such contracts for one year. The company’s average price through bilateral contracts was RON 172.34/MWh in 2011. The average monthly DAM price ranged from RON 186.55/MWh in April to RON 273.00/MWh in November,” Dumitru
Dina, director of the strategy development department and interim CEO of Nuclearelectrica, told The Diplomat – Bucharest. “The monthly sums were relatively constant. Less energy was sold in May and June last year because Unit 2 was stopped for 26 days. Price variation (within ± 3.5 percent around the average of RON 144.66/MWh) was influenced by the price recorded on the day-ahead market, an increase of 3.8 percent in regulated prices since April and the different quantities sold on regulated contracts under the ANRE decision,” he added. Meanwhile, state-owned company Hidroelectrica’s production was severely impacted by last year’s drought. In 2011 the firm produced 14.7 TWh, 14 percent down from the year before. And in September last year it activated the force
majeure clause which allowed it to reduce the energy quantities delivered. Hidroelectrica is one of the largest and most valuable companies controlled by the Romanian state, but its profits have so far failed to live up to expectations, being held down in recent times by disadvantageous contracts with “smart guys” and last
17
energy trading
“Under the EU law, the transactions of nonresident trading firms have to be made without VAT, but OPCOM currently does not apply this rule,” Ion Lungu, general director at CEZ Trade Romania available will be traded on OPCOM,” said Dragos Zachia Zlata, general manager of Hidroelectrica, recently.
‘Smart guys’ get marginalized
year’s drought. In 2011 the company reported a net profit of RON 15.7 million, a huge drop from the RON 292.3 million in 2010, when the firm’s profit margin rose to 8.9 percent. The company says it will gradually extricate itself from these contracts and sell the energy it produces on the OPCOM market. “There has been a clear decision taken by the shareholder and the company’s management that the quantities of energy
It isn’t the first time in the past few months when IMF officials have said that the Government needs to act decisively to prevent a privileged few creaming off the spoils. “We need to permanently dismantle the system where the public and private sector ‘smart guys’ enjoy undeserved profit, while their employees and the public pay for these inefficient activities,” said Jeffrey Franks, head of the International Monetary Fund’s delegation to Romania. The beneficiaries of the direct contracts signed in 2010 were the aluminum producer Alro Slatina, Luxten Lightining, Energy Holding, Europeca, Electromagnetic, Electrocarbon, ArcelorMittal Galati, Alpiq Romindustries, Alpiq Romenergie,
Main primary energy sources in Romania 10 months 2011 vs. 10 months 2010 (mln kWH)
DIFFERENCES % (±)
Sources – total
51023.7
+1734.0
103.5
Production
50477.3
+1776.5
103.6
- Traditional thermal power plants
26451.5
+4013.1
117.9
- Hydro power plants
13703.0
-3016.4
82.0
- Nuclear power plants
9718.1
+177.2
101.9
- Wind power stations
+602.6
28.8
604.7
546.4
-42.5
92.8
51023.7
+1734.0
103.5
- Final consumption
43427.0
+1588.7
103.8
- Industry
33362.9
+1374.4
104.3
507.7
-59.6
89.5
- Domestic
9556.4
+273.9
103.0
- Own technological consumption in network and stations
5297.9
-71.4
98.7
Export
2298.8
+216.7
110
Import Destination – total
- Public lighting
SOURCE: National Institute of Statistics (INS)
18 The Diplomat March 2012
EFT Romania and Electrica. All these companies received energy at prices below market levels. Such direct contracts have been signed with Hidroelectrica since 2000, and half of the agreements have been extended until 2018. Market specialists say that companies that have direct contracts to purchase electricity from Hidroelectrica have already accepted higher prices, reduced the quantities by 10-20 percent and agreed to cut short their deals. On December 1, Hydroelectric started negotiations with all the beneficiaries of direct purchase agreements to increase electricity prices due to reduced power and the duration of contracts. “Some companies have agreed to pay Hidroelectrica more for their electricity, while some have accepted higher prices and lower quantities. Some have accepted a very small increase in tariffs,” said market players. Under their new contracts, sale prices have climbed, following negotiations, to RON 155-164/MWh, compared to an average of RON 130/MWh, while quantities have fallen by 10-20 percent. Last fall, the Government promised the IMF it would send advance notice of cancellation by December 31, 2011, to all firms that had signed bilateral contracts with Hidroelectrica for transactions that were not completed through OPCOM. The authorities’ intention is to reduce the sales of energy through direct negotiation and to hike sales made through the energy market operator. Victor Ionescu, CEO of OPCOM, told The Diplomat – Bucharest that the quantities due for delivery in 2011 – on the markets administered by OPCOM, the dayahead market, intra-day market and centralized market for bilateral contracts – totaled 13,990,405 MWh of electricity, equivalent to about 26 percent of estimated domestic demand for 2011 and more than half the energy of the competitive wholesale market segment.
Spot energy prices get boost
Statistical data clearly show that the price of electricity transactions set today for tomor-
energy trading Energy trading fluctuations 2006
2007
2008
2009
2010
2011
2012
Traded quantity
PCCB+PCCB-NC
1,255
6,530
8,648
11,377
4,104
5,116
5,456
[GWh]
DAM (spot)
4,106
5,043
5,208
6,347
8,696
8,870
889
TOTAL
5,361
11,573
13,856
17,724
12,801
13,986
5,456
Transaction value
PCCB+PCCB-NC
159
1,093
1,538
2,208
632
862
1,162
[RON mln]
DAM (spot)
677
833
1,004
986
1,359
1,962
218
Market share
PCCB+PCCB-NC
2.41
12.17
15.87
22.71
7.82
9.44
10.07
[%]
DAM (spot)
7.88
9.40
9.56
12.67
16.56
16.37
17.88
10.29
21.57
25.43
35.38
24.38
25.81
27.95
TOTAL
SOURCE: OPCOM
row through the spot market in Romania was at the lower end of comparable European exchanges over 2008-2010. “In 2011 the average annual arithmetic trading price was RON 221.20/MWh (EUR 52.13/MWh), up from RON 156.31/MWh (EUR 37.08/ MWh) in 2010. A similar trend growth can be found in almost all spot markets in Europe,” said Ionescu. “Additionally, we find this year that the much lower range of annual average prices on the markets compared to the European average grant of EUR 53/MWh is an encouraging result for the price convergence expected in the pan-European electricity market.”
DAM gets energized
Market players interviewed by The Diplomat – Bucharest believe that the local spot market is functional, with liquidity between 15 and 22 percent, and about 80 daily active participants, of which half are international companies. This ensures credibility will continue to improve, along with the consistency of the reference price determined in this market. “The fact that the amount of electricity delivered so far this year through standardized and non-standardized products exceeds the amount in the previous year is a solid anchor for this year’s contracting process. This process will use futures to trade and create preconditions to establish consistent price signals for different time horizons throughout the current year,” said Ionescu. He added that since 2009-2010 the
amount of electricity delivered through transactions concluded on the PCCB has decreased, while annual transactions on the spot market have risen, as a result, over the same period. “One explanation could be that with the onset of economic recession and the subsequent difficulty of predicting the evolution of different economic sectors over a given timeframe, fewer players wanted to take the risk of trading electricity in advance of delivery, using multi-annual contracts. In this context we have found that market participants would rather run the risk of spot price volatility by choosing a solution to cover contractual obligations in this market. Meanwhile, spot market liquidity has increased and strengthened, and participants who have established forward contracts for electricity transactions have closed their positions on the spot market,” said the OPCOM CEO. The CEZ Trade Romania official told The Diplomat – Bucharest that one issue traders raise when talking about the DAM platform is compliance with EU laws on VAT. “Under the EU regulations, the electricity transactions in which nonresident trading companies are involved have to be made without VAT, but OPCOM currently does not apply this rule. We believe that this measure would raise the market’s liquidity,” said Lungu.
production? The resounding consensus seems to be yes. OPCOM officials highlight examples from the EU. “We can say that the volume of electricity traded through a market operator may increase the existing legislative measures, such as for example in Poland. The Polish stock market (POLPX) liquidity increased with the introduction in August 2010 of amendments to the energy law, obliging producers to sell on the competitive market between 15 and 100 percent of their total annual production on the centralized regulated markets,” said Ionescu. According to him, until the introduction of those amendments, more than 90 percent of energy was traded through bilateral contracts signed for one year, outside the centralized markets, most often between producers and distributors of capital belonging to the same group. This legislative measure is not intended to restrict competition on the electricity market but rather to boost transparency and liquidity, which would help improve both competition and the efficiency of market mechanisms.
Poles apart
It there room for improvement in the transparency of trading energy from cheap local
“There has been a clear decision taken by the company management that the quantities of energy available will be traded on OPCOM,” Dragos Zachia Zlata, general manager of Hidroelectrica 19
energy trading
“Price variation was influenced by the price recorded on the day-ahead market and the different quantities sold on regulated contracts,” Dumitru Dina, interim CEO of Nuclearelectrica “In Romania, administrative measures obliged power producers under Ministry of Economy authority to sell the entire quantity of electricity they had available on centralized markets operated by OPCOM, reducing corruption and creating similar beneficial effects on the energy market. These benefits are increased transparency and trading liquidity in order to ensure credibility and consistency of the reference price and the price signals for the future electricity supply,” said Ionescu. Other legislative measures could result in identifying and dealing with any disruption arising from the implementation of rules for the functioning of the market. “We refer here primarily to eliminating any provisions that may directly or indirectly create incentives for certain categories of participants not to use the spot market to balance portfolios with production and delivery obligations, and to choose the balancing market (by definition a tool available at a technical and systemic level to ensure national energy security) rather than the commercial market of last resort to balance their positions,” commented the OPCOM CEO. From OPCOM’s point of view, another important issue that needs clarification is the uniqueness of the energy market operator’s role. “Over time, some voices have deliberately sought to induce confusion, arguing that this uniqueness can lead to the restric-
tion of competition in the market. Every time these statements were supported by steps to promote new platforms, and arguments for the alleged need for competition between exchanges to increase market efficiency and quality. The evidence to the contrary, the reduction of competition between participants by dispersing trading across multiple platforms, is passed over in silence,” said Ionescu. He added: “By dispersing transactions, in addition to diminishing liquidity and a loss of consistency in signals and references, we believe that market participants will come under pressure and suffer additional costs. In our view, a competitive market environment should not be created by competition between two or more power exchanges, but by competition between market participants. The adoption of measures to encourage competition in the same market segment between more companies will certainly affect market liquidity and therefore the quality and credibility of the reference spot price and forward price signals.”
Energy exports come under scrutiny
Market players believe that Romania has a larger production capacity than necessary, and also a very good production compositionwhich is not based on just one resource. “In the past seven-eight years Romania has been a net exporter. There are some periods
when it is very advantageous to export or to import energy. Traders survive through this. Unfortunately, there have been some ministry decisions to facilitate direct exports for a certain company. It is very important for the market that exports are transparent, non-discriminatory and made at costs that are not detrimental to Romanian consumers,” said Lungu. “We have seen also some dysfunction in exporting. It is Transelectrica’s role to intervene because some imports are made at night, at a low price,which would stop some capacities in Romania. But it is very difficult to do and so some issues with the grid appear,” said Lungu. Traders are calling for theelimination of some export fees that do not exist on other EU markets. Recently, Transelectrica decided to limit or cease the export of electricity, between February 16 and March 15. Under the Government Decision, Transelectrica may limit or suspend its export electricity interconnection deliveries through a proce-
Romania’s energy exports to foreign markets COUNTRIES
UM
EXPORT QUANTITIES (UM)
EXPORT VALUES (THOUSAND EUR)
Austria
1000 kWh
487
23.198
Bulgaria
1000 kWh
148252
6753.096
Czech Republic
1000 kWh
5
0.290
Germany
1000 kWh
636
34.228
Greece
1000 kWh
70
2.992
Hungary
1000 kWh
536883
28895.684
Luxemburg
1000 kWh
4295
198.766
Swiss
1000 kWh
1081830
42065.071
Serbia
1000 kWh
1268702
61923.288
Provisional data for 2010. Figures refer to gross amounts and quantities. The INS does not provide data on the delivery moment or the natural exchanges of electricity. SOURCE: National Institute of Statistics (INS)
20 The Diplomat March 2012
energy trading dure approved by the ANRE. “These measures do not include the export of electricity for transit, specified by the law,” reads the explanatory memorandum. The measure was in response to the shortage of electricity generated by the water level of rivers and inland lakes having fallen below 50 percent of the normal flow of the Danube. “The imposed measures can be taken successively to balance production and consumption, including ensuring a minimum level of reserves necessary to ensure the safe operation of the national energy system,” announced the Romanian authorities. Other reasons for limiting or ceasing exports are the increased consumption of natural gas to provide sufficient heating for the public during very low temperatures and the continuous increase in international fuel prices, including methane gas from import. There is also the difficulty of ensuring a supply of coal and natural gas and fuel for use during freezing temperatures and blizzard conditions. The interim general manager of Transelectrica, Octavian Lohan, spoke late last month of “rumors” that some energy traders intend to start court action against a
Electricity production on the local market Coal 43.7 percent – 3,501 MW Hydrocarbons 17.2 percent – 1,380 MW Hydro 12.8 percent – 1,022 MW Nuclear 17.8 percent – 1,424 MW SOURCE: Transelectrica (February 2, 2012)
company that has reduced energy exports. Transelectrica will pay the companies who have booked export capacity of electricity and cannot ship abroad 10 percent in damages, Lohan said. Exports are limited to daily percentages between 30 and 40 percent. As for Transelectrica’s investments in the interconnection lines with neighboring countries, company officials told The Diplomat – Bucharest that the feasibility study for the Suceava-Balti connection line has been approved and the design specifications and draft project now have to be developed. “What has not been clarified is the project financing for the portion of the line located on the territory of the Republic of Moldova,” said company representatives.
Wind 8.5 percent – 679 MW
The feasibility study for the FalciuGotesti line has also been approved and updated. The design for the next phases of the project has been approved and the additional documentation between Transelectrica and Moldelectrica to continue the project has been signed. For the interconnection with Serbia, from Resita-Pancevo, the documentation has been completed and approved. Furthermore, the certificate of urbanism and environmental agreement has been obtained. “What follows is to secure a government bill for the approval of the technicaleconomical indicators and the start of the expropriation procedure,” said Transelectrica officials. ■
21
IT distribution
IT distribution seeks solution As is the case with many other businesses, the economic crisis has led managers of the largest IT and electronics distribution companies to reconsider their strategies. The biggest companies in the sector outlined to The Diplomat – Bucharest the main problems the market is currently facing and described what they have done to survive the difficult economic times. By Roxana Cristea
“T
he local IT distribution market is barely managing to grow towards the levels posted in the peak years of 2007 and 2008. Per capita consumption has decreased greatly and customers are being more careful about what they buy. They are not going to excess, are very price conscious and buy only what they need. Of course, this change in customer behavior affects the supply chain from retailer to importer,” Dan Stefanescu, Gersim Impex general manager, told The
22 The Diplomat March 2012
Diplomat – Bucharest. According to him, the problems that arose in 2011 were not much different from those of previous years, though they have been exacerbated by the crisis in the euro area with its implications for Romanian companies: restricted access to credit and increasing associated costs have caused worse difficulties in the field than in the past. “But I would not call them problems. This is part of our lives, so we must adapt
and recalibrate our business depending on market conditions,” said Stefanescu. His opinion is shared by other IT distributors in the market. Monica Aluas, general manager at Asbis Romania, said that 2011 was a similar year to 2009 and 2010. She does not expect miracles in 2012. The major problems have been financing the business and the exchange rate evolution. “Although we did not encounter major problems, 2011 was not a year without
IT distribution
“The most common challenge was the ‘pressure’ and the dynamic of the market, which made us continuously innovate,” Dragos Popescu, general manager of RHS-Tornado Company challenges. One of the most difficult problems last year, as opposed to previous years, was financing,” added Gabriela Gheorghe Beschea, general manager of ELKOTech Romania. Her view is that after a slight increase last year, the evolution in 2012 is uncertain with likely moderate market growth of 8-10 percent. “It depends very much on the economic context. Those who could not adapt and have no financial power to do so will lose the fight. Only the strong companies will survive,” predicted Stefanescu. Although the recent economic climate has not been a favorable one, most large IT distribution companies were able to cope and searched for new areas for their business.
Prospecting new markets
For example, Asesoft Distribution, the largest IT distribution company in Romania, controlled by businessman Iulian Stanciu, was rebranded as Network One Distribution, so the new name would sound better on foreign markets and end the confusion in the local market with the company Asesoft International. The distribution company has estimated that it has a local market share of 20 percent and expects turnover of EUR 200 million in 2012. It plans to begin deliveries in the countries of the former Yugoslavia, and currently exports products to Moldova, Bulgaria and Hungary. “It all started with the idea of having our own identity. We are the largest distribution company in Romania. We want to expand on regional markets and we want our name to have resonance in the markets where are present,” said Stanciu of the rebranding decision. He controls the group that includes One Distribution Network (NOD), eMag and Flanco. “In Romania we were often confused with the Asesoft group of Sebastian Ghita. Here people never say Asesoft International or Asesoft Distribution. The first is a systems integrator and Asesoft Distribution is an IT distribution company. There was ambiguity,
among customers, suppliers, and even banks, so we needed our own identity,” added Razvan Ziemba, general manager of Network One Distribution. The company, which distributes several categories of products, from laptops and desktops to appliances and a range of items under its own brands, had a turnover of EUR 145 million in 2010, which rose to EUR 180 million in 2011. Its target for this year is EUR 200 million, of which EUR 13-14 million will come from foreign markets. The IT distributor delivers products abroad in Moldova, Bulgaria and Hungary, and the list could soon expand to include Serbia, Croatia, Macedonia and Montenegro. In countries where it supplies now, orders are shipped within 24 hours. If the new destinations from the former Yugoslavia are added to the portfolio, the time taken will be 48 hours in those new countries.
Aiming for the Adriatic
“In the near future Omnilogic will rely on expansion in the Adriatic area, as it is in advanced talks with one of the major IT manufacturers worldwide. We chose that area because it’s closer culturally and logistically. We work in Moldova, and in Serbia and Croatia we hope to access pre-accession funds. We hope that business in other countries will be profitable. Ultimately, our gross margin
is in line with the market. The problem is that the market has dropped dramatically,” Gabriel Marin, founder and general manager of Omnilogic, told The Diplomat – Bucharest. Last year, Omnilogic had a turnover of EUR 100 million. For 2012, the founder wants to be able to make a very accurate estimate of the market, to know exactly what and where he can expand and to see the segments with growth potential, so he can restructure the company to make it flexible enough for the market. “Our business dropped about 35 percent last year. I think we decreased less than the market. Over the last two years since this violent compression of the market started, Omnilogic has posted an average of 60 percent of the level of the last five years. The good news is that our financial structure, which performed a little better, allowed us to absorb some of the shock. When other firms have gone bankrupt or became insolvent we have taken market share
IT and electronics market in 2011 vs 2010 1,100 1,000 900 800 700 600 500 400 300 200 100 0
Growth (%) 2011 (mln. EUR) 2010 (mln. EUR)
White goods
Electronics
IT
Mobile
Total
SOURCE: Companies, Ministry of Finance
23
IT distribution
“I think we will reach the 2007 level in 2015, but we must take the European context into account. We will increase by small steps every year,” Monica Aluas, general manager of Asbis Romania
from them,” said Marin. The only good thing that he has noticed lately is that outsourcing and cloud computing have begun to increase in recent times. “People no longer have money to invest. Their approach is: ‘if I don’t have money for IT products, I’ll buy services’. That was the only segment that has grown,” says Marin, adding that the enterprise and Telco segments declined and the public sector, which supported the company in 2010, was absent.
Drive towards innovation
RHS-Tornado Company, which is controlled by businessman Dragos Popescu, another leading distributor in the local market, managed to initiate and implement several projects, some of which were completed in 2011, while others will continue through 2012 and 2013. “The most common challenge during the business development was the ‘pressure’ and the dynamic of the market, which made us continuously innovate, making us the best provider of business intelligence and services for our partners in Romania,” Dragos Popescu told The Diplomat – Bucharest, adding that the most important partnership in 2011 was signed with Cisco. The move is part of RHS’s strategy to become the number one distributor in Romania for premium business solutions and to address all market segments with customized solutions, constantly offering partners the opportunity to increase their business organically along with RHS. In addition, RHS is currently the dealer with the widest range of products and brands, with a rapidly grow24 The Diplomat March 2012
ing portfolio. In the last three months it has partnered with Allied Telesis, Cisco and Zyxel. Among the best known brands distributed by RHS are Asus, Toshiba, HP, Microsoft, Cisco, IBM, Canon and Samsung. “In addition, after more than two years of investment in advanced information systems, logistics and process automation, RHS Company launched in November 2011 Like It, a partnership program that integrates an online business solution with an off line one, a concept based solely on a network of partners with national coverage,” said Popescu. In 2011, RHS-Tornado had a turnover of approximately EUR 85 million and over 150 employees and this year it aims to double turnover by both developing its partner network and the Like It brand.
Chasing brands and new products
“Last year we achieved the budget proposed at the beginning of the year.
At the group level, for the first three quarters, revenue growth was 15 percent. Asbis Romania is among the top ten Asbis offices by revenue and we’re pretty well positioned. We accomplished our intended turnover in 2011, and local growth was slightly higher than that of the group,” said Monica Aluas, general manager of Asbis Romania. According to her, in 2012 the market will grow by 10-12 percent, but the company is aiming for a growth of 20-25 percent which will come mainly from strengthening its product portfolio. “We are always looking for new brands and products to add to the portfolio. I think the results of recent years have brought Asbis Romania to the attention of many manufacturers,” said Aluas. She added, “For us it’s a profitable business because we have our own two brands, Canyon and Prestigio, which provide us with presence on the shelves and ensure profit. It is a profitable business if you are close to the head of the production chain.” Aluas thinks that in Romania, pur-
Biggest IT distributors in Romania COMPANY
TURNOVER 2010 (MLN. EUR)
PROFIT 2010 (MLN. EUR)
NOD Distribution
138.8
2.10
Omnilogic
123.4
1.57
Scop Computers
76.4
1.60
RHS Company
75.9
0.80
Mobile Distribution
60.9
0.70
Despec Romania
41.4
0.30
Agis Computer
35.5
1.10
Accord 93
27.8
1.90
MB Distribution
25.5
1.30
Skin Media
23.7
0.80
ELKOTech Romania
23.5
0.03
Fit Distribution
22.5
0.01
World Comm
21.2
0.40
HAT Group
20.0
-1.80
Asbis Romania
19.1
-0.04 SOURCE: Companies, Ministry of Finance
IT distribution chasing decisions cannot be delayed much longer, following postponements in 2009, 2010 and 2011. Products depreciate morally, and no business can survive without IT. That is what distributors are relying on when they say that the market will grow this year. “I think we will reach the 2007 level in 2015, but we must take the European and global context into account. We will increase by small steps every year. We must take into account the macroeconomic and political scene and we should keep in mind that if the purchasing power of individuals or SMEs does not increase sharply, growth will be tempered,” predicted the GM.
Signing more partnerships
“In 2012 we will continue to develop the solutions department along with adding new A-Brands producers to the portfolio and we will focus on strengthening the network of partners. We will also continue to invest in training and certification courses,” said Gabriela Gheorghe Beschea, general manager of IT distribution firm ELKOTech. Last year, the company signed partnerships with major solutions manufacturers such as Aimetis, Athens, QNAP and LSI, enabling it to offer customers alternative solutions and projects tailored to their needs. ELKOTech’s newest partner is Fujitsu, and through this agreement the firm distributes notebooks and desktop PCs, graphics stations, servers, storage solutions and IT peripherals. The company has direct partnerships with major manufacturers such as Acer, Allied Telesis, Axis Communications, DLink, Fujitsu, Gigabyte, Hitachi, Intel, Kingston, OCZ Technology, Seagate and Western Digital. “With some of them we have a common history of over 10 years, while others were added over time. Every year we add new brands to the portfolio, but not purely to boost the numbers. Instead we have sought to have a balanced mix of products and to meet market and consumers demands,” said Beschea.
Top sales channels for IT and electronics SALES CHANNELS
2010 (%)
2011 (%)
2012 (ESTIMATED %)
Specialized retailers
53.7
52.9
52
Online
11.3
15.0
19
Hyper/C&C
22.0
21.5
20
Independent retailers
13.0
10.6
9 SOURCE: Flanco
The firm has a diversified portfolio ranging from desktop components to products for consumers and notebooks, plus products and brands that help the company to provide complete solutions in complex projects developed with integrators. The dedicated consumer products segment margins have decreased greatly. But at the same time, users and the corporate environment have become increasingly aware of the advantages of using technology from notebooks to edge servers. The IT market is constantly changing, say players, and distribution depends on new user requirements. “The engine of growth remains the SME segment, which is in need of technology and where players increasingly understand that a technical solution will bring them business benefits. In the consumer products category, we are seeing a massive growth in the ultrabook and tablet PC segments. Last year, at the first ultrabooks launch, we sold out of the first batch immediately. This year we expect that trend to continue,” added Beschea. ELKOTech Romania currently has 38 employees and sells products through a network of partners that includes over 1,000 companies nationwide, a network of resellers, local computer manufacturers, system integrators, retailers and e-tailers. “The crisis did not take us by surprise because we took into account the economic signals from the very beginning and we organized in time,” added the ELKOTech chief. She says that the firm established good management strategies, cut costs
and continued to invest in people. Importantly, she kept the team intact, especially people who are in key positions in the company. “We don’t anticipate spectacular moves such as acquisitions and consolidation like in the previous years. It is difficult to estimate market growth, given the current economic climate and in an election year. We thought there would be a moderate increase in the market, this time fueled by the internal resources of the economy and not by consumption financed by easy loans, as happened in the past,” said Beschea.
Telecom distribution to go on
“Distribution is not a business like a network of kindergartens or nursing homes for example, where however many children or elderly residents you have, you get money accordingly, and you don’t have the chance to explode your sales in one go with the same structure. Those businesses have other satisfactions, but I prefer those generated by my business,” Dan Stefanescu, general manager of Gersim Impex, tells The Diplomat – Bucharest, adding that results in the distribution business can be spectacular.
“In the near future we will rely on expansion in the Adriatic area, as we are in advanced talks with one of the major IT manufacturers worldwide,” Gabriel Marin, founder and general manager of Omnilogic 25
IT distribution
1
€ bln was the value of
the IT market in Romania last year The company Stefanescu manages only deals with the IT market. His business sells mobile phones, tablets, accessories and memory sticks. Distribution makes up 85 percent, and covers GSM terminals, with only tablets and memory sticks from traditional IT. If things don’t get worse internationally this year, and Romania sees some economic stability, Stefanescu estimates business somewhere around EUR 70-100 million, depending on the distribution agreements he signs. Last year Gersim
10% 680,000
is the estimated growth of the local IT market for this year
is the total number of PC units sold in Romania in 2011
other countries and distributing them in Romania. The indisputable leaders in the GSM segment in Romania are Samsung and Nokia (which together have an 80 percent market share), while Apple figures only in the high end sector. “Last year, our partnership with Samsung almost tripled, from EUR 20 million in 2010 to EUR 58 million in 2011,” added Stefanescu. In 2012, he hopes to secure official distribution rights for Nokia and Huawei in Romania, in order not to be forced to buy from other countries and to benefit from manufacturer support in relations with customers. “In terms of new customers, we don’t have news. Romania customers are disap-
ing for the economic crisis to pass. “If we want to compare apples with apples, we should look at Poland, a country with double our population, but with IT-GSM sales at least five-six times higher. At individual level that means a Pole consumes on average about twothree times more than a Romanian. I do not want to make comparisons with other markets like Germany, France and the United Kingdom, as it would be inappropriate,” said Stefanescu. The company’s objectives for the next three years are not about profit, but about market share. “As long as we don’t lose money and we accomplish our objectives everything will be okay. By 2015 we will have over 70 percent of the GSM handset market
“We are still cautious about stocks. We have developed the product range and we want to constantly optimize services,” Violeta Luca, marketing director at Flanco
Impex had revenues of EUR 58 million. “The impressive aspect of our performance is the small number of employees with whom we have achieved these financial results: only 12. We have outsourced a lot of services: accounting, logistics and legal,” outlined Stefanescu. The company was able to cope with the economic crisis by a sufficient cash f low, maximum focus, low costs, dedicated salespeople, low prices and quality product, he says. Gersim Impex is the official dealer for Samsung, LG and Alcatel. Through an unofficial channel it imports all other brands – Nokia, Apple, Motorola and Sony Ericsson – buying products from authorized dealers in 26 The Diplomat March 2012
pearing, not appearing. Only the online segment is a breeding ground for new clients, clients that we are growing step by step. This is the future, and anyone who does not understand that will suffer the consequences,” added the Gersim Impex general manager. Besides being an authorized distributor, Gersim Impex is also an importer. “It is very clear, as long as distributors do not do business in Romania, or keep their prices high, parallel imports will continue. That is what I do today at Nokia: Romanian distributors do not offer me competitive prices, which is why I use distributors in other countries,” said Stefanescu. Gersim Impex is not present outside Romania, and has only suppliers abroad. Although the firm had intended to expand to other countries in the glory years of the industry, 2006-2008, now it is wait-
in Romania. The market will stagnate in the next two years – perhaps with moderate increases – and from 2015 it will rise again,” predicted Stefanescu. According to him, the benefits of his business are cash f low generated, interesting work and the constant appearance of adjacent products and services so the company has to stay plugged in. “All this counts for me when I draw the line and innovation is the key word.” In the GSM and IT area things change every month. And only companies that keep pace with technological progress will last. “Names like Sagem, Siemens, Motorola and Panasonic are now history. Look what Apple has done with a single product: the iPhone. One (the rest are variations on the same topic),” said Stefanescu. On the f lip side, the disadvantages are inappropriate competitiveness, the
IT distribution
5%
3%
€
60
is the growth of per capita spending on IT and electronics in 2012
is the estimated price hike of IT and electronics products this year
average spend per capita on IT and electronics products last year
reverse charge, meaning VAT is paid only by the retailer (when it is received from the end-user) and the financial instability caused by the crisis in Europe, which can drastically affect long-term projections.
3,000, up from EUR 2,500 in 2010. The company ended 2011 with a sales area of 41,500 sqm and a total of 77 stores, of which 83 percent were in commercial galleries and 17 percent in street locations. Last year the Flanco team was expanded from 600 employees in January to 870 employees in December. For the first quarter of this year the retailer expects business growth of 40 percent over the same period in 2011, and a turnover of EUR 140 million for the whole of 2012. “For this year, the retailer also estimated a growth of 20 percent in the commercial area and wants to expand the team by 100 new employees, based on the number of stores opened and sales
by between 3 to 5 percent, according to Flanco estimates. “I do not think the introduction of new players will have a great inf luence on the retail market because the per capita consumption is still very low,” said Luca. Last year, officials of the largest online retailer, Altex, whose turnover was EUR 200 million in 2011, admitted that the IT and electronics retail market potential was still low, but that 2012 would bring an increase in consumption. “Not until 2012 is it likely that trust, expectations and the consumer credit
Retailers hope for better times
“We are still cautious about stocks. We have developed the product range and we want to constantly optimize services,” said Violeta Luca, marketing director at Flanco, which managed to post growth last year. The IT and electronics retail chain announced a 37.5 percent increase in sales in 2011 over 2010, to a turnover of EUR 110 million. Its average market share last year was 11 percent and its
“In 2012 we will continue to develop the solutions department along with adding new A-Brands producers to the portfolio,” Gabriela Gheorghe Beschea, general manager of ELKOTech operating profit was EUR 3.5 million. According to company representatives, the last quarter of 2011 brought the best results, with the company reporting sales of EUR 48.1 million and an average market share of 13.5 percent for October to December 2011. In 2011, Flanco opened 14 new stores, following an investment of over EUR 8.5 million (including in stock). “The stores opened in late 2011 and those that will be launched in 2012 will be based on the concept launched by the retailer in October 2011, in the Unirea Shopping Center store. In these stores customers can see and test any technology before purchasing a product, as the products are in operation continuously,” added Luca. Also in 2011, Flanco continued to focus on controlling retail activity, with average sales per square meter reaching EUR
growth,” said Luca. The retailer has budgeted investments of EUR 3.5 million in the opening of new shops and facilities for 2012, having in mind the opening of five stores under the new concept. For the entire market, Luca said 2011 saw the largest value in history. The local IT and electronics market reached about EUR 1.1 billion in 2011, a slight increase on 2010. The best quarter for the retail IT and electronics market was Q4, which had a 35 percent share of total sales. The market posted its highest monthly sales in December, November and July. It will maintain its growth trend in 2012, and Flanco estimates the market could reach approximately EUR 1.25 billion. In 2012 per capita spending on IT and electronics products could increase by 5-7 percent. Prices are likely to rise
market will improve, making possible a return to higher business potential,” said Dan Ostahie, founder and CEO of the retail chain Altex. He added that “large areas are areas of the future”, and that the optimum space for a shop is 2,000-3,000 sqm. The Altex chief noted that online is becoming more important as more and more customers are turning to this environment, and the online commerce market has been posting double-digit growth in the years of crisis. Also, the number of internet users is continuously rising, and half of customers get informed online before purchasing electronics or IT products. ■ 27
city infrastructure
City infrastructure builds on numbers
With 5,340 streets with a total length of 1,940 km, 17 passage ways, 29 bridges, almost 850 km of fiber optics and 10,000 buildings wired, plus some EUR 150 million of private money going into parking space development, Bucharest infrastructure appears to be a daunting mass of numbers. The Diplomat – Bucharest scanned the cityscape and tried to identify the main developing projects and their costs. By Magda Purice
L
ocated at the crossing of the main panEuropean transport corridors, Bucharest may be a business and travel hub, but, more than that, it is home to more than 2 million people. With various EIB, EBRD and EC funds assigned to different schemes, the city should have developed into a true European capital over the last decades. Some say it has, some say not, but representatives of authorities and private companies argue that the truth lies in the middle. The Diplomat – Bucharest asked these representatives to what extent the public authorities and private companies have so far managed to join forces and develop practicable or even innovative projects for Bucharest and what the plans are for this year. In 2012, the Bucharest municipality says that it plans to attract almost EUR 39 million of European financing to develop
28 The Diplomat March 2012
certain infrastructure projects, institutions and monuments in Bucharest. According to data from the municipality’s external project and financing department, around EUR 5 million will go on the restoration and preservation of the Arcul de Triumf monument, and some EUR 1.7 million on repairs and equipment for the Victor Gomoiu Children’s Hospital. Meanwhile, another EUR 4 million will help modernize and equip the outpatient section of the Foisor Orthopedics Hospital. The municipality has on this year’s agenda to spend EUR 5.49 million of European financing for developing tourism facilities at the Floreasca and Tei lakes in the capital. Also this year, road infrastructure in south Bucharest’s Piata Sudului area, one of the busiest in the capital, will see EUR 22.4 million of European financing spent on modernization.
The plan takes shape
At the end of last year, a group of architects put up for public discussion a plan for the municipal development of central Bucharest, which will also be submitted to the local council authority. Among their proposals, the architects suggested the development of a system of mediumsized parking spaces in Bucharest, which will free up the sidewalks and recover the public spaces. According to their studies, 20 percent of Bucharest residents drive their own car daily within the city, while 71 percent use public transportation. The subway, the analysis found, is also more frequented. The project also sets out the development of a special bus lane (as many other European cities have) while other specialists say that banning cars from the old center of Bucharest would be a good idea.
Construind oraşe în care să-ţi poţi construi un viitor. Răspunsurile Siemens ajută la dezvoltarea de oraşe sustenabile – locuri trainice, locuibile şi prospere.
Trenurile noastre regionale conduc oamenii mai repede acasă în oraşe precum San Diego. Tehnologiile noastre pentru tratarea apei fac apa potabilă mai abundentă în Singapore. În Berlin, soluţiile noastre pentru clădiri reduc costurile energetice. Şi în Durban, echipamentele noastre
medicale ajută cetăţenii să ducă o viaţă mai lungă şi mai sănătoasă. În jurul lumii, Siemens ajută oraşele să devină locuri în care oamenii, companiile şi mediul înconjurător să se poată dezvolta. În fiecare zi lucrăm alături de lume pentru a crea răspunsuri care vor dura ani de-acum încolo.
siemens.com /answers
city infrastructure
150mln €3mln €200mln
€
the private funds attracted for parking developments
to be invested by Romtelecom in Bucharest this year
assigned funds from the FEDR for projects in Bucharest to 2013
The project initiators say that the capital urgently needs its historical buildings and monuments to be repaired and its traditional commercial areas such as Calea Mosilor, Calea Rahovei and Calea Grivitei modernizing. The project is being developed by a consortium made up of companies including Synergetics Corporation, Igloo Architecture, Malaria O’Looney Architects and Soare&Yokina Arhitecti Asociati. The initiative comes after Sorin Oprescu, mayor of Bucharest, officially launched his integrated plan for the urban development of Bucharest in September last year, stating that the modernization of public space in central Bucharest would cost around EUR 200 million. “We are talking about buildings, revamped facades, new utility services,
from Victoriei Square to Carol Park on the north-south axis and from Hala Traian to Botanical Garden going east-west, said Patrascu. The integrated development plan is intended to recover central Bucharest’s identity, come up with a practicable and enduring alternative transport system, an integrated parking system in central areas, the recovery of public spaces, the improvement of rundown neighborhoods and economic growth. Bucharest’s infrastructure has both good and bad points. According to Randy Tharp, managing director of Epstein Architecture & Engineering, Bucharest has a decent public transportation system, between the subway, tram and bus system. “This is quite an asset and equal to or better than many European cities,” he says. Parking is a major problem and better infrastructure is needed to allow for more of it. Increased off-street parking within the city or at strategic public transit locations in outer areas would reduce conges-
that the value of existing investments is not realized. The same will apply to future investment. To be perceived as a modern and dynamic city, Bucharest’s single most urgent need is to learn the skill of bringing together all the different elements. And not just in its transport infrastructure,” Hyde told The Diplomat – Bucharest. He compares Bucharest’s infrastructure with elsewhere in Europe and finds it “not bad by the standards of other cities”. According to Hyde’s local insights, the metro is quick and reliable. The city is well provided with other public transport, which is cheap, as are taxis. Road bottlenecks are being eased, the time taken to drive from the airport to the city is short, and the city is compact. Still, Hyde cannot miss the pitfalls of a town which, in theory, has it all but still fails to link the pieces of the puzzle together. “What is the first thing the new visitor experiences on arrival at the airport? They will be hassled by taxi touts in the arrivals hall, and over-charged if
“While in Portugal, Siemens has set in place 40,000 electric charging stations, in Romania the field is still in its infancy,” Vasile Diaconescu, head of infrastructure and cities at Siemens Romania
infrastructure projects and traffic projects,” Oprescu said at that time. The plan comprises 48 projects. Some of them have already been introduced as investments for this year but the plan is based on a long-time strategy. According to the chief architect of Bucharest, Gheorghe Patrascu, “The plan is just trying to start a fair negotiation between pedestrians, vehicles, public transportation and bicycles.” It covers the entire central area, 30 The Diplomat March 2012
tion in the city center and allow traffic to flow more easily. However, from his point of view, the public utilities and roadways in Bucharest do not seem to be as up to date as in many other European cities. “There are a number of problems with the capacity of storm water systems causing flooding on occasions. Additionally, new infrastructure projects tend to take a very long time to complete and are often not at a quality level that will last more than a few years,” Tharp adds. As for Gabriel Hyde, operations leader in Romania of engineering and consultancy services company Arup, Bucharest is lacking a joined-up system. “The lack of coordination means
they are not careful. If they take the fine express train to Gara de Nord they will be startled by how long it takes. In the city they will puzzle over whether they can buy a pass that covers the metro as well as the bus and tram. (If they discover the tourist information office at Universitate they will find them friendly but unable to explain such matters)”, Hyde says. And he adds that Bucharest, which should be easy to walk around, is blighted by cars parked on the footpaths. Only drivers who park illegally in legal zones get punished. Drivers who park illegally in illegal zones have impunity. These are not only the insights of an engineering
city infrastructure
40mln €64mln €500mln
€
assigned to cultural and heritage projects in Bucharest
assigned for tourism infrastructure projects in Bucharest
allocated to the first two phases of the Glina waste water treatment station
specialist who has worked for many private and public institutions in Bucharest but also the insights of every foreigner who lands at Henri Coanda Otopeni and starts his or her time-consuming journey towards the center of Bucharest.
historical areas”. The program includes the development of the historical center of Bucharest, known as “Centrul Vechi,” and the municipality wants to see the development of an office zone, three areas for cultural and entertainment activities, a residential district and a commercial neighborhood. The neighborhood may benefit from funds due to the MDRT’s newly announced policies to reassign some funds from the Regional Operational Program 2007-2013 (Regio), in order to achieve a better absorption of European financing. Therefore, some funds assigned to the revamping and conversion of polluted industrial sites, where demand is low, will be diverted to health infrastructure and boosting regional business enterprise. Of the EUR 200 million from the European Regional Development Fund (FEDR), EUR 40 million will go on cultural and heritage and EUR 64.5 million on tourism infrastructure. Improvements for the area also cover the expansion of the water
network in the historical center which allows speeds of up to 144.4 Mbps and offers free access and coverage in the area. The operator also extended the coverage of its Wi-Fi network elsewhere in Bucharest last year, especially in crowded commercial areas such as Baneasa Shopping City, 35 Orange Shops and Bucharest Central Library (BCU). Orange officials told The Diplomat – Bucharest that the company is currently analyzing the possibility of expanding its hot-spots elsewhere in the city.
A Bucharest landmark takes shape
The city hall’s department of infrastructure and public services says that the old center of Bucharest, including the road infrastructure and utilities network, is just 5 percent from final completion. Infrastructure works on the area bordered by Spaiul Unirii, Calea Victoriei, Bratianu and Lipscani, comprising fourteen streets and three squares, started in December 2010 and were almost completed at the end of November last year. “There is a 700-sqm area on Selari Street still to be finished, where we are analyzing the completion solution with the authorities, due to the existence of historical artifacts,” said the municipality in a statement.
The parking problem
The city authorities have already started a series of public-private partnerships to build parking lots in Bucharest, saying that they have attracted over EUR 150 million in private investment. Through
“Investing in the development of the underground, tram and bus networks will solve Bucharest’s big issue,” Carlos Galvez, country manager at AECOM The NetCity program is focused on the priorities of the municipality, Adrian Florea, CEO of NetCity Telecom, told The Diplomat – Bucharest. He said the historical center of Bucharest was a difficult issue for the project, which had managed to wire 60-70 percent of the buildings so far. The company relies on the municipality’s street repair works in the area, with only six-seven streets completed so far. Residential areas are a challenge for NetCity, as recent developments are not reflected accurately in the land registry. The area also features in the municipality’s development strategy for 20092012, as part of “the improvement of
and gas supply network, phone infrastructure, walkways and street lighting. Under Bucharest city hall’s urban development program, several above-ground parking zones will be built in Bucharest’s center: 300 parking spaces in the Sfanta Vineri area, 200 in Gabroveni, 140 in Caldarari and 300 on Toma Caragiu Street. The old center of Bucharest, which has developed apace in recent years as the commercial and entertainment facilities have flourished, has become a thriving social hub for young people and is also a target for telecommunication operators. According to officials from Orange, the French company has established a Wi-Fi
these partnerships, the private investors will gain operational rights for the facilities for 30-36 years. They will pay a fee to the municipality, calculated as a percentage of revenues that could work out as 4-50 percent of income. So far three car parks are projected to be ready this year, in Pantelimon, Liviu Rebreanu and Aerogarii, work on the last one having started in 2010. Due to the insufficient on-street park31
city infrastructure
Bucharest’s parking saga PROJECTS TO START
PENDING
PANTELIMON PARK AND RIDE
EDGAR QUINET UNDERGROUND CAR PARK
Start of works: spring of 2012
Execution time: 26 months
300 street spaces
380 parking spaces, 3 levels
900 spaces in the IanculuiPantelimon area
Private investment: EUR 13.4 million
365 spaces in multi-storey car park
CHARLES DE GAULLE UNDERGROUND CAR PARK
LIVIU REBREANU PARK AND RIDE
Execution time: 24 months
Start of works: July 1, 2012
603 parking spaces, 3 levels
540 spaces, of which 200 within the park and ride space
Private investment: EUR 44.95 million
Execution time: 18 months
Start of works: second half of 2012
VALTER MARACINEANU UNDERGROUND CAR PARK
AEROGARII PARK AND RIDE
Execution time: 18 months
Start of works: November 2010
241 parking spaces
Execution time: May 2012
Private investment: EUR 8.4 million
204 parking spaces, of which 140 in multimodal terminal UNIVERSITATII UNDERGROUND CAR PARK Execution time: May 2012 420 parking spaces Investment: EUR 15 million SOURCE: Bucharest city hall
32 The Diplomat March 2012
DOROBANTI SQUARE UNDERGROUND CAR PARK 254 parking spaces Private investment: EUR 9.2 million NATIONAL ARENA CAR PARK Execution time: May 2012 1,400 parking spaces
ing space in Bucharest, the municipality has also started works at the first underground car park to be built through a public-private partnership, in the Universitatii area. It will be completed in May, according to officials, and will provide 420 parking spaces, following an investment of EUR 15 million. Auction procedures are underway for another four underground parking lots in central Bucharest: at Edgar Quinet, Charles de Gaulle, Valter Maracineanu near Cismigiu and Dorobanti. And city hall representatives say that they are preparing the launch of the tender book for the auction for the underground parking lot in the Alba Iulia area, also to be built through a public-private partnership. The lot at Alba Iulia will generate 1,496 parking spaces with investment of EUR 68.2 million. AECOM, which delivers consultancy and engineering in the environmental, construction and water infrastructure sectors, has previously been involved in preparing the strategy for parking spaces in Bucharest. “At present we are not involved in such projects but we are interested and we are analyzing some projects of interest,” Carlos Galvez, country manager at AECOM, told The Diplomat – Bucharest. AECOM is a leading US consultancy company that in 2009 acquired Savant Project, a UK firm providing mainly project and cost management services for the Romanian construction sector since 2006. In 2010, AECOM acquired Inocsa Ingenieria, a Spanish company present in Romania since 2002 active in the infrastructure, water, energy and construction markets. At present, AECOM has over 150 specialists in Romania at its office in Bucharest and another eight offices in major Romanian cities, including Deva, Brasov, Sibiu and Cluj. “One solution to the traffic problems would be to attract private investors to construct private parking spaces in the main areas of Bucharest. Aside from the lack of these spaces, which is probably the main traffic problem, we should also consider the poor quality of public transport, which discourages many people from using public transport. As a result the number of private cars on the street is very high,” said Galvez. “Investing in the development of the metro, tram and bus network will solve this big issue for Bucharest. Some other solutions would be: investment in public awareness campaigns to encourage the use of other transport such as bicycles and motorbikes, regulation of the parking lots in the city, and an increase in the presence of traffic police to
city infrastructure prevent the bad behavior of some drivers. Last but not least a very important move would be to encourage civic education.” AECOM is present on the Romanian company through its two companies: AECOM Romania and AECOM Ingenieria, which registered a combined turnover of approximately EUR 16.6 million in 2011 and estimate about EUR 24.4 million for 2012.
Hit the road, Bucharest
According to the European Green City Index study published by Siemens, Bucharest is ranked 28th in Europe for its transport. In some respects, the city performs well, the study says: it has a relatively extensive public transport network and an above-average share of users. However, Bucharest scores relatively poorly on transport because of its chronic traffic congestion problems and a lack of focus on green transport policies. Bucharest’s road infrastructure consists of 5,340 streets with a total length of 1,940 km, 17 passages and 29 bridges.
Grup, which belongs to Alexandru and Traian Horpos; Delta ACM 93, owned by Florea Diaconu; and the Austrian company Strabag. “We have proof that the companies colluded to submit formal offers to six auctions, without competing in a real way. Hence, the contracts were divided up according to a rota,” said Bogdan Chiritoiu, president of the council. The accusations center on contracts worth EUR 347 million won between 2011 and 2014 by the 11 companies which signed them in April last year following a fast and limited auction, with the lowest price being the key criterion. Under the contracts the construction companies had to maintain and repair important streets in Bucharest such as Calea Victoriei, Magheru Boulevard, Calea Dorobantilor, Timisoara Boulevard and Barbu Vacarescu. Some of the firms under suspicion have denied the accusations and say they will sue. According to data on infrastructure and public services from Bucharest city
time between train arrivals, the Bucharest subway is average for Europe, at six-seven minutes. “The aim is to reach as short a time as possible, down to as little as 90 seconds,” Udriste says. The Metrorex manager estimates that the subway network in Bucharest will soon have a total of 160 km two-way track while the number of underground passengers will represent half the number who use public transport. The firm plans to purchase 37 subway trains of 6 wagons each, necessary to replace the current rolling stock subsystem as well as to ensure the transport capacity for route 1 of the fifth line which will link Drumul Taberei to University Station. For this section, Metrorex plans to acquire 21 trains. In November last year, the subway company signed a EUR 97 million purchase contract for 16 trains with Span-
“The local construction market has to deal with the lack of qualifications and low portfolio of services delivered by the subcontractors,” Ileana Nicolae, GM of Sika Romania Some 334 streets are managed and maintained by the municipality, while the rest are managed by the district city halls. In recent years, many contracts have come under discussion and public debate has centered on street repair projects. Under pressure to absorb European funds, the MDRT announced in February that it had signed two projects for repairs in the Militari area of Bucharest. According to official data, one project covers the street infrastructure in the area, through an 18month contract worth EUR 7.4 million, while another covers the development of green spaces in Militari (one of Bucharest’s most crowded areas), in a EUR 6.5 million deal. Recently, the Competition Council began a series of checks on 11 construction companies suspected of collusion over the securing of road maintenance contracts in Bucharest. The firms to be investigated include Tehnologica Radion, controlled by businessman Theodor Berna; Euro Construct Trading 98, owned by Dan Besciu and Sorin Vulpescu; Straco
hall, five projects will start in 2012: modernization works on the road and tramway lines in Pantelimon and Iancului, modernization works in the Piata Romana area and the pedestrian passage and works on two underground passages at Piata Sudului and Piata Presei Libere.
Subway saves the day
Freezing February brought a reminder for every Bucharest resident of the merits of the city’s subway network, managed by Metrorex, a national company which is on the International Monetary Fund’s surveillance list, as trains continued to run while the roads above became snow clogged. Gheorghe Udriste, general manager of Metrorex, told The Diplomat – Bucharest that the Bucharest subway system “can be ranked among the best European subway networks”. His evidence? The Bombardier trains which can also be found in subways in London, Berlin and Stockholm, the technology rating of installations for passenger safety and the communication and power input networks. In terms of waiting
ish company CAF - Construcciones y Auxiliar de Ferrocarriles. Under the contract, the delivery of trains will continue until 2014, with the first rolling stock expected to reach Metrorex in June 2013. The second purchase of 21 new trains will be the subject of a future auction. According to company data, Metrorex carried an average of 14 million passengers monthly in 2011, compared with an estimated 13 million in 2007. In recent years, the figure has increased progressively. For this year, the company has five investment priorities targeting the expansion of subway infrastructure with new lines and routes. Metrorex will invest around EUR 112 million in the fifth line, Drumul Taberei – Universitate – Pantelimon, in 2012, to build the structure for 10 stations and a depot unit, through cofinancing following an agreement with the 33
city infrastructure
Main infrastructure
Spl. IndependenteiCiurel-Bucharest-Pitesti
Basarab passage
Lujerului passage
Prel. GhenceaDomnesti
BASARAB PASSAGE
NATIONAL ARENA
Cost: EUR 207 million (initial cost: EUR 141 million)
Cost: EUR 190 million (initial cost: EUR 120 million)
Constructor: Astaldi and FCC Construccion
Constructor: JV Max Bogl and Astaldi
Construction period: 2006-2011
Construction period: 2007-2011 (summer)
Features: 4 driving lanes, 2 tram lines, it links the South-Western part of Bucharest (Drumul Taberei and Militari districts) to the city center 
Features: 55,000 seats, above-ground parking area built by Bauunternehmug Granit GmbH & Unicon & Procema Engineering
OBOR PASSAGE
UNIVERSITY PASSAGE
LUJERULUI PASSAGE
Cost: EUR 12.3 million (initial cost: EUR 10 million)
Cost: EUR 4.6 million (initial cost: EUR 3.5 million)
Cost: EUR 14.8 million (initial cost: EUR 11.8 million)
Constructor: Tehnologica Radion, Metroul and Delta ACM 93
Constructor: Delta ACM 93 and Metroul
Constructor: SC Tehnologica Radion
Construction period: 2008-2010
Construction period: November 2009 October 2010
Construction period: 2008 (9 months) Features: revamping of pedestrian area
34 The Diplomat March 2012
Features: revamped university passage, commercial gallery
Features: it links the Western districts of Bucharest, Drumul Taberei and Militari
Buzesti Uranus - Berzei
city infrastructure
projects in Bucharest Pipera road-widening
Completed projects Ongoing projects Future projects
Obor passage
National Arena Universitate passage
Mihai BravuSplaiul Unirii
N. GrigorescuSplai Dudescu
PRELUNGIREA GHENCEA-DOMNESTI PROJECT Cost: EUR 348 million (initial cost: EUR 84 million) Features: it will link the regions from two different administrative cities, Bucharest and Ilfov. No financial resources established so far PIPERA ROAD WIDENING
PROJECT BUZESTI-URANUS-BERZEI
Cost: EUR 27.9 million (initial cost: EUR 7.4 million)
Cost: EUR 365 million (initial cost: EUR 62 million)
Constructor: PA&CO International and F. Kirchhoff Strabenbau GmbH Co KG
Constructor: Consitrans
Construction period: 2010-2012
Construction start: 2010 (ongoing works for the first section)
NICOLAE GRIGORESCU-SPLAI DUDESCU
PASSAGE MIHAI BRAVU-SPLAIUL UNIRII
Cost: EUR 77 million (initial cost: EUR 32 million)
Cost: EUR 42 million (initial cost: EUR 28 million)
Construction period: 2011-2012
Constructor: Romstrade (insolvency issues in 2012)
Features: it links Berceni and Vitan districts, two driving lanes, above-ground passage over the Dambovita river, two bridges
Construction start: 2010
EXPRESS ROAD SPLAIUL INDEPENDENTEICIUREL-AUTOSTRADA BUCHAREST-PITESTI Cost: EUR 350 million (initial cost: EUR 232 million) Constructor: Max Bogl, Astaldi, Euroconstruct Trading 98, Tehnologica Radion and Proiect Construction start: 2011 Features: Express road, it links the center of Bucharest to the A1 highway Sums are expressed in the European currency at RON 4.3 per EUR SOURCE: Bucharest City Hall, general division of transport, infrastructure and public services
35
city infrastructure European Investment Bank. The same cofinancing scheme will cover the construction of facilities such as interior and exterior lifts for disabled passengers, under a contract worth almost EUR 12 million. The modernization works scheduled for lines 1 and 3, totaling 27 stations, will be accomplished this year for the similar sum of EUR 12 million, which will cover six stations from the total. Another EUR 16 million will be assigned from the state budget for works on the structure and equipment on line 4, for the Parc Bazilescu – Lac Straulesti section. On this year’s agenda, and maybe one of the most long-awaited subway links, is the route to Henri Coanda airport at Otopeni. The works, including consulting and technical assistance services, design, project start and expropriation procedures, come under a contract worth almost EUR 6 million which should begin this year.
Waters get clearer at Glina
Somebody once said, “I am too poor not to buy expensive shoes”. Applied to Bucharest’s utility infrastructure, the main problem of its sewage and drain system is that it dates from the end of the 19th century, meaning since 1881. According to the public utilities department at the Bucharest city hall, the main problems in this infrastructure stem from the periodical repairs, based on the development of different areas of the town. Bucharest is served by 12 main pumps and another 12 secondary pumps, which collect the majority of wastewater in the town and which feed into the “used water basin” located under the Dambovita. Currently, besides the well-know Glina project, the municipality says that it is searching for ways to repair 35 km of drain channels in the center of Bucharest. For this year, the city hall authorities plan to expand 17 km of drain network and another 3 km of drain channels on streets where there is no water network, including the Bucur program, developed by Apa Nova with the city municipality. One of the largest environmental projects related to the wastewater in Bucharest and neighboring areas was launched, in its first development stage, in October last year. Glina’s wastewater treatment station will purify the sewage from Bucharest and nearby towns such as Catelu and Manolache. Apa Nova, the Romanian branch of French company Veolia Eau and the company that manages the water supply and drain channels in Bucharest, has committed to invest 36 The Diplomat March 2012
“The metro network in Bucharest will have a total of 160 km twoway route while the number of passengers will reach half of those who use public transport,” Gheorghe Udriste, Metrorex GM in the first phase of this project almost EUR 40 million over a period of three years. Under the scheme, a small hydropower plant and biogas unit has been built in Glina, designed to meet some of the station′s energy needs. A second phase, which will also involve the extension of the plant, will start in Q1 of next year and will need EUR 350 million of investment. “We will treat Bucharest’s wastewater and the bad waste quality will improve, because, so far, this water has never been treated. The station will start functioning in stages and the quality of the waters which spill into the Dambovita River will improve,” said Bruno Roche, at the inauguration ceremony last year. The first stage should be completed
this summer. The project has been financed partially through European money, both pre-accession and cohesion funds. The total investments in the Glina station amount to approximately EUR 500 million. European funds made up 54.6 percent of the first stage’s costs, a loan from the European Investment Bank brought almost 30 percent, while another loan from the European Bank for Reconstruction and Development (EBRD) made up almost 12 percent with the state budget topping it up with 3.5 percent. When finished, the wastewater treatment station at Glina will treat the sewage water of Bucharest and the neighboring areas, and the station is expected to generate 400 to 500 tons of sludge per day, which will be converted into biogas and, subsequently, energy production. Works at the Glina station started before 1989. To date Bucharest has not had a wastewater treatment plant, a fact long underlined by the European authorities. The construction of the Glina station cost EUR 6.7 million, money invested by Bucharest’s city hall. Phase two is estimated to run through to 2015. The main problems facing the municipal utilities department are the completion of the investment program started in 2010-2011 and the expansion of the water sewage and distribution in districts 2 and 4. Other priority challenges are the progress of the Bucur program started in 2011, which will run from 2012-2016 with Apa Nova, the start of stage 2 at the Glina station, and the implementation of an integrated management for energy consumption for the public institutions, to name a few.
Money runs through the pipelines
Another project which also drew on cohesion funds involves the regional operator SC Apa-Canal Ilfov SA with the construction company Tehnologica Radion, working together on a EUR 32.5 million contract, according to the official statement by Apa-Canal Ilfov. Tehnologica Radion, owned by businessman Theodor Berna, estimates for this year a turnover exceeding EUR 100 million, 50 percent up on last year, due to contracts won for the ongoing repair projects for the Bucharest street network. The newly signed contract involves the repair and expansion of the drinking water and sewage network, including the construction of pumping stations for used waters in Ilfov county’s Branesti village. The same company announced in December 2011 that it had signed a
city infrastructure similar contract worth EUR 77.5 million with the association formed by two companies, Straco and Marcon Construct, for other villages in Ilfov County, Cornetu, Ciorogarla and Domnesti, with delivery set for 2014. The Bucharest city hall had as strategic objectives for 2009-2012 the expansion of the sewage network in Bucharest to areas in need and within the existing collection basins, the modernization of Glina station, the modernization of 10 heating central plants and heating stations in the capital. Recently, Enel Distributie Muntenia announced it would invest about EUR 12.4 million in modernization works at power stations in Bucharest, Giurgiu and Ilfov. Enel will organize a tender on April 6 to assign the works, which are estimated to last around 18 months. The Italian group entered the Romanian market in 2005, by acquiring the former power divisions of Electrica, Electrica Banat and Electrica Dobrogea, followed by Electrica Muntenia Sud. The latter was an EUR 820 million acquisition, through which the Italian group became the largest local power distributor in Romania.
Harsh winter increases gas imports
According to the latest statement by GDF Suez Romania, the imports of natural gases increased three fold to reach 11 million cubic meters. French giant GDF-Suez, which supplies 1.3 million consumers in Romania, told The Diplomat – Bucharest that it had increased daily gas imports from 3 million cubic meters to 11 million per day in the coldest periods. The company also stated that it had exceeded the requirements for gas stocks for 2011-2012. According to GDF Suez data, the compulsory stock value of 8.46 TWh has been met and exceeded, by a stock of 8.46 TWh. At the end of January, officials from the Ministry of Economy stated that the gas consumption in Romania had recorded a historic high, taking a leap from 57 million cubic meters per day at the beginning of January to 69 million on January 31. According to GDF Suez officials, the consumption on the coldest days reached 22 million cubic meters, a 30 percent increase on the regular level of 17 million cubic meters.
Heating system not cool
Bucharest is currently heated by eight district heat stations, called CET. According to the official data, the first heating networks in Bucharest were installed in 1958. Through a project developing
the district heating system, included in the municipality’s development strategy program for 2009-2012, the city hall had intended to complete the metering of 15,500 entrances of approximately 7,000 blocks of flats in the capital by this year. In the first stage, around 12,000 block entrances had meters installed, in around 4,700 blocks. According to the municipality, the metering system for heating and hot water distribution is one of the most long awaited implementations by the capital’s residents. The investment in the first stage was estimated at EUR 36.7 million, with breakeven estimated within one year. This project, which is now completed, has a total value of EUR 47 million and was partially financed though a loan from the European Investment Bank. The investment objective of RADET, the heating supplier, has a long term and, according to Mihai Bogdan Becheanu, the company’s GM, targets the modernization and implementation of new technologies to the centralized heating system. As a priority for this year, RADET has to complete its ongoing investments, worth RON 150,000, the manager stated. “The most important modernization works
Bucharest’s pros and cons in the eyes of an American architecture firm ■■ The lack of parking spaces is a problem as it can create traffic chaos. ■■ The quality of streets and pavements is poor. New roads barely last for more than a few years. ■■ Public transport is quite good in Bucharest. The subway network is well organized and clean, but it should probably further develop in order to facilitate people’s access, especially to allow suburbanites to reach the city more quickly. ■■ There are really nice old buildings with impressive designs, but most of them need refurbishment. Buildings with a high seismic risk should be repaired as well. ■■ On the other hand the local authorities seem to have started to understand the importance of developing the urban infrastructure, including transport, environment and educational infrastructure. Let’s hope that EU funds are used properly in this regard.
are on the heating stations and the related distribution networks of the central district station, and creating a dispatcher system for the heating system in Bucharest. “Around 65 percent of the entire distribution network managed by RADET is older than 25 years,” Becheanu told The Diplomat – Bucharest. In 2011, the losses registered in the current heating distribution network were estimated at 23.6 percent of the entire volume, compared with 24.3 percent in 2010. For the company, heating energy is estimated to account for around 93.5 percent of the company’s total revenues, while the estimate for this year is 97 percent. RADET Bucharest runs 49 heating energy production stations, according to the company’s official data. By the end of this year, the Bucharest municipality will have run a component of the program, the Multisector Improvement of Thermic Energy Distribution System in Bucharest, which is due for completion in December 2012 and to which the European Bank for Reconstruction and Development (EBRD) has assigned EUR 26.6 million.
Private money
The construction of this project has attracted other private companies. The Romanian office of Swiss company Sika AG participated in the project by delivering construction solutions for the station. Ileana Nicolae, general manager of Sika Romania, told The Diplomat – Bucharest, “The company has great expertise in this type of works, wastewater treatment stations. I hope we will also work on the second stage of the project.” The firm provided construction services both for the old part of the station, which dates back 15-20 years, and for the new part, providing water-repellent construction materials. It also worked on the first stage of the station development for three years. In Romania, Sika is involved in large infrastructure and city projects like the Transylvania Highway, Glina purge station (phase 1 and 2), Henri Coanda Airport, the National Arena, Fantanele wind park, National Library, National Theatre in Bucharest and A2 highway. It produces additives in Brasov, its plant having been operational since 2008, with a production capacity of 10,000 tons per year. In Bucharest, Sika owns a sales and warehousing unit and the national coverage is supported by sales offices in Timisoara, Cluj, Iasi, Constanta and Craiova. Nicolae said that the main challenges with the type of projects above come from 37
city infrastructure the subcontractors. “The main weakness of the local construction market is the lack of qualifications and low portfolio of services delivered by the subcontractors, which compels us and our partners to get more involved in order to install the correct solutions,” she says. Nicolae calls for contract awarding procedures to be changed in Romania, from the current practice of assigning the contract to the lowest bidder. “We have had unpleasant experiences with entrepreneurs who won contracts based on this criterion and who, within the ongoing projects, asked for more
be reused in the biotreatment process. “Contaminated soils will arrive at the site where they will be segregated and treated using bioremediation. Once the facility begins to receive contaminated soils they will be treated until they meet the criteria for reuse or until treatment is no longer viable, at which time it will be landfilled,” said Don Shosky, AECOM vice-president for special projects.
Proiect Bucuresti gets physical
Romanian design and engineering company Proiect Bucuresti says that in March this year it will complete the Extreme Light Infrastructure-Nuclear Physics project, to be built on the site of Horia Hulubei National Institute of Physics and Nuclear Engineering (IFIN HH) in southern Bucharest. The firm’s GM Mihnea
BASF works on Bucharest landmarks
One of the global companies providing construction solutions is BASF, which counts in its local portfolio the new US Embassy in Bucharest alongside other long-discussed projects such as the Basarab passage. According to Madalina Teodorescu, market manager for the construction division of BASF Romania, the special requirements for the “green” US Embassy building, regulated by the United States Green Building Council (USGBC) and the Leadership in Energy and Environmental Design (LEED), involved both the delivery of additives for concretes as well as systems for the protection of structures. For the Basarab passage, BASF’s contract was inked with the consortium formed of Astaldi and FCC JV, with exe-
“Bucharest is lacking a joined-up system. The lack of coordination means that the value of existing investments is not realized,” Gabriel Hyde, operations leader in Romania of Arup
money in order to fulfill the contract obligations,” says Nicolae. “The specific conditions in the tender book have to comply with recent feasibility studies, not some conditions that were valid some 20 years ago.”
Large partnerships
Whether it is civil works, large infrastructure projects or simply commercial developments, private companies want to be at the party, either in consortiums or by themselves. AECOM, besides its transportation, building and other projects, and as part of the Petrom Waste Infrastructure Program run by the company with other partners completed in 2011 the build-out of two biotreatment facilities for oil field waste materials in Teleorman and Gorj counties, for OMV Petrom. According to the company, the biotreatment facilities consist of a large asphalt platform designed and installed to capture all surface water which enters the site through precipitation and the recirculation of that water through an irrigation system to 38 The Diplomat March 2012
Crihan told The Diplomat – Bucharest that the company will participate in public auctions for the thermic repair of blocks in Bucharest and projects such as the renovation of the Romania National Bank building in 2012. From the manager’s point of view, the main priorities for Bucharest’s infrastructure are the need for power co-generating projects and finding an alternative heating system for housing. In 2011, the company posted a turnover of around EUR 5 million, compared with EUR 3.8 million registered in 2010. The results are 40 percent down from 2008. The firm’s portfolio runs from commercial, residential and office projects to civil works. Proiect Bucuresti has implemented engineering solutions for projects such as: Orchideea Gardens, Lakeview Condominium, Unirea Department Store, Bucur Obor complex, the Electrica Muntenia Sud office building, World Trade Center, Intercontinental Hotel, Athenee Palace Hilton Hotel, plus several parks and infrastructure. Its infrastructure and urban installations projects include: Baneasa Passageway (DN1), connections and deflections for Apa Nova, Dambovita river planning and several other passageways in the capital.
cution set for three years. Also, as BASF is involved in several green-certificated commercial projects, the company participated in the development of Swan Office and Technology Park, the first BREEAM certificated building after construction, according to the BASF official. For the Lia Manoliu national sports arena, where the company delivered the concrete additives for the construction, the “greatest challenge was the prefab elements, for which the developer wanted a high finishing rate from the very beginning,” said Teodorescu.
Landing a deal
In January 2012, the Romanian Government approved the MDRT’s memorandum initiating a public-private partnership for the national land register and cadastre. Through this project, the minister is looking for private investors, with Samsung being one name often brought up in relation to this project. According to the most recent statement of the Minister of Regional Development and Tourism, besides Samsung, another company which has stated an interest in the project is Satel Consultants, a company which delivers consultancy services for business and management. According to a statement by
city infrastructure the MDRT, the first step has been taken towards developing the national cadastre, by signing the memorandum for the approval of the public-private partnership for the project. “We estimate that five-six years will be needed to complete this project,” the MDRT statement says.
NetCity takes cables underground
Signed in 2007 following an auction organized by the capital municipality, the contract to develop the underground fiber optic network in Bucharest went to IT&C solutions provider UTI Grup, which established a new company, NetCity Telecom, for this project. This means that Bucharest will no longer be crossed by a confusing tangle of cables above buildings and streets, as all the communication wires will run under its pavements and parks.
provide communication services to link the 17 university centers: VPN data services, internet data-access, telephone lines, ISDN flux and rented lines, and it will also provide the cabling for the buildings and offices. For the University Hospital, Romtelecom will put in place fixed telephony services, a telephony station, cabling and, in partnership with Cosmote, it will implement mobile telephony services. Another project run by Romtelecom’s business solutions division is the Online Business School e-learning program. Through this project, management representatives working at SMEs can have free training courses in management, leadership, marketing and computer knowledge, with the project being financed by European funds. Over 2007-2010, Romtelecom developed a similar program targeting
card. The service was launched at the end of January and implemented at seven subway stations. It will be extended over the next few months to all subway stations and to include monthly subscription. Another service implemented by the company is payment for parking, under a partnership with the Bucharest city hall. The new service, launched in February in the area of the Romanian Atheneum, allows drivers to pay for their parking by SMS. The company also implemented a system with the Economy Studies Academy in Bucharest by which students can check on their grades via SMS. Last year, Orange focused on the 3D
“Bucharest’s main priorities are the need for power co‑generating projects and finding an alternative heating system for housing,” Mihnea Crihan, GM of Proiect Bucuresti With 65 percent of the project done so far, work on the remaining stock will start in March or April, as soon as the weather conditions permit, Adrian Florea, CEO of NetCity Telecom, told The Diplomat – Bucharest. So far, the company has wired 10,000 buildings in Bucharest and installed 3,000 cables. The project totals 850 km of distribution channels, of which NetCity has so far covered 550 km. According to the NetCity Telecom official, the project could extend to another development stage in the metropolitan area of Bucharest, but the chance is not high and is directly linked to other municipal projects.
Romtelecom has EUR 3 mln for projects in Bucharest this year
Besides IT&C infrastructure, other telecommunication operators are getting involved with projects in Bucharest. Romtelecom officials told The Diplomat – Bucharest that the firm currently has two telecommunication projects worth EUR 3 million for two landmark institutions in Bucharest, Bucharest University and the University Hospital (Spitalul Universitar), both won at auction. For the university, Romtelecom will
rural areas, also installing telecommunication services at the site. The program was implemented by connecting city hall offices from different areas countrywide to the internet, plus other institutions such as schools and public libraries to public information access points (PAPI). According to Romtelecom representatives, 214 such local electronic networks were implemented in seven of the eight regions of Romania. Romtelecom is the largest telecommunications company in the country. The majority of shares are held by the Greek telecommunications company OTE (54.01 percent). The Romanian State has a minority stake of 45.99 percent.
Orange partners with city municipality
Since last November, Orange and Vodafone customers who travel by metro have had free internet access while on subway trains. The telecommunication operators have maintained the service. Orange also implemented an SMS payment and access system for the subway network. The company formed a partnership with Metrorex and launched the subway access and payment system by cellphone, instead of using the standard
mobile data network, in order to be able to offer mobile internet with speeds of up to 21.6 Mbps across the Metrorex network and with speeds of up to 43.2 Mbps in Bucharest and the metropolitan area, Stefan Slavnicu, head of infrastructure expansion at Orange Romania, told The Diplomat – Bucharest.
Going electric
In the middle of last year, Saulo Spaolanse, president of Schneider Electric Romania, the local branch of the global specialist in energy management, estimated that around 1 million electric cars will be driven on Romanian roads in the next 1015 years. The company expects electric cars to make up 15 percent of the total within 15 years, according to Spaolanse. “We have the necessary infrastructure solutions for electric cars, the technologies are rapidly evolving, and the needs are being met with the support of the authorities, their incentive programs and their cooperation with the industry,” said the president. 39
city infrastructure Partnerships between car producers and energy systems providers have started already, with Schneider Electric having signed last year a joint agreement with Renault, Electrica and Siemens to develop the local infrastructure for electric cars. According to the manager, the companies have started to lobby together locally. In Europe, Schneider Electric has already implemented infrastructure for electric cars in cities like Brussels, Anvers and Namur. In Bucharest, Schneider Electric has provided the energy systems for commercial centers such as City Mall and Sun Plaza, and also serves the residential segment, hotels, retail, hospitals, oil and gas, through its divisions. Recently, the company launched a customer care center for its IT division, which operates as a hub client service center in Bucharest for customers in 30 European countries. According to Siemens, Romania needs a legislative framework and solid power network to develop electrical vehicle charging station infrastructure. At the moment, the projects in this area are not advanced, said Vasile Diaconescu, head of infrastructure and cities, a newlyestablished division within Siemens Romania. While in Portugal, Siemens has set in place 40,000 electric charging stations, including domestic ones, in Romania the field is still in its infancy. “So far in Romania, there are only pilot projects, especially in the domestic field, and the local infrastructure is not ready,” Diaconescu said. According to the specialist, in order to set in place the charging station infrastructure, the business should be profitable and, in Siemens estimations, a system Adrian Florea, CEO of NetCity can be built with a fleet of a minimum of 100 cars. The investment in such stations, Telecom depending on their type and charging time, is estimated at between EUR 5,000 and and RON 6 during the day for a charging,” said Mihai Marcolt, member of CIGRE, at EUR 35,000. that time. According to the car producer, The first charging station for electric the autonomy for the car model Mitsubishi vehicles was set up behind Unirii Square in Bucharest, near Transelectrica’s head- i-Miev is estimated at 120-150 km. quarters. The station was built by a professional association of engineers and energy Are we smart grid ready? field-professionals from CIGRE and was … but what is a smart grid, after all? According to the common definition, it a 100 percent Romanian product. According to the engineers, the elec- is a digitally enabled electrical grid that tric station can charge four cars, with gathers, distributes, and acts on inforan estimated charging time of six-eight mation about the behavior of all particihours. pants (suppliers and consumers) in order “A full charge for the electric car model to improve the efficiency, importance, Mitsubishi i-Miev needs 20KW, even if reliability, economics and sustainability the car battery is only 16KW. The differ- of electricity services. ence comes from the losses generated by The electric car is “the central applithe battery’s cooling system. The cost of cation for a smart grid”, according to an international lobby group for “going eleccharging is estimated at RON 3 at night
“With 65 percent of the NetCity project done so far, work on the remaining stock will start in March or April this year, when the weather conditions will permit,”
40 The Diplomat March 2012
tric”. Electric cars can function without an implemented smart grid at the national scale but, as Siemens officials say, a very clear electric infrastructure will be needed for charging stations, from the domestic compounds to commercial spaces and to the existing oil and gas networks. In order to link electric cars to smart grids, many more electric vehicles must be sold. For instance, according to a study published by Cisco, in the US, from an approximate total of 250 million cars and trucks, fewer than 2 million are electric-hybrids. In Romania, the figures are by and large in the incipient stages, with hybrid cars sales not even reflected in the statistics. According to a study released in June 2011 by consultancy company PwC, the lack of investment in modernizing the electric networks is the main impediment for increasing at a global level the production and sales of green vehicles. The firm quizzed managers from the automotive, technology, utility, energy and government sectors and found that 33.8 percent blamed the lack of investment, while 31.1 percent said that the lack of power capacity during the peak hours was a major reason. The financial burden of developing the necessary infrastructure should be shared by all the players interested in the market, the utility companies, local authorities, government institutions and private companies, according to 35 percent of the respondents. In November last year, the first pilotprogram targeting smart-grid features was implemented in Brasov, following a partnership signed by national electricity distributor Transelectrica and Romanian energy consultancy company Nova Industrial. The system consists of implementing the first online supervision and diagnosis system for all the technical equipment comprised within a high-voltage electrical station in Brasov. According to Transelectrica officials, the pilot will be extended in order to develop a country-wide smart-grid network which will also impact the maintenance costs for these stations. Smart grid has started to become a serious subject in Romania since 2010, when the Economy Minister approved, following a ministerial order, an action plan for the introduction of intelligent electricity networks. At the time, energy officials said that the new concepts would completely reshape the thinking regarding long-term investment. The European Union has assigned EUR 4.2 billion to such developments. ■
driving
Evolution, not revolution Mercedes has launched the third generation M Klass, one of the best-selling SUVs on the market. The Diplomat - Bucharest tested it. By Adrian Ion
F
or those that expected a radically new look, the new car will be rather a disappointment, as the outside of the vehicle looks very similar to the outgoing model. Of course, the curves and lines of the body have changed in every direction, the car now being longer, wider but shorter than before, giving a sleeker and sportier appearance. The aluminum plates that are present both at the front and the back of the car give an impression of the off-road capabilities that haven’t been forgotten by the engineers. The new ML is one of the most capable SUVs away from paved roads, with an optional off-road package with a six-
mode selector for different types of driving – auto, sport, winter, towing, and two different off-road settings – as well as a two-speed transfer case, a decoupling anti-roll bar that disconnects in off-road situations and extra functionality for the optional air suspension. The seven-speed automatic transmission 7G-Tronic Plus and full-time four-wheel drive are standard on every ML. Two engines are available at the moment, with one, the ML 250, developing 150 kw from a four-cylinder bi-turbo diesel engine. The car accelerates from 0 to 100 km/h in nine seconds and has a top speed of 210 km/h. The other engine available, and the one that was fitted in the test drive car, is the ML 350 six-cylinder diesel engine, developing 225 kw and accelerating from 0 to 100 in 7.4 seconds. With this engine, the new ML moves around with ease, effortlessly accelerating in complete comfort. The comfort level is of the highest standard in the ML, the king of the SUV class, with unrivaled ride quality. The Air-Matic suspension works perfectly to ensure that the car occupants will enjoy the ride quality for which Mercedes is renowned.
VITAL STATISTICS ML 350 BlueTEC 4MATIC Permanent four-wheel drive Automatic 7 speed transmission Acceleration: 0-100 km/h 7,4 seconds Top speed: 224 km/h Emissions category: Euro 6 Kerb weight/payload: 2175/775 Kg Manufacturer guarantee: 2 years Entering the car, one finds a mix of old and new, with the same Command display, the same park distance control LEDs, radio system and some of the dials and gauges. Other than these, the materials are all new, of faultless quality, with soft touch plastic and great leather design. The test car came equipped with a Designo interior that gave it a very distinct personality. Prices star t at EUR 44,900 plus VAT for the ML 250 BlueTEC version and go up to EUR 47,850 plus VAT for the 350 BlueTEC. Optional equipment which doesn’t come cheap but is a must at this level will obviously add a lot more to these f igures. ■ 41
business leader
Expansion the logical move for Omnilogic Although the IT industry has shrunk by 50 percent over the past two years, Gabriel Marin, founder and general manager of Omnilogic, has managed to cushion the decline of his company. Now he intends to extend the business to several countries in Europe and to gain a larger market share in Romania. By Roxana Cristea
“I
read today in the international press that General Motors had the biggest profits in its history: approximately USD 10 billion in the last quarter. The reason is very simple: first the company was in bankruptcy for a year, taking advantage of the insolvency law. It shed probably 30 percent of staff, closed factories and came up with another cost structure, an extremely useful series of actions,” Gabriel Marin, founder and CEO of Omnilogic, one of the largest IT companies on the Romanian market, began his interview with The Diplomat – Bucharest by commenting. “Actually, the firm restructured a company and staff structure that used to unprofitably manufacture and sell more than USD 150 billion a year (2007-2008) into a more compressed structure for an addressable market of USD 120-130 billion per year (in 2009-2010), and afterwards set up a profitable growth strategy going back to EUR 150 billion, plus this incredible profit rate. I think that almost every company should do this in times of recession. Even we at Omnilogic are in a period of comprehensive restructuring and cost analysis, based on the market evolution and perspectives.”
42 The Diplomat March 2012
Holding a PhD in Economics and Computer Sciences, Marin started the company in 1992, with an investment of USD 500 and five employees, its basic activity being business with IT components. “Over time I think that we anticipated the evolution of the market and we made some very good strategic changes, mainly when we went out of the commodities business and moved into networking in 1999, in 2006 when we entered the software market through an acquisition and again in 2009 when we started our foray into the cloud-services market. These were those market shifts that we anticipated and capitalized upon,” said Marin, adding that the current period is another challenge to overcome.
A market cut in half
According to the Omnilogic founder, the Romanian IT market registered a decrease of 55 percent in 2010 and in 2011 fell by another 30-35 percent. Currently, the market is worth about 40 percent of the 2008 level and is still falling. “Over 2,500 IT companies have closed. Looking at these changes and also at the redundancies at other large companies it is quite clear that the market does not currently support this internal structure. But before reducing your personnel (at Omnilogic we consider our employees our main asset), you have to look to carry out major cutting in all the other costs categories,” said Marin, adding that he has improved the cost structure at Omnilogic in recent years. However, the company is now at the stage where it must streamline its cost structure further, in part because the future of the Romanian IT&C market is far from promising. Currently, the company has 180 employees and posted around USD 160 million in 2010 and USD 100 million in 2011. “Generically, we were far more prof-
itable in 2011 than in 2010 (which means that some of our restructuring actions were successful). Our gross margin increased by 40 percent, but the firm’s revenue fell by 35 percent, due to market compression,” said the Omnilogic chief. The main reason for the decrease in business is that Omnilogic’s main business vertical is in the banking and financial industry and lately banks have either downsized or pulled most of their IT operations out of Romania. Many large lenders have decided to ditch their local IT structures and move to a centralized structure located in the mother country, leading to significant layoffs in banks’ IT operations and a significant decrease in the addressable market by local companies. The firm’s second pillar, the Telco sector, still wants to capitalize and make money from previous 3G investments, and therefore the launch of the new investment cycle for the development of LTE will not happen in 2012, but perhaps late 2013. And the third pillar, the public sector, is pretty much frozen due to Government austerity measures.
Cloud gazing
“As I mentioned before, our business dropped about 35 percent last year, but I think we have decreased by far less than the market over the last three years. However, 2010 was still the best year in the history of the company in terms of revenue and 2011 was our best year ever in term of gross margin. The main reason is that our operational and financial structure allowed us to absorb some of those shocks. Even more, when other firms have gone bankrupt or became insolvent, we have taken market share from them,” said Marin. The only good thing that he has noticed lately is that outsourcing and cloud services have started to increase since last summer. “People no longer have money to invest.
business leader Their approach is: ‘if I don’t have money for IT products to buy and depreciate, I’ll buy services, which are deductible expenses and spread over a few years. That was the only segment that has grown,” says Marin. The disadvantage is, however, that in this segment the sales cycle is around three-four months and the profits are not great. “Enterprise and Telco declined. The public sector, which supported 2010, was absent. This year we have no major projects on the market, and European money for IT is pretty much finished until 2013. So we are forecasting more insolvencies and closures among local IT companies. We are waiting to see who will disappear from the market and how to proceed in the remaining space. We hope to benefit from this market consolidation process,” said Marin.
Looking outside the borders
“I hope we will adopt President Obama’s slogan: ‘There must be a change, not of form, but of substance’. If not, there will be no capital, no business confidence and no consumer confidence in the following years. Since there will be no money for investment in the IT market there may be a shift towards outsourc-
ing, to find alternative solutions, but there are very few players. If you don’t already have a completed investment in a data center, you cannot get onto this market, but we have it, so it is an opportunity for us,” said Marin, adding that firms will likely go aggressively into the increasingly IT outsourcing segment. In the near future the company will expand in the Adriatic area, and is in advanced talks with one of the major IT manufacturers worldwide for a VAD contract (value added distribution). “We selected that area because it’s closer culturally and logistically. We are already working in Moldova, Serbia and Croatia and we hope to get access to pre-accession regional funds. We hope business in those other countries will be a little more profitable than in Romania these days. Our domestic business problem is that the market has dropped dramatically and we don’t expect an improvement within the next three-four years,” Marin told The Diplomat – Bucharest. Last year, Omnilogic had a turnover of USD 100 million. In 2012, the founder wants to be able to make a very accurate estimate of the market, to know exactly what and where he can expand and to see the segments with growth potential, so he can restructure the company to make it
Who is Gabriel Marin? Gabriel Marin, 52, is the founder and CEO of Omnilogic. He graduated from the Academy of Economic Studies in Bucharest in 1984 and got a PhD in Economics and Computer Science in 1996. He established Omnilogic in 1992 with only USD 500 and has turned it into one of the most visible success stories of the Romanian market economy. One of Marin’s main objectives is to transform Omnilogic into a billioneuro company and position it among the top European IT&C firms. Marin received a certificate of membership from the Alexander Hamilton Institute in recognition of his continuing efforts to acquire knowledge of modern management practice through the Executive Skills Program. flexible enough for the market. “We built the company for a market that was worth about EUR 1.2 billion a few years ago. Now we are part of a market that is under EUR 500 million,” sums up the Omnilogic chief. ■
IN THE NAME OF EXCELLENCE WE STAND UNITED Centrul Medical Unirea and Euroclinic become the largest private health care network
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events THE ART OF MARTISOR: Art auction
house Artmark auctioned off miniature paintings by Romanian masters along with small sculptures to shoppers looking for special gifts for Martisor. Numerous works of art and eye-catching paintings by Tonitza and Grigorescu, from private collections in Switzerland and France, were put up for sale at the third Martisor auction. The total value of the auction lots was estimated at between EUR 300,000 and EUR 500,000, with more than half of the items having values between EUR 50 and EUR 500.
MARRIOTT CHAMPIONS THE NEEDY: In February, Champions restaurant in the JW Marriott Bucharest Grand Hotel donated EUR 1 for every customer who had lunch or dinner in the restaurant. The Bucharest hotel embraced the Marriott International initiative, “A World of Opportunity”, to support the personal development of young people from disadvantaged backgrounds. Funds donated by the JW Marriott Bucharest Grand Hotel will go to the organization SOS Children’s Villages Romania and will be used to finance programs and training sessions. CERTIFICATION COURSE: ELKOTech Romania, a member of ELKO Group and leading IT distributor in Romania, held on February 9 the Aten Academy certification course. The course is the first one organized by ELKOTech Romania for Aten products and was provided free of charge to the company’s partners. The training session was attended by 30 people working in product management, technical and sales. At the end participants received an Aten certified diploma. Connectivity solutions offered by Aten are designed for SMEs and public sector organizations.
MUSEUM IN MOOD FOR LOVE: Valentine’s Day was celebrated at the Village Museum with a handcraft fair and to the rhythms of jazz music. Two days before the traditional Valentine’s Day, the Village Museum hosted an extensive program of jazz and Romanian music, European dances, plus contests with prizes and books. The bravest of visitors made declarations of love, the most beautiful of which were awarded hourly with books, wine, chocolates, vouchers for a romantic dinner, fashion items made by Andreea Boariu and cosmetics. 44 The Diplomat March 2012
NEW MEDLIFE LABORATORY: MedLife, the private
medical services market leader, opened a new laboratory in Bucharest, in the Cotroceni area. Laboratory MedLife Cotroceni offers patients a wide range of analyses, including biochemistry, hematology, coagulation, immunology, microbiology, toxicology and cytology, and serves the districts of Cotroceni, Militari and Drumul Taberei, home to approximately 500,000 patients. The new location required an investment of EUR 500,000.
Everyone Gives: Romania took
part in one of the most extensive social campaigns in recent years: Everyone Gives, an eight-day global program which aims to encourage and bring together on one platform people around the world to support the social causes they believe in. The campaign ran from February 22 to 29 in over 60 countries simultaneously, and was based on the idea that our individual impact can be multiplied by involving our acquaintances.
NEW GYM: World Class Romania continues to develop its network of fitness centers by opening in April its seventh club in Bucharest, and the ninth in the World Class Romania network, on the first floor of the America House building in Victoria Square. The 900‑sqm America House World Class Fitness Center will provides its members with access to many services: gym and cardio, functional training, cycling classes, aerobics classes, plus wet and dry sauna. CINEMA REOPENED: Elvira Popescu cinema was officially reopened in the presence of the French ambassador in Bucharest, H.E. Henri Paul. The event was followed by the premiere of the film Mon Pire Cauchemar, by Anne Fontaine (2011). At the opening event, Paul and Stanislas Pierret, director of the Institute of France in Romania, among others, gave short speeches. Maria Basescu, the Romanian first lady, attended the event, at the invitation of the ambassador, as did well known figures Catalin Mitulescu, Tudor Giurgiu, Ada Condeescu, Bobby Paunescu, Monica Barladeanu, Medeea Marinescu, Corneliu Porumboiu and Mihai Chirilov. LAND OF OZ: Writer Amos Oz was in Bucharest on 27 and 28 February for a series of events, including the release of the author series dedicated to him at Humanitas Fiction, and a dialogue with Gabriel Liiceanu at the Romanian Athenaeum. Oz, one of the most prominent Israeli writers, came to Romania at the invitation of Humanitas Fiction and the Israeli Embassy in Bucharest. During his trip he received the title of Doctor Honoris Causa of the University of Bucharest, and launched at the Humanitas Kretzulescu book shop his author series, which includes such titles as Black Box, How to Heal a Fanatic, Rhyming Life and Death, A Tale of Love and Darkness, and Scenes from Village Life.
NEW RESTAURANT: Phill, a restaurant of
STORE SOLIDARITY: Buzau Carrefour employees gathered food, clothing and blankets which they donated to flood victims from Odaia Banului, a village near Buzau. Food from the store and the goodwill of the workers who delivered it managed to put a smile on the faces of villagers who are enduring the severe weather conditions.
fine food and innovative design, had its official launch. The theme was inspired by the Gordon Ramsay book, The Perfect Menu, published by Litera Publishing. Silviu Dan Boerescu (bucatarescu.ro), Antonina Sociu (dulcegariiculinare.ro) and Anca Rusu (printesapolonic. ro) recreated some of the famous chef’s dishes. The culinary experience of the evening was completed by Phill brand foods and Lacerta wines.
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city life Hollywood Music brings movie magic back to Bucharest The Center for Performing Arts and Cultural Association Teocta presents for the second time the show Hollywood Music in Bucharest, which will roll out the red carpet on March 28, at Sala Palatului (Palace Hall). The event introduces the fascinating world of cinema via the wand of famous conductor Gottfried Rabl, who will lead the 70 musicians of the European Royal Orchestra in tunes from popular soundtracks. The music will be complemented by video projections onto screens behind the orchestra, broadcasting glamorous Hollywood
Tears and laughter flow in adapted American play
moments from the films that feature in the repertoire: Lord of the Rings, Superman, James Bond, Phantom of the Opera, Titanic, Pirates of the Caribbean, Cats (Memory), Dirty Dancing, The Godfather and many others. The combination of classic and contemporary will be animated by the first soloist of the Oleg Danovski National Opera and Ballet Theater in Constanta, Daniela Vladescu, along with the first couple of world pop opera, Romeo and Julia Saleno. Tickets will cost between RON 30 and RON 100. ■
Flamenco, castanets and emotions awaken Latin spirit Passionate music, dance, castanets, emotions and Latin spirit will be presented to the Romanian public in the Angel Munoz show, which will come to Timisoara on March 14 at Banat Philharmonic, Capitol Hall. Cordoba-born Munoz is considered the second greatest flamenco dancer in Spain, after the famous Joaquin Cortes, with whom he has studied and danced in
numerous shows. The performer has had major roles in the shows La Traviata and La del Soto del Parral, as well as in various television series. In 1994 he was awarded first prize at the At Mejorana National Festival of Dance and the National Flamenco Arts Contest in Cordoba. Munoz now performs on the top stages of the international circuit. ■
Traffic Strings brings Seasons Rendezvous to Radio Hall
The National Children’s Palace in Bucharest will play host to the final theater performance of The Cafe –A Bitter Buffoonery, the simple story of an American family, on 15 March. Top Romanian actors Emilia Popescu, Dana Dogaru and Horatiu Malaele will feature. The Cafe is billed as a comedy where the laughs come with the salty taste of tears. It is a show about life, love, betrayal and loneliness, a show for all but especially anonymous souls, plagued by seemingly trivial troubles. Horatiu Malaele turns the American drama into an explosion of humor and emotion. Tickets cost RON 80. ■
46 The Diplomat March 2012
The Rendezvous Seasons concert combines two strands of the instrumental music spectrum – Tango and Baroque – contrasting, but at the same time very close. Antonio Vivaldi’s and Astor Piazzolla’s Four Seasons are among the most famous pieces of instrumental music. The version that Traffic Strings will present in its March 10 concert at the Radio Hall in Bucharest is intended to convince the public that despite the passage of time Vivaldi’s composition
is fresher than ever while Piazzolla’s could erupt in intoxicating and sensual tango at any point. The Traffic Strings project is the brainchild of the musician Lucian Moraru, who is said to “practice a music that does not belong to a single period or a certain age, hence the name of the group Traffic Strings, which symbolizes the continuing leaps that they make in music history.” Ticket prices will be between RON 50 and RON 125. ■