Vol. 8, No. 3, April 2012
The magazine for informed internationals
New agricultural horizons Local farms find the right path to attract finance
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Vol. 8, no. 3, April 2012
PM Mihai Razvan Ungureanu met with Jose Manuel Barroso, president of the European Commission, last month when the two reaffirmed the priority plans for Romania to better access EU funds and touched on the Schengen issue. Barroso said the EC would reject any attempt to link the Mechanism for Cooperation and Verification (MCV) to the decision on Romania’s accession to the Schengen space and that he would insist the decision be taken no later than September this year.
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First aid The complex and controversial world of state aid
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Privatization progress Players welcome the underwriting of a stake in Transelectrica
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Plugged in Enel Romania country manager Luca D’Agnese on the path to power
8. Schengen ISSUE
13. Financing line
EC president says Romania will get an answer in September
Railway operator CFR is en route to receiving financial support
9. Ford stalls
14. Against mall odds
AVAS agree to postpone Ford’s privatization obligations
Local shopping centers struggle to adapt to the tough climate
10. Fitting the bill
37. The un-Dutchables
The Finance Ministry sells RON 1 billion of Treasury bills
Investors from the Netherlands are sailing through the crisis
12. Liberalization SAGA
49. Sporting pursuit
Electricity price deregulation will involve just one step this year
On the road with the new Porsche 911
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editorial
Better the devil you know?
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 April 2012
T
thing that comes out of their mouths. he elections are fast approaching and it seems like we are entering deeper and I’m skeptical about Ungureanu’s readeeper into what is officially called sons for storming out of the meeting, but the electoral campaign. neither am I persuaded by Ioan Oltean, However, no campaign over the past the PDL’s general secretary, not a polititwo decades in Romania has looked pro- cian known for being overburdened with fessional, drawing on brilliant ideas and integrity. passionately held principles. Instead, the Moreover, other individuals, who were electorate was simply subjected to the same not even in the room, have weighed in, old spectacle of politicians trying to cling stating confidently that everything is fine onto or gain power by fair means or foul and the whole thing is just an opposition (usually foul). hoax. The first sign of a dirty campaign came Which makes me wonder what the a few weeks ago, when banners attacking opposition would gain from acting this the other camp, in this case the opposition way. Will a reluctant voter be persuaded to put his or her cross by the opposition for their parliamentary strike, started to spring up around Bucharest. because the Prime Minister is arguing While such negative campaigning is with the ruling party? This is childish nothing new in Romanian politics, this time thinking. However, the opposition seems to be the dirty tricks have started even before the taking a somewhat more honest approach officially campaign is underway. This disturbing development most with its program at least, according to likely heralds the start of a campaign that which, in early April it will unveil its canwill be even more didates for president lacking in professionand prime minister. alism and dignity than Here again we must ask: will the the previous ones. Already a nyopposition present the thing a politician or team as any political party says or does party in the proper smacks of insincerway or will it be done ity. Think back to the as if they have already end of March, when won. Once again I find Prime Minister Mihai myself slipping down the slope of disbelief. Razvan Ungureanu All of this is only rebuked the very same people who made him further proof that, PM so recently, stormunfortunately, Romaing out of a governnia’s political class is ment meeting and not on the right track. It is true that their alleging that he was values have been anacoming under preslyzed, but not enough. sure to allocate budget funds to specific constituencies. However, there seem to be few alterThe general secretary of the Democrat natives. And, more worryingly, because Liberal Party responded immediately with those who would come to power have run out of patience and want to reach the top an official statement, saying that, although as soon as possible, the new alternatives he had not been present at the meeting, he could give assurances that there was no are, from my point of view, a bunch of tension between the PM and his colleagues. opportunists. Therefore, to use a phrase that seems So what’s the truth? Who stands to benefit from the PM’s to define us, at the coming elections we fit of pique? If he did storm out, would will probably once again have to choose that boost Ungureanu’s public image? “the lesser evil”, or at least the best of a Would voters think that Ungureanu had bad bunch. shown uprightness in standing up to his Will it be a case of better the devil you backers? know or we will end up with the devil we Unfortunately, like the boy who cried don’t? ■ wolf, the current crop of politicians are reaping what their mendacity has previously sown and it is hard to believe any-
“Already anything a politician or party says or does smacks of insincerity. All of this is only further proof that, unfortunately, Romania’s political class is not on the right track.”
law
Analysis of overcompensation T
the Cost-Benefit Analysis If after the cost-benefit analysis it is determined that the resulting IRR value for a certain technology is 10% higher than the reference IRR value for that technology, then such technology shall be deemed “overcompensated”. In such instance, ANRE must recalculate the number of GCs for the overcompensated RES-E production technologies in order to align the IRR values to the reference level of reference IRR for this technology.
he Romanian Energy Regulatory Authority (“ANRE”) enacted the Order no. 6/2012 for the approval of the methodology for monitoring the green certificates support scheme (the “Methodology”). This Methodology establishes the manner for ANRE to monitor electricity produced from renewable energy sources (“RES-E”) and the green certificate (“GC”) support scheme.
1.1 The overcompensation analysis for RES-E production must be performed each year and should be based upon the following indicators: a) The average level of the specific investment for each category of RES-E production technology, determined as the average of the specific investments as recorded in the data reported by the producer who commissioned new RESE production facilities in the last two (2) semesters before the semester of the analysis and in the feasibility studies submitted to ANRE in the same period for obtaining the establishment authorization (in Romanian “autorizatie de infiintare”) for these new RES-E production facilities. Such average must be compared to the specific investment for that respective technology, provided for the analysis year in the most recent document of World Energy Outlook. The overcompensation will take into account the lesser value of the respective two (2) indicators; b) The average level of the specific index for variable costs, for each technology of a RES-E production facility determined based upon the: value of the variable costs incurred in the last two (2) semesters before the semester of analysis, by each RES-E producer from a certain RES-E producing technology, which had production facilities functioning in that period. Such value is determined as the ratio of the electricity delivered in that same period by the producer and the obtained unitary values, averaged for all producers from that respective technology; c) The average level of the specific index for fixed costs, for each technology of a RES-E production facility. The Methodology provides a detailed computation formula which includes data from the first semester of the analysis year and data regarding the annual total fixed costs incurred by the RES-E pro-
ducers in the last three (3) years prior to the analysis year. For new technologies where there is no available data, the data submitted by the RES-E producers to ANRE in their in their feasibility studies for obtaining the establishment authorization for RES-E production facilities which were not put into function until the end of the semester prior to the analysis will be used; d) The average level of the capacity factor, for each RES-E production technology which is determined as: multiannual average (for the last ten (10) years) of the ratio between the electricity delivered in the reporting year and the product of the average installed power and 8,760 hours. In case of new technologies, where data is not available for the entire period of ten (10) years, then the average resulting from the years/months where data is available are used. 1.2 Determination of IRR Based on the Cost-Benefit Analysis In accordance with the Methodology, the IRR must be calculated for a twentyone (21) year period, which is computed based upon a twenty (20) year life cycle for the RES-E production facility, plus a one (1) year ramp-up time for the RES-E production project. The first year of the IRR calculation is considered to be the year prior to the year in which the costbenefit analysis was performed. 1.3 Interpretation of the Results of
1.4 Impact of Overcompensation Measures on the Present and Future RES-E Producers ANRE publishes the result of the overcompensation analysis and publishes such results on its website in December of each year. In case of overcompensation ANRE drafts a government decision and send it to the Romanian Government to approve the proposed reduction of GCs for the overcompensated technology. The Methodology expressly states that such government decision must apply to those RES-E production facilities that start producing electricity after January 1 of the year following the year when the government decision is issued. Such reduced number of GCs is valid for the entire period of the GC support scheme. As an exception of the general rule provided in the previous paragraph, the RES-E producers which benefit from the GC support scheme must send to ANRE by March 30, 2012 the necessary documentation in order to allow ANRE to conduct the overcompensation analysis. Moreover, the Methodology specified that the first overcompensation analysis must be performed in the first semester of 2012 and will impact the capacities which will start producing electricity from January 1, 2013. Ciprian Glodeanu LL.M. Head of energy and real estate WOLF THEISS SI ASOCIATII Bucharest Corporate Center Gheorghe Polizu str. 58-60, 13th Floor Sector 1, RO-011062 Bucharest, Romania www.wolftheiss.com
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politics Constitution debates held without opposition and UDMR The revision of the Romanian Constitution was debated in Parliament by the Chamber of Deputies without the presence of the opposition and UDMR parties. MPs canceled the UDMR’s amendment to article 1 of the law, which proposed erasing from the Constitution the term “national”, regarding the character of the Romanian State. According to PDL official Iulian Cionca, the amendment breached item 152, article 2 of the Constitution which states that the “character of a national, independent, united and indivisible Romanian State cannot be subject to Constitutional revision”. The Democrat-Liberals (PDL) support the Constitution revision and want the matter to be the subject of a referendum on the same day as the local elections, June 10. PDL president Emil Boc said that the revision of the Romanian Constitution would be an opportunity for the opposition to return to Parliament.
Romania and Bulgaria dispute 17-sq km of territorial sea Romania’s minister of foreign affairs has stated that the country is disputing a 17-sq km area of territorial sea at the border with Bulgaria. According to the minister, the Romanian authorities will hold discussions with Bulgarian experts in order to solve the issue. Cristian Diaconescu has said the discussion will focus on the delimitation of the continental platform and the territorial sea between Romania and Bulgaria, following the example of the previous case negotiated with Ukraine.
Government assigns EUR 23 million to local election campaign The Romanian Government has decided to assign around EUR 23 million (RON 100 million) to campaigns for the local election to be held this year on June 10, almost 30 percent more than the RON 66 million allocated in 2008. Candidates must register by May 1, while the election campaign will run for the 30 days prior to June 9, the day before the country goes to the polls. Any run-offs for the election of mayors or presidents of county councils will take place on June 24.
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The Diplomat April 2012
PM Ungureanu asks Parliament to take over anti-corruption strategy
Romania’s PM Mihai Razvan Ungureanu plans to give Parliament responsibility for the National Anti-corruption Strategy 20122015. In a meeting he advised the governing coalition to draft a political statement on the application of the strategy, to focus both on implementing and connecting anti-corruption policies and prevention among institutions. The strategy approved by the Government also includes changes to the current legal framework regarding the financing given to political parties and electoral campaigns, by introducing new, soon to be established rules.
According to government officials, this idea is not popular among UDMR party representatives, who don’t participate in government meetings, especially as it comes after the recent debate on the establishment of Magyar-language classes at the Medicine and Pharmacy University in Targu Mures. At the beginning of last year, Basescu said that he supported the financing of electoral campaigns from the state budget or local budgets, adding that this mechanism and how it can be put into practice should be explained to Romanians, in order that the measure be applied this year. ■
Coalition to raise public sector salaries in June The leaders of the governing coalition have decided to up the salaries of public sector workers from June, with the percentage increase to be determined by the Government, according to Mircea Toader, the leader of the Democrat Liberal deputies. The Romanian president, Traian Basescu, said that the decision was not made for populist reasons due to the Parliamentary elections coming up this year, but because the conditions were in place to facilitate it. According to Ministry of Finance data, the public sector employed 1.39 million workers in April 2009, who had been pruned to 1.19 million by January 2012. Also, under the financing treaty conditions agreed with IMF, state salaries represented 9.6 of GDP,
which had to be cut to 7 percent by 2014, a target met at the end of 2011. According to Basescu, increasing state spending after the cuts made in 2010 doesn’t endanger the economy. “The austerity measures taken in 2010 prevented a Greek-type slippage but, this year, the Government should find solutions to increase the salaries of state employees,” he said. In July 2010, workers in the public sector had their salaries cut by 25 percent, but in 2011 they received a 15 percent pay increase. Based on the recent announcement, public sector employees should receive another increase of 16 percent in order to return to their original salary. ■
politics Law to combat domestic violence updated
EC calls for September decision on Schengen accession
Following recent demonstrations over domestic violence against women, President Traian Basescu signed a decree bringing into force modifications and updates to Law 217/2003 against domestic violence, according to a presidential spokesperson. The law was adopted on March 8, International Women’s Day. According to President Traian Basescu, women must be protected from any kind of domestic violence and the need for this law was urgent.
Citizenship procedures abused by ‘greedy’ public servants, says PM
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Romania’s PM Mihai Razvan Ungureanu has said that state institutions are unable to “control the greed” of the public servants charged with conferring Romanian citizenship, which thwarts the purpose of the Government. He made the comments in a meeting with the PM of the Republic of Moldova, after a recent scandal in which Romanian citizenship was granted illegally to some Moldovan individuals. The president of the Social Democrats, Victor Ponta, previously sent PM Ungureanu an open letter in which he drew attention to what he called political involvement in administrative appointments and called for the customs system to be cleaned up.
The European Commission has stated that it will reject any attempt to link the Mechanism for Cooperation and Verification (MCV) to the decision on Romania’s accession to the Schengen space and will insist that the decision be taken no later than September this year, according to the EC president, Jose Manuel Barroso, at a meeting with Romania’s PM in Brussels. “I appreciate the Romanian Government has committed to economic reform. The EC will this summer analyze the progress made over the last five years towards accession and the key test will be the sustainability and irreversibility of the reform program. Even though I make no assumption regarding the result, the EC will reject any
Iran-Israel conflict ‘could drastically affect Romania’, warns Basescu
Hahn: Romania needs to attract EUR 30 mln per week not to lose later funds
President Traian Basescu has warned that potential conflict or military intervention involving Iran and Israel could seriously affect Romania’s commercial and diplomatic interests in the region. According to representatives of the Foreign Affairs Ministry, Romania and Turkey are in broad agreement on international security matters, especially the need to take some decisions at the NATO summit to be held at Chicago, with a focus on commitments assumed for the West Balkans region, keeping the open-door policies and the implementation of interim missile shield capabilities.
Romania must attract European funds of about EUR 30 million a week until the end of the year to qualify for the same level of structural funds over 2014-2020, said the EU commissioner for regional policy Johannes Hahn, after meeting Romania’s prime minister, Mihai Razvan Ungureanu. Hahn said that Romania must demonstrate that it can absorb a large share of European funds by the end of this year in order to enjoy the same level of funding in the future. “According to our calculations, Romania needs to receive at least the same amount of money (in the financial period 20142020) to continue all the projects started,
The Diplomat April 2012
attempt to link the Mechanism for Cooperation and Verification (MCV) to the decision on Romania’s accession to Schengen. I have said it before and I repeat it, I think it is fair for Romania to be offered the status of member state in Schengen,” said Barroso. The official restated that on a November 2010 visit to Bucharest, he had established a priority plan for Romania in order to better access EU funds, including the solution of problems in public acquisitions and operating the supervisory mechanisms for the reimbursement demands. “The European Commission is ready to agree to Romania’s demand regarding the eligibility period for 10 percent of structural funds,” Barroso added. ■
which should improve the living conditions of Romanian citizens. So it is therefore very important for Romania to prove that it can use the existing funds,” said the commissioner. He added that Romania should increase the absorption rate as a precondition for further EU budget allocation. Calculations put the required absorption rate at over EUR 30 million a week throughout 2012. The EU commissioner said that Romania was at risk of having payments from European funds suspended but that at the moment it was in line with the activity calendar agreed with the EU to recover the delays. ■
economics INS: Investments in economy up 9.2 percent last year on 2010
Petrescu: aim is to contract 100 percent of regional development funds in 2012 The Regional Development and Tourism Ministry is aiming to contract 100 percent of European funds for rural development and for an absorption rate of 30 percent this year, according to the minister, Cristian Petrescu. He said that so far over 1,500 projects have been submitted under rural development programs, of which 443 have been completed. The official added that most programs undertaken by the institution he leads target SMEs, with funds worth around EUR 1 billion.
Government puts compensation for nationalized houses on backburner Investments in the local economy increased by 9.2 percent last year, compared to 2010, to RON 64.529 billion in current prices (EUR 15.22 billion), after an advance of 22.1 percent in the fourth quarter versus the same period of 2010, according to the National Statistics Institute (INS). In the last quarter of 2011 gains were recorded across all structural elements: equipment (including transportation) rose by 35.4 percent, new construction works 14.5 percent, and other expenses 12.6 percent. Investments made in new construction works reached RON 31.913 billion last year, or 49.5 percent of the total, compared with
51.2 percent in 2010. Investments in machinery and transport equipment reached RON 26.305 billion, representing 40.8 percent of the total, against 38.4 percent in 2010. In addition, last year’s 2.5 percent economic growth was mainly supported by the development of agriculture, with a hike of 11.3 percent, and industry, which posted an advance of 5 percent, the INS announced, maintaining estimates of GDP growth in Q4 and throughout the year. Estimated GDP for 2011 was RON 578.551 billion in current prices, a 2.5 percent increase in real terms on 2010. ■
Ford defers privatization obligation deadlines Ford Motor Company and the National Agency of Fiscal Administration (AVAS) have signed an additional act to the privatization contract of SC Automobile Craiova, under which targets set by the after-privatization obligations have been put off until December 2012. The firm will pay penalties for not producing the amount of cars stipulated in the contract, according to AVAS. Under the newly signed agreement, between January 2013 and December 2017, Ford will make 810,000 units, and another 1.5 million in the next five years. Under the privatization contract signed in 2007, Ford agreed to produce 250,000 cars in 2011 and
300,000 in 2012. Last year, the carmaker manufactured 7,600 commercial vehicles under the Transit Connect brand. In June this year, Ford will start production of the new model, B-Max, two years later than scheduled. The American company said it would produce 60,000 cars this year, compared with the 300,000 initially promised. Meanwhile, Ford Romania management will begin recruiting at the plant in Craiova. According to the company’s human resources director, Angella Alexander, it will employ 500 people to work on production of the B-Max and EcoBoost. ■
The Government has decided to postpone action on compensation for the owners of property nationalized by the communist regime for six months. Spokesman Dan Suciu said that the measure was necessary to strengthen the legal framework to implement legislation, and was the result of an internal audit of the CEDO decision to resolve the issue of refunds in more than 18 months, a deadline which expires in July, and the fact that the State owns fewer shares in the Property Fund.
Raiffeisen: populism will endanger Romania’s agreements with IMF and EC The adoption of populist measures by the Government, such as increases in pensions and public sector wages, would jeopardize preventive agreements between Romania and the IMF and EC and dent the confidence of private investors, according to a report by the Austrian group Raiffeisen. Raiffeisen analysts expect, however, the cabinet of Prime Minister Mihai Razvan Ungureanu to keep the main policies of the previous executive. The Austrian group has estimated economic growth of 0.5 percent for Romania this year, followed by an acceleration of 2.5 percent next year and 3.5 percent in 2013.
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economics
Q&A
Valentin Tuca, CEO Aon Romania What were the challenges of 2011? For Aon Romania, 2011 was a special year as it was a turning point in the company’s history. A management change was implemented which triggered an organizational change and so 2011 was a year when the focus was not primarily on results, but on reorganization. From a financial perspective, we actually managed to post an increase of 10-12 percent on the revenues side. What were the drivers of Aon Romania’s business hike? The business results came from an exclusive focus on the B2B segment, which is more than 90 percent of our activity and still rising. Key areas of interest were risk management services and insurance consulting and brokerage in industries like construction and power – fields where we’re talking about substantial assets and high-risk exposures. In addition, investors’ interest in green energy and waste management are also opportunities for us. We used to have an interest in insurance for individuals, but we limited this practice last year, as we want to develop it only if we find conditions that are more appropriate. What are this year’s targets? This year we want to continue the processes that we began and to see the organizational structure that we created in operation. Also, we are targeting a business increase despite being aware of the economic difficulties and the challenges of the insurance market – which in fact we believe will register a fall this year. Insurance is an area that is dependent on the general economic climate. Our major interest is to develop our existing client portfolio, consolidate it and improve services and relationships.
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Ministry sells RON 1 billion of Treasury bills, yield up slightly The Ministry of Public Finance has sold RON 1 billion of Treasury bills with a oneyear maturity, as it had proposed. The bills were sold at a yield of 5.31 percent, up slightly from the figure in the previous sale, 5.27 percent, but below the monetary policy rate. Banks underwrote securities worth RON 2.58 billion. The most recent auction for a maturity of one-year titles was conducted in mid-March, when the Trea-
sury lent RON 2.48 billion, at an average yield of 5.27 percent. Yields paid for certificates with a maturity of one year have declined steadily since November, when they decreased 1.38 percentage points from 6.65 percent to 5.27 percent. The lowest yield, 5.22 percent, was paid by the Ministry of Finance for certificates of six months at the end of February, according to statistics published by the National Romanian Bank. ■
Bosch plans EUR 120 million of investment and 3,000 jobs by 2020
German group Bosch has plans for a total investment of EUR 120 million, plus the recruitment of about 3,000 people in Romania over the next eight years, according to media calculations based on group data. The money will be split between Jucu (EUR 77 million) and Blaj (photo). The EUR 77 million to be spent in Jucu will be invested in building a production unit, offices, a logistics center, technical building, parking space, walkways and green spaces. The investment will take place in two stages, the second of which will take the site to 80,157 sqm built on the ground. The
first investment phase will start this year and end next year while the second will start in 2013 and end in 2015. Furthermore, the German company will create about 300 jobs this year, and the number of employees at the Bosch plant in Jucu will reach 2,000 in 2015. Blaj’s mayor, George Valentin Rotar, said that Bosch was the most important contributor to the local budget, currently providing 26 percent of revenue, which will rise to about 34 percent with the opening of new production facilities being built this year. ■
energy Enel Green Power to invest in EUR 270 mln of wind farms this year Enel Green Power has announced investments totaling some EUR 270 mln this year in the commissioning of wind projects. Last year, the firm invested about EUR 330 mln in wind farms in Romania and in 2010 the figure was EUR 75 mln. “This year we will operate 180 MW in wind farms,” said Francesco Starace, GM of Enel Green Power. The Italians currently control a capacity of about 270 MW in five wind parks.
Rafo refinery plans to borrow EUR 70 mln for modernization
The Rafo Onesti refinery plans to borrow EUR 60 million from foreign creditors and EUR 10 million from the company’s major shareholder, Petrochemical Holding Austria, to upgrade the unit. The EUR 70 million modernization plan will be subject to approval by shareholders in the General Shareholders Meeting scheduled for April 18. Another proposal seeks negotiations with Eximbank to grant a guarantee scheme of up to EUR 50 million. A year ago, Rafo announced that it would take out a loan of EUR 80 million, guaranteed by the State or the refinery’s own assets, for modernization investments. Petrochemical Holding, registered in Austria, holds 96.5 percent of the firm.
Bid deadline for Cernavoda nuclear units 3 and 4 extended to September The Ministry of Economy has again extended the deadline for submissions from investors who want to participate in the development of reactors 3 and 4 at Cernavoda nuclear power plant, this time to September 15. Previously, the ministry put back the initial deadline set for mid-December by three months. Nuclearelectrica, operator of the Cernavoda plant, is looking for new shareholders to continue the construction of the reactors after the energy group CEZ, RWE, Iberdrola and GDF SUEZ withdrew from the project. Nuclear units 3 and 4 will have an installed capacity of 720 MW each. The two functional nuclear reactors provide almost 20 percent of national electricity needs.
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Basescu: Black Sea gas field could give Romania energy independence The newly discovered gas reservoir in the Black Sea is expected to begin operating in 2015-2017, making Romania energy independent, according to President Traian Basescu. According to him, a gas deposit of about one hundred billion cubic meters was discovered in the Neptun perimeter and several other similar deposits are to be prospected in the future. “In 2011, Romania consumed 14.2 billion cubic meters of gas, about 11.4 billion from domestic production and the other 3 billion imported. Romania has the potential for total energy independence. If the other four-five fields in the Neptun area that will be prospected yield a similar amount, Romania could be a source of gas not only for itself but for other countries in Europe,” Basescu said. On February 22, OMV Petrom and ExxonMobil Exploration and Production
Romania announced a significant breakthrough in mining in the Black Sea, with preliminary estimates placing the deposit of natural gas at 42-84 billion cubic meters, equivalent to three-six times Romania’s annual consumption. ■
Just one stage for energy price liberalization this year The gradual abolition of regulated prices for electricity will involve a single step this year, and the opening of 15 percent of the market in September for industrial consumers will not automatically lead to increased prices, said the economy minister, Lucian Bode. He added that prices could even decrease with market liberalization due to increased competition between companies. Regulated electricity tariffs will be
eliminated in six stages for industrial consumers by December 2013 and in ten steps for households by December 2017. However, the State will remove the social tariff to protect poor families from high electricity bills next year. Gas prices for the public will be frozen until the end of March 2013, through a one-year extension of an order keeping prices the same from 1 July 2011 to 31 March 2012. ■
Four suitors vie for petrochemicals producer Oltchim The privatization of Oltchim has attracted four investors, Tisa (Russia), Forte (UAE), Rompet Rogas (Romania) and PCC (Germany) – currently a minority shareholder. The Government intends to transform the plant’s debt to the Authority for the Recovery of State Assets into shares and is expected to decide if the operation has to be approved by the General Shareholders Meeting. The conversion of debt into shares would significantly dilute the holdings of minority shareholders if they do not inject tens of millions of euros into the company’s share capital to maintain the current hold-
ings. Oltchim shares will be sold based solely on price, and the State will base its negotiations on indicators that show that the company’s market value can reach nearly EUR 300 million if Oltchim uses the services of Arpechim, the main supplier of raw materials, currently owned by Petrom. However, without raw material supplied by Arpechim, Oltchim’s value is zero, say specialists. Since 2007, Oltchim has posted RON 763 million of annual losses, and ended last year with a negative result of RON 270 million, down 20.9 percent from the 2010 level. Oltchim is controlled by the state, which holds a 54.8 percent stake. ■
real estate Braila’s Armonia mall up for auction, while Bucharest’s Liberty Center sheds tenants
Bankrupt commercial center Armonia in Braila, developed by Red Project Three, part of Red Group, has been put up for auction this month, for EUR 25.03 million. Its main creditor is Volksbank, which is owed EUR 28 million. Armonia was declared bankrupt at the end of 2011, after filing for insolvency in November 2010, two years after its launch. The developer had invested EUR 45 million in the project but the mall went on to run up debts of EUR 35 million to 33 creditors, according to the judicial administrator, Casa de Insolventa Transilvania. This is the third mall to face bankruptcy in Romania, after Tiago Mall Oradea, now Oradea Shopping City, and several attempts to auction off City Mall in Bucharest. Both commercial centers have now been sold. Tiago Mall was bought for EUR 30.5 million by Shopping Center Holding, a
company owned by Karias Trading Limited, which is registered in Cyprus, and Romanian businessman Dumitru Ciocoiu, known for his involvement in projects such as Baneasa Business & Technology Park. And last year City Mall was re-sold for EUR 17.3 million to a Greek investor who had owned it in 2006. It was then bought by Australian property fund APN European Retail Trust. Another mall in Bucharest, Liberty Center, owned by Irish company Mivan and the Awdi family, is facing tenant problems, after losing major names such as Marks & Spencer, Forever 18 and fast food firm Burger King this year alone, who joined an exodus that also included Starbucks and Diverta. Currently, the mall’s tenant portfolio includes Billa, Altex, Hervis, Next, Sprider Stores, Reserved and The Light cinema. ■
Belgian Atenor puts back building work at Hermes Business Campus Belgian developer Atenor Group has announced that infrastructure works on its Bucharest-based complex Hermes Business Campus were completed in 2011 but work on the actual building will be postponed until the office market shows signs of recovery. The office compound, due to be developed in the Pipera area of north Bucharest, is projected to cost EUR 30 million. According to a report by the Belgian group, the rentable office area in Bucharest
has been estimated at 200,000 sqm, representing 10 percent of the overall Romanian office stock. The developer purchased the land plot in 2008 and had planned to develop a 700,000sqm office complex in several stages. The first stage, which requires EUR 150 million of investment, will cover 18,000 sqm and include four levels of underground parking. The buildings are being designed to qualify for a BREEAM excellent rating. ■
Bucharest’s former Tulip Inn facing sale The Bucharest-based hotel Double Tree by Hilton, the rebranded former Tulip Inn hotel, might be sold by its main shareholder, the Lebanese investor Raafat Sarieddine, who owns 95 percent of shares in the property. The holder of the remaining 5 percent stake, Nicolae Dumitrescu, general manager of Sony Center shops, said that the sale was due to the lengthy estimated breakeven time, some 15 years, after around EUR 5 million went into modernization works at the hotel. The investor says that talks are underway with potential buyers but no contract has been signed so far.
Capital Property Advisors notches up EUR 40 mln of transactions in 2011 The group of companies comprising Capital Property Advisors advised on real estate transactions worth EUR 40 million in 2011, according to its representatives. This year, the firm sees potential in land transactions. CPA recently announced the launch of a new division, retail leasing, as a result of the increasing demand for brokerage services in land transactions involving retailers, according to Radu Lucianu, managing partner of CPA.
Metro opens new franchise network Metro Cash & Carry Romania has launched a franchise program for traditional trade stores, under the brand “La doi pasi”. So far about 200 such outlets have signed a franchise contract with the German company. The retailer’s strategy comes after the recent demise of the 830-store proximity network Mic.ro, managed by Mercadia Holland, a company owned by Dinu Patriciu. Meanwhile, Dutch retailer Spar could bring to Romania the Eurospar stores, a new format used by the retailer for shops with areas larger than 1,000 sqm. Spar re-entered the local market in 2011 after Brasov-based Retail D&I 2011 won the franchise for Spar supermarkets and Spar Express proximity stores.
13
infrastructure Five consortia bid for EUR 200 million Metrorex contract Metrorex’s call for bids to carry out execution works on subway line 4, to link Parc Bazilescu, Laminorului and Lac Straulesti, has received five offers from companies and consortiums, for a contract worth around EUR 200 million. Bids came from the German company Hochtief, from FCC Construccion (Spain), the partnership between Somet, Astaldi (Italy), Tiab and UTI, a consortium formed by Max Bogl Romania, which includes Max Bogl and Delta ACM, another consortium of Aktor (Greece), Euro Construct and Arcada.
National program to improve block facades needs money Cristian Petrescu, minister of regional development and tourism, has said that the country’s chances of securing EU financing to improve local apartment block facades are remote and more money is needed from the ministry’s budget. Around 1,662 facades countrywide have been done up in the last three years, with EUR 200 million coming from the Romanian state and managed by city halls. By 2014, local authorities plan to complete improvements on over 1,000 blocks and have announced budgets of EUR 500 million, with most of the works having been planned for this year.
April becomes June for BucharestPloiesti highway The highway that will link Bucharest to Ploiesti is now due be ready in June. This is the third deadline announced in 2012, and puts the estimated delivery back from this month. In February, former PM Emil Boc and the former minister of transport, Anca Boagiu, checked the progress of works on the highway section, in their first visit to the site this year. Works on the 62-km highway were running behind, delaying the completion deadline of December 2011 to April. The section is part of the 173-km road linking Bucharest to Brasov. Works on the BucharestPloiesti segment will cost EUR 450 million.
14 The Diplomat April 2012
Low-cost airlines count costs of Otopeni move The first consequences of low-cost airlines’ enforced move to Henri Coanda International Airport (Otopeni) on March 25 have started to appear. Local representatives of Hungarian budget carrier Wizz said the move would cost the firm 25 percent more in airport taxes, which would feed through into an average 4 percent, or EUR 6, hike in airfares. Other no-frills airlines have voiced similar concerns. Until late last month, Aurel Vlaicu International Airport in Baneasa served as the local hub of several low-cost operators including Blue Air, Wizz Air, German Wings and Vueling. By 2013, once an appropriate terminal is ready, it will host only business flights. The airport buildings, except the General Aviation Terminal, have a seismic risk and need consolidation, according to the National Bucharest Airports Company (CNAB). The first stage of the modernization was completed in
December 2011, when the General Aviation Terminal (building C) was upgraded. The next stage involves the modernization of the three buildings (the dome, A and B), which were used for processing low-cost traffic prior to 25 March. The closure of the airport to commercial flights might also obscure the extensive real estate interests connected to the some 200 hectares of adjoining land, estimated to be worth almost EUR 1 billion. North Bucharest, where the airport is situated, has some of the city’s most expensive real estate developments, with big projects owned by prominent local businessmen, including Gabriel Popoviciu’s Baneasa Developments projects, residential complex Stejari, which is owned by Ion Tiriac’s Tiriac Imobiliare, land owned by George Becali, a greenfield project by developer Impact, managed by Dan Ioan Popp, and Shimon Galon’s FeliCity residential project, among others. ■
CFR on track to receive array of financial support The Government has announced that it will waive EUR 917 million of debt incurred by the national railway system, CFR, prior to the end of last year. The sum will be converted into shares, to be managed by the Ministry of Transportation, as sole shareholder of CFR. Meanwhile, the European Commission also announced last month that it had approved EUR 944 million of financing for two railway projects in Romania. The projects involve upgrades on the 41.1-km Frontiera-Curtici track section and the almost 75-km Simeria-Coslariu route. According to Alexandru Nazare, the transport minister, by the end of the first semester, the EC may approve another EUR 900 million of support for the Coslariu-Sighisoara line. For the Frontiera-Curtici project, the EUR 248 million execution works contract has been signed with a consortium formed of Alstom Transport, Swietelsky Baugesellsachaft m.b. H, Astaldi S.p.A, Euro Construct Trading ´98 and Dafora, and will run for 27 months. The completion date for the works has been put at mid-2014, and they should start by March 15, according to the official data. For the Coslariu-Simeria section, the Italian con-
structor Impressa Pozzarotti & C S.p.A won the EUR 182.6 million contract, which has an estimated duration of 30 months. Meanwhile, VTB Capital plc, the investment banking division of Russia’s second largest state-owned bank, plans to invest several hundred million Euros in Balkan countries in the coming years, according to the bank’s CEO Atanas Bostandjiev. The lender is targeting projects in Bulgaria, Romania, Serbia and Greece. In the first three countries, the bank is studying the privatization schedules for state-owned companies, such as CFR Marfa in Romania. Bostandjiev was appointed CEO, UK and international, of VTB Capital plc, the London-based investment arm of the VTB group, in May last year. ■
appointments GEORGE MUSCOIU has been appointed regional manager of Medlife, taking over the management responsibilities for all the company’s units in Brasov and Sfantu Gheorghe. Muscoiu has a management background of 11 years in the financial field, coordinating the regional divisions for SMEs at BCR. He has also held management positions at other banks, such as Unicredit Tiriac Bank, Volksbank and OTP Bank.
JEROME LIONET was appointed GM of the Calarasi-based unit of glass producer Saint-Gobain Glass Romania. He has spent the last eight years in emerging markets in the region, working for various Saint-Gobain companies and development projects. His assignments within the group have taken him from Poland to Russia and from the Middle East and North Africa to Turkey, Romania and other CE countries.
RAZVAN COPOIU has been appointed vice-president of the industry division at Schneider Electric Romania. From his new position, the manager will coordinate the company’s commercial strategy on the Romanian and Moldavian markets. He has 13 years of expertise in the energy and industrial segments, gained from management responsibilities at companies such as Q-Power, RTC Group, Siemens Romania and Alstom Romania.
IULIANA CRAICIU joins CMS Cameron McKenna’s team of lawyers in Romania. She has over 14 years of experience in business law, in practices such as insolvency, restructuring, commercial and corporate law, energy transactions, the financial and banking fields, tax and capital markets. Craiciu is member of the Bucharest Bar.
FRANCESCO LAZZERI has been appointed GM of Enel Green Power, replacing Carlo Pignoloni. He has been working for Enel since 2000, holding several positions within the group. Before this appointment, he managed the maintenance services management department within Enel Green Power’s Italian geothermal operations.
ANCA MOTCA has been appointed deputy general manager of sales management at Garanti Bank, taking on responsibilities for the lender’s sales strategy and development. She will coordinate retail and SME sales, manage the operations of the bank’s network in Romania. Motca has ten years’ experience in sales management in the banking sector.
15
investments SPAIN
HOLLAND
ROMANIA
Spanish group Inditex will invest EUR 2.5 mln in opening a new Zara shop in the center of Sibiu. The new store will deliver 1,600 sqm of sales area on three levels. The Sibiu outlet is Inditex’s third street location for its Zara stores, after units in Bucharest and Pitesti. Inditex has set up 57 stores so far in Romania, for brands such as Zara, Pull & Bear, Bershka, Stradivarius, Oysho, Zara Home and Massimo Dutti.
The largest Romanian manufacturer of car batteries, Rombat, has a new shareholder: Dutch company Metair International Holdings Cooperatief. Metair controls 99.16 percent of the local firm. Under the agreement between the parties, the transaction details are being kept confidential. Metair Investments Limited includes companies operating in production and distribution, predominantly in the automotive industry.
SWEDEN
WORLD
Bacau-based DIY firm Dedeman, which had a EUR 476 million business in 2011, has invested EUR 15.5 million in the implementation of its second store in Constanta. The firm paid EUR 6 million last year to purchase the 3.5-hectare plot near Selgros and TOM shopping center. The second store in Constanta will have an area of 15,000 sqm and 191 employees. The next opening is set for late April, when Dedeman will open a shop in Ramnicu Valcea.
Tenaris Group acquires Campina production unit from Cameron
Eco-Rom Ambalaje puts EUR 8 million into selective waste collection
Private healthcare operator Medicover has invested EUR 20 mln in its first private hospital in Bucharest. The hospital covers an area of 7,000 sqm on seven levels, is fully functional and integrated operationally and has a capacity of 122 beds. This is the first hospital opened this year on this market after 2011 brought a record of eight new hospitals, requiring investments of EUR 131 mln. In the first month of operation, the Medicover hospital registered revenues of EUR 100,000.
US company Cameron has announced that it has sold to Tenaris Group only one production department in Campina. The transaction involved the sucker rods department, which has a production capacity of 500,000 units per year and 60 employees, representing 10 percent of the total workforce at the Campina factory. Cameron manufactures equipment for the oil and gas industry, and owns another factory in Ploiesti. Tenaris has a pipe factory in Zalau, a steelworks in Calarasi and a service center in Ploiesti.
Eco-Rom Packaging invested around EUR 8 million last year in the selective collection of packaging waste, up 17 percent on the previous year. In 2011, Eco-Rom Packaging used 57.8 percent (354,996 tons) of the amount of packaging put on the market by system affiliates (613,178 tons) and successfully met the recovery goal of 57 percent imposed by legislation. In addition, the firm increased its client portfolio by 27 percent, to 2,301 companies at the end of 2011.
Inditex to invest EUR 2.5 million in new Zara shop in Sibiu
Medicover Group opens first private hospital in Romania
16 The Diplomat April 2012
Metair Investment Limited is new shareholder of Rombat Romania
Dedeman invests EUR 15 million in new store in Constanta
stock exchange
Market offers thanks as privatization saga finally bears fruit After several years during which the privatization of energy companies through the stock exchange was only a fairytale, the completed underwriting of a 15 percent stake in Transelectrica has alleviated the worries of the authorities, intermediaries and investors as to its success. It has also boosted the Romanian authorities’ expectations for this year’s Romgaz, Transgaz, Hidroelectrica, Nuclearelectrica and OMV Petrom listings. By Dana Verdes
F
ive o’clock in the afternoon, March 27. The gong on the hour serves as the signal that the subscription period for the 15 percent stake the Romanian authorities are selling on the Bucharest Stock Exchange has ended. After a hectic few days when both large and small investors were exploring the market, the last two days in particular saw state officials’, intermediaries’ and investors’ adrenaline skyrocket. By the end of the subscription day investors had placed orders totaling EUR 60 million, of which the State will get some EUR 38 million, demand for shares having been about 53 percent higher than the available shares. The fact that the offer was oversubscribed and the State managed to sell all
the shares is a positive sign for the local market and future offers, say insiders. “We started with the idea of making this offer and demonstrating that the Bucharest Stock Exchange is a funding alternative for state and private companies. We believe that the result is encouraging for the Government’s privatization program,” said Razvan Pasol, president of Intercapital Invest, which was
part of the consortium’s mediation team with BCR and Swiss Capital. Lucian Anghel, president of the Bucharest Stock Exchange, also set a similar target at the beginning of the subscription period. “We have been waiting for this moment – when the Bucharest Stock Exchange could be used as a tool to finance the Romanian economy – for about five years. I am glad
Transelectrica’s SPO in figures Subscription status
Shares offered
Subscribed % shares
Large investors
9,895,925
14,393,929
145.45
Small investors
1,099,547
3,051,200
277.50
Total
10,995,472
17,445,129
158.66
SOURCE: Bucharest Stock Exchange (By March 28, 11:30 am)
17
stock exchange
“There is more cash in the market, investors are looking for opportunities and energy firms are being hunted by institutional investors worldwide,” Claudiu Simulescu, managing partner at Fairwind Securities the public offerings prepared by the Romanian authorities must end successfully. Currently, financing is exclusively based on credit,” said Anghel.
An X-ray of the Transelectrica SPO that we received the support of Romanian decision makers for this event, and this trend must go on for the next ten years. The development of the Romanian capital market will very much depend on the development of the local retail segment. The BSE aims to become a leader in South East Europe and for this to happen
The initial and secondary public offerings of various stakes in state-owned energy companies had generated numerous column inches in newspapers and magazines before the State finally went ahead, after years of talk. In mid-March, the Office of State Participation and Privatizations in Industry (OPSPI) along with the intermediation consortium and Transelectrica officials approved the subscription period, which was
March 14-27. Up for grabs were 10,995,472 shares with the price set at between RON 14.9 and RON 19.2 per share. The intermediation team announced that the offering consisted of two tranches, one for subscription by large investors (90 percent of the total available shares) with a value greater than or equal to RON 500,000, and small investors’ tranche, with a subscription value of less than RON 500,000. “We opted for a flexible mechanism for Transelectrica’s offer to allow a wider range of investors to subscribe. Transelectrica is a strong and profitable Romanian company and operates in a strategic sector of the national economy. We believe that these elements along with the competitive
VREM MAI MULT DE LA NOI ÎNȘINE. Primul program și aparat DAVID de recuperare medicală a coloanei vertebrale, unic în România Prima policlinică într-un mall - Policlinica Sun Plaza Prima bancă acreditată să stocheze în România țesut de cordon ombilical - Banca Centrală de Celule Stem Prima maternitate privată din România care gestionează nașteri premature de 30 de săptămâni
EXCELENȚA NE PROVOACĂ
www.reginamaria.ro Call Center: 021 9268
18 The Diplomat April 2012
stock exchange
“On Transelectrica, foreign investors raised, during the road show, the issue of the energy market liberalization, and the company’s tariff,” Dan Weiler, executive director corporate finance & investment banking at Banca Comerciala Romana price will ensure success,” said Dan Weiler, executive director of corporate finance & investment banking at Banca Comerciala Romana (BCR). Transelectrica’s secondary public offering is the first such privatization carried out with local intermediaries. The offer was preceded by a road show abroad. “There were 34 meetings, of which 17 were held in London over the last three days before the subscription started. The fact that the Property Fund has been listed has put Romania on investors’ map,” said Weiler. “Besides technical issues of analysis and value, foreign investors raised the issue of the Romanian gas and energy market liberalization, and the tariff – which is set
for a five-year period due to expire in 2012. The tariff is important to establish the profitability of the company,” Weiler told The Diplomat – Bucharest. “In the investor’s body two hearts beat: one which wants to make transactions and not to miss opportunities and one which has fears. Our goal is to make to the first one beat faster,” he added.
Best practices Claudiu Simulescu, managing partner at Fairwind Securities, told The Diplomat – Bucharest that there is not always a best practice that guarantees success. “At any public offering what is of great importance is the quality of the issuer, its development potential and the discount on
the market price or the company’s value determined by different evaluation methods,” said Simulescu. In addition, Tradeville analyst Ovidiu Dumitrescu told The Diplomat – Bucharest that the structural elements of a public offering must be adapted to each specific situation, which is why there is no unified
19
stock exchange practice worldwide. Specialists say the delays in the listings of energy companies can be explained “The idea of having separate tranches for large and small investors can prevent the by the fact that listings primarily have to exclusion of the latter from the offer. be transparent, and this applies to conHowever, depending on how the two tracts signed with customers and suppliers. parts are divided it can either lead to insuffi“Any investor can hold these companies’ cient values for the small investors or to the managements accountable in situations partial or total failure of the offer because of abuse that disadvantage the firm,” said the tranche for institutional investors is not Simulescu. big enough,” said Dumitrescu. “It is also preferable to have a transNext targets parent price, but the advantage of flexibilThe Government committed to the IMF to sell shares representing 15 percent each of ity in adapting to changing market condiRomgaz, Transelectrica and Transgaz, at least tions should not be overlooked. Therefore, I consider a price range combined with 10 percent of Hidroelectrica and Nucleareleca ‘fixing’ mechanism to be a reasonable trica, 10 percent of OMV Petrom, a 20 percent compromise.” stake in CFR Marfa and 20 percent of Tarom. On the Nuclearelectrica issue, the MinisIn his opinion, for secondary offers a discount on the market price is required. try of Economy, Trade and Business Envi“With the current offering of Transelecronment is in talks with the legal consultant trica shares, we believe that over the listing of the specifications for the selection the price range justifies the interest of investors, espeof the financial company cially towards the bottom of that will handle the interthe range,” said Dumitrescu. mediation. “Discussions on In addition, the Fairwind the final form of the speciSecurities managing partfications are at an advanced ner believes that the liststage. Nuclearelectrica will ings will hike the Bucharest shortly launch the selection Lucian Anghel, president of the Bucharest Stock Exchange Stock Exchange’s liquidity process for the intermediary, and increase its attractiveaccording to the legal proviness, clearing the way for large invest- panies are being hunted by institutional sions, after obtaining the necessary approvment funds. investors worldwide, as it is a ‘fashionable’ als,” Dumitru Dina, director of the strategy industry,” said Simulescu. development department and interim general If not now, when? The Tradeville specialist also strikes a manager of Nuclearelectrica, told The DiploBrokers say that listings of public compa- positive note, albeit a qualified one. “The mat – Bucharest. “Listing a minority stake nies on the Bucharest Stock Exchange are macroeconomic environment dominates in the stock market is a source of income always welcome, and have been expected the psyche of investors in this period and, for business development and support for now for some 17 years. “The outlook may despite the relatively uncertain climate, the investments and diversification of funding. appear negative because of the crisis, but signals are positive. Obviously, the financial These financial benefits can increase the we should realize that at this moment there situation, future economic prospects and visibility of the company for potential busiis more cash in the market, investors are quality of governance at each company are ness partners and boost confidence, espelooking for opportunities and energy com- also important,” said Dumitrescu. cially in foreign markets,” he said. ■
“We have been waiting for the moment when the BSE could finance the Romanian economy for about five years,”
Energy companies’ public offerings Company
Public State Status offering stake (%) (%)
Launch date
Transelectrica
15
73.69
BCR, Erste and Intercapital Invest have intermediated the offer; subscription successfully completed
March 2012
Transgaz
15
73.5
BT Securities, Raiffeisen Capital & Investment (RCI) and Wood& Co will intermediate the offer
End of April 2012
Romgaz
15
85
A consortium of Goldman Sachs, Erste, BCR, Raiffeisen Capital & Investment (RCI) will intermediate the offer
June/September 2012
Nuclearelectrica
10
over 90
Specification demands almost established and announcement to be made shortly
October 2012
Hidroelectrica
10
over 80
Announcement for the selection of the intermediary made public
October 2012
SOURCE: Office of State Participation and Privatizations in Industry
20 The Diplomat April 2012
state aid
State aid: handout or hand up? State aid has long been a contentious issue, especially as Romania joined the EU, where its companies are expected to compete with firms from more advanced economies. While too much state aid risks distorting fair competition, too little can leave deprived regions and sectors languishing or lead to bankruptcies and mass layoffs. Legal and corporate specialists and state officials outlined to The Diplomat – Bucharest the main aspects of this delicate and complex topic. By Magda Purice
“W
e as consultants have seen a steady increase in investors’ interest in projects financed by state aid in the last two years. The fact that we are currently working on seven projects confirms this trend. Past and current projects range from small to large, with Premium Aerotec and ContiTech just two of the names of a total portfolio of about EUR 400 million of investments and about 4,000 new jobs created,” said Iulian Sorescu, associated partner and head of the financial department at Noerr Finance & Tax. The company has advised companies such as ContiTech Fluid Automotive Romania SRL, part of Continental Group, and Premium Aerotec, an EADS/Airbus Group company, on different practice areas to secure state aid. According to Noerr data, the automotive project consists of the extension of production in Carei, Satu Mare county,
with a third hall, more than doubling the production capacity of heating/cooling hoses. The total investment was more than EUR 15 million, which included state aid of more than EUR 4.4 million for the eligible costs. Premium Aerotec, meanwhile, obtained financing approval for state aid of about EUR 20 million for a greenfield investment worth some EUR 90 million in a production facility for aircraft parts. Most of the forthcoming consultancy projects in the portfolio of another large law office are combined projects, using
327mln
€
is the amount of state aid available to SMEs
both structural funds and state aid. “Infrastructure projects in the electricity, transportation and environment fields are most common,” said Anca Jurcovan, managing associate of law office Tuca Zbarcea & Asociatii. Until now, mid-size projects financed by the Romanian Government amount to around EUR 1 billion, with effective state aid of about EUR 327 million approved, out of which EUR 110 million had already been paid by November 2011. All these projects are expected to create a total of about 7,060 new jobs. The main beneficiaries were Pirelli, Renault, Aaylex Prod, Dacia, Delphi Diesel Systems, Premium Aerotec, Lufkin Industries, Remar and International Automotive Components Group. The table below presents the chronology of public cases of state aid granted to investment projects under the state aid scheme put in place by GO 1680/2008.
21
state aid
“In 2009, SMEs accounted for 1.3 percent of the entire available financing, while the European average was 6.9 percent,” Laura Mocanu, lawyer partner at Bostina & Associates
Sixteen projects on the table The Ministry of Finance is currently analyzing 16 investment projects worth a total of EUR 419.73 million, of which state aid accounts for EUR 180.32 million. Since 2007, four state aid schemes have been running, according to data provided by the ministry: a de minimis scheme, targeting small enterprises and investments of up to EUR 200,000 granted for three fiscal years, three schemes for large investment projects and a special state aid scheme for regional development, for Ford’s investment in Craiova. According to the ministry’s statistics, for the de minimis scheme, 905 financing contracts have been inked, totaling almost EUR 100 million, of which 821 investments have been completed. For large investments 26 financing agreements have been established since 2008, totaling EUR 1.371 billion. The ministry reports that the approved state aid totaled EUR 376.74 million, of which EUR 128.57 million has already been paid. Under the financing agreements, investments carried out over these years are expected to create 7,880 jobs. Beneficiaries include Pirelli, Renault, Delphi, Premium Aerotec, Lufkin, Toro, Honeywell, Cord, ContiTech, Rombat and Bosch. By 2011, only 23 percent, represent-
ing EUR 232.9 million of financing for projects, had been approved under the mid-ranking state aid scheme. Meanwhile, only 6 percent, or EUR 36 million, of the general state aid scheme worth a total of EUR 575 million, has been approved since 2007, from total funds of EUR 1.5 billion, according to analysis conducted by Noerr Finance & Tax. The medium state aid scheme will end in 2013 and targets projects larger than EUR 5 million. The financing granted through the larger scheme will end this year and eligible projects must have investment values higher than EUR 100 million. In Q1 of 2011, for instance, the State granted financial support of EUR 18.4 million, but the year which saw the largest sum was 2010, when assigned state aid totaled EUR 87.7 million. According to data provided by the Ministry of Finance and Noerr, the financial support went to projects in fields such as industry, tourism, the medical sector and furniture, but it also targeted acquisitions involving companies facing problems. Interest in M&A was low in Romania in 2011, and is likely to remain so in 2012. “Although foreign investors are officially expressing their interest in the local market, they are prudent and tending to analyze the opportunity of entering on a specific local market more than usual,” said Sorescu. The investment projects financed so far are mostly in the automotive sector; however, other fields of activity have also attracted funds, and those that did so over 2009-February 2012 are detailed in the table below. The EC has approved state aid scheme for developing the local air transportation infrastructure through to 2015, according to information from the Competition
“Infrastructure projects in the electricity, transportation and environment fields are most common for state aid,” Anca Jurcovan, managing associate of Tuca Zbarcea & Asociatii 22 The Diplomat April 2012
Council. The initiator of the scheme is the Ministry of Transportation and Infrastructure, which has assigned EUR 150 million, and aims to help a maximum of 14 D-category airports (with traffic of fewer than 1 million passengers per year) to develop and modernize their airline infrastructure. Another state aid scheme is being rolled out for the Romanian cinematography industry. Established by the National Cinematography Center, it will grant EUR 80.68 million to film production by 2014. The maximum number of beneficiaries is estimated at 250. According to official data, the different aid schemes are intended to address specific economic needs, whether those of individual businesses, sectors or geographical regions.
State aid schemes adjust to needs of small business In 2007, the European Commission approved a regional aid map for Romania. According to EC representatives in Romania, the country’s regions have a GDP/head below 75 percent of the EU average. In order to tackle the disadvantages of these regions and to promote economic and social cohesion, the Romanian authorities can normally grant investment aid to large companies of up to 50 per-
state aid cent (40 percent in Bucharest-Ilfov) of eligible investment costs in all regions until the end of 2013. For investment projects with eligible expenditure exceeding EUR 50 million, these limits are, however, progressively reduced. SMEs can receive a bonus of 10-20 percent of their investments. Besides investment aid, other types of assistance may be granted (like environmental, training, employment and R&D aid and risk capital). The Romanian authorities put in place several aid schemes under the General Block Exemption Regulation 800/2008. The regulation pertains to a category of enterprises (SMEs) which employ fewer than 250 workers and which have an annual turnover not exceeding EUR 50 million, and/ or an annual balance sheet total of up to EUR 43 million. Aid measures respecting the conditions of this regulation and falling below a certain threshold are deemed to be compatible with the treaty and do not need to be reported to the Commission before they are put into place. According to Manuela Lupeanu, senior associate at Peli Filip law office, during the current crisis the EC has
How deep is Romania’s pocket for state aid grants? Year
total State aid value *
Number of projects
2009
59.50
3
187.10
2010
51.70
3
108.70
2011
76.53
10
209.76
2012
32.81
3
100.13
* Values expressed in million EUR
increased its support for and concentration on SMEs. Lupeanu says that SMEs, which in 2008 represented around 90 percent of European companies, are seen by the Commission as the engine of potential growth. This is why support to SMEs is granted from all types of financial sources available, e.g. EU money in combination with national sums (structural funds – through the operational programmes in place in Romania), from national money allocated at central level (money granted by a ministry – aid schemes to support sustainable economic development) and at local level (money granted from the local council budget – e.g., an aid scheme for industrial parks). At the beginning of their launch, it
Total project investment*
SOURCE: Finance Ministry
seemed that state aid schemes 1680/2008 and 753/2008 for mid-size and large projects stipulated strict conditions for SMEs, requiring a minimum of EUR 30 million in investment and at least 300 employees. The result was that between 2008 and 2010, too few SMEs were eligible for such financial support, while large multinationals benefited from sums targeting larger investments. Since October 2010, Noerr representatives said, “The more accessible minimum thresholds combined with green economic shoots steadily increased investors’ interest and the number of the projects accordingly. The attitude of the State Aid Department in the Ministry of Public Finance is really open to financing invest-
23
state aid ment projects via state aid, fitting well with the interest of investors.” According to lawyer Laura Mocanu, partner at Bostina & Associates, in 2009 Romanian SMEs accessed 1.3 percent of the entire available financing, while the European average was 6.9 percent. At the beginning of 2012, the Ministry of Finance announced at a meeting with representatives of SMEs that it was launching a new scheme for de minimis state aid for small and mediumsized enterprises. Between 2008 and 2011, the de minimis financial support scheme allocated RON 371.29 million (EUR 90 million) to 821 investment projects, representing an implementation rate of 93.5
percent, according to the Ministry of Finance. However, despite the good intentions of the Romanian authorities, SMEs lack information on these schemes and do not tend to hire a consultancy company to guide them through the network of documentation and technical requirements. Mocanu adds that delays are also fairly common.
High sums hard to get “It usually takes four-six months to obtain state aid funds depending on the project’s complexity. This period includes all stages of preparing the documentation, submission to the Ministry of Finance and obtaining the approval. Sometimes this
period becomes critical, as most investors want to launch the project quickly; however, the period can be reduced by the smooth flow of information and greater efficiency in preparing the project,” said Sorescu. According to the specialist, some investors have long-term ventures and so the state aid scheme expiry date at the end of 2013 may require them to revise their plans. An extension to the scheme would please them a lot and the number of the projects would certainly increase significantly. Others investors have found their projects are not fully eligible for various reasons: used equipment, relocation from other EU countries, already started
Romania’s recent recipients of state aid Year 2009
2010
2011
2012**
Company
Project
Location
Delphi Diesel Systems
Expansion of production facilities
Iasi
24.8
49.5
526
Premium Aerotech
Aircraft components plant
Brasov, Ghimbav
19.3
46.6
554
Automobile Dacia Pitesti New (SUV) vehicle production
Arges, Mioveni
15.4
91
310
Lufkin Industries
Plant for pumping oil
Prahova, Aricesti
28.1
33.3
320
International Automotive Components
Automotive production plant for Craiova Ford and Suzuki
17
58.9
384
Remar
New wagon production
Iasi, Pascani
6.6
16.5
105
Honeywell
Implementation of new technology for brakes
Prahova
17.8
58.72
300
Toro manufacturing & sales
Plant for producing irrigation micro-systems
Prahova
8.5
19.7
102
Automobile Dacia Pitesti New vehicle production
Arges, Mioveni
9.9
19.8
105
Rombat Bistrita
New battery type production
Bistrita Nasaud
8
17.2
108
Styria Acuri
Expansion of production site
Sibiu
3.13
6.46
58
Gral Medical
Hospital development with radiotherapy services
Bucharest
8.68
24.6
210
Altius International
Photovoltaic production unit
Giurgiu
2.7
5.72
51
Cord Romania
New production unit for tire assembly
Olt, Slatina
6.18
27.24
200
ContiTech Fluid Automotive
Expansion of production unit
Satu Mare, Carei
4.4
15.14
300
Aplast Glass
Building glass production unit
Prahova, Mizil
7.24
15.18
169
Romcab
Expansion of production for cables
Mures
23.27
79.26
348
Polisano Clinique
Expansion with new clinic
Sibiu
6.25
12.56
192
Makita
Expansion of production
Ilfov
3.29
8.31
69
*Values expressed in million EUR
24 The Diplomat April 2012
** For January and February 2012
SOURCE: Finance Minister
State Total Created aid project jobs value* value*
state aid
“Companies are discouraged by the amount of paperwork and their lack of confidence in the entities managing the state aid process,” Manuela Lupeanu, senior associate at Peli Filip
projects etc. In such cases, they have no chance of securing funding so any application would be in vain. Some say the period required is shorter. “There is still enough time to apply, as a full application, including the technicaleconomic study, can be prepared in foursix weeks. After submission, the review by the Finance Ministry may take about two months, including the clarification period, “ said Ruxandra Chirita, senior manager, advisory, at PwC Romania. With the scheme for medium-sized projects due to end this year and the larger state aid scheme in 2013, investors perceive time as running out for their projects. For complex projects it could be a rush to plan, apply to the Ministry of Finance and deploy the investment by December 2013. There are rumors that the schemes will be extended beyond 2013, which would be a green light for potential investors. Another problem highlighted by investors and analyzed by Noerr is that for large projects, defined as over EUR 100 million and creating more than 500 new jobs, the eligible criteria “seem to be too demanding, as only one company has managed to be successful on this scheme, and this was a partly state-owned company,” Sorescu said. According to Cristine Barbu, senior
manager for state aid & EU funding at KPMG, even on-the-ball companies can be challenged by the unpredictability of the project timeline. “Even the best prepared applicants, i.e. those who already have a firm project idea and who are aware of the legal provisions of the state aid scheme, face this problem. It is hard to guess when a new call for applications will come or changes will be made to the current schemes. The date of project inception is also unpredictable, as it is still difficult to estimate beforehand how long the evaluation process of an application file will take. But above all, the most significant challenge is cash flow, particularity given this type of funding, under which the beneficiary must first pay, then reclaim the money. The applicant should be prepared to support the investment from its own funds for at least one year after the inception of the project,” said Barbu. Manuela Lupeanu of Peli Filip believes that state aid is a realistic prospect, given the significant amount of legislative measures, both EU and national, which promote it. “However, its effective accessibility for companies is not so clear, as they are either discouraged by the amount of paperwork to be done prior to and after receipt of the aid, their lack of confidence in the entities managing the state aid process or by the difficulty in obtaining the rest of the required money to start and carry out the project (state aid does not cover all the money necessary for establishing a project, but only a percentage of it corresponding to certain eligible costs),” said Lupeanu.
terms of objectives. Lupeanu says that the Commission identified several objectives (regional development, boosting employment, environmental protection) which contribute to overall economic and social development as legitimate pursuits even with small distortions of competition. Under the provisions of the schemes available through the most recent call for projects, generally any type of company carrying out productive investments (i.e. consisting of an initial investment intended to extend or diversify its current production) may be eligible for state aid. “However, considering the very short time left until the end of the current schemes, the most likely companies to benefit are those that have already decided on the type of investment they need to carry out and that have already taken the first steps towards obtaining the necessary permits and studies,” said Barbu of KPMG. According to the manager, a downside of the state aid structuring strategy is that these schemes do not incentivize the supply of services. “We have often been asked how to access state aid for service centers, call centers or office buildings. Unfortunately, neither the supply of internet services, nor even R&D activities are promoted under the current state aid
The eligibility question The granting of state aid has always been considered very thoroughly, particularly in
“State aid is generally prohibited, as it can distort market competition. But it’s allowed for instance in economic fields subject to market failure,” Cristine Barbu, senior manager, state aid & EU funding at KPMG 25
state aid schemes,” said Barbu. The eligibility criteria are stifling access, say lawyers from Tuca Zbarcea & Asociatii. “Major drawbacks still relate to the eligibility criteria, which exclude major candidates in sectors with high growth potential such as the IT industry. While creating a large number of jobs, the IT cloisters usually fail to meet the minimum thresholds of investments in tangible and intangible assets, which are mandatory under the available regional schemes,” said Anca Jurcovan, managing associate at the law firm. “If an IT greenfield has a good chance of employing 300 people, it will most likely not require an investment in tangible or intangible assets (i.e. buildings, equipment and licenses) in excess of EUR 30 million to qualify for a sufficient subsidy under the existing schemes. A solution
she said. Furthermore, the evaluation of financing demand is still not transparent and the feedback of specialists involved in the evaluation is not easily secured. “This means the requested clarifications come too late for the applicants to use the information in a successful application,” said Mocanu.
Insolvency issues According to insolvency specialists at Casa de Insolventa Transilvania, in order to benefit from state aid, a company taking over an insolvent firm has to create 50 jobs and invest EUR 5 million. CITR includes in the restructuring plans for a company in distress the sale of the company as a going concern, enabling the investor to apply for state aid. “Besides supporting firms that plan to acquire struggling companies, the state could accelerate the redressing of state companies by putting into place a reorganization plan within the insolvency process, under the supervision of a judi-
tion. The CITR manager gives another example where the State would recover a similar amount through both bankruptcy and reorganization. In this particular case, to define whether certain state aid is possible, the EC uses “the test of the private investor/ creditor in the market”. In practice, the test verifies if a private investor, acting within the market conditions, could benefit from this kind of measure. Among the cases analyzed by CITR, there is only one defined situation involving state aid. According to Herlea, it involves a reorganization plan which sets out partial payment of the debt owed to the State but, if the company is declared bankrupted, the State gets a larger amount. “Even if we don’t see this in practice, we think that this is the sole situation when a favorable answer from the State regarding state aid would be defined as state aid,” Herlea said.
“We’ve seen a steady increase in investors’ interest in state aid in the last two years. We are currently working on seven such projects,” Iulian Sorescu, associated partner, head of financial department, Noerr Finance & Tax
would therefore be to define investments in R&D as eligible costs or to promote a scheme which addresses industries where the investment is not ‘asset specific’ but lies in people.” Lawyers at Bostina & Associates say that the successful submission of projects must meet several challenges, which makes the financing opportunity a big ask. According to Laura Mocanu, the head of the competition and privatization practice at Bostina & Associates, one of the main problems in accessing state aid is the difficulty of aligning the project to the legislative indicators of the scheme and providing complete technical documentation to the Ministry of Finance. “Another challenge is the difficulty of raising the financial contribution to the project, given banks’ reluctance to issue the comfort letter which is required in this case,” 26 The Diplomat April 2012
cial administrator,” said Vasile Godinca Herlea, CITR managing partner. Currently, the firm doesn’t have such cases in its portfolio. But the partner said that, nevertheless, the two matters remain an interesting topic. The link between insolvency and the granting of state aid has been brought up in some cases when the reorganization plan for a company has been drafted. For instance, when the State is disadvantaged by the proposed reorganization plan, because of the waiving of debt, it will not give a green light to the reorganization plan, defining the debt as state aid. The State thereby invokes the European rules on restructuring aid. According to representatives of CITR, this is not correct and cannot be applied to all reorganization plans, as current practice indicates. In some cases reorganization plans address the recovery of debts from the ailing company to the benefit of the State. For instance, the reorganization plan may stipulate the full payment of debts to the State, whereas under bankruptcy procedures the State would recover only a por-
Who is excluded? Cristine Barbu, senior manager, state aid & EU funding at KPMG, said, “Generally, state aid is prohibited, as it is liable to distort market competition. However, the Commission has allowed state intervention in certain geographical areas which are regarded as being deprived, or in economic fields subject to market failure. This is how the state aid schemes were set up, as permitted exceptions to the fair competition rule. They were construed as measures to incentivize fields where market failure has been detected by means of transparent judgment and support. Also a number of major projects, in excess of EUR 50 million, whose effects have been considered to be more important than the potential market distortion as a result of their economic or scientific spin-off effects, have been approved for funding on a case-bycase basis by the EC,” Barbu said. However, she added, breaches of the competition rules still occur. This is why we still hear from time to time about EC investigations into possible breaches of state aid rules
state aid by companies belonging to multinational groups. In the event of insolvency or restructuring, there is a possibility that the grant awarded to redress the activity could be retracted. Anca Jurcovan elaborated, “If the aid beneficiary enters insolvency proceedings, the grant may be annulled if the subsidized activity is suspended. A potential transfer of the subsidy of the beneficiary’s assets to the buyer is subject to the state aid supplier’s approval. The acquirer must comply with the eligibility conditions and commit to continue the investment under similar terms. The state aid supplier must be notified of the contemplated business transfer so as to make its preliminary assessment on whether such a transfer would be feasible. Mention should be made that the transfer of aid to the assets’ acquirer is at the discretion of the relevant authority, which is not bound by a legal obligation in this respect,” she said.
from an arbitrary assigning of costs within the group or if the financial difficulties are too great to be solved by the group.
Big money draws big money Granted state aid of EUR 143 million over 2008-2012 by the Ministry of Finance’s 2008 scheme, US car producer Ford may have its state aid cut off, due to having so far failed to meet its production target at Craiova. The firm will pay penalties for not producing the amount of cars stipulated in the contract, according to the National Agency of Fiscal Administration (AVAS). Under the newly signed agreement, between January 2013 and December 2017, Ford will make 810,000 units, and another 1.5 million in the next five years. Ford Motor Company and AVAS also signed an additional act to the privatization contract of SC Automobile Craiova, under which the targets from the post-
worth around EUR 250.95 million. Another state aid case is that of the German auto parts manufacturer Bosch, which 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. The company will invest some EUR 43 million by the end of 2013 in a plant extension and new manufacturing equipment. Construction will start this spring, according to the company’s officials. By the end of 2013, roughly 300 new jobs will be created in new premises covering some 21,000 sqm. By 2020, the number of associates manufacturing wheel-speed and crankshaft sensors is expected to rise to roughly 1,000. In organizational terms,
“A full application can be prepared in four-six weeks. After submission, it is reviewed by the Finance Ministry in about two months,” Ruxandra Chirita, senior manager, advisory, PwC Romania According to Laura Mocanu, when state aid is granted for large individual investment projects exceeding EUR 28.125 million, or EUR 22.5 million in the case of the Bucharest-Ilfov development region, the EC should receive information on the state aid, so that it can evaluate the impact on the competitive environment in the region. Also, according to Herlea of CITR, there are two exceptions which disallow the possibility of granting state aid to a company in business distress. A newly created company is not eligible for state aid for restructuring within the first three years from start up, even if the business needs financial help. This is the case when, Herlea explains, a new firm is formed after the liquidation of a former company or by taking over the assets of the other company. Another case is when a firm has been taken over by a group of companies, and so is not normally eligible for financial support for restructuring or redressing. The exception is when the company’s managers succeed in proving that the business distress did not result
privatization obligations were put off until December 2012. Under the privatization contract signed in 2007, Ford agreed to produce 250,000 cars in 2011 and 300,000 in 2012. Last year, the carmaker manufactured 7,600 commercial vehicles under the Transit Connect brand. In June this year, Ford will start production of the new model, B-Max, two years later than scheduled. The American company said it would produce 60,000 cars this year, compared with the 300,000 initially promised. Penalties for the carmaker will reach EUR 14.25 million, after the Government decided, through a GO, to cut the state aid granted to Ford for its investment plan in Romania, from EUR 143 million to EUR 75 million. So far, the firm has received EUR 31 million from the state aid scheme for its car production, and another EUR 5.6 million for engine production, as part of the EUR 75 million package, according to government spokesperson, Dan Suciu. To benefit from the state aid, Ford pledged to produce cars worth EUR 618.14 million and to run an investment program for producing engines
the new manufacturing facility will be assigned to the Chassis Systems Control division, which develops and manufactures components and systems for active and passive automotive safety, as well as driver assistance systems. According to government officials, the investments will benefit from state aid. In February, a spokesperson for the local county council in Cluj, Alin Tise, said that state aid in the Bosch case will be analyzed before approval by the Ministry of Finance. Turning to the second investor in the industrial park Tetarom III in Jucu, DeLonghi, the company should sign a new contract with the local council as soon as the investor completes tabulation procedures for the production halls. Locally, DeLonghi is expected to invest EUR 30 million and create around 1,000 jobs in stages. ■ 27
agriculture
Field of dreams: agricultural sector cultivates hopes Romanian agriculture must sow the seeds of change to reach European Union levels. But while the country has no irrigation system, little storage space, a productivity level that is half the EU average, and just a fraction of European funds have been absorbed, market players see some green shoots. The authorities and the largest private agricultural firms in Romania told The Diplomat – Bucharest about the current state of the system and the solutions to make agriculture profitable. By Roxana Cristea
“A
griculture is the last train that we should catch; if not we will remain far behind as we always have been,” says Lucian Buzdugan, general manager of TCE 3 Brazi, the largest farm in the EU with a total of 55,000 hectares of land. In his view, a well developed agricultural sector can give a country a major boost. Unfortunately, in Romania, there is still much to do before the agricultural sector
28 The Diplomat April 2012
can be described as developed. “I believe that agriculture should be a national priority. In the future it will reach a higher level than now because due to subsidies the land has begun to be cultivated, the price of agricultural production has increased and EU development funds have been awarded and accessed,” adds Marian Visu-Iliescu, president of the Romanian Association of Young Farmers.
In 2011, considered one of the best agricultural years since the revolution, agriculture contributed 11.3 percent to GDP growth, compared to previous years when the average contribution was 6-7 percent, and both high yields and good prices gave relief to Romanian farmers. Visu-Iliescu believes that to develop sustainable agriculture, Romania must allocate a significant percentage of GDP to this
agriculture
11.3% 2-2.5 €2.5bln
growth in the GDP of agricultural output on the previous year
3.7bln
€
amount of European funds accessed to date by Romanian agricultural companies
1
hectare of land that farmers need to be eligible for subsidies
131 700k
€
grant given last year in Romania per hectare
hectares of agricultural land in Romania owned by foreign investors
37%
absorption rate in Romania of available EU money over 2007-2013 30 The Diplomat April 2012
hectares is the average surface area of a farm in Romania
sector over a period of at least five years and encourage the phenomenon of association and regional cooperative development. He also says the country should develop a local cereals market for the better organization of farmers, depending on market demand and capitalize on more finished products to regain traditional markets such as Russia, the Arab countries and Western Europe, as well as increase the irrigated area. But to do these things requires a well thought out political plan and greater absorption of EU subsidies.
EU gives a lot, Romanian state gives a little “In general, different kinds of subsidies are provided in agriculture, focused on the plants and livestock, but most important is the payment scheme subsidy on land surfaces, which consists of a sum granted by the EU, which has evolved over the years. The level of EU subsidies in 2011 was equal to that of 2010 but state subsidies dropped,” Buzdugan tells The Diplomat – Bucharest, adding that Romania should reach the level of other European countries by 2016. Grants awarded locally last year reached EUR 131 per hectare, of which EUR 37.72 was national payment. Unlike in Romania, where national subsidies are among the lowest in Europe, other countries have subsidies of several hundred euros. For example, in Austria the subsidy is EUR 223 per ha, in France EUR 289 per ha, in Holland EUR 425 per ha and in Greece EUR 603 per ha. Romanian agricultural companies have so far accessed a total of EUR 3.7 billion in European funds, which corresponds to an absorption rate of 37 percent of the money available to Romania over 2007-2013. “The difference between Romania and other European countries is very high. We are somewhere around 40 percent. We should have reached 50 percent but we haven’t. In a common European market this creates very large problems for Romania and for farmers especially, in the sense that they enter on a competitive market where there is no equality between those who receive EUR 400 and our country where the subsidy is EUR 30,” adds Buzdugan.
target for European funds for agriculture in 2012
This means that other EU farmers can sell their produce for EUR 20-30 per ton less, while if a Romanian farmer were to sell at a similar price, he would make a loss. “It is an injustice, unfair competition even within a common European market. And there are disadvantaged people who cannot charge a lower or at least equal price to the other EU producers. We are starting the spring campaign and we have not received money from the Romanian government, something that does not happen in other countries,” says Buzdugan. He adds that many problems were attributed to the crisis without no thought that this would deepen the crisis. The TCE 3 Brazi director is optimistic and says he hopes to receive money through a national subsidy when Romania’s budget allows it. “This year we have an aggressive target for European funds of EUR 2.5 billion, or 40 percent of the EUR 6 billion assumed by the government. In the first quarter, we will make payments of EUR 1 billion and we are very close to this level,” said Stelian Fuia, minister of agriculture, at a seminar. Although agriculture has one of the highest rates of absorption of European funds, Fuia argued that the rhythm could be accelerated. “One of the problems is lack of priorities. At the time of negotiations with the European Union we did not have clear priorities. In the next period we will redeploy EUR 750 million of European funding programs with less demand to those where there are many applications. We will open deposit sessions (when those who want EU funds may submit projects) worth EUR 1.5 billion,” added Fuia. Farmers in Romania can access about EUR 10 billion over 2007-2013 from European funds through investment projects in agriculture. Of this money, EUR 8 billion is “clean” money from the European Union, with the rest coming from the state budget. To be eligible for subsidies, farmers must have at least 1 hectare of land (of which the paved area is less than 0.33 hectare), to be cultivated or maintained in agroenvironmental conditions, according to the Romanian Farmers Association. “The conditions for obtaining a grant
agriculture are neither few, nor many, nor difficult to access. It is not difficult to secure a grant, the problem is how big it is,” says Buzdugan. The main difficulties encountered in obtaining EU subsidies are excessive red tape, paperwork, the lack of a well developed information system and receiving subsidies after sowing campaigns, in installments. In addition to this, the minister said that another major problem facing Romania today is financing, particularly in the private sector. “There is great appetite for banks to award agricultural grants, as this is the most important sector for Romania. Not every bank will have access to subsidies if it is not involved,” added Fuia. He commented that Romania is doing well with money
reluctance to join a cooperative, according to Visu-Iliescu of the Romanian Association of Young Farmers. “The main difference between local agriculture and other EU member states is productivity. The productivity level of production in Romania is 50 percent of the European level,” says Buzdugan. So if average European wheat production is 6-7 tons per hectare, here it is only 3 to 3.5 tons per hectare; for corn, in Romania the figure is 3.5-4 tons per hectare, while in Europe it is over 8-9 tons per hectare. This difference in productivity is due to the equipment that Western farmers have, which has been consolidated over decades, while Romania has been equipping and trying to capitalize its farms only for a few years. “Some farms are on track, and have good chances of obtaining equipment, but you need serious training and good specialists. You can use a tractor that only has
believe the Common Agricultural Policy (CAP) has an important role in raising the agricultural sector in Romania. Once it joined the EU, Romania had to integrate the CAP without an extended period of transition. There were some areas where it was given a transition period, but this was rare. “CAP enables us to access grants for farmers to equip them with machinery and allow them to conduct livestock farm modernization. CAP gives us a common market, without frontiers and well organized, and uniform policies with agricultural markets,” says Visu-Iliescu. However, Buzdugan believes that while CAP was very helpful to Romania, the country was not ready to adopt it. “The grants, EU funds, are very good things. We have started to build sustainable agriculture, so we must pay greater concern to soil and natural soil fertility, but many farmers are trying to make the agricultural land into a milking cow. But things are
“This year we have an aggressive target for EU funds of EUR 2.5 bln. In Q1, we will make payments of EUR 1 bln and we are close to this level,” Stelian Fuia, minister of agriculture
from the EU, but that it could do better. However, the country will not have problems in accessing funds and the amounts contracted by 2013 will be well deployed. “The granting of subsidies and the possibility of getting capital to farmers, especially with performing vehicles, will lead to economic growth and the contribution of agriculture will increase,” Nicolae Sterghiu, deputy general manager of intervention and payments at the Agriculture Agency (APIA), told The Diplomat – Bucharest.
Money and experience make the difference The differences between Romania and other European countries are not only related to subsidies. Compared with other EU members, Romania’s agricultural system is poorly financed, has major differences in unit production, a weak organization of capitalization and must fight farmers’ 32 The Diplomat April 2012
power steering or one that has a computer, but in the latter case you need a high level of training,” says the head of TCE 3 Brazi. Another major difference is the infrastructure. “When I was in France and Germany I visited areas of land where the roads are paved. Also, there, where the water adduction system is very well done, very little water is lost,” adds Buzdugan. Another basic element that Romania lacks is a stock exchange for the sale and marketing of products, where farmers can contract production from one year to another and where trade rules are respected. In the EU the insurance system is also advantageous. In Romania, if you want to take out frost or drought insurance, no company will help you. “Until recently our country used the 381 law, which helped farmers when such disasters happened, but today it does not work and farmers have been left at the whim of nature,” concludes Buzdugan.
Moving forward with CAP help But manufacturers and the authorities predict the big differences between Romanian agriculture and that in other EU countries will decrease in the coming years, and
moving forward under the current policies,” adds the TCE 3 Brazi head. Meanwhile, Nicolae Sterghiu believes that EU policies are helping Romanian farmers to access information more easily so they can communicate with foreign farmers. In addition, another potential advantage that agriculture has at this time is innovation. “Innovations and entering into a more vigorous rhythm than the present one will help. Currently, innovations made just as forward-transmitted folklore are not productive because it has been too many years since something technologies were available to us. For the CAP policy in 2014-2020 innovation and providing consultation are big concerns,” says Buzdugan. CAP favors village life. Very few EU countries have such a tradition, folklore that today Romania is proud of, from the water mill to costumes. “But EU policies also have some mistakes. One is that they have not approved biotechnology – the most advanced form of technology that will have a new stage, namely nanotechnology. The EU is conservative in this aspect,” Buzdugan says. He adds that the most advanced agricul-
agriculture tural states in the world, such as the USA, Argentina, Brazil, Australia, Canada, South Africa, China and India, develop this type of agriculture. Romania has the conditions to grow soybeans, like in America, but the EU does not allow it to cultivate biotechnological soybeans although it approves the consumption of soy. Europe imports 20 million tonnes of genetically modified soy. Romania, which has 3 million hectares uncultivated, has not received permission to cultivate one million hectares of soybeans. Mihai Ciocau, development manager at United Grain Consult, thinks that community policies tend to affect the agricultural sector in Romania because it does not receive the same treatment as countries with more developed agricultural sectors. “CAP in 2014-2020 will put us in a different position at the table. We suffered because of poor farming treaty negotiations in 2004. Romania ranks sixth in Europe by
“It is false that it is a tax on fallow ground. We cannot require anyone to work the land but we can require them to keep the soil healthy,” said Stelian Fuia during a seminar on agricultural issues. The new version was chosen after a law taxing fallow ground was rejected by the Ministry of Justice. Last December the Ministry of Agriculture published a draft of this law, which requires every farmer in Romania to “fight” about 40 harmful plants to avoid fines of up to EUR 100 per hectare. The fallow tax project was one of the first measures announced by Valeriu Tabara a year ago, shortly after he took office as minister of agriculture.
Land bank idea aims to stop the flow of foreign investments
come up with concrete data in this regard. Asked what funds are necessary to establish a land bank and the source of this money, Fuia did not provide a clear answer. “It’s a work in progress. When we have clear data we will let you know,” he responded. Last year, when Tabara came up with a similar initiative, the proposal was that the Agency of State Domains (ADS) be transformed into a land bank by introducing a provision to allow the institution to acquire agricultural land. ADS is now responsible for the privatization of state farms and agricultural land concessions held by these companies. One of the institution’s responsibilities is to merge land to lease or sell it later. ADS currently has about 340,000 hectares of farmland, of which the largest areas are in Braila (69,000 ha), Calarasi
Setting up a land bank with priority in the acquisition of agricultural land could stop
“The main difference between local agriculture and other EU states is productivity. In Romania it is 50 percent of the European level,” Lucian Buzdugan, general manager, TCE 3Brazi used agricultural area after France, Spain, Germany, the United Kingdom and Poland. Surely in 2014 we will get more attention in the CAP,” says Visu-Iliescu.
Rural resurgence Stelian Fuia, the new minister of agriculture, announced that he wants to raise funds, to make his institution a ministry of the rural economy by creating jobs in rural areas, increasing the acreage by charging a tax on the not worked pieces of land. In addition, according to the Romanian Association of Young Farmers, the Minister plans to establish farmers’ agricultural chambers (replacing agricultural departments with these bodies that include farmers and local authorities in the organizational structure of the APIA). “I think that the actions of the new minister are very good and 70-80 percent achievable, considering that he has a shortterm mandate,” says the association president. In addition, the Ministry of Agriculture will submit to Parliament a law, under which the State can penalize land owners that do not clear their land of weeds, instead of one that would fine owners who do not work the land, as originally announced.
the flow of foreign investments in local farmland, said Fuia. “We want to set up a land bank with preemption rights to purchase agricultural land. It is the only way to keep it in the national sphere. The institution will be allowed to purchase land from the market to merge it, then put it back on the market by concession for young people,” said the minister. He announced that Romania has “almost zero chance” to limit foreign purchases of land in any way as such a move would change the EU accession treaty. Romania agreed in 2007 – when it joined the EU – to liberalize the land market from 2014. From then on foreigners interested in Romanian land will have no barrier; they are currently obliged to buy land through locally registered companies. But the restriction has not prevented such investors from acquiring 700,000 hectares of land, approximately 8 percent of total arable area. In this context Fuia revived the idea of a land bank, an instrument placed on standby by the former minister, Valeriu Tabara. The idea has never before got past the discussion stage and Fuia’s efforts have proved no exception. The minister did not
(52,000 ha), Dolj (20,000 ha), Constanta (18,500 ha) and Giurgiu (18,000 ha).
Challenges: irrigation, stock exchange, storage and fragmented land “I think the main problem for Romanian farming is the fragmented land. Modern agriculture cannot be done on the average 2 to 2.5 hectares of a farm in Romania,” says Buzdugan. Romania also has no irrigation system. Currently, of the 10 million hectares of Romanian arable land only 600,000 hectares is irrigated. “Nothing can be done without water, even if we have fertilizer, machinery and thousands of people. A Ministry of Agriculture official should focus their attention on irrigation. A drought may come every 10 years and the irrigation system pays by the simple fact that you have water when you need it,” says the head of TCE 3 Brazi.
33
agriculture
Farmland prices across Romania
North-East Area (ha) 2,190,000 Average price (EUR/ha) 2,150
North-West Area (ha) 1,800,000 Average price (EUR/ha) 1,800
Center Area (ha) 1,620,000
West
Average price (EUR/ha) 2,200
Area (ha) 1,700,000
South-East
Average price (EUR/ha) 1,800
Area (ha) 2,190,000 Average price (EUR/ha) 2,150
Bucharest - Ilfov Area (ha) 62,300 Average price (EUR/ha) 2,650
South-West Area (ha) 1,600,000
South
Average price (EUR/ha) 2,150
Area (ha) 2,300,000 Average price (EUR/ha) 2,200
Source: DTZ Echinox Consulting
National complementary direct payments in selected EU countries Country
Romania
Austria France Holland Germany Greece Italy Denmark Spain Poland Great Britain
Payment (Eur/ha)
37.72
223
289
425
324
603
319
367
193
101
205
SOURCE: Romanian Farmers’ Association
34 The Diplomat April 2012
agriculture Secondly, the amount of fertilizer per hectare in Romania is 6-10 times lower than in the EU. In addition, there is a lack of storage space around the country. “We do agriculture from Satu-Mare to Constanta. If we produce cereals at the foot of Barlad Hill we need to transport it 100200 km to sell it. There are two solutions: either do no more than I need, or give it away for nothing when we have produced a surplus because we have no means to transport it. Warehouses for production should be built in every village. Production is needed as never before. We don’t have a functional market. Between the two wars we had a stock exchange which set the price of wheat in Europe. Now we cannot establish the price of wheat even in a village. Why? Because we don’t want it to be institutional,” says Buzdugan. On the other hand Stefan Poienaru, general manager of Agrofam Holding Fetesti, adds that another challenge facing farming in Romania is the lack of coherent agricultural policy and lack of laws based on merging agricultural land that works. “I think Romania’s social problems, those of the 40 percent of Romanians living in villages, should be at the base of rural policies – the need to develop processing
factories of agricultural production in rural areas, societies of services to contribute to the rise of the state economy. Here is a policy that should be addressed seriously and for the long term,” says Poienaru. Visu-Iliescu of the Romanian Association of Young Farmers says farmers are also complaining about the high price of diesel oil (it is considered a luxury). In England for example, diesel costs GBP 0.60 per liter at the pump, while farmers pay GBP 0.12. In Romania, the subsidy for diesel is EUR 21 per thousand liters. “The solutions to solve problems in agriculture are the presence of a stock exchange that would increase the price of agricultural products by at least 30 percent, the subsidy to be renegotiated to reach a level close to that of other countries, excise- and tax-free oil for farmers and payment of subsidies before the autumn sowing campaign, the tax of entire agricultural production and to pursue the main base products (flour, meat, milk, fruit and vegetables) from factory to consumer,” adds Visu-Iliescu.
New agriculture strategy “Now we are about to develop a strategy for agriculture. Each Romanian government has developed a new strategy, but the next
Agricultural land owned by foreign companies COUNTRY
SURFACE (%)
Romania
7
Ethiopia
10
Argentina
10
Guinea
11
Australia
12
Sierra Leone
15
Paraguay
25
Uruguay
26
Laos
41
Liberia
67 Source: GRAIN
government came and started over. The latest strategy, drawn up by people who have worked in many domains, should be a priority and should be voted on by all parties,” says Buzdugan. Priorities should be irrigation, increasing potential production and cultivating the entire available area. In Europe there is no piece of land that is not worked and in Romania 3 million hectares are not worked,
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agriculture
“There is a need to develop processing factories in rural areas. Here is a policy that should be addressed for the long term,” Stefan Poienaru, general manager, Agrofam Holding Fetesti
Hope for the future
he adds. “After the priorities are set we should establish a series of strategic programs to achieve every action in detail. One last thing we should do is to attract EU funds. Over 2007-2014 Romania will put in EUR 7.2 million and receive EUR 25 billion net from the EU.”
Banks finance farming “I have said before and I still maintain that agriculture is the most important asset that Romania has,” says Radu Gratian Ghetea, president of CEC, adding that farming is the top sector in attracting funds, be it in the form of grants or rural development programs. According to Ghetea, two of every ten loans in the portfolio of CEC Bank are now going to companies in agriculture. “We give credit for January to March and get the repayments in October. About 18-20 percent of the loans in our portfolio are for agriculture. Of these only 5-6 percent are non-performing loans. Across the entire banking system non-performing loans make up 15-16 percent. Our agricultural customers show decency and when they have a duty they honor it,” said Ghetea at a conference on agricultural issues. At the end of 2010 CEC Bank’s loan portfolio was RON 10 billion. At this level, loans given by the bank to the farming sector in Romania amount to about RON 2 billion. Overall, the volume of loans and commitments reached in agriculture exceeded RON 10 billion. Some of the most active lenders in the farming sector are non-banking financial institutions (NBFIs). The volume of these loans is double what it was two years ago, agriculture being the only sector of the economy where the credit portfolio increased during this period.
36 The Diplomat April 2012
“2011 was close to a normal year in terms of agriculture because we benefited from a favorable rainfall regime, a milder winter and then the level of agricultural production was closer to what we normally get. I could not call it an exceptional year. In addition, we had a friendly market, meaning that prices did not drop considerably from 2010, which was a tough year for agriculture,” says Stefan Poienaru, general manager of Agrofam. He adds that 2012 is a different year from 2011 because of a dry preceding autumn meaning seeds planted then (rape, barley, wheat) did not have good conditions to germinate in time for winter. “Crops have suffered. We had a 30 percent loss of crop density, which will hit production, but higher levels of snow and rainfall have topped up the soil water,” adds Poienaru. He says, however, that he is optimistic about 2012 because of what is happening in South America, Europe and across the Mediterranean Basin, where crops have been drastically affected by winter and drought.
“We estimate that we will have a friendly market because this will mean a low production volume which will lead to increased demand and prices, at least at last year’s level.” In addition, more farmers are saying that the most important thing in the future is EU funds. “This year we will access more funding. We got EU funds for the installation of biomass pellets for green energy, a EUR 300,000 project, and now we are waiting to hear details of its eligibility. We have a project this year for a photovoltaic park. We also want to modernize our fertilizer factory. This year we will invest more than EUR 2 million,” says Poienaru. He believes that the engine of growth in agriculture in Romania is farms run by young people, not very large ones but of an economically optimal size. “They are led by young people who have accumulated experience, who are familiar with European agriculture and they are the engine that will revive Romanian agriculture and take it where it belongs,” adds Poienaru. ■
Biggest owners of agricultural land in Romania Company
Surface of owned County agricultural land (ha)
Tce 3 Brazi
55586
Braila
Comcereal
27921
Vaslui
Interagro
20231
Teleorman
Ajcoctc Baraganu Ialomita
12624
Ialomita
Maria Trading
11675
Calarasi
Intercereal Movila
11112
Ialomita
Agrocomplex Barlad
10585
Vaslui
Delta-Rom Agriculture
9998
Tulcea
Agro Chirnogi
9838
Calarasi
Zimbrul
9835
Ialomita
Emiliana West Rom
9696
Timis
94123
Dolj
Cervina A&S International 2000
9305
Ialomita
Agrodelta Sireasa
9284
Tulcea
Westgrain
8642
Bihor Source: APIA- 2010 data
netherlands
W
Dutch flag still flying on local market despite dire straits Like other Europeans, Dutch investors are fighting to cope with the widespread economic challenges as they seek solutions to keep and increase the businesses they own on the local market. Romania’s largest foreign investor has more than 4,000 companies in the financial, consumer goods, agriculture, and transport and logistics fields, and top-ranking Dutch officials voiced their compatriots’ resolve to maintain and increase their local interests. By Magda Purice
hile political relations between Romania and the Netherlands are currently somewhat tricky, after the Dutch authorities vetoed Romania’s accession to the borderless Schengen zone, for companies it is business as usual, and the Western European country remains the largest investor in the Romanian economy. According to official statistics provided by the Netherlands-Romanian Chamber of Commerce, bilateral trade between the two countries amounted to almost EUR 2.7 billion in 2010, an increase of 8.6 percent on 2009. Of this sum, Romanian exports accounted for EUR 1 billion, or 2.75 percent of Romania’s overall exports, while the rest represents imports from the Netherlands. At the end of 2010, almost 4,000 Dutch companies were registered in Romania, with a total investment value of EUR 5.85 billion. The Netherlands is the largest foreign investor in Romania, active in many economic sectors, but its presence is higher in consumer goods, agriculture, transport and logistics, and financial services, according to the Chamber of Commerce. In keeping with the European picture, foreign investment flows have decreased since the beginning of the current crisis, says Peter de Ruiter, PwC Romania partner and tax and legal services leader, and president of the Netherlands-Romanian Chamber of Commerce. “This is an EU-wide phenomenon, which is not particular to Romania. Therefore, new Dutch investments have also taken a downwards trend. However, companies that were already present in Romania have strengthened their position here. One such example is ING Bank, which has actually gained market share in Romania since 2008, and its situation is by no means an exception amongst Dutch companies,” said de Ruiter. Although no official statistics on the current situation of local Dutch investments have been made public in the last two years, Hans Smaling, head of the commercial and trade department at the Embassy of the Kingdom of the Netherlands, struck a positive note, saying that no drop in Dutch investors’ interest in business opportunities in Romania has been spotted so far. And he does not believe that the political differences between the countries are a serious impediment to the business community. “I personally do not feel that the Dutch Government’s current stance on the Schengen issue is damaging to the business interests of Dutch companies operating in Romania,” Smaling added.
37
netherlands
“The introduction of good holding legislation would attract and retain capital in Romania and will develop the financial sector,” Peter de Ruiter, partner, tax and legal services leader, at PwC Romania and president of the Netherlands-Romanian Chamber of Commerce
Focus moves to beta skills The recent economic dynamics in Europe and worldwide have shifted the emphasis of the labor market towards so-called beta skills, which means a focus on productivity, as well as manufacturing and technical skills, Hans Smaling, economic counselor of the Royal Netherlands Embassy, told The Diplomat – Bucharest. However, the emphasis on productivity should not rely too heavily on Europe’s labor resources, since the Asian markets are major competitors when it comes to rapid and high productivity and manufactured products. “Countries in Europe should particularly focus on R&D and innovation, to come on the market with the best viable solution, after which they have to start producing it,” advised Smaling. The diplomat commented that for Dutch and other foreign investors alike, Romania’s low labor costs are no longer a main criterion in choosing the country as a business resource. “Labor costs in Romania are becoming comparable with other states in Europe and companies, especially those conducting industrial and production activities, come here to find specialists and very highly-skilled workers,” said Smaling. Turning to the hopes for Romania as a business destination within Europe and worldwide, the official said that he sees
“Romania as one of the fast-growing economies in Europe in the coming years.” Smaling is hopeful about the current macroeconomic strategies in which Romania is involved (the European gateway platform strategy for instance) and recent economic measures taken in Romania to comply with the treaties agreed with the IMF, World Bank and European Commission. Still, problems remain in the form of the long-discussed deficiencies in the Romanian business and administrative infrastructure, administration transparency, the predictability of fiscal policies, excessive bureaucracy and, one of the most important but also subjective matters, mentalities. On the Schengen issue, the embassy official says that the matter will eventually fade from people’s minds after two consecutive positive reports. EC leaders have postponed their decision on Romania and Bulgaria’s Schengen accession until September.
Schengen not a dealbreaker for business The much-discussed Schengen issue will not and has not interfered with the development of the business landscape, regardless of the origin of the investor. According to Peter de Ruiter, the economic partnership between Romania and the Netherlands will grow even stronger, as expected. “We see enormous development potential for Dutch companies operating in Romania in several areas from energy, trade, logistics and transport to agriculture and consumer goods. I am confident that the Schengen issue will be resolved by September this year and that by then it can be seen as only a temporary cloud in this successful relationship overall,“ de Ruiter told The Diplomat – Bucharest.
“Labor costs in Romania are becoming comparable with other EU states, especially those conducting industrial and production activities,” Hans Smaling, economic counselor of the Royal Netherlands Embassy in Bucharest 38 The Diplomat April 2012
Still, with the coming years offering no certainty, Romania has to continue improving operational efficiency and liquidity management, while businesses must maintain a lean organization with a close monitoring of costs, urged the Chamber of Commerce official. In Hans Smaling’s opinion, Romania offers investors a friendly taxation system, with a flat tax of 16 percent, which, according to the embassy official, “is pretty low compared with other European states”. The main local challenge in fiscal prudence is to improve the tax collection system, broaden its base and bring the grey economy into the legal one.
Holding steady Meanwhile, Romania has more work to do on several urgent issues that for years have dampened some investors’ enthusiasm and made life hard for foreign businesses operating locally. “In order to maximize its potential, Romania should improve its infrastructure and adopt several key fiscal measures that would create a very attractive business climate and act as a magnet for foreign investments,” de Ruiter urged. “One of these measures should be the introduction of good holding legislation. This would attract and retain capital in Romania and also contribute to the development of the financial and professional services sectors. If we look
netherlands at the EU countries that have adopted such holding legislation, like the Netherlands, Luxembourg and Cyprus, we see that this has been a key ingredient of their economic success and, on the long run, increased the revenues to the state budget.” Another major fiscal measure that some investors believe Romania should adopt is the possibility of VAT deferral for imports. Today, this is only an option for companies with yearly turnovers of more than RON 150 million. The Chamber of Commerce president argues that this possibility, which has no impact on the state budget on the longer term, would greatly improve Romania’s status as a CEE trade hub. In addition, in the import field, he urges Romania to take advantage of the strong points of the Constanta harbor.
Harboring grand designs The Constanta harbor, along with the coastal businesses in which Dutch companies also have an interest, ranks among the top priorities in Romania’s strategy to become the Eastgate Trade Hub of the CEE region, part of the European Gateway Platform strategy (EGP), founded by a number of Dutch companies. Under the strategy, Romania has
1
€ bln is the value of
Romanian exports to the Netherlands, representing 2.75 percent of Romania’s overall exports in 2010 been assigned a total of EUR 19 billion of EU Structural Funds over 2007-2013, of which EUR 8.5 billion is earmarked for investments in infrastructure and regional development. The EGP strategy includes the expansion of the port of Constanta, the navigability of the Danube and the development of multi-modal junctions and inland waterway networks, all projects that will begin within the next few years. The Netherlands has the technology and knowledge to play a role in these developments. Given the economic growth, the investments flowing from Brussels to Romania over the coming years and the country’s
strategic geographical position as a gateway to the Central European and wider continental market, Romania offers numerous business opportunities to the Dutch logistics and infrastructure sector. Dutch companies are “willing to invest in Constanta harbor and, currently, there are several investments in the pipeline,” Smaling said. The local port is not the only development opportunity for local and foreign companies, given the government policies and measures to be taken within the administration. Dutch representatives – embassy officials, business association spokespeople and private investors – also pointed out that the Southeast Europe Danube Strategy aims to revamp Europe’s most important river into a modern transport route. The region includes ten countries, six EU members and 200 million inhabitants, of whom 75 million live in regions bordering the river. The Danube strategy has to be built on solid, achievable projects and is included in the EGP strategy, which is supported by the Dutch Government. In addition, another advantage of the EGP platform strategy is that it has been incorporated as a priority into Romania’s national strategy, said Smaling. ■
39
netherlands
Dutch investments clog horizon despite crisis
From building ships to filling glasses with beer, Dutch investors are active locally with more than 4,000 companies registered in Romania, and their presence extends to a myriad of economic sectors. The Diplomat – Bucharest talked to top representatives of the main Dutch investors to find out their expectations and strategies for this year. By Dana Verdes, Magda Purice, Roxana Cristea
A
ir France-KLM, LeasePlan, Remco and Eureko are just a few of the names heading the list of Dutch companies with significant presence on the local market. Like all firms, they have been working on business strategies and solutions to get by in these troubled times.
Damen Galati steers investments through choppy waters Damen Galati, one of the main shipyards of the Damen group, today has 1,700 employees and is one of the local Dutch success stories, according to officials at the Netherlands Embassy in Bucharest. According
40 The Diplomat April 2012
to Florin Marian Spataru, HR & corporate affairs director at Damen Shipyards Galati, since 2009 the Galati-based company has managed to cover its production capacity planned for 2011 and 2012 and even part of 2013, despite the contraction of the shipyard construction market. “The increasing costs of operations and raw materials have driven the adjustment of the company’s activities to prototype ships produced in limited series and to the development of additional services,” Spataru told The Diplomat – Bucharest. This year, the shipbuilder is continuing investments, including the development of a new production site, and keep-
ing up the investment pace that has seen it spend around EUR 3 million yearly on new equipment and modernizing its operational site. The firm mainly produces for export and plans to deliver 14 ships this year, representing a 10 percent increase in production. The company’s managers support an intermodal transport strategy, even though Romanian shipyards operate independently. “Investment plans for the intermodal strategy have to be adopted and supported through fiscal measures, in order to gain more commercial operations in harbor areas,” said Spataru. He added that Romanian shipbuilding activities rank third
netherlands
“Our passengers have preferred to take shorter holidays, mostly long weekends in the big European cities,” Alexandru Dobrescu, country manager of Air France-KLM in Romania within the European industry, but local horizontal development is not that solid, with most of the equipment being imported.
Meet and Seat program lifts passenger numbers for Air France-KLM Joint French-Dutch airline Air France-KLM is basing its current strategy for this year on consolidating its corporate client portfolio, including SMEs, according to country manager Alexandru Dobrescu. For this, the airline has the fidelity program BlueBiz, following which it plans to consolidate its share of a more and more competitive market. In addition, KLM has enhanced its online offers with social media campaigns. According to the manager, the recently launched Meet and Seat service allows passengers to research their fellow travelers via Facebook and LinkedIn. “Through this program, passengers can view the online profiles of other travelers long before booking a seat so they can chose to sit next to somebody they consider interesting or with whom they share interests,” said Dobrescu. He adds that the program is already a success story and has been expanded from three destinations available at the launch to ten now. Last July, the group posted a six percent increase in passenger traffic into and out of Romania, mainly attributable to mul-
tiple group programs for passengers. In 2011, it announced it had a market share of 17 percent. With its two hubs in Paris and Amsterdam, the airline has not seen major changes in traffic in 2011 for its two top tourist destinations. However, demand for European destinations is up to the detriment of long haul, due to smaller budgets. “This is the main change brought about by the recession. Our passengers have preferred to take shorter holidays, mostly long weekends in the big European cities,” Dobrescu said in 2011.
Quadra Invest bets on on-demand production Furniture designer and importer Quadra Invest is focusing this year on two clear aspects, in order to boost the efficiency of the production process: finishing works, with a focus on ecological materials, and increasing the production line for the tapestry section, according to Daniela Banica, administrator of the company. The main challenges it is facing are cost controls and adjustment to customer demand. “This involves an increased flexibility in the production operations and the possibility of offering alternatives for finishings and tapestry. The more you are willing to exit serial production, the more interesting you become to the customers,” Banica told The Diplomat – Bucharest. Currently, the company’s production capacity is 3,500 wooden items of furniture and tapestry products. Last year, Quadra managed to increase its client portfolio by 7 percent on the previous year and it plans further growth in 2012. The company’s managers attended a specialized trade exhibition organized in Moscow, from which the firm expects an increase in demand, and this year the focus is switching to the Middle East, as represen-
tatives will participate in a national exhibition in Sharjah in the UAE, near Dubai. According to the manager, 70 percent of foreign customers buy individual pieces. On the local market, the company serves both individuals and companies. “We sense an increasing trust from customers in specialized interior design advice, provided by designers and architects, as well as the need to provide tailormade products,” said Banica. With an initial investment of almost EUR 500,000, the company’s flagship store European Heritage, located in the historic center of Bucharest, hosts 500 sqm of interior design products on three levels. In 2011, Quadra Invest attained a turnover of EUR 3.6 million and expects an increase this year. It employs around 120 people, a number likely to remain unchanged in 2012.
Crisis gives Rembrandt hotel officials lesson in efficiency Toni Tatar, manager of the Rembrandt hotel in the old center of Bucharest, a Dutch investment, said, “With only a few boutique hotels in Bucharest or, more widely, in Romania, one cannot build a market.” This means that there is enough space to grow on this market, and even though the last few years have brought several strategy changes and switches of business optics for
“We are not targeting controversial auctions in Romania; instead we are looking for interesting projects abroad,” Jan F. J. van Vulpen, Remco Ruimtebouw Holland and Remco Romania GM 41
netherlands
3
€ mln Damen Galati’s
yearly investment in new equipment and modernizing its operational site
250
the total number of workers that two Dutch companies Vos Logistics and Fencs are hiring in Cluj
10
the number of stores retailer Spar manages on the local market
6
€ mln the value of the ongoing construction projects handled by Remco Romani in Gabon, Nigeria and Cameroon
99.16%
the stake acquired by Dutch company Metair International Holdings Cooperatief in Romanian firm Rombat 42 The Diplomat April 2012
10
7%
every company, the manager thinks that 2012 will bring a five percent growth in revenues. The hotel posted a turnover of EUR 450,000 in 2011. “The last few years have taught us a valuable lesson across the hospitality industry. We learned to be efficient and innovative during times when demand was decreasing every day. I would say that the current trend in the hospitality field is finding a niche in services,” added Tatar. The Rembrandt hotel, which required a EUR 1.1 million investment, is a sister business to the adjacent Van Gogh coffee shop. With 16 rooms on 7 levels, it opened in 2005 after the building, which dates back to 1925, was refurbished. For 2012, the hotel has budgeted investments of EUR 20 million in modernizing some technical facilities in the rooms and changing other hospitality services. “This year we will target more the corporate segment,” hotel representatives told The Diplomat – Bucharest. The occupancy rate in January 2012 was up 15 percent on the same month of the previous year, but the sales rate decreased by 10 percent. The owners of the hotel have expanded their business portfolio in the old center of Bucharest with a wine shop, opened with an investment of EUR 100,000.
fleet management services locally.” Having signed up 40 new clients in 2011, one of the company’s most important contracts this year was with E.ON. The company sealed a three-year operational leasing contract with power distribution company E.ON Moldova for 445 cars, in a deal estimated at EUR 9.5 million. The contract was awarded to LeasePlan Romania after it beat off rival bids from two companies in an auction held by E.ON. LeasePlan Romania posted a turnover of EUR 30.9 million in 2011, 21 percent up on the previous year. The company had a market share of 17 percent in 2011 and a fleet of 6,267 vehicles. The largest fleet in its portfolio is held by OMV Petrom, with over 2,200 cars. The local operational leasing market grew 17 percent in 2011 year-on-year to reach 37,397 vehicles under operational leasing contracts, up from 31,923 in 2010. In its business services, LeasePlan partners Euro Insurances, which is part of LeasePlan group, as well as insurance companies Omniasig VIG, Allianz, Generali, BCR Asigurari and Uniqa. According to ASLO, the top member company by market share and fleets is ALD Automotive, with an 18 percent market share and 6,705 vehicles. LeasePlan Romania has a 17 percent market share and 6,267 vehicles; Porsche Mobility, 16 percent and 5,888; Arval Service Lease Romania, 12 percent and 4,362; and FMS has a market share of 6 percent and 2,412 vehicles. ASLO president Bogdan Apahidean last year predicted a 15 percent growth in the field in 2012, which would take it to 43,000 vehicles. This year, Apahidean estimates that the company could net a turnover of EUR 40 million, compared with the almost EUR 31 million achieved in 2011. With plans for expansion, 57 employees and 6,400 managed cars in the company’s fleet portfolio, LeasePlan expects to have a market share of 17.5 percent this year, a slight increase on 2011.
the current number of the increase in furniture destinations for which Air producer Quadra Invest’s France-KLM’s Meet and client portfolio in 2011 Seat program is available on the previous year
LeasePlan ups number of contracts in 2011 “Operational leasing in Romania has kept on growing in recent years, a trend that should be maintained in 2012 too,” said Bogdan Apahidean, managing director at LeasePlan and president of ASLO, the Romanian Association of Operational Leasing Companies. The manager told The Diplomat – Bucharest that opportunities come from companies’ need for cost efficiency when managing their fleet. “The challenges, though, come from the fact that we have to convince partners who offer different services in this field to align their offers to customer demand and convince clients that have operational leasing contracts in their mother countries that they can benefit from outsourcing their
Vos Logistics and Fencs
netherlands
5%
the expected growth in revenues estimated by boutique hotel Rembrandt this year start hiring in Cluj The two Dutch companies that announced investments at Cluj have started recruiting. Vos Logistics is expected to hire 150 workers, and Fencs Industries 100, according to officials from the Consulate of the Kingdom of the Netherlands. VOS Logistics will open its first work station in Romania close to the Transylvania highway, while Fencs Industries, which produces equipment for the food industry, will open a plant at Apahida. Fencs Industries is expected to invest EUR 2 million in the factory, which should be operational within the next three years. The company will establish two production lines for processing vegetables.
1.7%
the combined increase in revenues of insurer Eureko Asigurari last year Spring is coming for Eureko “The total insurance market, combined non-life and life, fell about 4.5 percent in terms of revenue. Eureko Asigurari posted a combined increase of 1.6-1.7 percent last year. We have a market share of 23-24 percent in health insurance and if we were to draw a line I would say spring is coming, we can see a positive trend,” Frans van der Ent, CEO and board member of Eureko Asigurari and chairman of the board at Eureko Pensii, told The Diplomat – Bucharest. According to him, the company’s life insurance business on the local market last year declined 0.9 percent, while the market rose about 4 percent, but this was mainly due
40
the number of new clients signed up by operational leasing firm LeasePlan last year to the hike in the health component of life insurance and growth in distribution via banks. “Personally, I am glad when I see this number for Eureko as in 2010 business declined 8 percent. We continued to advance on the health market, rising 5 percent in 2011, while the market’s growth was double digit. The market keeps on growing as major clients have entered,” said Van der Ent. The Eureko official says that pension contributions are growing and will very likely continue to do so. “I am glad that pension contributions are so far increasing to 3.5 percent in 2012, and I think they will reach the 6 percent which was set as a target by law. This is good as it inspires
43
netherlands trust. I hope the voluntary pension market (third pillar) will resume, as currently it is treading water as employers are being very prudent in adding benefits and, in the end, health is closer than retirement,” said Van der Ent. On the topic of health, the Eureko official expects a double-digit growth for this EUR 10 million market. “What is most important here is gradual health reform. The first step must be to change the tax regime to make it look more like the pension tax regime. The real issues of the health system are primary care, prevention, hospital efficiency, remuneration, the availability of the right drugs in Romania and funding,” said Van der Ent. “In Romania we spend some 4 percent of GDP on health, while in the Netherlands it’s about 12 percent of GDP, with a significant difference in the value of the GDP. In terms of the European market, Romania is
March, has two new stores in Brasov, taking it to a total of 10 units under the brand on the local market – eight in Brasov and two in Sfantu Gheorghe. This is the Dutch retailer’s second attempt to conquer the Romanian market after the first ended in insolvency. However, the company’s projects will continue with rebranding its other stores – 11 units are now functioning as Aprozar and Gostat in Brasov – as Spar. Spar stores on the local market have surfaces of between 100 and 1,400 square feet and are named differently depending on their size. Supermarkets are called Spar, while convenience stores are branded Spar Express. Soon another name for shops larger than 1,000 square feet will be added to the existing network.
Dutch delivery company TNT bought by American giant UPS Dutch delivery group TNT Express has been acquired by and merged with the American express parcel giant UPS (United Parcel Service), in a transaction estimated
of the Dutch group of companies Remco told The Diplomat – Bucharest that the company’s general manager is currently in Africa. The business trip comes following the recently announced contract the company won on the continent, where Remco is consolidating its businesses with ongoing construction projects to be developed in countries such as Gabon, Nigeria and Cameroon, totaling EUR 6 million and an estimated area of 30,000 sqm so far. In 2011, the firm was awaiting construction permits for its sixth project in Africa, to build a 9,500-sqm warehouse in Nigeria. Remco Romania won its first contract in the continent in 2010, involving two projects in Gabon, while this year another three schemes have been delivered in the same country. Currently, the company is about to sign deals to build a warehouse in Nigeria and a food processing plant in Cameroon. “We are not targeting local controversial auctions in Romania; instead we are looking for interesting projects abroad. Besides Africa, we are in advanced negotiations for
“Gradual health reform is needed. The first step must be to change the tax regime to make it look more like the pension tax regime,” Frans van der Ent, CEO and board member of Eureko Asigurari
in a reasonably good position, as it has the possibility to grow, but it will be a decadeslong process.” Eureko reduced last year’s losses by more than 50 percent compared to the previous year’s results. “I expect economic trust, transparency and the need for protection to increase in Romania on the long run. The penetration of e-commerce and payment methods will also increase. And I expect bank insurance to grow. With 40 insurance companies in the market, further consolidation might be on the horizon as well,” predicted the Eureko official.
Spar resumes retailing in Romania Retail D & I 2011, which opened Dutch franchise Spar on the local market in
44 The Diplomat April 2012
at EUR 5.2 billion, representing EUR 9.50 a share, representatives of the two companies announced. According to data on the market, UPS offered EUR 9 a share for the Dutch firm over a month ago, an offer which was rejected for being too low. Nevertheless, the two firms remained in talks and have now agreed to create a merged group with annual turnover of EUR 45 billion. The offer is supported by TNT Express’s management and supervisory boards. PostNL, which owns 29.8 percent of the company, has said it will tender its shares, according to Dutch national news media. UPS now plans to consolidate its expansion in Europe, especially on markets such as the UK, France, Germany and the Netherlands. In Romania, UPS recently announced a 15 percent increase in exports compared with the same period of 2010 at the end of the third quarter.
Constructor Remco Romania goes into Africa Representatives of the Romanian branch
a 46,000-sqm project in Russia,” said Jan F.J. van Vulpen, Remco Ruimtebouw Holland and Remco Romania GM. Remco Romania, a subsidiary of Dutch company Remco Ruimtebouw, has amassed 100 projects involving over 500,000 sqm, building for companies active in the transportation, warehousing, distribution, trade, services and sport sectors, according to the firm. In 2010, the Dutch group had a turnover of EUR 30 million from its businesses in Romania, Poland, Ukraine, Russia and Bulgaria.
New shareholder for battery business Rombat, the largest Romanian manufacturer of car batteries, has a new major shareholder: Dutch company Metair International Holdings Cooperatief, part of South African group Metair Investment Limited. Negotiations lasted over a year and reached completion in March, when the contracts were signed. At present, Metair controls 99.16 percent of Rombat. Under the agreement between the par-
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netherlands ties, the transaction details are being kept confidential. “We are pleased that our new owner is Metair. This group is a strategic investor for us and is present in the same industrial sector – car parts. We believe that the new shareholder will support the further development of Rombat. We are pleased that Metair representatives appreciated our company’s performance, as they also negotiated with other companies in this area. In recent years we have had good results,” said Ioan Repede, general manager of Rombat. Annually, the firm can recycle 43,000 tons of batteries from both home and abroad. “I think the battery recycling segment has primarily been influenced by competition on the waste battery market, which contributed to higher commodity prices,” said the manager of the company, which
market share at the end of the last year was 53.8 percent. Metair’s main customers are Daimler Chrysler, General Motors, Nissan, Toyota, Volkswagen, BMW and MAN. Last year the group recorded revenues of EUR 429.4 million, up 14.4 percent on 2010. By acquiring the majority package of Rombat, Metair is entering on the European producers market.
of its own. The company had a turnover of EUR 34.8 million and a profit of EUR 800,000 in 2010. “I think the market will settle. We must find a formula for balance. In 2012 both wages and the need for job security changed. In 2008 if a person was dismissed, the next day they could find 10 new solutions. In 2012 there is a need for job security,” said Savuica.
HR market undergoes revolution
New investment flowers at Golden Tulip
“The only problem we have encountered lately has been the growing number of candidates. Their profile has not changed, but the way they relate to the market has. In 2008 I placed an ad to fill a sales manager vacancy and I had 10-20 candidates; it was a salary war. Now, for a similar post we have between 200 and 1,000 candidates,” Cristina Savuica, managing partner for Romania and Czech Republic at Lugera & Makler, told The Diplomat – Bucharest, adding that currently the most sought after jobs are in sales, manufacturing and IT. According to Savuica, while in 2008
“The latest news at Golden Tulip is that this month we will finish building a conference room with a capacity of up to 50 seats in which we have invested EUR 50,00060,000,” Larisa Budaca, general manager at Golden Tulip, told The Diplomat – Bucharest in December. According to the manager, the hotel had always suffered because it didn’t have a conference room, despite being a business hotel. Before the opening of the new room, the property had a room with only 14 seats, but that did not meet requirements. The GM added that companies prefer to sign contracts with hotels
“Firms will transform fixed costs into variable costs, to optimize logistics by reducing stocks and increasing the volume of direct deliveries,” Dragos Geletu, GM of KLG Europe Logistics Romania
in 2010 registered a turnover of over RON 280 million, up from the previous period, while shipments exceeded 2.1 million car batteries. According to Repede, the number of batteries recycled has grown steadily in recent years. “From our data we can say that over 90 percent of the batteries in Romania are recycled, similar to other countries in this region,” commented the Rombat boss, adding that in recent years the company has invested significant sums in Rebat’s recycling facility in Copsa Mica, Sibiu County, putting into operation a modern oven plant and a new crushing and sorting installation of waste batteries. The investment in Rombat started in 2003 and has now reached close to RON 48 million, of which almost two thirds went into advanced equipment for recycling. Rombat has 665 employees and its
46 The Diplomat April 2012
she couldn’t find candidates and had many projects, 2009 was the opposite. In 2010 many companies stopped recruiting, but in 2011 they got back on track again. To successfully get through the tough times of 2009-2010 Lugera & Makler diversified its services. It moved into brokerage (Citibank), inventory – as company officials believe there are many retailers who need inventory – and the travel business, having opened a department a few months ago. In 2011 the company invested about EUR 100,000 in the travel segment (for employees) and software for inventories. Recruitment represents 10 percent of turnover, brokerage 5 percent and personnel leasing the rest. “This segment has evolved a lot lately because customers can no longer afford to hire for an indefinite period. The recruitment market is currently on an upward trend, and more companies are looking for talented people. The beginning of the year brought many auctions, as companies use recruitment,” added Savuica. Lugera & Makler has over 8,000 employees at other companies and 152
offering all the facilities they need. “Efforts are being made and we all know of new projects to increase the number of tourists in Bucharest, but these projects have not yet contributed consistently enough to change the balance, and the business segment clearly remains the predominant one in our hotel,” added the GM of the hotel, whose leisure-business split is 30-70.
Big increases brewing at Philips’s automatic coffee machine plant Dutch company Philips has had an automatic coffee machine plant in Hunedoara city in Orastie for three years. The factory was bought from Italian company Saeco, which came to Romania in 2003, and invested EUR 7 million in the plant. Initially the site had 200 employees and an annual production capacity of 300,000 devices. Currently the number of employees is around 500 people, but Philips representatives did not provide data on the new production capacity. Since taking over the factory in 2009, Philips has made
netherlands
“The challenges come from the fact that we have to convince partners to align their offers to customer demand,” Bogdan Apahidean, managing director at LeasePlan
no announcement about the Orastie unit, or the acquisition or the coffee machine factory’s work. However, information on the Ministry of Finance website indicates that plant turnover reached RON 194.5 million in 2010, over double the figure in 2009, the last year the company was controlled by Saeco. Sogeco Romania, the company through which Philips reports to the Ministry of Finance, said that the factory in Orastie reported a profit of RON 20 million in 2010, compared to a loss of RON 18.6 million the previous year. The Orastie factory is counted as a separate entity from Philips Romania, which includes the Dutch giant’s activities in Romania in the sale of lighting products, health products and services (cardiac care products for acute care) lifestyle and consumer products (electronics and appliances).
KLG Europe Logistics Romania to invest in 10,000-sqm storage space this year Logistics will continue to enjoy growth potential this year, due to companies’ tendency to outsource these services, according to the manager of one of the leading firms in the logistics segment. “Companies will transform fixed costs into variable costs, in order to optimize the
logistics process by reducing stocks and increasing the volume of direct deliveries,” said Dragos Geletu, GM of KLG Europe Logistics Romania. According to the manager, the main challenges will be for services suppliers operating in transport and logistics, especially regarding cash flow, notably collecting debts within the context of increasing fuel and utilities costs. “The financial stability of a company will be a major advantage and it will make the difference in many situations,” said Geletu. Regarding the company’s strategy for this year, KLG Romania plans to build a new deposit in Bucharest, of more than 10,000 sqm, but overall investments are similar to previous years. Still, in 2011, when it expected a turnover of EUR 18 million, KLG managed to exceed its initial plans to reach a EUR 20 million turnover, compared with EUR 15.5 million attained in 2010. “Back in 2007 when we entered the local market, we planned a turnover of EUR 2 million, but we ended the year with EUR 7.5 million,” noted Geletu. In 2008 and 2009, years when the market in Romania had started to slow, the company almost doubled its turnover. In 2010, KLG invested over EUR 20 million in the ProLogis Park. In 2012, the firm plans to post turnover growth of 20 percent.
Heineken Romania: positive performance in turnover test in 2011 Part of the Dutch Heineken Group, Heineken Romania posted positive results in 2011. According to the company’s statement, net turnover went up 11.5 percent in 2011, compared with 2010, amounting to RON 1.042 million, while the brewer’s sold volume went up 7.5 percent year-on-year. Andrew Quayle, CFO of Heineken in Romania, said, “Heineken has a globally
“Golden Tulip has finished building a conference room with a capacity of up to 50 seats, an investment of EUR 50,000-60,000,” Larisa Budaca, general manager at Golden Tulip 48 The Diplomat April 2012
consistent, long-term business strategy that is also embraced by Romania and which enabled us to achieve increased results in 2011, compared to 2010. Our performance in 2011 comes as a result of a healthy mix of effective marketing programs, strong brand activation, continuous investment in innovation, working closely with our customers and, in particular, our distribution partners.” Of the brewer’s brand portfolio, Bucegi posted the strongest performance, exceeding 2 million hl in sales volume in 2011. Ciuc Premium also surpassed its 2010 figures, with a two-digit growth in volume sold. The local branch of the beer producer has diversified its portfolio by starting to directly import and sell seven beer brands: Desperados, Amstel, Birra Moretti, Krusovice, Foster’s, Strongbow and Sol. Heineken. In 2011, an ingredient in reaching this goal was the successful introduction of a new non-alcoholic beer for the mainstream segment, namely Golden Brau Non-Alcoholic. Amsterdam-based Heineken would have market shares of 44 percent in Romania, 46 percent in Hungary and 51 percent in Bulgaria in a StarBev linkup, while Denmark’s Carlsberg would have 46 percent in Bulgaria, 76 percent in Serbia and 47 percent in Croatia, analysts have calculated. ■
driving
The purist is back With the launch of the new 911, Porsche shows how an almost perfect sports car can be improved. By Adrian Ion
O
ne of my most anticipated test drives of the year was the new Porsche 911. The icon of all sports cars was a special treat for me and I dedicated time to driving it in different conditions to feel the car’s potential. The version I tested was the more powerful Carrera 911 S, which delivers 400 hp and an acceleration figure of 4.3 seconds from 0 to 100 km/h. This 911 is all new, longer, wider, lighter and of course faster than the outgoing model. The body lines of this new vehicle obviously follow the same pattern as any other 911, so there is no way to mistake it. With sleeker lines and the extensive use of LED lighting, the Carrera is a good looking car from every angle. The interior was also changed dramatically, following the Porsche design line that can be found in the Panamera and Cayenne too, with a massive central console that wraps the driver in a cockpit full of dials and switches. So, how does it drive? The car is amazing, not only for its great performance, as there are plenty of
sports cars that can do better in the acceleration department, but for its overall driving capabilities. You can really use the Porsche 911 on a daily basis, in the city and on the highway with no problem. In normal driving mode, the 911 is a sleeping beast, with gentle responses and giving a smooth ride. Once the Sport or the Sport Plus button is pushed, the beast comes alive and becomes an adrenaline shot. The exhaust gets louder, the car revs up to the red zone and acceleration of the flat-six engine makes the car worth the money. Even accelerating hard, the car feels perfectly under control and the grip of the tires is phenomenal. The new PDK gearbox has seven speeds and works well, with the option of a manual gear change from the gear lever or the paddles on the steering wheel. As anyone will tell you, one can only feel a Porsche by driving it, so I can only advise you to grab one even for a short test drive. If you’re considering buying one, the cheapest Carrera 911 is around EUR 97,500 including VAT. ■
Porsche 911 Carrera S Layout / number of cylinders: 6 and 3,800 cm³ Power 294 kW (400 hp) Max. torque (Nm) at rpm 440 Nm at 5,600 Urban in l/100 km 12.2 Extra urban in l/100 km 6.7 CO2 emissions in g/km 205 Top speed 302 km/h Acceleration from 0-100 km/h in 4.3 secs Acceleration from 0-160 km/h in 9.0 secs (8.7 secs Sport+) Length 4,491 mm Width 1,808 mm Height 1,295 mm Unladen weight (DIN) 1,415 kg Luggage compartment volume 135 liters Price: EUR 112,847 with VAT. 49
business leader
Power player takes pulse of energy market With investment plans that reach EUR 750 million over the next five years, Luca D’Agnese, country manager of Enel in Romania, talks to The Diplomat – Bucharest about the main challenges on the local market, his firm’s targets and the issue of market liberalization. By Dana Verdes
F
or Luca D’Agnese, country manager of Enel in Romania, the energy sector was not his first love. “I worked for consultancy company McKinsey for 15 years. After this experience I moved into the utility industry and joined Italy’s power transmission company, which at that time was controlled by the State,” D’Agnese tells The Diplomat – Bucharest. “This was a particular challenge for me because, firstly, it was a significant professional move, as I was switching from consultancy to operations, and secondly, it was a very challenging period for the industry itself. It came at the time of the liberalization of the generation sector in 2003-2004. So, significant changes were happening and it was difficult because as the liberalization had been delayed for quite a while there had been a lack of investment in the energy sector,” D’Agnese recounts. However, the Italian authorities at the time found the solution which led – three to four years after the liberalization process was implemented – to consistent investment in power generation totaling some 15,000 MW.
50 The Diplomat April 2012
Liberalization lures investments Luca D’Agnese believes that the Romanian authorities now find themselves in a similar situation. His view is that when a country has a regulated market it is clear that prices do not reflect the real cost of electricity, but the interests of the government, and there are some categories of user that typically get electricity below cost price. These categories are always the same: big customers that need a lot of electricity and households. “If Romania does not set a clear plan for market liberalization, it risks the worst of all possible scenarios. Investments in power generation take years, and as an investor you need the right rules for the market to be in place when you turn on the key of your plant, which is typically fourfive years from when you decide to make the investment,” says D’Agnese. “So, if you are credible, as a government, in setting a plan, let’s say in 2018 there will be this set of rules and
you commit in a way that people will not think that you may change your ideas – then and only then will investments keep coming. On the other hand, if 2018 is just an announcement, we will have to deal with a new set of elections, and changes of mind. Romania will end up with a liberalized market anyway but a market where investments have not been made in five years.” According to him, the Romanian authorities should not forget that there are currently power generation units which have to be closed because of environmental requirements, and this is why it is very important that the announcement made by the authorities is backed up by a consistent set of actions from now on to demonstrate the commitment of the Romanian authorities with concrete measures. “At the Galati and Braila projects in which Enel is involved, even if we wanted to we could not start building tomorrow. For the time being it is not a decisive issue because we are still waiting to secure all the permits. But if we had the permits in
business leader place we would have to see the implications of the liberalization plan announced by the authorities. There is still a lot of uncertainty surrounding this matter,” says D’Agnese.
Challenges and targets
Enel acquired the Banat and Dobrogea distribution companies in 2004-2005 and later Muntenia in 2008-2009. “We have been making substantial investments in the network and we have particularly concentrated on Muntenia because of the later acquisition. Now we are moving into a new phase, as we are trying to implement new ways of carrying out processes; the focus is to improve the service to our clients, which I have to say is currently very far from our targets. The most important measure of services is to what extent the average customer suffers interruptions. Actually last year we had a significant improvement versus 2010 due to a combination of investments and new ways of organizing our activity. We had a 20 percent reduction, which is a significant effort, but from the point of view of the customer it is still too long,” says D’Agnese.
Enel Romania has also seen changes in its management team in the last year and a half. After an initial phase during which most of the top people were from Enel in Italy, the company has now introduced an almost entirely Romanian group of managers. “While 18 months ago there were three Romanians and nine Italians in the first management line, now we have two Italians and ten Romanians,” adds the manager.
Investments saga
Regarding investments, the Enel official stated that the firm’s main focus was Enel Muntenia. According to him, the high-voltage network was the focal point in 2009 and 2010. Last year, Enel continued investments in high-voltage lines, but the biggest share was in the medium-voltage network. “The investments in the medium-voltage network will decline in the next three years and low voltage’s share will increase, particularly as we are to implement the smart meters projects, meaning an electronic meter for any business customer, which will allow us to carry out some small repairs in the network close to the customer’s house. We will shift towards low volt-
Who is Luca D’Agnese? Luca D’Agnese, 47, first worked at Hewlett-Packard Italy which he joined in 1986. In 1988 he moved to McKinsey & Company and between 2003 and 2005 he was CEO of GRTN, the company responsible for planning and dispatching the high-voltage network in Italy. From 2005 to 2007, D’Agnese served as director of operations at Terna, the company responsible for the network planning, operation and maintenance of the high-voltage network in Italy. Over 2007 -2010 the Italian was CEO of investment company ErgyCapital, and in March 2011 he assumed the role of head of Enel’s operations in Romania. age with this end-metering system in one or two years,” says D’Agnese. Enel Romania’s total investment volume is intended to reach EUR 750 million over the next five years. ■
51
events Uncorking new wines: Lacerta Winery launched seven new premium wines: Black Feteasca Lacerta 2010, Lacerta Merlot 2010, Lacerta Blaufraenkisch 2010, Lacerta Pinot Noir 2010, Sauvignon Blanc Reserva 2010 Lacerta, Chardonnay Reserva 2010 and Lacerta Riviera Rose 2011. Flagship varieties in 2012 will be Cuvee IX and Cuvee X. The company’s wines last year won over ten gold medals in Wines International Salon blind tasting in Timisoara, Alba Iulia and Bucharest.
Healthy development: Medicover Group opened
its first private hospital in Romania, following a EUR 20 million investment. The fully functional and integrated operational 7,000-sqm hospital has a capacity of 122 beds on seven floors. This is the first private hospital opened in 2012 following a record eight in 2011, with investments of EUR 131 million.
Software center: Intel Corporation announced the official opening of the Intel Romania Software Development Center (IRSDC) in Bucharest. Part of Intel Software and Services Group, the center focuses on innovation in open-source technologies and next-generation computing solutions, with a large team of software engineers dedicated to open-source development. The nearly 3700-sqm facility aims to host 180 people and includes a laboratory of servers to support research and development initiatives. Legal eagles: Tuca Zbarcea & Associates won the prize for Romania at the IFLR European Awards 2012 gala, celebrating the most important law firms in Europe with expertise in areas like banking, capital markets and mergers and acquisitions. In a gala atmosphere in the presence of about 250 participants, the prestigious British publication International Financial Law Review (IFLR) awarded 25 national law firms that have achieved remarkable performances over the last year. 52 The Diplomat April 2012
Learning lifesaving: Over 3,000 people participated in first aid courses organized by Association React and Vodafone Romania between October 2011 and March 2012 under the A Life May Depend on You! initiative. To date, 138 such courses have been organized in Bucharest, Cluj, Craiova, Piatra Neamt, Sibiu, Ploiesti, Targoviste and Pucioasa. The courses, which are free, are run by specialized SMURD personnel.
events
Ball gala: The seventh Vienna Ball by JW Marriott brought the grace and elegance of traditional Austrian balls to the Parliament Palace. The event, in aid of the charity United Way Romania, the long-term beneficiary, took place on March 3. Guests enjoyed live performances throughout the night by the Viennese Orchestra, Horia Brenciu and his HB Orchestra.
Lotus position: Lotus Exige S, the latest model produced in Hethel in the UK by Lotus Cars, was launched in Romania with an event held at the Lotus showroom near Otopeni Airport, in the presence of Lord Green of Hurstpierpoint, UK minister for Trade and Investment, His Excellency Martin Harris, British ambassador to Bucharest, and Ion Bazac, president of Forza Rossa, the official representative of Lotus Cars in Romania. With 350 horse power and a weight of 1,167 kg, the Exige S is the ultimate supercar produced by Lotus, say officials.
Income tax: Petrom organized for the fifth consecutive year, from March 19 to 23, a campaign to promote the uptake of the 2 percent option in the Tax Code by company employees. This allows any individual taxpayer in Romania to redirect 2 percent of his or her income tax to a charitable entity. Petrom employees choose between 150 organizations active nationally and locally. Last year over 1,500 Petrom workers supported the non-governmental sector in Romania by redirecting 2 percent of their income tax.
Looking at land: The Ministry of Regional Development and Tourism announced the signing of a financing contract to implement the project Territorial Observatory – Integrated Information System in Support of Regional Development Policy. The project aims to establish territorial observation and analysis to provide relevant information on the state territory, with the possibility of developing analysis and quantification of the territorial impact of public programs in town and country planning, housing and regional development.
Environmental accolade: Oradea was named winner of the Green Capital of Romania competition, one of the largest environmental programs in the country, run by Tuborg Romania in partnership with the Ministry of Environment and Forests. Bihor won also the blogosphere prize in the race to be named the “greenest” city, with 41 votes. 53
city life Theatres des Vampires swoop into Wings Club Italian gothic metal group Theatres des Vampires will follow their full-moon gig of March 2011 with another performance in Bucharest’s Wings Club on April 19. The stop will kick off a European tour. First time around, Sonya Scarlet (vocals), Fabian Varesi (keyboards), Zimon Lijoi (bass), Gabriel Valerio (drums) and Stephan Benfica (guitar) staged a show in
David Bisbal brings Buleria to Palace Hall
keeping with the Theatre of the Vampires novels by Anne Rice, the band’s main source of inspiration. Impressed by their Romanian fans’ response, the group promised to return to the “land of Dracula”. ■
Sensation will be all‑white on the night
Sensation, the most popular dance event in Europe, will transform the Central Hall of Bucharest Romexpo into an “Ocean of White” on April 21, the first time the show has been staged in Romania. More than a million and a half people in 20 countries on four continents have participated in Sensation, one of the most consistent event brands in the world. Beyond the mandatory dress code that made the show famous (par-
David Bisbal is bringing Latin rhythms to Bucharest’s Palace Hall on April 22. The Spanish artist will be accompanied by his band of musicians. The show will include famous hits such as Buleria and Corazon Latino, as well as singles from his latest album, Premonicion and Sin mirar atras. Bisbal performed in Romania for the first time in December 2008, when over 4,000 people from across the country flocked to see the energetic artist. He began his career ten years ago, since when he has released four albums sold over 5 million records. The Spaniard has reached number one in Spain, the United States, Argentina and Mexico, and has amassed a record haul of over 50 international awards, including a Latin Grammy and Billboard Latin accolades. Tickets cost between RON 100 and RON 350. ■ 58 The Diplomat April 2012
ticipants traditionally dress only in white), Sensation is an elaborate and glamorous show that promises a glittering cocktail of music, dance, lights, theater, choreography and pyrotechnics. Internationally famous DJs mix all night amid opulent decor. Tickets are available from the national Eventim network, Germanos, Orange and Vodafone outlets and Humanitas and Carturesti bookstores. ■
Fans to Gather for Anneke van Giersbergen’s Bucharest show The former voice of the Dutch band The Gathering, Anneke van Giersbergen, will play at The Silver Church Club this spring. The singer comes Bucharest on a European tour following the release of the album Everything is Changing. The set list for the show, on 22 April, will include hits from van Giersbergen’s time with The Gathering (1994-2007) and songs released under her stage name Agua di Annique (20072010). During a career of over 20 years, van Giersbergen has released over 20 albums and collaborated with prestigious names from the rock scene such as Napalm Death, Moonspell, Within Temptation, Anathema and Devin Townsend. Tickets can be purchased in advance for RON 50 and on the door for RON 70. ■