The Diplomat-Bucharest

Vol. 8, No. 6, July 2012

The magazine for informed internationals

State lends a financial hand Romania’s state aid funds are up for grabs to speed up investments

politics

economics

business

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under the auspices of presents

Romanian Forum 2012 July 10, 2012, Crowne Plaza, Primavera Hall, Bucharest Gold Partners

with the support of

Investment in agriculture is an emerging asset class for private and institutional investors and Romania is one of the European countries with the highest development potential in this field.

The Diplomat – Bucharest is organizing on July 10, 2012, under the patronage of the Ministery of Agriculture and Rural Development, the second edition of the Romanian Agribusiness Forum. This annual conference brings together decision-makers involved in agriculture, from government and regulatory agencies, to the owners of large farms and agricultural holdings, equipment manufacturers, banks and investment funds interested in the development of agriculture in Romania, to debate the challenges and opportunities of this dynamic sector.

CONFERENCE AGENDA:

8:30 AM - PARTICIPANT REGISTRATION 9:00 AM - FIRST SESSION - SUSTAINABLE AGRICULTURE Opening address: - Mr. Daniel Constantin, Minister of Agriculture and Rural Development - Prof. George SIN, ASAS President Discussion topics: ‡ 'HYHORSLQJ VXVWDLQDEOH DJULFXOWXUH IRU D SODQHW RI ELOOLRQ people - how is agriculture seen by private companies? Maria Cirja, Marketing Manager Romania & Moldova, Pioneer ‡ 7KH LQWURGXFWLRQ RI *02V 3URI 'RUX 3$0),/ 3UHVLGHQW RI WKH Commission of Biotechnology of ASAS, Rector of the Agricultural University in Cluj-Napoca ‡ 3UREOHPV ZLWK *02 UHJXODWLRQ LQ (XURSH DQG XUEDQ P\WKV about GM crops - Prof. Klaus AMMANN - Switzerland (Bern University) ‡ 7UDGH G\QDPLFV RI DJULFXOWXUDO SURGXFWV LQ 5RPDQLD RYHU WKH last decade - Prof. Toma Dinu, USAMV Bucharest 10:30 AM - Coffee Break

10:45 AM - SECOND SESSION - ROMANIAN POLICIES IN AGRICULTURE Discussion topics: ‡ 2SSRUWXQLWLHV IRU WKH GHYHORSPHQW RI 5RPDQLDQ agriculture in context of the Common Agricultural Policy ‡ (8 SROLFLHV DQG WKHLU LPSDFW RQ 5RPDQLD ‡ $OLJQLQJ 5RPDQLDQ DJULFXOWXUDO VWDWH JUDQWV ZLWK European ones Panel members Achim Irimescu, Secretary of State MADR Daniel Botanoiu, Secretary of State MADR Daea Petre, president of the Senate Agriculture Commission /DXUHQWLX %DFLX 3UHVLGHQW RI /$3$5 Veronica Toncea, General Director, Guarantee Fund for Rural Credit (TBC) Dorel Benu, President of APIA (TBC) $OLQD ,R]VD 3DUWQHU DW +DWHJDQ /DZ 2IILFH 30 1(7:25.,1* /81&+

To find out more or to participate, contact us at: 004 021 210 1336 or sales@thediplomat.ro www.thediplomat.ro

Vol. 8, no. 6, July 2012

President Traian Basescu met His Royal Highness Charles, Prince of Wales, who was on a private visit to Romania. The President congratulated His Royal Highness on the occasion of the Diamond Jubilee of Her Majesty Queen Elizabeth II of Great Britain and voiced his appreciation for the celebrations organized in London to mark the event.

During the meeting the head of state also thanked the Prince of Wales for the ongoing attention he pays Romania.

24

Allez la France?

Companies from the Hexagon are dealing with a difficult market

38

Home of the brave US investors are unbowed by the economic crisis

50

Clocking opportunity Swiss investors still have plans on the local market

5. Copy cat

9. Disempowered

6. PDL out PDQ

10. Tardy Transylvania

7. Billion bonanza

11. New Europe, new partner

9. Damp squib

54. Charged moment

PM Victor Ponta is embroiled in an international plagiarism row The PDL leaders step down after an electoral mauling The World Bank approves a EUR 1 billion loan for the state Water power company Hidroelectrica is declared insolvent

Petrom predicts Romania’s energy independence to fall by 2030 Work on a Transylvania highway segment is delayed for a fourth time South African fund NEPI signs a partnership with Benevo Capital

The CEO of GDF Suez Energy Romania details the company’s plans

editorial

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The Diplomat July 2012

D

oubling the penalties for tax evasion – this was a measure suggested in an amendment to a law put forward by Senate vice-president, Dan Voiculescu. The amendment was not supported by his colleagues, prompting Voiculescu to resign. So where does Romania stand on tax evasion?

In previous years, local tax evasion reached more than 10 percent of the Gross Domestic Product (GDP), meaning EUR 10 billion in absolute value.

Much tax evasion comes from the black labor market. Employers fail to report approximately 35 percent of the employees registered in the national accounts to the state’s registries. This means that over two million jobs are unofficial, almost half the total number of pensioners. Other major sources are unpaid VAT and income tax.

A report by the Fiscal Council for last year claimed that if Romania f ully collected all the taxes and charges that were payable, it could have record budgetary revenues – as a percentage of GDP – close to the EU average. This suggests a complete rethinking of how to collect taxes in Romania is called for. The state should pursue tax dodgers, not try to get even more out of those who currently pay, as our politicians seem to favor. In other words, it’s not increase existing revenue streams that should be the target, but getting the evaders to start paying up.

A few years ago there was a buzz about the idea of a wealth tax. Many of us have encountered enterprising individuals whose official income seems unable to support their lavish lifestyle, and yet there is no obvious source for their additional earnings. Such a tax ought not to be punitive, but should encourage all categories of citizens to participate in achieving the GDP. Unfortunately, the idea did not get beyond the discussion stage in Romania, though it has been successfully applied

in Europe. For example in Germany, a solidarity tax of 5.5 percent is levied on income tax for higher earners. Very large estates are taxed in other countries, such as France, Switzerland and Norway. It is clear that such a law must be very well designed, as it must not simply hammer the wealthy. The law should be crafted so it catches almost all taxpayers who own property and who can really afford to pay tax but avoid doing it.

Recently, a ranking of the prices in Romania compared to EU prices was released. In some categories Romania has the lowest prices in the EU, and these include alcohol and tobacco. The thought occurred to me: why don’t we apply – even if just temporarily – an additional tax (let’s name it for solidarity) on these types of products?

But the issue would still probably be the state’s capacity to collect. The government must therefore find a way to persuade tax evaders to go legit. Ever yone knows that some of the more persistent offenders will need a hard line to be taken. Specifically, in Romania’s case, strong sanctions for tax evasion – doubling the current punishments should work.

Which brings us back to the recent goings-on in Parliament. I won’t get bogged down in the detail of who came up with the amendment and the reason for the resignation. But I wonder why MPs rejected it. Do they have a vested interest in continuing to protect those who cause the biggest holes in the budget through tax evasion? Whether or not we get an answer to this question, unfortunately the problem remains, and given the parlous state of Romania’s finances a solution is becoming increasingly necessary.

“In previous years, local tax evasion reached more than 10 percent of the Gross Domestic Product (GDP), meaning EUR 10 billion in absolute value”

politics Amnesty for public sector employees forced to return bonuses

President Traian Basescu has approved a law on fiscal amnesty for state employees in the administration who had been forced to return bonuses earned in 2009 and 2010, which will benefit about 300,000 public sector workers. The Chamber of Deputies adopted the draft law ordering a fiscal amnesty for civil servants forced to return bonuses earned in 2009 and 2010 on May 8, with 234 votes for and none against.

USL and UDMR leaders ponder local alliances

USL and UDMR leaders have discussed with the government the idea of forming local political alliances to strengthen their majority on some county councils, through which UDMR members would fill positions, including vice-president, on these bodies. USL leaders Victor Ponta and Crin Antonescu, PNL vicepresident Relu Fenechiu, general secretary of the PSD Liviu Dragnea and UDMR leaders Kelemen Hunor, Verestoy Attila and Laszlo Borbely participated in the discussions.

Chamber of Deputies stops CC contesting Parliament decisions

The Chamber of Deputies has adopted a bill preventing decisions adopted by Parliament being contested at the Constitutional Court. The bill was passed with 168 votes for, one vote against and 16 abstentions.

The PDL leader of the Chamber of Deputies, Mircea Toader, said before the vote that the Democrat Liberals would not vote for the legislative proposal, adding that PDL deputies would remove their cards from the electronic voting machines.

The Diplomat July 2012

USL takes 41.6 percent of mayoral mandates, PDL on 15.7 percent The Social Liberal Union (USL) won the most mayoral mandates in the recent election, at 41.6 percent, followed by the PDL on 15.7 percent and the PSD on 11.9 percent, after the 3,181 constituencies returned their papers, according to the final results released by the Central Electoral Bureau (BEC). Of the 1,180 seats up for grabs, the USL won 1,322, the PDL 498 and the PSD 378. These data do not include the results of polls for mayors elected in six towns: Miresu Mare (Maramures), and Moeciu (Brasov), Rasmiresti (Teleorman ), Tarnova (Arad), Curcani (Calarasi) and Mangalia (Constanta), where elections were canceled due to election fraud and new ballots will be held.

BEC also reported that the turnout was 56.2 percent. In terms of local councils, the USL won most local councilor seats, specifically 13,148 (32.7 percent),

from the centralization of votes in 3,184 local constituencies. The PDL won 6,354 mandates (15.8 percent), and the PSD 4,110 (10.2 percent), where it put up candidates separately, not under the USL banner. ■

Basescu approves EU stability mechanism change President Traian Basescu has approved the law ratifying the European Council’s decision on changing the EU Treaty establishing a stability mechanism in the Euro area. “Romanian President Traian Basescu signed on June 19 the Decree on the promulgation of the law regarding European Union functioning concerning a mechanism for member states whose currency is the euro,” stated a

press release issued by the Presidency.

On June 12 Parliament voted to adopt the draft law ratifying the European Council decision amending the EU Treaty to establish the stability mechanism for the Euro zone, after President Basescu addressed on June 8 a letter to the chairmen of the two chambers that required it. The president asked for adoption “as soon as possible” of the draft law.■

PDL management resigns The PDL president, Emil Boc, and all members of the National Permanent Bureau of the party have submitted their resignations. Boc said that the PDL had brought Romania through the crisis, and measures taken by the party were right and fair but had affected it electorally.

He added that he would not run for any other office within the party and would remain a simple member PDL and handle his role as mayor of Cluj-Napoca “by the book”. Vasile Blaga, who opposed Boc at the most recent PDL Congress, told the PDL board of directors that he would not run for leadership of the party. ■

economics Minister of Finance: Euro will not reach RON 5 this year

The public finance minister, Florin Georgescu, has said that he does not believe the Euro will reach RON 5 this year, given that the national currency has depreciated less than other currencies in the region and the macro-economic fundamentals of the country are healthy.

During a press conference at the government building, he said that the BNR governor, Mugur Isarescu, was right to dismiss the forecasts of EUR 1 to RON 5.

Isarescu said that current projections of the rate reaching RON 5 per EUR 1 if “something happens in Greece” are f lawed, as the central bank will not allow such a level because the dollar has strengthened so much against euro, and it would strongly affect the economy.

However, Misu Negritoiu, ING Bank Romania general manager, says the exchange rate might approach RON 5 per EUR 1, whether Greece remains in the Euro zone or not, and that pressures on the Euro and the currencies in the region will continue in coming years.

The ING chief warned that although Europe’s most pressing problem is Greece, weaknesses are found in all countries in Southern Europe and in all peripheral states. Negritoiu believes that although the situation may be controlled, the dialog will continue and without rapid improvement, the pressures on the euro and the currencies in the area will continue.■

World Bank board approves EUR 1 billion loan for Romania The World Bank’s board of executive directors has approved a loan of EUR 1 billion for the Romanian state for policy development with an option to defer the drawing. The loan comes in addition to the bailout granted for 2011-2013 by the IMF and EU. The Romanian authorities may choose to use some or all of this money or not to resort to the credit line.

The government reached agreement with the World Bank over the loan in mid-May. Through the deal negotiated with the lender, the Finance Ministry seeks to obtain an additional safety net from international institutions in the form of a credit line, which will remain available to Romania for three years if foreign markets are blocked, at a cost of 0.25 percent per year.

Romania is implementing a precautionary agreement with the IMF amounting to EUR 3.6 billion, based on a similar agreement with the European Commission for available funds of EUR 1.4 billion.

Agreements with financial institutions are part of a financing program of EUR 20 billion over 2009-2011. Furthermore, the gov-

Foreign direct investment down in first four months

Foreign direct investment totaled EUR 446 million in the first four months of 2012, down from EUR 490 million in the same period last year. According to data published by the BNR, equity consolidated with net loss totaled EUR 413 million, while intra-group loans reached EUR 33 million. FDI financed 36.3 percent of the current account deficit in the first four months.

Last year, FDI decreased by 13.6 percent compared to 2010, to EUR 1.917 billion, a nine-year low.

Annual inflation rate falls to historic low of 1.79 percent in May

The annual inf lation rate fell to 1.79 percent in May, a new historic low, with consumer prices up 0.2 percent on April. Prices of food remained relatively stable in May, against the month before, while non-food prices and the cost of services increased by 0.2 percent and 0.5 percent respectively, according to the National Institute of Statistics (INS). In food the biggest price increases were recorded for potatoes, (12.7 percent) and fresh fruit (4.9 percent).

Insolvencies down 20 percent y-o-y in first five months

ernment of Norway will give Romania a grant of EUR 306 million over 2012-2014, designed for companies that use clean technologies. “The program aims to reduce waste production and emissions in air, water and soil, increase business opportunities in the clean economy, increase use of environmentally friendly technologies and create new jobs in the green industry and entrepreneurship,” said officials from the Ministry of Economy. ■

A total of 7,427 companies entered insolvency in the first five months of this year, down 20 percent on January-May 2011.

Some 10,596 companies suspended activity in the same period, up 4 percent, according to the National Trade Register Office (ONRC). In January-May 2011, 9,177 firms entered into insolvency and 10,182 suspended operations. Most companies that became insolvent were in trade, followed by those in the manufacturing and construction sector.

economics Negritoiu: Romania will postpone euro adoption

Romania sixth most attractive European country for foreign investment, says E&Y

The situation in Greece and on the financial markets will lead Romania to postpone joining the Euro zone, but the goal should not be abandoned, because it provides discipline, said Misu Negritoiu, president of ING Romania. The banker said that Romania could not stick to the 2015 deadline announced for adopting the common currency because nobody in the European Union would have time for the processes, the existing problems being much more serious and occupying all attention.

State company salaries could see cap

The government is discussing a draft bill limiting the salaries of employees of state companies. PM Victor Ponta recently announced that the government was also considering introducing a 16 percent tax on pensions or salaries above RON 4,500 per month, which could be implemented next year, only for the public sector. At the end of last year, the government decided to prolong for this year as well the cap period for benefits received by directors of state companies at the level of salaries received by a Secretary of State, meaning from RON 20,000 – RON 28,000 to RON 4,800.

Basescu: Romanian economy average for Europe

President Traian Basescu has said that Romania’s economy is no sicker than the European average, but no healthier either, adding that Romania would further relax the austerity measures adopted in 2009-2010. He also noted that he was “satisfied” that the Ponta Government had agreed to take over the program with the IMF, EU and World Bank, whose performance will make the Romanian economy competitive. Basescu commented, “Eternal austerity is not a solution.”

The Diplomat July 2012

Romania will be the sixth most attractive European country for investment over the next three years, according to 840 business leaders surveyed by the consulting company Ernst & Young (E&Y) in the European Attractiveness Survey 2012 report.

The country outperforms the Czech Republic, Turkey, Switzerland, the Netherlands, Italy, Spain and Sweden.

“Romania has the advantage of promising GDP growth rates compared to Europe’s average, and valuable human capital. We are seeing more and more investors attracted by the renewable energy sector. More privatizations are planned in the future, encouraging investors worldwide to look to our country. It is essential to stimulate positive development through an appropriate economic

strategy,” said Bogdan Ion, country managing partner at Ernst & Young Romania, in a statement.

The top five countries in the ranking are Germany, Poland, the United Kingdom, Russia and France. The study is based on methodology that includes an analysis of the number of foreign investment projects in 2011 and a soft analysis of the perception of the attractiveness of European countries for foreign investment.

The US remains the largest investor in Europe, with 1,028 developing projects, which represent 26 percent of the total. The number of investment projects developed by the US increased by 6 percent in 2011, reaching the highest level registered by the Ernst & Young survey in the last 10 years.■

Chitoiu wants GDP growth of 1.5-1.7 percent in next six months The economy minister, Daniel Chitoiu, has said that his ministry is planning GDP growth of 1.5-1.7 percent of GDP in the following six months. “The shortterm goal of the Ponta government and the Ministry of Economy is to create a favorable investment environment that leads to economic development. Romania needs measures to give it a sustainable business environment. Business in Romania was not only not stimulated to grow, but measures were taken to destroy it. The measures taken so far have been

taken out of stupidity, then there were cuts in income which finally led to reduced growth in Romania. In the next six months we aim to increase the economy. We want to have an increase of 1.5 to 1.7 percent of GDP,” said Chitoiu.

The minister added that the first priority was to reduce losses. “The first steps that we took, and we will take further, are to reduce losses and arrears among state-owned companies. At the end of 2011, we had a level of arrears of 2.6 percent of GDP,” he said.■

energy Hidroelectrica declared insolvent The Bucharest Court has approved Hidro- pany. In April the government selected the electrica’s request to be declared insolvent. BRD consortium (as consortium leader) The decision comes after the state-con- comprised of Citigroup, Societe Generale trolled company submitted an applica- and Intercapital Invest to intermediate tion to enter voluntary insolvency at the company’s listing on the stock exchange.

Bucharest Tribunal in mid-June. The com- The minister of economy, Daniel Chitoiu, pany is controlled by the state through the said Hidroelectrica was among the first Ministry of Economy. companies at which the government had undertaken to introduce private manageAccording to its balance sheet, net ment, the deadline being October. profit fell 45 times last year, from RON 292.3 million to RON 6.4 million, while After it sought insolvency, Moody’s total revenue dropped from RON 3.41 bil- rating agency dropped Hidroelectrica’s lion to RON 3.18 billion and expenditure rating four notches from “B1” to “B2” and increased from RON 3.02 billion to RON assigned a negative perspective, warn3.14 billion. ing that there could be a further relegaHidroelectrica was included in the tion. The increased risk of non-payment authorities’ agreement with the Interna- on the request for entry into insolvency tional Monetary Fund (IMF) among the six “may accelerate debt maturities beyond the companies that the state is committed to company’s ability to meet its obligations listing on the stock exchange or to privatiz- and could represent a significant obstacle ing. A package of 10 percent of the shares to any attempts to attract new funding,” would be listed in the water energy com- the agency warned. ■

Petrom

Petrom: Romania’s energy independence will decrease by 2030

Romania’s energy independence will decrease, and imports will reach 40-50 percent in 2030 because of the consistent demand for primary energy and the natural decline of domestic production of oil, said OMV Petrom. The prediction was included in Petrom’s 2021 strategy.

“Consumption of oil and gas will continue to grow and will represent approximately 60 percent of Romania’s energy demand by 2021. With a current share of imports of 20-30 percent, Romania’s relative energy independence is likely to fall.

By 2030 imports are expected to increase to 40-50 percent, due to demand for primary energy and the natural decline of domes-

tic production of oil,” said the company.

However, Petrom found that Romania has a high potential of power supply that could be unlocked with significant investment.

To unlock the potential of hydrocarbons alone EUR 20-35 billion is needed by 2030, believes the firm.

OMV Petrom will invest between EUR 800 million and EUR 1.2 billion per year until 2014, mostly in exploration and production, if there is a favorable environment for investment. Over 2009-2011 the company owned by the Austrian group OMV invested on average EUR 1.1 billion per year, of which exploration and production sector received 64 percent of the total. ■

Antonescu: Rosia Montana operations should be integrated into national strategy

The PNL president, Crin Antonescu, has said that if mining operations at Rosia Montana go ahead, in whatever form, they should be integrated into an overall national strategy. The Rosia Montana project would be worth more than USD 30 billion at current prices of gold and silver, compared with the USD 7.5 billion estimation in a study published in 2007, said Jonathan Henry, general manager of Gabriel Resources, the Canadian company that intends to exploit the mine.

Oltchim to be privatized in September, Cupru Min auction to be resumed

The new minister of economy, Daniel Chitoiu, has agreed in a meeting with IMF and European Commission representatives to ensure Oltchim is privatized in September and that the auction of Cupru Min goes ahead immediately after the reevaluation of the company and environmental consulting. Asked when the tender for Cupru Min will resume, Chitoiu said that this would happen immediately after the Ministry of Environment provides the environmental documentation. “We must resume immediately, within four months. There will be a review of Copper Min after we receive notice of the environmental aspects and the tender will resume,” said Chitoiu. He added that the privatization of Oltchim will happen this autumn. “For Oltchim I will hire private management by June and in late September the privatization will go ahead,” said the minister.

Gitenstein to discuss moratorium on shale gas with minister of economy

US Ambassador Mark Gitenstein said he would discuss the moratorium on shale gas exploitation with the minister-designate of economy, Daniel Chitoiu, in order to find out his reasoning for it and how he will proceed with the Romanian government. Gitenstein said that he had not talked to the prime minister on the subject, but he knew the US position and the subject would be discussed with Minister Chitoiu.

infrastructure CFR Calatori gets new GM

The minister of transportation and infrastructure, Ovidiu Silaghi, has appointed Stefan Roseanu general manager of the national railway company CFR Calatori. Roseanu replaces Dorin Maer, who had occupied the position since July 2011 and had been appointed by former transport minister, Anca Boagiu. Roseanu was previously general secretary of the Romanian Railway Industry Association. CFR Calatori, the national railway company, is controlled by the Romanian state and is on the privatization list agreed by the state with the International Monetary Fund (IMF). The operator posted poor results in Q1 of 2012, having doubled its debts in January-March 2012 to RON 157.7 million, compared with the same quarter of 2011.

Metrorex organizes auction for IT security services provider

Bucharest underground operator Metrorex announced that it was organizing a public auction for the acquisition of IT security services, with a contract estimated at over EUR 157,000 (RON 700,000). The contract will be signed for a period of four years. At the end of June, the offers submitted entered the analyzing process. Recently, Metrorex received five offers for the auction for execution works on subway line 4, to link Parc Bazilescu, Laminorului and Lac Straulesti.

No money for mountain road improvements

The Romanian National Company of Motorways and National Roads (CNADNR) has announced that there is no money left for repairs to mountain roads, such as one of the best known routes in Romania, the Transfagarasan.

The managers of CNADNR said that the state of the Transfagarasan road would remain as it is, with only the minimum maintenance works to be done this year. Another famous mountain road in Romania is the Transalpina, which was due to have been improved at the end of 2011. The works for Transalpina were estimated to amount to EUR 340 million, excluding VAT.

10 The Diplomat July 2012

Transylvania highway segment delayed for fourth time The auction for works on the 24-km A3 segment linking the towns of Gilau and Mihaesti along the Transylvania highway has been postponed for the fourth time in a row, according to an announcement by the National Company for Motorways and National Roads in Romania (CNADNR), which states that the procedure for opening the auction bids has been put back to July 12. The previous auction date was set for one month ago.

Last year, the Romanian authorities announced that the construction site would be continued to Zalau to connect with Alba.

The auction has been postponed four times so far, and some sources close to the authorities say that the reason is political deadlock in the CNADNR. According to the owner of a construction company, “It has been said on several occasions that this section of the A3’s design has been completed. This is not true because this auction will establish both design and execution, in one package.”

The 24-km section is estimated to cost RON 316.7 million, VAT excluded, and the deadline for completion is 72 months from the start of the contract. The minister of transport and infrastructure, Ovidiu Silaghi, has said that one of his priorities is to continue with work on the Transylvania highway. Recently, the minister announced that Bechtel would resume work on the highway section linking Cluj and Vama

Bors (Bors customs).

The Romanian state owes RON 240 million to the US company but some RON 98 million towards the repayments has been secured, according to officials. So far, only 54 km have been completed from the A3 highway, seven years since Bechtel was awarded the project.

From an initial estimated cost of EUR 2.2 billion for building 413 km of A3, some EUR 1.25 billion has gone on the Bechtel contract and last year the total estimated cost of the A3 was put at EUR 3.8 billion.■

Spanish constructor FCC: Second bridge over Danube is 81 percent built Spanish construction company FCC has announced that the second bridge over the Danube, linking Romania and Bulgaria from Calafat to Vidin, is 81 percent built.

The secondary infrastructure has been over 90 percent completed on the Bulgarian side, while in Romania the completion rate is 95 percent.

According to the constructor, the bridge will be fully operation by yearend. FCC officials said that if the winter temperatures do not allow works to proceed, completion, meaning the final asphalt layer and waterproof insulation, will be done in 2013. The total cost of the construction is estimated at EUR 232 million. Of the sum, the Bulgarian Ministry of Finance has already paid EUR 190 million. The project completion

was previously estimated for October 2010 but the works suffered a significant delay due to technical difficulties.

The Calafat-Vidin bridge is a railway and road bridge that will connect the cities of Calafat (Romania) and Vidin (Bulgaria).

In Bulgaria, it is known as the Danube Bridge 2. It will be the second bridge over the Danube connecting the Balkan neighbors and should be in use at the end of 2012.

The project to build a bridge linking the two cities dates back to 1925.

Recently, following a forum organized in Bulgaria as part of the Danube Strategy, the idea of building another cross-Danube bridge was raised, to link the southern Romanian city of Giurgiu with Ruse in Bulgaria. ■

real estate NEPI inks partnership with Benevo Capital for new retail park in Rahova South African fund New Europe Property Investments (NEPI) has marked its exit from the partnership with investment fund Benevo Capital and CD Capital for the Victoria City mall planned to be developed in Bucurestii Noi and has signed another partnership with Benevo for developing Vulcan Value Retail Center retail park in Rahova. The former 77,000-sqm site of the Vulcan plant was acquired by Benevo in January this year, for EUR 23 million.

NEPI has taken 50 percent of shares in the project and is expected to invest EUR 20 million.

According to Michael Topolinski, CEO of Benevo Capital, construction will start at the end of 2012. Vulcan retail park will have a commercial area of 28,000 sqm and will include a hypermarket of 10,500 sqm.

The 56,000-sqm Victoria City Shopping Center project will continue, with the start of construction expected for this year, fol-

lowing the partnership between Benevo and CD Capital, after NEPI exited and sold its shares. According to Topolinski, NEPI will be replaced in the partnership by another investment fund which will own 49 percent of the project, to be anchored by a Cora hypermarket of 12,000 sqm.

In March this year, real estate investment company Benevo Capital, which has Canadian shareholders, acquired the former industrial platform of the Vulcan plant in Bucharest to develop a retail park on it.

The site was owned by Romanian businessman Ovidiu Tender. “We plan to develop a modern retail park in south Bucharest, an area which delivers a large population density and a low existing offer of such projects,” said Topolinski. The company acquired the 77,000-sqm platform and plans to build a 35,000-sqm retail park, comprising a DIY unit, a 10,500-sqm hypermarket and a 10,000-sqm commercial gallery. ■

Cocor signs up Italian brand Terranova

Asmita Gardens runs up EUR 110 million of debt to creditors

Euro Insol, the judicial administrator of Asmita Gardens, has estimated that the residential project’s debts to all creditors, including Alpha Bank, amount to EUR 110 million, while the value of the apartments on sale barely reaches EUR 45 million. The financing bank expects to recover EUR 70 million from the debt, on the recovery market and through sales of the apartments. This month, Euro Insol will present the reorganization plan for the complex, with sale activities for the 350 apartments not affected by the insolvency stages.

Turkish developer plans 330 new units in Cosmopolis by yearend

Turkish company Opus Land Development is currently carrying out construction works for 330 apartments within the Cosmopolis complex in north-eastern Bucharest. The company plans to deliver the apartments by yearend. Since the beginning of 2012, the company has sold 30 apartments within the project, representing some 11 percent of the total number of the apartments. So far, the developer has completed the first development stage of 586 apartments while the second development stage includes 169 units, both villas and apartments. Opus Land is part of the Turkish group of companies Buyukhanli Group operating in construction.

Metro reaches 200 stores with Doi Pasi franchise Bucharest store Cocor store has rented over 1,000 sqm to a new shop opened by Italian firm Terranova in Romania, the largest shop of the 15-store Italian network opened so far locally, Cocor representatives have announced. The rental was managed by real estate agent DTZ Echinox, the coexclusive broker for the project. Cocor is in the middle of a modernization process and expects to develop an entertainment area of 3,000 sqm on the fifth floor as well as the shopping gallery which is awaiting new retailers.

Recently, it emerged that Cocor Bucharest (COCR), which owns the shopping center of the same name in downtown Bucharest, could be subject to enforcement proceedings by BCR because it is late with the payment of loan installments, according to a report submitted to the Bucharest Stock Exchange.

In 2009, Cocor borrowed EUR 19 million from BCR to finance investments in the renovation and modernization of the shopping center and construction of a multistorey car park behind the store. ■

Metro’s La Doi Pasi network of franchised stores has reached 200 units, of which over 120 store have entered this system since March this year, the company announced last month.

Seventy of the stores are located in the north of Romania, while 68 shops are in the western region, and 62 in the south. The program is designed for small operators in traditional trade. Metro Cash & Carry Romania has 32 stores in 24 cities. The company is owned by German retail group Metro.

11

appointments ZOLTAN BRASSAI is the new GM of Ford Romania, appointed after the former GM of the company, Henrik Nenzen, 66, retired.

Brassai, 49, moves from operations manager at Ford Romania. Before that, he occupied positions such as brand manager at Ford Europe for commercial vehicles in Cologne, and operational director for Emerging European markets.

RUXANDRA BRUTARU who until last year led operations at Tarom, has been appointed board director at the largest local travel agency group, Happy Tour. With a consolidated turnover of EUR 57 million in 2011, the group includes Happy Tour, Prestige Tours, Paravion and Travel House. Brutaru becomes the second Romanian to join the board after Radu Enache, owner of Continental Hotels.

ROBERT REKKERS has been named nonexecutive member of Agricover board. The manager announced his resignation from the GM position of Banca Transilvania early this year, after nine years spent with the company. Rekkers started his career at ABN AMRO Bank, where he worked for 17 years, in positions including country manager for Columbia and Romania.

LAURENT MIGNON has been named president of Coface board, the company has announced. He had been CEO of Natixis since 2009 and also shareholder of Coface. He replaces Francois David who has ended his mandate at the helm of the Coface board.

Mignon has ten years’ experience as CFO and CEO at AGF group and president of the executive board of Allianz.

MARINA ZARA has been named marketing director of IT&C and household retailer Flanco, replacing Violeta Luca who has taken over the position of deputy CEO at the company. Zara has a 17-year management background in the corporate sector. She holds an MBA from Asebuss specializing in finance and marketing, and brings expertise in strategic planning, media and consumer analysis and evaluation.

MARIUS ION MATEESCU has been appointed GM of the national energy transport operator Transelectrica. Previously, he was director of planning and development for the electricity transmission network and accessing European funds at Transelectrica (June 2011 to present), technical manager at Teletrans – the Transelectrica Branch (20092011), network support manager, south area, at Vodafone Romania (1997-2009).

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

12 The Diplomat July 2012

investments SPAIN

GERMANY

ROMANIA

Inditex, the largest player in the local fashion market will end the year with a network of at least 90 stores, 18 more than at the end of 2011 and nearly twice as many as at the end of 2010. Since its entry the Spanish Inditex chain has undertaken rapid expansion, opening ten shops per year. So far this year the retailer has opened 12 stores in Craiova, Sibiu and Iasi.

By the end of 2012 the Spanish group plans to open at least six more outlets in the shopping center Carrefour and NEPI are building in Ploiesti. Inditex manages brands like Zara, Bershka, Pull and Bear and Oysho.

The Bosch group announced it would reach investments of EUR 120 mln, to be made at Cluj and Blaj units by the end of 2013. Following these investments, the plant in Blaj will be expanded with a new production line, while a new production facility will be opened in Cluj, where the company plans to produce driving electronic units for cars. The new facility has required EUR 77 million of investments in the first development stage and production is due to start sometime in the middle of 2013.

The manufacturer of building materials Duraziv, owned by local entrepreneur Daniel Guzu, has announced a new production line for decorative paints and coatings that will take its entire production capacity in PopestiLeordeni to 50,000 tons per year. Total investment in the production of paints and coatings has thus reached about EUR 2 million.

For this year, Duraziv officials estimate that paints will provide up to 20 percent of total company sales.

CZECH REPUBLIC

UNITED KINGDOM

Molson Coors buys StarBev for EUR 2.65 billion

Antonescu family invests EUR 5 million in five-star hotel

Inditex expands aggressively on local market

CEZ to invest EUR 400 million in Romania this year

Czech group CEZ will invest about EUR 400 million this year in Romania, much of it in the acquisition of new renewable energy production projects, said Adrian Borotea, member of the CEZ Romania board. CEZ entered the Romanian energy market in 2005, by the acquisition of electricity distribution companies, and has expanded its current operations and power production to include wind turbines and small hydroelectric plants.

Bosch ups sales, set to invest EUR 120 million in Romania by end-2013

Molson Coors Brewing Company has announced the completion of its StarBev acquisition for EUR 2.65 billion. Mark Hunter, CEO of Molson Coors operations in the United Kingdom and Ireland, will become CEO of the new division, which has been renamed Molson Coors Central Europe. Molson Coors announced in April it would buy StarBev, the company that owns local brewer Bergenbier. StarBev posted sales of EUR 700 million in 2011 and operating profit of EUR 241 million.

Duraziv to expand production facilities in Popesti-Leordeni

The Antonescu family, which owns Marshal Turism travel agency, has invested over EUR 5 million in a new five-star hotel in the capital on Calea Dorobantilor. The investment in the 63-room unit was announced in the spring by the company and joins the portfolio of assets the family holds. The Marshal Turism company, which owns the agency with the same name and a three-star hotel in the Batistei area of Bucharest, recorded a turnover of RON 53.5 million in 2010, according to the Ministry of Finance.

13

RoRec drop off centers - a vital link in the WEEE cycle

O

ne third of Romania’s counties now have a permanent recycling solution for old electrical and electronic appliances. Within just two months, the RoRec Association opened another nine WEEE collection centers that meet the European standards The stream of waste electrical and electronic equipment (WEEE) is constantly growing. According to the estimates, it accounts for 4% of the total generated waste, its growth rate being approximately three times the rate for municipal solid waste.

This prompted the adoption of Directive 2002/96/EC on WEEE and, especially in old member states, the creation of a collection and recycling infrastructure which helped increase and even quadruple the 4 kg/inhabitant collection target set in the Directive.

In Romania, the waste electrical and electronic equipment collection infrastructure is still insufficient relative to the population. However, the feedback of the local authorities to RoRec Association’s initiative of creating a National WEEE Collection network demonstrates a high concern for providing services to benefit the community and for meeting the European standards.

“We are trying to create, in partnership with local authorities, a national infrastructure of WEEE collection centers that serves as many inhabitants as possible. In addition to the recurrent collection events

that we have already been organizing for three years nationwide, we also focus on developing and strengthening the National Collection Network, a project that currently includes 23 centers opened in partnership with the townhalls in 14 counties”, stated Liviu Popeneciu, President of the Romanian Recycling Association RoRec. Nine of the 23 permanent centers available to several million inhabitants in 14 counties were inaugurated in the past nine weeks in Alba Iulia, Alexandria, Bistrita, Cernavoda, Fagaras, Gaesti, Sacalaz, Sinaia and Resita.

But what is the innovation or benefit that such a center can bring to a community? “The initiative to open regional and national centers benefits the environment and the population. WEEE recycling means saving resources, reducing the negative impact on human and environmental health. We also hope that building these centers helps us get closer to the national collection target set by the European Union”- Ioan Bucur, Advisor at Brasov Environmental Protection Agency.

“The local authority must dispose of this waste, while also being the beneficiary of this project, thus meeting the needs of the citizens living in Fagaras area which, by implementing this project, help decrease the quantity of waste that will subsequently reach the landfill”- Constantin Sorin Manduc, Mayor of Fagaras.

“Waste begins to invade our life. It has

started to make it difficult for us to breathe for several decades now (...) It is an absolute must for any town in Romania, otherwise this waste, which is more hazardous than household waste, invades our life, our homes, towns, green areas, recreational areas.” - Ovidiu Teodor Cretu, Mayor of Bistrita.

“WEEE collection centers emerged as a logical step in managing electrical waste, being an important link between waste generators, namely the citizens, and recyclers, stated Cristian Ionescu, Manager of the National RoRec Collection Network. A WEEE collection center is a service for the community, a space equipped according to the European standards, for the organized and fully safe collection of waste electrical and electronic equipment, in line with the environmental rules. The National RoRec Collection Network, set up in partnership with the townhalls, means creating a coherent infrastructure for collecting this waste at national level”.

Waste electrical and electronic equipment is a special category of waste. First of all, WEEE contains hazardous substances for health and the environment, making it ten times more toxic than other waste.

Therefore it must be collected in a specially fitted space, entirely safe, according to the environmental rules. This equipment also contains materials that can be recovered and reused through correct recycling, thus protecting natural resources. Moreover,

The RoRec WEEE Collection Centers provide free pick-up services for this waste, both to the population and to companies and institutions. In order to benefit from the services provided by these centers, citizens are invited to call the Infoline service of each location, at the phone numbers below:

these materials must be recycled under special conditions, while observing rigorous rules and standards, regulated at European level”.

Who should be in charge with WEEE collection, according to the law? The legislation in force stipulates that central and local authorities play a major role in managing waste electrical and electronic equipment. They are responsible both for drafting the strategies and for implementing waste management programs and measures. Moreover, they must provide and ensure the operation of at least one WEE selective collection point for every 50,000 inhabitants and, not least, make sure the citizens are informed about the waste management system from their respective town.

Manufacturers are equally directly responsible for their products, even after they reach the end of their life cycle. The legislation requires manufacturers to take care of the waste generated by their products as well, ensuring their non-pollut-

Romanian Recycling Association RoRec Andreea Idriceanu Calev, communication manager Email: andreea.idriceanu@rorec.ro Mobile: 0728 22 22 32

ing disposal in order to protect the environment, treat waste in authorized plants and reintroduce reusable materials in the operating process. Distributors (stores) must collect WEEE upon buyers’ request, at no costs.

How does the law sanction the irresponsible disposal of WEEE? Law (no. 211/2011 on waste – called the waste “framework law”) provides a series of sanctions in case of failure to observe these obligations. Local authorities may be fined RON 5,000 to 15,000. Legal entities may be fined RON 20,000 to 40,000 for abandoning and disposing of waste outside spaces authorized for this purpose. However, we should all know that disposing randomly of this waste is subject to sanctions. We should also keep in mind that WEEE is collected in specially fitted centers. We are liable to pay a fine ranging between RON 1,000 and 2,000 for abandoning waste outside the authorized spaces. But the financial loss is insignificant compared to the long term negative effects on the environment.

Alba Iulia

0745.611.027 0751.302.130

Alexandria

0720.716.681 0751.302.118

Baicoi

0769.292.795 0751.302.115

Barcanesti

0740.851.816

Bistrita

0743.153.337 0751.302.125

Boldesti-Scaieni

0769.292.795 0751.302.115

Brad

0749.144.740

Calarasi

0737.058.875 0751.302.110

Cernavoda

0767.104.837 0751.302.124

Fagarasi

0751.302.117 0744.507.402

Gaesti

0735.980.556

Galati

0746.092.492

Hunedoara

0763.070.461 0756.036.206

Macin

0745.252.949 0751.302.113

Mangalia

0722.350.800

Plopeni

0769.292.795 0751.302.115

Resita

0724.221.728 0751.302.119

Sacalaz

0726.114.180 0751.302.114

Sannicolau Mare

0726.213.276 0751.302.123

Sinaia

0722.274.729 0751.302.116

Tulcea

0745.252.949 0751.302.113

Valenii de Munte

0769.292.795 0751.302.115

Voluntari

0727.787.095

state aid event

State aid: the clock is ticking

When is the right time for a company to apply for state aid? What is the state aid mechanism? Which industries qualify? Which authority is entrusted with this type of financing? And is state aid both a benefit for the company and an incentive for the state that grants it? These are only a few of the questions that specialists in legal and financial issues tackled at the power-breakfast event, State Aid – Opportunity for Investments, organized in June by The Diplomat – Bucharest in partnership with the auditing and tax consultancy firm Noerr.

By Magda Purice

T

he mechanisms and current status of the existing state aid scheme for private companies, plus the global image of this incentive were explored within debates at the roundtable event, where specialists from all sides, companies and legal and financial consultants, banking experts and authorities, focused on specialized case studies, analyzing different business scenarios within the available current state aid scheme. The event welcomed top managers, financial and operational experts from different industry segments and companies, such as: Holzindustrie Schweighofer, Air Liquide Welding, Roca, Hog Slat, Yazaki, World Machinery Works, plus diplomats, financial experts and also legal representatives from the banking sector.

The debates concentrated on clarifying and detailing the somewhat unknown and unclear aspects regarding the existing state aid scheme and the steps that must be taken by a company in order to access such financing.

“The state aid scheme, as non-reimbursable financing, comes on a market characterized by a range of financing tools, such as private equity, bank financing and EU funds,” said Iulian Sorescu, managing partner and head of the financial department at Noerr Romania.

16 The Diplomat July 2012

State aid scheme in numbers

Since the state aid scheme started in 2008, and through to 2011, only 23 percent, or 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 by Noerr Finance & Tax. In 2008, the state aid scheme was designed to respond to the financing needs of large projects, amounting to investments in excess of EUR 100 million and the commitment to create at least 500 jobs. According to data provided by the consultant Noerr and the Ministry of Finance, this scheme started in 2008 and ends in 2012-2013. In 2009, the scheme was adjusted, starting with a EUR 5 million grant, in order to facilitate and address smaller projects and companies, and it was expanded to cover a wider range of investments, progressively designed for companies with investments ranging from EUR 5-10 million worth turnover, or EUR 20-30 million, and above.

This scheme will also finish in 2013. For mid-

sized companies, such as SMEs, with turnovers below EUR 50 million and creating fewer than 250 jobs the state aid scheme was rolled out from 2007-2011.

According to data from the Ministry of Finance, the regulator and the authority entitled to manage the state aid scheme, so far 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. Recently, the Ministry of Finance told The Diplomat – Bucharest that it had some 16 investment projects worth a total of EUR 419.7 million under analysis, of which state aid accounts for EUR 180.3 million.

How much money is still available?

Since 2008, some 38 percent of the available state aid scheme has been consumed but another 62 percent of the funds are still available, for investment projects of minimum EUR 5 million. (see Box 2) State aid as non-reimbursable funds is now a real tool for investors, irrespective of nationality and type

state aid event of investment, whether they are greenfield, extension or from any eligible field that proves its business proficiency. Within the current state aid scheme, companies should know that compared with the start of the scheme in 2008, when the regulations stipulated larger investment values and job creation, now the scheme has lower requirements. Companies eligible for this type of financing can get up to 50 percent cash reimbursement on their initial investment from the Romanian authorities.

The general message within the debates at the roundtable event was underlined by Iulian Sorescu, associated partner and head of the financial department at consultancy company Noerr. Projects can be submitted for the current state aid scheme until late December 2013, though the authorities are in talks over the possibility of expanding the scheme to another stage, 2014-2018. “Companies that plan to apply for non-reimbursable funds should start by checking the eligibility of their project,” said Sorescu.

Data from the Ministry of Finance and Noerr Romania revealed that 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.

The Noerr official said, “State aid is not financing to test the waters. In order to apply, two steps are crucial. First, we urge you to check the eligibility of your project, as not all industries and economic fields qualify for the state aid scheme and, also, very importantly, the project submitted for state aid should have the green light from the company’s board of managers.” Still, according to Noerr, as the state aid scheme is not decentralized like EU funds for instance, it is solely regulated by the Ministry of Finance and so the communication process with the experts within the ministry is fast and efficient. “It is very important for the coherence of such financing and for the companies that the feedback from the Ministry of Finance is prompt,” said Rusandra Sandu, associated partner, head of corporate and M&A department at Noerr Romania.

Several steps have been identified by the consultancy company Noerr in the process of accessing state aid, which, according to Sorescu, can make the difference between success and rejection. Checking the eligibility of the project and that approval has been received by the company’s board are crucial.

It is important for a company to verify the eligibility as some fields don’t qualify for state aid, such as agriculture, metallurgy, transport and textiles, among others. As underlined

by Sorescu, the state aid scheme covers the financing of assets for greenfield investments.

“Expenses, costs, debts and land for instance

The preparation stage in a state aid scheme could take a minimum of five-six months. In this schedule, the preparation of the project to be submitted to the board of directors of the company applying for state aid takes around two-three months, after which a decision on the investment is expected. If it gets a green light from the board, the application and analysis of the project by the Ministry of Finance lasts another three-four months.

The pressure on companies that are starting to apply for a state aid scheme is significant, because in December 2013 the financing line will be wound up. According to Noerr representatives, there are several ongoing discussions among the Romanian authorities over extending the state aid scheme to 2014-2018

Cristian Vasile Dima, auditor and financial consultant at Noerr: The Romanian state gains as an incentive the total sum of taxes paid by the company following the development of a project

Rusandra Sandu, associated partner, head of corporate and M&A department at Noerr Romania: It is very important for the coherence of such financing and for the companies that the feedback of Ministry of Finance is prompt

Iulian Sorescu, managing partner and head of the financial department at Noerr Romania: Companies that plan to apply for nonreimbursable funds should start by checking the eligibility of their project

First steps towards state aid

cannot be subject of a state aid financing,” said Sorescu. Investments for brownfield assets can also qualify for state aid but, according to Sorescu, the financing will be less.

Therefore, a state aid scheme that finances 40 percent (in Bucharest) or 50 percent (outside Bucharest) of an investment needed for a project covers projects that develop tangible assets such as an industrial building or production hall, machinery, equipment, furniture and intangibles like software, patents, knowhow and licenses. Following the Romanian state’s agreement with the International Monetary Fund, the state aid scheme can only be used only for stipulated investments. For instance, according to Sorescu, the financing cannot be used for other segments, such as pensions or other budget financing.

Process and timing for an application

17

state aid event and also diversifying it to other segments and industries, and for the Ministry of Finance to receive applications also during 2013.

According to Cristian Vasile Dima, auditor and financial consultant at Noerr, a significant factor in the development process of accessing such funding is the coordination of the company’s representatives from the finance, legal, sales and human resources departments in their dialog with the consulting specialists. “We have prepared a standardized instrument designed to support a company that wants access to state aid to adapt to its own scenario. It is clearly drawn up and deals with the mechanisms relevant to applying for such a scheme,” said Dima.

“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 Sorescu of Noerr Finance & Tax. Another stage equally deserving of consideration by a company that applies for a state aid is that, after it receives approval for

18 The Diplomat July 2012

the financing, and the agreed implementation timing for the project, there is a period of five years assigned for the monitoring stage. There are not yet many projects in this stage, since the first project was approved only three years ago. “The real work starts when you implement the project for which you have received the approval for state aid,” said Sorescu at the event.

Critical aspects

One major point is the rule: one project – one state aid financing. Three factors should be taken into account in order to get a clear overview of state aid financing, argued Sorescu.

A company should secure the financing for the project before the start, in order to cover the necessary implementation of the project’s development stages. An investment should be in one place. For instance, it is not possible to finance projects in different locations, under the umbrella of the same project. “Some companies could think up such a strategy in order to qualify for a larger state aid scheme. Don’t think like this,” Sorescu urged.

Also, according to the Noerr specialist, two deviations are accepted within a state aid scheme implementation, addressing temporary, technical or economic changes within the project, but if more than two occur, the project

will be cancelled. For instance, a two- to threemonth delay in the effective construction can qualify as a temporary deviation, and, based on a report stating the new parameters of the project timelines, the Ministry of Finance will take into account the updated project data.

State aid, between incentive and benefit

So who, in fact, is the real beneficiary of a state aid scheme? Consultants and managers agreed that the answer to this question should be positioned fairly in the middle: both the authorities and private investors. The main quantitative factors identified by Noerr are the nine target financial ratios, which include the profitability, liquidity, debt level and solvability of a company. Also, a state aid-financed project should address the market share and experience of the main shareholder, the state aid’s impact on competition, the impact on the environment and, not least, the contribution to the economic growth, regional development and social impact in the area. Dima of Noerr underlined, “The Romanian state gains as an incentive the total sum of taxes paid by the company following the development of a project and also, very importantly, the taxes on salaries for the jobs that the company has committed to develop regionally.” ■

law

State aid: key incentive of the economic recovery?

O

ne of the main concerns of the world market nowadays is represented by the high indebtedness levels of most countries. This problem started to take a serious form with the beginning of the world financial crisis in 2007-2008 as financing sources decreased drastically and borrowing costs highly increased. The new wave of incertitude and pessimism that flows over the world economy makes investors to be very reticent in planning and implementing new investment projects as they prefer to keep their resources, mainly as a back-up in case things will get worse on the long term.

In this context, at the international level, the focus is to reduce the countries’ budgetary deficits of countries and to create sustainable economic development.

Minimizing the budgetary expenses is a must in this respect on one hand and, on the other hand, offering various incentives or benefits to the investors are additional measures taken by governments.

In Romania, the most important measures for companies are the EU structural funds and the state aid schemes that have as objective the regional development through stimulation of realizing investments and creation of new workplaces, approved by GD 1680/2008 with subsequent changes (“medium scheme”) and GD 753/2008 (“large scheme”). It was also applicable a “de minimis” scheme through GD 1164/2007 but the success was so great that the funds were fully allocated until the half term of the scheme. The table below

General presentation of state aid schemes Description

> EUR 100 mil.

> EUR 5 mil.

SME

Investment (mil. EUR)

>100

5-10, 10-20, 20-30, >30

Turnover < 50

New jobs

500

50, 100, 200, 300

Employees < 250

Duration

2008-2012/2013 2009-2013

is presenting the main characteristics of those schemes: The medium scheme is aimed to support large investment projects by granting state aids for projects of at least 5 mil. EUR initial investment and that create at least 50 new working places. The scheme has been enlarged by changing the eligibility criteria, by reducing the minimum thresholds for eligibility from 10 to 5 mil. EUR and the number of new working places from 100 to 50, in order to offer the SMEs category the opportunity to benefit also.

The enlargement came also as a result as the number of eligible companies on the old criteria was limited and it was a risk that the funds will not be allocated over the life of the scheme.

Under this scheme there may be reimbursed 40% of the eligible costs in Bucharest/Ifov region and 50% of eligible costs in the other regions, up to 22,5 and respectively 28,1 mil. EUR. Concerning the types of investment projects that are financed, most of production projects, including medical services and tourism are eligible for state aid. The number and volume of state aid projects increased steadily from 2009, at April 2012

Available funds at the end of April 2012 Description

State aid for investments over EUR 100 mil

State aid for investments over 5 mil.

State aid for SMEs

Total Budget (mil. EUR)

575

1.000

100

Annual average budget (mil. EUR)

115

200

0

2009-April 2012 allocated

506

680

20

2009-April 2012 consumed

36

381

40

May 2012 - 2013 funds available

539

619

0

Region 8 Bucharest - Ilfov

formula

22.5

0

Rest of the regions

formula

28.1

0.2

Budget vs. Actual (mil. EUR)

2007-2011

about 38% of the available funds being consumed.

In end of April 2012, on the medium scheme the Government financed 28 investment projects totaling an investment of approximate 1,2 billion EUR and creating 8,809 new working places. Those projects benefited in total of about 381 mil.

EUR state aid.

According to the public information available at present, since beginning of 2011 and until end of April 2012, on the medium scheme there were issued approvals for 18 investment projects totaling 479 mil.

EUR and which will create 4,042 working places. The approved state aid is of approximate 166 mil. EUR, the estimated medium scheme budget for 2011 and 2012 being of about 400 mil. EUR. Investments projects are usually generating for 1 EUR of state aid granted by the Romanian Government around 2-3 EUR of benefits back. Moreover, the state aid is supporting, through its nature, more regions in Romania, contributing to their development. These are clear facts to support the idea that the state aid is an important incentive that can contribute to the economic recovery of Romania.

Iulian Sorescu, Associated Partner, Head of Financial Department Noerr Finance & Tax Str. General Constantin Budisteanu nr. 28 C, sector 1 010775 Bucuresti / Romania T +40 21 3125888 F +40 21 3125889 iulian.sorescu@noerr.com

Maximum financing threshold (mil. EUR)

19

Children can save the Earth!

T

his is already known. If we, adults, are too busy, or give too little attention to environmental protection activities, we still have a chance. Children are dedicated and involved in environmental campaigns, pay attention to what happens around them and they will teach us how to change our attitude. When they believe in what they do, our children become our role models.

The Recycling Patrol is a project of the Romanian Association for Recycling RoRec in partnership with municipalities and the School District of municipalities and localities where RoRec is implementing electrical waste collection campaigns (WEEE), in order to create a coherent collection infrastructure of this type of waste. The Recycling Patrol is developed as a program of environmental education in schools, developed to help achieve the waste collection quantitative targets imposed by European standards, namely the 4 kg / inhabitant per year.

What is the motivation for Recycling Patrol agents? “Recycling Patrol is a group of children who are trained to recycle,” says Alex, 5 years old, Patrol Agent in Timisoara. “If we did not make this effort, I could not breathe,” says Luminita seven years, in Calarasi. “We help the environment,” says another Alex, 12 years, Patrol Agent in recycling, in Bis-

trita, “because people polluted and now they have to clean.” “If we have an old battery or bulb, we bring them here at school, and put them in these containers for collection”, says Lavinia, agent in Hunedoara, 14 years.

Like them are over 20,000 registered volunteers in over 200 schools in the country in the 2012-1013 edition of the project.

It might be a game for them, a drawing, one hour of education in environmental protection. In reality they do important things in our place. In adult language, the Recycling Patrol is a community empowerment project. By following the examples of children, adults become more aware of their environment and that of their children.

The most visible effect of the campaign was that parents and communities around the schools have learned about this project and have actively contributed to the success of the program. Through this program, the organizers provide an accessible education system, simple, aimed to encourage the habit of selective collection of electrical and electronic equipment waste (WEEE). The program helps students understand some of the causes of environmental pollution and makes them realize that it’s reduction depends on each of us.

If you had any doubt that children have a great power - even to educate us adults - now you can rest assured that they will change the world!

At the end of the “Recycling Patrol” Program conducted by the RoRec Association, with participation from school inspectorates and municipalities in seven counties in Romania, the average collection per pupil involved in the program was 2.47 kg WEEE, while the national collection rate is somewhere under 1 kilogram / per capita!

Basically what patrol agents did was to engage in activities to promote family and community projects in order to stimulate the collection of electrical waste.

Coordinating teachers created fun educational activities with children, through which they understood the dangers that nature is exposed to when a TV or refrigerator is not properly recycled.

Of 206 schools, 54 have reported their own creative projects or have promoted the collection and 24 teams have made proposals for the next edition’s poster.

Children were able to collect in less than five months a total of 42,000 kilograms of waste electrical and electronic equipment (WEEE) and for their involvement, generous sponsors - Indesit and Philips - founding members of the association, offered prizes.

At national level, the categories of awards were aimed at the largest amount collected / student (for which an audiovideo laboratory equipment was offered), the most active teacher (who received a micro hi-fi system) and the best poster proposal (awarded with an LCD), which challenged the most creative participants to help design the future edition poster of the Recycling Patrol program, which will debut this fall.

The Sports High School Bistrita was the institution that collected the largest amount/recycling Patrol member in the country, with 205.4 kg of waste electrical and electronic equipment collected during the program. The most active coordinator teacher, at national level, was Mrs. Teodora Popescu (Centre for Inclusive Education School No.1 Bistrita).

Special Jury Prize, named after assessing and evaluating 24 proposals for poster was awarded to the team of the Center for Inclusive Education School No. 1 in Bistrita.

Calarasi is the county with the largest amount collected of the program, with

about 9000 kg of WEEE collected. Individually, classes I-VIII School George Emil Palade of Ploiesti was the winner, out of the 206 institutions included in the program, by collecting a huge amount of WEEE - 2596.6 kg. Timis County, already familiar with program directions, because the pilot project was conducted in the county in 2011, scored in the contest over 30 projects.

Teodora Popescu, recycling coordinating professor at the Center for Inclusive Education School No.1 Bistrita, winner of the Special Jury Prize for the poster said: << For us, the “Recycling Patrol” initiated by RoRec, was a novel approach and a motivation to learn about the environment and to act in an environmentally friendly spirit. I was actively engaged in all project phases. I was present and fully involved. How? By collecting ... creating games, organizing trips, through poems, drawings, films ... things that are enjoyable. Videos, exciting computer games, specific poems, coloring books, brochures, kits and many attractive ideas online - all have been pro-

Details about the Recycling Patrol program and how you can attend the next edition, can be found on the website www.rorec.ro or www.facebook.com / patruladereciclare.

vided by the organizers of the “Recycling Patrol”. And we have benefited greatly from this background, educational and formative. (...)

At the award ceremony I proudly wore the badge of membership in “Recycling Patrol”. Students from other schools that collected a large amount of waste were also present, students who understand, like us, that now is “The Time for Recycling”, that the Earths Health is up to each of us.

We are confident that next year, we will watch, on the LCD we won, footage of beautiful actions developed by many more members of the “Recycling Patrol” across the country. Get involved alongside us! Until then, current and future colleagues of the “Recycling Patrol”, I wish you “a nice vacation”! >>

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The French connection

HE Philippe Gustin, ambassador of France to Romania, says his priority here is economic development between the two countries. He sat down with The Diplomat – Bucharest to outline the current French investment landscape, the needs of his compatriot investors and the perspectives for French firms in Romania.

By Roxana Cristea 22 The Diplomat June 2012

“I

n the current economic climate we have very important bilateral relations between the two countries. Regarding the relationship between France and Romania, the priority I have given to my activities is economic development.

I believe that without a quality economic relationship, without increasing development, which is an important topic in Europe today, in Romania, in particular with French companies, investment cannot grow,” HE Philippe Gustin, the ambassador

france

“Today Romania has interesting comparative advantages. Tomorrow there is a need for Romania to keep these advantages” HE Philippe Gustin, Ambassador of France to Romania of France to Bucharest, told The Diplomat – Bucharest.

French enterprises in Romania are present in large numbers, and the major ones have been here for a long time and made their mark in the Romanian landscape.

An example is Dacia, which belongs to Renault Group and represents 3 percent of Romania’s GDP. “And this company asks for only one thing from Romania, to develop further. Enterprises want to develop on the Romanian market, which has an interesting development in many fields such as energy, telecom, automotive and medical services, but increasingly more and more businesses use Romania and are headquartered here because Romania is the place where they can develop properly and can see from here the evolution they may have in other countries of the Balkans,” says Gustin.

According to the French Chamber of Commerce, in 2010 France was Romania’s third biggest trade partner, but it was pushed into fourth place by Hungary in 2011.

In the past decade, after the 10 percent decrease registered in 2009, France and Romania continued to grow in terms of bilateral trade by 23 percent in 2010 and 13.5 percent in 2011: French exports to Romania reached 12.5 percent in 2010 and 15.5 percent in 2011, while Romanian exports to France reached 24 percent in 2010 and 11.6 percent in 2011. Also, in 2010, French companies had 118,000 employees in Romania, a cumulative annual revenue of EUR 14.4 billion and the stock of French direct investment in Romania is estimated at EUR 7 billion.

Sectors with vava-voom

In recent years, French investors have developed in all areas of Romania.

“I think the most important thing is to look at the margins of progress and I think the most important sector is energy, because in Romania there is a concept of energy independence that is close to the French conception. Romania has good energy development,” says the ambassador.

In addition, other important sectors

are construction and infrastructure – roads, highways and health.

“From my point of view the latter is very important because it concerns people’s daily life and allows a country to have a higher life expectancy. The health sector is an important one, and we have here in Romania the largest companies in this field,” adds Gustin.

The top two French investors in Romania are Orange and Renault Dacia, with nearly EUR 4 billion invested in the country.

In the water and energy sectors, Veolia and Suez-GDF are among the leading operators on the Romanian market, according to data from the French Chamber of Commerce.

French investors hope for ’la vie en rose’

The ambassador says that Romania is a country where investors come for several reasons. First it’s about geopolitical position. Second, investors need to understand quickly that labor quality is very important here.

Romanians are trained, adaptable, especially in terms of foreign languages, and have technical skills.

“There is no American university that does not have a teacher of Romanian origin.

An investor who comes to look for an engineer, for example, must know that they will find a quality workforce here,” says Gustin.

The last element is sensitive: big companies need a secure legal environment.

They need transparency, clear laws that do not change every five minutes and they also need a world where corruption does not reign.

“I believe that Romania has made

7

€ bln represents the value

of French direct investment in Romania

many efforts in this regard, especially in terms of big companies, in terms of corruption. Unfortunately there are many problems, and I see small firms suffering from corruption. The mentality of people in both the public and private sector in Romania is beset by corruption. It is difficult but as there is more transparency in business, the laws will be clearer, and we will have more convictions of corrupt people. Romania will evolve in a positive way, but should not tolerate any acts of corruption,” urges the ambassador.

According to Gustin, most big French investors are involved in the Romanian landscape.

“When we look at the management structure of the largest French companies here in Romania, the owner is French, the directories may be French or of other origins and then the remaining employees are Romanian. The future of these companies in Romania is Romania’s future,” argues Gustin.

In Romania, investors have many advantages such as the quality and cost of labor, and these companies are interested in a European state policy allowing development.

“Large companies today choose the right countries for investments. Today Romania has interesting comparative advantages. Tomorrow there is a need for Romania to keep these advantages.

We need transparency, developed infrastructure, the right policy and to get rid of corruption. Romania’s future will largely depend on public power and it is the capacity to keep a comparative advantage over other countries when it comes to choosing that makes an investor interested,” says the ambassador. ■ 23

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French flex savoir- faire during crisis Although the economic situation in Europe is no picnic, French companies continued to invest in Romania in 2011, hoping that things would improve.

The Diplomat – Bucharest spoke to the major French companies on the local market and found out how they have managed to cope with crisis, how they have overcome the problems and the benefits they have found here.

By Dana Verdes, Magda Purice, Roxana Cristea

L

atest statistics from the French Chamber of Commerce show that France remains Romania’s third biggest commercial partner, with investments of almost EUR 5 billion. French groups present on the local market employ 100,000 people and the companies have a cumulative annual revenue of EUR 14.4 billion. Segments such as retail, auto, medical services, telecom and energy remain some of the most important areas for French investments in Romania. The top two French investors in Romania are Orange and Renault Dacia, with nearly EUR 4 billion spent in the country. In the water and energy sectors, Veolia and Suez-GDF are among the leading operators on the Romanian market.

Big investments in a milk factory In 2011 Danone invested RON 16 million (approximately EUR 3.8 million) which went into the company’s factory near Bucharest.

Some 90 percent of the products the firm sells in Romania are manufactured there.

24 The Diplomat July 2012

Danone Romania processed some 65 million liters of fresh milk last year, having partnerships with 57 local farms. “Danone Romania is our biggest business in the region and I would say it is also the most successful.

The biggest challenge we have so far in the region is Greece,” said Dieter Schulz, general manager of Danone in Central and Southern Europe.

Schulz took over the responsibilities of the group’s dairy division in Romania, Bulgaria, Greece and the countries from the Adriatic region in April this year. He has over 15 years’ experience in the FMCG industry.

In 1998 he joined Mars, where he held various positions in different countries and regions.

His last appointment was in 2007 at Kraft Foods, where he served as GM for Malaysia and Singapore, based in Kuala Lumpur.

In May 2011, Schulz returned to Danone Group as GM for Bulgaria and Greece, for the dairy division.

“One of my main objectives in Romania

will be to encourage the consumption of fresh dairy through health awareness programs so that every Romanian will eat at least one pot of yoghurt per day. Statistics show that at present this amounts to only a pot of yoghurt every two weeks,” added Schulz. Per capita yoghurt consumption in Romania is one of the lowest in the region. Romanians eat on average 5 kg of yoghurt each year, whereas consumption reaches 19 kg in Bulgaria, 11 kg in Hungary and 35 kg in France.

This year Danone celebrates 15 years since starting operations on the local market.

The French company has invested RON 300 million since 1997 and it now employs 738 people. In 2011, Danone’s turnover in Romania amounted to RON 503 million, up 5.7 percent y-o-y, while sold volumes were flat.

The growth rate is below the one reported for the previous year – in 2010 the company’s business grew by 10 percent y-o-y. The decrease in purchasing power continues to be a challenge but, overall, the local fresh

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“While years ago, a transaction would have been signed within days, now it could take as much as a year to see a contract signed” Philippe Mer, chairman of the board in Romania at BNP Paribas Real Estate dairy market has a lot of potential for future growth, believes the firm.

Orange to bet on mobile internet

“Romania can be proud of its telecom market.

Prices are low, network coverage is excellent both for voice and internet, and the choice of handsets and smart phones is very rich. So it is the most competitive and advanced market in Eastern Europe. Even more, I would say that in Romania there is a large openness towards the Western trends,” Jean-Francois Fallacher, chief executive officer at Orange Romania, told The Diplomat – Bucharest.

Romanians are a technologically driven nation and, although users are very attentive to the price-quality ratio, they want to benefit from the latest technologies.

The most important changes in the telecom market in 2011 were the increase in customer demand for internet access on mobiles and also an increase in smart phone sales.

Sales of smart phones grew by 44 percent in the first quarter of 2012 over the same period last year and the number of tablets tripled.

According to Fallacher, the main challenge is still to increase the percentage of the population that uses the internet. According to a study by Eurostat, only 50 percent of Romanians aged between 16-74 years have used a computer, compared to 96 percent in Sweden, 94 percent in Denmark and the

Netherlands, 93 percent in Finland and 91 percent in the UK. The figures are higher for young people, because they understand and adapt more easily to new technologies.

The rate among those aged 16-24 years who have used the internet is higher, at 81 percent, but it is still the lowest percentage in the EU. “So, practically, one of our missions is to increase internet access, and for that, we have extended our 3G network to rural areas. Also, over time consumer behavior has changed, which has led to changes in the subscriptions,” he said.

The GM added, “So we went from a personal plan service that has a subscription basis, with or without minutes included, where the consumer could add minutes, text or multimedia messages as needed, to subscriptions that contain an abundance of minutes, SMS and internet traffic.” Three years ago the company made some structural changes to the subscriptions base, in order to adapt to consumer needs, control costs and to differentiate itself on the market. The result was the new Orange portfolio, grouped under animal icons like Delfin, Pantera and Fluture.

In 2010 to these were added Colibri subscriptions which offer mobile internet access to customers depending on their activity, time spent and type of access. In March 2011 Orange launched Flamingo, the first subscription in Romania created especially for national and international calls to mobile and fixed networks. This subscription gives customers the opportunity to speak at favorable rates both abroad and at home, and depending on the number of minutes they want.

Also, the Senior offer addressing the communication needs of the elderly is in high demand, while during the December holidays, the most popular subscription was the Junior package associated with the Hello Kitty phone. Currently, the average subscription value in the Orange portfolio is between

EUR 8 and EUR 9, VAT included. Orange has around 700 retail stores, which include its own shops, franchises and partners. By the end of the year the company wants to reach 750 stores. “As a business model, we must be closer and closer to where our customers live. It is a strategy in which we believe and we will keep it,” said Fallacher, adding that customers are looking for more personalized offers, matching their own expectations and needs.

The customer is no longer attracted just by a 5,000-minute offer; instead he or she prefers an offer tailored to fit his or her communication profile. “So, our customers are clearly showing interest in not only the traditional voice, which still remains the reason why they use Orange, but the quality of our data network for mobile internet access and our great customer service and large presence in Romania,” added the Orange chief.

Young people are using mobile data services more and more. Also in the market is an increased appetite for smart phones and tablets, especially because people are using internet services, emails, websites and social networks more often. On the business side, companies are using mobile data services in order to allow employees faster access to email and internet or to give the sales staff a more efficient and cheaper way to set up various operations or contracts. By the end of March, 88.9 percent of the popu-

“We have maintained growth in a difficult economy which is why we focus on the strategic approach and operational efficiency” Dan Boiangiu, commercial director of Arval Romania 26 The Diplomat July 2012

france lation benefited from speeds of up to 14.4 Mbps, the fastest mobile broadband in rural areas in Romania. This process will continue in the rest of the country, in order to cover 98 percent of the population by the end of June 2012.

Regarding the 4G network, Fallacher added that Orange has already tested 4G in Romania and is prepared to launch this technology, which allows data transfer speeds of up to 100 Mbps, shortly after the licenses become available. “In rural areas too our network is LTE ready and the transition to this technology will be simple. In urban areas this service may be available shortly. Also,

Diplomat – Bucharest about the Romanian telecom market.

According to him, telecom service providers are looking for ground-breaking designs that will reduce total costs of ownership while flexibly absorbing network growth. To do this, an all-IP transformation of the current existing wireless networks towards 4G LTE (Long Term Evolution) wireless broadband is required.

“Our experts in Timisoara were involved in the deployments of the first LTE networks around the world in the US, Russia, Italy, Spain, Slovenia and United Arab Emirates,” said Ros, adding that in February 2011, Alcatel-Lucent performed the first public demonstration in Romania of 4G/LTE capabilities.

LTE is a unique opportunity for telecom service providers to address the insatiable appetite for bandwidth while delivering sus-

Romanian-speaking projects, Craiova was the best strategic choice,” Gregoire Vigroux, director at CallPoint New Europe, a multilingual call center provider, tells The Diplomat – Bucharest about the new investments.

The strategy of the company was to keep serving the international clients from Bucharest (on multilingual projects). The idea of having a second site was to serve local clients (on Romanian-speaking projects). Therefore, the ‘multilingual capability’ was not a criterion that had to apply when it chose Craiova. The company has got 1,200 seats across its three delivery centers: Sofia and Plovdiv (Bulgaria) and Bucharest and Craiova (Romania).

“For five years we have been the interface between national and international companies and their customers and all statistics indicate very optimistic forecasts about the develop-

“These are still good days for hypermarkets in Romania, as the market is delivering high potential for us” Francois Melchior de Polignac, GM Carrefour Romania

Orange is a promoter of this technology in the EU, because the network has committed to introduce 4G/LTE (Long Term Evolution) in all EU markets where Orange is operating by 2015.The speed of deployment of 4G will of course highly depend on the conditions under which the license is granted by the authorities to the operators. These discussions are currently ongoing with the ANCOM and Ministry of Telecommunications,” outlined the Orange CEO.

Alcatel-Lucent waits for 4G implementation in Romania

“Telecom today is an environment of radical adaptation to new realities, new demands and new business models. Romania’s telecom market in 2011 remained competitive. While the economy was facing the crisis the telecom companies were facing the challenge to offer high quality services to their customers and fighting battles on various fronts – network coverage, landline and mobile telephony, fixed and mobile data, analog and digital cable,” Raoul Ros, country senior officer at Alcatel-Lucent Romania, told The 28 The Diplomat July 2012

tainable profitable growth, say players.

Deploying commercial LTE networks in the region is just a matter of time. ANCOM has confirmed the 4G licenses and associated spectrum tender and so LTE will come to Romania soon after the licenses are granted.

In 2010 and for the first time, mobile broadband users surpassed fixed broadband ones.

This trend will consolidate in the years to come. Worldwide broadband subscriptions are expected to reach 3.4 billion by 2014 and about 80 percent of these consumers will use mobile broadband. The driver lays in the simple but fundamental value it offers consumers: mobility, being always connected while on the go. LTE is the technology developed especially for the internet era.

CallPoint invests in new contact center in Craiova

Elsewhere, CallPoint New Europe has opened a new contact center in Romania. The site is in Craiova. It has been up and running since June 2, with 200 jobs. With this new facility, CallPoint now has 1,200 seats at group level. “First of all, I should say that choosing Craiova was not easy, because there are many cities in Romania where there are educated and talented people with a good work ethic.

Of course, if the purpose of the site had been to serve German customers, we would have eventually picked Cluj. And if it had been French, we could have gone for Iasi. But for

ment of this industry. For these reasons we decided to have 2,000 employees in Romania by 2015. The major part of the increase will be made for French- and English-speaking projects. We will therefore have massively to recruit people speaking these languages in Bucharest within the next three years,” said Vigroux, adding that CallPoint is privately held, with the European Bank for Reconstruction and Development (EBRD) as a shareholder. In 2011, the EBRD invested EUR 3 million in CallPoint New Europe, with many of these funds used exclusively to enhance and expand operations domestically.

Currently, the call center industry in Romania employs over 10,000 people. The Romanian contact center market, with an estimated turnover of EUR 120 million last year, is growing rapidly. In the next five years, Vigroux says that its value could even increase to EUR 350 million. As a group, the turnover of CallPoint New Europe reached EUR 10 million in 2011 while in Romania it was EUR 3 million. “Multilingualism is one of the greatest assets of the Romanian economy. This asset attracts measurable foreign investment. Romanian workers are highly educated, resourceful and problem-solvers.

Because they speak foreign languages like no other population in Europe, Romanians have changed their country into a major call center hub. And this is just the beginning of the story,” said Vigroux.

france According to him, Romanians are internationally known for their high aptitude in speaking European languages: primarily English, followed by French, Italian, Spanish and German. Twenty multilingual major call centers operators have come to Romania in the past 5-10 years, finding a multilingual pool which they can utilize to serve millions of customers across Europe and the USA, by phone, email, chat and other means.

The figures are quite impressive: English is now spoken by 8 million Romanians; French by 4.5 million; German, Italian and Spanish, 1.5-2.5 million. “I would say that the astonishing pool of foreign speakers in Romania is one of the main assets the country

investments in Romania. According to him there are ongoing projects, both in terms of car assembly and in terms of mechanical parts (new engines, gearboxes, and chassis).

The group’s facilities include a design center, an engineering center (which also comprises the only testing center in the region), a car plant, a mechanical plant, an important logistics structure and the largest commercial and repair network. Moreover, Romania is home to the only design and manufacturing unit for stamping tools owned by the Renault Group worldwide.

“All this allows us to continuously develop our know-how and to get more workload, especially on what we call the ‘entry range’.

The most recent example is the Lodgy, the model that has just been launched in Romania. The Lodgy is not manufactured at Mioveni, but it is a car firmly rooted in Romania,” added Olive.

fall and will probably reach a historic low.

“Anyway, the market evolution depends on the international economic context. Additionally, the circumstances in Romania will also have their say,” concluded the Renault Group head.

BNP Paribas Real Estate: deals take twice as long

Prudence, delays, silence, lack of financing, long-term diligence and the search for secure investments characterize the local real estate market now, as seen by representatives of BNP Paribas Real Estate. Currently, the market belongs to the tenants. “If you have the tenant, you own the deal,” Philippe Mer, head of territories for the CEE region and chairman of the board in Romania at BNP Paribas Real Estate, told The Diplomat – Bucharest. As real estate assets come second in the completion of a company’s

“In Romania telecom prices are low, network coverage is excellent and the choice of handsets and smart phones is very rich” Jean-Francois Fallacher, chief executive officer at Orange Romania

has nowadays. And French companies have understood that. Romania’s rising multilingual labor pool has not gone unnoticed by multinational call center organizations that seek to provide support to their international customers across Europe and North America.

Call center industry hiring has helped to push the unemployment rate in Bucharest to extremely low levels for advanced multilingual speakers,” concluded Vigroux.

Renault Group driving the car business through the crisis

“Between 2000 and 2011 the Renault Group invested approximately EUR 1.8 billion in Romania for the modernization of the industrial system, training and the development of an engineering and design center. Consequently, the Renault Group has in Romania all the facilities of a car manufacturer, something that gives us a real competitive advantage.

In 2011, the investments amounted to EUR 148 million. And we won’t stop here,” Jerome Olive, general manager at the Renault Group, told The Diplomat- Bucharest about company 30 The Diplomat July 2012

He went on, “The economic situation is still unstable in the short term and the only sure thing is that whatever forecast for the future we make, it will be proven wrong.

Therefore, our main challenge for the near future is to improve our competitiveness and to do our best in order to meet our clients’ expectations in terms of quality and delivery dates.”

For the fifth year in a row, the domestic market is in decline. The main cause is the economic context, which is difficult all over Europe. In Romania this is emphasized by a series of aspects such as limited access to bank loans and the late start of the car scrappage program, a scheme that, when it finally started, had a reduced number of vouchers.

“The crisis represented an opportunity for Dacia on certain markets. Car scrappage programs in countries like France and Germany boosted Dacia sales. More than 90 percent of our cars were sold abroad in 2011 and France remained our top export destination.

This does not mean that we did not have to face difficult situations. The crisis affected us especially here, in Romania, where the market has slumped by two thirds in recent years. Moreover, since the beginning of this year, the main European markets have also started to fall,” said Olive. He added that for 2012, the Romanian market will continue its

balance sheet, closely following the costs of the employees, it is easy to understand the prudence that rules the market.

Prudence and over-caution are the two terms that describe the approach on the Romanian and overall real estate market, representatives of the Romanian office of BNP Paribas Real Estate told The Diplomat – Bucharest. “While years ago, a transaction would have been signed within days or at most months, now the time has doubled and it could take as much as a year to see a contract signed,” said Mer. In 2008, when the real estate market was booming everywhere in Europe, one deal could have been established in a matter of minutes. “This is not a joke. I know a previous case when the client came, saw the office building and agreed on the spot with the deal and the price,” said Mer. More and more players are involved in a deal now, as everyone is searching for further warranties, a second and third opinion, and even then, it is not sure that the deal will really be closed.

With the current buzz regarding green certificates, it seems that the approach is still defined as a “nice to have” asset within a portfolio. Although more and more developers, especially of office buildings, are taking the move towards green certification seriously, it still cannot be described as a solid trend

france both in Romania and Europe, said the official representative of BNP Paribas Real.

Regarding Romania’s status in the eyes of investors, Mer said that investor feeling had improved for local business in the last few years. “While before, in 2009, investors had tremendous caution regarding countries such as Romania, now, the region, due to a certain stability within the current economic turmoil, has started to attract interest again,” Mer detailed. In Europe, there are silent yet mature markets, such as the UK, France, Germany and Switzerland. That is why the CEE region is described as being home to markets which still have a lot of potential, with Poland, though, delivering the best context for investments, due to its stable political landscape, large domestic markets, legal framework, a positive GDP and good investment yields.

In 2011, BNP Paribas Real Estate Roma-

far in different formats, Carrefour Romania is seen locally as one of the co-founders of local modern retail and the first to have opened a hypermarket in Romania, back in 2001.

With a countrywide reach of 25 hypermarkets opened locally so far, it seems that the expansion for such formats has slowed down in the last two years, meaning we can talk about a certain saturation of the market, the company’s GM, Francois Melchior de Polignac, told The Diplomat – Bucharest.

“These are still good days for hypermarkets in Romania, as the market is delivering high potential for us. We can’t say that we focus on a certain retail format, as the market provides opportunities for a balanced mix, whether they are hypermarkets, supermarket or smaller shops,” he said. Within a landscape where retailers have spread and implemented locally retail formats in order to get as close as they can to the Romanian consumer, Car-

lication. Real officials did not confirm the reports but sources close to the companies said that the German group was open to all options: a full or partial sale deal, or keeping the division within the group. The German magazine reported that buyers could include retailers such as Carrefour or Walmart. Polignac commented, “This is not the first rumor involving Carrefour on a regional basis; such rumors appear all the time on the market. We do not comment on them and we continue with our business operations on a regular basis.”

Regarding the company’s business figures, according to its overall report, in Europe, group sales decreased by 2.7 percent,

“Telecom today is an environment of radical adaptation to new realities, new demands and new business models” Raoul Ros, country senior officer at Alcatel-Lucent Romania nia posted a turnover of EUR 1 million. “We increased on a decreasing market in Romania, with a double-digit market share,” said the BNP Paribas Romania official. The company, which is active locally with brokerage operations, valuation and a property management division established in 2011, is focusing on the segments that deliver constant cash flow, meaning leasing and sales operations.

A report by the company stated recently that investment activity in Europe has clearly suffered from the economic recession and heightened tensions on the financial markets at the start of the year. Even though retail investment fell 26 percent on a rolling year basis between Q1 2011 and Q1 2012 in the five major countries, the nine major European cities (London, Paris, Munich, Frankfurt, Hamburg, Berlin, Milan, Madrid and Brussels) struck a positive note with an increase of 23 percent.

Prime retail yields seem to have stabilized across all categories and it is highly improbable that they will fall, in view of the continued expected contraction in investment activity in 2012. Yields could rise for lower-category assets of less interest to investors.

Carrefour: We do business in Romania, with Romania

Represented with 85 retail units opened so

refour has adjusted to the current context and is looking into different businesses in order to deliver the expected revenues and operations locally.

“We operate in Romania, with Romania,” stated Polignac, highlighting that the company’s policy is to use a large majority of local products within the retail mix.

According to the GM, the company tries hard to welcome Romanian suppliers as much as possible. “Our idea is to be part of the local economy and this involves Romanians and local producers and suppliers too. We have also adjusted to the current conditions. If a supplier can’t afford to supply the Carrefour network on a nationwide basis, our approach is to have a contract with that supplier for a region or a local shop,” he said. Also, the manager disclosed that the private labels mix of the company’s products is also produced in Romania. “It would be so easy and comfortable for us to simply import it, as many other retailer do, rather than going though the local production process, but we have a different approach,” added Polignac.

Carrefour operates on a market when rumors spread easily. Recently, a rumor that German Metro Group-owned Real was in talks with French retailer Auchan over the sale of its Central and Eastern European (CEE) business appeared in a German pub-

with continued weak non‐food spending and further deterioration in Greece. In Romania, the company’s group figures reveal that total sales increased by 6.6 percent in Q1 of 2012 on a constant currency basis. In Q1 of 2012, Carrefour Romania reported EUR 277 million of sales locally, a similar performance as registered in Turkey among European countries.

Citroen Romania: this is a strategic market for us

In the car industry, companies operating dealerships, local representatives and car producers are looking towards a better future and the increasing purchasing power of Romanian clients. In the meantime, they are focusing on improving performance on the short term. According to Citroen representatives, the competitive environment in the automotive industry remains difficult, with pricing pressure similar to the last quarter of 2011 and markets considerably worsened, down by almost 12 percent.

“We will implement strategies to attract investors, clients and business-to-business 31

france sales and we also maintain our plans for the development of the network, and for the improving price positioning and hence pricing power,” Marc Gueudin, general manager of Citroen Romania, told The Diplomat – Bucharest. “As we wait to reap the benefits of our investments in Romania, we must continue to work to put ourselves on a more solid footing, as we have been doing since 2007.

We have to get ready for the future and execute projects while improving performance in the short term,” Gueudin said.

He continued, “In 2007, when Citroen came to Romania, we set out a vision built around some key ambitions such as to develop responsibly, and to be a step ahead of the competition in products and services in Romania. Since that time, we have undertaken numerous programs, backed up with major investments, to turn this vision into a reality. We have in plan developments – network

is designed to move the brand upmarket, such as through the presentation of premium models, the development of mid-range models addressing local market conditions and pioneering products and services. According to company data, the brand is to be taken to the next level through the development of useful, affordable technologies like the e-HDi micro-hybrid technology, full-electric and the Hybrid4, with premium vehicles through the full DS line-up starring the Citroen DS5, now on sale in Romania.

Arval Romania focuses on efficiency

Arval Romania, one of the largest operational leasing companies on the local market and owned by financial group BNP Paribas, announced it had attained a turnover of EUR 23.2 million in 2011, an advance of 9.5 percent compared with 2010. According to the company’s representatives, the growth for this year is expected to reach 32 percent.

Recently, Dan Boiangiu, commercial director of Arval Romania, told The Diplomat – Bucharest, “Last year was a good period for our company as we consolidated and

brings positive awareness on a market which, in Romania, has a large potential but so far has only reached a fraction of the value of other business segments,” said Boiangiu.

At the end of 2011, Arval Romania had 260 partners, 30 percent more than in 2010.

ALD Automotive Group puts focus on e-auction remarketing platform

The ALD Automotive Group has recently announced the sale of its 100,000th used vehicle, through its ALD Carmarket remarketing platform. The e-auction platform was launched two and a half years ago and is currently deployed in 19 of the 37 ALD Automotive entities around the world, including Romania. “It is able to provide an extensive portfolio to its used car clients, covering virtually all markets and models that return from the operational leasing fleet,” said Shane Dowling, general manager of ALD Automotive. In Romania, the platform has been functional since March 2010 and it has become the major means for the firm’s used car sales. According to company data, nowadays, 100 percent of

“The Rabla results in Q1 were not sensational, due to the reduced number of vouchers as well as prohibitive prices for customers” Narcis Ghita, general manager of Trust Motors

expansion, especially in Bucharest and in the main cities of Romania, moving upmarket with our products and improving quality – that will help to achieve this goal. This means also improving service quality (to build customer loyalty) across the network,” Gueudin detailed.

For the company, Romania is a strategic market, now one of the largest markets in Europe. In recent years it has developed and changed a lot in a positive way, according to the company official.

“Citroen is also changing, and it’s important that we manage to differentiate ourselves in this market. Audacity, creativity and excellence are the three pillars of a highly dynamic outlook that is expressed not only in Citroen cars themselves but also in the specific response Citroen offers to broader motor transport issues,” Gueudin said.

The French producer’s overall strategy 32 The Diplomat July 2012

grew over the advance of the operational market level.”

The company estimated it would reach a total fleet of 5,000 units by yearend, with a current portfolio of 4,300 vehicles. Arval won 22 new clients in Q1 of 2012. “We maintain the growth within a difficult economy which is why we focus on the strategic approach of the business and operational efficiency,” Boiangiu said.

For this year, Arval Romania estimates it will make a total investment of EUR 24 million, EUR 8 million up on last year. The focus in 2012 is consolidating the offer for small and mid-sized enterprises. “Customers plan their car fleet acquisitions in operational leasing contracts in stages: they start with 40 cars and the figure can reach, depending on their operations, as much as 250, for instance,” says Boiangiu. In addition, he said that the practice of visiting clients and making a simple “rate-card services” offer no longer happens and in fact never did in this business.

“A customized offer and understanding of customers’ needs to ensure the correct price for both parties is essential, and confidence

the vehicles returned to the car compound are sold via the bidding website to the dealers. “They represent the main channel for vehicle sales, as 98 percent of second hand cars are purchased by dealers, while the other 2 percent are sold directly to the drivers who used the cars during the contract,” the company’s GM explained.

Group wide, the company has registered more than 900 dealers on the platform, out of whom 380 actively submit offers for vehicles.

This increasing e-auction activity, which started with 347 active bidders in January 2012, has led to an improved average for the car stock days, e.g. 14 days in May, which ultimately has a positive impact on the remarketing costs of the used vehicles.

Locally, at the end of May this year, ALD Romania reached a total of 2,722 second hand cars sold through the ALD Carmarket platform since its deployment two years ago.

Out of these, 750 were purchased during the first five months of this year by the company’s dealers. In the future, the company intends for the ALD Carmarket platform to undergo further technical improvements and to reach

france a total of 3,472 used cars sold via the website by the end of 2012, by achieving an additional 750 used car sales across the remaining seven months.

As for the ALD Automotive Group, it is gradually implementing the sales platform in all of its 37 subsidiaries and will continue to promote the sales of used cars through its online platform, aiming at selling up to 90 percent of its leasing terminations via ALD Carmarket in a variety of sales channels by 2015.

Recently, Dowling told The Diplomat – Bucharest, “Romania has seen a significant decline in new car registrations year on year since 2008, which has mainly been due to retail sales and consumer loans. The corporate sector itself has seen the opposite effect, where company cars are still required but the method of funding has seen a radical change.“ The GM, whose company was market leader based on 2011 numbers, added, “2011 in particular saw a substantial rise in operational leasing as a form of funding. This is due to various reasons, primarily liquidity shortage and fleet cost optimization. For this year, these will remain the main triggers of market growth. Furthermore, local companies seem to be becoming more aware of the

benefits of operational leasing products, and international companies, accustomed to this type of vehicle financing, are mandating this solution more on the Romanian market.“

Peugeot strengthens dealer network in eastern Romania

Representatives of Trust Motors, the importer of Peugeot cars in Romania, said that car sales through its countrywide network of 23 dealers were estimated at 564 units in the first three months of 2012, up 0.49 percent on the same period of last year. The results came on an overall car market estimated to have decreased by 8 percent so far. Narcis Ghita, general manager of Trust Motors, told The Diplomat – Bucharest, “The company has concentrated on strengthening its dealer network, especially in eastern Romania.”

According to company data, Peugeot will have better dealer representation in cities such as Focsani, Galati and Piatra Neamt.

The firm agrees with other car importers that the reduction in this year’s national version of the cash-for-clunkers program, known as “Rabla“, to only 30,000 vouchers, compared with 120,000 vouchers issued in 2011, will limit the scheme’s impact on sales. “The

program’s results in the first three months were not sensational and this is due both to the reduced number of vouchers as well as their high sales price, which is rather prohibitive for customers,” said Ghita.

The corporate segment is on the list of main priorities for the company in 2012, as well as the after-sales segment. The importer was established as a company in 1991, as Eurial Invest, and in 2003 it split its activities, with Trust Motors the importer and Eurial Invest running retail activities. Currently, Trust Motors numbers 23 dealers and 33 showrooms countrywide. The company’s turnover in 2011 exceeded EUR 51 million and it expects a similar performance this year too.

Accounting outsourcing is growth engine for Mazars

The sluggish economy has affected service providers. “Business went slowly. Being a smaller company we suffered less, but nevertheless we had limited growth. Last year we had an increase of 5 percent compared to 2010. The worst year was 2009, 2010 was slightly better, 2011 was good, and in 2012 we are suffering again, not at the same level as in 2009 but it’s worse than 2010 and 2011,”

33

france Jean-Pierre Vigroux, managing partner at audit and advisory firm Mazars Romania, told The Diplomat – Bucharest about the company’s turnover in recent years. He added that last year the company lost a large audit client in the automotive field.

Mazars has also suffered through the absence of mergers and acquisitions in the market. But the growth engine of the company is accounting outsourcing, which is developing very well. Currently, this segment represents one third of the firm’s turnover.

Three years ago it had a turnover of EUR 400,000 on accounting, and this year the law firm expects EUR 1.2 million. “2012 will be another difficult year. We have reached the half-way mark and there is no chance of recovery. We are now waiting for 2013,” said Vigroux, adding that for Mazars’ activity the main problems are lack of investment and unfair competition in audit activity.

Air France: Flying corporate

For Air France, part of joint French-Dutch airline Air France KLM, traffic increased by 10 percent in the first quarter of this year, against the same period of 2011, on consolidated volume coming from the corporate segment.

In terms of revenues, the airline estimated an 8 percent rise in 2011 on 2010.

“The corporate segment represents our strength. No matter if it is a global or a local contract, this segment brings healthy revenue.

Our loyalty program for small and medium enterprises, BlueBiz, has registered a solid growth in 2012 both in terms of activity and revenue. For individuals, we offer Flying Blue, one of the most generous loyalty programs worldwide,“ said Alexandru Dobrescu, country manager of Air France KLM Romania.

Currently, Air France operates three flights daily between Paris and Bucharest

plus two code-share flights in cooperation with its partner Tarom. “We have extended our code-share cooperation with Tarom for routes departing from Bucharest to London and Frankfurt and from Sibiu to Munich for point to point traffic and Bucharest-Nice and Bucharest-Lyon for connecting passengers,” Dobrescu said.

As part of the airline group’s strategy, Dobrescu said its focus for this year is on consolidating the corporate client portfolio, including SMEs. BlueBiz is its attempt to consolidate its share of a more and more competitive market.

In addition, KLM has enhanced its online offers with social media campaigns. It has introduced a program called “Meet and Seat“, which 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 choose 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 6 percent increase in passenger traffic into and out of Romania, mainly attributable to multiple 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 did not see 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 back in 2011.

GDF Suez Energy Romania keeps investment pace despite crisis

With energy being a highlight of investors’ business interest in recent years, the local market has attracted and still attracts enough attention from large companies that work to draft the best feasibility tests prior to making their investments. Eric Stab, chairman and CEO of GDF SUEZ Energy Romania and

president and CEO at GDF SUEZ Energy Eastern Europe, told The Diplomat – Bucharest about the company’s ongoing projects.

“This year alone we are making investments reaching some EUR 110 million in all development areas of the company’s operations,” said Stab.

At the moment, the manager says, the company invests EUR 35-40 million a year in the network alone. “We have focused on modernizing the company and invested in new, state-of-the-art equipment and tools for the energy distribution network, as we found it in not such a great shape. Our priority is also to improve efficiency and develop effective processes to serve our customers, besides developing new products,” said Stab.

Currently, GDF SUEZ Energy Romania sells and distributes gas to approximately 1.4 million clients, managing a network of around 17,000 km, and is leading the regulated energy market with a share of 50 percent, while, on the free market, it is the third biggest natural gas supplier in Romania, with an 11 percent market share. On the regulated market, the room for increasing its position on the household customer side is limited, so the company needs to find other ways to consolidate the business.

Stab added, “This is why we are now focusing on electricity sales and on energy services. In electricity sales, we have concentrated on B2B customers, with mediumsized consumption, i.e. with not such large industrial operations. In the services sector, at this stage, the focus is on household equipment maintenance, for in-house pipes, boilers and other gas equipment that has to be checked regularly. The second area of focus is to develop, step by step, energy-efficiency solutions to convey to our customers.”

A very significant target among GDF SUEZ Energy Romania’s priorities is the development of renewable generation. For instance, in the middle of March, the company announced the start of construction of a wind park located in Gemenele in Braila County, south-east Romania.

“Basically, at the moment, we are completing the foundations of the wind turbines that we are expecting to be delivered in July.

Our target, ambitious as it is, is, after erecting the turbines, to start operations by the end of November this year. We are working hard on

“The situation of payments from our customers has been getting extremely worrying in the last few months” Jerome Lionet, general manager of Saint-Gobain Glass Romania 34 The Diplomat July 2012

france

“The corporate segment is our strength. No matter if it is a global or a local contract, this segment brings healthy revenue” Alexandru Dobrescu, country manager of Air France KLM Romania it, as you can imagine,” said Stab.

The wind park near Braila is the first such park developed by the Franco-Belgian company in Romania and it is estimated to have a total installed capacity of 48 MW, comprising 21 turbines of 2.3 MW each. The wind turbines will be delivered by Siemens while the civil engineering construction and electrical works are done by Viarom and Energobit.

Schneider Electric Romania predicts good performance this year

As a global specialist in energy management, Schneider Electric is focusing on two main drivers in Romania: renewables, meaning generating green energy, and energy efficiency, optimizing energy consumption.

“For renewables, we have very good opportunities in Romania and we expect many more investments in the next three years.

We provide equipment and solutions to connect wind and solar farms to the power grid.

And since the clarification of the renewables legislation in Romania regarding the green certificates for solar and wind, the country will continue to attract more investment for which Schneider Electric can provide very good solutions,” Saulo Spaolanse, president of Schneider Electric Romania, told The Diplomat – Bucharest.

With regards to energy efficiency, says the company’s president, Schneider Electric can provide various solutions to optimize energy consumption for infrastructure, industry, data centers, buildings (office, retail, hotels, etc) and residential projects.

“Our products and solutions can save up to 30 percent of the energy consumption. What we actually specialize in is solutions to integrate all systems (light control, access control, fire detection system, electrical distribution panels, data centers) into one platform that is easy to manage and which also optimizes electricity consumption. In fact, we have a unique position in the market since we are able to meet all these needs for office buildings. In addition, we also provide consulting and maintenance services for our solutions,” said Spaolanse.

Company projects include Sun Plaza Shopping Center, where the firm provided solutions for the integrated security and energy management system, safe electrical

power and consumption monitoring for EUR 1.7 million. Another example is Apa Nova Bucharest where solutions helped streamline the process of collecting, treating and distributing water to consumers in Bucharest and remote monitoring systems. Innovations implemented by Schneider Electric reduce energy consumption by up to 17 percent, says the company, which means savings of over EUR 600,000.

“We have a long-term growth plan for Romania for our operations, meaning that we want to expand our sales by at least twice the market growth. In 2011, we exceeded this objective and our results put the Romanian subsidiary among the best performers in Central and Eastern Europe. For 2012 we are hoping to repeat this good performance. To achieve this and to support our strategy, we have clear, leveraging action plans and tactics,” said Spaolanse.

In his opinion, the market segment that the company is active in is estimated to grow twice as fast as the GDP growth in Romania.

Since the economic downturn many companies have started to pay more attention to costs, trimming spending.

“Until 2008, the market was developing so fast that all companies were focusing on increasing sales and revenues. Once the crisis came, companies started to focus on making their business more efficient. This is when the number of companies interested in our energy management solutions increased significantly and our business in Romania has been growing since then above the market level,” said Spaolanse.

Saint-Gobain Glass expects slight growth in 2012

“Last year was a record year in terms of safety.

Romania posted a record decrease in lost time because of accidents in the plant,” Jerome Lionet, general manager of Saint-Gobain Glass (SGG) Romania, told The Diplomat – Bucharest.

He added, “In terms of commercial and financial results, the year was one of contrasts, as the first half was in line with our expectations in terms of development and profitability but the second half was affected by a marked slowdown in activity in addition to an increase in the prices of raw materials

and energy. In the end 2011 was a mixed year in terms of results. On average the results for last year were still okay, but less than expected for the local market. The second half of 2011 was severely impacted by low demand and cash issues for customers.”

In terms of expectations for 2012, the Saint-Gobain Glass Romania GM thinks that there will be a slowdown of the firm’s main market which is linked to the building industry. “In terms of big projects there is clearly a slowdown and no big project will emerge this year. We are expecting a flat year in terms of projects and we are counting more on residential and the renovation side in order to improve the energy efficiency of buildings.”

All in all for Romania this year SGG Romania expects a slight growth on the market in terms of volume.

In his opinion, there are two big challenges in all the company’s markets: costlier raw materials and the lack of cash. “The impact of the raw material price increase is dramatic as silver prices doubled last year.

Also, our glass business is a big consumer of gas and we are impacted by the volatility of gas prices. For instance, in February we saw a 75 percent increase in gas costs on the same month in 2011,” said Lionet.

He added, “The situation of payments from our customers has been getting extremely worrying in the last few months. We have not faced major defaults so far. The clients’ capacity to get credit from the bank has dramatically reduced and we are now the bank for our customers. The payment delays reach on average some 40 days.”

The manager also mentioned that the company kept on investing in its plants. “In glass we have a new production line to produce laminated glass. This will be the first and only such industrial unit in Romania. We invested some EUR 5 million in it,” said Lionet. ■ 35

USA

American alliance stays strong through crisis

Relations between Romania and the United States continue to strengthen, even in the difficult economic climate. The Ballistic Missile Defense project and the growing amount of investment confirm this, says Mark Gitenstein, US ambassador to Romania. He told The Diplomat – Bucharest about bilateral relations between the two countries, the challenges ahead and the way American companies will evolve locally in the future.

By Dana Verdes, Roxana Cristea 36 The Diplomat July 2012

R

elations between our countries are excellent. Our highest priority is the ballistic missile defense system and our national security agenda and we are working with the Romanian government to make this a reality. I just returned from Afghanistan and can tell you that Romanian soldiers there are doing a terrific job, risking their lives for the values that we share,” HE Mark Gitenstein, the ambassador of United States to Romania, tells The Diplomat – Bucharest about his main concern.

Currently, Romania and America enjoy a good economic and commercial relationship, and this is reflected in the presence of US companies in the Romanian market, and the large number of local businesses that serve as distribution partners for American products, services and technologies.

The trade relationship between the two countries was worth about USD 1.9 billion in 2011. In 2011, according to Romania’s National Institute of Statistics, Romania enjoyed a trade surplus with the United States of about USD 251 million of goods and services.

“Other figures also show Romania with a trade surplus in both of the last two years.

The value of US exports of goods to Romania – not services – was USD 914 million in 2011. By any account, it is a vibrant relationship that continues to grow and benefit both countries,” says Keith Kirkham, commercial attaché at the US Embassy in Romania.

According to American representatives, the top three US export industries to Romania in 2011 were metallurgical grade coal, telecommunications equipment, and civilian aircraft, engines, equipment and parts.

This does not include the export of services from the US to Romania. “Romania is widely known as a market with great potential for a number of sectors and business strategies and outsourcing is just one of the strategies. Every country is competing for investment and offers advantages while seeking to overcome its disadvantages to investors. Some of these are natural – like rich soil, resources or a deepwater port – and others are man-made, such as a welleducated workforce,” adds Kirkham.

Big challenges in difficult times

Currently, the US Embassy is working with all of Romania’s political parties to fight corruption and strengthen transparency and the rule of law, and is pleased with progress on the IMF conditions.

“We would like to see more progress on privatization, the management of state-owned enterprises and a deepening of equity markets. The main challenge is to

USA

“The challenge is to implement policies to make Romania’s business environment more attractive to US and other foreign investment” HE Mark Gitenstein, the Ambassador of United States to Romania implement policies that will make Romania’s business environment more attractive to US and other foreign investment. To do this, there must be progress on anti-corruption efforts, increased transparency and reform in the judicial system, including more predictability in government decision making,” says Gitenstein.

Short- and longterm perspectives

“From an economic perspective, I hope that Romania will remain committed to continuing reforms that will improve transparency, build confidence with investors and lead to growth. This should include an ongoing dialog with the business community and civil society,” outlines the US ambassador.

In the short run, Romania will continue to be affected by what happens elsewhere in Europe, particularly as this is the primary market for its exports. Other macroeconomic factors, such as borrowing rates and what happens to the Euro and the RON, will also influence the short run.

“Regarding the long run, I am very optimistic about Romania’s prospects. Poland is a good model for Romania, having managed to maintain good economic growth throughout the economic downturn. Romania could have similar results if it sticks to its reforms,” adds Gitenstein.

Also, he noted that credit rating agencies have provided positive evaluations of Romania and indeed the country is one of the few states in South Eastern Europe whose ratings have gone up. Regarding the political environment, the ambassador told The Diplomat – Bucharest that he spoke to Romanian leaders of all parties, and has found remarkable consistency and

1.9bln

€

the value of bilateral trade between Romania and the United States in 2011

continuity on the key issues that are important to bilateral relations between the two countries, particularly regarding national security issues such as NATO, Afghanistan and missile defense.

Ford and Chevron to continue investments

The Ambassador notes that the two biggest US companies investing in Romania, Ford and Chevron, will continue their strategy as long as they continue to progress. Ford is pleased with its progress in Craiova. Auto production there is dependent on two factors: the demand for cars in Europe and the ability of infrastructure around Craiova to handle the production of 1,000 cars per day.

Meanwhile, regarding Chevron, Gitenstein thinks that Romanians would like to know if they have shale gas. This is the first step: to determine whether there is shale gas by allowing companies to explore using conventional technology. If there is shale gas, Romania needs to find a way to exploit it while managing any potential environmental risks, says the diplomat.

“The United States can share our own experience on how to do this. The basic issue on shale gas is: do Romanians want to continue to pay twice as much as Americans pay for domestic gas in the US and up to five times as much as Americans pay for imported gas? This does not seem to be a sensible way to proceed, especially since you can at least explore for gas using technology that is already being used in this country. I would point out that in the United States, there are 11,000 hydraulically fractured gas wells each year,” adds Gitenstein.

Additionally, according to the Romanian National Agency for Mineral Resources (NAMR), 90 percent of oil and gas licenses use fracking to further exploit Romania’s mature and depleting oil and gas fields.

Attracting new American investors

“As a general principle, the easiest dollar of additional investment will come from companies already in the market. Therefore, I can see additional investment in the technology, auto and energy sectors,” says the

ambassador, adding that for Romanians and the government, it is important to continue work on IMF reforms and to work with members of the diplomatic community to improve the business climate.

Assuming reforms continue, Romania will remain a very attractive area for investment. “Romania has a very talented and moderately priced workforce with high English language skills. The country has a pro-Western environment which is anxious to receive greater foreign direct investment,” says Gitenstein.

Investing money in missile defense

The ballistic missile defense project is firmly on track, says the diplomat. The Ballistic Missile Defense Agreement, as ratified by a vote of 90-0 in the Senate, enjoys tri-partisan support. “We recently held industry days in Bucharest and Caracal to present contract opportunities to potential bidders, which will primarily be the construction and operation of the planned US missile defense facility in Deveselu,” explains the ambassador.

While there will be opportunities for Romanian companies related to the construction and operation of the planned US missile defense facility in Deveselu, the ambassador does not expect this project to have any particular impact on US investment in Romania beyond the facility itself.

What is more important is that Romania is playing a larger role in NATO. The missile defense agreement endorses Romania’s stability and reliability as a NATO ally, as a democracy with a business market that is likely to grow and expand. “Assuming Romania remains committed to market reforms, it will be a safe and reliable place to invest,” adds Gitenstein.■ 37

USA

Americans continue to seek piece of local pie

The economic crisis has had a negative impact on all sectors of the Romanian economy, but US investors continue to invest locally and are optimistic about the future. The Diplomat – Bucharest talked to managers of American companies present on the local market to find out how they are coping with the current economic situation and what their future plans are in Romania.

By Dana Verdes, Magda Purice, Roxana Cristea

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e are seeing a slight increase in American investors’ interest in Romania, which is encouraging. Recently, several important projects have been discussed which would increase the country’s attractiveness, and we believe that should continue in the future,” Sorin Mandrutescu, AmCham president, told The Diplomat – Bucharest about local US investment. Accord38 The Diplomat July 2012

ing to him, Romania has many strategic advantages, such as emerging service areas, adaptability, human intelligence and ability to innovate continuously.

With some adjustments in public policy and increased predictability, the number of foreign investments will continue to grow, he believes. “I think in the future investments in the IT industry will continue to develop, but no less important

is to manage this growth and its sustainability. Also energy will be interesting, as Romania is attractive both for projects in the area of conventional resources and for ‘green’,” said Mandrutescu.

In addition, the Romanian Competitiveness Report released by AmCham in December 2011 indicates that Romania has a better return than average for each Euro spent on labor, suggesting

USA that cost-effectiveness relative to productivity achieved can be an advantage for the country, and by default for strategic investment. Besides, there are many areas where the Romanian market is still emerging, which offer US companies the opportunity to make strategic investments. Another advantage is the speed of starting a business. And investors have noted Romanian companies’ high level of adaptability to the latest technology.

“Romania is in a favorable position from this point of view and has proved, more than other EU countries, it is more open to adopting new technologies and adapting easily to technological changes,“ added Mandrutescu. Last but not least, the United States has always enjoyed a favorable climate in Romania, a good image and many supporters of the ideas and strategies that it has brought to the economy and business.

Amway to invest USD 370,000 in Romania this year

“The main objective behind the USD 370,000 strategic investment is to provide the company’s distributors with a professional space where they can come with clients or their partners to present to them the company and the Amway business model, and allow them to purchase any of the 450 products in our portfolio,“ Ioana Enache, CEO of direct sales firm Amway Romania, said of the opening of the Amway business center in Bucharest.

The center covers an area of 600 sqm and is divided into three areas: space for business discussions, a commercial space where entrepreneurs can buy from the Amway product portfolio and a training room equipped with the latest technology.

The investment also includes the facilities of the company’s new headquarters, located in Bucharest, and an online platform.

The center organizes professional development courses and presentation sessions of products supported by the company’s specialized consultants. It is aligned to the standards of Amway busi-

ness centers opened in other European cities such as Vienna, London, Istanbul and Munich. In 2011, Amway Romania had a turnover of RON 78 million. Cosmetics and personal care products made up 41 percent of sales, health and nutrition 26 percent and home care products 33 percent.

“This year we want to post one-digit growth, we want to get Amway back on strong legs, to be sustainable and to launch new products. The luxury cosmetics market has begun to recover. The Romanian market has potential,“ added Enache. Amway Romania now provides more than 450 products to over 40,000 private entrepreneurs and clients across the country.

Smithfield beefs up investment

Smithfield is another US firm active locally. “In the future we plan to support the increase of production capacity of our factories and diversify our range of products. This growth of production capacity is driven by the new development opportunities that have been made by the approval of the Channeled System (SC) of pork production in Romania, dedicated to getting it on the EU market,“ said Bogdan Mihail, president of Smithfield Romania.

The company’s main activity is rearing swine, feed production and the purchase and storage of cereals, and the firm is also the largest buyer of grain from the Banat region, with over 250,000 tons of grain purchased per year.

So far, Smithfield’s investment in Romania amounts to USD 600 million, of which USD 500 million has been invested in the farms division and USD 100 million in the processing unit.

“The initial decision to invest in Romanian agriculture was due, on the one hand, to the long tradition of raising pigs in the west of the country, and on the other, to the agricultural potential supply of cereal products locally, which are needed for animal feed,” said Mihail.

Currently, Smithfield Romania manages several pig farms, two compound

feed factories, a meat processing factory, a factory processing animal by-products, and a network of warehouses and logistics to ensure the f leet and market its products with better control of product traceability to the final consumer (from farm to fork).

Most of the farms owned by Smithfield are greenfield investments, and the others have been upgraded in accordance with all European requirements in the field. The company also owns two combined feed factories with a total capacity of 110,000 tons of grain and a total production of 7,000 tons of feed per week.

“Also, every year we invest in upgrading existing production facilities and units, in order to streamline all activities of the group companies, investments that will certainly continue in the coming years,” said Mihail.

Besides breeding swine and running compound feed mills, Smithfield has its own local slaughterhouse, Smithfield Prod, located in the former Comtim factory which currently produces about 30 percent of carcasses in Romania. It has the capacity to slaughter 600 animals per hour, and currently takes the whole f lock from Smithfield farms. Smithfield Prod operates three units: the Freidorf slaughterhouse, a station processing animal products and a wastewater treatment plant.

In 2009 Smithfield Foods completed the acquisition of Agroalim Distribution, a company that has a complete storage and distribution network for fresh, frozen and canned food with national coverage.

Smithfield also owns 50 percent of the assets of Frigorifer Tulcea (purchased in 2005, from Agroalim Distribution), a vegetable processing plant and cold stor-

“Recently, several important projects have been discussed which would increase the country’s attractiveness, and that should continue” Sorin Mandrutescu, president of AmCham 39

USA

“This year we want to post one-digit growth, we want to get Amway back on strong legs, to be sustainable and to launch new products” Ioana Enache, CEO Amway Romania age for fresh, frozen and preserved food, located in Tulcea, which is, moreover, the only producer of frozen vegetables in Romania, with a production capacity exceeding 100 tons per day.

“Smithfield, through the three group companies, has created over 2,000 jobs.

Our employees, both urban and rural, work like professionals, whether they are specialists in agriculture, quality control, butchers, or in support staff departments: logistics, maintenance, financial or elsewhere,” said Mihail, adding that the investments the firm made in 2011 and continues to make are intended to improve environmental issues, animal welfare and food quality and safety.

Microsoft goes west

Software giant Microsoft has seized on Romania’s IT talent to grow its operations here rapidly.

“Microsoft’s dynamic in Romania is incredible. For instance, we have announced that in July we will open a new center in Timisoara where we plan to hire 15-20 engineers over the coming months,” Michal Golebiewski, marketing and operations director at Microsoft Romania, told The Diplomat – Bucharest of the latest investments of the American company in Romania. The Timisoara center will be part

(and an extension) of the Global Technical Support Center opened five years ago in Bucharest.

The center today employs over 200 highly skilled engineers serving the most demanding Microsoft enterprise customers in Europe and is the biggest center of this type for the firm in Europe.

Currently the main areas for Microsoft growth are its retail business, compliance, which means ensuring companies use licensed software (the overall software piracy rate in Romania in commercial space has fallen to 63 percent in the last year, part of a seven-year trend), business solutions for mid-sized and large enterprises and software as a service (or cloud) solutions for small and medium businesses.

“On the local IT industry, we’re committed to leading investments in the local software market to create innovation. For instance, we’re investing USD 250,000 in 2012 in moving the software developers to the cloud,” said Golebiewski, adding that while 70 percent of Romanian entrepreneurs see IT as playing an important role in business growth and as new technological innovations such as cloud computing will produce 14 million new jobs by 2015 at a global level, he is particularly optimistic about the business value of the company and demand from the market.

Also, the marketing and operations director added that during the crisis the market had shrunk, but last year it registered growth.

“According to International Data Corporation (IDC) the market is growing by 2 percent every year. Consumers have started to buy many computers and businesses have started to invest again. It’s not like five or ten years ago,

but the market will increase in line with IDC predictions,” said Golebiewski. On the other side, Tudor Galos says that the consumer segment is one of the most important areas for Microsoft.

“In Romania the company employs 19 people who only deal with the consumer segment. In the future the consumer segment will be connected to the cloud,” added Galos.

Xerox focuses on SMEs

Xerox shares a positive take on recent developments on the local market. “Since I came into the Xerox management, for one year and seven months there have been many very good things that have happened, but at the end only results matter. What is important is that for us 2011 was a good year, a year of returning to growth.

Last year almost all market segments, nearly all clients, felt the need for additional power after the hard years of 2008 and 2009.

In the first half of the year especially they began to reinvest, to resume trading and growth. I share the idea that much of the business happens at SMEs,” said Gabriel Pantelimon, country general manager at Xerox Romania.

He added that early 2012 was a rough time. Amid global issues, people started

“In the future we plan to support the increase of production capacity of our factories and diversify our range of products” Bogdan Mihail, president of Smithfield Romania 40 The Diplomat July 2012

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USA

“In July we will open a new center in Timisoara where we plan to hire 15-20 engineers over the coming months” Michal Golebiewski, marketing and operations director at Microsoft Romania

to put money aside, to delay projects and postpone investments. “Right now, after six hard months I believe we will see a stagnation of business year on year.

Although at the beginning of the year we hoped for an increasing trend, it was not so. If we look from month to month things are on an upward trend, but if we compare to last year, things are going wrong,“ said Pantelimon.

The main problems are related to the market. People are still postponing purchasing decisions and projects, waiting to see how the global crisis will evolve.

But at some point growth will resume. In addition, Romania is a country that has not reached its potential in many areas, believes the GM. “In IT there is room for much improvement. It is a temporary situation, but we will not know how long this crisis will continue,” added Pantelimon.

At the beginning of this year Xerox launched in Romania Xerox Partner Print Services, a program that aims to support end-clients’ business, in particular that of SMEs, by offering them document management services through its partner network. So far three partners have already been accredited in this program: Asseco SEE, 2U and Comserv ETA, which will provide printing services to SMEs in

the south of country, Transylvania and Moldova.

In addition, last year Xerox Romania consolidated its market share on the laser printer segment, both in value and volume of sales, following a business strategy focused on SMEs. The number of units sold by the company increased by 72 percent in 2011 compared with 2010, according to IDC data. Xerox Romania’s market share in volume reached 12.6 percent, up from 8.5 percent in 2010. This year the company, which grew 15 percent in 2011, wants to maintain the upward trend, according to Pantelimon.

Google to boost local online realm

Google is also upping its Romanian presence. “The Google Romania office was opened in November 2010, but Google products have been present on the local market for many years.

We opened this office in order to have a local presence, to adapt the corporate strategy to the realities and needs of Romanian users. This company was born and anchored in online and its main goal is to develop this environment,” Dan Bulucea, Google Romania country manager, told The Diplomat – Bucharest about the company strategy.

According to him, online is a healthy environment with economic impact that allows people to easily access information, share, analyze and use.

Developing the online environment requires support for companies that can make better value from their online presence in the way they promote themselves, and help for consumers to find products and services more interesting and rel-

“If we look from month to month things are on an upward trend, but if we compare to last year, things are going wrong” Gabriel Pantelimon, country general manager at Xerox Romania 42 The Diplomat July 2012

evant to them.“We want to help develop this environment. Last year we had some localized product launches, an office was opened along with the launch of Street View in Romania, then we had the launch of Navigation Maps. For companies I can mention some interesting programs, such as Engage for marketing and media agencies,” said Bulucea.

Besides this, the company has made constant improvements to the search engine and to various localization tools which are both to reach users and those who want to promote something, and this year it will continue in this direction.

During the crisis, online has been the only growing segment, and this is no accident as it is an environment that favors efficiency and allows measuring, productivity and better interactivity.

All these are advantages that lead to its development and from this point of view Romania can greatly increase, given that only a fifth of Romanian companies have an online presence.

Intel’s main focus for this year: Ultrabooks

Similarly, Intel remains active. “Every year Intel launches a new product line.

This year we launched the third family of Core processor and that is in effect

USA our focus for 2012.

These processors are found in netbooks, laptops, desktops and ultrabooks. Intel is focused on selling processors, especially in ultrabooks,” said Manuela Oprisan, Intel PR manager for Central and Eastern Europe.

According to market research firm IDC, 115 models of ultrabooks are due from various manufacturers worldwide, by the end of 2012, a high number for a product that has been on the market for less than a year. Of these 115, 30 will have touchscreen technology. The ultrabook is considered to be the next device for the consumer, says Oprisan.

“We want as many consumers worldwide to make the transfer from laptop to ultrabook. It is our number one job this year. We say that there is an audience for each mobile device,“ added the PR manager.

In the last three years Intel’s interest in Romania has grown considerably.

In this period the number of employees has increased from 10 to 400, according to the company.

repair, modernization and new construction projects in the area of transport and environmental infrastructure at a regional or national level, amounting to EUR 60 million.

“Environmental and green projects are very important to us, in terms of business-wise indicators, and we have successfully completed seven ISPA (Instrument for Structural Policies for Pre-Accession) projects, after being involved in all major programs targeting utilities and urban infrastructure and the institutional development of central and local authorities: MUDP, SAMTID, FOPIP and PHARE. Also, in urban development, we are involved in the repair program of 106 schools in Bucharest, a project financed by the European Investment Bank (EIB),” said Silvia Dulgheru, business development manager for the CEE and CIS region at Louis Berger.

In the transport sector, which is one of the core sectors for the company, Louis Berger is continuing its over 20 years of experience in Romania with new cohe-

waste management and energy fields have also caught the company’s eye.

Within Louis Berger France’s international operations, which have an annual turnover of around EUR 70 million, the company’s activities in Romania make up 10 percent of the total company net revenues. The Central and Eastern Europe division, managed from Bucharest, contributes 45 percent of the overall turnover, said Dulgheru.

The Berger Group of companies set up Louis Berger Romania SRL, which employs several hundred Romanian experts. The first quarter of 2012 meant several new contracts for the Romanian operations, to support the sustainable development of the country’s infrastructure, with an approximate value of EUR 15 million.

According to Nicoleta Kalman, proj-

““TV remains the strongest medium for advertising. It is not only about the audience that it reaches, but also the messages that it transmits” Radu Florescu, CEO of Centrade Saatchi & Saatchi “One of the main reasons we opened the software center here was the taxation law for software people, which basically means that their wages are not taxed.

Then there is our geographical position, neither eastern, nor in Western Europe.

The west is a center of research in IT. Also Romanians have a native talent and that must be exploited and cultivated,” added Oprisan.

Louis Berger active in key infrastructure projects

Involved in the repair and modernization project for one of the most discussed Bucharest-based projects, the Lia Manoliu stadium, which became the National Arena, Louis Berger has developed more than 100 major projects in Romania, in road and railway infrastructure, environment and utilities infrastructure, regional and economic development, waste management and energy, according to data provided by the company.

It is currently involved in over 20 major

sion fund-financed projects such as the Timisoara-Lugoj highway, a section of the Romanian part of European Corridor IV. In April, the first segment, 9.5 kilometers of the highway, was 28 percent completed, more than 10 percent behind schedule. The completion date for this segment is April 2013, and its construction value is estimated at EUR 49 million.

The highway will link Timisoara to Lugoj, an approximate distance of 35.1 km. The project totals EUR 330 million, out of which almost EUR 230 million came from the European Union. Louis Berger is the engineer supervising the works under a EUR 5 million services contract.

The company has expressed interest in continuing developing Romanian infrastructure and will focus on upcoming airport infrastructure modernization in Constanta, Iasi and Oradea.

Transport is not the only sector of interest to Louis Berger. Projects in the

ects coordinator for the environmental sector, Louis Berger is involved in 12 ongoing projects financed through Sectorial Operational Programs (POS), most of them technical assistance contracts for management of water/waste water and solid waste infrastructure.

The average investment in such a project is estimated at EUR 80-120 million. As Kalman said, all 12 projects have to be completed by 2015.

An illustrative example of a complex investment contract is the project carried out for the water company in Constanta which is a regional operator for Constanta and Ialomita counties.

The project amounts to EUR 200 million (about RON 820 million), with more than 85 percent of the amount financed through EU Cohesion funds.

The firm’s Turda-Campia Turzii water 43

USA project with SC Compania de Apa Aries (Cluj) is the most advanced, being more than 84 percent completed.

The investment value of the project, due to be finished this year, is about EUR 65 million (RON 280 million). Over 20142018, Louis Berger will deliver technical assistance services for similar projects in the counties of Sibiu and Fagaras, Bihor, Satu Mare, Covasna, Piatra Neamt, Vrancea and Buzau.

“The projects are more efficient when they are implemented regionally than locally, where regionally means multicounty, but also as a cluster or agglomerations within a county,” said Kalman.

“The best example is the water operator in Constanta, Raja, which provides sanitation services in Constanta, Ialomita, Calarasi, Ilfov and Dambovita.”

Louis Berger is involved in integrated waste management projects which have started recently. Such projects are implemented at county or small region level and are difficult because they require political consensus and support, since every town or village must agree to join the particular association (IDA).

These projects aim to improve people’s quality of life and protect the natural environment, meeting the environmental protection requirements of Romanian and European legislation.

“Even though private-public partnerships are not yet a trend in Romania, the specialists at Louis Berger are keeping an eye on this segment, but we are awaiting more initiative in launching projects and a partnership approach from the authorities’ part,” said Antonina Petrescu, the coordinator of private-public partnerships at Louis Berger.

Potential solutions in this area would be, according to the company’s PPP specialist, partnerships at regional and local level, such as the one formed for the street repairs in Buzau, following an EBRD grant for the EUR 3 million project.

The system of public tendering in Romania, which Louis Berger’s representatives dismiss as being based solely on the lowest price, betrays an irresponsible approach that results in ineffective

projects and delays due to never-ending appeals.

The Louis Berger official added of the current economic and political landscape, “Political instability doesn’t help with the faster implementation of infrastructure projects. The current situation in Europe, combined with the low absorption of EU funds, creates difficult conditions for investments and that is why financing issues especially should be on the Romanian authorities’ priority list.”

Filling the Gap

US-based Gap International, a company specializing in B2B services, has announced the opening of a Romanian office, following a partnership established with local company NTT Partners.

The consultancy office will be led by Ionut Harabagiu, co-founder and operational manager of consultancy firm Brand Support, and Marius Caluian, the former manager for Romania and the Republic of Moldova of research company MEMRB, acquired by Nielsen in 2011.

According to Mitzie Hoelscher, chief leadership officer of Gap International, the company saw a large opportunity in Romania, as some businesses have increased a lot recently, and businesspeople are looking for new growing solutions.

NTT Partners and Gap International’s partnership formed the Institute for Exceptional Business Growth, which is also a member of AmCham and the RomanianAmerican Chamber of Commerce.

Anca Harasim, executive director of AmCham, said, “This partnership is meant to promote the reports drawn up by the institute. The idea is to show American investors that Europe and Romania represent a good area for investments, as we also showed in the previous report by AmCham in 2011, which included a competitiveness comparison of six countries in the region.“ Worldwide, Gap International’s portfolio includes Kraft Foods, Diageo, Astra Zeneca, Pfizer and Merck.

The local office of the US consultancy company will address segments

“The two elections this year will bring issues as the public sector will change and we’ll have to start all over again in relations with our partners” George Mucibabici, chairman of Deloitte Romania 44 The Diplomat July 2012

where McKinsey, AT Kearney and Roland Berger Strategy Consultants have developed b2b product services.

Saatchi & Saatchi sees stabilization

The “two out of three” rule is the strategy adopted by the local Saatchi & Saatchi agency’s general manager, Radu Florescu, when it comes to thinking about pitches, accounts and agency team involvement.

The three coordinates of strategy, long-term account, profitability and creativity, that also attract awareness at major awards festivals, are the most wanted of all accounts within an agency.

“I never think in terms of small or big. If two of the three coordinates are met, I go for the account,” Florescu, CEO of Centrade Saatchi & Saatchi, told The Diplomat – Bucharest. “Prizes are amazingly important for a creative team.” Creativity has a very significant place in the company’s approach to accounts, adds the CEO. Of course, as in any other business, the advertising market is not immune to the overall economic turmoil, seeing clients cut budgets and raising expectations of what can be done on the same budget, along with other constraints.

Still, with an advertising market estimated by Florescu to have decreased this year by 4 percent, slightly better than last year, “We can speak about a certain stabilization“. According to a study by Initiative Media released at the end of last year, the market was estimated at some EUR 302 million, a decrease of 4.5 percent over 2010. The figures suggest the decrease

USA

“There is intense activity in production and compared with the previous year, we are not seeing a shrinkage in the ongoing project volume” Razvan Iorgu, general manager at CBRE Romania

has stabilized, argues the CEO. With a significant portfolio of companies including Toyota Romania, P&G (Ariel, Head&Shoulders, Pampers, OLAY), Raiffeisen Bank, Intersnack (Chio, Fiesta), PSI (Love Plus), United Way Romania and Special Olympics Romania, the agency manager believes that “you get what you pay for“.

This means that the agency strategy is not to compromise on the balance between agency fees, budgets and accounts.

“I am a big believer in new business, whether it is about current accounts and new projects or new accounts,” Florescu said.

He adds that TV remains the strongest medium for advertising.

The company has a separate entity for the digital and online segments, which are equally important. “It is not only about the audience that it reaches, but also the messages that it transmits,” added the CEO.

New office and retail to occupy CBRE in next two years

Like last year, office and retail will continue to be the most active sectors, says real estate consultancy firm CBRE, and 2013 and 2014 will deliver big projects, especially in the Barbu Vacarescu and Orhideea areas.

Some of these projects were begun in 2011, while others have been and will be started in 2012.

“This increase is reflected in the evolution of the project portfolio at CBRE,” Razvan Iorgu, CBRE Romania GM, told The Diplomat – Bucharest. In retail, CBRE’s portfolio as exclusive leasing agent

includes commercial centers such as Adora Mall Craiova, Cora Brasov and Corall Constanta, adding, according to the company, over 50,000 sqm of retail space countrywide in 2012 alone.

The company says that the industrial segment has also shown positive signs since the beginning of this year, although the wider picture is less rosy.

“The optimism has been dented by the news coming from the European region.

There is intense activity in production and our ongoing projects are close to completion. Compared with the previous year, we are not seeing a shrinkage in the ongoing project volume which is good news,” said Iorgu.

In the overall local retail market, CBRE estimates that it delivered 26,000 sqm of space last year, with the last quarter of 2011 bringing the launch of commercial centers such as Maritimo Constanta, with 50,000 sqm of GLA, Galleria Arad (33,000 sqm), Oradea Shopping (30,000 sqm) and the extension at Baneasa Shopping City in Bucharest.

Also, this year has seen large retail projects reaching the launch stage, such as the recently opened Iasi-based retail compound, Palas Iasi. Since March 2012, CBRE has managed the leasing for 450 sqm within Palas Iasi for Librarium Group.

This is the second leasing contract for Librarium intermediated by CBRE, after the real estate consultant managed the rental deal of Petrascu House in Bucharest, in 2011.

The company’s evaluation department is also considered to have posted a good performance so far. According to Iorgu, this department did an evaluation project for over 1,000 properties owned by a bank.

The office department notched up leasing contracts for 66,000 sqm in 2011, representing tenants and owners in Bucharest and elsewhere, including White&Case, HP, Genpact, the Romanian Commodities Exchange (Bursa Romana de Marfuri), Aecom, Pfizer, Dell, Nokia and McDonalds.

The company also announced the start of renegotiating the leasing con-

tract for 10,000 sqm within Prologis Park Bucharest by Keuhne+Nagel, a significant storage transaction, representing 5 percent of the overall nationally transactioned area of 200,000 sqm in 2011.

Meanwhile, CBRE worked on the leasing of a 2,700-sqm production unit and the 5,000-sqm concrete platform within industrial park West Park Ploiesti by American oilfield products and services provider Halliburton, the US company’s local market entry.

The CBRE manager says that the second semester of 2011 recorded the largest level of commercial center deliveries since 2008. By yearend, CBRE estimates that other retail projects will become operational, such as Auchan City Crangasi, Cora Rahova, InterCora Mihai Bravu, Ploiesti Shopping City and Cora Bacau.

Overall, in 2011, the total office leasing transactions for A and B class office space is estimated by CBRE at 262,000 sqm, with an average rental estimation of 1,200 sqm.

The consultancy company expects a similar level to 2011 this year, but the office department aims to increase its market share from the current 20 to 30 percent.

ExxonMobil commits to exploration investment

In November 2008, OMV Petrom and ExxonMobil Exploration and Production Romania Limited signed a farmout agreement under which ExxonMobil acquired a 50 percent working interest and a right to operatorship in the deepwater portion of the Neptun block in the Romanian sector of the Black Sea. In 2009-2010 Petrom and ExxonMobil conducted a 3,170-sqkm 3D seismic survey of the block.

“This was the largest seismic program ever undertaken in Romania and employed state-of-the-art technology.

However, even with the information from the 3D seismic survey, in order to determine the presence of hydrocarbons the company needs to drill a well, the socalled wildcat well,” Ian Fischer, managing director of ExxonMobil Exploration 45

USA Production Romania Limited, told The Diplomat –Bucharest.

According to company information, to support early exploration drilling in the Neptun block, ExxonMobil and OMV Petrom contracted Transocean’s Deepwater Champion drillship.

The Deepwater Champion is the sixth and latest generation heavy duty drillship specifically designed for access to and operations in the Black Sea. “The next step is to carry out further exploration work on the Neptun block and the plan is to do more seismic acquisition in 2012. Given the size of the block, the water depth, the challenges of bringing a suitable drilling vessel into and out of the Black Sea, and the technical challenges associated with drilling at these depths, it will take some time to plan and execute further exploration on the block.

On the main challenges the company faces in Romania, he added, “Given the long timeframes and the high costs of the projects we undertake, a key factor in enabling long-term investment decisions is the stability of fiscal and regulatory terms over the life of the project. Without fiscal stability, project economics and therefore investment decisions can be significantly jeopardized. This is the same for the Neptun project just as it is for other major developments around the world.”

Deloitte Romania aims for large projects and privatizations

Locally, the audit company remains the crown jewel for Deloitte Romania, following the international trend registered by the company.

“In Romania, taking into account the percentage in the total turnover, our main performers are the audit segment, followed by fiscal consultancy, financial advisory services and business consulting. In Roma-

in public-private partnerships. Last year brought the launch of an important project, namely the Rahova-Voluntari subway, as well as the Comarnic-Brasov highway,” said Mucibabici.

The company is also assisting Hidroelectrica with the Tarnita-Lapustesti project and also with CFR Marfa’s privatization.

In terms of framework challenges, the Deloitte Romania chairman considers the political ups and down extremely unhelpful.

“The two elections this year will present issues as the public sector will see a lot of changes and we will have to start all over again in relations with our partners.

New ways of thinking as regards the use of European funds have appeared, and opinions which prior to the recent election were widely held are now less so.

What I do not know is how much this is because of government wants to criticize what was done before just because it was done by the previous government. It’s slightly Sisyphean but we live in inter-

“There is great opportunity in Romania, as some businesses have increased and new growing solutions are needed” Mitzie Hoelscher, chief leadership officer of Gap International

It is not possible to be specific on timing at this stage. However, if further work confirms the feasibility of developing the field technically and commercially, the first production would be expected towards the end of the decade at the earliest,” said Fischer.

ExxonMobil and OMV Petrom each have a 50 percent share of the project and each is making 50 percent of the investment.

“For both ExxonMobil and OMV Petrom this is a significant financial investment at considerable risk. Because of the technical complexity, the cost of a deepwater well can be as much as 10 times higher than that of a shallow-water well in Romania, and more data and analyses are required in the exploration phase to determine the commercial viability of the project,” said Fischer.

46 The Diplomat July 2012

nia all these functions are very active. Obviously, in the boom period the financial consultancy part was spectacular, notching up many sales, M&A and privatizations.

Overall everybody has been hit in this segment during the crisis,” George Mucibabici, chairman of Deloitte Romania, told The Diplomat –Bucharest.

In his opinion, an interesting evolution has been seen in business consultancy.

“The segment is increasing as it incorporates several elements with a growing trend, meaning applications for state aid, EU funds applications and technical consultancy, especially in the public sector,” said Mucibabici.

“During this period we are seeing great interest in consultancy for companies’ reorganization internally, in order to improve the business processes.”

The company’s focus remains on large national projects.

“In financial consultancy we have some solid mandates and our focus is on large privatizations and on the large projects which will hopefully be re-launched

esting times,” said Mucibabici.

He concluded by saying, “The company’s expectations are high but we do not have as far-reaching ambitions as before the crisis.”

GE sees energy as main driver locally

2011 was a good year for GE’s energy business in Romania, providing customers with both technology and capability to produce energy more reliably and efficiently, more cost effectively and with greater environmental awareness, especially on the renewable energy side of business.

“Obtaining investment capital was much more challenging. As a result, potential investors were more hesitant to approach large opportunities and focused on low-capacity projects, making the progress towards a local sustainable and secure energy path slow,” said Cristian Colteanu, GE president and CEO for Romania, Bulgaria and Moldova.

According to him, the energy land-

USA scape in the European Union has also been transformed. Every member state has accepted national targets which, together, will realize the overall objective of the 20-20-20 Agenda.

Every member state is therefore committed to implementing ambitious energy efficiency action plans, also facilitated by a mature regulatory environment favorable to investment as it is in Romania.

As an active player in the energy domain, both as a supplier of technology but also as an investor, GE sees this opportunity as important for the country’s competitiveness and future economic performance within the region, says Colteanu.

What has happened in the financial markets during the crisis in the past few years could happen in the world’s energy markets next, if building up energy diversity and cooperation is not made a priority. In order to achieve that, long-term policy objectives should be established, argues Colteanu.

This will allow both the generation

help our customers gain a competitive position, while the Romanian economy evolves towards efficiency and performance,” said Colteanu.

Citibank Romania secures capital to meet market challenges

Citi is strategically focused on the world’s top cities, where it leverages its global footprint to deliver a consistent clientcentric banking experience. It describes itself as focused on innovative, non brickand-mortar distribution to provide “anytime anywhere” banking.

On the consumer side, there are four key priorities for Citi.

“First, our focus on developing simple and intuitive customer experience. Second, to expand our current offering with functionalities and capabilities that are relevant to consumers.

Third, to proactively enhance online and mobile security. Finally, to build global platforms for the benefit of our clients, who are typically internationally

islators and regulators around the world are still making efforts to deliver muchneeded clarity and consistency and public perception of banks remained rather negative in many markets. The other main challenge is to maintain the portfolio quality by working with the right clients, from the right industries and with the right exposures, while keeping an efficient cost management,” said Pandi.

In his opinion, the main short- and medium-term trends in the Romanian banking system include: increased financing pressures, reduced credit activity, disciplined cost control, branch network optimization, change of the competitive landscape and increased competition for “good” customers.

“The biggest immediate risk that Romania’s economy is facing is spillover effects of a potential ‘disorderly exit’

“The biggest immediate risk that Romania’s economy is facing is spillover effects of a potential ‘disorderly exit’ of Greece” Tibor Pandi, general manager of Citibank Romania of integrated plans and the creation of appropriate mechanisms (national and regional development funds, public-private partnerships, increased EU funds absorption).

It is equally important that authorities ensure the development of energy infrastructure, so as to support growth in energy demand and an integrated regional energy market, adds the president.

The energy strategy must also reflect state-of-the-art technology that maintains its applicability over time, so that all investment projects include efficient, productive and high-performance equipment, which is also compliant with EU environmental standards.

“For 2012, energy will remain the growth driver for GE locally. We will further focus on developing the wind and biogas segment, but industrial cogeneration, especially high-eff iciency energy production, will be another area of interest. The strategy will therefore stay unchanged and we will continue to concentrate on long-term projects that

mobile,” Tibor Pandi, general manager of Citibank Romania, told The Diplomat – Bucharest.

Citi’s share of non-performing loans is very low, at 1.5-1.6 percent, while the market average is above 14 percent.

Last year, the bank’s profit rose 25 percent to around RON 117 million (EUR 26.2 million), with the bulk of the growth coming from lending, which recorded an increase of 26 percent.

The bank managed to become number five in terms of net profit in 2011.

Its liabilities, 83 percent of which are client deposits and current account liquidity, totaled RON 5.14 billion at the end of 2011.

The bank’s capital rose 4 percent last year to RON 606 million, said Pandi.

In terms of challenges in the local market, the general manager said that the slow economic recovery has been particularly challenging for the banks.

“The anticipated growth last year didn’t materialize, consumer and business activity mostly failed to recover, leg-

of Greece from the euro zone. It would trigger reactions from investors which we can’t predict. The essential question is whether they would set Romania apart from neighboring countries or treat it the same as the entire region. If Romania doesn’t stand out in a positive way, we could have problems,” said Pandi.

As far as Citibank Romania is concerned, the GM says he is confident that the bank can deal with the challenging environment – both economic and regulatory.

“We are well capitalized and we have the right strategy to overcome these challenges. In these times, we make thoughtful investments in people and our brand and we further build on the foundation we’ve already laid – including strong risk and expense management – to help us grow responsibly,” said Pandi. ■ 47

switzerland

Swiss find role during tough economic times Regardless of the ups and downs of the economy, business should be based on an innovative vision and requires entrepreneurial courage, says the ambassador of Switzerland to Romania, HE Jean-Hubert Lebet. In an interview with The Diplomat – Bucharest, he outlined the business relationship between the two countries and argued that Romania is full of potential – both in the commercial environment and outside it.

By Magda Purice The bilateral relationship in numbers

Switzerland is one of the leading foreign investors in Romania. On September 30, 2011, the country was the tenth largest foreign investor with a share capital value of EUR 875.1 million and a total of 2,233 companies, according to National Trade Register Office (ONRC) data.

The main areas that have captured the interest of Swiss investors in Romania are: building materials, chemicals and petrochemicals, electromechanical and electronic components production, 48 The Diplomat July 2012

the food industry, wood industry, footwear production, textiles, energy and the media. The main Swiss investors in Romania are: Holcim, the largest investor (cement), Swisspor, Sika (construction materials), ABB (power), Greenfiber (petrochemicals), Roche, Sandoz, Helvetica Profarm (pharmaceutical), Nestlé, Laderach, Angst, Pacovis (food), Philip Morris (tobacco) Rieker (shoes), Seco (textiles) and Ringier, Edipress (media).

According to the economic department of the Swiss Embassy in Roma-

nia, Swiss companies had over EUR 2 billion of investments locally, based on data from 2011.

In bilateral trade figures, in 2011, exports by Swiss companies amounted to EUR 635 million in 2011, while imports reached EUR 289 million, with a trade balance of EUR 346 million. Exports inched up by almost 1 percent in 2011, compared with 2010, while imports increased by 13.7 percent.

For FDI values, Swiss companies’ total sum invested locally is comparable with Cyprus or Italy.

switzerland Business interest is alive

“I believe that, despite the temporary economic context, the trend of the Romanian economy cannot be anything but positive. What is lacking here is a dynamic vision of things,” said HE Jean-Hubert Lebet, the ambassador of Switzerland to Romania, in an interview with The Diplomat – Bucharest.

“Regarding, for instance, infrastructure projects, Switzerland has also been confronted with challenges in these projects.

They are large, involve lot of players and, therefore, delays are sometimes justified for objective reasons. The potential is here, the interest is here – that I can assure you.”

He continued, “For instance regarding transportation, in Switzerland the field is already saturated. Here, I see a

EUR 4 million was launched in May this year as part of the Swiss-Romanian cooperation program for developing Romanian society. The activity took place within the Swiss-Romanian cooperation program, the consortium formed by KEK-CDC Consultants, the Foundation for Civil Society Development and Partnership Foundation, and Swiss IB (OIE) and the launch event was also attended by Lebet. The diplomat said that the program was essential in order to carry out activities to sustain regional developments in Romanian society. Through the two financing stages, the program grants NGOs some EUR 1.7 million for social projects and EUR 500,000 for environmental ones.

Local pride

The country must do more to f lag up its assets, believes the ambassador. “The most significant surprise when I came to Romania last year was to observe, with regret, that Romanians don’t seem to appreciate or to really see the poten-

2

€ bln represents the FDI

of Swiss companies in Romania twists affecting overall economic patterns and parameters, it is very hard to predict what profession will be the best choice at a certain time, said the diplomat. Perhaps the current context has brought a delay that has made many professionals search for another career or consider switching to other fields, he suggested. The economy’s needs are cyclical but, at a certain point in time, a solid market should extend to all professional entities. It is tremendously important to have investments and managers to strategically define them, believe the ambassador. Then you need technical science to be very well represented and

“I believe that, despite the temporary economic context, the trend of the Romanian economy cannot be anything but positive” HE Jean-Hubert Lebet, the Ambassador of Switzerland to Romania

lot of development potential. I have visited companies in western Romania, in Timis, Arad and Sibiu, and I was very surprised to see the variety of fields they were involved in.”

In the ambassador’s opinion, in the current economic context the main issue remains the banking sector. This is a crucial factor for investments, especially given the European turmoil, for example in Greece and Spain. Entrepreneurship is a complex business and, according to the ambassador, business endeavors should be in tune with the context. “Entrepreneurship is a very complicated mix: of courage, chance, vision, performance, business proficiency,” said the diplomat. Still, the official representative has been impressed with the startups that he encountered in western Romania.

Meanwhile, financing of more than

tial of their own country. This, I must say, was amazing for me and regretfully sad,” said Lebet. “I read a report recently which said that Romania was the second safest country in Europe, in terms of criminality and urban incidents. I think this fact should be made more of in local advertising, especially for tourism.”

The ambassador urged local people to increase their sense of pride. “Romanians should be proud of themselves and their country. Romania is a very beautiful country. Of course there are problems but the trend is positive. All the problems that we are facing require time to be solved,” said Lebet.

Gambling on a career path

Choosing a field of business or career is no longer a simple matter. “Life can be unpredictable. How could I tell at 15 years old that, in my mature years, I would become an ambassador?” mused Lebet. With the current changes and

to deliver professionals on the market.

At the same time as all this, a market should deliver performance.

In life, as well as in one’s professional career, “you have to learn how to learn”, believes the diplomat. For diplomats, and others, too, a very important skill is to learn to listen first. “This career can’t be predicted and chosen from the school desk. I have seen during my career very technically-skilled professionals who had a tremendous diplomatic talent. A diplomat should know how to listen, in order to bring the right message to the audience,” said Lebet.

The Swiss ambassador keeps close links to the education system in Romania. In May this year, he visited four schools in Turda, as part of Switzerland in your School, an educational program supported by Swiss company Holcim. Initiated by the Association of Art Management, the project addresses educational, artistic and sport activities in schools from cities all around Romania. ■ 49

switzerland

Swiss firms stay watchful over local openings

Ranked among the top 10 foreign investors on the local market, Swiss companies see Romania as a hub of strategic and economic potential for them in the region, due to the size of the local market. The Diplomat – Bucharest talked to the main Swiss investors in order to find out the perspectives for this year’s investments and what the future may bring.

By Dana Verdes, Magda Purice, Roxana Cristea

L

ocally represented by large companies operating in each key industry, Swiss companies currently rank eighth in terms of direct investments, with FDI in excess of EUR 2 billion, according to the latest available data from the Council Member Delegation (Senate) of the Swiss Confederation. According to the most recent meeting between the Romanian president and Hans Altherr, president of the Swiss Confederation Council of States, in May, the main local industries for Swiss investors remain food and tourism, and such developed segments are capable of boosting the bilateral trade relationship. The main names are Holcim, Expur, Nestle, Novartis, Ringier, Roche, Swisspor, Rieker, Helvetia Profarm and Top Brands, to name but a few.

50 The Diplomat July 2012

Holcim puts faith in infrastructure

One of the largest Swiss investors locally, Holcim Romania, part of the Swiss group Holcim, with almost EUR 700 million of investments made in Romania in the last 15 years, operates on the most damaged market by the economic turmoil of recent years. According to the company’s representatives, the cement market contracted almost 35 percent between 2008 and 2010, while in 2011, cement consumption registered a slight increase, but this may not be sustained in the future due to the market uncertainties and volatilities.

Still, in 2011, the cement market compensated for the losses of recent years and rose by approximately 5 percent in comparison with 2010. “The increase was

the result of favorable weather conditions and investments made in the nonresidential segment and infrastructure, but it was not a substantial one. The market remains unstable and insecure,” Daniel Bach, general manager of Holcim Romania, told The Diplomat – Bucharest.

Regarding the company’s local operations, its cement sales volume decreased by 6.7 percent in Q1 2012, while the aggregates sales volume fell by 7.5 percent, against the same period of 2011, according to the first quarter report from Holcim Group. The main factor was the unfavorable weather conditions which made any construction activity difficult, said the company official. The highest demand for cement, which inf luenced the firm’s business turnover in a positive way in 2011, came from nonresidential

switzerland

“I believe that the air transport sector will remain volatile this year with fuel prices and currency movements unlikely to improve” Bernhard Wodl, head of Swiss Austria and Central Eastern Europe (industrial, retail, wind farms etc) and infrastructure projects. “Unfortunately the residential investments continued the negative trend of the previous years, which will continue, due to a decrease in the number of building permits,” Bach added.

Given these conditions, the company sees Romania as very important for Holcim Group in the region, due to the size of the market, but still, the present macroeconomic context comes with uncertainties and questions. The company official said that although Romania has put its macroeconomic house in order in the last few years, the country might be affected in the near future by the debt situation faced by some countries in the European Union. One of main concerns for the construction market in the region is the economic uncertainty caused by the debt crisis in the European Union, which may affect Romania’s export markets as well as financing by the banks. Also, the lack of infrastructure could neutralize the effects of certain local advantages.

“Unfortunately, the government didn’t manage to absorb the EU funds for infrastructure, but there are some positive signs taking in consideration that Corridor IV is almost entirely under construction,” Bach said.

Regarding local investments, over

2009-2011 Holcim Romania invested approximately EUR 100 million in production efficiency and green technologies. Most of this went into two cement plants in Alesd and Campulung and the grinding station in Turda.

An example of the company’s latest significant projects is the waste heat recovery system at its Alesd cement plant, a EUR 14 million investment due to be completed in the second quarter of 2012. The system will replace approximately 15 percent of the total amount of electric energy used by the plant, which for the moment comes from the public network, with green energy.

The company expects volumes to be at least at the same level as last year, with a slight upside potential, particularly if the ongoing infrastructure projects proceed and there are no significant difficulties due to the development of the debt crisis in the Euro zone. “A big problem is that on the medium term there are many possible scenarios for the evolution of the economy, as well as for the construction sector, and the visibility is very low. The effects of the crisis have not yet disappeared and we still have to deal with pending real estate projects and difficult access to credit for potential new ones.

However, if the government continues the infrastructure projects started last year, this will have a positive impact on cement sales in particular and on the economy in general,” Bach commented.

Cement producers, including Holcim, announced that they had managed get sales back on track in 2011, after two years of falling results, with increases ranging between 5.5 and 7.3 percent last year. Swiss cement producer Holcim

increased its sales volume by 7.3 percent last year. In 2011, Bach said, “It’s still risky to speak about the sustainable recovery of the market, but one positive sign is that there is currently a significant number of infrastructure projects planned, which if launched will help not only with the recovery of the construction market, but also with that of the economy. We are hoping for such an evolution, because on the construction market, the proper use of materials and the responsible development of constructions are essential.”

More flights connecting Bucharest to Zurich

Business relations between Romania and Switzerland have increased demand for transport between the two countries.

“This year we have invested in our flight schedule between Romania and Switzerland by increasing capacity. We now offer two daily services connecting Bucharest to Zurich with an early morning service and an afternoon service; this gives our passengers an ideal connection into the Swiss network, especially to North America,” said Bernhard Wodl, head of Swiss Austria and Central Eastern Europe. Despite the difficult environment he is aiming for successful and

“It is unlikely that the print market will recover. Nor do I think the advertising market will recover anytime soon,” Mihnea Vasiliu, CEO at Ringier 51

switzerland

“We’re planning to open new showrooms, closing strategic partnerships with local partners that meet the Franke standards” Florin Porojan, general director at Franke Romania profitable flights to Romania. “Romania is a very interesting market for us and we are seeing additional demand, not only to Zurich but also to other destinations we serve like New York, Madrid and Lisbon. We also believe that our highquality product at reasonable fares will be well appreciated in the local market in the future,” added Wodl.

The airline is constantly looking at the development potential in different regions worldwide and adapts its services according to business opportunities. This is why it increased f lights between Romania and Switzerland. The market environment remains difficult, and the volatility in the airline industry has reached unprecedented levels.

“We face a very unfavorable currency exchange rate situation with the strong Swiss Franc and high fuel prices. Competition from low-cost carriers and other carriers serving the same destinations is another factor that has a negative impact on our industry. We do see a lot of overcapacities in the market and a continuing pressure on yields,” said Wodl, adding that this year the company will invest in products and its aircraft f leet.

The eleventh and twelfth of 15 new Airbus A330-300s were delivered in January and February, and a further A330 will follow in October. Two new

Airbus A320s also entered service since this spring. Network-wise, the company opened its 25th intercontinental destination, Beijing, in February, served nonstop to and from Zurich. Further recent network developments have included a new Geneva-Nice service and increased frequencies to London, Moscow and Madrid. At the beginning of April, it opened the brand new arrival lounge at Zurich Airport for premium customers.

“I believe that the air transport sector will remain volatile throughout this year with fuel prices and currency movements unlikely to change in a more favorable way in the near future. With regards to Romania, the current development looks very promising for us,” added the head of Swiss Austria and Central Eastern Europe.

Ringier rings the online changes

Currently, Ringier the largest media company in Switzerland, has an international strategy to develop its digital business (e-commerce websites), which gets its income mainly from transactions and not advertising. “Romania is an extension of this strategy, and business will grow much more in the future. Also, in the near future we do not have in mind a clear acquisition, while looking for opportunities, and do not exclude any organic development,” Mihnea Vasiliu, CEO at Ringier, told The Diplomat – Bucharest about the media company’s strategy in Romania. Today’s online segment represents 6 percent of trust income, but in the coming years the strategy is to increase this segment to 10-15 percent.

The shock of the economic crisis was felt in 2009-2010 when the firm made massive cuts to staff and costs, sold

newspaper Evenimentul Zilei and Capital and was rumored to be pulling out of the market. “In 2010 the media group had quite large losses, in the millions of euros, but 2011 was an unexpectedly good year,” said Vasiliu.

At the end of 2011 Ringier acquired Edipresse, but it has not helped the profit. The general director added that the print market had decreased by 20 percent between 2008 and 2012 while advertising was reduced to one quarter.

Other markets where the Ringier group is present are bigger, so profits are higher.

“It is unlikely that the print market will recover. Nor do I think the advertising market will recover anytime soon. The crisis does not help the advertising industry, as people cut consumption and marketing,” added Vasiliu.

Expansion on the money for Swiss Franke

Franke too is looking to up its presence.

“The investments we made in 2011 were directed towards expanding the distribution channel by opening new showrooms with strategic partners at national level.

We also invested in events to celebrate the first 100 years since the company was established. In 2012 we intend to be even more visible, ensuring a wider geographical coverage at national level,

“Unfortunately, the government didn’t manage to absorb the EU funds for infrastructure, but there are some positive signs from Corridor IV” Daniel Bach, general manager of Holcim Romania 52 The Diplomat July 2012

switzerland and will invest in marketing activities to increase the power of the brand,” said Florin Porojan, general director at Franke Romania. He plans to expand the firm’s activity in Romania, mainly by expanding the distribution network and developing the product portfolio.

To date Franke’s total investment on the local market is over EUR 4.3 million and in 2012 the company intends to invest another EUR 100,000. “We are planning to open new showrooms across the country, closing strategic partnerships with local partners that meet the standards imposed by a premium brand such as Franke. Also, we have increased the level of our services by providing free additional pre- and post-acquisition services,” outlined Porojan. One of the objectives is to increase the company’s turnover by 5 percent.

The biggest problem Franke is facing is the decrease in consumption, which is an effect of the economic downturn felt across all industries. It will take some time before consumers resume their pre-

to 40 countries on all continents. Next will come the first shipments of Christmas chocolates to China,” Erwin Vondenhoff, general manager at Heidi Chocolat, told The Diplomat – Bucharest about the firm’s current strategy. This year it has invested EUR 500,000 in expanding its warehousing.

One of the main problems that have affected the chocolate manufacturer is that the market in Romania has decreased a lot. In 2008 people ate 1.8-1.9 kilos per year and now they eat 1.5-1.6 kilos per year, a 20 percent dip. “If you compare it with Germany or Switzerland where people eat 10-12 kilos per year you see the low level of consumption we have here.

So the standard is lower in Romania, the people think more before making a purchasing decision. Four years ago it was easier to buy. Volumes have decreased heavily. Chocolate is something that you don’t really need but something you like to have,” added Vondenhoff.

Even though the market has decreased, Heidi’s performance remained f lat, and

There are many segments, plain chocolate, filled chocolate and chocolate with ingredients. We are targeting only the last segment,” said Vondenhoff.

Crisis robs Mica Elvetie of foreign clients

Less business travel also means fewer diners for restaurants. “When I opened my gastronomy business it was much easier than now because everyone was curious and appreciated the new ideas.

Now it’s not the same thing. Today I will not open another restaurant in Romania, because the gastronomy market here is based on money, not on quality. I don’t know if it’s right or bad but it’s money based,” Jakob Hausmann, owner of Mica Elvetie restaurant, told The Diplomat – Bucharest. The chef opened his first restaurant in Gradina Icoanei in Bucha-

“Today I will not open another restaurant in Romania, because the gastronomy market here is based on money, not on quality” Jakob Hausmann, owner of Mica Elvetie restaurant crisis habits, regain their trust and start personal investments again. “We aim to educate consumers that quality kitchen systems represent a long-term investment for their homes which can prove particularly profitable, especially in times of economic recession such as the ones we are facing now,” added Porojan. Also, the manager says that he expects an improvement in the market in the following two years based on economic stability measures that will lead to a consumption increase, encouraging customers to adapt their homes to provide a modern and comfortable lifestyle.

Exports sweet for chocolate makers

Food is a major area of interest for Swiss investors such as Heidi. “Since 2008 we have nearly doubled our sales, based on our strong focus on exports, so basically Heidi stayed stable during the crisis in Romania. The main markets for exports are Germany, Poland, Hungary, China and the Netherlands. Overall, we export

increased its market share. Last year, its turnover was RON 55 million and for 2012 the management expects a turnover of RON 62 million. Also, Vondenhoff predicts that exports will increase by 25 percent this year. “We are basically trying to benefit from this crisis because people are more conscious about the price-quality ratio. The fact that the Euro is stronger than the RON has helped us a lot. In other countries our products are premium. For example, in the US Heidi chocolate costs USD 3, in Brazil EUR 5-6 and in Romania EUR 1-1.5.

Only people who earn top salaries are able to buy Heidi there. They travel a lot, and they expect the same quality everywhere,” said the general director.

The biggest export markets are Germany and Poland. The top five countries represent 50 percent of the firm’s export sales and the next 10 make up another 25 percent. Heidi has a 6 percent share of the whole chocolate market. “The market share is not so important for us because we are not targeting the whole market.

rest with an investment of around EUR 150,000. Hausmann has invested EUR 100,000 in the new place, located on Sandu Aldea Street.

“A normal gastronome works with a profit of 10-12 percent. When you have international gastronomy you are working with foreigners. The crisis left me without 50-60 percent of my clients. Now the expats stay only one night, they come in the morning and go back at night,” said Hausmann. “The second thing is that when you have lots of money you don’t care if you pay one leu more or not; when you must care about money, you are more careful. Now I have more Romanian clients. Before the split between Romanians and foreigners was 50:50 now it’s 70:30.” Hausmann added that now he must find ways to give good quality at a normal price. ■ 53

business leader

Cutting a swathe through the market With energy being a highlight of investors’ business interest in recent years, the local market is still attracting attention from large firms. Eric Stab, chairman and CEO of GDF SUEZ Energy Romania and president and CEO at GDF SUEZ Energy Eastern Europe, told The Diplomat – Bucharest about the company’s ongoing projects, which one is on hold and why, and where there is local potential to capitalize upon.

By Dana Verdes and Magda Purice

T

he actors on one of the most rewarding markets in terms of profits, albeit tight in terms of competition, whether they are authorities, operators, suppliers or distributors, should keep pace and momentum on their rapid journey. Managers are constantly calling for a stable legal framework that addresses the needs and rules to be respected by all parties involved.

This is the view of Eric Stab, the recently appointed Chairman and CEO of GDF SUEZ Energy Romania, who tells The Diplomat – Bucharest what he expects of a market where the signals are positive in terms of potential and room left for investments, but one with many challenges and tight margins.

Network needs

The new CEO gave a short briefing of the company. “What is known today as GDF SUEZ Energy Romania is the result of the privatization of Distrigaz Sud, in 2005, when Gaz de France acquired a 51 percent majority stake from the Romanian state. Since then, the company has changed a lot, within a process of full integration. For instance, only this year, we are making investments reaching some EUR 110 million in all development areas of

Who is Eric Stab?

Eric Stab is chairman and CEO of GDF SUEZ Energy Romania and GDF SUEZ country manager for Romania. As president and CEO of GDF SUEZ Energy Eastern Europe, he is supervising the group’s energy activities in Austria, the Czech Republic and Slovakia. Stab joined the Gaz de France Group in 1991 and held various management positions in Germany, France and the UK until 2008 when he was appointed to the helm of GDF SUEZ’s energy activities in Eastern Europe and made chairman of its Romanian affiliate. He holds a master’s degree in management from ESCP Europe in Paris and is a graduate of the Stanford Executive Program.

54 The Diplomat July 2012

the company’s operations.”

At the moment, the manager says, the company invests EUR 35-40 million a year in the network alone. “We have focused on modernizing the company and invested in new, stateof-the-art equipment and tools for the energy distribution network, as we found it in not such a great shape. Our priority is also to improve efficiency and develop effective processes to serve our customers, besides developing new products,” said Stab.

Medium-sized consumers bring new business

Currently, GDF SUEZ Energy Romania sells and distributes gas to approximately 1.4 million clients, managing a network of around 17,000 km, and is leading the regulated energy market with a share of 50 percent, while, on the free market, it is the third biggest natural gas supplier in Romania, with an 11 percent market share. On the regulated market, the room for increasing its position on the household customer side is limited, so the company needs to find other ways to consolidate the business.

Stab added, “This is why we are now focusing on electricity sales and on energy services. As to electricity sales, we have concentrated on B2B customers, with a medium-sized consumption, ie with not such large industrial operations. In the services sector, at this stage, the focus is on household equipment maintenance, for in-house pipes, boilers and other gas equipment that has to be checked regularly.

The second area of focus is to develop, step by step, energy-efficiency solutions to convey to our customers.”

Money blows into Braila

A very significant target among GDF SUEZ Energy Romania’s priorities is the development of renewable generation. For instance, in

business leader the middle of March, the company announced the start of construction of a wind park located in Gemenele in the Braila County, south-east Romania.

“Basically, at the moment, we are completing the foundations of the wind turbines that we are expecting to be delivered in July.

Our target, ambitious as it is, is, after erecting the turbines, to start operations by the end of November this year. We are working hard on it, as you can imagine,” said Stab.

The wind park near Braila is the first such park developed by the Franco-Belgian company in Romania and it is estimated to have a total installed capacity of 48 MW, comprising 21 turbines of 2.3 MW each. The wind turbines will be delivered by Siemens while the civil engineering construction and electrical works are done by Viarom and Energobit.

Why renewables?

“We believe that the scheme that has been put in place to support renewable projects locally is interesting enough to attract investments and is also a way to address some challenges that the country is facing, especially regarding the aging electricity generation fleet. Our plans are to carry on with our investments in the area of renewables, as we have further projects in the

pipeline and we hope to find the right conditions in order to develop them.” Stab said.

According to the manager, the local context and authorities should ensure correct conditions for making these projects happen in terms of keeping a coherent and transparent regulatory framework, with credible rules put in place and then not tinkered with, which generates uncertainties and impacts business interest in projects.

“For the Braila project, we are still working on the financing aspects. For part of it, the company will use its own cash. To some extent, this is also a ‘sacrifice’ done by the company’s shareholders, who give up on dividends to help it develop its activities in the capital intensive field of renewable projects. But we are also seeking external financing for the Braila project. We are holding talks on this matter, but more details cannot be provided at this stage of the discussions,” he said.

Power plant at Borzesti on hold

Back in 2008, when the market was quite different from now, GDF SUEZ signed an agreement with Termoelectrica to build a brownfield-type power plant at Borzesti. At that time, Termoelectrica announced a total installed

capacity of 400 MW and an investment of around EUR 400 million. The project was supposed to be put into operations this year.

But the GDF SUEZ Country manager says that the project is on hold, at best, if not entirely scrapped, as the current market context does unfortunately not permit such investments and risks.

Tough market, tight margins

Competition on the free eligible market in Romania is fierce, with many suppliers fighting for customers, and also defined by tight margins, says the manager. “The topic of energy market liberalization is complex and should be understood correctly, as it encompasses different concepts, including deregulation. For instance, regarding the customer segments that would remain regulated for some more time, we need certain guarantees. The fair thing is to be able to pass commodity costs into the regulated tariffs but, at the moment, this remains an issue,” he said. “Regarding the relationship with our suppliers, we keep a very strict track of payments and we cannot say that we have met significant, worrying delays or deterioration in consumers’ payment behavior in this respect.” ■

55

events Marking Malta: The Embassy of the Sovereign Military Order of Malta held a reception to celebrate the 80th anniversary since diplomatic relations were established with the Romanian state and to celebrate the patron Saint John the Baptist. His Excellency Franz von Hartig Reichsgraf Alfred, Ambassador of the Sovereign Military Order of Malta to Bucharest, was joined by representatives of the Romanian Presidency, the diplomatic corps accredited in Bucharest and members of the local spiritual community.

First visit: Foreign affairs minister Andrei Marga received the governor of the Development Bank of Europe Council, Rolf Wenzel. It is the first time Wenzel has visited Romania since taking office in December 2011. During the meeting, the minister outlined the importance of the bank’s involvement in financing social projects in council country members.

Presidential meeting: President Traian Basescu welcomed the World Bank vice-president for Europe and Central Asia, Philippe Le Houerou, to Cotroceni Palace. Discussions focused mainly on the bank’s involvement in a series of projects developed at the request of the government in the areas of regional development, energy, environment, health and higher education.

Advertising night: The Night of AdEaters 2012,

Bucharest edition, took place on June 15 at the Palace Hall. In attendance was event organizer Jean Marie Boursicot, the only person who keeps an archive of commercials from around the world. After the Bucharest stop, the event will tour seven cities – Constanta, Brasov, Galati, Arad, Iasi, Timisoara and Cluj – from August to November.

Art auction: More than 1,000 lovers of heritage art in Bucharest and Chisinau participated in the first auction organized by Artmark for Romania and Moldova, which brought together 192 works by major artists from the two countries. Raising a total of approximately EUR 1.35 million and with 96 percent of the lots sold, the auction generated about 20 Romanian and Bessarabian records.

Volunteer action: Holcim Romania organized a

volunteer action as part of the campaign, Together for the Community, held in Pipera, on the outskirts of Bucharest. For two days, Holcim employees improved green space adjacent to the Pipera access road, planting over 230 trees and shrubs. The activity took place on a 3 to 3.5 meter wide and 400 meter long stretch that was previously cleared of waste, leveled and prepared for planting.

52 The Diplomat July 2012

events

Summer party: The Romanian-German Chamber of Commerce and Industry opened the summer season, organizing the Summer Festival in the garden of Radisson Blu Hotel in Bucharest. After a few short speeches by prominent figures, the 400 guests watched the EC football match in which Germany took on the Netherlands.

Energy debate: “Solar PV in Romania – the New Opportunity in Renewables” was the theme of the official launch of the Romanian Photovoltaic Industry Association. The event was attended by representatives of the Romanian authorities from the energy sector, diplomats, investors and equipment suppliers.

Winning rally team: The BCR Leasing Rally Team

finished first in the fourth stage of the Rally of Transylvania held from 21 to 23 June. Participants described the race as difficult, with the ten special stages of the race, over a total length of 124.7 km, being very demanding, with high speeds and close competition. The next stage will be held in Sibiu, from 20-22 July.

Birthday bash: Deloitte celebrated 20 years of presence in Romania at an exclusive anniversary Gala at the Romanian Athenaeum, attended by the local business community and the firm’s top management in Romania and Central Europe. Alongside the management and shareholders of some of the top companies in Romania, Deloitte was represented by Deloitte Central Europe former and current CEOs, Michael Barrington and Alastair Teare.

Culture at the cinema: Grand Cinema Digiplex in Baneasa Shopping City held two cultural events in the second half of June.

On June 24, the ballet Raymonda was broadcast live in the cinema hall, and on June 30 the venue projected in HD Opera on Ice. 53

city life The Mission presents Nicolas Jaar and others live in concert at Arenele Roman

Ghost Festival floats into medieval town The foothills of Rasnov, Brasov County, will host Ghost Festival, an intercultural event on July 13 and 14 that aims to gather fans and performers of folk, ambient and post-rock music in a natural area away from the urban thrum.

Ghost Festival is a new concept that seeks to provide a unique experience, where festival participants can take part in traditional craft workshops, exhibitions, film screenings, competitions and demonstrations on relevant topics, among other activities.

The first act that has confirmed its attendance at the festival is Trobar de Morte, a Spanish band that combines gothic sounds with atmospheric medieval folk.

Other bands attending the event are Moon & The Nightspirit, a neo-medieval band formed in 2003 in Hungary, and Allerseelen. A one-day ticket for the festival costs RON 30 and a subscription RON 45. Tickets can be purchased from the Eventim network or online. ■

Freedom jazz comes to the coast

The Mission this year hosts Nicolas Jaar, Soul Clap, Benoit & Sergio, Voices of Black, Valentin Mir Stip live and Cos Mir. The party will be held at the Arenele Romane (Roman Arena), Carol Park, in Bucharest on July 21. At only 22, Jaar is an artist whose name is always on the lips of DJs, journalists and, above all, electronic music lovers around the globe. Tickets for the event cost RON 35 in advance, or RON 50 on the evening of the concert. Category VIP tickets cost RON 75. ■

International festival Freedom Jazz at Vama Veche will bring good music to the most southerly point of the Romanian coast for three days, between July 19 and July 21. Besides jazz concerts with local and foreign musicians, the organizers promise workshops, book and album releases and dance performances. During the festival, a new project by Marius Mihalache, entitled I Like Romania, which involves about 40 artists, will be launched.

The artists attending the festival include international acts such as Billy Cobham (USA), BooBoo Davis (USA), Johnny & Mozes Rosenberg (Netherlands), Sergio Mendez & His Great Orchestra (Brazil/USA), Blood, Sweat & Tears (USA), Nights of Jazz Guitars featuring Larry Coryell (USA) and guest Philip Catherine (France), and big names from Romanian jazz such as Jazzapela, Marius

Popp Quartet, Marcian Petrescu & Night Train, Marius Mihalache, Ilike Romania and Mike Godoroja & Blue Spirit. ■

It must have been love: Roxette to return to Romania Swedish music duo Roxette will perform for the second time in Romania, this time at the Cluj Arena, ClujNapoca, on July 19. After a nearly 25-year career that has produced 39 singles and 42 videos, eight studio albums, eight video albums, nine compilations and sales of over 75 million copies worldwide, Roxette is one of the biggest pop-rock bands in history. The due shot swiftly to fame and their popularity has not diminished over time. Songs like It Must Have Been Love and Listen to Your Heart still enjoy heavy radio airplay, and both singles received awards from BMI (Broadcast Music, Inc.) with over 4 million broadcasts. Tickets to the event are available online and are priced between RON 65 and RON 250. ■ 58 The Diplomat July 2012

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