April 2
Prerequisites to attract investment and financing in
Romania’s Oil Industry
Eric Kish VP Business Development,Mergers and Acquisitions
November 18, 2003
Largest private company in Romania (2002 revenues in excess of $1 billion), representing roughly 2.4% of GDP
Domiciled in the Netherlands with operations worldwide and assets mostly in Romania
Owned 75% by management and 25% by OMV
Financed principally by international banks; audited to IAS standards
Active in upstream, refining, marketing and services
One of the country’s largest exporters and taxpayers
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The Rompetrol Group – an overview
Principal challenges to private oil business in Romania
• De facto price controls on domestic motor fuels prices by Government of Romania
• Low domestic motor fuels prices are subsidized by domestic oil production (e.g., 100% of population subsidizes 15% of population who drives)
• Tax system which promotes tax evasion and fraud, leading to high percentage of counterfeit products
• No real regulation of trading companies• Need to attract fresh investment to
modernize/upgrade production to EU standards inhibited by non-productive “historic debts”
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Principal challenges to publicly owned companies in Romania
• Large labor forces compared to global competitors• Insulation from market forces promotes uncompetitive
behavior• “Self-sufficiency” idea in crude oil results in losses from
using over-quality crude vs. import prices• Need to attract additional investments to meet EU
standards ($800 million needed by 2005)• Risk of self-insuring assets• Small capacities compared to global competitors (e.g., esp. in petrochemicals)
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Suggestions from the private
sector
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Liberalize pricing
• Tax rates are as high as W Europe, but retailing margins are only 40-60% of West Europe and CEE countries
• Domestic prices need to be linked to international price of crude
• Consistent with World
Bank/IMF recommendations
5
Move quickly to EU product quality
standards
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Regulate the unorganized trading sector to
reduce: • Tax evasion• Counterfeit or mis-branded products• Environmental degradation• Theft
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Privatize Petrom
in a way that: • Is 100% transparent• Invites proposals from all quarters but very
quickly narrows the list in order to meet end 2003 deadline
• Maximizes payments to the State and the value of the privatized entity
• Leaves the buyer with management flexibility to perform needed restructuring consistent with social protection norms
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