Books on Romania
% of GDP
Update No: 111 - (25/08/06)
Romanian leader meets Iraqi, US officials during his visit
President Trajan Basescu went to Iraq in early August and met Iraqi President
Jalal Talabani to discuss bilateral relations and regional security. He also met
Iraqi Prime Minister Nouri al-Maliki and other ministers to discuss ways to help
Romanian and Iraq companies take part in rebuilding projects.
The Romanian president held talks as well with the top U.S. commander in Iraq,
Gen. George W. Casey Jr. In June, Prime Minister Calin Popescu Tariceanu
proposed withdrawing Romania's 890 troops from Iraq, but the country's top
security body, Romania's supreme defence council, chaired by Basescu, said that
the troops would remain; and that squashed that idea. Basescu said the Romanian
military's presence in Iraq would depend on the "wish of the Iraqi
Iraq seeks Romanian help in oil sector
The visiting leader expressed the wish that Romania's role might be switched
from a military one to assisting "in developing the Iraqi economy."
The Iraqis agree.
Romania was once one of the world's leading oil producers and it has extensive
experience in the field. When Al Maliki met Basescu, he urged him to have
Romania help develop Iraq's dilapidated oil sector.
"Romania can play an important role in the development of the upstream and
downstream oil sector in order to increase Iraq's exports and cover the domestic
needs of derivatives." Maliki also felt that Bucharest can help in the
development of the agricultural sector.
Problems abound at home
But the home front of course is of paramount importance for Romania, a country
not without difficulties of its own.
It is twenty months since parliamentary elections, lost by the Social Democrats
under then Premier, Adrian Nastase. He has been replaced as leader and the
Social Democrats are now a renewed and recharged force in politics.
Problems abound in Romania, where the public services are in disarray and
teachers and others were threatening strike action in June. Floods and outbreaks
of bird flu were taking place too.
The August lull could not have come at a better time. Nevertheless, even after
the re-entrée, strong suspicion that constituents of the ruling coalition are
corrupt is undermining its authority. There remains an air of crisis in the
A sore loser
In such circumstances people want a scapegoat. The opposition in parliament
tried to bring down the government by a motion of no-confidence on June 22nd. It
Now a thorn in the side of Romania's political elite for some time, nationalist
Greater Romania Party leader Corneliu Vadim Tudor, has mounted a new challenge.
He is targeting the president no less, against whom he stood unsuccessfully in
the last presidential elections.
"Why? Because now, more than ever, (President Traian) Basescu is neither
physically nor mentally able to complete his term," he said, explaining his
party's initiative to suspend the president from his duties. Resentment and
rancour are evident in everything he says about his rival.
Tudor said that he has contacted several leading politicians, who expressed
willingness to initiate procedures to suspend Basescu. "The procedure is
likely to be triggered this fall," he said, refusing to disclose the names
of the politicians with whom he spoke about the matter. Tudor resumed criticism
of the president, saying Basescu "was finished" and that "he will
not spend Christmas as president."
Under constitutional provisions, the president can be removed from his post if
he has committed severe violations of the Constitution. He can be removed by a
majority of votes of Parliament's joint chambers after consultation of the
But Tudor's suggestion was slammed by a member of the Conservative Party, which
is part of the ruling coalition along with the Liberal-Democratic Alliance and
the Hungarian Democratic Alliance.
Conservative vice president Nicolae Popa said there is not enough evidence
against Basescu to warrant his removal. "Those who try to trigger the
suspension of President Traian Basescu will fail," he said.
Popa added that the idea to suspend the president is "rash" and will
only strengthen the president's power and compromise those try to remove him.
A spokesman for the largest opposition party, the Social Democrats, also denied
that his organization's leadership discussed the possibility of suspending
There is a more sanguine view of things held by a perceptive outside observer,
outgoing country manager of the World Bank in Romania, Owaise Saadat, as he bows
out of a fulfilling term in office.
'Stay prudent,' he argues in an interview with Michael Wood.
Romania has shaken off its reluctance to reform, says outgoing World Bank
country manager Owaise Saadat, but he worries that the country must not throw
away the chance to become a dynamic economy on the eve of EU accession.
For this, Saadat recommends a dose of prudence.
"The country's needs are very large," says Saadat. "There is a
temptation to relax the disinflation policy and to increase public
The country manager argues for prioritising foreign investment - which is still
massively low by new Europe standards - and linking expenditure and investment
to strategic planning.
Fiscal prudence is not happening. In June, Prime Minister Tariceanu allowed the
budget deficit to rise to 2.5 per cent of GDP, arguing this dip into the red
would pay for roads, education, health and the environment.
But Saadat says this deficit is "worrisome", especially after a
surplus of 1.2 per cent in April this year.
Instead, strength is what the revenue base of the country needs at this stage,
says the finance boss.
This could come with better administration of tax revenues and a debate on
additional sources of revenue in this sector.
Between 29 to 30 per cent of GDP in Romania is accumulated from taxes - a
statistic among the lowest in Europe. To help modernise Romania's tax
administration system, so that it can make more contributions to revenue, the
World Bank is currently negotiating a project with the Government worth about
55.5 million Euro.
Saadat argues that local resources for Romania could be borrowed from
international financial institutions, like the World Bank, not by going into
The budget deficit could also mean an increased risk of inflation - still the
highest in the EU and its next wave of entrants.
"If inflation rises," says Saadat. "Fiscal prudence is
The power generation complexes of hydro, thermo and nuclear power stations
remain in public hands with no auction date in sight, despite the Ministry of
Economy and Trade's privatisation proposal for power plants Turceni and Rovinari
has been on the slab since October 2005.
These delays "remain an enigma to me" says Saadat.
"Power generation plants need to be modernised, made more efficient and
need investment of two to three billion Euro," says Saadat. "These
kind of resources are just not available in the public sector. If the Government
can hive off part of the investment to the private sector this should be
In the last three years, Saadat says he regrets the country has not rationalised
its district heating systems. "About 240 million Euro of subsidy each year
is almost frittered away," says Saadat. "There is a very good district
heating strategy, prepared by the Government and World Bank experts with the
endorsement of the EU - but it has never been implemented."
Work to rule
Another change the World Bank has not seen and which Saadat approaches with
a "heavy heart" is the labour code.
"Romania needs to have a modern and one of the best labour codes to create
more jobs," he says. "Unfortunately, in certain circles, there is more
a focus on how to keep people in the job than bring people into the job."
This lack of flexibility is a constraint in creating employment, argues Saadat,
citing examples of seasonal industries such as wine and cheese-making.
"If companies hire labour and are stuck with it, it restricts the
functioning of the labour market in a flexible manner," he says. "Lots
of people are refraining from hiring people for temporary and seasonal work
because they think that labour laws will then entail upon them huge social
sector payments, such as maintaining records. This is antithetical to creating
Hiring staff legally for seasonal periods would also bring some workers out of
the shadow economy, welcome them under the tax umbrella and create more cash for
the budget. From the left-wing point of view, this improvement in state revenues
could balance out the losses to employment stability incurred by flexible labour
"There is a built-in incentive for this at this time - once Romania is in
the EU, these casual and seasonal workers are more likely to migrate," he
adds. "They get more stability in employment and relatively higher wages
Many changes in the health system the World Bank recommended emerged in the
latest law bundle from new Health Minister Eugen Nicoleascu. These include a
package of public services and "complementary" private services for
citizens and restricting hospital managers' right to both manage and practise
medicine at the same time.
But these changes have been greeted by protest from the public, institutions and
members of the coalition itself - the like of which this Government has not
"The package is good, the tin is good, but the dog don't like it,"
The outgoing country manager says that these changes need political support
because, on balance, these are "well-justified and good reforms."
"The World Bank, European Investment Bank and Council of Europe are
standing by to help in this sector," he says.
Pakistan-born and Harvard trained Saadat has spent three years in Romania,
following a similar role in Armenia. This term in office he calls his "most
fulfilling" time professionally - but it has not been a breeze.
"It's the sunset of my career, having spent 30 years in the bank. This is
my last innings when I go back to work in Washington," he says. "It's
only once in a lifetime that you get this opportunity to see a country go into
the European Union. It's been a rollercoaster ride with ups and downs and not a
The finance boss returned from winter holidays in 2005 with a sense of
trepidation. There was a new Government in power and its faces were something of
But at that time Saadat found a "business-like" approach from the new
executive which "made life much easier", especially because Tariceanu
had been a Minister of Industry and knew how to work with the World Bank.
"He wanted to do business with us," says Saadat.
He says Romania has successfully implemented its structural reform programme,
which includes a country partnership strategy that helps the Government make
important funding decisions with World Bank cash.
Finnair to start new route to Bucharest
Finnair Oyj will begin a scheduled service between Helsinki and Bucharest on
April 10th next year, operating the route with its Embraer aircraft, the company
said recently in an e-mailed statement. The Finnish airline said it will fly to
the Romanian capital four times a week. This will be the third new destination,
following Lisbon and Ljubljana, the carrier has announced for next spring, New
Two final bidders for CEC selected
The National Bank of Greece and OTP Bank have been selected by the commission
responsible for the last stage of CEC's privatisation to submit final financial
offers until August 31, New Europe reported.
The Austrians at Raiffeisen are out of the race. The National Bank submitted an
offer to acquire a 70-75 per cent stake of Romanian Bank Casa de Economii si
Consemnatiuni (CEC). "After analysing the bids and assigning a score
according to the agreed scale, only two banks are left in the competition. The
finalists are, in alphabetical order, the National Bank of Greece and OTP
Bank," Sebastian Vladescu, finance minister and head of CEC's privatisation
committee said. The state is selling 69.9 per cent in CEC as part of the bank's
privatisation process. The value of a 9.9 per cent stake will be transferred to
the Proprietatea Fund, a share company created for reimbursing owners
dispossessed by the communist regime. Five percent of CEC will be sold to
current and former CEC employees, while the remaining shares will be sold
through a public offering. Negotiations with the National Bank of Greece and OTP
Bank for the drafting of the final form of the privatisation contract will begin
on August 1st and will end on August 23rd. "OTP Bank submitted a fair and
realistic bid for the acquisition of the 69.9 per cent in CEC," stated
Laszlo Wolf, deputy chief executive of OTP, the largest Hungarian bank.
According to Sandor Csanyi, director general of the Hungarian bank, OTP will
increase its share capital in order to finance the takeover of CEC if it wins
Government gives final approval to BCR privatisation
The Romanian government promoted through an emergency ordinance, the law project
regarding the completion of the privatisation process of the Romanian Commercial
Bank (BCR), the Minister of Public Finance, Sebastian Vladescu, said, the
Bucharest Daily News reported.
The measure was necessary because, otherwise the conditions agreed upon with
Erste could not have been fulfilled until the September 21st deadline, when the
privatisation process must be complete.
"The Competition Council has been notified, and we hope that we will have
an answer before the deadline," Vladescu said. He added that on August 4th,
BCR's General Shareholders Assembly (AGA) met in order to approve the
The minister said that the potential state subsidy in the Bancorex case, a bank
taken over by BCR in 1999, is estimated at more than 900 million Euro. Bancorex
went bankrupt and was bought together with BCR, which had taken it over, by the
Austrian Erste Bank. "Looking at the data we have so far, the possible
state subsidy exceeds 900 million Euro, but (we) are not completely confident
about this figure," Vladescu said.
At the end of last year, Erste Bank won the bidding for the BCR takeover,
offering 3.75 billion Euro for a 61.88 per cent stake in the largest Romanian
The acquisition of BCR by the Austrian group Erste Bank was the sixth most
important transaction operated on the European financial services market in
terms of value, according to a study conducted by consulting firm
According to PwC, the price paid by the Austrian bank for the BCR takeover
reflects the advantages Erste Bank will have as a result of this transaction,
namely a large exposure on an emerging market, the takeover of a 300 branch
network, 2.5 million personal accounts and 300,000 corporate accounts.
Petrom shares to be sold at discount to employees
The Romanian government is preparing to sell eight per cent of its existing
share in SNP Petrom, worth up to 680 million Euro, to employees, who will be
able to buy them for a 66 per cent discount. The eight per cent share package
will be sold directly to the company's employees after the government approves
an emergency ordinance, Bucharest Daily News reported.
"Neither I, nor the government, change our point of view regarding the sale
of the Petrom shares directly to the employees," Prime Minister, Calin
Popescu Tariceanu, said. Employees will have 90 days to decide if they will
purchase shares, Minister of Economy and Commerce, Codrut Seres, explained.
After the expiry of the offering, the remaining shares will remain property of
the Romanian state.
According to the privatisation contract, past and present Petrom employees have
the right to buy into the eight per cent offered at the same price per share as
that offered by the Austrian-based OMV. Free float would rise by 130 per cent to
1.2 billion Euro to 14 per cent, Wood&Company analyst Bram Buring was cited
as saying by NewsIn.
"Petrom did a feasibility study on a buyback programme, and concluded that
technically it would be very unlikely to buy back a meaningful number of shares.
"Although Petrom has 1.25 billion Euro in cash in the first quarter of 2006
and there is no problem for Romanian companies buying their own share per se,
legally the transaction must be paid out of reserve funds, which at Petrom are
insufficient. Neither is OMV itself currently planning to buy back Petrom shares
from employees or from the market. Petrom could not comment if there is a lockup
period for employee shares," Bram Buring said. Petrom is the largest
Romanian oil and gas group, which works in production, refining and
petrochemicals, among other sectors.
FOOD & DRINK
Interbrew Romania forecast to prosper in 2006
Interbrew Romania, a subsidiary of drinks giant Inbev, is expected to announce a
10 per cent profit rise from last year, New Europe reported.
The brewery, which produces Stella Artois, Becks and Lowenbrau, has already
recorded a 36 per cent rise in half yearly profits, compared to the same period
A spokeswoman for the company declined to comment on the media report until the
company publishes its next profit report on September 7. If the forecast turns
out to be correct, then the news would mark a continuing turnaround in the
fortunes of the company, which was formed in 2004 by the merger between
Belgium's Interbrew and the Brazilian giant AmBev. After a poor year in 2003,
when sales slipped by 11.6 per cent in the final quarter, the company has since
been enduring a challenging period, according to its 2005 financial report.
Several other top brewers in the region, however, have done well over the last
few years. Eastern Europe is seen as a strongly emerging beer market, led by
Russia, but with rising contributions from other countries such as Poland and
Romania. A further rise for Inbev in Romania would continue this trend and also
show how the region is becoming more important for the brewer alongside its key
Latin American market.
State ready to sell US$1bn of Romtelecom shares
The Ministry of Communications and Information Technology (MCTI) will begin
procedures for trading the shares held by the Romanian state in RomTelecom on
the capital market, Minister, Zsolt Nagy, confirmed recently, New Europe
"I hope this decision, to be published in the Official Gazette, will pave
the way for signing the consulting contract, so that we will be able to list the
share package this fall," Nagy said. The Romanian state holds, through MCTI,
a 45.99 per cent stake, while Greek telecommunications group OTE controls 54.01
per cent of the landline operator. Credit Suisse First Boston is the consultant
selected for the listing. The ministry mentioned that the share package would be
listed on the Bucharest Stock Exchange (BVB) and an international market, in
accordance with the consultant's proposals. "We intend to list the whole
package in fall this year, but the process will very much depend on the
proposals of the consultant, on the absorption capacity of the BVB and on the
investment process," Nagy said. In March this year, the minister estimated
that the shares owned by the Romanian state are worth about US$ one billion
(roughly 790 million Euro).
Vodafone Romania signs deal with Petrom
Vodafone Romania and Petrom signed a major strategic partnership for the
provisioning of communications infrastructure and services at the national
level, the company said in a statement. Vodafone Romania will implement for
Petrom a MPLS virtual private network that will connect over 800 locations.
Financial details of the contract were not disclosed, New Europe reported.
The company developed this project based on its considerable experience in
providing voice and data services and on its national coverage advantage.
"The complexity of services makes this partnership a real challenge for
both sides. Vodafone Romania provides this type of service to more than 5,000
major companies of Romania that operate in various domains and industries,"
Vodafone Romanias CEO, Liliana Solomon, said. "The investment covers IT
infrastructure, IT applications, IT organisation and respective services in
order to significantly optimise and improve the business and finance processes
of Petrom. The new infrastructure will lead to a totally new quality of
communication and way of cooperation between different business units and
departments of Petrom. Information technology is an essential area for Petrom to
meet the international business and finance requirements and is one of the major
drivers to turn Petrom to Western European standards," CFO of Petrom,
Reinhard Pichler, said. Vodafone Romania, a subsidiary of Vodafone Group Plc.,
had 6,735,094 customers as of June 30, 2006. Vodafone is the world's largest
mobile community with equity interests in 27 countries and partner networks in
another 33 countries. Providing a full range of mobile telecommunications
services, including voice and data communications, Vodafone currently serves
186.8 million proportionate customers worldwide. Petrom is the largest Romanian
oil and gas group, with activities in the business segments of exploration and
production, refining and petrochemicals, as well as marketing.