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ROMANIA


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 60,358 44,428 38,700 52
         
GNI per capita
 US $ 2,310 1,850 1,720 100
Ranking is given out of 208 nations - (data from the World Bank)

Books on Romania

REPUBLICAN REFERENCE

Area (sq.km)
237,500

Population
22,355,551 

Capital 
Bucharest 

Currency 
Leu

President 
Traian Basescu

Private sector 
% of GDP 
40%


Update No: 111 - (25/08/06)

Romanian leader meets Iraqi, US officials during his visit to Iraq
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 government."

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 land. 

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 predictably failed.
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 Constitutional Court.
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 Basescu.

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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.

Prudence pays
'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 expenditure."
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 debt.
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 abandoned."

Power game
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 done."
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 employment."
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 laws.
"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 abroad."

Health report
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 witnessed before.
"The package is good, the tin is good, but the dog don't like it," says Saadat.
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.

Last innings
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 merry-go-round."
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 a surprise.
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.

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AVIATION

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 Europe reported.

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BANKING

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 the race.

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 privatisation conditions. 
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 Bank. 
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 PricewaterhouseCoopers (PwC). 
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. 

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ENERGY

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.

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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 in 2005. 
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. 

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TELECOMMUNICATIONS

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 reported.
"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.

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