Books on Romania
% of GDP
Update No: 114 - (28/11/06)
NATO ready to be involved in member states' energy policies in
the face of Russian-led gas cartel threat
President Traian Basescu is a major player in Romania's foreign affairs,
including economic ones. He met on November 23rd the NATO secretary-general,
Jaap de Hoop Scheffer, with the main topic being the possibility for the
Organization to involve itself in the energy problems some of their member
Scheffer's signal confirms NATO's interest in their energy security, proved also
by a recent confidential report that warns of Russia's intention to build a
natural gas cartel. The two officials decided that their energy security should
also be put on the agenda of the next NATO summit in Riga. The first discussions
on NATO's involvement in the energy market came after The Financial Times on
November 13th wrote about a potential gas cartel formed by Russia, Algeria,
Qatar, Libya, the Central Asia states and Iran (see Russia, Newnations.com).
Traian Basescu warned, during a meeting with foreign journalists, that the
European Union must find solutions so that it wouldn't be dependent on Russian
gas deliveries. The energy security problem is also about to be discussed by
Romania's Supreme Defence Council.
President suggests energy system in partnership with OMV
No doubt in another reaction to the Russian threat, Basescu said on November
21st that he was considering the establishment of a joint energy system,
including Romania, Hungary and Austria, considering Romania's links with OMV,
the Austrian company that holds the majority stake in Romanian oil major Petrom.
"While OMV were not a strategic partner, they have now become one," he
said at a conference on "Energy in Central and Eastern Europe."
The contract that had OMV take the position of majority stakeholder in Petrom is
to be analysed by the Romanian Supreme Defence Council, as it has become the
subject of controversies related to certain provisions blamed for spiralling
During the conference, Basescu spoke of how natural gas prices are established
these days: "you very well know that the prices Gazprom is currently
applying to various importing countries vary from 120 to 300 euro per 1000 cubic
meters. "The discrepancies and intermediate levels are very hard to
understand. What is the way prices are set? Is it a political decision or is it
how the market works? There is an obvious political component to prices…"
Romania is penalized here, being distant from Moscow for decades under Ceausescu
Romania and Bulgaria will join the EU; but under close supervision?
Romania and Bulgaria are very different countries. But they share a
mentality of legerdemain when it comes to matters to do with money and property,
bred by decades of communism no doubt.
This is very well known in Europe. It makes their reception into the EU a
The basic argument for their inclusion is clear. EU membership will deeply
anchor democracy, the rule of law, and the free market economy in the new member
states and will enhance regional stability. It was agreed in the turbulent 1990s
when it made great sense to promote stability in the Balkans.
Accession of both countries was already agreed upon during the EU summit in
Helsinki, in December 1999. The Thessaloniki Summit (June 2003) set the
accession-date of Jan. 1, 2007. On April 25, 2005, both countries signed their
Accession Treaties in Luxemburg. These treaties also contain protocols on a
possible one-year postponement, but cancellation of the operation as such was
out of the question.
The rejection of the European Constitution by French and Dutch voters last year
was clearly a turning-point. It has been interpreted as a clear hint that the
inhabitants of the old and rich member states are no longer willing to pay for
obscure, unknown peoples in the East and Southeast. This time, there were no
flags, emotional euphoria, and grandiloquent-bombastic rhetoric about "the
final end of the Cold War," which was the case on May 1, 2004, when eight
former Soviet satellites joined the ranks of the happy European family. Instead,
Bulgaria and Romania received a remarkably lukewarm welcome.
Brussels the watchdog
On September 26th, the European Commission, the executive body of the
European Union, announced that the Balkan-duo would be allowed to enter the EU
on January 1st, 2007. Like a severe martinet of a schoolmaster, the EU
commission immediately admonished the two errant pupils.
Its (draft) report, compiled under the auspices of enlargement commissioner Olli
Rehn, pointed out that the two are in need of additional education about
European rules and values. Rehn's report states that Bulgaria has only produced
limited progress in modernizing its justice system, adding a complaint about the
lack of investigation and prosecution of high-level corruption, and warns
Romania that "petty and small scale corruption remains a problem."
If Romania and Bulgaria fail to push on judicial reform, judgements and warrants
issued by their Courts will not be recognized in the EU. On March 31st, 2007,
they will have to convey clear proof of progress in the field of justice and in
the combat of corruption.
The EU also imposed other transitional arrangements on its latest
"acquisitions": a restriction on the free movement of workers - so
far, only little Estonia has officially announced that it will welcome Bulgarian
and Romanian labour-immigrants - and bans on food exports and cuts to the EU
funds, in case problems with the reform of the backward agricultural branch
The Times gives its views
An article was published in The Times of London on September 25th, which
indicates that indeed a lot of work is awaiting Bulgaria and Romania. The
leading British daily - a dedicated advocate of EU-enlargement - wrote that
efforts to wipe out corruption have been stepped up, but at the same time
provided some examples of the rotten mentality that is still keeping parts of
Bulgarian and Romanian society in its stranglehold.
In Bulgaria, a former director of the state-owned heating company is being
accused of tax evasion and transferring US$2.85 million to foreign bank
accounts. Six prosecutors were sacked for "forgetting" a massive
corruption investigation. Bribing the police is everyday, practical routine, not
to mention the 150 gangland-killings over the last five years.
On the weekend before the publication of the Commission's findings, 18 customs
officers and 2 former secret agents were arrested at Bucharest Airport. Many
(Western) tourists could add stories about their personal experiences with
"civil servants" demanding payment of "local" or
"environmental taxes" at the Bulgarian and Romanian borders.
BCR sells bonds in local currency with 7.25% interest
BCR will issue bonds in local currency with a three-year maturity period, and a
fixed interest rate of 7.25 percent a year, Ziarul Financiar reported recently,
citing bank sources.
The management of the bank decided that the maximum sum accepted for
subscription should not exceed 575 million lei (about 164 million Euro). The
World Bank has recently raised 525 million lei from the local and the foreign
market, through a bond issue, also with a three-year maturity period, but with a
fixed interest of 6.5 percent a year, 0.75 basis points below the interest
offered by BCR. The final prospectus of BCR's bond issue still needs to be
approved by the CNVM (National Securities Commission), which approved the
preliminary prospectus at the beginning of the month.
Rompetrol's 3Q net falls far short - Wood Company
The Romanian oil group, Rompetrol Rafinare, posted losses worth 41 million
lei (11.6 million Euro) in the first nine months of the year, against profits
worth 408.8 million lei (some 115 million Euro) reported the same time last
year, the company stated on October 25th in a statement, New Europe reported.
As compared with the first six months of the year, the company lost a further
two million Euro. During this period the company's turnover reached 4.02 billion
lei (1.14 billion Euro) increasing by 15 per cent in Euro against the same time
last year, according to non-consolidated results reported by the company, in
accordance with the Romanian accounting standards.
"Rompetrol Rafinare's (RRC) third quarter net of US$0.5 million fell far
short of our estimates of US$16.5 million on higher interest and depreciation
costs," said analyst Bram Buring from investment bank Wood Company.
"As a result of these, third quarter net loss from refining was US$ two
million versus a US$28 million profit last year. RRC's crude throughput rose
five percent year-on-year, but 2006's third quarter refining margin of US$4.02
was five percent weaker than we expected," noted Buring.
According to RRC, there were two drivers behind the poor third quarter results,
both of which will carry on into next year: interest costs and depreciation,
noted Wood's analyst. In the last quarter, RRC paid net interest of US$24.4
million versus US$9.3 million in the third quarter of 2005. EURIBOR has
increased by 1.25 per cent since last year (RRC's 570 million Euro convertible
bond pays EURIBOR +150bp) and high crude prices boosted the cost of financing
Also, RRC reports in US$ but financing costs are Euro or Euro-linked.
Furthermore, RRC started depreciating assets from last year's capacity upgrade,
and construction of new petrol stations.
In the third quarter of 2006, depreciation rose 50 per cent as compared with the
same interval of 2005, to US$19.3 million. EBIT from retailing jumped 130 per
cent to US$8.7 million. Increase in station numbers (to 258 from 182) account
for one-third of the increase in earnings, two-thirds from higher throughput per
Earnings from the petrochemical segment were stable, but will grow from the
fourth quarter after Rompetrol restarted its LDPE plant in this month.
Third quarter results underline the fact that financial flexibility is
Rompetrol's biggest weakness, noted Buring. Dilution risk from the convertible
bond effectively rules out a capital increase, and the group's junk rating (BBB-
by Fitch) makes refinancing unattractive, added the analyst.
"Rompetrol management reconfirmed full year guidance for 600,000 Euro
EBITDA of US$115-130 million. Our first impression is that full-year net profit
could be zero vs. our forecast of US$29 million. This, however, changes neither
Rompetrol's big picture story - grow or be acquired - nor the significant upside
so we maintain our Buy recommendation," concluded Buring.
Rompetrol Rafinare posted turnover worth US$1.5 billion (1.18 billion Euro), a
15 per cent increase against the same time last year. There was no further
elaboration from the company on the assessment made by the analyst, nor how it
expected that would affect future earnings or revenues.
FOOD & DRINK
Food service drives Romanian franchise boom
The food service sector will continue to drive growth in the Romanian franchise
market, as investors look to exploit the growing market in the country, website
foodindustry.com reported recently.
The franchising market is currently estimated to be worth around 1 billion Euro,
though by 2010 this could increase to 3 billion Euro with increasing investment
from major companies. The country has already seen investment from many major
multi-nationals, however with EU accession and increasing spending power amongst
its citizens, tastes and the market are becoming more diverse. "Romanians
are very open minded and they are increasingly willing and capable of
experimenting with new tastes," said Costin Anton, the president of the
Romanian Franchise Association (RFA). It was larger fast food brands that first
entered the market with brands like McDonalds soon being followed by rival
chains like KFC and Pizza Hut. However, with the increasing levels of financial
and legislative infrastructure afforded by EU membership, a wider variety of
multinational companies are looking towards Romania as an important market for
EIB to finance projects with 1bn Euro per year
European Investment Bank (EIB) is prepared to finance specific project proposal
in Romania around one billion Euro per year, EIB said in an e-mailed statement,
New Europe reported.
Just two weeks after the Commission had given the green light for accession on
1st January 2007, Romania set a clear signal by signing an agreement on a
potential range of projects and measures for close cooperation with the European
Investment Bank, the EU's finance institution, the EIB said.
Romanian Minister of Finance, Sebastian Vladescu, and the European Investment
Bank's President, Philippe Maystadt, signed a memorandum of understanding
setting a framework for the EIB's support to the country's investment programme
during the next years.
"While financing will be based on specific project proposals, the agreement
indicates that such financing may be in the order of 1 billion Euro per year and
can be adjusted in line with needs," said the statement. The overall
cooperation between the Republic of Romania and the EIB will focus on the
objective of setting up dedicated co-financing facilities and new mechanisms for
investments that come under the European Union Cohesion and Structural funds
EIB will cooperate closely in the implementation of projects financed by the
Bank using the technical and sectoral experience of the Bank also for the
effective absorption of EU grants. This includes offering a dedicated pool of
expertise for the preparation of selected Cohesion and Structural Funds projects
through the JASPERS National Action Plan initiative, said the statement.
EIB will improve the sources of funding for SME through the JEREMIE programme
with the participation of the Bank's subsidiary EIF specialised in venture
capital and guarantees and will support sustainable investments in City Areas
though the specifically designed JESSICA programme. Also, EIB will assist the
Government and private partners in the structuring and implementation of PPP
Vladescu stated that the investments to be supported under the new Memorandum
represented key priorities for Romania. The EIB is an important partner of
Romania and can play a substantial role in helping absorb future EU grants to
help meet the long-term investment needs of the country. The EIB is committed to
supporting the successful integration of Romania within the Union. The EIB's
cumulative financing in Romania stands at 4.3 billion Euro through some 47
projects in a wide range of key economic sectors.
India to boost trade ties, inks four pacts - Romania
Romanian President, Traian Basescu, and Indian Premier, Manmohan Singh,
conferred recently in New Delhi to boost political and trade ties and signed
four accords, Deutsche-Presse-Agentur (dpa) reported.
"The leaders covered the entire gamut of bilateral relations in their
talks. It was decided that cooperation in trade, energy and defence would be
further intensified," an Indian external affairs ministry official said.
Following the talks, India and Romania inked four agreements on strengthening
economic cooperation, cooperation between small and medium-size enterprises,
training of diplomats and cultural exchanges.
Romania also came out in favour of India's quest for civil nuclear co-operation
with the international community and said it was keen on establishing a
strategic partnership in the energy and defence sectors. Romania is a member of
the 45-member Nuclear Suppliers Group (NSG), which is required to amend
regulations to lift the international restrictions that currently prohibit
international investment and technology trade with India's civil nuclear sector.
The NSG controls trade in nuclear fuel, which has been denied to India after it
conducted nuclear tests and refused to join the nuclear Non-Proliferation Treaty
(NPT). Basescu, who went on a three-day tour, also met Indian President APJ
Abdul Kalam and chairperson of the ruling United Progressive Alliance (UPA)
The Romanian leader also visited India's commercial hub of Mumbai. According to
India's External Affairs Ministry, economic ties with Romania have witnessed
rapid growth in the last few years. Bilateral trade has more than tripled from
2002 to 2005, reaching US$426 million in 2005 and is poised to cross the half
billion US$ mark by late 2006.
India and Romania have identified information technology, pharmaceuticals,
energy, biotechnology, metallurgy and heavy industries as areas for special
focus. Bilateral cooperation has so far covered petroleum, petrochemicals, power
and metallurgy projects in India.
Romania has been involved in major Indian projects such as the oil refinery at
Guwahati, the thermal power plant at Singreni, the Mangalore Pelletising Plant,
the Durgapur agglomeration plant and the Hyderabad Tractor Plant. In 1993, an
agreement on trade and economic cooperation was concluded, envisaging trade in
Romania has said it is keen to enter into strategic partnerships with India in
the fields of energy and defence, describing the country as a "very
important" global player. "No one can afford to ignore India. It
(India) has to be taken into consideration by any country," Basescu told a
business summit in Mumbai.
Later speaking to PTI, FICCI chairman Western region, Sushil Jiwarajka said
India's energy needs can be met from Romania, which has advanced resources.
Basescu also invited Indian business to cash in on the opportunities for trade
and investment with Romanian companies as his country works towards forging a
strategic partnership with India in energy and defence sectors, IT,
communications and heavy industry.
Addressing business leaders under the aegis of the Federation of Indian Chambers
of Commerce and Industry (FICCI), the Confederation of Indian Industry (CII) and
the Associated Chambers of Commerce and Industry of India (Assocham) here,
Basescu said: "Romania is consolidating its business environment. We are
going full-steam ahead with privatisation and the reduction of corporate tax to
a flat rate of 16 per cent coupled with a well-trained labour force should
enthuse Indian investors to take Romania seriously."
India and Romania agreed to double bilateral trade to US$ one billion by 2010.