What to do with one billion
- Written by Laurentiu Rosoiu
Romania is losing money, time, energy and above all credibility, in a dispute with the Kazakhs (and the Chinese) of Rompetrol in the issue of the USD 1 billion investments that they should implement, instead of making investment plans for the EUR 1 billion that it has in the accounts of state companies. Although we have the chance to take advantage of the driving force that Kazakh gas and Chinese money (interests) can offer to the Romanian companies in the region and in the world... we seem not to know or not to want doing it. It’s a pity about the EUR 1 billion! It’s not about the Rompetrol fund, but about the one ‘languishing’ in the accounts of state energy companies listed on the Bucharest Stock Exchange (BVB).
Born almost four years ago through an agreement, whose terms were poorly negotiated or deliberately negotiated with inability and were unclear from the very beginning, the famous fund for investments in the energy sector, having the Romanian State as partner of Rompetrol Group, is still waiting to be launched! Only recently, by mid-July 2016, the Romanian State has managed to appoint the company to represent Romania in the investment vehicle proposed by Rompetrol. The one billion dollars - object of dispute - meaning the value of investments to be developed through that fund (entity of which Romania, without any financial contribution, would have 20% of the rights and therefore 20% of benefits) - is still on standby. Meanwhile, another one billion (euros this time!) is waiting inactive in the accounts of energy sector companies listed on BVB, the Romanian State being the majority shareholder.
According to the reports submitted to BVB, the largest five energy companies listed (for which the state still is an important decision maker) had RON 4.39 billion (EUR 972 million) in cash at the end of the first half of 2016, by 23% more than at the end of last year; Electrica, Transgaz, Transelectrica, Romgaz and Nuclearelectrica had significant sums placed in deposits and/or state bonds.
And yet, there is money. In this context, the first and perhaps the most important conclusion is that Romania’s problem is not the lack of money for investments (given that the accounts of public companies include EUR 1 billion cash!). Actually, the problem seems to be the lack of projects and/or long-term vision for the sector. In this regard we have a couple of advantages that we do not know, do not want or cannot capitalize on. We are talking about the well-known advantages worth recalling. Thus, Romania is the only energy independent Eastern European country member of the European Union and having resources much above the consumption needs; this can turn it into an energy supplier (electricity and/or natural gas) and thus into a regional security provider.
Romania – having one of the oldest traditions in the oil and gas industry in Europe and even in the world, is one of the good ‘schools’ for the professionals in the field; there is good quality and experienced human resource on all levels, which undoubtedly recommends it as a regional power in this regard (due to the number and quality of specialists). Romania is one of the largest markets in the region as for the number of consumers, which offers one of the necessary prerequisites for the development of regional players (a consistent local market as a pillar of stability on which one can build a strategy for regional expansion of the local players).
The lack of vision and of projects are most likely one of the main reasons for the fact that, in the agreement with the majority shareholder of Rompetrol, the Romanian State has not nominated the targets or points for investments, leaving thus USD 1 billion upon Rompetrol’s exclusive decision (the agreement provides that the Romanian state cannot impose any particular project). This has led to the situation that currently, while the Kazakhs would want, for example, to expand the operations in the retail area (by buying gas stations)... the Romanian party would rather want investments in expanding the gas deposits or in the construction of a new fertilizer plant in Dobrogea region (which would use as a raw material the natural gas from the Black Sea), according to statements made by the end of 2014 by Răzvan Nicolescu, Minister delegate for Energy at the time.
ROMANIA, THREE TIMES A LOSER
The result of these confusions is that until now Romania did not have one dollar invested by the fund! Neither in the purchase of gas stations nor natural gas deposits. And the loser is three times the Romanian State: firstly, because it did not know/was not able to negotiate according to its objectives and priorities; secondly, because over the past three-four years it hasn’t collected a single extra penny to the public budgets coming from the understanding with Rompetrol; and thirdly, because by delaying the appointment of the company to handle the launch of the fund and by the legal hindrances against Rompetrol, Romania inhibits the growth of a company that has the potential to become at least a regional player (if not European), which could bring Romania huge benefits on the long term. This happens on the background of the fact that Romania has EUR 1 billion in the accounts of energy companies listed with BVB, money that could be used for the desired investments and projects, without wasting time in sterile negotiations and disputes with Rompetrol.
Concluding, the money for projects that Romania would like to develop in order to capitalize on its potential exists in the accounts of the public companies, consequently the ‘negotiations’ on the destinations of investment projects for Rompetrol fund money does not justify delaying its launch.
Any further delay postpones the starting point of the Kazakh investments that will begin to produce jobs, revenues to national budgets from taxes, social contributions and any other possible direct benefits according to the 20% share owned by Romania in that entity.
ROMPETROL, A SPEARHEAD IN EUROPE
Perhaps worse than not collecting the money and/or benefits due to delaying the launch of the fund is that through the rather unpredictable and relatively unfriendly attitude, the Romanian state does not prove seriousness as a business partner. This is a big mistake considering that the group is owned by the Kazakh Company KazMunayGas, which in turn is owned by one of the largest Chinese oil and gas companies - China Energy Company Limited. We are talking about a company with a business relationship that can turn Romania into a bridgehead in Europe and in the European Union for the natural gas from Kazakhstan and for the Chinese interests; a position that many other countries in the region would like to share, at least from the perspective of possible direct benefits coming from the status of ‘headquarters’ for European operations of the Kazakh natural gas and the Chinese interests.
Based on these considerations Romania should assume the error in negotiating the contract terms and focus on getting the most possible benefits from the implementation of the contract in accordance with its provisions and the Rompetrol interests which, to a certain extent (maybe less than it should have or would have, nevertheless to an extent large enough to count) generate benefits for Romania.
Eventually, even the variant in which the fund’s investments are made exclusively according to the Rompetrol needs, Romania can win both in fees and in additional taxes paid by the company (either on its own account or on the account of its employees) and from the 20% share of profits recorded by the entity.
But the most important advantage is that by winning the confidence of its partners (KazMunayGas and China Energy Company Ltd) and so by becoming ‘headquarters’ for their European operations, Romania might have in Rompetrol a potential spearhead, supported by the Kazakh natural gas and by the Chinese money and interests - that can be used to promote its interests in the region and Europe alike. Either if we envisage mergers and/or acquisitions with/of other companies in the region or in the European Union, or we envisage contracts for providing various services or for know-how, with the involvement of state companies (or, why not, other private companies) in projects together with Rompetrol, they can be driven and can penetrate along with Rompetrol the markets where the Romanian state did not support them to go (out of incompetence and/or inability).
Therefore the other billion (euros) could be used, perhaps more usefully, money that stall for the time being in the accounts of five listed state energy companies, still in state ownership, so as to create added value to be brought home.