|  08.11.2012

The Reformer

Mariana Gheorghe, CEO of Petrom, explains why fuel prices have increased and shows what it takes to restructure a huge company such as former state-owned Petrom

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Mariana Gheorghe, CEO Petrom

Q: Romania again is at a point when it plans to either sell or restructure some of its major large assets, including from the energy industry. Considering your experience while restructuring Petrom, which are the main measures a CEO should take in order to restructure a state-owned company? Which are the main threats and drawbacks and what should any government in Romania in the current context regional economic be careful about?

Mariana Gheorghe: I cannot speak about other companies but as Petrom CEO, I can talk about the measures taken in the restructuring of Petrom. Looking back, we had a long way to go in order for the company to achieve today’s position; we faced the inherent difficulties involved by such a challenging process, we put all our efforts and teamed up with the colleagues from OMV to implement the best solutions, we used the best practices in the field, we had the best consultants and we had all the necessary financing to support all these. I am proud of being part of the team who successfully transformed a state owned company, with an uncertain future and debts, into one of the most valuable players in the Romanian energy sector. This was for sure the largest restructuring process in Romania and probably one of the most complexes in the region. You need to remember the base on which we started to work; as a state owned company, Petrom  faced serious challenges starting from lack of investments, mature assets, outdated equipment, operational inefficiency, bureaucracy, extended organizational structure, over-employment, major deficiencies in work safety procedures, and most of all, political influence over commercial  day to day decisions. An industrial colossus, employing around 50,000 people, on the edge of its collapse! So this was the base to which we brought a new management, a new vision and a new business approach. The restructuring was not only a process, but the beginning of the new era for the company.

You can imagine that such a complex and fundamental transformation cannot be synthetized in a few sentences; it took us seven years and approximately EUR 7,7 bn to finalize the turnaround process and there are still some projects to be completed.

However, there are several elements, besides the already mentioned ones, which are of paramount importance in any profound transformation. I would mention the profound understanding of the company and of its business environment based on a detailed assessment. Also it was crucial to develop a medium term strategy – which was very bold in terms of objectives, in order to ensure the company’s development on sound principles. The financing was also decisive, because we needed the money to implement that strategy. During this restructuring important steps were made regarding both the business approach – sustainable company, modern, profitable, acting in observance with European standards and practices,  as well as the structure and quality of the management, organizational culture and, not least, the operational approach. Radical decisions were needed, some of them difficult, but absolutely necessary in order to be able to speak about success.

Q: Romanians have less money to spend on fuel for their cars, as they have less money to spend in general. What has caused the high price increases for cars fuel this year and what is your forecast for the coming period at least in terms of price-forming mechanisms if not also in terms of higher or lower prices?

Mariana Gheorghe: Fuel price is a hot topic not only in Romania, but also around the world. And in order to understand the mechanisms which influence the fuel prices, we have to accept the fact that Romania is not an isolated island, but part of the European unique market, as an EU member. The same rules governing the price formation in Europe are applied in Romania as well. Our pricing policy is influenced by three factors, same as in all European Union countries, meaning: the international quotations for gasoline and diesel, taxes (which in Romania represent around 50% of the pump price) and local competition.

Petrom has a moderate pricing policy and this is evident if we look at the developments from the beginning of this year: the international Platt’s quotations for gasoline and diesel (monthly average, expressed in RON) increased by 20% and 15%, while the prices for gasoline and diesel increased by only 14% and 11%. From this comparison it is visible that we did not transfer the whole increase of the international quotations in our final price.

The price paid for fuels covers the operational and investments costs of the company related to the respective products and 50% taxes (excises and VAT). And when we talk of the investments costs these include the entire production chain, starting with crude, refining and ending with distribution. Therefore, all the taxes for these activities are paid in Romania and not in other countries such as when the crude and products are imported. In addition investments create further economic benefits such as securing jobs, contribution to GDP, contribution to the state budget etc.

In the coming period, what we can say is that we will continue our moderate pricing policy with its three components mentioned above. However, we cannot make any predictions related the fuel price level, if this will be higher or lower, due to the fact that the international developments of the fuels quotations cannot be anticipated.

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