Crude / Refining / Petrochemicals Sector in Romania

EFG EUROBANK SECURITIES S.A.

Update – July 2009

■ Romania is a mature oil processing country, with multiple refining facilities and intensive transportation infrastructure. Of the total number of 10 refineries, 5 are owned by three players which succeeded to improve operations (Petrom-OMV, Rompetrol Rafinare and Petrotel-Lukoil), while all others are in a poor financial situation or even in liquidation.

■ The retail distribution is still in a consolidation stage, with retail units ofrefineries and of foreign distributors with no production facilities in Romania increasing weight, and small private filling stations losing ground.

■ The sector also includes services providers (an oil terminal company and an oil products pipes transportation company, both public entities majority owned by the state).

■ The major changes in the sector were Petrom's privatization with OMV at the end of 2004 (that resulted in a price increase of the oil refined and petrochemical products in 2005 to a level close to the CEE one) and the acquisition of Rompetrol Rafinare by KazMunaiGaz in 2007.

■ Requirement for Romania to comply with EURO 5 standards starting with January 1st, 2009 (2 years later than the EU countries) has forced the players to accelerate investments in technology; EURO 4 standards in Romania have been enforced on January 1st, 2007, when Romania joined EU.

 

Industry structure

Crude production and imports

Total crude supply absorbed by Romania's refining system increased during 2004-2005 (+17.5% and +8.8% y/y respectively) and afterwards recorded a downward trend over 2006-2008 (-3.2%, -0.7% and -3.2% y/y respectively) most likely due to milder winters helped also by improving overall quality norms in economy. In 2009 crude supply decreased 9.6% y/y mostly because of shrinking domestic consumption in the context of international economic meltdown.

Crude production recorded a downward trend during 2004-2008 (-4.4% annual compounded growth) due to wells restructuring process, while over the first 4 month of 2009 crude production only declined 2.4% y/y compared to imports which abated 13.7% y/y over the period (due to imports' higher prices).

The weight of imports reached 65.0% in 2008 (from 57.0% in 2004).

Romania's crude reserves stand at some 70 mn tons and we computed around 110 bn m3 reserves of natural gas at December 2008 (based on Petrom reporting and considering gas reserves equally split between Petrom and Romgaz - country's key producers), with a life of around 15 and 11 years respectively.

Important to mention that Petrom's reserves replacement rate stood at 71% in 2008 (from 38% at December 2007 and 13% in 2006) due to significant investments, meeting the management's target of 70% two years earlier.

The domestic crude mostly represents sweet heavy crude, Petrom being the major Romanian producer.

Refining facilities

Romania has a total refining capacity of 23.5 MMT, in 10 facilities, the most important being Arpechim and Petrobrazi (Petrom OMV's plants),Petromidia (owned by Rompetrol) and Petrotel- Lukoil. Except for Rompetrol Vega (re-oriented to produce solvents), all others are in a poor financial situation, with unclear shareholding structure or in liquidation.

In 2008 Romania's refineries processed some 13 MMT of crude, resulting an utilisation rate of Romania's total nameplate capacity of around 50%.

Petrom processes both imported and domestic crude, and Rompetrol and Lukoil - only imported crude.

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Legal updates

25 Februarie 2010 Legislative Summary - January 2010 19 Februarie 2010 Certification of annual profits tax returns 5 Februarie 2010 State Budget and State Social Security Budget for 2010 Laws 5 Februarie 2010 Changes brought to certain VAT statements 5 Februarie 2010 Draft amendments to the Fiscal Procedure Code 29 Ianuarie 2010 Certification of the annual tax returns by a tax consultant 29 Ianuarie 2010 Fiscal regime for micro-enterprises

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