The Rompetrol Group NV A privatization success...

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Philip Stephenson Deputy CEO Washington, May 11 th The Rompetrol Group NV A privatization success story

Transcript of The Rompetrol Group NV A privatization success...

Page 1: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Philip Stephenson

Deputy CEO

Washington, May 11th

The Rompetrol Group NV

A privatization success story

Page 2: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Table of Contents

1. The Rompetrol Group – profile

2. The turnaround of the Petromidia refinery

3. Challenges in the Romanian oil industry today• Overcoming myths

• Privatization of state–owned SNP Petrom

• Breaking the political-economic nexus

4. Rompetrol’s future

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Page 3: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The Rompetrol Group - profile

• Largest private company in Romania (2003 gross revenues of approximately $1.2 billion), representing roughly 2.5% of GDP

• 28% share of Romanian refined products market• Domiciled in Netherlands with worldwide operations and assets

(though mostly in Romania)• Owned 75% by management and 25% by OMV• Financed principally by international banks; audited to IAS standards• Active in upstream, refining, marketing and services• One of the country’s largest exporters and taxpayers ($ 416 million in

tax payments in 2003)• Achieved a landmark agreement with MOF in 4Q 2003 rescheduling

historic tax liabilities• Our online Investor Relations center (at www.rompetrol.com) provides

transparent information on company operations via our 2003 Annual Report, management presentations and a White Book on the 3-year post-privatization history of the Petromidia refinery

• Our largest subsidiary, Rompetrol Rafinare SA, was listed on theBucharest Stock Exchange on April 7th, 2004 and broke all trading records (and the IT system!) on the first day

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Page 4: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

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Page 5: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

“We took command of an old, leaky boat, low on fuel that we had to steer through a storm, with pirate ships visible on the horizon. But with an excellent crew, we charted a course to a (relatively) safe harbor.”

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Page 6: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Privatization attempts

• Complexul Petrochimic Midia Navodari (the first name of Rompetrol Rafinare S.A) was a part of the large oil refining plants which appeared after 1975

• In 1991, the entity was changed into a stock company by taking over all of the assets of the former unit.

• The Romanian Government attempted three privatizations of Petromidia

– The first attempt was carried out in 1997 when the State Ownership Fund (SOF) had discussions with Daewoo, Glencore and Petromidia USA

– The second effort was made over July 1998 - January 1999 and resulted in a sales/purchase agreement for 65.323% in Petromidia’s share capital with Turkish investor Akmaya

• Due to the disagreements between the Romanian authorities and Akmaya regarding the additional incentives the Government re-slated the sale of a controlling interest in Petromidia

– In a third effort, SOF concluded an agreement with the Rompetrol Group N.V. on 31 October 2000. Actual transfer of the stake was subsequently performed on 26 January 2001

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Page 7: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Crude Supply - considerations

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Page 8: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Upgrade projects - ongoing

Nr.crt.

Project Investment value (USD)

Yearly savings (USD)

1 Digital Control System: automated installation monitoring

23,000,000 12,000,000

2 Upgrade of the raw material transportation main routes

1,300,000 900,000

3 Upgrade of the water supply system 550,000 290,000

4 Maximize MTBE flow 325,000 244,000

2003 investment projects- completed

1 In-line blending system 6,800,000 2,800,000

2 Upgrade Midia Port 4,000,000 4,500,000

3 Upgrade Coking installation 2,300,000 1,500,000

7Note: Short payback periods

Page 9: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Types of crude used

Crude Oil Prices

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Page 10: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Utilized capacity 3.3 mta – 2003

Planned capacity 4.0 mta - 2004

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Page 11: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Production – additive and loss reduction

•MTBE averages $ 460/ton

•Saves $ 30 m/ year

•Evolution of total consumption and losses of materials from raw materials to finished products

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Page 12: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Production – 100% sour crude into 100% euro standard fuels

Products Euro Products Sour CrudeSweet Crude

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Page 13: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Production costs – US$ 22/ton in 2003

Objectives – US$ 18/ton in 2004

26.22

20.6817.44

33.80

20.0321.44 21.30 21.81

20.23 21.1223.93

20.4023.25

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

jan

feb

march

april

may

june

july

august

sept

oct

nov

dec

jan

Month/2003

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Page 14: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

No. Staff Rompetrol Rafinare

3554 35683373 3372

2943

2296 2240 22051961 1844 1843

1446 1446 1475 1467 1469 1467

3574

18361458

0

1000

2000

3000

4000

Ian 20

01Mar

ch May July

Sept

NovIa

n 2002

March May July

Sept

NovIa

n 2003

March May July

Sept

Nov DecIa

n 2004

Productivity and performance increase

9,005

46,470

46

313

1

10

100

1,000

10,000

100,000

2001 2003

Gross revenues/no. of employees Gross revenues/h/employee13

Page 15: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

State of the industry and challenges

Industry Myths

• “Romania has over 24 mta of refining capacity.”• “Romania is a big oil producer.”• “Product prices are free in Romania.”• “Romania can sustain 5 big refineries.”

Industry Truths

• Romania’s actual utilized capacity is only 12.7 mta• Romania only produces ½ its own oil needs• Government ownership of market leader Petrom leads to low subsidized prices and the lowest refinery margins in Europe• Romania can sustain 3 big refineries

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Page 16: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Over-capacity vs. reality

Refineries:Real (2003) Nameplate

- Arpechim - Pitesti 2,7 3,5 Mio t/y Petrom- Astra - Ploesti 0,6 2,8 Mio t/y- Petrobrazi - Ploiesti 2,8 3,5 Mio t/y Petrom- Petrolsub - Bacau 0,35 0,4 Mio t/y Fertinvest Holding- Petromidia - Midia 3,3 4.8 Mio t/y Rompetrol- Petrotel - Ploiesti 0 3,8 Mio t/y Lukoil- Darmanesti 0,4 0,8 Mio t/y- Rafo - Onesti 2,0 3,5 Mio t/y Balkan Petroleum- Steaua - Cimpina 0,2 0,5 Mio t/y-Vega - Ploiesti 0,35 0,5 Mio t/y Rompetrol

TOTAL 12,70 24,2

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Page 17: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Production vs. consumption

Romanian Oil Consumption and Production, 1989 - 2002

050

100150200250300350400450

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Year

000

Bar

rels

Per

Day Consumption Production

193

345

207

124

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Page 18: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

The turnaround of Rompetrol Rafinare -

Difference in prices (crude, Romania, EU)

216237

411

186223

378

190231

397

219293

425

0 100 200 300 400 500

2000

2001

2002

2003

Crude prices Domestic sale price EU sale prices

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Page 19: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Pricing policies - outcomes

Difference of earnings in Romania and EU

8 2 ,5 7 4

16 0 ,2 6 8

3 5 5 ,2 3 43 8 2 ,2 5 5

4 7 ,6 16

9 4 ,5 5 0

2 0 6 ,6 9 8

2 6 3 ,5 3 1

2000 2001 2002 2003

EU earnings Domestic earnings

Loss due to state-controlled pricing policy (US$’000)

34,958

65,719

148,536

118,724

1 2 3 42000 2001 2002 2003 18

Page 20: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Survival of 3 out of 5

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Page 21: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Privatization of SNP Petrom

• SNP Petrom is 93 % owned by the GOR (MEC) • It is to be sold this June to a strategic investor after a transparent competitive bidding process. • Three candidates (of an original 15 who expressed interest in August 2003) submitted final bids on April 15th, 2004:

• OMV of Austria – considered best placed because of a well prepared, compliant bid• MOL of Hungary – has presented two bids including a share-swap and a traditional offer• Occidental of the USA – rumor has it that the company is only looking to Petrom’s Upstream business

• Privatization needs to be finished quickly and transparently• Privatization will end de facto state control on fuel prices, leading to free competition for all players in the field

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Page 22: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Investigations into privatization procedures

• Interest groups still active in Romania and receive strong political backing

• The PNA (GOR’s prosecuting body of corruption offences) has launched an investigation into the privatization of Petromidia

• Although we suspect the initiation of the investigation was politically motivated, Rompetrol will cooperate fully with the PNA all through the process, which we hope will be:

• Professional• Expeditious• Apolitical

• Conclusions expected to vindicate the Rompetrol Group and also to disarm special interest groups

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Page 23: The Rompetrol Group NV A privatization success storynewweb.rompetrol.com/cms/rompetrol_companie/ir/Washington.pdf · The Rompetrol Group - profile • Largest private company in Romania

Rompetrol - strategy

Rompetrol Group strives to become, through organic growth and sensible low-cost acquisitions that integrate with its existing operations, the leading low-cost provider of petroleum products in the Balkans

We will do this by:• Upstream: gradually integrating “upstream” by

concentrating our E&P efforts in Romania, supported by our services expertise and equipment

• Midstream: Increasing the quantitative and qualitative performance of the Petromidia platform while upgrading to continue to EU quality standards (sulfur)

• Downstream: Maintaining an approximate 50-50 balance between internal and external markets, while establishing direct selling operations in regional countries and building the retail brand in Romania

• Services: using services companies synergistically with the group (Rominserv), with third parties (Rompetrol Logisitics) or divesting them as “non-core”

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