NEWS: Agriculture Minister Daniel Constantin has announced an additional 60 million funding program for farmers who wish to access EU funds for the modernization of their irrigation systems »page 5
ROMANIA’S PREMIERE BUSINESS WEEKLY
SEPTEMBER 10 - 16 / VOLUME 16, NUMBER 28
FISCAL CHANGES CHANGES TO THE FISCAL CODE THAT WERE INTENDED TO STREAMLINE LOCAL BUSINESS PRACTICES HAVE COME WITH OTHER LESS WELCOME MEASURES, SAY PUNDITS »PAGE 8
WHITEWARE MARKET IN TOUGH CYCLE Producers and vendors of white goods are having to deal with fluctuating currency exchange rates and low purchasing power »page 6
NEWS
FOCUS
CITY
PLUS
Blow up
Fashion forward
Street theater
Local wind capacities are set to double this year, similar to last year’s growth, says a recent report by TPA Horwath and Schoenherr & Asociatii
While large international clothing retailers are in expansion mode, smaller players are finding themselves out of vogue on a tough market
Starting mid-September Bucharest will play host to the international street theater festival B-FIT as part of the capital’s City Days event
S&P cuts Transgaz’s rating on unrevised tariffs » page 4
» page 4
» pages 10
» page 12
Find out what’s on in town with BR’s cultural agenda » page 14
www.business-review.ro Business Review | September 10 - 16, 2012
NEWS 3
NEWS in brief Photo: Silviu Pal
IMAGE of the week All aboard! The Orient Express stopped in Bucharest last week, in the capital’s central station, Gara de Nord. The legendary train’s visit was part of its ParisIstanbul route. The locomotive also made a brief pause in Sinaia, where travelers visited Peles Castle. The Orient Express, which has inspired a phalanx of books and films such as Agatha Christie’s Murder on the Orient-Express, Hitchcock’s The Lady Vanishes and Graham Greene’s classic Stamboul Train, was originally launched in October 1883. Leaving from Paris, it steamed through the Alps, Budapest and Bucharest to Constantinople (Istanbul).The service is currently run by the Venice Simplon Orient Express, which has been organizing yearly trips since 2000 on the route Paris-Vienna-Budapest-Sinaia-Bucharest-Varna-Istanbul and returning to Vienna and Venice. A one-way trip from Paris to Istanbul costs EUR 14,260 per person.
ENERGY Zeta Petroleum in farm-out deal with NIS Gazprom Neft over local oil field UK-based Zeta Petroleum has struck a deal with Serbian oil and gas firm NIS, majority-owned by Russian giant Gazprom, to drill an exploration well west of Romania in the Jimbolia concession, which has prospective resources of 1.72 million barrels of oil. Zeta Petroleum will grant a 51 percent stake in the concession to NIS, which will pay the full costs of the next exploration well to be drilled in Jimbolia and contingent cash sums to the British firm. It will grant a 10 percent stake to Romanian company Armax Gaz to settle an ongoing dispute from a previous joint venture agreement. This is NIS’s latest endeavor in Romania since it announced plans this summer to open 120 gas stations here in the next two years.
FINANCE Romania contributes EUR 52.4 million to EIB capital increase Romania will put up EUR 52.4 million to back up a capital increase of the European Investment Bank (EIB), the gov-
ernment has announced. The sum constitutes Romania’s share, as an EU member state, of the bank’s EUR 10 billion increase. The money is intended to let the banking institution increase funding for projects that support jobs and growth in the European Union.
NBR forex reserves down to EUR 30.9 bln in August The National Bank of Romania’s (NBR) foreign exchange (forex) reserves stood at EUR 30.9 billion in August, down 3.8 percent from the previous month, after the country paid the first installment of an IMF loan. Romania registered capital inflows of EUR 1.1 billion, which represent changes in the forex requirements of credit institutions, income from forex management and inflows to the accounts of the European Commission and the Ministry of Public Finance. Outflows amounted to EUR 2.3 billion and accounted for payments of interest and principal of foreign currency public debt, including a EUR 728.2 million payment of an IMF stand-by agreement worth some EUR 13 billion. Changes in the forex requirements of credit institutions also contributed in this section. The gold stock remains stable at 103.7 tons and its value hovered around EUR 4.4 billion.
Romania raises EUR 750 mln in Eurobond sale Romania has successfully raised EUR 750 million on international financial markets, after issuing bonds with a six-year maturity at yields of between 5.10 and 5.15 percent, said the finance minister, Florin Georgescu, last week. Investor sentiment seems to have improved from last September, when the country raised EUR 1.5 billion in a fiveyear euro-denominated bond sale that yielded at 5.25 percent. The lead banks that handled the latest bond deal were BNP Paribas, Deutsche Bank, JP Morgan and UniCredit. Romania tapped the US market for the first time in 16 years this winter and raised USD 750 million. The country plans to get around EUR 2.5 billion from bond auctions this year, according to the Ministry of Public Finance.
RETAIL H&M to open in Sibiu this autumn Swedish fashion retailer H&M will open its 17th local store this autumn, in the grounds of the Shopping City Sibiu retail center. The leasing of the 1,554-sqm space was mediated by real estate consultant DTZ Echinox as advisor for the landlord.
At present H&M has 17 stores in Romania, six of which are in Bucharest. The other locations are Brasov, Cluj, Timisoara, Oradea, Constanta, Arad, Craiova, Braila, Iasi, Suceava and Sibiu. The first local H&M store was opened last year in March in AFI Palace Cotroceni. Part of the portfolio of the British investor Argo Real Estate Opportunities Fund, Shopping City Sibiu was opened in 2006 and has a sales area of 80,000 sqm.
TOURISM Romania hosts one million foreign tourists in July Over one million foreign tourists spent their holidays in Romania in July, according to data from the National Statistics Institute (INS) released by the Tourism ministry. This is the highest number recorded month-to-month over the past six years. Compared to the same month of 2011, Romania welcomed 13 percent more foreign tourists and 12.5 percent more local holidaymakers. In the first half of 2012, the country hosted 12.4 percent more foreign visitors and 12.7 percent more Romanian tourists than in the same period of 2011.
www.business-review.ro Business Review | September 10 - 16, 2012
4 NEWS RATINGS
ENERGY
S&P cuts Transgaz’s rating on Local wind capacities set to unrevised tariffs double this year
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ating agency S&P has downgraded the gas transmission operator Transgaz by one notch to BB with negative outlook as regulatory uncertainty and high dividend payments pose a higher financial risk in the near to medium term for the state-owned enterprise. S&P said that Transgaz was applying tariffs that were unchanged since 2009 and a potential recovery in tariffs remains “highly uncertain”. The Romanian energy regulator ANRE failed to revise the existing tariff-setting mechanism by July 2012, marking the beginning of the third five-year regulatory period, according to the rating agency. The regulator announced its regulated revenues for the period from July 2012 to June 2013, but not the new tariff or the amount of lost revenue recovery. “We do not consider this to be consistent with our previous assessment of the relative supportiveness of the Romanian regulatory environment. Furthermore, it highlights key regulatory risks in a jurisdiction where regulatory determinations are, in our view, not independent of the government,” noted S&P. Transgaz operates gas transmission assets of strategic importance for the
country, but government support seems to be diminishing, said agency representatives. The gas operator currently pays 90 percent of its profits in dividends, a move S&P calls “aggressive”. This government decision was implemented at all state-controlled companies. Nonetheless, the link with the government will remain strong, despite a 15 percent stake in the company being up for privatization this September. The credit outlook for Transgaz could be revised to stable if the changing regulatory framework provides sufficient visibility and credit support to Transgaz’s earning. Otherwise, the company risks a further downgrade. “This would also be contingent on an assessment that the regulatory remuneration remained sufficiently shielded from negative political intervention linked to changes in the national macroeconomic or fiscal environment,” said S&P. Transgaz’s net profit fell by 17.6 percent year-on-year to RON 255 million (EUR 57 million) in the first semester. S&P estimates the company’s operational revenue will amount to around RON 500 million (EUR 111 million) this year. ∫ Ovidiu Posirca
I
ncentivized green energy production allowed Romania to double its wind capacities last year to 982 MW and data suggests the same will happen this year, helped by foreign utilities that have flocked to increase their generation capacities locally, according to a report published last week by professional services firm TPA Horwath and law firm Schoenherr & Asociatii on the domestic renewable market. Romania was the most active market in Central and Eastern Europe last year with 520 MW in wind capacities, while Poland came second with 436 MW, said the report. In August, Romania had 1,300 MW in wind power, according to Transelectrica, the grid operator. “In the last year, investors’ interest has moved to solar,” said Monica Cojocaru, a lawyer at Schoenherr. At present, Romania has only 2 MW in photo-voltaic capacity but the six green certificates granted for every MW generated from this source are poised to attract investors. The connection agreements for solar projects almost doubled to 522 MW this month, according to Cristina Petrescu, partner at TPA Horwath. For wind, this figure stood at 14,000 MW, although the grid can take in a maximum of 4,000 MW. Last year the government approved the green certificate scheme in order to attract renewable energy projects that will allow Romania to derive more than one third of its gross electricity consumption from green sources by 2020. The power output from hydro-power plants with capacities larger than 10 MW is also taken into account. The targets may be ambitious, but investors are grappling with the financing of renewable projects. “Project financing is harder to obtain
given the provisions of the new energy law that hinder deal-making for purchasing power agreements (PPAs) and for the purchase of green certificates,” said Cojocaru. She added that large projects in wind had mainly been completed by large utilities that relied on cooperate finance. Enel, GDF Suez and CEZ are some of the companies that currently operate wind farms locally. One developer told BR that investors are starting to negotiate long-term PPAs of five to seven years, but the price of the green certificates is lower. The certificates have a regulated floor price of EUR 27 and a ceiling of EUR 55, where trading is happening right now. Industry specialists say the price is likely to remain high until Romania meets its target of power consumption from renewable sources. Last year, only 2.5 percent came from green sources against a target of 10 percent. This year, it will rise to 12 percent and will reach 20 percent by 2020. However, the 2020 result is set to fall short by approximately 60 percent, according to TPA Horwath research. This forecast excludes the power generated in hydro plants of over 10 MW. If renewable energy production remains at less than 33 percent of the national target, the price of green certificates will remain in the EUR 48-55 band, says the professional services firm. A production between 50 and 65 percent of the target will see prices drop to EUR 38-50. When the power production reaches over 65 percent of the mandatory targets, the green certificate market will gradually soften until 85 percent, when prices may fall to EUR 27. ∫ Ovidiu Posirca
BUSINESS AGENDA September 8 10:30 The Bucharest Running Club Association organizes a press conference on the Civil Society Cross, prior to the Raiffeisen Bank Bucharest International Marathon 2012, in Herastrau Park, Pescarus entrance. By invitation only.
September 11 12:00 Ceragon Networks organizes a press conference to mark the launch of its research and development center in Romania at Howard Johnson Grand Plaza Hotel. Ira Palti, president and CEO of Ceragon Networks, will attend. By invitation only.
September 27 ∫EVENT Business Review organizes the German-Austrian Business Forum, an event that brings together representatives of the two countries that are active in the domestic economy. Find out more at http://business-review.ro/brevents/
September 28 ∫EVENT 08:30 Business Review organizes the 11th edition of Tax&Law, an event that reviews the recent fiscal and legal changes that impact on the business environment. Find out more at http://business-review.ro/brevents/
www.business-review.ro Business Review | September 10 - 16, 2012
AGRICULTURE
NEWS 5 PARTNER CONTENT
EUR 60 million to flood into irrigation investments says agriculture ministry
Romanian Renewable Energy market, after a hot summer
6 necessary to understand truths, for RES investors and project owners by Ilias Papageorgiadis, CEO MORE Green Energy means that you choose the appropriate partners and work only with them. Truth is that without papers studied in advance, no transaction was sealed.
Hydro power: lack of proper irrigation exacerbated the effects of the drought
R
omanian farmers who want to access EU funds for the modernization of their irrigation systems can this September apply to a new funding program to which EUR 60 million has been allocated, the Ministry of Agriculture and Rural Development (MADR) announced last week. Following the drought that ravaged some 40 percent of Romania’s farmland this summer, leaving local farmers with double-digit losses for most crops, the MADR has allocated additional money for EU-funded investments in modernizing irrigation infrastructure. The total sums available amount to EUR 60 million, 80 percent of which are EU funds, and they will be available under Measure 125 – infrastructure related to the development and adaptation of agriculture. Farmers can apply between September 3 and October 15. The MADR has come up with the money by relocating financial resources within the National Rural Development Program, the ministry says. The drought that has affected Romania as well as other regions around the world this year has proved how dependant local agriculture is on weather conditions. This year’s poor results come after good climatic conditions made 2011 one of the best years in the past decade for the local agriculture sector, with a net output growth of 11.3 percent in 2011 and a major contribution to last year’s 2.5 percent economic growth. One year later, the drought is estimated to have reduced corn production by about 20 percent from the 11.6 million ton record level reported in 2011, while wheat output will be at least 15 percent below last year’s 7.1 million ton harvest. And while Romania was not the only drought-parched country this summer, the country’s general lack of proper irrigation has made things worse than elsewhere.
Modernizing Romania’s entire irrigations infrastructure is vital and could turn local agriculture into the economy’s growth engine, said Daniel Constantin, the minister of agriculture, last week. However, improving the current state of local agricultural irrigation systems will not be easy. Back in 1990, some 3.2 million hectares of arable land had irrigation infrastructure. In the decades that followed this declined sharply and nowadays only 800,000 hectares of land can be irrigated, although this too needs investments in rehabilitation. Out of this area, some 300,000 hectares have actually been irrigated this year, meaning less than 3.5 percent of the country’s arable farmland. And the lack of infrastructure is not the only issue. In many places the existing farming irrigation systems are old, generating energy losses and high costs for farmers. Some EUR 400 million would be necessary to improve the infrastructure to irrigate 800,000 hectares, Constantin has previously said. This money and more could come from EU funds through a program dedicated to agricultural irrigation investments which Romania hopes to obtain from the 2014-2020 multiannual financial framework. Other measures to support droughtstricken farmers have been announced by the government. These included a RON 50 price reduction for 1,000 cubic meters of irrigation water and financial aid for farms registered as small and medium-sized companies, who will receive 80 percent financial compensation for this year’s losses. Individual farmers, too, will receive compensation under the form of a de minimis state aide of RON 100 (approximately EUR 22) per hectare for no up to 10 hectares, a sum that many farmers have argued is not sufficient to keep them afloat. ∫ Simona Bazavan
During this summer I had the chance to discuss with more than 250 investors in Renewable Energy and almost 80 owners of projects (Wind, Solar, Hydro, Biomass and Biogas). Advancing to a deal is not always easy, but we managed to reach agreement in many cases. This also provides experience and valuable lessons. Let’s check 6 of them together: 1. Less than half of the projects available are really “good to be built” As our in-house lawyer conducts a pre due-diligence for the projects we receive, I can confirm that more than half of them are not really “good to be built”. I know, people are using the term “Ready to Build”, but this only means that it can be constructed. We focus on its details and parameters and we see a lot of “poor quality” projects.
4. “Not Ready to Build” usually means “Ready to build soon, adjusted to your demands” During this summer tens of serious investors seem to have realized that the “Ready to Build” sign isn’t the most important element of a project. As they have to deliver their own technical solution, they understand that even a “RtB” project needs time to be re-approved, adjusted to their demands. This is why many deals included projects which were in a very advanced stage of development. 5. A project should be developed taking into consideration all the possible future problems / controls I see so many projects that are offered based on the following approach: “This is what I have for sale. I don’t care what you do with it. Pay me and good luck”. But the investor has his own standards in mind, the bank’s requirements, the EPC’s advices, even what a potential future buyer will crosscheck. When the owner fails to realize this, the transaction gets canceled.
6. In Hydro, Biomass and Biogas, the investor should get involved in the earlier stages of development If one wants to invest in Hydro, Biomass or Biogas, soon he realizes that he has to get involved in the projects’ development. This does not mean that he has to invest then, but 2. Less than half of the “investors” to verify and guide the owner, cusare real tomizing the project to his standards As almost all the European markets because the market offers some are closed, thousands of investors reasonably priced “semi-developed” come to Romania. But less than half projects and few “Ready to Build” are real investors. The majority sim- ones. ply wants to sign no paper, talk and do nothing. Many times they offer My experience says that the deal is high prices without having the done when time is invested in money, just to prevent a project preparing it in advance. Each project from being sold. has to be properly understood in order to be presented. Its documents 3. No papers are given = no trans- should be available (but not to just action is sealed anyone) and advancement is made Many owners are reluctant to pro- when both sides really want to. vide the papers of their projects because they claim they can’t have Ilias Papageorgiadis them circulating the market. On the CEO MORE Green Energy other hand, being an entrepreneur info@more-group.eu
www.business-review.ro Business Review | September 10 - 16, 2012
6 FOCUS
important role in the purchasing decision. We can say that energy efficiency is on the list of basic requirements when such products are chosen,” says Bolozan. Consumers’ approaches to white goods vary. “First and foremost, there are many clients who are interested in the technical features. These are people who wish to invest in technology because they know that on the long term, such an acquisition will bring them major benefits,” says Bolozan. There is another category of buyers who prefer to make their purchase “with their soul,” going for products that “glamorize” them, she says, and for such people the visual impact plays a very important role. “The design of the products in the portfolio can often tip the balance when such purchases are made,” says Bolozan. One possible reason is suggested by Romaios. “White goods are very much related to the kitchen furniture customers will decide to have in their home. Usually when they choose to have expensive kitchen furniture, appliances will have a high value as well,” he says.
Currency exchange rates and low purchasing power cool market
Pressure cooker environment: players on the white goods market have suffered in the recession
White goods companies hope to get back in the black The acquisition of white goods is still a major decision for the typical Romanian household. In addition to the country’s low purchasing power, producers and vendors in this industry have been impacted by currency exchange rates. The good news is that the consumer has grown more educated, and now increasingly considers energy efficiency a must-have feature when selecting a product. ∫ OTILIA HARAGA “Customers have an average budget of approximately EUR 230- 250 per single acquisition,” Mioara Bolozan, marketing manager in Whirlpool Romania, tells BR. Romanians are steadily becoming more and more ‘green’ oriented. “Our customers are very interested in the ecological features of our devices; I believe that one
of the top three questions they are asking is how eco friendly the device is,” Theofilos Romaios, sales and administration manager at Miele Appliances, tells BR. He adds that when people are buying major domestic appliances, the decision is completely different than any other sales-related actions. “These are not products that you change every now and then (…). Because of that, they are looking for ap-
pliances that are reliable, meet their needs now and in the future, are well designed and user friendly,” says Romaios. Technical specifications are among the basic features consumers look at when deciding to buy electronic home appliances. “What is encouraging is that after years of effort in educating the market on the benefits of energy-efficient products, consumption has come to play a very
“Last year, the large home appliances sector reached the value of EUR 328 million, maintaining second place in the ranking of durable goods. Of this market, fitted electronics represent between 8 and 10 percent so we are talking about a market of fitted products of more than EUR 30 million. We predict stagnation in the overall value of the market of large home appliances this year,” says Bolozan. She outlines that there are two main categories of products on this market. The first is products with a high penetration, which can be found in nearly any household: washing machines and cooling appliances. “These have a large weight in sales, and the variations in these segments are relatively low,” says Bolozan. The second category is newer home appliances, with still low penetration on the market. “This category of products is developing from year to year, as consumers are discovering their benefits,” says Bolozan. Last year, sales of dishwashers were particularly buoyant, going up 25 percent. Also, fitted hobs and ovens saw higher growth than that of the market, up 15 percent last year, she says. A look at the latest GfK TEMAX survey on the Romanian durable goods market in the second quarter of the year shows that the market is declining compared to last year. White good sales posted a EUR 10
www.business-review.ro Business Review | September 10 - 16, 2012
Mioara Bolozan, Whirlpool
million advance on the first quarter of the year, but a 10 percent decline compared to the second quarter of 2011. “It is important to mention the impact of the currency exchange rate on this market: while calculated in EUR, this range of products has seen a 10 percent drop, but expressed in RON, the decline is only 3 percent. When calculated in relation to the national currency, some categories of products such as ovens, dishwashers, freezers
Slovakia and Italy. Poland is also the source of the company’s locally sold dish washers and cooker hoods. The ovens and hobs are brought from Italy. Hair dryers come from the French production unit. Microwave ovens, however, are not made in Europe, but brought from the company’s plant in China. “The upward trend of the EUR-RON currency rate brought an obvious growth in our costs. However, the decline in purchasing power at local level has made it difficult to transfer these costs to the final price of the products,” says Bolozan. In the future, Whirlpool plans to give more attention to the segment of premium products, specific to the Whirlpool brand, which has been neglected over recent years, due to the Theofilos Romaios, Miele Romania drop in purchasing power,” adds the manager. The evolutions of product ranges and hobs have reported growth,” within the white goods sector have been different. stated the GfK report. Developing ranges of products The exchange currency rates have proved to be a problem for com- such as ovens, cook tops, dishwashand dryers have only panies in this field. For instance, ers most of the products sold by lost slightly in sales, compared to the Whirlpool in Romania are brought same period of last year. However, from production units in EU member even though these small markets have potential, they only make up 12 countries. Thus, cooling products, such as re- percent of the market of large home frigerators and air conditioning units, appliances. Despite the expectations of retailare made in Poland, while washing machines are brought from plants in ers and producers, the intense pro-
FOCUS 7 motions of coolers and freezers did not manage to boost sales by value in 2011,” says the GfK survey. And microwave oven sales are down by approximately 20 percent in terms of units from last year. At the same time, the market of washing machines continues the decline that started in the first quarter of the year. “Consumers are lacking in trust and willingness to buy, and are being more reserved about acquiring large home appliances at this time of the year,” says the GfK survey. For Miele, which forecasts a turnover of EUR 2.5 million this year, washing machines are the best selling products, says Romaios. “After that come hobs, ovens and dishwashers.” Products that have posted lower sales included devices such as “wine conditioning units with excellent quality but with only a few people willing to buy them,” says Romaios. Miele chooses the products it sells on the Romanian market from the German product range. “Our strategy is to have a small number of partners, loyal to the brand. Based on this philosophy we have ten sale points through kitchen studios, our exclusive shop in Brasov, and we have chosen to collaborate with only one electrical goods chain store,” says Romaios. otilia.haraga@business-review.ro
www.business-review.ro Business Review | September 10 - 16, 2012
8 MONEY
ductibility of R&D expenses to 50 percent.
Keeping up with the fiscal changes
Photo: Silviu Pal
Tax and spend: the uncertain fiscal environment has posed problems for companies
Tempered effects
Firms face taxing times during fiscal frenzy Romania has implemented a series of measures this year to streamline business practices locally in order to attract foreign investors and bolster its competitiveness, but companies are now facing the difficult challenge of balancing this with other not so friendly initiatives that have bloated the fiscal code, tax specialists told BR. ∫ OVIDIU POSIRCA Inefficient government bureaucracy, tax rates and regulations were some of the main causes of concern for companies doing business in Romania. The conclusions are those of the latest Global Competitiveness Report issued by the World Economic Forum (WEF). The unsolved debt crisis in the Euro zone and the weak recovery of the Romanian economy were also reflected in the WEF ranking, in which Romania fell one place, ranking 78th out of 144 countries. However, in the EU 27 the country came just above Greece, which is the
least competitive country in the union. Romania still lags behind in the transparency of government policy making and the burden of government regulation, ranking 136th and 118th respectively. Favoritism in decisions made by government officials and the efficiency of the legal framework in settling disputes are other areas where the country does poorly, ranking 128th and 133th. It is clear that Romania still has to put a lot of effort into dealing with murky government decisions and to further strengthen its judiciary. Since the start of the crisis, all the governments formed in Romania have pledged to improve the country’s com-
The Fiscal Code was modified this year through four government ordinances, leading to significant amendments on numerous occasions. The requirement to publish changes six months in advance of their implementation has not been respected for a long time, according to Florin Gherghel, head of the tax department at Noerr Finance & Tax, who outlined some of the fiscal updates. The most noteworthy changes include the deduction of 50 percent of maintenance costs and fuel acquisitions, as well as a 50 percent VAT deduction for the purchase, leasing and renting of a car. This deduction also applies to car maintenance and fuel expenses. The list of deductible provisions has been extended with rules on the depreciation of payables from credit institutions for their recovery, to certain limits. One of the most significant changes was the increase of the VAT exemption threshold to EUR 65,000 for small companies, a move that cut red tape and gave the fiscal agency ANAF some breathing space, according to Alexandru Cristea, tax partner at Tuca Zbarcea & Asociatii Tax. “It is common knowledge that this administrative body is the ‘Achilles’ heel’ of the Romanian fiscal system, having been on numerous occasions overworked and left with insufficient resources,” said Cristea.
petitiveness in order to boost economic growth and create jobs. So far, the authorities have moved cautiously in order to prevent a fiscal slippage. The country is being closely watched by the IMF, World Bank and the European Commission, so this could in theory build the perception of a stable country for doing business. So far, the authorities have changed the fiscal provisions for social contributions and VAT, in addition to setting new deduction mechanisms for provisions and certain expenses. Going forward, the Ponta government wants to incentivize companies that hire unemployed people and to increase the de-
A measure that had long been awaited by the business community was the payment of VAT after invoices are collected for companies with a turnover of less than EUR 500,000. This will be implemented from next year and specialists say it will not have a significant impact on the budget revenue. “The measure supports small and medium enterprises, helping them to find solutions to possible existing bottlenecks in the business environment during the crisis,” stated Cristian Bogaru, partner and co-founder at law firm Hammond, Bogaru & Associates. The visible outcome of this measure would be the release of arrears and there might be a collection gap in the first months of implementation, according to Luisiana Dobrinescu, partner at law firm Dobrinescu Dobrev. “As the obligations related to taxable individuals will be laborious and hard to follow, it is likely that the budget revenue will grow from increases and late payment penalties, as a result of fiscal inspections,” said Dobrinescu. Ionut Bohalteanu, partner at Musat & Asociatii Tax Advisory, doesn’t believe this initiative will lead to major changes in the budget revenue on the medium and long term. He argues this is an exceptional system, both from the perspective of targeted taxpayers and the operations it is applied to. “Given its absolutely exceptional
www.business-review.ro Business Review | September 10 - 16, 2012 characteristics, this system may become the reverse of what it should have been, a way to relieve taxpayers from their obligation to finance the state at its own expense,” said Bohalteanu. As the budget revenue will remain more or less the same once this measure is enforced, there are certain issues looming for companies. “There will be limited situations on the commercial fluxes of invoicing when the supplier is a regular contributor, who doesn’t apply this system, but the beneficiary does. In this case, the supplier will have to pay the VAT when the invoice is created, while the beneficiary will deduct it only on payment,” explained Cristea of Tuca Zbarcea & Asociatii. Gherghel at Noerr warns this measure will be hard to implement, especially for buyers of goods and services from companies that use VAT payment when invoices are collected. They will have to keep a separate section on their books for each supplier category for VAT deduction, and mistakes can be made. If they are spotted during tax inspections, VAT becomes non-deductible (depending on the timing of the inspection) and late payment penalties and interest will be charged. “The duration of any tax inspection will be extended as the fiscal teams will need to make additional verifications, under the conditions that such an inspection has already lasted pretty long and started with a delay,” explained Gherghel. He added that it is difficult to estimate if the amount of VAT raised for the budget will drop, but the management of this measure by the fiscal authority will surely become tougher.
Promised stimulus The Ponta government announced in July its intention to increase the deductibility of research and development (R&D) expenses from 20 percent to 50 percent. The PM said this would stimulate innovative investments and create high-paying jobs. This was one of five measures put forward by the government to help the ailing business environment. Although the PM pledged to swiftly implement the proposals, only the VAT payment on collected invoices was adopted. Authorities still had to negotiate the quintet with the IMF and it remains unclear whether they will be adopted by year end. Romania hosts a handful of multinational IT firms that were attracted by skilled human capital and the relatively young market, and some are considering the development of R&D functions locally. For instance, this spring US chip maker Intel inaugurated an R&D software center in Romania. “An increase in the deductibility of these expenses will lead to a drop in profit tax, which is beneficial for a company involved in this field, where the results are quantified after the expense was incurred,” said Gherghel of Noerr. Although this facility is already available, companies need the correct
Ionut Bohalteanu, partner, Musat & Asociatii Tax Advisory
framing of costs as the Ministry of Finance has frequently requested the opinion of the National Authority for Scientific Research, within the Ministry of Education, according to Alin Chitu, tax senior manager at Tuca, Zbarcea & Asociatii Tax. He stated that the Romanian authorities had obliged companies to do research in Romania and use the results for themselves, against the stance of the EU authorities. “This is very hard to implement at multinationals that have specialized structures for R&D services for the interest of the group, without benefitting directly from the results, and the costs are allocated on the basis of a key allocation to all the benefiting companies,” said Chitu. He warned that in numerous cases companies simply gave up trying to obtain this facility. Bohalteanu of Musat & Asociatii Tax Advisory says that the increase in deductibility should come with more a more flexible implementation mechanism in order to generate results. Aside from this measure, which is in obvious need of improvement, Romania has in place a state aid scheme for the IT&C industry that creates jobs locally. “State aid is granted through a 40/50 percent reimbursement of salary costs (including wage taxes) for the creation of at least 200 new jobs for a minimum of two years, in the case of innovative investments or those in which the IT&C component has a minimum 20 percent share,” said Gherghel of Noerr. He believes that these measures will allow Romania to become more competitive in the IT sector, as new fiscal facilities are hard to come by these days.
Employment needs a helping hand The government intends to eliminate social contributions for healthcare, pensions and unemployment benefit for companies that hire jobless people who are either under 25 or over 55. This
MONEY 9
Cristian Bogaru, partner co-founder, Hammond, Bogaru & Associates
Florin Gherghel, head of tax department, Noerr Finance & Tax
Alexandru Cristea, tax partner, Tuca Zbarcea & Asociatii Tax
Alin Chitu, tax senior manager, Tuca Zbarcea & Asociatii Tax
measure would apply for one year if the employee is kept on for another one. The unemployment rate in Romania has hovered around 7 percent this year, but young people and those close to retirement are particularly hard hit. The job occupancy rate for people between 15 and 24 stood at 21.9 percent in the first quarter, while in the 55 to 66 bracket it is slightly higher at 39.3 percent, show data from the National Statistics Institute. Tax specialists believe this measure would have positive results and could reduce the level of unreported labor. Bogaru of Hammond, Bogaru & Associates said however that it runs a legal risk because it will allow companies to offer these people a two-year determined contract. “Up to now, the condition to maintain the facility was for the hired people to be on the payroll for five years, which was discouraging for employers given the difficult economy,” said Dobrinescu of Dobrinescu Dobrev. The country had already approved a fiscal measure in 2010 geared towards
the creation of jobs, but the adverse economic conditions precluded a significant hike in employment, according to Bohalteanu of Musat & Asociatii Tax Advisory. “The reduction of the financial burden representing the percentage of social contributions that an employer has to pay could stimulate the economy and employment,” said Bohalteanu. Fiscal consultants say that the government’s intention to exempt companies from penalties if they pay their debt to the state in the last quarter will help firms remain solvent. “A similar measure was introduced for the first time in August 2011 and was beneficial for the state budget and taxpayers,” stated the Dobrinescu Dobrev partner. Chitu of Tuca Zbarcea & Asociatii Tax added this measure would have a positive impact on taxpayers and the budget revenue because companies will try to take advantage of the “amnesty” and pay their debts. ovidiu.posirca@business-review.ro
www.business-review.ro Business Review | September 10 - 16, 2012
10 FOCUS
Photo: Silviu Pal
Mall encompassing: Inditex has a large number of fashion brands in downtown Bucharest retail outlets, such as Unirea Shopping Center
Competition hots up among fashion retailers Value-for-money continues to be all the rage this year when it comes to clothes shopping, and although consumers remain cautious, fashion retailers are pushing forward expansion plans and looking outside Bucharest for future growth. Competition has become fiercer over the past year, and despite several casualties, the market still has potential for growth, players told BR. ∫ SIMONA BAZAVAN Swedish fashion retailer Hennes & Mauritz (H&M) announced last week that it will open its 17th local store in Sibiu this autumn. Since entering the Romanian market last year, the retailer has undergone rapid expansion. The store in Sibiu will be the sixth opened so far in 2012 and fur-
ther new openings are in the pipeline, says the retailer. “H&M is continuing its expansion in Romania. After a presence of more than one year on the Romanian market, we are very satisfied with our results (…). We are enthusiastic about opening new stores in more Romanian cities (…)”, said Ewa Jarzemska, marketing and PR manager at H&M. Backed by international networks
and armed with global know-how and popular brands, fashion retailers like H&M, Inditex, C&A and Kenvelo Group have continued to expand this year, mainly outside Bucharest, despite the fact that purchasing power remains low. Romanians continue to spend on average less than EUR 10 per year on clothing, which they mostly buy in the sales, as this gives them the perception of saving money. Lately,
promotions have become more frequent and reductions larger. The full half of the glass is that this economic contraction has led to cheaper rents and more favorable conditions in commercial centers. However, not all players have the option of expansion in preparation for better days to come. This summer saw two local fashion retailers announce their withdrawal from the
www.business-review.ro Business Review | September 10 - 16, 2012
FOCUS 11
Local store openings this year
Inditex H&M C&A
Stores opened
Stores opened
in 2011
in 2012
21 11 10
12 5 4
local market. French firm Kiabi is looking to sell the six shops it runs locally after reporting poor results. The company’s initial plan when entering the market in 2009 was to reach a national network of more than 20 stores by the end of 2014. Kiabi has invested roughly EUR 3 million in the six outlets it directly runs locally. The retailer is owned by the French Mulliez family which also owns the Auchan hypermarkets, the Decathlon sportswear stores and DIY retailer Leroy Merlin.
“Modern retail only covers about 50% of the market, compared to a potential 50-70% in the next few years, so there is clear potential for growth in Romania” Bogdan Belciu Also this summer, Greek fashion retailer Sprider announced it was pulling out of Romania and selling its 17 local stores to Cyprus-based Naqua Investments for EUR 640,000. The decision was taken to allow the company to focus on the Greek market but, even so, Sprider says it has been posting continuous losses in Romania. Before Kiabi and Sprider, several other players announced their insolvency. Earlier this year Staff Collection and Corssa, the two local companies which run the House of Art, Fox, Levi’s and Eponge stores, went insolvent. They join Romanian women’s fashion retailer Tina R, which met the same fate at the end of 2011. Over the past few years the local fashion retail industry has become more complex due to two overlapping factors – the drop in consumption and fiercer competition after new stores were opened, Bogdan Belciu, management consulting partner at PwC, told BR. However, this does not mean the market lacks growth potential for the years to come, he added. “If we take into account that modern retail still only covers about 50 percent of the market, compared to a potential of 50-70 percent in the next few years, there is a clear potential for growth in
Total
84 16 22
Romania. However, players face a significant increase in competition, therefore without a clear short-term, and mid- and long-term strategy, it is very difficult for a retailer to remain profitable,” he said. As for the recent exits, Belciu says that this not a reaction to a market that no longer has potential for growth, but rather a strategic decision by an investor that has other priorities on a global level, as well as a below-expectation financial performance on the Romanian market. Among the factors that contribute to a successful business strategy in clothing retail, Belciu cites a good range and pricing policy, good location as well as positioning and marketing. “The Romanian shopper has become much more rigorous in analyzing the price-quality ratio and the market has become polarized as the middle class is still keeping a close watch on expenses. Given that the average expenditure on clothing products is below EUR 10 per person per year, it is clear that the market segment which competes on prices is the most complex (…),” said Belciu. International chains with a diverse assortment of products and a very good price-quality ratio are well positioned to face this difficult market environment, he added. Increasing competition also means that finding good locations for new stores has become harder, although the modern retail stock distribution is uneven country wide. Not only the store’s location but also the quality of the services within the outlet, as well as through the alternative sales channels, have become key elements in attracting and retaining clients, thinks Belciu. Marketing remains important too, as the lack of a structured plan of promotion and positioning might delay the development of some retailers, while other competitors enjoy very good visibility and aggressive promotion, he concludes. The full recovery of the Romanian fashion market is not yet imminent, but overall there are signs of maturing, for both consumers and retailers. As for future developments, the market is expected to see gradual recovery throughout the years to come, according to London-based market intelligence firm Euromonitor International. simona.bazavan@business-review.ro
www.business-review.ro Business Review | September 10 - 16, 2012
12 CITY
Culture goes public during B-FIT in the Street festival This autumn, theater festivals will entertain the capital’s citizens with shows on improvised stages and in unconventional spaces as part of the Bucharest City Days celebration. From September 13-16, 20 theater companies from seven different countries will participate in the B-FIT in the Street International Theater Festival. BR took a look at the program and details some of the highlights. ∫ OANA VASILIU
Theatertol company
The colorful universe of street theater will play with concepts of space, rhythm and reception over four days dedicated to the capital’s art lovers. Performances will be staged in several locations throughout Bucharest: Constitutiei Square, Universitatii Square, Unirii Square, George Enescu Square, Coltea Park and the Old City Center. The famous VOALA Company, an experimental visual art group, brings to Bucharest its Muare production – an acrobatic aerial show with unexpected corporal moves and high-tech equipment. LA FURA DELS BAUS, one of the legends of street theater, will present on Sunday, September 16 in Constitutiei Square The Hidden City/The Giant and the Angel, a show inspired by the architecture and spirit of Bucharest. Meanwhile, the famous DAVID MORENO and his Floten Tecles show will see the artists lift his music up to the sky and become a star. Romania will be represented by the acrobatic team XTREME PROJECT with two shows, Vertical Tower and Samba Schools Parade, which will take place on Saturday, September 15 and Sunday, September 16, from 20.30, from Unirii Square to Constitutiei Square.
Senza Tempo will present the A+ Cosas que nunca te conte show
oana.vasiliu@business-review.ro
IN THE PROGRAM A representation of The Sound of Sewing by Het Mobiele Naaiatelier
Cie Les Choses de Rien company
All photos courtesy of Arcub
The 19 Reasons show by Aromatic
VIA! Concert en movement by Cie Les Clandestines theater company
Les Geants du Sud Company Iggy, Charles Edouard, Gogol Planet pas net Company Mamas Popol – Ulik Prod Company Operation Escargot Les Enjoliveurs Company Dites-le avec des Fleurs Les Explorateurs Cirquet Confetti Company Miss Umbrella Fanfare le Snob Company Glissssendo Cia. David Moreno Company Floten Tecles Cie entre Terre et Ciel Company Neige de feu Sam Shine Company Waternymphs & Waterdragons Circo Delicia Company Arbolar Arvolar Xtreme Company Trafic Vertical Antagon Company Frames Voala Company Muare Wilmark Academy Parade
www.business-review.ro Business Review | September 10 - 16, 2012
14 CITY
CULTURAL EVENTS CALENDAR
WHO’S NEWS
MUSIC
BR welcomes information for Who’s News. Submissions may be edited for length and clarity. Get in touch at simona.bazavan@business-review.ro
Dracula Bass Festival September 14-17 Green Hours and Sala Radio
showcasing of distinguished pieces of antiquity. It will host pieces of furniture and interior decorations, plastic art, personal possessions and items from collections, silver and porcelain, old jewelry, toys, books and vintage cars for display, evaluation and sale.
FILM
The Dracula Bass Festival is the only event in the world exclusively dedicated to the bass guitar and double bass, a platform where bass-heads can compete with other gifted musicians and enjoy some of the best fretboard-walkers from all over the world. Jack Bruce & His Big Blues Band, Anthony Jackson, Decebal Badila, Mats Eilertsen, Dominique di Piazza, Dietrich (Dixie) Krauser, Pedro Negrescu and Arild Andersen are some of the artists that will entertain the public.
THEATER Bucharest Fringe Independent Theater Marathon September 10-16 Godot cafe – Teatru, Teatrul de Comedie – Sala Noua, Teatrul Arca at La Scena, Teatrul Apropo, Teatrul Tabu/Legere Live, unteatru, Teatrul Luni at Green Hours, Teatrul În Culise, Club UNITER, Teatrul de Sufragerie and ArCuB Hall. Bucharest Fringe Independent Theater Marathon incorporates 43 performances by companies from Bucharest, Cluj, Sibiu, Targu Mures and Bacau. Tickets cost RON 5 for each performance.
EXPO
The White Night of Romanian Films September 14 Cinema PRO, Cinema Elvira Popescu, Club Control, Verona Garden, Godot Cafe, Cinema Studio, Cinema Patria, Noul Cinematograf al Regizorului Roman, Club Fabrica, the Old City Center Movie buffs can spend one night viewing Romanian films of all genres, created by local cinematographers through the eras. The program will include Lindenfeld 1994 (d. Radu Muntean), Lucy Castle Hotea (d. Vai Hotea), Franzela exilului (d. Alexandru Solomon) and Boborul (d. Radu Igazsag), as well as a short promo for a documentary about an expedition by Emil Racovita, Exploratorul (d. Gabor Xantus). Premiers Resident Evil: Retribution Opens September 14 The Umbrella Corporation’s deadly T-virus continues to ravage the Earth, transforming the global population into legions of flesh-eating Undead. The human race’s last and only hope, Alice (Milla Jovovich), awakens in the heart of Umbrella’s most clandestine operations facility and unveils more of her mysterious past as she delves further into the complex. Director: Paul W.S. Anderson Starring: Milla Jovovich, Sienna Guillory, Michelle Rodriguez
Antique Market September 12-15 Romexpo, Pavilion C3 The expo will feature the exclusive
On at: Movieplex Cinema Plaza, The Light Cinema, Hollywood Multiplex, Grand Cinema Digiplex, Samsung IMAX, Cinema City Cotroceni, Cinema City Sun Plaza.
ISSN No. 1453 - 729X
FOUNDING EDITOR Bill Avery EDITOR-IN-CHIEF Simona Fodor SENIOR JOURNALIST Otilia Haraga JOURNALISTS Simona Bazavan, Ovidiu Posirca, Oana Vasiliu COPY EDITOR Debbie Stowe COLLABORATORS Anda Sebesi ART DIRECTOR Alexandru Oriean PHOTO EDITOR: Mihai Constantineanu PHOTOGRAPHER Laurentiu Obae LAYOUT Beatrice Gheorghiu
Gabriel Muresanu is the new CEO of office supplies provider RTC Proffice Experiences starting this September. He was appointed to the position by Oresa Ventures, the Swedish investment fund which took over RTC at the end of last year. Muresanu has a background in B2B and B2C sales and has worked in the telecom industry for 20 years. He worked for Vodafone for 14 years before launching his owns telesales consulting project last year.
Bram Boon has been appointed CEO of life insurer ING Asigurari de Viata, replacing Cornelia Coman who was recently named general director of ING Asigurari de Viata si Pensii in Hungary. Boon returns to Romania for a new term after having previously held the position between 2004 and 2008. He has worked for the ING Group for more than 30 years, holding management positions in Australia, the Netherlands and Greece. Boon has a master’s degree from Vrije University and the Universiteit van Amsterdam. He holds an MBA from Erasmus University Rotterdam and CEDEP in Fontainebleau, France.
Alexandru Lupea has joined Ernst & Young Romania as partner in the assurance department. He has 17 years of experience of providing audit, due diligence, forensic and accounting consulting services to local and multina-
PUBLISHER Anca Ionita EXECUTIVE DIRECTOR George Moise SALES & EVENTS DIRECTOR Oana Molodoi MARKETING MANAGER Ana-Maria Stanca SALES & EVENTS Ana-Maria Nedelcu RESEARCH Catalina Costiuc SUBSCRIPTION Lili Voineag PRODUCTION Dan Mitroi DISTRIBUTION Eugen Musat
tional clients in Romania, Russia and South East Europe. Lupea specializes in the energy and utilities sector and has also worked extensively with clients in the manufacturing and industrial sectors. He graduated from the TRIUM EMBA program and is a member of a number of professional associations: the Association of Chartered Certified Accountants (ACCA) in UK, the Chamber of Financial Auditors of Romania (CAFR) and the Romanian Association of Expert Accountants (CECCAR).
Rolf Rosendaal is the new aftersales service manager at Mercedes-Benz Romania. He is taking over from Philipp Hagenburger who was appointed CEO of the car manufacturer’s Egypt division. He began his career working for Mercedes-Benz in Germany. He has coordinated projects in North America, the Middle East, Africa and Eastern Europe, and also worked in Lebanon.
Cornel Olendraru has been appointed general manager of Uzina Mecanica & Sasiuri Dacia (Dacia Mechanical and Chasses Plant). He is replacing retiring Jacques Eudeline who has held the position since 2008. Olendraru joined Uzina Mecanica & Sasiuri Dacia in 2010 as manufacturing director after having previously worked for Honeywell since 1999. He graduated in aerospace engineering from the Polytechnics University of Bucharest and has a master’s degree and PhD in mechanics from Politehnica Palaiseau in France.
PUBLISHER Bloc Notes Media ADDRESS No. 10 Italiana St., 2nd floor, ap. 3 Bucharest, Romania LANDLINE Editorial: 031.040.09.32 Office: 031.040.09.31 EMAILS Editorial: editorial@business-review.ro Sales: sales@business-review.ro Events: events@business-review.ro