Business Review Issue 35/2012 October 29 - November 3

NEWS: With Romania’s King Mihai I celebrating his 91st birthday last week, Bucharest City Hall unveiled a square in the capital bearing his name, along with a bust of the king. See photos from the inauguration inside »page 4

ROMANIA’S PREMIER BUSINESS WEEKLY

OCTOBER 29 - NOVEMBER 3 / VOLUME 16, NUMBER 35

BASEL III THE NEW BASEL III RULES ARE SET TO KICK IN NEXT YEAR WITH THE AIM OF MAKING THE BANKING SYSTEM SAFER, BUT PUNDITS WARN THAT LENDING TO THE REAL ECONOMY COULD BE RESTRICTED »PAGE 8

VIRTUALIZATION SOLUTIONS FOR REAL NEEDS Virtualization is already saving companies money and shifting the emphasis away from cumbersome physical equipment. BR finds out what it means and how far it has spread on the local market »page 10 NEWS

FOCUS

FOCUS

PLUS

Foreign investors take a stand

Cowing times

Going local

Both the Foreign Investors Council and AmCham have published recommendations to improve how local business is done

The highly fragmented Romanian dairy farming sector will have to produce only EU quality-compliant milk starting from 2014

Authorities are considering increasing per hectare payments for barley and hop fields to encourage production to be used by the brewing industry

French film festival brings je ne sais quoi to Bucharest » page 12

» page 4

» page 10

» page 11

Find out what’s on in town with BR’s cultural agenda » page 14

www.business-review.ro Business Review | October 29 - November 3, 2012

4 NEWS

NEWS in brief

Photos: Silviu Pal

IMAGES of the week A royal site to remember The Bucharest City Hall unveiled King Mihai Square last week, in the presence of Romania’s King Mihai and Princess Margareta. The square is located at the intersection of Kiseleff Boulevard and Ion Mincu Street. The event marked the king’s 91st birthday.

BANKING IFC extends USD 10 million loan to Patria Credit IFC, a member of the World Bank Group, is providing a RON 36.6 million (USD 10.4 million) loan to Patria Credit, Romania’s largest non-banking microfinance institution, which has more than 12,000 clients in 29 provinces.

This financing is in line with the World Bank Group’s strategy in Romania to increase economic growth and competitiveness, reduce poverty and inequality, and expand growth by providing access to finance for smaller companies, low and middle-income households.

DELIVERY Abris Capital Partners buys Cargus from DHL Investment fund Abris Capital Partners has bought national delivery services company Cargus from DHL. The transaction is set to be completed by the end of the year or the first trimester of 2013, pending approval from the Romanian Competition Council. Cargus was the local brand under which DHL performed its delivery services. The value of the transaction was not made public.

For this transaction, DHL was consulted by KPMG Corporate Finance and RTPR Allen & Overy. Abris was assisted by Clifford Chance Badea and PwC Romania.

ENERGY Nuclearelectrica selects IPO intermediary A consortium comprising brokerages SSIF Swiss Capital (syndicate leader) and BT Securities will handle the initial public offering (IPO) of Nuclearelectrica, the nuclear power producer, according to a statement by the Ministry of Economy.

The tender attracted a second bidding consortium of brokerages WOOD & Company Financial Services and SSIF Intercapital Invest.

Romania has pledged to list several state-owned energy firms on the Bucharest Stock Exchange under a EUR 5 billion stand-by agreement with the IMF, European Commission and World Bank.

The Nuclearelectrica listing will be carried out through a 10 percent share capital increase.

The IPO is valued at EUR 118 million, according to estimates by the Property Fund, which holds a 9.7 percent stake in the nuclear company.

LOGISTICS

Currently, Voyo.ro has over 500,000 active accounts.

Ekol Logistics plans EUR 8 million of investments in local subsidiary

Orange launches first HD call in the world between Romania and Moldova

Turkish integrated logistics firm Ekol plans to reach a EUR 15 million turnover in Romania after it invests EUR 8 million in expanding its local fleet, the company has announced. The money will be used to buy 100 new trucks.

Ekol Romania’s sales target for 2012 is EUR 3 million. The Romanian branch was established after Ekol bought local logistics company Omega Ro in October 2011. The latter reported a turnover of EUR 2 million in 2010.

Customers of Orange Romania and the Republic of Moldova can now make HD calls between the two countries, after the operator managed to interconnect the mobile networks with different infrastructure in the two countries.

In Moldova, the HD voice service started in September 2009. In Romania, Orange launched HD calls in May 2011, and their number has reached 20 million.

TELECOM RCS & RDS strikes deal with Pro TV for Voyo.ro distribution Telecom operator RCS & RDS has signed a partnership with Pro TV for the distribution of the video-on-demand platform Voyo.ro. From now on the content of Voyo.ro can be purchased by RCS & RDS subscribers at RCS & RDS points of payment as well as on the phone or via the operator’s website.

The content can be seen by taking out a subscription or through the payper-view system.

Vodafone to launch local LTE network at end-October Vodafone Romania will launch its LTE network in Romania on October 31.

Until the commercial launch of 4G services, which will take place at the beginning of next year, customers will be able to test LTE at speeds of up to 75 Mbps, in several cities, says the company. From 2013 Vodafone Romania will offer 4G services, at speeds of up to 100 Mbps.

Vodafone’s LTE network operates in the 1800 MHz frequency band and has been deployed with Huawei equipment. Romania will become one of the first European markets where Vodafone has launched LTE, after Germany and Portugal, according to the company.

www.business-review.ro Business Review | October 29 - November 3, 2012

ADVOCACY

FIC calls for changes in Romania’s public management

T

he Foreign Investors Council (FIC) laid out last week a series of changes in the management of public institutions that it believes could help the country attract foreign investments and create new jobs, during a tough period for European bloc economies.

The themes, which were proposed by the Public Institutions’ Management Task Force, address various topics such as the increase of transparency in the lawmaking process and the acceleration in appointing private mangers and independent boards to state-owned enterprises. The FIC argues that Romania should change the legislative framework only if this is necessary to provide the country with enough stability to attract foreign investors.

“For foreign companies that invest in Romania the main condition for a sustainable business environment is interaction and transparent collaboration between government and economic players,” said Pascal Prigent, FIC board member and general director of GSK Romania.

Romania has many investments underway, but few are completed each year, such as in the case of highways, so a government unit should be set up to prioritize investments. In addition, a committee should be put in place to monitor the implementation progress of economic measures. The FIC argues that this would make the authorities more accountable and could speed up the delivery of major projects needed for the economy.

“Improving the performance of public institutions can play a key role in the decision to invest in Romania and in attracting additional foreign investments,” said Mihai Bogza, FIC board member and president of the administration board at Bancpost.

Investors are calling for a separation between the various roles of the state.

A clear difference has to be made in the case of state-owned enterprises (SOEs), where the roles of shareholder and lawmaker are mixed. This raises uncertainties for investors and creates market distortions, according to FIC representatives.

Romania is pursuing an ambitious privatization program under a EUR 5 billion agreement with the IMF, World Bank and European Commission, and is planning to sell minority stakes in some energy firms and fully privatize other SOEs. FIC representatives said the privatization should be done through public offerings on the Bucharest Stock Exchange. This is the best method for price discovery and would make the whole privatization more transparent.

Other proposals referred to the approval of a holding law and the development of the covered bonds market.

The FIC currently has 123 multinational companies as members, which have created over 200,000 direct and indirect jobs in Romania. The association has nine task forces that make policy proposals in the main sectors of the local economy. ∫ Ovidiu Posirca

ADVOCACY

AmCham report urges boost to Romania’s economic competitiveness

A

new AmCham report, which aims to set priorities for 20142020, highlights Romania’s need for increased economic competitiveness, seen as “an efficient solution for the sustainable increase of Romanians’ living standards and of the GDP per capita, as well as of companies’ profitability.”

“The business community in Romania is preoccupied with the stagnant economic development and investment levels, which affect the country’s economic situation and the living standards of every citizen. [...] Romania needs both immediate and long-term solutions,” said Sorin Mandrutescu, AmCham Romania president.

“I encourage the government to collaborate with civil society and the business environment in order to improve Romania’s economic competitiveness; this will enhance Romania’s attractiveness as an investment destination and will create a prosperous environment

for the country’s citizens,” added US ambassador to Romania Mark Gitenstein, who was present at the launch event of the Priorities for Romania report.

As far as the anti-corruption fight is concerned, the report states that Romania’s efforts to modernize current legislation need to continue to be supported by efficient law-enforcement actions, by discouraging bribing, and by a more efficient implementation of international systems for judicial cooperation to stop cross-border corruption schemes.

The document also argues that authorities need to display greater transparency and total responsibility in managing public money, allowing the professional external audit of public budgets and spending.

The report is based on four key themes: competitiveness, anticorruption measures, public consultations on legislation topics and priorities for the next EU funds tranche. ∫

NEWS 5

6 LINKS

www.business-review.ro Business Review | October 29 - November 3, 2012

Virtualization, from innovation to necessity In Romania, server virtualization has the highest degree of adoption among virtualization forms, with an uptake of about 80 percent in the private sector. Desktop virtualization is playing catch up, but companies are still intimidated by the higher upfront costs that it involves. ∫ OTILIA HARAGA “From a pragmatic viewpoint, we can no longer afford to create integrated solutions without virtualization. It is no longer feasible to provide a hundred services using a hundred physical servers that could fill up several technological racks and in this way fill up entire technical rooms,” Frontal Communication experts Cornel Popescu, cloud computing technology consultant, and Sebastian Banica, executive director of the company, tell BR. Even in the unlikely scenario in which the company in question can afford to allocate the resources necessary to purchase all the required equipment, the machines would still be used at under 20 percent of their capacity on average, they point out.

Furthermore, virtualization provides the option of easy migration. Virtual machines are portable and can be moved by copying files, unlike physical devices with which the process is more complicated, they explain.

The traditional model requires the acquisition of physical equipment for every computing unit. By contrast, virtualization simplifies physical IT infrastructure and allows centralized Push the button: virtualization has caught on more quickly in the private sector management and enhanced flexibility in allocating the company’s operational resources, Tiberiu Besleaga, sor or the virtualization platform. Such reached full technological maturity,” ISS& BCS business unit manager at HP a solution is called “bare-metal virtual- Bogdan Suchar, IT&C marketing coorRomania, tells BR. ization”, say the Frontal Communica- dinator at Quartz Matrix, tells BR. Virtual servers are excellent for tion pundits.

In March 2012, Cisco ran a non-repbackup and data recovery in the event “In essence, a company can consider resentative survey to determine virtuof disasters, enabling the continuity of the virtualization of almost any IT re- alization trends in Romania. Mincu activity. sources – servers, desktop computers, says that out of more than 700 respon“Moreover, virtual environments are storage or network infrastructure,” dents, 76 percent said they had a virtuideal for testing new operating systems, Mihai Mincu, data center, virtualiza- alization project going on in their applications, services and configura- tion & cloud product specialist at Cisco company, and almost half of these tions before they are introduced in the Systems Romania, tells BR. projects had to do with server virtualfabrication process,” he explains.

Pundits interviewed by Business ization.

Furthermore, Besleaga lists the Review described two main types of Furthermore, 61 percent of responmain elements necessary in a virtual- virtualization: data center virtualiza- dents said better utilization of reized environment: servers and storage tion (server virtualization) and desktop sources was the main benefit they get units, network and connectivity equip- infrastructure virtualization. from virtualization while 52 percent ment, specialized software, manage“For a company with a large number mentioned simplified management ment software and applications. of task workers who are all using a tra- and reduction of the total cost of ownVirtualization separates the soft- ditional desktop environment, desktop ership (TCO) as key benefits. ware component from the hardware virtualization could be a good first step.

“When talking about the adoption of component while virtual machines be- For a company with a distributed virtualization in Romania, we should have exactly like the physical machin- workforce, which need to access criti- take into consideration the private secery running the software such as cal company data constantly, data cen- tor where the degree of adoption is 80 operating system and applications. Be- ter virtualization might be a good percent, and the public sector where tween the virtual machines and hard- approach,” Mincu says. red tape and the lack of proper decision ware, virtualization places an Of these, server virtualization is making take the adoption degree down additional layer which is the hypervi- “the best-known solution that has to 30-40 percent,” say the Frontal Com-

munication experts. “We believe that in Romania the virtualization of servers has already taken place in 7080 percent of cases. Those who have not virtualized probably never will.”

The reason behind the popularity of server virtualization is “the consolidation and reduction of costs.”

“Taking into account the extremely short time span for recovering investments, we can say that server virtualization projects have been a hot topic during the recession period on the table of decision makers,” says the Frontal Communication representatives.

Desktop virtualization is catching up, but companies are still wary, due to cost-sensitive issues.

“The virtual desktop is a step that will allow companies total flexibility, while preserving the centralized model without compromising security. However, there is reticence, and this comes from relatively high initial investments,” say the Frontal Communication team.

These upfront investments can be recovered over three to five years, but “given the pressure on budgets, many organizations have not managed to allocate the necessary sums for desktop virtualization projects,” they add.

“In 2012 we have seen exponential growth in interest in desktop virtualization in the Romanian market across all industry verticals. The most innovative customers have already started implementing desktop virtualization into production. The majority of companies are, however, still in the research, test or pilot phases, trying to figure out how the solution fits them best, and where is the best place to start implementing it, so we expect to see a significant increase of customer adoption in production environments in 2013,” says Mincu.

Moreover, the technology is “less stable, and light terminals still do not have the desired cost efficiency. It can be a solution for call centers or mobile users who want access to custommade complex applications (ERP, CRM, sales management),” says Bogdan Suchar of Quartz Matrix.

Key reasons for moving towards desktop virtualization include simplifying deployment for better results in the production environment, quicker return-on-investment from the faster completion of the project, a speed of deployment which solves the underly-

www.business-review.ro Business Review | October 29 - November 3, 2012 ing problems more quickly, the expertise of the service provider which can be leveraged on an “as needed” basis, known and documented reference architectures that are highly stable and have known attributes as well as the proven documentation and processes that the service provider brings to the project, Serban Zirnovan, storage business development manager for Central Emerging Europe at Dell, tells BR. “By 2014, the average number of connected devices per task worker will reach 2.8, which represents 22 percent growth from an average of 2.3 in 2012.

On average, mobility initiatives will consume 23 percent of IT budgets in 2014, compared to 18 percent in 2012,” says Mincu.

This is one of the reasons why bring-your-own-device (BYOD) will become an important issue in the future.

“BYOD is a hot topic because it brings a competitive edge to whoever can get to that point. Whoever succeeds in allowing users to access applications irrespective of the terminal they use, whether it is a computer, a tablet or a smartphone, and does not impose a certain technology, can approach the entire mass of clients,” say Frontal Communications pundits.

In Romania, the degree of implementation of BYOD is “very low” and “limited to experiments,” says Suchar.

But the potential is real. “Many of our customers who have or are considering implementing desktop virtualization are also considering the option of moving to a BYOD solution,” says Mincu. However, BYOD can also be implemented without desktop virtualization, as a solution that enhances user experience and productivity while providing secure access to company resources, he says.

The steps to a successful virtualization

They should definitely go through a ‘proof of concept’ exercise, which would emphasize the degree of integration of the new solutions with the company’s business environment,” says Zirnovan. The decision should take into account the access type of the selected solution, whether it is private, hybrid, or public.

“While providing significant improvements, virtualization also adds management complexity at a time when data center teams are already understaffed and overburdened, resulting in increased operational costs (OPEX) that tend to grow as the virtualization solution is scaled up,” says Mincu.

“A careful projection of the solution shouldn’t contain such hidden costs. It is recurring costs that are often not taken into account in the initial deployment, but this certainly doesn’t mean they are not predictable. They are at least as predictable as in the case of a traditional desktop solution,” adds Zirnovan.

Which brings one to the question about the TCO of such solutions, and exactly how much can be saved by taking up virtualization.

“From the TCO perspective, the main ways for organizations to reduce data center costs via virtualization are through increased administrative efficiencies (reducing IT labor costs), by decreased power, heating and cooling requirements, by reduced hardware and cabling overhead and decreased server hardware costs and physical footprint,” says Mincu.

In the traditional scenario, which includes a physical machine, operating system and application, the TCO can become very high due to the expenses incurred by the consumption of electricity and cooling equipment, with the required space the equipment occupies and the maintenance costs, Besleaga explains.

On the other hand, when adopting virtualization solutions, a correct evaluation of the TCO should cover at least three years, according to Oracle experts.

“From our experience, we can estimate a cost reduction of 50 percent,” say the Frontal Communication experts.

The first step to take for a company that is considering virtualization is to assess the current resources to see what equipment exists, what is its current state, what lifespan cycle it is in, at what capacity it is used and what it is used for.

The company should also evaluate its operational needs and what more resources it requires to fulfill them.

One thing is for sure: when choosThirdly, taking into account these aspects, it must evaluate its virtualiza- ing virtualization solutions, companies tion needs. After these considerations, should take into account that apart a plan should be outlined, in order to from the initial acquisition cost, there implement the virtual machines on the are also ongoing costs to be taken into account which involve support, to existing equipment, says Besleaga.

The evaluation process can be car- solve any technical incidents that may ried out by in-house IT experts, an ex- affect the virtualization platform. ternal consultant or a team made up of “What needs to be clear is that the opboth company representatives and ex- tion of updating and running the latest software versions of the virtualization ternal experts, says Besleaga.

A carefully devised plan will spare platforms is only allowed by producers companies a lot of potential headaches, in the context of acquiring the support not to mention expenses with their IT or the subscription. These represent costs that must be taken into account, infrastructure and security.

“Ideally, it should start with an accu- which can be ongoing,” say the Frontal rate evaluation of existing costs, a Communication pair. three- to five-year cost projection and a long-term investment simulation. otilia.haraga@business-review.ro

LINKS 7

www.business-review.ro Business Review | October 29 - November 3, 2012

8 MONEY

Local lenders touch Basel III Regulators have been stepping up their efforts to get a grip on the banking sector and prevent a new financial collapse of the likes of the 2007-2008 one, and Basel III standards were enshrined two years ago in a bid to increase risk mitigation and fill the regulation gaps. New rules focusing on the capital and funding of lenders will kick in next year, making the overall system safer, although lending to the real economy could be restricted, warn specialists. ∫ OVIDIU POSIRCA In 2010 the Basel Committee on Banking Supervision issued the Basel III rules text, with revamped regulations on bank capital adequacy and liquidity, which has been endorsed by the G20 countries.

Nout Wellink, chairman of the committee, described the new framework as a “landmark achievement” that will secure financial stability and reduce the frequency and severity of future banking crises.

Understanding Basel

the

new

The implementation of the directive on the capital agreement Basel III will be phased in from January 2013 for the European banking system and the process should be concluded by January 2019. The requirements will be introduced in the EU through the Capital Requirements Directive (CRD) 4, which applies to all EU member states.

The European Commission has so far presented a draft directive, which governs access to deposit-taking activities, and a regulation establishing prudential requirements, while further implementation measures at national level are expected, said Costin Teodorovici, partner at law firm Bulboaca & Asociatii.

“Basel III establishes tougher capital standards through more restrictive capital definitions, higher riskweighted assets (RWA), additional capital buffers, and higher requirements for minimum capital ratios. As a consequence the reforms will fundamentally impact profitability (measured as return on equity) and require the transformation of the business models of many banks,” said Paul Facer, partner, assurance services, financial services industry group leader, at the professional services firm PwC Romania.

The Basel Committee uses the RWA to determine the minimum capital requirements of a bank. This streamlines the inclusion of the offbalance sheet exposures and makes it easier to compare banks in different regions.

The capital target ratios, know as core Tier 1, will reach 7 percent under

Notable changes: the regulations are intended to bring more safety to banking

the new regulation. This represents the funding that a bank must have to cover the risks it takes in numerous activities such as lending or trading.

The broader requirement for all Tier 1 capital is set at 8.5 percent, which includes an additional noncore Tier 1 capital of 1.5 percent.

The minimum common equity will be hiked from 2 percent to 4.5 percent of RWA at all time, explained Teodorovici. At the same time, a capital conservation buffer is being introduced, which is set to reach 2.5 percent in 2019. This additional safety mechanism has to be met with common equity.

“The quality of capital is expected to increase by eliminating certain items, such as minority stakes exceeding a certain level or deferred tax payments, and banks will be required to observe longer term liquidity ratios,” said Teodorovici.

He added that new standards provide the tools to counter systemic risks such as leverage ratios. Regulators will be able to cool down high lending rates during growth periods by imposing an additional anti-cyclic buffer of up to 2.5 percent of the RWA. “When the capital ratio goes down, the buffer capital is used to cover losses, and the agreements require banks to maintain a significant share of the obtained revenue to restore this capital and impose restrictions on

the distribution of dividends, the purchase of your own shares and the payment of discretionary bonuses,” said Cristian Bogaru, partner at law firm BWSP Hammond Bogaru & Associates.

Another provision sets the leverage limit at 3 percent, meaning that a bank’s total assets – including on- and off-balance sheet assets – should not be more than 33 times bank capital, according to Angela Manolache, director advisory, at professional services firm KPMG. “As part of the liquidity reform, two new liquidity ratios will be introduced, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR), which will require banks to hold significantly more liquid, lowyielding assets and to change their funding profile, with an increased demand for longer-term funding,” said Manolache.

Gauging Basel III’s impact on Romania The Romanian Banking Association (ARB) has set up a commission on Basel III to implement it, make propositions and seek clarifications.

The capital agreement is very restrictive on risk-taking by banks, which may significantly reduce lending to SMEs, according to Radu Gratian Ghetea, president of the Directorate Council at ARB, and president of CEC Bank.

He stated that ARB, along with other European Banking Associations and banking groups, has lobbied the European Parliament and European Commission to change the proposed regulations.

“In the scenario of a relatively difficult international climate, the adapting of banking-financial groups to the solvency requests of Basel III could lead, on the medium term, to a reduction of exposures,” warned Ghetea.

“The increase of the capital factor will effectively reduce the lending capacity for the real economy.”

The Romanian banking system comprises 42 credit institutions, out of which nine are subsidiaries of foreign banks. Foreign capital institutions control 81.2 percent of the total net assets, which amounted to RON 370 billion (over EUR 80 billion) this June, according to central bank data.

The main foreign lenders that operate locally originate from Greece, Austria and the Netherlands.

The direct impact of new regulations on the capital positions of Romanian banks is expected to be limited, as most local lenders are well capitalized, according to Manolache at KPMG. The average capital adequacy for the Romanian banking system reached 14.7 percent in June, according to central bank data. With most of the capital base made of common equity Tier 1, the new Basel standards may have little impact. The aim is to curb hybrid capital instruments. The leverage ratio stood at 8.4 percent in the same period. This is higher than the 3 percent stipulated under Basel III, although off-balance sheet assets are not currently included in this ratio, according to Manolache.

Teodorovici of Bulboaca & Asociatii commented that Romania, like other emerging financial markets, has a less complex structure, so certain requirements may have a limited effect.

“The regulators’ intent with Basel III is a future of more capital, more liquidity and lower risk. As a result it is likely that banks, including those in Romania, will face an environment with lower returns on capital and slower growth,” stated Facer of PwC. The measures that credit institutions could take to ease the impact of Basel

www.business-review.ro Business Review | October 29 - November 3, 2012

Radu Gratian Ghetea, president of the Directorate Council at ARB

Costin Teodorovici, partner at law firm Bulboaca & Asociatii

for banks; it is one part of the regulation cost, which banks have to bear, making banking activity in Romania more expensive than in other countries. It creates a competitive disadvantage not only for banks, but for their clients as well.”

He warned that this also eats into bank profits as only some of the costs can be transferred to clients.

Investors may become less attracted by bank debt or equity given that ROE (return on equity) and profitability are likely to decrease, while dividends may be reduced, further driving M&A activity, according to Manolache at KPMG. Fitch Ratings estimates the 29 global systemically important financial institutions (G-SIFI), which have a combined USD 47 trillion in assets, may need to raise USD 566 billion in Assessing regulation costs With a new reform package in the common equity to meet new capital pipeline, banks may have to recon- standards. This is a 23 percent insider their business models and find crease against their aggregate common equity of USD 2.5 trillion. new growth areas.

Furthermore, these banks’ median The ARB president warned the new capital requirements are “restric- ROE will fall from about 11 percent to tive” and could reduce lenders’ inter- approximately 8 to 9 percent. Fitch est in financing SMEs, while putting states this may reduce the banks’ abilprofit in the banking industry under ity to attract capital, but will strengthen capitalization and lower pressure.

“These reforms will also require risk premiums, which is good for inbanks to undertake significant vestors.

The European banking system is process and system changes to achieve upgrades in the areas of stress set to enter into a new stage marked testing, counterparty risk and capital by a constant race for new capital management infrastructure,” said and less room for risky tricks, say players.

Facer of PwC. Banks are required to raise EUR 114 Bogaru said the Basel capital requirements will mostly affect small finan- billion in fresh capital, based on the cial institutions and the cost of loans stress tests of the European Banking Authority (EBA). Additional capital could rise slightly.

“The banking system in Romania is requirements will kick in during the small by international standards. transition to Basel 3 and lenders will Then, the costs with Basel III are on need to close a capital gap of another one hand fixed costs that have to be EUR 200 billion by 2015, according to borne by any bank, and on the other a McKinsey report. European banks hand the variable ones, which are will need to raise about EUR 1.1 trilconnected to the size of the bank,” lion before 2021, when Basel 3 is fully Mihai Bogza, president of the Admin- enforced. istration Board at Bancpost, told BR. “The fixed cost part is burdensome ovidiu.posirca@business-review.ro

III involve the adjustment of the business model and the restructuring of balance sheets, according to Bogaru.

Banks will have to carefully manage the implementation of new rules, while striving to maintain market share.

“If the transition period is short, banks may prefer to reduce lending to increase their level of capital, changing the asset structure,” said Bogaru. He added that a gradual implementation would give banks time to capitalize their profits or issue shares.

The Basel III package is generally expected to have a negative impact on the lending volume, especially in the case of SMEs, and Romania is not likely to be an exception, according to Teodorovici.

MONEY 9

www.business-review.ro Business Review | October 29 - November 3, 2012

10 FOCUS

Romanian dairy farms face cowing times from 2014 Danone Romania will invest EUR 1.9 million over the next four years in a support program for 800 small dairy farms in underdeveloped areas. Such farms are the least prepared for 2014 when the European Commission’s third and last derogation regarding milk quality in Romania will expire. ∫ SIMONA BAZAVAN

Courtesy of Danone Romania

Less than a year and half before Romania will have to meet the obligation to produce only EU quality-compliant milk, the local dairy farming sector remains very fragmented. There are some 780,000 dairy farms in Romania, but out of this, a whopping 85 percent are backyard family farms with between one and three cows.

By January 2014, all dairy farms and dairy processors have to produce and process only EU quality/safety-compliant milk, and non-compliant milk can be used only for own on-farm use.

In the summer of 2011, about 80 percent of the milk delivered to the dairies was EU-compliant, according to a report by the National Sanitary Veterinary and Food Safety Authority (ANSVSA) based on which Romania got the last derogation. At that time the Romanian veterinary service was confident that the percentage would significantly grow before the end of 2013. However, not everyone is that optimistic.

Dorin Cojocaru, the general director of the Romanian Dairy Processors Organization (APRIL), thinks the local market risks witnessing a sharp decrease in milk quality with less than 45 percent being EU-compliant, he told BR. The reason for this is that local dairy farms have been hit hard by the economic troubles of the past two years and are facing considerable financial difficulties which directly impact the quality of the milk produced, he explained. The recent hike in feeding costs due to the severe drought this summer is for many small farmers the last drop in an already full glass. They are asking for higher prices for the milk they produce but dairy processors aren’t having an easy time either, as they are caught between increasing production costs and consumers’ reduced purchasing power, says Cojocaru.

In his opinion, Romanian dairy farmers are vulnerable to what 2014 will bring. Over the past 10 years there hasn’t been a strategy to support them and many of the investments that have been made in farm modernizations have come from own resources. “European funds are hard to access due to bureaucracy and the fact that it is very difficult for the farmers to come with

Cattle class: cows were given to the owners of small dairy farms in Zimnicea

the money necessary for their share of the project. Romanian farmers haven’t had the same support as those from other EU member states – it is an unequal fight,” he said.

A clear short, medium- and longterm strategy for the industry, easier access to financing and reduced VAT on food products are only some of the many measures that should be implemented by the authorities, argue players. “The last governments haven’t had any strategy to support dairy farms.

And now it is too late to believe that we can witness a significant catch-up with EU farmers,” he added.

Not only dairy farms but the entire industry is looking at hard times over the next couple of years with more bankruptcies ahead and increasing competition from producers and dairy processors from outside Romania.

Setting an example Danone Romania has recently launched a socio-economic support program for small farmers in underdeveloped areas of Romania which the company hopes will help prepare them for 2014 when all the milk they produce

will have to be EU-compliant in order to sell it. A Chance for your Family is a project developed by Danone Romania in partnership with Heifer Romania, an NGO which focuses on assisting communities in need, and the Danone Ecosystem investment fund which is providing the necessary funds. The project will require a EUR 1.9 million investment and will take four years to implement.

The purpose of the program is to encourage small farmers to deliver quality milk by helping improve the genetics of the cattle and also to encourage them to work together in order to develop sustainable businesses. Families that are part of the scheme receive a free cow each on the condition that they agree themselves to later pass on a heifer cow to others in need.

Some 800 families will benefit from the program and in the first two years about 200 Holstein-Frise cows will be donated to Romanian beneficiaries from Zimnicea (Teleorman county), Cocorastii Colt (Prahova county) and Belin (Covasna county). Another two localities will be included in the program later. A Holstein-Frise cow can cost up

Raw milk volumes collected by the dairy industry 2006

2007

2008

2009

2010

2011

1.15*

1.16

1.07

1.01

0.92

0.91

Future of milk: 2014 will see changes

to EUR 2,500, a prohibitive price for most of those included in the program, and it produces up to three times more milk than local breeds.

The families to benefit from the project are selected based on criteria such as income, experience in raising cattle and the means to provide proper feed. In addition to the free cow, beneficiaries are also trained how to properly take care of the animals and how to create producers’ associations. “Quality milk can’t be obtained by some of the, let’s say, primitive methods many small farmers still use. We will teach them how to properly milk the cows and some of them will receive milking installations. They will also learn how to properly feed the animals,” said Bogdan Ioachim, Danone Romania communication director.

While this project alone can’t solve all the problems, its goal is to get the ball rolling, says Danone. “We all know very well that in Romania there are about 800,000 families who own a cow or two. Our goal was to set an example to all those involved, including policymakers who can take measures for all these families that risk losing their income source after 2014. If these farmers learn how to produce quality milk and create producers’ associations, then they will survive after 2014. If they are not helped and are left to go on as they are today they will not. There is not much time left,” warned Ioachim.

*million tons; Source: National Institute of Statistics simona.bazavan@business-review.ro

www.business-review.ro Business Review | October 29 - November 3, 2012

Beer companies keen to tap into more local resources Beer sales amounted to EUR 1.8 billion last year in Romania and the brewing industry generates added value of just over EUR 500 million. This could grow even more in the future if local farmers are able to provide more raw materials to the industry.

Hop to it: subsidies and a national strategy are needed to boost the beer industry

âˆŤ SIMONA BAZAVAN Romanians drank 17 million hl of beer in 2011, worth approximately EUR 1.8 billion, said Constantin Bratu, general director of the Brewers of Romania Association, during a Mediafax event last week on the brewing industry.

Hot weather this summer and the European Football Championship increased sold volumes by 4.5 percent in the first semester of 2012, totaling 8.7 million hectoliters.

High beer sales are good news for more than local brewers. The Romanian beer industry is well integrated locally with 98 percent of sold volumes being produced in Romania.

The sector has a strong multiplication effect in the economy with goods and services acquisitions representing 83 percent of the beer production value. Out of this, 66 percent represents goods and services bought from Romanian farmers and companies.

Beer production provides good business for various sectors including agriculture, media and marketing, transport and packaging.

Each direct job in the beer sector generates at least two jobs in agriculture with a total of at least 12 jobs in the wider economy, say players.

Hop producers hope for more support The local beer sector is a good example of how agricultural products should be integrated in complete production chains, said agriculture minister Daniel Constantin.

However, it is also an example of how this fails to happen, figures show.

At present, local farmers can pro-

vide only 10 percent of the hop quantities required by local brewers and only 50 percent of the necessary barley, with the rest being imported. Hop cultivated surfaces have been shrinking constantly over the past 20 years, from 2,700 hectares in 1990 to 240 this year.

The ministry is considering increasing hectare payments for barley and hop crops in order to encourage production, said Constantin.

But financial support alone is not enough to increase local hop production, said Acatiu Mora, president of the Romanian Hop Producers Association. Like elsewhere, a clear national strategy to support this sector is needed, he added. This is particularly important given that the required investment in hop crops is high. The initial investment in a hectare of hop is between EUR 5,000 and EUR 6,000 without the necessary climbing infrastructure for the plants. Some of these funds could come from EU programs similar to the one for vineyard renewal, he suggested.

Should hop cultivated surfaces increase by another 500-600 hectares, local production could meet up to 35 percent of the needs of local brewers.

The main players on the local beer market and also members of the Brewers of Romania Association – Bergenbier, Heineken Romania, Romaqua Group, United Romanian Breweries and Ursus Breweries – own ten production facilities, directly employ 4,100 people, cover 90 percent of the market and generated EUR 272 million for the state budget in 2011. simona.bazavan@business-review.ro

FOCUS 11

12 CITY

www.business-review.ro Business Review | October 29 - November 3, 2012

French Film Festival extends une invitation au cinema Two of the sacred monsters of France’s cinema will be honored at the French Film Festival: Alain Resnais, an artist famous for playing with perception and reality, and Agnes Varda, whose work seeks to explore emotions. So what’s on screen this year?

Claustrophobic film noir 38 Temoins will open the French Film Festival

The French Film Festival, will include 16 films, a short movie projection and two mini-retrospectives in several cities across Romania: Bucharest, Sibiu, Iasi, Cluj, Targu Mures and Timisoara.

The festival will kick off in Bucharest with 38 Temoins, a psychological film noir and claustrophobic murder mystery, which has seduced critics at Le Monde and Les Inrocks.

Other movies featuring in the festival include Camille Redouble, La Vie d’une Autre, Les Infideles and L’amour Dure 3 Ans, which consider questions about relationships, couples, faithfulness and true love, themes from the creations of directors Agnes Varda (Sans Toit Ni Loi, Jacquot de Nantes) and Alain Resnais (Les Herbes Folles, L’annee Derniere a Marienbad, Muriel ou le Temps du Retour, and Cœurs).

This year’s event also features Alain Resnais’ most recent film, Vous n’avez Encore Rien Vu, the documentary Journal de France and an animated musical, Un Monstre à Paris, whose soundtrack features Vanessa Paradis and Sean Lennon.

Beyond the film projections,

Bucharest and Cluj will play host to meetings and debates on Cinema 1.

L’image-mouvement, a landmark book of cinematic critique written by philosopher Gilles Deleuze. This event is open to anyone interested in finding out the truth about filmmaking, as well as getting a better understanding of scriptwriting, casting, shooting, editing and screening.

French Film Festival, October 26 and November 28: films will be shown in Bucharest at the Elvira Popescu Studio at the French Institute until November 2. The nationwide event will begin in Sibiu on the same day, at Habitus, Atrium Cafe and Maison de l’Ille-et-Vilaine, moving to Iasi (Mihai Ursachi Cultural House – Diotima Hall) between November 8 and 10, Cluj (Cinema Victoria) from November 15 to 18, then Targu Mures (Arta Cinema – Flora Hall) November 23-25, before ending up in Timisoara, (West University – AulaMagna) on November 27 and 28. Full program: www.business-review.ro/calendar oana.vasiliu@business-review.ro

www.business-review.ro Business Review | October 29 - November 3, 2012

RESTAURANT OPENING

Old Center goes Greek as new eatery Meze checks in

Get him to the Greek: Meze puts the emphasis on health and quality ingredients

Any expatriate Greeks feeling despondent at the beleaguered state of their home economy can now cheer themselves up with a hearty yet healthy meal at the latest addition to the burgeoning Old Town gastronomy scene, Meze.

DEBBIE STOWE Situated at 6 Strada Nicolae Tonitza, the location opened earlier this month, the result of a EUR 270,000 investment in the premises, which took five months to knock into shape. Restaurateur Andrei Iusut, who also owns Turkish eatery Divan, estimates the recovery time for the investment at four years.

He said he had lured top Greek chef Georgios Kritos away from his own acclaimed restaurant, which features in the Alpha Guide – a Greek equivalent of France’s Michelin Guide – and won a Gourmet Award 20102011, as one of the 12 best traditional Greek restaurants, to run the kitchen at Meze.

The eatery has 40 covers inside and another 80 on the terrace. Decorated to represent an authentic Greek tavern, it has quirky touches such as empty olive cans as lampshades and

old motorcycles outside demarcating the terrace. Iusut hopes that Greeks and other expats and tourists will feel at home in the restaurant. He adds that Divan attracts officials from the embassies of Turkey and other Islamic nations.

Kritos says that the menu, for which he was given a free hand, draws on the best Greek ingredients cooked in simple combinations, not “one thousand different ingredients”.

The menu at Meze, which takes its name from the selection of small dishes served in the Mediterranean and Middle East, was designed to be healthy. Kritos said, “I had in mind that you must sleep after eating, not walk in circles on your balcony and take pills. The chef must think of the health of the customer.”

Iusut said a typical meal for two at the restaurant would cost about RON 170, but that it was important that diners perceived value. The price was due to expensive ingredients being used. He said that there had been some difficulties in arranging the space, which had led him to the concept of a tavern.

He added that one advantage of Meze was that there was parking space nearby. “In the historic center lunch is practically non-existent as there is nowhere to park,” commented the restaurateur. debbie.stowe@business-review.ro

CITY 13

www.business-review.ro Business Review | October 29 - November 3, 2012

14 CITY

CULTURAL EVENTS CALENDAR

WHO’S NEWS

HALLOWEEN PARTIES

BR welcomes information for Who’s News.

Submissions may be edited for length and clarity.

Get in touch at simona.bazavan@business-review.ro

October 27-31 Legendary club Hard Rock Café celebrates Halloween with The Green Fox Band concert, on October 31, starting at 21.00.

Coyote Café is hosting a charitable Halloween party for Florin, a young man who needs two brain operations.

The fun will start at 21.30, on October 30.

Upmarket club Gaia Boutique extends an invitation to the We Suck II party, with the promise that guests will feel fear and their only hope of surviving is to become one of the monsters.

For those who are up for a thriller party, Kristal Glam Club is the place to be on October 27.

Fire Club is throwing two Halloween parties, one on October 27 and the

other on October 31, entitled Zombie Attack, with free Bloody Mary cocktails for the first 100 to arrive.

Serendipity Tea House celebrates the pumpkin on October 28. The most inspirational carved pumpkin will be awarded with vouchers that can be used in the tea house

FAIRS Sweet Fest October 26-28 Hanu lui Manuc Visitors will find sweets and delicacies such as homemade cookies, traditional Romanian cakes (cozonac), pies, honey, baklava, different types of chocolate, muffins as well as Belgium pralines, tea and coffee.

Baking demonstrations will also be given.

Lucian Marin currently commercial director for Romania and Moldova at CocaCola Hellenic, will be appointed commercial director for Italy. Marin joined Coca-Cola Hellenic in 2008 as group international accounts director. In 2010, he was appointed commercial manager for Romania and Moldova. Previously, Marin was national field sales manager at Danone Romania team, and category manager at Danone Group.

He also worked for L’Oreal Group, where he was commercial director for CEE.

Nikos Xystouris

BUSINESS AGENDA October 30 ∫EVENT 08:30 Business Review organizes a workshop on the new state aid scheme that focuses on the IT&C sector at Howard Johnson Grand Plaza Hotel. By invitation only.

09:30 The Association of Turkish Businesspeople in Romania (TIAD) and the Romanian Chamber of Commerce and Industry (CCIR) organize an economic forum at the CCIR headquarters in Bucharest.

November 1 Pachiu&Associates Law Firm organizes the AEEC Autumn Conference on renewable energy at Capital Plaza Hotel. By invitation only.

workshop on transfer pricing and tax audits, covering the legal aspects and solutions for companies within the same group. By invitation only. Find out more at www.business-review.ro/brevents

November 15 ∫EVENT 09:00 Business Review organizes the second edition of Focus on Agriculture, an event that will discuss the latest developments in the Romanian agricultural sector, at Ramada Plaza Bucharest. By invitation only.

November 21 ∫EVENT

08:30 Business Review organizes a

08:30 Business Review organizes the twelfth edition of Focus on the Real Estate Market, an event that gauges trends in the real estate business. Find out more at www.business-review.ro/brevents

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

November 12 ∫EVENT

is the new general manager of drinks distributor PPD Romania. He joined the company’s management team in 2008 and previously served as operations manager. He has a professional background in banking and mobile telecommuni-

CLASSIFIEDS BR is hiring a Sales Account Manager Business Review is looking for an Account Manager in charge of advertising sales and events sponsorships

cations. He has a postgraduate degree from the Lancaster University Management School.

Gratiela Badicu is the new general manager of Le Boutique Hotel Moxa in Bucharest.

She has more than 15 years of professional experience in the hospitality industry, mainly in marketing and sales. Badicu has worked as sales and marketing director for 12 years, first at Centre Ville ApartHotel and later at Howard Johnson Grand Plaza.

She also worked for Sofitel and Hotel Bucuresti. She graduated from the Polytechnic University in Bucharest and holds an MBA.

Giuseppe Parma has stepped down as general manager of Indesit’s local branch and been given other responsibilities at group level. He will be replaced by Michele Casamassima, headquartered in Milan, the company has announced.

- Meets targets and deadlines; - Knows all the characteristics of Business Review products and competitors ones and makes educated recommendations to clients.

Desired Skills & Experience - University Degree; - Previous experience in selling advertising and/or a good knowledge of the Media market; - Customer and results oriented, negotiation skills, ability to complete all administrative tasks; - Excellent command of English

Job Description Represents Business Review in its relations with its clients; - Manages and increases the portfolio of clients both on print advertising as well as event sponsorships; - Is able to take the role of Project Manager for some special advertising projects such as guides, supplements, inserts;

Please send your CV to Ana Maria Nedelcu: anamaria.nedelcu@businessreview.ro

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

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