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Vol. 7, No. 9, November 2011

The magazine for informed internationals

Waiting game Is Romania still too risky for investment funds? politics

economics

business

city life


Vol.7, no. 9, November 2011

King Mihai gave a speech in a formal Parliament session, to mark his 90th birthday. His Majesty said Romania had evolved over the past two decades and the country needs respected and skilled rulers. The King added that he was sad that after two decades of democracy, old and sick people have to endure demeaning situations. President Traian Basescu, Prime Minister Emil Boc and President of the Chamber of Deputies, Roberta Anastase, did not attend the event.

25

Grape expectations Winemakers are looking to premium labels to get their nose ahead

46

Boutique, c’est chic Boutique hotels carve out a niche in inhospitable times

34

Viennese whirl How are Austrian investors coping with the turmoil?

6. Ill-gotten gains

20. Minefield

PM Emil Boc wants more criminals’ assets to be seized

The latest twists and turns in the Rosia Montana saga

10. forecast cut

51. Keeping it real

The EBRD reduces Romania’s predicted GDP growth

Realtors came together to analyze their beleaguered market

12. coughing up more cash

60. Wearing the Crowne

Energy, tobacco and coffee excises are poised to rise

It’s all change at the Crowne Plaza, says GM Franz Rattenstetter

13. buyer beware

63. flying high

Transelectrica issues a warning to potential wind energy investors

The hub at Baneasa could be transformed into a ‘city airport’




editorial

Calea Mosilor Nr. 306, Bl. 56, Scara A, Etaj 2, Apt. 7, Sector 2, Bucuresti, Romania www.thediplomat.ro Publishers Adrian Ion

adrian.ion@thediplomat.ro

Mirela Gavra

mirela.gavra@thediplomat.ro

Editor-in-chief Dana Verdes

dana.verdes@thediplomat.ro

Reporters Roxana Cristea

roxana.cristea@thediplomat.ro

Magda Purice

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Advertising Sales Executive Nicolae Popoviciu nicolae.popoviciu@thediplomat.ro

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ISSN: 1584-8469 All rights reserved. No part of this publication may be reproduced or transmitted by any means without the prior permission of the Diplomat Media Group. Copyright 2011 Diplomat Media Group SRL



The Diplomat November 2011

The King’s speech throws less than regal light on local politics

O

ne of October’s main political events was, undoubtedly, the national council of the Social Democrat Party (PSD). But what drew the public’s attention during the congress was a statement made not by a PSD member, but by Crin Antonescu, the leader of the National Liberal Party (PNL) who said: “I know for sure that we will win the elections and I know what the name of the future Prime Minister will be: Victor Ponta.” It is an assertion that can be interpreted in several ways, depending on what side of the political fence one is located. One could understand from this statement that the officials of the Social Liberal Union (USL) already see themselves as winners and have already started to share out the power, even before the election date has been decided. But the statement could also be interpreted in a positive way, as one made between two partners who trust each other. And the fact that one of them has the power to position the other one in a very important role, for both the country and the party to which he belongs, finally shows that Romanian politics has matured. If not nearly enough. We still have fresh in our memory statements made by other politicians, sometimes even accompanied by tears, that proved bogus. But, in 2011, is there room for bogus statements? There shouldn’t be, and this is backed up by another comment by the same Crin Antonescu, who said to his USL partners, “Dear friends, we will beat them, but the burden will start after (the elections).” Finally, someone from a coalition – which assuming there is no shock result at the elections, will likely be successful – knows that the goal is not merely to win the elections, but also to bear the burden of the following period and to overcome the

current crisis that we are in, a crisis brought about also by external events. But if we set these statements alongside what is perhaps the most important speech in Parliament in the last 20 years – namely the one to celebrate the 90th birthday of King Mihai – we come quickly back down to earth and begin to ask ourselves questions about the level of the current Romanian political scene. We compare a speech full of dignity and uprightness with the statements of current politicians. It reminds us who represents us on an international level, when the current head of state, asked what message he would send regarding King Mihai’s celebration, says only: “A message to say what?” Perhaps the President’s reaction makes us smile, reminding us of his sense of humor. But the comment wasn’t appropriate. Nor was Basescu’s absence in Parliament and the gala event that followed, which was attended by important figures from the great European powers. I could not help but notice that even former President Ion Iliescu, who unquestionably was a close friend of the East, wanted to share a few words with the Queen of Spain. I’m not saying that they could discuss the current economic problems, but every opportunity should be seized, especially in the economic and political interests of the country. Surely there were foreign officials asking themselves why the most important people in the state at this time were missing from such an event. It was perhaps a rare opportunity to show that our political class is finally mature and we should really be taken seriously by European powers. But it seems that that time has not yet arrived…


politics Romania’s Schengen hopes boosted

The European Parliament has approved a resolution calling on the European Council to allow the accession of Romania and Bulgaria into the Schengen area. Following the DutchFinnish decision of 22 September to block the Balkan countries’ accession, the European Parliament has reiterated its support for their inclusion. European deputies insisted that Bulgaria and Romania “have met all the criteria” for joining the space and have fully implemented the Schengen rules, which are “the only conditions for joining”.

Boc: Romania only EU country not seizing criminals’ assets

France, Russia, Ukraine criticize Romanian missile shield

Representatives of France, Russia and Ukraine have voiced their reservations and criticisms about Romania’s agreement to establish a US missile shield on its territory. Speaking at the defense and security committee meeting of the NATO Parliamentary Assembly in Bucharest, French MP Jean Michel Boucheron raised the issue of defensive missile shield effectiveness. A Russian official asked if Romania considered the missile defense system European or just part of a US system and whether the country had had the approval of all NATO member states before it signed the agreement for the US shield. A representative of Ukraine also asked if Romania had consulted its neighboring countries on the matter.

Antonescu: I have ’respectful and friendly relationship’ with PC

PNL president Crin Antonescu told party officials in Brasov that the Liberals will reconsider their negotiations with the Conservatory Party (PC) if they disagree on matters and renege on previous commitments. The Liberal leader said he had “the most respectful and friendly relationship” with the PC, and underlined that while the Conservatives had sought ten deputy and five senator positions during negotiations, the PC has offered twelve deputy positions and seven senator roles. Antonescu said that Liberals offered to founder president of the PC, the position of vice-president of the Senate.



The Diplomat November 2011

Democrat Liberal Party (PDL) leader Emil the future. Limiting the deficit to three perBoc has said that he expects the Constitu- cent in the Constitution, as other countries tion to allow all assets acquired through in the European Union do (...) would be a guarantee that politicians will never give corruption to be seized. Speaking at the inaugural meeting of his party’s justice, poisoned gifts to people, like Tariceanu and civil rights and foreign relations commis- the PSD gave in 2008 – poisoned gifts as sion, the Premier added that Romania is electoral charity, which the economy could the only EU country that cannot establish not afford,” said Boc. “extended confiscation”. He said the economic crisis had “begun Boc said that another provision to be with a real estate crisis, continued with inserted in the Constitution was the maxi- a banking crisis and reached its peak as mum deficit of three percent, stipulated by a crisis of state debt and budget deficits.” the Maastricht Treaty. “It would be a step “We can avoid such a dramatic situation for against populism and groundless economic Romania by imposing such limits in the measures taken by populist politicians in Constitution budget deficit,” said Boc.■

PDL sets deadline for administrative reorganization plan PDL leaders and heads of county party organizations have until the end of November to finalize the details of the administrativeterritorial reorganization. Several proposals have been made, suggesting the division of the country into nine counties, and up to ten or twelve regions. Participants voted unanimously in favor of the reorganization, and it was stipulated that the matter should be finalized by the end of November, including discussions with the UDMR. The deadline was chosen because

the law on the state budget for 2012 must be adopted by the same date. PDL leaders and heads of county party organizations have also decided to mandate the party’s BPN to resolve the other items on the agenda within the same timeframe, namely the establishment of the People’s Movement, constitutional change and merging elections. PDL representatives have agreed on the establishment of the People’s Movement. They also agreed on reducing the number of parliamentarians to 300. ■


politics Boc urges country to prioritize investments

Prime Minister Emil Boc has said that “the basic engine to get out of the crisis is investments”, so the most important thing in 2012 will be “prioritizing” and directing the money to things that bring “added value to the economy”, or the PDL risks losing credibility. He said that previous governments had made “unforgivable” mistakes, for example building forest parks. According to the PM, more than 40,000 investment projects have been started throughout the country, some as far back as in the 1990s, and hundreds of millions of RON are spent annually on their conservation.

Romania and Bulgaria risk losing EU subsidies

European Union funds for boosting economic growth are failing to reach the poorest countries in the bloc, Romania and Bulgaria, which, according to the European Commission, risk losing billions of euro. Romania, the second poorest country in the EU after Bulgaria, has so far absorbed only 3.7 percent of the EUR 19 billion it has been allocated for the period 2007-2013. Structural funds are at the heart of the EU strategy to boost its economic growth through investments in infrastructure projects and creating new jobs and are directed especially to the poorest countries. According to EU rules, money not spent by 2015 is returned to the EU budget.

Orban announces code of conduct for EU funds handlers achieve at least 20 percent in 2013 the risk The European affairs minister, Leonard Orban, said that a code of conduct on con- of losing several billion euro will be enorflicts of interest for employees working mous. We are supposed to spend about EUR with EU funds will be issued by the end 6.7 billion in 2013 alone. Do you realize of November. “We want to simplify pro- how difficult it will be? That is why we cedures. Often our procedures are more should reach a minimum of 20 percent at the end of next year, which means about complicated than EU requirements,” said Orban. The minister added that he wants EUR 3.8 billion. It is a very ambitious goal more openness. “We should try to have but we believe that we can achieve it. If transparent steps like the segment involved we don’t achieve it, absorption rates will in processing requests for reimbursement,” be below 50 percent of the full allocation period ending in 2013.” he said. Orban said the ministry would coordinate the development of a “code of The minister previously said that the conduct to avoid untenable situations and rate of contraction of funds was 59 percent. conflicts of interest for staff involved in “We aim to reach at least 90 percent by the end of 2012,” he added. Orban said it was the management of post-accession grant community funds.” possible that in some sectors the rate of He went on: “Also, I set an absorp- contraction could reach as much as 100 tion rate target of 20 percent. If we do not percent.■

Basescu calls for rapid approval of welfare law and changes in status of magistrates

FIC president urges action on corruption

Steven van Groningen, chairman of the Foreign Investors Council, has pronounced the Romanian business environment as too corrupt, and urged the country to try to battle the phenomenon with “zero tolerance”. The businessman said Romania needed to change the negative perceptions of investors and not simply claim that there is also corruption in other states. Steven van Groningen said that the negative perception of foreign investors was more important than the degree of corruption in a country. In addition, most companies operating in the region consider the Romanian Fiscal Code unstable, and believe that it does not allow the construction of a coherent business strategy in the long term, according to a study conducted by financial consultancy company Accace.



The Diplomat November 2011

President Traian Basescu has sent a letter to the leaders of both chambers, calling for Parliament to adopt the draft bills changing the law on the status of magistrates and reforming social assistance. Basescu said that he had addressed this request in his capacity as President of Romania and the guarantor of the country’s obligations to comply with the Act’s accession to the European Union, along with Parliament and in accordance with Art. 148. (4) of the Constitution. “As you already know, our country is under the Cooperation and Verification Mechanism in justice and the fight against corruption. Adoption of the draft would establish objective and transparent

rules regarding the appointment of judges to the High Court of Cassation and Justice,” the president wrote in his letter. He also argued that the second project, the welfare law, is intended to improve the efficiency of the benefits system and remains a priority for Romania. “According to the agreement which Romania has with international financial organizations, the Romanian government has committed to adopt this law to take effect from 1 January 2012. I am confident that you understand the need to speed up the adoption of these two bills; this is not a personal requirement, but a way to fulfill our commitments to our international partners,” wrote the head of state.■


economics State wants USD 70 million for Daewoo Mangalia capital hike

State seeks minority investor for Compania Nationala Posta Romana

Naval Shipyard 2 May Mangalia officials have started negotiations with their South Korean partners in order to come to a common figure for the capital increase at Daewoo Mangalia Heavy Industries. The Government’s objective is to obtain at least USD 70 mln from the South Korean investors, even with the reduction of the State’s stake in the company. The total funding needed is estimated at over USD 100 mln. The Romanian shareholder expressed its wish for the South Korean investor to participate in the share capital increase for Daewoo Mangalia Heavy Industries (DMHI) with cash to meet the company’s liquidity needs, in which case it would consider the option of participating in the share increase with the land on which the company is based.

Continental Group to hire 2,000 more workers by 2013

German group Continental Automotive will employ 2,000 more people at its companies in Romania by the end of 2013, bringing its total headcount to 12,000. Continental has been present in Romania since 2000, with 8 production units and three research and development centers, mostly based in Timisoara and Sibiu, Arad and Iasi. The group also has a tire distribution center for Eastern Europe in Sacalaz, Timis county, and together with Pirelli has a unit that produces steel cord in Slatina. It has plans to open a fuel pump factory in Brasov.

Government withdraws EUR 42 million from Eximbank

The Government will add RON 182.3 million (EUR 42.1 mln) to the budget from retained earnings of Eximbank over the last 3 years to finance national infrastructure programs, canceling the legal provision that gave the bank the right to use the profit for its own capital until 2013. The state has also used an emergency ordinance to ensure that its shares in EximBank are passed from the AVAS portfolio to the management of the Ministry of Finance, and that retained earnings for the last three years are paid as dividends to the state budget.

10 The Diplomat November 2011

The State is seeking an investor to buy 34 percent of the shares in Compania Nationala Posta Romana (CNPR), according to a government document. Following the capital increase, the State will retain the majority stake, but may reduce its share to 51 percent. At the same time, the Property Fund could reduce its participation in the Romanian Post to 15 percent if does not participate in the capital increase. The postal company, which holds a state monopoly, has suffered

losses of RON 300 million (EUR 71 million) in the last two years. The investor will be able to appoint the management for at least 10 years. The company is currently controlled by the Ministry of Communications, which owns 75 percent, and the Property Fund, with the other 25 percent. It is among the top ten state entities by business, with a volume of about EUR 328 million, but also by losses, reporting a loss of about EUR 29 million last year. ■

EBRD slashes Romania’s economic growth forecast for next year The European Bank for Reconstruction and Development (EBRD) has slashed Romania’s growth forecasts for 2012 by 2.7 percentage points to 1.1 percent, because of the country’s high exposure to the Greek economy. The EBRD predicted in July that Romania’s GDP would advance 3.8 percent next year. For this year, the EBRD dropped its forecast 0.4 percentage points, to economic growth of 1.5 percent. Jeffrey Franks, head of the IMF mission in Romania, said at the end of September that the IMF would cut its 2 percent growth forecast for Romania next year by half. The authorities predict economic expansion of 1.5 percent in 2011.

In South-Eastern Europe, Romania, Albania and Serbia have the worse prospects, as all are heavily exposed to the Greek economy. Until a few months ago, the Romanian economy was set to post a modest increase in 2011, and a much faster rate in 2012. Slowing economic activity in the euro area has already had a significant impact on Romania’s exports in the region and the situation could worsen in the coming months, even though supplies in other areas remain high. In addition PM Emil Boc said that more than 20 investment projects, worth over EUR 1.1 billion, had received state aid of EUR 300 million, based on a scheme approved by the European Union. ■


economics Cupru Min to go up for auction at RON 200 million

Copper producer Cupru Min Abrud has been put up for auction at a starting price close to RON 200 million. According to official information, Canadian company Barrick, the largest gold producer in the world, and Mineco of Switzerland, which bought Moldomin, are interested in taking over the local entity. Cupru Min, which has extraction activities in Rosia Poieni, Alba county, has registered capital of EUR 24.18 million and is controlled entirely by the Ministry of Economy. The State first tried to privatize Cupru Min back in 2008, but without success.

‘Rabla’ program extended to electric and hybrid cars

The Ministry of Environment has extended the “Rabla” (cash for clunkers) program to include the purchase of electric and hybrid cars. Drivers wanting to buy a hybrid model in exchange for a convention vehicle through the scheme will receive two tickets (a EUR 1,800 subsidy), and four tickets (a EUR 3,600 subsidy) for an electric one. The decision comes in a context that only two electric cars are available on the local market, Mitsubishi’s iMiEV models, while sales of hybrid cars are also slow.

Energy, tobacco, alcohol, coffee excises to increase next year Excises on energy, tobacco, alcohol and coffee will rise next year when they are calculated at RON 4.3001 per EUR, according to the European Central Bank (ECB). The rate is 0.8 percent higher than that this year’s figure of RON 4.2655 per EUR. The level is established in RON, under the Tax Code, using the exchange rate announced by the ECB for the first working day of October of the previous year. Excise is currently paid for the production of alcohol and alcoholic beverages, manufactured tobacco, energy products and coffee. Government income from excise rose 16.2 percent, to RON 12.46 billion in the first eight

months. Next year, the Government hopes to net RON 21.75 billion, 8 percent above the estimate for this year. At this level, the growth rate would be equivalent to about RON 175 million for the budget. In the first nine months of this year, the State collected EUR 1.27 billion in tobacco excises. “The increase in excise duties in 2011 since 2010 was 3.5 percent,” said Sorin Blejnar, president of the ANAF, adding that the revenue hike was due primarily to decreased smuggling. According to a Research Novel study, smuggled tobacco accounted for 11.8 percent in September, down 3.9 percentage points from 15.7 percent recorded in July. ■

Tabara: State should support agriculture for next 2-3 years

BNR reserves hiked by EUR 1 bln in September

BNR reserves increased by over EUR 1 billion in September to EUR 33.6 billion, while incomes were twice as high as outflows, according to data published by the central bank. According to BNR, inflows totaled EUR 2.02 billion in September due to changes to credit institutions’ minimum reserves in foreign exchange, Ministry of Public Finance and European Commission accounts and the income from international reserve management. Outflows from the bank reserves were EUR 948 million, resulting from changes to credit institutions’ minimum reserves in foreign exchange and the payment of interest and public debt denominated in foreign currency.

12 The Diplomat November 2011

The agriculture minister, Valeriu Tabara ( pictured), has called for agriculture to be supported by the State in the coming years because it could reduce the effects of any crises that occur nationally and internationally. “In agriculture we should form a common front, regardless of political color. Farming does not make money. Only in recent years have we managed to get proper financing in the agricultural system. We will need money for agriculture from the national budget for at least two-three years,” said Tabara. Romania’s production of wheat, corn, sunflower and rape

was good this year. Tabara said he was satisfied with the level of absorption of EU funds in agriculture and added that if all other sectors had a similar absorption rate, Romania would have no problems in this regard. The Payments and Intervention Agency for Agriculture announced that farmers received about EUR 3.7 billion from European funds in 2007-2011. The minister said that Romania would receive about EUR 3 billion from European funds over 2014202, in addition to the amount allocated for 2007-2013. Agriculture contributes 6-7 percent of the GDP. ■


energy Energy bills in Romania expected to rise 4.7 percent in 2012 Romania’s centrist coalition government approved late last month a support scheme for renewable energy producers that will lead to a 4.7 percent rise in electricity tariffs for household consumers next year, according to a statement by AREE, the Romanian Association for Wind Energy. This year’s increase in energy bills is estimated at 1.12 percent. Under the agreed support scheme, green certificates are granted for electrical power produced from renewable sources and delivered to consumers. Wind power developers gain once by selling the certificates, worth between EUR 27 and 55 each, to power providers, and again when they sell the electricity produced. The support scheme, which is based on green certificates and has been key to attracting billions of euros to fund wind energy, was revised after the European Commission expressed concern it may overcompensate developers. According to AREE, the support scheme will impact inflation, generating a 0.05 percent growth. So far, Romania has 462 MW of

power generated by its installed wind power units and the capacity is estimated to reach 1,000 MW by year end, with double the volume expected for next year. By 2020, the total volume should reach some 4,000 MW. The 90 companies that are part of AREE have so far invested EUR 1 billion on the Romanian energy market and hired 2,000 workers. According to official data, Romania’s wind power potential is 14,000 installed MW. By 2031, power consumers will pay around EUR 10.5 billion for the green certificates support scheme which will also add up to EUR 33 per MW to prices by 2017. ■

Transelectrica warns investors of potential pitfalls In the absence of increased green power consumption and power unit developments on the local market, to compensate for the gaps left by wind power parks, the functioning of these units could be limited, in order not to impact the overall power system in Romania. The statement was made by Romanian power operator Transelectrica, in a warning addressed to wind power investors. “Take into account this operational risk. I have to underline that the law supporting green

energy doesn’t restrict the installed capacity in any way,” said Marian Cernat, director at Transelectrica. According to Frank Hajdinjak, CEO of E.ON Romania, there is EUR 5 billion of potential investments in producing green energy by 2015, which relies on stable and predictable legislation. “On the energy sector, there should be a regulatory framework to allow investors to plan their investments on the medium and long term,” Hajdinjak added. ■

Government OKs setting up of energy companies Oltenia and Hunedoara The Romanian Government approved late last month the setting up of the two power companies Hunedoara and Oltenia and undertook to privatize them by June 2012, as part of its agreement with the International Monetary Fund (IMF). Previously, the Government intended to merge the main energy and coal suppliers into two national companies, Electra and Hidroenergetica, but the plan was axed due to legal and juridical issues. One

newly formed power company, Complexul Energetic Hunedoara, will comprise the thermal power stations at Paroseni and Mintia and the functional mining sites that are part of the National Hard Coal Company (CNH). The other new entity, Complexul Energetic Oltenia, will bring under the same umbrella the thermal stations at Craiova, Turceni and Rovinari, as well as the National Company of Lignite Oltenia (SNLO). ■

Lukoil to invest EUR 300 million in Black Sea oil exploitation

The Government has approved two agreements for oil exploration concession, development and exploitation in the Romanian perimeters of the Black Sea, each of 1,000 sqkm, involving the National Agency for Mineral Resources (NAMR) and association of companies Lukoil Overseas-Vanco International. The value of investments in the area will rise to USD 75 million in the first three years. Depending on the results achieved, the companies will continue investing between USD 80 million and USD 160 million in the next two years.

EDP Renovaveis, Petrom and Lukoil to invest in wind energy

Portuguese group EDP Renovaveis has completed a wind farm worth over EUR 100 million in Cernavoda, which extends to 76 parks, while Petrom, Romania’s largest company, began commercial operations on October 1 at a wind farm in Dorobantu, Dobrogea. The park has a capacity of 45 MW and consists of 15 wind turbines of 3 MW, delivered by Vestas. The investment in this project was EUR 90 million. Lukoil is analyzing approximately 50 MW of wind projects in Moldova, the second region after Dobrogea for potential wind farms, and an investment decision may be taken by the end of this year.

Nuclearelectrica seeks investors to build new Cernavoda reactors

Nuclearelectrica, the Cernavoda nuclear plant operator, is launching an auction to attract investors interested in the EUR 4 billion project to build two new reactors at Cernavoda. Currently, shareholders of the project company that will operate and build the two EnergoNuclear units are Nuclearelectrica, with 84.65 percent, Enel of Italy with 9.15 percent and ArcelorMittal Galati with 6.2 percent. The state intends to reduce Nuclearelectrica’s participation to 40 percent. Nuclearelectrica’s approach comes after four major investors withdrew from EnergoNuclear, namely CEZ (Czech Republic), RWE (Germany), Iberdrola (Spain) and GDF Suez (a French-Belgian group).

13


appointments Jerome Mouillet will

lead Michelin’s tire facility production in Floresti, after the former director, Carmen Petcu, was assigned to take over another position within Michelin Group. During his 16 years at the tire firm, Mouillet has worked at the company’s HQ in Clermont Ferrand, France, and managed its operations in Germany, the Netherlands, Denmark and Hungary.

Horatiu Pirvulescu

has been assigned to lead the audit office of Ernst & Young (E&Y) in Timisoara, having spent several years as financial director of different companies with operations in audit and consultancy services, both in Bucharest and other Romanian cities. Pirvulescu is a member of several professional associations such as the Association of Chartered Certified Accountants (ACCA) in Great Britain and the Romanian Chamber of Financial Auditors (CAFR).

14 The Diplomat November 2011

Regis Lhomme, general manager of Amgen Romania, has been elected president of the Romanian Association of International Drug Manufacturers (ARPIM). Lhomme has over 30 years’ experience in the pharmaceutical industry, having worked in leading positions in different countries in the CEE region. Between 2000 and 2009, he led Pfizer’s operations in Romania and Russia. Claudia Nemat has

been appointed head of European strategy for Deutsche Telekom. She is set to present a strategy for Greece and other EU countries in early 2012. Nemat has been a member of the Deutsche Telekom management board since October and is responsible for Europe. Before joining Deutsche Telekom, Nemat spent 17 years working for the consultancy McKinsey & Company.

Alexandru Popescu

has been appointed chief operating officer at Continental Hotels, starting October 1. He will coordinate the hotel chain’s operations. His targets are to increase the efficiency of activities of Continental Hotel branches and boost the company’s profit. Popescu will play an important role in establishing the firm’s strategy and expansion.

Jean Pascal took over

the position of GM of Hotel Epoque starting last month. Pascal has 30 years’ experience in the hospitality industry, having supervised five-star operations in key locations in Europe and the United States of America. A graduate from the University of Paris and with a degree in hotel management from the Cornell Institute, he specializes in the luxury segment in Eastern Europe markets.


investments ROmania

German tire producer Continental will expand its production facility in Timisoara, following an investment of EUR 40 mln. The company will hire 300 more employees after the expansion. Continental has been present in Romania for 11 years and operates 8 production units and 3 research and development centers, mostly based in Timisoara, Sibiu, Carei, Arad and Iasi. It plans to open a plant in Brasov to produce fuel pumps.

Private medical services operator Regina Maria, controlled by the investment fund Advent International, has acquired a large stake in Promed clinic, marking its entrance into in vitro fertilization and maternal-fetal medicine. Regina Maria has registered an occupancy rate of 80 percent so far. Promed has two clinics, one in Bucharest and the other in Targoviste, where it also runs a laboratory. Regina Maria has shares only in the clinic in Bucharest, which registers yearly revenues of EUR 2 million.

Continental rolls out EUR 40 million to expand Timisoara tire facility

US

Toro to produce irrigation systems in Romania

American irrigation systems producer Toro will open a new production facility in Ploiesti, targeting markets in Russia and Ukraine, but also local agriculture. The production plant is located inside Ploiesti West Park and is being developed following an investment of EUR 20 million. It will hire 100 employees. On the local market, Toro has already hired 35 people, with the rest of the team due to be recruited by the end of 2013.

Regina Maria acquires Promed clinic

Arcadia injects EUR 850,000 into clinic in Palas commercial center in Iasi

Medical services provider Acadia has invested EUR 850,000 in opening a polyclinic inside Palas commercial center in Iasi. The company has hired 15 doctors and 20 nurses for the facility. Acadia also runs a large hospital in Iasi. The next unit to be opened by the firm is scheduled by yearend, also in Iasi. The Arcadia hospital opened in 2010, with an investment exceeding EUR 20 mln, and registered revenues of EUR 5 mln in its first operational year.

Japan

Yazaki Romania opens new EUR 4 mln plant in Caracal

Car cable systems producer Yazaki has launched a new EUR 4 mln production facility in Caracal, Olt County. The firm already operates a facility in Ploiesti, which it opened in 2003. At the Caracal site, Yazaki will produce cable systems mainly for Ford, targeting both the local market and the European production facilities of the American car producer. Yazaki, a global market leader for automotive cable systems, operates 148 production facilities in 39 countries. In Romania, the company has invested EUR 89 million since 2003 and employs 5,000 people.

China

Huawei to invest EUR 200 mln in Romania by 2014

The Chinese producer of IT&C equipment Huawei will invest EUR 200 million by 2014, targeting the development of a designing center in the Pipera area and a fiber optic network countrywide, in partnership with Transelectrica. The firm entered the Romanian market in 2004. Globally, it is present in 140 countries and attained revenues exceeding USD 28 billion in 2010.

Advertorial

GERMANY

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investment funds

Investment funds stick to window shopping

Investment funds with operations on the local market are just window shopping for real estate opportunities. Fund officials told The Diplomat – Bucharest that they are playing it safe, keeping an eye out for distressed assets or businesses with growth potential despite the crisis, and not thinking of exits – yet. By Magda Purice and Dana Verdes

C

autious and reluctant to take risks in any economic sector which is currently delivering unsatisfactory investment yields and contracted businesses, such as retail and construction, investment companies, are becoming even more prudent when it comes to property investment. Still, according to the real estate consultancy company CB Richard Ellis (CBRE), the investment volume of transactions, both purchases and sales, recorded in the first half of this year totaled EUR 279.1 million, representing growth of 23.4 percent on the same period of 2010. “The largest investment value, EUR 125.6 million, has been registered in office transactions,” states the CBRE

market report. The remaining sum was split, with EUR 85.9 million spent on the industrial segment, and EUR 25.3 million on commercial deals. This year, the office buildings involved in transactions in Bucharest have included Europe House, River Place, both transactions by CA Immo, and other office deals involving Astoria Center, Plevnei Office Building and Berthelot Center. The second best real estate segment, which has been a little livelier this year, has been the industrial sector. In fact, the first six months brought the largest transaction in the local real estate market by two Austrian companies, the purchase of Europolis Logistics Park by CA Immo.

“We are witnessing the ongoing maturing of the real estate market, seen in the adjustment of land prices and the quality of delivered projects,” Antoniu Panait, managing director Interprime Properties

ovember 20112011 16 The Diplomat JNuly

Staying on the safe side

The fund is remaining “on the safe side”, according to Marian Roman, managing director of CA Immo Real Estate Management Romania. “With a 52 percent office building share in our portfolio


investment funds

“The competitive financing is the big uncertainty of an investment equation and the main factor in evaluating the investment risks of a project,” George Teleman, managing partner, East Balkan Properties

globally, we target the same kind of projects locally,” Roman told The Diplomat – Bucharest. The current asset value owned by CA Immo in Romania is estimated at EUR 323 million, with assets totaling around 330,000 sqm in nine projects including Europe House, Opera Center I and II, Bucharest Business Park, RiverPlace, Europolis Park Bucharest and a retail project in Sibiu. The sum represents almost 20 percent of the total assets held by the fund in the CEE region, where it has properties worth EUR 2.3 billion. In Romania, the fund’s ongoing projects are estimated at EUR 62 million. According to Roman, the fund concentrates its resources on areas with growth potential, such as the Bucharest office project Orhideea Towers and the development of Europolis Park Bucharest. Elsewhere, in July 2010 Swedish investment fund Interprime Properties inked the purchase agreement for the land of the former Timpuri Noi factory, whose surface exceeds 5 hectares. “For the moment it is the first acquisition for our portfolio in the Romanian market. Except for the Timpuri Noi land we have not yet purchased any new property. Nevertheless we are constantly assessing different land plots and buildings across Romania. Property owners’ expectations are in general still too high given the downward adjustment of the

rental market and current international poses of the investment and the targeted situation,” Antoniu Panait, managing client have to be clearly defined from the director of Interprime Properties, tells very start, in order to be able to establish a feasible project,” says Teleman. The Diplomat – Bucharest, adding that currently the firm’s main focus is to start Last but not the least, the premises the design works on the Timpuri Noi land for a successful investment consist in as soon as possible. the existence of competitive financ“We are currently witnessing the ing, according to the managing partner. ongoing maturing of the Romanian real “Within the current economic context, estate market, which is seen in the adjust- this is the big uncertainty in the investment of land prices, the quality of the ment equation and the main factor in projects delivered and the quality of the evaluating the investment risks of a projservices performed. Taking a midterm ect.” In other words, the money earned perspective we hope to see this matura- from a project might come at too high a tion process speeding up and allowing cost, which might offset or even cancel us to increase our level of investments,” out the other “savings” obtained through the project outline. he adds.

Low-cost opportunities

“Taking into account the investment opportunities by cost perspective, the momentum on the market is currently good,” argues George Teleman, managing partner at Equest Balkan Properties. The price of land has dropped in some cases by 75-80 percent since 2008. In Bucharest, the investment appetite targets land plots located close to the city, where prices have not posted such a tremendous drop. “We are talking about the asking price, because, currently, there are few transactions on the market and no clear monitoring of them that could give reliable statistics,” says Teleman. The investment market in Romania and in most European regions at the moment is marked by the disappearance of the speculative approach to investment. Investors are looking more carefully at the risks of their outlay, which is visible in a more cautious attitude. According to the Equest partner, prelease contracts are now a mandatory tool to guard against the risks of an investment. The approach to risk is also seen at the early stage of investments. “The pur-

Searching for distressed assets

For Valad Property Group too, the local market is slowly moving to “an increased transactional level which will be better seen in 2012,” Matthew Bann, head of CEE for Valad, told The Diplomat – Bucharest. “Valad is looking at a number of investment opportunities in Central and Eastern Europe at present. We believe that, given the current economic climate, it is only a matter of time until banks have to start seriously addressing the situation of the assets they hold directly or indirectly. One of the opportunities we are exploring is

“Currently, it is a buyer’s market, where the prices are low and where it is more difficult to obtain the profits our investors expect,” Rafael Trebolle Larraz, deputy managing director real estate, GED REEI

17


investment funds

“We are looking at several opportunities in CEE. It’s only a matter of time until banks start to seriously assess what they hold directly or indirectly,” Matthew Bann, head of CEE, Valad Property Group

working with the financial institutions in solving the real estate related issues they have in their loan portfolios. In this regard we will look at most asset classes and areas,” Bann says. Valad is active in Romania on behalf of Central European Industrial Fund (CEIF) which has investments in the Czech Republic, Hungary, Poland and Romania. The fund’s existing local portfolio is concentrated in three industrial assets, including office space located to the west of Bucharest, close to the A1 Highway, amounting to almost 120,000 sqm of leasable area.

Looking for businesses with growth potential

“The investment market in Romania for this year and 2012 is pretty limited,” Cristian Nacu, partner at Enterprise Investors, tells The Diplomat – Bucharest. The Polish fund looks at grownup businesses, ones that are profitable and with growth potential, delivering a strong competitive advantage in their markets. It carries out investments through the two fund’s investment vehicles, a buy-out fund and a venture capital fund. The minimum volume for investments through the buy-out investment vehicle, targeting large companies, is EUR 20 million, while for

venture capital transactions targeting small firms, the fund stipulates a minimum of EUR 1 million to EUR 5 million, according to Nacu. Enterprise Investors has around EUR 60-70 million left to invest in the region through its buy-out fund, while for the venture capital fund there is a budget of EUR 50-60 million. From the ten markets where the fund looks for investments, Romania has the largest portfolio after Poland. In six years since of operating in Romania, total investment has amounted EUR 200 million, representing probably 20 percent of the funds put into the entire region, according to the representative. With an investment rate of two companies per year, the fund finds sectors such as retail, IT, manufacturing and financial services appealing but, according to Nacu, “is keeping away from construction at the moment”.

Low visibility

For Spanish GED Capital, a fund that has recently inked transactions in the Romanian market, including the purchase of 30 percent of shares owned by PPF Partners capital management fund in the 14-hotel chain Continental Hotels, the focus is on assets producing certain income. “Romanian investors rarely back private equity funds (banks, pension funds, public institutions and insurance). This lack of funds keeps the PE community really small and with little likelihood of attracting foreign capital. Therefore the visibility of Romania is low,” said Enrique Centelles Satrustegui, managing partner private equity at GED. Through GED Real Estate Eastern Investment, GED’s private equity fund for investments in South-Eastern Europe, which manages EUR 46 million, the company “is focusing on income-producing

“We are keeping the same approach on the local market but we are not currently as interested in the construction segment, for instance,” Cristian Nacu, partner, Enterprise Investors

18 The Diplomat November 2011

assets, with good locations and where the firm can add value to the company through refurbishment or increasing the asset, or by simply changing the activity of the company or the use of the asset,” Rafael Trebolle Larraz, deputy managing director of real estate at GED, told The Diplomat – Bucharest. In line with the approach adopted by other funds, it is not thinking of an exit now. GED officials said that their current strategy is to wait at least two years before considering about exiting any investee. Nevertheless, “we are private equity investors and it wouldn’t be a surprise if we sold a company next year, but it is not our intention today,” adds Satrustegui. The fund believes that Romania has strong potential on the medium term, even if, for the moment, “Romania is not on the radar of the private equity community”. GED has carried out different transactions in tourism, hotels and FMCG, involving companies such as Prestige Tours, Heineken Romania and Continental Hotels. These transactions join existing shares owned in companies such as Happy Tour, Paravion, Travel House, Diamedix, Bioservice, Total Energy Business, Rosegur, Fonomat, Infopress and RED Capital Management.


investment funds

“With a 52 percent office building share in our portfolio globally, we target the same kind of projects locally,” Marian Roman, managing director of CA Immo Real Estate Management Romania

No exit in sight

In response to the lack of large investment opportunities and courage, investors, both private equity funds and investment companies, have given more thought towards customer retention. “Starting from the premises that we have to treat our clients as business partners, we listen carefully to their needs and try to come up with the best solutions,” says Teleman. Some of the current demands from clients, especially tenants in industrial or retail parks, include: the temporary freezing of rents, limited service charges, the adjustment of fit-out costs according to different criteria, assistance with legal papers and different borderline requests. Also, according to Teleman, customers are asking for assistance in the

procurement of different services or offers. But the retention approach might be a double-edged sword. “Sometimes, different unilateral requests are being presented as alternatives to ceasing the renting contracts. In this case, we cannot compromise and we prefer to stick with the contractual partnership, including taking the case to the court if necessary,” he says. The opinion is shared by Ingo Nissen, managing director of developments for Romania of Portuguese fund Sonae Sierra, looking at the situation from a mall developer’s side. “Clients’ demands have changed dramatically in the last few years. They are asking for lower rents and operational costs. Romania is still an underdeveloped market in terms in large investments and, currently, more equity is needed in order to restart the investments.” He added: “Also, the latest changes to the entire real estate system should be balanced by an adjustment of the developer’s expectations. A properly developed project should respect the rules of location, be a tailor-made project and provide a balance between the sale price and the costs.” At the beginning of this year, British fund East Balkan Properties sold 51 percent of the company controlling the commercial centers Vitantis Shopping Center in Bucharest and Moldova Mall in Iasi to Equest Investments Romania. Flexibility in responding to customers’ demands doesn’t translate to funds’ strategies when they have to calculate the opportunity of investment in a certain market.“There is not much difference compared with what has happened in the last couple of years. There is a clear boom in energy and related sectors, private healthcare and infrastructure. Retail doesn’t seem to be a sexy business right now but it might offer good opportunities. In addition, IT is a really interesting sector if you have the proper skills,” says Satrustegui of GED. His colleague from the real estate department attributes the slow dynamics of investments to banks. “In terms of real estate, the banks are not open to financing new developments. The risk of some of the new projects is high because the land was bought very expensively and it is impossible to drop the prices of the final product, so the end client is not interested. This is the main problem for real estate development, the final price of the product has to be adapted to the real possibilities of the buyer,” says Rafael Trebolle Larraz. ■

Who’s going real estate shopping? CA Immo Origin: Austria Local assets value: EUR 323 mln Properties: 330,000 sqm logistic and industrial space (Europe House, Opera Center I and II, Bucharest Business Park, RiverPlace, Europolis Park Bucharest) Portfolio assets value for CEE/ SEE/CIS: EUR 2.2 bln Enterprise Investors Origin: Poland Total capital CEE: EUR 1.7 bln Recent investment (2010): EUR 66 mln (Profi retail chain acquisition) Valad Property Group Origin: Australia Total investments: EUR 100 mln Properties in Romania: 3 industrial assets of 120,000 sqm leasable area in A1 Business Park Overall portfolio assets value: EUR 12.5 bln in 12 countries in Europe GED Origin: Spanish Total investment in Romania: EUR 350 million Assets portfolio (different shares): Prestige Tours, Heineken Romania, Continental Hotels, Happy Tour, Travel House, Paravion East Balkan Properties (formerly Equest Balkan Properties) Origin: UK Portfolio in Romania: Equest Logistic Center, Vitantis Mall Bucharest Total assets (June 2011): EUR 91.5 mln Total assets (December 2010): EUR 89.4 mln Interprime Properties Origin: Sweden Total investment in Romania: EUR 34.6 million Recent investment (2010): land of former Timpuri Noi factory, whose surface exceeds 5 ha, for EUR 34.6 mln SOURCE: Companies

19


rosia montana

Not all that glitters is gold for Rosia Montana project investors Despite President Traian Basescu’s support for the controversial Rosia Montana mining project, Rosia Montana Gold Corporation still has to clear further hurdles from the cultural and environment ministries, as The Diplomat – Bucharest learned. By Dana Verdes

T

he Rosia Montana project seems to have become a never-ending saga. While the disputed mining scheme has earned the expressed support of President Traian Basescu, the tortuous story seems no closer to reaching a conclusion. During a visit to Rosia Montana, the president stated: “I am a supporter of the project – not from now, not since today or yesterday, I was also here during the election campaign.” He argued that Rosia Montana Gold Corporation (RMGC), a

company controlled by the Canadian firm Gabriel Resources, has to exploit the gold because the Romanian Central Bank needs it to complete its reserve and it is his duty as president to lead the country to financial safety. But despite the president’s support, the project has not received the final permits from major ministries.

A mountain to climb

Kelemen Hunor, culture minister, told The Diplomat – Bucharest in an interview that for the project to get the OK, Carnic Mountain has to be stripped of the protected status it enjoys under Romanian law. “In keeping with the existing legislation, the National Institute of Archaeology is examining the dossier submitted regarding the archaeological research. The case was filed in August last year and after a year the committee gave notice of archaeological discharge this summer. The next step is downgrading Carnic Mountain, as it is currently ranked in category A on the list

of historical monuments, with an enhanced level of protection,” says Hunor. According to him, the ministry has prepared the necessary documentation for the approval of the downgrading file, which has to be followed by the minister’s order. “I haven’t signed the approval or the order. Carnic Mountain enjoys enhanced protection and without downgrading its category no work can be started. Meanwhile some documents were challenged in Court and until this ends I do not want to get into another discussion on downgrading the monument,” adds Hunor.

Plan B

“When we saw the commission’s position – when we received the Rosia Montana file last year – we realized in what direction the whole story was going. Most likely they will agree with the downgrading. Then I tried to establish a format and some guarantees for any eventuality. When the operations begin, if the project starts, I will have the

“I’m not going to sign the downgrading order until there is a very serious discussion in the government. The answer could be no,” Kelemen Hunor, culture minister

20 The Diplomat November 2011


rosia montana

“I’ve asked the RMGC to meet two conditions: to reduce the cyanides to a level that would not pollute and to give money for renaturation,” Laszlo Borbely, environment minister

certainty that I have the necessary funds from the investors to protect the cultural heritage of Rosia Montana,” says Hunor. The National Institute of Heritage has signed a deal with the RMGC. This agreement stipulates USD 70 million to protect the cultural heritage of Rosia Montana and another USD 70 million for a countrywide program for the restoration of national monuments, all of which are suspended until the project actually starts. “I’m not going to sign the downgrading order until I have a final court ruling related to the downgrading notice and until there is a very serious discussion in the government because this project must be signed by the entire governmental team. The answer could be no,” says the minister. In his opinion, if no decision is taken and nothing is done at Rosia Montana, an environment tragedy could happen at any moment, the cultural heritage would be destroyed and the community condemned. He tells The Diplomat – Bucharest that the company’s committed investment to cultural preservation is a significant amount, compared with the average USD 15 million annual budget the ministry gets for its national restoration program, but clearly cannot be compared with how much money Italy or other European countries

spend on the protection of their cultural heritage.

Environment Ministry lays down the law

Ministry of Environment officials told The Diplomat – Bucharest that they will recommend the government approves the Rosia Montana project only if the investor follows best practices in the mining sector. “I’ve asked the Rosia Montana Gold Corporation to meet two important conditions: to reduce the percentage of cyanide to a level that will not pollute the natural environment, as happens in Sweden, and to give money for renaturation, in the early years of operations,” says the minister, Laszlo Borbely. At European level, the maximum permissible concentration of dissociable cyanide in a weak acid environment is 10 ppm. The Ministry of Environment notified the RMGC in mid-August this year that the value proposed by the investor of 5 ppm at the point of discharge into the water is not acceptable, and asked the company to present solutions to reduce the concentration to levels that pose no danger to the environment. Moreover, in January this year, the Ministry of Environment in Hungary submitted to the Hungarian Government

Rosia Montana: the story so far Gold and silver exploitation at Rosia Montana would be carried out by the Rosia Montana Gold Corporation (RMGC) company, controlled by Canadian firm Gabriel Resources, which currently owns 80.46 percent of the share capital. The Romanian State, through Minvest Deva, has a 19.31 percent stake in RMGC. Among the names linked with the Canadian company are billionaire businessmen such as John Paulson, Beny Steinmetz and Thomas Kaplan. Gabriel Resources was founded in 1997 by controversial Romanian businessman Frank Timis, who retired from the company in 2003 to focus on other businesses. In 1997 Minvest had a 33.8 percent stake, and Gabriel Resources, which at that time

was named Euro Gold Resources, 65 percent. The Romanian State issued the exploitation license for gold and silver at Rosia Montana in June 1999 approved through Government decision 459/1999. One year later, the State transferred the license from state-owned company Minvest Deva to private firm RMGC. But the RMGC has not managed to convince the Romanian State and the different ministries over the years, and has still not received the necessary permits for the exploitation. Another hurdle the RMGC has had to face is the public’s opposition, as cyanide will be used in the process. The Rosia Montana deposit is evaluated at approximately 300 tons of gold and 1,600 tons of silver.

the documents presented by the RMGC, following the request of the Ministry of Environment to update the environmental impact assessment and provide answers to questions received from Hungary. Hungarian officials submitted its response, rejecting the Rosia Montana project, on August 3 this year.

RMGC gives guarded response

Rosia Montana Gold Corporation officials refused to respond to The Diplomat – Bucharest‘s questions. However the company has made several short statements in the international media. It has protested that reducing the level of cyanide in mining lake, as requested by the Romanian Government, would cost the company “tens of millions of dollars,” said Horea Avram, VP for environment at RMGC, in an interview with Agence France-Presse. In early September, Cecilia Szentesy, technical director at RMGC, said the cyanide concentration levels could be reduced to 3 milligrams per liter. “Following the request that came from the ministry, we discussed with our experts and analyzed the possibility of using a maximum concentration of 3 milligrams per liter. Obviously, this will involve substantial costs. We are talking about tens of millions of dollars,” said Avram. The project seems to be having difficulties not only at a bureaucratic level. Victor Ponta, Social Democrat Party leader, said recently that the Rosia Montana project is and will continue to be blocked, as not all politicians can be bought off,” like President Basescu has been.” It remains to be seen what the next chapter of the long-running story will be, especially with the 2012 elections around the corner. ■ 21


RoRec in the group of “first movers” for the implementation of the WEEELABEX standards for WEEE* management At its meeting in Amsterdam on 1 April 2011, the General Assembly of the WEEE Forum approved the standards (consolidated into version 9) and decided that they will not be subject of modifications for a period of 18 months (until 1 October 2012). In those 18 months, a number of producer responsibility organisations (PRO) of the WEEE Forum will ‘test’ the standards, they will gather experience on their implementation on the ground by the operators. The Romanian Association for Recycling – RoRec is part of the vanguard of ‘early birds’ that will implement the standards in 2011 and 2012 together with organizations from: Belgium, France, Germany, Italy, Switzerland and The Netherlands. *WEEE - waste electric and electronic equipment

22 The Diplomat July 2011

Liviu Popeneciu, President of Rorec Association, among the first to implement WEEELabex


WEEELABEX is the acronym (‘WEEE LABel of EXcellence’) of a project, run by the WEEE Forum in cooperation with stakeholders from the producers’ community and processing industry. Producers and recyclers associations are represented in both working groups and the project’s steering group (CECED, ELC and DIGITALEUROPE, and EERA). The project (2009-2012) is co-financed by the European Community under the LIFE program (LIFE07 ENV/B/000041). It aims to design, on the one hand, a set of European standards with respect to the collection, sorting, storage, transportation, preparation for re-use, treatment, processing and disposal of all kinds of WEEE, and, on the other hand, a harmonized set of rules and procedures that will provide for conformity verification. More particularly, the project is resulting, across Europe, in: •

Less pollution.

More sustainable activities, in particular higher levels of recovery of secondary raw materials (resource efficiency).

Better occupational conditions for workers.

Assurance of a more transparent material flow management and adequate de-pollution processes through proper documentation and reporting.

Reduced scope for illegal shipments of WEEE.

European standards and guidance documents that will more flexibly address new (technological) developments.

It will create incentives for operators to meet a set of uniform standards, and disincentives for dishonest companies to dodge ‘the system’, and hence, a level the playing field for WEEE management companies.

The WEEELABEX project was born against a specific legal, environmental and commercial background. Some collection, logistics and recycling sites fail to properly store or handle WEEE, resulting in uncontrolled emissions. Today, in Europe, a patchwork of both legal and contractual requirements, of different ambition and enforced with different levels of determination, hinders processing companies’ economies of scale and creates an uneven playing field. In some parts of Europe, WEEE treatment technologies are cutting-edge and workers’ safety is properly ensured, while in others de-pollution and mechanical treatment is performed in workshops with inadequate safety measures or inappropriate shredder technologies. New types of electrical and electronic equipment are marketed that require specific de-pollution techniques or practices. In some parts of Europe, downstream operations are carefully monitored and documented, while in others consumers and electronics producers paying for the management of WEEE have no such assurance. The project aspires to design, on the one hand, a set of European standards (or ‘normative requirements’) with respect to the collection, sorting, storage, transportation, preparation for re-use, treatment, processing and disposal of all kinds of WEEE, and, on the other hand, a harmonised set of rules and procedures that will provide for conformity verification. Operators that fall within the scope of the project are: collection sites, logistics sites, transporters, and facilities involved in dismantling, de-pollution, preparation for re-use, disposal and recycling. The standards concern all steps in the chain, from collection to disposal. Operators involved in WEEE operations will be audited by WEEELABEX auditors, trained in accordance with the

standards. Facilities and sites that meet the requirements will be identifiable. No label or visual identifier will be awarded to companies or legal entities as such. Operators will have to be in a position to assess conformity of their activities with the standards and to demonstrate that they have contracted with WEEELABEX (or WEEELABEX-equivalent) partners. The project can be considered of an open nature in the sense that any organization that accepts the obligations of WEEELABEX can join the scheme. Both the WEEELABEX standards and the WEEELABEX project as a whole are original and innovative for a number of reasons. •

For the first time ever, a harmonized, continental set of (technical) normative requirements (standards) and guidance documents affecting all parties involved in WEEE operations, from collection to disposal, and covering all 10 WEEE categories is laid down, respecting legislative requirements of Directive 2002/96/ EC on WEEE and its transposing national laws and decrees.

The WEEE systems of the WEEE Forum, representing approximately two thirds of officially reported WEEE collection in Europe, will contractually require the collection sites, logistics facilities and recycling plants to implement the standards. In other words, WEEELABEX will have an immediate and grand-scale impact on the entire WEEE chain, from collection to disposal.

The set of standards is not only likely to be acknowledged by authorities as a new ‘benchmark’ but will probably resonate globally as well. Operators in other parts of the world will likely wish to adhere to an equivalent level of principles.

The project starts off to produce requirements to be integrated into

23


contracts of WEEE systems with operators. Yet (part of) those requirements will likely end up becoming formal EN standards, affecting all operators on the market, not just those with whom the PROs of the WEEE Forum have entered contractual terms. But even in the short term, the WEEELABEX standards are likely to be adopted by parties with whom producers recycling organizations of the WEEE Forum have no contracts. •

24

At the time of writing, Directive 2002/96/EC is being recast. The future recast Directive might specify that operators meeting the provisions of a standard, the development of which by European standardization organizations is mandated by the European Commission, will be presumed to comply with the Directive. Those so-called ‘harmonized standards’ are expected to arise from the WEEELABEX set of standards. The novelty and ambition concerns the fact that WEEELABEX expects parties to be in a position to monitor downstream operations; it lays down uniform, specific, verifiable and comprehensive reporting and documentation obligations, most of which are not, as such, legally required. The reporting will follow the principles and reporting format provided by WF_RepTool, the WEEE Forum’s web-based tool that allows operators to communicate recycling and recovery quotas to WEEE systems on the basis of a harmonized reporting classification (WF_RepLists). Also for the first time ever, a European scheme is being constructed that harmonizes the rules for the verification of conformity with the normative requirements. The scheme is of a private and “sui generis” nature – it will affect the WEEE Forum and other contracting parties

– yet is expected to demonstrate how European rules can be enforced in a harmonized manner. •

Monitoring of conformity with the standards will refer to specific concentration and target limits, not to a generic, unspecified ambition of ‘continuous systemic improvement’.

In August 2009, the WEEE Forum signed a contract of co-operation with CENELEC, one of the three official EU standards bodies. In time, (some of) the requirements of the WEEELABEX normative documents will likely be translated into formal CENELEC EN standards. The standards aim to: •

Achieve adequate de-pollution, treatment and disposal of all types of WEEE in order to prevent pollution and minimize emissions.

Promote high quality recovery of secondary raw materials.

Protect human health and safety.

Prevent illegal (cross boundary) shipments of WEEE and fractions thereof.

Level the playing field for all actors in the WEEE chain.

The standards are based on the precautionary principle and on the principles that preventive action should be taken, environmental damage should as a priority be rectified at source and the polluter should pay. The requirements are also based on the presumption that operators adhere to the principle of due diligence with all activities. Due diligence includes understanding of all obligations to which the company is subject and transparency with business partners. The WEEELABEX standards package structurally consists of three documents, one aimed at operators performing collection of WEEE, one aimed at logistics operators and one aimed at treatment operators.


wines

Uncorking Romania’s wine potential The Romanian wine industry has matured considerably in the last ten years. Product quality has increased, the area of vineyards has shrunk, the number of new investments has hiked and new players have entered the fray. But the same problems that existed before the crisis remain: the difficult of exporting and the bad image from which Romanian wines suffer abroad. How should producers uncork the potential? By Roxana Cristea

T

he cellar we have is a family business. We started it ten years ago when we bought many plots of land from private individuals. We had the first harvest in 2006 and we started selling the wine in 2008. But we entered the market during troubled times and we are convinced that the expansion would have been different if the crisis and all the problems had not come about,” Aurelia Visinescu, general manager and owner of wine company Domeniile Sahateni, tells The Diplomat – Bucharest, about the beginning of her business.

The Diplomat July 2011

The Domeniile Sahateni cellar, which mainly produces premium varieties, has a production capacity of 1,000 tons of

360

million is the value of the Romanian wine market in 2010

grapes, which converts to over one million bottles every year. Half of the bottles are exported and the other half are sold locally. In the last few years, more and more small businesses like Domeniile Sahateni have entered the Romanian wine market, targeting the premium segment in particular. Another such company is Lacerta, owned by a group of Austrian investors. “The premium wine market is the most interesting for us because it largely addresses businesspeople who know dry wines from around the world,” says Walter Friedl, partner at Lacerta Winery. 25


wines

“Exporting is easier than selling on the domestic market. To export more we need to make a quality wine at a competitive price,” Aurelia Visinescu, owner and general manager, Domeniile Sahateni

Although business has not gone very well and they started marketing their wares in a difficult period, both small wine producers and players with a vintage in the market are optimistic and hope that in the future things will improve. While the premium segment has not suffered greatly, overall the wine market has posted a drop of about 10-15 percent. While a few years ago the value of the market was around EUR 400 million, last year it was only EUR 360 million.

Sour grapes

“I would prefer not to talk about the crisis but unfortunately it is everywhere. All Romanian industries are affected,” says Cosmin Popescu, general manager of Murfatlar, adding that the wine market has been hit by the recession but not as badly as other sectors such as construction and automotive, where the results are dramatic. One clear effect of the turmoil on the wine industry has been a tendency for consumers to switch to cheaper varieties, leading to a slight decrease in the average selling price per bottle. On top of that, shoppers are being more careful about where they buy, purchase decisions have become more rational and consumers have hunted promotions. “For example, we’re selling the products with lower margins than last year. Also, people have less money, horeca consumption has suffered greatly and many consum-

Vineyard surface in Romania Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Vineyard surface (hectares) 247,536 244,431 242,850 233,316 205,381 190,606 190,542 187,629 183,971 184,439 176,991 Source: econtext.ro

26 The Diplomat November 2011

ers prefer, for the same cost, to buy two or three bottles and to drink them at home with friends rather than go to a restaurant,” says Popescu. According to Ciprian Rosca, commercial director at Recas Winery, the market has declined for several reasons, mainly related to lower purchasing power, nonexistent consumption habits (in wealthy countries it is customary to drink a glass of wine with the main meal of the day, he says) and the aggressive promotion of other beverages. These factors have led some manufacturers to adapt to consumer preferences and launch on the market a RON 4-5 per 0.75l bottle, which brings the average retail sales down to RON 6-7 per bottle. “The impact of the crisis on the wine industry was serious, as with any field based strictly on consumption,” Ioana Anghel, export manager at Jidvei Romania, tells The Diplomat – Bucharest. First, she cites the low-value purchases, which cut into the amount of wine sold through retail, while lower restaurant spending decreased consumption in horeca. “The fact is that people have seen their living standards decline, or started to pay more attention to their spending, which has affected us all,” complains Anghel.

Heard it on the grapevine

that the country produces premium labels. “For example, we were not able to export to the Nordic countries until a group of foreign journalists came, visited wineries in Romania and wrote a series of articles about the wine market,” says Dan Balaban, general manager of Davino, a company that produces and distributes premium wines through horeca. One of the ways winemakers hope to change the country’s reputation is the development of wine tourism. “Wine tourism is very good for the national economy. This is seen in South Africa, in my home country of Austria, and in Spain and Italy. In Romania this can be done easily because there are good vineyards like Dealu Mare, Dragasani, Banat and Vrancea,” says Friedl. Another solution is to attract foreign investment, because there are a lot of funds for investors in viticulture, but to do that the market needs good examples. “I do not think this will happen very soon,” he admits. The situation is exacerbated by Romanian drinkers’ lack of awareness of quality, a result of their low incomes. This means that many poor-quality products can be found on the shop shelves, but this is not obvious from their prices. “I think producers in particular are to blame for the bad image and low exports, because the wines were on sale at standard prices. But the authorities should help us by changing Romania’s image,” argues Balaban.

But the crisis is a minor speck on wine producers’ radars. Most of them say their biggest problem is that Romanian wines are not seen by foreigners as quality products. “We should have a better country image, namely the image of a quality wine-producing country. Origin is a very important aspect when it comes to wines. As much as we try to make our case at various international events, as many competition prizes as we win, Romanian wines are still viewed with suspicion. And that means there is no final consumer for them; no importers or distributors are interested,” says Ioana Anghel, adding that Romanian Let the exports flow wine sales abroad are largely generated by “Exporting is easier than selling on the emigrants. domestic market. I tell you this from expeOne of the reasons for Romanian wines’ rience. When you have a quality product it lack of renown is that wine exports in the is easier to convince a foreign client than an last 50 years have not been of good quality, innkeeper to list it. To export more we need and now it’s not easy to convince the public to make a quality wine at a competitive


wines

“The premium wine market is the most interesting for us because it largely addresses businesspeople who know the wine,” Walter Friedl, partner, Lacerta Winery

price,“ says Aurelia Visinescu, adding that the export market is a great opportunity for Romanian wine producers. Domeniile Sahateni, the company that Visinescu leads, exports half of its Romanian output to Asia, where it ends up in Japan, China and Korea, as well as Canada and ten European countries. Overall, in Romania exports make up only five percent of total wine production, according to the National Organization of Wine, which operates under the auspices of the Ministry of Agriculture and Rural Development. “To have more opportunities to export, Romanian wines need competitiveness, which is measured in several ways. Under no circumstances should we seek to sell the cheapest wines because we will be beaten every time on such criteria by Spain or Italy, countries which have a

higher production per hectare, or certain areas exclusively for such wines. I think we should have an identity; this is what we need at the moment. Currently the perception is wrong: low quality wines in the past under communism and not enough promotion, which is essential in this market,” says Cosmin Popescu. Most manufacturers are now targeting new destinations, especially Asia. “Everybody is looking at China as a market with huge potential. Why? It’s simple – the country’s size and the fact that incomes are increasing. They are not talking of the crisis; on the contrary,” he adds. Another key destination is the Russian market, which Romanian producers should retake. “Now there is a great fight on. The shelves are not empty and they are not necessarily crying out for Romanian wines.

But we are struggling with promotion, good distribution and many of the people involved,” adds the Murfatlar head. The situation is much easier when it comes to countries like Italy and Spain, because there are several million Romanians working there, happy to consume products from their motherland.

27


wines

“To export more we need competitiveness. We shouldn’t try to sell the cheapest wines because we will be beaten by Spain and Italy,” Cosmin Popescu, general manager, Murfatlar

of up to 0.5 hectares devoted to self-consumption, while the rest is in the hands of producers in various legal forms. This area produces grapes that are sold to bigger wine producers. “I think the Romanian wine market will continue the evolution that started ten years ago, which is a good thing given that the total area of vineyards is ten times less than it was 50 years ago,“ says Baron Jakob Kripp, who owns the wine area Prince Stirbey in Dragasani.

Withering on the vine

Romania’s total vineyards dropped significantly over 2001-2007, from about 230,000 to 178,000 hectares. Since 2007, the area has increased thanks to support from the European Union for restructuring and converting vineyards, reaching 181,500 hectares in 2011. Some 84 000 hectares consists of small plots

Plonking a lid on own consumption

“There is no comparison between homemade wine and wine made in a cellar,“ Ghenadie Bobeica, general manager at WineRo, a local startup, tells The Diplomat – Bucharest. Although per capita consumption in Romania is good – 23-24 liters in comparison with 9-10 liters in America, for example – only a

small percentage of this is in bottled product form. “We have a large area devoted to selfconsumption, but in the coming years we believe we will shift it towards the bottled product. I think that self-consumption will decrease,“ says Cosmin Popescu. Homebrew is still a problem not only for wine producers, but also for the Romanian State, which loses money, and even for consumers, who are drinking products of dubious quality. The practice affects cheap wine producers offering questionable quality in particular. “The feeling that I have, after working in this area for 18 years, is that own consumption has not limited the quality wine market producers. No household will be able to make wine like bottled wine, so we are not targeting the same consumer,” argues Mihaela Tyrel de Poix, general manager at Serve, another startup in the Romanian wine market.

IN THE NAME OF EXCELLENCE WE STAND UNITED Centrul Medical Unirea and Euroclinic become the largest private health care network

28 The Diplomat November 2011


wines Harvesting high hopes

There are many signs that the wine market has stabilized this year. In addition, the recent grape harvest was good, thanks to the favorable climatic conditions in summer and autumn which allowed the fruit to ripen without much disease or excessive rain, which would have hit both quality and quality, according to the National Organization of Wine. Production this year is predicted to top last year’s output, because thousands of hectares of vineyards have borne fruit for the first time in 2011, conversion of the vineyards. “I have said many times that this year is a quality one – the accumulation of sugar in grapes will help produce some stronger wines with a higher degree of alcohol. We’ll see next year if this year’s product will be more expensive. In general, elasticity is quite low on wine,” says Popescu. Most wine producers have high hopes for this year’s harvest. But the wine market is not very closely related to that year’s harvest. This year’s harvest may, however, boost the optimism for sales in future years. Only in 2012 or 2013 will it manifest its presence on the market.

15

percent is the local wine market decrease during crisis A toast to the future

In recent years the wine market has evolved in a good way, according to many producers in the market. Remarkable progress has been made in quality, thanks in part to European money – new cellars were built, old ones were furnished with the latest equipment, and funds were channeled into replanting, which will increase the quality of Romanian wine. “You must be realistic and recognize that the market is the most unpredictable thing. We work in an economic space with various problems. If things remain normal, the market will move towards specialization,“ says the Murfatlar head. In addition, according to him, the coming period will see more players enter the market and bring news of many

small new wineries. “I do not foresee the emergence of a huge player in the coming years, while self-consumption will decline. This is what we are hoping,“ says Cosmin Popescu. Although there are visible signs of recovery, producers hope the international situation will not worsen, because this would affect them all. “I estimate that in the coming period the market will shrink. The yield is higher for owners of hybrid vines (individual), which will make the fall greater. Wine should be part of Romanians’ daily basket of goods,” argues Ciprian Rosca.

From plonk to premium

“I tasted several Romanian wines in 1997, and it was hard to find something for my taste, because the local market had been educated in a different way from the European market. I remember the same trend in Germany in the 60s, but things changed in the 80s. And this has happened in Romania, but 30 years later,“ says Baron Jakob Kripp, adding that in recent years the quality of Romanian wine has skyrocketed and a lot of producers have invested heavily in modern technology. The premium market is defined not only by price but by the price-quality

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wines

“There is room for new players, especially in the premium segment, as there is no comparison between homemade and cellar wine,” Ghenadie Bobeica, general manager, WineRo

ratio. This high-end niche is addressed to a very small percentage of Romanian consumers. The number could rise as people enjoy new experiences and raise their living standards, meaning they taste new wines. “Consumers tried to buy less but of better quality,” advises Ghenadie Bobeica. On the market there is room for new players, especially in the premium segment, and there are many consumers who have still not had the opportunity to taste quality wines. According to wine producers, the natural conditions such as soil and climate are ideal for making premium wines in Romania. Know-how and good oenology training systems are other vital ingredients.

Too many players in the mix

“Romanian wine is changing constantly: new wineries appear, others disappear, there are imports, but all these things are normal in a competitive market and I think they are very beneficial because the customer can choose, compare and settle upon the best product,“ Catalin Grecu, director of marketing at Cotnari, tells The Diplomat – Bucharest. Companies are still entering the market, especially because wine has a very good absorption rate of European funds. All money invested must be found somewhere in the market. The newcomer producers are usually niche operators, focusing on certain categories of products and

Top ten wine producers Murfatlar Romania

Turnover 2010: EUR 28.3 mil. Income 2010: EUR 2 mil. Number of employees: 210 Shareholders: Euroavipo ( Dobronauteanu brothers, Catalin Bucura, Nicolae Mermeze, Gheorghe Zlotea)

Cotnari

Turnover 2010: EUR 20 mil. Income 2010: EUR 0.5 mil. Number of employees: 282 Shareholders: employees and management

Jidvei

Turnover 2010: EUR 18.2 mil. Income 2010: EUR 3 mil. Number of employees: 286 Shareholders: Textil Promotion, Claudiu Necsulescu

Vincon Vrancea

Turnover 2010: EUR16.8 mil. Income 2010: EUR 0.9 mil. Number of employees: 686 Shareholders: Luchi Georgescu

Angelli

Turnover 2010: EUR 12.5 mil. Income 2010: EUR 1.3 mil. Number of employees: 117 Shareholders: Henkell&Co.

30 The Diplomat November 2011

Casa de Vinuri Zoresti

Turnover 2010: EUR 12.5 mil. Income 2010: EUR 0.03 mil. Number of employees: 133 Shareholders: Familia Lepadatu

Cramele Recas

Turnover 2010: EUR11.6 mil. Income 2010: EUR 2,6 mil. Number of employees: 67 Shareholders: Philip si Elvira Cox, Gabriel Iova, Ioan Georgiu Vinexport Trade-Mark Turnover in 2010: EUR 10.8 mil. Income 2010: EUR -0,2 mil. Number of employees: 123 Shareholders: many shareholders

Cramele Halewood

Turnover in 2010: EUR 8,2 mil. Income 2010: EUR -0,2 mil. Number of employees: 182 Shareholders: Halewood International (Great Britain)

Domeniile Viticole Tohani

Turnover in 2010: EUR 8,0 mil. Income 2010: EUR 0.1 mil. Number of employees: 167 Shareholders: Virgil Mandru, many shareholders SOURCE: Finance Ministry and companies

consumers. But this is a beneficial aspect for the market and for consumers. With a growing number of companies on the market selling products, the quality will increase. “A country with wine potential like Romania’s should have far more small (10-50 ha) and medium (50-150 or 200 ha) producers. The situation has improved considerably over the past three years, but it started from zero,“ says Mihaela Tyrel de Poix. Romania needs a large number of wine producers – on this all voices are in agreement – but consumption as it stands now is not encouraging for new products, and new producers are making big efforts to distribute their wines, determined efforts which are proving to be of extremely limited use at this time. But the situation will change rapidly, once the market overcomes the current crisis. “I would not discourage any initiative to start new vineyards in the coming years, especially considering the time required to reap the first harvest is at least three years,“ adds the Serve director. Meanwhile, Ciprian Rosca, commercial director at Recas Winery, says that producers who manage 15-80 ha have appeared in the last two years, boosting the quality of the market. He is convinced that in the coming period the wine industry will become fragmented with the emergence of other players at this level. “Currently the wine market is crowded: everyone wants to sell in a limited space and there are enough strong players. But with traditional and new players we have to find a niche in this market. We have some resources and concrete plans in this direction,“ says the Murfatlar chief. One such project is the promotion of Romanian wines in the US, where the firm has a budget of USD 2.5 million. This is being done through six wineries in Romania, using European money. “We are trying to find our identity and a niche in the highly competitive US market,” he concludes. ■


austria

Viennese waltz continues on Romania’s economic stage With Austria the second largest investing country in Romania, H.E. Michael Schwarzinger, the Austrian Ambassador to Bucharest, tells The Diplomat – Bucharest that investors from the Central European country are here to stay, but points the finger at the public sector’s lack of transparency. By Magda Purice

“L

ast year was a difficult year, but Austrian companies kept expanding, especially in the fields of industry and retail,” H.E. Michael Schwarzinger, Austrian Ambassador in Romania, tells The Diplomat – Bucharest during an interview at the embassy, a cozy villa in the center of Bucharest, which has housed Austrian Ambassadors to Romania for the past 60 years. The diplomatic and economic relationship between the two countries has produced direct investments of EUR 9.2 billion, 18.1 percent of the overall foreign direct investments (FDI) in the local economy. Austrian companies are active across the board, including the service sector such as banking and insurance, with large firms like Erste; the wood-processing industry with investments from Schweighofer, Egger and Kronospan; building materials players like Baumit, Wienerberger, Lasselsberger, Bramac and Tondach; and big-name retailers such as bauMax, Hevis and Billa. There are currently almost 6,000 firms with Austrian capital active locally, according to the Romanian trade registry.

Expansion continues despite crisis

According to Rudolf Lukavsky, Commercial Counselor of the Austrian Embassy in Bucharest, “After the very good years of 2000-2008, overall FDI in Romania dampened significantly in 2009 and 2010.” Direct foreign investors’ net revenues in 2009 amounted to EUR 694 million, down by EUR 2.24 million year on year. But despite the economic gloom, officials predict that Austria’s FDI could still grow EUR 363 million this year. Austria’s FDI in Romania amounted to EUR 9.2 billion at the end of 2010. According to Lukavsky, a hike of EUR 158 million was posted in the first half of this year. “In 2010 we saw a lot of re-investment ovember 20112011 32 The Diplomat JNuly

few companies had to exit the Romanian market. The vast majority stayed and in many cases even increased their investment. In total we have seen expansion over recent years, in terms of companies founded as well as investment volume,” said Lukavsky. The Ambassador added, “Austrian companies suffered the years of economic downturn in Romania along with the local business community, and they are still operating and have maintained their investments. They remained on the market. This has contributed to stabilizing the Romanian economy during the crisis.”

Zero tolerance for lack of transparency H.E. Michael Schwarzinger, Austrian Ambassador in Romania

of earnings by larger companies already present in the Romanian market, such as retail chains and companies from the woodprocessing industry, as well as new investments in the field of renewable energy – the Verbund wind park in the Dobrogea region,” Lukavsky told The Diplomat – Bucharest. Representatives are positive about Austrian companies’ local commitment. “Although we have had to face difficult times in the past I am glad to say that very

9.2

billion euro is the total value of Austrian direct investments in Romania to 2010

Still, as investors and officials continue to underline, Romania still has work to do in some areas, such as improving existing frameworks, with the public administration and infrastructure being cases in point. “Romania is an important business destination for Austrian companies; we sense a lot of interest in the market in terms of inquiries and event participation. Nevertheless, it is crucial for the Romanian government to work on the business environment with zero tolerance for the lack of transparency and mismanagement, better law enforcement and more investment in infrastructure,” the Ambassador urged. Austrian investors are calling for efficiency and consistency in public administration, notably public procurement, and improvements in the legal system.

Prioritizing privatization

Austria and Romania are working to implement the Danube strategy and exploit its potential. Austria is a big supporter of the Government’s plans to liberalize and privatize state enterprises in the energy and transport sectors, including the proposed sale of shares in Petrom, controlled


austria

“I am glad to say that very few firms had to exit the local market. The vast majority stayed and in many cases even increased their investment,”

Rudolf Lukavsky, Commercial Counselor of the Austrian Embassy to Bucharest by Austrian group OMV. “As far as improvements in the management of state enterprises are possible, we are watching this with interest,” the Ambassador told The Diplomat – Bucharest. Despite being perceived as a difficult market with high potential, Romania affords investment opportunities in R&D, alternative energy and industrial supplies, automotive and tourism infrastructure. One idea is an independent stock exchange. “This makes sense in a liberalized market. As soon as there are a number of independent players in the market, they need an efficient market place. However, it also makes sense to think beyond the existing structures. Many countries have developed from a state-organized energy sector to market-orientated arrangements,” says the Ambassador.

Bilateral trade tips in favor of Romania

According to embassy data, bilateral trade is driven by Austrian exports to Romania, which peaked in 2008, reaching close to EUR 2.4 billion, and were still above the average of the last five years in 2009, amounting to EUR 1.6 billion. Austrian imports from Romania stayed steady, going from EUR 722 million in 2004 to EUR 645 million in 2009. In 2010, the market saw a dramatic increase in Austrian imports from Romania, which rose 55 percent to EUR 996 million, and a hike in exports from Austria to Romania of almost 5 percent, taking the figure to a level of EUR 1.68 billion. “The latest figures for H1, 2011, also

show a strong growth trend: a 12.9 percent increase in imports from Austria and a 34.8 percent rise in Romania’s exports to Austria. So the overall trade volume is increasing. In particular, machinery and equipment, electrical goods and processed goods are on the rise,” said Schwarzinger. ■

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Austrians climb the recession mountain Austrian investors have not been immune to the crisis. But companies from the Central European country, which is responsible for the second largest FDI contribution to Romania, are bracing themselves for the rough ride and pursuing their investment strategies, albeit different ones than during the boom years gone by. By Dana Verdes, Magda Purice and Roxana Cristea

A

ustrian investors – the second most important foreign investors on the local market by the value of FDI – are coping with the Romanian market realities within the larger global economic context and struggling to find solutions for growth in 2011 and next year. The results may come for some, from the Romanian market, in retail or law, while others are developing locally IT solutions. According to Austrian embassy information, bilateral trade is driven by Austrian exports to Romania, which peaked in 2008, reaching close to EUR 2.4 billion, and were still above the average of the last five years in 2009, amounting to EUR 1.6 billion. Austrian imports from Romania stayed steady, going from EUR 722 million in 2004 to EUR 645 million in 2009. In 2010, the market saw a dramatic increase in Austrian imports from Romania, which rose 55 percent to EUR 996 million, and a hike in exports from Austria to Romania of almost 5 percent, taking the figure to EUR 1.68 billion. “The latest figures for H1, 2011, also show a strong growth trend: a 12.9 percent increase in imports from Austria and a 34.8 34 The Diplomat November 2011

percent rise in Romania’s exports to Austria. So the overall trade volume is increasing. In particular, machinery and equipment, electrical goods and processed goods are on the rise,” H.E. Michael Schwarzinger, Austrian Ambassador in Romania, told The Diplomat – Bucharest.

Deuromedia Brasov looks at Asian and US markets rather than the CEE region

Deuromedia Brasov, the Romanian subsidiary of the international software and solutions provider Deuromedia Technologies AG Vienna, targets a EUR 1.1 million turnover this year, a slight increase compared with 2010, when it attained EUR 1 million, according to the company’s general manager, Julia Miko. “This year, sales were indeed above last year’s results but still, they didn’t meet the level of our expectations,” Miko tells The Diplomat – Bucharest. “We recorded sales success in the US, Asian countries such as China and Singapore but less in the CEE region.” Although the company’s operations are being run on the global markets, Deuromedia

has only two managing offices, in Vienna and Brasov, the latter employing 30 staff. Established in Romania in 1994, the company has so far invested EUR 20 million on the local market in developing its local business. For instance, the company invested this year in the development of some new software modules such as tablet integration in the company’s system providing among other things, TV, internet, telephony and conference services. Also, according to the company official, some of the investments went into middleware solutions to improve the performance of a set top box and streaming-based internet on TV. By yearend, the company plans to implement these solutions on cruise liners. “Operating in a fast-developing field, we have to implement all the new technological developments in our systems. For instance, new equipment such as iPads and Smart TV has to be integrated in the system as soon as they appear,” says Miko. Looking at other markets to sell the solutions, the Deuromedia manager says that Romania is not a suitable market for them at this moment, due to the economic downturn.


austria

“We paid a high price from today’s point of view...you won’t find anybody on the board that would say going to Romania was not a good thing,” Andreas Treichl, Erste Group Bank chief executive officer

Frey Wille awaits second investment window in Romania

“The crisis acts like a sieve. In the end only the valuables will remain,” Friedrich Wille, the CEO and founder of the Viennese Secessioninspired luxury jewelry and accessories store Frey Wille, tells The Diplomat – Bucharest. After the opening of its first store in Romania following an investment of EUR 250,000 last year, the Frey Wille manager finds the local market appealing and has stuck with his plan to open a second store in Bucharest. “The options that keep up with our demands are limited, so we have not reached an agreement regarding a new location for this year, although we have considered both existing projects and future ones. The Romanian market is very appealing and we will definitely continue the search for a new location, not only in Bucharest, but also other major cities in the country,” says Wille. The company is keeping up the same global expansion rate as during previous years. For example, this year, the company opened five new shops in four countries, with two more yet to come. For 2012, three new shops are scheduled at this stage, the most important being the one on Rodeo Drive in Los Angeles. As the manager explains, part of the company’s expansion strategy is to conquer new markets and consolidate through expansion its presence in markets where it already operates.

Still, there are some challenges here: the location of the shop on Calea Victoriei, perceived as a luxury shopping location, has it flaws: “the lack of parking spaces and the crowded traffic unfortunately do not encourage customers to come shopping,” the Frey Wille founder explains. “Support from authorities is essential. There have been changes, especially in the lower part of the street – the Old City area, where the municipality managed to reconstruct and widen sidewalks – and the results are obvious.” Operating in the luxury segment, the company listens carefully to its demanding customers. “At least in the past year, we have perceived the luxury consumer as being more and more informed, more educated in the field,” says Wille. The average price of a product in the shop is EUR 500, while the most expensive can reach EUR 4,000. For the company, the typical Romanian customer is among the youngest customers that the company has worldwide: the core is 30 to 35 years old. In the first half of 2011, in Bucharest, the company made a turnover of EUR 320,000, compared with EUR 240,000 in the same period of 2010.

In September this year, the company announced a EUR 250,000 investment in building a kilometer of road due to be completed within three months in Sibiu County. According to Wienerberger representatives, the road is meant to facilitate the company’s access to its brick production facility in Sibiu. Another project on the company’s agenda and related to Bucharest has been the organization of a contest for architects, in order to revamp Piata Universitatii, as well as other sponsorships targeting the refurbishment of local infrastructure in the capital. According to representatives, Wienerberger attained a turnover of approximately EUR 29 million in 2010. In the last two years, the company has posted yearly growth of 14.33 percent, after seeing the first decrease in its turnover since 1999 in 2009. Globally, the Austrian group attained revenues of EUR 985 million in H1 of 2011, 19 percent up on the same period of 2010. The company’s revenues in CEE region increased by 17 percent in H1 of 2011, reaching EUR 272.7 million, while the operational profit obtained in the region increased by 45 percent, to EUR 44.4 million.

Wienerberger moves ahead, despite rigid financing access

Wolf Theiss flags up volatile legal framework and fiscal weaknesses

With investments in Romania totaling EUR 74 million so far, three production facilities in three Romanian counties and 210 employees, the Austrian construction materials Wienerberger is coping on the local market and even though it is operating on the worst affected sector of the crisis, the company’s representatives are optimistic about the local business potential. “A challenge for this period is the tough access to financing that could boost the construction sector. We should keep in mind that the construction sector represents 10 percent of the local economy,” Daniel Catanas, member of the Wienerberger board, tells The Diplomat – Bucharest.

For the law firm Wolf Theiss Romania, 2011 started with an increased number of M&A deals compared with last year and the company expects this trend to continue in 2012.

“The authorities need to diminish the state apparatus. There are three-four ministries which have existed for a long time, but don’t have a function today,” Jan Glas, managing partner of TPA Horwath

35


austria

“Today’s challenge is the tough access to financing that could boost the construction sector, which represents 10 percent of the local economy,” Daniel Catanas, member of Wienerberger board

Bryan Jardine, managing partner of Wolf Theiss Romania, tells The Diplomat – Bucharest that apart from M&A and renewable energy projects, the company also anticipates an increase in its workload with regard to competition law given the extensive actions of the regulator in the local market. “We anticipate that commercial litigation generally as well as bankruptcy and restructuring work will continue to also keep us busy in 2012,” Jardine states. According to him, this year has brought several new entries by multinational players on the Romanian market while other major foreign investors, which are already present in Romania, are considering the acquisition of new target companies. Such interest re-confirms the existing business potential of the local market. Regarding its macroeconomic level, Romania is not immune to foreign economic shocks or “contagion,” Jardine explains. This contagion is related to the current problems within the EU, with the so-called “PIIGS” – Portugal, Ireland, Italy, Greece and Spain – and the fact that much of the Romanian financial and industrial sector is currently foreign-owned or controlled. Also, besides the exterior influences, the domestic fiscal and legal frameworks challenge the foreign investors in Romania. Hence, as the Wolf Theiss official states, “Romanian legislation is often mentioned by foreign investors as a substantial deterrent to adequate business planning. The criticism encompasses

a large spectrum of weaknesses from undue delay in adopting necessary enactments (e.g. Law 220) to rushed implementation of enactments which are perceived as being detrimental not only to the business community but also to the end consumers (e.g. clawback tax in the pharma industry, EGO 50/2010 in the banking sector, the new PPP law of 2010, etc).” Besides, regarding the fiscal policy, Jardine underlines that there are also complaints about the excessive number of taxes and the abrupt changes of legislation. “Increased consistency and transparency in the legislative process for the adoption of new legislation as well as fair application and enforcement of the existing laws would greatly assist all investors in Romania,” the Wolf Theiss partner adds. Given the local economic climate and business dynamic trends, Jardine advises that a volatile legislative framework may accelerate a particular company’s relocation decision, since the relocation of business to other jurisdictions is largely driven by cost factors and is also seen in Western markets. “In the case of Nokia, it is no secret that the company was experiencing problems globally, particularly with increased challenges and competition from the Apple smartphones in the telephone handset market, which is Nokia’s core business. However, the departure of Nokia should be viewed in the context of new market entrants and greenfield production facilities like, for example, Toro and Lufkin, which should hopefully offset at least some of the negative impact of Nokia’s departure on the Romanian economy,” Jardine says. Since 2005, the law firm has advised different companies in practice areas such as restructuring, litigation, competition, real estate, PPP, energy, banking and many others. Currently, according to Wolf Theiss representatives, clients are primarily interested in agribusiness projects, renewable energy (wind, biomass, hydro and increasing, solar) as well as conventional energy.

“The aim of the company is to became a resource base for the group’s expansion in the region and to provide solutions for local companies,” Dan Roman, general manager, Kapsch Romania

36 The Diplomat November 2011

bauMax’s next DIY investment in spring next year

The Austrian DIY chain bauMax’s representatives look at the local market from the perspective of a retail segment with growth potential but their expansion plans have slowed down. In November last year, the company announced it was planning five store openings for this year, but the DIY operator only opened one shop near Chitila, its second location in the Bucharest region, according to Nicola Szekely, country manager al bauMax Romania. The next investment, estimated at around EUR 10 million, the average investment for each store of bauMax, will be made in Cluj, with a DIY unit to be opened in the spring of 2012. “For the next year, we have several projects to discuss,” Szekely tells The Diplomat – Bucharest. Although the local market contracted in 2011, the retailer increased its sales locally by gaining market share. “For 2012 we think that consumer spending should increase for the first time in three years,” says Szekely. According to the company’s data, in the construction field, especially construction materials, estimations for 2011 are an increase of 17 percentage points, from 41 percent in 2010 to 58 percent this year. Quoting a study from IMAS International conducted in May, in the next six month, 17 percent of Romanians want to buy paint for indoor use, while only 15 percent of them prefer construction materials,


austria

“The local market is very appealing and we will definitely continue the search for a new location, not only in Bucharest, but also in other cities,” Friedrich Wille, CEO Frey Wille

and 13 percent of DIY buyers are orientated towards plants for outdoors. “Throughout the crisis we have focused especially on offering the best price for our customers and therefore gained more customers. We plan to expand our network step by step through the next years,” says Szekely. In 2010, the company posted a turnover of EUR 150 million. In Romania, it employs 1,100 at the moment, down from 1,200 in 2010. Including the ongoing development at Cluj, the retailer now operates 15 DIY units in Romania.

Schoenherr: ‘It’s a time of litigation’

At the beginning of this year, the law firm’s office in Romania estimated at least 10 percent growth for its business, in the context of adjusting to “the lack of predictability” on the local market, as Sebastian Gutiu, managing partner of Schoenherr Romania, stated at that time. Now “it’s a time of litigation,” Gutiu tells The Diplomat – Bucharest. In two practice areas at least, legal specialists in Romania advised on double the volume of M&A transactions this year, compared with 2010. For instance, the company’s portfolio this year comprised the EUR 45 million transaction advising East Point Holdings on the sale of its subsidiary Agri Point Ltd, active in the grain trading business, to CHS Europe, a subsidiary of US-based CHS. The firm’s lawyers worked on other M&As, advising Heineken in relation to its

corporate restructuring, including a merger with Haber and providing advisory services also to Heineken on the sale of MMP to the Spanish private equity fund GED. Another completed deal came on the capital markets, and took the form of advisory services for the managers of Raiffeisen Capital & Investment, ING Bank NV Bucharest Branch and BRD – Societe Generale on the listing of the Property Fund, the largest Romanian investment company, a transaction estimated at EUR 3 billion. In the banking and finance sector, Schoenherr advised ING Bank as facility agent in relation to a EUR 75 million senior facility extended to a group of companies active in the field of professional insulation materials and again novel solutions were sought and structured for the securities package. The real estate segment has also been active for the company, with several transactions including advisory services on the EUR 20 million sale of various properties of OMV and ongoing advice on construction and environmental law. The energy sector, especially the green energy, delivers the largest transaction portfolio for the Austrian law office in Romania, with complex advisory services in different practice areas for companies such as Beba Energie, the German-based strategic investor in relation to the acquisition of a 186 MW wind park located in South-Eastern Romania. Schoenherr opened its Romanian office in 1996, in line with large Austrian companies’ entrance in Romania, such as Agrana and Brau Union. The Romanian office is now the second largest revenue provider for the Austrian law firm and employs around 55 lawyers for the main practice areas and market specializations.

Egger Group to create 100 jobs through new Radauti plant investment

Egger Group, a company operating in the wood industry, has invested EUR 167 million this year, double to the figure from

last year. One of the focal points was the Romanian plant in Radauti, where new investments are being made. “Egger’s plant in Radauti is in profit so far so we can say it was profitable to make an investment here. Our plant in Radauti has been well positioned due to the state of the art technology which made the production processes very efficient,” says Mihai Sandru, commercial director at Egger factory in Radauti. Last year the company invested in technological equipment and a new office building almost entirely made of Egger products. Two other investments have been initiated and are currently being developed in Radauti: a glue installation, which was finished this summer, and an OSB production line. They are part of the Egger Group’s plan to develop an integrated production site in Radauti. The OSB installation will create 100 new jobs. Another 900 indirect jobs will be created in the region thus contributing to its development. The company estimates that these positive effects will be felt in the wood, transport and construction industries. Until now, Egger has invested more than EUR 220 million in Romania. “In the current business year, Egger is planning additional investments in the existing plants. Investments in Romania include the glue installation and the OSB production line,” adds Sandru. Egger Group’s turnover in the 2010-2011

“We anticipate that commercial litigation generally as well as bankruptcy and restructuring work will continue to keep us busy in 2012,” Bryan Jardine, managing partner, Wolf Theiss Romania

38 The Diplomat November 2011


austria business year has increased by 20 percent to EUR 1.771 billion. The increase was predominantly realized by the growth of the sales volume. Egger Romania’s turnover reached EUR 100 million in 2010.

Kapsch wants to buy local IT company next year

Austrian Kapsch Group, with operations in IT&C solutions and services, equipment and services for highway toll collection and communication solutions for operators and railways, is considering a fast expansion on the Romanian market. “The company’s financial year ends in March 2012. By then we plan to conclude the acquisition of a local company that will help us to achieve the goal of approaching a critical mass of projects, regardless of their complexity, using local resources,” explains Dan Roman, general manager of Kapsch Romania. According to Roman, the aim of the company is to become a resource base for the group’s expansion in the region and to provide solutions and services for the local companies. The company

Agrana Romania officials. The company also continued to invest in the agricultural sector by increasing its capacity of harvesting and loading of sugar beet and in improving reception of raw material in factory. Group investments in this sector were of EUR 16 million in 2010-2011. According to company representatives, investors have looked primarily to reduce consumption (energy, carbon, calcium, etc.), at process automation, increased production capacity and quality of the finished product. Secondly they have taken steps to protect the environment and the efficiency of the agricultural sector in the area of harvest. Agrana Romania is the second biggest in volume and turnover after Agrana Austria. Last year, the local subsidiary recorded a turnover of EUR 142.7 million (EUR 139.6 million in 2009/10). The quantity of sugar sold by the company exceeded 240,000 tons. Agrana is the largest holding company with a market share in Romania, estimated at about 45 percent. “We expect to maintain our market share and even grow at a rate of over 50 percent,” representatives

clients develop and have businesses on the long term, and the macroeconomic environment is favorable, investments are justified in any country, including in Romania. Also, the managing director believes that the location of the company, in Sfantul Gheorghe, is a big logistical advantage for customers because they can meet orders in a short time, wherever they are.

Spiegelfeld enters energy projects segment

The subsidiary in Romania of Austrian based real estate agency Spiegelfeld decided to enter the energy projects market in 2009, a segment which saved company operations during the financial crisis. “When we realized that we did not have much to do, we entered this

“In time, looking at the developed markets beyond, companies began to realize that the future is logistics outsourcing by specialized partners,” Viorel Leca, managing director, Gebruder Weiss

could reach a turnover of tens of millions of euros in a five-year horizon, but it depends on many unknown factors. Kapsch Group has over 4,000 employees and reported revenues of EUR 829.9 million for the fiscal year 2011 concluded in March. The group has a local presence with subsidiaries and offices in over 30 countries on five continents. It invests over 7 percent of its yearly turnover in research and development. “We will focus our attention on Austrian companies in Romania, seeking partners to implement, develop and provide support for solutions developed in Austria by Kapsch,” adds Roman. The local subsidiary of the company is in the process of being included in regional and global partnerships of the group. “Of course local partnerships will be added according to specific market requirements. Basically, we will soon complete the partnership with all global leading technology providers,” concludes Roman.

Agrana bets on business consolidation

“The planned and ongoing investments are made in product quality, packaging and increase of storage capacity and in measures taken to streamline production and environmental protection and CO2 footprint,” say

of the company tells The Diplomat – Bucharest. Agrana Romania covers all the sugar market in Romania and serves all customer segments: retail, industrial, hospitality and specialties.

Dunapack Rambox sees growth opportunity in crisis

Dunapack Rambox, a producer of corrugated and micro-corrugated cardboard on the Romanian market, was established in 1997 in Sfantu Gheorghe following an Austrian investment of EUR 15 million, and sees an opportunity for growth in the current economic climate. “We managed to develop the portfolio of customers and product portfolio, based on existing customer needs,” says Christian Indreica, managing director at Dunapack Rambox. Although payment deadlines have been extended, the company was able to identify solutions that gave it the opportunity to increase even during the crisis. Dunapack Rambox sales amounted to over EUR 81 million in 2010. And for 2011 the firms forecasts that by the end of the year business will reach a higher level than in 2010. In terms of future investments, Indreica believes that as long as its

segment and I think that the energy sector is probably the most booming sector in Romania and has the highest growth potential,” Daniel Fuchs, managing partner at Spiegelfeld, tells The Diplomat – Bucharest. Romania is the only country in which In the Austrian group has entered this segment. During the crisis the turnover of Spiegelfeld decreased significantly. “Until 2008 all our business segments were very successful, we had an increase in turnover. In 2009 we felt the impact of the international crisis, the turnover fell by 50 percent and we reduced our team,” explains Fuchs. According to the managing partner, Spiegelfeld never hires consultants directly, they always work in collaborations – the network is spread all over the country. Also, the collaboration network decreased by 40 percent due the crisis. “Now we use the money we earn to pay our costs. We are covered, but today we need to work double the time for half f the money. The big business is missing,” concludes Fuchs. 39


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“Now we use the money we earn to pay our costs. We need to work double the time for half of the money. The big business is missing,” Daniel Fuchs, managing partner, Spiegelfeld

Lacerta counts on wine tourism in Romania

“Wine tourism is a very good business for the national economy. We can see this in South Africa, Austria, Spain and Italy. In Romania, this form of tourism can be done easily,” says Walter Friedl, partner at Lacerta Winery, about Romania wine tourism development. According to him, Dragasani, Dealu Mare, Vrancea and Banat are areas with high potential, which attract a lot of investors and tourists. “I think we need more foreign investments. There are a lot of funds for investors in viticulture. But for this we must have good examples locally. I think in the coming years we will see many investments in the Romanian wine market,” adds Friedl. Last year Lacerta invested about EUR 7 mln in the development of a winery, a visitor’s center and a store. The firm also has invested EUR 2 mln in viticulture. “We sell wines as of 1 June in hospitality and gift companies. We aim only at the premium market,” says Friedl, adding that he wants to export in the next three to four years.

UBM Development rolls towards Chitila logistics center investment

UBM Development Romania, a company 100 percent owned by the Austrian group UBM AG, will continue investing in Chitila Logistic Park in the near future. So far, over EUR 25 million has been invested in the project, which

will cover 45,000 sqm. “We have built 40,000 sqm, and in the next period we want to expand the project by other 5,000 sqm, but before beginning work, we want to have at least one tenant,” says Tudor Dimofte, administrator at UBM Romania. So far the logistics center is rented completely. According to Dimofte, while in previous years the company had been going through a dramatic decline, in 2011 he felt a change. “Many people have signed contracts. I saw great interest in the market and all existing tenants want to expand. I feel we lack logistic space, and that is a positive sign. I think 2012 will have great potential if we do not have sovereign crises,” adds Dimofte. The turnover of the company, which has six employees in Romania, is currently about EUR 400,000, less than 40 percent of the figures posted in the pre-crisis period.

Gebruder Weiss anticipates spike in demand for integrated logistics solutions

Gebruder Weiss expects increased demand for integrated logistics solutions and transportation services. Today many manufacturers are developing their own local logistics activities, a situation dating from recent growth years, from 2002 to 2008. “In time, looking at the developed markets beyond, companies began to realize that the future is logistics outsourcing by specialized partners,” Viorel Leca, managing director at Gebruder Weiss, tells The Diplomat – Bucharest about the future of logistics. Moreover, the current trend among large companies is to outsource more and more segments of their business. Also, the number of service providers becoming more specialized has recently increased, and they have found customers among multinational and Romanian companies. The first significant investment made by Gebruder Weiss was the acquisition of 70,000 hectares of land near Bucharest. The first phase of construction was completed in

“About 70 percent of the total cars sold by Porsche Romania are financed through Porsche Finance Group leasing or credit,” Kurt Leitner, CEO at Porsche Finance Group

40 The Diplomat November 2011

2009 and includes construction of A class storage and a cross-docking terminal of approximately 12,000 sqm. The investment is EUR 15 million. In 2010, GW continued investment projects by creating a cross-docking terminal in Sibiu. “We will continue to expand as a long-term policy and for 2012 we have proposed a terminal development in Craiova, Bacau,” concludes Leca.

Petrom gives goahead to wind energy production this year

Oil and gas producer Petrom has completed some important investments this year. The company announced at the beginning of October the start of commercial operations at its wind park Dorobantu, Dobrogea, which has an installed capacity of 45 MW. “This investment reaffirms our commitment to supply energy in Romania,” says Hilmar KroatReder, member of the Petrom executive board, responsible for gas and power. The park is equipped with 15 Vestas-V90 turbines with a capacity of 3 MW each. The construction of the park began during the second half of last year and was finished in July this year. The resulting green certificates allocated to the power generation of this park will be mainly used to cover the regulated quota for Petrom Group’s electricity consumption (approximately 1 TWh/year), while the difference will be traded on the Romanian market, as per applicable regulations. The


austria total investments amounted to approximately EUR 90 million. Moreover, In July this year, Petrom officials confirmed the decision to enter a new exploration phase of the Neptun block in Romania, following a government decision to amend the Neptun concession agreement to extend the time allowed for exploration of the block. The work program to be executed in partnership with ExxonMobil Exploration and Production Romania includes the drilling of the first deep water exploration well in the Romanian waters of the Black Sea by the end

Erste Group Bank to acquire another stake in BCR

Banca Comerciala Romana (BCR), majority controlled by Austrian lending institution Erste with 69.4 percent, reported RON 67.6 million in net profit in the first nine months of 2011. Recently, Erste Group Bank recommended increasing the share capital of BCR by EUR 644 million (about EUR 150 million) to RON 1.7 billion. A final decision is yet to be taken by shareholders on November 14. Erste announced H2 this year that it has reached an agreement in principle with four of the SIFs, which control 30 percent of the bank’s shares, to acquire 24.12 percent in BCR for EUR 435 million in cash and stock via a series of transactions. The move will increase Erste’s stake to 93.5 percent. According to

“We will see a different approach, of consolidation of the banking system because the problem of costs, of efficiency, can no longer be ignored. Now, banks’ main business is to manage non-performing loans and costs in general, not revenue increases, because revenue is flat at best.” Raiffeisen has currently a retail network of 545 units. In 2001, Raiffeisen and the Romanian American Enterprise Fund bought local lender Banca Agricola in a USD 52 million deal. The consortium paid USD 15 million for the stake owned by the Romanian Government and added USD 37 million to the bank’s capital. Raiffeisen Bank International officials stated recently that it had acquired its Romanian subsidiary at a “very low cost”, and since there is no goodwill booked, there is no need for write-downs.

“This investment, the 45 MW Dorobantu wind farm, reaffirms our commitment to supply energy in Romania,” Hilmar Kroat-Reder, member of the Petrom executive board

of this year or beginning of 2012. In March, Petrom announced its decision to permanently close the Arpechim refinery. The sale option, which the company has investigated in the past year, is not feasible, as no credible buyer was identified that would have the experience and financial resources necessary to safely and sustainably operate the refinery. The Arpechim refinery is a challenging investment case as it is a landlocked refinery needing to import crude oil and mainly exporting finished products. All this seems to confirm what Mariana Gheorghe, Petrom CEO, announced at the end of last year: “For Petrom, 2011 will mark the transition from an oil and gas player to an integrated energy player, as we start commercial operations in our power business projects towards the end of the year. In addition, we will continue our efforts to largely offset the natural decline of our production assets and to unlock the E&P potential. Operational optimization, Petrobrazi modernization and the pursuit of further strict cost management measures will also be key priorities in 2011. At the same time, 2011 marks the relocation of the company’s central operations to the new headquarters, Petrom City.”

Erste representatives, the capital increase is also necessary to keep non-performing loan coverage ratios at tolerable levels. Erste Group Bank chief executive officer Andreas Treichl said recently the Austrian group had shelled out big money for BCR in 2006, given the subsequent events, but the purchase cannot be considered a mistake. “We paid a high price from today’s point of view... you won’t find anybody, neither on the managing board nor on the supervisory board, that would say going to Romania was not a good thing,” said Treichl. Also, Erste announced that it would partially write down its Romania-related goodwill by EUR 700 million pre-tax, reflecting a slower-thanexpected economic recovery.

Raiffeisen Bank Romania reshapes to market conditions

Raiffeisen Bank Romania, part of Austrian lending institution Raiffeisen Bank International, reported a net profit of RON 103 million for H1 this year. Recently, Steven van Groningen, president of Raiffeisen Bank Romania, talked about the fate of the 6,000 bank branches in Romania, amid the very low demand for loans. According to him, consolidation is inevitable. “Clearly we will see a trend of reduction of the retail network capacity because the current level is no longer justified under the current market conditions,” van Groningen said, quoted by media reports.

Volksbank Romania sieves local operations

Austrian bank Volksbank is one of the biggest loss-making financial institutions, with RON 306 million of losses in H1 of this year, according to market data, especially because the bank’s exposure on real estate. The company tells The Diplomat – Bucharest that the bank’s losses at six months were RON 4.76 million, after taxes, according to the IFRS system. “After 2008, when the crisis hit, we reviewed every real estate project we financed. Where it made sense to keep financing it, we did so. Some clients, mainly speculators, stopped paying entirely. Last year you couldn’t sell anything; today, if the location is okay, you can find a buyer,” Johann Lurf, president of Volksbank Romania, tells The Diplomat – Bucharest in an interview. According to him, approximately 25 percent of the bank’s portfolio was restructured and of this 25 percent, 70 percent was successfully restructured. “In the event of foreclosure we try to advise the client to sell the asset himself and get a better market price rather than get the court involved. A two-room apartment in Bucharest will sell for EUR 55,000-70,000. Currently, it takes 18-24 months from when a client stops paying until the asset goes to auction,” says Lurf. Volksbank counts assets of EUR 4.8 billion. The bank employs about 1,400 people in 255 branches. “We are going to merge some branches but maintain our presence around the country. 2010 was a more difficult year for us. In 2009 we still made a EUR 41 million profit, 41


austria

“These are times of litigation but we are also seeing double the volume of M&As this year, compared with 2010’s results” Sebastian Gutiu, managing partner, Schoenherr Romania

while in 2010 we posted a loss. But even if the economy is recovering, things are not as good as before 2008,” says Lurf. In his opinion the crisis redefined the local banking sector. “Today we’re more careful and seek more profitable locations. That means that we’re going to look more closely at the network: around 10-15 percent of the branches will be closed or merged. Last year, we closed 28 branches. In 2011, there may be other changes, but not significant ones. The Romanian market contributes more than 35 percent of the business of Volksbank International. This is the biggest market where it is active. If Volksbank International is sold, Volksbank Romania will not be part of the deal, but will most probably go to Volksbank AG, as a subsidiary. Anyway, whatever decision is made, it will not affect the client directly,” adds Lurf.

Immorent to focus on new segments and acquisitions

The crisis has brought many changes for Erste Group Immorent, which has given up on development and not purchased land. But the interest in new acquisitions has increased this year. “We wanted to make a deal early this year but, in the meantime, the owners changed their mind,” says Bogdan Cernescu , general manager of Erste Group Immorent. The firm also plans to focus on new segments, such as the residential sector. “We are doing homework on the residential sector. We are making a projection of what is happening now and what might

happen in the next five to ten years in this area. In addition, we are looking to see to what extent further industrial development makes sense,” he adds. This year the company hopes to stay at the same level as last year. Although there was little activity in 2009 and 2010, this year things are beginning to happen on the real estate market. First of all, land prices are lower. ”It’s worth buying land and starting to develop it in one form or another. And that’s good news. Moreover there is activity in the market,” says Cernescu. In his opinion, Romania needs new office buildings and industrial space. “It is important that developers have a long term vision. Speculation will no longer find a place in Romania. This is the concept on which Erste Group Immorent is based. We do not want overnight gains,” he adds.

Siemens finds answer blowing in the wind

Siemens’ headquarters are in Munich, Germany, and at global level the company is organized into more economic regions, named clusters. Romania belongs to Siemens Central Eastern Europe, an economic region encompassing another 18 countries. The CEE Cluster is coordinated by Siemens Austria. In Romania, Siemens offers solutions in following sectors: energy, healthcare, industry, infrastructure and cities. The major shareholder of local operations is Siemens Austria. The company has approximately 1,800 employees. In the fiscal year, ended on September 30, Siemens registered a major success in one of the most dynamic investment sectors of the moment: wind energy. According to media reports, quoting Cristina Secosan, Siemens CEO, the company has ordered turbines of 170 MW, with about 180 MW to be inked during the next period and another 250 to 300 MW for which the company has presented offers. Another highlight of the last fiscal year is the fact that the prototype of the newest tram produced by Astra Vagoane Calatori powered by Siemens was launched.

“We are doing our homework on the residential sector. Also, we are looking to see to what extent further industrial development makes sense,” Bogdan Cernescu, general manager of Erste Group Immorent.

42 The Diplomat November 2011

Grawe Romania allocates EUR 10-15 mln to investments

Austrian insurance company Grawe has a realistic view of the market. “Before talking of another crisis, we are still suffering from the effects of the last crisis. Currently the market is at the 2007 or 2008 level. The clients have become more careful an important factor as about 99 percent of our premiums comes from individuals,” Peter Kasyk, general manager of Grawe Romania, tells The Diplomat – Bucharest. According to him, the company’s average premium value kept steady at about RON 1,000. “We registered a decrease of about 10 percent in the number of contracts,” adds Kasyk. Despite the current turmoil, the company keeps investing on the local market. “This year we finished the works at an office building in the second quarter and it is already 80 percent rented. This investment reached about EUR 7.5 million. Also, we acquired land this year on which we plan to build a parking lot. Grawe still has EUR 10-15 million to invest in the coming years,” says the Grawe Romania GM. This joins the EUR 7.3 million investment in the company’s headquarters, an investment made in 2006, and also the villa the firm owns in the center of Bucharest. Currently, the company has 65 employees and another 25 to 30 assistants in the country.


austria TPA Horwath Romania sees consistent growth despite crisis

“We have budgeted 13 percent of our businesses for this year and if we look after the first three quarters we have a hike of 25 percent. We’re seeing an increase in fiscal assistance and accounting. We have also focused more on renewable energy counseling,” Jan Glas, managing partner of TPA Horwath, tells The Diplomat – Bucharest. Also, the Austrian company has increased its personnel number by about 15 percent, to 80 employees, despite the crisis. The company is present on the market for about four-five years, and currently has 300 clients, of whom 90 percent are foreigners. In his opinion, one of the main challenges for a foreign investor on the local market is the bureaucracy. “It is incredibly annoying the way firms are suffocated with inspections, documentation and permits,” complains

tions that are currently completely unknown, to boost summer demand and bring in a new spa theme, which is not that popular in Romania so far. In these three years of presence in Romania, the company has spent about EUR 800,000 on advertising alone. As far as prices are concerned, Wallner said that they haven’t decreased, as such a measure wouldn’t have supported the necessary investments to keep these hotel units at high standards. “We try to compensate by offering some extra services for the same money,” says Wallner. “In February 2012 we expect new destinations to join our organization to further develop local operations. Currently, we have about 30-35 partners on the local market. “

Uniqa plans to double number of employees by 2015

Alfred Vlcek, vice-president of the Uniqa managing board, tells The Diplomat – Bucharest that the company’s main objective is to diminish the firm’s exposure to the car market. “Currently, about 88-89 percent of our business is auto insurance, while the rest is non-life insurance. Our target is to reach a 75 percent share for auto and 25 percent for non-life insurance,” says Vlcek. He says that the crisis has had a significant impact, surprisingly, on auto liability policies (RCA) but not on CASCO ones. “One of the current market’s problems is the fact that

Porsche Finance Group adapts to market drop

“About 70 percent of the total cars sold by Porsche Romania are financed through

“This year we completed a EUR 7.5 mln office building and acquired land for a parking lot. We have EUR 10-15 mln to invest in the coming years,” Peter Kasyk, general manager of Grawe Romania

the official. “Another measure the authorities need to take in order to boost foreign direct investments is to diminish the apparatus, as Romania has too many state employees. Moreover, there are three-four ministries in Romania which have existed for a long time, but don’t have a function today.” Infrastructure investments continue to be a nightmare, a huge disadvantage for Romania, says Glas. “The fact that next year brings the elections is also a disadvantage for Romania’s efforts to attract foreign capital. It is important that politicians don’t make promises to change the legislation, regardless of who wins the elections,” the TPA Horwath managing partner says. He adds: “Currently, the foreign investments in Romania are still conservative. The foreign investors are stilling search for stability and good infrastructure and not incentives, like cheap pieces of land.”

Austria Incoming

The Austrian company has been present on the local market for three years already. “We are noticing that demand is getting stronger and we expect to see results next winter, of about 10 percent compared with 2010’s winter results, meaning some 120,000 overnights,” Hans Wallner, managing director of Austria Incoming, tells The Diplomat – Bucharest. According to him, the firm’s targets for the local market are to promote Austrian destina-

PFG leasing or credit,” Kurt Leitner, CEO at Porsche Finance Group (PFG), tells The Diplomat – Bucharest in an interview. Porsche Bank is the leading shareholder of a group of five companies: Porsche Leasing Romania, Porsche Bank Romania, Porsche Insurance Broker, Porsche Mobility and Porsche Insurance, which are under the umbrella of Porsche Finance Group. According to company information, the increase in the group’s level at nine months was 18.9 percent in terms of contract volume, to 7,551 new contracts. Also, Porsche Leasing registered a 59.7 percent increase in the number of contracts in the first nine months of this year, compared with the same period of 2010. Porsche Mobility likewise posted a 178.4 percent hike in the amount financed for the first nine months of 2011 while the Porsche Bank portfolio registered a 10.3 percent increase over January-September 2011, compared with the same period of 2010. “This year we can see a 12 percent decrease in the local car market. We saw changes in the client’s behaviour as private individuals shift to commercial customers. Also, clients are searching for more commercial vehicles and small cars with less carbon dioxide emissions,” said Leitner. According to him, for next year the PFG expects a steady increase of 5-10 percent and by 2016-2017 to reach the volumes of three-four years ago.

certain companies charge dumping prices. As such, we registered a decrease in subscribed gross premiums (SGP) of 17 percent,” adds Vlcek. Last year, Uniqa registered a SGP of RON 432.39 million, 30 percent less than in 2009. The Austrian investor has bold plans to boost operations on the local market. “We plan to accelerate local operations by increasing the network. By 2015 we plan to have 1,000 employees, from the current 500. Also next year we will launch a new concept: unique agent franchise. We want to have 25 such units next year,” says Vlcek. Currently, Unique has 46 branches and about 110 agencies. The company has also formed this year a new corporate division intended to offer tailormade solutions. The solution seems to be coming from non-life area of the insurance market. “This year we registered a 19 percent hike in property insurance in H1, while for the non-life sector we expect a decrease of 9 percent this year. Next year we expect to be at the same level as this year with an overall market rise of just 0.5 percent,” concludes Vlcek. ■ 43


The vision of the European Parliament on the WEEE management contradicts the approach of the Romanian Ministry of Environment The vote of the Environment, Public Health and Food Safety (ENVI) Committee of the European Parliament on the second reading phase of the recast of the Directive 2002/96/EC fundamentally contradicts the approach of the Romanian Ministry of Environment and Forests for the revision of the internal legislation on waste electric and electronic equipment (WEEE)

T

he Committee for Environment of the European Parliament (ENVI) voted on 4th of October 2011, with a large majority (52 for, 1 against and 5 abstentions) according to the recast procedure of the Directive 2002/96/EC on waste electric and electronic equipment, “second reading phase”, the proposals of the raporteur Karl-Heinz Florenz.

These are almost identical with the proposals adpoted in the „first reading phase“ and are very different, even opposed to the approach of the Romanian Ministry of Environment expressed in the Governmental Decision 1037/2010 and its subseqvent legal acts which were described in our previous series of articles entitled “The Industry Under Threat“. Collection target While the Romanian Ministry of Environment shifted all the responsibility to the industry and imposed collection targets based on the quantities of new equipment put on the market, the ENVI

44

Committee reconfirmed the position of the European Parliament for a target based on the generated waste in the responsibility of the Member States. A collection target based on the amount of “WEEE Generated”, as proposed by the European Parliament, has distinct advantages compared to a target based on EEE placed on the market: • The responsibility for achieving the target stays with the actor that has the enforcement power, i.e. the Member State. Member States should be responsible for meeting the collection target because the producers cannot control all the other actors who collect WEEE to make a profit. In addition, the producers do not have enforcement powers. Member States, on the other hand, are the only ones in control of the key instruments to both organize and enforce the collection target, and therefore should retain responsibility for achieving these targets.

• A target based on WEEE generated would require all WEEE flows to be measured and included in the collection rate. For B2C, this would mean that any WEEE leaving the private household would be taken into account in the calculation of the target. This includes all WEEE that has been properly treated regardless of whether it


Raporteur Karl-Heinz Florenz, the Committee for Environment of the European Parliament (ENVI)

ties and B2B end users could sell their WEEE to third party actors who can then sell this onto producers at a later date when they need to comply with the collection target. This would mean that the producers could be forced to pay a much higher price for compliance. Profiteering in some markets led to costs arising from the WEEE Directive being inflated by up to 50 per cent. individual Member States because a collection target based on the amount of WEEE Generated will ensure that an achievable level is set for each Member State, since it is based on the real amounts of WEEE. A target based on the amount of WEEE Generated would take into account differences between Member States that influence the real generation of waste, such as history, economic development, differences in technology development; differences in product life cycles and differences in consumer behavior. The responsibility and execution of calculating WEEE generated on the bases of a common methodology should lie with the Member State. Inclusion of all actors

was treated by a recycling system managed by producers or whether it was treated by other WEEE actors or recyclers, any WEEE that was sent to export or discarded in any other way. • The new target, as proposed by the European Parliament, would fit all Member States. There would be no need to negotiate different target levels for

While the Romanian authorities choose to ignore the collection and dismantling of waste electric and electronic equipment by other actors (the GD 1037/2010 contains no provisions regarding this issue), the European Parliament proposed specific measures for the monitoring and enforcement of the legislation. Measuring the collection rate according to only WEEE collected by producers’ compliance schemes risks leading to profiteering and to increasing the costs of WEEE compliance with no environmental benefit. Measuring the collection rate according to only WEEE collected by producers will mean that municipali-

Member States should ensure that all WEEE flows are measured and included in the collection rate. This includes all WEEE that has been properly treated regardless of whether it was treated by a recycling system managed by producers or whether it was treated by other WEEE actors or recyclers. Harmonized standards The European Parliament clearly expressed its opinion in favor of harmonized standards for the WEEE management. Developing harmonized collection, treatment and recycling standards can contribute to the realization of the environmental objectives of the Directive while giving industries a level playing field. Standards written by European Standardization Organizations represent the state of the art and participation in the highly technical preparatory process of the development of the standard is open to all interested stakeholders, including Member States representatives, industry experts, enforcement authorities, environmental NGOs etc. Harmonized standards provide requirements that are the same throughout Europe. Furthermore, the New Legislative Framework provides a mechanism for questioning and correcting standards that are thought to be deficient, something that would also need to be established should the requirements be contained within a delegated act. The New Legislative Framework foresees a formal mechanism to object to a harmonized Standard to ensure that it is entirely satisfactory.

45


boutique hotels

Carol Parc Hotel

Moxa Hotel

Accommodating king‑size business hopes Amid the rapid expansion of world famous hotel chains over the last decade, boosting the three-star and above slices of the local market, how can a niche product like boutique hotels get bodies in beds? The Diplomat – Bucharest asked some of the boutique operators active locally how they managed to gain a seat at the hospitality market table and whether the luxury cushions still feel fluffy in financially inhospitable times. By Magda Purice

“T

he great advantage of a hotel is that it’s a great refuge from home life,” said the Irish writer George Bernard Shaw, who is also famous for having been a sharp art critic. If he were to visit some of the petite luxury hotels in Bucharest, surely his entries in their guest books would be complimentary. But while Shaw did not live to discover modern Romania, today’s crop of celebrities have autographed local guest books and, in some cases – Beyonce, Enrique Iglesias and Ethan Hawke for a start – opted to make one of Bucharest’s boutique hotels their home away from home. If you were a visiting royal king, where would you hold court?

Boutique basics

Although you don’t need a crown in order to be treated like a king or queen in some of the boutique hotels that have opened in Bucharest in recent years – and the capital remains the main market for this luxury 46 The Diplomat November 2011

niche in Romania. As most hotel managers and investors admit, “a few boutique hotels don’t make a market.” This is the view of Toni Tatar, the manager of Rembrandt Hotel in the old center of Bucharest, a EUR 1.1 million Dutch investment allied to the adjacent Van Gogh coffee shop. With 7 levels and 16 rooms, it opened in 2005, after the old building, which dated back to 1925, was refurbished. As one of the oldest such hotels in Bucharest, the Rembrandt established itself as a venue for accommodation and events, but the inhospitable years have forced the company to adapt. “While we formerly targeted only business tourists, now we also pay attention to leisure, especially due to the location of our hotel in old center of Bucharest,” Tatar tells The Diplomat – Bucharest. According to the manager, staying in Bucharest is still expensive, but prices began to fall in 2008, both at luxury boutique hotels

and standard three-star outlets. “The customers kept their high expectations, but their approach is like this: they look for luxury services at boutique hotels and negotiate in order to get standard rates for those services,” Tatar says. The market is still immature, adds the Rembrandt manager, and other hotel managers admit that it can be tricky to operate on the luxury accommodation sector. “It is not easy to invest big in a small hotel expecting to sell at high rates on the luxury segment and finding yourself forced to sell at lower rates due to the increased competition, while still being able to maintain the same standards of service,” adds Tatar. The Rembrandt Hotel had an occupancy rate of 80 percent in the early months of this year, a similar level to 2010. The hotel’s turnover, though, is expected to rise, as the property had posted EUR 220,000 eight months into this year, compared with EUR 310,000 for the whole of 2010.


boutique hotels

Chambers’n Charm

Building a boutique business

The “double tear” symbol is the leitmotiv of the interior design carried out by a Romanian architecture firm for another well-known boutique hotel boasting impressive architecture, Hotel Epoque, located near Cismigiu Park in Bucharest. Alex Oproiu, GM of

D&M Perfect Real Estate, the company that developed the hotel, says that this boutique property doesn’t sell just services or accommodation, but a mood and an atmosphere personalized for each guest and for the 45 apartments in the hotel. “Last night, for instance, we were completely booked,” points out the hotel manager.

Rembrandt Hotel

The result of an EUR 8.6 million investment, the hotel is a greenfield project which took shape in 2007. Oproiu, an economist by profession, was busy getting the hotel permits back in 2005. From the very beginning, the founders intended Hotel Epoque to be different from the chains that usually offer standardized services. Even the hotel’s

Invitation to experience marvelous flavours at the Crowne Plaza Interview with Ashlie Dias, chef at the Crowne Plaza Hotel Bucharest

At the Crowne Plaza we put a lot of effort in bringing the best food for the enjoyment of our guests. This is why our hotel established itself as being one of Bucharest’s top locations for dining and not only for those staying in our hotel. The Culinary attractions are in the restaurants and the bar so wherever you are lounging or dining you would experience a marvel , tasting flavours from Asia to the America’s with French cooking techniques. We also cater to the business executives with a Power lunch menu to be served in 35 minutes, with menus that change every 3 weeks. Those who enjoy learning about cooking can participate in a bi-weekly cooking demonstration , which is actually a Chef’s table where you watch me cook and serve

you right away , with no secrets withheld . I should also mention the once a week Asian & Italian Buffet at the La veranda during dinner. But this is just a synopsis , food is to be tasted hence you need to visit us ,we as a team invite you. Will you prepare a special “winter menu” for the next season? Yes we will be changing the menu as of November and it will feature creative and exquisite dishes as well as different Fresh Fish with my signature dishes. We are preparing a very tasty and rich Christmas Brunch menu on 25th of December and we will also have a fabulous sparkling New Year’s Eve Party that will make all our guests feel like real show-biz stars! The New Year’s menu and entertainment will keep everyone content all night long.

Can you recommend a “house special” that you prepare at the Crowne Plaza? There are many dishes that I am very proud of, but if you want me to name some specials, it should be the Pan Seared Salmon with Buttered vegetable ribbons and Avocado relish or Turbot with Spinach, baby potatoes and tomato beurre blanc.

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Which are the culinary attractions that one can find at the Crowne Plaza?

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boutique hotels

“Price rates adjustement and events resizing led to a 150 percent growth in events compared with 2008,” Sylvia Petre, CEO Carol Parc Hotel

cuisine, which embraces French savoir-faire, was devised by and is produced under the supervision of a three Michelin-starred Parisian chef. “The French dishes are made with Romanian ingredients and there is a summer and winter menu,” says Oproiu. One of the most important things on this niche is client retention. This is why, Oproiu says, the firm is preparing to implement its own mysteryguest service. The hotel currently employs 60 staff, of whom 20 are working in food & beverages. According to the manager, while it is easy to keep regular guests, the same cannot be said of the hotel staff, who are often headhunted. “The front office is the hotel’s business card to its clients. Front-desk workers in particular are vigorously pursued by similar departments, for instance in the banking sector,” he adds. For 2011, the hotel plans a turnover of EUR 2 million. This year is its first fully operational year; in 2010 it had a soft opening after works were completed. Another marketing highlight is the outlet’s affiliation to the global network of exclusive properties, World Hotels, which came in November last year.

King-sized accommodation

“The Official Supplier of the Royal House of Romania accommodates the members of the Royal Family and their guests,” is the business card won in May this year and presented

whenever requested by the managers of Carol Parc Hotel, which has as its target client, “the demanding guest, looking for an extension of his or her office or home,” Sylvia Petre, CEO of Carol Parc Hotel, likes to say. The facility opened in 2007, with 17 rooms and an investment of EUR 6.8 million. “Initially, the investment was EUR 6 million, but another EUR 800,000 went into further improvements,” Petre tells The Diplomat – Bucharest. According to the manager, guests’ increasing thirst for luxury has reached Romania too. Although, according to the hotel’s figures, the occupancy rate was hit by the economic downturn in 2008 in terms of foreign guests, the gap has been filled this year by Romanian customers. The occupancy rate increased 10 percent this year, to reach 40 percent, compared with 2010. The hotel’s turnover is also expected to rise this year to EUR 500,000, up from EUR 350,000 in 2010. The general economic downturn has had an unexpected outcome at Carol Parc Hotel in the last few years. “The recent period had a significant positive effect for us. The adjustment of some price rates and the resizing of some events as a result of budget constraints resulted in a 150 percent growth in events at Carol Parc compared with 2008. While in 2008, events were held for 100 persons, now it is more like 50-70,” says Petre.

Chain reaction

Though many boutique brands fly solo, the Romanian market also has a chain-orientated brand, the K+K Hotel Elisabeta, whose shareholders are K+K Hotels Kft Hungary and K+K Hotels AG Switzerland. The 67-room facility in central Bucharest has noticed some green shoots, as its occupancy rate is up on 2010’s. However, while it was still a good year, Alina Cristea, manager of the hotel, says it was 2008 that triggered the decline in the occupancy rate, due to both the advent of the economic crisis and the expansion of the local hotel market. “More than 2,000

“Customers like to come to a foreign city and stay in an already known location. To feel a little bit at home,” Oana Ungureanu, sales manager Moxa Boutique Hotel

48 The Diplomat November 2011

rooms were added and several new hotel units entered the market in 2008,” she says. The K+K Hotel manager believes that Romania’s luxury hotel sector, including boutique hotels with their personalized service, is in constant development and set to grow, boosted by the interest shown by large international hotel chains in entering. “This upward trend confirms that the demand for high-class hotel services is not yet fully satisfied,” argues Cristea, adding that the Romanian hotel scene trend is toward harmonization of services and prices with European standards. “These efforts have generated the interest of major international chains. Without doubt there is still much potential to be exploited on this market.” For those traveling to Spain next year, the chain is planning to open a hotel in Barcelona. “The new K+K Hotel Picasso will open in the spring of 2012 close to the center, in the exclusive ‘El Born’ district,” say representatives.

Eyed from afar

It seems that it is not only Europeans that have made their way into the local luxury accommodation market, but also Americans. An investment by a US businessman targeted a central location in Bucharest, just across the street from the Bucharest National Theatre, to develop a new boutique brand, Z Executive Boutique Hotel. The 7-level and 21-room hotel channels a more “popart” interior design, which sets it apart from many of its competitors.


boutique hotels

“While it is easy to keep regular guests, the same cannot be said of the hotel staff, who are often headhunted,” Alex Oproiu, GM of D&M Perfect Real Estate

“The construction was a former office building for a Romanian company before 1989. It has been revamped three times so far,” Mihaela Liliana Romascu, director of Z Executive Boutique Hotel, tells The Diplomat – Bucharest. The surroundings are very important for the traffic a hotel can hope to register, according to the manager. But it can be a doubled-edged sword, as a central location can present parking challenges, especially in Bucharest. And in a city like the Romanian capital, with an outdoor architecture that is always changing and improperly managed, the surroundings can either attract or deter customers. Still, Z Executive Boutique Hotel and its 17 employees have thrived in central Bucharest with an occupancy rate of 90 percent, the peak having been reached in September, when 98 percent of the rooms were taken. Having only opened this year,

the hotel is adjusting to meet its customers’ needs as it goes. “We’ve just opened the spa center and we have an event capacity of 30 persons, our intention being also to develop the corporate events segment,” says Mihaela Romascu. To cater for corporate customers, the hotel has given over its first level to a business HQ, where companies can register their head office and get access to the legal and office assistance and services. As other hotels have found, affiliation either to an international chain, global marketing platform or worldwide integrator such as booking.com is essential for the business, until a mass of loyal guests is built up. According to Romascu, the retention rate is 5 percent so far and clients from all over the world use the hotel, coming from Holland and Belgium, but also further afield like Thailand, China and Japan, both on business and leisure.

A place like home

Le Boutique Hotel Moxa is perhaps one of the best known names on the local scene. It opened in February 2006, as a private investment, delivering, at that time, 24 rooms. Four years later, the hotel now contains 52 rooms and the investors are planning to add a new wing, according to Oana Ungureanu, sales

49


boutique hotels

“The upward trend confirms that the demand for high-class hotel services is not yet fully satisfied,” Alina Cristea, manager K+K Hotel Elisabeta

the city life. For instance, Moxa Hotel provided accommodation for guests invited to an experimental movie festival in 2010 and, according to its manager, the hotel plans to repeat the experience this year.

Cross-sector pollination

director at Moxa Hotel. One of the most important things in running such a business, according to Ungureanu, is to know your customers and to treat each of them as your own guest at your very own house, which means long extra hours and even weekends spent in the office. “Customers like to come to a foreign city and stay in an already known location. To feel a little bit at home,” the manager says. At the time of the interview with The Diplomat – Bucharest, the hotel had a 90 percent occupancy rate and had just welcomed an international bachelor party. “The demand for accommodation came from a customer of Spanish origin, the only one who was familiar with Romania,” said Ungureanu. Many hotels felt a slump at the beginning of 2009, according to the manager, which she attributes to the pressure from the opening of large hotel chains and even other hotels in the same category as boutique hotels. Everyone in the accommodation industry found themselves in the middle of a competitive market and each adjusted in their own way. “Some of them started to decrease rates and this affected us, because we were also forced to compete on price. In 2010, we started to cut our rates and we reached an 80 percent occupancy rate but with lower prices. This year, we felt an improvement, at higher rates,” Ungureanu outlines. As in the case with other hotels in the center of urban environments, a marketing tool for attracting clients to the hotel can be

Whether they are Romanian or foreign investments, the boutique hotel business targets long-term profits. According to Raluca Costea, manager at Hotel Cantemir Bucharest, expressing a view supported by most of the hotel managers, breakeven for such an investment can take 10 years. A hotel developed by Romanian private investors, Costea’s, was opened in 2009, with a loan from a Greek bank. According to Raluca Costea, it should have opened in 2008 with an investment of EUR 1 million, but there were delays in obtaining different permits and authorizations. The plans for its development started in 2005. “The category makes the pricing,” says the manager of the hotel, which currently consists of 15 double rooms and an apartment. The property has a total area of 400 sqm and the firm is planning the construction of an additional wing. So far, the investment in the construction and facilities is EUR 1 million. The hotel makes a profit of around 30 percent of its yearly turnover and employs 8 people. On the same segment of small hotels is another property which began trading in recent years. A EUR 4 million investment by a private Italian businessman, Hotel Hemingway, near Romana Square in the center of Bucharest, delivers 24 apartments, the smallest of which consists of 51 sqm, and the largest 105 sqm. The hotel is another example of the link between investments in other sectors and the accommodation performance. For instance, according to Dario Zagatti, the manager, the new fashion retailer Inditex, with its Zara and Bershka stores in Bucharest, has lately brought many Spanish guests to the hotel. So far, the property has posted a comfortable occupancy rate of 80 percent, but, unlike the other central Bucharest hotels, it will close

“Breakeven for a boutique hotel investment can take 10 years. The category makes the pricing,” Raluca Costea, manager at Hotel Cantemir Bucharest

50 The Diplomat November 2011

until the period between Christmas and New Year’s Eve. “August is a full month for us. December, though, is empty,” says Zagatti. The market might seem somewhat capital-centric, but some hoteliers are looking outside Bucharest. Of particular interest are tourist areas, according to Ruxandra Popa Thorell, one of the shareholders of the Brasov boutique hotel Chambers’n Charm. Now operating for five years, it has nine rooms in different categories: double, suite and apartment. According to the hotel manager, the investment in the facility was EUR 800,000 and there are some revamping plans in store for next year. “On the medium term, we may expand with some six or seven rooms and a spa center,” Popa Thorell told The Diplomat-Bucharest. From the company’s perspective, this year has not brought any new entries in the boutique hotel niche, “due to the cautious investment appetite and, sometimes, to the lack of information on this market,” says the manager. She believes in the growing potential of the local market, which has years ahead until it becomes a mature one, even though recent times have brought significant development in this segment. “The local luxury hotel market, especially the boutique sector, needs time to develop. Still, there are also other European cities, like Stuttgart, Cologne and Verona, which do not yet have a highly developed luxury segment, says the Brasovbased manager. ■


real estate event

Real estate goes back to basics What is the real state of the real estate market in Romania? It seems that anyone trying to develop successful projects in the current market conditions has to reconsider the age-old lessons of business. In order to shine a light on the worst hit economic sector in Romania and worldwide, The Diplomat – Bucharest’s fifth annual real estate conference brought to the same table experts from across the property industry, to share key insights and practical know-how on the latest developments affecting the market today. By Dana Verdes, Magda Purice and Roxana Cristea

C

hanges made in response to the new realities of the current real estate market should all lead towards a balanced ratio between the costs of developing a project and the sale price dictated by the market itself. In this equation, the price of land, which market players still complain is too high, is provoking debate among developers and buyers. While the lack of financing has been cited as the primary cause for the absence of residential projects in the local market, now excessive land prices represent a major impediment to further projects, according to experts from across the real estate industry who came together at the fifth annual real estate conference “The real state of the real estate market” event organized by The Diplomat – Bucharest and Noerr, under the auspices of Ministry of Regional Development and Tourism. The event partners wer

Erste Group Immorent Romania IFN, H&J Martin, HomeLife, New Kopel Group.

Real estate market readjustments

The current shape of the real estate market is a result of past strategies which, according to developers, did not correctly follow basic business principles. Maybe the market is not now facing a crisis, suggest some developers, but has just started to relearn the necessary steps in order to change a system that no longer functions.

Ingo Nissen, managing director, Developments Romania, Sonae Sierra

I don’t think we are in the middle of a crisis as much we are facing the actual changing of a system. Now we are confronted with the fall of the banks, financing has disappeared and this means the beginning

of a new system and the need to adjust to the current market conditions. Compared with other countries, Romania is still on a developing trend in real estate. Locally, more equity is needed and the times of cashing in 30 percent profit for a project are now over. The main ingredients that should define the local market are the location of a project and its surroundings. Regarding location, developers should think twice before acquiring a promising location at a lower price, without taking into account the further development of that project and what it would offer to its tenants or buyers. The trends in developing projects at this time and on the overall market include a focus on tailor-made projects, customized services and a balanced ratio between developing costs and the sale price of the project. 51


real estate event

Bogdan Cernescu, general manager, Erste Group Immorent Romania IFN: The experience of recent years has shown us that the real estate sector is no longer the safest bet in business and that it cannot be unplugged from the real economy

Corneliu Popa, attorney at law, Noerr: The new Civil Code, which entered into force on October 1, is a refinement of the old code and includes elements which can be found in the Swiss code. The new code brings more than 30 changes in interesting sectors.

Ingo Nissen, managing director, Developments Romania, Sonae Sierra: I don’t think we are in the middle of crisis as much as we are facing the actual changing of a system. Locally, more equity is needed and the times of cashing in 30 percent profit are over now

Bogdan Cernescu, Erste Group Immorent Romania IFN GM

forces developers to build parking spaces. Hence, the burden is transferred to the real estate developers, especially for projects built in central areas of large cities, such as Bucharest. This demand affects the capitalization of developers working on a real estate project. In addition, purchasing power is lower and buyers who want a home for EUR 35,000 to EUR 55,000 don’t intend to buy a parking space too.

(mortgaged property cannot be undetectable and inalienable), which mainly affects the banking system. Some of the main changes of the new Civil Code comprise adjustments to the rental contracts for a consecutive property or the institution of lesion applying more widely.

The experience of recent years has shown us that the real estate sector is no longer the safest bet in business and that it cannot be unplugged from the real economy. Regionally, Erste Group Immorent applied a standardized strategy of operations, meaning that it assembled under the same umbrella the entire range of real estate businesses. There are a few main issues to be outlined in the current real estate sector: the market, the sale price of residential units, the price of land and the legislation. Within the current market context, to establish the sale price based on construction costs is the wrong approach for a developer. The price for which a housing unit can be sold is set by the market at that time, and the balance between supply and demand is the only indicator that can establish a price. Only afterwards should calculations take into account the costs of construction and the land purchase price. Plots are still expensive, especially for large projects. Indeed the market has posted falls in the last few years but the functional level has not been touched yet. For instance, the price for a land plot on which a developer plans a residential development should not exceed EUR 100 for 1 point of land use indicator (CUT) , in order for housing developments to come at reasonable costs. Regarding parking spaces, we are also seeing some problems. The current law 52 The Diplomat November 2011

Legal and financial issues need adjustment

With 30 new clauses impacting different sectors of the local economy, some new elements and clarifications brought with the new version of Civil Code particularly address real estate transactions, such as lease contracts and the status of mortgages, and establish the institution of lesion. These changes and clarifications affect the financial system with a direct impact for developers and the future business plans of real estate projects.

Corneliu Popa, attorney at law, Noerr

The new Civil Code, which entered into force on October 1, is a refinement of the old code and most of the new adjustments come from the French-Canadian code (Quebec code) and include elements which can be found in the Swiss code. The new code brings several interesting changes. For example, a lease is limited to 30 years and mortgages are not so effective

Bogdan Cernescu, Erste Group Immorent Romania IFN GM

In view of the financing trend in this sector, we have found that banks are currently asking for 30-50 percent capital from the developer in order to finance a project and the developer’s participation could reach up to 70 percent in some cases. On the medium and long term, we will witness the specialization of financial players, a smaller appetite for both investment and financing and fewer investors on the local market.

Ana Dumitrache, head of the real estate financing department, Erste Bank-BCR

Even in the last difficult economic period, we have been present on the market with financing and our strategy will continue on the same lines. Currently, our focus is on income-producing real estate properties that have a market risk near to zero. Next year, we will focus on office, industrial, logistics, retail and only occasionally on tourism and residential. Regarding our investments in real estate projects, we attained a similar level compared with 2010.


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real estate event

Ionut Bordei, CEO, Cordia Futureal: There are two categories of businesspeople present on the market: those who are really developing business projects and others just trying to recover the losses registered in the last few years, who took out big loans

Andrew Prelea, CEO Ozone Homes: For every burden there is a bust – the lesson of every crisis. Besides, we should listen to the fourth rule in real estate – never believe your own valuation. Now, we should return to reality

It is true that we didn’t post fabulous investment volumes this year but the volume of projects was also not at that level. Now, the number of financeable projects is similar to the previous year.

I have witnessed three recessions so far in global and local economies. Before 2007

and 2008, I saw 100 percent growth in capital in the case of some companies, for instance, but now we have to face the current market reality which takes into account affordability. For every burden there is a bust – the lesson of every crisis. Besides, we should listen to the fourth rule in real estate – never believe your own valuation. Now, we should return to reality.

Antoniu Panait, managing director, Interprime Properties: In my opinion, Romania cannot be in the same price range as Western countries. Even now, the Romanian market is overpriced. EUR 200 per sqm outside Bucharest is not a realistic level

Daniel Fuchs, general manager, Spiegelfeld : The sale prices of housing units in Romania are inexplicably high, mainly due to the land costs. A profit of 30 percent for a residential project is exaggerated and impossible to attain at the moment

Andrew Prelea, CEO Ozone Homes

54 The Diplomat November 2011

Ana Dumitrache, head of department real estate financing, Erste Bank-BCR: We focus on income-producing real estate properties that deliver for us a market risk near to zero. Next year, we will focus on office, industrial, logistics, retail and only occasionally on tourism and residential

Take the green path

The focus on green within the overall real estate scheme of developing projects is evident, but developers underline that the way to hell is paved with good intentions. The truth is that the higher costs of a green project impact not only the buyers, who prefer cheaper conventional projects over green ones, but also access to financing, which becomes tougher.

Stefan Dumitrascu, chief architect, District 3 City Hall: The territorial shrinkage and increasing population density are current realities which will shape future dwellings, especially in urban areas


law

Common law in Romania changes after 145 years

I

ndeed, if we are allowed to put an equal sign between what the civil code represents under the continental legal system with the common law under the English-American legal system, as of Oc-tober 1st, 2011, Romania had its common law finally changed after 145 years. However, such statement should be taken with a grain of salt, as many of the respective changes were in fact consolidated confirmations of unitary views of generations of law practitioners, be they law professors, members of the courts of law, legal advisers, lawyers or notaries public. It should be also noted that important new institutions were implemented based on various codes and prime laws from the Province of Quebec, Canada, France, Switzerland and Germany, and to some of them we will try to briefly refer in the following paragraphs. Was this change needed after 145 years, as long as many institutions from the old Civil Code were further maintained and thus perhaps a thorough revision thereof should have sufficed? Views were not unitary to that end, as partisans of the dual system (Civil Code plus Commercial Code, basically) clashed for so many years with partisans of the monist system (a single prime Code, to comprise them all). The fact is now that the latter were declared “winners�, so that the new Civil Code enacted as of October 1st, 2011, supported the monist system. Our new Civil Code entered into force based on an application law, and here is were we could adopt a first general criticism against the law maker, namely that, irrespective of the reasons which lead thereto, it could not raise itself up to the knowledge and professionalism of our law making ancestors, as it had to add numerous last minutes amendments to the new Civil Code itself after less than 2 years from its finalisation and advertising with the Official Gazette of Romania. However, our aim is to try to present as briefly as this column allows it the most important changes to the real estate environment brought by the new Civil Code, rather to criticise the way the latter was drafted and enacted, therefore here we go. The most important amendment (which ironically is currently still not enacted, due to the lack of unitary finalisation of the cadastral measurements and registrations at all territorial-administrative units in Romania, the so called E-Terra 2 electronic land book related system) was brought by the constitutive effect of the land book registration of transferring

deeds of real estate rights, instead of its opposability effect only, as effective until October 1st, 2011. With other words (and once E-Terra 2 kicks in at the level of a particular territorial-administrative unit), the moment when purchasers will become duly owners of real estate related rights will be the registration moment with the relevant land book and not the execution date of the related deed. When this amendment will actually enter into force for entire Romania is difficult to estimate, however what is certain at the drafting moment of this column is that a commune in Calarasi County appears to have been the first to swap to the constitutive system of the land book registration. Other important amendments for the real estate field (and, in general, for any legal relationships) refer to: (i) variety of sales possibilities, including by reserving the ownership right until a certain condition is being met, (ii), repealing of interdictions and pre-emption rights, except for forestry lands or agricultural lands subject to leaseholds, (iii) call options, which needs to observe certain formality conditions to be valid and binding, (iv) one sided contractual termination clauses, including pactum commissori, (v) sale-back options, which were prohibited (or considered, at least, prohibited under the old regime, as a measure against money lenders), (vi) hardship, newly introduced, (vii) risk transfer of ownership transferring deeds, which stays with the possessor of the good (res perit possessori), unlike previously with the owner of the good (res perit domino), (viii) alienation and enforcement interdiction clauses, which were newly introduced and needed to observe strict conditions in order to be effective, (ix) replacement of privileges with legal mortgages, one of the most important being the legal mortgage of the promissory buyer for the paid downpayment, (x) replacement of easements with limitation of the ownership right, (xi) pledges are applicable only for cases when the good is taken over from its owner, (xii) transfer of mortgaged properties can further occur and any related alienation prohibitions clauses are con-sidered null and void (and thus, may not allow in case of banks / creditors to ask for an accelerated repayment of the secured credit), (xiii) distinction is being made between standard and unusual clauses and negotiated ones, with different legal effects, (xiv) partial or full limitation of liability for cases of eviction or hidden flaws may be negotiated by the parties, (xv) waiver of specific publicity related rights

is not allowed/producing legal effects, if the beneficiary thereof is not waiving the main right itself, (xvi) in lease relationships, the authentic character of leases or their registration with the local tax authority (for privately executed ones) represents a writ of execution for the collection of rent, (xvii) the maximum duration of leases is set for 30 years, (xviii) the retroactive effect of the cancellation of a contract with successive delivery enables the restitution of all performances /payments carried out by the parties until the cancellation moment, (xix) good faith in negotiations and culpa in contrahendo got a better support, (xx) the cases of liability were better defined, and the list can continue for a long time, without exhausting all these important amendments. To conclude the above, we consider that by the enactment of the new Civil Code many improvements of the existing institutions, as well as new institutions were implemented, and which were waited by generations and generations of law practitioners, however the means some of these were improved / implemented or the contradictory language they were drafted in, is further criticisable, and will surely trigger in the coming years the necessity of remediation and / or clarification. Corneliu Vasile Popa Attorney at Law Str. General Constantin Budisteanu nr. 28 C, sector 1 010775 Bucuresti / Romania T +40 21 3125888 F +40 21 3125889 corneliu.popa@noerr.com

55


real estate event Eugen Curteanu, state secretary, Ministry of Regional Development and Tourism

Our focus is to find an alternative to energy performance projects and as such we are in advanced discussions with the EU in order to attract the 4 percent of EU funds, representing EUR 800 million, for the development of energy-wise buildings. At this moment, our proposal is on the EU’s table and we are waiting for an answer. In relation to the green-approach of our strategy, in April this year the ministry published a list of the projects submitted for pub-

lic-private partnerships (PPP), which include infrastructure projects and also the first ecodistrict in Romania, the aim of which is to be a pilot project for the implementation of a new model of integrated urban development in Romania. The project will be developed by the ANL in Ghencea, western Bucharest, and we estimate that the feasibility studies for the project will be completed in the spring of 2012. After this, we will begin organizing public auctions in order to select the private partners for this project. Because of the size of the project, com-

prising 10,000 homes built on a 101.5-hectare land plot, I think we must consider several private partners to develop this project in several stages. A major reference in establishing the energy performance strategy for buildings is Directive 2010/31/EU and our proposal to introduce mandatory energy performance certificates in any transaction. Therefore, based on our legal proposal, any transaction, whether it is lending, selling or buying, becomes largely null if the legal papers don’t include the energy performance certificate too.

Andrew Prelea, CEO Ozone Homes

The government First House program is not really a vector for the real estate industry. Some of the largest problems facing the economy today include the taxation system, which exacerbates the current salary policies. That is why the sale price should take into account what buyers in Romania can afford. There is still a market here, but the demand is for EUR 35-55,000 homes. With the growth of utilities, people need to build green. We have seen it in commercial, industry but not yet in residential. The main driver to get out of the recession should be the real estate sector. The 24 percent VAT is the first thing that should be eliminated and lending policies should be relaxed.

Stefan Dumitrascu, chief architect, District 3 City Hall

The current realities in Romania show that we are heading towards a population density of over 1,600 inhabitants for 10,000 sqm, which is, in sociology, the limit where the breach begins. For instance, Bucharest has, in some neighborhoods, as many as 3,600 inhabitants per 10,000 sqm. The territorial shrinkage and the increasing population density are factors that will shape future dwellings, especially in urban areas. We have to redefine the concept of urban development for the next 20 years.

The impossible dream of 30 percent profit

The parking and administrative costs transferred to developers for some projects have concerned some real estate players. However, the large available industrial platforms in Bucharest don’t explain the still excessive prices of land. Developers say profit per project could reach 10-20 percent at most. The previous profit of 30 percent is an impossible dream now.

Antoniu Panait, managing director Interprime Properties

We are witnessing the maturing of the real 56 The Diplomat November 2011


real estate event estate segment. The focus is on the quality of the project and the services offered to customers. But a project should end with an analysis of the generated revenues and potential sale price. Today, we are seeing high sale prices. We acquired the Timpuri Noi Platform last year (e.n: a transaction worth EUR 34. 6 million involving 51,000 sqm) and this is valid proof that we are confident in the Romanian market. However, at the same time, we have to be aware of the international and local economic climate. Of course it hurts to see a significant cut in property prices but we have to take into account the market level when selling a project at this time. Before 2008, Romania had a completely immature market. In my opinion, Romania cannot be in the same price range as Western countries. Even now, the local market is overpriced. EUR 200 per sqm outside Bucharest is not a realistic level.

Daniel Fuchs, general manager Spiegelfeld

Residential prices in Romania are inexplicably high, mainly due to land costs. The land is the only variable that can bring down prices on the residential market. A profit of 30 percent for a residential project is exagger-

10-15 percent in the current market expectations; 20 percent is a peak.

Ionut Bordei, CEO Cordia Futureal

Eugen Curteanu, state secretary, Ministry of Regional Development and Tourism: Our focus is to find an alternative to energy performance projects. We plan to attract the 4 percent of EU funds, representing EUR 800 million, for the development of energy-wise buildings

ated and impossible to attain at the moment, though this was a reasonable margin from 2004-2007. In our opinion, profit can reach

For us, the Romanian market still delivers good business opportunities. In our opinion, there are two categories of businesspeople present on the market: those who are really developing business projects and others just trying to recover the losses they registered in the last few years, who took out big loans. The first thing to take into account on the Romanian market at this time is the demand for housing projects. We still have a lot of land which formerly belonged to different industrial facilities in Bucharest and even if developers built 20 projects per year each, we would not use up the entire land stock for more than 50 years. But at this time, land prices for those platforms are inexplicably high. In project development, there are many costs which affect the final selling price. Also, there are other costs which seem to be forgotten sometimes. Within a project, until the residents’ association is formed, the costs of all the utilities of the housing complex are billed to the developer. These are also financing costs which should be on the agenda of a developer and financing institution. ■

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driving

Is the Series 1 still the One? The compact car class is the most hotly disputed in terms of sales volumes, so naturally manufacturers are embroiled in a fierce battle to grab as much as possible from the market share pie. Case study on the BMW 1 Series. By Adrian Ion

T

he undisputed leader of the compact car segment has for many years been the Volkswagen Golf, which has built up an image as an affordable, reliable and practical piece of machinery. Everyone has tried to take the throne from King Golf but even though other car models were better in some ways, overall the winner was the same. So, the engineers must have decided to change their strategy, saying: Let’s build cars for those customers who don’t want just an affordable and practical car. Strange thinking… Let’s take as our case study the result of BMW’s mission to build a compact car that could be better than the Golf, the Series 1.

bumpy suspension setting, dull and weird design and severe lack of space. BMW took note of all those complaints and here it is: the new and improved version of the BMW 1 Series. The test drive car was the 118 petrol version, fitted with a 1.6 Turbo engine, delivering 170 hp. Not the sportiest version (an M series is also available) but a good engine choice for those who want a bit of fire under the seat. The results are quite impressive and show how much you can do these days playing with the Turbo: 170 hp, at 4,800 rpm, 184 lb ft of torque from 1,500 rpm to 4,500 rpm, 0-60 in 7.4 seconds, and a top speed approaching

The same switch that enables the Eco Pro mode can also be used to transform the car into a small beast In 2004 when the first generation of the BMW 1 Series was launched, it was a hit. It was more expensive than the Golf, had less interior and boot space, and the design was not brilliant either. Still, it offered unrivaled road handling, sporty characteristics and as the firm’s slogan says, joy of driving. More than one million cars were sold. The typical client of the 1 Series was a driver who could appreciate these values in a car, placing less importance on the practical issues. And the car was not without flaws. Some clients complained about the harsh and 58 The Diplomat November 2011

230 km/hour. The first thing you notice is of course the design, which has improved, and fitted with the right design kits can be an eye catcher. Still, this is not a category where the BMW shines. It is brilliant in other aspects, such as build quality, technology implemented and ultimately the pleasure of driving it. The new BMW 1 Series incorporates the BMW Efficient Dynamics technology package as standard. This includes the Automatic Start/Stop function and an Eco Pro mode which changes the engine behavior, throttle

response and even air conditioning function to increase fuel efficiency. The same switch that enables the Eco Pro mode, called the driving experience switch, can also be used to transform the car into a small beast. Sport mode will increase fuel consumption but an adrenaline injection will kick in that is worth every penny. On BMW Sport Line models, and on cars fitted with the optional eightspeed sport automatic transmission, Variable Sport Steering or Adaptive Suspension, there is also a fourth mode, Sport+, which turns off traction and stability control. Inside, the typical BMW design and technology has been transferred to this little brother. The driving position is excellent and the overall feeling is that you are in a smaller 3 Series. The new BMW 1 Series’ high-tech presence is everywhere. The tested car was fitted with an innovative technology that ensures integration with the Apple iPhone and other smart phones. The Apps option allows iPhone users to do things like listen to web radio stations through the car’s audio system and use Facebook and Twitter services. In-car internet access and the new real-time traffic information function are two further options that are unique in the compact segment. The 1 Series continues to dominate the class when it comes to handling, with a great engine and transmissions range and superbly balanced chassis. And yes, the 1 Series still remains The One as the best driver’s car in its class. ■


59


business leader

Hotel GM checks back in The five-star hotel Crowne Plaza has seen major changes of late. The facade has been renovated and new restaurants opened, while the rooms are also being upgraded. But the biggest news is the return of Franz Rattenstetter to the helm. The German GM is relying on flexible prices and quality services to restore the hotel to its pre-crisis level. By Roxana Cristea

I “

do not think we can talk about problems in the Romanian hotel market, but rather of more competitiveness, which is why we have to make greater efforts to provide quality services and attract customers,” Franz Rattenstetter, general manager of Crowne Plaza, tells The Diplomat – Bucharest of the local hotel scene. According to the German manager, who took up the reins of Crowne Plaza in Bucharest for the second time early this year, after having previously headed the unit between 2001 and 2007, the market is more competitive than in 2007 or 2008 because more properties have been opened. In 2009 alone, more than 1,000 hotel beds were added to the existing capacity, by Ramada Plaza, Radisson and smaller players like Moxa. “These hotels were not here when I left in 2007. But when I came back in February this year I got the feeling that there are signs the business is moving and recovering slowly, although not seeing the growth we had in 2006 and 2007. I don’t think we’ll see this kind of environment in general, not only on the hotel industry but across all other industries,” predicts Rattenstetter. It seems that, after two years of

60 The Diplomat November 2011

decreasing results in the hotel market, there are some signs that the market is slowly recovering, as people begin to travel more, companies start to organize trainings and organize company meetings and conferences and the demand for accommodation in on the rise.

Strategy switch

Four years ago, when the GM decided to return back to Germany, the Romanian hotel market was booming. His return to the Crowne Plaza has come at a difficult time because of the problems caused by the financial crisis – fewer customers less money spend by companies in almost all segments put pressure on the market to reduce prices. So, any return to the figures of 2007 – when revenues reached EUR 11 million – is some way off.

4

million euro is the sum invested during last year for the hotel’s renovation

“Nobody expects to make things work overnight,” says Rattenstetter. He adds that hotel’s revenues will not reach precrisis levels in the near future. For this year, the GM is targeting an income hike of 20 percent. Results in 2010 were below those of 2009, when Crowne Plaza registered revenues of EUR 6.2 million. To achieve his aim, the Crowne Plaza manager has changed strategy: the hotel is now more flexible in its pricing and has improved the quality of services “I don’t feel the crisis and I am positive because the most difficult years were 2009 and 2010. It’s a stagnant market so everybody is trying to get the business,” adds Rattenstetter.

Aiming for the Crowne

“Last year we had a period of renovation, in which we invested EUR 4 million. This was an important investment for our hotel and had a positive impact. In 2011 we have completely upgraded our biggest suite and we want to upgrade, step by step, all the suites (eight of which will be finished this winter). The pool, fitness center and spa will follow in spring 2012,” says Rattenstetter. The German is aiming to increase the hotel’s bottom line, aided by an exclusive restaurant which, following renova-


business leader tion, will have a capacity of 30 seats and a la carte menu, as well as a fish and seafood restaurant “La Veranda”. In terms of his career, the Crowne Plaza general manager says he will stay in Romania for a couple of years, but that any extension to that depends on how things go. “In two, three years I will decide what to do – whether I’ll continue in the Hotel business or retire,” says the hotelier.

Seeing the light

“One of our strengths is our green environment. All the conference rooms have natural light; you open the door and can go out into the garden. Our strategy is to promote our values, our benefits – our facilities are different from any city hotel,” says the manager, adding that he is targeting in particular the north of town where there are plenty of office buildings, like Bucharest Business Park and others. Another advantage is, according to the GM, that the hotel is closer to the two airports than its central rivals. The property caters mainly to businesspeople, the corporate market and also the convention market, as it has 14 meeting rooms with a capacity up to 400 persons.

Price pressure

Currently, Crowne Plaza has a hotel room price battle on it hands, according to the boss. “We still have this during certain periods especially over the weekend, when everybody is trying to boost business. We do quite well during the week, but at the end of the week there are plenty of vacant rooms. The number of tourists visiting Romania has not increased in recent years. Average rates are now up to 30 percent lower than in 2008,” says Rattenstetter. The entire European hotel market has suffered because of a decrease in tourist numbers. However, countries like Hungary, the Czech Republic and Germany have recovered quickly and are working their way back to the revenues they had before the financial crisis. Romania lags far behind and the recovery will be slower. Rattenstetter estimates a 10 percent increase in the hotel’s occupancy rate this year, compared with 2010. “It’s hard to raise rates given that VAT is up more than 5 percent on Food & Beverages prices. Moreover, food is not cheap in this context, oil prices are increasing and people need to absorb these economic shocks, despite having more or less the same salaries,” says the Crowne Plaza GM. ■

Who is Franz Rattenstetter? Franz Rattenstetter began his career at Intercontinental Hotels Group in 1989, as director of sales and marketing at the Intercontinental Hotel in Frankfurt, before moving to the Middle East as the resident manager of the Intercontinental Amman, Jordan, and the Al Bustan Palace Intercontinental Hotel in Muscat, Oman. He was the opening GM of the Mzaar Intercontinental Resort in Lebanon and spent in total over nine years in the Middle East. He has also worked in England, Italy and Switzerland. Rattenstetter was reappointed general manager of the Crowne Plaza Bucharest this year. He previously held the position between 2001 and 2007. Prior to his return to Bucharest, the hotelier managed the Movenpick Resort in Petra, Jordan. Rattenstetter graduated from Hotel Management School in Tegernsee, Germany, and Leysin, Switzerland.

61


real estate Local hotels put up for sale

The five-star hotel complex Mamaia in Constanta has been acquired by a private Romanian businessman, Iordache Silviu, who paid EUR 2.48 million for it, in the only tender of an auction organized by the Ministry of Regional Development and Tourism. The ministry’s list for auctions involving other hotel properties includes shares owned in Athenee Palace Bucuresti and Euroturism Saliste, Sibiu county, plus an asset owned by Carmen Silva 2000. The 76-room Parliament hotel owned by Fond Exim in Bucharest is also up for sale at EUR 11 million.

Metrorex receives two final offers for EUR 60 mln consultancy partnership

Dinu Patriciu gets permit to build 31-level tower in north Bucharest Bucharest metro network company Metrorex has received two final offers for consultancy and supervision services to be delivered for the construction of the sixth route, which will link Henri Coanda International Airport (Otopeni) to the existing subway network infrastructure. The new subway line is due for completion in 2017-2018 and is estimated to cost EUR 850 million. Recently, Metrorex signed another consultancy contract worth EUR 10 million for

services from two companies, Metroul and the French consultancy firm, Systra Group. The contract is financed by Metrorex and will run for 120 months. The money will be used on the construction project of the Universitate-Pantelimon track segment, part of the fifth route, which will link Drumul Taberei and Pantelimon stations. The new Universitate-Pantelimon route is 8 km long and is estimated to have 12 stations by the end of this project. ■

Cora Romania invests EUR 5 million in new store, 3 more openings planned for 2012 Romanian businessman Dinu Patriciu, through his company Dinu Patriciu Global Services, is planning to build a 31-level tower in northern Bucharest, as part of a multiple-use compound comprising three buildings in the first development stage, to be built on 2.2 hectares land. By the time it is completed, the complex will cover 4.4 hectares. In 2008, investors from Immorent, Rompetrol Group and Patriciu signed a partnership to build Smart City, a EUR 300 million project to be developed on 15 hectares, on the same land.

62 The Diplomat November 2011

French retailer Cora Romania has opened its eighth local store, inside Galleria Shopping Center in Arad, with an investment of EUR 5 million. The new hypermarket has a sales area of 4,500 sqm and will have 250 employees. The store will stock over 50,000 products. For the next year, the retailer says that it will continue its expansion and will open three new shops in Bucharest, Bacau and Slobozia. Cora Romania has opened three new outlets this year, in Drobeta Turnu Severin, Arad and Constanta. The French retailer plans to open up to 25 new units by 2015. Its expansion strategy in Romania targets cities exceeding 100,000 inhabitants.

However, the hypermarket opening in Slobozia breaks this rule, showing that the retailer has found business opportunities on a larger spectrum of the Romanian retail market. According to Philippe Lejeune, general manager of Cora’s operations in Romania, the main target of the retailer’s expansion remains Bucharest. He added that the company had recently acquired land in Bucharest, joining the other plots Cora owns in different areas of the capital. In 2011, the firm attained a turnover of EUR 343 million in Romania and Lejeune expects this year’s performance to exceed that amount. ■


real estate Construction sites for four motorway portions totaling 65 km are open The National Company for Motorways and National Roads in Romania (CNADNR) has announced it has opened the construction sites for four motorway portions totaling 65 km in western Romania. The sections’ total value is estimated at EUR 450.4 million, including VAT. The road segments where works have started are part of the Nadlac-Arad motorway. Construction is being divided into two sections. The first 22.2-km segment, set to cost EUR 115.8 million, will be built by a consortium comprising the Romanian companies Romstrade and Donep Construct and the Portuguese firm Monteadriano Engenharia e Construcao. The second 17-km portion, worth EUR 124.54 million, will be built by the Austrian company Alpine Bau. Another construction site covers the first 9.5 km of the Timisoara-Lugoj motorway, to be built with EUR 63.6 million by a consortium of Romanian companies Spedition UMB and Tehnostrade and the Italian firm

Carena SpA Impresa di Costruzioni. The last construction site will host the fourth segment, 16.1 km from the Orastie-Sibiu motorway, set to cost EUR 146.6 million. The section will be built by a partnership between the Italian company Astaldi and the Romanian firms Euroconstruct Trading 98 and Astalrom. Construction of these segments is due to reach completion within a year and a half, with a four-year guarantee. According to the CNADNR, about 276 km of motorway is under construction in Romania at this time. Prime Minister Emil Boc has stated that Romania will have 123 km of operational motorway by yearend. The PM counted the existing 90 km of A2 highway and added the 32 km of highway linking Arad and Timisoara. According to him, there are several operational highway segments: the 52 km from the Transylvania highway, 17 km at Sibiuand and 21 km on the A2 highway. ■

Aurel Vlaicu airport to become ‘city airport’

Dedeman puts EUR 50 mln into network expansion in Romania

Romanian DIY retailer Dedeman recently opened a new store in Alba Iulia, with an investment of EUR 11 million, taking the company’s total investments in expansion to EUR 50 million. The new unit has an area of 11,800 sqm, 176 employees and 228 parking places. The retailer said it would open another store in Tulcea. The pace of opening four to five units per year will be maintained in the future, and Dedeman plans to have 45 stores in Romania by 2015, according to the company. The new unit in Alba Iulia is Dedeman’s 25th on the local market.

Profi, Kaufland and Lidl announce new openings for 2012

Retailers are keeping up their expansion plans on the Romanian market. Profi, owned by Enterprise Investors fund, said it would open 25 new stores in 2012. At present, the retailer has 102 units countrywide so far, with 15 shops opened in 2010 and 20 planned for this year. Elsewhere on the market, German firm Lidl recently launched the 107 retail units of the former Plus Discount, which were rebranded in June this year. According to data on the market, Lidl will open several other retail units in Romania. Another German retailer, Kaufland, has four more openings worth EUR 100 million planned for this year, giving it a 70-unit network in Romania.

Adamescu boosts Intercontinental share capital by EUR 9.3 mln

Aurel Vlaicu International Airport, located in the Baneasa area of Bucharest, the local hub of low-cost airlines Wizz Air and Blue Air, is set to become a “city airport”, based on the model of the London equivalent. According to Valentin Iordache, spokesperson for Aurel Vlaicu Airport, the feasibility studies are scheduled to be completed by 2012, after which works should begin. The airport’s “facelift” will consist of transforming the passenger waiting areas into coffee shops and restaurants for businesspeople. Following the changes, pas-

sengers will be able to complete boarding procedures just 15 minutes before takeoff, instead of one hour, the current time. Recently, the airport in Baneasa announced another change, regarding night flights. As of the end of last month, there are no night flights landing or taking off between 10 pm and 6 am. Due to this measure, Wizz Air announced that it would cancel 10 percent of its flights and reorganize 75 percent of its winter flight schedule, while Blue Air said it would have to reschedule 38 percent of flights, but has canceled none. ■

Nova Group Investments, owned by Romanian businessman Dan Adamescu, plans to boost the share capital in hotel company Intercontinetal Bucuresti by EUR 9.3 million, according to a document given to the Bucharest Stock Exchange. The measure will be submitted to the shareholders’ meeting. Adamescu owns and controls 32 percent of the Intercontinental through two companies, Nova Group and Astra Asigurari. Others shareholders in Intercontinental are the Cyprus-registered Mountbay Limited company, with almost 33 percent, and the state-owned company Lido, with almost 12 percent.

63


events

Skin clinic: MedLife, the largest operator of private medical

services in Romania, launches the Center of Excellence in Esthetic Dermatology Dermalife, one of the largest specialized centers in the country, providing integrated services for skin problems. The investment in the new clinic was EUR 1 million. Dermalife is the seventh Center of Excellence in the ultra-specialized MedLife center network.

Lotus bloom: The Lotus Exige S, dubbed by many European auto

magazines “sports car of the year”, was launched in Romania by the Forza Rossa group. The model will be available in stores early in 2012. In Romania, it can be purchased from Forza Rossa, the official representative of Lotus Cars. The vehicle has 350 horsepower, a six-speed manual gearbox and reaches a top speed of 274 km/hour.

GREEN STATION: The Glina wastewater treatment plant will

purify the sewage from Bucharest and nearby towns such as Catelu and Manolache. Apa Nova has committed to invest in this project – in a first phase – almost EUR 40 million over a period of three years. A small hydropower plant and biogas unit have been built in Glina, designed to meet some of the station’s energy needs. A second phase of the project, which will also involve the extension of the plant, will start in Q1 of next year and will need EUR 350 million of investment.

New mall: A new retail facility, Galleria Shopping Center, was opened in Arad by developer GTC Romania. The new EUR 70 million commercial center has a surface area of 35,000 sqm, an occupancy rate of 99 percent and over 100 global brands. Shops include the Inditex group, Sephora, Flanco, Cora and Peeraj group.

Scholarships for students: High-achieving students from

five Romanian universities were awarded scholarships worth EUR 2,400 each, as part of the sixth Roberto Rocca Education Program. The initiative, which encourages young people to study engineering and applied sciences, involves 80 universities from 11 countries and is funded by the companies Tenaris, Ternium and Techint. In Romania, financial support is provided by Tenaris. This year, 40 students from the Technical Universities of Cluj, Iasi and Bucharest, the Oil and Gas University of Ploiesti and the North University of Baia Mare qualified for the scheme.

64 The Diplomat November 2011


events Football season: Cargill kicked off Slobozia football week by

sponsoring a series of coaching sessions for local children of all abilities. Cargill coordinated the initiative in association with the Chelsea Foundation, and coaches from the English Premier League club ran the sessions. Activities included coaching for the children, a football tournament and a “master class” for the coaches and officials of the Romanian Football Federation. The objective was to help improve the skills of young football players in the region, as well as those of their coaches in Ialomita County.

Program for moms: Private health network Regina Maria has developed a diagnosis and treatment program for osteoporosis called “Thanks, Mom!” following the “World Day Against Osteoporosis” on October 20. Patients can learn from top doctors if they are suffering from the condition and will get access to the latest and most effective methods of treatment if so. Anyone interested in receiving the kit can find details at Regina Maria clinics. Striking out: InterCampus Slatina organized in the Hall Theatre

of the Eugene Ionesco Cultural Center the ceremony “Graduation InterCampus” which marked the departure of 19 children from the Slatina InterCampus football teams because they have reached the age of 14 and the arrival of 50 new boys in social projects. The event also marked the beginning of a new season, during which over 80 children will be given training to InterCampus international standards.

Clean hands: In “Global Handwashing Day”, held on October 15, over 5,000 children from schools and kindergartens in Bucharest received Protex products and learned the proper way to wash their hands. The activities were led by Colgate-Palmolive in partnership with the Romanian Red Cross. Wild Romania: WWF Romania and Garanti Bank held in Herastrau Park in Bucharest an outdoor photo exhibition dedicated to the wild and spectacular places of the 13 national parks of Romania and the Danube Delta Biosphere Reserve. “Wild Romania” is a project initiated by photographer Dan Dinu and includes over 50 photographs displayed on large panels. 65


city life Mr ‘Sex Bomb’ comes to Bucharest Welsh star Tom Jones will play Bucharest’s Sala Palatului on November 17. The concert is part of a tour to promote the album “Praise & Blame”, released in 2010. Now 71, Tom Jones, dubbed the “Sex Bomb,” is one of the most popular recording artists of all time. He has enjoyed numerous hits over the decades, including “It’s Not Unusual”, “Sex Bomb”, “What’s New Pussycat?” and “Delilah”. Over a career spanning

Serge Gainsbourg’s muse sings in Romania for the first time Jane Birkin, the film and music legend, will perform for the first time in Romania on November 13 at Bucharest’s Sala Palatului. The show will include the most popular songs from the repertoire of Serge Gainsbourg. Birkin came to public attention after acting in “Blow Up”, directed by Michelangelo Antonioni, which won the great prize at the Cannes Film Festival in 1967. The same year, she took part in auditions for the film “Slogan”, directed by Pierre Grimblat, where she met Gainsbourg, one of the most inf luential French musicians in the world. Two years later, the two released the song “Je t’aime…moi non

66 The Diplomat November 2011

Fastest pianist in the world

plus”. In 1973, Birkin launched her first solo album, “Di Doo Dah”. After Gainsbourg died, she took a career break to dedicate herself to her family and humanitarian work. In 1998, Birkin returned with the album “A la legere”, which includes collaborations with 12 composers. The concert that will bring her to Romania is part of an international tour that will include several stops in the United States and Europe. Tickets can be purchased from Diverta, the Muzica store, Mihai Eminescu book shop, French Bakery and Sala Palatului and cost between RON 80 and RON 250.■

Sander van Doorn to spin decks at Arenele Romane Sander van Doorn, one of the hottest DJs of the moment, will play Bucharest on November 4, according to Xteria, the company organizing the show. Tickets and information regarding the performance, which will take place at Arenele Romane, are available at eventim.ro. Sander van Doorn has won

almost half a century, Jones has sold over 100 million albums. The veteran singer has recorded 39 studio albums, four live albums and over 100 singles. He has performed in Romania twice before, at the ninth Golden Stag Festival in Brasov and at Romexpo in Bucharest for a New Year’s party in 2007. Tickets for the concert are available from the Eventim network with prices ranging from RON 149 to RON 852. ■

several international awards including Best Breakthrough DJ at Miami Winter Music Conference, and ranks 12th in the DJ Mag’s Top 100, put together by the famous DJ Magazine. On his new album, ELEVE11, van Doorn mixes new styles and collaborates with a variety of artists on tracks such as “Love

Is Darkness” by Carol Lee, “Who’s wearing the head”, a duet with Laidback Luke, “Eagles”, a song on which he worked with Adrian Lux, and “Rolling the Dice”, with renowned singer Nadia Ali. In Bucharest, van Doorn will mix with Dutch RADION6 and Romanians Snatt & Vix and JETRO. ■

Havasi Balazs, considered the world’s fastest pianist, will perform for the first time in Romania on the Sala Palatului stage on November 15. Joining him will be more than 100 artists from around the world: over 50 musicians, an impressive choir accompanied by Japanese drummers and 15 singers. The Red Symphonic Concert Show has attracted record audiences in Asia. The first performance was held at Shanghai Expo cultural center in front of 10,000 people while over 200 million television viewers at home watched it being broadcast on a public channel. Tickets for the show will be available from Diverta, the Muzica store, Mihai Eminescu book shop, Sala Palatului and online at myticket.ro, with prices ranging from RON 100 to RON 300. ■


The Diplomat-Bucharest  

Vol. 7, No. 9, November 2011

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