Romania Kicks-Off Petrom Privatization Sale

Romania opened the bidding for control of its national oil company SNP Petrom on Tuesday, hoping to cash in on a wave of lucrative deals sweeping the sector in Central and Eastern Europe.

The long-delayed sale of a controlling stake in Petrom to a strategic investor or a consortium is expected to be worth up to $1.0 billion and is a key element of the ex-communist Balkan country's accords with international lenders. The Economy Ministry plans to sell 33.34 percent in Petrom outright while at the same time the bidder would have to buy newly-issued shares to raise its stake to 51 percent. The sale is scheduled to be completed by the end of March, 2004.

Analysts predicted fat returns. Investors are scrambling to buy into the region's fast economic growth and rising fuel consumption as many of its countries prepare to join the European Union.

Romania, which hopes to join the EU by 2007, saw gross domestic product grow a whopping 4.9 percent in 2002.

"Recent deals were highly valued, they could prop up the price of Petrom," Tamas Pletser, oil sector analyst for the CEE region at Erste Bank said.

Last month Croatia sold a 25 percent stake in state oil company INA to Hungarian MOL for $505 million, while Serbia on Monday sold 70 percent in its second largest fuel chain Beopetrol to LUKOIL for $225.9 million.

Potential bidders for Petrom, which has around 60 percent of the domestic market, could include U.S. giant Chevron Texaco, BP, France's Total or Royal Dutch/Shell, according to Romanian ministry officials.

The privatization was delayed several times by the government, which analysts said was reluctant to make reforms which might result in job cuts or higher oil prices.

Petrom, which has a workforce of over 60,000, has both upstream facilities - drilling 6.0 million tonnes of crude and 6.1 billion cubic metres of natural gas per year from fields mainly in Romania - and downstream facilities such as refining and retail sales through its petrol stations.

It also offers access to the Black Sea and could become a springboard for transport of Middle East crude to Europe.

However, its oilfields are maturing and production is set to decrease, according to analysts. That makes it more of a target for Russian companies looking for distribution facilities than for Western companies seeking profitable drilling fields.

"I don't exclude Shell or BP, but I wouldn't bet (they would bid)," Pletser said. "Multinationals prefer to buy upstream operations, which have offered better return on investment."

Three companies which have been most active in the region - MOL, Austria's OMV and LUKOIL - may form a consortium to come up with the funds for the deal, analysts said. "Together with the capital rise, the price would be more than $1.0 billion," Pletser said. "This is big money, even for a big company like LUKOIL."

The Economy Ministry, which owns 92.96 percent of Petrom, said individual companies willing to bid must have annual revenues of more than $1.0 billion over the past three years, while consortia must have more than $1.3 billion.

It said five percent could be sold to the European Bank for Reconstruction and Development (EBRD) in a debt-for-equity swap for a $150 million pre-privatisation loan granted last year.

Petrom's six-month net profit fell to 869.2 billion lei this year from 877.5 billion lei in the same period a year ago.

Seven percent of Petrom's 37.7 trillion lei ($1.12 billion) share capital is floated on the Bucharest bourse. Shares were 1.46 percent up at 1,390 lei in mid-day trading on Tuesday.