Petrom: Economic Growth Won't Lift Purchasing Power Sooner Than 2012

05.12.2011 ZF English

OMV Petrom (SNP.RO), the biggest company on the oil and gas market, posted growth in sales and profit, even though the market it operates on continued to go down. Repeated pump price hikes and cost cuts, however, helped it turn in its favor a demand that refused to grow despite tentative economic rebound since the beginning of the year.

Sales were at 4.97 billion lei (EUR1.17 billion), up 27% on the year-earlier period. Net profit reached RON841 million (EUR199.1 million euros), up 4% on the first quarter of 2010, mainly affected by a EUR43 million financial loss.

"The entire retail market went down 4-5% in the first part of the year, which is no surprise to us. On the one hand, it was caused by the trend of public sector salaries and on the other it was a response to high oil product prices. I am not really optimistic about a rebound in demand this year considering forecasts point to a merely 1%-2% economic growth for Romania.

This will show in the purchasing power as late as next year," said Mariana Gheorghe, Petrom's chief executive officer.

Although admitting that one of the factors that caused the drop in demand in terms of volume was precisely the rise in pump prices, Petrom officials say that the often mentioned fuel price freeze could have adverse effects on the economy as a whole.

"Legally, prices may be frozen in case of an exceptional situation of crisis, yet the consequences of such a step can be negative. I will not believe someone would want a shortage of products as in Russia. Any producer, if it cannot get the market price locally, will export if prices are frozen at a lower level," Gheorghe said. Several areas in Russia have been faced with a shortage of oil products recently, as local companies chose exports over selling at state-controlled prices.

Although early this year the fast-paced rise in gas and diesel prices made motorists take to the streets and politicians come up with bold statements, no state official has actually had any serious talk with Petrom over fuels so far.

Another issue that a number of state officials said would take steps about was the closing the Arpechim refinery, which Petrom put up for sale in 2009. The problem caused by the closing of this facility, beyond jobs, is that Arpechim used to be Oltchim's raw material supplier.

Mariana Gheorghe says the closure of Arpechim, which accounted for half of Petrom's refining capacity and has not been operational for more than a year now needs to be put in context, seeing as similar decisions have been made in Europe because of excess refining capacity.

"Over the last two years, I haven't had any negotiations with the state over the sale of Arpechim to Oltchim. There were talks but no offer. Right now I cannot tell who and how might invest the hundreds of millions of euros required to bring Arpechim back online."

On the other hand, Gheorghe rules out Petrom closing Petrobrazi, too, the only refinery the company still operates. (EUR1=RON4.0842)