PCC keeps its eyes fixed on beleaguered OltchimA‚A 

Oltchim’s minority shareholder remains confident of securing a further stake in the chemical maker’s privatization. Wojciech Zaremba, business development director of Petro Carbo Chem (PCC), told Business Review that the acquisition of the petrochemical division Arpechim could be disastrous for the struggling firm and will not reverse years of losses. He believes that Oltchim needs to spend EUR 200-250 million on new greenfield projects over the next two-three years to become a financially viable business. 

By Dana Ciuraru

To what extent do you think that the EUR 13 million acquisition of Arpechim will allow Oltchim to be profitable in 2010?

We have heard promises that Oltchim will make a profit in 2007, 2008 and 2009. I don’t see how the acquisition of Arpechim will allow Oltchim to generate positive results. Arpechim is an installation that has been closed for nearly two years now. In addition, it was inefficient and loss-generating even before it was shut down by Petrom. Therefore, I believe the acquisition of Arpechim is a big mistake for Oltchim’s future. I am afraid that Oltchim’s results will be much worse in 2010 than in 2009 or 2008, as the losses will be exacerbated by the inefficient steam cracker, assuming that it is possible to restart it in the first place, which PCC considers highly unlikely or very problematic at least.

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How long do you think it will take Oltchim to recover this investment? 

This investment will never be recovered since it will lead to an increase in losses, due to the inefficiency of the unit.

Where did Oltchim get the money from for this acquisition? What will the impact on Oltchim’s performance be in terms of financial results?

Neither PCC nor the rest of shareholders know where Oltchim got the money from or the financial terms of the loan. This acquisition could be very damaging for Oltchim. As I said earlier, I foresee that Oltchim’s results will worsen due to the acquisition of Arpechim, for two reasons. First because Arpechim generates huge losses itself. Secondly, global PVC demand has declined by more than 10 percent since 2007. In Europe, the situation is even worse, with a slump of about 15 percent. The outlook for 2010 and for the coming years is very gloomy with 2007 demand levels not likely to be achieved for at least another four-five years. The price of PVC is below production costs even for efficient market players – for inefficient producers like Oltchim, with Arpechim as a source of raw materials, it will be a disastrous period. As for the share capital increase, it is currently being investigated by the European Commission (EC) and we must wait for the results of the investigation.

The Ministry of Economy has claimed PCC’s strategy for Oltchim was to acquire it at the lowest price. What is PCC’s interest in Oltchim? 

PCC is interested in an open and transparent privatization procedure to select a strategic investor for Oltchim. We will participate for sure in such a privatization if it takes place. If so, we will do everything to make our offer the best. Even if we lose the bid for the privatization, we will remain in Oltchim as shareholder since we believe in the potential of this company, which is not yet being exploited by the current management.

How far does PCC want to get involved in Oltchim’s future? 

PCC was and still is interested in the privatization of Oltchim, a process in which all interested investors should openly take part. However, as precious time is being wasted by the management and no restructuring measures have been implemented, Oltchim’s accumulated losses are increasing, and the company’s situation is becoming harder to solve. This is why we have tried so hard to push for the company’s restructuring – to allow Oltchim to be saved.

What is your personal relationship with the Oltchim management and board? What position do you hold? 

Our relationship with the Oltchim management is bad since they refuse to enter into a constructive dialogue with us and use our experience and knowledge to work out a restructuring program for Oltchim together, which we consider vital. I have not been a board member at Oltchim since October, when I was voted off during the GMS.

What was the financial situation of Oltchim at the end of 2009? 

The results were announced by the Oltchim management. Again, we saw over EUR 40 million of losses by Oltchim last year, similar to the losses made in 2008 and 2007. The situation is just getting worse and worse every year.

How much has PCC invested in Oltchim since it became a shareholder? 

We have invested over EUR 10 million in the joint venture project with Oltchim, through the Euro Urethane company in which PCC holds 60 percent. Additionally, we have invested in Oltchim shares.

What is your forecast for Oltchim’s performance in 2010? What is the total investment required in the company? 

My expectations regarding Oltchim’s results in 2010 are very low. As for investment, Oltchim first of all needs real restructuring and for the reasons why it loses money to be ascertained. We believe that Oltchim should reorient its production scope and invest in new and modern technology niche products in the field of polyurethane industry and OXO alcohols. If we astutely spend EUR 200-250 million on new greenfield projects the next two-three years we could completely change the company and make it financially viable.

What steps have been taken at Oltchim to fight the crisis?

As far as we know Oltchim has not implemented any measures except for some immediate ones like technical unemployment, which are just short-term solutions that do not actually lead to real changes in the company mechanisms which need to be changed. PCC has suggested changing and improving Oltchim’s distribution system to generate higher margins as well as changing the company’s product scope and going into products with higher margins instead of mass commodity ones which are currently facing fierce competition.

How does the petrochemical market look right now?

The whole petrochemical market is going through very difficult times. The drop in demand and overcapacity has led to sharply falling profit margins across the whole industry in Europe. The cost of feedstock has fallen much less than the drop in the final prices – making survival only possible for efficient producers or those offering niche and highly specialized products. That is why it is so vital that Oltchim reorients itself instead of implementing solutions from the 1960s, like integration with Arpechim – as such ideas pose a real threat to Oltchim’s survival in the near future.   

dana.ciuraru@business-review.ro