From Russia with investment promises

Despite some high profile interests, Russia lies outside the top ten foreign investors to Romania in the official national statistics. Most major investors here have so far targeted fields such as heavy industry and energy. Recently, the newcomers have been smaller-scale companies in less traditional fields such as IT, and others are expected to join them.

The most consistent Russian investments in the local economy so far have targeted heavy industry, as due to its geographical position Romania serves as a gateway to EU markets. Plummeting steel prices and shrinking demand both locally and internationally, however, have affected the balance sheets of local manufacturers, which have continued to post losses in 2010.

Such is the case with TMK. The Russian producer of steel pipes for the oil and gas industry operates in Romania through TMK-Artrom Slatina and TMK-Resita. TMK-Artrom Slatina posted a EUR 15.13 million loss in the first semester, five times higher than the loss registered in the first semester of 2009.

Others have continued to expand on the local market. In April Russian mining and steel company Mechel said it had acquired Donau Commodities, which holds 90.91 percent of the shares of Laminorul Braila following an investment of approximately EUR 9.4 million.

“The acquisition of Laminorul Braila is one more step in the implementation of Mechel’s steel business development strategy, particularly aimed at increasing the share of high margin products in the group’s product portfolio. The plant produces downstream products from Mechel’s billets and increases synergies of all Romanian assets of the group,” said Victor Dyshlevich, CEO of the Eastern European steel division, at that time.

Mechel’s Eastern European steel division, set up in October 2008, consists of the company’s four Romanian steel plants: Mechel Targoviste, Mechel Campia Turzii, Ductil Steel Buzau, Otelu Rosu and Mechel Targoviste. Mechel Targoviste ended 2009 with a EUR 125 million turnover and reported a EUR 24 million loss. In the first semester of 2010 the steel plant increased its turnover by 57 percent against the same period of 2009, amounting to RON 374 million (approximately EUR 88 million). The firm managed to reduce financial losses to RON 48.26 million (EUR 11.4 million) as incomes doubled to RON 428.85 million (approximately EUR 100 million).

Elsewhere, aluminum producer Alro Slatina , the local subsidiary of Russian Vimetco, plans to increase its annual production of higher added value processed aluminum from 40,000 tons to 120,000 over the next five years, according to Frank Mueller, general manager of the firm.

This August Vimetco announced that it had signed a syndicated loan with the European Bank for Reconstruction and Development (EBRD) that refinanced most of the company’s existing debt. The EBRD will retain USD 75 million on its account, with USD 105 million to be syndicated to commercial banks. “The EBRD facility offers Alro a good basis for continuing its development strategy by further consolidating its financing structure,” said Marian Nastase, vice-president of the Alro board, at that time.

Alro registered a net profit of RON 50.5 million (USD 16.9 million) in Q1 2010, compared to USD 8.3 million registered in Q1 of 2009. The company’s turnover for Q1 2010 was RON 414 million (USD 139 million) compared to USD 118.7 million in Q1 of last year.

Local market sees Russian newcomers

Moscow-based Softline International opened an office in Romania in June, this being the first country in the European Union where the company has established a presence.

Initially, Softline intends to focus on software license reselling, as a first step in its strategy as it establishes a footprint on a new market. In this phase, Softline will be mainly targeting small businesses. Starting from next year, the firm will also be adding new business segments such as consultancy, IT auditing, outsourcing and education.

“For now, we can only afford to start as a certified reseller but in time we will also be able to become competitors of system integrators and also offer software consultancy. Obviously, we will not sell hardware but here we can always start alliances,” said Radu Crahmaliuc, regional director of Softline Romania (in picture).

The bulk of sales are deemed to come from Microsoft products (35-50 percent), followed by security software (around 30 percent) and, thirdly, virtualization and business applications, according to Ivan Klimov, business development director at Softline Group.

“We are aware that we are showing up later on a market that is already mature,” said Crahmaliuc. However, he added that there were several good reasons why Softline had decided to open an office in Romania. Firstly, there is big potential on this market due to small businesses which represent 95 percent of the total number of companies and more than 67 percent of the economic potential. Also, Romania may serve as a bridge for expansion in other countries and the software and services sector has not been as hard hit by the recession as in other countries. Other driving factors in the decision to open up an office in Romania were the availability of EU structural funds and the anticipated resumption of IT projects in the public sector.

Others came to the market earlier. Kaspersky Lab has been present in Romania since 2001. Three years later the firm established an R&D centre and in 2008 a regional business development office. Company representatives say that Romania remains a dynamic market for Kaspersky . “In the first half of 2010 the business grew by 84 percent as compared with the same period in 2009,” Garry Kondakov, managing director of Kaspersky Lab EEMEA, told BR. “The region of Eastern Europe Middle East and Africa brought USD 97 million (about 24 percent of the 2009 revenue) showing 46 percent YOY growth. Almost 10 percent of company’s EEMEA-driven income is from Romania.”

As for its future business strategy, Kondakov explained that after an intense geographical expansion the company now plans to intensify its presence in key locations. “Now that we are represented virtually in every part of the world Kaspersky Lab’s goal consists of finding new ways to develop in a more intense way,” he concluded.

Another Russian newcomer, this time on the instant payment market, is OE Investments, which launched its QIWI payment facility for local phone services in June. By the end of the year, 500 terminals are set to be installed in Romania, according to company representatives. The firm operates through both its own terminals and through a network of franchised agents, companies and entrepreneurs that can take possession of the equipment and connect to the central processing center. The firm’s investment in Romania is EUR 500,000, while this year’s turnover is expected to reach EUR 1.5 million.

Alexandru Oancea, the company’s commercial director, told Business Review that the main problem on the Romanian market is the low level of knowledge among consumers about the payment tool. “The Romanian market has a high potential for growth. Locally our priority is to make QIWI payment services popular among various consumer groups. Currently we are promoting terminals QIWI (KIWI) as a convenient method of payment for cellular communication,” Oancea explained.

Looking to the East for energy

2010 could turn out to be the first year when Lukoil posts a loss on the local market after several years of consecutive growth. In 2009 the company suffered a EUR 40 million operational loss for the Petrotel Lukoil refinery while Lukoil Romania reported a EUR 50 million EBITDA but managed to balance its results, according to company representatives. The situation, however, seems unlikely to repeat itself this year too, according to preliminary results.

But when it comes to Russian energy interests in Romania, it seems that the local economy is on the map for larger geopolitical gas projects, at least as far as diplomatic statements go. The Russian Federation is Romania’s main external source of gas, to which it is connected through only one pipeline that passes through the country. Two weeks ago Gazprom officials and the Romanian authorities signed a memorandum of intent over the possibility that the South Stream pipeline may transit Romania. The pipeline will be 900 km long and is estimated to transport 63 billion cubic meters of natural gas annually. The project is seen as a rival to the planned Nabucco pipeline, in which Romania has already committed to participate. Both projects are due for completion sometime in 2015.

DMCA

PROTECTED