November
2007

COUNTRY FOCUS - CZECH REPUBLIC

Liberal partners

Although both the Czech Republic and Romania share a free market vision of the EU, Romania needs to accelerate reforms, says Czech Ambassador Petr Dokladal

     Romania and the Czech Republic share a common view as the liberalising wing of the European Union, with both nations embracing the free market principles with greater force than many members of the 27-member bloc.
     “We both support the reforms and the freedoms on which the EU was based,” says Czech Ambassador to Romania Petr Dokladal, “and we can join our strengths in the liberalisation of trade and services.” The two countries are also cheerleaders for further EU enlargement of Croatia and western Balkans and continuing negotiations with Turkey and of the European neighbourhood policy, which fosters greater ties with countries on the fringes of the EU. “Not just towards the south, but to the east as well, to countries like the Ukraine, the Republic of Moldova and those in the Caucasus,” says Dokladal.
     The Ambassador also details shared interests in energy security and the common agriculture policy between the two nations. “We look at Romania as one of the most important EU partners, our number one choice in south-eastern Europe,” he adds.
     But many critics have attacked Romania for decelerating its reforms following the EU accession, particularly in the sensitive areas of justice and anti-corruption, where no high level politicians or businessmen have yet been judged or imprisoned on charges of bribery.
     “It is in the vital interest of Romania to speed up reforms,” says Dokladal. “Both those connected to EU matters and with its own country. Romania was more strictly monitored by the EU than the Czech Republic, as it seemed to have more visible problems. But I very much appreciate what Romania has done in the past ten years especially.”
     Unfortunately, the last ten months of political instability in Romania has seen a minority Government take charge and open war between the Prime Minister and the President, as well as a battle between the Justice Minister and the Anti-corruption Department. Dokladal says this political crisis has not helped continuing reforms. “But I’m optimistic that Romania’s intelligent people will help find the best solution,” he says.
     Many politicians and businesspeople both inside and outside Romania have argued that Romania’s entry into the EU in 2007 was too early. But Dokladal is less dismissive. “If Romania would have not joined the EU when it did, I do not think one more year would have offered greater help,” he says. “Romania’s economy is competitive and growing, the currency is stable and the investment environment is transparent enough. Romania sees a stable influx of investments from abroad.”
     Dokladal speaks highly of almost 600 million Euro of direct investment from Czech companies in Romania. “Sooner or later we will increase our investments in Romania, in areas such as agriculture, as well as fields where we are already active: energy, pharmaceuticals, finance and food.”

Peak moment

TRADE TALK Czech Republic

Total investment: about 600 million Euro
2006 trade volume: 1.298 billion Euro
January to June 2007 trade volume: 819 million Euro
Czech export: 604 million Euro
Czech import: 215 million Euro
About 300 companies with Czech majority are established in Romania
Largest investors include: CEZ, Zentiva, PPF, Hame and Hobas.

     EU Accession made Romania more visible for Czech companies, says incoming head of the economic section of the Czech Embassy in Bucharest, Martin Licenik. “EU accession brings in huge potential, a great market and many opportunities,” he says. “There are no more customs tariffs and internal market rules should be the same in Romania and the Czech Republic.”
     Czech companies, such as energy firm CEZ and pharma producer Zentiva, are expanding at a European-wide level to become continental multinationals. But Licenik says many smaller businesses are also looking to expand abroad. “We would love to see more small and medium-sized enterprising taking a closer look at Romania,” he adds.
     But Romania still has a stalled transport system and slow implementation of infrastructure projects to alleviate the overcrowding on roads and the lack of motorways. “Romania now sees some problems to this extent, but the truth is that this has happened to us as well,” says Licenik. “It’s a matter of time before such problems get solved.”

Corina Mica

CEZ: switching focus to brownfield investments

     Somehow disappointed by Romania’s decision to freeze all privatisations in the energy sector, CEZ Romania country manager Jan Veskrna is steering his company towards brownfield investments, such as private firms.
     “We have a company in place and we really want to go forward with projects which involve taking over existing facilities and investing in the local energy market,” Veskrna says.
     The country manager says his firm has already identified three brownfield projects in which it may invest up to 500 million Euro in the coming year.
     One year ago the state intended to sell its existing energy distribution and some of its major power generation companies.
     But this Autumn the new Minister of Economy and Finance Varujan Vosganian announced he would bundle together a national holding for distribution and generation, similar to the model for CEZ itself.
     “Romania’s energy strategy was clear when we stepped in and now it seems to be the exact opposite,” says Veskrna. “Power distribution is dead now, as nothing moves on the privatisation side. Next year will be an election year so there will be no more privatisations for at least two years.”
     Veskrna argues that the new proposal for a state energy holding is not a bad idea, but the moment for Romania to establish this may be too late. He says it should have happened in 1999.
     “Investors have come in, taken over companies and put development strategies in place connected to the state’s strategy,” he says.
     “Investors have a huge generated cash flow, but where do they put this when there’s a change in the privatisation strategy?”
     But there is still confusion over Romania’s plans, as the approval for the holding company is on stand-by. “This creates panic among investors,” says Veskrna.
     CEZ took over power distributor Electrica Oltenia in 2005 for 161 million Euro. Last year the company rebranded the power distributor and unbundled it, driven by EU directives. This year, the process finished and three new companies function under CEZ in Romania in services, distribution and sales: CEZ Servicii, CEZ Distributie and CEZ Vanzare. “We were the first foreign investor in the local power distribution market to do this, and our main competitors, E.On and Enel, did not believe this will work in Romania,” says Veskrna.
     Future plans could also see the Czech energy firm involved in the auction for the construction of Units III and IV of the Cernavoda nuclear power plant in Constanta county, which it has made a binding offer for.
     “We are a big fan of nuclear energy,” says Veskrna.

CEZ Romania
Energy distributor
Took over Electrica Oltenia in 2005 for 161 million Euro
Supplies to seven counties in southwestern Romania
Operates three companies in Romania: CEZ Servicii, CEZ Distributie and CEZ Vanzare
2006 turnover: 405 million Euro
2007 forecast: 460 million Euro
Employees: 3,000

Zentiva: consolidating leadership

     One of the flagship Czech investments in Romania, pharma company Zentiva pledges consolidation as a leader in the generic drugs industry.
     “The medicine consumption per person is one of the lowest in Europe and there are a great number of undiagnosed and untreated persons in Romania,” says country manager Josef Belcik. “All these determine us to consider Romania as having a great development potential.”
     Romania becoming an EU member has attracted the most important players on the pharma market.
     “Due to the existing competitiveness Romanian patients are benefiting from the launch of modern treatment drugs,” says Belcik. “The economic growth will reflect on the healthcare budgets and on the level of incomes and this will have an impact on the pharmaceutical industry.”
     This year, the firm has launched five new products in Romania including cardiovascular drugs Lindaxa, Amyx and Zenra and oral contraceptive Chloe. “We will also consolidate our leadership on the most important therapeutic areas – pain, cardiovascular diseases, disorders of central nervous system, digestion system, urinary tract and genital system, and treatment of respiratory diseases,” says Belcik.

Zentiva Romania
Pharmaceutical company
Took over Romanian-based Sicomed in 2005
2007 first half sales: 48.9 million Euro, up 21.3 per cent of the first half of 2006
Employees: 910

AAA Auto:
to double units sold in 2007

     Central European used car dealer AAA Auto expects to double the number of units sold in 2007 as it plans to open a new branch in Timisoara.
     In 2006, the Czech company tripled the sales compared to 2005 to 3,000 and this year expects to further double sales to 6,000.
     Popular among Romanians are German and French cars such as Opel Astra, Volkswagen Golf, Renault Megane and Peugeot, but AAA Auto’s best sellers are Dacia Logan, Renault Clio, Dacia Solenza and Daewoo Matiz.
     “Romanian customers are price sensitive, but more are demanding better quality cars and are accepting various financial services,” says Milan Smutny, spokesman for AAA Auto. “As Dacia/Renault is a dominant domestic producer we also expect in the next year a strong demand for Dacias.”
     This year AAA Auto opened a new branch in Brasov and changed its headquarters in Bucharest from Blvd Iuliu Maniu to a new more spacious centre on the Bucuresti-Pitesti motorway. This Winter the firm aims to open a third branch in Timisoara.
     Recent legislation has limited the opportunities for selling many imported second-hand cars in Romania by taxing the age and the engine of the car. The aim was to stop Romania becoming a dumping ground for busted old vehicles, which had occurred in other east European states. But many analysts, including the European Commission, criticised the punitive tax law as a protectionist measure that contradicted the EU laws on free movement of goods. “AAA Auto is very pleased by the determination of the Romanian Government not to let Romania become a cemetery for imported wrecks,” says Smutny. “This is exactly the right word for the over-aged imported cars that overflowed the Czech Republic and Poland and damaged our whole trade’s image, decreasing road safety and burdening the environment with emissions.”

AAA Auto
Branches: Bucharest, Brasov and Timisoara (due end 2007)
2006 sold units: 3,000
2007 forecast: 6,000

Konecna and Safar: witnessing Czech interest in services sector

     Czech investments in Romania will mainly develop in the services sector, such as financial services, as well as in insurance, food and real estate, according to Hana Sevelova, lawyer and head of the Bucharest branch of law firm Konecna and Safar.
     The main focus for the incoming law firm are Czech and Slovak companies on the Romanian market, those in the process of establishing a presence locally and Romanian companies looking to deal with heading to the Czech Republic and Slovakia. The company has started as a greenfield investment and is not looking for local law offices to pick up and purchase. “In the Czech Republic the legal market is more saturated than in Romania,” says Sevelova. “Moreover, our Czech clients and many other Czech and Slovak companies have been targeting the Romanian market recently. Thus the natural step for Konecna & Safar is to follow its clients and develop its business in Romania.” In real estate the company predicts further increase across all levels of residential development and sees a lack of office space.
     “In Bucharest we still see many empty plots and abandoned buildings in the centre of the city, while in Prague most of the central areas have already been exploited,” says Sevelova. Rebuilding and renovating Bucharest’s centre is also hindered by ongoing claims by formers owners of properties from pre-Communist times. “Therefore there is a tendency to develop on the outskirts of the city,” says Sevelova.

Konecna and Safar
Corporate law firm
Offices in Bratislava and Prague
Opened in Bucharest: Sep 2007
Three lawyers

Hobas:
poised to reap benefits of EU funds

     Pipe systems manufacturer Hobas is poised to take advantage of EU structural funds targeting the water supply and sewage sectors of Romania, which require a massive overhaul to reach EU levels of sophistication.
     Currently, 70 per cent of its systems are for new sewage systems, while 30 per cent are for water systems. This includes raw water supply for Piatra Neamt and in Satu Mare, for which the company constructs and sells centrifugally cast glass fibre reinforced pipes.
     But the capital could be the next target – especially as the city clocks up a population of three million. “Bucharest has big requirements of sewage,” says Josef Tretina, Hobas sales director for Romania and Bulgaria.
     Hobas aims to invest in its factory in the future to produce pipes with a diameter of two metres. At present the company is producing pipes with only one metre diameter at its factory in Clinceni, Ilfov county.

Hobas
Pipe systems manufacturer
Factory in Clinceni, Ilfov county
Turnover for first eight months
2007: 4.5 million Euro
Employees: 42

Business interviews by
Corina Mica, Michael Bird and Ana Maria Nitoi

Source : http://www.thediplomat.ro/features_1107_4.php