OMV Petrom is the largest producer of oil and the second largest producer of gas in Romania. The company has a refinery in Petrobrazi that produces fuel, and a gas fired power plant with a maximum capacity of 860 MWh (covering between 5-10% of the total market). The company also operates a network of petrol stations under two brands, OMV and Petrom , that expands beyond Romania into Bulgaria, Moldavia and Serbia.
OMV Petrom is the largest private investor in Romania. Can you explain how your operations here fit in the broader structure of the Group?
OMV Petrom is the largest player on the energy market in Romania and also the largest taxpayer, with ~2bn euro in state budget contributions per year. The company has integrated activities: from crude oil and gas production, refining, power generation, to fuel, gas and electricity sales. Petrobrazi refinery production can cover annual consumption of about 3 million cars. Our gas production can cover about 40% of Romania's consumption, and the Brazi plant can cover up to 10% of domestic electricity consumption.
With over 13,000 direct employees at the end of 2018 and an overall estimated impact on the labor market of over 50,000 jobs (through contractors and subcontractors), OMV Petrom is also one of the most important players on Romania’s job market. Downstream Gas Division in OMV Petrom ensures electricity production and gas & power sales. Thanks to our integrated business model, we are able to capture market opportunities along the entire value chain.
Given this broad scope, what are you prioritizing at the moment in terms of investments?
We invest, on average, approximately 1 bn euro each year and this since mid 2000s. Basically, we reinvest most of our operational profit. Most of our investment budget is focused on Upstream activities – core operations are in Romania, but we also have operations in Kazakhstan. In Romania, most of fields are mature and facing declining production; therefore, high investments are required to mitigate this natural decline.
In our other business divisions, the need for investment is lower because we had major modernization programs completed in recent years. For example, Petrobrazi refinery benefited from approximately 1.6 billion euro for modernization, the filling stations were also modernized. In Downstream Gas, OMV Petrom invested 530 million euro to build the gas fired Brazi Power plant, which was commissioned in 2012 and is the largest greenfield project in power generation in Romania over the last decades. Brazi power plant plays an active role in securing Romania’s power supply, covering demand during peak consumption times and providing balancing capacities to complement increasing power production from energy sources. 2018 was a very good year for our power plant, whose production covered 6% of Romania’s demand.
OMV Petrom holds an important stake in the Black Sea and is now evaluating whether to move ahead with the final investment decision. What criteria are you considering with priority as you are making this decision?
The Neptun Deep project is a huge opportunity for Romania: to increase revenues to the state budget, create new jobs, secure Romania’s gas needs. Usually, for such large-scale projects, many pieces of the puzzle pieces need to be aligned: such as regulatory framework, fiscal stability, competitive terms, liberalized gas market and key infrastructure.
Deepwater projects are large scale investment, billions of dollars have to be invested upfront. That’s why stability and predictability are of crucial importance.
What are the biggest hurdles you are facing in Romania presently, and what would be your suggestions for improvement?
When GEO 114/2018 was made public at the end of 2018, it was very clear that we face substantial, structural shift in the Romanian energy market. After a long, fairly complex and not without delays gas market liberalization process, and after barely two years of liberalized gas market, we went back to a regulated status. Amendments brought to the Ordinance by GEO 19/2019 answer some of the concerns expressed by the oil & gas industry. Returning to unregulated gas prices for industrial customers represents an important step towards a liberalized gas market. This process should continue.
We believe a liberalized gas market can exist with the right mechanisms in place to protect vulnerable customers, in accordance with the existing good European practice. Together with FPPG we looked at measures that have worked in other countries and put the ideas forward to regulators. We are now in discussions on possible schemes and how vulnerable protection mechanisms could be implemented in Romania. But best practices show that these mechanisms to protect vulnerable customers should not threaten production and security of supply.
Security of supply can be ensured by domestic production and by interconnectivity – which grants access to varied supply sources. During last winter, gas imports increased significantly. I think better interconnectivity in the region is also important, to ensure a broader base of supply, and to open the opportunity to import gas when there are cheaper alternatives regionally.
Do you have a final message for international companies looking to set up shop in Romania?
Romania is an emerging economy and this can open more opportunities compared with a developed economy. It is also part of the EU and this membership provides guarantees in terms of legal and regulatory frameworks. Romania has a unique strength in Europe that is in the same time a huge opportunity for the country – is has its own oil and gas resources.
As with any emerging economy, there is still considerable progress to be made for example in terms of regulatory framework or development of infrastructure. Recently, we have seen increased legislative volatility, but investors are still committed to Romania. Dialogue and consultations can move things forward and achieve win-win solutions both for business and for the country.
