Romania's largest company, SNP (National Oil Company) Petrom, is from today onwards playing by the market rules, permanently changing the face of the Romanian economy. The significance of Petrom's privatisation contract extends well beyond the oil industry. Inflation, arrearage, foreign investment, as well as the budget and the trade deficit will all be influenced by the biggest privatisation process ever concluded in Romania.
All data regarding the involvement of privately-held companies in the Romanian economy will have to be revised. As Petrom will no longer be in the care of the Romanian State, the proportion contributed by privately-held companies to the Gross Domestic Product will increase to 73-75%, up from 68-70%.
Moreover, this privatisation is also important in terms of budget revenues. For once, the Romanian State will actually be able to cash some funds from a privatisation, in contrast to what was seen with regard to the Sidex steel mill, the Petromidia refinery and even the carmaker Dacia. In these cases, the State had to come up with numerous incentives and grant debt exemptions for the privatised companies.
Further debate concerning the final price of the Petrom deal (which is rather small, considering that Petrom is the only company in the region that produces both oil and natural gases) would be pointless at this late stage in the proceedings.
The sale of Petrom will bring almost 700 million euros to the state budget, a considerable amount, given that budget revenues for this year are estimated at six billion euros. The money will in fact be used to redeem the internal public debt, which now amounts to 10 billion euros. A 7-8% reduction in this debt will lead to rate cuts for the T-bills issued by the Ministry of Finances, and thus to rate cuts on the interbanking market as well.
Radu Craciun, senior analyst with ABN Amro, believes that the privatisation of Petrom and the utilities will affect several economic layers.
"The privatisation will trigger a drop in arrears, which could be accompanied by the closure of loss-making entities or by the State's involvement in their support, though this would be done through different methods," Craciun maintains.
At the same time, Radu Craciun forecasts the emergence of a "inflation surge, generated by the adjustment of prices on another economic layer, based on purely commercial criteria. Higher prices may stimulate enterprises to use fuels and electrical power more efficiently. Moreover, the private sector within the production and distribution of oil products will be able to levy prices that allow for increased profitability and development."
Furthermore, Petrom's privatisation could trigger a torrent of investments. Significant investments may be made, affecting imports and the foreign deficit, though foreign capital will also come from the flows of foreign direct investment entailed by capital increases.
An investment programme at Petrom may also have a knock-on effect on other local producers, which will have to keep up with the market leader.
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