The Race for Privatizing Romgaz Is On

Romgaz, the Romanian national gas company, is due for privatization and many important business groups are eyeing it. Romgaz comes right after Russian gas companies in terms of size, on continental Europe. Romgaz produces 6 billion metric cubes of gas per year, of the 17 billion Romania uses annually; hence its privatization takes strategic overtones.

The Romanian Executive opened the bidding for the consultancy contract, for the company which will advise it to the planned privatization of Romgaz. So far 13 consultancy companies placed their offers: Morgan Stanley, Merrill Lynch, Citigroup, CA IB Corporate Finance, Goldman Sachs and Lazard Freres go on their own into the bidding, while JP Morgan and ING Bank N.V formed a consortium, as did Bank of America Securities Limited, Central Europe Trust, Deloitte Central Europe, Allen Overy, Atkins and Racoti-Predoiu, for the same purpose.
Other consortia are Credit Suisse First Boston, Fondul Romano-American de Investitii, Linklaters, Miculiti, and Mihai & Asociatii; ABN Amro Bank and Musat & Asociatii; UBS Investment Bank and BAC Romania; BNP Paribas Corporate Finance, EPIC, Tuca & Associates and BDO Conti Audit Romania; HSBC Great Britain, BCR - Romania, Capital SA - Romania, FBD, and Racoti & Predoiu.
The consultancy team will be selected by the end of October.

According to Codrut Seres, the minister for economy and commerce, big corporations - as Lukoil, Gaz de France, Ruhrgas, Wintershall (Germany) and MOL - are keen to buy Romgaz. And the Executive counts on more bidders coming to the privatization bid once it will choose among the privatization strategies proposed by the consultant.
The only sure thing for now is that the control stock package will be sold to a strategic investor.

The steps up to privatization are: selecting the consultancy company, then evaluating the gas reserves Romgaz holds - a process which could last up to four months. The privatization will be open for bidding some time by the end of spring 2006, and the transfer of stock could end by the end of the year.

All of the companies which already expressed their interest in buying Romgaz stock are already conducting business in Romania.
Gaz de France and E.ON - Ruhrgas control 90% of the gas distribution in Romania, via Distrigaz Sud and Nord. E.ON also controls the electricity distribution in the eastern region of Moldova.
MOL bid for the national oil company Petrom, while Lukoil bid unsuccessfully for Petrodmidia refinery and finally bought the Petrotel refinery. While the gas division of MOL will soon be part of E.ON Ruhrgas.
Wintershall partners with Romgaz in exploiting gas reserves in southern Transylvania and also exploits some fields on its own. Romgaz also works with Wintershall to build gas transportation highways which will connect the Romanian network with the Ukrainian one, in the region of Siret River. Wintershall also partners in various ways relevant to Romania with Wirom Distribution Company and with Gazprom, the Russian conglomerate.

Gazprom was the favorite that lost in the bidding for Distrigaz Sud, and yet deputy executive director Alexander Medvedev recently told Mediafax news agency that the company hoped to share in the businesses bought by E.ON in Romania
While the president of the international division of E.ON, Ulrich Schoeler, recently stated that E.ON is Gazprom’s biggest client in Europe buying natural gas, and that the two companies enjoy good relations in the field of gas transportation too.

The Russians use intermediaries to set their foot in Central and Eastern Europe. Romania is valuable to Gazprom as it is a transit territory towards the Balkans. A pipeline heading that way already crosses eastern Dobrogea region, north to south. In ten years, Romania’s imports of gas will go to 70%, from 30% now, so Russians would naturally want a chunk of that market, as Romania would naturally pursue diversifying its gas sources for strategic reasons.

Companies’ Profiles

E.ON Ruhrgas is one of the three companies already stating their interest in Romgaz privatization and one of the biggest companies in Europe, with 57% of the German market for natural gas and a network of pipelines 11,000 kilometers long. Ruhrgas works along big gas producers in The Netherlands, Norway and Russia. In 2003 it sold around 55.6 billion cubic meters of gas generating 12.1 billion euros revenue, at a net profit of 909 million euros.

Gaz de France has almost 11 million clients in France and another 4 million elsewhere in Europe. Interestingly, the company is in a process of privatization too. In 2004 it had a turnover of 18.1 billion euros at a profit of 1.1 billion euros. Economic activities outside France make 28% of the company’s turnover.

Wintershall is part of the BASF conglomerate and had last year a 480 million euros profit out of sales of 3.16 billion euros. It discovered an important pocket of gas near Sighisoara city, in central Romania, where it extracts 300,000 cubic meters of gas per day. Wintershall has projects in Romania estimated at 55 million dollars, and it already partnered with Romgaz in exploiting a gas pocket in southern Transylvania.

Romgaz holds concession rights over eight fields yet to be explored, and over 150 fields currently exploited; it holds assets worth 3,822 billion lei. Since gas price went up its turnover rose 56% in 2004, as compared to 2003, from a previous 11,845 billion lei (315 million euros) to 18,490 billion lei (456 million euros).

The gross profit for 2004 was 3,499 billion lei (86.3 million euros), and the net profit for 2005 is estimated to go to 3,572 billion lei, at a 23,265 billion lei (648 million euros) turnover. Romgaz also holds storage facilities for three billion cubic meters of gas and provides a third of Romania’s annual gas input.