Monday, February 1, 2010

A Cloudy Future for Romania's Oltchim

The largest Romanian chemicals maker has relied for years on state support, but new EU scrutiny could stop that—perhaps triggering a takeover of the company

By Will Conroy

Adversaries of Constantin Roibumight like to think that this time he has gone a bridge too far. But that might be wishful thinking, for this is a man with remarkable stickability.

Roibu, 57, who has been at the helm of Romania’s biggest chemical producer, Oltchim (OLT:RO), for 19 years, is the only CEO of a large state company in Romania to have kept his position through all the country's post-1989 governments.

The harshest critics claim his tenure has, over the years, seen the company, headquartered in Ramnicu Valcea, in south-central Valcea County, become a black hole for a fortune in public money. And they are aghast that Roibu – with debt-ridden, loss-making Oltchim on its knees amid mounting red ink – has persuaded government ministers to grant the firm further backing worth more than half a billion euros largely in bank loan guarantees. On this occasion, however, with Romania now a European Union member, Roibu must also overcome the test of European Commission scrutiny before his enterprise can take possession of another big state handout.

“Constantin Roibu is regarded by the people of Valcea and the Romanian media alike as the very synonym for Oltchim,” said a consultant who has profiled the CEO. While the national media like to rank him among the “communist dinosaurs” who are almost impossible to displace owing to political connections and contacts built up over the years, he is a “beloved manager” to his 3,500 or more employees, a “protector” and father figure, added the consultant, who, like many of those approached for a comment on Roibu, requested anonymity. “I'd go a bit further,” said another who preferred to remain nameless, an executive with a firm of Bucharest investment advisers. “I see Mr. Roibu as the informal president of the 'People's Republic of Valcea,' which depends on the VAT and other taxes paid by Oltchim.”


EU-driven economic reform has also brought Roibu a Western European opponent in the shape of a 12-percent Oltchim minority stakeholder. Petro Carbo Chem, a German chemical company, has become an activist shareholder in Oltchim, fighting to persuade the Romanian government not to, in the words of its development manager, Wojciech Zaremba, “pour good taxpayers' money after bad into what is plainly a bucket with a hole.”

PCC also aims to convince the European Commission that Romania's financial assistance would amount to improper state aid. What's worse, it protests, is that the aid would go to a company yet to meet its requests for a proper explanation of what previous dollops of state assistance were spent on and for details on what Oltchim's many suppliers and subcontractors actually do for the company.

Oltchim lost 172.5 million lei (42 million euros) for the first nine months of 2009, and turnover year-on-year fell 51 percent to just under 800 million lei, the company announced in November. Earlier in the year the company said that in 2008 it had managed to reduce its debt from 491 million to 434 million euros, but it expected indebtedness to rise again to more than 600 million euros by 2012 if the restructuring program went into effect.

Zaremba claims he faces an uphill battle to get Romania's decision-makers to focus on the business argument that Roibu’s investment and recovery strategy is “completely illogical and quite likely to end up causing a huge bankruptcy because it is a thinly researched plan that's just not in touch with the changing modern realities and markets of the chemical industry.” This, he insists, is because Roibu is surrounded only by loyal advisers, while he remains popular with the local community for charitable activities such as hiring people in need and using company proceeds to build houses for the disadvantaged.

In October, Zaremba was thrown off the Oltchim board when Roibu won a shareholders' vote to commence legal proceedings against him and PCC owner Waldemar Preussner. Both Zaremba and Preussner, whom Roibu insists want to destroy Oltchim to open up market opportunities for PCC subsidiaries, stand accused of conducting a negative, misleading publicity campaign with the use of confidential information that has financially undermined the company. In the run-up to his dismissal, Zaremba, a Pole, was attacked by the CEO for allegedly conducting communist-era disinformation operations against Oltchim. Zaremba was indeed a Polish foreign intelligence officer between 1980 and 1993, but he points out that this fact was even divulged in his CV posted on the Oltchim website.

“The disinformation claims, in fact all these claims, are a complete red herring, and while Mr. Roibu says he is suing PCC, PCC may have to sue him to protect its good name,” Zaremba said. “We are a legitimate, modern-thinking company that just wants to protect its shareholder rights. If the Economy Ministry would stop disregarding our attempts to communicate, perhaps we could even buy Oltchim and turn it into a cutting-edge company that could produce innovative, fine chemicals rather than the bulk commodity chemicals which have been miring it in mounting losses for years.”

But PCC's arguments are yet to find favor with any high-level state representative. Prime Minister Emil Boc even blessed Roibu's Oltchim recovery plan with a visit to the company in July. On 20 November, Deputy Economy Minister Tudor Serban accused PCC of wanting to drive Oltchim to the wall so that it could pick up the company cheaply. “These are the type of people that should be thrown out the country,” Serban told the newspaper Ziarul de Valcea.

In September, regional publication EuroValcea Online published an opinion piece titled “Oltchim sacrificed on the altar of eternal manager Constantine Roibu?” The author, EuroValcea editor-in-chief Francisc Szocs, is another observer who finds Roibu intriguing. Szocs, who has also written polemics accusing Roibu of earning an astronomical salary, notes that the company boss is well-known in Romania for arranging Oltchim sponsorship for the championship-winning Ramnicu Valcea women's handball team, adding, “But he's not often seen at the events he sponsors. I don't think he likes to show his wealth.” On the political side, Szocs says, “He's cannily maintained good relations with all the main political players, including the Social Democratic Party and the Democratic Liberal Party [Boc’s party], while giving rather stern advice to journalists about what should and should not be written about his company. He was also recently publicly annoyed with some Oltchim workers who at a demonstration shouted their disapproval of politicians they thought should be doing more to help the company.”


On 19 November, EU Competition Commissioner Neelie Kroes confirmed she would investigate the package of proposed state assistance for Oltchim, including a first phase state guarantee worth 49.6 million euros granted under a commission-approved “temporary framework” for state aid to a company during the financial crisis. "The Temporary Framework allows companies to overcome financial problems arising from the current credit squeeze. The commission will verify whether Oltchim's difficulties are linked to the crisis or predate it. In the latter case, the Temporary Framework is not the appropriate instrument to address the company's problems,” Kroes said in a statement.

The rest of the roughly 500 million euro proposed aid package should not be granted, charges PCC, because it violates EU competition rules that apply to state aid to state firms. Just over half of Oltchim belongs to the Romanian state.

Oltchim proposes to use the initial assistance to acquire a 1960s-built ethylene production unit and other petrochemical assets at Romania's Arpechim refinery, which owner Petrom (OMVKY) has earmarked for closure. By acquiring and revamping the facilities Oltchim could restart and expand much of its polyvinyl chloride and other production lines, and thus climb back into the black. PCC, however, contends the plan is laughable because the facilities are, in the words of PCC projects development manager Adam Lamentowicz, “so old and dilapidated that Petrom should really pay somebody to take them away.”

“Besides,” he added, “the ethylene and PVC businesses are nowadays really for the world-scale players, of whom there are more and more emerging in the Middle East and other lower-cost regions. Arpechim will never have the capacity to make itself viable, longer-term.”

Roibu cancelled an interview with TOL after seeing the proposed questions. Through his assistant, Roibu said he was “convinced the questions are suggested by PCC or somebody hired by PCC.”

A European Commission finding against the Oltchim assistance deal would likely be highly unpopular in Ramnicu Valcea, where unemployment is nearing 8 percent. The nationwide jobless rate rose sharply when the crisis hit in 2008 and stood at 7.8 percent in December, according to press reports. Oltchim says about 7,000 workers in Valcea County rely directly or indirectly on the company for their jobs.

Roibu shows no sign of cutting back on his patronage in the area. In mid-November the weeklyJurnal de Arges made Roibu its “Person of the Week.” The CEO, it reported, had responded to a desperate letter from the 600 employees of the Arpechim refinery who face losing their jobs while the Oltchim takeover is held up by immediately employing 77 of them.

Provided by Transitions Online—Intelligent Eastern Europe

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