Whereas Transelectrica’s peers operate at 11% to 44% profit margins, Romania’s national grid company’s net profit margin stood at 3% last year, despite a ten-fold increase in income on 2010. The net margin of 2010 had amounted to 0.4%. Hidroelectrica’s was less than 1% last year, even though such a company should normally never go below 30%. In this particular case, however, it is not the acquisitions that are the problem, but the decade of direct contracts with the “wise guys,” who got power cheaper than the market price and thus caused the company to lose EUR1.5 billion of potential profits. Romgaz alone is better off, having operated at a profit margin of about 18% last year.
The largest state-run companies submitted 3,120 notices of intent on the SEAP in the first three months of the year, worth over EUR880 million, reveals the data supplied by the Economy Ministry, which centralizes information about what the companies subordinated to it spend their money on. The biggest shoppers are the major state-owned companies such as Romgaz, Hidroelectrica, Nuclearelectrica and Transelectrica, which spend millions of euros on security services, pens, dozens of surveys, advertising services or promotional materials.
“There may be some exaggeration, but to get a clear picture, the Ministry has to have the mechanisms to control such acquisitions very well. Spending EUR1.5 million on a survey is a bit too much, but things have to be considered and compared with the costs of each product,” says Ionut Purica, an energy and environment expert with the Romanian Academy. He explains that judging from the information in the notices it is quite difficult to draw a final conclusion about the efficiency of state-run companies’ spending.
“One cannot draw a very clear conclusion starting from this information about the spending efficiency of state-run companies. One must also see the prices at which the public procurement auctions ended,” says Gabriel Biris, co-founder of law firm Biris Goran.
Still, the data centralized by ZF based on the information provided by the Economy Ministry shows that Romgaz, the most profitable state-owned company, submitted 407 notices of intent on the electronic public procurement system, worth a total of EUR188.8 million. The shopping list of Romania’s largest natural gas producer contains photocopying services worth almost EUR700,000, security services (over EUR697,000), advertising services (EUR400,000), real estate consultancy (over EUR230,000), soap and detergents (almost EUR200,000), toilet paper and air fresheners (EUR50,000), bedding or lawn mowers.
Despite the rather extensive shopping list, Romgaz remains the most profitable state-run company, with 726 million lei (EUR166 million) in net income and RON4 billion turnover. It has a huge investment budget, which stood at RON1.2 billion last year, so that any equipment, product or service provider is naturally attracted to it.
However, the company’s auctions aroused suspicion from the Competition Council, which opened an investigation into the potentially fake bids Romgaz got when looking to award natural gas installation work contracts.
Hidroelectrica, the country’s largest power producer, which was the most valuable state-run company according to the ‘Top 100 most valuable local companies’ yearbook compiled by ZF and boutique investment bank Capital Partners, also has an impressive shopping list. All in all, it posted 302 notices on the SEAP, worth over EUR154 million, which include fuel vouchers (EUR1.7 million), cleaning services (EUR83,000), and firewood (EUR36,000). The company’s investment budget stands at RON1.55 billion this year, which makes it one of the most attractive targets for suppliers.
Transelectrica, the national electricity transmission company, is the most aggressive shopper by far. The data supplied by the Economy Ministry shows it to have submitted 529 notices of intent on the SEAP worth over EUR100 million. All suppliers of equipment and services want to do business with Transelectrica, considering it announced it would have to invest EUR500 million in upgrading its system to integrate wind farms alone, in addition to several hundred million euros in turning its infrastructure into a Smart Grid.
Transelectrica is therefore willing to spend millions on all sorts of surveys. One such survey, worth EUR1.5 million, should assess whether Transelectrica should or should not participate in building the underwater power cable connecting Romania and Turkey. There has been talk about this project for years, which was seen as a way to get the electricity generated by the wind farms in SE Romania out of the system and Turkey is a good market because of its high electricity needs. The problem is that the project has moved in small steps and Transelectrica’s general manager, Octavian Lohan, said the Turkish party no longer wanted to participate in the investment.
Transelectrica is also willing to pay EUR300,000 for advertising services, even though it is a regulated monopoly. It also wants to buy a survey to help it devise the strategy to implement the Smart Grid concept, a feasibility survey for a virtual corporate library (EUR58,000) or a EUR7,000 survey on the migration routes of birds conducted over two migration seasons. Then there are also pens, day planners, or car wash services worth tens of thousands of euros.
It posted over RON3 billion in revenue and net profit of merely RON90 million last year and expects RON2.6 billion revenue and RON40 million in net income this year.
(English version by Loredana Fratila-Cristescu)