April 2

Prerequisites to attract investment and financing in

Romania’s Oil Industry

Eric Kish VP Business Development,Mergers and Acquisitions

November 18, 2003

Largest private company in Romania (2002 revenues in excess of $1 billion), representing roughly 2.4% of GDP

Domiciled in the Netherlands with operations worldwide and assets mostly in Romania

Owned 75% by management and 25% by OMV

Financed principally by international banks; audited to IAS standards

Active in upstream, refining, marketing and services

One of the country’s largest exporters and taxpayers

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The Rompetrol Group – an overview

Principal challenges to private oil business in Romania

• De facto price controls on domestic motor fuels prices by Government of Romania

• Low domestic motor fuels prices are subsidized by domestic oil production (e.g., 100% of population subsidizes 15% of population who drives)

• Tax system which promotes tax evasion and fraud, leading to high percentage of counterfeit products

• No real regulation of trading companies• Need to attract fresh investment to

modernize/upgrade production to EU standards inhibited by non-productive “historic debts”

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Principal challenges to publicly owned companies in Romania

• Large labor forces compared to global competitors• Insulation from market forces promotes uncompetitive

behavior• “Self-sufficiency” idea in crude oil results in losses from

using over-quality crude vs. import prices• Need to attract additional investments to meet EU

standards ($800 million needed by 2005)• Risk of self-insuring assets• Small capacities compared to global competitors (e.g., esp. in petrochemicals)

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Suggestions from the private

sector

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Liberalize pricing

• Tax rates are as high as W Europe, but retailing margins are only 40-60% of West Europe and CEE countries

• Domestic prices need to be linked to international price of crude

• Consistent with World

Bank/IMF recommendations

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Move quickly to EU product quality

standards

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Regulate the unorganized trading sector to

reduce: • Tax evasion• Counterfeit or mis-branded products• Environmental degradation• Theft

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Privatize Petrom

in a way that: • Is 100% transparent• Invites proposals from all quarters but very

quickly narrows the list in order to meet end 2003 deadline

• Maximizes payments to the State and the value of the privatized entity

• Leaves the buyer with management flexibility to perform needed restructuring consistent with social protection norms

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