EXCLUSIVE Sorin Ciutureanu: "I am worried about having Oil Terminal end up like Oltchim"

Reporter: What can you tell us about the construction of the in Piteşti-Pancevo oil pipeline, in which Oil Terminal is involved, along with Conpet, Gazprom and Transnafta?

Sorin Ciutureanu: "Oil Terminal" is part of the PEOP, a project which consists of providing the transit of the crude oil from the port of Constanţa to the Trieste Terminal, in order to bypass the Turkish straits and reduce costs for the transport of crude oil from the basin of the Black Sea to Central and Western Europe.

Due to the non-involvement of Croatia, Slovenia and Italy, this project has remained under the coordination of Romania and Serbia, which led to its reorientation towards a regional project with a sole end-beneficiary - the NIS GazpromNeft Serbia refinery, which has a capacity of 5 million tons of crude oil per year.

The representatives of the project development company (Transnafta, Conpet and Oil Terminal) met earlier this year at Romanian-Serbian Mixed Commission level, and independent company levels, with the representatives of NIS, in order to present and endorse the opportunity of building the pipeline, which would connect the current Romanian national infrastructure with the Serbian refinery. The end benefits were presented, such as the estimated reduction of the cost of transporting the oil from Oil Terminal to Pancevo, using the pipelines of Conpet, the far shorter delays of the shipping from Novorosisk (the main port on the Black Sea for the export of crude oil) to Constanţa compared to those of the current route, with the Omisjali port of unloading.

Currently, a firm answer from Gazproneft NIS is being awaited on whether they agree to begin the talks about beginning the feasibility studies, as well as all the details concerning their funding.

We can say that in the current situation, this project has a market, i.e. a beneficiary concerned to transit oil on this section, which was not the case for the Constanta-Trieste project. But we shouldn't overlook the global economic crisis, the fact that Europe has become an area extremely expensive in terms of the cost of utilities, Russian companies are no longer eager to grow and expand with megaprojects, like they were about 10 years ago. Now it all boils down to "save on costs, cut expenses".

From my point of view, such projects are becoming more and more difficult to fund in Europe, even by companies of the caliber of Gazprom. Of course, the project can be extremely favorable in terms of future costs, but who can predict what will happen in the future? So, our current status is that we are waiting for a firm and on-topic response from Gazprom.

As for the cost of this project, I would prefer to have a clear feasibility study and then discuss amounts. An estimate would be at the level of about 206 million euros (181 million for the Romanian segment and 25 million for the Serbian segment).

Reporter: Do you think that it would be opportune to privatize Oil Terminal, given that, recently, the Government has pledged to the International Monetary Fund (IMF) that it will sell most of the companies in the portfolio of the Ministry of the Economy, of which Oil Terminal is one?

Sorin Ciutureanu: Whether the privatization of Oil Terminal would be opportune or not has been debated for years and unfortunately, a strategy designed with the future in mind wasn't followed, because, up until 2009, the terminal used to service at least four refineries in Romania, and the financial sources for supporting investments and maintenance were sizeable, and these works were actually executed then. After 2009, things got a little more complicated, and the activity shrunk significantly in the Romanian oil industry, and things came to the very unpleasant situation where there is only one refinery that still uses the terminal for importing crude. I am referring to the import of crude oil by mere virtue of the fact that, the terminal, through its construction, can not survive without oil transiting through it, considering that the installations are designed for very large volumes. It's enough to think of the fact that on the same existing capacities, in 1989 the terminal saw a turnover of about 24 million tons of crude oil and oil products, in 2005 we had a turnover of about 13.5 million, and in 2012, we had a turnover of about 4 million tons. Thus, you can see how big the differences are!

From my point of view, the Romanian State should not think about the privatization of the terminal; instead it should focus particularly on helping control the entries and exits of oil products in the port of Constanţa, provide this terminal with tax breaks through clear laws, so that we are no longer faced with the current situation where customers avoid Constanţa due to very high cost of guaranteeing the stored goods or because of the very high fees of the port.

Just the other day I was reading an address received from the Romanian National Tax Administration (ANAF) sometime in 2010, by which we were being asked to urgently deposit a bank collateral of approximately 48 million euros for the purpose of operating as a tax warehouse, even though we are not merchandise owners, we are not required to pay excise duties and only provide loading/unloading services to third parties.

Even more, our turnover was about 25 million Euros a year! Then they withdrew our authorization as a tax warehouse, just like they did warehouses in the middle of the country which had a capacity of 100 million tons, while ours was only 1.5 milion tons and we were Romania's terminal at the Black Sea. So this shows the lack of strategy, of the comprehension of what Oil Terminal means for the national economy. We should be attracting investors to reopen some refineries that have been shut down, such as Arpechim or Rafo and reopening Oltchim, a plant in which major, and - from my point of view - significant investments have been made. Maybe the competition has had a say in the matter of Oltchim. It would be a shame if that plant didn't reopen. If these refineries resume production, the terminal will operate at full capacity again. So my opinion is to make the country back on its feet again, and then think about the country's entry/exit point. Like I have already said, just like the port of Constanţa is the mirror of the Romanian economy, Oil Terminal is the mirror of Romania's oil sector. You should know that we are not in such a good position from geostrategical point of view. We have access at a somewhat closed sea, with straits controlled by an unpredictable Turkey, even though a series of economic and trade treaties exist that regulate shipping through those straits exist. So, although I don't see privatization as opportune, the current situation of the Terminal should be taken into account, however, amid the decrease in the volumes of transited goods.

In 2008, Oltchim was a plant that was heavily courted by important investors, but the Romanian state did not much attention to that fact, because the plant was doing well and everything was happy. Now, we are looking for anybody who would come in and buy the stake of the state in it because there are no more financial resources available to support the operation in Râmnicu Vâlcea. I am worried of Oil Terminal ending up in the same situation if we don't get involved in supporting it with financial resources, favorable legislation, or at least finding a major terminal operator with which to enter a partnership that would attract additional volumes of merchandise based on the commercial relations which they have with the major oil companies. You should know that we have attracted important foreign traders over time, such as Glencore, Vitol, Litasco and many others which we still have operational contracts with. But there is simply no comparison between operating with merchandise for a refinery in an in/out manner, and storing large volumes of merchandise.

Reporter: The press has often reported that Gazprom wants Oil Terminal very much and it would be willing to buy other non-viable companies, such as Oltchim, bundled with Oil Terminal. How would you comment on that?

Sorin Ciutureanu: Frankly, I don't think it would be a good idea to sell something bundled with Oil Terminal. I don't think people understand!! Imagine Gazprom providing the export-import services for OMV Petrom, Vitol, Rompetrol, Lukoil or Oscar Downstream when they are already competitors to them on the Romanian market, and some of them on the international market? I've constantly said that the terminal should be independent, controlled by an independent company which has the handling and storage of oil products as its line of business. Otherwise, you get major competition-related issues. In other countries (see Croatia, the Omisjali terminal), the authorities have invested large amounts from the state budget in modernizing the national terminal, but the customers have also invested their own financial resources to have an effective terminal.

In Romania that didn't happen, our customers never paid any attention to the terminal in all these years, as if it wasn't intended for their exclusive use. They had all the means of action at their disposal for getting their own people on the board of the terminal by pressuring the Governments which led the country after the revolution of 1989 and to get people of their own on the Board of Directors of Oil Terminal and to pursue business interests in an optimal competitive environment. We handle merchandise, we do not trade oil products, and the earnings from that go into investments and maintenance of the installations. We also pay royalties to the Romanian State for the merchandise which goes through the facilities of the Public Domain. So if Gazprom is interested in Oltchim, it would be a very good thing and we wish them good luck and we would want for them to resume production for the benefit of everybody, but you can't sell Oltchim bundled with Oil Terminal. As a strategy, I think that this approach is not good. It is very difficult to quantify the value of such a terminal, even more so to sell it bundled with something else.

Reporter: You have numerous ongoing lawsuits with minority shareholder Broadhurst Investments. What is their status? What is your opinion on this conflict?

Sorin Ciutureanu: Broadhurst Investments Limited, which holds 7.6258% of the shares of the company, has filed requests for intervention in the procedure for the registration with the Trade Registry of the decisions of the Ordinary and Extraordinary General Shareholder Meeting over time.

Thus, on the docket of the Court of Constanţa there are currently 28 requests for intervention, by which the intervenient party is requesting that the registration of the decisions in question with the Trade Registry be denied. So far, 18 counts were solved in first instance. The court has denied the requests for intervention as without merit or has cancelled the complaints filed as not adequately stamped. Our position is that the requests for intervention are without merit, as our company fulfills all the requirements of the corresponding legislation concerning the registration of the Decisions of the General Shareholder Meeting of OIL TERMINAL S.A..

I want to mention that currently, all of the requests filed by Broadhurst Investments Limited with the courts have been denied.

Reporter: What is the stage of the lawsuit between Oil Terminal and former CEO Silviu Wagner?

Sorin Ciutureanu: In order to implement the measures stipulated in the Mandatory Decision no. 853535/March 30, 2012 issued by the Romanian National Tax Administration (ANAF), through the General shareholder meeting of August 17th, 2012 it was decided to hold the company liable for the actions of former CEO Silviu Ioan Wagner, according to the provisions of art. 155 paragraph 1 of the law 31/1990, republished. In this case, through the Ruling rendered by the Court of Constanţa on October 1st, 2013, the request filed was denied, the court has admitted exception of prematurity, and has rejected the action as inadmissible.

Reporter: How did the main financial ratios of the company evolve in the first semester of the year (net profit, turnover)? How would you comment on the financial results of the company?

Sorin Ciutureanu: The physical services program has seen a deficit of 13% compared to the program specified through the Revenue and Expense Budget for the period ending on June 30th, 2013 (1,992 thousands tons), specifically, an unrealized volume of 252,000 tons, caused by the failure to meet the physical monthly schedule planned and announced by the customers in the beginning of the year, the shutdown of the Petrotel Lukoil refinery for a 60-day revision between February and April 2013, Rompetrol Rafinare entering a scheduled maintenance between February and April 2013, a drop in the consumption of Diesel oil nationwide, which led to a 40% drop in the quantities of Diesel oil planned.

The turnover at the end of June 2013 was 48,968,000 RON, 9% lower compared to the 6-month estimates (53,577,000 RON). This failure to meet the budgeted turnover was caused by the 13% deficit in the Physical Services Program planned for the first 6 months, as well as the customers that went bankrupt or entered insolvency in the first semester of 2013.

On June 30, 2013, the company had a combined loss of 4,424,000 lei, compared to a budgeted profit after the first six months of 617,000 lei. The main cause was the 13% shortfall in the Physical Services Program and the 11% shortfall in the total budgeted revenues.

The revenue and expenditure budget of Oil Terminal is based on quantitative estimates of our customers. Based on those, the Trade Department analyzes and systematizes the quantities to be processed, checks whether they match the actual situation and relay the estimated quantities to allow the drafting the budget based on the quantities to be processed during the year. Any operational modification (unscheduled overhaul, crash, fall in the export price of the processed product) during the year, for one of the clients may negatively influence the revenue and expenditure budget.

Reporter: What is your take on the Romanian economic environment and what are your expectations from the authorities?

Sorin Ciutureanu: Like I have already told you, it is very hard for outsiders to understand the Oil Terminal "phenomenon". Since I made my debut as a CEO, I have been trying, together with my colleagues, to solve the issues related to the audits conducted by the bodies of the state at Oil Terminal between 2010 and 2012 which have caused the company to become liable for amounts which were out of touch with the real situation. Of course, we went to court to dispute them, but we need to be prepared for the worst. Aside from that, we have addressed letters requesting the Government for help (the qualified ministries, national agencies), in order to obtain some favorable legislation for conducting our commercial activity, while still complying with the European legislation. We have never asked for things that could be considered as uncompetitive or state aids. Everything we have asked for was simply for a normal company that operates in a normal economic environment. But we were also waiting for other kinds of answers to let us know what kind of strategy to pursue.

This year we have applied for being authorized as a tax warehouse for storage, as the fiscal code is not helping us at all, considering the amounts that need to be deposited as collateral, we filed requests with the Ministry of Transports to allow us to make the Movila Sara South Warehouse a free zone of the port of Constanţa, the largest warehouse of oil products at on the Black Sea.

All of these actions were intended to help us obtain normal and justified facilities to the largest oil terminal in Romania. The moment we get firm answers from the authorities, we will also inform the shareholders of the company. Oil Terminal together with Conpet are the only entities in the Romanian oil sector in which the state still has a controlling interest. So, you realize that our customers are all of them private companies on a ferociously competitive market. Combined with the problems caused by the economic crisis, and with the constant hikes in the price of utilities, our company was forced to constantly come up with improvements and diversifications of its services. We are currently open to any request for operations concerning liquid merchandise, and if we lack the technical capabilities, we can seek and come up with solutions.

So, we try to answer to all the requests of all our customers. It is also important that they get the chance to endure and to increase their volumes of products transited through the oil terminal.

Reporter: What investments have you made lately and how were they funded?

Sorin Ciutureanu: In the past two years, the company's investments have focused on works needed to comply with the environmental protection requirements (modernization of the installation for the recovery of the FC ramp vapors), ensuring storage capacity up to standards (the building of a tank of 10,000 cubic meters in the port warehouse, the modernization of high capacity reservoirs - 50,000 cubic meters - 28/S and 35,000 cubic meters - 23/S), the outfitting of our own laboratories with test equipment, modernization of installations (the electrical installation and for the operation of the crude oil valves of the South warehouse, above ground connections to the 8X5000 reservoir park of the southern warehouse), the installation of CCTV monitoring systems in the north and south warehouses.

In terms of our investment plans for the future, we will continue with the action to increase the storage capacities in the warehouse port (which started with the 10,000 cubic meter reservoir commissioned this year) by building two more reservoirs of 5,000 and 10,000 cubic meters and 10.000 mc, the modernization of some high capacity reservoirs. The program for bringing to the surface the technological pipelines by installing above ground the cluster of pipelines between the port and the MIM bridge, the modernization of the meter systems and their expansion, works for the modernization of the reservoirs by outfitting them with gauges and with double layers of insulation to prevent leaks, in compliance with the environmental laws in effect, extending the systems for the electric operation of the valves and their centralized control from the control room. Also, we want to consolidate the anti-intrusion system by extending the CCTV system and increasing the height of the fencing.

Reporter: What are the company's plans on the short and medium term?

Sorin Ciutureanu: We are looking to promote the image of the company and to get in touch with new commercial partners and find new markets. We want to cover the financial losses of 2013, caused by the drastic drop of the volumes of merchandise through Oil Terminal compared to the volumes forecasted by our customers, amid the drop in the consumption of oil products on the domestic as well as foreign markets, by exploiting an oil-derived product (waste) managed and stored by our company since 2001. Thus, the management of the company has secured the licenses and the approvals to sell this product on the Romanian Commodities Exchange. The sale of this product through an auction is ongoing.

We also want to reduce our technological consumption, to see the draft Government Decision which concerns the expansion of the free zone regime completed, we want to take action towards reauthorizing Oil Terminal as a tax warehouse, to increase the share capital through a contribution in kind - the plot of land of the North Platform Division, which would significantly increase the stake of the Ministry of The Economy in Oil Terminal S.A. and to find European grants for ecological works. We are also interested in beginning the procedures for securing the license of electricity suppliers.

Reporter: How has the company been affected by the fact that it is listed on the stock exchange?

Sorin Ciutureanu: As it met the criteria announced by the Bucharest Stock Exchange, S.C. OIL TERMINAL S.A has been included on the 1st tier of the Bucharest Stock Exchange, on January 30th, 1998, offering investors with protection and safety, transparency and the ability to trade their shares on a regulated market. Therefore, our company, which is one of the companies traded on a regulated market, is required to register and to comply with the reporting requirements set through the regulations of the Financial Oversight Authority and of the regulated markets that their securities are traded on, have to ensure equal treatment for all the shareholders that have shares of the same class, have to ensure all the facilities and information needed to allow the shareholders to exercise their rights.

Reporter: Thank you!