Regional Factbooks

General Information

Romania, with 22.6 million people, is the second most populous country in Central and Eastern Europe. Geographically, Romania is somewhat smaller than New York and Pennsylvania combined. Located in Southeastern Europe, Romania borders the Moldova, Ukraine, Hungary, Yugoslavia and Bulgaria; and in the southeast borders the Black Sea. The Romanian currency, the Leu (L), has an exchange rate of approximately 25,000 L per U.S. dollar (as of January 2001). In 1999, the gross domestic product (GDP) was $87.4 billion (purchasing power parity) and per capita GDP was $3,900. Romania has a free trade agreement with the states of the European Free Trade Association (EFTA) and an association agreement with the European Union (EU). It is also a member of the Central European Free Trade Association (CEFTA), the World Trade Organization, and the Council of Europe (COE). In 1993, Romania had its Most Favored Nation Status with the United States restored on a permanent basis. In 1994, Romania was the first Eastern European State to sign the NATO Partnership for Peace in Brussels.

As part of economic reform measures passed in 1990, the energy sector was reorganized by establishing two types of autonomous state enterprises: Regis Autonomous (RAs) for the production and supply of energy products, and Commercial Companies (CCs) for support services and activities. This enabled the government to separate policy and regulation from operational functions, to bring accountability, and to institute commercial practices in the energy sector. RAs are state holding companies for sectors considered strategic by the Government of Romania including electric power, oil, natural gas, lignite, and coal. CCs are joint stock companies established under commercial law.

The energy sector is under the supervision of the Ministry of Industries, which formulates policy and strategy. Operational responsibility rests with the RAs and CCs. In June 1998 a restructuring program was adopted by RENEL, the Romanian Regie Autonomous for Electricity. This resulted in the creation of CONEL, the National Electricity Company. In October 1998, the National Electric and Heat Regulatory Authority (ANRE) was set up as an independent institution to regulate the electricity market.

On July 31, 2000, the Romanian government published a decision to divide CONEL into four companies:

• Transelectrica S.A. -- National company for the transport of electrical energy - electric transmission, electric market management, and foreign electric system interconnection. Transelectrica operates the National Power Transmission System. The part of Transelectrica which administers the energy market is called Opcom, S.A. Opcom processes electricity proposals from market participants, analyzes the bids, and determines the merit order of power unit loading.
• Termoelectrica S.A. -- Commercial company for the production of tlectrical and thermal energy - electricity generation from thermal power plants, district heating, and related fuel supplies. It is expected that eventually some power plants owned by Termoelectrica will be privatized and independent power producers will be created. This is expected to attract foreign and domestic capital.
• Hidroelectrica S.A. -- Commercial company for the production and delivery of hydroelectric power.
• Electrica S.A. -- Commercial company for the Distribution and supply of electrical energy.

Under the structure before the decision, Termoelectrica, Hidroelectrica, and Electrica had been 100 percent-owned by CONEL. The Ministry of Industry and Trade will be coordinating this restructuring program. The plan is to eventually transform the state-owned electricity monopoly into a competitive energy market.

The current government policy is to develop an energy sector that promotes a market-oriented economy. Legislation, either currently under development, or in the process of being passed to help implement this policy, includes: (1) a new petroleum law; (2) replacement regulations for electricity and heat with respect to technical standards and the relationship between suppliers and customers; (3) a new electricity law for regulating CONEL, access to the electricity transmission system, and investment in the electrcity sector; (4) new regulations on standards for the use of electricity; and (5) a law on energy conservation.

Romania's energy situation is summarized in this section by examining the energy resources, energy forms, and infrastructure.

An historical summary of Romania's Total Primary Energy Production (TPEP) and Consumption (TPEC) is shown in Table 1.

Petroleum consumption has been rising since reaching its lowest point in 1994. Romania's refining industry is the largest in Central and Eastern Europe. In the early 1990's, its 10 refineries had an annual crude distillation capacity of 34 million tons, far exceeding domestic demand for refined petroleum products. In 1992, the refining industry launched a restructuring project which closed 9 million tons of excess capacity. Capacity reduction was coupled with increased specialization in developing high-demand products such as lubricants, bitumen, and fertilizers. Romania has been under continued pressure from the World Bank to make additional capacity reductions in the refining industry.

In the late 1980s, Romania was one of the top three oil drilling equipment manufacturers worldwide. Although the current output is much smaller, Romania's oil drilling facilities are starting to recover from the steep drop in demand during the early 1990s, resulting from the collapse of foreign markets. This recovery is largely due to of the increased demand for specialized and sophisticated machinery to upgrade existing equipment and technology. This includes Romanian onshore and offshore oil exploration, which is a growing market for modern equipment. U.S. companies are well positioned to provide the necessary equipment and technological assistance to the Romanian industry.

An historical summary of petroleum production and consumption in Romania is shown in Table 2.

The Romanian oil and natural gas equipment industry was the third largest oil and natural gas drilling equipment manufacturer worldwide in the late 1980's. In the 1980's, about 85 percent of the industry's production was exported. Due to the collapse of foreign markets for its products (the states of the former Soviet Union, the former Yugoslavia, and Iraq were major trading partners), this industry is confronted with serious problems. Joint ventures and co-production schemes that would take advantage of Romania's low labor costs, skilled workforce, and export markets could be of interest to both Romania and U.S. companies. The modernization of this industry will require a large influx of western technologies and imports of various state-of-the-art components, materials and parts.

Growth in the oil and natural gas sectors will be stimulated over the coming years by EBRD and World Bank projects aimed at increasing oil and gas production via the introduction of new equipment and new production methods. Western Atlas and M.I. Drilling have already made important contributions to an increase in Romanian oil production. In addition, exploration activities and geological surveys currently conducted by foreign companies may lead to discoveries of new oil and natural gas reserves. Romania's National Agency for Mineral Resources actively promotes the concession of 15 oil and natural gas research areas.

Recently, the Romanian Government signed a joint venture with private foreign firms to launch an LPG project and potential importation of Liquified Natural Gas (LNG). The joint venture plans a pipeline to carry Liquified Petroleum Gas (LPG) to Bucharest, satellite terminals, deep water facilities at the port city of Constanta, and a potential expansion to include the importation of LNG when it becomes economic to do so.

An historical summary of natural gas production and consumption in Romania is shown in Table 3.

An historical summary of coal production and consumption in Romania is shown in Table 4.

The Romanian plan was to use natural uranium as fuel and heavy water as coolant, giving Romania fuel cycle self-sufficiency. The fuel requirement is met by the Pitesti plant which manufactures 100 tonnes of fuel annually.

Work on Cernavoda 2 is continuing and it is expected to be completed in 2005. In March 1998, the Romanian utility CONEL (then called RENEL) reached agreement with Credit Suisse First Boston for financial, commercial, and legal advice to get $750 million in financing to complete Cernavoda 2.

Cernavoda 3 is 15 percent complete, Cernavoda 4 is 5 percent complete, and Cernavoda 5 is 4 percent complete. Construction is not currently proceding on these last three units because they are still awaiting financing.

There are approximately 7,457 miles of gas pipelines with a capacity of about 4,767 million cubic feet per day, or 1,412 BCF per year. Gas pipelines transport gas from Greece and Bulgaria at the rate of about 388 BCF per year. The Romanian natural gas supply company, ROMGAZ, is in an extremely difficult financial position. ROMGAZ has had its accounts frozen by the public finance board of Bucharest for failure to pay local taxes and is therefore unable to afford any excess expenditures on maintenance, operation, or spare parts. Adding to the fiscal pressure is a large amount (over $100 million) of outstanding payments owed the company by customers. More than half is owed by CONEL, the state power company. An operational priority for the natural gas company is the replacement of old distribution and transmission pipelines. Nearly 40 percent of ROMGAZ pipes lack cathode protection, which can lead to early corrosion and pose a serious threat of explosion. In 1996, ROMGAZ was planing to replace 30 miles of its 1,770 mile pipeline system. The Russian gas supplier Gazprom has entered into a joint venture with ROMGAZ to build a new pipeline to carry Russian gas to consumers in Romania and neighboring countries.

Romania has an extensive interconnected power transmission and distribution network with an overall length of about 368,000 miles, and a total transformer capacity of about 172,000 MVA (Megavolt-amperes). The national grid operates on 750 Kilovolt (kV), 400 kV, and 220 kV for transmission and 20 kV, 10 kV, 6 kV, 1 kV and 0.4 kV for distribution. As a limited member of the Interconnected Power System-Central Dispatching Organization, Romania has strong interconnections with Ukraine and Bulgaria, substantial interconnections with the former Yugoslavia, and weaker links to the Republic of Moldavia and Hungary. CONEL is currently cooperating with the electric power systems of Greece and the former Yugoslavia (both UCPTE members) and is working to become more fully integrated into the UCPTE system. The transmission network is linked by 750 kV and 400 kV tie-lines with Ukraine; two 100 kV lines with Moldavia; one 220 kV line with Hungary; one 750 kV, two 400 kV, and one 220 kV with Bulgaria; and one 400 kV and four 110 kV lines with former Yugoslavia.

Electrica, the state-owned distribution company has 42 branches and supplies power to over 8 million customers in Romania. Of the electricity sold, 34 percent was high voltage, 33 percent was medium voltage, and 33 percent was low voltage. Sales to the various categories of customers in 1998 (in gigawatt-hours [GWh]) are shown in Table 5.

The overall losses of the distribution network in 1998 were 5,252 GWh. Besides running the distribution system, Electrica also operates 192 small hydropower plants with a total capacity of 152 MWe. In 1998, these plants produced 272.5 GWh.

In 1998, Termoelectrica, the state-owned generation company, ran power plants with a total capacity of 14,196 MWe, as shown in Table 7:

In 1998, the electricity output of Termoelectrica was 36,772.4 GWh, which constituted 43.7 percent of Romania's electricity production. The sources were allocated as shown in Table 8:

In 1998, Thermoelectrica's heat capacity was 11,540 tonnes/hr of steam. Under the current reorganization of the electric sector, Termoelectrica is looking for investors to create joint-stock companies or finance plant construction work. Several Termoelectrica cogeneration plants may be privatized.

In 1998, Hidroelectrica, the state-owned hydropower company had a capacity of 5,803 MWe. This consisted of 128 hydropower plants with 295 units, of which 15 were micro-hydropower units. In 1998, 40 percent of Hidroelectrica's output was from the Iron Gates Hydropower plant.

Besides Thermoelectrica and Hidroelectrica, there was 585 MWe of capacity held by captive power plants (autoproducers) and 1,107 MWe held by independent power producers.

An historical summary of electricity generation and consumption in Romania is shown in Table 9.

The upgrading of existing capacity and the start-up of the Cernavoda Nuclear Power Station (supported by Atomic Energy of Canada Limited and Ansaldo of Italy) in the summer of 1996, put Romania into a position to export significant amounts of electricity.

Most of the technology in place in CONEL's thermal plants is from the 1960's and early 1970's. Because of the decline in demand, many plants which have exceeded their operating life have been decommissioned or moth-balled. Only the higher efficiency plants are operated. A number of units are being refurbished to increase availability and efficiency. CONEL is actively seeking foreign partners in an effort to modernize and refurbish their thermal plants.

The U.S. Department of Commerce has ranked electrical power systems as the area with the third best potential for U.S. investment. To increase performance in the electricity generation sector, CONEL is focusing on the following projects, which are top priorities:

• The upgrading of coal-fired plants running on medium- and low-grade lignite (an IBRD loan has already been granted for the project -- approximate value $344.8 million);
• The upgrading of at least two major co-generating plants in Bucharest (estimated investment of over $225 million) and the building of a new plant in Bucharest;
• The completion of Unit 2 of the Cernavoda Nuclear Power Station and 14 hydro-electric power plants; and
• The transmission and distribution system rehabilitation and upgrading program (approximate value $140 million), which includes electrical equipment, services and technical assistance.

CONEL has been receiving technical assistance through the Utility Partnership Program (UPP), supported by the U.S. Agency for International Development (USAID) and the United States Energy Association. From 1992 through 1995, Boston Edison worked with CONEL to support the reform and restructuring efforts of CONEL. Since 1996, Mississippi Power Company (MPC) has been working with CONEL primarily on thermal plant rehabilitation and corporate restructuring in order to support key programs financed by the World Bank, the EBRD, and other international institutions. Representatives from MPC have been sharing their expertise regarding contract negotiation, customer service, and general maintenance and rehabilitation, including strategies to reduce the environmental impacts of lignite-based generation. CONEL has been without a formal partner since Boston Edison withdrew from the UPP in August 1995. Another project, requested by CONEL and sponsored by the U.S. Trade and Development Agency (TDA), is to assess several projects under consideration in the power sector in Romania. CONEL power stations are shown in Table 10.

The expansion and refurbishment includes two phases. In Phase 1, CONEL will focus on the rehabilitation of four 330 MWe lignite-fired units. For Phase 2, CONEL has applied for financial assistance from the International Bank for Reconstruction and Development (IBRD) to develop a strategy addressing energy demand and the future of the power sector to include a Power Sector Reform Program.

Additional challenges faced by CONEL include uncollected debt, environmental problems, and a lack of foreign trade expertise. CONEL hopes to get heavy industries to pay for electricity consumed, and improve its generation efficiency so that it can begin to meet international agreements on climate change and reduce emissions. Finally, in two years, CONEL would like to establish a core program, staffed by foreign trade experts, to cope with increasing competition and international trade.

In 1995, as one of the last East European countries to update its environmental legislation, the Romanian parliament, passed a Law on Environmental Protection. The law replaces an Environmental Law of 1973, which was never fully enforced. The new law also paves the way for the introduction of additional legislation addressing particular environmental issues and introduces the Environmental Fund, which will hold the fines and fees assessed from polluters and use these funds for environmental protection.

With its past focus on heavy industry, industrial pollution is one of the greatest threats to Romania's environment. Toxic air emissions produce the greatest threats to Romania's environment. Industrial waste is also a major problem for Romania's waterways. Approximately, 18 percent of Romania's water is so polluted that it cannot be used by industry. Industry also emits other hazardous wastes that exacerbate existing waste management problems. Fourteen industrial zones are environmental hazard areas. Economic difficulties have prevented Romania from aggressively tackling its environmental problems. Frequent strikes by coal miners and other industrial workers have contributed to political instability, which hinders the Government's ability to implement reforms. While Romania does impose penalties on polluters, the taxes and other fees are not sufficient to cover the costs of all needed environmental protection programs. The State budget does provide some funds for environmental cleanup, however, the amount is insufficient to meet Romania's needs for environmental impact mitigation measures and restoration. International institutions and non-government organizations provide some much needed funding.

Romania is also party to international environmental agreements on air pollution, e.g., the Antarctica Treaty, Biodiversity, Climate Change, Endangered Species, Environmental Modification, Hazardous Wastes, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, and Wetlands. Romania has also signed, although not yet ratified, the Antarctic-Environmental Protocol and the Law of the Sea. Additionally, Romania has signed and ratified the United Nation's Framework Convention on Climate Change. A historical summary of carbon dioxide (CO2) emissions from fossil fuel use in Romania is shown in Table 11.

General
The privatization of industry was pursued with the transfer, in 1992, of 30 percent of the shares of some 6,000 state-owned enterprises to five private ownership funds, in which each adult citizen received certificates of ownership. The remaining 70 percent ownership of the enterprises was transferred to a state ownership fund, with a mandate to sell off its shares at the rate of at least 10 percent per year. The privatization law also called for direct sale of some 30 specially selected enterprises and the sale of "assets" (i.e., commercially viable component units) of larger enterprises. The current Prime Minister has made rapid privatization/restructuring a top priority. It has gone beyond the "mass privatization" law enacted in 1995, and identified 10 large government enterprises for immediate privatization. By the end of 1996, only about 2,000 of the 6,300 state firms in existence since 1990, had been privatized; and none of the large state-owned companies had seen any meaningful restructuring. Meanwhile, the growth of new, small private enterprises has played a major role in reviving Romania's economy. Altogether, the private sector now accounts for an estimated 55 percent of GDP and employs approximately 52 percent of the work force. The private sector also accounts for 87 percent of agricultural production, 78.5 percent of domestic retail trade, 47.7 percent of imports, 50.7 percent of exports, and 74.5 percent of services. But, privatization has been especially slow in the industrial sector where 76 percent of output still originates in state-owned factories.

Natural Gas
At present, Romanian natural gas is under a state-owned monopoly wherein all pricing, sales, purchasing, environmental and investment decisions are made by the President or his designated representative. Recently, the Romanian Privatization Ministry announced plans to begin privatization of Romgaz, the natural gas monopoly. At present, the government will retain complete control with 51 percent of the stock, and Romgaz will continue to be a state-owned entity run by political appointees. Romgaz may merge with SNP-Petrom, a government oil "company."

For the past seven years, Romania has made considerable progress towards the development of democratic institutions and a market economy. Romania's private sector, which now represents 52 percent of the country's GDP, is growing rapidly and has become the chief engine of economic growth. The new centrist coalition government, elected in the Fall of 1996, has been very well received by western institutions and is implementing a far-reaching economic reform program that in the long-term will further improve the business and investment climate. The reform package focuses on eliminating price controls, freeing the exchange rate, eliminating subsidies, allowing bank privatization, encouraging foreign investment, and speeding up industry restructuring and privatization. The new program is intended to enable Romania to make a rapid transition to a market economy.

Romania started its transition to a market economy from a difficult position. Unlike former communist countries such as Poland and Hungary, Romania had no experience of partial economic reform prior to 1989. Thus, the adjustment shock of the first transitional years caused a sharp contraction of GDP, with gross output falling by nearly a quarter through 1992. The successive governments, which ruled the country until November 1996, avoided serious economic reform, fearing "shock therapy" and its anticipated social costs, mainly mass lay-offs. Although a reform agenda was developed and a large body of legislation enacted, little was done to actually implement reform, especially at the large state-owned factories.

Economic growth became positive in 1993 with GDP up 1.3 percent, followed by a rise of 3.3 percent in 1994, and 6.3 percent in 1995. Led by increasing consumption and a growing foreign debt, GDP grew 4.1 percent in 1996. However, in 1997 and 1998 the economy slowed and GDP growth declined; in 1999, the GDP growth was negative, at -4.8 percent. On the inflation front, the tight monetary policy and fiscal austerity required by Romania's IMF-backed stabilization plan led to a decline in consumer price inflation from 256 percent in 1993 and 32 percent in 1995. But with the elimination of price controls early in 1997, the rate of inflation has significantly increased. In 1999, the inflation rate was 44 percent. An historical summary of Romania's GDP Growth Rate and inflation is shown in Table 12.

The main issues in the energy sector are:

• low efficiency of energy use due to old and inefficient technologies and the dilapidated state of assets, compounded by poor operations and maintenance;
• successive vertical integration of enterprises, an absence of a competitive environment, and inadequate regulatory systems;
• lack of economic criteria in planning and investment selection;
• over employment and operational inefficiencies;
• weak financial position of sector entities and the accumulation of inter-enterprise arrears; and
• environmental pollution.

• introduce a sector reorganization to separate policy and strategy operational functions, followed by present plans to allow for the participation of public and private independent operators in a competitive environment;
• implement energy price reforms to align process with economic costs;
• critically screen the energy sector investment program to limit it to the highest priority investments; and
• develop a program for the rehabilitation of the existing energy supply infrastructure.

Romania's foreign trade registered dramatic disruptions after the 1989 revolution. The decrease in domestic production, the dissolution of the COMECON/Council for Mutual Economic Assistance market, and the costs of observing U.N. sanctions against Iraq and Serbia (two of Romania's traditional trade partners) were the main factors causing a sharp decline in Romanian exports in 1990 to 1992, and a significant increase in the country's balance of trade deficit. Since 1993, exports have increased. In 1999, exports reached $8.4 billion [Free on Board (FOB)], of which the largest shares were textiles, apparel & leatherware (33.4 percent), metallurgical products (19.1 percent), and machinery & equipment (9.5 percent).

Romania's economy relies heavily on imports, of which up to 50 percent are raw materials (mainly oil and gas). Romania is also a net importer of minerals, machinery and electrical devices, cotton, and hides. Since 1990, imports of food products and consumer goods have been significant. In 1999, FOB imports reached $9.6 billion. The balance of trade deficit in 1999, was $1.2 billion. Romania's current foreign trade policy aims at the country's integration into western markets. In 1999, the United States ranked fourth in Romanian imports (after Germany, Italy, and France) and also fourth in exports from Romania (after Italy, Germany and France).

Foreign investment in Romania since the revolution has been disappointing, totaling only $2.2 billion at the end of 1996. South Korea is the largest investor ($235 million), followed by Italy ($210 million), Germany ($208 million), the Netherlands ($177 million) and the United States ($176 million). American companies such as Coca-Cola, Amoco, Colgate-Palmolive, Kraft/Jacobs Suchard, Proctor & Gamble, Tenneco Packaging, M-I Drilling, IBM, Citibank, McDonalds, Pizza Hut, Oracle, Pepsi, and RJR have invested in Romania, along with numerous other U.S. small and medium-sized companies.

Numerous information sources were used in the development of this overview, including: the U.S. Department of Energy, the U.S. Department of Energy/Energy Information Administration, the U.S. Department of State, the U.S. Department of Commerce, the American Embassy in Bucharest, CONEL, the World Bank, the International Energy Agency, and United Nations Economic Commission for Europe.

Source: U. S. Department of Commerce

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