Petrom shares tumble as its refinery closes

Petrom shares dropped 4.72 percent, to RON 0.505/share on the Bucharest Stock Exchange (BVB), the lowest in 11 months. The shares of Rompetrol Rafinare, the main competitor of Petrom’s refineries, rose 1.22 percent, to RON 0.091/share. Shares of Arpechim’s major clients, petrochemical companies Oltchim, Amonil Slobozia and Azomures, also dropped yesterday.

Petrom started operations to close its Arpechim refinery, following the suspension of its license by the Pitesti branch of the National Agency for Environment (ANPM). The environment agency said Arpechim did not respect measures stipulated by the environment license, such as the modernization of gasoline tanks with fixed and floating lids, and the closing of its waste dumps for acrylonitrile and eco-mud. Petrom officials said the agency’s decision comes as a surprise and is unjustified as environment authorities and Petrom had been meant to discuss today one of the measures denounced by the Pitesti environment agency.

“We are surprised about this decision, both because we had constructive talks with environment authorities representatives and because the Arpechim situation is neither a major risk to the environment nor to the health of employees and locals,” Petrom Communication Director Dan Pazara said.

He added Petrom will appeal the decision of the environment agency, although it will comply therewith.
Meanwhile, given that this is a first for Petrom, the company’s management has ordered the establishment of a crisis commission to discuss proceedings for Arpechim’s closure and to analyze the economic impact of this measure. “We are expecting oil tankers, and have contracts with our clients,” company officials said. The first summing up of the refinery’s closure could be available by the end of the week. However, for the next month or two, the activities of Arpechim’s 2,200 employees and 1,000 contractors will not be affected, Petrom officials said.

The measure will however impact immediately on other companies. The Oltchim plant, Arpechim’s main client, is expected to register losses worth €30 million a month, as this will lead to “chain closure of more than half of Oltchim’s activity,” according to the plant’s General Manager, Constantin Roibu, quoted by news agency NewsIn. Oltchim is one of the largest Romanian chemical products plant.

Dinu Patriciu, President of Rompetrol group, Petrom’s main competitor, said that Arpechim’s closure will not impact on the market, as Romania exports almost half of its fuel production, and those exports could be reverted to the domestic market. “There will be no crisis and no price increase,” he told Business Standard. Economic analysts say that, besides the impact on the market, the Arpechim license suspension must be considered a warning for companies not complying with environmental requirements. Petrom is the first large company sanctioned by environment authorities.

“If Petrom does not comply with the acquis communautaire for the environment, what can we expect from small companies,” said analyst Liviu Voinea, General Manager of the NGO Group for Applied Economy (GEA).  Petrom estimates net sales and net profits worth €3.1 billion and €497 million, respectively, less than in 2006, when it posted net sales of €3.7 billion.