Energy quest

With the beginning of 2006 raising questions on Romania’s energy strategy, Corina Mica talks to Philip Stephenson, deputy CEO of the Rompetrol Group

     It was the deal of last year in Romania’s energy field.
Rompetrol Group became the first local company to ever take over a massive firm in the European Union in its purchase of French-based petroleum storage and distributing firm Dyneff.
     The price is still confidential, pending completion of the takeover in the first quarter of this year, and includes Dyneff’s 226 petrol station network, which it owns, operates and franchises, as well as huge storage capacity on the Mediterranean and Atlantic Ocean.
     The deal puts Rompetrol at the forefront of Romanian companies taking on the EU before the country actually joins the political bloc, especially when its logo begins to appear as a common feature on the French roadside.
     Key to the transaction was the group’s deputy CEO, Texas-native and Harvard graduate Philip Stephenson, who has been involved in top management at Rompetrol for the past five years.
     Rompetrol was founded back in 1974 as Romania’s international arm in the oil and gas industry. The company was sold off in 1993 through mass privatisation and managed to recover from the point of view of turnover after its current management took the helm in 1998.

NUMBER CRUNCHING • At the end of September 2005, Rompetrol’s estimated operational profit for the year stood at 180 million USD (around 150 million Euro) • The company’s Earnings before Interest, Taxes, Depreciation, and Amortisation stood at 200 million USD (approx. 165 million Euro) for the entire year • Following the Dyneff takeover, Rompetrol expects incomes to double in 2006, to over five billion USD (around 4.14 billion Euro), an increase in EBITDA for the group by 20 to 25 per cent, an increase in net profit to ten-12 per cent and an increase of Rompetrol’s total assets by 25 per cent. • Its major business in Romania is the listed company Rompetrol Rafinare (‘RRC’ symbol on the Bucharest Stock Exchange).RRC has a free float of about 25 per cent including 30,000 individual Romanian shareholders and hundreds of corporate and fund investors.

     “From 1998 to 2000 we acquired companies and assets that were dysfunctional, truly ‘broken’,” says the 40 year-old Stephenson. “In the 2001 to 2003 timeframe, the team here fixed those businesses by bringing in new management, financing and technology. From 2004 onwards, we have tried to build a truly regional, integrated refining and marketing company. Considering all these, my main goal now is to make sure that Rompetrol Group, which operates today in 12 countries, realises the benefits of its increased scale and geographic diversity.”
     The management position at Rompetrol is Stephenson’s first taste of the challenging energy business. Prior to joining the firm he ran a private equity fund called International Equity Partners.
     “We raised 80 million USD from institutions around the world and invested in emerging markets, and that’s how I first came to Romania,” he says. In 1997 he met Dinu Patriciu, the owner and CEO of Rompetrol, with a combined intention to invest in Romania.
     Stephenson helped to establish the Romania and Moldova Direct Fund, which made three local investments: Rompetrol, tile producer Sanex and dry goods distributor First Logistics and Distribution.
     Now Stephenson works principally out of the group’s Bucharest operational headquarters, reporting directly to Patriciu.
     “Working with good people, dealing with intellectually challenging issues, and getting to visit new places all the time is the thing I enjoy the most about my current posting,” he says.
     His special areas of focus include financial planning and fundraising, the creation of strategic partnerships within the international energy industry, divestitures of non-core group businesses, legal affairs and investor relations for the group, which last year reported gross revenues of 2.5 billion USD (just over two billion Euro).

Philip Stephenson Deputy CEO Rompetrol Born: Houston, Texas, on 16 March, 1965 Marital status: Single Languages: Fluent French, some Romanian Interests: Licensed private pilot, sailing, scuba diving Previous jobs: Founder and general partner of Northern Virginia-based International Equity Partners, LP (IEP), investment management and advisory services firm. Special assistant on International Affairs in the US Department of Treasury, under appointment by George Bush Snr Specialist in corporate law in the Washington DC office of Baker & Botts. Associate professor of International Finance at Georgetown University Education: BA in Government (magna cum laude) from Harvard College and JD (magna cum laude) from Harvard Law School

     “What investing for most of the 1990s taught me was that you’ve got to learn to evaluate what’s worth buying, how to manage it or fix it after you buy it and when it’s time to sell,” says Stephenson. “The energy business is changing and what’s more important than necessarily knowing how it has been done is to be able to learn and adapt quickly. And I think some of us have many years of oil industry experience; some of us, including me, don’t, but in some ways we know how to learn and adapt.”
     The Texan’s professional background includes work as senior official in the Office for International Affairs at the US Treasury Department, under special appointment by then president George Bush Snr.
     Speaking about particular difficulties he had to overcome in running business in Romania and potential problems ahead, Stephenson says: “I think we have built the company around the mentality of a ‘new Romania’, which is optimistic, open, forward-looking and meritocractic. But we’ve had direct challenges from the ‘old Romania’ that still exists and has the opposite characteristics: pessimistic, secretive, mired in the past, and allocates wealth according to privilege and ‘connections’. In our case this has meant fighting politicallymotivated legal and administrative challenges brought against the company and some of its officers.”

Not an easy ride

     Rompetrol and the Romanian state are now involved in a series of controversial issues.
     Last year the General Prosecutor’s Office (PG) charged Rompetrol with alleged tax evasion, money laundering and fraud, as well as failed measures to make promised investments in its two local refineries after it took them over: Vega in Ploiesti and Petromidia on the Black Sea coast.
     Subsequently, after failed attempts to obtain the deferment of fundamental rights and protections owed to the Rompetrol Group, pursuant to the Bilateral Investment Treaty between the Netherlands (where Rompetrol is registered) and Romania, the company initiated international arbitration proceedings against the Government of Romania at the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) in Washington DC.
     Irrespective of the group’s legal dispute with the Romanian state, Stephenson views the country’s economic future as having “tremendous potential. But only if its political leaders don’t ‘snatch defeat from the jaws of victory’.” He says, ideally, young Romanians should stay in the country rather than emigrate. “Perhaps they could lead a debate that could set a goal that everyone believed in and worked towards – something very aspirational like to be the 25th richest country in the world by the year 2025.”
     Nevertheless, until Romania becomes the world’s 25th richest country, the deputy CEO focuses entirely on capitalising on the group’s current activities.