Constantin Tampiza, the head of petroleum company Lukoil Romania, one of the largest companies on the local market, has said that if rival group Petrom were to follow the suggestion of the Minister of Economy and Commerce, Varujan Vosganian, to cut prices by 5-10% below the market average, Lukoil would be left with no alternative but to close its network of petrol stations and leave the market.
Amid a 2.5 percent retail margin per tonne of fuel, and with 50 percent of the end price destined to the state, it is extremely difficult for Lukoil to recover investments on the local market, and a potential politically driven price cut would further affect the company.
"If Petrom was to cut prices by 5-10 percent below the market average, as suggested by Mr. Vosganian, we would be forced to close down our petrol stations. What sort of image does this project about Romania's resources? These resources are in the hands of a private company, which took advantage of the incredible opportunity offered by the state. If this price cut happens, the product will go to those willing to pay the highest price, and Romania will be left without fuel. What will they do then, stop exports?" stated Constantin Tampiza, general manager of Lukoil Romania, who explained that Romania's advantage of having reserves would be cancelled out by extremely high refining costs and low labour productivity. Vosganian has repeatedly criticised Petrom's pricing policy, and has said the company could cut the price of retailed fuels by 5-10% because of its own reserves.
This would not have a significant impact on Petrom's profits, but could produce major effects at market level, given that the rest of the companies are oil importers. Lukoil forecasts a 4% increase in turnover for this year, compared with the 4 billion RON posted in 2007, alongside an operating profit similar to last year's figure.
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