Romania needs to modernize its energy sector and increase production to help implement free market reforms and invigorate its economy, the U.S. General Accounting Office says.
In a report to Congress, GAO said despite the Romanian government's efforts to reform the energy sector and improve the country's business climate, impediments persist to U.S. trade with and investment in Romania.
"These barriers include a lack of a comprehensive energy strategy, underdeveloped legal and business infrastructures, uncertain economic and political conditions, and the absence of a U.S. most favored nation trade status."
GAO noted Romania always has relied on a combination of domestic production and imports to meet its energy needs, but declines in both have created an energy shortage.
In the 2 years following the 1989 Romanian revolution, production dropped 26% for oil, 25% for gas, and 53% for coal.
"To halt the decline in oil and gas production," GAO said, "Romania is decentralizing its state owned oil and gas industries, inviting western oil companies to participate in oil and gas exploration and production, and seeking financing to buy equipment and services.
"Romania also needs capital investment and modern technology to revive its ailing power generation and oil refining industries, according to government officials. In addition, Romania is taking steps to diversify its foreign supplies of oil and gas."
WHAT'S WRONG
Foreign investors interested in Romania's energy sector still face many impediments. Romania's energy strategy is in the early stages of development, making it difficult for foreign companies to obtain business and legal information they need to consider investment.
Potential foreign investors continue to express concerns about Romania's underdeveloped legal and business infrastructures and uncertain economic and political conditions.
But GAO noted the U.S. government has asked Congress to restore Romania's most favored nation status.
Romania is the largest producer in eastern Europe with 59% of the region's oil production and 64% of its gas production. Gas provides about 50% of primary energy production and consumption, yet last winter the flow of gas was so low to homes that many Romanians had to wait until late at night to prepare meals. Many of Romania's energy intensive industrial plants had to shut down or reduce their operations in 1991, contributing to a 20% decline in industrial production that year.
The U.S. Geological Survey estimates Romania has proved reserves of 1.2 billion bbl of oil and 3.4 tcf of gas, along with potential undiscovered reserves of 1.5 billion bbl and 16.9 tcf.
Romania received poor response when it offered exploration and development concessions to western companies in September 1990.
GAO said oil companies complained that only the most heavily explored or least productive fields were being offered for joint ventures and that the geological information available for individual fields was inadequate for assessing oil and gas prospects. Other oil companies expressed uncertainty about Romania's political stability and general economic climate.
U.S. oil companies also expressed concerns about the application of income tax laws, the availability and quality of Romanian labor and supplies, and the possibility of being held liable for past environmental neglect in oil fields.
REFINING REQUIREMENTS
GAO said one U.S. firm estimated that each of Romania's 11 oil refineries requires investment of $200-250 million for upgrading and rehabilitation.
"Improved technology and maintenance will allow Romania to increase refinery output and develop capacity to produce higher value products such as unleaded gasoline and low sulfur diesel fuel for sale to western Europe's environmentally conscious markets," GAO said.
Several U.S. firms have Romanian refinery projects, and the government is discussing joint ventures to allow Persian Gulf countries to upgrade and use its refineries.
The Romanian government is diversifying its imported oil supply and is getting no oil from the former Soviet union. It also is negotiating to participate in a gas pipeline from Iran to Europe via Turkey, which would allow Roman;a to buy 425 bcf/year from Iran.
Romania also wants to expand gas pipelines from the former Soviet Union and is exploring construction of a liquefied natural gas terminal at the Black Sea port of Constanta to allow LNG imports.
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