Oil and gas company OMV Petrom will permanently close down the Arpechim refinery in Romania due to economic reasons and will allot EUR 10 million to severance payments for its laid off employees, the company announced on Friday morning. The refinery, located south of Romania, near the city of Pitesti, employs 700 people and operated for only three months in 2010, on an “as needed basis”. This is OMV Petrom's second refinery in Romania, apart from the Petrobrazi one (in picture).

“The sale option, which the company investigated in the past year, is not feasible as no credible buyer was identified that would have the experience and financial resources necessary to safely and sustainably operate the refinery,” the company wrote in a statement. The decision was taken by Petrom's supervisory board in its March 24 meeting.

The Arpechim employees who will be affected by the shutdown will receive severance payments with amounts varying according to seniority, as well as re-qualification courses, according to Petrom. In total, Petrom will allot EUR 10 million to severance payments. The Arpechim site will be partially converted into a crude and fuel storage.

"In Europe, a series of other refineries that are more technologically advanced and better positioned than Arpechim face the same situation and are already closed or not operating, according to Petrom. Arpechim was functional for only three months in 2010. “The Arpechim refinery is a challenging investment case considering that it is a landlocked refinery needing to import crude oil and mainly exporting finished products,” Petrom wrote in its statement.

Moreover, in 2010, the aggregated use rate of refining capacities in Romania was of around 40 percent, given the fact that only four refineries were on stream out of the existing 10 refineries operating in previous years, according to Petrom.

The Arpechim refinery was opened in 1964 and in 1971, it was integrated into the petrochemical complex.

Petrom posted a turnover of EUR 4.4 billion in 2010 while its profit before taxes stood at EUR 709 million. The company is owned by Austrian OMV, with 51 percent of the shares. Romania's Economy Ministry holds a 20.64 percent share package, Fondul Proprietatea owns 20.11 percent, the European Bank for Reconstruction and Development, some 2 percent, and 6.21 are free floating on the Bucharest Stock Exchange.

Corina Saceanu, corina@romania-insider.com