Romania demands €130mn investment from Ford in return for extending production deadline

By bne IntelliNews August 28, 2016

The Romanian finance ministry proposed on August 26 to extend until the end of 2025 the deadline for US carmaker Ford to meet its car and engine production target. The deadline extension is conditional on an additional €130mn investment from the carmaker.

Romania provided Ford state aid of €75mn to help the company carry out investment projects at its plant in the southwestern city of Craiova, worth a total of €869mn. Under the deal with the Romanian state, the US carmaker had to maintain the investment in the country until the end of 2017 and to produce 810,000 vehicles and 1.5mn engines by the end of the same year.

The ministry said the deadline for meeting the car production target will be extended until the end of 2025, provided Ford invests €100mn from its own resources to produce a new car model at the Romanian plant and €30mn in engine production, by the end of 2019.

Ford has already announced it will invest up to €200mn to produce the Ford EcoSport small SUV at its Romanian plant, starting in autumn 2017.

Ford has been present in Romania since 2008. So far, it has invested more than €1bn in its Romanian manufacturing operations, according to the group’s representatives. However, the carmaker has halted production several times saying it is adjusting production volumes to market demand.

Ford currently produces the Ford B-MAX multi-activity vehicle and the 1.0-litre EcoBoost engine at its Craiova plant. It produced 47,957 vehicles in Romania last year, down from 52,829 a year before, according to local media.

If Ford and Romania fail to reach an agreement, Ford will not be obliged to continue its investment in Romanian after the end of 2017. Also, if an agreement is reached but Ford fails to meet its production target, a mechanism of to reclaim the state aid paid to Ford will start.

The ministry said it has decided to extend the deadline taking into consideration the benefits of the investment in the long-term, such as the preservation of 2,700 jobs and tax revenues of around €230mn between 2014 and 2025. It also expects expects a multiplying effect of $30bn in the local economy from Ford’s investments.

Romania also hosts a plant run by France’s Renault. Investors have repeatedly underlined that the lack of modern infrastructure in Romania affect their productivity and exports. Automobile Dacia’s former general manager Nicolas Maure estimated that a motorway connecting the plant with the Sibiu-Nadlac motorway in the western part of the country, and further with Hungary and Western Europe, would help the company save €30 on each car it produces in Romania.

Earlier this year, Romania lost a €500mn investment from German car producer Daimler because of its weak infrastructure, Economy Minister Costin Borc has said. Daimler chose Poland to host its engine plant.

 

 

 

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