Wealth, from state to private

At the end of communist era, almost the entire economic activity was managed by the centralized communist state, whose managerial competence cannot be praised, on the contrary.

Once, with the change of political orientation, from communism to capitalism, the communist companies fate are sealed, most of them following to be privatized, the slogan “We do not sell our country!” turning into mass privatization.

The first companies to be privatized use the MEBO method (Management Employee Buyouts), this one being practically the only method of relevant privatization for the first five years of transition in Romania.

Later, when mass privatization has begun, sales also became more used, the MEBO method continuing to be applied to a significant number of companies.

The number of companies which were the employees’ property was significant, but most of employees had majority of shares , in many cases even 100 percent.

These companies belong to many industrial branches and have various dimensions regarding the employees’ number, from several persons to 10,000.

Some of them were bankrupted, others passed from workers’ property to other persons, by selling actions, but most of them were successful.

Rombat, a state department founded in 1980 with the name of Acumulatorul Bistriţa, were privatized through MEBO in 1996.

In 2012, Rombat, the leader on the aftermarket accumulators market in Romania, was sold to a company from South Africa.

The company from Bistriţa is the accumulators supplier for Dacia and owns 11 logistic centers in Romania.

The Africans from Metair International Holding Cooperatief bought 99,1 percent of Rombat shares for 42,8 million Euros.

The company turnover has increased with 600 percent since 1990 until 2010.

Another example of success for MEBO privatization is ELBA Timişoara, a firm with 90 years experience within lighting domain.

Privatization in a big way

More and more companies will be privatized and for this it will set up new structures, the state remaining though to control, through ministries, only the administrations.

Property rights of commercial companies were delegated to the two new-created organizations: the State Property Fund (FPS) and to one of the five Private Property Fund (FPP).

The first one was receiving 70 percent from every company shares , and the second one was receiving the rest of 30 percent.

--fb1The proper privatization process begins, by law, in 1991.

The privatization task of state-owned companies , was to some specialized institution, new-created, called State Property Fund (FPS).

The institution has changed its name in 2001, with the Authority for Privatization and State Property Management( APAPS) , and in 2004 was renamed the Authority for State Assets (AVAS).

In 1993 has practically started, in Romania, the privatization process.

Until the end of 1996, there were submitted to this process almost 2,700 commercial companies, from which 710 medium and small companies.

As a result, at the end of 1996, the private sector participated with 54, 9 percent to form the Gross Domestic Product (PIB), compared to 26,4 percent at the end of 1992.

The major privatizations

At the indications of European or world forums, Romania heads to major privatizations, but these really start at the end of ‘90s, when the state’s need of money, being almost to bankruptcy, will do so that the World Bank or International Monetary Fund’s requests to be taken into account, and the important banks, integrated steel plants or automobile companies will pass into the property of foreign firms.

Most of the privatizations are made at the end of mandate –1999, it is true, also on the urgent need fond of state’s liquidity being almost to bankruptcy (BRD, Dacia) and 2004 (Petrom) or at the beginning of mandate in 2001 (SIDEX), or in 2006 (BCR).

The privatization amounts, considered being small, in the case of big assets , such as Sidex or Petro, are due to important losses registered by respective companies, brought almost to bankruptcy through the phenomenon called “tick”, when firms closed to state-owned companies’ management made a huge profits on account of the losses made by the company that still belongs to state.

Future profit of privatized companies will be possible simply by eliminating “tick” firms, but also by increasing the labor productivity, through staff layoffs.

BRD

The privatization contract of Romanian Bank for Development (BRD) provided the selling of 42, 1 percent of bank shares for 20,15 USD/share, respectively 135 million USD per package.

Share capital of BRD will increase with 20 percent, so that finally , Societe Generale holds 51 percent share capital of the bank.

The total value of the transaction with the investor thus reached 200,3 million dollars, amount which was paid on March 18 1999,at which date Societe Generale controlling BRD.

ROMTELECOM

The Greek company OTE was designed, in 1998, the winner of the auction organized by Romanian state in order to sell 35 percent of the national telecommunications operator RomTelecom shares.

OTE offered for the 35 percent of shares 675 million dollars, one of the financial offer clause stipulating the completion of this amount with 400 more million Euros, after three years after taking up RomTelecom, given that there will be recorded a growth of the company’s activity, declared Sorin Pantiş, the communications ex minister.

In 2003, the transaction was finalized, the Greeks becoming owners up to 54 percent.

The rest has remained to state.

BANCPOST

In 1997, the State Property Fund( FPS) proposes to Bancpost to privatize and launches the offer in order to financially assess the bank, and in 2002 Bancpost becomes the first bank from the Romanian banking system which is integrally privatized.

In November 2003, Eurobank EFG (EFG Eurobank Ergasias SA) becomes the majority shareholder of Bancpost.

DACIA

Renault bought the majority package of Dacia in 1999.

In 1999, the Romanian state, through the State Property Fund, was ending the selling contract of 51 percent of shares at Dacia enterprise to Renault for 269,7 million dollars, from which 219, 7 were representing investments, and 50 million dollars was the amount charged to the budget.

The firm has profit only in 2006.

SIDEX

The Sidex Galaţi privatization was made on November 15 2001, when LNM Holdings NV , part of LNM Group, acquired the majority shares package of the factory.

The transaction value was 70 million dollars.

The transaction included the investment engagements of 351 million dollars.

PETROM

OMV has bought in 2004 from the state 33,34 percent of Petrom shares for 669 million Euros and increased the registered capital with 830,6 million Euros in order to reach the stake of 51 percent.

The total transaction through which OMV has taken the control of Petrom has raised so at 1,5 billion Euros.

BCR

“Romanian Commercial Bank goes to Erste Bank ", declared Sebastian Vlădescu, the president of the privatization committee, reminding of the Oscar style awards.

“The price offered per share is 7,65 Euro, which means that the final price is around 3,751 billion Euros”, specified Sebastian Vlădescu.

The 3,75 billion Euros paid by Erste for the BCR majority share package situates the transaction on the 6th place in the European acquisitions top within the domain, specified a study of PricewaterhouseCoopers.

Leading companies, privatization failed

After several attempts of privatization, Tractorul Braşov was closed, went into liquidation and the company that bought what remained of the plant, will develop a real estate complex in the area.

Set up in 1925 as aircraft factory (IAR Braşov), after coming in 1946 of Soviet authorities, were confiscated most of machines on account of war damages for USSR, production being focused on towards manufacturing of tractors.

Also ARO disappears after privatization.

ARO (Auto Romania) was an off-road vehicles manufacturer in Campulung Muscel.

It began the production in 1957 and produced over 380,000 vehicles, of which two thirds were exported.

In September 2003, the Romanian state sold for the price of 180,000 USD, 68.7percent of ARO to American company "Cross Lander", owned by John Perez.

The privatization contract provided investment of 2 million dollars in ARO, but no investment has taken place, and ARO equipment was sold.

According to the congregated parliamentarians’ rapport, in 2006, an inquiry commission , "ARO S.A. assets of over 50 million dollars was sold for a total price of only 150.230 dollars and the company Cross Lander, abusing also of the contract ambiguity, has sold, then, in its turn, the ARO factory of tools and molds for 2.7 million dollars."

Wealth, sold to foreigners?

The battle on resources is fiercer than ever, after four years of global crisis.

The royalty on oil extracted in Romania and received by state after Petrom privatization raised and still raises many questions.

Even the president Traian Băsescu wanted to increase it, "just like in the Arab states", announcing that it had broken any relations with Petrom as a protest sign against the profit which it obtained during the crisis, adding that this company policy is "wrong".

Another problem appears now, when the oil discovered in the Black Sea, but also the natural gas, according to some , appears to be a gift to foreign companies.

The same problem arises in the case of gold, silver or copper mining sold or about to be sold through privatization or concession to foreign companies.

The problem of foreign investments is not recent, but dates since 1973, when at Washington, Ceausescu's adviser, Vasile Pungan, was discussing with U.S. Secretary of State Henry Kissinger about U.S. companies’ involvement in natural resources in Romania.

Then, as well as now, they were talking about low tech and minimal resources found in deposits.

A company with a turnover of three million Euros, Roman Copper Corp. from Canada, bought Copper Min Abrud with 200.77 million Euros after an open outcry auction.

The price paid is more than the starting price of just 57.3 million Euros.

But, only copper ore resources are estimated at about 6 billion Euros, experts say.

Prime Minister Ungureanu rejected the criticism on the sale of that company for 200 million Euros, three and a half times the starting price, but well below the estimated price by some independent analysts, saying the company was put up for sale by the Liberal government at a much lower price.

The PNL Vicepresident Vosganian, former economy minister, denied that the Copper Min Company was put up for privatization in 2008, during his mandate.

"I want to say to Mr Ungureanu, with all the friendship that I am capable as Moldovan as him, that I never put up for privatization Copper Min.

"In connection with the subject itself, the theme is other than Mr. Ungureanu believes. The theme is that he sold copper to a company which, when it needs to give money, it starts looking for it. That's the background theme. The rest we can talk, about money, about figures, "said Vosganian.

Gold versus cyanide

Roşia Montană Gold Corporation develops the mining project in Roşia Montană, from Apuseni Mountains, with intended costs of a billion dollars, by which the company expects to extract 626,000 Troy ounces of gold per year for five years after opening the mine. A Troy ounce equals 31.1 grams of gold.

Recent evidence indicates that deposit in the Apuseni Mountains contains more than 300 tons of gold and over 1,600 tons of silver, the largest in Europe.

Roşia Montană Gold Corporation has so far invested 400 million dollars in the project from the Apuseni Mountains.

For treating the extracted gold follows to be used daily , 40 tons of cyanide.

Roşia Montană Gold Corporation is controlled by the Canadian company Gabriel Resources, which owns 80.46 percent of the share capital, while the Romanian government controls 19.31% of the shares, the company Minvest Deva and other shareholders cumulate 0.7% of titles.

President Traian Băsescu has pronounced in favour of Roşia Montană Project, if the European environmental standards are respected, but also the redistribution of benefits.

Băsescu said that Romania needs a new gold mining to double its gold reserves as a safety measure during the economic crisis.

Băsescu argued that "it is mandatory renegotiated" the contract for the local mining exploitation, but that is not his problem, and the state has other levers, because the "royalty is in law, not in the contract."

The president also said that the project stayed buried since 1997 because of cowardice of politicians, who "did not want to hurt their heads ."

"Cowardice also can occur. I saw it at many politicians. If this project has been buried since 1997 until now, you should know that one of the serious reasons is the politicians’ cowardice who did not want to hurt their heads.

"What if the gold price increase would find us in full exploitation? What if the project was launched in '97 and the gold price increase would have found us in full exploitation?," the president said.

Băsescu said that Romania needs to restart "unsubsidized mining".

He said that a decision should be taken as soon as possible regarding the mining project in Roşia Montană because he talked a lot about it.

Fear of gas shale

Chevron, the second largest U.S. oil group, has officially announced the suspension of operating shale gas this year in Romania.

The company's decision comes after inhabitants from Dobrogea protested on the streets against the prospect of having exploitation wells of shale gas in their area.

People have requested the oil concession agreements for exploration, development and operating with the National Agency for Mineral Resources, published by Government in the Official Gazette on March 28, not to be applied.

Probes would have supposed to be placed in the perimeters Vama Veche, Adamclisi and Costineşti.

Exploitation of such gas by fracturing was prohibited in many countries.

Referring to the problem of shale gas in Romania, the Minister of Environment said that currently, company Chevron is still in exploration phase.

Natural gas discovered in Black Sea

President Traian Băsescu presented to parliamentarians information about drilling in the Black Sea area, adding that in the first deposit, the calculated amount is 100-110 billion cubic meters.

"Initially, they said 35-80 billion cubic meters, I can say that in the first deposit, the calculated amount after poll is 100-110 billion cubic meters, which would be a very good production, necessary to the Romanian economy for a medium time. But in the same area there are five deposits that have the same characteristics. The surveying will continue next year, for five other deposits ", said the President.

Energy, removed from privatization

Reuters news agency has made an analysis of privatizations stage in Romania and considers that the government, by listing on the stock exchange of 15% of Transelectrica, might give a start to a privatization process which may bring about 2 billion dollars in 2012.

"Romania has failed a major test last year, going against the advice and setting too high a minimum price for a minority stake in oil and gas producing company Petrom. Other planned sales were postponed, focusing on Prime Minister Ungureanu, who assumed in February, to list 15% of Transelectrica, "writes Reuters.

"But there are signs that Ungureanu can put things in motion and raise 64 million dollars, for the beginning. Crucially, the government put a reasonable price, a sign of flexibility in preparing other businesses that might bring about 2 billion dollars", appreciates Reuters.

Among the predicted privatizations, it is included also the sale of the minority package that the state still owns at Petrom, which would bring more than 600 million dollars, the selling of 10% of Transgaz, but also the shares packages at Hidroelectrica and Nuclearelectrica, which would put into state coffers 1.2 billion dollars.

By agreement with the IMF, the government has committed to sell as many shares representing 15% of Romgaz, Transelectrica, Transgaz and 10% of Hidroelectrica, Nuclearelectrica and OMV Petrom.

Also, within the document developed by the IMF, it is specified the privatization of the National Coal Company, by selling viable assets and, until September, the liquidation of those unprofitable, writes Reuters.

Privatizations have not been carried out. Not yet

Much has been said and attempted regarding the sale of CEC Bank, hospitals, CFR Marfa, TAROM but until now the privatizations have not been achieved anymore.

In late 2006, the CEC privatization was stopped after being made ​​one offer , from the National Bank of Greece, with a value considered too low at that time, namely 560 million Euros.

The presently circulating amounts of selling the majority capital of CEC revolve now around one billion Euros, amount still considered too much by the potential investors, as Raiffeisen Bank Romania, president Steven van Groningen considers.

Tarom privatization considered, by the State, the only solution for the company has begun though to spring.

The shares package of 20 percent in Tarom will be put up for sale on the stock market and the state expects to receive at least 20 million and more than 60 million Euros.

The Government and the International Monetary Fund agreed that CFR Marfa to be sold to a strategic investor, in a process that involve also EBRD( European Bank for Reconstruction and Development) and IFC, the World Bank's investment division.

VTB Capital, the investment unit of the second largest state bank in Russia, plans to invest several hundred million Euros in the Balkans in the following years, said the bank's management.

In Romania, the institution is interested in selling rail freight facilities from Romania, CFR Marfa, informs Bloomberg.

The health system would be, at least partly privatized, but street movements erupted following the resignation of Secretary of State for Health, Raed Arafat, thus protesting about turning to private sector even the emergency services led to removal from public debate of the future health law, another law following to be achieved.

Although the privatization has sometimes been challenged and even regarded as a sale of the common wealth of Romanians, the private area brings the most money at the state budget.

According to data provided by the National Bank of Romania( BNR) , the private sector has an increasing share of achieving the Gross Domestic Product, since 2004 it reached 70 percent in value, in 2007 reached 72 percent, and in 2008 this proportion dropped at 71 percent.

Translated by Alexandra-Diana Mircea and Denisse-Meda Bucura

MTTLC, Bucharest University