Privatization program changes gear

Romania wants to privatize five state-owned energy companies on the stock exchange this year for around EUR 1 billion, with the first breakthrough coming in March in the form of the Transelectrica SPO. However, the arrival of a new government and two rounds of elections may cast a shadow over the program, adding weeks of delay, warn market specialists.

Ovidiu Posirca

Daniel Chitoiu, the new economy minister, said last Monday during hearings in the Chamber of Deputies, that the government would opt for a double listing of these companies and implement corporate governance at all firms included in the Economy Ministry portfolio.

“We will continue the privatization by selling on the stock exchange 10 percent in Hidroelectrica, 15 percent in Transgaz and Romgaz and 10 percent in Nuclearelectrica through a share capital increase,” said Chitoiu, quoted by Mediafax newswire.

The Ponta cabinet, which was voted into office last Monday, says the privatization program will continue only after an audit of the previous Ungureanu government is carried out and the real economic situation of these companies clarified. This audit will certainly be time-consuming, say pundits, as all the acquisition contracts for goods and services, as well as consultancy services, will be evaluated to see if they were necessary and efficient.

Dan Paul, president of the Brokers’ Association, said during a roundtable on capital markets organized last week by the Bucharest Stock Exchange (BSE) that the government could opt for a second listing of state-owned companies in London. The domestic stock exchange signed a cooperation agreement with the London Stock Exchange this March in order to increase investors’ awareness of Romanian companies.

Changes and delays

Florin Vladan, head of the Office for State Ownership and Privatization in Industry (OPSPI), resigned on May 7, the same day when the Ponta government was voted in by MPs. Vladan had been chief of the OPSPI for five months but had held other positions in the same office for two years. During his tenure, the secondary public offering (SPO) in Transelectrica, the grid operator, was oversubscribed, raising EUR 37.6 million for the government.

The second change of government in less than three months is expected to bring delays in the privatization schedule, but it is under scrutiny from the IMF, World Bank and European Commission (the troika). Romania closed a EUR 5 billion stand-by agreement with these institutions and pledged to implement reforms in state-owned enterprises (SOEs), by selling non-viable assets, privatizing minority stakes in energy companies and appointing private managers to these firms.

Jeffrey Franks, head of the IMF mission in Romania, said last week the country was lagging behind on improving the profitability of SOEs due to corruption and inefficiency, advising the government to focus on the listing program.

“There are six companies – four of the large energy companies and two in the transportation sector. The action has to be completed by the end of this year. Next, there are the public offerings in Hidroelectrica, Nuclearelectrica, Romgaz and Transgaz and offers for Tarom and CFR Marfa,” said Franks, quoted by Agerpres newswire. “The slippages in the privatization calendar continue in the context of many tenders having failed due to preventable reasons.”

Tom Attenborough, managing director at Citi Central and South East Europe, said last week during a roundtable organized by the BSE that the events of the last ten days have not made the process for finalizing a “pretty ambitious” privatization schedule any more straightforward.

“Personally, I hope the changes will delay these listing only for several weeks,” said Attenborough. Citi is part of the consortium selected to carry out the IPO of Hidroelectrica, the largest hydro-power generator in Romania, which is being investigated by the EU in the “smart guys” case. These are companies that signed power contracts at advantageous prices, and authorities are investigating whether this constituted state aid. However, the Ministry of Justice has advised the government to contain possible risks by renegotiating these contracts instead of cancelling them.

The ambitious listing program brings to mind the wave of SOE (state-owned enterprise) listings that was planned between 2004 and 2005, and ended up with the IPOs of Transgaz, the natural gas transporter, and Transelectrica in 2005 and 2006.

“There were supposed to be more than five IPOs for SOEs between 2004 and 2005, but only two happened,” said Septimiu Stoica, of counsel at law firm Salans. “I am sure the market leaders will convince the government to continue the process of privatization and to enlarge it if possible.” Stoica is a former BSE president.

Miruna Suciu, partner at law firm Musat & Asociatii, said that continuing the privatization of SOEs by selling minority stakes on the BSE should remain an objective on the new government’s priority list. “We express our full trust that the new government will adopt an adequate strategy, encouraging the trust and interest of investors in the capital market and in general for investments in Romania,” said Suciu.

Lucian Anghel, BSE president, cautioned that postponing listings would impact investor sentiment, and added that investment banks play a critical role in shaping Romania’s investment image.

“Intermediation contracts have been signed with big names such as Goldman Sachs and Citi. We can’t always postpone things that have to be done, we can’t always look for small legal issues as a reason to postpone things, because these big names can destroy your image before international investors, and we will need external financing in the future,” warned Anghel.

Gabriel Sidere, managing partner at law firm CMS Cameron McKenna, says the success of Transelectrica doesn’t guarantee the success of future listings where an individual and realistic assessment is needed, as each company has its own issues.

“Transgaz may be considered less attractive, due to a more reduced financial dimension, but at the same time we shouldn’t forget that Hidroelectrica – the ‘pearl of companies’ – operates with low profit margins,” said Sidere. Hidroelectrica reported a net profit of EUR 3.7 million last year.

Power and the money

The Ministry of Economy’s energy strategy stipulates that around EUR 30 billion of investment will be needed in the energy sector between 2007 and 2020. Moreover, the draft energy strategy released last April says that investments of around EUR 30-40 billion are needed in electricity generation through to 2035.

“We need at least 5,000 MW of additional new generation capacity to be built by 2018-2020,” said Eric Stab, executive chairman at GDF SUEZ Energy Romania, during an event organized last week by the Foreign Investors Council on energy investments. The government has estimated the sector needs an overall investment of more than EUR 30 billion through to 2020, out of which EUR 18 billion would go on electricity generation, to replace aging capacities.

President Traian Basescu discussed the privatization of SOEs when he met with representatives of the troika last week. The president said that energy companies that are selling minority stakes should use the money to upgrade their infrastructure.

“At Transelectrica the money went to the state budget. But my opinion is that this money should be funneled towards upgrading technology in these companies, because we don’t intend to have a large privatization, rather for the amount required by these companies to ensure financing for upgrades,” said President Basescu.

The Property Fund estimates that around EUR 99 million will be obtained from the Transgaz SPO and EUR 278 million from the Romgaz IPO. The Nuclearelectrica IPO amounts to EUR 115 million, while the IPO in Hidroelectrica is valued at EUR 381 million. All these listings should take place by November, when parliamentary elections will be held.

ovidiu.posirca@business-review.ro

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