EC investigates potential Romanian state-aid rules breach

The European Commission has opened an in-depth probe to verify whether debt write-offs by the Romanian State and continued supplies by state-owned enterprises in favor of Oltchim, despite the petrochemical company’s deteriorating financial situation, were in line with EU state aid rules, according to an EC press release.

The Commission will investigate the accumulation of debts owed to the Romanian Authority on managing state assets (AAAS), debt cancellations by AAAS and various state-owned enterprises under the insolvency administrator’s reorganization plan for Oltchim, and support to the operations of Oltchim by two state-owned companies (CET Govora and Salrom) who, despite the deteriorating financial situation of Oltchim, continued supplies of electricity, steam and saline solutions to Oltchim. “Following the economic difficulties of Oltchim and the cancellation of public debts owed by the company, we need to verify whether a private creditor would have accepted to act in the same way,” said EU commissioner for competition Margrethe Vestaer.

Under EU state aid rules, public interventions in companies are considered free of aid when a private operator would have acted in the same way. It is now up to the Commission to assess whether this was the case for Oltchim’s public creditors and suppliers or whether, on the contrary, the public measures gave Oltchim an economic advantage over its competitors and constitute state aid, said the EC.

If the EC were to conclude Oltchim had received state aid, it would then assess whether the aid was compatible with EU rules that authorize certain categories of aid. Given that Oltchim has been insolvent since 2013 and is thus in financial difficulty, the only category of aid allowed would be rescue and restructuring. According to EC guidelines, such aid can be found compatible when the company has a sound restructuring plan approved by the Commission that ensures its long-term viability and the company contributes to the cost of restructuring.

Romania, however, has not notified any restructuring plan for Oltchim to the Commission. “To be clear, the insolvency administrator’s reorganization plan for Oltchim has a different purpose and does not appear to meet the criteria under the Guidelines,” stated the EC press release. Furthermore, “at this stage, it is the Commission’s preliminary view that the measures under investigation, if found to constitute aid, could not be found compatible with EU state aid rules.”

Additionally to this, the EC also has concerns that the privatization process of Oltchim, as currently planned, may lead to economic continuity between Oltchim and a future buyer. Nevertheless, “the Commission welcomes the fact that the Romanian authorities have now signaled their interest in ensuring that the process will not lead to economic continuity, so as to avoid a situation where a buyer would benefit from any past aid granted to Oltchim and could be liable to pay it back,” added the press release.

Oltchim is the only producer in Central Europe of liquid caustic soda and the only producer in Romania of chlorine and polyether polyols. The company exports around 70 percent of its production.