Franklin Templeton opposes proposed restructuring plan for Electra and Hidroenergetica

Franklin Templeton, the investment manager and sole administrator of the Fondul Proprietatea announced that it would vote against the Romanian government’s proposed restructuring of its state-owned energy sector.

Franklin Templeton says it is concerned about “an overall lack of planning to make such a large restructuring project successful and also a high risk that the execution process, if not handled properly, will raise more problems in the future.” The proposed restructuring would establish two national energy holdings, Electra and Hidroenergetica, bringing together coal mines, thermo, hydro and nuclear power plants.

The first of the two new energy companies, Electra, would include nuclear power plant Nuclearelectrica, thermo power plants Turceni, Rovinari and Craiova, part of hydro power company Hidroelectrica and the mining firm Oltenia National Lignite Company. The second, Hidroenergetica, will include thermo power plants Electrocentrale Deva, Electrocentrale Bucuresti and the rest of the power hydro stations including Iron Gates (Portile de Fier) on the Danube River. Fondul Proprietatea is a shareholder in most of the companies involved in this project and therefore Franklin Templeton is focused on ensuring that any restructuring activity will be in the best interest of its shareholders.

The mergers are due to be decided upon at the general shareholder meetings of the companies scheduled for 19^th of November 2010. However, Franklin Templeton has filed two requests on behalf of Fondul Proprietatea for suspension of the merger: one against thermo power plant Craiova and one against nuclear power plant Nuclearelectrica. Today, the Craiova Court approved the first request and the Bucharest Court is in the process of analyzing the second request.

The investment fund manager also says no business plan nor any post-merger restructuring plan for the two new companies has been presented by the government so far. At the same time, Fondul Proprietatea is in litigation regarding the percentage stake held in one company involved in the merger, Nuclearelectrica. Franklin Templeton also says that since three of the companies to be brought into the mergers are 100 percent owned by the State either directly or through the much less profitable Termoelectrica, Fondul Proprietatea’s shareholders might get diluted.