A sorry sell-off saga in Romania

By bne IntelliNews October 1, 2012

Andrew MacDowall in Belgrade -

It's not been a great year for Romania.

It started as 2011 ended, with painful austerity measures biting. Since then, the country has been rocked by street protests against the cuts, corruption and the unpopular leadership; a prime minister resigned only for the administration that replaced him to be toppled in a vote of confidence; the third government of the year then attracted domestic and international opprobrium as it launched attacks on the constitutional court and other checks on its power, as well as an unsuccessful campaign to oust the president. A bitterly cold winter was followed by a blazingly hot and dry summer that adversely affected Romania's grain harvest. Meanwhile, progress on economic reform has stalled, and the country's privatisation programme, while it has moved forward in some areas, is beset by confusion in others.

The sale of Oltchim, a major chemicals firm specialising in PVC, is the latest sorry sell-off saga. The status of the company is now the subject of a dispute between the new government on one hand and a colourful and controversial media magnate on the other. The company is already in a mess, as production was suspended in August over €400m of debt to the state and power suppliers.

On September 21, the government appeared to have sold its controlling 54.8% stake in Oltchim to Dan Diaconescu for RON203m, around €45m. But within three days, Prime Minister Victor Ponta was telling the press that the sale would not go through, as Diaconescu did not have the cash to seal the deal. Diaconescu, a 44-year-old former journalist who now owns the OTV television station, has demanded new terms to the sale, including a guarantee that the state will cough up for unpaid salaries of Oltchim workers, and that it will not be forced into insolvency by public-sector creditors.

Diaconescu appears to have no experience of managing large chemicals companies. Yet his bid trumped that of German chemical firm PCC SE, as well as local industrial companies Aisa and Chimcomplex Borzesti. Diaconescu's bid may have won because of the very high price it offered for the government's Oltchim shares - more than twice their market value, according to Andrei Chirileasa, capital markets editor of Ziarul Financiar, Romania's top business newspaper.

If the high offer by Diaconescu - a subject of several court cases - thickened the plot somewhat, it becomes thicker still when one takes into account his political ambitions and the looming general election on December 9. The mogul's modestly-named People's Party - Dan Diaconescu (PPDD) was founded in 2010 and has little current presence at national level, but has won a raft of local government seats.

Indeed, the widespread assumption among the local press is that the Oltchim bid was merely an attempt to raise profile in the run-up to the polls. A generous interpretation of this theory is that his demands on Oltchim post-privatisation highlight the plight of workers in Romania's stalling publically owned companies, and the likely harsh effects of sell-offs.

Diaconescu himself says that he wants the Oltchim deal to mark a break from the privatisations of the past, which all too often saw assets sold to political allies, or led to mass lay-offs. He asserts that his offer will be in the best interests of the workforce and the economy, and accuses the authorities of deliberately undermining the deal by demanding payment so quickly. He has made it clear that he sees Ponta as obstructing the sale.

The businessman has suggested that he has more tricks up his sleeve. Some reports suggest that there are foreign backers with plenty of money behind Diaconescu, who will stump up the necessary funds. Diaconescu has until Monday, October 1 to provide that cash, or Oltchim and its huge €700m debts will stay with the state. The expectation now is that this will be the case, so the government will have to re-open the bidding process for the unwieldy enterprise.

Enjoyable as speculating about the winning bidder's motives are, the Oltchim debacle highlights pressing issues for the country. The sell-off is part of a package of swift privatisations agreed by Ponta's new government to shore up public finances and appease the International Monetary Fund (IMF). This is also meant to see rail freight operator CFR Marfa and airline Tarom opened to private investors.

Romania badly needs the IMF's cash and to divest itself of loss-making assets. But the confusion over Oltchim - as over previous privatisations, including the sale of the country's largest copper mine, abruptly cancelled in April, and the abortive sell-off of a stake in oil company Petrom - will not reassure investors.

Meanwhile, the future of Olchim, its 3,300 employees and the many people whose incomes depend on the plant in Ramnicu Valcea in central Romania, hang in the balance. Any future investor seems unlikely to preserve the employment set-up as it is. Buyers will look on current debt levels with extreme wariness.

"It's very complicated," Chirileasa, of Ziarul Financiar. "No one really knows what the best solution is, but privatisation is the only hope as the state cannot support the plant any longer."

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