Bogdan Preda in Bucharest -

The Fondul Proprietatea, a multi-billion-euro fund set up by Romania's government in November 2005 to compensate people whose property was expropriated by the former communist regime, is about to become one of the biggest shams since the country broke with communism 20 years ago.

Just days after a government commission finally picked Franklin Templeton Investment Management on June 9 to manage the fund, the commission's president Nicolae Ursache publicly stated that having the fund managed by an outside party isn't a welcome option because it would be too costly. Ursache said the fund should instead be managed by its current executives before it can be listed on the Bucharest Stock Exchange, supposedly later this year. After nearly four years of wrangling among politicians and ministers from different parties, each trying to benefit as much as possible from the fund's existence, the final goal of having its shares listed seems once again to have been postponed indefinitely.

The Fondul Proprietatea was based on a compensation plan by former Prime Minister Calin Tariceanu's government in November 2005. The plan aimed to give shares in the fund, which consists of minority stakes owned by the state in some of the country's biggest companies, to citizens who haven't received back in kind property seized after the 1948 nationalisation. Those shares amounted to almost €4bn at the time of the fund's establishment.

Minority stakes in more than 100 companies that were to be put in the fund included: 10% of the country's biggest refiner Petrom, which is majority owned by Austria's OMV; 20% of telecommunications firm Romtelecom, which is majority owned by Greece's Hellenic Telecommunications Organization; and 10% in savings bank Casa de Economii si Consemnatiuni, also known as CEC, which boasts the country's largest branch network of around 1,400. Stakes of 15% in Transelectrica and Transgaz, the state's power and natural gas transportation grids, and 20% stakes in the country's international airports in the capital Bucharest and the Black Sea city of Constanta were also included in the fund. The government's plan was also to compensate citizens with cash worth 4% of Banca Comerciala Romana, the country's biggest bank, which was sold to Austria's Erste Bank for €3.75bn. (To see a full list of the stakes that are currently included in the fund click here.)

ABN Amro Holding, Merrill Lynch and UBS were among 31 banks and companies that expressed interest in managing the fund in May 2006. It took the Romanian government another three years to eventually pick Franklin Templeton, which asked for €19.6m a year, less than the bid put in by second place Morgan Stanley. Now even that selection of a manager is, strangely, being challenged by people such as Ursache who were assigned by the government to oversee the fund's establishment.

What's at stake?

When the fund was first established in November 2005, the thousands of former property owners or their inheritors were expecting the fund to be expeditiously listed on the stock exchange so they could cash in what they were entitled to. However, many of those property owners, generally old people anyway, have died before they could see justice done.

The government has prolonged the listing process and, disreputably enough, based on legislation it passed in 2007 actually allowed trading of the fund's titles on the open market from 2008, although not within an organized framework such as the stock exchange. That allowed businesspeople who previously had bought fund titles for prices far below the fund's real market value through promissory notes (written agreements that would have qualified them as owners at the time when the fund would have been listed) to become formal owners of the fund's titles. Independent analysts have claimed the government in fact postponed the listing of the fund for so long just to allow certain connected businesspeople to accumulate fund titles at low prices.

Given this delay and the fact that Romania, like much of the world, has since been clobbered by recession, one might expect the average owner of the fund's titles to have to rush to sell at even lower prices to those same businesspeople who have already accumulated titles and are rich enough to be able to afford waiting until the fund will eventually be listed on the stock exchange and the market rebounds, thus using the opportunity to make even greater profits.

Such long delays in having the fund listed, coupled with the global recession, has led to prices of as low as 13% of the fund's titles nominal value being quoted, according to business daily Ziarul Financiar. Such drops in the value of the fund's titles could lead to even more complications, hence more delays in having it listed. That again favours speculators, who are using the fund for purposes other than that for which it was created.

For now, only a few seem to remember that the fund was formally established as a tool to correct an injustice. But that was several years ago when Romania was struggling to show the EU it respects human rights so it could join the bloc. After it did so in January 2007, politicians have forgotten many of their promises, including that of publicly listing the fund's shares.

Ironically, the main beneficiaries of the fund today aren't those for whom it was created, but rather market speculators and, in too many cases, even former communists now turned "respected businesspeople." By the time the fund will eventually be listed, there's a real danger it will no longer serve the purpose it was created for.

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