Dozens of Romanian state-controlled companies will no longer be required to appoint professional management under amendments approved by the parliament on December 20. 

The government will thus be allowed to return to the arbitrary practice of appointing management based on political grounds. 

MPs voted to waive Law 109/2011, which stipulates the appointment of professional management, for a long list of enterprises that includes most large state-controlled companies like Hidroelectrica, Constanta Port and Bucharest Airports. Furthermore, the government is given the right to include more companies on the list by decree.

The law was originally endorsed as a performance criterion set under Romania’s former stand-by agreement with the International Monetary Fund (IMF). Waiving it for most state-controlled companies calls into question the government’s commitment to improving corporate management at these companies, and has been slammed by the investor community. 

The Foreign Investment Council (FIC) warned of the gradual weakening of the rule of law in Romania. The FIC brings together companies with an aggregate turnover accounting for 25% of the country’s GDP. 

In particular the amendment of Law 109/2011 threatens the country’s OECD candidacy, which is one of the targets set by the ruling coalition, the FIC warned.

Meanwhile, property restitution fund Fondul Proprietatea (FP) said it had appealed to Romanian President Klaus Iohannis to send the legislation back to the parliament, saying it posed a “direct threat” to the financial health of state-owned enterprises. FP is a minority shareholder in numerous state-controlled companies and has repeatedly clashed with the government over their management and strategy. 

“If 2017 was a difficult year, marked by blatant disregard, attacks and systematic abuses of corporate governance, yesterday we witnessed the darkest day in the history of corporate governance in Romania,” said FP’s CEO and portfolio manager Greg Koniecnzy in a December 21 statement. 

“The changes adopted yesterday are a huge step back in time for SOEs and the country, while the risks to integrity via corruption in these companies are growing dramatically. It is extremely sad to see that initiatives, which had a proven positive impact, such as the corporate governance legislation, are practically demolished by the parliamentary majority at an accelerated pace, thus sending an extremely negative signal to local and international investors," Koniecnzy added. 

In addition to the waiver to the professional management rules, lawmakers have also recently endorsed several other decisions that will allow stronger arbitrary involvement of the state in the functioning of the economy. This is in line with the ruling coalition’s rhetoric against multinational companies and broadly speaking against free market principles.

The FIC warned about recent changes to regulations that allow the government to interfere with the activity of supposedly independent regulating bodies. These include amendments to procedures for appointing and dismissing the head of the telecom market regulating body ANCOM, which give more powers to the ruling majority while the president and the government are no longer part of the process. The amendments were endorsed by lawmakers on December 18, despite previous warnings issued by the European Commission.