Fondul Proprietatea warns on corporate governance

Fondul Proprietatea warns on corporate governance
Franklin Templeton Investments HQ where Fondul Proprietatea manager Greg Konieczny works
By Clare Nuttall in Bucharest April 25, 2017

The manager of Romanian property restitution fund Fondul Proprietatea (FP) has warned of a threat to corporate governance at several major state owned enterprises as the government makes short-term board appointments. 

As well as undermining the quality of governance at several companies including hydropower producer Hidroelectrica and nuclear energy company Nuclearelectrica, this is also likely to lead to a further delay to the long anticipated IPO of Hidroelectrica.

At a press conference in Bucharest on April 25, FP manager Greg Konieczny of Franklin Templeton stressed that the government’s recent nominations for interim supervisory board members at Hidroelectrica were “bad news” for the company. 

“This was definitely a setback in terms of the quality of governance of the company, and clearly delays any prospects of the IPO,” Konieczny said. “We would need a miracle to think about an IPO this year.”  

Konieczny voiced concerns about the “quality” of the nominees in addition to pointing out that permanent appointments would later have to be made before they could in turn appoint executive management at the company. He also warned of the potential for the interim board to make decisions that could dilute the profitability of the company. 

None of the candidates has experience in the hydropower sector, and most are involved in politics and the media. The list reportedly includes 32-year-old Ioana-Andreea Lambru, who is currently employed in the central government after a rapid political rise following an alleged affair with a top politician.

Previously there had been hopes that the long-awaited IPO of Hidroelectrica would go ahead this year after the company exited insolvency earlier this month, having won numerous legal cases against power traders - the so-called “smart guys” who had benefitted from electricity supply contracts that were highly damaging to Hidroelectrica. The company’s recent performance has been stellar; it reported profits of €1bn between 2013 and 2015, and the IPO was expected to bring in nearly €1bn for the state, court-appointed manager Remus Borza said on April 3. 

The IPO would also have consequences for the Bucharest Stock Exchange’s quest for emerging market status, as it would most likely join the small roster of Romanian companies that meet MSCI criteria, which would be taken into consideration for a potential upgrade. 

Konieczny pointed to the appointment of interim board members or management at several other majority state-owned companies within FP’s portfolio, and warned of the danger of making short-term appointments at companies that “need long-term vision”. 

In 2016, FP accused the board of nuclear energy company Nuclearelectrica of mismanagement, though this was denied by the company. Meanwhile, there is a similar situation at both Constanta Ports and Bucharest Airport. 

Sounding cautiously optimistic, Konieczny also commented on the government’s plans for a sovereign wealth fund, which would likely include the state’s stakes in major state-owned companies, including those within FP’s portfolio. 

He said that until now, companies have been under the control of various government ministries, with ministers “often mixing their responsibilities to make policies and at the same time to perform ownership functions” at state-owned companies. According to Konieczny, the quality of governance has varied from ministry to ministry, with politics inevitably playing a role in board appointments. 

“One gain from a sovereign wealth fund would be separating policy and ownership, so ministers can focus on setting strategies and policies for their sectors. If properly set up, it may result in more professional and responsible governance,” Konieczny told journalists. 

“It would bring a lot of transparency over how public money is managed and more accountability for people who would be managing the fund. Under these conditions, it could be hugely beneficial for Romania.” 

The current government, led by the Social Democratic Party (PSD), announced plans for a €10bn sovereign wealth fund after coming to office following the December 2016 general election. The structure and role of the fund is still unclear, but it would most likely take over the state’s holdings in the most valuable state-owned and partially owned assets. It is also still unclear how closely involved the government would be in the management of state assets following the creation of the fund.