A new law initiated by two Romanian MPs could result in a massive transfer of wealth from the state to private individuals at Europe’s second largest port, warns the property restitution fund Fondul Proprietatea (FP), a minority shareholder in Constanta Port.
Romania has received plaudits from the EU and foreign investors for an anti-corruption drive over the past few years that has put a stream of former ministers and even an ex-prime minister behind bars. However, MPs have been criticised repeatedly by the European Commission for undermining anti-corruption efforts, and this new law is regarded by many observers as a worrying step back to the days when wealthy politicians and businessmen used parliament to further their own interests at the expense of ordinary Romanians.
Under the draft law, which was approved by MPs on November 7 and is currently being considered by the Constitutional Court, rent for the port’s land and infrastructure would be set at the minimum price currently charged for a 10-year period. It would also require ports to reinvest their profits into infrastructure.
While the law is expected to result in financial losses at all Romanian ports if it comes into force, it would have the biggest impact at Constanta, which is by far the largest port in the country. FP holds a 20% stake in the port administrator alongside the ministry of transport with 60% and Constanta city council with the remaining 20%.
FP fund manager Greg Konieczny claims the new law envisages “changing the port from commercial enterprise to basically non-profit”. Since the port does not need to invest much into its core infrastructure, according to Konieczny, the beneficiaries of the requirement to reinvest profits would be the private operators who rent land at the port.
“All these changes would mean on the one hand a huge transfer of wealth from port to private operators,” Konieczny tells bne IntelliNews, estimating the value at “a few tens of millions of euros”. “Secondly… the value of the [port administration] company itself would fall dramatically,” he adds.
The Constanta Port Operators Association, which represents operators at the port, most of which were privatised to Romanian individuals or private companies back in the 1990s, unsurprisingly doesn’t agree with FP. It responded to earlier complaints from FP in a November 29 statement by claiming that information appearing in the Romanian media was “misleading”. They describe FP as a “money-making machine” and criticise it for failing to invest in its assets while paying out substantial dividends to shareholders.
The association argues that Romania’s ports should be treated as assets of national interest rather than commercial concerns. “This means that the port of Constanta should serve factories in Iasi, Zalau or Galati, farmers in Banat or Baragan, and all entities interested in Romania, in the interest of the Romanian state, just as in Poland, Hungary, France or other countries public infrastructure assets are the property of the respective countries and are used in their interest.”
When the operators at the port were privatised in the 1990s, the port administration signed long-term contracts at fixed prices, with some of the best located land in the port leased for as little as €0.05 per square metre, according to FP. By contrast, the port administrator more recently signed contracts with international port operators at between €2.00 and €2.50 per square metre.
Within the last two to three years the original contracts have been expiring, and the port management has been trying to renegotiate these contracts. This appears to have been the trigger for the new law, with several attempts to introduce new legislation on ports made during this period.
The draft law was initiated by two MPs from the centre-right National Liberal Party (PNL). It received cross-party backing, with a number of MPs from the Social Democratic Party (PSD) and smaller parties backing it alongside PNL deputies. After the vote, FP called on the government and President Klaus Iohannis to either send the law back to the parliament or refer it to the Constitutional Court. The government decided on December 28 to send it to the Constitutional Court, and a decision is expected in the new year.
The court’s ruling will be critical for determining the future of the port administrator, which is one of the companies on a list of candidates for IPO drawn up by Romania’s outgoing technocratic government this autumn.
FP believes that if the law enters force, a new group of “smart guys”, similar to the energy traders that profited hugely from hydropower generator Hidroelectrica, will emerge.
Hidroelectrica, another company in FP’s portfolio, has been embroiled for years in legal battles with the private energy traders that used to buy electricity from the company at low prices then resell it at much higher prices. The practice caused losses estimated by Hidroelectrica’s court-appointed manager at €1.1bn. After Hidroelectrica declared insolvency and terminated its contracts with the traders, several of these traders sued the utility, but so far they have lost all the cases in court.
One of the MPs that initiated the legislation, Mircea Nicu Toader, is alleged to have been involved in controversial electricity trades via a company owned by a close associate, the Adevarul daily reported in 2014. Toader’s main power base is the port city of Galati around 200km from Constanta.
The other initiator of the legislation, Mircea Lupu, is a former shareholder in Constructii Hidrotehnice, which has generated impressive amounts of revenue from contracts with state companies including Hidroelectrica. According to Adevarul, Lupu bought 35% of the company in 2009, after which its profit jumped from RON600,000 (€133,000) in 2009 to RON6.5mn in 2010.
Konieczny describes the draft law as “one of the most alarming draft law proposals of recent years” affecting FP’s portfolio. “It’s very surprising that after three years of activity from the [National Anticorruption Directorate] DNA and this anti-corruption drive in Romania, we see such changes to the law and have them pass through the parliament,” he says. “This is clearly a transfer of wealth from the state to private companies.”
It comes at a time when the financial results of Constanta Port, Europe’s second-largest port after Rotterdam and the largest port on the Black Sea, had been improving. In 2016, the company is expected to better last year’s profit of RON60mn.
This is one of the reasons why FP has been pushing the company as a good candidate for an IPO. “Infrastructure assets like ports are attracting a lot of interest from investors right now and they sell at high prices,” says Konieczny. “In Constanta there is still a huge upside in terms of financial performance from higher revenues from the repricing of current contracts, but also further cost cutting.”
However, if the law goes ahead, it would “definitely kill the IPO”, he says, while FP would be forced into a position where “probably we would have to look at how to, from a legal perspective, recover some money from the port”.