Veolia embroiled in corruption scandal in Romania

By bne IntelliNews September 29, 2015

Iulian Ernst in Bucharest -


Romanian prosecutors have pointed the finger at France’s Veolia group in a bribery scandal over water and sewage charges in Bucharest and Ploiesti.

Romania's anti-corruption prosecutors have stepped up their activities recently, targeting senior officials including Prime Minister Victor Ponta who has been charged with fraud. However, this is the first corruption scandal involving a major foreign investor in Romania. The documents submitted by prosecutors to the court imply that the top management of the French group was aware of the bribes.

Prosecutors from the National Anticorruption Directorate (DNA) said on September 24 that they arrested Ovidiu Semenescu. He is believed to have been the "informal representative" of the French group in Romania along with other firms active in the country. He is suspected of having bribed Romanian officials in order to raise utility fees charged by the group’s subsidiaries in Bucharest and Ploiesti.

Two Romanian public servants, Costin Berevoianu and Octavian Moisescu, who allegedly intermediated the bribes, have also been detained. Moiseascu had already been arrested in connection to other corruption allegations. Berevoianu was the head of the Bucharest water and sewage utilities company (later re-named Apa Nova) when the municipality signed the concession contract with Veolia in 2000.

According to documents submitted by the DNA to Ploiesti court on September 25, and published by Hotnews, Berevoianu was invited to Paris by the president of the French group. Prosecutors claim that Veolia offered to pay a bonus for “the support provided with the view of winning the auction [for the concession contract]” but Berevoianu refused and asked instead to be the preferred contractor for various services of the group’s Romanian subsidiaries.

Berevoianu became advisor to the Bucharest mayor in 2005. Alongside Moisescu, another advisor to the Bucharest mayor, Berevoianu allegedly intermediated and retained part of the bribe paid by the French group for increasing the regulated prices of the utilities.

“For their influence peddling, Moisescu and Berevoianu have received from the group of firms unofficially represented by Semenescu amounts of money covered under visibly formal contracts,” prosecutors claim. In some circumstances, the money was paid before the signing of the contracts, which were mostly for consultancy services.

The selection of the private operator was carried out by the municipality in 2000, at a time when it was run by Traian Basescu, who became Romania’s president in 2004. The current mayor, Sorin Oprescu, an independent with links to the centre-left Party of Social Democrats,  was detained by police on September 6 on suspicion of taking kickbacks on public contracts awarded in the Romanian capital.

Only a single criterion was used to select the winning bidder among six shortlisted companies: the lowest average water tariff over the 25-year concession contract. Three bids were received, from Veolia (France), Suez Environnement (France) and International Water (UK).

The water tariff included in Veolia’s bid was very low compared to other European countries. For example, the water and sewer tariff was seven times lower than in Athens and more than 20 times lower than in Germany. The price was, however, increased rapidly pace under a clause of the contract allowing prices to rise should consumption decrease by more than 5% in a particular year. Decreasing water usage was easily achieved, since the losses at the beginning of the contract were massive – the average water use in Bucharest was, including losses, six times higher than in Germany.

Veolia has not commented on the arrests. However, the company said in a statement quoted by Hotnews that the price hikes were in line with the concession contract signed in 2000 and the fees are not the highest in the country.

Ziarul Financiar calculated that the tariff per cubic metre of water delivered to Bucharest users has increased nominally by 15 times since 2000, while the consumer price index increased only four times. This implies a real increase of the fee by 9% per annum during the 15-year period. Veolia’s Bucharest subsidiary reported €169mn revenues and €32mn net profit in 2014 – a net profit margin of 19%.

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