On the Eve of Romania Elections, EU-Romania Business Society Calls on New Government to Improve Conditions for Foreign Investors

December 2016

BRUSSELS, December 9, 2016 /PRNewswire/ —

We write just six months since our European business investment group for Romania and with the EU states was constituted, on the eve of elections in Romania (due Sunday 11 December 2016), where a new governing administration with a new mandate is expected to be voted in, replacing a caretaker, technocratic Government.

This bulletin as we approach the end of the year is the first of what will become monthly reports on how we see the direction and prospects for Romania. The good news is that growth this year is expected to be the highest in the EU, but there are also worrying trends for business concerning the safety of investor capital.

In a period of increasing stress and instability for business, from Trump to Brexit, with growing Russian pressures across the region and the growth of populist political movements, we can say that we see some positive themes developing in Romania.
We can start with what are for the moment good signs.

In particular, we are encouraged by Romania’s strong position on energy independence, in contrast to the situation in neighbouring countries which are largely dependent on Russian oil and gas. These countries, from the Baltics to southern Europe, continue to import large volumes of natural resources at great cost-and risk-to public finances, and they can create opportunities for corrupt practices as we have seen.
In Romania for the immediate future, energy security and the safety of supply are predictable, and these are not issues that threaten to destabilise the government or the nation as we have seen in Bulgaria and Ukraine.

There is a good balance and diversity of energy flows into Romania, largely from Kazakhstan, which is now the majority provider of stock. These supplies are reliable, capacity and production is expanding thanks to public spending and private investment. Romania’s refineries consistently rate among the highest in the region when it comes to efficiency and standards, and account for tens of thousands of good jobs and billions of dollars generated in taxes and export revenues for the Treasury.

But we also see some worrying signals. These risks need to be satisfied quickly by the new Government.

We are concerned about growing investor disputes between the Government and foreign companies that have directed their capital into Romania and built good profitable businesses.

There have been many high-profile public conflicts, where Romania has ended up on the losing side. We have seen the government in dispute with Raiffeisen over property rights. Romanian authorities lost their case against Enel in a 900 million Euro arbitration. The Government also lost their 33 million Euro case against Germany’s E.ON at the International Court of Arbitration in Paris, and were ordered to pay E.ON’s two million Euros legal expenses. Romanian state companies lost their case against CEZ in an 81 million Euro arbitration regarding privatisations from 2005.

Still looming is a dispute with Rompetrol, owned by KazMunayGas International (KMGI). We would like to see the new Romanian Government taking a constructive path to resolve this and other conflicts in an amicable manner. Romania, in contrast to her neighbours, benefits from KMGI accounting for 22mt per year of production, and the energy security that the Kazakh partners and investors have brought to the country.

We call on the new Government and business leaders to negotiate investor claims, and to avoid lengthy litigation and arbitration wherever possible. There is not just the cost to the country of losing the arbitration, but also the reputational damage that undermines our efforts to promote Romania as a safe and hospitable environment for foreign investment. Indeed, foreign direct investment into Romania is on a five year downward trend. Economic growth for the third quarter of this year has also been lowered, with ING Bank stating this week that it has decelerated to 4.4%

Spending by the private sector is the bedrock for development and expansion, not just in Romania but across the Black Sea region. We want to see more of this, private sector funds that leverage greater public investment.

Since our inception we have called for open markets, fair competition on a level playing field and protection of public and private assets.

What we care about most is working with the Government, and the member states of the EU, to make Romania a stronger and safer destination for business and investment. Romania has in the past encouraged and engaged in public private partnerships to boost job creation and growth. We believe that in the interests of good governance and economic security these kinds of alliances are vital.
We conclude this interim report with a determined commitment to continue to examine and report on the national issues we feel urgently require Government action for Romania’s greater stability and progress.

SOURCE EU-Romania Business Society