Whereas the court found that the government collected 70 times less than it should have in the Voiculescu case, if considering an average factor of 1 to 10 by which the government was defrauded in all the other privatizations, it should recover a 10 times higher amount than it got from them.
The Court of Appeal on Friday, August 8, sentenced businessman Dan Voiculescu, owner of Grivco group and of media business Antena Group to ten years in prison for money laundering and eight others, former or current managers of the Food Research Institute to 4 to 8 years in prison. The Court also ruled that the buildings housing the companies and the plots of land involved in the privatization, as well as several million euros from the accounts of the Voiculescu family should be seized to offset the loss.
No audit of the privatizations in Romania has been conducted yet but a quick look shows the country has collected EUR7 billion to EUR10 billion so far and at a multiple of 10 instead of 70, the government should have collected up to EUR100 billion from privatizations.
The most important privatizations of the country include Romania’s largest bank, Banca Comerciala Romana, for which Austria’s Erste paid EUR2.2 billion in 2007, Petrom, for which OMV (Austria) paid EUR670 million in 2004 to get 33% and Romtelecom, for which Greece’s OTE paid $675 million in 1998 when it got 35% in the company.
The most controversial privatization cases were those where the business of a particular company had become insignificant due to the value chains breaking down but its assets (buildings and land) were very valuable on the free market. That was mostly true for the research institutes that had land and buildings in the center of Bucharest.
“Many state-owned companies were acquired by those who did not know the business, who thought they could make them work. Others were bought in bad faith for the assets they had, as Romanians had developed an asset collection mentality,” said Florin Pogonaru, chairman of the Businessmen Association of Romania (AOAR).
Although he regards BCR as the most successful privatization in Romania ever, he believes “privatizing the banking sector to such an extent is a national security issue.”
“When 90% of the system is foreign-held, the money supply depends on decisions made in other countries. Moreover, foreign capital is more volatile than Romanian capital and this shows in the all the investors’ exits lately,” he added.
Only four more privatization cases show up on the website of the National Anticorruption Department as having gotten final sentencing rulings, which is very little considering there were more than 11,000 privatization contracts for almost 8,000 companies in Romania and many of them were surrounded by suspicions of corruption and questions about how the state assets were valued.
The problem with privatizations did not stem from the privatization method used if it was used fairly and properly, says economic analyst Aurelian Dochia.
“I think the most honest privatizations are those that present the main details from the beginning, saying how much money is available and demonstrating what they want to buy is offered at a fair market price. The law allowed for all sorts of open solutions, such as privatizing for a specific amount of money on condition that the investor invest a set amount of money after privatization,” says Dochia, who is also managing director of advisory firm CONCEPT- Economic and Business Consulting.
“It is very difficult to believe such terms can be met and an investor in good faith that wants to meet them may find themselves in the middle of an economic crisis and there’s nothing they can do about it,” Dochia added.
The court ruling in Voiculescu’s case shows the fraudulent privatizations in Romania that are to be discovered can be investigated and the government can recoup the losses it suffered therefrom. This is the first time the court rules to reverse the sale of assets from the government to the private investor and to have the loss it caused covered by direct confiscation of the money in bank accounts and the properties of those convicted.
There has been no other such ruling in a fraudulent privatization case, where the court orders such extensive steps to recoup the loss.
Corruption has been mentioned in connection with many privatization cases in Romania over the years, but this is the first time prosecutors investigate and judges give such a harsh sentence of up to 10 years in prison.
Should this lead to other investigations into the privatizations in the Romanian economy?
“It’s very hard to dig out the privatization files, because they have been passed from one institution to another over time and starting new investigations into the past privatizations may send negative signals to investors. A Pandora’s box has already been opened,” Aurelian Dochia said.
The most often used solution to defraud the government and the easiest, as shown in the Food Research Institute’s case, was the have a state-owned company partner with a private company, with the latter taking over the assets of the former at some point. This might also extend to those cases where control over the assets of the state-run companies was transferred via a capital increase to the foreign investor. One may even wonder whether the best interest of the government was served when such capital increases were operated.
“It often happened in Romania’s privatizations that, following the partnership of the state-owned company with the private investor, the latter would come up with more money via capital increases or other methods and the government would be unable to do the same, either because it had no money or because of certain restrictions in place that prevented it from doing so.”
The Romanian government has always avoided valuing its assets at their actual value and its most sought after assets were the plots of land state-owned companies with little revenue had in cities or near them.
Lack of interest and the corruption of the employees of various institutions in charge of privatization over time resulted in the Romanian government collecting tens of times less than it should have, as shown by the Voiculescu-Food Research Institute case.
The fraudulent privatization not only led to much lower revenue for the government but also to the destruction of some companies, as many investors did not plan to keep the company going in its line of business and developing it. That was the case of Alor Oradea, Aro and Rocar Bucuresti, which are no longer in business. Others, like Tractorul Brasov, were simply liquidated.
Controversies surrounding privatizations or partnerships of state institutions with private companies in such cases as Rompetrol, Enel, Baneasa Investment and CFR Marfa show the problem exists in both privatizations conducted with Romanian and foreign investors.
“Romanians did not compete on equal footing with foreign [investors] in the privatization process because they do not have the same financial strength or negotiating power. Moreover, some privatizations were done with some specific conditions, under the pressure of the IMF (International Monetary Fund i.e.) and had to be done quickly, so in some cases only one bidder participated,” said AOAR’s Florin Pogonaru.
(English version by Loredana Fratila-Cristescu)