Participants in the debate were Remus Borza, manager of Euro Insol, the judicial administrator of insolvent Hidroelectrica, Mariana Gheorghe, CEO of Petrom, Radu Timis, president of Cris Tim, Dan Sucu, owner of Mobexpert, and Doru Lionachescu, managing partner of boutique investment Capital Partners.
The disastrous management of state-run companies became a hot topic after hydro-power producer Hidroelectrica, the most valuable state-run company, went insolvent.
For the first time, a 500-page report put together by Hidroelectrica’s administrators revealed problems such as overpriced acquisitions, 70 types of perks granted to employees and the cost of 18 million lei per installed MWh instead of RON1 million.
Although Borza believes no other method apart from insolvency would have been profitable in the case of Hidroelectrica, heads of privatized companies, entrepreneurs and consultants believe Hidroelectrica’s decision to go insolvent was a rushed one because a fundamental change to the way things function in a privatized company can only occur after a few good years. However, the businesspeople all agree that intervention of private-sector experts in the management of major state-run companies is necessary.
“Running a privatized company is a huge effort which, as a manager, I don’t think you can make twice in your career. After privatization we have restructured everything from operations through to acquisitions, the financial and legal aspects. It’s been 7 years since Petrom’s privatization and I think it will be another 2-3 years until we finalize all transformation processes,” says Mariana Gheorghe, the executive who has been running the largest company in Romania, Petrom, for six years. Petrom had a turnover of EUR3.9 billion and a profit of almost EUR900 million last year. She says the solution for the successful management of state-run companies is non-involvement of the state in operating management.
Doru Lionachescu, managing partner of investment firm Capital Partners, believes Hidroelectrica’s insolvency was a rushed and reckless decision and is reserved when it comes to its success, saying the judicial administrator cannot intervene on collective employment contracts, as it has a political mandate.
“Nowhere in the world is insolvency a management and a blackmail instrument as it is in the case of Hidroelectrica. The solution, whether we like it or not, is privatization, it is not making the public sector insolvent.”
The same opinion is shared by Radu Timis, the entrepreneur who set up Cris Tim, one of the largest players on the cold cuts market. According to him, state-run companies will continue to be politicians’ cash cows and will not perform as long as there are political and economic interests involved
“When Hidroelectrica goes insolvent, you expect the state as well to go insolvent. (…) Privatizations are good as long as the companies targeted are strategic in terms of value added. Privatization is a good solution even for little money because the money ends up in the state budget,” Timis said.
Dan Sucu, owner of furniture producer Mobexpert, in turn thinks privatization is good for the majority of state-run companies, saying he doesn’t believe Petrom could have restructured its activity had it not been privatized.
“At first Hidroelectrica’s insolvency seemed suicidal, but ultimately it could turn out to be a big success. The state will be able to get a better price than it would now if it privatizes a company such as Hidroelectrica after it comes out of insolvency,” Sucu admits.
Hidroelectrica, Romania’s largest producer of electricity, went insolvent on June 20, at the request of its Board of Directors. The Board motivated its request through the turnover decline and the higher debts incurred amid “disastrous management” and as a result of the 2011 drought.
Last year the company reported a turnover of EUR712 million and a net profit of just EUR1.5 million. Hidroelectrica spends EUR110 million on wages, EUR100 million on water, with the rest of its spending going to maintenance work.
(English version by Daniela Stoican)