The publication of these procedural rules has been eagerly awaited since the enactment of Law 137/2002 three months ago, as further elaboration was required on its more innovative provisions, including the special administration procedure and the concept of a symbolic €1 price in certain designated auctions. Likewise, in the context of the government's growing desire to realize its plans to transfer ownership of the state utility companies to the private sector, the procedural rules were necessary in order to give the relevant public institutions the necessary tools with which to implement the government's strategy.
The key issues on which the procedural rules have provided clarification are as follows:
- The special administrator's main function is to fulfil a mandate on behalf of the relevant public institution involved in order to prepare for, facilitate and expedite privatization. The special administrator may be a natural or legal person, Romanian or foreign, selected in accordance with specified criteria. Where a utility is in the process of being privatized, a special administration council must be appointed by ministerial order or by a decision of the local public administration authority. The special administrator's functions are in addition to the powers of the corporate bodies of the company undergoing privatization, rather than replacing them altogether; the special administrator is obliged to participate in the general shareholders meetings and in the meetings of the administration boards.
- Shares in certain government-approved companies will be sold through competitive auction with pre-selected bidders, with the price representing a negligible component symbolically amounting to €1. The prospectuses for these companies must include details of (i) the business plan, (ii) the minimum technological investment required, (iii) any environment-related investment required, and (iv) the number of jobs to be preserved. The auction starting value must be equal to the amount of investment required under the company's business plan, and any bids for less than this amount will be unsuccessful.
- For the utilities sector, the procedural rules confirm the mandatory applicability of the new privatization legislation to the sale by wholly state owned companies or autonomous regies (a type of state owned company) of shares in their wholly owned subsidiaries. In this respect the rules supersede the provisions of the Company Law (31/1990), which allowed such disposals of shares to be effected as asset sales.
The procedural rules do not regulate important elements of a privatization transaction (eg, the buyer's investment and other obligations) in detail. However, in the case of privatizations conducted by the Authority for Privatization and Management of State Ownership, Government Ordinance 25/2002, regarding certain measures for monitoring the obligations assumed in privatization contracts, imposes a number of constraints upon contract negotiation.
The purpose of this ordinance is to step up the Authority for Privatization and Management of State Ownership's powers to supervise companies post-privatization, and to establish measures for ensuring that buyers fulfil the obligations assumed under the privatization contract. The ordinance provides rules for ensuring and assessing the performance of these obligations, to be observed upon execution and performance of the privatization contract to this end. It also sets forth possible remedies in case of default.
Investment-related rules include the following:
- The investment obligation undertaken by the buyer must be effected in cash, and the due amounts must be paid into the company's current bank account.
- With the exception of environment-related investment, the amounts paid by the buyer in fulfilment of its investment obligations may be used by the company for any purpose provided for by law, including for payment of state debts which fell due prior to the execution of the privatization contract.
- The investment obligation will be considered fulfilled subject to (i) the buyer's provision, within 30 working days of the due date, of financial documents evidencing that the respective investment amounts were paid into the company's current bank account by the due date, and (ii) written confirmation from the company's administrators or auditors that payment has been received.
- The privatized company must notify the Authority for Privatization and Management of the State Ownership of the fulfilment of an investment obligation, or of the status thereof, and must initiate on behalf of the buyer, within 90 days of the due date of the investment obligation, the capital increase procedure and the relevant registration with the Trade Registry.
- Fulfilment of the buyer's investment obligations by third parties is permitted, subject to the buyer producing evidence of the third party's firm and irrevocable commitment to fulfil the obligation on its behalf. Fulfilment by the buyer's subsidiaries in their own name is also permitted.
During the investment period stipulated in the privatization contract, and subject to certain conditions, the buyer may request permission to:
- modify the investment conditions in terms of timing, deadlines and structure, provided that the award of the privatization contract to the buyer under these terms would also have been possible during the tender process;
- form an association with a third party for the purpose of fulfilling the investment obligations;
- assign the privatization contract;
- transfer the shares purchased under the privatization contract, either totally or partially; or
- terminate the privatization contract.
The Authority for Privatization and Management of the State Ownership will agree to the request if persuasive commercial or economic grounds exist for doing so.
The ordinance applies both to new contractors and to investors which acquired equity interests in companies undergoing privatization prior to its enactment, and which are now fulfilling their investment obligations.
For further information on this topic please contact Adriana Gaspar at Nestor Nestor Diculescu Kingston Petersen by telephone (+40 21 201 1200) or by fax (+40 21 201 1210) or by email ([email protected]).