„Four months method” – „interim” strategy in state-owned companies: legal stakes of changing dozens of directors and administrators

The law that gives the green light to Government representatives to appoint directors of state-owned companies as they please, adopted on Wednesday by the Chamber of Deputies, comes after more than two years of a provisional regime in the management of the most important state-controlled companies.

Already suspended by replacements at the top of state-owned companies, based on the method of 4-month provisional mandates, and sometimes shorter, OUG 109/217, which is amended by law, is about to be de facto abolished.

As early as of 2015, the governments of the majority alliance have undergone many changes in state-owned companies either to secure the agreement of new executives or managers with the more or less strategic decisions pursued or to reward some people’s loyalty.

Finally, contracts worth a lot of money are also involved.

„4 months” method

As early as of May 2015, the legal means have been created to install the provisional status by amending OUG 109/2011 by another OUG providing that the supervisory body may designate temporary administrators with a 4-month mandate, with the possibility of an extension but not longer than nine months.

The 4-month provisional mandate has become this year the main feature of the way the Government appoints its favourites in companies it controls. Professional managers’ access to the management of these companies has been heavily stopped by this very feature of the corporate governance that the Government promoted.

Examples come from the transportation, but especially energy domain. Companies like the Romanian Post Office or the Romanian Lottery have not escaped and there are generally few companies that have missed ambiguous or unclear top-level changes.

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• Changes in the management of state-owned companies in 2017
• Company                    date                 change            possible stake
• Nuclearelectrica                                  Iulian-Robert Tudorache, appointed board chairman for four months, replacing Daniela Lulache who got a four-month mandate as general manager
• Nuclearelectrica          Cosmin Ghita, general manager for four months
• Nuclearelectrica          Dan Laurentiu Tudor and Toni Viorel Larry, deputy general managers for four months, as of January 3, 2018
• Nuclearelectrica          Financial director Mihai Darie quitted; he had a mandate until 01.02.2018. He left to Electrica          Negotiation of the contracts for upgrading the nuclear reactor 1 at Cernavoda and building the reactors 3 and 4 in collaboration with China General Nuclear Power Corporation
• Romgaz                      Director Virgil Marius Metea removed from office, the new manager Corin-Emil Cindrea, a four-month mandate
• Romgaz                      General Shareholders Assembly for other provisional mandates. Temporary managers Adrian Constantin Volintiru and Daniel Florin Anghel have been appointed temporary administrators; Stan Bogdan-Nicolae and Gheorghe Gabriel Gheorghe gave up their mandates Litigations with the Court of Accounts imposed the recovery of a damage of RON 160 million for selling natural gas below the market price; the European Commission investigates an alleged blocking of the regulations on exports
• Romgaz                      Ion Sterian is appointed interim general manager until July, confirmed as general manager following a selection process run by the board without involving any specialized independent expert            The company is part of the BRUA pan European pipeline project, run with European financing and another one for connecting to the gas system in the Black Sea
• Transelectrica             Cristian Eugen Radu is appointed as the chairman of the Supervisory Board. Luca Nicolae Iacobici is no longer appointed as the chairman of the directorate, as he did not “expressly” accept this proposal and in time. Corina Popescu becomes the new general manager, replacing Ion Toni Teau            Investment projects and European connection
• CFR Marfa                  Mihai Manole, appointed general manager; Mihut Craciun, replaced by Manole, involved in a DIICOT investigation
• CFR SA                       Cristian Ungurean is the new general manager        Minister Felix Stroe has allegedly announced the dismissal of director Marius Marian Chiper, after the train on which the minister travelled to Deva had a delay of almost one hour, without “any reason”
• CFR Calatori               ALDE Sibiu President, Ion Ariton, has been appointed as a member of the board of the state-owned company CFR Calatori, for four months. Ariton has been appointed in the position remained vacant as the executive general manager of the state-owned company Iosif Szentes has been removed from the administrator position; Iosif Szentes’s mandate had been extended on March 21 by four months
• Hidroelectrica              Supervisory board on a limited period, until the recruitment of a new board based on OUG 109. Most of them are independent, says Victor Grigorescu: three from the Ministry of Energy (Craita Bucheru, Romeo Susanu and Elena Voicu) and four independent members: Mihai Anitei (general manager of Azomures plant), Robert Pana (vice-president of the Bucharest Stock Exchange) and Ionut Purica            Listing to the stock exchange by public offering
• CNAIR                        Stefan Ionita, general manager. Replaced by Catalin Homor
• CNAIR                        Adrian Mladinoiu appears among the seven members of the CNAIR board, the highest management structure of the company. Even though he held this position for many months – sources from the company say – nobody from those who are supposed to know him has any idea of him
• Romanian Post           Ioan Bejan – four months, Benoit Pleska, until the end of the mandate, July 15, 2019
• Romanian Post           Rares Stanciu, former executive operational manager of the company, has been appointed as interim general manager for four months (until January 25, 2018); the mandate of the former interim general manager Andrei Stanescu ended on September 24 and the Communications Minister asked for his resignation because of poor management.
• Electrocentrale Bucuresti       Dan Laurentiu Tudor also holds the position of a supervisory board member at Hidroelectrica, which raises the issue of conflict of interests. That, in the context that Hidroelectrica and Nuclearelectrica are energy producers, companies that are competitors in the market. Besides, he is also deputy general manager of Electrocentrale Bucuresti, which is also an electricity producer
• Oil Terminal                            Gheorghe Cristian Florin is appointed as chairman of the board, based on the provisions of art 18, paragraph 5 of the Articles of Association
• Oil Terminal                            Nicu Stefan, retired SPP colonel, vice-president of ALDE Giurgiu, investment manager four years ago, in 2013, the SPP colonel is investigated by the Prosecutor’s Office of the Court of Appeal of Constanta for the offence of material forgery of official documents and trafficking therein, and false statements
• TAROM                                  The resignation of the interim general manager Eugen Davidoiu; Florin Susanu appointed under a one-month mandate contract
• TAROM                                  four-month general manager mandate, Werner Wolff, following the resignation of interim Daniela Dragne, although her one-month mandate was extended until the end of the year. Florin Susanu gave up in September, after Eugen Davidoiu’s resignation
• CONPET                                Administrators Liviu Ilasi (still general manager), Dan Weiler, Darius Dumitru Mesca, Cristiana Chiriac have been removed from office; Constantin Vaduva, Manuela Petronela, Stan Olteanu, Constantin Ciprian Iacob, Antonio Adrian Spinu, Claudiu Aurelian Popa, Radu Bugica, Razvan Stefan Lefter have been APPOINTED for four months
• Metrorex                                 Ion Constantinescu, appointed interim general manager for four months; Marin Aldea has been replaced, following the blockage in the subway traffic        on the route Izvor-Politehnica-Grozavesti because of a leakage waterway
• Romanian Lottery                   General manager Mihai Paduraru was been dismissed only ten days after his appointment. He replaced Marius Pantea, appointed on April 4 and dismissed on July 26. The latter had replaced Catalin Alexandru Chesa who was not holding the position for a long time either – he had been appointed as general manager with the Romanian Lottery in September 2016. The interim period until the appointment of the future general manager will be assured by Danut Sporea, the head of the Economic Department, who had the same responsibility also after Marius Pantea’s dismissal.           Mihai Paduraru got to sign an EUR 7.2 million contract for the acquisition of a new IT network and more than 2,000 terminals
• Romanian Lottery                   Ovidiu Portariuc, former advisor of the Finance Minister. He replaced Mircea Croitoru, who had taken over the management of the company on September 28, 2017. Economist Ovidiu Portariuc was the mayor of Botosani city between 2012-2016
• CE Oltenia                               Boza Sorinel Gheorghe, president of the directorate, selection under OUG 109, H.CS no 29/07.10.2016
• CE Hunedoara                        Michael Melczer, appointed as general manager, after the former general manager Cosmin Chiuzan announced he does not want a further extension of his mandate anymore, a mandate awarded six months previously
• CE Hunedoara                        The new general manager of Complex Energetic Hunedoara is Viorel Stancu. Michael Melczer ended his six-month mandate at the CEH management. Stancu also previously led the company twice.

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„Excepting the state-owned companies from applying the corporate governance legislation will negatively impact their performance,” says the Association of Independent Administrators (AAI).

State-owned companies (IE) recorded significant losses until the adoption of OUG 109/2011 and gathered most of the arrears in the economy. Following the implementation of OUG 109, which meant the selection of professional managers, the performance of these businesses improved, according to the AAI, which quotes a Finance Ministry report.

Among the situations of state-owned companies mimicking the application of the corporate governance principles, the Tarom is a record case: the company, facing big financial and administrative difficulties, is at the fifth interim general manager in 2017.

Tarom

Tarom’s general managers succeeded at Tarom with a frequency of one/month and came with experiences of the most varied: from that of an engineer from the Societatea Nationala a Lignitului Oltenia, Eugen Davidoiu (with education completed at the Romanian Diplomatic Institute, from the Ministry of Foreign Affairs, though) to a head of the Tarom-Tel Aviv agency, a line pilot who quickly gave up the challenge and the current general manager, Wilhelm Wolf, a former car dealer.

The Tarom crisis is the perpetuation of the corporate strategy of a phantom company type, through poor procurement contracts and an oversized staff. So, until now, the winner was the resistance against all the company’s restructuring plans.

Tarom estimates losses of RON 206.79 million in the 2017 adjusted income and expenditure budget, almost five times higher than in the previous budget.

Nuclearelectrica

The company that operates the only Romanian nuclear power plant seemed to escape the wave of corporate changes at the top announced at the beginning of the year, but Cosmin Ghita (28 years old), a former adviser to Prime Minister Mihai Tudose on mining and energy-related issues, was successful.

Nuclearelectrica has projects of many billions of euro: the one for upgrading and extending the lifespan of Unit 1, and the very sensitive one for the European Commission, for building reactors 3 and 4 with China General Nuclear Power.

The Government needs very loyal people to lead the company and also appointed two interim deputy general managers, even risking a conflict of interest, because one of them, Dan Laurentiu Tudor, is still a deputy director of Electrocentrale Bucuresti and also a member of Hidroelectrica supervisory board. These companies are (at least theoretically) producers competing with Nuclearelectrica.

Meanwhile, other members of Nuclearelectrica’s management leave voluntarily.

Romgaz

One of the two largest natural gas producers in the country has a history of litigations, for several years, with the Court of Accounts. One of these litigations concerns the decision of this institution to require the company to recover RON 160 million, the equivalent of the gas it would have allegedly sold at a too low price.

On the other hand, Romgaz has the famous antecedent of donating RON 400 million to the state budget.

Romgaz posted a net profit of over RON 1.18 billion in the first nine months of this year, up 65.9%, compared to the same period in 2016, resulting from total revenues by RON 414.5 million (+ 14.7%) higher compared to the same period of 2016.

Transgaz & Transelectrica

Strategic and some minor interests are also involved in the case of the two major operators of the monopolies in the natural gas, respectively electricity transportation on the national pipeline and grid networks.

Transgaz has just signed in November contracts with construction companies for BRUA gas pipeline phase 1, which should connect Bulgaria, Romania and Hungary to the Baumgarten hub in Austria through a 582-km pipeline, of which approximately 479 kilometres represent the first phase of the construction project on the Romanian territory.

On the other hand, the European Commission is investigating the possible strategy to restrict gas exports from Romania through Transgaz.

At its turn, „in the backyard” of Transelectrica is OPCOM, the operator of the electricity market, which should also be the only natural gas exchange market in Romania, according to some of the views of the ruling party.

At the same time, the prices of natural gas and electricity depend on the administered transport tariffs from which the revenues of the two companies come from.