Privatization of CFR Marfa – another Oltchim case?

The privatization of CFR Marfa saga is almost over. Since the afferent Emergency Ordinance stipulates October 14 as the deadline for carrying out the privatization and the draft of the Ministry of Transport for delaying it was not even discussed during the last Governmental meeting, the very next period is decisive for its completion or its failure.

Following several postponing of privatizing CFR Marfa ever since 2009, the transfer of the railway company to a private investor is the closest to reality this time. However, just looking back to what happened with Oltchim and the authorities' stutter, privatizations in Romania seems to be predestined to failure. Blaming the fate is not an option, blaming the authorities seems not be appropriate either, nevertheless, all these issues arisen have a common component: Romania's Government.

Despite previously threatening the Government with legal action in case the privatization fails, Gruia Stoica, the owner of GFR (Romanian Railway Group), ensures that the EUR170 million remaining payment will be completed in due time, provided the Ministry of Transport fulfills its obligations.

His contradictory position is quite similar to that of the Ministry of Transport that was initially ready to postpone the payment term until December 20, but eventually decided that the first term is compulsory to be met.

The fact is that there have been many issues concerning the privatization of CFR Marfa: two out of the three competitors gave up or were excluded - Transferoviar and Omnitrax contested the lack of transparency in the process or the short period of time for reviewing the documentation, the privatization contract was not even signed by the Prime Minister, but by the Secretary, Cristian Ghibu, GFR paid the EUR20 million guarantee at the last moment and even President Traian Basescu said that the privatization will be possibly followed by a legal investigation.

GFR – or how to compete alone and possibly not winning

GFR Marfa is supposed to take over CFR Marfa after the other two competitors entering the auction procedure, Transferoviar associated with Donau Finanz GMBH & Co KG and Omnitrax gave up because they did not manage to get some delays from the Ministry of Transport in order to be able to fully analyze the afferent documentation.

'These requests were rejected in spite of European standards in privatization field that compel granting a minimum period of two months for potential investors to make their own evaluation (data room has been available starting May 27, 2013). Reasonable terms are, in fact, the only way to assure equality in treating the investors and that can compensate a lack of knowledge of the situation at CFR Marfa.' explained Transferoviar through a press release. Its position was also supported by Omnitrax that considered the rejection of Romania's Ministry of Transport to be against a proper privatization procedure, excluding really interested investors in acquiring CFR Marfa.

Upon winning the auction on June 20, 2013 where GFR was the single competitor for the buying 51% of CFR Marfa's shares, the group is supposed to make the final payment of EUR170 million by October 14. Stoica, however, said since the beginning that he will not transfer the amount due without having the approval from the Competition Council. In this case and considering Stoica will not get the approval needed to be able to take over CFR by that date, having the railway company eventually privatized seemed more likely to an utopia.

The issue is that a full evaluation of the Competition Council might take even five months, however the required documents should have been submitted immediately after signing the contract on September 2. But GFR only sent the documentation on September 24, three weeks later. An incomplete documentation, causing more rumors about its intention to buy the major shares pack and investing at CFR Marfa.

In this situation, receiving the approval from the Competition Council in due time is not possible and without that approval, the law prohibits the takeover, as Bogdan Chiritoiu, President at the Council, explained according to Mediafax: 'No matter if they make the payment now or later, they will not be able to make decisions within the company before having an approval from the competition's point of view, approval given by us or by the EU Commission. The next weeks we will find out if Brussels is willing to take the case or not. The term for taking the decision is five months from the moment we have a complete folder, a request from the buyer. (…) They have no liability, legally speaking, to submit it within a certain period. They can submit it whenever they want. The more they delay its submission, the later we will make the decision and the later they will be able to take the rights as owners of CFR Marfa.'

When the privatization of CFR Marfa threatened to become another 'Oltchim case', Stoica fully re-considered his position: 'We're ready to make this payment, provided the seller fulfills the remaining contractual terms. (…) I don't want to wait five months to receive the approval from the Competition Council. I say the following: I'm ready to pay this amount before getting that approval, that might be positive or negative, I take this responsibility and furthermore, I take the risk of having higher costs than the six months within the EUR200 million is going to be blocked, but I want to know whether the seller has fulfilled the remaining contractual conditions.' said Stoica to Mediafax.

To pay or not pay?!

The privatization of CFR Marfa is part of the commitment Romania made with FMI (International Monetary Fund) and EU Commission in order to get approved the old arrangement. In fact, the Government promised FMI to start the privatization in 2009. But as not completed in time, the current process that started in May 2013 has been obviously accelerated considering the Government was trying to obtain another stand-by arrangement, an arrangement that was eventually approved at the end of September 2013.

In this situation, carrying out the privatization as per the Emergency Ordinance no. 526/2013 that stipulates a 60 days term in this respect which expires on October 14, is not any longer a condition for obtaining the arrangement. Thus, maintaining the current term and resume the privatization later seems the most likely scenario. All in all, Gruia Stoica is the one who will determine whether this privatization will be another failure checked by the Romanian Government, being well aware of his leverage and consequently he can easily start a legal action against the Executive despite the flexibility showed by his latest statement.