WHILE THE GOVERNMENT IS POSTPONING THE INCREASE OF THE SHARE CAPITAL WITH THE VALUE OF THE PLOTS OF LANDOMV has brought a case against the Romanian state

ADINA ARDELEANU (translated by Cosmin Ghidoveanu)
English Section / 25 aprilie 2017

OMV has brought a case against the Romanian state

The lawsuit concerns the payment of environmental obligations of 34 million Euros

Through the privatization contract, the Romanian state has committed to pay the decommissioning and environmental costs

The total amount of the OMV receivables against the government - 542 million Euros

Market sources are saying that both the works as well as their amount have been set by an interministry commission and that the Romanian government hasn't paid any part of that amount to Petrom

Sources: The company has received approximately 25-30 million Euros out of European funds, for the decommissioning and environmental costs

OMV, the majority shareholder in "Petrom", has initiated an arbitrage proceeding against the Romanian government, on March 7, in the International Court in Paris, for the payment of environmental obligations of 34 million Euros, which the state has committed to, through the privatization contract, according to the annual report of the Austrian company.

According to OMV, the total amount of the receivable against the Romanian state is 542 million Euros, as the amount is tied to the obligations concerning the decommissioning and restoration costs of OMV Petrom.

OMV has called on the International Court, after failing to reach an amicable resolution to the dispute with the Romanian state.

In October 2016, OMV was announcing that it would resort to this measure, according to the prospectus by which the Proprietatea Fund has sold a stake in "Petrom": "According to the privatization contract, OMV Aktiengesellschaft (OMV) is entitled to request the reimbursement from the Romanian state, subject to fulfilling certain requirements, of the decommissioning and environmental costs incurred by us through the cleanup and restoration of the areas in which activities have been conducted prior to the privatization of the company which happened in 2004.

On June 30, 2016, the net updated value of the claim against the Romanian government for the estimated costs for the decommissioning and environmental costs was 2,616 million lei, because it concerns specific activities which took place before the privatization. Moreover, in April 2016, OMV sent the Romanian state a notification concerning certain receivables not paid by the Romanian state pertaining to certain obligations to decommission oil rigs and to rebuild the environment of approximately 153 million lei. Starting with the date of the sending of this notification, according to the Privatization Contract, OMV and the Romanian government have 180 days to amicably resolve the disagreement. If the amicable agreement is not reached, OMV may bring arbitral proceedings against the Romanian state, according to the rules of the ICC in Paris. The failure to meet the payment obligations by the Romanian state may have a significant effect on our activity, our operating results and the financial statement. Furthermore, these procedures may lead to conflicts between OMV and the Romanian state as the latter is one of the most significant shareholders, which might have an impact on our ability to pass corporate actions that require the shareholders' approval".

OMV writes, in the annual report, that it has to recoup, from the Romanian state, receivables of 72 million Euros for the costs concerning the environmental cleanup and of 469 million Euros, for the costs pertaining to decommissioning.

Through the law no. 555/2004 concerning the nationalization of SNP Petrom, the state has committed to compensate Petrom between 2005-2019 for the historical pollution from before the privatization.

Market sources are saying that both the works and their amount have been established by an interministry Commission, but that the state never actually paid those amounts. According to those sources, Petrom did receive at one time approximately 25-30 million Euros, on account of those obligations, but out of European grants, after the European Commission agreed to that.

The Romanian government is keeping its word and pays money for the decontamination operations at Petrom, except the money comes from Brussels and not from the national budget, Focus Energetic wrote in 2014.

According to this publication, the Petrom privatization contract includes, in Appendix P, all the environmental requirements that the new owner, OMV, was supposed to meet: "The list is extremely painstaking, starting with the environmental protection measures in gas stations and all the way to the decommissioning of non-functional pipelines. Across categories, the environmental obligations have been evaluated, in 2004, at 26.037 million Euros for Arpechim, 31.861 million for Petrobrazi, 45.824 million Euros for Doljchim, 29.233 million Euros for distribution and sales and 29.233 million Euros for the upstream sector. In total, the environmental costs known at the time of the privatization have been evaluated at 178.555 million Euros.

In 2009, the Ministry of the Environment succeeded in setting up the Commission which would analyze the payment requests submitted by Petrom, for the settlement of the environmental cleanup works conducted according to the privatization law. So far, the Ministry of the Environment has not accepted the payment of any of the two settlement requests submitted by OMV Petrom for the decontamination works it performed, which is why the Austrian company filed a complaint with the International Court of Arbitrage of Paris, back in 2011. The company has asked for an objective interpretation of the two requests submitted to the Romanian government, concerning the reimbursement of approximately 21 million Euros (91.68 million lei), amount which was spent on decontamination activities".

Focus Energetic was saying at the time that the divergences between the two parties, the Romanian state and the oil company, concerned the amounts requested for the performed works, meaning Petrom had abused studies.

At the time, the Ministry of the Environment rejected the demands of OMV Petrom, thinking that the "responsibility of the Romanian government can not be engaged when it comes to the payment of the notified amounts, because the requirements for the granting of the compensations for the environmental losses suffered by the company (OMV Petrom - e.d note.) provided in the contract for the privatization of Petrom".

Subsequently, in the press, the information appeared that Romania lost the lawsuit and had to pay damages.

At the time of the privatization of Petrom, the Romanian government did not have a list of the sites that were contaminated or had a potential for contamination, much less so an estimate of the potential compensations that it was committing to, according to information in the press.

In the beginning of 2008, OMV Petrom evaluated the environmental expenses that it was going to recoup from the state at 1.707 billion lei (511 million Euros).

Austrian group OMV acquired the majority stake in Petrom in 2004, through a transaction of 1.5 billion Euros, in the form of a direct acquisition of shares - 668 million Euros - and a share capital increase - 832 million Euros.

If OMV Petrom pursues its interests resulting from the privatization contract, the same can't be said about the Romanian government.

The Court of Auditors sent numerous warnings about the failure to meet the liabilities in the privatization contract to raise the share capital of OMV Petrom, with the plots of land contributed by the state.

The Romanian government has been extremely lenient on that matter, constantly accepting a postponement of the share capital increase, even though Petrom only has to obtain ownership deeds for 0.78% of the total plots of land contributed by the government, according to a response of the Ministry of Energy, sent to the "BURSA" newspaper, at the end of last year.

Recently, Florin Cîţu, the vice-president of the Budget and Finance Commission of the Senate, took a stand and said that he intends to call the government secretary general Mihai Busuioc, who has been nominated for a seat on the Supervisory Board of Petrom, before the Budget and Finance Commission of the Senate, for explanations.

It is already five years since Victor Ponta and the PSD government should have raised the state's stake in the biggest Romanian company, OMV Petrom, wrote Florin Cîţu, Florin Cîţu, the vice-president of the Budget an Finance Commission of the Senate wrote on Facebook, alluding to the obligation of raising the company's capital with the plots of land contributed by the state, according to the privatization contract..

The issue of the share capital increase of OMV Petrom has also been raised by Dan Paul, the president of the Association of Brokers, who wrote to the Court of Auditors that the Financial Oversight Authority (ASF) could intervene, through the legal means of action it has available, to ask OMV PETROM to proceed with the share capital increase through a contribution in kind with the equivalent value for which the Romanian state has obtained the deeds of ownership.

Petrom received an ultimatum from the Romanian authorities, in 2014, to perform the share capital increase, and the management of the company pledged to do the due diligences, but the share capital increase was left hanging.

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