Romanian FinMin sketches Sovereign Investment Fund plan

Romania's Government is moving forward with a plan to establish an investment and development sovereign fund (FSDI), a revised draft bill showed on March 8.

The sovereign fund is a primary policy goal of the ruling Social Democratic Party (PSD) that critics see as a potential avenue for corruption, Reuters informed on March 9.

The fund’s portfolio would include controlling or minority stakes in 28 companies in the transport, pharmaceutical and energy sectors and cash of RON 9 billion (EUR 2 billion) to be disbursed in stages. The cash is supposed to come from the privatization revenues, a reserve account of the Government.

Although such a move should not have a direct impact on the budget deficit, it will most likely impact the public debt since the Government used to “borrow” money from such reserve accounts in addition to drawing funds from the internal and external markets. Thus, the Treasury might have to borrow more and “replenish” the reserves accounts before contributing to the FSDI (the two-step contribution is likely to smoothen the impact on the financing needs). At the same time, the Government expects RON 4.7 billion (some EUR 1 billion) dividends paid by the companies in FSDI’s portfolios will no longer go to the state budget.

Another negative impact of the FSDI is spotted by G4media.ro: FSDI will be able to privatize the stakes in its portfolio discretionary, under non-transparent procedures. The revised draft bill allows the Fund to be able to privatize the companies it holds without complying with domestic law that requires a high degree of transparency in the case of privatizations.

The most valuable companies that will be part of the FSDI (besides the state-owned minority stakes in OMV Petrom, Telekom Romania, and Engie, Eon subsidiaries) are Hidroelectrica, Romgaz, Nuclearelectrica, Constanta Port, Conpet, Romanian Lottery, Cuprumin, Unifarm, and Antibiotice Iasi.

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