**<mark>Box 2: Privatization and Governance of State-Owned Enterprises: Recent Developments</mark>**<sup>~~11~~</sup>

<mark>According to the 2009 Memorandum of Understanding between the government of Romania, the International Monetary Fund, the World Bank, and the European Union, the authorities have agreed to a comprehensive privatization agenda which includes the sale of majority and minority stakes in a number of large SOEs. As of December 2011, the following companies were listed for planned sales of majority government shares</mark><sup>12</sup> <mark>:</mark>

- <mark>Oltchim (chemical products); Cuprumin (extractive industry); CFR Marfa (the national cargo rail company); ElectricaServ, SC ElectricaFurnizare SA and subsidiaries, Hunedoara,  ElectrocentraleBucuresti</mark> (major energy producers and suppliers);

<mark>In addition, auctions of minority stakes are envisioned for:</mark>

- <mark>Tarom (national airline company); Transelectrica, Hidrolectrica, Nuclearelectrica, Romgaz and Transgaz</mark> (major energy companies); Posta Romana (national post – basic letter services); and Petrom.

**<mark>Corporate governance:</mark>** <mark>Romania adopted a new law on corporate governance in November 2011. The new regulations require:</mark>

- <mark>Regular independent external audits;</mark>

<mark>- Quarterly publication of financial data;</mark> <mark>- Reinforcement of OECD principles on corporate governance and the rights of minority shareholders;</mark> <mark>- Suitable qualifications for management and board members of state-owned enterprises.</mark> <mark>As noted in recent analysis by the IMF (January, 2012), diligent application of the law will be instrumental in the privatization process, particularly for listings of minority stakes, where investors could be concerned with of the lack of corporate governance standards in SOEs, and the potential for abuse of minority shareholder rights. The government agreed to undertake a number of measures to improve the performance of SOEs under monitoring.</mark><sup>13</sup>

# **3.1.2. STATE INVOLVEMENT IN BUSINESS OPERATION**

The indicator for ‘state involvement in business operations’ captures both the existence of price controls and the use of “command and control”, as opposed to incentive-based regulation. The use of **_price controls_** has substantially decreased since the first decade of transition (World Bank 2004). However, some prices remain under government control. Retail prices for tobacco and pharmaceuticals are controlled, as well as prices of network sectors, including those for gas, water, and passenger urban and rail transport (Romanian Competition Council, 2010). Particularly in the energy sector, tariffs are set below market levels by the energy regulator (ANRE) for both individual and industrial consumers. As part of a recent program with the IMF and the EC, the government of Romania has committed to a gradual deregulation of prices in order to attract private investment, which is required to revamp the

> 11 IMF( January 2012)

> 12 As of February 2012 four SOEs were listed for privatization offers by end-April 2012: Oltchim, Transelectrica, Transgaz and Cuprumin (IMF, April 2012). According to most recent information, a majority offering for Oltchim is scheduled for May 31, 2012. Shares in Transelectrica were placed on offer on March 14, 2012. The sale of a minority stake in Transgaz is due to start at the end of June 2012. Negotiations over the sale of Cuprumin were ongoing as of April 2012.

> 13 IMF (April, 2012)

12