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Romania needs to recover incompatible aid from petrochemical company Oltchim

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Staff Writer | December 17, 2018
The European Commission has found that Romanian petrochemical company Oltchim received around €335 million of incompatible aid from Romania, since the company's failed privatisation in September 2012. Romania must now recover this aid from Oltchim.
Europe   Oltchim was declared insolvent
Oltchim is one of the largest petrochemical companies in Romania and South-East Europe. The Romanian State has a controlling stake of 54.8% in the company. In January 2013, Oltchim was declared insolvent.

In April 2016 the Commission opened an in-depth investigation to establish whether several Romanian measures in support of Oltchim were in line with EU State aid rules, specifically:

- the non-enforcement and further accumulation of debts owed by Oltchim to the Romanian Authority on managing State assets (OltchimS) after Oltchim's failed privatisation in September 2012;

- debt cancellations of more than €300 million by OltchimS and various State-owned enterprises; and

- continued supplies by the Romanian State and State-owned enterprises (CET Govora and Salrom) to Oltchim without payment, espite the company's deteriorating financial situation.

The Commission found that, in the present case, no private market creditor would have agreed to write-off Oltchim's existing debts or provide further supplies to Oltchim under the same terms as OltchimS and other State-owned creditors did in 2015. As a result, the Romanian public support measures constitute State aid within the meaning of EU rules.

The Commission then assessed these measures under applicable EU State aid rules, namely the 2014 Guidelines on State aid for rescue and restructuring.

The Guidelines allow a state intervention for a company in financial difficulty under specific conditions, requiring in particular that the company is subject to a sound restructuring plan, contributes to the cost of its restructuring and that any competition distortions are limited.

In the present case, no such restructuring plan was notified to the Commission. Moreover, the Commission found that there was no discernible contribution from investors to the restructuring costs of the company.

The Commission therefore concluded that the public funding granted by Romania to Oltchim, totalling a combined amount of around €335 million plus interest, is incompatible with EU State aid rules and needs to be recovered by Romania.

To determine whether aid has been passed on to new owners in an asset sale, the Commission assesses whether there is economic continuity between the new and previous owner. The Commission uses a set of indicators, such as the scope of the transaction (assets, liabilities and workforce transferred, bulk sale of assets), the moment of the sale, the sale price and the sales process, as well as the identity of the purchaser.

At the time of the opening of the in-depth investigation, the Commission had concerns that the privatisation process of Oltchim could lead to economic continuity between Oltchim and a future buyer or buyers.

However, after the Commission opened formal proceedings, the Romanian authorities amended the terms of sale of Oltchim's assets. In particular, interested investors were allowed to bid for one or several of nine asset bundles, thus increasing the likelihood of and proceeds from a successful sale. During the sale, various market investorsshowed an interest and have acquired most of Oltchim's assets.

In light of the terms of Oltchim's amended sales process and its outcome, the Commission has concluded that the buyers of the relevant assets do not benefit from past aid granted to Oltchim and are thus not liable to pay it back.

Oltchim has a long history of economic difficulties and State support. Numerous privatisation attempts since 2001 have failed.

Previously, in March 2012, the Commission found that a debt-to-equity swap of Oltchim's debt held by OltchimS was free of aid in view of the immediate privatisation of Oltchim. However, Romania did not implement the debt-to-equity swap and the privatisation failed again in September 2012.