The European Commission to probe debt write-offs by the Romanian State in favour of Oltchim

Commissioner Margrethe Vestager, in charge of competition policy, stated: “Following the economic difficulties of Oltchim and the cancellation of public debts owed by the company, we need to verify whether a private creditor would have accepted to act in the same way. Thanks to its recent reorganisation, Oltchim’s financial situation has improved and Romania hopes to find a new investor. Our aim is to facilitate a sustainable future for the economic activities of the company without the need for further government support.“

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. Since then, it has been in the process of reorganisation following a plan established by the insolvency administrator (and endorsed by a majority of Oltchim’s creditors), with the aim of paying past debts from the proceeds of a future privatisation. As the estimated sale price in the event of a privatisation would not cover the entire debt, Oltchim’s public creditors have accepted total or significant debt waivers.

The Commission will investigate in particular:

• the accumulation of debts owed to the Romanian Authority on managing State assets (AAAS)
• debt cancellations by AAAS and various State-owned enterprises under the insolvency administrator’s reorganisation plan for Oltchim
• support to the operations of Oltchim by two State-owned companies (CET Govora and Salrom) who, despite the deteriorating financial situation of Oltchim, continued supplies of electricity, steam and saline solutions to Oltchim.

Under EU state aid rules, public interventions in companies are considered free of aid when a private operator would have acted in the same way. The Commission will now assess whether this was the case for Oltchim’s public creditors and suppliers or whether, on the contrary, the public measures gave Oltchim an economic advantage over its competitors and constitute state aid.

If the Commission were to conclude Oltchim had received State aid, it would then assess whether the aid could be compatible with EU rules that authorise certain categories of aid. As Oltchim is a company in financial difficulties, the only category of aid allowed would be rescue and restructuring aid. Such aid can be found compatible, in line with criteria established in the Commission’s 2014 Guidelines on State aid for rescue and restructuring, when the company has a sound restructuring plan approved by the Commission that ensures its return to long-term viability and the company contributes to the cost of restructuring. Romania has not notified any restructuring plan for Oltchim to the Commission. To be clear, the insolvency administrator’s reorganisation plan for Oltchim has a different purpose and does not appear to meet the criteria under the Guidelines. At this stage, it is therefore the Commission’s preliminary view that the measures under investigation, if found to constitute aid, could not be found compatible with EU state aid rules.

Furthermore, the Commission has concerns that the privatisation process of Oltchim, as currently planned, may lead to economic continuity between Oltchim and a future buyer. However, the Commission welcomes the fact that the Romanian authorities have now signalled their interest in ensuring that the process will not lead to economic continuity, so as to avoid a situation where a buyer would benefit from any past aid granted to Oltchim and could be liable to pay it back.

The opening of an investigation gives interested third parties the opportunity to submit comments; it does not prejudge the outcome of the investigation.

Background

Oltchim is the only producer in Central Europe of liquid caustic soda and the only producer in Romania of chlorine and polyether polyols. The company exports around 70% of its production.

Oltchim has a long history of economic difficulties and State support. Romania has not recovered debts owed to public authorities for many years and has instead tried to convert debts into equity and to sell the company to an investor. Numerous privatisation attempts (since 2001) failed. In this context, in March 2012 the Commission found that a debt-to-equity swap of Oltchim’s debt held by AAAS was free of aid in view of the immediate privatisation of Oltchim (case SA.29041). However, Romania did not implement the debt-to-equity swap and the privatisation failed in September 2012. The company accumulated further public debt and entered insolvency proceedings in January 2013.

More information will be available on the Commission’s competition website, in the public case register under the case number SA.36086.