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Romania: Government Criticizes Privatization Deal In Court

  • Eugen Tomiuc

Romania's government and several state-owned companies have asked a court to appoint an independent administrator to run the U.S.-owned Resita Steel Works. The government says the company -- which was privatized last year -- owes some $22 million in unpaid bills and taxes. But its U.S. owner says Romanian officials have acted under union pressure, while critics point out that a reversal of the deal would amount to a dangerous precedent for the country's frail economy. RFE/RL correspondent Eugen Tomiuc brings us up to date.

Prague, 4 July 2001 (RFE/RL) -- Romania's government has apparently caved in to union pressure and intervened in a six-month-old dispute between the U.S. owner of a steel mill in Romania and the unions.

On 2 July, the government and several state creditors asked a bankruptcy judge to acknowledge that the Resita Steel Works in southwestern Romania can no longer pay outstanding debts of some $22 million and requested that an independent administrator be appointed to run the company.

Romania's Privatization Minister Ovidiu Musetescu said the move was meant to keep the company afloat until another court decides whether to cancel the privatization contract accord between the government and the U.S.-based Noble Ventures.

But the government's decision was made after Musetescu held a nine-hour meeting with union leaders in Resita, and critics said Romanian officials gave in to union pressure. For months before, unions had staged heated and sometimes violent protests against the U.S. owner, climaxing with some 200 workers going on a collective hunger strike last week.

Union leaders say they want the deal cancelled because the plant's 3,800 workers have not been paid for three months. Production has been stopped due to repeated energy shortages and a lack of raw materials. They also say that Noble Ventures failed to bring promised investment capital to the plant.

Prime Minister Adrian Nastase, the head of a left-of-center government, has endorsed Musetescu's decision, saying the government's duty is to ensure that the law is respected.

"I support the formula presented by [Privatization] Minister Musetescu: the government surely cannot be a mere spectator in its own country -- and in this case, the law must be respected. The government has an obligation to warn that the law must be respected."

Under an agreement reached more than a year ago, Noble Ventures bought almost 95 percent of the Resita Steel Works (Combinatul Siderurgic Resita) for some $85 million. Resita is the third-largest Romanian steel factory and its sell-off was hailed at the time as one of the largest U.S. investments in Romania.

Noble Ventures, based in Bethlehem, Pennsylvania, is led by former Bethlehem Steel managers and Washington-based investors.

Last year's sale provided for some $60 million in investments, of which $24 million were due in the first year. Noble Ventures also pledged to repay the factory's $45 million debt and freeze any layoffs for five years. In exchange, the government pledged to reschedule the company's debt over a five-year period.

But in January, six months after the sell-off, the relationship between the U.S. owners and the union soured amid repeated production halts and delays in wage payments.

Two months ago, the government finally granted Noble Ventures the promised debt rescheduling and said it will wait to see whether the company meets an August deadline for the $24 million investment due in the first year. Nastase and Musetescu also said the government would not intervene in the unions' favor or retake control of the factory.

But under increased union pressure -- prompted by continued worker protests and hunger strikes -- the government reversed its stance last week and decided to sue Noble Ventures for a failure to fulfill its obligations.

Michael McNutt, who represents the U.S. company in Resita, said Noble Ventures could not pay workers because the steel produced did not meet quality standards and because the government failed to reschedule the company's debts on time.

McNutt told RFE/RL the Social Democratic government's decision to go to court was prompted by fears of social unrest among its main supporters -- workers and unions. McNutt says the government is forced to "waltz" with the unions, despite its commitment to reform.

"I believe the government is dancing a very delicate waltz -- but a necessary waltz --- and we are trying to support this government in that, which is why you have not heard us attack the government. Because the government of [Prime Minister Adrian] Nastase is pro-privatization, but it is a social democratic government."

Since he took office seven months ago, Prime Minister Adrian Nastase and his government have been trying to improve their image abroad and regain lost ground in Romania's efforts to join the European Union and NATO.

Romania lags behind the other former communist EU candidates and has been rated as one of the most corrupt countries in Europe. Romania has attracted only some $7 billion in foreign investment over the past decade.

But in the six months since he took power, Nastase has pushed ahead with economic and administrative reforms. Last month, the rating agency Standard & Poor's upgraded Romania's loan-eligibility ratings, based on improved economic performance and reform progress.

The current involvement of the government in the Resita steel mill dispute has prompted some negative reactions in the Western press. Britain's "Financial Times" says that the government intervention amounts to re-nationalization.

The decision has also prompted diplomatic concern. Susan Johnson, the U.S. charge d'affairs in Bucharest, this week urged the Romanian government to refrain from interference in what she termed a business deal.

"[It's] no surprise to anyone that the United States and the U.S. government believes, based on our experience, that the business of government is government, not business. And so, the sooner government gets out of business and focuses on what its responsibilities are -- setting good policy, creating [a] good legislative context, addressing the infrastructure issues -- the better it will be for the economic development of the country and the prosperity of its people."

Analysts have also expressed fears that the dispute may affect negotiations to sell Sidex, Romania's largest steel mill. Sidex represents a colossal drain on the Romanian budget. It has debts of almost $1 billion and loses an estimated $250 million a year annually.

But Nastase says he is confident the Resita dispute will have "little or no impact at all" on other privatization deals. Some independent analysts tend to agree with him.

Economist Mark Katzman of the Economist Intelligence Unit, or EIU, says that Noble Ventures -- by failing to come up with the promised investments -- has indeed not fulfilled its part of the deal.

Katzman says Romania has performed well economically and, according to EIU estimates, may attract as much as $1.6 billion in investment this year, compared with $1 billion in 2000. Katzman tells RFE/RL that the impact of the Resita dispute on foreign investment in Romania will be small.

"The effect of the situation with the Resita steel plant may add a little bit of caution to foreign investors' perspective of Romania. But I think the general opinion about Romania has improved quite a bit and foreign investment should increase over the following years, especially as Romania continues to make progress in its bid to join the EU."

Meanwhile, despite the court order sought by Romanian officials, both the government and Noble Ventures have signaled the conflict could be solved amiably. Noble Ventures administrator McNutt and Privatization Minister Musetescu have agreed to meet on 16 July in a last-ditch attempt to save the deal.

But union leaders in Resita remain adamant: They want the U.S. investor out and the state back in. National steel union confederations are watching closely the way the government handles the situation with Resita. And to solve its union problem, Romania's government may need more than "waltzing" skills.

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