Romania’s economic potential can adequately meet the needs of the population and provide for international exchanges.

This diversification in the range of options, and better coordination between ministries and the organizations involved in the privatization process have resulted in a higher volume and speed of sales. The government and the institutions in charge of privatization benefit from consultations and an actual contribution made by international agencies.

At the current stage, the reform entails restructuring and privatization, to be followed by introduction of market mechanisms designed to help develop a competition-oriented environment. In certain circumstances, restructuring is operated after privatization, as a risk assumed by the investor. As far as costs are concerned, it is clear that privatization is a priority, whereas restructuring is a problem of concern to the investor and not the state.

Investors who are not resident in Romania have the right to transfer abroad, without any restriction whatsoever, a number of revenues in convertible currency, after payment of legal taxes and dues. Such is the case, in particular, of the dividend or benefit obtained by the commercial company, if there exist share holders or associates, or of the profit from a subsidiary. Moreover, it is also possible to transfer abroad, in the same conditions, the income obtained in the case of a partnership, as well as the incomes made from the sale of shares and of the contribution to the subscribed capital.

The same legal regime applies to the sums obtained from the liquidation of a commercial company, the sums got as indemnity following expropriation or other equivalent measure, as well as other incomes, depending on the form of achievement of the investment.

In the past two years, the Government of Romania has accelerated the privatization process in a completely open and transparent fashion. At its best, several laws were passed last year by the Parliament authorizing the Government to take appropriate actions to ensure a far more expeditious privatization process.

First and foremost, the Government restructured the primary authority responsible for privatization. This action, called The Authority for Privatization and Management of State Ownership (APAPS), was a significant decision because it tied appropriate governmental ministries directly to the privatization process, making them responsible for overseeing several major state-owned companies prior to their being privatized in order to provide a necessary, but temporary period of stabilization before making the final transition to full privatization.

The results of the privatization measures taken in 2001 were dramatic, as evidenced by the sale of shares in more than 120 companies, including almost two dozen large corporations. Among the latter were BANCA AGRICOLA, SIDEX GALATI, RAFO ONESTI, ROTEC BUZAU, HIDROMECANICA BRASOV, ELSID TITU, OPTICA TIMISOARA.

In 2002, APAPS has put up for sale the companies included in PSAL I which have not been privatized yet, according to the conditions stipulated in the Stand-by Agreement the Government signed with International Monetary Fund (IMF), and in accordance with the PSAL II conditions negotiated with the World Bank. Apart from the companies included in PSAL I, there are 20 companies included in the PSAL II Program. Of these, 10 companies are to be privatized with assistance of investment banks/consultancy firms, and the remaining 10 are to be restructured with the assistance of specialized restructuring firms.

Within the strategically-important banking industry, and in order to continue diminishing the number of State properties therein, the privatization of the Romanian Commercial Bank (RCB) is considered the most important, made even more so because its performance is an important criteria of Romania’s Stand-by Agreement with the International Monetary Fund (IMF). The RCB’s privatization is only one, however. There are also important reform measures being implemented for two other state-owned banks: the CEC (where the privatization will be in accordance with a restructuring plan and schedule agreed to with the European Union) and EXIMBANK (where a feasibility study will be established to refocus its activities on exports and imports promotion).

A main strategic objective is to tighten development of structural adjustments, enhancing the privatization process in the utilities sector (electric energy production and distribution, oil and natural gas, including PETROM S.A.).

Privatization with also be accelerated for companies in the industrial, agricultural and tourism sectors. These privatizations will be carried out in a transparent manner, in full accordance with international standards. Combined, the Government’s credibility will be enhanced.

Sale Methods

Depending on the capital of the commercial company, the stock held by the state and the need to attract strategic investors, the following techniques are employed:

For direct investments:

• Open tender;
• Tender open to sealed bidding;
• Tender open to pre-selected bidders;
• Direct negotiation.

For portfolio investments:

Incentives for Investors

The Law of Direct Investment - a stable, balanced and nondiscriminatory legal act - provides substantial facilities to those that invest over one million dollars in infrastructure modernization and generate jobs.

At the same time, in order to streamline the procedure for setting up or registering a new company, one-stop offices have been opened, which are attached to the county Chambers of Commerce; here entrepreneurs submit a minimal package of documents for approval and, 30 days later, they get the final approval.

According to the law, foreign investors have the right to integrally transfer abroad the annual profits consistent with the currency regime in Romania.

Likewise, foreign investors may transfer abroad, in the currency in which the investment was made, the sums got from the sale of stock, social shares or bonds, "as well as those resulted from the liquidation of investments, consistent with the currency regime in Romania", as the Law reads.

As for the investments made in Romania, they cannot be nationalized, expropriated, requisitioned or subject to other equivalent measures, except for cases of public interest. However, the taking of such steps will be non-discriminatory, consistent with the law, and actual indemnities will be paid beforehand, corresponding to the market value of the investment at the time when such measure is taken. If the value of the indemnity cannot be established, it will be set by the parties’ joint agreement, "based on equitable principles, contingent upon the size of the invested capital and the market value of the investment".

In its new form, the Investments Law also stipulates penalties. In case of failure to observe the commitments, the Ministry of Development and Forecast will start procedures of withdrawing the incentives. The Ministry will also instruct the competent bodies to establish the amount of money to be refunded, which represents the value of the incentives granted to the investor as well as the due penalties.

A whole package of incentives: fiscal, investment-related and banking ones, are granted to the small and medium-sized enterprises (SMEs) following the extension of the Law 133/1999 in 2001.

Fiscal incentives

The small and medium-sized enterprises are customs duties exempt for the machinery, installations, industrial equipment and know-how they import for the purpose of development of their own activities of production and services and which they pay from own funds or from loans taken from Romanian or foreign banks.
The reinvested share of the gross profit is tax-exempt.
A 30% allowance on the profit tax, if they create new jobs which result in at least 10% rise over the previous fiscal year’s number.

The SMEs are exempted from customs duties on imported raw materials necessary for the manufacturing of products by them, if such products are exempted from import customs duties.
The SMEs benefit from a 75% allowance on the tax on the profit made from exported production.
The application of the aggregate taxation system, established in keeping with the previous year’s turnover.

Investment incentives

The Government, the competent bodies of the local public administration have the duty to assist the SMEs, as concerns their access to the transport and communications networks, the securing of power, gas and water supply and other amenities provided by public utilities, required for running their activities.
The SMEs have access to the available assets of the commercial companies and national companies with a majority state capital, and of the public utilities.
The commercial companies, national companies with a majority state capital and the public utilities are under the obligation to conclude sales-bargaining contracts or to provide priority access to the hiring, leasing of available assets, inside 90 days as of the date of applications filed by interested persons.
The sale of assets may be made also with payment in installments spanning 3-5 years with a 5-20% advance payment.
The Government, the ministries and the other specialized bodies of the central public administration and the local public authorities have to ensure a growing share of the SMEs in the value of the contracts of public buys of material assets, works and services, seeing to it that this share reaches as level comparable with their contribution to the GDP.
The SMEs benefit from 50% allowances as concerns the criteria concerning the turnover and safeguards required for the public buys of material assets, works and services.
The public institutions, commercial companies and national companies with a majority state capital, as well as the public utilities are under the obligation to hold a first tender for SMEs, as follows: requests for bids on buying materials the value of which is not in excess of 500 million lei; requests for bids on equipment that are not in excess of one billion lei of worth; requests for bids on repairs worth less than two billion lei; requests for buildings that are not in excess of three billion lei.

Banking incentives

Under a Government decision, The National Fund of guaranteeing credits to SMEs is set up, which will have branches in every county seat.
The nominal capital of the National Fund, set on its establishment, is 50 billion lei, the source of allocation being the state budget, plus 0.4% of the budget incomes in the next five years since its establishment.
The National Fund’s only object is to guarantee credits or other financing instruments that can be got by the SMEs from merchant banks or other sources.