EC opens in-depth investigation into debt-to-equity swap involving Romanian company Oltchim

The European Commission on Tuesday opened a formal investigation under EC Treaty state aid rules into Romania’s plans to grant a 135 million-euro debt-to-equity swap and a 339.2 million euro state guarantee for chemical producer Oltchim.

The Commission has doubts whether the planned measures are in line with the state aid rules and in particular, whether a private operator would have accepted to make available such measures. The opening of the in-depth inquiry gives interested parties an opportunity to comment on the measures. It does not prejudge the outcome of the procedure.

Competition Commissioner Neelie Kroes said: ‘The Commission must verify whether the measures planned for Oltchim would entail state aid, and if so whether such measures would not give rise to excessive distortions of competition.’

On 17 July 2009 Romania notified to the Commission two support measures in favour of SA Oltchim Ramnicu Valcea, one of the largest petrochemical companies in Romania and in South-East Europe. The Romanian State is the majority shareholder in the company.

Under EU state aid rules, interventions by public authorities in companies carrying out economic activities can be considered free of aid if they are made on terms that a private player operating under market conditions would have accepted (the market economy investor principle).

The first measure involves a debt-to-equity swap of public debt amounting to around €135 million. The public debt stems from the triggering of state guarantees on non-performed commercial loans contracted before 2000.

The Commission questioned why Romania did not impose any interest on the public debt, in particular since its EU accession on 1 January 2007, as Romania should have applied the EC Treaty in its entirety as of that date.

The second measure is a state guarantee amounting to 339.2 million euros (covering 80 percent of a commercial loan of 424 million euros), to be used for investments necessary for the implementation of the company’s development plan.

Romania considers that the planned measures do not confer an advantage to the beneficiary, because the support given by the State to Oltchim in its quality of main shareholder and main creditor respectively is comparable to what a private market operator would choose to do in similar circumstances.

At this stage, given the long history of the debt, the current situation of the company and the magnitude of the further risk exposure of the state, the Commission doubts that a private investor and a private creditor would have accepted to grant the two measures.

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