Romania: Homeland security and corruption crackdown update (Dec 2, 2006)

Dec 2, 2006 (Romania Report)

Romania’s President Traian Basescu is satisfied that his country’s priorities regarding foreign policy issues match those set by the NATO Summit declaration in Riga. Privatization scandal bursts: A Credit Suisse Group manager and two local government officials were jailed in Romania as prosecutors pursue a criminal investigation into the sale of state-owned assets. Romanian IT Minister to cancel Romtelecom privatization consultancy contract, following recent privatization probes

Romania happy with Riga Summit outcome, President says

During a press statement last Wednesday evening, Romania’s President Traian Basescu said he was glad that the country’s chief goals in foreign policies are in line with NATO Riga Summit Declaration.

As about Afghanistan, Basescu said Romania fulfilled its commitments by supplementing the field forces with one battalion witch already is placed into the NATO’s reserve.

Basescu said that during his speech in Riga he underlined that NATO credibility is at stake when it comes to member states responsibility in securing the fully success of this mission.

Basescu opined that the Summit Declaration includes an issue of an utmost importance – namely the “global partnership” witch addresses the building closer ties with NATO partners such as Japan, South Korea, new Zeeland and Australia.

Romania’s President was pleased to remind that he pledged, together with others, that Serbia be also grated a Partnership programme for Peace. He outlined that the progressive inclusion of Western Balkans by NATO solves a security issue for Romania.

The Summit Declaration “was satisfactory from our point of view as the Black Sea region issues are mentioned as NATO is to boost initiatives within the region aimed to develop co-operation and support regional operations,” Basescu stated.

While addressing the so-called ‘frozen conflicts’—labelled by the NATO resolution as ‘regional conflicts’, to be found in Rep. of Moldova, Georgia, Azerbaijan and Armenia—Basescu underlined that Romania’s approach is the same: solutions to such conflicts must observe the territorial integrity of the mentioned national states. In fact, as about this issue, the NATO Summit Declaration reads as it follows: “We regret the persistence of regional conflicts in the South Caucasus and the Republic of Moldova. Our nations support the territorial integrity, independence, and sovereignty of Armenia, Azerbaijan, Georgia, and the Republic of Moldova.”

As about the NATO position with a view to observing the treaty for conventional forces in Europe, President Basescu said that the Alliance specifically asked certain states to withdraw their troops from some other states territories (i.e. what is happening now in Moldova and Georgia).

Romania’s President Traian Basescu also praised the NATO approach regarding the ‘energy issue”. The article 45 of the Summit Declaration states that “As underscored in NATO’s Strategic Concept, Alliance security interests can also be affected by the disruption of the flow of vital resources. We support a coordinated, international effort to assess risks to energy infrastructures and to promote energy infrastructure security. With this in mind, we direct the Council in Permanent Session to consult on the most immediate risks in the field of energy security, in order to define those areas where NATO may add value to safeguard the security interests of the Allies and, upon request, assist national and international efforts.”



Credit Suisse manager, local officials face Romanian probe

A Credit Suisse Group manager and two local government officials were jailed in Romania as prosecutors pursue a criminal investigation into the sale of state-owned assets, reads a Bloomberg report on Thursday.

However, the investigation started by the general Prosecutor Office is not directly targeting the country’s ‘Petrom’ oil company, which was sold to the Austrian group ‘OMV’, but rather several other privatisations—recently performed or considered for the near future—in the fields of electric energy, radio communications and post services.

Vadim Benyatov, Credit Suisse's managing director for central and Eastern Europe, was arrested by prosecutors earlier this week. He'll be jailed for 20 days, along with the government officials and a Bulgarian citizen, after an appellate court order issued in Bucharest yesterday, prosecution spokesman Robert Cazanciuc said.

Prosecutors said in a statement last week they were investigating Benyatov and seven other men for economic espionage related to the sale of government assets. Credit Suisse, Switzerland's second-biggest bank, advised on the sale of Romanian oil and gas companies in 2004. The government eventually said it wants to cancel an agreement with the lender to advise on the sale of a stake in phone company Romtelecom SA.

“The listing of Romtelecom shares is a process that cannot take place without confidence of potential investors,'' Romanian Communications Minister Zsolt Nagy said in a letter sent to Credit Suisse. He invited the bank's executives to Bucharest for talks “at the highest levels.''


Once the EU Entry was formally approved, Romania finally wants to crackdown on alleged international corruption which allegedly governed the country’s privatization of its main strategic assets

The probe is the first criminal investigation involving international investment bankers in Romania since the break with communism in 1990. The probe comes as the country prepares to join the European Union on Jan. 1st.

“It doesn't help Romania if it has another corruption scandal showing up, but it also doesn't change the fact that Romania will become a member of the EU on Jan. 1," Bob McKee, chief economist at London-based Independent Strategy, said in a phone interview. The probe probably “won't change the appeal investors have for Romania."


Credit Suisse Employees

Credit Suisse spokeswoman Gavin Sullivan said in a telephone interview before the court order was issued in Bucharest that Benyatov is one of two current employees and one former worker who are under investigation. Mircea Calin Flore, a Credit Suisse vice president, and former employee Michal Susak were named in a Nov. 22 statement by prosecutors. Sullivan confirmed their identities.

Flore and Susak were neither detained nor arrested.

“We have no reason to believe that any Credit Suisse employee has acted inappropriately,'' Credit Suisse said yesterday in a statement e-mailed from London before judges in Bucharest approved the men's arrest. “We take these accusations very seriously and are prepared to cooperate fully with the investigation."

Sullivan declined to comment on Romania’s IT Minister Zsolt Nagy statement concerning cancelling the agreement on Romtelecom and reiterated the bank's statement from yesterday about the probe.


'Groundless' indeed?

Susak, who is now chief executive officer at PPF Investments in London, said in a telephone interview that ”this action is totally groundless.'' PPF Investments this month completed a public offer for a 20 percent stake in Romanian lender Romexterra SA.

"I haven't been subpoenaed, no one contacted me or tried to contact me so I really am trying to understand what the driver behind this action is,'' said Susak, who worked as managing director for Credit Suisse in central and eastern Europe until May.

Calls to Flore's office and three calls to his mobile phone in London weren't answered.

The other three men also placed under arrest on Thursday are Dorinel Mucea, the deputy head of the Romanian government's agency in charge of energy industry asset-sales, Stamen Stancev, a Bulgarian investment consultant, and Mihai Donciu, a Romanian Communications Ministry adviser, Cazanciuc said.

Credit Suisse's Sullivan declined to comment on Stancev.

Mucea, who was the deputy head of the government agency when Romania sold its oil company Petrom SA to Austria's OMV AG in 2004, didn't return calls to his mobile phone before his arrest. His phone was switched off at the time the judges decided take him into custody.

The eight men are being investigated in connection with ``an organized crime group'' involving Stancev, according to the Nov. 22 statement. An espionage sentence could result in prison terms of 15 to 25 years under Romanian law.


Corruption

The EU has repeatedly told Romania to crack down on corruption to make sure competition rules are respected. The country will be the EU's most corrupt member when it joins the bloc on Jan. 1, according to independent consultant Transparency International's annual report on corruption released Nov. 6.

Independent Strategy's McKee said the probe was an indication that Romanian authorities are “under pressure not to let these things slide away as they've done for the past five to 10 years.''

Romania was planning to sell a 46 percent stake in Romtelecom next year. Nagy in August had estimated the stake is worth 1 billion euros ($1.3 billion.) Greece's Hellenic Telecommunications Organization SA owns the majority 54 percent in Romtelecom.

Credit Suisse in 2004 was hired by Romania's government as an adviser on the sale of Petrom, Romania's state-owned oil and gas company, to OMV for 1.5 billion euros and the sale of its natural gas distributors.

The Economy Ministry, which is in charge of selling energy assets, said in a statement on Thursday, that international companies that bought energy-industry companies in Romania agreed to have the contracts made public. On Thursday, the ministry published asset-sales contracts signed in previous years with OMV, Gaz de France, E.ON Ruhrgas AG, E.ON Energie AG, CEZ AS and Enel SpA.



Romanian IT Minister to cancel Romtelecom privatization consultancy contract, following recent privatization probes

Communication and IT Minister Zsolt Nagy asked the investment bank Credit Suisse First Boston (CSFB) to agree agreed annulment of the financial consultancy contract signed for the privatization of Romtelecom’s last shares. Romtelecom is the major operator for wired telephony in Romania and has the state as shareholder with 45.99%.

The decision was taken on Thursday by the IT&C Minister Zsolt Nagy, who also sent a letter on the subject to the board at Credit Suisse First Boston.

“The decision comes due to the fact that the Romteleom listing on the stock market can not take place without the full confidence of potential investors. Any doubt means a seriously affected IPO”, sad Zsolt Nagy.

Also, the Romanian IT Minister sent a letter to the leaderships of the Austrian company CA-IB Corporate Finance by which it asks for a delay in the initiation of the contract signed this month for financial services in the sale of the share package held by the Romanian state in the National Radio-communication Corporation (SNR). Both CSFB and CA-IB leaderships have been invited by MCTI to Bucharest to high-level discussions.

The IT&C Minister took into account the fact that several CSFB collaborators are currently involved in the huge energy-related privatizations scandal in Romania.



Romania Report