Status and upcoming steps

On March 27th, Secretary of State within the Ministry of Public Finances Valentin Mavrodin stated that the bill should be adopted 2 to 3 months’ time, specifically by the end of June 2018. The Secretary of State also mentioned that as soon as the bill is adopted by the Parliament, the next step would be to implement it. Mavrodin further explained that the process is to be carried out in two phases: the first phase, where the first management would lay the Fund’s foundations, and the second phase, “after 6 to 12 months, where a new management would be selected to administer the Sovereign Fund”. Previously, on February 5th, 2018, Deputy PM Viorel Ştefan had announced that the draft bill on establishing the Sovereign Fund is to be adopted around May or June 2018.

After its adoption in the Senate on April 18, the draft bill on SFDI has to be forwarded to the Chamber of Deputies, the decision-making body in this case. Given the timeline provided by representatives of the Government, debates on the draft bill in the Chamber of Deputies are expected not to exceed the following two months, (when the Parliament enters its summer recess). Also, considering that Senate’s reporting Committees have already implemented amendments suggested by Eurostat (such as the provision that the Fund will not benefit from any sorts of governmental guarantees or other forms of support from the Romanian state), it is expected that the final form of the bill takes into account the recommendations made by EU’s statistical office.

Comparison between the initial form of the bill and the form amended during debates on the Report (Senate’s Committee for Budget and Committee for Economic Affairs, Industry and Services)

• The title of the legislative proposal is modified from the initial “Sovereign Fund for Development and Investments – S. A. and for modifying certain normative acts” to “Law regarding the establishment of the Sovereign Fund for Development and Investments – S.A., as well as for modifying certain normative acts”.
• Article 1, para. (3) was eliminated. The initial paragraph stated that the SDIF works as an alternative investments fund, internally managed in accordance with the provisions of Law no. 74/2015 on the management of the alternative investments funds and it established that the Financial Surveillance Authority will issue specific regulations regarding the Fund’s activity. The reason for eliminating this provision is that the Financial Surveillance Authority cannot ensure the surveillance of the fund, considering the Fund’s characteristics, as well as the fact that it has as single shareholder the Romanian state, represented by the Ministry of Public Finances, central authority in charge over the Financial Surveillance Authority.
• Article 2 is amended and states that the SDIF can attract funds from joining public-private partnerships, among other activities, as a sponsor.
• Following Art. 2, two new articles are introduced, articles 3 and 4.
• Art. 3 establishes the Fund’s object of activity (“Other brokerage activities”) and the Fund’s main activity (financial investments on their own behalf and for their own account).
• Art. 4 clearly states the Fund’s object of activity, including development activities, performance indicators, approval of the investment strategy and evaluation methods for its activity and achieving its objectives- The Fund’s investment strategy is approved by the Government. A new provision is introduced, stating that the Fund will not benefit from any sorts of governmental guarantees or other forms of support from the Romanian state, as per Eurostat’s request.
• The former art. 3 becomes art. 5, and paragraphs 4 and 5 are amended. The amended paragraphs state that the companies form the Fund’s portfolio cannot engage in anticompetitive practices (provisioned by Law no. 21/1996 republished) and that the Fund will not intervene in the companies’ commercial strategies or market behavior. Two newly introduced paragraphs, 6 and 7, state that it is prohibited for the Fund’s companies to exchange sensitive information, while the Fund will not facilitate information exchange, respectively it is prohibited for the same person to be part of the managing bodies of any two, or more, companies within the fund, or persons who already are part of the legislative body of a company operating in the same economic sector.
• Former art. 4 becomes art. 6, where para. (2) is amended, establishing that the Supervisory board has 9 members, with a maximum of 2 members who are public clerks or other personnel categories within public institutions. The members of the Supervisory Board are appointed by the General Assembly, in accordance with the provisions of GEO 109/2011 on Corporate Governance. Paragraph 3, exempting the SDIF from the provisions of GEO 109/2011 on Corporate Governance was eliminated. A new para. (3) introduces new provisions concerning the terms for the members of the Supervisory Board. By derogation from GEO 109/2011, the first members of the Supervisory Board are temporarily appointed by the Ministry of Finances (representing the Fund’s single shareholder – the Romanian state), and the Supervisory Board appoints the Board of Directors, until the Supervisory Board and the Board of Directors are appointed, for a period of no longer than 18 months. The appointment of the first members will be in accordance with GEO 109/2011. Further on, the article’s paragraphs establish how and when the Fund will present its reports, and introduces a new task for the Fund, that of quarterly presenting the Ministry of Finances with the situation regarding its assets and approved investments.
• Former art.5, now art. 7, para. (1) lowered the social capital’s cash to RON 1.850.000.000 from RON 9.000.000.000 previously provisioned. Paragraph 6, letter b, states that the social capital difference will be paid in a maximum of three years, in comparison to the two years period provisioned by the initial form of the bill. The amendment brought to para. (8) is a correlation to the provision from art. 4, para (1), according to which the Fund’s investment strategy is approved by the Government.
• Former art. 7, now art. 9 is amended, being divided in two paragraphs. Para (1) states that estranging shares or other assets is subject to market, transparency and competitiveness conditions, whereas the initial form of the article stated that such actions are exempted from the provisions of GEO 88/1997 on the privatization of commercial companies and those of Law no. 137/2002 regarding certain measures for accelerating privatization, while estranging shares or other assets is subject to market, transparency and competitiveness conditions. Art. 9, para. (1) eliminates the exemptions, while para. (2) states that the rights and obligations resulted from the privatization contracts of companies within the Fund’s portfolio, will remain in the States accounts.
• Art. 8 is renumbered as Art. 10. The report eliminated the provision reading that the Gov’t provides “the identity of the first members of the Supervising Board” (Art 8.2 in the proposed form of the bill, Art 10.2 now”) The new version reads that “Within 60 days since the enforcement of the current law, the Government approves by Resolution the value of the social capital and number of shares, social headquarters and all needed elements for registering SDIF at the Office for Trade Registry.”
• Art. 9. was eliminated. Art. 9 read “The current law wavers from any contrary disposition”. The motivation was that the Article “lacked clarity and precision”.
• After Art. 10, two new Articles, 11 and 12. Art 11.1: SDIF is exempted from the provision of GO 64/2001 (distribution of state run companies’ profits). Art. 11.2: SDIF can sell shares or other assets and is exempted from GEO 88/1997 (privatization). Art 12: SDIF falls under GEO 109/2011 on Corporate Governance, except for provisions referring to “paying the Supervisory Board and Director”. Art. 12.2: Classified or confidential information that can influence competition practices does not fall under the transparency rules provided by GEO 109/2011.
• Appendix No 1. “List of stakes that are considered equity in kind at SDIF’s initial social capital” is replaced with Appendix. No. 3. The motivation informs that the proposed lists includes 23 economic operators.
• Chapter II “Constitutive Act”, Art. 5: The new version added “including participation in public-private partnerships” to the list of SDIF’s options to develop and fund investment projects.
• Art 6.3.a SDIF can “establish companies as sole associate or shareholder alongside other participants”, the initial version did not describe SDIF’s quality of shareholder when creating new companies in association with other associates.
• Art 6.3.d introduced a 49% ceiling for financial instruments. “SDIF’s share in the case of acquiring financial instruments cannot be above 49% in the value of said financial instrument”. The motivation reads that the 49% ceiling was introduced in order to comply with EU methodology on PPP.
• Chapter III (Social Capital, Shares), Art 7.3 lowered the initial social capital from RON 9,000,000,000 to RON 1,850,000,000.
• Art 9. “General Stakeholders’ Assembly’s prerogatives” Under Art. 9. 2.c, the new version reads “Appoints and dismisses members in the Supervisory Board.” The previous version read “to propose appointments, dismissals of the Supervisory Board, the Parliament having the authority to appoint them”.
• Art 9.2.e. According to the new form, General Assembly has the authority to set wages for the Supervisory Board “inclusively based on performance indicators listed in the mandate.”
• Art. 9.2.i. The Assembly no longer “approves”, but “notices” SDIF’s investment strategy. The new form also added that “the Investment Strategy is approved by the Gov’t and is published on SDIF’s website.”
• Art. 9.3.e was eliminated. It read that the assembly “has the decision right over issuing bonds.”
• Chapter V – The Supervisory Board, art. 12 on the organization of the board is amended. The initial form of para. (2) stated that the Board’s members are appointed by the Romanian Parliament at the proposal of the General Assembly. The new version of para. (2) establishes that the members of the Supervisory Board are designated by the General Assembly based on a series of selection criteria, as well as within the provisions of GEO no. 109/2011 (corporate governance). The term for serving as member of the Board is of 4 years (previously 6 years), the Romanian Parliament is eliminated from the appointment procedure, and the mandate of the Board’s first members is established (organizing FDSI’s activity).
• Article 13 amends paragraphs (6) and (8). Paragaph (6) refers to the notice of the meeting of the Supervisory board and only adds that ”the supporting documents” are to be sent to each concerned member. Paragraph (8) supplements the original version that relates to the nomination by the Supervisory board of a secretariat consisting of SDIF employees, adding that it has an independent status.
• Article 14, Para (1) is modified and states that the Nominating and remuneration committee is set under the Supervisory Board. The original version included an additional phrase about this committee which ”will have the prerogatives established by law”. This has been removed.
• Article 14, Para (3) eliminates a part concerning the recommendation of the nominating and remuneration committee related to the selection procedure of nominees for the board of directors. The new version emphasizes that this committee nominates the members of the board and also candidates for other management positions. The committee formulates recommendations on remuneration (original version), including on the basis of performance indicators established by the mandate.
a. Article 15 is amended with two new paragraphs: (2) and (3). As such, Paragraph (2) is created and states that the Audit committee supports the Supervisory board in overseeing:
a. Financial reporting
b. Internal controls system
c. Internal and external auditors
d. Compliance
Newly created paragraph (3) states that the majority of the committee’s members are independent. The President of the Supervisory Board is not a member of this committee.
• Article 16 is amended and states that the Supervisory board can create advisory committees, including a risk committee, that have to compile specific reports of their activity. The reports are then sent to the Supervisory board.
• Article 17, Para (b) is amended, with the provision that the Supervisory Board designates the board of directors following GEO no. 109/2011 that refers to the corporate governance of publicly owned enterprises. Beforehand, it was only stated that the Supervisory board designates the board members.
• Article 17, Para (g) is amended and states that the Supervisory Board can make recommendations to the shareholder based on the advice of the Board of Directors or it can issue a self-initiative recommendation concerning the distribution of income.
• Article 17, Para (j) is amended and states that apart from the duty of the Supervisory Board to take into account the report of the Board of directors (original version), it also has to propose steps to be taken by the Board of directors and to promptly inform the shareholders regarding these recommendations.
• Article 17, Para (L) is amended and refers to the additional remuneration of the members of the Supervisory Board that have specific functions (original version) within the committees of the Supervisory Board.
• Article 17, Para (m) refers to the need of the Supervisory Board to approve legal transactions above RON 10 million from the carrying amount of SDIF’s assets. The initial version states a value of 2%.
• Article 17, Para (n) refers to the need of the Supervisory Board to approve transactions above RON 10 million from the total value of fixed assets. The initial version refers to a threshold of 5%.
• Article 17, Para (o) states that the Supervisory board is to decide on stability bonds issuance and any other loans.
• Article 17, Para (q) states that the Supervisory board ensures oversight of SDIF’s risk management process and internal controls.
• Article 19, Para (2) and (3) are amended. The new version of Para (2) relates to the directors’ terms which can be renewed by the Supervisory board. Prior to this, there was no mention of a renewal. Para (3), apart from the original version which states that the board of directors’ term is limited to 4 years, it has been added that the first members of the board are named by the Supervisory board for a period of maximum 18 months, with the purpose of organizing the activity of the SDIF.
• Article 20, Para (5) is amended and states that the Board of Directors has to send a monthly report to the Supervisory board detailing the activity of the SDIF (as opposed to three months in the original version)
• Article 21, Para (1) is amended and refers to the prerogative of the Board of Directors to establish the investment strategy which is then set to be approved by the Supervisory board. This provision did not exist beforehand.
• Article 24 is related to internal and external audit. Para (4) is amended with the need to ”follow developments”, not only to evaluate the risk management process.
• Article 24 was also amended with two new paragraphs: (16) and (17). Para (16) states that SDIF contracts its auditors based on a decision taken at the annual general meeting (AGM) of shareholders in accordance with the ”Chamber of Financial Auditors of Romania”. Para (17) refers to an annual auditor’s report, detailing the financial status and prospects of the company, alongside recommendations to address problems stemming from the internal auditor’s errors (if any). The report is to be presented at the AGM, complemented by the company’s financial results.
• Article 25, letter (i) is amended and relates to an investment strategy adopted by ”the Government”, not by one decided at AGM of shareholders (as in the original version).
• Article 25, Letter (n) is eliminated. It referred to an annual performance report due at the end of September each year concerning SDIF’s functioning and attained indicators.
• Article 26 (Para I) was amended because of contradictory phrasing. As such, the part concerning the dissolution of the SDIF due to the ”impossibility to be created” was eliminated.

List of companies included in the Sovereign Fund following the Committees’ report
From a total of 89 companies initially included in the Fund (according to the initial form of the bill), only 23 made it to the final list adopted by the reporting Committees.
1. ENGIE România S.A. – new in the report – was not included in the initial form of the bill
2. Company for the distribution and provision of electrical power – Electrica S.A. /Societatea de distributie si furnizare a energiei electrice – Electrica S.A. – among the initial companies
3. Delgaz Grid S.A. – among the initial companies
4. E.ON Energie Romania S.A. – among the initial companies
5. Chimcomplex S.A – partially among the initial companies (Initial company was Chimcomplex S.A. Borzesti)
6. OMV Petrom S.A. – among the initial companies
7. Telekom Romania Communications S.A. – new in the Senate’s report – was not included in the initial form of the bill
8. Antibiotice S.A. – among the initial companies
9. National company for the Control of Boilers, Pressure Vessels and Hoisting S.A. /Compania nationala pentru controlul cazanelor, instalatiilor de ridicat si recipientelor sub presiune S.A. – among the initial companies
10. National Company Romanian Lottery S.A. / Compania Nationala Loteria Romana S.A. – among the initial companies
11. IAR S.A – among the initial companies
12. Oil Terminal S.A. – among the initial companies
13. Cupru Min S.A – partially among the initial companies (initially was Cupru Min S.A. Abrud)
14. National Company Unifarm S.A. / Compania Nationala Unifarm S.A. – among the initial companies
15. National Company for Mineral Waters S.A. / Societatea Nationala a Apelor Minerale S.A. – among the initial companies
16. The National Company “Maritime Danube Ports Administration” S. A. / Compania nationala administratia porturilor Dunarii Maritime S.A. – among the initial companies
17. National Company for Natural Gas Romgaz S.A. / Societatea nationala de gaze naturale Romgaz S.A – among the initial companies
18. Hidroelectrica S.A (Company for producing electricity in hydro-power plants) – among the initial companies
19. National Company Bucharest Airports S.A. / Compania Nationala Aeroporturi Bucuresti S.A. – among the initial companies
20. Nuclearelectrica – Societatea nationala Nuclearelectrica S.A. – among the initial companies
21. The National Printing House/ Compania nationala imprimeria nationala S.A. – among the initial companies
22. The National Company Maritime Ports Administration/ Compania Nationala Administratia Porturilor Maritime S.A. – among the initial companies
23. Conpet S.A. – among the initial companies