The Electrica AGEA, held on 10 November 2015 approved several amendments to the Articles of Incorporation, including increasing the number of administrators of the Board of Directors from 5 to 7. Of these, at least four directors should be independent and nonexecutive, and three will be nominated by the Ministry. The change opens a path for the authorities to change the composition of the Board and for the eventual dismissal of the management team of Electrica. The situation has provoked public protests from a group of NGOs, accusing political interference in the administration of Electrica, but it was also criticized by reputed experts, including Răzvan Nicolescu, former Minister of Energy.

“Smart guys, aimed at a new type of draining value out of the company”

The action initiated by the Ministry of Energy was supported by “over 70% of those attending the General Meeting of Shareholders,” according to a release issued by the Ministry. In the same document, the Energy Ministry has explained that the initiative aimed at “bringing an added value in terms of managerial and technical training, their lack thereof leading to obvious gaps in the company’s activity”. There were also direct accusations on both the members of the current Board of Directors (“we did not accept an increase in allowances by 50% from 2000-3000 euro / month, or introducing new fees for attending meetings of the CA or advisory committees by 1000 Euro / session “) and on the company’s management (“What are the “performances” of the company for requesting these increases? Of the investments committed until 30.08.2015, the companies part of Electrica group made investments of 279.285 million lei, or about 32% of investments made for the entire 2015 – about 20% of the assumed IPO plan – and proposals such as the reduction of maintenance costs by 94%! “).

Clarifications from Electrica

In a press release, Electric addresses some of the Ministry of Energy’s statements, regarding the plan of investment and the maintenance expenditures. “The Extraordinary General Meeting of Shareholders Electrica SA approved the consolidated annual investment plan for the Electrica Group (CAPEX) for the financial year 2015 on 9 July 2015. Even in these conditions, Electrica continues the most ambitious investment program in the networks distribution for the entire regulation period, over 715 million euros,” the document explains. Regarding maintenance, “in 2015 the distribution companies of the Electrica Group have budgeted a 18% reduction in maintenance costs of the electricity networks over the previous year. Efficiency comes as a natural consequence of the replacement of obsolete equipment in distribution with new equipment that requires low maintenance. Therefore, in the first six months of 2015 compared to the same period last year, the decreased maintainer actual spending was 4% “.

In his turn, Răzvan Nicolescu, the former Energy Minister challenged the criticism launched by the Ministry, punctualy:

• the majority vote came from two shareholders, one of which is the Romanian state with 48.7%
• the reduction of the maintenance by 94% comes from savings achieved through restructuring viable energy service companies (action undertaken listing)
• for the low level of investments are to blame, in part, the authorities themselves for delaying decisions for half the year
• Electrica salaries are below the average of the remuneration of similar companies in the market

“A dead government still making dirt”

“The outgoing Minister [Andrei] Gerea tried to appoint people in the CA of Electrica and, thus to put, posthumously, his hand on the money,” accusse Freedom House, The Romanian Center for European Policies and Expert Forum, in a joint press release. “The new Minister Andrei Gerea tried to bring “to order” the members of the CA. He tried to intervene arbitrarily in the business, cancel investment plans and drain the value out of the company. Finally, he tried to divert the money collected through listing on the stock exchange for immediate political purposes, for which the minister tried to intervene over the CA members.

Having failed, […] he has put in place an indirect plan: he proposed an increase in the number of members of the CA from 5 to 7, which automatically results in a change of the current members who have promoted ethical policies,” reads the release of the three NGOs.

The signatories warn that in the same AGEA of 10 November a proposal from BERD (Electrica shareholder) was also rejected, through which the modification of the CA structure would have been accompanied by the adoption of a clear set of criteria for electing new directors.

The fact is that the state as the main shareholder has managed to impose its position, in a manner which calls into question the prospects for application of credible corporate governance standards at Electrica.

Justifie suspicions

Without clear eligibility criteria for the selection of board members, the suspicions of arbitrary political interference have plenty of space to develop. The Ministry initiative raises even more concern as it occurs at the end of the mandate of the outgoing cabinet, packed with other questionable decisions, monitored in recent days:

• Ion Badea (ex PNL member / current member of ALDE Bucureşti) has been appointed as General Manager in the project company Hidro-Tarnita, replacing Ovidiu Demetrescu
• Adrian Moldoveanu, CEO of SAPE, CA was appointed in the CA of Hidro-Tarnita, replacing Elena Popescu, Director in the Ministry of Energy
• Costin Mihalache, state secretary at the Secretariat of Government, was elected member of the Supervisory Board of Transelectrica