State Owned Companies: state capture, clientelism and corruption in Romania

Romania is currently one of the countries with the largest number of state-owned companies in Europe. The government is a majority shareholder in approximately 250 companies, and the local authorities own over 1,100 companies. The exaggerated size of the public sector, the very large number of companies and their scattered distribution all across Romania make monitoring difficult and contribute to avoiding public scrutiny, creating opportunities for corruption and clientelism.

This report reflects the results of the research in the Romania case study measuring the extent of corruption and clientelism in state-owned companies.  Based on mixed data collection methodology. The project “State-Owned Companies – Preventing Corruption and State Capture” (SOESC), financed by the European Commission was the first opportunity to collect comparative data about state capture in state-owned companies in four members states of the European Union (EU): Bulgaria, the Czech Republic, Italy and Romania.

Corporate governance in Romania is still vulnerable

In the case of Romania, the research underlines that here has been a significant improvement of the corporate governance legal framework for state-owned companies, even though it was not fully applied and the latest attempts of the Parliament to except a large number of SOEs from the criteria of corporate governance diminish its applicability and makes it useless.

There is also a clear correlation between the quality of the corporate governance framework and the “performance” of state-owned companies, but there are still vulnerabilities in the administrative control mechanisms (the responsibility of sectoral ministries, the activity of the Court of Accounts etc.) The experts interviewed were also of the opinion that the minority shareholder can be a “change agent” or a “pressure factor”, which could determine observance of corporate governance rules within state-owned companies.

Impact of anti-corruption in the performance of SOEs

In addition, the success of anti-corruption prosecutors in several high-profile cases played a positive role and discouraged some practices such as unprofitable procurement (Romsilva, CFR) or undervalued sale (Romgaz, Hidroelectrica).

However, as of 2017, there is a significant risk for most of the achievements to be lost again. Both the corporate governance framework and some sectoral reforms are taking important steps back. Law 111/2016 was amended in the Parliament to exempt dozens of SOEs from the application of the corporate governance framework.  Law 111/2016 is not enforced in the majority of state-owned that were analysed. The Ministry of Public Finance has not published the analysis of the situation of state-owned companies for 2016 and it applies no sanctions for non-observance of Law 111/2016, although this law is systematically infringed, for example, by “turning interim management into permanent management” in state-owned companies.

The full version of the report, in English, can be found here 

The executive summary of the report, in English, can be found here.

About the authors

Clara Volintiru is Associate Professor in the Department of International Business and Economics (REI), at the Bucharest University of Economic Studies (ASE). She has a PhD from the London School of Economics and Political Science (LSE) and has been involved in international research projects in the field of behavioural studies, good governance, informal exchanges and political economy.

Gelu Trandafir is an experienced Romanian journalist in charge with communication activities of Freedom House Romania since 2013. Previously, he has held the positions of coordinating editor at Evenimentul Zilei newspaper during a challenging time for freedom of the press in Romania (2003-2004), deputy chief editor at Cotidianul newspaper, senior editor at România Liberă, journalist and producer with ProTV and acting desk editor with the Romanian department of BBC WorldService.

Bianca Toma is the Programs Director of the Romanian Center for European Policies, researcher on good governance and EU affairs. She has over 15 years of experience as a journalist covering the judicial system and home affairs, including Brussels based correspondent correspondent for the mainstrem newspaper Adevarul. In 2012 she became fellow of the Open Society Think Tank Fund’s and joined CRPE. She is a graduate of economics with a master’s degree in EU Affairs.

Ana Otilia Nutu is a founding member at EFOR and works as Policy analyst on energy and infrastructure, state-owned companies, regulators.  She currently coordinates EFOR’s good governance projects in the energy sector on several countries in the region (Romania, Moldova, Ukraine, Belarus, Hungary, Georgia). She is currently the EU coordinator of the Eastern Partnership Civil Society Forum, WG3 – Energy and environment and Member of the Steering Committee.

Alexandru Damian is a researcher with the Romanian Center for European Policies, which he joined in 2014. Alexandru has a solid background in good governance, public administration and civic activism. He hopes that citizens’ participation in the public decision and data-driven public policies will be strengthened. Alexandru holds a Bachelor’s Degree in Political Science, University of Bucharest, and a MA Degree in Political Science, Free University of Brussels.

This report is part of the “State-Owned Companies – Preventing Corruption and State Capture” project, implemented by the Romanian Center for European Policies, Expert Forum, Freedom House, Amapola Progetti (Italy), Risk Monitor (Bulgaria and Candole Partners (Czech Republic). The project is financed through Economic and Financial Crime, Corruption, Environmental Crime Programme,  DG Migration and Home Affairs, European Commission and co-financed by Open Society Foundation. 

The contents of this report does not necessarily reflect the official position of the DG Migration and Home Affairs or Open Society Foundation. Liability regarding the accuracy and coherence of the information within lies with the partners of the project  and with the author(s) of the report.