EXCLUSIVE: A WARNING FROM THE MINORITY SHAREHOLDERS The government could end up stuck with "Oltchim"

• Interview with Wojciech Zaremba, the representative of PCC SE in Romania

Reporter: We had become used to seeing PCC SE have a reaction as soon as an event which influenced "Oltchim" occurred. After the European Commission approved the conversion of the AVAS debt into shares, PCC has remained silent.

Wojciech Zaremba: For many years, nobody cared about the situation of "Oltchim". PCC SE was the only player who truly wanted to draw attention to the situation of the plant. For us, it was amazing that no one would invest in a company which had such potential. Nobody wanted to restructure the company, which had lost market share and was generating losses.

During that time, I was very interested and very active as to what concerns "Oltchim". But, especially after the involvement of the IMF, the situation changed radically. We were unsuccessful in convincing the state to do anything with "Oltchim". Many times, we have asked for the support of the state for our proposal to separate the positions of president and CEO. Nothing happened. It was only possible after the intervention of the IMF, and not just in Oltchim, but in all of the state owned companies. It was the same thing with the privatization process. This process has been going on for almost 18 years, in the case of "Oltchim", and no one did anything to speed it up. It's only after the intervention of the IMF that they agreed to speed up the privatization. That means that my "Robin Hood" part is over, because the goal has been reached.

What else could I do from now on? The IMF has convinced Romania to make the necessary reforms, apparently in other companies beside "Oltchim" as well. I am very happy about that, as a potential investor. I am a businessman. It is not my duty to fight for justice and for reforms in Romania. I appreciate changes. The privatization is a fact. Private management is a fact.

Reporter: It seems the current manager, Constantin Roibu, will participate in this selection...

Wojciech Zaremba: Not a problem. This is a secondary matter.

Reporter: How would you comment on the decision of the European Commission to approve the conversion into stock of the debt which "Oltchim" had towards the AVAS?

Wojciech Zaremba: In this process, the Romanian state played a dual role - of creditor and shareholder. It is the success of the AVAS, therefore of the state, as creditor. Yes, they did deal with the matter of the AVAS. But did they solve the problem of "Oltchim"? No. The debt of "Oltchim" will not shrink. First of all, in the balance sheet of "Oltchim", the receivable of the AVAS is already "equity", it is not calculated as a debt. This debt which we now have - of about 600 million Euros did not include and still doesn't include the receivable of the AVAS. Nothing changes.

In 2009, the Government approved the conversion through a memorandum. This means that if we convert the receivable of the AVAS, the situation of Oltchim doesn't change.

As to the penalties, they have yet to be calculated. The situation of the company hasn't changed in any way.

The size of the debt will remain unchanged. But the Romanian state has lost a big opportunity to obtain the support of the European Commission for "Oltchim". First of all, the major mistake made by the state was that it asked the Commission to say that the debt to equity conversion does not represent a state aid. It means that only the creditors can be the beneficiaries of the conversion.

But, according to the law, the state was allowed to ask for the right to grant the company an aid. According to this procedure, a rescue measure for "Oltchim" was supposed to be notified to the European Commission, meaning that the company could obtain money from the state for working capital and a 6-month respite to prepare its own restructuring. These things were the minimum that they could obtain. But they did not use this opportunity and they only thought of the AVAS.

Reporter: It would seem that the state only wants to privatize the company and doesn't care about its financial situation...

Wojciech Zaremba: The state is the majority shareholder and should take responsibility. Regardless of whether it is selling or not. Second of all, they could have a used a broader form of state aid, based on the restructuring plan. There was a possibility to obtain money for restructuring, for working capital. But they did nothing. This demonstrates the attitude of the state which forgot that it is a majority shareholder and that it should take care of the company.

Reporter: The state tried to grant some guarantees for "Oltchim", but abandoned them, to obtain the approval of the conversion from the European Commission.

Wojciech Zaremba: According to the law, the company has difficulties. When a company is in trouble, we need to do anything in our power to save it, and according to the law, you can't apply for state guarantees for investments, a company which needs restructuring. It is absolutely obvious.

Reporter: The European Commission accepted the conversion of the debt into shares, to rush the privatization.

Wojciech Zaremba: The privatization is the most important thing for the company. Restructuring is very important. And we have wasted almost five years. Since we came to Romania, we have asked the shareholders in almost every general shareholder meeting to approve the plan for the restructuring of Oltchim, but they did not care, and that is a major problem.

Reporter: Is there a legal means to prevent this decision from generating its effects?

Wojciech Zaremba: We are considering all of the options, but no one gave us the chance to make a decision, because the Romanian state decided without consulting with us. No one asked for our opinion. I do not only represent PCC, I also represent Carlson, and together we own 32.34%.

Reporter: On March 9th, on the website of the Ministry of the Economy, a draft Government Decision was posted which stipulates that the decision of the European Commission, namely the conversion into debt of the claim against the AVAS, will be made by law, meaning it won't require the approval of the shareholders. Basically, if this plan goes through, "PCC SE" will be diluted; how do you comment?

Wojciech Zaremba: I will give you our official position (ed. note: in the insert) and I will also make a comment. I've never seen something like this happen anywhere in the world, neither in Poland, Germany or the US. Sure, Mr. Bogdan Chiriţoiu (ed. note: the president of the Competition Council) said that we need to accept the risk of doing business, but the business first of all needs a stable environment, and that means transparent laws. We can't accept that we have one law today, and another one that is completely different tomorrow. I think that anything is possible in Romania and any law can be changed at any time, and that is very dangerous. No investor will ever accept for the state to change the rules mid-game. Romania shows that it is an unpredictable state, and the business environment is absolutely unacceptable and no serious investor will come to do business here, where today you own over 30% of a company and you have a shot at buying it, and two weeks later you no longer have that possibility.

Reporter: Will you participate in the share capital increase?

Wojciech Zaremba: We will make that decision when that time is right.

Reporter: Did you talk to the Romanian state about the possibility of participating in the share capital increase and then in the privatization?

Wojciech Zaremba: No. Nobody asked me anything. Only the "BURSA" newspaper did. I have requested a meeting with the new minister of the Economy, but I did not get it.

The market reacted negatively to all this information. For us, it was clear from the beginning that if the share capital increase would be done with cash, we would participate in it. If the government contributed money as well. Because after the conversion, the company would no longer have any money at all. We have agreed to participate in share capital increase with cash.

But what is the value of this receivable? 135 million Euros, according to the book value. But no one did an estimate of the conversion, according to the market value. In our opinion, some analyses should be done and the conversion should be made at the market value and not at the par value. If that happened we could participate. For the company, the main problem is that nothing changes. This means that this operation is only for the benefit of the state.

Reporter: For the state, Oltchim is a money drain and it wants to get rid of it.

Wojciech Zaremba: Ok. After these efforts of the state, perhaps the conversion will be implemented, the privatization process will be conducted, and in the end, nobody will buy the plant. The state will then own over 99% of a company with a huge debt, with monthly losses of 8 million Euros, according to Mr. Roibu. 99% of this money drain.

Reporter: Immediately after the privatization was announced, there was information that three companies were interested in Oltchim, aside from PCC.

Wojciech Zaremba: I do not want to comment on any company which could be a potential competitor for us. We will see who these companies are soon. I've said since the beginning that it is a good thing if a serious investor were to come to the plant. I can cooperate with them. If somebody brings ideas, money, we can join our efforts. It doesn't matter who is better, who wins. What matters is that we make money. It is a pleasure doing money with someone who is intelligent, who has expertise and has financial means.

Reporter: So, you are not interested in the privatization of "Oltchim" under any circumstances.

Wojciech Zaremba: Of course not. We are not interested in "Oltchim" at any price and with any terms. The Romanian state should take into account the fact that there is the risk of nobody participating in the privatization, in the end, and it would be stuck with the company in its portfolio.

We did everything in our power to convince everyone to do restructuring, to privatize the company, to eliminate the harmful mechanisms of the company. Some things were ignored, others were implemented, but only because of the IMF, not because of us.

But soon, the time for the assessment will come. And we will know which companies are truly interested in Oltchim.

Reporter: Are you interested in Arpechim too?

Wojciech Zaremba: Of course not. What good would it do us? We are not interested in refining because it is not efficient. It is an obsolete business.

Reporter: But Oltchim needs raw materials from Arpechim...

Wojciech Zaremba: This remains to be seen, from the business point of view. Because there will come a private investor, with money, who will decide whether it needs Arpechim or not. We will see whether it is a good business or not. For us, it isn't. If someone else feels differently, no problem.

Reporter: The state said it would intermediate the negotiations for Arpechim, if anybody showed interest.

Wojciech Zaremba: Very well! I understand that for Romania it is a social issue. Romania did not restructure the economy and the industry, over the past few years and now they have a problem with the workers. Some business models have expired, and they don't know what to do with those people. It is very important to keep those jobs. Now it all depends on whether the private investors can bear that situation.

Reporter: How much are you willing to pay for Oltchim?

Wojciech Zaremba: Right now, I am participating in the privatization process. I have signed a confidentiality agreement. Any statement concerning the privatization can be interpreted. So I will refrain from making any comments.

"My < Robin Hood > part is over, because the goal has been reached.

What else could I do? The IMF has convinced Romania to conclude the necessary reforms, apparently in other companies beside "Oltchim" as well. I am very happy about that, as a potential investor."

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"According to the law, the government had the right to grant an aid for rescuing the company.

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The state forgot that it is a majority shareholder and that it should be responsible for the company.

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I think that anything is possible in Romania and any law can be changed at any time, and that is very dangerous. No investor will ever accept for the state to change the rules mid-game.

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We are not interested in "Oltchim" at any price and on any terms. The Romanian state should take into account the fact that there is the risk of nobody participating in the privatization, in the end, and it would be stuck with the company in its portfolio.

• • PCC SE: The Government is preparing an illegal ordinance

PCC SE considers that the draft emergency ordinance prepared by the Ministry of the Economy, which provides the lawful conversion of the plant's debt towards the AVAS into stock, without requesting the agreement of the shareholders, contradicts the Romanian and the European laws.

The representatives of the company have sent the following position to the government:

"1. Introductory facts

The draft Emergency Ordinance of the Government was published on the website of the Ministry of the Economy on 09.03.2012 and adds new provisions to the Law no. 137/2002 concerning the acceleration of the privatization in the chapter concerning the special measures which can be adopted concerning the state owned companies which are in the process of privatization.

According to the privatization law, one of the measures which can be passed concerning the companies which are in the process of privatization is the conversion into stock of the claims the AVAS has against the companies in question.

The draft emergency ordinance presents additional details concerning the manner in which such a conversion could be conducted. More specifically, the Draft Emergency Ordinance stipulates that the conversion of the debts into stock does not require the approval of the Extraordinary General Shareholder Meeting, but that the conversion will be conducted according to the law, following the publication in the Official Gazette of the order which will be issued by the institution which will perform the privatization (the OPSPI or the Ministry of the Economy).

2. The infringement of the European legislation

The regime introduced by the Draft Emergency is one of derogation from the provisions of the Law of Companies no. 31/1990 and of the Law no. 297/2004 concerning the stock market, which regulates the operation of the listed companies, and which stipulates that any debt to equity conversion must be approved by the General Extraordinary Shareholder Meeting.

The aforementioned legislation gets transposed in the provisions of the Directive of the Council no. 77/91/EEC of December 13th, 1976 concerning the coordination of the protection measures concerning the protection of the interests of shareholders and of others, which are requested by the Member States which the companies come from, according to the meaning of the second paragraph of article 58 of the Treaty, concerning the formation of limited liability companies and the preservation and the amendment of their capital, in order to make sure these measures are uniform ("The second directive").

Article 25 paragraph 1 of the Second Directive provides that any decision concerning the share capital increase must be decided by the General Shareholder Meeting.

The European Court of Justice has ruled on several occasions that the Member states are not allowed to have derogations in their domestic legislation from the provisions of article 25 paragraph 1 of Directive 2. In other words, the Member States are not allowed to decide through their domestic legislation that in certain situations the share capital increase of specific companies will be conducted without the approval of the General Shareholder Meeting.

More specifically, the European Court of Justice has decided (1) that (our emphasis):

"25 As to what concerns the area of application of the Directive no. 2, it must first and foremost of all be said that according to Article 54(3)(g) of the Treaty, it is desired to coordinate the safety measures which, for the protection of the interests of members and of others, are required by the Member States of the Companies according to the meaning of the second paragraph of Article 58 of the Treaty in order to make these safety measures uniform. As a result, the goal of the Second Directive is to ensure a minimum level of protection for all the shareholders of all the Member States.

26 The accomplishment of this objective would be seriously obstructed if the Member States had the right to derogate from the provisions of the directive by keeping in effect - even in the case of rules considered as exceptional - according to which it would have been possible to decide through administrative measures, outside any decision of the General Shareholder Meeting , to conduct a share capital increase which would either require the original shareholders to increase their contributions to the capital, or to accept new shareholders, thus lowering their decision making power within the company".

Moreover, it can be construed that the Draft Government Decision violates article 10 paragraph 1-3 of the Second Directive, because it does not stipulate the possibility of an evaluation report as stipulated in article 10 paragraph 1 of the Second Directive. At the same time, the Government Emergency Ordinance does not mention anything concerning the conversion rate and the value of the shares which will be transferred to the Romanian state in exchange for the debt.

As a result, if the Romanian Authorities decided to pass the Draft Emergency Decision, they would violate the European legislation.

3. The unconstitutionality of the Emergency Ordinance - the regulation by law of an individual case

Laws and ordinances should be issued in order to regulate matters of general interest and applicability. Laws and ordinances should not regulate individual cases.

There are several hints that the Draft Government Emergency Ordinance was made exclusively for the purpose of regulating the case of Oltchim SA Râmnicu Vâlcea, as follows:

- According to the substantiating notice of the Draft Government Emergency Ordinance, the draft was proposed due to the commitments of the Romanian State towards the International Monetary Fund and the European Union regarding the acceleration of the privatization process. There are only few companies that the IMF requested to be privatized, such as SC Cupru Min SA and SC Oltchim SA;

- According to the substantiating notice of the Draft Government Emergency Ordinance, one of the purposes of the Draft Government Emergency Ordinance is the clarification of certain provisions of the privatization legislation that restrict certain rights of minority shareholders, restrictions which could lead to litigations in court initiated by minority shareholders that could delay or hinder the privatization process. Therefore it becomes apparent that the Draft Government Emergency Ordinance regulates the specific case of Oltchim.

- According to the substantiating notice of the Draft Government Emergency Ordinance, another purpose of the Draft Government Emergency Ordinance is to create the clear regulations for the decrease of, among others, the receivables of AVAS. It is apparent once again that the intention of the Draft Government Emergency Ordinance is to regulate the specific case of Oltchim SA Râmnicu Vâlcea which has a debt towards AVAS of EUR 135 million and which the Romanian State intends to convert into stock.

Given the above, it may be construed that the Draft Government Emergency Ordinance regulates the specific situation of Oltchim SA Râmnicu Vâlcea. This can be considered non-constitutional in light of the jurisprudence of the Romanian Constitutional Court.

4. Unconstitutionality of the Draft Government Emergency Ordinance - restriction of rights and non-proportionality

According to art. 53 of the Romanian Constitution, the exercise of rights or freedoms may be restricted only by law and only if necessary, as the case may be, for: defending the national security, the public order, health or morals, the rights and freedoms of citizens; the execution of penal instruction; the prevention of the consequences of natural calamities, disasters or catastrophes.

The restriction may be decided only if necessary in a democratic society. The measure taken needs to be proportionate to the situation that caused it, applied in non-discriminatory way and without prejudice to the existence of the respective right or freedom.

The Draft Government Emergency Ordinance restricts the rights of shareholders of companies undergoing privatization as the approval of the shareholders is no longer necessary in case of debt into equity conversions.

In order for such restrictions to be constitutional, the Romanian State needs to provide explanation as to why such restriction is necessary in a democratic society and that this restriction is proportional.

It is apparent form substantiating note of the Draft Government Emergency Ordinance that the Romanian State tries to argue that there the public interest and exceptional circumstances request that the privatization of certain companies is no longer delayed, and that such delay may be due to minority shareholders taking legal actions.

However, it may be construed that the arguments regarding the necessity and proportionality of the restriction of the shareholders' rights must be in relation to the importance of the debt into equity conversion for the privatization procedure. Such restriction may not be justified only as a prevention measure against actions to be taken by minority shareholders.

The Note does not specify how exactly does the exercise of a legal right by a shareholder, hinder or delay the privatization process, as well as delay the compliance of the Romanian State to the obligations assumed towards international financial institutions (European Union, International Monetary Fund). These statements made in the Note are without grounding and, in fact, the privatization process may take place without any delay and in good conditions, without the conversion of the debt towards AVAS into shares.

Consequently, it may be considered that the Draft Government Emergency Ordinance is unconstitutional for the reasons above as well.

5. Unconstitutionality of the Draft Government Emergency Ordinance - Expropriation

From the Romanian Constitution perspective, the Draft Government Emergency Ordinance could be construed as a breaching of art. 44 par. 1 and 2, art. 115 par 4 and 6, and art. 136 par. 5.

The Draft Government Emergency Ordinance affects the right of ownership of the minority shareholders, because they are deprived of the voting rights regarding the issue of the debt conversions and the capital increase, which could be construed as a breaching of art. 44 par. 1 and 2 of the Constitution.

Moreover, the Draft Government Emergency Ordinance fails to justify in a proper manner the Emergency Ordinance, which could be construed as contrary to art. 115 par. 4 from Romanian Constitution.

The Draft Government Emergency Ordinance affects the constitutional right of ownership (by abolishing the voting rights regarding the capital increase issue), which is contrary to art. 115 par. 6 from Romanian Constitution and the Draft Government Emergency Ordinance could be construed as contrary to art. 136 par. 5 of the Romanian Constitution, because it affects the right of ownership and the Draft Government Emergency Ordinance is not an organic law".

Note:

(1) Judgment of 30 May 1990 of the Court, Joined Cases C-19/90 and C-20?90, para. 25-26.