Incoherent babbling in the Hidroelectrica case

Over the last two days, the filing for insolvency of the biggest Romanian electricity producer, which was going to be the first company with private management and also to sell some of its stock on the BSE, has lit up the media, as it gets controversial information from various sources.

Whereas on Monday morning we were shocked to find out that "Hidroelectrica" filed for insolvency with the Court of Bucharest, throughout the entire day we tried to get an official statement on the matter. The answer came in the evening, in a press release signed by the managing director of the company, Ştefan Gheorghe, in the name of Remus Vulpescu, who was featured as the president of the Board of Directors of Hidroelectrica.

A first explanation around this press release came yesterday, when Mr. Vulpescu summoned the journalists at a press conference, which, we thought, was intended to answer all our questions: "For speed, the communiqué was signed on my behalf, by Mr. Ştefan Gheorghe, but it belongs to me".

Concerning the confusion of the previous day, Remus Vulpescu, who is a member on the Board of Directors of the Company and the chairman of the meetings of the Board, as he mentioned yesterday, as well as the head of the Office For The State's Interests and Industrial Privatization (OPSPI), said: "It wasn't my intention to convey to you that I don't know anything about the initiation of the insolvency procedures, just that I didn't know anything about the question which I had been repeatedly asked, about whether it was true that a certain TV station had possession of the filing for insolvency and had posted it on the Internet, hence the confusion".

"Being in Vienna, I did not have internet access, I was unable to check. That is what I meant when I said I didn't know anything".

Throughout our meeting in Vienna, Remus Vulpescu tried to be very brief and talkative and to make clear and to the point statements, but he managed to contradict himself a few times and failed to answer several of our questions. At the same time, he also gave us some mind-boggling information, such as the fact that the executive management of "Hidroelectrica" only found out from the press that the company had filed for insolvency or that the so-called "clever boys" and the contracts they had concluded with electricity maker had nothing to do with the reason for filing for insolvency and especially with the purpose behind that action.

"General manager Ştefan Gheorghe is an executive director, is not part of the Board of Directors, we asked him to provide us with a complete overview of the company's finances, without telling him why we wanted it. (...) The measure which we decided to take on the Board of Directors was to file for insolvency and we did not notify general manager Ştefan Gheorghe about it, because we did not want to spark off, what we couldn't avoid, a public debate on that subject before the courts had made their decision", the head of the OPSPI said.

When asked by journalists, Vulpescu stressed that the proposal to file for insolvency of "Hidroelectrica" as made by him personally, without consulting with anybody: "I saw that the financial-economic status of the company was requiring us to make this decision. Who else would you have expected me to talk to, the press? (...) The decision of the Board of Directors which was the starting point of the request to file for insolvency was signed by me".

After insisting that the reason behind the company's current situation was last year's lengthy draught, as the management of the company was "disastrous", Remus Vulpescu said, in the end, as the journalists were pressing him, "it is possible that the contracts for the sale of electricity were also one of the reasons that < Hidroelectrica > is not as profitable as it should have been. (...) I do not know whether a contract is unprofitable, it is not my job to decide that. I just see that overall, < Hidroelectrica > did not turn out a profit and I think that it should have".

In his opinion, the goal of the insolvency of the largest energy company in Romania is to correctly identify the problems and the required solutions, as well as their concrete implementation, to reorganize the activity and to pay off the debts: "It is unclear what our problems are, that is why we have asked for the protection of the courts, the involvement of a receiver specializing in the procedures stipulated by the Law no. 85/2006, for reorganization, rather than bankruptcy. (...) We are not considering anything related to bankruptcy, nothing concerning the sale of assets and the reduction of some output capacity or other speculations concerning the sale or the nationalization of the company. (...) Something didn't work right at < Hidroelectrica >. When a company with 1 billion Euros in assets and a turnover of 800 million Euros, in 2011 - a year which was bad for energy -, only makes an accounting profit, which is only on paper, of 1 million Euros, it can't be called a profitable company".

"Hidroelectrica" doesn't even have enough cash to pay the water used to supply electricity, the company's representative said.

If the company enters insolvency, the volume of electricity delivered by the company in the national energy system will not "under any circumstances" be affected.

He was very firm when he said that there would be no layoffs, but he contradicted himself saying that that decision will actually be up to the receiver: "We will seek to increase the volume of energy, we will seek to increase our production capacities, we will not sell assets, we will not shut down any units, plants, hydroelectric plants, we are not considering laying off employees. It is however, possible, that the court appointed receiver, the creditors and the bankruptcy judge consider, to a degree, personnel changes. These three entities decide the fate of the company during insolvency".

Concerning the financial situation of "Hidroelectrica", the representative of the company said that in 2011, "the Board of Directors of the company was required to acknowledge this situation in 2011 as well, and, perhaps, to act in the same manner".

The members of the Board of Directors can see some ways in which the company's activity can be recovered, Mr. Vulpescu went on to say, adding however, that he can't announce what those measures would consist of, "because at the moment they don't amount to anything, they are just general measures".

If the plan for the reorganization of "Hidroelectrica" is rejected, the creditors will decide what happens, the company's official said, mentioning that he doesn't have a vision on what will happen if the insolvency of the company isn't approved by the courts: "How can I know what will happen after a decision which is not mine to make? What is your (ed. note: the journalists') vision on this situation?"

The negotiations for the bilateral contracts were another point of controversy at yesterday's conference. After Remus Vulpescu mentioned that, officially, thee negotiations were not suspended, Ştefan Gheorghe said that in fact, two weeks ago, the negotiations with the "clever boys" had a moment where they were "suspended".

Mr. Vulpescu appeared annoyed that the general manager of the company was asked questions and he felt compelled to intervene: "What you are trying is to generate discrepancies between my statements and those of the general manager".

The representatives of the company expect the reorganization process will not take more than 16-18 months.

They did not talk to the International Monetary Fund about the possibility of Hidroelectrica entering insolvency (the listing of a 10% stake in the company on the BSE is stipulated in the letter of intent agreed with the IMF). "We will only talk to the IMF once we know whether < Hidroelectrica > is bankrupt and the effect this will have on its commitments, as well as of the other priorities which underlie the commitments we have to the international institutions".

As for the stake which the Proprietatea Fund holds in "Hidroelectrica", Remus Vulpescu said: "The Proprietatea Fund is listed, and it seems that, according to the applicable procedures, they do indeed need to omit the value of the stake in Hidroelectrica, when calculating the net asset value of the Fund, which will reduce the value of the net asset of the Proprietatea Fund a bit. We are watching this situation closely as well. The rights and the interests of the minority shareholder the Proprietatea Fund will not be discriminated in any way. At least when it comes to the need to correctly identify certain problems in the manner in which < Hidroelectrica > generates its revenue, I think that the Ministry of the Economy and the Proprietatea Fund have a common interest".

Mr. Vulpescu considers that the drop in the confidence of the foreign investors in Romania also had to do with the manner in which the country's economic interests were managed.

"When I came to work with the OPSPI I came to the conclusion that a lot of money is generated in Romania. State owned companies generate a lot of money, which is not felt in the state-owned companies which generate them. There are many cases where the activity of the companies in which the state is the majority shareholder is conducted through trading houses, through offshore companies, through proxy and third party companies located in Romania or abroad", the head of the OPSPI said.