OVIDIU DEMETRESCU, ARBA: "It is obvious that the managers of Electrica have not complied with the law"

The directors of "Electrica" (EL) violated the law when accepting the applications backed by the government for the elections of the new management, recorded eight minutes after the deadline from the convening notice, claiming they were submitted "within a reasonable delay", says Ovidiu Demetrescu, the president of the Romanian Association for Good Management (Asociaţia Română de Bună Administrare - ARBA).

He raised a warning about the return to the practice of political appointments in state-owned companies and the failure to honor the promises from the prospectus for the listing of the company.

In his opinion, the Financial Oversight Authority (ASF), the regulator of the stock market, needs to issue a verdict in this case.

On Friday, Electrica announced that there are nine candidates who submitted applications for the elections of the Board of Directors, aside from the current ones. The nine applications that have been accepted are Doina Elena Dascălu and Constantin Ciprian lacob. The candidacy of Alexandru Botez and of Gabriel Dumitraşcu, the former head of the Energy privatizations department, which were also submitted after the deadline were not accepted.

"The situation at Electrica seems unprecedented to me", said Ovidiu Demetrescu, who added: "We are talking about a listed company, where are taking place a completely illegal intervention and interpretation of the law by the Board of Electrica. According to the law, there is no «reasonable delay». When there is a deadline set in the convening notice, it is set in stone».

If one goes to the train station at 12:10, and the train leaves at 12:00, we can't just hop on board as the train is running".

He also mentioned the attempt to appoint politically-affiliated managers in state owned companies: "And here we are, after the example of Electrica, we are no longer referring to those companies in which the state is a 100% shareholder. We are now dealing with a listed company, in which the state holds less than 30% of these shares. With that stake, the government should be a minority shareholder, but it is the biggest shareholder. Thus, at Electrica, the state ends up having the power of a majority shareholder, because in the General Shareholder Meeting we have generally seen a quorum of 70-75%, in which the holding of the state represents a very clear majority".

Gabriel Dumitraşcu criticized the intention to politicize the management of Electrica and notified the ASF about the failure to comply with the deadline set in the he convening notice for submitting new applications for the new board. Mr. Demetrescu commented: "At this time, through the action and the voice of Mr. Gabriel Dumitraşcu once again the issue of the politicizing of companies in the portfolio of the state has appeared, especially the ones in the energy sector, and we think that this does not bode well.

At a certain time, Gabriel Dumitraşcu was the head of the privatizations department in the Ministry of Energy. At the time, one of the promises that Romania made was to depoliticize the management of companies and to move forward with good corporate governance. That's where the selection of independent managers began, in small steps.

Today we are seeing that this promise has been scrapped and we are returning to old practices to politicize management, which I don't think will yield the expected results".

Ovidiu Demetrescu stressed that Electrica is listed both in Bucharest and London, and in the listing prospectus, the company made some promises: "One of the most important promises, which was given a lot of weight at the time of the IPO, was the implementation of corporate governance.

Through politicization, we are doing nothing else than violate the provisions of the prospectus, and somehow, try to cheat the investors who bought shares based on the prospectus presented by the company.

We are not allowed to do that and I strongly believe that the Financial Oversight Authority needs to state its opinion on the compliance with the law in this case.

It is clearly a matter of failure to comply with the law and good corporate governance.

If the delay is accepted for some applicants, then all applications should be accepted. If not, the company will have to issue a new convening notice and hold the General Shareholder Meeting at a subsequent date".

When asked why he believed that Electrica accepted the delayed candidacies, when it could have held the elections in another General Shareholder Meeting, Ovidiu Demetrescu said: "In my opinion, there are two possible answers. One reason would be incompetence and I find it very hard to believe that the people who lead Electrica do not know the law and were unable to consult with their legal team, who could have told them that something like that was not in compliance with the law.

They probably answered to some political pressure. That is a suspicion. I think that they would be the most qualified to say why they acted the way they did. But it is obvious they broke the law. There is no derogation, within the meaning of the law, from a deadline. There is no stock market in the world that something like this has happened. Deadlines are very strict. I think that we are being embarrassed, even by the mere fact that we could even consider such an interpretation of a law.

We need to have professionals on the Boards of Directors, in full knowledge of the law and who ask their legal advisors when they don't know something.

Also, we need to look at people and especially at their ethics and integrity.

Perhaps we should have an independent body that can say whether a person is qualified in terms of ethics and integrity.

I know that at one time, there was an initiative from Electrica together with Transparency International, to make all the processes more transparent, an «integrity warning».

Also, I think that the Ministry of Energy should analyze the profiles of the candidates it has proposed, compared to the needs of the company".

Mr. Demetrescu addsed that even though the ASF has a management politically appointed by the parliament, it is an institution that has some regulations according to which it operates: "The management of the ASF needs to have a perfectly professional behavior that fits the institution it is in charge of. Even though the bosses of the ASF are appointed by a party, they need to have an independent and professional behavior when it comes to the capital market that they are regulating.

We are waiting for the answer of the ASF, as well as that of the Ministry of Energy".

Ovidiu Demtrescu thinks that the BSE should also react, in the case of Electrica, "if it had a management with a free spirit".

In the opinion of the president of ARBA, the election of a new management at Electrica, in the General Shareholder Meeting, would have negative consequences, because it could go as far as the decision being invalidated in court, which would lead to the company losing its credibility and subsequently, investors' confidence.

Mr. Demetrescu thinks that major institutional investors in Electrica should take a stance on the compliance with corporate governance and the law, if they want the company to perform.

ARBA is a non-profit organization which plans to promote the position of administrator, member on the Board of Directors/Supervisory Board, Directorate or other management structures.

The mission of ARBA is to build and develop a Center for Excellence which would create and promote responsible and ethical business standards, for the benefit of the business community, as well as of the overall Romanian society.