Enel ordered by court to pay Bucharest for utility stake

16 February 2017, Week 06 Issue 847

Italian energy giant Enel has been ordered by a court to pay 401 million euros (US$426.20 million) to the Romanian government for a 13.57% stake in a former subsidiary of state-owned Electrica.

The ruling by the International Court of Arbitration in Paris was announced by Enel’s legal advisor in the case, Zamfirescu Racoti & Partners.

Bucharest launched legal proceedings against the Italian company in 2014 over what it saw as a breach of the privatisation contract for Electrica Muntenia Sud (EMS). Enel snapped up a 50% equity share in EMS in 2008 for 395 million euros (US$420 million). It injected a further 425 million euros (US$452 million) of fresh capital into the business, raising its stake to 64.43% in the process.

The Romanian government was left with a share of 23.57%, but distributed 10% among company employees. Meanwhile, the remaining 12% of equity was bought by local investment fund Fondul Proprietatea.

In 2012, Bucharest exercised an option in the privatisation agreement which obliged Enel to buy the government’s remaining share, offering the Italian multinational 521 million euros (US$554 million). Enel, however, responded with a bid of only 300 million euros (US$319 million), prompting Romania to file an arbitration suit. Instead of a fixed price for EMS’s equity, the contract between Bucharest and Enel included a pricing formula that is open to interpretation.

In a statement, Enel confirmed it accepted the court’s decision and said it had set aside appropriate financial provisions.

After taking control of EMS, Enel spun the company off into two separate divisions with the same shareholder structure. The first, E-Distributie Muntenia, was placed in charge of distribution while the second, Enel Energie Muntenia, was made responsible for energy supply.

E-Distributie Muntenia has emerged as one of the most profitable utilities in the region, generating an operating revenue of 232 million euros (US$247 million) and a net income of 53.5 million euros (US$57 million). It serves 1.2 million customers in Bucharest and other nearby cities. Enel Energie Muntenia, which operates in the same region, booked a turnover of 388 million euros (US$413 million) and a profit of 5.6 million euros (US$5.96 million) in 2015.

Enel also owns distribution units in Romania’s eastern regions of Dobrogeo and Banat, serving a total of 2.7 million subscribers across the country. The Italian firm had sought to offload its Romanian business in 2014 to shore up its finances, but abandoned the plan a year later.

Bucharest has locked horns with investors over a number of privatisation deals in recent years as part of a crackdown on corruption. Last year it froze 3 billion lei (US$706 million) of assets belonging to KMG International (KMGI), a subsidiary of Kazakhstan’s national oil company, KazMunaiGaz (KMG). The government’s case related to allegations of tax evasion, money laundering and fraud when KMGI, formerly known as Rompetrol, was privatised.

Joseph Murphy

Edited by

Joseph Murphy


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