05BUCHAREST1158 / 2005-05-19 07:35:00
Embassy Bucharest
                UNCLAS SECTION 01 OF 02 BUCHAREST 001158 
 
SIPDIS 
 
DEPT FOR INL 
DEPT FOR EUR/NCE - WSILKWORTH, EB/IFD/OIA - MROCHE 
DEPT PASS TO USTR 
USTR FOR GBLUE 
TREASURY FOR DO/GCHRISTOPOLUS 
USAID FOR E&E 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, RO, Investment Disputes, Privatization 
SUBJECT: ROMANIA: INVESTMENT DISPUTE UPDATE 
 
Ref: Silkworth EUR/NCE; May 13, 2005 
 
This message is Sensitive but Unclassified.  It contains 
business proprietary information.  Not for distribution 
outside of USG channels. 
 
Background 
---------- 
1. (SBU) Romania's piecemeal approach to privatizations 
resulted in discontent from a number of foreign investors 
concerned over inequitable or dubious privatization 
proceedings.  The current government is aware of the 
damaging impact of investment disputes on Romania's image, 
but lacks the technical expertise and professional approach 
to alleviate investors' concerns.  Below are brief outlines 
of potential and current investment claims lodged against 
Romania. 
 
Noble Ventures (U.S.) 
--------------------- 
2. (U) Noble Ventures ("NV") acquired a local steel mill in 
Resita, Romania.  NV claims that the GOR then illegally 
repossessed shares of the company.  Romanian government 
officials contend that because NV failed to meet its 
commitments under the privatization contract, the GOR had 
the legal right to seize NV's shares.  Claimant D filed for 
$350 million in damages with the World Bank's International 
Center for Settlement of Investment Disputes (ICSID) in 
Washington, D.C.  In 2003, the GOR re-sold the firm to 
another investor.  The case is pending.  A decision by ICSID 
is expected in 2005. 
 
New Century Holdings (U.S.) 
------------------------- 
3. (SBU - Business Proprietary) New Century Holdings (NCH) 
purchased 11.66 percent of the shares in the domestic 
Constanta Oil Terminal.  In 2001, the Romanian Government 
transferred certain pipeline assets owned by the Oil 
Terminal to state ownership.  The owners were not 
compensated for this transfer.  The expropriated assets were 
valued at more than $20 million and constituted 
approximately 80 percent of the company's capacity for 
transporting oil.  After the expropriation, the Oil Terminal 
was forced to enter into a concessionary agreement with the 
government to use the assets it previously owned.  The 
Bucharest Stock Exchange suspended trading of the shares in 
the Oil Terminal, and the stock lost 50 percent of its 
value.  In 2003, NCH submitted an application to the 
European Court of Human Rights against Romania based on the 
expropriation.  The case is pending.  Both parties have 
indicated that they prefer to settle the claim directly 
rather than in court. 
 
Cross Lander (U.S.) 
------------------- 
4. (SBU - Business Proprietary) In 2004 Cross Lander (CL) 
acquired an off-road vehicle manufacturing company.  GOR 
moved to free the company from past budgetary arrears as 
agreed in the privatization contract.  Because of unsettled 
non-budgetary arrears to state-owned energy companies, the 
company was put under judicial reorganization under 
insolvency law.  CL is seeking an amicable resolution of the 
issue, but is also contemplating the possibility of filing 
for international arbitration with ICSID for an amount to be 
determined should it fail to solve the issues. 
 
 
S&T Oil Equipment and Machinery (U.S.) 
--------------------------------------- 
5. (SBU - Business Proprietary) S&T Oil Equipment (S&T) 
acquired a majority stake in a Romanian explosives and 
domestic fertilizer production company in November 2003. 
The contract had as a precondition the fulfillment of a debt 
for equity swap of the company's arrears to energy 
companies.  The GOR claims to have received S&T's written 
waiver of the precondition.  In 2005, because of overdue 
debts, the Romanian company was placed under judicial 
reorganization through Romanian insolvency law.  In 2005, 
the GOR terminated the privatization contract and seized 
S&T's shares, contending that S&T was in breach of contract. 
S&T announced intent to file for international arbitration 
with ICSID for an amount TBD. 
 
Gavazzi Steel (Italy) 
--------------------- 
6. (U) Gavazzi Steel (GS) bought a state-owned local steel 
mill in 1999.  The company was subject to reorganization 
under the Romanian insolvency law, reportedly due to GOR's 
failure to reschedule debts, as agreed in the initial 
privatization deal.  In 2004, the GOR terminated the 
privatization contract and seized GS's shares.  In 2005, the 
GOR sold the steel mill to a Russian company.  GS announced 
intent to file claim with ICSID for an amount TBD. 
 
Comment 
------- 
7. (SBU) Key economic players in the current Romanian 
government are keenly aware that the ICSID's impending 
decision on the Noble Ventures case has the potential to 
damage the GOR's reputation and credit rating.  Despite 
these potentially serious consequences, the GOR still has 
not created a damage control plan or strategy for addressing 
possible fallout as the country still struggles on a daily 
basis to handle immediate political and economic issues, as 
well as challenges resulting from upcoming EU accession. 
 
Delare 

            
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