Archive for the 'Romania' Category

Corruption: A Minister for Sausages & Brandy

In Romania, EU's newest member state, if you want to get a public tender fixed, the minister might ask you for some euros. Also some sausages and plum brandy, writes The Economist.

Just weeks ago, the agriculture minister Decebal Traian Remes was shown on public television in what appeared to be the act of taking an envelope with 15.000 euros. His middleman, also a former minister, was then videotaped going to Remes' house with boxes of sausages and gallons of plum brandy. The tape included phone recordings in which Remes was asking the bribe-giver, a local businessman, about the exact registration numbers of the tenders he wanted to secure for himself.

Within two days of the tape being shown, Remes was asked by the Premier to resign. The moment couldn't have been worse for Romania:  The European Commission is threatening to cut 25% of the agricultural subsidies worth 100 million euros if the Government doesn't set up a functioning and transparent agency for distributing said funds to Romanian peasants.

As for the fate of Mr. Remes and a handful of other former and present ministers suspected of corruption (including the current Justice Minister!), things look brighter than could be reasonably expected in any other European country.  An “emergency ordinance” was recently passed by the Romanian government; an extraordinary legal procedure usually concerning urgent matters that enables the government to enact decrees without the usual parliamentary procedures.  As a result of this ordinance, the government dissolved the commission which conveniently happened to be in the process of lifting the ministers' immunity, which would have enabled prosecutors to actually investigate all of this purported corruption. The new commission is unlikely to resume activity this year, since there are ongoing appeals against the ordinance.

These delays to corruption trials are, unfortunately, not the first or only instance of such "politicking". Since Romania became an EU member on January 1st,  the political class has been  working on all levels to restore the privileges and impunity mechanisms it lost during the accession process. Changing the rules during the game seems to be the motto of the current administration. All sorts of legal exceptions, new amendments and bills are meant to undo what the former Justice minister Monica Macovei, broadly appreciated as a true reformist, succeeded in instituting. Unfortunately for Romania, Macovei was replaced during a government reshuffle in April.

 
Public perception of corruption is high: according to the last Transparency International corruption index, Romania is perceived as the most corrupt country within the EU.

The current Justice Minister Tudor Chiuariu, a former lawyer of a prominent regional party-boss of the governing Liberal Party, blames it on the prosecutors. In Chiuariu's eyes, it's not the MPs who change the laws during the game who are to blame, not the Government who sometimes rules by decree, nor the judges who are by large majority inherited from the Communist era, when they served as a mere branch of the political police. No, in Justice Minister Chiuariu's eyes, this latest bout of corruption is the fault of the prosecutors!  Unlike in East Germany, when upon reunification, all judges were evaluated and further employed only if it was certain that they would not act upon political commands, in Romania judges were automatically “recycled” by the post-Communists.

For Chiuariu, the activities of the Anticorruption Department, although praised in the EU Commission’s reports, are just “political commands”. Just days after his appointment earlier this spring, Chiuariu asked for one of the top prosecutors to be replaced – the head of the department dealing with top-level politicians. Even after the Superior Council of Magistrates audited the activity of that prosecutor and found that there are no grounds for him to be dismissed, Chiuariu persisted and asked the president to replace him, only to be refused again. If Chiuariu's (and Romania's) history is any indication, Chiuariu's next step will probably be a draft amendment in order to limit the presidential powers in this regard so that Chiuariu can expel those prosecutors he deems dangerous.

On the EU side, the Commission has some leverage left – the so-called “EU Cooperation & Verification Mechanism” for Justice and Home Affairs - is a unique post-accession monitoring program for Romania and Bulgaria that was designed & instituted in order to ensure the proper functioning of the rule of law and help these two country's fight against corruption. If the progress is unsatisfactory, the Commission can apply a safeguard clause that would block any Romanian verdicts from being legally binding in the EU.

If the Romanian justice system continues its current trend, the EU might very soon have to deal with a failure on the scale of the failure of the EU Constitution in 2005:  Romania would become the first EU member state with a dysfunctional rule of law and unchecked corruption. Such a scenario would be a disaster for both the EU & Romania. 

 This should at least be a lesson for the next EU candidates in line: No EU accession without a real reform of the political class and judicial system.

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The New European
Nov 2nd, 2007

Candles, prayers and secret police files

While in Western Europe, churches are empty and transformed into supermarkets or banks, the Eastern Orthodox Church in Romania is enjoying a unique popularity.

The Church ranks first in the opinion polls as the “most trusted institution” with 86%, followed only by the Army, press and NATO. Parliament, judiciary and other democratic institutions trailed far behind.

Around 200 churches have been built every year since the fall of Communism. Sunday churchgoers are no rarity, not even among youngsters. About 89% of the 21.7 million Romanians are Orthodox, making it the largest Orthodox population within the European Union.

Romanians will tell you that their Church kept them spiritually alive and inspired during the hardships of the repressive, 45-year Communist regime.

But the truth is that it also kept the regime well informed about its people. Collaboration between priests and the Secret Police (Securitate) was not accidental, but thoroughly planned and implemented.

more here.

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The New European
Sep 8th, 2007

Who is behind KazMunayGaz?

Janusz Bugajski, director of the Center for Strategic and International Studies New European Democracies Project and chair of the South Central Europe Area Studies program for U.S. Foreign Service Officers at the Foreign Service Institute speaks in an interview for the Romanian daily newspaper "Romania libera" about the recent takeover of the Romanian oil company Rompetrol by the Kazakh state company KazMunayGaz.
 
Q: “Better the Kazakhs than the Russians” seems to be the general view regarding the Rompetrol-KazMunayGaz deal. Do you share this view?
A: Let’s put it this way: on paper it looks like a good idea for Romania or for any other country to diversify its energy links with countries other than Russia. And I’m sure that the Europeans will approve it. The question is what lies behind it. I don’t know exactly KazMunayGaz’s structure or relation with the Russians. What I do know though is that the Kazakhs are very much dependent on transit through Russia – either they go through Russia or they ship it across the Caspian. They have to go across Russian territory in order to get to Novorossiisk, the Black Sea and into Romania. There is always some susceptibility, even if there is no Russian backing behind this, that Russians will cut off the supply. So if it crosses Russian territory and uses a Russian port, it is still susceptible to Russian political pressure.
 
Q: So you wouldn’t believe Dinu Patriciu’s (the CEO of Rompetrol) theory that the deal is building a “Nabucco of oil”, an alternative route to Russia?
A: It would be an alternative to Russia, if it bypassed Russia. The Nabucco pipeline was supposed to bypass Russia, but there seem to be problems with it – lack of investments, Russia’s preemptive pipelines like the one across the Baltic Sea, or the Black Sea. Russia is also trying to tie in the Central Asian countries, to buy most of their oil and gas at a cheap, but a guaranteed price. In other words, locking them in over a long period. This is classic colonialism: buy resources very cheap in your colony and sell them elsewhere – this is exactly what Russia is doing – now it’s trying to raise the prices with Germany and other Western European consumers and at the same time it keeps the prices extremly low for Kazakh and Turkmen oil and gas. So I hope the Central Asians are beginning to wake up. The question is how do they get out of it, because they’re landlocked. There are two possibilities: one would be across the Caspian Sea to Azerbaijan and then across Georgia, Turkey and so forth. The other one would be across Iran, which is sanctioned by the US. So that’s a huge problem. That’s why I think Russia is playing the Iranians. They don’t want Iran to have good relationships with the West, if not for anything else, then for its energy interests.
 
Q: The Western oil companies that are developing the Kashagan oil field in the Caspian Sea are trying to build a trans-Caspian pipeline to connect with the Baku-Tbilisi-Ceyhan pipe that bypasses Russia. But somehow there is very little progress there.
A: That’s the problem. There’s a lot on paper during these grand schemes, but there is no progress if the Europeans and the Americans can’t get their act together on this. And Russia of course exploits the situation. The question is whether this will help Kazakhstan to get the money to develop an alternative route to bypass Russia. I can’t predict that at the moment.
 
Q: On the deal itself, there are numerous question marks. It’s not clear why he had to sell, he bought it for 615 million dollars and sold it for over two billion. A great profit, but then the question is what’s the price for it and if Romania is actually winning or losing from this deal?
A: For a company this size, it is important for these details to be disclosed. It may be a private deal, but if this is going to affect so many people in so many jobs, in taxation, political, strategic as well as economic matters – I think we need to see exactly what this deal was. With all the articles, the clauses, all these sorts of things are very important. This has to be an open process. Even if this is absolutely clean, one suspects that there is something behind it.
 
Q: Can this deal also be read in the context of the Russia-US row over the military bases and the anti-missile shield in Eastern Europe?
A:That is why it is so important to know who is behind KazMunayGaz. Remember the case with the Ukrainians, the person who was put in charge over the gas supply company – I think a similar process of clarification has to be taken here. Who stands behind KazMunayGaz? I know it’s a state owned company, but what are the other interests in it. And then to look at the deal, what happens in terms of supply – is it going to increase, how much is there going to be invested in modernizing, in new pipelines, in shipping – all these things have to be investigated.
 
Q:The Russians are pressuring full speed on the Burgas-Alexandroupolis pipeline. Could KazMunayGaz-Petromidia be linked to the latter pipe?
A:The pipeline Burgas-Alexandroupolis designed to bypass the Bosphorus can be built pretty quickly and is surely on. Both Bulgaria and Greece signed up to this. It’s a very good question if Romania might plug into what will be a Russian controlled transportation network. Even though it might be a Kazakh-Romanian bilateral deal. It’s a very good point – again, one has to look on what the plans on transportation will be. This pipeline will be put together much more quickly than anything else across the Balkans and link up with Italy. There are so many dotted lines and competing interests, particullarly Russians against the alternatives.
 
Q: And the Russians are pressuring the Bulgarians and Greeks to sell their participation in the Burgas-Alexandroupolis pipeline, although Russia owns 51% of this pipeline.
A: That’s grand strategy. Not only do they want to control the supplies, including the supplies from Central Asia they’re trying to monopolize, but also the transportation, distribution and refinery network in different parts of Europe. Particullary in key-points and on the functioning of the whole economy. That’s what it amounts to.
 
Q: The EU is issuing a package of measures on September 19, set to restrict the access of non-EU companies on the energy market. Is this move coming too late?
A: One thing is to write the package, another to implement it. There are so many diverse country interests. The Russians have been trying to play with different countries – Germany, Austria, France, Italy – there are all sorts of deals going on that bypass the EU channels. So there’s no EU policy on this and Russia is exploiting it.
 
Q: Russia called the initiative a “hysterical reaction”.
A: (Laughs) then the EU is on the right track. If Russia criticizes something, they’re worried. If they’re ignoring it, then it doesn’t matter. It’s a positive sign.

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The New European
Sep 3rd, 2007

Kazakhstan sets foot in the EU

How about this for an oil deal: Buy a state oil company for $615 million, get rid of the debts through a shady scheme and then resell it for $2.7 billion. Such a deal is just more proof that the best deals are made with the state: Rompetrol, the private-owned Romanian oil company and its main asset, a refinery at the Black Sea coast, just a few miles from a U.S. military base wasn't sold to Shell, Exxon Mobile or Chevron. Rather, the buyer is the state oil company of Kazakhstan, KazMunayGaz , who bought 75% of Rompetrol on August 24.

"Better the Kazakhs than the Russians" is what US and EU experts are telling the Romanians. But is the Kazakh "president for life", Nursultan Nazarbaev, really an alternative to Putin? 

Dinu Patriciu, the former owner of Rompetrol and now the richest Romanian alive, claims he is building an alternative route to Russian oil.  Such a "Nabucco of oil", as the EU gas pipeline project is referred to that is due to bring Caspian gas through Azerbaijan, Georgia and Turkey to the European markets is what Patriciu is envisioning. The problem with this rosy view is that the Kazakh oil fields at Tengiz & Atyrau are connected to a Russian pipeline that goes straight to the Russian harbor Novorossiisk at the Black Sea, where 90% of all Russian oil exports are shipped from.

 

More so, the alleged "alternative to Russia" is very committed to the Russian pipeline. When he signed a deal with Vladimir Putin for 17 million tons of oil to be pumped to Novorossiisk for another planned pipeline from Bulgaria to Greece, Nazarbaev said:

"Kazakhstan is absolutely committed to sending the most part, if not all, of its hydrocarbons across the Russian territory."

For the Kazakhs, the acquisition of Rompetrol is finally getting them on European soil, after similar deals with the Czech Republic, Latvia and Lithuania failed. Uzakbay Karablin, the president of KazMunayGaz confirmed this in a statement:

"The deal provides us with a footprint in several important downstream markets in Europe, including France, Romania, Moldova and Bulgaria, as well as the ability to utilize Rompetrol as a platform for future expansion. The company will focus its activities in the high-growth markets of the Black Sea, Balkans and Mediterranean regions. It effectively builds an energy bridge between the oil resources of Kazakhstan and the growing demand for refined products in Central, Eastern and Western Europe."

For the Romanians, especially their increasingly isolated, pro-American president Traian Basescu, the sudden wealth of a local "oligarch", influential party leader and media owner sets the grounds for even more political trouble. The former Rompetrol boss was the very reason for Basescu's disagreements with his Premier, Calin Popescu Tariceanu, a long-time friend and apprentice of Patriciu. 

After he sold the company, Patriciu claimed Gazprom was also interested in purchasing Rompetrol, but the deal couldn't be made because of "political reasons". The Kazakhs seem to be the perfect solution: not quite Russians, but close enough, with pockets deep enough to make them eager to buy at any price.  The Kazakhs even went so far as to allow Patriciu to keep his CEO seat. For Patriciu, on trial for money laundry and insider trading related to the privatizing of the very same Rompetrol he just sold, this might be the ticket to heaven. A prosecutor-free heaven.

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The New European
Aug 29th, 2007

Eastern Europe: Race to the bottom of the flat tax

The Eastern European countries are engaging in what seems to be a race to the bottom in the implementation of a flat tax policy & rate. Trying to attract ore foreign investments than its neighboring country Romania, who adopted the flat tax at a rate of 16% in 2005, Bulgaria now announced it will introduce a flat tax of 10% in January 2008, the lowest rate so far. But other Eastern European countries are contemplating the idea of adopting this fiscal policy, and one has to wonder how low they can go with the taxation bar. For instance, the Czech Prime Minister announced in March that a 15% flat tax is "certain" to be introduced next year.

Implemented correctly, the flat tax policy has proved to be successful, at least in the Baltic states (which had higher rates though, between 24%-26%) when combined with strong emphasis on collecting the taxes and cutting red tape. In Romania, though, the policy is a mixed bag, the current Liberal minority government being backed by the Socialists in Parliament, has recently adopted a new pensions law that will most probably increase the social contributions and other hidden taxes. Cutting red tape has not been a priority so far, and foreign investors, although drawn by the new EU country, complain about the lack of transparency, bureaucracy and lingering corruption.

In the same race to the bottom spirit of Bulgaria, the Balkan country of Macedonia lowered its flat tax from 12% to 10% this year, claiming it's a "new business heaven in Europe". According to the Index of Economic Freedom,

"Macedonia is ranked 32nd out of 41 countries in the European region, and its overall score is lower than the regional average. Macedonia faces many challenges, including weak freedom from government, investment freedom, property rights, and freedom from corruption. Government expenditures are high, although state-owned businesses do not account for a significant portion of total revenue. The court system is prone to corruption, political interference, and inefficiency, partially as a result of the country's political turmoil."

Macedonia's agressive PR campaign might be thus a slight overstatement, though perfectly understandable as it is coming from a country that wants to join the EU and become more prosperous. Still, just by lowering the taxation bar and failing on deeper economic and political reforms doesn't do the trick.  Not in the long run.

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The New European
Jul 31st, 2007

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