better business in romania tuca zbarcea asociatii 2010

Published by Ţuca Zbârcea & Asociaţii with contribution from the Romanian Ministry of Foreign Affairs.

© 2010 SCA Ţuca Zbârcea & Asociaţii. All Rights Reserved.

Printed in Romania. No part of this publication may be used or reproduced in any manner without permission from the publisher, except in the context of reviews.

Introduction 6

Romania-A Country Profile 8 with contribution from the Romanian Ministry of Foreign Affairs

Corporate 14

Privatization 23

Environment 29

Financial Institutions & Security Interests 37

Real Estate 47

Creditor & Debtor Disputes 55

Employment 68

Capital Market 74

Public Procurement & Concessions 83

Competition 90

Intellectual Property 104

Product Liability 113

Energy 118

Community Law 137

Romanian Tax System 143with contribution from Taxhouse

Contents

© 2010 SCA Ţuca Zbârcea & Asociaţii. All Rights Reserved.

Introduction

In previous editions of this booklet, we were welcoming you with enthusiastic presentations of the transformations Romania’s economy went through after the fall of Communism, with legitimate hopes flowing from Romania’s accession to the EU, with the optimism of the figures measuring foreign investments on the local market and, generally, with the trust that the entire business environment in Romania has all chances of becoming better: as any other emerging market, ours cannot (could not) other than grow…

We all know that today’s premises are not the same or, if not yet completely different, are undergoing inevitable changes. Romania’s economy remains emergent, but the crisis which affects the world today forces a different perspective upon us.

After the unprecedented warming of the global economy, we suddenly find ourselves faced with an icy cold wind, causing contraction. Global—this contraction, too, and expressing itself by a natural tendency of repositioning, reorganization, exorcism.

The chaos on the financial markets, the fall of the speculations on the stock exchange and on the real estate market, the chain of bankruptcies, the infections spreading from toxic banking assets, the growing unemployment, the dramatic reduction of trade are only a few of the symptoms the virus attacking the world economy now spreads. Symptoms that we can only expect to inevitably hit our economy too, cause trouble in what we saw as the El Dorado of foreign investment.

This dramatic change of perspective forces us to introspection, before anything else, to an effort of realistic repositioning. To adapting to new realities as we go. To redefining better business. It seems like only yesterday that, on the background of the economy growing en fanfare, “better” meant “more” (and more and more),but now, “better” means “more efficient” and “more effective”.

6 © 2010 SCA Ţuca Zbârcea & Asociaţii. All Rights Reserved.

Better Business in Romania


This booklet is offered as a support for you and your company’s investments in an economy affected, along the others, by global cooling; in an economy which, even though confronted by bankruptcies and reorganizations, by the decline of the real estate market and the soaring unemployment, still looks forward trustfully to investments in infrastructure, environment protection, health and green energy.

We welcome contributions from the Romanian Ministry of Foreign Affairs and Taxhouse—the Romanian member firm of Taxand, the first global network of independent tax advisors.

This booklet is made to offer you support in managing the inevitable complications created by the economic crisis but to also give you solid arguments for a better business development in Romania.

The sun may shine in wintertime, too. We would be happy if this booklet would help you find and enjoy its warmth.

Florentin Ţuca Managing Partner


Romania— A Country Profile

An Active European Member

Romania pursues a foreign policy of active involvement in the major political and economic processes at regional, European and global level.

Romania is a member state of the North—Atlantic Treaty Organization (NATO) since 2004 and of the European Union since 2007. It has diplomatic relations with 182 states and an extensive network of diplomatic missions all over the world (more than 100 – bilateral and multilateral, plus a significant number of consulates general and honorary consulates), which is an asset for its foreign objectives. In recent years, Romania has focused on efficiently substantiating its role within these two fundamental structures, promoting the consolidation of the Transatlantic link, building a prominent regional profile in the Balkans and at the Black Sea, expanding and intensifying its bilateral relations, while also taking part actively in the UN and other multilateral organizations or fora.

The participation in the EU’s decision—making processes has proven Romania’s capacity to contribute to the common European objectives, but also to promote its own national interests in the EU framework.

Romania was among the first EU members to ratify the Lisbon Treaty and is actively engaged in its implementation by ensuring a solid national contribution for the European External Action Service. The Commissioner designated by Romania in the new European Commission (2010—2014) covers an area of outstanding importance at the EU level, with significant financial implications — Agriculture and Rural Development.



Romania brings a noted contribution to the EU’s Common Foreign and Security Policy, and is among top 10 contributors among the member states to EU missions, mainly through its participation in the EU military and police operations in the Western Balkans and Georgia. Romania has also been involved in the EU debates and processes aimed at taking the best policy steps in response to the global financial and economic crisis, and has benefited from strong EU support in addressing its own domestic challenges. It is worth mentioning, in the context, that right after becoming a fully—fledged EU member, Romania’s profile as a reliable recipient of FDI increased drastically.

A common EU energy security policy, based on diversification and solidarity, is one of the key EU—related priorities for Romania. The signing of the Intergovernmental Agreement on the Nabucco gas pipeline (July 2009) and the endorsement of the project by the EU as a component of this diversification approach is a notable success for Romania and its partners. A series of important initiatives have been launched in the EU with Romania’s support, such as the Black Sea Synergy and, most recently, the proposal of an EU Strategy for the Danube Region.

A Reliable NATO Ally

Romania has brought a substantial input to NATO’s transformation process. Romania has been engaged in the internal debates of the organization on issues of highest relevance: providing the Alliance with flexible capabilities, renewing NATO’s Strategic Concept, promoting the cooperation with the EU, shaping the Allied military missions, developing a NATO anti—missile system, defining NATO’s role in energy security, combating new threats (such as the cyber—defence).

In particular, Romania has had a very solid contribution to the Allied operations in Afghanistan, as Romanian forces not only have been constantly significant in number, but they also have been involved in difficult missions.

At the beginning of 2010, Romania decided to supplement its troops in Afghanistan by 600 military to reach a maximum level of almost 1800 armed forces. The full recognition of Romania’s outstanding status within NATO, but also on the international stage came with the Allied Summit organized in April 2008 in Bucharest, which was the largest NATO Summit ever and the most important foreign policy event hosted by Romania.


Developing Partnerships and Participation on the International Stage

Romania has firmly supported the integration of Western Balkans states into the EU and NATO and constantly encouraged the European and Euro—Atlantic aspirations of the countries from its Eastern neighbourhood. Romania is committed to an active contribution to the EU policy and actions towards the Eastern proximity aimed at anchoring the eastern neighbours to the EU identity and values. The special relationship with the Republic of Moldova, based on common historical and cultural ties, is expressed both in supporting the country’s aspirations for European integration and in extending substantial and concrete support bilaterally, in order for Republic of Moldova to be able to reform and to modernize. Romania is tirelessly promoting the strategic and economic importance of the Black Sea region for the EU and NATO. Romania has also been assertive in supporting the consolidation of EU and NATO’s relations with Russia based on principles and pragmatic approaches. Romania has developed very close bilateral relations with a significant number of countries from all over the world. It has concluded Strategic Partnerships with the United States, the United Kingdom, France, Italy, Hungary, the Republic of Korea, and very recently, in 2009, with Poland and Azerbaijan, concluded an economic partnership with Germany, and also established special cooperation frameworks with countries such as China, Japan, Turkey or Israel.

Cooperation with the United States has been placed at the core of Romania’s partnership policy. Romania’s military engagement alongside American forces in theatres of operations such as Afghanistan and Iraq, as part of the global fight against terrorism, as well as the 2005 Agreement regarding the activities of US forces located on the Romanian territory, prove the special nature of the bilateral partnership. Moreover, the approval given by Romania’s Supreme Council of National Defence in February 2010 to the US’ request regarding Romanian participation to the future American Missile Defence System in Europe is of highest relevance not only for Romania—US strategic cooperation, but also for Romania’s national security.

Especially after the EU accession, Romania has used part of its diplomatic energies to revitalize and/or expand its relations with partners from other regions and continents. Romania is acutely aware of the global significance of developments in Central Asia and the Middle East, and its bilateral relations with countries from these regions have known significant successes for the past years, with positive economic implications. Another foreign policy aspect with particular relevance from a business perspective is that, after 1990, Romania has steadily intensified its relations with international financial organizations, including the International Monetary Fund, the World Bank Group, the European Bank for Reconstruction



and Development (EBRD), the European Investment Bank (EIB), the Council of Europe Development Bank. Although still difficult, Romania’s objective to strengthen relations with the Organization for Economic Co—operation and Development (OECD), with a view to promoting its candidacy for full membership, remains high on the agenda of the Government.

A Brief Look into Romania`s Economic Evolution after 1990

The economic evolution, after 1990, registered two distinct stages. During the first stage (1990—1999), Romania passed through an economic recession, deeper in 1990—1992, when the economy registered a 27% decrease and during 1997—1999 years, with a 12% downturn. This process, accompanied by an almost permanent inflation and an increase of unemployment, took place in the context of de—centralization and privatization measures and, after 1997, of an accelerated economic restructuring. The second period (2000—2008) witnessed a strong economic recovery, with an average annual growth rate of over 6%, with peaks in 2003—2008 when Romania scored a strong increase in consumption and production—oriented investments.

An enhanced and friendly business environment, the consequences of introducing a flat tax rate and the positive attitude of foreign partners towards Romania—in the context of its NATO and EU accessions—led to record foreign investments flows. During 2005—2008, direct investments in Romania amounted to approximately 28 billion Euros, more than half of the total foreign investments of the last 20 years. As a consequence of the global economic crisis, the figure registered a downturn in 2009 when it reached EUR 4.89 billion (approx. ½ of the 2008 level). The Romanian economy offers quite a number of competitive advantages which recommends it as one of the favorite destinations for foreign investments in the region. These advantages were enhanced by policy measures and an adequate legal framework promoted by the authorities in this important field of economic development. The Romanian foreign trade registered a significant increase both from a quantitative and a qualitative perspective, especially during the last years when it displayed annual growth rates above 10%. 2008 marked a peak in foreign trade, the total volume reaching EUR 90 billion (of which EUR 34 billion exports). During the last decade, the main trading partners were Germany, Italy, France, Turkey, Hungary, the Netherlands, Great Britain and Austria. Structurally, the evolution of foreign trade registered significant developments, whereas Romania exported more services and manufactured products with an enhanced value—added content.


These trends reflected the positive effects of economic restructuring, the national economy’s offering potential and an improved use of access facilities on foreign markets. Currently, EU’s weight in Romania’s foreign trade stands at over 70%, proving Romania’s degree of integration into the European internal market.

As a consequence of the global economic crisis that emerged in fall 2008 (leading inter alia to low levels of commercial and credit flows), 2009 was in Romania a year of economic recession. Although the Romanian banking system was solid and the economy registered almost a decade of sustained growth, Romania was affected by the crisis, mainly because of its links with the European and global markets. Last year the economy registered a 7.1% decrease of the GDP (lower than estimated), accompanied by an increase of the budget deficit and of unemployment figures.Government’s efforts to mitigate the crisis impact were oriented towards macroeconomic stability, stimulating the economic re—launch and maintaining investors’ interest. In order to prevent further difficulties, Romania has agreed with the EU and international financial institutions a financial assistance package up to EUR 20 billion for a period of two years. The main objectives concerning the above—mentioned package focused on balance of payments support, ensuring the credit and investment flows and consolidation of the National Bank’s reserves.

Romania’s perspectives of economic recovery are gradually starting to improve, though they still depend on external demand outlook, while increased unemployment is expected to persist for some time. 2010 prospects show a stabilization of the GDP evolution and the economy is expected to return to growth in 2011. The Romanian Government maintains as a priority its target date for joining the Eurozone (expected in 2014—2015), while continuing the efforts towards the fulfillment of Stability and Growth Pact convergence criteria, as well as ensuring long term exchange rate stability of the national currency—the Leu. A sustained pace of reforms will be maintained with an emphasis on public administration’s capacity to manage public funds and to generate EU—financed projects; financing priority projects in agriculture, education, healthcare, energy, environment and creating new investment opportunities for investors. Romania’s strategic priorities for the forthcoming period aim at developing the infrastructure, ensuring energy security and alternative routes of transport, modernizing the agriculture, improving the education and healthcare quality.

A Cultural and Generational Revival

A new generation of highly skilled and competitive people has largely taken over the leadership both in private and public sectors, boosting Romania’s development from all points of view. This can be seen not only in the foreign policy or in business, but also in Romanians’ vivid cultural life.



Here are some fascinating examples of the Romanian creativity after 1990:• Cinema: Romanian movies have impressed international juries and audiences

in the past years. The Romanian director Cristian Mungiu won the European Film Award of the European Film Academy and the Palme d’or prize at the International Film Festival in Cannes in 2007 for his movie “4 weeks, 3 months, 2 days”. “Police, Adjective”, directed by Corneliu Porumboiu, awarded in 2009 with the prize of the International Federation of Film Critics. The Grand Prix of the Jury at the 60th edition of the Berlin Film Festival, the Silver Bear, was won by Florin Serban’s movie “If I Want to Whistle, I Whistle”. Two major film festivals with broad international participation take place annually in Transylvania, in Cluj and Sibiu. Movies like “Cold Mountain”, “Amen”, “Callas Forever” were shot in Romania. Francis Ford Coppola’s film “Youth Without Youth” is based on a short story of Romanian reputed philosopher and author Mircea Eliade.

• Literature: Mircea Cărtărescu is the Romanian writer whose works have beentranslated in over twelve languages after 1989. The 2009 Nobel price for literature went to the German writer of Romanian origin, Herta Muller, whose books stem from her experience in totalitarian Romania. The Romanian —born writer Marius Daniel Popescu was the winner of Switzerland’s prestigious “Robert Walser” Award for literature for his novel “Symphony of the Wolf”, based on life experience in Ceausescu’s Romania. The book of the year in the Czech Republic in 2006 was the novel “Simion Liftnicul” authored by the Romanian Petru Cimpoiesu.

• Music and theatre: The biggest classical music festival in South—Eastern Europe, The Enescu Festival, takes place every two years in Bucharest. Every year, in November, Romania hosts an International Chamber Music Festival—SoNoRo, in Bucharest and other major cities. An international jazz festival is organised every year in the picturesque mountain village of Gărâna. The International Theatre Festival in Sibiu brings together participants from 70 countries, presents 350 events in 55 venues, with 60.000 spectators.

• Cultural promotion: There are Romanian Cultural Institutes in 15 countries and the network is growing. The second biggest building in the world, located in Bucharest—the Palace of Parliament—hosts a museum for contemporary art.Doina, a traditional Romanian folk song, is part of the UNESCO Representative List of the Intangible Cultural Heritage of Humanity.

Check our blog http://ro20.mae.ro/ to find interesting stories of Romanians that make Romania grow by turning their projects into reality.

Romania`s Ministry of Foreign Affairs48 www.mae.ro

48 The Ministry of Foreign Affairs (MFA) takes responsibility only for the content of the above presentation. The MFA encourages private companies to promote their views on the Romanian business environment. “Better Business in Romania” is a booklet authored by Ţuca Zbârcea & Asociaţii.


Corporate

Overview

In general, business activities may be carried out in Romania by companies (which may be owned without any restrictions by Romanian or foreign shareholders) or by other forms of business organizations such as authorized individuals, individual undertakings or family undertakings within the framework set out in the Companies Law No. 31/1990 (the Companies Law) and the Government Emergency Ordinance No. 44/2008 on the performance of business activities by authorized individuals, individual undertakings and family undertakings (GEO 44/2008). Listed companies have to observe also the capital market regulations, which are discussed in a dedicated chapter herein.

In principle, business organizations may conduct any type of activity48. Limitations, such as special approvals or permits, or restrictions as to the form of company allowed to perform certain activities, may be imposed by law in various business sectors placed under the supervision of a public regulatory authority, such as insurance, banking, pharmaceuticals, or in relation to certain industrial activities.

The Companies Law provides the limited list of legal forms under which a company may be established in Romania: the unlimited guarantee collective company (“societate în nume colectiv”), the limited partnership (“societate în comandită simplă”), the limited stock partnership (“societate în comandită pe acţiuni”), the joint stock company (“societate pe acţiuni”) or the limited liability company (“societate cu răspundere limitată”). Founders are free under the law to choose the type of company they establish, but certain business activities

48 The available economic activities are listed in an official code—Clasificarea Activităţilordin Economia Naţională—commonly known as the CAEN Code which represents a transposition of the NACE Code, valid at the European level.



may be conducted only by companies having a certain legal form (e.g. only joint stock companies may operate in insurance or banking). Changing the legal form of the company during its operations is possible, with the required corporate approvals, and provided the legal requirements for the new form are met.

The types of companies most frequently incorporated in Romania are joint stock companies and limited liability companies, especially due to the limitation of the shareholders’ liability to the value of their subscribed shareholding. Nevertheless, piercing the corporate veil is permitted by the latest amendments to the Companies Law, so that the shareholder abusing49 the limitation of its liability and the distinct personality of the company, thus deceiving the company’s creditors, shall be held liable without limitation for the company’s outstanding debts.

Among the most important reflections of the EU norms in Romania’s corporate law, we note the following:• Romanian companies meeting at least two of the following criteria: (i) aggregate

assets amounting to at least EUR 3,650,000, (ii) net turnover amounting to at least EUR 7,300,000 or (iii) number of employees exceeding 50 individuals must prepare their financial statements in accordance with the EC IVth Directive and have them audited, while the companies which do not meet the criteria are permitted to provide only simplified financial statements (even though they may choose to apply the EC IVth Directive, in addition to the Romanian Accounting Standards);

• Further to Romania’s accession to the EU on the 1st of January 2007, business activities may be carried out under the two “fundamental freedoms” central to the effective functioning of the EU Internal Market: the freedom of establishment and the freedom to provide services. The freedom of establishment enables an economic operator (whether a person or a company) to carry out business activities in a stable and continuous manner in one or more Member States. The freedom to provide services enables an economic operator providing services in one Member State to offer services on a temporary basis in another Member State, without having to establish itself in the second state, too;

• Romania created the legal environment for the incorporation and authorizationof the European companies, free from obstacles arising from disparities and limited territorial application of the national company law, in accordance with the Council Regulation (EC) No. 2157/2001;

• Also, Romania implemented the European regulations on cross—border mergers.Romanian limited stock partnerships, joint stock companies or limited liability companies, as well as the European companies headquartered in Romania may take part in cross—border mergers.

49 The law deems abusive the acts of the shareholder to use the company’s assets as if they wereits own, or to diminish the company’s assets for its own benefit, while aware that in doing so the company is hindered in performing its obligations.


Joint Stock Companies

Shares and share capitalJoint stock companies must have at least 2 shareholders50 and a share capital of at least RON 90,000. The minimum legal share capital value may be changed from time to time so that it reflects the RON equivalent of EUR 25,000.

The company’s share capital may be formed by contributions in—kind, in cash and/or in receivables. Cash contributions are always mandatory upon the company’s establishment. In—kind contributions must be evaluated and effectively delivered to the company (the company being given a real right over the property, such as ownership, or usufruct etc.). Only 30% of the entire subscribed share capital is required upon establishment while the remaining 70% must be paid either within 12 months from establishment, if formed of contributions in cash, or within 2 years, for contributions in—kind. Contributions in receivables are deemed paid when the debtor effectively makes the payment to the company.

The share capital of a joint stock company may be increased, by issue of additional shares or by increasing the face value of the existing shares, through contributions in cash or in—kind, or through the incorporation of the company’s reserves (save for the legal reserves), undistributed dividends and share premiums or by setting—off outstanding receivables against the company with newly issued shares (debt to equity swaps). Positive balance registered upon the revaluation of the company’s assets may not be used to increasing the share capital of a joint stock company.

The existing shareholders have a pre—emption right to subscribing the newly issued shares, as well as for the bonds convertible into shares, pro rata with their participation in the company. Exceptionally, the pre—emption right may be limited or withdrawn for well grounded reasons by the general assembly of the shareholders, with special majorities: the decision must be passed in the presence of ¾ of the subscribed share capital and with the majority of votes of the shareholders present or represented in the respective meeting.

In certain cases, the share capital increase or decrease becomes mandatory (e.g. in the event of a reduction of the net assets below half of the subscribed share capital, the share capital must be either increased to a certain level which ensures that the net assets value exceeds half of the subscribed share

50 5 was the minimum number of shareholders according to the form of the Companies Law as in force before 1st of December 2006. The modification of the minimum number of shareholders in a stock corporation has determined several companies to reduce their number of shareholders to 2 since this brings more flexibility in the operation of the corporate bodies of a stock corporation.



capital, or decreased, the minimum share capital requirements observed, with a value equal to that of the losses that cannot be covered from the company’s reserves). Failure to observe such provisions could trigger the dissolution of the company although such sanction has been rarely put into practice.

Shares may be registered shares or bearer shares. As a matter of practice, bearer shares are rarely used in Romania. Shares may be ordinary (i.e. one share gives right to one vote in the shareholders meeting and to the dividends proportionally to the quota of the share capital) or preferential (i.e. giving priority to dividends but not entitling to voting rights). Preferential shares may account for only up to ¼ of the share capital nominal value. The articles of association of a joint stock company may provide for a different number of votes attached to a certain block of shares.

One share may be jointly owned by several persons, however, the co—owners have to appoint a joint representative to exercise the rights derived from the share. Unless otherwise provided in the company’s articles of association, the shareholders may freely transfer their shares to any person. If the company is listed, the transfer has to observe the rules governing the relevant regulated market. Depending on the stock a person wishes to purchase in a listed company, certain procedures shall be observed (i.e. public offers).

As a general rule, the joint stock company may acquire up to 10% of its own shares provided they are fully paid. There are few exceptions to this limit, such as where the company acquires its own shares with a view to decreasing the share capital or within enforcement proceedings against a shareholder for debts due to the company. Such shares do not give the right to vote or to receive dividends while held by the company itself.

The shares may be subject to security interests, which become opposable towards third parties as of registration with the Electronic Archive for Security Interests and with the company’s shareholders register.

The Joint Stock Company’s managementThe main management body of a stock corporation is the General Assembly of Shareholders (the GAS). Depending on the matters to be submitted to shareholders’ approval, the GAS may be ordinary (e.g. appointing and dismissing the directors and auditors, approving the yearly financial statements and the management report) or extraordinary (e.g. increase/decrease of the share capital, change in the company’s legal form, mergers, spin—offs).

Shareholders having an interest contrary to the company’s interest in the matter submitted for the GAS approval have to refrain from voting.


Under the law, voting rights may not be assigned to any person and any agreements on exercising the vote in a certain manner are null and void.

This latter interdiction raises issues in practice, as it places doubts on the validity of shareholders’ agreements, especially as regards clauses containing arrangements to exercise the vote in a certain way on specific matters (e.g. when voting to appoint the directors nominated by each of the shareholders).

The ordinary and the extraordinary GAS differ as regards the quorum and voting rules. On the first call, the ordinary GAS may duly pass resolutions only (i) in the presence of the shareholders holding at least ¼ of the total number of voting rights and (ii) with the majority of the voting rights exercised in the meeting.

On the second call51, there is no minimum share capital required to attend or berepresented and the decision will be taken with the majority of the voting rights exercised in the meeting. The constitutive act may not under the law provide for a lower quorum or a higher majority for the second call of the ordinary GAS, a limitation which raised controversy in practice concerning the enforceability of shareholders’ agreements providing for a certain veto right in relation to important decisions in a joint stock company.

In the case of the extraordinary GAS, the presence of the shareholders (or their representatives) holding at least ¼ of the total number of voting rights is required at the first call, and 1/5 of the total number of voting rights for the second call. Decisions may be duly passed with the vote of the shareholders representing at least ½ of the voting rights of the shareholders present or represented at the meeting. However, a special majority of 2/3 of the voting rights of the present shareholders is required for decisions on major issues, such as the increase or decrease in the share capital, merger or the company`s winding up.

The articles of association may provide for increased thresholds of quorum and voting majorities. The shareholders holding at least 5% of the share capital may request that a GAS be called, or that the agenda of an already convened GAS be supplemented. As well, they may request the auditors to review any act or operation of the company or initiate claim, on the company’s account, against the founders, directors or managers of the company for damages they caused the company.

The Companies Law provides for two types of management systems available for joint stock companies: the one—tier management system, where the management is entrusted to a board of directors (“consiliu de administraţie”) which can or in

51 The second call takes place when the necessary quorum is not met upon first call.



certain cases is obliged to delegate management powers to several managers (“directori”), and the two—tier management system, where the effective administration of the company is ensured by an executive committee (“directorat”) under the control of a supervisory council (“consiliu de supraveghere”).

The members of the board of directors and the managers, in the one—tier management system, and the members of the executive and supervisory committee, in the two—tire system, may not be concomitantly employees of the company, their relationship with the company being regulated by a management contract. However, the managers and the members of the executive committee are assimilated with the employees, from the perspective of the taxes due to the social security budgets, which means that, with few exceptions, the same contributions have to be paid in relation to their remuneration as in the case of the employees.

There are no residency or citizenship restrictions on the directors, managers, members of the executive or supervisory committees of a stock corporation. The managers of a company opting for the one—tier management system and the members of the executive committee in a stock corporation that adopted the two—tier management system can only be individuals (natural persons).

In the case of listed companies, the directors may be appointed, at the request of a shareholder holding at least 10% equity participation, by way of cumulative voting, as discussed in the chapter dedicated to Capital Market.

There are legal provisions requiring GAS approval on certain operations (e.g. acquisition, transfer or lease of assets amounting to over half of the book value of the company’s assets) before the company’s directors are allowed to conclude them. In addition, the articles of association may provide for several other operations which require the GAS prior approval before allowing the management to conclude a transaction. As well, there is a general requirement that directors must refrain from voting on issues wherein they have a direct or indirect interest. As a rule, management members could be held liable only by the GAS for their management operations. However, the shareholders holding more than 5% of the share capital may engage the liability of the management members in case the GAS did not exercise such right. The official receiver appointed in case insolvency proceedings are initiated against companies may also engage the liability of the management members and, failing to do so, the creditors of the concerned company may exercise such right under specific circumstances regulated in the insolvency legislation.


Limited Liability Companies

Shares and share capitalA limited liability company may have 1 to 50 shareholders and must hold a share capital of at least RON 200 (approx. EUR 50). An individual or a legal entity may be the sole shareholder in one limited liability company only. The sole shareholder of a limited liability company may not be itself a limited liability company owned by a sole shareholder.

During the company’s life, provided that the above—mentioned minimum threshold is observed, the share capital may be either increased or decreased. The rules governing the case of reduction of the net assets below half of the subscribed share capital in joint stock companies apply also to limited liability companies.

The shares of a limited liability company cannot be traded on a regulated market. The limited liability company cannot issue bonds. The shares are freely transferable between the shareholders, while transfers towards third parties are subject to the approval of the shareholders holding at least ¾ of the company’s share capital. Important changes have been brought to the effectiveness of a share transfer made to third parties by the Government Emergency Ordinance No. 54/2010, which is now conditioned by the lapse of 30—day opposition term or by the rejection of such opposition through an irrevocable court decision.

The limited liability company’s management Decision making in a limited liability company belongs to the GAS. The directors are obliged to convene the GAS whenever necessary, but in any case at least once a year. The shareholders of at least 25% of the share capital have the right to request the convening of the GAS. Unless otherwise provided in the company’s articles of associations, the decisions may be passed within the GAS based on the votes of, cumulatively: over 50% of the shareholders and over 50% of the share capital. The shareholders having an interest in the matter submitted to the GAS for approval have to refrain from voting.

The limited liability company is managed by one or several directors, who may be shareholders or third parties. Unless otherwise approved by the GAS, the directors are subject to certain non—competing restrictions (i.e. they may not hold directorship position in another company conducting the same business or a competing business activity and may not perform, on their own account or on behalf of a third party, the same business activity or a competing business activity). The one— and two—tier management systems described for joint stock companies, and the limitations attached thereto, are expressly excluded from application in the case of limited liability companies, to the effect, inter alia, that the directors in a limited liability company may be concomitantly employees of that company.



The GAS but not the shareholders themselves may engage the management liability. Similar with joint stock companies, the management liability may be engaged during insolvency proceedings by the official receiver or by the creditors.

Authorized Individuals

Authorized individuals may carry on business activities as self—employed authorized individuals, as owners of individual enterprises, or as members of family enterprises. The owners of individual enterprises are the only authorized individuals able to act as employers and to conclude individual employment agreements with third parties. The activity of the authorized individuals is mainly regulated by the Government Emergency Ordinance No. 44/2008 (GEO 44/2008).

Authorized individuals are personally liable for all the obligations undertaken during the business operations. Under GEO 44/2008, Romanian citizens and citizens of EU Member States and EEA are allowed to carry out in Romania, as authorized individuals, all the business activities provided by the CAEN Code.

The activities performed by individuals require prior registration with the Trade Registry Office having jurisdiction in the area where the applicants have residence or where the activities are to be carried out. The Trade Registry should issue the registration certificate within a period of maximum 5 business days as of the submission of the application and complete documentation. The registration certificate best expresses the simplified procedure of authorization individuals enjoy, as it incorporates the actual registration of the individual, the required functioning authorisations (e.g. sanitary authorization, fire extinction authorization etc.) as well as the registration of the authorized individual with the fiscal authorities.

However, under special enactments, certain activities require additional specific authorisation before beginning the actual operations (e.g. the insurance agent must be authorized by an insurance/reinsurance company). GEO 44/2008 is also not applicable when the permission to practice certain activities is granted through a decision of a specific professional body, as it is the case of lawyers, certified accountants or financial auditors.

Restructuring Businesses

In the context of the economic and financial crisis, several business restructuring options gathered ground, including mergers, spin—offs transfer of lines of businesses, and acquisition and disposal of assets.


The Companies Law regulates in a dedicated chapter the merger and spin—off of companies. The merger may take place either by merging one or more companies into another, existing company (“fuziune prin absorbţie”) or by two or more companies deciding to form a new company (“fuziune prin contopire”). In the first case, the absorbed companies are dissolved without undergoing liquidation, while in the second case all participating companies (except for newly created one) follow the same process of dissolution without liquidation. Spin—offs are made by transfer of one company’s assets and liabilities, either entirely or partially, to two or more existing or newly created companies. The spun—off company is dissolved without undergoing liquidation. Transferring part of one company’s assets and liabilities to one or more existing or newly created companies is assimilated to spin—off.

Mergers and spin—offs have to be approved by the GAS of each participating company and must follow a specific implementation process. In practice, such processes are finalized in approximately 6 months. In practice, mergers and spin—offs are less frequent than the transfers of assets (including shares).

Companies in financial trouble may undergo reorganization based on a plan approved within insolvency proceedings before their shares are sold or their assets transferred to third parties. The successful finalization of such reorganization plan offers an important level of comfort to both the creditors of the concerned companies, and to the purchasers of its shares or assets.

All such processes involve a multi—disciplinary legal analysis. Besides the corporate aspects, the permitting matters (including approvals from the competent authorities and transfer of authorizations) and the employment issues (such as the protection of employees in case of transfer of undertakings) must be carefully assessed. Insights on such matters are provided in the relevant chapters herein.



Privatization

For more than 10 years, privatization was the engine tugging a post—communist centralized economy toward market economy and a significant part of the overall M&A transactions completed on the Romanian market. A special legal framework was created for privatization, undergoing successive changes from its early forms (the mass privatization of the early 90s) to more sophisticated regulations establishing transparent and competitive procedures, a variety of purchase methods for the investor, as well as a post—privatization monitoring procedure for the seller.

A Downward Trend on a 2009 Struggling M&A Market

Privatization peaked in terms of number and value of transactions between 2005 and 2008, with several high—profile acquisitions in the banking and heavy industry sectors, such as the sale of the majority stakes in Banca Comercială Română (Romania’s largest commercial bank) to the Austrian Erste Bank, in Daewoo Automobile Craiova (one of the largest automotive manufacturers in Romania) to the US automaker Ford Motor Company and in Electroputere Craiova (the country’s top manufacturer of locomotives, railway equipment and high—voltage electrical equipment) to the Saudi Al—Arrab Contracting Company Limited.

Privatization was on a downward trend throughout 2009, due to both the gradual exhaustion of the privatization pool (i.e. the Romanian State’ equity portfolio) and the economic and financial crisis that struck the global economy. Although the authorities in charge of the privatization process planned a number of transactions for the year 2009, most of the deals are yet to be completed.


In the transport sector, the Ministry of Transport prospected the opportunity to privatize the National Railway Freight Company “CFR Marfã” SA, further to a one—year long complex privatization process. However, considering the company’s poor financial results and the lack of interest from significant players in the railway sector, privatization was suspended.

In the aircraft manufacturing sector, the much—anticipated State’s divesture from Avioane Craiova SA stalled, advanced negotiations with a potential investor, the Italian group Alenia Aeronautica, ceasing without a positive outcome. Currently, the authorities are analyzing the possibility of attracting investors by offering the set—up of a joint venture.

Overall, in 2009, mainly due to the economic downturn markedly scaling down the investors’ appetite for fresh investments, the privatization process was virtually frozen, with very few closed deals52. Year 2010 is not expected to significantlyboost the slow pace of the privatization field, with only few transactions likely to be closed by the end of the year.

Relevant Public Authorities

As it involves making strategic decisions that have a significant impact on the economy, privatization is carried out by the Romanian Government, as a coordinating authority which approves the national privatization strategy, the terms of the major privatization agreements and grants various privatization incentives within the confines of the law.

In order to facilitate the privatization process, specialized bodies have been created, directly subordinated to the Romanian Government or to the ministries. Municipalities have certain competencies in the field also, but these are rather limited.

The Authority for State Assets Recovery (AVAS), a successor to the State Ownership Fund, the Authority for Privatization and the Management of State Ownership and the Authority for the Recovery of Banking Assets, is now the main Romanian privatization authority and the State’s representative in relation to most of the existing privatization agreements.

AVAS also monitors the fulfilling of the post—privatization obligations undertaken by investors in privatization agreements.

1 In October 2009, AVAS reported a total of 6 completed deals (out of 34 possible transactions)and collected in its accounts RON 62,479,000 (out of projected RON 416,000,000).



The Office of State Ownership and Privatization in Industry (OPSPI), subordinated to the Ministry of Economy, holds major companies in its portfolio, mainly companies operating in the natural resources (oil, gas, minerals, etc) and energy sectors, as well as some certification/testing companies and several significant industrial producers.

A number of ministries have been put in charge of privatizing companies in their portfolio, such as the Ministry of Transports and Infrastructure (for State—owned transport companies, railways, airports and harbours), the Ministry of Communications and Information Society (for its share in the national telecommunication operator and the national postal operator), the Ministry of Agriculture and Rural Development and the Ministry of Regional Development and Tourism.

Methods of Privatization

The main privatization methods available in Romania are:• Sale of shares;• Increasing the target company`s share capital by private capital contribution;• Transfer for no consideration or sale of assets with a social character; • Sale of assets; and• Combinations of the above.

The privatization legislation also regulates the possibility of state—owned companies to set up, in association with private entities, joint—venture companies that will have preference rights in the purchase of the assets of the State—owned founder company.

All the main methods of privatization are designed as to ensure equal treatment for investors and are based on the principle of transparency. A presentation file on the company is required upon initiating the procedure, but potential investors are allowed to perform their own due diligence.

Privatization through sale of shares is the most common privatization method and it may be carried out by public offer on the capital market, negotiation or through a tender process.

Sale on the capital marketSales on the capital markets may be made by public offer of the relevant public authority, endorsed by the National Securities Commission, which has to be acknowledged by at least 100 people and unconditionally accepted by the investors.


Apart from sale by public offer, there are other capital market methods of sale:• Sale upon order—applicable in the privatization of public listed companies where the State’s equity in the company does not exceed 5%;• Sale upon a purchase offer—entailing a proposal made by the institution

involved in privatization following a public purchase offer authorized by the National Securities Commission;

• Electronic tenders on the regulated market—require the posting by the institution involved in privatization of a sale order to be matched by the purchase order offering the highest price; the institution may sell more than 5% of the shares in a public listed company or a company that is to be listed;• Any combination of the above methods.

Sale by negotiationPrivatizations through this method are initiated by a sale announcement published by the relevant institution and can be applied only in the following cases:• When the public institution intends to transfer a share stock which ensures

a strategic investor (i.e. investors who meet certain financial, technical and organizational requirements) control of the company;

• When a sealed envelope tender for the selection of investors failed with only one purchase offer submitted, making less than 50% of the maximum number of points established by the scoring grid.

Special types of negotiation are to be carried out in complex transactions:• Negotiations based on final, improved and irrevocable offers—where investors submit a set of initial binding bids at the beginning of the process and, following negotiations with the seller, they present final and improved binding bids;• Negotiations based on preliminary non—binding offers —where the process

begins based on non—binding bids and, following negotiations, investors submit the final binding bids;• Negotiations based on a selection of technical offers—the method is chosen

where special technical requirements need to be met by the investors. After selecting one or several investors (which fulfill the technical requirement), negotiations continue based on the financial offer.

Sale by tenderPrivatization law permits the institution involved in privatization to choose from an open call public tender and a sealed envelope public tender. In both cases, the procedure begins following a sale announcement, and the potential investors are required to submit certain documents for qualification, as well as sale offers.



Main Features of Privatization Agreements

Privatization agreements regulate complex transactions where the seller’s interest goes beyond obtaining a competitive price but on to ensuring post—privatization development of the target company.

Therefore, investors, apart from paying the purchase price, regularly undertake to perform investments for technological development and for compliance with environment protection legal requirements.

Investments in the privatized companies may be made in various manners, such as direct transfers of amounts from the investor to the company, including dividends owed to the investor as shareholder, transfers of amounts from third parties to the company (affiliates or non—affiliates to the investor), in—kind contributions (such as equipment, industrial installations, machinery etc), transfer of know—how, licenses, patents or other similar things of value, leasing agreements for the modernization of assets etc.

Also, privatization agreements usually provide the investor’s obligation, for a limited period of time, to maintain a certain status—quo of the target company, in relation to the employees, the important assets, or the company’s corporate structure, with mergers, spin—offs or voluntary dissolution of the company usually forbidden unless the seller gives its consent.

In order to ensure observance of such obligations undertaken by investors, privatization agreements regularly provide for security mechanisms, such as securities over the purchased shares and/or over real estate, banking letters of guarantee, corporate guarantees or promissory notes covering the value of the undertaking etc).

Under the privatization agreement, the seller may undertake to indemnify the investor against any undisclosed environmental damage due to the company’s activity prior to privatization or against legal damages resulting from the company’s liabilities undisclosed to the investor and that could not have been discovered during an investor’s due diligence on the company. The indemnification that may be granted by the seller is limited by statute to a maximum 50% of the price paid by the investor for the shares.

In the case of early termination of a privatization agreement due to the investor’s fault, the seller usually retains the money paid as price, interest or penalties. The defaulting investor may also be liable for additional penalties.


Privatization Incentives

Following the negotiations regarding Romania’s accession to the EU, most of the incentives previously granted to investors within the privatization process —usually deemed restructuring State aid for the companies—have become unavailable under the law. As of April 2005, exemptions, reductions, deferrals and/or the rescheduling of duties to various State budgets, which made the most part of the incentives offered to investors, may no longer be granted.However, AVAS has the right to swap its receivables due by any company to be privatized into shares and to subsequently transfer these shares to an investor.

Post—Privatization

Once the State transfers its shares to the private investor, the post—privatization phase follows, with an average duration of 5 years, during which the investor has to perform his commitments under the privatization agreement. Performance of investments is ascertained by certificates issued by auditors agreed by the seller and the buyer, based on which the seller issues his clearance on the completion of the investment and may release the charge that secured the obligation. Performance of environmental investments must also be confirmed by the local environmental authority.

The parties may agree to amend the privatization agreement are possible throughout this phase. If such amendments involve the investment obligations or the price, additional securities have to be created by the investor. However, the price paid, or the overall value of the investment that was assumed may not be decreased under any circumstances. Amendments to the employment—related clauses require the union’s endorsement. During the post—privatization phase, the investor and the seller may agree to transfer the privatization agreement to another interested investor (by way of novation), but only with the seller’s prior approval, failing which the transfer is null and void. The transferee must take over all the obligations and liabilities referred to in the privatization agreement and must meet all the qualification criteria applicable to the initial investor.

Should the investor be in default with regard to the main obligations under the privatization agreement (including investments), the seller may seek termination of the agreement. If the investor has defaulted under a payment obligation, the seller may waive the termination right and agree to continue the privatization agreement, provided that the investor makes all outstanding payments within a 60—day term.



Environment

General. Main Regulations. Regulatory Authorities

Romanian legislation on environment is currently undergoing changes, as implementing new regulations for environmental protection has become one of Romania’s legislative priorities after joining the EU in January 2007.

During the last years, Romanian authorities have made serious efforts in order to transpose the principles of the relevant EU Directives in this field and, at the time of this analysis, the most important EU Directives already implemented in Romania are the following:• Directive No. 96/61/EC concerning integrated pollution prevention and control

(the IPPC Directive);• Directive No. 2004/35/EC on environmental liability with regard to the

prevention and remedying of environmental damage;• Directive No. 85/337/EEC on assessment of the effects of certain public and

private projects on the environment;• Directive No. 2003/35/EC providing for public participation in respect of the

drawing up of certain plans and programs relating to the environment and amending with regard to public participation and access to justice Council Directives 85/337/EEC and 96/61/EC;

• Directive No. 2000/60/EC establishing a framework for Community action in the field of water policy;

• Directive No. 79/409/EEC on the conservation of wild birds;• Directive No. 92/43/EEC on the conservation of natural habitats and of wild fauna

and flora.


The main authorities entrusted with the application of the environmental rules are:• The local environmental protection agencies established in each county;• The regional environmental protection agencies (i.e. one regional

environmental protection agency coordinates the activity of several local environmental protection agencies);

• The National Environmental Guard.

The Ministry of Environment and the National Environmental Protection Agency also have competencies in applying the environmental regulations; however, their implication is limited to projects that may have significant impact at national level, or which may impact on the environment of other states.

Implementing Projects Which May Generate an Environmental Impact

Implementing projects that may generate impact on the environment requires a two—tier authorization. On the one hand, such projects may only be developed subject to obtaining an environmental agreement (“acord de mediu”), which sets out the conditions to be fulfilled so as to ensure that the implementation (construction) of the project complies with the statutory environmental requirements. The environmental agreement is one of the documents substantiating the application for a building permit. On the other hand, works may not be commissioned until the operator obtains an environmental authorization (“autorizaţie de mediu”), which is separate from the environmental agreement.

The environmental agreementThe environmental agreement is issued further to conducting a complex procedure coordinated by the environmental protection agencies at different levels or, in certain cases, by the Ministry of Environment itself. The statutory framework in the field of environmental impact assessment was amended in April 2010 so as to ensure a better implementation of the EIA Directive 2001/42/CE as well as a better synchronization with the legal enacmtments in the field of building permitting. As a first step of this legal procedure, the environmental authorities conduct a first assessment aimed at establishing the magnitude of the environmental impact possibly generated by the project. For projects deemed to generate minor impact, the law prescribes a simplified permitting procedure, the project developers being allowed to begin construction works without an environmental impact assessment.



For projects generating an important impact on the environment, developers are invited to prepare an environmental impact assessment. To this end, after having consulted the interested members of the public, the competent authority prepares a checklist with the items to be covered in the report. The report is submitted by the environmental authority to a public debate.

Based on the findings in the environmental impact assessment report and, if the case, on the comments received from the public, the environmental authority takes its decision on issuing the environmental agreement. The decision is published in the media, so as to allow any interested person to challenge it. The environmental agreements are valid for the whole period of project development.

The public potentially affected by the project and the NGOs specializing in environmental protection play an important role in the procedure, as they have the right to participate in the process by submitting their points of view in relation to the project and by participating to the public debates organized by the environmental authorities.

For projects that may generate impact on the environment of neighboring countries, the Ministry of Environment conducts consultations with the relevant authorities in the possibly affected state. Decisions on issuing the environmental agreement for such cases must take into account the comments and suggestions possibly received from the potentially affected state. The environmental agreement is a pre—requisite for obtaining the building permit for projects with significant impact on the environment. In 2009, the framework procedure for issuing the environmental agreement was amended to ensure better synchronization with the legal framework governing the issuance of the building permit.

The environmental authorizationWhile the environmental agreement is the document regulating the implementation of environment impacting projects, activities with possible impact on the environment may only be carried out subject to an environmental authorization. The authorization sets forth the specific technical conditions to be complied with when carrying on a specific activity possibly generating an impact on the environment.

The environmental authorization may provide for a set of measures to be implemented in order to reduce the impact on the environment, establishing also the time schedule for implementing the respective measures. Failure to abide by its terms may trigger the suspension or annulment of the environmental authorization.


Projects subject to the IPPC DirectiveFor installations subject to the IPPC Directive, integrated environmental agreements and integrated environmental authorizations are required.

The integrated environmental agreement is the document setting out the conditions to be fulfilled so as to ensure that development (construction) of the project complies with the statutory environmental requirements.

Applying for a building permit is only possible after having obtained the integrated environmental agreement.

The integrated environmental authorization sets forth the specific technical conditions to be complied with when operating an installation subject to the IPPC regulations. While establishing measures to reduce the impact is allowed in environmental authorizations, the integrated environmental authorization is issued only if the installation in question complies with the best available techniques. In certain exceptional cases, the integrated environmental authorization may provide for a set of measures ensuring that the operator reaches the statutory requirements within 6 months.

In the context of the accession to the EU, Romania faced the challenge of bringing the old installations to meet the best available techniques. Since implementing such techniques could not be achieved in a short period of time, Romania has negotiated transition periods for ensuring progressive compliance of certain installations.

Change of Operators of Impacting Activities

Whenever the operator of an activity generating significant impact on the environment is subject to change of control, sale of assets, merger, spin—off, concession or other operations entailing a change of the operator, such operations must be notified to the environmental protection agency, in order for the latter to inform the parties involved on the specific environmental obligations they must undertake.

Having received the list of environmental obligations, the parties involved in any of the operations above will negotiate the allocation of such obligations among them.

The exact manner the parties involved understood to split the responsibility for fulfillment of the relevant environmental obligations must be notified to the environmental protection agency.



Water Management

While most waters are included in the state’s public domain and administered by the “Romanian Waters” National Company (Compania Naţională “Apele Române”), the Government has the exclusive right to establish the rules governing the use of waters, irrespective of whether water sources are included in the public domain or not.

Unless the relevant water installations exceed a certain capacity, the use of underground and surface waters is free for small activities specific to households, such as human and animal consumption.

The right to use waters for other activities is only granted through administrative acts regulating the terms and conditions of use, namely:• The water management permit (“aviz de gospodărire a apelor”); and / or• The water management authorization (“autorizaţie de gospodărire a apelor”).

The water management permit is a pre—requisite document to beginning construction works for new investment projects built on / near water sources, or related to the use of waters. Applying for the building permit is possible only after having obtained the water management permit.

The water management authorization is required before the commissioning and exploitation of new projects erected on / near water sources, or which are related to the use of water. The water management authorization regulates in detail the terms and conditions under which the use of water is allowed.

Exceptionally, for certain projects or activities, the law exempts the project developers / operators from their obligations to obtain the water management permit or the water management authorization. In this situation, a mere notification to the relevant branch of “Romanian Waters” National Company is sufficient.

Emission of Greenhouse Gases

In 2001, Romania was among the first states to ratify the Kyoto Protocol regarding the framework Convention of the United Nations with respect to the climate changes. In 2006, Romania transposed the Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community. As of 1st ofJanuary 2007, any operator of equipments listed in Annex I to the Directive 2003/87/EC must hold a greenhouse gas emission authorization and an adequate number of greenhouse gas emission certificates allowing a certain level of greenhouse gas emissions.


At the same time, starting with 1st of January 2007, Romania has implemented a greenhouse gas emission trading scheme. The total number of greenhouse gas emission certificates granted to Romania is approved by the European Commission separately for 2007 and then for each 5—year subsequent period.

For the first two periods (i.e. for 2007 and for 2008—2012), operators of installations listed in Annex I to the Directive 2003/87/EC were granted a certain number of free greenhouse gas emission certificates to be used in respect of their polluting activity.

However, starting with 2013, it appears that no free certificates are going to be granted anymore, but all greenhouse gas emission certificates granted to Romania would be sold to the operators of relevant installations.

For 2007 and 2008—2012, the greenhouse gas emission trading scheme provides for a certain limited number of certificates forming the national reserve available for new entrants (i.e. installations carrying out one or more of the activities indicated in Annex I to the Directive 2003/87/EC, which has obtained a greenhouse gas emissions permit subsequent to the notification to the Commission of the national allocation plan). Allocation of certificates to new entrants is free and is made on a “first came, first served” basis. Should the demand from new entrants exceed the number of certificates available in the national reserve, the new entrants who could not obtain free certificates would have to acquire such from the market.

For installations which are definately closed, the relevant greenhouse gas emission certificates are valid only for the closing year; the remaining certificates are to be transferred to the national reserve.

Noise Requirements

The Romanian standards in the field of noise pollution stipulate that any constructions which may generate environmental noise must be located in such a way so as the impact over inhabited areas does not exceed certain thresholds.

As per the legal provisions in force, the continuous noise level measured in certain technical conditions must not exceed 50 db and level 45 for the noise curve during the day. During the night, the noise level values must be lower with 10 db. Also, the continuous noise level measured inside apartments, schools or libraries (with windows closed) must not exceed 35 db and level 30 for the noise curve during the day. During the night, the noise level values must be lower with 10 db.



These thresholds have to be taken into account when developing new projects; at the same time, for projects generating environmental impact, they must be considered when preparing the environmental impact assessment report required for obtaining the environmental agreement.

In the field of noise impact, Romania has implemented Directive 2002/49/EC relating to the assessment and management of environmental noise, thus implementing a system aimed at preventing the negative effects caused by environmental noise.

Public authorities must prepare noise maps for the noisy areas identified in the law (i.e. big cities, airports, roads, railways and harbors) and propose action plans that would help prevent and reduce the impact of environmental noise.

Protected Areas

Romanian legal framework was aligned to the EU requirements primarily through the implementation of Directive No. 92/43/EEC on the conservation of natural habitats and of wild fauna and flora, Directive No. 79/409/EEC on the conservation of wild birds and Council Directive 2006/105/EC of 20th of November 2006 adaptingDirectives 73/239/EEC, 74/557/EEC and 2002/83/EC in the field of environment, by reason of the accession of Bulgaria and Romania to the EU.

In Romania, there are several types of protected areas, depending on their importance:• Protected areas of national interest;• Protected areas of international interest;• Protected areas of Community interest (Natura 2000);• Protected areas of local interest.

Depending on their importance and on how complex the management process is, management of protected areas is entrusted to the National Agency for Natural Protected Areas or to custodians, individuals or entities.

By exception, the management of the Danube Delta Wildlife Reservation is entrusted to a specially—created entity, the Danube Delta Wildlife Reservation Administration.

For each protected area, the administrators or custodians prepare the management plans and the regulations setting forth the rules applicable within the area. Such management plans and regulations are approved by the Romanian Government or, as the case may be, by the Ministry of Environment.


The National Agency for Natural Protected Areas was established in October 2008 but is not fully operational yet; hence, Romania is in the process of having the management of its protected areas entrusted to the relevant structures of the agency; therefore many protected areas do not have an effective administrator or custodian yet.

The possible influence of any environmental impacting projects on the protected area is subject to assessment in the environmental impact assessment reports conducted for the purpose of obtaining the relevant environmental agreement.

Liability for Damages Caused to the Environment

The liability for damages caused to the environment is governed by the principle “polluter pays”. Operators must promptly inform the local environmental protection agency on any damage caused to the environment, as well as on any imminent threat of such damage. In any such situation, the operator must take all necessary reparatory and/or precautionary measures.

If the operator does not comply with these obligations, or if the operator is not identified, the relevant environmental protection agency is entitled to take all reparatory or precautionary measures itself, on the account of the operator who has to bear the related costs. In order to recover the costs, the environmental protection agency may proceed to seizing the goods of the operator.

If damage to the environment or a threat of such damage is caused by two or more operators, their liability will be joint.



Financial Institutions & Security Interests

Financial Market

The financial market was among the first subjected to new regulation immediately after 1989 within the process of replacing the centralized state economy with free market institutions. Between 2002 and 2010, both primary and secondary legislation regulating the financial sector have undergone major changes in order to implement the relevant European Union (EU) Directives and secondary enactments and to adjust the Romanian financial system to the EU requirements, post—accession (Romania’s accession to the EU took place on the 1st of January 2007).

Regulatory authorityNational Bank of RomaniaThe National Bank of Romania (the NBR) acts as central state bank, having mainly supervisory and control powers over financial entities within its jurisdiction, irrespective of whether they are credit institutions or non—banking financial institutions. The NBR’s powers do not extend to the capital market and its institutions (e.g. the financial investment services companies), which are placed under the supervision and control of the National Securities Commission (the NSC).

The NBR has exclusive powers in authorizing and supervising the credit institutions and the non—banking financial institutions, Romanian entities, which are set up and operate in Romania. In this respect, the NBR issues mandatory regulations, applies sanctions and is entitled to control and review the books of accounts and any other documents of the mentioned entities.


To the extent that they are authorized and operating under the supervision of financial regulatory authorities in an EU or European Economic Area (EEA) country, foreign entities may directly operate on Romania’s financial market, without being required to follow a local authorization procedure and observe the capital requirements applicable to Romanian entities.

Payment Incident BureauThe Payment Incident Bureau is a centre for intermediation and management of information specific to payment incidents, in connection with paper and electronic payment instruments (e.g. cheques, bills of exchange and promissory notes).

Information to the bureau is conveyed by the computerized system through the Interbank Communication Network, which links the head office of the NBR to the head offices of all credit institutions.

Credit Information BureauThe Credit Information Bureau is established as an intermediation centre that manages credit risk information and card fraud information.

The system collects, stores and centralizes information (i) on the exposure of every credit institution in the Romanian banking system to debtors that were granted loans and/or have commitments totaling more than the reporting threshold, (ii) on payments overdue in excess of 30 days, regardless of the amount, owed by individuals against whom credit institutions’ exposure is less than RON 20,000, as well as (iii) information on card frauds committed by cardholders.

Procedure and pre—requisites for authorization of credit institutionsGeneralUnder the Government Emergency Ordinance No. 99/2006 (the Banking Law), both credit institutions and branches of foreign credit institutions headquartered in non—EU member states may be set up and operate in Romania only upon their authorization by the NBR.

Authorization of credit institutions by the NBR involves a two—step procedure: (i) preliminary authorization, whereby the NBR approves the setting up of credit institutions, and (ii) the banking license, whereby the NBR authorizes operation of credit institutions.

As regards the credit institutions headquartered in EU member states, they may operate in Romania either directly, by passporting their services based on the freedom to provide services within the EU, or through branches, in both cases upon a notification to the NBR. No authorization in necessary in this case.



Corporate formUnder the Banking Law, credit institutions, as well as housing banks and mortgage banks may be incorporated only as joint stock companies.

Capital requirementsSpecific capital requirements are applicable to each category of credit institutions. The initial share capital has to be of at least RON 25,000,000 (approx. EUR 7,400,000) in the case of housing banks and of mortgage banks and RON 37,000,000 (approx. EUR 11,000,000), in the case of regular credit institutions.

Preliminary authorizationThe application for a preliminary authorization should be joined by a series of documents providing details on the share capital, the shareholders and managing bodies of the credit institution, etc., and also a business plan including inter alia a description of the targets, the policies and strategies of the future credit institution, including information regarding the clients and the segment of market that the credit institution envisages, the products and services, the price policies, capitalization policies, the financing sources and asset structure, the personnel policies, a description of the internal control system to be employed, as well as references to adjustment of the IT system. The NBR is bound to decide on the application for a preliminary authorization within 4 months as of submission. The issue of the preliminary authorization by the NBR is not a guarantee that the subsequent banking license shall be also granted.

Banking licenseAfter the NBR grants the preliminary authorization, the shareholders proceed with incorporating the credit institution or registering the branch of a credit institution from a non—EU member state with the Trade Registry, as the case may be.

After the credit institution/branch was duly incorporated and registered, a number of additional documents should be filed with the NBR, within 2 months from the issuance of the preliminary authorization. The NBR shall issue the banking license within 4 months as of receipt of the application and complete joining documentation. The relevant credit institution is subsequently registered with the banking register hold by the NBR.

Business purpose and forbidden transactionsUnder the Banking Law, credit institutions may perform various financial activities, such as: taking deposits and performing lending operations (including consumer loans, mortgage loans etc.), financial leasing, payment operations, issue and management of payment instruments, issue of guarantees and undertaking of


commitments, transactions with money market instruments, intermediation on the interbank market, financial investment services and financial consulting, etc.

Credit institutions may also perform, within the limits of their authorization and subject to compatibility with the requirement of banking business, the following operations:• Non—financial mandate or commission operations, especially on behalf of other entities within their group; • Asset management operations in respect of the movable and/or immovable

assets own by the credit institution, but not for the purpose of performing financial operations;

• Services for their own clients which, although not connected with the performed business, are an extension of the banking operations.

Except for those referred above, transactions by credit institutions with movable assets and real estate property are only allowed under the following circumstances:• When such transactions are necessary for the authorized operations of the credit institution, for the employees’ training, or for organizing resorts or housing for employees and their families;• When the transactions involve movable assets and real estate property acquired

following foreclosure proceedings.

The following transactions are entirely forbidden to credit institutions: • Pledging of own shares against the credit institution’s debts; • Granting loans secured with shares, other equity securities or bonds issued by

the credit institution itself or by other credit institution within the same group; • Receipt of deposits or other reimbursable funds, equity securities or other

valuables when the credit institution is in insolvency.

Capital adequacyThe provisions of the Banking Law are essentially compliant with the principles of the Basel II Accord. Thus, as per the NBR/NSC Regulation No. 22/27/2006, the credit institutions must comply with capital requirements inter alia for risk covering, on individual and consolidated basis, and for monitoring and control of large exposures.

Minimum mandatory reservesAs per the NBR Regulation No. 6/2002, all categories of Romanian credit institutions are compelled to create and maintain with the NBR minimum mandatory reserves, in national and in foreign currencies, receiving interest at such rates as periodically determined by the NBR norms. Currently, in the case of credit institutions, the minimum mandatory reserves rate for RON liabilities is of 15%, while for foreign



currency liabilities the respective rate is of 25%, in both cases for liabilities having a residual maturity limited to 2 years as of the expiry of the observation period or, if it exceeds 2 years, the liabilities have attached a reimbursement, transfer or an anticipated withdrawal clause.

In any other cases, the minimum mandatory reserves rate is zero. The minimum mandatory reserves applicable to mortgage banks are zero.

Prudential obligationsAs per the Banking Law, the NBR is empowered to set forth prudential requirements applicable to Romanian credit institutions, inter alia referring to related parties agreements, liquidity, provisioning, corporate changes etc, by way of NBR norms (regulations, instructions and circulars).

Reporting obligationsPursuant to the Banking Law and the NBR subsequent enactments, Romanian credit institutions are compelled to periodically file specific reports with the NBR, containing inter alia information in respect of:• Tier I and Tier II capital levels and other capital adequacy compliance indices;• Net assets;• Individual and aggregate levels of the large exposures;• Solvency indices, on individual and consolidated basis;• Yearly financial statements and certain biannual financial data;• Classification of the loan portfolio and related credit risk provisions;• Banking fees for cashing in and payment operations etc.

Mortgage banksMortgage banks, deemed credit institutions under the Banking Law, are established as joint stock companies operating under the authorization issued by the NBR.

The main business object of mortgage banks consists of (i) providing mortgage loans for real estate investments (dwellings, industrial/commercial constructions) and (ii) issuing mortgage bonds. Mortgage banks are not allowed to take deposits. By derogation from the Civil Code’s general provisions on mortgage rights, mortgage banks are allowed to take mortgage on future property.

Non—banking financial institutionsNon—banking financial institutions are mainly regulated by Law No. 93/2009 on non—banking financial institutions (the Law 93/2009) and the subsequent norms issued by the NBR.


Business purposeAs per Law 93/2009, non—banking financial institutions are allowed to carry out various lending activities, among which financial leasing activities and consumer credits are most commonly met in practice. Non—banking financial institutions are entitled to grant mortgage loans as well. In addition, they can also undertake financing and guarantee commitments, issue and manage credit cards, and perform any connected or ancillary activities to the credit operations as well as mandate and consultancy activities. Nevertheless, they cannot receive money under deposit and cannot, in principle, issue bonds, nor perform other activities unless in relation to their lending activities.

Capital requirementsNon—banking financial institutions are required to have a share capital amounting to the RON equivalent of EUR 200,000, except for those acting as mortgage loan companies, to which a minimum EUR 3,000,000 threshold applies.

Procedure and pre—requisites for authorizationAs per Law 93/2009, non—banking financial institutions have to apply for license with the NBR within 30 days as of their incorporation. They are allowed to start lending activities only after being registered in the registry held by the NBR for non—banking financial institutions. The NBR should issue the license within 60 days as of receipt of the application and joining documentation.

Prudential and reporting obligationsAs per Law 93/2009 and the subsequent NBR norms, non—banking financial institutions must comply with specific prudential and reporting requirements, inter alia concerning the Tier I and Tier II capital, exposures, credit portfolio structure and corporate changes.

Payment institutionsPayment institutions are in particular regulated by Government Emergency Ordinance No. 113/2009 on payment services (GEO 113/2009) and the subsequent Regulation No. 21/2009 passed by the NBR.

GeneralPayment institutions can be incorporated only as Romanian legal entities and are subject to an authorization procedure with the NBR, before starting their operations. The payment institutions from EU—member states may operate in Romania based on a notification sent to the NBR by the competent authority in their home member state.



Business purposeAs per GEO 113/2009, payment institutions are allowed to carry out various payment operations, to take deposits, to perform specific transfers, withdrawals of funds, issuing and accepting to payment instruments, cash remittance or electronic payments. Payment institutions are also able to grant credits, but only in connection with certain of their operations and subject to specific conditions. They can also perform operational and other connected services, management of payment systems and other commercial activities, subject to the applicable laws.

Capital requirementsPayment institutions are required to have a share capital which may vary in consideration of their business object, i.e. amounting to the RON equivalent of EUR 20,000 (for cash remittance operations only), EUR 50,000 (for electronic payment operations only) or respectively EUR 125,000 (for all the payment services provided by GEO 113/2009).

AuthorizationAs per GEO 113/2009, payment institutions are allowed to start payment operations only after obtaining the approval from the NBR, which should be issued within 3 months as of the submission of the complete documentation. The authorization documentation includes inter alia information on the initial capital, business object, significant shareholders, managers of the payment operations, business and activity plans, etc.

Within 5 days as of the initiation of the authorized operations, the payment institutions must submit to the NBR a notification in this respect, together with the internal regulations and a statement of the management in respect of the IT system.

Prudential and reporting obligationsAs per GEO 113/2009 and the subsequent NBR Regulation No. 21/2009, payment institutions must comply with specific prudential and reporting requirements, inter alia concerning their agents, the Tier I and Tier II capital requirements, measures to protect the received funds.

The changes in the status of the payment institutions are subject to either authorization or notification to the NBR, depending on the degree of risk entailed by such changes. The payment institutions are subject to specific regulatory requirements, aimed to protecting consumers and their funds deposited with the payment institutions.


Security Interests

Security interests on movable propertySecurity interests on movable property are regulated by the Civil Code and by Title VI of Law No. 99/1999 on the legal regime of security interests (the Security Interests Law). The Security Interests Law provides a flexible and uniform framework, more efficient and adequate to the current economic reality53, as well as additional security enforcement procedures, as an alternative to the “classical” procedures provided by the Civil Code and by the Civil Procedure Code, such as allowing the creditor to undertake private—enforcement measures.

Creating the security interests on movable assetsSecurity interests on movable assets are created by way of written agreement between the secured creditor and the security provider (either the debtor or a third party providing security for the benefit of the debtor). There is no special form requirement for such security agreements and (unlike mortgage agreements) notarizing is not necessary. Compared to the “old” regulations in the Civil and Commercial Codes, the Security Interests Law expressly permits additional categories of movable assets to be charged by security interests, such as intangible assets, universalities of movable assets (including goodwill), movable assets attached to real estate, products of the secured asset (e.g. proceeds of the sale or any movable asset replacing the secured asset), future movable assets. Also, security interests may secure future obligations.

PublicityThe Security Interests Law requires registration of security interests with the Electronic Archive for Security Interests (the Electronic Archive) as means to ensure a priority order among creditors holding security interests in the same assets, as well as publicity towards third parties. The Electronic Archive can be easily accessed through a tax—free Internet database, ensuring rapid verification of the records.

The priority rank is given by the date of the registration of the security interest with the Electronic Archive. The registration of the security interest is valid for 5 years and may be renewed. The creditor is bound to request the security interest be removed from the Electronic Archive within 40 days following the fulfillment of the secured obligation.

Security agreementsThe security agreement must provide the maximum value of the secured obligation, as threshold limiting the amounts that may be recovered by the

53 Security interests are described herein as provided for in the Security Interests Law, for reasons ofmore frequent applicability than the institution regulated by the Civil or Commercial Codes.



secured creditor in case of enforcement. Also, the agreement must describe the secured assets in sufficient detail, general descriptions for category of assets being permitted (e.g. “all the debtor’s present and future movable assets”).

Generally, the security provider continues to use the secured assets during the security period; it is however possible that the secured creditor takes possession of the secured asset (although the security provider remains owner). Nevertheless, the security provider is allowed to sell or otherwise dispose of the asset throughout the entire duration of the security agreement. As a general principle, a security agreement cannot prevent the security provider from disposing of the secured asset, including by way of creating subsequent security interests.

Enforcement of the security interestThe security agreements over movable assets are deemed enforceable titles, which provide a procedural advantage in case of enforcement, as the secured creditor would not be required to file claim on the merits of the case. Throughout the enforcement procedure, the debtor is entitled by law to pay the outstanding debt and to thus put an end to the enforcement procedure.

The parties to a security agreement may agree on methods of sale to be used in case of enforcement. If the security agreement is silent in this regard, the creditor is bound to use the method most suitable to ensuring the best price possible is collected. If explicitly permitted by the security agreement, the creditor may directly acquire ownership over the secured assets within the enforcement procedure.

Suretyship (Fidejussio)The suretyship (fidejussio) is the personal guarantee regulated by the Civil Code. By way of a suretyship, the secured creditor is granted the right to pursue the guarantor in case the debtor fails to perform the secured obligation. When pursued by the creditor, the guarantor may uphold the following defenses:• The benefit of discussion (“beneficiul de discuţiune”), whereby the guarantor

asks the secured creditor to first exhaust its remedies against the debtor before pursuing the guarantor; and

• The benefit of division (“beneficiul de diviziune”), available where there are multiple guarantors for the same debt; should one guarantor uphold the benefit of division, the creditor would be obligated to pursue each of the guarantors pro—rata with their undertakings.

Either of the above defenses may be contractually waived by the guarantors.


MortgageMortgages continue to be preferred security instruments and are frequently used in various types of commercial and retail transactions. Under the Civil Code, mortgages can be created on the security providers’ own real estate property, including land and buildings. Except for specific legal provisions regarding mortgage loans, future immovable assets cannot be mortgaged. Following the creation of a mortgage, the security provider will continue to own and use the mortgaged asset. The mortgage will be preserved throughout any ownership transfer, following the mortgaged asset into the hands of any subsequent acquirer, so that the secured creditor is able to enforce the mortgage irrespective of who would own the property at the date of the enforcement. If the debtor failed to discharge the debt on the due date, the secured creditor is entitled to enforce the mortgage and satisfy its receivable against the debtor by selling the mortgaged real estates through a relatively simple, yet lengthy and bureaucratic legal procedure.

Mortgage agreementsA mortgage may be created by agreement of the parties. The mortgage agreement must be notarized as a condition for its validity. By way of the mortgage agreement, the security provider may undertake not to dispose of the mortgaged property for as long as the mortgage is encumbering it, and the scope of such interdiction may vary from an interdiction to sell, to an interdiction to mortgage, lease or in any way alter the mortgaged property. Under the sanction of nullity, the mortgage agreement must provide a proper description of the mortgaged property, details of the secured obligations and the maximum value of the secured obligation.

PublicityThe Cadastre Law No. 7/1996 sets out the legal framework for the registration of mortgages with the land books kept by the offices for cadastre and real estate publicity54. The mortgage registration system is aimed at ensuring the priority rankamong secured creditors, the publicity against third parties and preventing abusive disposals (by the security providers) of mortgaged real estates. Thus, by reviewing the registrations in a land book, a third party would be informed about the existence of any mortgages encumbering the property. The land books can be relatively easy accessed. An internet database is not available yet for the verification of the real estate records. The registration of mortgage is valid for 15 years and may be renewed. As an exception, for mortgage loans, the mortgage shall be valid until full repayment of the loan, thus no renewal is necessary.

Enforcement of the mortgageThe properly notarized mortgage agreement is an enforceable title in the event the secured creditor submits a formal request to the court, within a non—contentious procedure, in order to obtain formal approval to start the enforcement procedure.

54 For a detailed description of the real estate publicity system please see section Real Estate below.



Real Estate

Public Property

Both State and territorial—administrative units (communes, cities, municipalities and counties) own properties consisting of real estate that, according to certain legal principles, belongs either to the public or the private domain.

Public property includes all real estate that under the law or by its nature is of public use or interest. As an example, the public property of the Romanian State includes estates such as roads, beaches, parks, railway infrastructure, etc.

According to the principles of the Romanian Constitution, real estate in the public domain (i) may not be subject to transfers of ownership right; (ii) may not be subject to enforcement procedures and (iii) may not be encumbered by security interests. Any transaction referring to an asset that is part of the public domain, and which does not observe the above—mentioned rules, is deemed to be null and void.

Some of the private real estate projects, especially projects developed in partnership with local authorities, involve transfers of lands and buildings from public property into private property or transfers between the public domains of the State and respectively of the cities. The law imposes certain limitations to such transfers.

According to the Constitution, assets in the public domain may be exploited by third parties by means of concession. The sale, concession or lease of such real estates should be achieved by means of a public tender.

Exceptionally, the local councils may grant the right to use real estates which belong to the local public or private property, free of charge and for a limited period of time, to non—profit legal entities involved in charitable or public utility activity or to public services companies.


Private Property

Save for public property, any real estate can be subject to private property rights.

Also, as a general rule, any legal or natural entity may be the holder of private property rights. However, the Constitution and the specific relevant law (Law No. 312/2005 on the right of foreign citizens and stateless individuals, as well as of foreign legal entities to acquire the private property right over lands, which came into effect on the 1st of January 2007) set forth limitations with respect to the acquisition by foreign citizens or by stateless individuals of the ownership over lands in Romania. Thus, citizens of an EU Member State or stateless individuals domiciled in an EU Member State, who are not Romanian residents, as well as legal persons established under the laws of an EU Member State may acquire ownership in lands in Romania for the purpose of establishing a secondary residence or business unit only starting 2012. Ownership in agricultural lands, forests or forestry lands may be acquired by citizens of an EU Member State or stateless individuals domiciled in an EU Member State, who are not Romanian residents, only starting 2014, unless such persons work as independent farmers and become Romanian residents.

Non—EU citizens and stateless individuals can acquire ownership over lands in Romania only according to international treaties and to the reciprocity principle, under conditions not more favorable than those set for the EU citizens, EU legal persons and, respectively, Romanian citizens. The most practical way for foreign investors to acquire land in Romania is to set—up a special purpose vehicle with headquarters in Romania. This will be a Romanian legal entity and will thus be entitled to acquire land without any legal barriers.

Formal requirements for the valid transfer of landsThe law imposes that transfer deeds be concluded as authentic deeds (ie signed in front of a Romanian public notary who must authenticate them). Failure to do so results in the transfer deed becoming null and void. According to the provisions of the Romanian Fiscal Code, the individuals who obtain incomes out of the transfer of ownership and/or of derivate rights thereof, over a real estate (construction and/or land of any kind) have the legal obligation to pay an income tax to the state budget. The value of the income tax depends on the price of the transfer, as well as on the period elapsed between the date the real estate was acquired by the seller and the date the seller transfers it, as follows:• If a real estate property has been acquired within a 3—year period prior to

its being transferred, the tax amounts to 3% of the price if the price does not exceed RON 200,000, respectively to RON 6,000 plus 2% of the value exceeding RON 200,000 if the price exceeds RON 200,000;



• In the case of real estate properties acquired within more than 3 years prior to the transfer, the tax amounts to 2% of the price, if the price does not exceed RON 200,000 and RON 4,000 plus 1% of the value exceeding RON 200,000 if the price exceeds RON 200,000.

Limitations to free trading of real estatesPrivately owned assets may be freely transacted. However, exceptions from the rule of free circulation have been implemented, based on specific statutes.

When property rights are established over certain types of agricultural land under Land Law No. 18/1991 (law regulating restitution of agricultural lands), the land may not be transferred for a 10—year period from the beginning of the year following the one in which the property is registered. This restriction however is not applicable for the case of reinstatement (“reconstituire”) of the property right over lands under the same law.

Another restriction concerning the free circulation of land is introduced in the case of forestry land, the transfer of which is subject to a pre—emption right in favour of the State. The Romanian State, respectively the territorial—administrative units, also benefit from a preemption right for real estates deemed historical monuments intended for transfer by their owner.

Should litigation arise in connection to the ownership title in real estates, or to the boundaries of such estates, this represents an impediment to transfer throughout the duration of the dispute.

Claims for Properties Confiscated by the Communist Regime

Real estate investors should also consider the critical issue of claims filed by former owners of real estate abusively expropriated by the Communist regime. Beginning in 1991, the Romanian Parliament issued a series of acts regulating the restitution of such properties. These include:• Land Law No. 18/1991, which initially affected only agricultural land and

subsequently forest lands;• Law No. 1/2000 on the reconstitution of ownership of agricultural and forest

lands; • Law No. 10/2001, which regulates the legal status of certain properties abusively

taken over by the State between 6th of March 1945 and 22nd of December 1989;


• Law No. 247/2005, which completes and unifies the general legal framework on restitution of real estates.

The principle set forth by these laws is the restitution in kind of the confiscated assets, specifically the reconstitution of the ownership rights on the former locations/sites. Should restitution in kind not be possible, the former owners shall be granted compensation. This principle may have significant consequences if, for instance, at the date of the claim, the asset is found in the public domain of a city and is subject to a concession agreement awarded to a private investor.

Law No. 247/2005 established the legal framework governing compensations, by the incorporation of Fondul Proprietatea SA, a securities collective placement body, in the form of a financial investment company.

Considering the number of confiscated properties and the multitude of legal issues developed in connection with such properties over the years, also due to changing legislation, a detailed legal due diligence investigation on the background of the ownership over the relevant asset (land and/or building) is a requirement before initiating any real estate project in Romania, irrespective of whether the asset is currently in the State’s public domain, in the private domain of a city or in the private property of a legal entity or of an individual.

Real Estate Publicity

Romania has a public record system in which both rights and encumbrances (ownership, usufruct, the right to use in certain circumstances, the mortgage, etc.) over real estate must be registered in order to be enforceable against third parties.

To this end, Romania has implemented a cadastre, a unitary and mandatory system providing a technical, economic and legal record of real estate in Romania. The cadastral record is based on information regarding the plot, construction and ownership of all real estate.

The Cadastre Law No. 7/1996 sets forth the manner in which the legal operations regarding real estates are published. The records are maintained by the National Agency for Cadastre and Real Estate Publicity, through its territorial units. The general cadastre record system is designed to provide a public record of all transactions and relevant legal issues related to real estate located in the same territorial units.



The land book provides for a description of estates (with ordering number, cadastral number of the estate, the estate surface, its categories of use and, as the case may be, the buildings and the location of the estate by indicating neighboring areas), for aspects regarding the ownership right (name of owner, the legal act or fact which gives rise to the owner’s right, the rights—of—way, the legal facts, personal rights or other legal relations or actions taken in connection with the property) as well as for aspects regarding the background of various divisions of the ownership right (the right to use the land under the construction, the right to use, the right to dwell on, the rights—of—way related to the land, the mortgages and the real estate privileges, the lease and assignment of income exceeding 3 years, actions regarding garnishee proceedings, pursuit of the estate or of its proceeds).

If a certain real estate right is recorded in the Land Book, it is presumed to exist if it was acquired or set up in good faith and if nothing is proven to the contrary. Still, registrations in the Land Book do not represent an absolute evidence of the ownership right on the property.

In view of the above, recording in the land book rights acquired by investors over real estates involved in a project (for instance, rights deriving from concession, lease, a prohibition to sell) is essential in order to ensure the opposability and stability of the right so acquired. The review of the records in the land book with respect to a real estate contemplated by the project may reveal issues which significantly influence the development of the project, making it a required step prior to acquiring rights (for instance, the land book may reveal that the estate is subject to an interdiction to alienate and to set up mortgages, or that the estate is under concession to a third party, etc.).

Construction

Construction works can only be performed on the basis of a building permit (“autorizaţie de construcţie”) that is issued by the local public authorities with a view to ensuring compliance of future construction with the legal provisions regarding location, design, and scope thereof.

Town planning documentationsThe main town planning documentations are the General Urbanism Plan (Plan Urbanistic General—PUG), the Local Urbanism Plan (Plan Urbanistic Zonal—PUZ) and the Detailed Urbanism Plan (Plan Urbanistic de Detaliu—PUD).


The PUG has a general applicability to a certain locality, and establishes, inter alia, the limits of the intra—muros territory (the city limits), the use to which the intra—muros lands (located within the city limits) may be put, the protected areas (as thecase may be), the development of the technical infrastructure, requirements pertaining to the location and characteristics of the constructions. The PUG represents the guideline for the development of a certain locality and may be updated from time to time, every 10 years at most.

The PUZ mainly ensures coordination between the development plans and the PUG of a specific locality. The PUZ is prepared for each specific area of the respective locality and refers to: (i) street network organization; (ii) urban—architectural organization, depending on the urban structure; (iii) land usage; (iv) infrastructure development; (v) technical regime applicable to the respective area, and (vi) protection of historical monuments located in the relevant area. The PUZ is approved by the Local Council of the City Hall where the land is located. Once approved, it becomes compulsory for the respective area in relation to the technical parameters contained, and it may not be amended for a period of 12 months after its approval.

The PUD is a specific regulation that sets—forth detailed requirements regarding the location and area of a construction on a specific plot, as well as its harmonization to surrounding areas. The PUD includes, inter alia, regulations regarding: (i) accessibility and connection to the urban networks; (ii) general constraints regarding the built volumes and the fittings; (iii) functional and esthetical harmonization of the construction with the surrounding areas.

The construction requirements established under the town planning documentation are described, for individualized parcels of land, through urbanism certificates (“certificat de urbanism”). The purpose of such certificates, which may be issued at the request of any interested person (individual or legal entity), is mainly to: (i) provide information on the legal, economical and technical regime of a certain plot, including in relation to the buildings erected thereon, (ii) detail the town planning requirements that apply to it and (iii) indicate the approvals and permits required in order to begin construction on the plot.

The urbanism certificate is issued by the same authorities issuing the building permit, respectively the Mayor of the locality where the land is located or the President of the County Council, if the land on which construction works are going to be performed exceeds the boundaries of a single territorial—administrative unit. The urbanism certificate does not grant its holder the right to perform construction works. The sole document allowing construction works is the building permit. Urbanism certificates are also issued for granting concession rights on lands, for adjudication of projects referring to public works, and for certain legal transactions.



The building permitDepending on the type of land (intra—muros or extra—muros), as well as on the use to which the land is put (agricultural or industrial), certain steps have to be taken before applying for a building permit.

If the relevant plot is classified as farming (agricultural) land, one of the prerequisites to obtaining a building permit is to change the category of use of the land, a process that requires a certain administrative procedure (including drawing—up of cadastral documentation and obtaining approvals from various governmental agencies) be followed and fees be paid.

The building permit may only be issued after the fulfillment of the following steps: (i) obtaining the urbanism certificate, which describes, inter alia, the town planning requirements for the relevant area, (ii) obtaining the relevant endorsements and approvals by the authorities indicated in the urbanism certificate and (iii) submitting the technical documentation of the future construction.

Building permits may be issued to the holder of (i) a real right on the estate (land and/or construction), such as: ownership, usage right, usufruct right, or superficies, or of (ii) a receivable, arisen out of an assignment agreement or lease agreement. However, a building permit may be issued on the basis of a free—lease or lease agreement only in the case of temporary buildings, and provided that the owner of the real estate expressly consents to such constructions being built on its land.

Building permits are issued by the same authorities empowered to issue urbanism certificates. If the beneficiary is changed before completion of the works, the building permit remains valid and is automatically transferred to the new beneficiary, which is bound to observe its provisions.

The building permit is issued subject to the payment of a tax of (i) 0.5% of the estimated value of the construction works referring to dwellings, (ii) 3% of the estimated value of the works referring to site organization, provided that such works are authorized individually, and not together with the main construction works to which they refer, (iii) 2% of the estimated value of the construction works for the camping, cottages, camps or caravans or (iv) 1% of the estimated value of the construction works (such tax is further adjusted at the end of the project based on the final construction price).

Should the extension of the building permit be required, an additional tax amounting to 30% of the initial authorization tax has to be paid.


The completion of the construction works and their compliance with the requirements laid down in the building permit are ascertained by means of reception minutes—a deed prepared by the representatives of the local authorities, of the constructor and of the beneficiary of the respective construction works.

Such reception minute represents also the deed ascertaining the completion of the construction works, based on which the new building may be registered with the Land Book.



Creditor & Debtor Disputes

Overview

The last years’ economic downfall has amounted to a significant pressure placed on the budgets of companies in debt, causing a notable stall in the amiable payment of outstanding receivables. This, in turn, has increased the number and complexity of disputes issued in courts and in arbitration, calling forth new developments in the dispute resolution system.

With a new Civil Procedure Code underway—along with a new Civil Code, new Criminal and Criminal Procedure Codes, a new Administrative Procedure Code—Romania looks at a major reform of its judiciary system in the immediate future.

An expansion of the alternative dispute resolution mechanisms is also on its way, with courts being held to recommend mediation to litigating parties since the entry into force of substantial amendments to the Mediation Law on the 3rd of March 2010.

Against this background, urgent and cost—effective court applications have been made available to creditors in recent years for the recovery of their certain, liquid and exigible debts.

These special urgent procedures are currently regulated by laws external to the Civil Procedure Code (the CPC) but the new code, expected to enter into force by 2011, includes them in the main body of civil procedure rules.

In answer to urgent debt recovery procedures made available in courts, the Court of International Commercial Arbitration attached to the Romanian Chamber of Commerce and Industry, which hosts most of the arbitrations in Romania, has approved a set of rules for expedited arbitrations, including an on—line procedure, with awards to be passed in approximately one month as of request.


Resolution of Debt Recovery Disputes by the Courts

Structure of the courts and competency rulesThe Romanian judiciary system consists of four levels of courts: local courts, tribunals, courts of appeal and the High Court of Cassation and Justice, Romania`s supreme court.

As a general rule, a civil or commercial debt recovery claim will be issued in the court holding jurisdiction over the respondent’s business headquarters or domicile55.

In terms of the material jurisdiction, claims (civil or commercial) may be issued in first instance in the local courts or tribunals, depending on the value of the claim. The current threshold is currently set at approx. EUR 125,500 for civil and EUR 25,000 for commercial matters.

Pre—action protocolsIn commercial matters only, the CPC requires the creditor to carry out a direct conciliation procedure as a pre—action protocol, lacking which the claim may be denied in court as premature. The mandatory prior conciliation consists in an invitation sent by the creditor to the debtor for a meeting during which the parties attempt private amicable settlement of the dispute. The timeframe set by law permits this mandatory pre—action phase to be completed in approximately 30 days. Agreements reached by the parties by conciliation are private instruments but the parties may opt to have them authenticated by the notary public, with the advantage that authenticated instruments ascertaining payment obligations are deemed writs of enforcement.

Proof of having carried out the prior conciliation procedure (the minutes of the meeting where the attempt to reconcile failed or proof that the debtor refused or failed to attend even though formally invited) is required in court.

For debts deriving from civil agreements, even though the CPC does not require a preliminary procedure, the creditor is expected to notify the debtor of delay before issuing claim, as in civil law the debtor is not deemed ipso jure in delay onthe maturity date (while the claim issued in court amounts itself to a notification of delay). Both commercial and civil disputes can now also be referred to mediation, prior to court litigation, in consideration of an amendment to the Mediation Law No. 192/2006.

55 Alternative criteria to determine the court having territorial competence as first instance areprovided for certain cases, such as the place where the agreement is performed. Other exceptions are provided for claims bearing on immoveable assets, where the competency is determined by locus rei sitae.



Claim formalitiesUnlike other jurisdictions, no claim forms are made available or required by the courts in Romania, even though the law requires minimal contents for the application. The CPC provides a minimal content of the claim but certain formalities may be fulfilled after the registration of the claim, within the term set by the judge.

Any claim issued in court must have attached evidence that legal stamp in the required amount has been paid. The amount of the legal stamp depends generally on the value of the litigation.

EvidenceRomania is a jurisdiction where the types of evidence admissible in courts are limitedly provided by law. They include documents (privately made, authenticated and, since 2001, electronic documents provided with electronic signature), witnesses, interrogatory, expert reports and on site assessments. All evidence must be approved and is taken by the court.

The court may permit requests for production of documents in the possession of the adversary or a third party to the trial provided the evidence proposed is legal (including legally obtained), credible, relevant and conclusive and the requested documents do not contain privileged information.

Interim and urgent measuresThe CPC makes available interim applications for creditor—debtor disputes such as injunctions to seize tangible assets or place liens on bank accounts in order to preserve the rights of the creditor. The applications are adjudicated in urgent procedure.

Creditors seeking to preserve rights that may be jeopardized by delay, or prevent, mitigate or remedy damages, or remove impediments that may forestall enforcement, the CPC provides the urgent application for an injunction, an urgent procedure available prior to or after issuing claims.

Rights of appealJudgments passed in first instance are usually challengeable by first appeal, in 15 days as of service. The first appeal is an ordinary application seeking to obtain revision of the judgment on its merits and the court may take new evidence. Decisions passed in first appeal are challengeable by final appeal, which is an extraordinary appeal that may only be grounded on limitedly provided reasons. In final appeal, no new evidence is accepted except for documents.


The current rules, however, make first court judgments in commercial matters enforceable even though challengeable by first appeal.

The new Civil Procedure Code is set to unify the rules governing civil and commercial matters with regard to available challenges, their conditions and effects.

Other extraordinary challenges, available only for limitedly provided reasons, are the revision (mainly for discovery of new evidence or contradictory decisions or minusor plus petita) and the motion to annul (for breach of competency rules or failureto fulfill the summoning procedure).

Special urgent applicationsTwo urgent procedures of debt recovery have been made available to creditors owed certain, liquid and exigible debts: the motion to pay (“somaţia de plată”) introduced by Government Ordinance No. 5/2001, and the injunction to pay (“ordonanţa de plată”), made available by Government Emergency Ordinance No. 119/2007.

In order to be capable of seeking recovery by way of either urgent procedures, the creditor must be owed a debt that is certain (there is no dispute on its existence), liquid (accurately determined or determinable), exigible (matured and enforceable) and payable in money. In both procedures, to satisfy the urgency, the creditor must be capable of evidencing the debt by documents (agreements, invoices) as other evidentiary means, such as witnesses or expert reports, are not admissible.

Differences between the two procedures make the motion to pay available for either civil or commercial debts while the injunction to pay may only be resorted to for commercial debts flowing from agreements concluded between companies or between companies and authorities. Debts already registered within an insolvency procedure, as well as debt deriving from provider—consumer relations are not recoverable by injunction.

If the conditions are met, the court will pass a court order directing the debtor to pay, with a grace period between 10 and 30 days, if the parties do not otherwise agree. The court order is only challengeable by annulment, deemed to stay the enforcement of the challenged order until adjudication. If the conditions are not met, the application is denied as inadmissible by irrevocable order and the creditor may resort to general rules to file claim for the recovery of his debt.

The motion to pay provides significant advantages to the creditors: expedited and simplified procedures, reduced legal fees (a fixed legal stamp fee is required —currently set at the equivalent of approximately EUR 10—, rather than a pro rata fee from the value of the claim).



The same benefits are available under the more recently introduced procedure of the injunction to pay.

However, in practice, debtors generally contest the debts in order to obtain denial of the application as inadmissible and provoke a settlement on the merits under the general rules, which require prior conciliation, a pro rata legal stamp fee, ample evidence and a broader range of available appeals.

Alternative Dispute Resolution Procedures Available for Debt Recovery

Arbitration, conciliation and mediation are available in Romania as alternative methods of adjudicating claims to the courts. Among them, arbitration is the most common, and we will outline the framework of arbitrations in Romania below.

ConciliationConciliation is made available at the Chamber of Commerce and Industry but is rarely resorted to, especially with the CPC providing a mandatory direct conciliation as pre—action protocol in all commercial cases bearing on patrimonial claims. Creditors prefer to carry out the conciliation under the CPC and thus complete a required step before issuing claim, if settlement fails, rather than resort to private conciliation.

MediationThe Chamber of Commerce and Industry offered the service of mediation since 2003, but this alternative dispute resolution method caught the attention of the general public only after 2006, when a law to regulate it was passed. Mediation is expected to develop a significant practice after the March 2010 legal amendment requiring all judges and arbitrators, as well as any other jurisdictional authorities, to explain and recommend mediation to disputing parties. With the law permitting the parties to request their agreement reached by mediation be embodied in a court judgment, confidentiality of proceedings and privilege to the parties’ submissions during mediation (which may not be used in court), the constant efforts of the business and legal community to promote and popularize mediation are expected to bring forth developments in the next few years.

ArbitrationAny commercial or civil matter which bears on rights on which the parties are by law permitted to compromise (pecuniary) is capable of settlement by arbitration under Romanian law.


The CPC provides the main body of rules regarding arbitration, which may be ad—hoc or institutionalized.

Institutionalized arbitrations are preferred by the parties and most claims are issued at the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry, established in 1953 in Bucharest, which handles civil and commercial, domestic and international arbitrations under its own rules, compliant with the CPC. New courts of arbitration have been established more recently at county chambers of commerce and in Bucharest. The parties are permitted to establish the rules to govern the arbitration in terms of constituting the tribunal, appointment and revocation of arbitrators, procedural rules, the place of the arbitration etc., either directly or by reference to an existing set of norms, provided they do not depart from public policy rules in the CPC. In the case of institutionalized arbitrations, the applicable rules are usually the rules of the permanent court under the auspices of which the tribunal is constituted.

Disputes may be settled by one arbitrator or a tribunal formed of two or more arbitrators, if the parties so decide. Failing to do so, the tribunal is formed of three arbitrators, which is also the rule under the Arbitration Rules of the Court of International Commercial Arbitration. Arbitrators must be Romanian citizens in domestic arbitration and, in international arbitrations, the Romanian party must appoint a Romanian arbitrator (the president of the arbitral tribunal and the arbitrator of the other party may be foreign).

Adjudicating claims by arbitration rather than in courts provides a series of incentives to the parties. Arbitrations are governed by the rule of confidentiality, contrary to court proceedings which are public as a rule. Arbitral awards must be passed, as rule, in 5 months from the constitution of the tribunal, with permitted extensions of up to 2 months.

Domestic arbitration awards (passed in Romania and which do not present prevailing ties with another jurisdiction) are final and binding for the parties, enforceable in Romania under the same procedures as a court judgment and appealable only by motion to annul, for limitedly provided reasons, to the court ranking superior to the one that would have had jurisdiction on the claim lacking the arbitral clause.

Decisions passed on motions to annul an award may challenged by final appeal on limitedly provided grounds. In practice, the occurrence of award nullifications is very scarce, significantly due to the professional excellence of the arbitrators made available at the Court of International Commercial Arbitration.



Further incentive for adjudication of claims in arbitration, enforcement abroad of arbitration awards is facilitated by Romania’s recognition of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The costs of arbitration, however, are generally perceived as higher than the costs of court proceedings.

Enforcement of Domestic Judgments and Arbitral Awards

Writs of executionEnforceability is, in Romania’s jurisdiction, specific in principle to domestic judgments (issued upon first or second appeal, depending on the matter) and domestic arbitral awards, which are recognized enforceability ipso jure on the territory of Romania.

There are other instruments to which law recognizes enforceability, such as certain agreements (such as loan contracts concluded with banks, the legal assistance contract concluded with a lawyer), or documents authenticated by the notary public in certain conditions.

Creditors wanting to enforce the writs of execution have to submit them to the local court to be vested with executory power. This is a formal procedure, by which the court verifies the existence of the enforceable judgment or award and applies a stamp and signature (commonly referred to as “vesting formula”). There are exemptions from the vesting requirement, such as in the case of judgments issued in commercial matters that cannot be challenged by final appeal.

Subsequently, writs of execution are handed over to a court bailiff, who will have to obtain approval of the request for enforcement from the competent court. Once such approval is obtained, the bailiff can proceed to enforcement. Writs of execution may be enforced within 3 years as of the moment the debtor is allowed to request enforcement, with the exception of writs bearing on immoveable property, for which the prescription term is of 10 years.

Enforcement proceduresEnforcement, governed by the CPC, may be indirect, when the debt is satisfied from amounts the creditor obtains from enforcement (either from selling the debtor’s assets, or directly from the debtor’s accounts or from third parties owing money to the debtor) or direct, whenever the creditor seeks to satisfy


his right by a performance in kind (for instance, when the debtor owes the creditor an asset and the creditor pursues the debtor for that asset).Enforcement is carried out by bailiffs, a professional body organized under the supervision and control of the Ministry of Justice.

There are available methods for the debtor to forestall, stay, or even cancel the enforcement procedure. The procedure may be forestalled by way of a preliminary request for a stay, which is filed by urgent application in advance to the adjudication of a “main” request for a stay. The main request for a stay is filed concomitantly with the opposition to enforcement, and requires the debtor to deposit a bail, usually established pro—rata from the amount of the debt under enforcement. Oppositions to enforcement seek to cancel the enforcement, wholly or partially, usually for formal miscarriages, such as invalidity of the enforcement formal papers, which are prepared by the bailiff, or the absence of a valid writ of execution. In practice, oppositions to enforcement succeed to dilate the timeframe of the enforcement (a practice which is kept under control by the requirement of a bail), but rarely result in cancellation.

Recognition and Enforcement of Foreign Judgments and Arbitral Awards

Recognition and enforcement of foreign judgmentsForeign judgments may be recognized enforceability and enforced in Romania by procedures which differ depending on the place of issue being inside or outside the EU. In both procedures, the application for recognition and the application for enforcement may be submitted simultaneously and be adjudicated by the court in the same decision. Neither procedure allows the courts competent to adjudicate applications for recognition and enforcement to review the judgment on its merits.

Recognition and enforcement of judgments issued in EU Member StatesThe procedure for the recognition and enforcement in Romania of judgments issued in Member States is governed by Council Regulation No. 44/2001 of 22nd of December 2000 on jurisdiction, recognition and enforcement of judgments in civil and commercial matters.

The Regulation establishes a simplified procedure. Essentially, a judgment passed in a Member State is deemed recognized enforceability in Romania pursuant to an application filed by the interested party, attaching a formal certificate issued by the court that passed the decision.



Recognition of enforceability of a foreign judgment issued in a EU Member State may only be denied in the following cases:• If the respondent was not summoned by the court in compliance with the applicable law, except for the case when the respondent was however given the possibility to challenge such judgment but failed to do so;• If the judgment is irreconcilable with a judgment issued in Romania in a dispute

between the same parties;• If the judgment is irreconcilable with an earlier judgment passed in another

Member State or in a third State involving the same object, cause of action and parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in Romania;

• If the judgment breaches jurisdiction rules provided in the Regulation (with regard to exclusive jurisdiction of certain courts on certain matters, jurisdiction on consumer protection or insurance) or if the recognition of enforceability would interfere with obligations Member States undertook previously to the entry in force of the regulation under Article 59 of the Brussels Convention.

As to the enforcement, the admission of such an application is conditional upon the applicant’s proving that the foreign judgment is authentic (based on a formal certificate issued by the court that passed the decision) and enforceable (recognition has been obtained, the right to enforce was not extinguished by prescription, the judgment is susceptible of being enforced). Decisions on the enforcement may be appealed against.

Recognition and enforcement of judgments issued in Non—Member StatesThe procedure for the recognition and enforcement in Romania of judgments issued in Non—Member States is regulated by Law No. 105/1992 on private international law relations.

In order to obtain recognition, the creditor must prove that the foreign judgment is final, that the foreign court had jurisdiction to rule on the case and that reciprocity exists with respect to the acknowledgement of the effects of foreign judgments between Romania and the State of the issuing court. The enforcement of non—EU foreign judgments in Romania is conditional upon the petitioner proving the enforceability of the judgment (recognition has been obtained, the right to enforce was not extinguished by prescription, the judgment is susceptible of being enforced).

Recognition and enforcement of arbitral awardsForeign arbitral awards are recognized and enforced in Romania under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and under Law No. 105/1992 on private international law relations.


In case of inconsistencies, the New York Convention prevails. The above presented conditions in relation to the recognition and enforcement of foreign judgments issued in Non—Member States will apply, in principle, to the recognition and enforcement of foreign arbitral awards.

Insolvency

Insolvency frameworkInsolvency in Romania is governed by the Insolvency Law (Law No. 85/2006) passed in the process of harmonizing the domestic laws with the legal principles applied in the European Community in anticipation of Romania’s soon to be accession at the time, ease direct application in Romania of the Community Regulations on insolvency procedures, having also in mind the legal systems adopted in other Members of the European Union. The Insolvency Law was recently supplemented by Law No. 277/2009.

The Insolvency Law develops around two basic principles—ensuring celerity to insolvency proceedings and a better protection of the creditors’ interests through instruments made available to their representative bodies in the proceedings (the creditors’ assembly and the creditors’ committee). In an effort to transpose such principles, the Insolvency Law brought certain amendments to the former enactment (Law No. 64/1995), establishing a new, simplified and expedited insolvency procedure in certain cases, discharging the syndic of his administrative duties and increasing the duties of the judicial administrator and of the liquidator as well as the role of the representative bodies of the creditors, and facilitating the service of process by establishing the Insolvency Proceedings Bulletin.

There are special provisions under Romanian law for the insolvency of banks (Government Ordinance No. 10/2004) and for private international law relations in the matter of insolvency, applicable for states outside the EU (Law No. 637/2002). As of 1st of January 2007, the Council Regulation No. 1346/2000 of the 29th of May 2000 on insolvency proceedings regulates the private international law relations in the field of insolvency applicable to EU Member States.

General conditionsAccording to Romanian law, insolvency means the debtor’s manifest incapacity to pay its matured debts out of the available liquidity. Within the meaning of Romanian law, “debtor” in the matter of insolvency may be: commercial companies, regional associations, agricultural companies, private legal entities carrying out commercial activities, economic interest groups, as well as the individuals who carry out commercial activities either individually or in family associations.



The insolvency procedure may be initiated at the request of the debtor itself, of any of its creditors, or at the request of certain especially enabled institutions, such as the National Securities Commission for debtors—listed companies.

The following conditions must be cumulatively met to ground and application:• The debtor owes amounts in excess of RON 30,000 (approximately EUR 7,500) or in excess of 6 national average salaries for debts arising from labour or civil relations (approximately EUR 2,700);• The debtor is unable to pay its matured debts with cash for more than 30 days.

The debtor may declare itself insolvent and place itself under the protection of a judicial reorganization procedure should its insolvency be imminent.

Insolvency procedures and participantsAll applications under the Insolvency Law are, in first instance, within the jurisdiction of the insolvency division of the tribunal where the debtor is headquartered.

The participants to the insolvency procedure are: the court, the syndic judge appointed by the president of the court, the creditors’ collegial bodies (the assembly and the committee), the judicial administrator (appointed by the syndic for reorganization), the special administrator of the debtor (appointed by the debtor’s shareholders) and the liquidator (appointed by the syndic for liquidation / bankruptcy).

The Insolvency Law makes available two types of procedures for debtors unable to pay their outstanding debts: the general insolvency procedure and the simplified procedure.

The general procedure is formed of two phases:• The judicial reorganization procedure, aimed at allowing the debtor to pursue its activity and pay its debts under a reorganization plan. If the debtor does not comply with the plan or the continuance of its activities causes losses to its assets, the official receiver, the creditors’ committee or any of the creditors, as well as the special administrator may request, at any time, to the syndic judge to approve bankruptcy procedure be opened;• The bankruptcy procedure, wherein the debtor’s assets are liquidated and the amounts obtained are distributed to satisfy the creditors. The liquidation of a debtor’s assets is carried out by the liquidator under the control of the syndic judge. In order to maximize the value of the debtor’s assets, the liquidator will take all measures necessary to publicize the sale, in whatever manner deemed adequate. The liquidation costs are borne from the debtor`s assets.


After a period of observation, insolvency under the general procedure allows for reorganization, as helping the debtor survive financial distress, reorganize its activity on efficiency bases and pay its creditors satisfies best the goal of insolvency procedures, seen not exclusively as a procedure aimed at paying off the creditors, but also as a procedure to maintain the debtor on the market and help it redress. In many cases, it is in the creditors’ interest, too, on the long term, that the debtor regain financial stability and operates efficiently.

The simplified procedure, applicable in certain cases (such as the debtor having been already placed under judicial reorganization within the previous 5 years from application), permits the bankruptcy procedure be opened without the preliminary phase of the judicial reorganization.

Under the general procedure, the syndic—judge may order the debtor into bankruptcy if (i) the debtor departs from the provisions of the reorganization plan concerning opportunities to pay its debts or (ii) the reorganization plan is not confirmed by the creditors’ assembly, or by the syndic—judge. Should these conditions be met, the bankruptcy procedure is opened by way of court order, to the immediate effect that all claims, judiciary or extra—judiciary, bearing on the debtor’s assets are suspended.

Due to a 2009 amendment to the Insolvency Law, banks cannot discontinue credit financing to the debtor on insolvency grounds. The same rationale is applicable to all pending contracts at the moment of opening the procedure—such contracts cannot be terminated due to the opening of insolvency procedures against the party in debt.

Agreements concluded by the debtor within the 3 years prior to opening the procedure, except for transfers made during the normal course of operations, are subject to verification by the administrator/liquidator and may be annulled by the court if concluded in bad faith to the detriment of creditors. Should liability for causing the debtor to become insolvent be established on the part of a person (for instance, on the part of the managers), the syndic may order such person to bear some of the debtor’s dues.

The bankruptcy procedure may be closed by decision of the syndic at any stage if established that the debtor has no assets, or that the existing assets cannot satisfy the administrative expenses and no creditor offers to advance the necessary amounts. By the same decision, the syndic orders the debtor’s deregistration from the register in which it was recorded (the Trade Registry usually, for commercial companies).



Preventive Arrangement

January 2010 has seen the entry into force of a new legal procedure designed to protect over—burdened companies from ending in insolvency: the preventive arrangement (“concordatul preventiv”).

The preventive arrangement is a procedure meant to solve temporary financial difficulties of a company in order to ensure continuance of its commercial activity and it consists of an agreement between the debtor and the creditors holding at least two thirds of the existing uncontested receivables. The preventive agreement must include a plan of redress for the future of the debtor, which may comprise, inter alia, measures aiming to restructuring personnel and/or management staff, the closing down of branches and/or working points etc. The debtor is bound to pay at least 50% of its dues during the implementation of the redress plan.

The procedure provides the debtor notable advantages. For instance, once an offer of arrangement is made, the syndic judge can provisionally suspend legal enforcement procedures initiated by the creditors in question. Also, if an arrangement is reached with creditors holding at least 80% of existing receivables against the debtor, and provided the receivables disputed by the debtor amount to less than 20% of the debt total, the judge will suspend all enforcement procedures against the company, for the period of the arrangement.

Due to its essentially amiable character, and to its less radical effect on the commercial image and credibility of a company, the use of preventive arrangements is expected to become a growing trend in creditor—debtor dispute settlement methods.


Employment

Overview

During the past years, Romania’s attractiveness for foreign investors came, among others, from the highly skilled and relatively cheap labour force it offered in the context of economic growth and macro stability. Authorities tried to adapt the labour legal framework as the transition from the state planned economy was complete and the employment environment had to respond to the demands entailed by Romania’s target to join the European Union in 2007. Now, Romania is facing the challenges of the recent economic and financial crisis which also impacted employment, as crises usually do. Flexible public policies and an adequate legal framework have more than ever a vital role in alleviating unemployment.

Like in most other EU countries, Romania’s employment legislation is rather rigid and employment is overregulated, making it important to know which are the constraints and how to deal with them. New legislation has been recently added in order to deal with the consequences of the economic and financial crisis.

Individual Employment Agreements

Conclusion Employers have the obligation to conclude employment agreements with each of their employees and to register them with the local labour inspectorates. Concluding individual employment agreements in writing is mandatory. While employers undertake the risk to incur fines if they fail to comply, the employees may claim the rights they are granted under the labour legislation and prove the existence of employment relationships even in the absence of a written employment agreement.



DurationAs a general rule, individual employment agreements are deemed concluded for an unlimited duration. This rule triggers important constraints for employers, dismissing employees being possible only in exceptional circumstances, strictly regulated in the Labour Code. Employers are allowed to conclude time—limited individual employment agreements with their employees only in the few cases expressly mentioned by the Labour Code, such as temporary increases in the employer’s activity, replacing employees whose employment is suspended or in the case of seasonal activities. Using temporary work is even more limited in the case of employees provided by temporary labour agents, entities rendering the so—called “leasing of personnel” services. The legal framework thus makes temporary employment only a limited alternative.

Minimal level of rightsEmployees cannot be given rights and benefits which are below the level established in the labour legislation and the collective bargaining agreements. Any derogations from or waivers of such rights shall not be considered valid, even if accepted by the employees or expressly provided in the individual employment agreements.

Working timeRegular working time is 8 hours a day and 40 hours a week. Employees` consent is required for overtime work. The working time duration can not exceed 48 hours a week, including overtime. Additional overtime is exceptionally accepted, provided that the average working time computed on a three—month basis does not exceed however 48 hours. Overtime shall be extra paid, unless paid time off is offered in lieu within 30 days after the date it was performed.

Leaves and days offEmployees benefit from daily and weekly rest. Saturdays and Sundays are days off but changing the days of weekly rest is possible provided that the employees are additionally paid.

The following days are declared public holidays under the law:• 1st and 2nd of January;• First and second Easter days;• 1st of May;• First and second Pentecost days;• 15th of August;• 1st of December;• First and second Christmas days.


Employees are entitled to a paid annual leave of minimum 21 working days. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated. In these cases, holiday entitlement is calculated on a pro rata basis proportionate to the time he/she has worked in that same enterprise during the respective year. In addition to the annual paid leave, employees can be granted paid or unpaid leave in certain specific circumstances.

BonusesIn addition to the base salary, there are certain mandatory bonuses that are paid to the employees, such as:• Seniority bonus—between 5% and 25% of the base salary, depending on the

length in service;• Overtime bonus—100% of the base salary;• Night—time working bonus—25% of the base salary.

Other mandatory bonuses are applicable for employees working in hard / dangerous conditions or cumulating multiple positions.

Non—compete obligationUnder the Labour Code, employees have a general obligation of loyalty towards their employer, preventing them from performing similar activities for other employers throughout the duration of the individual employment agreement. The parties may agree to turn this into a non—compete obligation applicable also after the termination of the individual employment agreement, for a period of maximum 2 years.

A monthly indemnification shall be granted by the employer for the entire non—compete period following the termination of the employment, which can not be less than 50% of the employee’s average gross salary in the last 6 months of employment.

DismissalBoth dismissal for cause (restructuring) and dismissal without cause56 are recognisedby Romanian employment legislation, but employers may resort to them only in a limited number of situations. Dismissal for cause can be done if economic or operational reasons prevent employers from maintaining the current number of jobs. Dismissals for bad performance and for disciplinary reasons are among the most commonly met types of dismissal for cause.

56 The legal terminology used by the Labour Code is “dismissal for reasons relating to the employee”as opposed to “dismissal for reasons not relating to the employee”.



In each case, specific procedures must be followed. Employers’ failure to comply with such procedures may trigger the anullement of the dismissal decisions in court. The same sanction shall apply if the employers cannot prove that the reasons for dismissal are real and fall within the categories recognized by the Labour Code as entitling employers to perform dismissals.

In case the number of redundancies throughout periods of 30 calendar days exceeds certain thresholds, the collective dismissal procedure shall be activated.

Specific steps shall have to be observed and consultations with trade unions need to be conducted. Usually, the collective dismissal procedure may last up to 90 days to complete.

Employers are obliged to observe a 20—day prior notice term, except when the dismissal is done for disciplinary reasons. Special provisions regarding dismissals of personnel (including as regards severance packages) are commonly provided under collective bargaining agreements.

Severance paymentsEmployees whose individual employment agreements are terminated without cause are entitled to receive severance payments consisting of at least one monthly salary. Additional compensations are commonly regulated under collective bargaining agreements.

Collective Bargaining Agreements

Collective Bargaining Agreements (the CBA) may be concluded at different levels: company, group of companies, branch, and national level. CBAs concluded at lower levels cannot provide for rights inferior to those set forth by CBAs concluded at higher levels.

The Labour Code obliges companies with more than 21 employees to conduct collective negotiations on a yearly basis in view of concluding a CBA. The obligation is to carry out negotiations only, and not to actually conclude the CBA.

The provisions of CBAs are compulsory for the parties and apply to all employees, irrespective of whether they are members of a trade union or not. CBAs have to be concluded for at least 12 months. Should they be concluded for longer periods, collective negotiations must be conducted annually on key topics: salaries, working time, working schedule and working conditions.


Trade Unions

The right to establish trade union organisations and to become member of such organisations are guaranteed. Employers cannot ban access of the employees to trade unions.

Trade union representatives have the right to attend meetings of the company’s board of directors where issues of interest for employees are discussed.

For the purpose of defending the rights and promoting the interests of their members, trade unions must be served with information concerning employment related matters such as working conditions, labour health and protection, social facilities, protection of employees in case of transfers of undertakings.

Employers have the obligation to recognise the trade unions as social partner and conduct collective negotiations with them. Also, employers are bound to obtain the consent of the trade unions for specific aspects of labour such as labour norms, changing or terminating the individual labour agreements of trade union representatives without cause, participating in the labour safety and health committees etc.

The trade unions may open labour conflicts (strikes or law suits) in case their claims are not satisfied or the employers fail to observe the rights of the employees deriving from the law or from CBAs.

Transfer of Business

Romanian labour legislation provides for several protection rules in the event a business or parts thereof are transferred from one employer to another. Such rules shall apply, in principle, when the transfer of business is accompanied by an asset transfer.

Both the transferor and the transferee shall be under the obligation to consult their employees about the transfer and to inform them of:• Proposed transfer date;• Reasons for transfer; • Legal, economical and social consequences of transfer on the employees;• Measures to be taken with respect to the employees;• Working conditions after the transfer.



However, no consent from the employees is required. The employees shall have to be given the possibility to be transferred with the transferee. In case they refuse the transfer, the transferor may dismiss them as a result of cutting their job positions.

The transferee is liable to observe the rights which the transferred employees had with the transferor under their individual employment agreements and the CBA.

Labour Conflicts

Labour conflicts may occur when (i) employers refuse to satisfy the claims of the employees, as well as when (ii) employers fail to observe the rights of the employees as per the law and the CBAs.

The first category of conflicts (the so called “conflicts of interests”) may accur when:• The employer refuses to proceed with the negotiation of the CBA; when there is no CBA signed, or the previous CBA has expired;• The company refuses to accept the employees’ claims; • The company unreasonably refuses to sign the CBA, despite negotiations

being completed;• The company fails to fulfil its obligation to initiate the mandatory annual

negotiations on salaries, working hours, working schedule and conditions.

This category of conflicts may entitle strikes. As a matter of principle, strikes may be declared only in order to protect professional, economic and social interests of employees and cannot have political goals. During strike, hiring employees to replace those on strike, or dismissing employees on strike, are strictly forbidden. Unlike other legal systems, Romanian labour legislation does not recognize “lock— out” as strike counter—measure.

The second category of conflicts (the so called “conflicts of rights”) is settled directly by the courts.


Capital Market

Overview

During the past 5 years since the enactment of the Capital Markets Law No. 297/2004 (the Capital Markets Law), the Romanian capital market has undergone a process of transformation from an incipient market to a highly regulated and complex market, in the effort to mirror and implement the principles at work in the relevant EU Directives and the international market practices.

The process is still underway and, although the regulatory authorities in the field are quite active, some of the operational aspects settled years ago in the more developed markets are not fully implemented on the Romanian capital market.

However, the regulations currently applicable on the local capital market are, in principle, in line with the EU Directives.

Romania has implemented all the Level I and Level II Lamfalussy directives as per the last “Lamfalussy League Table57” dated 19th of December 2008.

Relevant Institutions

Romanian capital market regulation and operation are placed under the authority and supervision of one sole entity, the National Securities Commission (NSC)58.

57 The Lamfalussy League Table is a scoreboard which monitors the progress made by the different Member States in transposing the so—called “Lamfalussy Directives”. Details thereon may be found at http://ec.europa.eu/internal_market/securities/docs/transposition/table_en.pdf.58 The official website of NSC is www.cnvmr.ro.



Currently, Romania has two regulated markets, where both securities and derivatives are effectively traded namely:• The Bucharest Stock Exchange (BSE)59 operated by Bursa de Valori Bucureşti SA (BVB), in place since 1995. BVB also manages the RASDAQ Electronic Market (REM), whose initial operator has legally merged with BVB in 2005. However, REM is a completely different tire than BSE and, although it is a system for securities’ spot trading, it is neither an authorised regulated market nor a multilateral trading facility60;• Sibiu Monetary—Financial and Commodities Exchange (Sibex)61 operated by

Bursa Monetar Financiarã şi de Mãrfuri SA, operational since January 2010.

The main institutions on the Romanian capital market are:• The regulatory authority (NSC);• The market operators (BSE and Sibex);• The central depository, ensuring depository activities for securities, clearing

and settlement of securities transactions (Depozitarul Central SA62 for the transactions on BSE and Depozitarul Sibex SA63 for the transactions on Sibex);

• Clearing houses, ensuring the clearing and settlement of transactions with derivatives (Casa de Compensare Bucureşti SA64 for derivatives traded on BSE and Casa Română de Compensaţie SA Sibiu for derivatives traded on Sibex);

• Investors’ Indemnification Fund65, ensuring investors’ indemnification, up to a certain threshold, in case of a default of an investment firm or an asset

management company to reimburse investors’ money and/or financial instruments.

The main entities activating on the local capital market are:• Issuers of financial instruments consisting mainly of local commercial companies (i.e. as of today there is only one foreign issuer listed on the BSE) and undertakings for collective investments, local authorities (municipalities, city halls, county councils) and the State (T—bills);• Intermediaries/investment firms which may be either specialized financial investment services companies or credit institutions duly authorised in this respect; • Asset management companies.

59 The official website of BSE is www.bvb.ro.60 Currently, BVB tries to reorganize REM as a multilateral trading facility.61 The official website of Sibex is www.sibex.ro.62 The official website of Depozitarul Central SA is www.depozitarulcentral.ro.63 The official website of Depozitarul Sibex SA is www.depozitarulsibex.ro64 The official website of Casa de Compensare Bucureşti SA is www.casadecompensare.ro.65 The official website of the Investors’ Indemnification Fund is www.fond—fci.ro.


Investment firms and asset management companies authorised in an EU Member State may provide financial services in Romania, directly or through local branches.

Transactions with Listed Securities

As a general rule, admission of securities to trading on a regulated market is made based on a prospectus that requires approval by the NSC before publication. In cases strictly provided by law, a simplified prospectus is accepted.

There are certain minimum requirements set forth by the Capital Markets Law for admission to trading which are listed herein below.

Requirements referring to the issuer• To be incorporated and carry out operations in compliance with the law; • To have a preliminary level of capitalization of at least EUR 1,000,000 or, if

capitalization cannot be assessed, the value of the capital and the reserves (including the profit or the loss of the last financial year) to be of at least EUR 1,000,000;

• The company must have operated for at least 3 years before submitting the application for listing.

Requirements referring to shares • To be freely negotiable and fully paid; • To have sufficient spread to the public (in principle, 25% of the subscribed share

capital; special exemptions may be granted by NSC under certain conditions).

In addition, each market operator may set its own requirements to be met by issuers when applying for listing their securities on their tiers (e.g. depending on the value of company’s capitalization, the BSE has established three listing categories, the EUR 1,000,000 threshold being required for listing on the 3rd category,while a capitalization of EUR 2,000,000 is required for the 2nd category andone of EUR 30,000,000 for the 1st category).

As a principle, all transactions made through the stock exchange entail an automatic pre—validation procedure aimed at ensuring that the shares exist into seller’s account both on the trade date and on the settlement date. Such pre—validation mechanism is not applicable to trades with T—bills or with shares also listed on another EU regulated market, to cross—border share settlements, or to cross border public offers. Currently, the securities are mainly held in and traded from individual accounts opened by the intermediary on the client’s name in the system of the central depository.



Based on a March 2010 NSC regulation, the use of “global accounts”66 is now made available to all the local issuers (previosuly, only shares not subject to the pre—validation mechanism could have been held in such accounts) but, due to technical and organizational issues, this extended use of the global accounts is expected to become effective only in the last quarter of 2010.

The settlement of securities’ transactions involves, in principle, payment of money. Also, the enforcement of pledge over traded securities generally involves a sale on the market, at the market price. The price of a transfer on the market needs to observe certain pre—established fluctuation margin applied to the daily reference market price.

For financial instruments issued in the national currency (RON) all market operations (e.g. price denomination, settlement, quotations) have to be made in RON. Financial instruments issued in foreign currency may be traded either in RON or in the currency of issue, in accordance with the terms of the listing prospectus endorsed by the relevant authorities.

Securities’ lending is permitted mainly as a safeguard for the settlement of securities’ transactions or for the physical settlement of derivatives, for the purpose of short sales or for keeping the market maker position. Short sales are allowed only if preceded by the seller’s borrowing the respective securities; currently, such sales are made only by the market makers but are expected to be implemented by the rest of the intermediaries by the end of 2010.

Takeover Bids

Any public offer is allowed upon the NSC’s approval of the offering announcement and documentation. Any advertisement of the tender offering before obtaining the NSC’s approval of the offering documents is forbidden.

Mandatory takeover offeringAccording to the Capital Markets Law, once a person has reached (either alone or jointly with persons acting “in concert”) more than 33% of the voting rights over the issuer company, the respective person is bound to launch a public offering addressed to all the other shareholders for all the remaining shares, the so—called “mandatory takeover offering” (MTO).

66 The “global accounts” are somewhat similar to the omnibus accounts; however, the investmentfirm is required to keep internal recordings with the identity of shares’ owners and their shareholding, to make daily reconciliations between the recordings in the global account and those in the internal books and to report such data to the central depository.


Despite meeting the threshold, launching an MTO is not mandatory in certain cases, limitedly provided by law, including privatization, foreclosure proceedings conducted by the Ministry of Public Finance or other authorized entities, share transfer between the mother—company and its subsidiaries or between subsidiaries of the same mother—company, voluntary purchase offering addressed to all shareholders for all their shares.

The MTO has to be launched within 2 months from reaching the qualified position, save for the case when the threshold was reached “involuntarily” (e.g. pursuant to subscribing pro rata under a share capital in crease or as a result of merger/spin—off operations) when the deadline is of 3 months.

The price under an MTO must meet or exceed the highest price paid by the offeror, or the persons acting “in concert” with it, within the last 12 months before the MTO. Lacking this index, the MTO price shall be the highest of the following (i) the weighted average shares’ trade price for the 12 months prior to the MTO, (ii) the price resulting from dividing the company’s net assets’ value (as per the latest financial statements) to the number of publicly traded shares and (iii) the shares’ value as valuated by an expert in accordance with international valuation standards.

Voluntary takeover offering A public offering addressed to all shareholders for all their shares for the purpose of acquiring more than 33% of the voting rights, when the offeror is not bound to conduct a tender offering, is called “voluntary takeover offering” (VTO).

The price of the VTO should be at least the highest of the following: (i) the highest price paid by the offeror/the persons it acts “in concert” with for the shares in the target company, (ii) the weighted average shares’ trade price for the 12 months prior to the VTO and (iii) the price resulting from dividing the company’s net assets’ value (as per the latest financial statements) to the number of publicly traded shares.

VTO proceedings require a preliminary procedure to be conducted by the offeror with the issuing company’s management. The offeror`s takeover intention, included in a preliminary announcement approved by the NSC, is communicated to the target company. The employees are also notified on such intention. Within 5 days as of receiving the preliminary announcement, the target company’s Board of Directors (BoD) has to provide the NSC, the relevant market operator and the offeror with a document ascertaining its position with respect to the takeover through the announced VTO, including, if any, the opinion expressed by the employees’ representatives.



On the other hand, the BoD may convene a meeting of the general assembly of the shareholders (GAS) following the receipt of the preliminary VTO announcement, in order to inform the shareholders on its position with regard to the takeover.

Protection of the offeror against material adverse effect actions by the target company is ensured by the target’s BoD being banned to take any measure or act in a manner that may influence on the status of the company or the takeover objectives, save for the current management operations and operations deriving from previous undertakings of the company or subsequently endorsed by the Extraordinary GAS. Prohibited operations include share capital increases or issues of securities granting subscription rights, or shares’ swaps, as well as charging or transferring the company’s assets representing at least 1/3 of its net assets as perthe last yearly financial statements.

On the other hand, the offeror is held liable for damages incurred by the issuer company if it is proved that the VTO has been launched exclusively for the purpose of determining the company not to proceed with certain operations.

The offeror and the parties that the latter acts “in concert with” may not launch another VTO targeting the same company within one year after the closing of a previous VTO.

Counter bids Launching counter bids is allowed with regard to any purchasing tender offering, with the counter bid envisaging at least the same quantity of securities or the same participation level and the counter bid price being at least 5% higher than the initial bid (the first announced purchase offer).

The counter bids may be launched within 10 business days as of the publication of the announcement of the initial bid. A contest is conducted by the NSC in order to select one bid. All the competing bids are meanwhile suspended. The price contest process takes place in several rounds until no other price increase is submitted. The offerors have to increase the price by at least 5% of the highest price bided in the previous round.

After the final price is determined following the price contest process, an amendment to the winning bid is published (reflecting the respective increased price) and all the other bids previously authorized are cancelled.


Exit of Minority Shareholders/De—Listing

Minority shareholders may be forced by the majority shareholder to exit the company (squeeze—out) or may ask the majority shareholder to buy—out their holdings (sell—out), once the latter has reached 95% of the share capital and of the voting rights in the listed company, or to acquire 90% of the share capital and of the shares targeted in a public purchase offering addressed to all the shareholders for all their shares. Both operations are to be made at a fair price for the minority shareholders, determined according to the law or by an independent expert. Following the squeeze—out/sell—out procedure, the company is de—listed.

In case of company merger or spin—off that would result in shareholders’ receiving shares not admitted to public trade (e.g. that would lead to company’s withdrawal from public trade), the minority shareholders that dissent to the GAS decision on the process are entitled to withdraw from the company and receive the value of their shares as valuated by an expert. The same withdrawal right is granted to minority shareholders if the company’s GAS decides the company’s withdrawal from public trade. However, such de—listing procedure can only be conducted under very restrictive circumstances and requirements.

Protection of Minority Shareholders

One of the main concerns of the capital market regulations is offering protection to minority shareholders. To this end, two main principles are clearly stated by the Capital Markets Law: equality of investors and transparency of the market.

Protection of minority shareholders is ensured under the capital market laws and regulations—in turn based on the relevant EU Directives (i.e. the Prospectus Directive and the Transparency Directive, together with the relevant Level II enactments)— through specific obligations imposed on issuers to make available to investors information on a periodical or ad—hoc basis, or through special rights of the shareholders in relation to the decision—making process in the listed company, or special rules with regard to inside information/insider trading and market manipulation.

Minority shareholders with a higher quota have some additional rights, such as the right to request the GAS be convened, or reports of the financial auditor on specific company operations be made, or the election of the BoD members be made via the cumulative voting procedure.



Transparency of the market, the main tool for protecting the shareholders, is ensured in the first instance through the shareholders’ right to information, which is regulated around the following major rules:• Admission to the official listing on a regulated market is conditioned by the issuer providing investors with true and complete information regarding the securities and the issuer, through the publication of an offering prospectus;• Publicly traded issuers are required to periodically inform investors on their activity and financial standing;• Publicly traded issuers are required to immediately inform investors on any major event concerning issuers’ activity and their securities;• Market manipulation and market abuse are strictly forbidden (and are also punished as criminal offences); • Specific rules are designed with regard to the concept and use of “privileged information” and “initiated persons”; securities’ trade based on privileged information being strictly prohibited.

Reporting Obligations

Any issuer of securities admitted to the official listing has to submit periodical reports to the market and the NSC, mainly including financial data for the reporting period or informing the market on certain special events (general meeting of shareholders decisions/convening, etc). Each issuer has to submit the regulatory authority, the market operator and the public with quarterly, biannual and annual financial reports. Announcements are to be published in at least one national newspaper informing the public on the locations where such reports may be reviewed and the way they can be obtained. All the periodical reports have to be maintained available to the public for at least five years. Also, certain events or circumstances must be immediately reported to the market and the NSC. Reporting obligations are applicable both to Romanian issuers and to foreign issuers admitted to trading on a Romanian regulated market. Issuers listed on REM have lower reporting standards.

Information on Qualified Positions

A shareholder that has reached or lost a qualified position (5%, 10%, 15%, 20%, 25%, 33%, 50%, 75% or 90%) has to inform the target company, the NSC and the market operator on the operation within 3 working days. The company thus informed is also obligated to release the information to the public, the NSC and the market operator within 3 working days as of being informed.


Cumulative Voting Procedure for Appointing the Directors

Members of the BoD of companies listed on a regulated market may be appointed under a special procedure, the so—called “cumulative voting method”. Any shareholder may request to appoint BoD members by using this special method (which implies appointment of BoD members by the shareholders on individual basis, proportional with their voting rights), but the application of the method becomes mandatory following the request of a significant shareholder (holding at least 10% of the share capital or voting rights or a position giving a significant influence on the decision—making process of the company). The articles of incorporation of the issuer may not cancel, amend or hinder the right of the shareholders to request and obtain the use of the cumulative vote procedure. The application of this special procedure shall regard all the members of the BoD.

The cumulative voting method does not have t0 be observed by foreign issuers admitted on the local market, which shall be bound by the corporate requirements of their national law.

Super Majorities in the General Assembly of the Shareholders

In order to protect minority shareholders against dilution by the majority shareholders, there are certain special majorities provided by the Capital Markets Law for share capital increase. Thus, a quorum of ¾ of the number of all shareholders and vote of 75% of the share capital is required for a valid decision in the GAS in the case of:• Increase of the share capital by contribution in cash with the cancellation

of the preference rights of the existing shareholders (which would allow them to preserve their equity quota following the share capital increase);

• Increase of the share capital by contribution in kind.

Such majorities are not applicable to the foreign issuers admitted to trading on a Romanian regulated market, which shall apply the rules regarding corporate issues that are provided by their national law.



Public Procurement & Concessions

Overview

Public procurement and concessions in Romania are regulated mainly by Government Emergency Ordinance No. 34/2006 on the award of public procurement contracts, public works concession contracts and services concession contracts, as approved with amendments and completions, by Law No. 337/2006, subsequently amended and supplemented (the Procurement Law).

The Procurement Law aimed at harmonizing the Romanian legislation with EU Directives in this field and transposed both Directive 2004/18/EC of the European Parliament and of the Council of 31st of March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts and Directive 2004/17/EC of the European Parliament and of the Council of 31st of March 2004 coordinating the procurement procedures ofentities operating in the water, energy, transport and postal services sectors.

The Romanian Government also transposed into the national legislation the provisions of Directive 2007/66/EC of the European Parliament and of the Council of 11th of December 2007 amending Council Directives 89/665/EEC and 92/13/EECwith regard to improving the effectiveness of review procedures concerning the award of public contracts.

The main legal structures regulated by the Procurement Law are the public procurement contract and the concession contract. There are also specific provisions concerning procurement contracts in the utilities sectors and framework agreements.


Public procurement contracts relate to the acquisition of works, goods or services, in exchange for the price to be paid by the contracting authority, while by public works/services concession contracts private entities are granted, in consideration of their performing the works/services, the right to exploit the public works/services with or without the payment of additional amounts of money. This distinction is further reflected in the allocation of risks, e.g when most part of the risks are born by the private sector, the contract is to be qualified as a public works/services concession contract. Otherwise the contract has the nature of a regular public works/services contract.

Besides the Procurement Law, a special enactment is currently in place, regulating the concession of public assets—i.e. Government Emergency Ordinance No. 54/2006 on the regime of public assets concession contracts, as approved, with amendments and completions, by Law No. 22/2007.

Principles

The Procurement Law provides for the principles to be observed by the contracting authorities when awarding public procurement contracts, namely (i) non—discrimination, (ii) equal treatment, (iii) mutual recognition, (iv) transparency, (v) proportionality, (vi) efficient use of public funds and (vii) assuming responsibility.

Public Procurement Contracts

Types of public procurement contractsThe Procurement Law regulates (i) works contracts, (ii) supply contracts and (iii) service contracts.

The works contract may refer to one of the following activities:• Construction or construction—related works as expressly listed in

the Procurement Law; or• Design and execution of a construction or of construction—related works

as expressly listed in the Procurement Law; or• The execution by any method of a construction according to the conditions

set forth by the contracting authority.

The object of the supply contract is the supply of one or more products, through sale—purchase, lease or leasing, with or without a purchase option.

The service contract regulates the provision of one or more services expressly referred to in the Procurement Law (e.g. transport, telecommunications, research



and development, accounting, auditing, consultancy for business and management). While several types of service contracts are expressly defined as public procurement service contracts (e.g. the accommodation services, the railway and waterway transport services, the legal services), they are nevertheless exempted from the otherwise mandatory procedures regulated in the Procurement Law and submitted to only the general principles governing the award of public procurement contracts and to a few other specific provisions of the Procurement Law.

The Procurement Law does not apply to certain cases, such as national security—related services, or whenever special exemptions derive from the nature of the contracted services, or from the application of international treaties.

If contracts are financed by international funds, the award procedures may derogate from the Procurement Law and follow the rules and regulations imposed by the respective financing institutions.

Also, the Procurement Law provides a special legal regime for the “sectorial contracts”—i.e. the procurement contracts in the public utilities sectors (i.e. water, energy, transport and postal services) although they are formally included in the category of public procurement contracts.

Award proceduresThe Procurement Law regulates the following award procedures67: (i) open tender,(ii) restricted tender, (iii) competitive dialogue, (iv) negotiation with or without the publication of a procurement notice, (v) request for offers and (vi) contest of solutions.

The open tender is in principle a one—phase procedure, but the contracting authority may organize a supplementary phase of electronic tender. Any interested undertaking may submit a bid in this award procedure.

The restricted tender procedure is carried out in two stages: (i) the selection of the applicants in accordance to the established selection criteria, and (ii) the subsequent evaluation of the bids submitted by the selected applicants.

The procedure of competitive dialogue is carried out in three stages: (i) the pre—selection of applicants, (ii) the dialogue between the contracting authority and the admitted applicants, with a view to identifying the solutions based on which final bids are prepared and submitted, and (iii) the evaluation of final bids.

67 The contracting authority is entitled to directly acquire products, services or works withoutcarrying out one of the specific procedures provided for by the Procurement Law, if the value of the acquisition is below EUR 15,000.


The competitive dialogue procedure is applicable when the following conditions are cumulatively met: (i) the contract is deemed to be of great complexity and (ii) the award of the contract could not be achieved by open or restricted tender. The competitive dialogue procedure has only been recently applied in complex infrastructure projects where the involvement of experienced private undertakings in establishing the structure of the projects is a real necessity.

The negotiation preceded by the publishing of a procurement notice is applicable in cases such as when, following an open tender, a restricted tender or a competitive dialogue procedure, the submitted bids are found unsatisfactory or unacceptable, or if the services in question do not allow for a proper description in the tender book as the open or restricted tender procedures expressly require.The Procurement Law also regulates cases when the negotiation may be carried out without the prior publication of a procurement notice, among which, when due to the technical or artistic aspects of the project, or in order to protect exclusivity rights, the public procurement contract can only be granted to a certain entity. However, such instances are rather exceptional and subject to strict interpretation.

The request for offers is a simplified procedure by which the contracting authority requests offers from several participants. It may only be applied when the value of the contract does not exceed certain thresholds set forth by the Procurement Law, namely EUR 100,000 for supply contracts and services contracts and EUR 750,000 for works contracts.

The contest of solutions may be organised when the contracting authority develops projects in urban planning, cityscape and landscape design, architecture and data processing.

All award procedures must observe the general rules applicable with respect to (i) the procurement notice, (ii) informing the participants about the legal, financial and technical requirements, (iii) the evaluation and award criteria, (iv) the forms required for submitting the offer, (v) the communication procedure between the authority and the participants, (vi) the deadlines applicable for submitting the offer and the other documents with the contracting authority, (vii) as well as other requirements that have general applicability.

Besides the award procedures mentioned above, other methods may apply in special cases, such as the framework agreement, the dynamic acquisition and the electronic tender. Upon completion of any award procedure, the contracting authority establishes, based on the award criterion and after applying the evaluation factors, the winning offer, and concludes the public procurement contract with the respective bidder.



Concession Contracts

The Procurement Law regulates two types of concession contracts: (i) public works concession contracts and (ii) services concession contracts. Concession contracts are part of the broader concept of public—private partnership as they regulate the relations between the public sector and the private sector for the development of general interest projects.

The general principles guiding the award of the public procurement contracts apply also in awarding concession contracts. One of the main issues raised in practice in the case of complex contracts is determining the nature of the public contract, whether it should be qualified as a public procurement contract, or a concession contract. Such distinction is not always easy to make, as analyzing whether it is the private sector or the public sector that takes over most risks often requires highly specialized financial and technical expertise.

Where concessions have public assets as their object, the special rules provided by Government Emergency Ordinance No. 54/2006 on public assets concession contracts become applicable.

However, the distinctions between public works concession contracts, services concession contracts and public assets concession contracts are not always clear—cut, with the practical consequence of possible uncertainty as to the nature, and therefore applicable legislation to particular contracts. The application of Government Emergency Ordinance No. 54/2006 is seen as rather exceptional, the rule being that the Procurement Law applies.

Given the various types and purposes to which public property assets are put to use, and based on the administration practice, several general criteria for distinguishing between the three types of concession may be used:• Where the use of public property assets involves the performance of construction works aimed at creating a new public asset to be further

operated, the contract may qualify as a public works concession contract. For instance, in the case of constructing and operating a motorway, or a parking facility, although such structure may involve the use of a public

property site, the contract is to be considered as a public works concession contract because its main object is the performance of construction works

(this example also demonstrates that the public works concession contracts regulated by the Procurement Law are similar to the former “public—private

partnership contracts” governed by previous legislation now repealed);


• Where the use of public property assets involves the performance of various activities qualified as services by the Procurement Law, and/or such activities may be performed by a contracting authority itself given its legal status, roles and responsibilities, the contract may qualify as services concession contract. For instance, where a public hospital intends to grant a private operator the right to use a specific location in order to provide health assistance services, this may be achieved under a services concession

contract, given that the hospital could provide the services itself, and granting the right to use its facilities to a private entity is merely a means to

provide the services. Likewise, in the case of the so—called “community services of public utilities” (public local transport, public lighting, residual water and sewage service, etc), which are under the power and responsibility of local

authorities, a private operator often provides them under a services concession contract, the use of assets being incidental to the provision of services;

• Where the use of public property assets involves the performance of construction works and/or the provision of services but they are merely incidental to the use of the assets, and/or such services could not be provided

by the contracting authority itself, the contract may qualify as a public assets concession contract. For instance, where a public administration intends to allow a private entirty to use a public property plot of land in order to

install a wind farm and produce electricity, the contract may be considered as a public assets concession contract.

Protests Against Award Procedures

One of the major debates ensuing from the application of the Procurement Law concerned the protests interested undertakings were entitled to file against acts issued by the contracting authorities during an award procedure. Such protests were to be settled by either the National Appeal Council (an administrative jurisdictional body) or the courts of law.

In practice, this administrative procedure in front of the National Appeal Council was often used in order to cause the suspension of the award procedures, as protest entailed by virtue of law; the rules governing protests, even though protective to the rights and legitimate interests of the participants, were thus turned into a tool to protract the award, which considerably reduced the pace of public investments.

The most recent amendments brought by the Government to the Procurement Law are aimed at accelerating award procedures while preserving the procedural guarantees granted to participants allegeding damages caused by acts of the contracting authorities. According to the current protest settlment procedure, any interested undertakings availing itself of a right or legitimate interest allegedly harmed by an act issued by a contracting authority during the award procedure is



entitled to submit protests either in front of the National Appeal Council or in front of the competent courts of law. If a protest before the National Appeal Council and an action before the court of law are filed in respect of the same object, the court may order, at the parties’ request or ex officio, the two causes be joined. Most importantly, filing protest against a procedure does not, under the new rules, trigger its automatic suspension, but instead prohibits the contracting authority from concluding the public procurement contract when the procedure is completed.

Prospects

The Romanian legislation is generally in line with the EU Directives on public procurement and concessions. However, recent initiatives highlighted the necessity to adopt specific and more detailed rules on public—private partnerships, although such contracts are currently covered by the Procurement Law.

Recent amendments to the Procurement Law were generally directed at further accelerating the award procedures while however continuing to observe the core principles governing them68. The regulation of the dispute settlement proceduresseeks to achieve a proper balance between the need to conclude public procurement contracts, and the need to protect the rights and legitimate interests of the entities allegedly harmed in connection to a public procurement procedure.

In the current global economic context, public funds are seen as an important source of investment. The rehabilitation and the modernization of the infrastructure remain goals that still have to be achieved as most of the local infrastructure requires urgent investments in order to reach European standards.

Major investments in infrastructure are announced, as the Government relies on public–private partnership to continue or to initiate infrastructure projects. In doing so, the public authorities will resort to the legal structures offered by the public procurement and concession regulations, which allow and call for private sector participation. Public procurement procedures aimed at awarding complex public procurement/concession contracts will most probably be often used and, consequently, private investors will encounter many opportunities of becoming involved in such complex projects in the near future.

68 Upon the date this chapter was drafted, a PPP law had been adopted by the Romanian Parliament and sent to the President of Romania for promulgation. The new PPP law was not addressed herein as the final form thereof could have been changed by the Parliament upon request of the President.


Competition

Overview

The market behavior or strategies adopted by businesses present in Romania may fall under the domestic and/or European Community competition rules to the extent they restrict competition on the market. While the national Competition Law is concerned with the domestic market, the EC legislation sets forth the policy imperative of market integration and also aims at ensuring end—users and resellers are able to source products anywhere in the European single market. Some of the highest fines have been imposed by the European Commission on companies seeking to frustrate this aim, even if their actions had little effect on competition.

Core legislation consists of (i) the Romanian Competition Law No. 21/1996 as amended by the Emergency Ordinance No. 75/2010, published in the Official Gazette No. 459 of 6th of July 2010 (the Competition Law) and subsequent regulations and guidelines issued by the Competition Council and (ii) Articles 101, 102, 107 and 108 of the Treaty on the Functioning of the European Union (the TFEU) and subsequent regulations and guidelines issued by the European Commission.

Practices Prohibited under the Antitrust Rules

Cartels and vertical agreementsAgreements between competitors aimed at distorting market competition are top targets and severely sanctioned by the competition authorities, both at domestic and EU level. Both article 5(1) of the Competition Law and article 101(1) of the TFEU prohibit any explicit or tacit agreements between undertakings or associations of undertakings, any decisions of association or any concerted practices between them, pursuing among others price fixing, customers or markets allocation or bid rigging.Cartels are illegal secret agreements concluded between competitors as to fix prices, restrict supply and/or divide up markets. The agreements may take a wide variety of forms but often relate to sale prices or increases in such prices, restrictions on sales or production capacities, sharing out of product or geographic markets or customers,



and collusion on the other commercial conditions for the sale of products or services.

Although generally considered less restrictive than cartels, the agreements between non—competitors, be they customers or suppliers (e.g. distribution agreements, supply agreements, outsourcing or specialization agreements) also require particular awareness.

Several types of agreements are qualified as hardcore restrictions and consequently banned irrespective of the parties’ market share. Such agreements mainly consist in resale price fixing, market allocation and bid rigging. Some examples in this respect are provided herein below:• Resale price maintenance—the restriction of the buyer’s ability to determine

its sale price;• Passive sales ban in an exclusive distribution network limiting the distributor

to respond to unsolicited orders coming from customers located in territories exclusively reserved by the supplier or allocated to another distributor;

• Active and passive sales ban to territories which are not exclusively reserved by the supplier or allocated to another distributor, in a non—exclusive or mixed distribution network;

• Restriction of sales to end—users in a selective distribution by members of a selective distribution system operating at the retail level of trade, without

prejudice to the possibility of prohibiting a member of the system from operating out of an unauthorized place of establishment;

• Restriction of cross—supplies between distributors within a selective distribution system operating at different levels of trade;• Spare parts restrictions consisting in the restriction agreed between a supplier

of components and a buyer who incorporates those components, which limits the supplier to selling the components as spare parts to end—users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.

Other restrictions included in vertical agreements may be exempted, either by the application of specific block exemptions, or following an individual examination undertaken on a case by case basis. The individual exemption requires a balance between the negative effects of the vertical agreements (e.g. raising the artificial market entry barriers, restriction on inter—brand and intra—brand competition etc.) and the expected positive effects (e.g. products quality improvement, investments for entering new markets, better distribution services etc).

The enforcement record of the Competition Council on cartel cases covers various industries such as pharmaceutical distribution, cable TV services, fast moving consumers goods, grey cement markets etc.


As shown below, some of the cartel cases built by the Competition Council were overturned in court:• 2010 market allocation between the 14 administrators of mandatory private pensions funds (total fine EUR 1,220,000): the alleged infringement

related to the sharing among pension funds administrators, based on a 50-50% principle, of participants having subscribed for two different funds

(“doubles”) within the initial sales window. Although the agreement has dealt only a marginal part of consumers, i.e. the doubles, the Competition Council qualified this arrangement as a client sharing agreement between competitors, infringing both article 5(1) letter c) of Competition Law and article 101(1) TFEU. The case is currently under review before the Romanian courts;• 2008 market allocation on the insulin market case (total amount of fines applied EUR 22,600,000)69: Eli Lilly (producer) and three distributors were sanctioned for an alleged allocation of the portfolio of diabetes products produced by Eli Lilly in the context of the national tenders organized for the centralized acquisition by the Ministry of Public Health of such products70. In court, some parties to the alleged infrigement succeeded in reducing the fine initially uphold by the Competition Council;• 2008 bid rigging between distributors on the dialysis market (total amount of fines applied EUR 1,600,000): three distributors participated in a bid rig in the context of the national tender organised by the Ministry of Health in 200371;• 2006 market sharing on the TV cable services market in Timisoara city (total

amount of fines applied EUR 2,350,000): the case was overturned in court on procedural grounds, since the Competition Council’s right to apply fines had been time bared;

• 2005 price fixing between Wrigley and 26 distributors (total amount of fines applied EUR 5,480,000);

• 2005 price fixing on oral and personal care products (total amount of fines applied EUR 4,200,000): the Council charged Colgate Palmolive and four of its distributors and imposed aggregate fines of EUR 4,200,000, for indirectly fixing the minimum resale prices, both as vertical price fixing involving Colgate and as horizontal agreement between the distributors72. The decision has been

overturned on procedural grounds by the High Court of Cassation and Justice73, which found that the Competition Council`s right to review the case had been time bared;

• 2005 grey cement cartel the highest fine (amounting in aggregate to

69 The EUR equivalents are approximated.70 Competition Council’s Decision No. 15 of 12th of March 2008.71 Competition Council’s Decision No. 12 of 3rd of March 2008.72 Competition Council’s Decision No. 124 of 11th of July 2005.73 High Court of Cassation and Justice, Decision No. 2720 of 25th of May 2007.



EUR 26,000,000) concerned the three Romanian cement producers, Lafarge, Holcim and Carpatcement (part of the HeidelbergerCement group), which were found liable for a price fixing cartel74. Carpatcement succeeded to win the

appeal against the Council’s decision before the Romanian High Court of Justice, which ordered the annulment of fines imposed to this company75.

At EC level, the European Commission’s recent enforcement record is notable by the level of the fines imposed to cartel members. In some cases, the sanctions were significantly raised by the EC watchdog as a result of repeated anticompetitive behaviour of the defendants.

By way of example, the following recent cases may be mentioned:• Animal feed phosphates: the Commission imposed fines totalling EUR 175,647,000 on five companies for operating a cartel that lasted over three decades and covered a large part of EEA. All but one company settled the case with the Commission and therefore received a 10% reduction each of their fine. This is the first settlement of a cartel case in a hybrid scenario, where both the settlement and ordinary procedures were followed; • Bathroom equipment cartel: the Commission fined 17 bathroom equipment manufacturers a total of EUR 622,250,783 for a price fixing cartel covering six EU countries. The Commission decision shows that between 1992 and 2004, 17 companies coordinated the sales price for bathroom fixtures and fittings in Germany, Austria, Italy, Belgium, France and the Netherlands. The coordination took place during meetings of 13 national trade associations in Germany (over 100 meetings), Austria (over 80), Italy (65), and also Belgium, France and The Netherlands, and in bilateral contacts. It consisted of fixing price increases, minimum prices, and rebates, and exchanging sensitive business information; • Car glass cartel: the Commission imposed fines totalling EUR 1,383,896,000 on Asahi, Pilkington, Saint—Gobain and Soliver for illegal market sharing, and exchange of commercially sensitive information regarding deliveries of car glass in the EEA, in violation of TFEU. Between early 1998 and early 2003, these major players, discussed target prices, market sharing and customer allocation in a series of meetings and other illicit contacts. The Commission started the cartel investigation on its own initiative following a tip—off from an anonymous source. The Commission increased the fines on Saint—Gobain by 60% because it was a repeat offender. Asahi provided additional information to help expose the infringement and its fine was reduced by 50% under the leniency procedure;

74 Competition Council’s Decision No. 94 of 26th of May 2005.75 High Court of Cassation and Justice, Decision No. 1358 of 5th of March 2007.


• Wax producers cartel: the Commission imposed on the wax producers fines amounting to EUR 676,000,000 for price fixing and market sharing cartel. From 1992 to 2005, the producers of paraffin waxes and slack wax operated a cartel in which they fixed prices for paraffin waxes. ExxonMobil, MOL, Repsol, Sasol, Shell and Total also engaged in market allocation for this product and ExxonMobil, Sasol, Shell RWE and Total also fixed prices for slack wax sold to end—consumers on the German market. The companies held regular meetings to discuss prices, allocate markets and/or customers and to exchange sensitive commercial information. The Commission`s investigation started with down raids prompted by Shell`s application for immunity whereby it revealed the existence of the cartel to the Commission;

• Lifts and escalators cartel: the European Commission fined the Otis, KONE, Schindler and ThyssenKrupp groups EUR 992,000,000 for operating cartels for the installation and maintenance of lifts and escalators in Belgium, Germany, Luxembourg and the Netherlands, found in violation of Article 101 TFEU that outlaw restrictive business practices. Between at least 1995 and 2004, these companies rigged bids for procurement contracts, fixed prices and allocated projects to each other, shared markets and exchanged commercially important and confidential information. The Commission found that the effects of this cartel may continue for twenty to fifty years as maintenance is often done by the companies that installed the equipment in the first place; by cartelising the installation, the companies distorted the markets for years to come. KONE subsidiaries received full immunity from fines under the Commission’s leniency programme in respect of the cartels in Belgium and Luxembourg, as they first provided information about these cartels. Similarly, Otis received full immunity in respect of the Netherlands cartel. The fines imposed on the ThyssenKrupp companies were increased by 50%, as it was a repeat offender.

Leniency policyBoth national and European Union legal framework provide for different types of incentives for companies that voluntarily disclose the existence of a cartel and bring evidence to prove the infringement or cooperate during the procedure. The immunity or reduction of the fine varies widely depending on the timing and significant added value of the information and evidence provided by the cartel members.

At national level, although the leniency policy is available from 2004, no major cartel case had been discovered and sanctioned by the Competition Council following a leniency application. Similarly to the leniency model applicable at European Commission’ level, the leniency guidelines previously in force, only applied to cartels, i.e. collusive behaviour between competitors targeting price fixing, market sharing, exports or imports restrictions. With the new guidelines adopted on



the 7th of September 2009, the Competition Council broadens the leniency scope and opens up the possibility for distributors or suppliers to also report vertical anticompetitive agreements, such as price fixing, market allocation, imports or exports restrictions concluded with their downstream or upstream partners.

As such, from now on, the distributors or resellers may seek leniency by disclosing the anticompetitive provisions or practices agreed with or imposed upon by their suppliers. To the same extent, the suppliers may be awarded full immunity from fines if they are first to provide insider information on anticompetitive practices agreed downstream and they have not initiated the infringement. This is a major development of the leniency policy in Romania, proving the Competition Council’s full interest in vertical restraints and potentially putting the spotlight on the distribution / reselling markets, if the distributors or producers will feel tempted to “break the ice” and disclose the anticompetitive practices they agreed upon with their clients or suppliers.

In order to obtain total immunity under the leniency policy, a company which participated in a cartel or a vertical anticompetitive practice must be the first to inform the Competition Council of the undetected illegal activity by providing sufficient information to allow the authority to open an investigation and launch an inspection at the premises of the companies allegedly involved in the anticompetitive practice. If the Competition Council is already in possession of enough information to launch an investigation, or has already opened one, the company must provide evidence that enables the Competition Council to prove the infringement. In all cases, the company must also fully cooperate with the Competition Council throughout its procedure, provide it with all evidence in its possession and put an end to the infringement immediately.

Companies which do not qualify for total immunity may benefit from a reduction of fines if they provide evidence that represents “significant added value” to that already in the Competition Council’s possession and if they have ceased involvement in the anticompetitive practice. Evidence is considered to be of a “significant added value” for the Competition Council when it reinforces its ability to prove the infringement. The first company to meet these conditions may receive 30% to 50% reduction, the second 20% to 30% and subsequent companies up to 20%.

Moreover, according to the Competition Law recently revised, companies may also benefit of 10% to 25% fine reduction if they choose to cooperate with the Competition Council and recognize the infringement after the communication of the statement of objections or during the hearings before the Council’s Plenum.


Abuse of dominant positionDominant players on the market could also infringe the antitrust rules, both at national and European Union level by adopting unilateral market strategies which could harm consumers and/ or competitors.

Domination is defined as the ability of a company, to act, to a large extent independently from its competitors (actual and potential) and its clients in that particular market.

The recently revised Competition Law provides for a negative presumption: firms which do not hold 40% of the relative market in question and presumed to be non—dominant, should other factors not prove the contrary. The market share is however just one factor in assessing dominance. The structure of the relevant market, position of the main competitors, entry barriers or specific advantages enjoyed by a company may also influence the dominance assessment.

Holding a dominant position is not prohibited, it is abuse which can be caught under the antitrust rules.

The abusive behaviour may consist in: (i) exploitative practices, i.e. abusing market power in trading relationships with customers or suppliers (e.g. unfair purchase or selling prices, tying arrangements, price discrimination) and (ii) exclusionary practices, i.e. abusing market power with an aim to harm competitors (e.g. refusal to deal, predatory pricing etc).

Article 6 of the Competition Law provides only an exemplificative list of behaviours that are deemed as abuse of the dominant position:• Imposing, directly or indirectly, of selling and buying prices, price lists or other inequitable contractual clauses and the refuse to negotiate with certain suppliers or beneficiaries;• Limitation of production, distribution, technological development in the disadvantage of the consumers; • Application, regarding the commercial partners, of dissimilar conditions for equivalent performances, causing to some of them a disadvantage in the competitive position;• Conditioning of concluding certain contracts by the partner’s acceptation of clauses stipulating supplementary performances which, neither by their nature nor according to commercial practices, have any connection with the object of such contracts;• Imposing excessive or ruinous under—cost prices, to eliminate competitors, or exporting under production costs and covering the difference through higher domestic prices;• Exploitation of the economical dependence status of a client or supplier.



Recently, Bucharest Court of Appeal has overturned the Competition Council’s ruling in one sound case on abuse of dominant position. A TV cable operator had been fined in 2006 with almost EUR 5,000,000 for “imposing increased tariffs not justified by the costs growth” to subscribers in Bucharest. The Court of Appeal found that the relevant market was broader than local, and that the operator did neither hold a dominant position or committed an abuse76.

According to the recently revised Competition Law, companies may now offer commitments during the investigation procedure that they will comply with a certain conduct as to end the alleged infringement.

Competence: The European Commission or the Competition Council?A system of parallel competences of the European Commission and the national competition authorities is instituted at the level of the Community. While the European Commission usually intervenes to investigate anti—competitive practices affecting more than three Member States or justifying a Community interest (i.e. the respective practice affects the internal markets’ freedoms or the case has a novelty character at Community level), the Competition Council remains competent to examine practices affecting mainly the Romanian market.

Fines. Public and Private enforcementThe sanctions for violations of the Competition Law are serious and they may reach between 0.5% and 10% of the involved party’s turnover on the year prior to the sanctioning decision. Other sanctions include invalidity of contract terms, damages claims requested in court by the damaged competitors and other restrictions imposed by the Competition Council or the courts on the business activity. The Competition Law can also lead to criminal liability of those individuals responsible for the violation. So far, the Competition Council has only once remitted the case to criminal prosecution.

Throughout over 13-years, the Romanian Competition Council applied fines amounting in aggregate to more than EUR 80,000,000 for the infringements of domestic antitrust rules. However, the largest part of this amount has been applied during the last few years, when the Competition Council accelerated the investigation process and also raised the fines level imposed on the players found “guilty” of anticompetitive practices.

Private enforcement relates to legal actions that can be brought before a national court by one private party against an undertaking that infringed the competition regulations. Private enforcement of competition rules can take different forms, including actions for damages, actions for injunctive relief (to stop the behaviour contrary to the competition rules), actions for nullity, etc.

76 Decision No. 3946 of 17th of November 2009 issued by Bucharest Court of Appeal.


Independently from the sanctions applied under the Competition Law, the natural and legal persons are reserved the right to claim for the recovery in full of the damages resulting from the anti-competitive practice prohibited by the Competition Law.

The recently revised law provides that the status of limitation of the damages action is 2 years and starts to elapse from the date the Competition Council’s decision remains definitive and irrevocable. This provision may lead to the interpretation that the applicant may necessarily submit a complaint to the Competition Council and obtain an administrative decision on the infringement prior to seeking damages in court. Although the burden of proof on the claimant is definitely more severe in the absence of the Competition Council’s prior investigation of the case, we do not exclude however direct damages actions in court, as the national judges have extensive powers to directly apply both national and European Union antitrust rules.

Companies having blown the whistle in cartel cases or hardcore vertical agreements which benefit of leniency are also exonerated from the joint liability resulting from a damages action, which bears on all participants to the infringement.

As regards the quantum of the damages, the Romanian law system acknowledges the full compensation principle in case of tort liability. Thus, the author of the anticompetitive practice could be compelled to reimburse both the actual prejudice (damnum emergens) and the loss of benefit (lucrum cessans).

Mergers

The merger of two or more previously independent parties, or the direct or indirect control brought about by share capital/ assets acquisition, by contract or by other means qualifies as an economic concentration and may trigger a notification obligation in the competent jurisdiction. In merger cases, a division of competence between the European Commission and the national authorities applies.

The Commission has exclusive power to examine concentrations with a Community dimension determined on the basis of certain turnover thresholds, while the Competition Council assess concentrations with national dimension.

Community notification thresholdsTwo alternative sets of thresholds must be taken into account in order to determine if a concentration between undertakings has a Community dimension and thus must be notified to the Commission.



First set of thresholds• The combined aggregate worldwide turnover of all the undertakings concerned

is more than EUR 5,000 million; and• The aggregate Community—wide turnover of each of at least two of

the undertakings concerned is more than EUR 250,000,000;• Unless each of the undertakings concerned achieves more than 2/3 of its

aggregate Community—wide turnover within one and the same Member State.

The worldwide turnover threshold is intended to measure the overall dimension of the undertakings concerned; the Community turnover threshold seek to determine whether the concentration involves a minimum level of activities in the Community; and the two—thirds rule aims to exclude purely domestic transactions from Community jurisdiction.

Second set of thresholds• The combined aggregate worldwide turnover of all the undertakings

concerned is more than EUR 2,500 million; • In each of at least three Member States, the combined aggregate turnover

of all the undertakings concerned is more than EUR 100,000,000;• In each of at least three Member States included for the purpose of the

point above, the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25,000,000;

• The aggregate Community—wide turnover of each of at least two of the undertakings concerned is more than EUR 100,000,000;

• Unless each of the undertakings concerned achieves more than two—thirds of its aggregate Community—wide turnover within one and the same Member State.

A concentration that does not meet the first set of thresholds, but meets the ones mentioned above has a Community dimension and thus must be notified to the Commission.

National notification thresholdShould the merger not fall in the jurisdiction of the European Commission, it would require clearance by the Competition Council if the following thresholds77 arecumulatively met in the fiscal year preceding the transaction:• The parties’ combined worldwide turnover exceeds EUR 10,000,000; and• At least two of the parties involved in the transaction have a turnover

in Romania exceeding EUR 4,000,000.

77 For the purpose of the threshold test, the group that each involved party belongs to shall alsobe taken into consideration.


Implementation prior to clearanceRomania is considered to be a ”suspensive jurisdiction”, i.e. a transaction may not be implemented prior to clearance issued by the Competition Council. However, the buyer may close the transaction pending clearance provided that it does not take any measures deemed as irreversible with regard to the target’s operations. For justified cases, the buyer may also require for a derogation from the above rule. Within a 5 year statute of limitation period, the Competition Council can impose a fine of up to 10% of the Romanian turnover achieved by the buyer for completing a notified merger before clearance.

Review periodsThe Competition Council shall issue a decision to either authorize the merger, or open an in-depth investigation within 45 days after the submission is effective (upon registration at the Competition Council or, upon submission of additional required information). In practice, the review period (phase I) is likely to take up to 60 days, since the authority usually takes 15 days before it declares the submission complete and the statutory time starts to run. In certain cases, a simplified procedure is available. If an investigation is opened (phase II), the Competition Council shall issue a decision of refusal/ authorization/ conditional authorization within a 5—month term after the notification is effective.

Authorization feeIf the authorization of the economic concentration is granted, an authorization fee of 0.04% of the aggregate annual turnover achieved by the parties in Romania, in the year preceding to the transaction, but not exceeding EUR 100,000 shall be paid.

State Aid Regulations

Considering that state aid may distort or threaten to distort competition by favouring certain undertakings to the detriment of others, the European Union rules provide for a strict control of state aid measures granted by Member States.

Measures qualifying as state aidMeasures granted by Member States should qualify as state aid if the following criteria are met:• Transfer of state resources—granted by central or local authorities, public banks, foundations, private/public intermediate bodies appointed by the State;• Economic advantage—which would not be obtained in the ordinary course of business; • Selectivity—only selected undertakings have access to the measure. As such, measures applying without distinction to all undertakings in all economic



sectors in a Member State (e.g. a nation—wide fiscal measure) are not selective and therefore should not fall under the state aid principles;• Effect on competition and trade—the undertaking benefiting from the measure must be engaged in economic activities.

Subject to the criteria described above, measures qualifying as state aid may take various forms, such as grants, capital injections, debt write—off, exemptions, reductions or deferrals of fees and/or tax payments, accelerated depreciation allowances, preferential interest rate loans, interest rate rebates, loan guarantees, price reductions in connection to goods supplied and services provided by public, central and local authorities or other bodies managing central or local state resources, including sale or rent of land owned by public central or local authorities or other bodies managing central or local state resources below market price.

State aid measures may be granted under a specific state aid scheme made available to a larger number of undertakings or in the form of individual aid. Individual aid may take the following two forms: (i) ad hoc aid and (ii) individual awards of aid on the basis of an aid scheme (the individual award requiring the performance of a notification procedure under state aid rules).

State aid control by the European CommissionThe Commission is competent to keep under constant review all systems of aid existing in the Member States. The supervision of the Commission in connection with state aid is based on a system of ex ante authorization. Consequently, each Member State is required to inform the Commission, based on a notification procedure, of any plan to grant or modify any previously authorized state aid measure. Member States are not allowed to put such aid into effect before it has been authorized by the Commission (i.e. the “Standstill—principle”). Aid granted in absence of authorization by the Commission is automatically deemed as “unlawful aid” and is subject to recovery.

Based on its examination of the notified aid, the Commission may (i) issue a decision attesting that “the notified measure does not constitute aid”; (ii) issue a “decision not to raise objections” if it finds, after a preliminary examination, that no doubts are raised as to the compatibility with the common market of a notified measure; (iii) issue a “decision to initiate a formal investigation procedure” if, after a preliminary examination, it finds that doubts are raised as to the compatibility of the notified measure with the common market. Moreover, if the Commission finds that aid granted by a Member State or through that Member State’s resources is not compatible with the common market, or such aid is being misused, the Commission is competent to decide that the Member State concerned must abolish or alter such aid within a period determined by the Commission.


If the State concerned does not comply with such decision within the prescribed time the Commission or any other interested Member State may refer the matter directly to the European Court of Justice.

State aid which is not subject to prior notification proceduresAs an exception, certain state aid measures do not fall under the notification requirement. Such measures are either falling under the (i) de minimis aid rules or(ii) are block exempted under a specific Commission regulation.

Transparent incentives not exceeding the minimum threshold (EUR 200,000 over any period of 3 fiscal years) are deemed to be authorized and are not subject to notification requirement.

The European Commission has issued a General Block Exemption Regulation (EC) No. 800 of 6th of August 2008 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 TFEU codifying previous block exemption regulations and regarding:• Regional aid;• Small and medium size enterprises investment and employment aid;• Aid for creation of enterprises by female entrepreneurs;• Aid for environmental protection;• Aid for consultancy in favor of small and medium size enterprises and small

and medium size enterprises participation in fairs;• Aid in the form of risk capital, aid for research, development and innovation; • Training aid; and• Aid for disadvantaged or disabled workers.

In order to benefit from the notification exemption, a state aid measure must observe inter alia the following criteria:• The aid measure is transparent—aid in respect of which it is possible to calculate precisely the gross grant equivalent ex ante without need to undertake a risk assessment;• The aid measure does not exceed the aid intensity thresholds provided in the GBER (i.e. the gross aid amount expressed as a percentage of the eligible costs);• The aid measure does not exceed the individual notification thresholds provided in the GBER;• The aid measure is targeted at activities or investments that prove an “incentive effect”—under the European Union principles on “less and better targeted aid” any state aid measure must be targeted to an activity or investment that would have not been performed in the absence of aid;• The aid measure complies with the specific requirements under the GBER for each category of aid contemplated above;



• The measure must not be targeted at (i) aid to export—related activities, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current costs linked to the export activity; or (ii) aid contingent upon the use of domestic over imported goods;

• The measure must not be targeted to certain sectors78; • The measure is not targeted at (i) aid schemes which do not explicitly exclude

the payment of individual aid in favor of an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the common market; (ii) ad hoc aid in favor of an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the common market; (iii) aid to undertakings in difficulty.

78 Such sectors are the following: (i) aid favoring activities in the fishery and aquaculture sectors,except for training aid, aid in the form of risk capital, aid for research and development and innovation and aid for disadvantaged and disabled workers; (ii) aid favoring activities in the primary production of agricultural products, except for training aid, aid in the form of risk capital, aid for research and development, environmental aid, and aid for disadvantaged and disabled workers to the extent that these categories of aid are not covered by Commission Regulation (EC) No. 1857/2006; (iii) aid favoring activities in the processing and marketing of agricultural products when the amount of the aid is fixed on the basis of the price or quantity of such products purchased from primary producers or put on the market by the undertakings concerned or when the aid is conditional on being partly or entirely passed on to primary producers; (iv) aid favoring activities in the coal sector with the exception of training aid, research and development and innovation aid and environmental aid; (v) regional aid favoring activities in the steel sector; (vi) regional aid favoring activities in the shipbuilding sector; (vii) regional aid favoring activities in the synthetic fibers sector.


Intellectual Property

Overview

Intellectual property rights are protected in Romania by various legal enactments applying specifically to each category of IP rights: patents, utility models, trademarks, industrial designs, integrated circuits, copyrights. The Romanian legal framework on IP rights has been gradually harmonised with the corresponding European legislation and, generally, with the principles provided in international treaties and conventions79. The public authorities invested with competence in the protection of intellectual property rights are the State Office for Inventions and Trademarks (OSIM) (in relation to industrial property i.e. inventions, trademarks, geographic indications, industrial designs, integrated circuits) and the Romanian Office for Copyright (ORDA) (relevant for copyright protected works).

Patents

The Patent Law No. 64/1991 (the Patent Law) sets forth the specific patentability conditions. The patent ensuring protection on the territory of Romania is valid for 20 years from the date the regular national application is filed, and is subject to yearly fees for maintenance.

79 Romania is a party to the main international treaties and conventions on intellectual property, among which: the Paris Convention for the Protection of Industrial Property (1883), including its subsequent revisions; the Convention establishing the World Intellectual Property Organization (1967); the Marrakech Agreement establishing the World Trade Organization (1994); the Madrid Arrangement (1967) and the Protocol related to the Madrid Arrangement (1989); the Trademarks Treaty (Geneva, 1994); the Nice Arrangement on trademarks classification (1957); the Treaty on Trademarks Law (Singapore, 2006); the Patent Cooperation Treaty (Washington, 1970); European Patent Convention (Munich, 1973); the Strasbourg Agreement concerning the International Patent Classification (1971); the Locarno Agreement on the classification of industrial designs (1968); the Hague Arrangement on the international deposit for industrial designs (1925); the Berne Convention on the protection of literary and artistic works (1886).



The right to patent belongs to the inventor or to his/her rightful successor. For employee—inventors, the right to patent belongs either to the inventor (for inventions made in the exercise of the employee’s specific duties, using the employer’s technologies or data, or his knowledge about such, or with support from the employer, if not otherwise provided in the labour agreement) or to the employer (for inventions made by the employee under a labour agreement that expressly provides that inventions are within the employee’s specific duties).

Patentability conditions are harmonised with international regulations. An invention80 (for a product or a procedure in any technological field) is patentable in Romania if it is new worldwide, involves an inventive step (i.e. it does not follow evidently for a trained individual from the knowledge incorporated in the existing technical development stage) and is susceptible of industrial application.

Applications for patent are submitted to the OSIM. The invention shall be disclosed in the description, drawings and claims in a manner which is clear and complete as well as scientifically and technically correct. The applicant may invoke priority rights. The information comprised in the patent application will be kept confidential until the application is published by OSIM. The patent applications are published immediately after the expiry of a 18—month term from the date of the regular national filing or from the claimed date of priority. Published patent applications benefit from provisional protection until the patent is issued. The patent is subject to public opposition for 6 months from the publication of the decision granting it.

Utility Models

The protection of utility models is mainly regulated in Romania by Law No. 350/2007, concerned with such technical inventions that cannot be protected by patent according to the Patent Law as they do not involve inventive activity. Utility models refer to any technical inventions provided that they are new (they are not already included in the current development stage of the technique), that they exceed the level of mere professional skill, and that they are applicable in the industrial field.

The right to the utility model belongs to the inventor or his/her rightful successor. The utility model acquires protection by registration with the OSIM.

The law permits international registration of utility models. International applications may be filed with foreign receiving offices and may indicate Romania as a designated country.

80 Scientific discoveries, theories and mathematical methods; esthetical works; plans, principles andmethods for the development of mental activities in entertainment, business, computer programs; methods to present information are not deemed inventions.


Failure to open the national phase renders the application ineffective in Romania. The requests for international registration may also be filed with the OSIM, as receiving office.

The duration of the protection of the utility model is of 6 years, available for extension for two 2—year each successive periods, and may not, extensions included, exceed the maximum of 10 years.

Applicants at the OSIM may re—qualify their request from patent to utility model and, conversely, from utility model to patent, without thereby causing the examination procedure be automatically closed. Re—qualifications are only admitted once and are not available for international requests where the national phase has already commenced. The right to the utility model may be transferred, wholly or partially, by assignment or by exclusive/non—exclusive licensing. Utility models can be encumbered and pursued in enforcement procedures.

Trademarks

According to the Trademark Law No. 84/1998 (the Trademark Law), exclusive rights to use a trademark in Romania are granted by registration with the OSIM, either directly or by way of an international (WIPO) application.

In order to be registered, a trademark must not be identical or confusingly similar to a previous trademark belonging to a different owner and registered for identical or similar products or services. Whenever the previous trademarks are notorious (either in Romania or in the European Union), the risk of confusion is analyzed even if the new trademark is for products or services that are not identical or similar, if registration risks to cause damage to the notorious trademark. The applicant may invoke priority rights.

According to the rules applicable following Romania’s accession to the European Union, Community trademarks shall automatically enjoy protection on the Romanian territory. This mechanism operates ipso jure, without the need for the holder to fulfill any formalities or procedures at the OSIM. A potential conflict with a domestic trademark shall be solved based on the priority rules.

The holder of a national trademark previously registered in good faith is allowed to oppose the use of the Community trademark only on Romanian territory. Oppositions may be raised to the competent Romanian courts in compliance with Regulation No. 207/2009 on the Community trademark.

However, since the automatic extension of protection is not reciprocal (i.e. national



(i.e. national trademarks do not automatically benefit from protection in the Member States) holders of national trademarks cannot substantiate, at the European Union level, a motion to annul or to obtain withdrawal of rights for lack of use against the owner of a subsequently registered Community trademark.

The holder of a previously registered Community trademark or of previously acquired rights may ask the competent court to cancel the national trademark or to withdraw the rights such a trademark has. Claims of counterfeit may not be submitted if the owner of the previous Community trademark tolerated, for a period of 5 years, the use of the subsequent national trademark which was registered in good faith.

Within 7 days as of filing, the application is published by OSIM, so that any interested person may oppose to registration of the trademark. OSIM takes a decision on the registration of the trademark within 6 months from as of publication of the application.

Pursuant to the OSIM issuing a final decision for registration, the trademark will be registered with the National Register for Trademarks.

The trademark certificate issued by the OSIM grants exclusive rights to the owner to use the trademark in Romania for a period of 10 years starting retroactively from the date of submitting the application. Upon payment of legal fees, the protection period can be extended by subsequent 10—year periods.

Further to the latest amendment to the Trademark Law, the concept of Community exhaustion of trademarks was statutorily recognized. According to this concept, the first sale of a trademark—protected product within the European Economic Space by the owner, or with the owner’s consent, exhausts the trademark rights over these given products not only domestically, but also within the whole European Economic Space. The direct consequence is that resellers within this region cannot be prevented from undertaking parallel imports, unless a legitimate interest related to the alteration of the respective products could be raised.

Industrial Designs

Based on the provisions of the Industrial Design Law No. 129/1992 (the Industrial Design Law), the new external appearance of a product in two or three dimensions having a practical function may be registered as industrial design. Novelty and distinctive character are the registration conditions for an industrial design. A form is novel if it is practically unknown in the territory of Romania, and has not been disclosed for the same category of goods in Romania or abroad.


An industrial design is deemed to be distinctive (have an individual character) if the overall impression it has on the experienced user differs from the impression made by any industrial design made publicly available before the date of filing the application for registration, or before the priority date if priority was claimed.

The industrial design the appearance of which is determined by a technical function cannot be registered.

Several industrial designs may be submitted for registration in the same application, in a multiple deposit comprising industrial designs intended to be incorporated in articles of the same category of goods as per the Locarno Agreement classification.

Industrial designs subject to a multiple deposit should meet the condition of unity of design, unity of production or unity of use, or should belong to the same set or composition of items.

The application for the registration of industrial designs is required to provide a graphic representation of the design and a maximum 100 words description of the design to explain the novelty. The date of the application meeting the minimal legal requirements constitutes the date of the national deposit. The applicant may invoke priority rights.

Within 4 months from the national deposit, the application is published. Third parties have the right to oppose the registration within 2 months. The OSIM will decide to grant or deny registration of an industrial design within 12 months from publication, subject to potential oppositions being rejected.

The registration certificate grants exclusive rights to its owner for the use of the industrial design on the Romanian territory starting retroactively from the date of the national deposit.

The registration certificate of an industrial design is valid for 10 years from constituting the national deposit and may be renewed for three successive 5—year periods upon payment of the legal fees.

According to the rules applicable following accession, EU designs automatically enjoy protection on the Romanian territory. This mechanism operates ipso jure, without the need for the holder to fulfill any formalities or procedures with OSIM.

A potential conflict with a domestic design shall be solved based on the priority rules, the holder/applicant of an earlier local design registered/applied for in good faith being entitled to oppose the use of a Community design on Romanian territory.



Copyright

The Copyright Law No. 8/1996 (the Copyright Law) provides protection to all literary, artistic or scientific works, as well as to other intellectual creation works, provided that they are original, take a concrete form of expression, and are susceptible of being made known to the public.

The protection granted under the Copyright Law applies to the following works:• Authored by Romanian citizens, even if they have not yet been made known

to the public;• Authored by natural or legal persons domiciled or headquartered in Romania,

even if they have not yet been made known to the public;• Architectural works located on the Romanian territory;• Artists’ interpretations or performances taking place on the Romanian territory;• Artists’ interpretations or performances which are fixed in sound recordings

protected by the Copyright Law;• Artists’ interpretations or performances which are not fixed in sound

recordings, but are transmitted by television or radio broadcastings protected under the Copyright Law;

• Sound or video recordings produced by natural or legal persons residing in Romania;

• Sound or video recordings fixed on any material for the first time in Romania;• Radio/television programs broadcast by entities headquartered in Romania;• Radio/television programs transmitted by entities headquartered in Romania.

Such works benefit from protection under the Copyright Law without registration or any other formality being required. Non—residents, individuals or legal entities, benefit form copyright protection as per the terms of the international treaties Romania is a party to or, absent such treaties, under the same terms as Romanian residents, on a reciprocity basis. Authors of such work have the moral right to retract it, indemnifying, if the case, the holders of the right to use the work should they incur damage by retraction.

The Romanian copyrights last for the lifetime of the author plus other subsequent 70 years after their death, being transmitted to lawful successors, irrespective of the date when the work was brought to public knowledge. The same applies to software works.

The person who, after the death of the author, lawfully brings to public knowledge, for the first time, a previously unknown work, benefits from protection similar to that offered to authors for a period of 25 years from the date the work was first made public.


Protection for artists’ interpretations or performances is valid 50 years from the date of such interpretation or performance. However, if such were fixed on a material during this period of time, and were legally published or communicated to the public, the 50—year protection period starts from the date of such fixing or publication or communication. The same applies to the rights of sound or video recordings producers.

Copyrights are classified in moral rights and economic or patrimonial rights. While moral rights (e.g. the right to decide whether and how the work is going to be published; the right to decide the name under which the work shall be published etc) may not be transferred by the author, economic rights may be assigned to third parties by way of copyright licensing. The author, or, as the case may be, the holder of the economic copyright, may license the patrimonial copyrights, in whole or in part, as well as restrict the use of the work by the licensees to certain territories and/or to certain time limits.

The licensing agreement must identify the patrimonial rights that are transferred thereby and must provide, for each right, the permitted methods of use, the term and scope of the licensing, as well as the payments due to the holder of the copyright. If any of these provisions is missing, the interested party may request the termination of the agreement. The licensing agreement concerning all the future works of the author, whether or not such works are named, is null and void.

If the licensor is also the author of the work, and the licensee uses the work in a manner that may be found insufficient and conflicting with the licensor’s legitimate interests, the author has the possibility to claim invalidity of the copyright license agreement after 2 years from the entry into force of the license. The term is of 3 months in case the work was to be published in a daily publication and of 1 year if the work was supposed to be published in periodicals. The author may not waive in advance such right to seek termination.

In the case of agreements for creation of future works, in the absence of a clause to the contrary, the economic rights belong to the author. The person contracting the creation of a future work is entitled to terminate the agreement if the work fails to comply with the agreed conditions. In case of termination, the author keeps the amount which he/she has already received. In the absence of a contractual clause to the contrary, for the works created by employees while fulfilling their professional duties under an individual labour agreement, the patrimonial rights belong to the author. In this case, the author may authorize third parties to use the work only with the employer’s consent and subject to compensation for the employer’s contribution to covering the costs of creation. The employer may utilize the work in its business without authorization from the author—employee.



Conversely, contractual clauses may provide that, for works created for the fulfillment of professional duties stipulated in the individual labour agreement, the patrimonial rights do not belong to the author of the work. If such clauses do not set forth the duration of the assignment of patrimonial rights, the term shall be of three years as of the work delivery date.

Upon expiry, the patrimonial rights are transferred to the author and, absent a clause to the contrary, the employer is entitled to request the author to pay a reasonable quota from the income obtained from utilization, in order to compensate costs borne by the employer for the creation.

The economic rights on photographic work performed under an individual labour agreement, or further to an order, are presumed to belong, for a period of 3 years, to the employer or the person that placed the order, if not otherwise provided in the agreement.

The photograph of a person, when it is made further to an order, may be published, reproduced by the photographed person or its successors, without the consent of the author, if not otherwise agreed.

The holders of copyrights and related rights may exercise their legal rights individually or, based on a mandate, through collective management bodies.

Collective management is mandatory for certain rights (i.e. the right to compensatory remuneration for the private copy; the right to a fair remuneration for public loan in certain cases; the right of resale—droit de suite; the right of broadcasting for musical works; the right of public release of musical works, except for the public screening of cinematographic works; the right to fair remuneration acknowledged to performing artists and producers of phonograms for public communication and broadcasting of trade phonograms or the reproduction thereof; the right to cable retransmission), for which the collective management bodies also represent holders of rights that did not grant them a mandate, and is optional for other rights (i.e. the right to reproduce musical works on phonograms or videograms; the right to publicly communicate works, except for musical works and artistic performances in the audio—video sector; the right of loan, except for certain cases provided by law; the right to radio broadcast the works and artistic performances in the audio—visual sector; the right to fair remuneration resulting from the assignment of lease rights; the right to fair remuneration acknowledged to performing artists and producers of phonograms for public communication and radio broadcasting of phonograms published for commercial purposes or the reproduction thereof).


Customs Action against Goods Suspected of Infriging Intellectual Property Rights

The fight against the import of goods suspected of infringing intellectual property rights is carried by the customs authorities, enabled to retain the goods and to verify their authenticity. The customs authorities collaborate closely with holders of intellectual property rights in order to facilitate a quick authenticity check on suspect products imported in Romania.

Goods that are found to breach intellectual property rights are in most cases destroyed, or—if the holder of the breached intellectual property right so accepts —offered free of charge for humanitarian purposes.

In practice, the customs authorities are active in retaining goods that are suspect of infringing intellectual property rights, being especially focused on excisable goods (e.g. cigarettes). However, destroying the goods proven to be counterfeited is a lengthy and cumbersome process.



Product Liability

Overview

Over the last years, product liability legislation consolidated and developed, generating an increasing level of public awareness regarding consumer rights following the expansion of the retail activities and the activity of the consumer watchdog authorities and non-governmental organizations.

Currently, the Consumer Code represents the framework enactment in the field of product liability and consumer rights, regulating inter alia the consumers’ access to goods and services, their rights, the producers’ obligations, as well as the general rules applicable to non—governmental organizations and the general framework on product security.

Consumer Watchdog Authorities and Non—Governmental Organizations

The Government’s policy in the field of consumer protection is coordinated by the National Authority for Consumer Protection (ANPC). The ANPC is responsible for the constant harmonization of the Romanian legislation with the EC laws, as well as for the supervision of the observance of the specific legislation applicable to the sale of consumer goods. Under the ANPC direction, the effective supervision of the compliance with the applicable legislation is performed by twelve territorial offices for consumers’ protection, by the Inter—Ministerial Committee for the Supervision of the Products and Services Market and for Consumer Protection and by the National Center for Products Testing and Appraisement—LAREX.


Non—governmental organizations in the field of consumers’ protection have flourished over the past years and they have several prerogatives, subject to compliance with the criteria provided by law, such as the right to participate to consultative councils (organized based on territorial criteria and responsible with the enforcement of the consumer protection policy and with the coordination of the activity of public institutions and non—governmental organizations in the field of consumer policy) and to run consumer information and consulting centers subsidized with public funds.

Content of Contracts Concluded between Consumers and Sellers

Contractual formalism in Romania has not yet reached the status currently existing in most of the EU member states. Romanian legislation does not provide for framework contracts with a pre—defined content, but only for specific rules regarding the drafting and the application of certain clauses to the contractual relationship between the parties.

Such being the situation, a distinction should be made between:• Statutory provisions which establish general rules applicable to all the contracts

in this field; and • Statutory provisions which set out special rules applicable only to specific

contracts.

Legislation has focused on establishing several rules designed to ensure that contractual clauses are drafted in an accurate and clear manner allowing the consumer to understand their content. In case of ambiguous clauses, these will be interpreted in favor of the consumer. Abusive clauses are considered an important threat to consumer protection, as they are frequently inserted in the contracts concluded between sellers and consumers, where many agreements are standard and not subject to negotiation. Contractual clauses which are not subject to negotiation may be considered abusive if they lead to a significant misbalance between the parties’ rights and obligations.

Romanian legislation provides for a non—exhaustive list of clauses de jure deemed abusive, among which:• Clauses providing for the unilateral right of the seller to amend the contract;• Clauses whereby the consumer is not entitled to obtain remedies in case the seller does not fulfill its contractual obligations;• Clauses whereby the indemnifications the consumer has to pay in case of



of non—compliance with the contractual clauses are disproportionately bigger than the effective damage incurred by the seller; or• Clauses providing for the right of the seller to unilaterally terminate

the contract without a similar right being granted to the consumer.

Abusive clauses, although included in agreements already concluded with consumers, are deemed as null and void under the law.

Besides the general legislation applicable to all the contracts concluded between sellers and consumers, there are special legal enactments setting rules applicable to specific types of contracts.

Four types of such contracts should be mentioned:• Distance contracts; • Contracts concluded away from business premises;• Credit contracts;• Real estate intermediation contracts.

Distance contracts’ special rules shall not apply to contracts relating to financial services, to contracts concluded by means of automatic vending machines or automated commercial premises, to contracts concluded with telecommunications operators for the use of public payphones, to contracts concluded within tender procedures, to contracts concluded for the construction and sale of immovable property or relating to other immovable property rights, except for rental, to contracts concluded upon auction sale. In case of distance contracts, consumers shall have a period of 10 working days to withdraw from the contract without penalty and without providing any justification. The only charge that may be imposed on the consumer for the exercise of such right of withdrawal is the direct cost of returning the goods.

Similarly to the case of distance contracts, the regulations on contracts concluded away from the business premises do not apply to contracts relating to certain financial services or to the construction and sale of immovable property. Regulations on contracts concluded away from the business premises shall apply to the contracts under which a seller supplies goods or services to consumers under any of the following circumstances:• During trips organized by the trader away from the business premises;• During a visit by a trader (i) to the consumer’s home or to that of another consumer; or (ii) to the consumer’s place of work, where the visit does not take place at the express request of the consumer; or• In other public places where the trader offers the products or the services to consumers.


In addition, the consumer shall have the right to unilaterally terminate the contract within 7 working days from either (i) the date of concluding the agreement if this is the date when the product has been delivered or (ii) the product’s delivery date or (iii) the date of concluding the services agreement. The boom in crediting activity on the Romanian market triggered the need for establishing of a set of legal requirements designed to ensure a minimum standard of protection for consumers. Thus, the rules applicable to the credit contracts lay down a number of express obligations to be fulfilled by the providers of financial services. The specific norms regard the information which needs to be provided to customers in the pre—contractual phase, upon marketing and advertising credit products, as well as the rules to be observed upon conclusion of credit contracts. Financial services providers must inform the consumers, in an accurate and exhaustive manner, on all the costs and risks that are related to the credit contract. Also, the interest, commissions, fees or other banking expenses need to be directly inserted in the credit agreement rather than merely indicated by reference to other documents such as general terms of the provider, list of tariffs, etc.

Notably, consumers have two procedural means for challenging clauses included in credit contracts which infringe aforesaid statutory standards. Thus, the consumers may either (i) file a complaint in front of ANPC for the public authority to investigate the complaint and, in case of abusive clauses, they may file a court claim for assessing administrative sanction and amending/annulling abusive clauses; or (ii) they directly file a court claim challenging the default contractual clauses.

The legislation on consumers’ protection has also set particular focus on real estate intermediation contracts (legally defined as the intermediation activity regarding sale—purchase or rental of immoveable assets). Such contracts need to include, besides the regular clauses (i.e. object of the contract, validity period, termination cases), a minimum set of compulsory clauses such as the maximum commission owed to the real estate agency, the exclusivity clause (if the case), as well as the clear determination of cases when the customer owes the agency a commission. Statutory obligations have been imposed on real estate agents in the pre—contractual phase, such as the obligation to inform the interested customer on any deficiencies or inconveniences of the asset (if the agent is aware of such defects), such as: sources of noise, humidity, pollution, legal issues, etc.

Liability for Lack of Conformity

Starting with 1st of January 2007, Romania has implemented the provisions of Directive No. 1999/44/EC on certain aspects of the sale of consumer goods and associate guarantees. Under this legislation, the seller shall be liable to the consumer for any lack of conformity which exists at the time when the goods were delivered.



In the case of a lack of conformity, the consumer will be entitled to have the goods brought into conformity free of charge by repair or replacement, or to have an appropriate discount in the price or to have the contract rescinded with regard to those goods. The price discount or the rescission of the contract may be applied only (i) if the defect good has not been repaired or replaced; (ii) if the seller has not provided complete remedy within a reasonable time; (iii) if the seller has not provided complete remedy without significant inconvenience to the consumer. The consumer is not entitled to have the contract rescinded in case of minor lack of conformity.

The seller will be held liable if the lack of conformity becomes apparent within 2 years from delivery of the goods. The consumer shall inform the seller on the occurrence within 2 months from the date the lack of conformity was detected. Unless proved otherwise, any lack of conformity which becomes apparent within 6 months as of the delivery of the goods shall be presumed to have existed at the time of delivery unless this presumption is incompatible with the nature of the goods or the nature of the lack of conformity. Where the final seller is held liable to the consumer because of a lack of conformity resulting from an act or omission by the producer, by a previous seller in the same chain of contracts or by any other intermediary, the final seller disposes of the right of redress against the producer or the previous seller for the damages it incurred.

Contractual Relations between Prejudiced Consumers and Sellers

Sellers shall be held liable for the prejudices caused by deficiencies in the quality of the products or services occurring during the guarantee term, provided that such deficiencies were not caused by the consumers themselves and for any prejudice caused by hidden defects during the average utilization period, provided that the products or services become improper for the use envisaged by the consumers or potentially harmful to consumers’ life, health or security. In such cases, consumers are entitled, free of charge, to product repair or replacement and to compensations. The consumers should file a claim against the responsible seller within three years from the date when the consumer has acknowledged or should have acknowledged the existence of the damage, the deficiency or the identity of the seller, but not later than 10 years from the date when the product has been introduced on the market provided that the damage has occurred during the 10—year period.

In addition, consumers may claim compensation based on contractual civil liability rules. In the event the consumers are compensated by an insurer, such insurer shall have the right of redress against the responsible seller.


Energy

Power and Heat

Overview on the reorganization of the Romanian power and heat sectorIn the early 90s, an extensive reorganization process has been initiated in the power and heat sector aimed at preparing the State-owned players for privatization. As a first step in this direction, the Regie Autonome for Power (Renel) was organized by taking over all the assets and liabilities of 100 State-owned companies, research and educational institutes and one training centre operating in the power sector. Renel’s main business was in generation, transport and distribution of power, heat generation and transport, maintenance and repairing of energy equipments and installations, development of the national energy system, import and export of power. In 1997, as a major new step in the reorganization process, a legal framework was created for regies autonomes to be transformed into commercial companies, owned solely by the State in the initial phase, but legally eligible for privatization.

Under the new legislation, Renel was split into 2 companies and 1 regie autonome:• The Power National Company SA (Conel) having three subsidiaries:

Hidroelectrica SA (subsidiary for power generation in hydro—power plants), Termoelectrica SA (subsidiary for power and heat generation in thermal—power plants) and Electrica SA (subsidiary for power distribution);

• The National Company Nuclearelectrica SA; and • The Regie Autonome for Nuclear Activities.

Conel’s reorganization continued in 2000 with the following entities being formed:• The Power Transportation National Company Transelectrica SA (Transelectrica),

the national power transporter and dispatcher responsible for operating and upgrading the transmission grid, as well as for organizing and managing the power market;



• The Power Generation Company Hidroelectrica SA (Hidroelectrica), hydro— power producer and supplier;

• The Power and Heat Generation Company Termoelectrica SA (Termoelectrica), acting on the power generation and supply, as well as heat generation, transmission, distribution and supply markets; and

• The Power Distribution and Supply Company Electrica SA (Electrica), the national power distributor and supplier, mainly responsible for operating and developing the distribution grid.

Further, Electrica was reorganized by setting up 8 distribution and supply subsidiaries, each having the exclusivity over the power distribution service and related infrastructure within a certain area, i.e. Electrica Oltenia, Electrica Muntenia Nord, Electrica Muntenia Sud, Electrica Banat, Electrica Dobrogea, Electrica Moldova, Electrica Transilvania Nord and Electrica Transilvania Sud. Although only the monopoly activities in the power sector have been opened for privatization so far (i.e. the distribution companies), while most of the competitive segment of the market continues to be State-owned, privatizations in the power sector saw key players in the European power sector entering the domestic market.

Five of the former subsidiaries of Electrica (power distributors and suppliers) have been privatized through a simultaneous share sale and share capital increase. As a result, CEZ a.s. has acquired the majority stake of Electrica Oltenia, Enel S.p.A. became the majority shareholder of Electrica Dobrogea, Electrica Banat and Electrica Muntenia Sud while E.ON. Energie AG has acquired 51% of the share capital of Electrica Moldova.

In the heat sector, Termoelectrica is currently in process of establishing several joint venture companies to be controlled by private investors, which would act as independent heat producers. Termoelectrica’s participation in such joint venture companies would consist in thermal—power plants or parts of them which appear to be attractive for the investors due to a relative constant heat market but which need significant investments for efficiency increasing purposes.

An extensive reorganization process has been initiated in the State power and heat generation sector. Through simultaneous mergers and spin—offs, the main State—owned power and heat producers will be reorganized into two giant companies, i.e. the National Company Electra SA (Electra) and the National Company Hidroenergetica SA (Hidroenergetica). Electra is expected to carry out power generation and supply, generation, transmission, distribution and supply of heat, exploitation of mines and lignite carriers and generation of nuclear fuels, while Hidroenergetica will mainly deal in power generation and supply, generation, transmission, distribution and supply of heat and exploitation of coal mines.


PowerAuthority regulating the power sectorThe power sector is regulated by the Romanian Energy Regulatory Authority (ANRE), an independent public body of national interest, coordinated by the Vice Prime Minister, which operates on the basis of its own organization and operation regulation. ANRE is entirely financed from the State budget, through the budget of the Government General Secretariat. ANRE’s main competences in the power sector include:• Issuing mandatory regulations for operators in the power sector;• Granting, amending, suspending and withdrawing power authorizations

and licenses;• Approving methodologies for establishing prices and tariffs and the tariffs

for system, transmission and distribution services;• Drafting framework supply agreements and framework agreements to be

concluded between undertakings in the power sector regarding the sale, purchase, transmission, system service and distribution of power;

• Monitoring the power market and how the operators on this market comply with the relevant regulations; and

• Settling disputes related to the conclusion of supply agreements, interconnection agreements or agreements concluded between undertakings on the power market.

The power sector is regulated mainly by Power Law No. 13/2007 (the Power Law34). 48

Activities and participants in the power sectorThe power sector includes all the activities of power generation, transmission, distribution and supply, system services, import and export of power, as well as the establishment and operation of the related capacities. The generation is carried out by legal entities licensed by ANRE, through the operation of the generation capacities also authorized by ANRE. The producers are entitled to trade the power they generate on the wholesale market, as well as to supply it to final consumers based on a power supply license.

The main power producers on the Romanian market are Hidroelectrica, Nuclearelectrica and CE Turceni SA. The transmission is a natural monopoly activity carried out by Transelectrica, the Romanian Transmission and System Operator. Transelectrica operates, based on the concession granted by the Ministry of Economy, Commerce and Business Environment the entire power transmission grid (i.e. the grid having a voltage exceeding 110 kv) belonging to the public property of the State.

34 Published in the Official Gazette of Romania, Part I, No. 51 dated 23rd of January 2007, as furtheramended and supplemented.



Power distribution entails the transportation of the power through the high, medium and low voltage grid having a voltage of up to 110 kv. Similarly to the transmission, the distribution is a natural monopole activity carried out by 8 entities holding (i) the concession awarded by the Ministry of Economy, Commerce and Business Environment over the distribution service in a certain area and (ii) the distribution license issued by ANRE.

The supply can be carried out by entities holding the power supply license issued by ANRE. As result of the full liberalization of the Romanian power market since 1st of July 2007, 3 categories of suppliers are recognized by the regulations in force, namely (i) competitive suppliers, (ii) default suppliers and (iii) last resort suppliers. As a general rule, as of 1st of July 2007, the suppliers can sell the power on thecompetitive market at negotiated prices. The default suppliers (i.e. the supply companies resulted further to the unbundling of the 8 former distribution and supply operators, namely CEZ Vânzare SA, Enel Energie SA, E.ON Moldova Furnizare SA, Electrica Furnizare Transilvania Nord SA, Electrica Furnizare Transilvania Sud SA, Electrica Furnizare Muntenia Nord SA and Enel Energie Muntenia SA) are obligated to supply power, under terms and prices regulated by ANRE, to the following consumers located in the area covered by the distribution license:• Household and non—household consumers which have not exercised the right

to elect the supplier on the competitive market;• Non—household consumers having a maximum capacity of 100 kVA and

household consumers which have participated on the competitive market and decided to return to the regulated market; and

• New household consumers which elect the default supplier and new non— household consumers having a maximum approved capacity of 100 kVA which do not exercise the right to elect the supplier on the competitive market.

At the same time, ANRE nominates several last resort suppliers for supplying power, under regulated terms and prices, in case of suspension/withdrawal of the supply license of one or several suppliers. For the period between the 1st ofJuly 2008 and the 30th of June 2009, ANRE appointed as last resort suppliers the 8default suppliers indicated above.

Unbundling of power distribution and supply activitiesIn line with the principles laid down by the Directive 54/2003/EC concerning common rules for the internal power market and repealing Directive 96/92/EC (the Power Directive35),48the Power Law imposed unbundling of the distribution andsupply activities by 30th of June 2007.

35 Published in the EU Official Journal L 176 of 15th of July 2003.


Unbundling was required of vertically integrated undertakings carrying out both distribution and supply activities, except for vertically integrated undertakings serving less than 100,000 connected customers, or small isolated systems. Distribution operators part of vertically integrated undertaking were required to become independent from activities not connected to power distribution, at least in terms of legal form (legal unbundling), organization and decision making process (functional unbundling). All eight distribution and supply operators (former and current subsidiaries of Electrica) have completed the unbundling of distribution and supply activities through spin—off into two separate entities, one for each activity.

Power marketIn line with the principles laid down by the Power Directive, the Romanian power market was fully liberalized as of 1st of July 2007, further to a gradual liberalization which started in 2000. However, even after the 1st of July 2007, the ANRE continues to regulate several segments of the market, i.e. the natural monopole activities, the supply by the default suppliers and last resort suppliers, as well as the transactions between the producers and the default suppliers and last resort suppliers for the power supplied on the regulated market.

On the competitive market, the transactions are performed (i) under a wholesale system (for suppliers’ acquisitions of power from producers or from other suppliers for re—selling purposes) or (ii) under a retail system (for acquisitions of power by final consumers for their own consumption).

On the wholesale market, the transactions are concluded in the following forms:• Bilateral agreements concluded through direct negotiations (including

import/export agreements);• Bilateral agreements executed on the centralized market of the bilateral

agreements operated by the Power Market Operator Opcom SA;• Transactions closed on the Day Ahead Market operated by the Power Market

Operator Opcom SA; • Transactions concluded on the centralized balancing market operated by

Transelectrica; and• Transactions for technological system services.

Prices and tariffsFurther to the full liberalization of the market, transaction prices can be negotiated by the parties, except for tariffs and prices which continue to be regulated by ANRE, namely:• Regulated tariffs for the monopole activities (i.e. power transmission, system

and distribution);



• Regulated prices/tariffs applied by last resort suppliers and by default suppliers; • Regulated prices for transactions between the power producers and

the suppliers, for power sold to consumers on the regulated market; • Regulated tariffs for the acquisition of system technological services (until

a competitive market of technological system services will be created); • Regulated tariffs for the measurement activity; • Regulated tariffs for grid connection; and• Regulated tariffs applied by centralized markets operators.

Authorizations and licensesActivities in the power sector being of public interest, they can only be carried out provided the specific authorizations and licenses are obtained from the ANRE: developing and upgrading generation capacities or distribution and transmission grids are subject to obtaining the setting up authorization; power generation and supply activities, as well as power distribution, transmission and system services are conditional upon obtaining the corresponding licenses.

Rights of the holders of authorizations/licenses over the lands and other immovable assets owned by third partiesConsidering the public interest entailed by the power sector activities, the holders of authorizations and licenses benefit, by virtue of law, of certain rights over the lands and other assets belonging to either the public domain or to private individuals or legal entities, such as (i) a right of use of such assets in the event works are necessary for the development, upgrading, operation or repairing energetic capacities, (ii) easement rights (underground and aboveground) for installing power grids and other equipments related to energetic capacities and for accessing the location place thereof and (iii) a right to request the limitation or cessation of the activities carried out near energetic capacities which may endanger assets or humans.

If the immoveable assets are owned by the state or by the local authorities, the right of use and the easement rights are exercised free of charge; if owned by individuals or legal entities, the owners are entitled to compensation for all damages incurred further to exercising these rights, the value of the compensation being agreed by the parties or, failing which, by court decision. The terms and conditions to exercise these rights are established by convention concluded between the two parties, at the owners’ request. According to the Power Law, the terms and conditions for the exercise of these rights (such as duration, contents, limits, establishing the compensation and payment terms) should have been approved by Government decision within 6 months as of its entering into force but, although a draft for such a decision has been under debate during the spring 2009, no such enactment has been yet adopted.


Access and connection to the power gridPermitting access to the power transmission and distribution grids is a mandatory service to be provided by the TSO and the relevant distribution operator. Access to the grid can be restricted only provided that the connection affects the safety of the national energy system through the breach of the relevant technical norms and performance standards. Considering the limited capacity of the Romanian power grids, access thereto proved to be one of the crucial steps in the development of a new power generation project in Romania.

The connection to the power grid is done based on a technical endorsement for connection followed by the execution of the grid connection agreement (if the connection requires works to the grid), and the payment of the connection tariff. Competent to issue the prior technical endorsement for connection and to conclude the subsequent grid connection agreement are (i) the TSO, for power generation/ consumption units having a capacity exceeding 50MVA and (ii) the power distribution operator holding the concession of the power distribution service in the respective area, for power generation/consumption units having a capacity up to 50MVA.

Promoting the power from renewable energy sourcesIn line with the now repealed Directive 2001/77/CE on the promotion of power generation from renewable energy sources on the domestic market, starting with 2003, the Romanian legislation has been constantly supplemented in order to create a legislative framework for the promotion of power from renewable energy sources. The new legal enactments among others establish domestic targets for the generation of renewable power in the gross internal consumption, regulate the issuance of guarantees of origin for the renewable power, implement the mechanisms for stimulating the generation/consumption of renewable power. In the first regulatory stage (i.e. 2004—November 2008), the lawmaker opted for the system of mandatory quotas combined with green certificates trading.

At the end of 2008, the Renewable Energy Law established two alternative systems for stimulating the generation of energy from renewable energy sources: (i) the system of mandatory quotas combined with green certificates trading and (ii) the feed-in tariff system. Only one of these systems was to be selected for application by way of Government decision and, consistently, a Government decision was indeed passed at the end of 2009, opting for mandatory quotas combined with green certificates trading37.49

36 Law No. 220/2008 for the establishment of the system for promoting the energy from renewable energy sources, published in the Official Gazette of Romania, Part I, No. 743 of 3rd of November 2008.37 Government Decision No. 1479/2009 on the establishment of the system for promotinggeneration of electricity from renewable energy sources, published in the Official Gazette, Part I, No. 843 of 7th of December 2009.



With a view to adapting local legislation to the changes brought in April 2009 by Directive 2009/28/CE on the promotion of the use of energy from renewable sources38,48which repealed Directive 2001/77/CE, a law for the amendment of theRenewable Energy Law has been recently approved by the Romanian Parliament3949

(the Amended Renewable Energy Law). The Amended Renewable Energy Law envisages eliminating weaknesses in the existent legislation, especially in terms of ensuring the investors in renewable power generation projects the recovery of the investment costs during the applicability period of the promotion system, and increasing the bankability of such projects. The main principles of the system of mandatory quotas combined with green certificates trading, as regulated by the Amended Renewable Energy Law, are as follows:• The national targets regarding the percentage of power generated from renewable energy sources (including the power generated in hydropower

plants having installed capacities exceeding 10 MW) out of the total final consumption will be 33% in 2010, 35% in 2015 and 38% in 2020;• The annual mandatory quotas of power generated from renewable energy

sources (excluding the power generated in hydropower plants having installed capacities exceeding 10 MW) out of the total final consumption shall be gradually increased from 8.3% in 2010 to 20% in 2020;

• The number of green certificates to be distributed by the TSO for each MWh of power generated and evacuated into the grid/to the consumers shall vary depending on the renewable energy source, as follows: (i) 3 green certificates

for each MWh of power generated in the new hydropower units having an installed capacity of maximum 10 MW and 2 green certificates for each MWh of power generated in the refurbished hydropower units having an installed

capacity up to maximum 10 MW; (ii) 1 green certificate for each 2MWh of power generated in other hydropower units than the new and refurbished units mentioned above, having an installed capacity of maximum 10MW; (iii) 2

green certificates up to 2017 and one green certificate as of 2018 for each MWh of wind power; (iv) 3 green certificates for each MWh of power generated from geothermal energy, biomass, liquid biofuel, biogas, landfill gas and sewage treatment plant gas; and (v) 6 green certificates for each MWh of solar power;

• For the period 2008—2025, the trading value of the green certificates both on the centralized market and on the bilateral agreements market varies from EUR 27 (minimum value) and EUR 55 (maximum value) per green certificate; starting from 2011, such values will be indexed with the EUR 27 average inflation rate determined by Eurostat for the month of December of the previous year;

38 Directive 2009/28/CE on the promotion of the use of energy from renewable sources has beenpublished in the Official Journal of the European Union No. L 140 of 5th of June 2009.39 The Amended Renewable Energy Law will be published in the Official Gazette in July 2010.


• The amount to be paid by the power suppliers failing to observe the annual mandatory quota of green certificates acquisition shall amount to EUR 110 for each green certificate that was not acquired; such amount shall be also indexed with the average inflation rate of EU 27, as published by Eurostat for the month of December of the previous year;

• The amounts resulting from the sanctions applied to the suppliers for failing to observe the mandatory quotas of green certificates acquisition shall be collected by the TSO and transferred to the Environmental Fund48. Such amounts shall be further allocated, to the natural persons for investments in renewable power generation units having an installed power up to 100 kW;

• The power generated from renewable energy sources shall be traded on the wholesale power market at market price. However, the power generated from renewable energy sources in power plants having an installed capacity below 1MW can be sold to the default suppliers in the licensed areas where the power plants are located at regulated prices to be further established by ANRE at national level; and

• The producers of power from renewable sources shall have priority access to the power transmission/distribution grid to the extent the safety of the National Energy System is not affected.

The Amended Renewable Energy Law is also transposing the provisions of the Directive 2009/28/CE regarding (i) the statistical transfers of electricity from renewable sources between the member states and (ii) the joint projects to be developed between EU countries or between a member state and a non—EU state.

With a view to promoting the generation of power from renewable energy sources, the Romanian authorities have adopted two State aid schemes mainly aimed at financing the development and upgrading of installations for generating power from renewable energy sources, as well as the development of installations using clean technologies in all industrial sectors.

The financial support granted under these State aid schemes is financed from the European Regional Development Fund49—limitedly applicable by 2013.

Currently, there are no calls for projects opened by the management authority of the two financing programmes, but, unless the funds allocated for each year are disbursed, it is more likely that other calls shall be opened for the investors.

40 The Environmental Fund is an economical-financial instrument targeted at supporting andperforming environmental protection projects and programs, in accordance with the applicable laws in the environmental field.41 The European Regional Development Fund is a structural European Fund which aims to strengthen economic and social cohesion in the European Union by correcting imbalances between its regions.



Promoting the production of power and heat from high efficiency cogenerationThe system for promoting high efficiency cogeneration of power and heat, regulated at European level by Directive 2004/8/EC50 has been implemented in Romania starting with 2007 by Government Decision No. 219/200751 regulating the bonus type support scheme which envisages to compensate the producers for the difference between the costs entailed by high efficiency cogeneration and the incomes obtained from trading the power and heat. The bonus is granted to the producers of power and heat from cogeneration, on a monthly basis, for each MWh of power produced from high efficiency cogeneration and delivered into the grid, irrespective of whether the power is sold on the competitive or on the regulated market.

The support scheme is applicable for the period 2010-2023, provided that no producer can benefit from it for more than 11 consecutive years. ANRE established the annual reference bonus (i.e. the maximum amount to which a producer is entitled) for the entire applicability period of the scheme depending on the type of fuel used in the cogeneration process, solid fuels, gas fuel taken over from the transmission system and gas fuel taken over from the distribution system.

The power produced from high efficiency cogeneration which was not sold on the competitive market may be traded on the regulated market for regulated prices set yearly by ANRE at the level of 90% of the average power trading price on the Day Ahead Market, during the previous year. For 2010—2012, the regulated price may not be lower than EUR 40/MWh, VAT exclusive.

As a side note, producers of power and heat from cogeneration which use renewable energy sources have the right to choose one of the support schemes, i.e. either the system of mandatory quotas combined with green certificates trading, or the bonus support scheme for high efficiency cogeneration.

HeatOverview on the heat provision serviceThe heat provision service covers all activities of thermo energy generation, transmission, distribution and supply carried out at the level of a territorial—administrative unit, under the management of the local public administration authorities or of the community development associations52, with a view to ensuring the necessary heat used to prepare warm water for general consumption.

50 Directive 2004/8/EC on the promotion of cogeneration based on an useful heat demand in theinternal energy market and amending Directive 92/42/EEC has been published in the Official Journal of the European Union No. L 52 of 21st of February 2004.51 Government Decision No. 219/2007 on the promotion of cogeneration based on the demand ofuseful heat, published in the Official Gazette, Part I, No. 200 of 23rd of March 2007.52 The community development associations are associations established by two or severaladministrative territorial units for the purpose of jointly providing the community services of public utilities.


The heat provision service is carried out by a centralized system (SACET) consisting in constructions, installations, equipments and metering devices corresponding to heat generation, transmission, distribution and supply.

Authority regulating the heat sectorThe main authority with competences in the heat sector is the National Authority for Regulating the Community Services of Public Utilities (ANRSC), a public body of national interest, subordinated to the Ministry of Administration and Interior, empowered to:• Regulate activities entailed by the heat provision service;• Monitor and control the compliance of the SACET operators with the legal

requirements;• Grant licenses for the performance of activities part of the heat power

provision service;• Elaborate the framework regulations applicable to the service; and• Draft and approve the frame tender book for the performance of the heat

provision service and the frame documentation for the delegation of management.

In addition, limited competences in the heat sector have been grated to ANRE, in respect of the production of heat from cogeneration, such as:• To grant, modify, suspend or withdraw licenses for the production of heat

from cogeneration;• To approve prices and tariffs for the production of heat from cogeneration

for the population; and• To elaborate specific provisions to be inserted in the frame agreements

and in the documentation issued by ANRSC.

Management of the heat provision serviceThe management of heat provision service (including all the responsibilities regarding the organization, management, operation and financing this service) falls under the competence of the local public administration authorities or of the community development associations, which can decide to carry out the management either directly (through their internal structures) or by delegation (transferring all or part of the rights and obligations related to the service and granting concessions over the corresponding infrastructure belonging to their public or private ownership based on a delegated management agreement). Delegated management agreement is awarded based on public tender requiring the participation of at least 3 bidders. If the minimum numbers of bidders is not met, a new procedure is launched (direct negotiation) which must observe the same publicity requirements as the public tender; negotiations are conducted with all eligible bidders, irrespective their number, and the winner is selected based on the results of the negotiations.



Operators of the heat provision serviceAll activities part of the public service of heat provision within an administrative unit (i.e. heat generation, distribution, transmission and supply) must be carried out by a single licensed operator. Exceptionally, based on the decision of the local public administration authorities or the community development associations, heat generation activities may be carried out by one or several operators.

Licenses All activities in the heat sector (heat generation, transmission, distribution and supply) can only be performed based on the license issued by ANRSC. By way of exception, the license for producing heat from cogeneration falls under the exclusive competence of ANRE. As a general rule, only one license is issued for all these activities but, if there are more operators for heat generation within the same territorial unit, or if production is carried out as cogeneration, a single license is issued by ANRSC for heat transmission, distribution and supply, while generation licenses are issued by ANRSC or by ANRE, as the case may be.

ANRSC issues licenses based on a two—stage procedure, as follows:• The first license grants the beneficiary thereof only the right to participate

within an unlimited number of procedures for being awarded the management delegation agreement; such license is issued for a 1 year period; and

• Within 60 days as of the entering into force of the management delegation agreement, the beneficiary thereof must request ANRSC to issue a new license allowing the actual performance of the services object of the agreement. This license is issued for the duration of the management delegation agreement, without exceeding a 5 years period. 60 days before the license expiration date, the beneficiary thereof must request ANRSC to issue a new license.

Prices and tariffsThe following categories of prices are applicable in the heat sector: (i) local reference prices and (ii) local prices for the population.

The local reference prices are established for each locality by ANRSC, with the exception of the price for the heat produced from cogeneration, which falls under the competence of ANRE.

The local prices for the population (representing the prices at the value whereof the heat is invoiced to the population) are established by the local public administration authorities or the community development associations. At the level of the same territorial administrative unit, the local price for the population is unique, irrespective of the type of heat generation, transmission and distribution technology or of the types of fuels used.


The difference between the local reference prices and the local prices for the population is allotted from the local budgets. The local public administration authorities or the community development associations can negotiate different formulas and rules for establishing/adjusting the local prices for the population through the management delegation agreements, with the prior endorsement of ANRSC/ANRE.

Gas

Overview of the gas sectorIn the context of radical reforms that characterized the Romanian economy after 1989 aiming at liberalizing the national economy and the supporting the free movement of goods and services, the gas sector has undergone a severe reorganization process which entailed, inter alia, a clear separation of the generation, storage, transmission and distribution activities, an increase of the competition in the gas generation and a non—discriminatory access to the transmission system. The main steps made in this respect consisted in the establishment and subsequent reorganization of the Regie Autonome for Gas Romgaz Medias (Romgaz) and of the Regie Autonome for Oil Petrom București (Petrom).

Romgaz was established at the beginning of 1991, by taking over all the assets and liabilities of several State—owned companies, research institutes and educational legal entities operating in the gas sector. Romgaz’s main object of activity included geological research for identifying gas reserves, gas extraction, transmission, distribution and supply, maintenance and repairing of related equipments and installations.

Following subsequent reorganizations, Romgaz ceased to exist in 2000, being split into five new companies:• Transgaz SA, the national operator of gas transmission, transit and dispatch;• Distrigaz Nord SA and Distrigaz Sud SA, national gas distributors and suppliers;• Exprogaz, empowered to carry out geological research and gas generation,

supply and storage; and• Depogaz, performing geological research and gas generation and storage.

The reorganization process continued in 2001, through the merger between Exprogaz and Depogaz, as result whereof a new company was established under the former name of Romgaz.

Similarly to Romgaz, Petrom was set up also at the beginning of 1991, further to the reorganization of numerous State owned companies, research institutes and



educational legal entities operating in the oil and gas sector. Petrom was responsible for exploring, administering and identifying oil and gas deposits (except for gas deposits under the administration and operation of Romgaz), selling the products resulted therefrom, ensuring the maintenance and repairing of related equipments and installations, importing and exporting related products, equipments and technologies.

Currently, Romgaz and Petrom are the main gas producers on the Romanian market.

During the last years, the legislation governing the gas has been substantially amended in order to reflect the principles laid down by the European legislation, in particular by Directive 2003/55/EC concerning common rules for the internal market in gas and repealing Directive 98/30/EC53 (the Gas Directive), as well asto speed up the privatization in the gas sector.

The main amendments envisaged to eliminate the gas distribution grids from the public domain of the local authorities, thus stimulating the privatization of the State—owned gas distribution companies and the investments by the consumers in the development of new gas distribution pipelines.

During 2004—2005, the gas sector has undergone a wide privatization process whereby the Romanian state sold the majority stakes in Distrigaz Nord SA and Distrigaz Sud SA, as well as in Petrom. As a result thereof, E.ON Rurhrgas AG became the majority shareholder in Distrigaz Nord SA, Gaz de France acquired the majority shareholding in Distrigaz Sud SA while OMV Aktiengesellschaft Austria became the majority shareholder in Petrom.

Another major breakthrough on the Romanian market was the admission of Transgaz to trading on the Bucharest Stock Exchange, further to an IPO process which took place in 2007 and which represented the greatest share demand in the history of Romania, such offering being oversubscribed by more than 28 times. Moreover, this was the first IPO on the Bucharest Stock Exchange that had a new financial instrument attached thereto i.e. “allocation rights”.

In the following years, the development of the gas market is targeted on promoting exploitation of gas resources with a view to encouraging the internal production, diversifying the import sources and increasing competition among the suppliers.

The gas sector is regulated mainly by Gas Law No. 351/2004 (the Gas Law)54.

53 Published in the EU Official Journal L-176, dated 15th of July 2003.54 Published in the Official Gazette of Romania, Part I, No 679 dated 28th of July 2004, as furtheramended and supplemented.


Authority regulating the gas sectorThe main authority regulating the gas sector is ANRE, which merged, in 2007, with the former National Regulatory Authority for Gas Sector by taking over from the latter all the competences, budget, financing sources, personnel, rights and obligations thereof.

The main competences of ANRE in the gas sector are as follows:• To elaborate and submit for approval to the Government the regulation on

granting licenses and authorizations in the gas sector;• To establish the validity conditions of granted authorizations and licenses;• To draft, approve and apply regulations for the organization and functioning

of the gas market;• To draft and approve frame agreements for gas supply and for the provision of

storage, transmission and distribution services and related activities carried out against regulated tariffs;

• To draft, approve and apply criteria and methods for the approval of prices and for the establishment of regulated tariffs in the gas sector; and

• To endorse the terms and conditions of the concession agreements concluded in respect of the assets, activities and services in this sector.

Limited competences in the gas sector have also been granted to the National Agency for Mineral Resources (ANRM) consisting in the awarding and execution of the following oil concession agreements:• Oil concession agreements for exploration, development and exploitation

activities;• Oil concession agreements for development and exploitation activities;• Oil concession agreements for exploitation activities;• Oil agreements for the concession of underground storage facilities of gas; and• Oil agreements for the concession of the gas national transmission system.

ANRM is also the competent authority to establish the reference price for gas which is taken into account for the calculation of the concession royalty.

Activities and participants in the gas sectorThe gas sector comprises all the activities performed by undertakings for the generation, transmission, transit, storage, distribution, supply and consumption of gas, as well as all the related installations and equipments.

The generation can be carried out by legal entities (i) having concluded with ANRM a concession oil agreement in respect of a defined perimeter, (ii) holding a setting up and an operation authorization for the surface technological installations related to the generation activity and (iii) holding a gas supply license.



The main producers of gas on the Romanian market are Romgaz and Petrom which ensured almost 98% of the internal gas production of 2008, the rest being covered by other 5 local producers.

During 2008, the internal production of gas covered around 71% of the gas consumption, the remaining 20% having been ensured from the imports contracted mainly by Distrigaz Sud and E.ON Gaz Romania (the company resulting from the unbundling of Distrigaz Nord).

The storage entails all activities and operations performed for the reservation of storage capacities in the underground storages and for the injection, storage and extraction of gas from these capacities. The gas storage is a natural monopole activity which may be carried out subject to concluding a concession agreement for the underground storage facilities with ANRM, and to obtaining the corresponding license from ANRE.

Currently, there are three operators of the gas storage service, namely Romgaz, Depomureş SA and Amgaz SA.

The gas transmission (i.e. transportation of gas through the grid operating at a pressure exceeding 6 bars) and the transit (i.e. transportation through the national transmission system and/or through special transit lines of gas originating from a different state and destined to a third state) are also natural monopole activities carried out by Transgaz. Based on the concession agreement concluded with ANRM, Transgaz operates the national transmission system and the related assets belonging to the public domain of the state.

The distribution entails the transportation of gas through the grid operating at a pressure lower or equal to 6 bars. The gas distribution is under the monopole of the entities holding (i) the exclusive concession over the distribution service in a certain area based on a concession agreement awarded by and concluded with the Ministry of Economy, Commerce and Business Environment and (ii) a distribution license issued by ANRE.

The main operators of the distribution service are Distrigaz Sud Reţele and E.ON Gaz Distribuţie, the entities resulted from the unbundling of Distrigaz Sud SA and Distrigaz Nord SA.

The performance of supply is conditional upon obtaining the ANRE supply license. Although further to the full liberalization of the Romanian gas market as of 1st of July 2007 the suppliers have the right to carry out transactions on the competitive market under negotiated terms and conditions, part of the gas supply continues to be regulated by ANRE.


Thus, the suppliers resulted from the unbundling of the vertically integrated undertaking which fell under the unbundling requirements55 and the suppliers part of a vertically integrated undertaking which did not fell under the unbundling requirements, have the obligation to supply gas to the consumers having the consumption places located in the area covered by the license, in case such consumers choose to benefit from regulated supply. The regulated supply is carried out at the prices and based on the frame agreements regulated by ANRE.

In view of protecting the consumers in case of withdrawing the gas supply license of the suppliers thereof, a special category of suppliers has been established, i.e. the last resort suppliers. Such suppliers are either nominated by ANRE (in case of the mandatory last resort supply) or selected by ANRE based on the bids submitted by the interested suppliers (in case of voluntary last resort supply).

The last resort suppliers nominated by ANRE are the same operators having the obligation to supply gas to the consumers having the consumption places located in the area covered by the license. Such suppliers are bound to supply gas, at prices regulated by ANRE, to the household consumers, hospitals, schools, kindergartens, public institutions and non household consumers whose consumption does not exceed 12.400 m3/year/consumption point. The voluntary last resort supply is carried out by suppliers selected by ANRE for the benefit of the non household consumers the consumption whereof exceeds 12,400 m3/year/consumption point. The selected suppliers supply the gas at the prices offered in the bids.

Unbundling of gas distribution and supply activitiesIn line with the principles laid down by the Gas Directive, the Gas Law imposed the obligation of unbundling the gas distribution and supply activities, up to the 30th of June 2007. The unbundling requirements applied to the vertically integrated undertaking carrying out both distribution and supply activities, except for the gas distributors serving less than 100,000 connected customers.

Thus, the vertically integrated undertakings had the obligation to ensure the independency thereof from the activities not connected to the gas distribution, at least from the perspective of the legal form (legal unbundling) and of the organization and decision making process (functional unbundling). As a result of the unbundling process, each of the main distribution and supply companies, Distrigaz Nord SA and Distrigaz Sud SA has be spun—off into two separate companies, one carrying out gas distribution and one carrying out gas supply, namely Distrigaz Sud Retele and Distrigaz Sud (in case of Distrigaz Sud) and E.ON Gaz Distribuţie and E.ON Gaz România (in case of Distrigaz Nord).

55 Please refer under section below for more information on the vertically integrated undertakingand the unbundling requirements.



Gas marketIn line with the principles laid down by the Gas Directive, the Romanian power market was fully liberalized as of 1st of July 2007, further to a gradual liberalizationwhich started in 2001.

However, even after the full liberalization of the gas market, ANRE continues to regulate several segments thereof, as follows: (i) the natural monopole activities (i.e. transit, transmission, storage and distribution of gas), (ii) the gas supply to consumers who have opted for regulated supply and (iii) gas supply provided by the nominated last resort suppliers. The activities falling under the regulated segment can be carried out based on the frame agreements regulated by ANRE.

Prices and tariffsFurther to the full liberalization of the market, the prices corresponding to the transactions carried out in the gas sector can be negotiated by the parties, with the exception of the following tariffs and prices which continue to be regulated by ANRE: • Regulated tariffs for natural monopole activities, namely gas transmission,

storage, distribution and transit, with the exception of the transit through special transit pipelines having been developed under international agreements;• Regulated prices for gas supply to consumers who have opted for regulated

supply;• Regulated prices for gas supply by nominated last resort suppliers; and• Regulated tariffs for interconnection to the transmission/distribution grid.

The gas reference price based on which the concession royalty is calculated is set by ANRM.

Authorizations and licensesThe performance of activities in the gas sector is conditional upon obtaining the authorizations and licenses issued by ANRE, as follows:• Authorizations for setting up capacities for gas generation, transmission,

storage, dispatching, transit and distribution and for the functioning and revision of the capacities for gas generation, transmission, storage, transit and distribution; and

• Licenses for performing gas transmission, transit, storage, distribution and supply.

The licenses are issued for a maximum period of 30 years (in case of the gas supply and storage), 15 years (in case of the gas transmission and distribution) and a period equal to the duration of the transit agreement (in case of the gas transit).


Rights of the holders of concession over lands and other immovable assets owned by third parties Considering the public interest entailed by the activities carried out in the gas sectors, the holders of concessions in the gas sector benefit, by virtue of law, from certain following rights over the lands and other assets, belonging both to the public domain and to the private ownership of individuals or legal entities, such as: (i) right of use for performing the works necessary for the development, upgrade or repairing of the gas capacities, (ii) easement rights at underground, surface and aerial level for installing gas grids and other related equipments and for accessing the location place thereof and (iii) right to request the limitation or cessation of activities that may endanger assets and humans.

These rights of use and the easement rights are granted free of charge by virtue of law. However, the owners of these assets are entitled to a compensation in the limited case where the exercise of such rights causes any damages. The compensation shall be settled by the parties’ agreement or, otherwise, by court decision.

Community Law



Introduction

Romania’s accession to the European Union (EU) has brought important changes in the local business and legal environment, requiring not only a constant eye—watch on the legal developments in the European Community (EC), but also a complete restructuring of the hierarchy of legal sources.

In light of the principle of supremacy of Community law, whose validity may never be reassessed in light of the domestic laws, national courts are bound now to apply the provisions of the directly effective Community laws (of whatever rank) in cases which arise before them, and to set aside conflicting national laws (of whatever rank) which could override the Community law. The legislative process to align local legislation with the EC legislation also continued, with a view to eliminate disparities, especially in areas such as public acquisitions and environment.

Changes in the legal system entailed changes in the business environment; Romanian business consultants need now to tackle the Community dimension in transactions, especially in highly EU integrated sectors such as competition and State aid, as well as to assess the Community laws’ impact in all matters in relation to which they offer specialized assistance.

Even though the general public awareness of these instruments is still reduced, Romanian courts have already been confronted with applications from litigating parties requesting the courts to make references for preliminary rulings to the European Court of Justice (ECJ) with regard to questions of Community law relevant for settlement.

Community Law


The rights of free establishment and free practice of services saw the Romanian business environment meet an increasing number of Community companies entering the domestic market, most remarkably in the financial sector where important credit institutions and insurance companies from other Member States decided to do business in Romania based on these principles. The right of free establishment and the free practice of services concepts allow Community residents to carry out their businesses in any EU Member State in a simpler, less formal manner, surveillance being needed solely from the relevant authorities of their state of origin. Although to a lesser extent, Romanian companies have also considered entering other Member States’ markets based on these principles, and the trend is expected to develop in the near future as awareness of the mechanics of these concepts grows.

The Treaty of Lisbon at a Glance

Outcome of complex negotiations among EU member states in an intergovernmental conference, in which the Commission and Parliament were also involved, the Treaty of Lisbon, signed on the 13th of December 2007, ratified by eachof the EU’s 27 members and entered into force on the 1st of December 2009, aims atoffering the EU effective and coherent tools to respond to constant regional and global changes (among which, the expansion of the EU itself from 15 to 27 states) and meet future challenges.

Without replacing them, the Treaty of Lisbon amends the Treaty of Maastricht on European Union and the Treaty of Rome establishing the European Community (renamed the Treaty on the Functioning of the European Union). Prior to its entry into force, the Union comprised a system of three legal pillars, of which only the European Communities pillar had its own legal personality. The Treaty of Lisbon abolished this system, and, as a consolidated entity, the European Union inherited the legal personality of the European Communities. Therefore, the EU is now able to sign international treaties in its own name.

The Treaty also strengthens the role of the European Parliament and of the national parliaments. The European Parliament is given new important powers regarding EU legislation, the EU budget and international agreements. In particular, the increased role of the co—decision procedure (renamed “ordinary legislative procedure”) in policy—making places the European Parliament on equal footing with the Council as legislator. The treaty also changes the system of allocation of member seats in the European Parliament to Member States. Rather than establishing a precise number (as the case was in every previous treaty), the Treaty of Lisbon gives the power to the Council of Ministers, acting unanimously on the initiative of the Parliament and with its consent, to adopt a decision setting forth the number of seats for each Member State. The number of seats will be however limited to 750,



excluding the President. In addition, the Treaty introduces the principle of digressive proportionality to the number of citizens of each Member State, i.e. members of the European Parliament from more populous countries will each represent more people than members from less populous countries. The role of national parliaments in the legislative processes of EU institutions is also expanded, in particular due to a new monitoring mechanism ensuring that the Union only acts where results can be better attained at EU level (the so—called “principle of subsidiarity”).

The Treaty of Lisbon envisages a decrease in the size of the Commission starting with 2014, when only two thirds of the Member States will have a commissioner on board (the number of commissioners being thus reduced from 27 to 18). However, the European Council may decide to alter unanimously this number. The Treaty gives additional powers to the president of the European Commission, who may dismiss fellow commissioners. Through another major change brought by the Treaty, a direct link is established between the results of the European elections and the choice of candidate for President of the Commission, who is elected by the European Parliament.

A major institutional innovation is the newly-created position of EU high representative for foreign and security policy, meant to ensure consistency in EU’s relations with foreign countries and international bodies. The high representative, elected as such by the European Parliament and thereby also automatically entrusted with the position of Vice-president of the European Commission, has a double role: representing the Council on common foreign and security policy matters, and also being Commissioner for external relations. The EU high representative will be assisted by the European External Action Service; a new institution created by the Treaty and intended to serve as diplomatic corps of the EU.

Under the Lisbon Treaty, the European Council maintains its composition of the heads of state or government of the Union’s Member States, along with the (nonvoting) President of the European Commission, but officially gains the status of an EU institution, thus being separated from the Council of Ministers. The European Council gets a greater say over police and justice planning, foreign policy and constitutional matters, including: the composition of the Parliament and Commission; matters relating to the rotating presidency; the suspension of membership rights or the changing of voting systems in the treaties bridging clauses. The Treaty creates the position of President of the European Council, with large administrative prerogatives in coordinating the work of the European Council and liaising with the European Parliament.

The Treaty has also amended the voting procedures in the Council of Ministries, replacing the unanimity with the qualified voting majority in relation to almost


every policy. The qualified voting majority is conceived as a dynamic mechanism which will change starting with 2014.

No significant changes have been made to the role or powers of the Court of Justice of the European Union, the European Central Bank or the Court of Auditors. However, the Treaty broadens the competence of the European Court of Justice, especially as regards police and judicial cooperation in criminal matters, and changes some of its procedures. For instance, the preliminary ruling procedure is extended to acts issued by agencies and other European bureaus, which become part of EU law.

The concept of European citizenship receives new developments in the Treaty, the citizens having extensive rights in relation with the Court of Justice of the European Union as well as the possibility to promote citizens’ initiatives. In this latter respect, the European Commission is bound to consider legislative proposals signed by more than one million citizens.

Also, the Treaty of Lisbon guarantees the enforcement of the Charter of Fundamental Rights, the EU thus acquiring a catalogue of civil, political, economic and social rights, which are legally binding not only on the Union and its institutions, but also on the Member States as regards the implementation of EU law.

Basics of Rome I Regulation

The Regulation of the European Parliament and of the Council No. 593/2008 on the law applicable to contractual obligations (Rome I), entered into force on 17 December 2009, provides rules to determine, within the European Community (EC), which law applies to contracts that have connections with more than one country, such as cross—border business or consumer contracts. The intention underlying Rome I is to provide clarity when the parties have not themselves chosen the applicable law to govern their contract.

Being a EU Regulation, Rome I is directly applicable (will not need an implementation instrument in the domestic legislation) and therefore is deemed to automatically amend domestic legislation concerning the conflicts of law and to take precedence over any international convention concluded between one or more Member States on matters regulated in Rome I.

Rome I shall apply to contracts concluded after 17th of December 2009 only, while forcontracts concluded before this date the applicable law is to be determined under the rules of domestic laws, most of which are drafted based on the Rome Convention on the law applicable to contractual obligations of 1980 (Rome Convention), to which Rome I is a successor.



Most of the provisions of the Rome Convention are replicated in Rome I, but there are several changes with important practical implications for the contractual parties.

Rome I applies to contractual obligations arising in civil and commercial matters, with a number of express exceptions such as: contractual obligations “arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character”; arbitration agreements; agreements on choices of court; obligations arising out of dealings prior to the conclusion of a contract and certain company matters.

Continuing the Rome Convention tradition, Rome I preserves the parties’ right to choose the law that will govern their contract, in whole or in part, where such choice has been made expressly, or it follows clearly from the terms of the contract, or from the circumstances of the case.

However, Rome I provides different rules than Rome Convention for cases where the parties have not made an express choice of law. In short, Rome I sets forth eight rules applying to specific types of agreements. For instance, the contracts for the sale of goods shall be governed by the law of the country where the seller has its habitual residence. For companies, habitual residence is defined as the place of central administration while for natural persons, acting in the course of business, it is their principal place of business. For contracts concluded in the course of operations of a branch, agency or any other secondary establishment, the habitual residence will be the place of the branch, agency or other establishment. In determining the habitual residence, “the relevant point in time shall be the time of the conclusion of the contract”. In cases not governed by the eight rules, the agreement will be submitted to the law of the country of habitual residence of the party required to provide the “characteristic performance” of the agreement. However, the “habitual residence” test shall not apply if it is clear that a contract is “manifestly more closely connected” with the law of a different country. In such cases, the law of the other country shall apply.

Contracts of carriage, consumer contracts, employment contracts or insurance contracts are all dealt with specifically by Rome I. The Regulation puts particular emphasis on the protection of consumers and employees.

In addition, Rome I regulates circumstances in which a choice of law made by the parties can be modified at least partially. Where all other elements relevant to the situation at the time of the parties’ choice are located in a country other than the country whose law has been chosen, the parties’ choice will not prejudice the application of mandatory provisions of the law of that other country (i.e. rules the parties may not depart from by agreement). This principle


also applies to Community law provisions the parties cannot derogate from by agreement in circumstances where all other elements are located in one or more EU Member States but the law of a non—Member State had been chosen. Overriding mandatory provisions of the law of the forum (i.e. the place where the dispute is being heard) can be applied irrespective of the law that would otherwise be applicable. Overriding mandatory provisions are provisions “the respect for which is regarded as crucial by a country for safeguarding its public interest, such as its political, social and economic organization, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable”. A court may refuse to apply provisions of the law that would be manifestly incompatible with the public policy of the forum.



Romanian Tax System

Taxation of Corporations in Romania (Corporate Income Tax)

Entities subject to corporate income taxRomanian companies, permanent establishments of foreign companies, and legal entities with headquarters in Romania incorporated as per the European legislation have the obligation to pay corporate income tax in Romania. Therefore, if choosing to operate via a subsidiary in Romania, the subsidiary will be subject to Romanian corporate income tax on worldwide profits. If setting up only a branch in Romania, the branch will be regarded as a permanent establishment and therefore deemed subject to Romanian corporate income tax, but only for profits attributable to the branch.

Corporate tax ratesThe standard corporate income tax rate is currently of 16%.

As of 1st of May 2009, the Romanian Fiscal Code imposes minimum thresholds ofcorporate income tax, i.e. minimum amounts that need to be paid on account of corporate income tax by taxpayers earning taxable profits for which the 16% tax is lower than these minimums.

Minimum corporate income tax amounts set under the latest changes to the Romanian Fiscal Code depend on the amount of total revenues earned by the taxpayer during the previous tax year, as follows:• Total revenues in Romanian Lei (RON) between 0—52,000: the minimum

corporate tax income amounts to RON 2,200;• Total revenues in Romanian Lei (RON) between 52,001—215,000: the minimum corporate tax income amounts to RON 4,300;


• Total revenues in Romanian Lei (RON) between 215,001—430,000: the minimum corporate tax income amounts to RON 6,500;

• Total revenues in Romanian Lei (RON) between 430,001—4,300,000: the minimum corporate tax income amounts to RON 8,600;• Total revenues in Romanian Lei (RON) between 4,300,001—21,500,000: the minimum corporate tax income amounts to RON 11,000;• Total revenues in Romanian Lei (RON) between 21,500,001—129,000,000: the minimum corporate tax income amounts to RON 22,000;• Total revenues in Romanian Lei (RON) in excess of 129,000,001: the minimum corporate tax income amounts to RON 43,000.

Accounting and fiscal periodUnder the Romanian rules, the accounting and fiscal year is considered to be the calendar year or the period during which the entity existed, if it was set up or ceased to exist during that year. As of 1st of January 2009, the Romanian accounting law allows certain categories of entities (i.e. Romanian branches of foreign companies, Romanian consolidated subsidiaries and subsidiaries of the subsidiaries of foreign companies) to set an accounting year other than the calendar year, if the financial year of the parent company is different from the calendar year. However, the Romanian Fiscal Code does not allow using a different fiscal year than the calendar year, so applying a different accounting year may complicate matters from a tax perspective and is therefore not used in practice.

Tax baseThe taxable profit of a company is calculated as the difference between the revenues derived from any source and the expenses incurred in obtaining taxable revenues throughout the tax year, adjusted for fiscal purposes by deducting non—taxable revenues and adding non—deductible expenses. Other elements similar to revenues and expenses are also taken into account when calculating the taxable profit.

Deductibility of expensesFrom a tax deductibility standpoint, expenses fall into three categories: (i) deductible expenses, (ii) limited deductibility expenses and (iii) non-deductible expenses.

As a general rule, “expenses are deductible only if incurred for the purposes of generating taxable income”. The deductibility of certain expenses is limited as follows: interest expenses and foreign exchange losses within the thin capitalisation limits, entertainment/protocol expenses (up to 2% of the adjusted accounting profits before tax). Non-deductible expenses include: profits tax expenses, penalties, sponsorship (limited fiscal credit available), expenses with no justifying documents, insurance expenses paid for the benefit of the employees etc.



Accounting and fiscal depreciationFor corporate income tax purposes, non-current assets exceeding RON 1,800 in value are to be depreciated over the periods determined by law. The Romanian Fiscal Code makes an explicit distinction between accounting and fiscal depreciation. Fiscal depreciation should be calculated based on the asset’s fiscal value and useful life for tax purposes, by applying one of the permitted depreciation methods: (i) straight—line method; (ii) accelerated depreciation; and (iii) diminishing balance method.

Technical equipment, computers and peripherals can be depreciated by using any of the depreciation methods available. For any other fixed assets (except for buildings for which only the straight line method can be applied), only the straight line or diminishing balance method can be used. Revaluations of fixed assets, performed in accordance with the accounting regulations, are taken into account for fiscal purposes (except revaluations of entirely depreciated fixed assets made after the 1st of January 2004).

Thin capitalization rulesUnder the Romanian law, thin capitalisation rules do not apply to interest on loans granted by banks or other types of financial institutions, but only to interest on loans from non—financial entities.

A first test is that the maximum deductible interest rate on loan from related parties and generally non—banking institutions is currently of 8% for EUR — denominated loans, and respectively 8% for RON—denominated loans. Please note that interest rates limitations are updated regularly (on an annual basis for EUR—denominated loans, respectively on a quarterly basis for RON—denominated loans). Interest expenses in excess of this limitation are permanently non—deductible.

A second limitation on deductibility of interest expenses and foreign exchange losses should be performed after the interest rate capping test. Thus, if the debt—to—equity ratio exceeds 3:1, interest expenses are not deductible for corporate income tax purposes in that financial year, but may be carried forward to be deducted in future financial years, as soon as the debt—to—equity ratio is below 3:1. The debt—to—equity ratio is calculated as average debt over average equity (balances taken at the beginning and at the end of the financial year).

Fiscal lossesCompanies are allowed to carry forward fiscal losses as declared in the annual corporate income tax returns for a period of seven years and deducted from future taxable profits based on the FIFO method. For foreign legal persons, this rule concerning the carrying forward of losses applies only to revenues and expenses attributable to their Romanian permanent establishment.


Corporate income tax complianceTax returns have to be submitted on a quarterly basis and the related tax must be paid by the 25th of the month following the end of each quarter. Quarterly corporate income tax liabilities are calculated based on actual figures, except for the payment relating to the 4th quarter of the financial year, which should be equal to the payment made for the 3rd quarter. Annual corporate income tax returns have to be filed with the Romanian tax authorities by April 25th the following year, and this is also the deadline for settling any differences in corporate income tax arising in respect of the full financial year and aggregated quarterly payments. By exception, companies closing their annual financial statements by the 25th of February of the following year can file their annual corporate income tax return and pay the actual remaining of corporate income tax by the same date, without needing to make the intermediate payment in respect of the 4th quarter by the 25th of January.

As an exception to the rules stated above, certain categories of taxpayers (e.g. non-profit organisations) are required to pay profit tax by the 25th of Februaryof the following year.

As of 1st of January 2007, Romanian banks and branches of foreign banks started applying the corporate income tax system with advance payments made on a quarterly basis. The system of advance payments based on previous year profits is scheduled to apply as of 2012 to all categories of corporate income tax payers.

Late—payment penaltyStarting 1st of July 2010, the late payment charges (previously of 0.1% per day ofdelay) for failure to pay tax liabilities within the legal deadline are replaced by late payment interest of 0.05% per day of delay. In addition, late payment enalties are owed for overdue tax liabilities.

The level of the late payment penalties is set as follows:• No late payment penalties if the liability is settled within the first 30 days

from the payment deadline;• 5% of the overdue tax liabilities, if these are settled within 60 days after

the lapse of the first 30 days mentioned above; • 15% of the overdue tax liabilities if these are settled anytime after the first

90 days from the legal deadline.

Anti—avoidance provisionsThe Romanian fiscal legislation provides for the “substance over form” principle according to which, “in assessing the amount of any tax or charge for purposes of the Fiscal Code, the tax authorities may disregard any transaction that does not have an economic purpose or may re-classify the form of a transaction to reflect the economic content of the transaction”.



Transfer pricing rulesThe Romanian transfer pricing legislation follows the OECD Guidelines and requires that all transactions between related parties be carried out at market value. If transfer prices are not set at arm’s length, the Romanian tax authorities have the right to adjust the taxpayer’s expenses or revenues so as to reflect the market value.

Traditional transfer pricing methods (comparable uncontrolled prices, cost plus and resale price method), as well as any other methods that are in line with the OECD Transfer Pricing Guidelines may be used for setting transfer prices.

Romanian taxpayers are required to prepare a transfer pricing documentation file covering their related party transactions. The detailed content of the transfer pricing documentation file has been approved by an Order of the National Agency for Tax Administration. The required content of the transfer pricing documentation file is broadly in line with the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union, as it contains both information in the master file, as well as country specific information.

This file needs to be presented upon request of the tax authorities during a tax audit. The term for presenting the file is determined on a case—by—case basis(depending on the number and complexity of inter—company transactions), up toa maximum of three months, with the possibility of a single extension with a period equal to that initially established. Failure to present the transfer pricing documentation file or presenting an incomplete file following two consecutive requests may trigger estimation of transfer prices by the tax authorities, based on generally known information, as the arithmetic mean of three transactions considered similar.

Companies may request an Advance Pricing Agreement issued by the National Agency for Fiscal Administration, subject to a fee ranging between EUR 10,000—20,000. The terms for issuing Advance Pricing Agreements are 12 months for unilateral Advance Pricing Agreements and 18 months for bilateral and multilateral Advance Pricing Agreements. Advance Pricing Agreements are valid for up to five years. However, the validity period may exceed five years for long-term agreements.

The taxpayer may propose the content of the Advance Pricing Agreement in the request submitted. If the taxpayer does not agree with the content of the Advance Pricing Agreement, it may notify the issuing authority within 15 days; in this case, the Advance Pricing Agreement does not have legal effect.

Advance Pricing Agreements are opposable and mandatory against tax authorities only if their terms and conditions have been observed by the taxpayers.


Taxation of dividends distributed between Romanian companiesStarting 1st of July 2010, dividends distributed by a Romanian company to another Romanian company are taxed at 16%, but fully exempt from tax if the dividend recipient holds at least 10% of the shares in the dividend payer for an uninterrupted period of at least 2 years fully lapsed at the time of payment of the dividend.

New dividend tax exemptions have been introduced in the Romanian Fiscal Code as of 1st of July 2010 for dividends paid by a Romanian company to (i) optionalpension funds and privately administered pension funds; and (ii) public administration bodies holding shares in the Romanian company.

Credit for tax paidin other jurisdictions and recovery of foreign tax lossesStarting 1st of July 2010, the tax paid in a foreign country can be credited in Romania if and only if it was paid in accordance with the provisions of the Double Tax Treaty concluded between Romania and the respective foreign state, and the payment of such tax is certified by adequate documentation. Tax losses attributable to permanent establishments located in countries, other than EU, EFTA or a country with whom Romania has concluded a Double Tax Treaty can be recovered only from profits attributable to the same permanent establishment.

Taxation of Foreign Entities

General principlesIn principle, foreign entities are subject to tax in Romania only on Romanian—sourced income (i.e. income derived from Romania). Categories of taxes applicable to foreign entities are corporate income tax (for branches or other types of permanent establishments set up in Romania), tax on representative offices or withholding tax (for certain types of Romanian-sourced income).

Withholding taxesWithholding tax is applicable on certain types of payments made by Romanian tax residents to non-residents recipients. Withholding tax is applicable for payments made to non-residents in respect of interest, royalties, dividends, commissions, revenues from services performed in Romania (as an exception, management and consulting services are taxable in Romania, irrespective of where physically performed), revenues derived from liquidation of a Romanian legal entity.

The standard withholding tax rate is of 16% and applies on a gross income basis. By exception, a reduced 10% withholding tax rate is applicable for certain types of income (please refer to the sections below).

If more favourable, double tax treaties concluded Romania and the country of the



non-resident prevail over the provisions of the Romanian Fiscal Code (applicable if certificate of residency available is provided at the moment of the payment).

Romania has 78 double tax treaties in force, including tax treaties with most OECD countries. In order to apply the more beneficial provisions of a treaty, the income beneficiary has to provide a certificate of tax residence issued by the relevant authority of its country. The domestic law does not allow application of double tax treaties in case of net—of—tax arrangements when it is the Romanian payer of income, and not the beneficiary, that bears the tax.

Starting 2010, for applying the European tax directives (e.g. Parent—SubsidiaryDirective, Royalties—Interest Directive) the beneficiary of such amounts paid bya Romanian resident shall prove its quality of beneficiary for applying the European Union’s legislation via a tax residency certificate and, if the case, through an affidavit for fulfilling all the necessary conditions (e.g. minimum holding requirement, minimum shareholding, etc).

DividendsAs of Romania’s EU accession on 1st of January 2007, the provisions of the Parent Subsidiary Directive became applicable. Thus, dividends paid by Romanian companies to companies resident in one of the EU member states or in one of the European Free Trade Association (EFTA) member states (i.e. Iceland, Liechtenstein or Norway48), or to a permanent establishment of a company resident in EU or EFTA member states, are currently exempt from withholding tax if the dividend beneficiary has held a minimum of 10% of the shares of the Romanian company for an interrupted period of at least two years elapsed at the date of payment. If the minimum shareholding and period are not fulfilled at the date of payment of the dividends, a 10% withholding tax rate applies to dividends paid out by a Romanian company to shareholders tax resident of these states. Dividends paid out to companies outside the EU and EFTA are subject to the standard 16% withholding tax rate.

If the dividend payments are made to a beneficiary resident in a country with which Romania has concluded a Double Taxation Treaty and that beneficiary presents a valid tax residency certificate, then the withholding tax rate provided under the Romanian domestic law (i.e. 10%) can be reduced in accordance with the relevant article of the Treaty.

Interest and royaltiesRomania has implemented the Interest and Royalties Directive with a transitional period for the application of this Directive until 2010. During the period between the accession date of 1st of January 2007 and 31st of December 2010, a 10%

48 Switzerland is not specifically referred to by the Romanian Fiscal Code.


withholding tax rate applies on payments of interest and royalties made by a Romanian company to companies tax resident in the EU or EFTA member states and holding at least 25% of the share capital of the Romanian company for an uninterrupted period of at least two years prior to the date of payment of interest /royalties. Such payments will be exempt from withholding tax as of 1st of January 2011, under the same conditions as stated above.

If the above conditions are not met at the date of actual payment of interest and royalties, the standard 16% withholding tax rate applies.

Capital gainsNon—resident companies deriving income from real estate located in Romania or sale of shares held in a Romanian company (so—called “capital gains”) are required to declare and pay related tax falling due in Romania.

We note that the Romanian law does not provide for a separate capital gains tax, but capital gains are subject to corporate income tax (at 16%). Non—residents may appoint a tax representative to fulfil the tax compliance obligations. By exception, for income derived by a non—resident company, the obligation to compute, withhold, declare and pay the capital gains tax lies with the buyer, when the buyer is a Romanian legal entity or a foreign legal entity having a registered permanent establishment registered in Romania at the time of the transaction.

A first test is that the maximum deductible interest rate on loan from related parties and generally non—banking institutions is currently of 8% for EUR—denominated loans, and respectively 8% for RON—denominated loans. Please note that interest rates limitations are updated regularly (on an annual basis for EUR—denominated loans, respectively on a quarterly basis for RON—denominated loans). Interest expenses in excess of this limitation are permanently non—deductible.

Investment Incentives

Incentives for expenses related to research and development activitiesTax incentives are granted for research-development activities: companies can benefit from an additional deduction of 20% of the eligible expenses from such activities and, moreover, accelerated depreciation may be applied for devices and equipment used in research and development activity.

Tax exemption on reinvested profitThe tax exemption for reinvested profit has been retro-actively enforced since October 2009 and intended to be preserved until 31st of December 2010. Under this measure, the profit reinvested in the acquisition / production of equipment



and machinery may be exempted from corporate income tax. By “reinvested profit” the law refers to the accounting profit of the period (cumulated from the beginning of the year) up to when a new investment is undertaken. The benefits of the exemption are countered by an adverse requirement: the fiscal value of the assets purchased / manufactured has to be decreased with the value of the accounting profit considered to have been invested in those assets.

Another constraint in applying this tax incentive is an obligation to keep the assets acquired for at least half of their useful life. Otherwise, if the fixed assets are sold before this term, the taxpayer would owe the corporate income tax previously exempted (at 16%), plus late payment interest (at 0.1% per day of delay, counted from the date when the exemption was applied).

Accelerated depreciationUnder the Fiscal Code, technological equipment, namely machinery, tools and installations, computers and their peripherals, as well as patents, may be depreciated by using the accelerated method, under which a maximum of 50% of the fiscal asset’s value may be deducted during the first year of usage, while the rest of the asset’s value can be depreciated over subsequent years of use, by dividing the remaining depreciable value of the fixed asset by the remaining useful life.

Dividend tax exemption for reinvestmentsDistributed dividends are exempted from taxation as of 1st of January 2009 ifthey are invested in the same or in another Romanian company’s share capital, in order to preserve and increase the number of employees and to boost existing lines of business.

Reduced VAT rate of 5% for sale of buildingsCompanies can apply a reduced VAT rate of 5% for supply of social policy houses, such as old people’s homes, retirement homes, orphanages, rehabilitation centres for children with disabilities or buildings supplied as housing to an individual / family having a maximum useful surface of 120 square metres and a value of less than RON 380,000.

Local tax incentives for business located in industrial parks, science and technology parksIndustrial parks are strictly delimited areas where research and development, industrial production, and technological development activities are carried out. An industrial park is based on collaboration between central or local administration authorities on one hand, and companies, research and development institutes, and/or other interested partners on the other hand. The industrial park title is granted for a definite period of time (minimum 15 years), as per the request of the founders.


The following incentives currently apply to industrial parks:• Potential discounts on local property tax for buildings and exemption of local

tax on land situated in an industrial park;• Exemption from specific taxes on land (e.g. taxes due on conversion of

agricultural land into buildable land used for industrial parks);• Other incentives potentially granted by local administration.

Employment incentivesFor employment of recent graduates, employers can apply for a monthly grant (amounting to the reference social indicator—i.e. 500 RON, or higher, depending on the level of educational background) for each new graduate for a period of 12 months. Employers benefiting from this incentive must keep this employment relationship for at least three years. Employers may also be exempt from paying the unemployment contribution due for these graduates for the 12 months period. Moreover, if the graduates are still employed by the company for two additional years after the first three years pass, grants amounting to the social security contributions for two years are available. The same incentives apply for the employment of recent graduates with disabilities, but the period for which the exemption from contributions to the unemployment fund and the monthly grants apply is extended to 18 months.

Employers can also apply for exemption from unemployment fund contributions and for a monthly grant equal to the reference social indicator for each unemployed person with an age exceeding 45 years, or for each such person who is the sole family supporter, this monthly grant being available for a 12 months period. Employers benefiting from this incentive have the obligation to keep this employment relationship for at least two years.

Employers running professional training programmes for their employees may apply for a refund of 50% of their expenses for up to 20% of their workforce, under certain conditions and limitations.

Local Taxes and Other Taxes Owed by Corporations

Companies owning buildings in Romania must pay building tax to the Local Council where the building is located. The building tax rate is set by the Local Council in the range 0.25%—1.5% of the gross book value of the building, including the value of reconstruction, consolidation, modernisation, modification and extension works and revaluations, if the case. If the building has not been revaluated during the last three years, the tax rate applicable increases to 5%—10% (exact rate is set by the Local Council).



Companies owning land are subject to land tax established at a fixed amount per square metre, depending on the rank of the locality where the land is located, and the area and /or category of land use, in accordance with the classification made by the Local Council.

A special car pollution tax falls due upon first registration of a motor vehicle in Romania, calculated based on the vehicle’s emission standard, cylinder capacity and age. Owners of motor vehicles also need to pay annual local taxes to the local tax authorities where cars are registered.

Annual vehicle tax is owed to the Local Council where the company is registered in respect of each vehicle owed by the company, including vehicles subject to financial leasing arrangements. The amount of the vehicle tax depends on the type of vehicle and engine capacity and is established by Local Councils, within certain limitations imposed by the Fiscal Code.

Publicity and advertising tax is payable to the local tax authorities by the 10th ofeach month during the execution of the contract by the suppliers of publicity and advertising services rendered in Romania, except for publicity and advertising services through audio, video and the printed media (i.e. journals and magazines). The tax rate is established by the local councils and ranges between 1% and 3%. A tax for display of company name / logo or other similar advertising displays is also due to the Local Council, irrespective of who owns the building where this is displayed—the amount of the tax depends on number of square meters of the display surface.

Indirect Taxation

VAT: main and reduced rates, exemptionsThe Romanian VAT system is in line with EU Directive 112/2006/EEC (the so-called VAT Directive) as of 1st of January 2007. The 2010 VAT package adopted at EU level has also been fully implemented in the Romanian law as from 1st of January 2010.

The following VAT rates apply:• The standard rate is 24%, as from 1st of July 2010—applicable to supplies of goods and services not subject to VAT exemptions or to a reduced rate;• A reduced rate of 9% applies to supplies of medicines, hotel accommodation, books, tickets for museums, cinemas, etc;• A reduced rate of 5% applies to supplies of certain types of buildings (i.e. small residential buildings fulfilling certain conditions, buildings used as retirement asylums, orphanages etc).


The particularities of the Romanian VAT system arise from the implementation of most of the optional clauses of the VAT Directive (e.g. use and enjoyment rules for certain services, VAT groupings etc), as well as certain derogations implemented with prior EU approval (e.g. VAT exemption for international transport of passengers).

Other indirect taxesCustoms and international tradeAs an EU member state, Romania applies the EU Common Customs Tariff and EU customs regulations. Import licences are required for certain commodities such as certain chemical products and weapons. No custom formalities are applied for goods with community status (goods produced in the EU or goods already released for free circulation in the EU).

Excise dutiesThe following products are subject to harmonised excise duties: alcoholic beverages, tobacco products and energy products (e.g. unleaded petrol, electricity, coal). Romania also applies (so—called “non—harmonised”) excise duties for green coffee, roasted coffee and soluble coffee.

Taxation of Individuals

Domicile and residency requirementsIndividuals resident in Romanian for tax purposes are subject to Romanian personal income tax on their worldwide income. Individuals not resident in Romania for tax purposes are subject to Romanian taxation only for income sourced in Romania.

Under the domestic law, individuals are considered to be Romanian tax residents if they: (i) are domiciled in Romania, or (ii) have their centre of vital interests in Romania, or (iii) are physically present in Romania for more than 183 days in 12 consecutive months ending in the calendar year concerned.

Foreign nationals deemed tax residents in Romania under the second or the third criterion mentioned above for three consecutive years become subject to tax in Romania on worldwide income as of their fourth year of stay.

Categories of income subject to taxation: salary income, income from independent activities, rental income, intellectual property rights, investment income (e.g. interest, capital gains, sale of immovable property), agriculture income, pensions, gambling revenues, income from other sources.



Dividend income, domestic interest income, income from prizes and income from other sources are subject to a final 16% withholding tax.

The other categories of income subject to personal income tax are subject to certain advance payments during the year and a final tax paid on the aggregated income amount at the end of each year.

Tax exempt income: sponsorship and donations, inheritance, damage compensation received under an insurance policy, pensions granted to war veterans and invalids, allowance for maternity leave, maternity risk and child care leave, paid from the health fund.

Tax ratesA flat rate of 16% applies, except for certain categories of income (e.g. gambling income taxed at a flat rate of 25%—except for income obtained in the same day from the same organiser/payer that does not exceed RON 600, which is tax exempt, income from occasional sale of immovable goods which is subject to specific rates depending on the amount of such income).

DividensDividends earned by individuals are taxed at a 16% flat tax rate.

Capital gainsCapital gains from transfer of securities are taxed at 16%, irrespective of their holding period or form of trading.

Social security/national insurance paymentsIn Romania, all employers and employees, as well as other categories of taxpayers, have to contribute to the public social security, health and unemployment security system.

The percentages paid by employers and employees are based on gross salary. Below are the current social security contributions rates (which were subject to various changes in the past years).

Social security owed by the employer• Social security contribution: 20.8%—25.8%—30.8%49;• Unemployment fund: 0.5%; • Health fund: 5.2%;• Contribution for medical leave and indemnity: 0.85%;

49 The rates are set differently based on work conditions.


• National insurance for work accidents and professional diseases: 0.15%—0.85%50;

• Contribution to the Guarantee Fund for payment of salary debts: 0.25%;• Labour Chamber Commission: 0.25% or 0.75%51.

Social security owed by the employer• Social security contribution: 10.5%;• Health fund: 5.5%;• Unemployment fund: 0.5%.

Employers calculate and withhold salary contributions on behalf of employees when paying salaries. All such contributions are payable by the 25th of the monthfollowing that to which the salary relates.

Individuals earning income from freelanced activities subject to tax in Romania need to register for social security contributions and personal income tax purposes and pay such contributions and taxes on their own (with certain limited exemptions for which a similar withholding system applies). As of 1st of July 2010, the latest changes in the Romanian Fiscal Code aim to unify the system of payment of social contributions for all individuals earning professional income, other than salary. Thus, freelancers will need to pay the individual rates of social contributions (as shown in the table above) on their income, but not for more than 5 times the national average salary (i.e. currently approximately RON 1,800). No specific procedures have been set yet for the payment of social contributions under this new regulation.

Foreign nationals carrying out activities in Romania are recommended to check the relevant provisions of the Romanian law with respect to personal income tax and social contributions liabilities, as the rules vary depending on the exact nature of activities and length of stay.

Taxhouse SRL59 Grigore Alexandrescu Street

HQ Victoriei Building, 1st floorDistrict 1, 010623, Bucharest, Romania

Tel: +40 21 316 06 45 / 46 / 47Fax: +40 21 316 06 48

E-mail: [email protected] Web: www.taxhouse.ro / www.taxand.com

50 The rates are set differently based on risk category.51 The rates are set differently depending on whether the company or the Labour Chambermaintains the work books of the employees.

better business in romania tuca zbarcea asociatii 2010

Documents