29.01.2019
30.01.2019
What is EGO 114/2018
On 29 December 2018 the Emergency Government Ordinance 114/2018 (“EGO 114/2018”) was published in the Romanian Official Gazette establishing, amongst others, budgetary and tax measures across different industries. In particular as regards the energy sector, EGO 114/2018 provides for new taxes and a return to a regulated market, as summarized below:
Power Sector:
Gas Sector:
Why it has been enacted
According to Romanian media, the measures are aimed at raising an additional €2.1bn in order to tackle the budget deficit in Romania which was the result of a series of tax cuts and wage hikes in the public sector. EGO 114/2018 is inspired by principles of social justice with social protection as an intention declared in its preamble. The ordinance has been enacted against the backdrop of an anti-foreign political discourse in which foreign companies have been attacked for allegedly failing to contribute enough in taxes.
How it has been enacted
EGO 114/2018 has been harshly criticised for being adopted in the absence of impact studies and without public debate or consultation with stakeholders. The business community and some political leaders have expressed their concerns regarding the adoption process of EGO 114/2018. Romania’s President Klaus Iohannis described the measures as very serious and worrisome and criticized them for not being discussed with partners and for lacking any prior analysis. The Foreign Investors Council (FIC) expressed its disappointment at the public and political discourse against foreign companies underlying the adoption of EGO 114/2018. The FIC has also criticized the Government’s abuse of legislation through emergency ordinances with limited consultation periods. The Chamber of Commerce and Industry of Romania (CCIR) issued a public statement disapproving of the manner in which the EGO 114/2018 was adopted, namely without a public debate and without consultation with the business community, criticising its negative effect on the investment climate.
The measures have also been questioned for risking infringement procedures by the European Commission.
Potential implications for your company
EGO 114/2018 has imposed over-taxation and the return to a regulated market after being fully liberalised in January 2018. As a consequence, it has been reported that the financial results of several companies operating in the energy and gas sectors will be negatively affected. Others will reconsider their investments in Romania, now threatened by artificially established prices. The European Federation of Energy Traders (EFET) has called on the Romanian government to suspend EGO 114/2018 as a matter of urgency due to the devastating effects that the measures will have on the companies, as well as on consumers and Romania’s social welfare.
Against this background and provided the measures lead to an impairment, Romania may be violating its obligations under the Energy Charter Treaty and/or applicable bilateral investment treaties (BIT).
Prima facie, Romania may be breaching its obligations towards foreign investors to accord fair and equitable treatment (FET), amongst others. In this regard, Romania may be in violation of its obligation to act in good faith and respect investors’ legitimate expectations of a liberalised market. Additionally, Romania may have impinged upon the FET as the introduction of the EGO 114/2018 appears to have been arbitrary, non-transparent and lacking due process.
Romania is also obliged to avoid discriminatory measures to its foreign investors. Yet, the political discourse seems to be biased against foreign investment. In particular, the leader of the ruling Social Democratic Party (PSD), Mr Dragnea, has publicly attacked multinationals for failing to pay taxes in Romania. Whether the legislation is ultimately aimed at foreign companies, however, remains to be seen.
How we can support your business
We can provide you with a thorough analysis of EGO 114/2018 and its implications on your company from an investment protection perspective. This analysis is aimed at providing your business with an optimal, resource-efficient response to the measures adopted through EGO 114/2018, including the plausibility of pursuing an arbitration claim against Romania. Individual impact on your business would need to be determined by an expert.
Our Arbitration Team is uniquely positioned to support your business in securing investment protection and in representing you in arbitration. Having represented investors in numerous cases against states, we are familiar with the positions and strategies typically adopted by states. Moreover, we are experienced in coordinating the often simultaneous work streams and have in-depth economic understanding that allows us to properly present the implications of government measures on your business.
*This analysis is a prima facie assessment of EGO 114/2018 based on a free translation from the Romanian language and on media reports.
 | Dr. Richard Happ |
 | Trinidad Alonso, LL.M. |
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