October 08, 2008

EU to investigate write off of loan to Petortub in Romania

It is reported that EU would investigate if the Romanian government should have written off about USD 37 million owed by Petrotub now controlled by Mittal Steel Co NV.

EU said that it doubted the legality of the Romanian decision to waive and reschedule debts before pipe and tube maker Petrotub was privatized and sold to Mittal Steel in 2003. If its probe finds that the money is effectively an illegal state subsidy, the EU can order that the company, now called Mittal Steel Roman, pay back the EUR 26 million.

EU regulators said that they would check if the privatization was economically more advantageous for the government than seeing the company collapse as Romania argues. But they said the state should not be counted as a single creditor and Romania would have to prove the economic benefits of privatization for each state agency.

The investigation is unusual because state subsidies granted before a country joined the EU are normally exempt from strict state aid rules. EU governments are not allowed to fund businesses unless they can justify it using a narrow set of terms, showing that the money will not give the company an unfair advantage over others. Romania became part of the EU on January 1st 2007. However, the EU said the steel sector had special rules that allowed it look into this case.