August 31, 2017 / 9:52 AM / a year ago

Romania to set up sovereign wealth fund to finance domestic projects

BUCHAREST, Aug 31 (Reuters) - The Romanian government aims to send to parliament by the end of September a bill to set up a sovereign wealth fund (SWF), pending the European Commission and Eurostat approval, the finance ministry said.

Traditionally, wealthy nations use SWFs to invest their surplus billions overseas to prevent inflation at home, diversify income streams and accumulate savings for the day when commodity revenues run out.

However, in Romania the SWF, a policy objective of the ruling Social Democrats, would hold a mix of cash and equity in some of the state’s most profitable companies to generate income and finance domestic investment including roads and hospitals.

Analysts and investors have said the fund could potentially make the companies more efficient, while others have expressed concern over the appointment of the fund’s management which runs the risk of being politicised.

Critics worry that domestic-focused funds in general can fall prey to a misallocation of resources or outright corruption, citing the example of Malaysia’s 1MDB, which is the focus of money-laundering probes in at least six countries.

The portfolio would include controlling or minority stakes in 27 companies in the transport, pharmaceutical and energy sectors and cash of 1.85 billion lei ($480 million) to be disbursed in stages over three years, a draft bill put up for public debate on Wednesday night showed.

The companies are both listed, such as state-owned gas producer Romgaz and unlisted, like hydro power producer Hidroelectrica, and a full asset evaluation should occur within 60 days of the fund’s creation, the ministry said.

Their overall nominal accounting value stood at 45 billion lei ($11.67 billion) in 2015, it added.

The fund will be managed by a supervisory council of nine people selected by the finance ministry through a process it said will be transparent. The council, which will have an initial term of 18 months and a mandate to set up the fund, will then need to select a management board of seven.

The finance ministry must approve the SWF’s investment strategy and plan, but it will then have free reign over managing its assets. Its only limitation is that it cannot sell or list majority stakes in state companies.

The ministry has estimated the consolidated budget will lose 2 billion lei ($518.03 million) per year in dividends that will pour into the fund as opposed to the budget as they currently do. The fund will not impact the budget deficit or public debt. ($1 = 3.8608 lei) (Reporting by Luiza Ilie, editing by Pritha Sarkar)

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