In November 2024, Romania was ordered to pay an investor for breaches of its international obligations.
Following Romania’s decision to appeal the award, we look at the background to the case and how Romania ended up owing €85M plus interest.
In Eastern Romania, on the outskirts of a small town not far from Bacău, stands an oil refinery which is at the heart of a dispute against the Romanian government.
The plant was once one of the largest in Eastern Europe, processing 3.5 million tonnes of oil a year and was a key part of Romania’s petrochemical industry.
Now, almost two decades later, while the plant stands idol, it is central to an arbitration case against the Romanian government.
In 2007, the plant was purchased by an investment company, led by Austrian businessman, Iakov Goldovskiy. Goldovskiy, an experienced investor with expertise in implementing vertical integration in the petrochemicals sector in other emerging market, sensed an opportunity.
He planned to make the plant the basis for an integrated Romanian petrochemical supply chain, bringing benefits to the local economy and Romania more broadly.
In November 2024, the International Centre for Settlement of Investment Disputes (ICSID) ruled that this was in breach of the Energy Charter Treaty (ECT), an international agreement which established the framework for collaboration in the energy sector and set out provisions on protecting foreign investment in the sector.
ICSID, a World Bank institution for international investment dispute settlement, ruled that Romania owed Goldovskiy’s investment holding company, Petrochemical Holding GmbH, €85 million, plus interest and arbitration fees.
Romania is considered something of an outlier in the European community with allegations of corruption hampering its considerable progress. Paying ICSID awards generally demonstrates a determination to enforce the rule of law and internationally agreed standards.
It also demonstrates to potential foreign investors that Romania is open for business and that it understands the need for international investment for its long-term economic growth. EU Reporter notes that paying ICSID awards is an important way for Romania to secure investor confidence at a moment of considerable uncertainty.
On the other hand, Romania has one of the worst records when it comes to paying ICSID awards, coming third in non-compliance with ECT related disputes. But non-compliance comes with three main risks.
Firstly, it means that the liability for the Romanian taxpayer will increase. Should the government decide to appeal, the award has high rates of interest which ordinary Romanian citizens will be required to pay for.
Secondly, non-compliance means that states run the risk of enforcement proceedings which could lead to the attachment of Romanian assets as part of the award.
Finally, as ICSID is operated by the World Bank, non-compliance can seriously jeopardise the relationship between the state and the financial institution. This could impact the grants and funds received by Romania for its economic development.
While the plant remains dormant, the case is likely to remain a key issue for the Romanian government going forward. Given the wider implications for Romanian taxpayers and the Romanian economy, the case will be monitored closely by officials and citizens alike.