Episodic Privatization of Romania's National Lottery - A Literature Study

9 March 2006

It all started on Dec. 28, 2005. Dow Jones Newswire reported that the Romanian government has passed legislation to partly privatize the country's national lottery by offering shares in the company to people whose property was confiscated by the former Communist regime.

Twenty percent of the National Lottery's stock would be transferred to the "property fund," while 7 percent would be sold to employees and another 5 percent would be publicly listed and sold through the stock exchange, the government said in a statement.

The "property fund" (Proprietatea Fund) will be used to pay damages for assets that cannot be returned to their former owners.

Two weeks later, the director of the Bucharest Stock Exchange reportedly welcomed the executive's intention to have 5 percent of the Romanian Lottery listed on the stock exchange, as a highly transparent method for the sale of the shares, the ACT Media news agency reported.

And according to ACT, the stock exchange official expected the stock exchange liquidity and capitalization to rise significantly after the start of trades with the property fund, which pools stakes in over 100 companies as well as 20 percent of the lottery.

One month later, the minister of public finances, Sebastian Vladescu, informed the local media that the Romanian authorities currently have no intention to privatize the national lottery company, Rompres.

Two days later, the Bucharest Daily News, reported, "Mircea Geoana, president of the Social Democratic Party (PSD), said that his party wants the immediate privatization of the Romanian natural monopolies to stop immediately.

The PSD official said that it will support the moratorium initiated by the Business persons Association in Romania to stop the National Lottery privatization because such matters need "serious thinking," according to Geoana. PSD, he said, will initiate a law project to forbid the privatization of the Romanian Lottery. "The fact that Romanians have dreams and try, in their troubles, to win a lottery ticket, must not represent a profit source for the businessperson connected to a government or another," he said.

Thus, it appears that the privatization was still progressing. The Social Democrats were not happy, but the state was still in charge to finalize the privatization.

But Vladescu, in an interview published Saturday by the Cotidianul newspaper, insisted that the government does not have a project addressing the privatization of the lottery.

"As long as I am minister of finances," he told the publication, "the lottery will not go private."

According to other local media sources, the minister's statement is seen as quashing the privatization rumors that have been circulating over the last couple of months, which started with the lottery company's acquisition of commercial space(s) from Ana Electronic, and the confidentiality clauses provided in the management contracts of the Lottery.

The local media point out that there is an ongoing criminal investigation related to real estate transactions concluded by the lottery.

In his interview, the minister also addressed the controversy concerning the provision of "effectiveness bonuses" to the members of the lottery company board and the confidential clauses provided in the management contracts concluded by the ministry.

"I find it normal in case of an efficient company that those running the company to be paid on basis of efficiency principles, without any discrimination because it looks like a retrograde separation, between a private and a state company," Vladescu said. " . . . Even considering monopoly, you can sleep in the office and still have a 50,000 euro bonus per gambling, or you can be very active and have euro 2 million bonus. Here comes the difference in efficiency. You can have efficiency parameters even in case of a monopoly company."

He added that the management contract for 2006 has not been signed yet; however, he also told the newspaper that it could come to pass that very shortly some of the "lottery activity segments may have to consider the payment of license fees," which have been exempted in the past.

It was only last week that the chairman of the Competition Council said that he would ask for the lifting of the "fiscal facilities that the lottery was benefiting for some activities." The chairman said he regarded them as elements distorting the competition environment in the gambling market.

"Legislation has some clauses which enable provision of exemptions in case of the Romanian Lottery that other market operators do not benefit from," he said, as quoted by Mediafax. "This aspect lays prerequisites for a distorted competition in the gambling market."

Mediafax also reported that according to a press release sent to its editorial office, the council representatives met last week with MFP officials to complete a normative draft addressing gambling, initiated last year whose purpose is to eliminate anti-competition provisions in the market.

On Monday, Vladescu reportedly asked the National Agency for Fiscal Administration to run a financial check at the state-run lottery company, following several press reports that the company has been involved in illegal transactions.

The Bucharest Daily News reported that the request asks that the review focuses on the lottery's activity between 2003 and 2005.

The move follows anti-corruption prosecutors' announcement last month that they are investigating Deputy Prime Minister George Copos in relation to possible illegal transactions with the lottery, according to the newspaper.

Copos is alleged to have sold commercial properties to the lottery for more than their market value. The transactions were reportedly made in 2004. Copos has repeatedly denied the allegations.

The newspaper reported that prosecutors also believe that Copos, through his company, Ana Electronic, did not declare the transactions with the lottery, resulting in 1 million euro in losses to the state.

The Daily News, meanwhile, reported that investigators are looking into the sponsorship agreements the lottery signed with the Rapid soccer club, which is also run by Copos, and the acquisition of 5,500 TV sets in 1996 by the lottery from the deputy prime minister's company. Further, other media outlets have reported that the head of the lottery, Nicolae Cristea, served as a best man at Copos's wedding and that the two were involved in business together for years.

In more recent developments, several media outlets criticized the fact several lottery employees are receiving very high salaries. Cristea reportedly receives over 40,000 RON (about 11,400 euro) per month, which has triggered criticism from the media and even from the prime minister.

Romania is ranked 87th on the 2005 Transparency International Corruption Perceptions Index. Only 159 of the world's countries are included in the survey, due to an absence of reliable data from the remaining countries. The scores range from 10(squeaky clean) to 0 (highly corrupt). A score of 5.0 is the number Transparency International considers the borderline figure distinguishing countries that do and do not have a serious corruption problem. Rumania scores 3.0.

The Romanian National Lottery is a member of the European Lotteries and the World Lottery Association.

Rob van der Gaast has a background in sports journalism. He worked for over seven years as the head of sports for Dutch National Radio and has developed new concepts for the TV and the gambling industry. Now he operates from Istanbul as an independent gambling research analyst. He specializes in European gambling matters and in privatizations of gambling operators. Rob has contributed to IGN since Jul 09, 2001.