Claiming the increase of the state-owned companies’ performance and financial results, the authorities are drafting a new law to turn the state-owned forest administration into one or more commercial companies. However, this has the potential to divert the long-awaited reform of RNP Romsilva without creating the real premises for cutting political interference or increasing the professionalism level in public companies.
Romsilva’s “de-politicization” can be done without changing its status from a state-owned company to a joint-stock company (SA) or limited liability company (SRL). A commercial company operates by economic principles, targeting to maximize its profit. Public interest related to the non-commercial, environmental or social aspects should count most in case of a state-owned forest administration. Thus, there is a high risk to not meet these non-commercial objectives which are essential for the public interest.
The draft law risks making the enforcement of the strategic directions assumed by Romania in the National Strategy for Forests 2030 impossible, especially regarding the society’ legitimate expectations to maintain and improve the ecosystem services, as well as to locally capitalize and superiorly process the resources of the state-owned forests.
"The unjustified political interference in the state-owned companies’ administration, including in Romsilva, must be eliminated, but the tutelary authority must have full control over their strategic objectives. The management of state-owned forests and of timber use must be carried out in the citizens’ interest, as forests are a national good and must not be replaced by commercial services to maximize the profit rate of a certain commercial company - even if the state will have, in the beginning, full ownership."
Context
In January, we drew attention to the stake of Romsilva’s reform and why it should be done transparently and participatory. Meanwhile, the project advances rapidly in the Parliament, parallel to the draft of a new a new Forestry Code. But the Government fails to explain in detail its vision to reform and reorganize the state-owned forests administration.
In case of the state-owned forests administration, the claimed recommendations regarding the enforcement of corporate governance principles were exceeded.
To justify the draft law, the authorities refer to the PNRR provisions, respectively the specific country recommendations of the European Commission and the Organization for Economic Cooperation and Development (OECD) for the proper functioning of public enterprises. But these documents state that „the legislation on corporate governance in the case of state-owned enterprises is sound” (PNRR – R9).
The correctly highlighted problems are mainly related to their poor implementation, such as:
- The selection processes and practices regarding the appointment of the administrative boards’ members, which allowed political interference and lowered their professionalism level.
- Maintaining temporary positions for the members of the administrative boards, which extend many times, indefinitely.
- Lack of monitoring, of mechanisms to ensure compliance with legislation and specific responsibility.
- Financial penalties applied for administrative misconduct are symbolic and do not have the power to change the general misbehavior.
Therefore, to thoroughly apply the principles of corporate governance in case of the state-owned forests administration, the authorities should not change the current administrative form of “national management” into a commercial company in order to meet public service requirements. Basically, there is no solid argument to turn RNP Romsilva from national management into a commercial company that would bring good governance benefits. These can be enforced very well even if the current legal structure of this public enterprise is maintained.
Significant risks
- Establishing a systemic imbalance in harmonizing the environmental, social and economic objectives because profit always comes first in a commercial company.
- Limiting the local communities’ access to the resources provided by the forest, which are essential for their well-being.
- The gradual opening to „outsourcing to private companies” path for services that are of exclusive national interest and, above all, of national security, such as forests.
- The state loses its direct control on the mechanism to stimulate the growth of the forestry sector's contribution to the sustainable socio-economic development of local communities through the vertical value chains of superior processing, related to the used forest resources. This is a strategic direction in the National Strategy for Forests 2030.
- The uncertainty of close to nature silvicultural practices enforcement and, in general, of conservation efforts, which would be conditioned by compensation grants even in the case of state-owned forests. In the absence of dedicated European funds for forest conservation, the state amputates itself a direct lever for meeting the minimum conservation targets assumed by Romania. Which also corroborates with the continuation of the retrocession process, which had serious deficiencies over time.
Requests to improve the draft law
- Prior audit to allow clear identification of public service requirements.
- A transparent and participative process on setting the long-term strategic objectives for state-owned companies, as well as on setting the non-financial performance indicators, which are relevant especially when meeting public service requirements.
- Professionalization of the state-owned companies’ management of state enterprises by applying a competitive, transparent and participative process regarding the selection procedures – the managers’ selection and appointment criteria. In the case of the state-owned forests management, it’s mandatory that the board members have technical experience in all the three areas of interest: environment, social, economic.
- It should not divide the silvicultural and economic activities on capitalizing on the forest-related products. Such a separation creates the premise for the de-accountability of the state-owned forest administrator to meeting its goals, for increasing the administrative jams and for stimulating corruption.
Therefore, changing the legal status of RNP Romsilva brings, in perspective, only major risks on delivering public services of national interest. Applying the principles of “de-politicization” and of good governance depend, by no means, on changing in its legal status.
The deficient implementation of the governance principles in Romsilva’s case should be solved by the proper functioning of the Agency for Monitoring and Evaluating of Performance of Public Companies. This Agency should be strictly empowered with activities related to setting up and the operations of that company’s board members, to establishing, approving and monitoring its key performance indicators.