The two largest companies held by the Romanian state will pay RON2bn (€430mn, 0.2% of the year's GDP) in dividends to the budget this month, while other companies where the state holds significant stakes were required to disburse as much in dividends as possible. 

Romanian natural gas company Romgaz has already disbursed RON1.3bn dividends out of which RON1.1bn were to the state, while hydropower company Hidroelectrica decided to pay RON1.1bn dividends out of which RON0.9bn were to the state. 

Despite the government setting a high 90% dividend payout ratio, such revenues can hardly fill the widening fiscal gap that more than doubled to RON15bn in H1 as the public payroll soared by 24% y/y, interest by 20% y/y and social security expenditures by 14%.

The scarce financial resources left for energy companies’ investments will certainly put the development of country’s energy sector at risk. Romgaz in particular is expected to boost natural gas storage capacity ahead of the significant gas flows expected after 2020 from the Black Sea offshore.

Romania’s government derives more revenues in dividends from its own companies than profit tax from private companies, Ziarul Financiar daily commented in a column highlighting this rather abnormal situation that is reportedly partly due to massive transfer pricing, but also to the structure of the local economy that is dominated by the production of intermediary goods by foreign industrial groups.

The government has constantly forced major companies in which it still holds a majority stake to disburse at least 90% of their profits as dividends, in an attempt to finance rising public expenditures. But the management of some companies, such as natural gas transport company Transgaz, have complained that such policies are taken against their recommendations and put pressure on their investment plans. 

Transgaz is carrying out major strategic projects aimed at transporting the offshore natural gas from the Black Sea. The company will pay RON534mn (€115mn) in dividends, out of which RON312mn is to the government, despite the management specifically asking for a 50% dividend payout ratio. The company’s management was perhaps more vocal than others, and even made a formal request in this regard, because the state’s stake is only 58.5% (as opposed to 80% at Hidroelectrica and 70% at Romgaz). The management explained at the time that the company cannot observe the government's memorandum regarding the 90% dividend payout ratio since it would result in "Transgaz' incapacity to finance strategic development projects within the limits of leverage imposed by the grant agreements".

The high profits generated by the state-owned energy companies (dividend yields frequently exceed 10%) are mostly the result of the liberalisation of the energy markets. But the high energy prices are putting pressure on the other industrial sectors, which can barely cope with the rising prices of electricity and natural gas. The low costs of energy and labour have been so far the main engine of the industrial growth in the country, but these drivers have shown their limits. Romania’s industrial production index increased by only 1.2% y/y in May and the average growth rate calculated for the rolling three months eased to 2.1% y/y — the weakest performance since September 2016.