Romania shifts to stricter rules for non-EU investors

After years with a liberal FDI regime, Romania has shifted to stricter rules for non-EU investors. The new regime entered into force on 18 April 2022.

Scope of application

The FDI Ordinance imposes stricter scrutiny for investments made by non-EU/ non-EU controlled investors that could potentially raise national security and public order risks or that may impair projects and/or programmes of EU interest. The key changes are:

• The new regimes apply to non-EU direct and indirect investors, for investments which are more than EUR 2 million in areas sensitive from the perspective of national security (very broadly defined areas).
• The new regime introduces a stand still obligation for all pending transactions. The non-EU investor is subject to fines of up to 10% of the worldwide turnover for breaching the standstill obligation. Such sanctions will enter into force within the next 30 days.
• Non-EU investors shall be bound to submit a standalone filing (independent of a separate merger control filing).
• The screening shall be conducted by the soon to be set up FDI Screening Commission, which shall take over the role of CSAT, once organised via a Government Decision to be issued in the next 60 days.
• The substantive test shall be based on the criteria provided in article 4 of the EU FDI Screening Regulation 2019/452.
• The maximum review timeline is prolonged to (60 + 30 + 45 calendar days) after the filing is complete:
  • 60 days for the FDI Screening Commission to review the case, plus
  • 30 days for the Competition Council to issue a clearance decision based on the FDI Screening Commission opinion, plus
  • 45 days for the communication of the Competition Council clearance decision.

Impact on non-EU investors

Non-EU investors are subject to screening for all types of investments which are more than EUR 2 million in a very wide list of sensitive sectors.¹ Notably, the scope of application makes reference to the substantive criteria in article 4 of the EU FDI Regulation. In determining whether a foreign direct investment is likely to affect security or public order, the potential effects on, inter alia, the following sectors may be considered:

• critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
• supply of critical inputs, including energy or raw materials, as well as food security;
• access to sensitive information, including personal data, or the ability to control such information; or
• the freedom and pluralism of the media.

While the list of sectors is still very wide, screening shall only apply to greenfield operations and transactions leading to acquisition of control over undertakings active in the sensitive sectors. Control is defined in the sense of EU Merger Regulation, encompassing control derived from any rights, contracts or any other elements which confer decisive influence over an undertaking. Portfolio investments are exempted from screening.

Importantly, non-EU investors which are already established in Romania shall also have a duty to screen “new investments” in sensitive sectors. New investments encompass:

• The creation of a new unit for carrying out the activity in the sensitive sector which is technologically independent from other existing facilities.
• The extension of the capacity of an existing establishment (i.e. the increase of the production capacity in the existing location).
• The diversification of the output of an establishment through products that have not been previously manufactured in that plant or a fundamental change in the overall production process of an existing establishment.

The timeline of M&A transactions is likely to be impacted for non-EU investors since the new regime provides for a maximum Phase I review period of 90 days and leaves 45 day for the communication of the clearance decision. This departs from the rather expedient review under the old regime, which typically allowed the clearance of transactions in 45 days.

The screening shall be based on the substantive test provided in article 4 of the EU FDI Screening Regulation 2019/452. Therefore, no significant changes in the authorisation policy are expected.

While transaction unwinding could be ordered if risks to the national security are found, the new regime also provides for a conditional authorisation decision which may be issued by the FDI Screening Commission. For example, the following behavioural or structural remedies may be offered: certain participation rights offered to the government (i.e. minority share with veto rights), protection of sensitive information / know-how / patents, restriction of governance rights or access to information for the acquirer post-transaction.

New measures on the transparency of foreign direct investments in the field of media

The new law introduced a special public consultation procedure to be conducted by the FDI Screening Commission before a foreign investor acquires an undertaking active in the local media sector, which either owns a national, regional or local broadcasting license or produces a publication periodical with an average circulation of at least 5,000 copies printed per day during the last calendar year or has a web portal with at least 10,000 visualizations/month.

Only if, based on the outcome of the public consultation procedure, the FDI Screening Commission finds that the respective investment entails risks for the security or public order of Romania, will the FDI Screening Commission then further open up a formal FDI screening procedure in relation to the respective investor.

Impact on EU investors

The new law does not apply to EU investors; therefore, the current screening regime is not altered. Investments by EU investors which are subject to local merger control rules may be screened by the FDI Screening Commission upon referral by the Competition Council. There is no standalone filing obligation imposed on EU investors (except for the merger filing). The Competition Council will only clear the transaction on merger control grounds once it receives the green light from the FDI Screening Commission.

Notably, the FDI Screening Commission is now bound to issue an advisory opinion within 30 days, which should contribute in practice to expedient merger clearance procedures by the Competition Council (bound to wait until the FDI Screening advisory opinion is issued).

For transactions which fall below the local merger control thresholds or are subject to the European Commission review, there is no specific procedure applicable to EU investors. In practice, under the current regime, EU investors sought legal certainty by submitting a standalone FDI screening application.

The Government may ban transactions involving EU investors on the buy side, if risks to national security are found. The Competition Law explicitly specifies that the competence of the European Commission in the field must be observed. As recently highlighted in VIG/AEGON case² , the Commission has exclusive competence to examine concentrations with a Union dimension and requires Member States not to apply their national laws to these transactions. Member States can only take appropriate measures to protect legitimate interests provided that such measures are compatible with the general principles and other provisions of EU law and are communicated to the Commission except in limited instances. The Commission reviews not only the appropriateness of these measures and their compatibility with EU law, but also whether such measures are genuinely aimed at protecting a legitimate interest.

1. The non-exhaustive list of sector comprise (i) citizens’ and communities’ security; (ii) border security; (iii) energy security; (iv) transport security; (v) supply systems of vital resources security; (vi) critical infrastructure security; (vii) security of informational and communication systems; (viii) security of the financial, tax, banking and insurance activities; (ix) security of the production and circulation of weapons, munition, explosives and toxic substances; (x) industrial security; (xi) protection against disasters; (xii) protection of the agriculture and the environment; and (xiii) protection of the privatization of companies with State capital or of the management thereof.
2. M.10494 – VIG / AEGON CEE