Grup Feroviar Roman, a railway company owned by Gruia Stoica, competed against state-owned CFR Marfa using 49% of the train cars and locomotives belonging to the state company.
This information is revealed in a document drawn up less than a month before by officials of CFR Marfa in response to an audit conducted by KPMG regarding the activity of a paradoxical association: Rolling Stock Company, a joint-venture between CFR Marfa and GFR, its main competitor on the local railway freight transport market.
The KPMG report and a series of other documents of the Ministry of Transport and CFR Marfa, obtained by the Investigative Media Center, show how companies in Stoica's group used Rolling Stock Company to get hold of dozens of train cars and a few thousand locomotives belonging to CFR Marfa. The initial plan was to upgrade them and lease them out, particularly to foreign operators.
According to KPMG auditors, seven years after it was set up, Rolling Stock Company came to be fully controlled by GFR and was "integrated with repair units part of GFR group and clients part of GFR group".
Add to this the fact that CFR Marfa did not cash any dividends for seven years as part of the joint-venture, KPMG auditors pose the question whether the very existence of Rolling Stock Company constitutes "potential state aid CFR Marfa indirectly granted GFR".
In 2011, CFR Marfa, the former owner of the train cars now managed by Rolling Stock Company, leases 40 "UAGPS series" train cars from GFR.
The Investigative Media Center presents today an example of defective management that has brought CFR Marfa in just a few years close to a resounding bankruptcy.
Rolling Stock Company (RSCO) was set up in 2007, following a feasibility study that was very optimistic for CFR Marfa but which was never observed, as shown in the KPMG audit report.
The feasibility study auditors analyzed stated CFR Marfa was to recover its investment in full in seven years, with dividends of EUR5 million a year, and the partnership was to have no impact on the state company's privatization process and not endanger its previously held market share. Moreover, CFR Marfa explicitly targeted not to lose partial ownership of the new company.
Instead, seven years later, CFR Marfa had received no dividends, had lost a big market share to its associate in Rolling Stock and, most importantly, lost decision-making control in the joint venture.
What is Rolling Stock Company?
Rolling Stock Company was initially set up with the intention of capitalizing on some of CFR Marfa's assets that were unusable due to degradation. Initially, the Rolling Stock Company joint venture sounded good: CFR Marfa would be a majority shareholder in a commercial company alongside private partners, bringing to the deal a number of locomotives and old, defective, unusable train cars, to be repaired at the partners' expense and then leased out by the new company, to the benefit of all shareholders.
From a note sent by former Transport Minster Dan Sova to his colleague, Finance Minister Ioana Petrescu, we learn that Rolling Stock Company was a partnership between CFR Marfa (42% of the shares), Gruia Stoica's Grup Feroviar Roman (40%) and Raiffeisen Bank Romania SA (18%).
On November 21, 2007, through the minute of proceedings 224/21.11.2007, CFR gave the newly founded company 30 locomotives and 1,402 train cars, a first part of the capital contribution agreed in the company set-up by-laws.
One year later, on November 26, 2008, CFR transferred an additional 49 locomotives and 2,762 train cars to RSCO, and had still to transfer 2,236 train cars.
The document Sova sent the Finance Ministry - requesting a tax control over the activity of Rolling Stock Company – shows the remaining 2,236 train cars CFR was to transfer to the joint-venture had been deemed unsuitable for international traffic and replaced by 1,667 train cars, with an equal value to those deemed unsuitable. CFR transferred both the suitable and the unsuitable train cars to the joint-venture.
The same document states "all the 6,500 locomotives and train cars underwent technical inspection in just four days, one year before Rolling Stock Company was set up de facto".
The first key move in the process of turning Rolling Stock Company in what may be CFR Marfa's biggest parasite company occurred on November 24, 2008, when Raiffeisen Bank notified CFR of its intention to sell its shares to GFR, requiring CFR Marfa to state whether it wished to exercise its preemption right on the offered stock.
"The CFR Marfa General Shareholders Assembly decided, through Decision no. 43/03.12.2008, not to exercise its preemption right on the stake of 7,156 shares," Sova wrote in the note to the finance minister.
This is when GFR takes control of the joint-venture and comes to own more than 50% of the shares and basically gets to call shots regarding the assets CFR Marfa had brought in as capital.
Even in these circumstances, the complicity of those who should have protected the interests of state-owned CFR Marfa in the association with GFR went so far that, according to KPMG's conclusions, CFR Marfa representatives in Rolling Stock's General Shareholders Assembly and management board "always voted unanimously" on the decisions the majority shareholder subjected for approval.
The apocalyptic picture is completed by information in another document – a summary of the KPMG Report presented in CFR Marfa's General Shareholders Assembly and management board. In this document, signed by the current manager of CFR Marfa, George Buruiana, CFR Marfa officials wrote that "in the interval 2007-2013, CFR Marfa, through its representatives on the General Shareholders Assembly and management board of Rolling Stock, adopted contradictory decisions that weakened its position" within the joint-venture.
The "contradictory" decisions are listed: CFR Marfa renounced its preemption right on the shares sold by Raiffeisen Bank, accepted that GFR become the majority shareholder including by lowering the capital following’s the bank's exit, renounced veto rights over decisions made by the General Shareholders Assembly and management board of Rolling Stock, "a right established in the by-laws, upon the set-up of the joint-venture", and, finally, accepted the changing of quorum requirements for General Shareholders Assembly and management board meetings from 80% attendance to 25% attendance, "allowing the shareholder GFR, which owns 51%, to hold meetings with just its own representatives".
Maybe the biggest help CFR Marfa gave Gruia Stoica's group to let it have full control of Rolling Stock Company was that, according to the same document, the state company accepted to delegate competencies of the General Shareholders Assembly and management board to the general manager of RSCO over commercial contracts of up to 50% of the company value, meaning up to around EUR40 million per contract.
"Considering the type of contracts concluded by RSCO, the delegation of competencies was practically accepted for all commercial contracts. The role and importance of the General Shareholders Assembly and management board became insignificant in managing the company and protecting the interests of shareholders (CFR Marfa in particular)," notes the summarized KPMG report signed by CFR Marfa general manager George Buruiana.
The robbery begins
With full control over Rolling Stock Company, Gruia Stoica's firms started working to recover the financial contribution GFR had made to the capital of Rolling Stock.
In a first stage, under suspicious conditions, GFR recovered RON56.8 million of its contribution, by lowering the share capital of Rolling Stock Company, while still retaining more than 51% of the company and control over decisions.
Repair works on train cars and locomotives contributed by CFR Marfa were made for at least double the regular price, according to KPMG auditors. For instance, in 2008, CFR Marfa had an average repair cost per train car of EUR3,314, while Rolling Stock paid an average EUR8,767 in the interval 2008-2014.
The audit report shows that most of the firms that provided maintenance and repair services to Rolling Stock Company are owned by Stoica's Grup Feroviar Roman. The bulk of the money paid for train car repairs went to Reva Simeria and Remar Pascani, while locomotive repairs brought good money to Reloc SA. All these companies are connected to GFR, according to KPMG.
According to KPMG, by December 31, 2013, only 4,235 of the total of 5,874 train cars and locomotives brought in by CFR Marfa to the Rolling Stock Company had been repaired using GFR's money. It is not clear from the documents obtained by the Investigative Media Center whether the remaining assets are still defective or are in good condition and have not required any repairs.
Rolling Stock Company leased train cars and locomotives, largely to firms part of Stoica's Grup Feroviar Romana, at half the price CFR Marfa charged for the same service.
Rental conditions for Rolling Stock Company customers are also permissive, as shown in the audit report: there are "contracts reserving rolling stock that include no penalty clauses in the event said rolling stock is not leased".
On page 37 of the audit report, auditors note the duration for the collection of receivable by Rolling Stock Company routinely exceeds the 30 days specified in lease contracts and suspect Rolling Stock Company, which manages CFR Marfa assets, was financing entities part of GFR at zero cost.
"We have not been informed whether the company has billed any penalties for payment delays. In the event that no penalties are perceived, this may constitute the financing of acquisitions by GFR group entities and affiliated entities at zero cost," the report notes.
Moreover, according to KPMG, the majority of contracts concluded in these conditions are valid until 2020, as stated in the feasibility study.
Conclusion: Rolling Stock Company overpays GFR for repairs and then leases for low prices the assets brought into the joint-venture by CFR Marfa to companies part of Gruia Stoica's group, blocking these assets through reservation contracts with no penalties and thus disposing of these assets until 2020.
The summarized audit report signed by CFR Marfa general manager Buruiana on August 21, 2014 is explicit. At no. 3, the authors of the document state the following: "The consequences of CFR Marfa's successive releases of control over the management of RSCO's activity have, in time, led to: a) practicing train car and locomotive lease tariffs way below the market price to the advantage of the entities leasing these assets (…). These entities were, 90%, companies connected to GFR or GFR itself; b) practicing of train car and locomotive repair tariffs approximately 100% higher than the market price or the price of such services contracted by CFR Marfa directly, tariffs that have been collected by repair units of which 90% are part of GFR (Pascani, Simeria, Darc etc.)”.
In these conditions,KPMG auditors note CFR Marfa's asset investment in Rolling Stock Company, estimated at EUR47.2 million, has proven completely unfeasible, producing zero revenues for CFR Marfa and becoming, instead, "a business fully controlled by GFR, integrated among the GFR group's repair units and clients part of the GFR group".
On the page listing conclusions and recommendations, auditors noted: "We do not understand the reasons why the CFR Marfa General Shareholders Assembly adopted, on December 23, 2008, the decision to lower GFR's cash contribution by RON56,780,000," drawing attention to further irregularities.
Moreover, in the conclusions regarding the economic performance of Rolling Stock Company, auditors noted "the business plan (of Rolling Stock Company - e.n.) seems to be drafted by GFR and contains no estimates of profitability indicators".
Who is responsible?
On August 12, 2014, CFR Marfa's internal audit service verified CFR Marfa's activity within Rolling Stock Company and showed the circuit of documents regarding business decisions made by the joint-venture.
According to this internal audit report, CFR Marfa had not received General Shareholders Assembly decisions and minutes of proceedings from the management board of Rolling Stock Company in view of archiving. CFR Marfa representatives on the board of Rolling Stock Company said the documents were not archives because "CFR Marfa did not have a detailed internal procedure" for this.
In other words, the representatives of CFR Marfa on the board of Rolling Stock Company did not find it necessary to inform CFR Marfa of the decisions made even though said decisions directly regarded assets of more than EUR40 million belonging to the state company.
The people who were unable to find a procedure obliging them to inform the state company of their activity in Rolling Stock Company and protect the state's interests in this joint-venture, according to the report of August 12, are the following:
- members of the General Shareholders Assembly of Rolling Stock Company: Calin Gratian George (2007 – August 31, 2009), Frasinoi Mihai (August 31, 2009 – May 27, 2010), Micu George (May 27, 2010 – August 14, 2012), Zaharia Constantin (August 14, 2012 – January 2013), Draghici Dragos Alexandru (February 2013 – February 2014) and Barculet Pavel (February 2014 – May 28, 2014);
- members of the Management Board of Rolling Stock Company: Micu George (2007 – May 27, 2010), Ion Constantinescu (May 27, 2010 – August 14, 2012), Adrian Taban (August 14, 2012 – November 21, 2012), Ionel Voicu (November 21, 2012 – November 14, 2013), Enache Florin (November 14, 2013 – May 28, 2014) and Ionescu Violeta (May 28, 2014 – present).
People in the "system"
All CFR Marfa representatives who served as members of the General Shareholders Assembly of Rolling Stock Company are former managers of the state railway company, which makes the explanation about lack of reporting procedures even more ludicrous.
Gratian George Calin was the first representative of CFR Marfa on the General Shareholders Assembly of Rolling Stock Company. During his term, CFR Marfa renounced its preemption right on the purchase of stock ceded by Raiffeisen Bank. Also during his term, Rolling Stock Company decided the lowering of GFR's financial contribution to the company’s capital.
For a few months, January to August 2009, Gratian Calin was both general manager of CFR Marfa and the state company's representative on the General Shareholders Assembly of Rolling Stock.
According to adocumentsent to the Bucharest Stock Exchange on June 10, 2011, Gratian George Calin had been appointed on the management board of REVA SA Simeria the day before. Since 2001, REVA SA Simeria is part of the Grampet group, controlled by Gruia Stoica.
After leaving CFR Marfa, Calin worked for an Austrian railway operator and two years later returned to Gruia Stoica's group, as vice-president of Grampet, according to Ziarul Financiar.
Mihai Frasinoi was also general manager of CFR Marfa and manager of CFR Marfa Craiova.
George Micu was general manager of CFR Marfa for a while. There were media reports saying he was close to Anca Boagiu and was dismissed by Ramona Manescu after he was praised by Relu Fenechiu. He has also held other positions in state railway companies.
Constantin Zaharia, also a former manager of CFR Marfa, there have been reports that he allegedly attempted to favor GFR through Rolling Stock Company. He was also an adviser to minister Ramona Manescu.
Dragos Alexandru Draghici was general manager of CFR Marfa, after previously working in several national and multinational companies. Draghici died in February 2014, at a hospital in Bucharest, following a stroke.
Pavel Barculet was an economic manager of CFR Marfa and interim general manager following Draghici's death. Barculet' name appears in the criminal complaint over the coal transport contract of CE Oltenia, sent by former Transport Minister Dan Sova to anticorruption prosecutors in May 2014, a document the Investigative Media Center presented here.
The aforementioned George Micu was also the first CFR Marfa representative on the Management Board of Rolling Stock Company. His successor, Ion Constantinescu, was also a member of the CFR Marfa Management Board but was dismissed together with the rest of the board by minister Sova, who said he wanted to take CFR Marfa out from the incidence of corporate governance .
Adrian Taban held various positions in the management of CFR Marfa, Ionel Voicu was general manager of CFR SA and was accused of participating in the attempted fraud orchestrated by Constantin Zaharia in favor of GFR, Florin Enache is currently manager of CFR Marfa train car division and Ionescu Violeta is the CFR Marfa's current representative on the Rolling Stock management board.
The Investigative Media Center will put all the documents obtained during this journalistic investigation at the disposal of proper judicial authorities.
(This story is part of the project “Public Funds in Romania – corrupt tenders, mismanagement and theft “, carried out by the Media Investigation Center in partnership with Freedom House Romania and Expert Forum Romania within a grant of the U.S. Department of State, through the United States Embassy in Bucharest. The Media Investigation Center is solely responsible for the content of this story, which does not necessarily reflect the opinions of the U.S. Department of State or the United States Government. The partners and sponsors of this grant are in no way liable for this story.)