In November 2024, an ICSID tribunal issued its award in Petrochemical Holding GmbH v. Romania (ICSID Case No. ARB/19/21), finding a breach of the fair and equitable treatment (FET) standard under the Energy Charter Treaty and granting approximately 85 million euros in damages. Responsible bodies have initiated annulment proceedings. The dispute, spanning more than two decades, highlights the interaction between domestic law enforcement, legacy privatization issues, and Romania’s international obligations. The case also carries long-term implications for investor confidence and Romania’s credibility in the context of its OECD accession efforts.
The dispute centers on attempts to restructure the RAFO Onești refinery. In the early 2000s, Petrochemical Holding committed to modernizing RAFO and declared its readiness to assume roughly 193 million euros in accumulated tax and customs liabilities. Despite a 2009 memorandum outlining a restructuring plan, the project did not move forward. The claimant argues that administrative barriers prevented progress, while the officials contend that the investment plan was not backed by sufficient financial evidence.
In 2015–2016, Romanian authorities undertook enforcement measures in respect of former RAFO owners, a minority shareholder holding less than two percent of RAFO through a company unrelated to the main investor, in connection with long-standing tax evasion and fraud proceedings.
The authorities subsequently initiated annulment proceedings, though historically only around 2-3% of applications lead to full annulment.
The government maintains that its actions were necessary to protect the state budget and execute final criminal judgments relating to misconduct associated with RAFO’s earlier ownership period. Authorities argue that all measures taken at RAFO followed domestic tax, enforcement, and criminal-procedure rules. Romania asserts that the state cannot disregard binding judicial decisions in large-scale financial crime cases. Although full details are not public, annulment can only be sought on narrow grounds, such as serious departure from procedural rules, manifest excess of power. Romania considers that the tribunal may have misapplied the FET standard or misinterpreted the link between the enforcement measures and the rights of a bona fide investor.
Petrochemical Holding argued that the state actions in 2015–2016 were disproportionate and hindered the refinery’s restructuring. The claimant argued furthermore, that administrative hurdles obstructed the implementation of its investment plan and that enforcement measures based on a criminal conviction of a minority shareholder were incompatible with international investment protections. The tribunal largely accepted the claimant’s position, finding that Romania imposed the effects of a criminal case on an investor who was not implicated in the underlying misconduct.
The tribunal explicitly sided with Petrochemical Holding, determining that such actions violated FET, as the investor could not have reasonably foreseen these consequences.
RAFO was a major employer in the Onești region, providing up to 3,000 jobs in the early 2000s. Multiple insolvency procedures and the refinery’s eventual shutdown contributed to accelerated migration and reduced tax revenues. The ongoing legal dispute has further delayed any potential redevelopment or repurposing of the industrial site.
RAFO shares characteristics common to many assets privatized during the transition period including accumulated tax debts, weak regulatory oversight, contested investment commitments. Many of the underlying structural vulnerabilities predate Petrochemical Holding’s involvement and continue to complicate legal assessments.
The manner in which Romania concludes the annulment process, whether through compliance or settlement, will shape external perceptions of regulatory predictability and the state’s capacity to manage complex legal disputes. Romania must navigate between enforcing its domestic legal system and mitigating international liability. Transparent communication and consistent legal reasoning will be crucial in the annulment stage. Long-term redevelopment of the Onești area may depend on resolving legal uncertainty surrounding RAFO.
