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The Buzz in Romania: Interview with Paul Buta of Musat & Asociatii

The Buzz in Romania: Interview with Paul Buta of Musat & Asociatii

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Uncertainty is the key word in Romania of late, according to Musat & Asociatii Deputy Managing Partner Paul Buta, with the Government recently succumbing to a vote of no confidence in Parliament impacting both businesses and law firms.

“The negotiations to form a new government will likely fail,” Buta says, so “we’re looking at early elections, either late this year or early the next. This creates a serious feeling of instability for our clients. Predictability and a clear picture of their aims and policies should be the objective of any future Government,” he says. 

One major development was the adoption of the National Resilience and Reconstruction Plan, envisaging significant investment in various fields, with a significant portion in infrastructure. “We expect a lot of work on public procurement, PPP, and the like – we’re looking forward to putting our expertise to good use on transportation, IT, and green/renewable infrastructure projects,” Buta says. 

There is further uncertainty on the energy markets, Buta reports. “With the dramatic increase in prices for gas and electricity, the government issued two laws to provide support through the winter to two classes of consumer,” he says. “But there was also a proposal to cap energy prices, and it’s unclear which types of consumers this would be targeted at. Will high-volume industrial consumers be included, or will those companies have to bear the brunt themselves (and pass the costs on to their clients)? Will those subsidies – that need to be financed somehow – impact their bottom line in the mid-term?” he wonders. 

On competition, Buta says the regulator’s strategy has been reactive, rather than proactive: “The Competition Authority doesn’t much interfere in M&A transactions. So they allow for significant market concentration, with the associated entry-barriers on those markets,” he says. “The Authority is more likely to intervene on abuse of dominance or collusive practices, but that’s really an after-the-fact approach. It creates a good environment for M&A transactions but opens up the markets to some problematic developments.” 

One of those instances was painfully visible, Buta reports. “The insolvency of the largest player on the mandatory car insurance market, with a 45-50% market share, has been on the horizon for years, while the financial regulators stood back,” he says. “There are now millions of policies out there – they become void when bankruptcy is announced – and those clients will have to seek new ones. Insurance prices tripled in the past months. This is actually a systemic problem”, he notes. 

Buta reports that the real estate sector is also in flux. “The new Mayor of Bucharest has suspended the zoning plans for the entire city, six months ago. It will be a year before it’s resolved – with no building permits issued in the meantime,” he says. This is expected to create a drop in the supply of residential and office real estate towards the end of next year and well into 2024. “With the increased energy and construction materials prices and the National Bank increasing the interest rate compounding the lack of new projects buyers will feel the pressure.” 

He says this might lead to an increased focus on renting, rather than ownership, a model that is highly atypical for the Romanian market. “And while the largest developers are still reporting record profits, that’s mainly because their income turns on a long development cycle – we’ll see the impact of 2021 three or four years down the line,” Buta concludes.

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MPR Partners is an internationally recommended and repeatedly awarded Romanian law firm providing integrated legal, tax advisory and insolvency services in all areas of interest for businesses and public administration. 

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