Romania backs out of mine sale, privatization hits snag

BUCHAREST (Reuters) - Romania has backed out of a deal to sell its biggest copper mine to Canada's Roman Copper Corp, its economy minister said on Saturday, a fresh blow to a privatization plan agreed with the International Monetary Fund.

Former communist countries across the European Union have sold state holdings, but Romania's persistent failure to do so has left a huge, inefficient public sector in the bloc's second-poorest nation as it struggles to emerge from deep recession.

Roman Copper won a tender to buy the Cupru Min Abrud mine for 200.8 million euros ($262.31 million) last month, outbidding Australia's OZ Minerals Ltd , Dutch Dundee Holding and Bulgaria's Ellatzite Med Ad.

But Economy Minister Lucian Bode said the two sides, after 10 days of talks, could not agree on the terms of the deal, part of a privatization plan agreed with international lenders and designed to raise nearly $2 billion this year.

"The state did not want to give up three conditions," Bode was quoted as saying by state news agency Agerpres. "We will relaunch the tender but we will keep the same conditions."

Under those conditions, all privatization contracts had to be made public, payment had to be settled within 30 days and the company had to set up a collateral deposit of 32.27 million euros as a guarantee for future environment investment, Bode said.

"We were surprised that the negotiating committee refused to accept our written signature," said Mike Curtis, partner at Bay Front Capital Partners, the Toronto-based merchant bank that owns Roman Copper.

Failure to sell Cupru Min - with estimated reserves of 900,000 metric tonnes of copper, or about 60 percent of the country's overall estimated reserves - does not bode well for the plan to cut state participation in its enterprises.

"Obviously this is not a good indication," said Daniel Hewitt at Barclays Capital. "But one can't be too rigid about these things ... we look at the government - if it can keep selling assets through the bourse like Transelectrica."

Last month, Romania sold a 15 percent stake in power grid operator Transelectrica for about 38 million euros, setting the stage for more such deals.

ELECTIONS IN FOCUS

Beyond making the outdated state sector - which accounts for nearly a quarter of employees and is a drain on public finances - more efficient, such sales would also increase capital market liquidity and raise vital funds for infrastructure spending.

The government is considering relaunching the sale of a 10 percent stake in Petrom, an oil and gas company that is majority-owned by Austria's OMV , which could bring in $600 million. Selling a 10 percent stake in pipeline operator Transgaz would bring in another $80 million.

Stakes in unlisted companies Hidroelectrica and Nuclearelectrica and Romgaz, all with their own generation, are also slated for sale this year and could raise some 880 million euros.

But the government fears that any privatization - likely accompanied by fears of job losses and accusations of selling off the family silver - will be unpopular with citizens just months ahead of a parliamentary election in November.

Prime Minister Razvan Ungureanu's centrist government is lingering at 20 percent support, and the leftist opposition has a comfortable lead in surveys.

"We have the duty to stop the alienation of Romania's natural resources," opposition leader Victor Ponta told a party congress on Saturday.

Earlier this week, a local court annulled a zoning plan in a decision that may further delay a Canadian project to set up Europe's largest open-cast gold mine in the town of Rosia Montana, near Cupru Min's mining area.

Rosia Montana Gold Corporation, majority-owned by Canada's Gabriel Resources Ltd , aims to use cyanide to extract 314 tonnes of gold and 1,500 tonnes of silver. Its project has dragged on for 14 years and still needs an environmental permit.

($1 = 0.7655 euros)

(Editing by Alessandra Rizzo)

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