The facilities granted to Ispat Sidex Galati steel plant at the time of privatisation are to be restricted such that the company will begin to pay profit tax as of next year, official sources said on Monday. The decision was prompted by the EU standards, which forbid fiscal incentives, unless the respective companies are having difficulties.

The Finance Ministry had been working on an emergency ordinance draft to "retouch" certain provisions of the Law enacting Ordinance 83/2004 for modifying the Fiscal Code. The law was enacted by Parliament but was yet to be published in the Official Gazette.

The top priority was reduction of the profit tax exemption period for Sidex Galati, which was initially set to last until 31 December, 2006, according to the initial provisions in the Fiscal Code, which included a provision from the privatisation contract signed with Ispat. The emergency ordinance was due to the European Commission, which was pressuring the Government to drop this facility, considering it to be no longer "called for" now that Sidex had become a profitable business. On the other hand, Ispat argued in favour of the provisions of the privatisation contract, threatening to take the State to an international court in case of a breach.

"Following negotiations with plant officials we decided that Sidex will not sue the state for having withdrawn its facilities," sources said.

"There is unprecedented turmoil there," governmental sources said before the agreement was reached. They added that the State Assets Resolution Authority (AVAS) had prepared an addendum to the contract to be negotiated with the Sidex owner. The parties needed to find a way to convert the above-mentioned facility into something acceptable under the Law on state aid acknowledged by the EU, otherwise the final accession negotiations risked