State aid scheme gives businesses impetus

Although only 30 percent of the total EUR 1 billion allocated to the local state aid scheme for investment projects over 2007-2011 was used, this form of financing has high potential. Specialists say the conditions are in place for more mid-size projects to be financed by state aid.

Anda Sebesi

State aid is another way of getting money to develop a business and finance various investment projects. State aid schemes 1680/2008 and 753/2008 for mid-sized and large projects were launched at the beginning of the current economic crisis. The eligibility criteria for the mid-size scheme were demanding, stipulating a minimum EUR 30 million investment and at least 300 employees. After two years with just a handful of projects and no marketing by Ministry of Public Finance, the criteria were relaxed to EUR 5 million in investment and 50 employees in a two-step reduction, sending a positive signal.

Since October 2010, the more accessible minimum thresholds, buoyed by economic green shoots, have seen investor interest increase steadily and the number of the projects follow suit. “The State Aid Department in the Ministry of Public Finance is really open to financing investment projects via state aid, fitting well with the interest of investors,” says Iulian Sorescu, associated partner and head of the financial department at Noerr Finance & Tax, one of the top consultants in the state aid field. Moreover, he says that the grounds for a larger number of mid-size projects financed by state aid are in place, with the ball now being in the court of investors, who don’t have as many resources for extensions or greenfield projects during this volatile period.

On top of that, Sorescu says that investors perceive the remaining validity period of the schemes as too short for their projects. Depending on the complexity of the projects, it could be difficult to plan, apply to the Ministry of Finance and deploy the investment by December 2013. “There are rumors that the schemes will be extended for investments beyond 2013 and this would be a green light for potential investors,” he adds. As for the large projects, defined as investment of over EUR 100 million and more than 500 new jobs, Sorescu says that the criteria seem to be too exclusive, as only one company has managed to be successful through the scheme, and this a partly state-owned one.

Which sectors have shown interest?

The investment projects financed so far are mostly in the automotive field (over 53 percent of total investments), followed by production (over 35 percent), but other sectors also had projects financed through state aid schemes between 2009 and February 2012, such as medical services, construction, hotels, machinery and renewable, with the total value of investment EUR 675.49 million (including automotive and production), according to research conducted by Noerr.

Considering the large proportion of automotive projects, Sorescu says that the Ministry of Public Finance is very interested in approving projects in other fields of activity, with high value-added and greater chances of a successful project. “This does not exclude other future successful projects in the automotive field, as we must admit that automotive is one of the few sectors going well in the last period. But projects in other fields and under-developed areas are really welcomed by the Romanian authorities,” says Sorescu.

Until now, according to Noerr, the mid-size projects financed by the Romanian government amount to around EUR 1 billion, with effective state aid of about EUR 327 million approved, out of which EUR 110 million had been paid by November 2011. The projects are expected to create about 7,060 new jobs in total. The main beneficiaries were Pirelli, Renault, Aaylex Prod, Dacia, Delphi Diesel Systems, Premium Aerotec, Lufkin Industries, Remar and International Automotive Components Group.

“We as consultants have seen a steady increase in investors’ interest in projects financed by state aid in the last two years. The fact that we are currently working on seven projects confirms this trend. Past and current projects have ranged from small to large, with Premium AEROTEC and ContiTech being just two names from a total portfolio of about EUR 400 million of investments and 4,000

new jobs created,” said Sorescu. Noerr advised Premium AEROTEC, a company from the EADS/Airbus Group, on obtaining financing approval for state aid of about EUR 20 million, by preparing a business plan and technical and economic study, as well as taxation matters and other advice related to the firm’s approximately EUR 90 million greenfield investment in a production facility for aircraft parts.

“Moreover, we advised one of the largest German car manufacturers in its efforts to apply for state aid for its greenfield investment in Romania,” says Sorescu. Another successful project came from ContiTech Fluid Automotive Romania, a company in the Continental Group, which obtained a financing agreement for state aid. The automotive project consists of the extension of production in Carei, Satu Mare County, by a third hall in order to more than double the production capacity of hoses for heating-cooling. The total investment was more than EUR 15 million, of which over EUR 4.4 million of state aid was calculated to be eligible costs.

Who is eligible?

Companies that develop greenfield or expansion projects in different production activities can access state aid scheme and apply for such financing through to the end of 2013. The state aid scheme is divided into four different categories by investment and job creation: companies which will make investments of between EUR 5 and 10 million/EUR 10 and 20 million/EUR 20 and 30 million/upwards of EUR 30 million, and which create at least 50/100/200/300 new jobs as a result of the initial investment.

According to Sorescu, the steps to obtain such financing start with the company submitting a state aid application consisting of a list of documents required by law. Once approval is granted by the Ministry of Public Finance, the investment implementation can begin. The last stage is the disbursement of state aid from the Ministry of Finance. During the investment implementation the company will receive cash corresponding to the investment level; however in the first period of the investment the necessary cash flow has to come from the company.

Time issues

Sorescu says that the average period for obtaining state aid is about four to six months, depending on the complexity of the project. This period covers all stages of preparing the state aid documentation, submission to the Ministry of Finance and obtaining the financing approval. “Sometimes this period becomes critical, as most investors want a quick launch

for the project. However, the period can be reduced by the smooth flow of information and high efficiency in preparing the state aid project. Others investors have long-term projects and therefore

the end of 2013 deadline requires them to restructure the project. An extension of the state aid scheme would please them a lot and the number of the projects would certainly increase significantly,” he says.

anda.sebesi@business-review.ro

Chronology of public cases of state aid granted to investment projects by HG 1680/2008

Period Total investment (EUR mln) Approved state aid (EUR mln) No. of jobs created

2007-2008 355.9 103.21 2,568

2009-2010 355.8 111.28 2,199

2011 219.56 80.13 1,684

2012 100.13 32.81 609

Total 1,031.39 327.43 7,060

Source: Noerr research

DMCA

PROTECTED