Romania pins hopes on regionalization to boost EU funds absorption

As the authorities unveiled plans to kick off a massive administrative reorganization plan that will see the country divided into eight regions, experts say that giving more power to the regions will help improve Romania’s absorption of its share of the next EU budget, which stands at EUR 40 billion.

By Ovidiu Posirca

The ruling center-left coalition, the USL, hopes to approve the reorganization program this year along with a new Constitution, saying that Romanians could elect new regional leaders in 2016.

PM Victor Ponta said in April that the reorganization is intended to strengthen the regions and reduce their dependency on government funding. “The organization into regions will generate greater financial power because at the moment, the issue facing counties, cities and communes is their financial weakness,” said the PM.

At present, many Romanian towns and villages are unable to meet wage expenses from their own revenues. Close to a quarter of localities (685) have wage bills that outstrip their revenues two-fold, according to a report by the independent think tank Expert Forum (EFOR). Under a quarter of the towns and villages (650) are able to pay salaries from their revenues and regulated share of income tax.

Rural Romania still needs money to develop its infrastructure and improve living conditions, but financial resources are scarce, so in many cases local officials seek government backing. However, these allocations are controversial and commentators say that additional funding is granted based on political ties. The way Romania is currently divided, which consists of 41 counties and the municipality of Bucharest, has created fertile ground for the advent of so-called barons, highly influential political officials who are game-makers in their communities.

The USL says it is now attempting to break the influence of these leaders and support communities in their development efforts through regionalization. It remains to be seen how Romania’s top political brass reacts after losing one of its power levers, which has also helped connected individuals win elections in the past, according to analysts.

President Traian Basescu has slammed the government’s regionalization plan, calling it an “organizational catastrophe” because it is top down.

“I would have started the regionalization from the communes. We have 3,200 towns and villages. I would have thought about how many of them can sustain themselves financially. We would have realized that little more than 1,000 can do this and we would have to merge the rural environment to make them viable,” said the president in a TV appearance. He suggested all the local public bodies need to be based in regions and the counties should have only working points.

Thinking regionally for EU funds

Romania has a poor absorption record from the current EU budget, as only 15.18 percent of the structural and cohesion funds had been disbursed by the European Commission by May. Close to EUR 3 billion of EU money has been used in projects aiming to bridge the gap with the European average in anything from road infrastructure to human resource training.

According to a KPMG report, Romania reported the lowest absorption rate out of ten Central and Eastern European countries surveyed in 2012. The authors of the report cited the limited administrative capacity of the institutions responsible for managing the funds, the difficulty in obtaining co-financing and the cumbersome procurement procedures as the main factors that hindered absorption. “As long as we keep everything in Bucharest, with some management authorities within ministries, we will not have enough administrative capacity and efficiency in absorbing the EU funds,” said the PM.

Cristina Ana, senior associate at law firm Tuca Zbarcea & Asociatii and head of the firm’s structural funds practice group, reckons the regionalization “might help cut red tape and improve the absorption of EU funds if coupled with other structural and psychological arrangements.”

She says the former would include a proper balance between actors and controllers in the system, as well as the definition of clear responsibilities in what should be a short but effective actor-controller implementation chain at all levels in the cycle, such as project assessment and procurement.

Meanwhile, the latter would include a shift in mentalities so that fund managers are encouraged to think, act and co-operate proactively with beneficiaries on the understanding that some errors are to be expected if they are not repeated or intentional but human and within tolerable margins, given the complexities surrounding a beneficiary project nowadays.

“There is one potential risk though in connection with regionalization and fund absorption – namely that such a novel, wide-ranging institutional arrangement needs time to really take off and yield results. The new configuration will be running its self-test when the absorption clock has already started ticking. Mature projects possibly being thought out today might nevertheless compensate for the potential institutional delays in 2014-2015,” Ana told BR.

Romania has managed to absorb close to 30 percent of the EU money in the Regional Operational Program carried out through eight regional management authorities. These funds were used to develop infrastructure, be it roads or sewage, in developing areas.

Boosting regional management

Designing regions with improved structures around the current regional development agencies (ARD) would be more efficient in absorbing the EU funds than central government, says the PM.

Experts reckon that strengthening the ARD could streamline absorption and bring real changes in the regions.

The independent think tank SAR (Societatea Academica din Romania) said in a report that these ARDs are currently operating as public utility NGOs that are financed by county councils and have no say on the implementation of regional development strategies.

The SAR suggested the ARDs could be turned into managing authorities for some operational programs (OP) to make better use of the money.

Ana of Tuca Zbarcea & Asociatii says that ARDs acting as managing authorities for key OPs could help improve absorption, assuming the final version of the regulation allows for such designation, and provided that the necessary legislative changes are made.

“ARDs have acquired extensive experience in EU fund management (including experience with pre- and post-accession accreditation pro-cesses) and are closer to local realities, which would allow for better regional concentration and integration in the use of resources. The focus however should be primarily on the ‘what’ of the funds. Once that is clear and manageably ambitious, the focus can then be on the ‘who’ of the funds,” said Ana.

Another measure that could enhance absorption is the setting up of an operational program for each development area, depending on their specific needs, according to the SAR.

Under the recently published consultative document on the Partnership Agreement for Romania 2014-2020, the country would go for all the 11 thematic objectives under the EU 2020 agenda.

“The wisdom of such an ambitious choice of priorities distributed across what seem to be national OPs to be implemented by a wide array of institutions (according to the same document) might be questioned. Based on the experience of the first programming period, 2007-2013, a leaner structure (one coordinating ministry and regional managing authorities) and a less ambitious strategic vision (four-five key priorities concentrated in regional OPs) might be worth considering,” said Ana.

The government plans to obtain accreditation regarding the regions from the European Commission by the end of 2014, so as to make them eligible to access EU funds, according to the deputy PM, Liviu Dragnea, who is overseeing the regionalization program.

Taking notes from Poland

Earlier this month Romania signed a deal with Poland, which will see the two countries collaborate on regionalization and EU funds absorption. Dragnea commented that there is a high level of similarity between Poland’s regions and the system that is under construction locally. Poland has been able to attract all the EUR 12 billion allotted in its first programming period, 2004-2008. The country has been allotted EUR 67.3 billion in the current budget and has reached a contracting rate of 88 percent in the regions, while expenditure hovers around 50 percent.

“From our point of view, it was a good decision to give this money to the regions because we have 16 independent regions, which are responsible for regional policies. We had this administrative reform 14 years ago and we have built up a structure, employed people, we have everything organized,” Aleksandra Kwiatkowska, deputy director of the coordination program of Regional Programs and Digitalization, within the Ministry of Regional Development in Poland, told BR.

Poland will be allotted EUR 76 billion in the next EU budget and the authorities say they will give even more power to the regions in managing the funds. Meanwhile, Romania boasts a 18 percent increase in the next budget to EUR 40 billion, but is still in the early stages of setting up a working mechanism in the regions to use these funds.

“I think that if you decide to give power to the regions, it’s a good idea to let them manage the money, but you have to be well prepared. You need to have a strong structure, strong institutions and competent people. If you have this, I think you will manage,” says the deputy director.

Poland kicked off an administrative reform in the early 90s to create the communes and in 1998 it created self-governing regions called voivodeships.

In the current budget, Poland has designed six national programs and 16 regional ones to support the absorption. The country has not encountered any fraud allegations regarding the absorption of funds, a common situation in Romania.

In October, the European Commission pre-suspended the majority of the Regional Operational Program (ROP) and of the sectoral operational programs in Transport and Economic Competitiveness. The decision was prompted by fraud allegations regarding procurement procedures for projects implemented over 2009-2011. The Ministry of EU Funds has largely unblocked payments under the ROP and is currently working on the other two.

ovidiu.posirca@business-review.ro

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