Since entering the EU in 2007, Romania has received roughly EUR 11 billion from the EC to develop projects in various areas in an attempt to bridge the gap with the more advanced economies in Western Europe. With an absorption rate of around 60 percent, foreign investors say that the country could have done better and hope that Romania will use more money in the current budget running through to 2020 in order to bring its infrastructure, education and healthcare closer to EU standards.
Although the EC, the executive arm of the EU, extended the deadline by which Romania could use the funds under the 2007-2013 programming period, the country ended up with around EUR 8 billion in unused money from the total allotted amount.
“60 percent EU Funds absorption rate is far from an ideal absorption level, but it isn’t a shameful one, either. It should also be considered that it is the first budgetary exercise for Romania (the 60 percent EU funds absorption rate is comparable to other EU member states when they managed their first budgetary exercise, countries at their second exercise scored much higher rates.) Of course, this means having the capacity to make good use of the lessons learned in the previous exercise. Romania should be able to capitalize on the dysfunctionalities of the 2007-2013 exercise,” Cristina Ana, head of the Structural Funds Practice Group at law firm Tuca Zbarcea & Asociatii, told BR.
German investors say absorption of EU funds has been “disappointing”
The feeling that Romania could have done more to use EU money up to now is shared by representatives of both the Austrian and German investors.
For instance, Rudolf Lukavsky, commercial counselor at the Austrian Embassy in Bucharest, points out that there is an “abundance of projects in infrastructure and ambitious modernization plans, requiring substantial investments,” and EU funds would be the best financing option.
“It is therefore a pity to see that Romania has not utilized these options to the fullest of their extent, especially in areas where the funds would have directly benefitted Romania’s social and economic development: improvements in transport infrastructure, environmental as well as education and social projects,” Lukavsky told BR.
Meanwhile, Sebastian Metz, the general director of AHK Romania, says the overall assessment of the funds’ absorption is “disappointing”, because this money brings growth by bridging the economic gaps at an European level.
“In the private sector, the absorption of funds works well, but there are problems when it comes to public institutions and something has to change in this area,” Metz told BR.
Government aims to get more experts onboard for EU-funded infrastructure projects
In the second programming period running between 2014-2020, Romania will receive roughly EUR 3 billion in additional EU funding to develop various projects. Experts say that authorities need to improve the way in which projects are managed.
“Therefore, supporting administrative capacity should be done better. However, this can be done by getting the right structures, human resources, systems and tools in place. In other words, making sure responsibilities and tasks are clearly assigned, staff is properly trained, and the right kinds of people are recruited to manage the funds. They also need to be equipped with the right tools – IT systems, manuals, rules – to manage the EU funds. If the systems and tools are there, organizations are less vulnerable. Another important element is governance. This means holding managers accountable for performance, safeguarding against corruption and conflict of interest, while also promoting transparency,” said Ana of Tuca Zbarcea & Asociatii.
The Ministry of EU Funds has laid out in mid-January a strategy, aiming to improve the management of the funds and to further raise awareness among local companies regarding the funding opportunities.
The current EU funds minister, Aura Raducu, seems to have paid special attention to the ailing infrastructure sector, and there are plans to get additional experts onboard in the transport, environment and energy fields.
In fact, Raducu has been working in the EU financing sector for the past 25 years. Prior to joining the Dacian Ciolos technocratic government, she worked for the European Bank for Reconstruction and Development (EBRD) as manager for European programs. In this role, Raducu coordinated urban development projects.
She has also worked for the European Commission on preparing two operational programs for Romania and coordinated several pre-EU accession grant schemes for the country.
Private sector calls for more transparency in funds’ management
Lukavsky of the Austrian Embassy says the government has already promised to make the absorption rate of EU funds a key priority, but it should take into account several factors such as “a holistic development concept, attuned development plans, in-depth preparation of projects, effective tendering procedures and processes, lessening the bureaucratic burden, effective and transparent courts of justice and a smack down on corruption, amongst others.”
“Predictability of political decisions, rule of law, transparency, and bureaucracy are all issues that will need to be addressed in order to facilitate the absorption of EU funds allotted,” added the commercial counselor.
In addition, Metz of AHK Romania says that training staff handling EU funds is vital for increasing the absorption rate.
“Most of the time, problems regarding the infrastructure projects are generated right from the start, from the stage of the feasibility studies, which have to be carried out in a professional and well-founded manner,” said the representative of German businesses in Romania.
When asked to name some of the critical fields that should get more EU funds, both Lukavsky and Metz mentioned infrastructure. Other areas that need improvement include education and IT.
EU-funded highway segment closed over risk of collapse
The infrastructure sector seems to remain a thorny issue for authorities. In mid-January, the Ministry of Transport announced it had axed the construction contract with Italy’s Salini Impregilo for a segment of the Orastie-Sibiu highway, which is funded by the EU.
The minister of transport, Dan Costescu, said that the Italian firm would be “blacklisted,” meaning it would be barred from participating in a public tender for two years. A portion of the road that Salini Impregilo worked on had to be closed last September, after drivers observed deep cracks in the asphalt. Authorities said the faulty segment, which has a length of 200-300 meters, would have to be demolished and rebuilt from scratch.
Following this incident, Costescu said he was taking into account a rethinking of the legal framework regarding construction companies that do a poor job on infrastructure projects.
“The second message is for those construction firms that are indirect partners of the Ministry of Transport and directly of companies in our portfolio, which in the past years, were honest partners, with whom we have worked in a constructive manner, finding solutions to get past these gaps. Thus, we were able to avoid going to court to ask for damages from each other. For instance, with these firms were able to meet the deadline on the Micasasa-Coslariu railway segment. (…) With these kinds of people, we were able to finish the Lugoj-Timisoara highway six months earlier than expected,” said Costescu.
Juncker’s EUR 315 billion investment plan, missing Romanian approved projects
One year into the massive investment plan unveiled by the head of the EC, Jean Claude-Juncker, and Romania has not gotten into the club of EU members that got financing for crucial projects.
Officially called the European Fund for Strategic Investments, the plan was drawn up by Juncker as a means to kick-start the EU economy. In the first year of operation, the fund triggered around EUR 50 billion worth of investments in Europe.
Most of the approved projects came from Italy, France, Spain and UK and had to do with the energy, transport and SMEs sectors.
Romania had issued its own list of projects, for which it was seeking financing. Among them, there was the construction of the Iasi-Bors highway, which has an estimated cost of EUR 7.5 billion and the expansion of the Bucharest subway network with a new line worth EUR 3.1 billion. Up to now, there has been no official announcement regarding the financing of any Romanian project on that list.
Romania inks new deal with World Bank to improve administration with EU money
The country has been working in recent years with the World Bank, the European Investment Bank (EIB) and the EBRD on making the public administration more efficient. In mid-January, the Ministry of EU Funds inked a deal with the World Bank, to continue this process. The assistance of the international experts will be funded with EU money.
The public institutions will be the main beneficiary of the assistance services that will be financed from the European Structural Investment Fund (ESIF) within the 2014-2020 budgetary framework. Starting 2010, almost 20 public institutions have benefitted from the World Bank program in Romania, which represented the foundation of a modern public administration. The program included areas such as social inclusion and the reduction of poverty, agriculture, climate change, competition policy, education, roma integration, transport and urban planning. Following the success of the program in recent years, the government agreed to extend the technical assistance services for all the structural and investment funds,” said Aura Raducu.
According to the Ministry of EU Funds, Romania and the World Bank finalized 26 assistance programs worth EUR 31 million between 2012 and 2015.
“In the last five years, local and national authorities have benefited from the international expertize and know-how of the World Bank through the partnership for assistance services. This successful partnership has developed significantly, and as a result, Romania has the biggest program of this kind within the bank, with significant results in key areas, said Cyril Muller, the lender’s vice president for Europe and Central Asia region.