Romania - at the threshold of accession

1. Romania - at the threshold of accession Infrastructure development Environmental workshop Stephen Pritchard part of UK twinning team

2. What this presentation will cover: • Part I - regulatory context • Part II - why are structural funds important? • Part III - Importance of administrative capacity • Part IV - lessons from the last wave of enlargement

3. I. Regulatory Context • Indicative list of major projects must be included in programming documents • All major projects must have a CBA, including: • Risk assessment • Sector impact assessment • Socio-economic impact assessment • EIA conducted separately but should be integrated into appraisal • EC carries out an appraisal of each project

4. Definition of major projects • EC approves projects in programme documents (Preamble paragraph 38 and 41 General Regulations) • Indicative list of major projects (articles 36 (3). and 37 (1) h) of Gen Regs) • Article 39 defines major projects as: • greater than 50 M€ or • 25 M€  in the case of environment

5. II. Why are structural funds important? • Improve EU & National Competitiveness • Meet challenge of globalisation • Convergence with other MS - meet the obligations of the acquis

6. Competitiveness is important • Economic growth slowing down in the core EU member states • This might be compensated by fast growth in new members states • Average of EU 15 2.3% in 2005, (~ 3% 2006) • Average of EU 10 5.7% in 2005, (~ 6% 2006) • But the EU is still not as productive as other economies (source: www.IMF.org.com/eternal/pubs)

7. Globalisation is a challenge • Technology leaders (developed economies i.e. Japan & USA) are driving globalisation • Economic advantage compared to low labour cost advantage of technology followers • But the EU is not keeping up with technical advances, so EU losing competitiveness. • The fast growing economies of the new member states are not yet giving the EU technical advantage

8. Convergence is also important • Convergence important as competitiveness because it requires: • Meeting the demands of the acquis • Modernisation (technology) • Restructured economy • industry, employment, reskilling, administration, development of services • Investment in infrastructure • Improve existing and invest in new • Stimulate economic activity, especially energy, environment, telecommunications & transport

9. How can Romania contribute to the EU? • EU membership brings responsibilities • Implementing the acquis • Meeting fiscal policies • These are largely outside your control, so what can you do? • Develop national, regional and local capacities • Select good projects • Implement projects on time & budget • The next part highlights some points about capacity

10. Part III Why is absorption capacity important? • Ability to fully spend allocated resources • Effectively and • Efficiently • To do this requires management capacity at all levels • Macro economics • Fiscal policy • Administrations

11. Macro-Economic capacity • Overall ability of the economy to generate viable investment opportunities financed by external investment support. • This depends on level of economic development (estimated ~4% of GDP) • But the EC believes that there is limited macro-economic capacity to absorb external investment support effectively and efficiently.

12. Fiscal Capacity • This is your ability to: • Co-finance EU supported programmes and projects • Meet additionality requirements • Plan and guarantee national contributions in multi-annual budgets and to collect these contributions from all partners • Does your ISPA experience reflect your ability to do these things?

13. Administrative Capacity (i) Ability of central and local authorities to: • Prepare suitable plans, multi-annual programmes and projects in due time; • Decide on programmes and projects; • Co-ordination of principal partners; • Cope with administrative and reporting requirements; and • Finance / supervise implementation properly, avoiding irregularities

14. Administrative Capacity (ii) • Administrative absorption capacity: • Demand • Project applicants generating projects that meet requirements • Supply • Authorities to manage effectively and efficiently all stages of the programming cycle • From initial planning to implementation and evaluation of projects.

15. Administrative Capacity (iii) • Organisation structure: • clear assignment of tasks and responsibilities to institutions involved in the management process. • Human resources: • ability to detail tasks and responsibilities to appropriate staff and train or recruit staff to fill the identified job posts. • Tools: • availability of various aids that enhance the system’s function, such as: • equipment, methods, guidelines, manuals, systems, procedures,.

16. IV. Lessons from the last wave of enlargement • Choose projects that are going to be successful • build on ISPA experience • Identify priority locations for projects • this needs integrated sector strategies • Remember: • 50% split each for transport and environment • Projects chosen jointly with the EC.

17. Absorption capacity • EC believes that the new Member States have limited absorption capacity because of: • Ensuring additionality • Finding co-financing and • Preparing coherent programmes

18. Additionality • Structural funds may not replace public or other expenditure by the member state. • This principle seeks to increase leverage and economic impact of cohesion policy • Member states must keep national support equal in real terms to the existing levels • This applies only to the Structural funds • For the Cohesion fund, EU expenditure may replace national expenditure

19. Co-financing • Encourages responsible management • Prevents potential moral hazard, i.e. • Spreads the investment risk and • Makes project selection processes transparent • Public and/or private sources may co-finance projects • Compatible with additionality since member states can use existing expenditure to cover co-financing requirements, providing that they reprioritize existing expenditure in line with cohesion policy priorities

20. Programming • Comprehensive multiannual development plan and programming documents • Outlines of key strategic investment priorities on national and regional levels. • Commitment to defined priorities by: • Describing concrete investment opportunities • Making financial resources available • Implementation & management structures in place

21. Fiscal constraints • If public deficit greater than 3% GDP then CF support may be withdrawn • Romanian deficit: 1.4% in 2004 and 1.6% in 2005 • Will co-financing more projects make this worse? • In 2001 Portugal had a deficit of over 4%, but responded quickly to reduce it and so avoided EC retribution • Estimated 2006 deficit (IMF) EU -2.6% France & Germany -3.7% Poland -4.8% Hungary -4.5%

22. Fiscal policy • Need sufficient national financial resources to co-finance investments & respect additionality. • Some new member states may find it hard to restructure their budgets • Potentially conflicting national & EU priorities (e.g. agriculture, health care contributions into the EU budget, etc.) • High national budgets, i.e. “fixed” current expenditure might create a budget deficit

23. Programme design • Sort out administrative and macro-economic absorption capacity • Identify priorities for the use of available resources based on needs & capabilities • Administrative decision should be based upon EC guidelines and priorities

24. Is it possible to meet the EU’s cohesion objective? • To conclude: • Investment objective is to provide foundation for: • Long-term competitiveness & job creation • Sustainable development • Member States need an effective and efficient absorption capacity to manage increasing financial resources • But even if your administrative capacity is good you may not be able to fully absorb resources … why? … • Economy may not be able to generate sufficient investment opportunities because: • Co-financing not available • Capacity insufficient at local or national levels

25. In summary - key messages The challenge to you is: Select & prepare projects properly Know why you need the money (acquis & competitiveness) Make sure your local, regional & national institutions work Hope your economy continues to grow!