EU Funds for Infrastructure 3

8/3/2019 EU Funds for Infrastructure 3

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AcceleratingthemodernisationoftransportinfrastructureinRomania:theuseofEUfunds 1

AcceleratingthemodernisationoftransportinfrastructureinRomania:

theuseofEUfunds

Contents0. Executivesummary............................................................................................................................... 3

1. Introductionandbackground............................................................................................................... 5

1.1 Transportinfrastructureandtheeconomy.................................................................................. 5

1.2 EUfunds........................................................................................................................................ 5

1.3 AbsorbingEUfunds....................................................................................................................... 7

2. TheEU10countriesandabsorption..................................................................................................... 8

3. StatusofEUfundsabsorptionundertheSOPT................................................................................. 10

3.1 StatusofSOPT............................................................................................................................ 10

3.2 SOPTabsorption:forecasts........................................................................................................ 11

3.3 SOPTimplementationdifficulties.............................................................................................. 13

3.4 TheISPAexperience.................................................................................................................... 13

3.5 Systemicissue............................................................................................................................. 15

3.6 Optimismpostponesreforms..................................................................................................... 16

3.7 Needforsystemicapproach....................................................................................................... 17

4. CurrentabsorptionundertheRegionalOperationalProgramme(ROP)........................................... 17

5. AnalysisandrecommendationsGovernanceandplanning............................................................. 20

5.1 SectorgovernanceSOPT......................................................................................................... 20

5.2 Planningcapacitynationallevel............................................................................................... 22

5.3 Planningcapacitylocallevel.................................................................................................... 23

5.4 Financialplanning....................................................................................................................... 24

6. Analysisandrecommendations Implementation............................................................................. 25

6.1 Managementandhumanresources........................................................................................... 25

6.2 Projectpreparation..................................................................................................................... 26

6.3 Reviews,authorisations,approvals............................................................................................ 27

6.4 Procurement............................................................................................................................... 28

6.5 Contractmanagement................................................................................................................ 30

6.6 Financialmanagement................................................................................................................ 31


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7. Legislativeaspects............................................................................................................................... 32

8. Roleoftheprivatesector................................................................................................................... 33

8.1 Publicprivatepartnership........................................................................................................... 33

8.2 Projectmanagement................................................................................................................... 34

8.3 Technicalassistance.................................................................................................................... 34

9. Policyfindingsandrecommendations................................................................................................ 34

9.1 Recentdevelopments................................................................................................................. 34

9.2 Currentprogrammingperiod...................................................................................................... 35

9.3 Recommendationsfortheshortterm........................................................................................ 36

9.4 Improvingabsorptionforthenextprogrammingperiod........................................................... 36

Annex1:ExecutiveSummaryoftheFunctionalReviewinthetransportsector....................................... 38

Annex2:ReviewofCNADNRSAcurrentcommitments............................................................................ 48

Annex3:Bibliography................................................................................................................................. 52

TablesTable1:OutlineofSOPT.............................................................................................................................. 6

Table2:FinancingofroadinfrastructureunderROPuntilFebruary2011................................................ 18

FiguresFigure1:Valueofgrantcontractssignedbyend2010againsttotal20072013funding............................ 8

Figure2:ContractedratiobysectorEU10countriessituationatend2010.......................................... 9

Figure3:Valueofpaymentstothebeneficiariesagainsttotal20072013funding.................................. 10

Figure4:MASOPTforecasts...................................................................................................................... 12

Figure5:ISPAfinancialoverviewbyend2006........................................................................................... 14

Figure6:ShareoftransportinfrastructureprojectswithintotalamountofprojectsapprovedunderROP

.................................................................................................................................................................... 18

Figure7:PerformanceofROP.................................................................................................................... 19


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0. ExecutivesummaryThescopeofthispaperistoreviewconstraintsandbottlenecksinabsorbingEUfundsforinfrastructure,

withafocusontransportinfrastructure,andtoproposepolicymeasurestoalleviatethem.

The focus on transport infrastructure is determined by the large share of these projects within the

overall infrastructure projects financed by EU funds, the remaining being mainly environmental

infrastructureinthefieldof(waste)waterandwastesmanagement.Itisalsoconsideredthattransport

infrastructure is closely linked with economic growth, while environmental infrastructure is mainly

answering to obligations of Romania within the acquis communautaire. Therefore, the paper

concentrates on the Sectorial Operational Programme Transport (SOPT) and on the Regional

OperationalProgramme(ROP,priorityaxisno.2andpartlypriorityaxisno.1).

Furthermore, the paper is targeting at both ensuring a better absorption within the current

programmingperiod(20072013witheligibleexpendituresuntilend2015)andensuringthepreparation

forthenextprogrammingperiod(20142020).

AreviewofthecurrentabsorptionlevelfortheEUfunded20072013programmesshowsthatRomaniais, amongst the EU 10 countries, amongst the worst performers. As regards the SOPT, the value of

projects approved under the SOPT is less than 20% of the 20072013 allocation while payments to

beneficiaries,reflectingtherateofimplementation,arelessthan3%oftheallocation.

Afurtheranalysisshowsthatasimilarsituationoccurredwiththeimplementationofthepreviouslarge

EU programme for transport infrastructure, ISPA, over the programming period 20002006. Most

projectshavebeenunderimplementationuntilend2010orevenlonger.

Butimplementationdifficulties,delaysandcostoverrunsarenotlimitedtotheEUfundedprogrammes

andappeartobeageneralfeatureofmosttransport infrastructureprojects.Thedirectconsequences

are

easily

observable:

over

the

last

twenty

years

only

about

240

km

of

new

motorways

have

been

openedtotrafficandlessthan200kmofrailwayshavebeenupgradedtohigherspeeds;inaddition,the

rehabilitationofnationalroadsprogressesataslowpace.

The reasons for low absorption of EU funds for transport infrastructure are therefore not primarily

linked with the EU funds rules and procedures as such but with the way the transport infrastructure

system ismanagedandprojectsarepreparedand implemented,regardlessof thesourcesof finance.

Thiscallsforasystemicapproach,ratherthanforsolutionsthatwouldtargetEUfundedprojectsonly.

Inthisrespect,recommendationsmaybemadeatthreedifferentlevels:

Systemicissues,

Transportsectorgenericissuesand

EUfundingspecificissues.

Asregardsthesystemicissues,relatedtothepublicsectoringeneral,itappearsthatgovernanceisto

beconsiderablyimproved.DetailedrecommendationsareelaboratedwithintheWorldBankFunctional

Reviews,aimingatensuring thatconditions foreffectiveness, transparencyandaccountabilitycanbe

met. This involves the development of an armlength management of the main infrastructure

companies,including:

- Managementstability,withmediumterm(4to5years)managementcontracts,


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- Performanceagreementssettingrealisticobjectivesbutalsotheaccompanyingfinancialand

humanresources.

At the same time, the management of human resources should be considerably improved. The

objectives should be to ensure better quality of the human resources but also to improve the

managementstyle,currentlycharacterisedbydistrust,withemphasisoncontrolsandpunishment.

- Promoteaunitaryandattractiveremunerationsystem,

- Developstaffandmanagementretainingstrategiesbasedonincentivesandcarriers,

- Streamline and simplify decision making system and procedures, promoting preemptive

ratherthanpunitivemechanisms,

- Makeincreaseduseofconsultantsandexternalservices,tolowerinternalconstraints.

Asecondsetofrecommendationstargetthetransportsectoringenericterms.Theserecommendations

are:

- DevelopatransparentandcoherentlongtermMasterPlan,highlightingalimitednumberof

clearprioritiesandincludingassessmentofthepotentiallyavailablefundingsources,

- Ensure then thorough preparation of priority projects, securing adequate financial and

humanresources.Preparationingoodconditionsofalargeprojectwouldnotlastlessabout4 to 5 years and is likely to require about 5% of the investment costs, to which land

acquisitioncostsshouldbeadded.

- Streamline,coordinateandsimplifytheroleofthedifferentactorsininfrastructureprojects

(reviewbodies,controlandauditentities,authorizationissuers,etc)

- Standardizetenderdocumentsandconditionsofcontracts,

- Improve contract management including by ensuring ontime treatment of claims and

disputes.

- Ensureadequatefinancialcoveroftherisks.

ThelastsetofrecommendationstargetmorespecificallythemanagementofEUfunds,asfollows:

-

Concentrateon

implementing

feasible

projects,

- Preparefromnowforthenextprogrammingperiod(20142020),

- Hire significant technical assistance in order to assist with project implementation and

contractmanagement,

- Ensureadequatefinancialcoverageofnoneligiblecosts,

- Developacashrichsystembyensuringadequateflowoffunds,

- Adoptariskbasedcontrolmethod,

- Simplifyprocedures,focusonqualityratherthanonformalism.

Whileanumberofstepsforwardhavebeenmadeoverthelastperiod,itiscriticalthatallthreelevels

described above are tackled since partial measures are unlikely to make a significant difference. It is

therefore importanttosteerandmonitorthechangeprocess.Tothiseffect,aclearactionplanshould

bepreparedandimplemented,butthekeyissueistoidentifyasteeringgroupactingaschampionsof

theproposedreformandgainmomentum.


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andNadlac(apartofthesectionLugojDevawouldremainunfunded),whileitwouldcoveronlyabout

40% of the costs of rehabilitation and upgrading of the railway between Brasov and the Hungarian

border.

1.3AbsorbingEUfunds

AbsorptionofEUfundsforinfrastructuredirectlytriggersthreecategoriesofbenefits:

Modernisationofthetransportinfrastructure,neededbythecitizensandtheeconomy,

Inflowoffinancialresources,withdirectimpactonGDP,

ReductionofthepressureontheStatebudget1.

Asfurtherdeveloped inthepresentnote,afourthcategoryofbenefitscanbe identified,namelythat

absorptionofEUfundsmayactasavectorofmodernisationandreformoftheinfrastructuresector.

Inthedefinitionofabsorption,someaspectsneedtoberecalled.TheEUfundingsystem isbasicallya

system of reimbursement of eligible costs actually incurred by beneficiaries (such as contractors

invoices paid), within projects for which the beneficiaries have concluded a grant contract with the

Managing Authority, in the framework of an operational programme approved by the European

Commission.Tobeeligible,costshavetobepaidpriorto31December2015.

Therearethereforethreepaymentmechanisms:

Payments fromthebeneficiaryactingasEmployertocontractors/consultants,definedunder

therelatedworks/servicescontracts,

Payments from the Certifying and Payment Authority within the Ministry of Finance to the

ManagingAuthority/beneficiary,regulatedunderthenationallaw2,

PaymentsfromtheEuropeanCommissiontotheCertifyingandPaymentAuthority,regulatedby

theECRegulationno.1083/2006.

Strictly speaking, absorption is the amount of money paid by the European Commission within eachoperational programme. The important issue is that absorption is closely related to the actual

implementationoftheworks,ratherthantopreviousstepssuchasapprovalofprojectsorsignatureof

contracts.

Furthermore,astrongcontrolandauditsystemisputinplace.Incaseofdeficientimplementation,part

of the funds might have to be paid back to the EU under the form of financial corrections. Financial

correctionsmaybeappliedif:

theprogrammeasawholedoesnotmeetitsobjectives,

themanagementandcontrolsystemshowsstructuraldeficiencies,

theimplementationofaparticularprojectpresentsdeficiencies.

Therefore,absorptionofEUfundsrequires:

adequatelongtermplanning,

goodprojectpreparation,

strongprojectimplementation,

1 Historically, the Cohesion Fund has been created in order to allow countries with significant infrastructure

developmentneedstofundthemwhileensuringobservanceoftheeuroconvergencecriteria.2GovernmentEmergencyOrdinanceno.64/2009


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observanceoftheEUandnationalrules.

2. TheEU10countriesandabsorption

Thesituation

of

absorption

at

the

end

of

year

2010

for

the

EU

10

countries

ispresented

in

the

following

figures,computedby KPMG ina reportentitled:EU funds inCentraland EasternEuropeprogress

report200710.

Figure1:Valueofgrantcontractssignedbyend2010againsttotal20072013funding

Source:KPMG

The global contracting ratio for the EU 10 by the end of 2010 is 53%. Romania and Bulgaria are

performingbelowtheaverage.

Amoredetailedoverviewof thestatusofcontractingatend2010across theEU10 isavailableona

sectorial basis. This overview, presented in the following figure, is not related to the particular

operational programmes but to the sector of the projects financed (for instance transport covers

motorwaysandrailwaysbutalsolocalroadsorurbantransport).


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Figure2:ContractedratiobysectorEU10countriessituationatend2010

Source:KPMG

Itappearsthatthetransportsectorisparticularlywellperforminginanumberofcountries.Thisismost

likely linked with the fact that individual transport projects are usually of a significant size and the

approvalofafew,large,projectsmightconsiderablyboostthecontractingrate.Thishoweverrequiresa

sufficientportfolioofprojects,withalevelofpreparationsuchthattheycanbeapprovedtowardsthe

beginningoftheprogrammingperiod.

Romaniahowevershowsasignificantdeficiencyinpreparationoftransportprojects,withacontracting

rateofonly19%,muchbelowtheEU10averageof51%.

Inaquitesignificantmanner,Romaniaalsoshowsaverylowrateofcontractinginthefieldoftechnical

assistance.Whilethis is likelyaconsequenceoftheabsorptiondifficulties, itmightalsobeoneofthe

causes,sincetechnicalassistanceisavailableinordertosupportthemanagementandimplementationofEUfunds.

It should also be mentioned that Romania has quite satisfactory rates of contracting in a number of

fields suchashuman resourcesdevelopment,R&Dand innovationandurbanand ruraldevelopment.

This isencouraging,even ifthetotalamountallocatedto interventions inthesesectors isonly87%of

theamountdedicatedtotransport.

The following figure shows the rate ofpayment, that is the amounts actuallypaid to beneficiaries as

againsttheglobalallocation.


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Figure3:Valueofpaymentstothebeneficiariesagainsttotal20072013funding

Source:KPMG

TheglobalpaymentratiofortheEU10bytheendof2010is17%.Unsurprisingly,therateofpaymentis

substantiallylowerthanthecontractingrate,reflectingthetimerequiredforimplementation.Fromthe

payment ratepointofview,RomaniaandBulgariaareperforming significantly less than theaverage,

showingthatimplementationisacriticalissue.Itcanalsobeobservedthatothercountriesshowalarge

discrepancybetweencontractingandpayment,suchasPoland,whoisalsothelargestbeneficiaryofEU

funding.

ItthereforeappearsthatRomaniaisamongsttheworstperformersintermsofabsorptionofEUfunds,

with a particular deficit in terms of actual implementation of projects but also a lack of projects

preparedandapproved,particularlyinthefieldsoftransportandtechnicalassistance.

3. StatusofEUfundsabsorptionundertheSOPT3.1StatusofSOPT

Underthepresentsection,thecurrentstatusofabsorption isreviewed,usingthefiguresprovidedby

theManagingAuthoritiesaswellasACIS(theAuthorityforCoordinationofStructuralInstruments).

On16September2011,atotalof48projectsarefinancedundertheSOPTforatotaleligiblevalueof

about 1,190 million Euro using the official EC exchange rate for September 2011. The overall co

financing rateby the EC is 73.89% of the total eligiblecosts. The totalvalue tobe funded by theEU

represents19.26%oftheglobalallocationundertheSOPTforthecurrentprogrammingperiod2007

2013.

Out of the 48 projects, 31 are investment projects strictly speaking while the other 17 projects are

preparatory studies or technical assistance. Unsurprisingly, the eligible value of investment projects

represents99.22%ofthetotaleligiblevalue.

AbsorptioninitselfistheamountofpaymentsmadebytheECoutoftherelatedallocation.Noupdated

information is however available regarding these payments under each programme. Two types of


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payments are madeby the EC, in accordance with the Structural Funds regulation: prefinancing and

reimbursementofeligibleexpenditures.Prefinancingissubstantial:7%oftheERDFinthreeinstalments

overtheperiod20072009and10.5%oftheCohesionFundoverthesameperiod.Reimbursementof

eligibleexpendituresmeasurestheimplementationassuch.

Inthisregard,theamountofpaymentsmadetoprojectbeneficiaries(EUcontribution)isofabout131

millionEurousing theofficialECexchange rate forSeptember2011.This represents2.87%of theEU

globalallocationundertheSOPT.

Afewcommentscanbemadeatthisstage:

Amongthelargestprojectsapproved,3projectswereinitiallynotintendedtobefundedunder

the SOPT. The EC funding actually comes in addition to existing International Financial

Institution (IFI) funding. These projects amount to about 25% of the total eligible amount

contracted. These projects are: construction of the Cernavoda Constanta motorway and

constructionoftheAradTimisoaramotorway,cofundedunderanEIBloanandconstruction

of the Constanta motorway bypass, cofunded under an EBRD loan. These projects were

therefore already prepared when EU funding appeared. These three projects are by far the

most advanced in terms of implementation and account for 88.89% of the payments (EUcontribution)madetothebeneficiaries.

AlthoughtheallocationforrailwayprojectsundertheSOPTkeyareasofintervention1.2and

2.2 representsabout42%of theglobalbudget,onlya few railprojectshavecurrentlybeen

approvedunderthesetwoareas,representing16.82%ofthetotaleligibleamountcontracted,

indicatingadelayasregardspreparationofrailprojects.

14 projects have been approved under the Priority Axis no. 4 Technical Assistance. This

howeverrepresentsonly1.56%ofthetotalallocationforthispriorityaxis.Sincethescopeof

thetechnicalassistanceaxis isto improvetheprogrammemanagementand implementation,

it seemswidelyunderused.The fundsallocated through thisaxiscouldbeused inorder to

supportsomeof the recommendationsmade in thepresentdocument, includinganalysisof

theabsorption

process

and

design

and

implementation

of

the

measures

that

would

simplify

it,

butalsoprovisionofexternalmanagementcapabilitiesandconsultancy.

3.2SOPTabsorption:forecasts

Atfirstglance,theabovefigureslookextremelyalarming,takingintoconsiderationthetimeelapsedfor

the implementation of the SOPT. At mid September 2011, 52.28% of the period of eligibility of

expenditures (beginning 2007 end 2015) has passed. In other words, at more than one half of the

implementation period, less than 20% of the funds are allocated to projects and less than 3% of the

fundshavebeeneffectivelyspent.

Thisapproachishowevertoosimplistic.Infrastructureprojectsfollowarelativelylongcycleofplanning,

preparation,designandexecution.Itisthereforenormalthatdelaysexistbetweenthe(i)approvalofa

programmesuchastheSOPTand(ii)thespecificapprovalofaprojectfollowingafullfeasibilitystudy

andanappraisalprocessperformedbytheManagingAuthorityandtheECformajorprojects(transport

projects of more than 50 Meuro), as well as between such project approval and (iii) its actual

implementation following detailed design, tendering, land acquisition where necessary, etc. The

executionofworksandthereforetherelateddisbursementsrepresentthelastphaseofthiscycle.The

overalldurationofthecycleisobviouslyvariableinfunctionoftheprojectcomplexitybutislikelytolast

between5and10years,ofwhich3to6forpreparationand2to4forimplementation.


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Absorptioninthecaseofinfrastructureprojectsshouldthereforetakeintoaccounttheprojectcycle.In

ordertoassesswhetherthe implementationoftheSOPT is likelytomeettheprogrammetargets,at

least infinancialterms, it isthereforenecessarytoforecasthowprojectsunderpreparationtodaywill

becontractedandfurtherimplemented.

In addition, in the case of the SOPT, a limited number of large size investment projects are

contemplated. The project portfolio is therefore relatively well identified. The SOPT implementation

dependson these specificprojects.Asamatterof fact, roadand railprojectsunder thekeyareasof

intervention 1.1, 1.2, 2.1 and 2.2 represent about 85% of the global budget, with only two potential

beneficiaries:CNADNRSAandCFRSA.

The forecastspresentedby theSOPTManagingAuthority fortheMonitoringCommitteeheld inMay

2011canbesummarizedbythefollowingfigure.

Figure4:MASOPTforecasts

Source:SOPTManagingAuthority

The committed figures refer to the cumulated amounts made available from the EC budget. TheseamountshavebeendefinedintheSOPT,overtheprogrammingperiod20072013.

Thecontractedfiguresrefertothevalueofprojectsapproved(forwhichagrantcontracthasbeen

signedbetweentheManagingAuthorityandthebeneficiary).

The paid figures refer to payments made by the Managing Authority to the beneficiaries, as

reimbursementofeligiblecostsactuallyincurred.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2007 2008 2009 2010 2011 2012 2013 2014 2015

SOPTransport

Cumulated

Committed Contracted Paid


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Figure5:ISPAfinancialoverviewbyend2006

Source:MinistryofFinance Romania3

Theabove figureshows theactualvaluesuntilOctober2006.FromOctober2006 to theendof2010

(endoftheeligibilityperiodunderISPA),thesolidfiguresshowthecontinuationofthetrends,whilethe

dottedlinesshowthenecessarytrendsinordertoensure100%absorption.Theeligiblecostfiguresrefertothevalueofprojectsapproved(outofwhichtheISPAgrantfigures

show the EU contribution, usually 75%). They therefore correspond with the contracted amounts

underFigure1.

Thecontractedfiguresrefertothecumulatedvalueofworks/servicescontractssigned.

The payments figures refer to payments made by the EC. It therefore strictly measures absorption

underISPA.

Furthermore, the vertical black line marks the end of the first quarter of the fifth year of the

programmingperiodthatisasimilarmomentthantheoneofdraftingthepresentnote.

Themajoraspecttobenotedisthediscrepancybetweentherateofprojectapproval(eligiblecost)and

therateofpayments.Therateofprojectapprovedatthebeginningofthefifthyearoftheprogrammingperiod(2004inthecaseofISPA)wasofabout66%ofthetotalallocation;thisisaboutthreetimesmore

thanthecurrentSOPTrate.Atthesamemoment,therateofpaymentsmade,measuringthedegreeof

3Whereas itwould havebeenuseful topresentmore recentdata, it appears that thebasedatahasnotbeen

maintainedsincetheendof2006.AccordingtotheWorldBank(EU10RegularEconomicReport,July2010),the

absorptionofISPAatend2009(theequivalentofyear2015inthecurrentprogrammingperiod)wasabout70%of

thetotalgrant.However,thelackofdatareflectssomedeficienciesinmonitoring,whichmakelessonstobelearnt

difficulttoidentify.


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implementation,wasabout7%(againaboutthreetimesthecurrentSOPTrate).Thekey issue isthat

theevolutionofpaymentsunder ISPAwasmuchslower than theevolutionofprojectsapproval.This

lowrateofpaymentreflectsthedifficultiesinimplementation.

An intermediate aspect was measured by the tenders+contracted rate, showing the cumulated

amountofongoingtendersandcontractssigned.Thisshowsadelayofabouttwoyearsbetweenthe

approvalofprojectsandthetenderingoftherelatedcontracts;suchdelaycanberoughlyattributedto

the time necessary for contracting and performing the detailed project design and launching works

tenders.

TheISPAexperiencefurthershowsthatthedurationofproject implementationhasbeenmuch longer

than initiallyforeseen.Almostalltransportprojectshavehadtheirdurationextendeduntilthe limitof

eligibility,namelyend2010.Severalprojectsweresignificantlydelayedduetotheterminationofworks

contracts (Sibiu motorway bypass, rehabilitation of DN 6 between Filiasi and Ciochiuta) or services

contractsasinthecaseoftheDeva Orastiemotorwaybypass.Mostworkscontractsregistereddelays.

Becauseofthedifferencesofsituations, it ismeaninglesstocalculateanaveragedurationofprojects

implementationorcontractexecution.However,oneonlyprojecthadworkscompleted inabout five

yearsfromitsapproval(Lugojbypass).

Inessence,theSOPT is fairlysimilarwith ISPAand lessons from thepastshouldbe fullyused.Some

featuresoftheSOPTarehoweverdifferentfromthoseofISPA;inparticular,manyworkscontractsare

using designbuild conditionsofcontract.To this extend, thismight reduce theoverall time between

project approval and start of the works (by avoiding a separate design contract to be tendered and

contracted). However, the execution period is then longer since itentails part of thedesign work. In

addition, designbuild contracts are not exempt of specific risks, including the capacity of the works

contractor to effectively manage design teams and produce ontime results. Finally, designbuild

contracts would normally require a more detailed basis than the regular feasibility studies. In this

respect,theSOPTcontractsrecentlytenderedformotorwaysectionsbetweenSibiuandtheHungarian

borderare

using

design

build

conditions

mainly

because

the

initial,

separate,

design

contract

has

been

terminated by the CN ADNR SA. The use of the designbuild conditions was therefore not a clearly

assumedchoice,buttheresultofcontractualdifficultiesrelatedtodesignwork.Itisthuslikelythatthe

effectintermsofqualityandspeedofimplementationwillbelimited.

The ISPA financial overview figure helps summarising the ISPA experience as follows: while

programmingwasquiteasuccess,actual implementationwasverydifficultandmuchdelayedagainst

estimates. The reasons for such difficulties in implementation appear therefore to be the key for

absorption.

However, as long as these are not properly addressed, it is extremely likely that the actual rate of

paymentsunderSOPTwillnotsignificantlyimproveagainstthatofISPA.

3.5

Systemicissue

Beyond thespecific ISPAexperience, recalledheremainlybecauseof its similaritywith theSOPT,all

large transport infrastructureprojects in Romania are experiencingvery significant delays, evenafter

works are actually contracted (EIB funded road rehabilitation, Transylvania motorway, Bucharest

Ploiestimotorway).DelaysarenotthespecificityofEUfundedprojects.

Afewexamplesofdelaysareprovidedinthefollowingparagraphs:


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FortheRoadRehabilitationVIproject,aloanagreementhasbeensignedwiththeEuropeanInvestment

BankinDecember2006.Theprojectaimsatrehabilitatingabout1,100kmofnationalroads.Theinitial

agreement was providing for the completion of the works under the project by mid 2011. The loan

agreementhasbeenrevisedin2010soastoextendthevaliditybythreeyears,withanewcompletion

datebymid2014.Someoftherelatedworkscontractshavejuststartedbythebeginningof2011.

TwocontractsfortheBucharestPloiestimotorwayhavebeensignedin2006(MoaraVlasieiPloiesti,

42.5km)and2007(BucharestMoaraVlasiei,19.5km).Theseweredesignbuildcontracts.The initial

deadlineforthesectionBucharestMoaraVlasieiwasin2009.Thecurrentestimateshowscompletion

by October 20124. Part of the land is still under acquisition, especially for the sections close to

Bucharest,whilethedesignconcepthaschangedafterthesignatureofthecontract,from2x2lanesto

2x3lanes.

The initial deadline for the section Moara Vlasiei Ploiesti was in 2010. Several difficulties occurred

during implementation, including delays in land acquisition, changes in technical solutions, changeof

designconcept. InApril2011, theEmployer threatened to terminate theworkscontract,whileabout

54%oftheworkswerecompleted.Amonthlater,anagreementwasfoundwiththecontractors,witha

deadlineforcompletionoftheworkson15December2011.Butmeetingthenewdeadlineappearstobedifficult,despiteahighlevelofthissectorinthepoliticalagenda.

ThecontractfortheconstructionoftheTransylvaniamotorwayhasbeensignedinDecember2003,for

about 415 km of motorway on the route Brasov Cluj Oradea Bors. At the time of contract

signature,thefeasibilitystudywasnotcompletedandtheenvironmentalpermithadnotbeen issued.

Todate,about52kmhavebeencompleted.Theprojectsuffersfromasystemiclackoffunds.In2010,

payments ofa totalvalueof965 million lei were reported toBechtel, outofwhich867 millionwere

relatedtopaymentsduein2009.

During the summer 2011, the contract was drastically renegotiated: the works to be constructed by

Bechtelarereducedtotwosections(onecompleted,theotheronetobecompletedby2013);costsare

alsosignificantly

reduced.

This

renegotiation

enables

the

Ministry

of

Transport

to

get

over

asituation

thatwasalmostblockedforseveralyears.However,thetwoconstructedsectionswillnotbelinkedwith

oneanotherandabout300kmofmotorwaywillremaintobebuiltbetweenBrasovandBors.

Theaboveexamplesshowvarioustypesofdelaysandimplementationdifficulties:

Lackofprojectpreparationanddesign,leadingtochangesduringimplementation,

Delaysintenderingandcontracting,

Delaysinlandacquisition,

Lackoffinancialplanning,

Difficulties in contract management, leading to disputes and sometimes contract

termination.

3.6

Optimismpostponesreforms

The ISPA experience, corroborated with the more general experience of infrastructure projects in

Romania, tends todemonstrate that the evolution ofpayments as forecastedby the MA SOPT until

2015isunrealisticallyoptimistic.

4CNADNRSAwebsite.Worksprogressisalsoreportedas54%(April2011).


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Beyond the fact that itmightbepartofhumannature,suchoptimismmasks the realdifficultiesand

delays themomentwhen reformof the sectormanagementhas tobemade: theMASOPT forecast

showsthatfullabsorptionwilltakeplacebytheendof2015andnofundswillbe lost.Therefore,the

conclusionthatmightbedrawn isthat,despitean initialdelay,theprogrammewillfinallybeontrack.

Thetoughquestionsarethereforenotasked,thelackofefficiencyofthesystemisnotanalysedandits

reformispostponed.

Such optimism is not specific to the MA SOPT or to EU funds programming. A simple review of the

government programmes for the period 20052008 and 20092012 shows that the objectives set in

termsof infrastructuredevelopmentwerestronglycontradictedbyfacts.Asexample,thegovernment

programme for 20092012 was targeting at the completion of the Constanta Nadlac motorway

(withoutSibiuPitesti)by2012(whileworkshavenotstartedonmostsectionsbetweenOrastieand

Nadlac)andthecompletionofrailwayupgradingworksbetweenBrasovandCurticiby2012whileworks

havenotstartedandfundingunderthecurrentSOPTwouldcoveronlyabout40%ofthetotalvalue.

3.7Needforsystemicapproach

Sincetheissueappearstobesystemic,solutionsaretobefoundfortheentiresystem.Thelimitedlevel

ofabsorptionofEU fundsmaybepartiallycausedbymechanismsthatarespecifictoEU funding,but

themaincausesofdelaysaretobefound inthewaythesectorismanagedandprojectsareprepared

andimplemented,regardlessoftheirsourceoffinancing.

Therefore,solutionsthatwouldtargettheEUfundsonlywouldprobablyhaveaverylimitedefficiency.

It is advisable to reform the sector as a whole in order to ensure development of the transport

infrastructure in general. In addition, projects cannot be prepared and implemented in a fully self

sufficientmanner:theimplementationteamswithintheCNADNRSAandCFRSAbenefitfromsupport

fromtheentirestructure, includinghorizontalaspectssuchas landacquisition,environment,technical

reviews, linkswithoperationandmaintenanceteams,etc.Therefore,solutionsthatwouldproposeto

isolatetheimplementationofEUfundedprojectsinnewstructureswouldmakesuchsupportextremelydifficultinpracticeandunsustainableinthelongrun.

Ratherthanconceivingspecificsolutionstargetingonlyapartofthe issues, it ispreferabletoaddress

thesystemassuchinordertoidentifyglobalsolutions.

4. CurrentabsorptionundertheRegionalOperationalProgramme(ROP)Theneed for improvingtheexisting road infrastructurecaneasilybeassessedat the levelof regional

roadsfromtwoperspectives:

strategicplanning:theroadinfrastructure(mainlycountyroads,streets,bridges,parkingplaces)

isaddressedundertwopriorityaxesonededicatedentirelytoroadinfrastructure(PriorityAxis

2 Improvement of regional and local transport infrastructure) and the other partially

addressingtheroadinfrastructure(PriorityAxis1Supporttosustainabledevelopmentofcities

urbangrowthpoles).

ItistobementionedthatPriorityAxis1wasconceivedtosupportthedevelopmentofcitiesby

means of Integrated Urban Development Plans, and thus implying a variety of types of

investments.Notwithstanding thisprobability, the road infrastructureattractedapproximately

67%oftheEUfundsallocatedforthispriorityaxis.


18/52

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19/52

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20/52


excessoftheavailablefunding.Thishasledtoahighcontractingrate(highamountofprojects

approved).

while a significant portfolio of projects has been prepared through Government funding, the

maincharacteristicof projectsapproved is that theyare relativelyeasy to implementas they

focusonrehabilitatingexistingroads(avoidingthereforemajorenvironmentaldifficulties, land

acquisition,archaeologicalsites,etc).

theactual implementationofprojectshasstartedrelativelyrecently.Thefigureofpayments is

stillquitelowbutislikelytogrow.

Froma transportpointofview, theoverall impactof theprojects fundedunder theROP isnotclear.

There seems to be mainly an accumulation of projects rather than the implementation of a detailed

strategy. Projects have been selected mainly on their individual merits and much less for their

contribution to the implementation of a strategy of development of transport infrastructure at local

level. From this point of view, the recent decision to remove the CRESC (Regional Committee for

StrategicEvaluationandCoordination)fromtheevaluationprocessmightweakentheregionalimpactof

theselectedprojects,despitethefactthatitspeedsuptheprocess.

The ROP therefore presents a situation that is fairly different from that of the SOPT: rather than alimited number of large projects with high impact on the national system, the ROP finances a wide

numberofsmallscale, relativelyeasy to implement,projects,withhowever the riskof triggering less

impact.

Thereisthereforeaneedtoensureclearerstrategiesatregional/locallevels,takingintoaccountthose

developedatnational levelandtostrengthenthecommunication linesbetweenthetwoprogrammes:

ROPandSOPT.

5. AnalysisandrecommendationsGovernanceandplanningThe analysis of the absorption of structural funds has been divided for the purpose of obtaining a

bettersynthesisofvariousissuesintotwomainsections.

Thefirstsectionincludes:

- sectorgovernance,

- planningcapacity,

- financialplanningand

whilethesecondoneconcentratesonimplementationmatters.

5.1SectorgovernanceSOPT

Thegovernanceofthetransportsectorhasbeenthesubjectofmanyreviewsandrecommendationsto

date.TheinstitutionalissueshavebeenexaminedindetailsintherecentFunctionalReviewperformed

by the World Bank for the Ministry of Transport. The main recommendations of this Review are

presentedinAnnex,undertheformofanExecutiveSummaryandActionPlan.

ThemainissuesaretorestructuretherolesoftheMinistryofTransportandthatofthetwomainbodies

in charge of transport infrastructure: the road company CN ADNR SA and the rail company CFR SA.


21/52


Undertheproposedscheme,theministrywouldconcentrateonplanningandpolicymaking,whilethe

twoagencieswouldconcentrateon implementationofamedium to long termprogrammes,withina

stableframework.Thekey ideaisthatthemanagementofthetwoagenciesshouldbeatarmlength

distance from the political power. The actual implementation of large infrastructure projects, whose

project cycle is likely to last between 5 and 10 years, requires long term planning and operational

stability.

There is a possible debate on which form of organisation is better suited for the two agencies:

corporations,aspertheexistingsituation,oradministrativebodies.This issue issomehowsecondary.

OneofthedeclaredscopesofthecorporatisationoftheformerNationalAdministrationofRoadswasto

provideformoreoperationalindependencefromthepoliticalpower6.TherecentFunctionalReviewhas

highlighted that such process did not actually happen. The management of the two companies is

extremely unstable, there are no transparent goals and targets, nor accompanying resources on the

mediumtolongterm.

One of the solutions used in EU countries is the establishment of separate, dedicated, project

organisations. Combined with a large size investment programme, these organisations can ensure

continuity as regards management, knowledge and experience, contributing to efficient projectimplementation.Examplesofsuchorganisationscanbe found inGreece (EydePathe for thePatras

AthensThessalonikiEvzoni730kmmotorway ,EgnatiaOdos forthe670kmmotorwayservingas

EastWestaxisinthenorthofGreeceandErgose,responsibleforrailprojects.Similarly,Sloveniagivesa

good example through the establishment, since 1993, of a dedicated company for motorway

development, DARS. It is worth mentioning that the DARS management board is appointed by the

Governmentforafiveyearperiod.

Beyondtheexamplesabove,itisworthmentioningthatthereisnodominatingmodeloforganisation

inthisregardatEUlevel.However,thereisageneralrecognitionthatpreparationandimplementation

ofprojectsrequirestablemanagementandfinancialframeworks.

Italsoneedstobehighlightedthat,atloweroperationallevel,themanagementandcontrolsystemsfor

theSOPThavebeenauditedandaccredited.Drawingon the ISPAexperience,procedureshavebeen

defined that aim at ensuring a sound financial management and adequate audit trail. Major

modificationstothecurrentsetupwouldthereforerequiretimeandresourcesinordertoreestablisha

compliant system, which would induce further delays in implementation. The main objective should

thereforebetoreformbyconsolidatingandimprovingthesystemandthecurrentactorsratherthanto

introduceacompletelynewinstitutionalframework.

In the field of governance, accountability is an important concept that requires to be clarified.

Accountabilityappearstobemainlyunderstoodastheindividualresponsibilityforastrictobservanceof

regulationsand rules.Auditsandcontrolswould therefore focusonestablishingwhetheraparticular

processwasregularandwhetherpublicservantsareguiltyornot.Theoverallefficiencyishowevernot

questionedandstrategicorpolicyissuesnotanalysed.

Thereisthereforeaneedtoreorientatethewayaccountabilityisunderstood,assumedandassessed,in

linewiththefollowingprinciples:

6SeethejustificationnotetotheadoptionofGovernmentEmergencyOrdinanceno.84/2003,reorganizingthe

NationalAdministrationofRoadsintotheCNADNRSA.


22/52


- As a general rule, responsibility for a particular process should not be split among several

organisations. In case a process involves several organisations, the coordination and

cooperationmechanismsshouldbeclearlydefined.

- Preemptive action should be systematically preferred to punishment. Therefore, procedures

shouldbecompleteandclear,providingguidanceand interpretation. Inparticular,key issues

such as planning, project preparation, preconditions for signature of works contracts,

treatmentofcontractualmodifications,treatmentofclaimsanddisputes,financialmanagement

orriskmanagementshouldbeaddressed.

- Accountability at the level of organisation requires a clear strategy, quantifiable objectives,

stablemanagementanddefinedresources(financialandhuman).Theseelementsarecurrently

lackingforthecompaniesinchargeoftransportinfrastructure,especiallyCNADNRSAandCFR

SA.

Asregardsthesectorgovernance,thekeyrecommendationsarethereforetoimplementthemeasures

proposedintheActionPlanoftheFunctionalReview,including:

- DevelopatransparentandcoherentlongtermMasterPlan,

- Developanarmlengthmanagementofthemaininfrastructurecompanies,ensuring:

o

Managementstability,withmediumterm(4to5years)managementcontracts,o Performanceagreementssettingobjectivesandaccompanyingfinancialandhuman

resources.

5.2Planningcapacitynationallevel

Asmentionedabove,longtermplanningisoneofthemainresponsibilitiesoftheministryinchargeof

transport. While in the 1990s investment priorities were relatively straightforward, focusing on the

rehabilitation of the most trafficked sections of roadand rail infrastructure, theyhave become more

complexovertime.Althoughvariousmasterplanshavebeenelaboratedandlawsadopteddefiningthe

priority investments7

, it appears that actual project identification and selection is not based on suchframeworkprogrammingdocuments.

Experience in other countries shows that, more than a fully defined and irrevocable list of individual

projects over a very long term, transport planning should primarily define orientations as well as a

portfolioofmajorprojectsoverthemediumterm.AbriefreviewoftheexperienceinseveralEuropean

countries(France,UK,Germany,Austria)enablestohighlightthefollowingcommonfeatures:

- theplansincludeasignificantphase(orseveralphases)ofconsultations,

- there is a clear tendency to depart from monomodal plans to transport plans, in which the

complementaritybetweenmodesisseenasanalternativetothesupremacyofroadtransport,

- theplanisusuallynotadoptedbylaw,

- the plans do not provide a directly binding list of individual priorities. However, they define

publicpoliciesandprovideorientationsforthemediumto longterm intermsofinfrastructure

needsand financial resources.Theymightalso further lead to theadoptionof legalactsona

moresectorialbasis8.

7Forinstance,Law451/2003definesapriorityprogrammeforbuildingmotorwaysand4lanesnationalroads.

8Forinstance,suchsectorialactsmightestablishaportfolioofthemajorprojectsoverthemediumterm.


23/52


Whilepriority investmentplansarenecessary,especiallysinceprojectpreparation requiressignificant

time and resources, planning should entail a global reflection on policies, mobility and sustainability,

takingintoaccountthefinancialconstraints.

WorkfortheEuropeanParliament9reviewingplanningofmajortransportprojectsinEuropehighlights

that,toachievebestpracticeduringtheplanningphase,thekeyfactorswhichneedtobepresentare

politicalwillanddrive,publicsupportandfinancialarrangements.Absenceofanyofthesefactorscan

resultindelaysintheplanningphaseorsubsequentimplementationphase.

InthecaseofRomania,itcanbeobservedthat:

- thefocusatpoliticalandmedialevelisplacedalmostexclusivelyonmotorwayconstruction,in

thedetrimentofrailprojects,

- even as regards development of the motorway network, the lack of political drive over the

mediumto longtermresults intoa lackofclearpriorities (or,which isequivalent, intoahigh

numberofsocalledpriorities),

- at least inthecaseoftheTransylvaniamotorway,the lackoffinancialarrangementshasbeen

verydetrimentaltotheproject.

IntheRomaniancontext,thekeyrecommendationsaretherefore:

- defineafinancialenvelopetobeallocatedfortransport infrastructure, includingmaintenance,

overthelongterm,aswellasadequatefinancingandcostrecoverysystems,

- reviewtheroleofrailtransportaspartoftheglobaltransportsystem,withaclearrevitalisation

plan that should integrate a focus on the main lines as well as a coherent and transparent

strategy for the less trafficked lines, including their replacement with more costeffective

services,

- defineaprioritisedportfolioofindividualprojectsinordertolaunchtheirpreparation.

5.3

Planningcapacity

local

level

Given the status of the local (county roads) infrastructure, the priority for 20072013 has been the

rehabilitationof these roads; lessemphasishasbeenplaceduponaproperprioritizationprocessand

none at all related to alternative transport modes. The new programming period to be tighter

correlatedwith theEurope2020Strategyenvisagesareduction inthenumberofprioritiesbutalso

incentives and financial sanctions depending on absorption and quality of implementation, together

withOperationalProgrammes tobedesignedandmanagedat regional level.TheStrategy recognizes

that the modernizing the transport sector is a priority, but the focus has shifted towards promoting

energyefficiency (decarbonisingtheeconomy),theurbandimensionoftransport (wheremuchofthe

congestionandemissionsaregenerated)andacoordinated implementationof infrastructureprojects

thatmustcontributetotheeffectivenessoftheoverallEUtransportsystem.

Thisbasicallyimpliestwomajoractions:

Preparation (revision) of Regional Development Strategies based on county strategies,

preferably prepared by a single consultant, to ensure uniformity, and making use of clearly

definedprioritizationcriteriasimilar toaMasterPlanandconsistent financial&economic

approach.Currently,notalltheprojectsapplyingforEUfinancingarepartofsuchprioritization

9PlanningandimplementationofmajortransportprojectsintheEuropeanUnion,AnnettePedler,2003


24/52


andtheevaluationcriteriadonottakeintoaccounttheeconomicbenefitsasacriterionusedfor

comparison between projects; moreover, there is no standardization of the costbenefit

analysis,afactthatallowsforsubjectivitywhentryingtoassesspriorities,andnomethodology

(suchascosteffectivenesse.g.unitarycostforensuringaccessibilityfor1000people)forthe

projects forwhich classicCBA isnotapplicable (suchasnewcounty roads,whereclassicCBA

shouldnormallyyieldnegativeresults).

Suchactionwillalsofacilitatetheendeavourtosynthesizepriorities,having inmindthatthe

futureenvisagesfinancialeffortsconcentratedonfewerprioritiesandbetter(moresignificant)

results;itshallalsocontributetotheexclusionofpoliticalinterferenceintheprocessofproject

preparationandprioritization.

Whereas for the first programming period under the Structural Funds the main objectivehas

beencontractingandimplementing,forthefutureperiodthequalityoftheprojectsisofcrucial

importance. This implies timely preparation of projects, anticipating the evolution of regional

policyincompliancewithEurope2020Strategyandanearlyshapingofnewregionalstrategies.

In this context, the possibility of mutualising resources for project preparation and

implementation, through packages based on standard documents, in line with the Regional

developmentStrategies,shouldalsobeconsidered.

Involvement of localauthorities (countycouncils) in the railways sector,an action that would

allowforcomparativeanalysisofthetwotypesofinfrastructure,andthuswouldcontributeto

theachievementoftheenergyefficiencydesiderate.Currently,alocalauthorityonlytakesinto

accountthe investmentneeds inthe fieldof roadtransport,whethertheyareefficientornot

comparedtootheralternatives.

5.4Financialplanning

Transport infrastructure projects require the mobilisation of very significant funds, over rather long

periods. A review of the current commitments of the CN ADNR SA10

shows that the value of workscontractssignedorabouttobesignedisofabout7.2billionEuros.The2011budgetoftheCNADNRSA

providesforabout1.5billionEuroinvestments,thatisabout1.2%oftheGDP.

Insufficient or unpredictable funding triggers delays but also cost overruns. In the case of the

Transylvaniamotorway,itappearsthatabout1.3billionEuroshavebeenpaidunderthisprojectthatis

about45%of itsdeclared initialvalue,whileworkshavebeencompletedononeoftheeightsections

andhavebeenexecutedat35%onanothersection.Thehugecostsincreasestogetherwiththelackof

available funding have been one of the main reasons invoked for the recent renegotiation of the

contract.

Medium term financial planning is therefore necessary in order to ensure that commitments are

financiallysustainable.Fromthispointofview,multiannualfinancialperspectivesarecrucial.

10Seeannex2,reviewperformedbyMr.AnttiTalvitiefortheWorldBank


25/52


6. Analysisandrecommendations Implementation6.1Managementandhumanresources

The issueofhuman resourceshasalsobeenoftenanalysedand reviewed.Theobjectivesare to limit

staff turnoverandensureahigh levelofcompetence, required for the implementationof large scaleprojects. However, the recommendations implemented have mainly been limited to the salary level,

whereoneofthemaintopicshasbeentheimplementationofincentivesforstaffinchargeofEUfunds.

A derogatory remuneration regime for staff involved in EU funds is not necessarilydesirable, since it

triggersseveralpossibledysfunctions.For instance, it isunclearwhystaff inchargeof implementinga

projectfundedbytheEIBshouldbepaidlessthantheircolleaguesimplementinganEUfundedproject.

Itshallbeborneinmindthatderogationsgenerallytendtotriggerbypassesandpossiblyfraud.

The main issues are to attract high quality staff, ensure adequate training, retain staff through

incentives,promotionandcarrierdevelopmentandensureapositivemanagementstyle.

Thecurrentexperienceshowsthathighqualitystaffisscarce,trainingisnotconsideredasalongterm

personnelandprofessionaldevelopmenttool,therearealmostnostaffretentionstrategiesbutmainly

themanagementstyleisinadequate.

While the infrastructure sector is often perceived as being nontransparent, with a high degree of

corruption,arelativelystrongauditandcontrolsystemhasbeenestablished.Asanexample,17audit

andcontrolmissionshavebeencarriedoutontheISPAprojectforconstructionofthesections4and5

oftheBucharestCernavodamotorwaybetween2002and2010.Ratherthanassistingmanagementto

identifydeficienciesandimproveimplementation,itappearsthatthemainorientationoftheauditand

control missions is to identify irregularities and guilt. This tends to lead to situations where

responsibilitiesarenotadequatelytaken: inordertoavoidpossiblesuspicions, lackofdecisionsmight

appearasasafestrategyat individual level.Itmightalsobementionedthatthere isnomechanismof

legalprotectionoftheindividualswhenactingonbehalfoftheirinstitution.

Inaddition,thesocalledfoureyesprinciple,implyingthatonecontrolandvalidationlevelshouldbe

in place for all processes, tends to be transformed into a multiplicity of control levels, that directly

impactonthetimelinessofthedecisionmakingsystem.

It should also be underlined that lack of sufficiently qualified staff should be compensated by use of

external advice and consultants. While such use is unlikely to tackle all difficulties, especially if it is

limited toproject implementation (when the sourceofdifficulties isoften inearlierphases), itwould

however enable improving the existing situation. Furthermore, it should be accompanied by efficient

trainingofthecounterpartstaff.

Theevaluationofstructural funds implementation systems for theperiod2000200611highlights that

fourfactorswerefoundtosupporthumanresourcescontinuityandlearning.Thesewere:

- Stablestructuresandinstitutions,

- Stableleadershipandcoordination,

- Organisationallearningandcapitalisationofexperience,and

11 Expost evaluation of Cohesion Policyprogrammes 20002006 cofinanced by the ERDF. Work Package 11:

Managementandimplementationsystemsforcohesionpolicy,2009,MetisandUniversityofStrathclyde


26/52


- Procedureswhichallowedflexiblechangewithoutsteephierarchiesandtoomanycontrols.

Thekeyrecommendationsinthisfieldaretherefore:

- Promoteaunitaryandattractiveremunerationsystem,

- Developstaffretainingstrategiesbasedonincentivesandcarriers,

- Reviewdecisionmakingsystemsinordertoensurebettertimeliness,12

- Developmanagementandstafftraining,includingthroughonthejobtraining,

- Involve audit and control authorities in order to identify best practices and streamline

procedure,

- Makeincreaseduseofconsultantsandexternalservices,tolowerinternalconstraints.

6.2Projectpreparation

TheexpostevaluationoftheCohesionFund13performedin2005highlightsthatoneofthekeyfactors

increatingsuccessfulimplementationistoenhancethequalityofthepreparationprocess.Onlymature

projects should be selected which fulfil clear quality standards. Furthermore, a number of key

recommendationsinthisrespectwereidentified,asfollows:

- Adoptamultiannualplanningapproachinwhichbothprojectpreparationandimplementation

areplannedonamultiannualtimeframe,

- Createapipelineofprojects,

- RequestactivepublicconsultationbeforesubmissionofapplicationforEUfunding,

- Requestfullydevelopedtechnical(designandfeasibility)studiesbeforeapplication.Thiscould

beimprovedbycreatingaspecialfacilityfortechnicalfeasibilitystudies.

- MakemoreuseofEUfundstofinancepreparatorystudies,

- Requestappropriateriskassessmentbeforesubmission

- Applytechnicalqualityassuranceonapplicationsforfinancing.Ifrelevantdevelopastandard

technicalchecklistinthisrespect.

-Approveonlyprojectswhichareclosetoorhavecompletedtendering(thiswouldrequireasystemofprefundingatthememberstatestoavoidunnecessarystartupdelays).

InRomania,thenecessityofensuringasubstantialandtechnicallysatisfactoryprojectpreparationcould

not be overemphasised. An analysis of difficulties, cost overruns and delays appearing during works

implementationshows thatmostof themareactually linkedwithshortcuts in thepreparationof the

project.Theseare,amongstothers:

- Unclearprojectconcept, leading tomodifications in thealignmentormainparametersof the

works,

- Lackofpossessionofsite(delaysinlandacquisition),

- Environmentalissues,affectingthealignmentoftheinfrastructure,

- Archaeologicalsitesand/orutilitynetworksunidentifiedatdesignlevel,

- Insufficientlydetaileddesign,leadingtochangesintechnicalsolutions.

12Thiswouldentailseveralaspectssuchasreductionofthenumberofcontrollevels,largerdelegationofpowers,

improvedprocedures inorder todeal with unforeseenaspects, increased use of IT systems in managementof

documents.13ECORYS(2005)ExpostevaluationCohesionFund


27/52


Furthermore, there is often a rush in signing works contracts, including for political reasons, even if

thosearenotmatureenough.Asanexample,duringthefallof2010,about10workstendersforSOPT

projects(roadrehabilitationandconstructionofbypasses)havebeen launched,atthesametimethan

tendersfortherelatedlandacquisitionservices.Thisclearlyshowsthattheprojectswerefarfrombeing

matureenoughforasmoothimplementation.

Severalattemptshavebeenmadetocompensatethelackofprojectpreparation:

- as already mentioned a number of projects, since 2006, have been launched as designbuild

projects.Experiencehowevershowsthatthesearenotexemptfromdifficultiesanddelays.One

largemotorwaycontracthasrecentlybeenterminatedbytheCNADNRSA.

- in somecases, theconditionsofcontractshavebeen revised soas to transfer responsibilities

towards the contractors. Unclear or onesided risk allocation in contracts are likely to trigger

reduced competition by deterring contractors to participate in tenders; it is unlikely that

transferring risk and responsibilities in land acquisition or permitting procedures can be

effective,orevenlegallypossible.

There is no magic formula for shortcuts in the preparation process. Issues need to be solved

adequatelybeforetheybecomedelaycausingproblemsandattherighttimeandwithduespeedduringtheimplementationcycle.

Theadoptionofanew lawof landacquisitionbytheendof2010 is likelyastepforwardtowardsthe

simplificationofthiskeyaspect.However,practiceshalldemonstratewhetherthislawbringssignificant

reductionof delays in the landacquisitionprocess.Moreover, simplifying landacquisition should not

obliterate the fact that this process is normally to be carried out prior to the signature of works

contractsandnotduringtheirperformance.

Thekeyrecommendationsasregardsprojectpreparationare:

- provideadequatetimeandresources(4to5yearsarerequiredtofullypreparealargeproject

andabout

5%

of

the

project

costs

should

be

dedicated

to

preparation)

- ensure that all issues are adequately addressed, including: feasibility, Environmental Impact

assessment,archaeology,detaileddesign,landacquisition,utilitynetworks,

- ensuremechanismsarebeingdesignedimplementedforoperationandmaintenance,

- avoidartificialtransferofresponsibilities,fromthatdirectlypertainingtotheState,

- defineclearcriteriaforprojectmaturity.

6.3Reviews,authorisations,approvals

Projectapproval isacomplexprocess, following severaldifferentprocedures (suchasenvironmental,

urbanism,useofpublicfunds,EUfunding).

Authorisations have to be obtained and gathered from a large number of authorities, as well as

managersofutilitynetworks.Inaddition,partofthedocumentsaretobereviewedbyvariousbodies,

suchas theState Inspectorate inConstructionthat reviews feasibilitystudies,or, forrailprojects, the

RailwayAuthority(AFER)thatreviewstechnicalspecifications. Inaddition,designshavetobechecked

by independent certified checkers (actually almost all the time hired by the designers), while road

projectsshouldbesubjecttoaroadsafetyaudit.


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Whereasitappearsdifficulttodevelopaonestopshoptypeofmechanism,simplificationisdesirable.

Suchsimplificationshouldentailareviewof thevariousprocesses, the timeandresourcesneededas

wellastheprocessaddedvalue.Adetailedmappingoftheprocessesandtheirvalueshouldenableto

identifyredundanciesandstreamliningproposals.Thisreviewshouldobviouslynotbelimitedtoproject

preparationbutalsoincludetheotherphases:procurement,constructionandtakingover.

AspecificpartofpreparationofprojectspertainingtoEUfundsreferstotheprojectevaluationprocess

performedbyManagingAuthoritiesand,formajorprojects,bytheEuropeanCommission.Thisprocess

is often considered as timeconsuming and various measures have been taken to ensure that its

durationremainslimited.

InthecaseoftheROP,theoveralldurationoftheprojectevaluationprocess israther long(uptoone

year),mainlyduetothehigh levelofcontrol(includingduplicationofverificationproceduresbetween

Managing Authority and Intermediate Bodies) and the reduced availability of evaluators. A possible

solutionistoreducethelevelofcontrolusingariskbasedapproach(seegeneraldifficultiesrelatedto

implementation), together with increasing the quality of evaluation services subject to public

procurement. Furthermore, project evaluation should be more orientated towards the substantial

aspects(strategyandobjectives,efficiency,effectiveness)ratherthanonstrictlyformalandproceduralaspects.

InthecaseoftheSOPT,asignificantnumberofprojectshavesubmittedtotheEuropeanCommission

andhave receivedcomments (through lettersof interruption).Thesecomments often invite to put

theprojectintoabroaderperspective,includingissuessuchassustainabilityandimpact.Theevaluation

process performed at EC level contrasts with that performed at Managing Authority level, often too

focused on formal issues. A global review of EC comments should enable the Managing Authority to

drawlessonsandguidelinesforpreparationoffutureprojects.

Thekeyrecommendationsregardingreviews,authorisationsandapprovalsare:

-

Undertakean

analysis

of

the

authorisation

and

approval

system

with

aview

to

simplify

it,

- Streamlineselectionofprojectstobefundedbystructuralinstruments,withafocusonproject

qualityandcontributiontotheprogrammeobjectives.

6.4Procurement

Thepublicprocurementisslowandtherateofdisputesishigh,whiletheperceptionoftenderersisthat

theprocessitselfisnotsufficientlytransparent/fair.Beyondaspectsstrictlyrelatedtotenderevaluation,

thechoiceofthetenderprocedure,ofthequalificationandawardcriteria,thecontractdocumentsand

the technical specifications are insufficiently harmonised. Tenderers are facing a wide range of

processesandtenderdocuments,whichmaketheoverallprocesslesstransparent.

Oneparticularaspect,sincetheentry intoforceofGovernmentEmergencyOrdinanceno.34/2006is

the multiplying number of complaints received, triggering delays in the overall tendering procedure.

Severalmodificationshavebeenbroughttothelegislation,inanattempttodiscouragecomplaints.For

various reasons, including risksofnoncompliancewith the relatedEUDirectives,suchattemptshave

notbeensuccessful.Itthereforeappearsthatthemainwayofreducingcomplaintsisnottomakethem

moredifficultbuttorestoretheconfidenceoftenderersintheprocurementprocess.


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One solution to both speed up the process and restore participants faith in the process of public

procurement is to prepare clear and balanced standard set of procurement documents (tender

dossiers).

Special attention must be paid to instructions to tenderers and especially to the award criteria

excessiveuseoflowestpriceshouldbeavoidedforintellectualservices,whileexcessiveuseofother

factors should be limited for works as well as to the method of scoring employed to assess the

proposals.

Experiencehasshownthatusinglowestpriceawardcriterionfordesignserviceshasresultedinprojects

of a low quality whose implementation has been delayed and in some cases even failed. Likewise,

scoringthenumberofriskfactorsidentifiedbyatendererisasubjectivecriterionanddoesnotensure

thesmoothimplementationofaproject;andthelistofpoorlychosencriteriamightcontinue.Therules

usedforassessingthebestproposalmustbeclearand,whenneeded,interpretationsmustbeprovided.

The documents of the tender dossier (technical specifications, terms of reference) must be clear,

conciseand fair.Thecontractattached to the tenderdossiershouldbeequilibrated,andnotused to

discouragetheparticipantsinthepublicprocurementprocess.

Furthermore, it appears that interpretations quite differ in function of the institutions in charge of

verifying the regularity of procurement procedures, either during the tender procedure or expost.

There isthereforeaneedto issuetailoredguidelinesaboutthe interpretationofthe legislation,tobe

clearedwiththerelevantauthorities.Furthermore,acooperationmechanismshouldbeputinplacein

ordertodefinecommonpositions;thisshould involveANRMAP,UCVAP,CNSCaswellastheCourtof

Accounts/AuditAuthority.

The funds available under the technical assistance priority axis may very well be used for the

preparationoftheabovementionedstandardsetofprocurementdocuments.

Inadditiontotheabovesolution,anincreaseofstaffmightbetakenintoconsiderationbytheNational

Council for Solving Complaints, as a supplementary tool for increasing the speed of the public

procurementprocess.

It is to be pointed out that Romania is not the only country experiencing difficulties with public

procurementinthecontextofEUfunds.Asimilarsituationwasexperienced inGreece,where inorder

to improve the implementation of EU funds related to transport infrastructure, the following actions

wereundertakenduringtheprogrammingperiod2000200614:

- Preparation and implementation of technical specifications plan, for all projects categories,

undertheresponsibilityoftheministryinchargeofpublicworks,

- Preparationand implementationofstandard tenderdocuments, fordesign,constructionsand

consultancyservices.

- Revisionofthedetailedconstructionpricelistsandstatisticalmonitoringoftherelevantmarket

prices,undertheresponsibilityoftheministryinchargeofpublicworks.

Themainrecommendationsasregardstenderingaretherefore:

14MidTerm Evaluation Report, Managing Authority of the Operational Programme 'Railways, Airports, Public

Transport',3rdCSF,Greece


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- Definestandardsetofdocumentsandevaluationcriteria,

- Streamlineinterpretationsandguidelines,

- Definecooperationmechanismbetweenauthorities.

6.5Contractmanagement

Therecentyearshaveseenamultiplicationofcontractualdisputes,uptocontracttermination,leading

tocostlyandtimeconsumingarbitrationprocedures.Atthesametime,thereisatendencytomultiply

penaltiestobeappliedtocontractorsforvariousnonobservancesofthecontractualprovisions.Rather

than defining a partnership, oriented towards delivery of works or services, contracts appear to be

drivenbypenaltiesandclaims.

Thisprocessshouldbeput in theperspectiveofsignificant risksbeing takenbytheEmployers, linked

with insufficient project preparation as well as of very heavy contract management procedures,

preventing efficient and timely decisionmaking. The best way toavoid disputes isnot to restrict the

contractorrighttoclaimbuttoensurethatrisksareidentifiedandproperlymitigated.

Therefore, there isastrongneed to improvecontractmanagement,with transparentproceduresbut

also with a view to avoid disputes that are detrimental to the project itself. Typically, contract

terminationmightbenecessaryatapointintime.Ithowevertriggersconsiderabledelaysintheproject

implementation(assessmentofworksperformed,preparationofupdateddesigndocuments,launchof

newtenders)aswellassignificantrisksofadditionalcosts.

Aparticulardifficulty is linkedwith thecapacityofnegotiationand finding reasonablesettlements. In

practice, it is difficult to mobilise public funds as a result of settlements and the legal value of a

reasonablesolution isconsideredasvery low.Onlyafinalcourtdecisionorarbitrationsentencewill

be considered as having sufficient value to be actually implemented. This implies that, rather than

attempting to find a quick and reasonable settlement, public managers will prefer waiting for a finalcourtdecision.Thispresentstwomajordrawbacks:

- disputesettlementisnormallymuchlessexpensiveifsettlementcomesatanearlystage,

- leavingdisputesunsettledforalongperiodoftimeisextremelydetrimentaltotheproject.

For the reasonsdescribedabove, thedispute resolutionmechanismsdeveloped in theFidiccontracts

have proved inefficient in the Romanian context. In particular, Dispute Adjudication Board decisions

haveusuallynotbeenimplementedbytheEmployers.

A significant effort should be made to remedy this situation. This implies development of related

proceduresaswellassignificanttraininginclaimssolutiontechniques.Suchproceduresshouldalsobe

harmonisedwiththerequirementsofcontrolauthorities.

Anotherimportantissuelinkedwithcontractmanagementistheoneofqualitycontrol.Formostworks

contracts,aconsultant ishiredassupervisororFidicengineer. It ishowevertobenotedthattherole

andpowersofsuchengineertendstobelimited:contractingauthorities,ratherthandelegatingtasksto

professional supervisors, further increases their own tasks. Furthermore, the new cost standards, as

publishedbytheMinistryofTransportand Infrastructure,provide forabout1%oftheworksvalue in

ordertoremuneratesupervisingengineers,whileexperienceshowsthat3%ismoreappropriate;there

isthereforeariskofreceivingservicesofrelativelylowquality.

Themainrecommendationsinthefieldofcontractmanagementaretherefore:


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- developstandardconditionsofcontract,ensuringanadequatebalanceofresponsibilities,

- streamlineriskmanagementprocedures,

- developtrainingandhumanresources,includingwithexternalassistance,

- developdisputeresolutionprocedures,alternativetocourtorarbitration.

6.6Financialmanagement

Financial management covers several aspects with a common aim: ensure that adequate financial

resourcesareavailableinduetimetocovertheprojectimplementationneeds.

A first aspect is the elaboration of multiannual financial perspectives, including investments but also

maintenanceandprovidingthenecessarycounterparttocommitmentsmade.

Asecond,similar,aspect is linkedwiththeavailabilityofcofinancing, inthe frameworkofEU funded

projects. The Romanian State shall support 15% of the eligible costs for projects funded under the

CohesionFundand25%forprojectsfundedundertheERDF.However,cofinancingofeligiblecosts is

onlyonepartofthenecessarynationalfundingthatalsoincludesallnoneligiblecosts,suchasVAT.As

VATreimbursementsaretoolengthyandsometimesareahurdletothesuccessfulimplementationofa

project,actionshouldbetakentoaccelerateVATreimbursements.

Athirdaspectislinkedwithriskmanagement.Whenprojectsarelaunchedwithinsufficientpreparation,

theriskofcostoverrunsissignificant.Dataisscarceontheamountseffectivelydisbursedbyprojectsas

compared to the initialcontractvalues.Asamatterofexample,131millioneuro (withoutVAT)have

beenpaidforworksandservicesundertheISPAprojectforconstructionandrehabilitationofsections4

and5of theBucharestCernavodamotorway,whilethe tendervalueof theseworkswas95million

euro.Adequatemanagementofriskimpliesthatfundsareavailabletocovercostoverruns.Thismight

alsoenableontimetreatmentofclaimsasmentionedabove.InthecontextofEUfunds,costoverruns

arenormallyconsideredasnoneligibleandareoftennotbudgeted.An interestingexperience in thisrespect has been made under ISPA with the approval of a reserve fund, through the approval of

GovernmentEmergencyOrdinanceno.135/2007.Thisreservehasenabledtoprovidefundingfornon

eligiblecostsandhasboostedtheimplementationoftheISPAprojects.

A fourth aspect is linked with the payment mechanisms.The objective of ensuring a highabsorption

level leads towards the need to build a cashrich system, under which payments are made in a

relativelyshortperiod.Thisrequiresprefinancing,atalllevels,aswellasshortpaymentperiods,atall

levels starting with the works contracts. The tendency is however for Employers to impose long

paymentperiods,topreventthemselvesagainstcashshortage.

It isalsorecalledthatEU fundshavetightdeadlines:beyond thegeneraldeadlineofeligibilitybyend

2015,theN+3/N+2ruletriggersintermediatedeadlines,towhichgivenamountsofmoneyneedtobe

presented to the European Commission for reimbursement. From this point of view, the adoption in

2010ofamodificationtoGovernmentDecisionno.264/2003regulatingadvancepayments,thatallows

multiannualadvancepaymentsforcontractsfundedundertheSOPT,isastepintherightdirection.

Similarly, the process of verification and certification of expenses, up to submission of statements of

expenditurestotheEuropeanCommission,shallbestreamlinedinordertoensurethattheoveralltime

elapsedbetweenpaymenttocontractorsandreimbursementby theCommissionservices iskepttoa

minimum. The experience of other EU countries shows that observing the N+3 / N+2 rule can be


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sometimesassimilatedtoaracetowardseligibleexpenditures,inwhichpaymentsaremadeassoonas

possibleandverification/certificationareperformedinrecordtimes.Thismightentailtheadoptionof

verificationmechanismsbasedonriskanalysisratherthanon100%control.

Themainrecommendationsasregardsfinancialmanagementarethefollowing:

- Ensurethatfunds(andrequestsforfunds)flowatanacceleratedpace,withoutbottlenecks,

- Adoptriskbasedapproachesratherthan100%controls,

- Ensurefundingsourcesfornoneligiblecosts,

- Whererelevant,accelerateVATreimbursements.

7. LegislativeaspectsAsa general rule, legislative modifications arenot necessarily the solution to compensate for lackof

planninganddeficientmanagement.Ashighlightedabove,themaindifficultiesdonotlieinthelackof

adequate legislation but rather in insufficient project preparation, heavy bureaucratic procedures,

difficultdecisionmakingandlackoffinancialflexibility.

Legalmodificationsmightevenhavecountereffectsifthelawsandregulationsaremodifiedtoooften,creatinguncertaintyandpossiblyconfusion.For instance, it isdifficulttoevaluatewhetherthevarious

changes made to Government Emergency Ordinance no. 34 / 2006 on public procurement have

produced or not positive effects, since 10 series of modifications have been effected from its initial

publicationtodate.

The adoption by end 2010 of law no. 225 / 2010, meant to simplify land acquisition, is certainly a

positive aspect, especially since it should enable to launch land acquisition from the completion of

feasibilitystudies(oncealignmentisdefined),ratherthanonthebasisofafullydetaileddesignaswas

thecasewiththepreviouslaw.

Some

proposals

should

however

be

mentioned,

that

would

simplify

projects

preparation

and

implementation.

One issue affecting the implementation of transport projects is that of utility networks, that are not

clearlyidentifiedandinventoried.Thisresultsintonetworksbeingoftendiscoveredduringtheworks,

triggeringdelaysandcostsfortheirprotectionand/orrelocation.Furthermore,eachtypeofutility is

usuallyregulatedunderaspecialsetof lawsandrules(forelectricity,gas,water,etc).There isaneed

for simplification of this legal set up but also to make network managers responsible for the proper

managementoftheirnetworks.Thisshallincludeacorrectanddetailedidentificationofthenetworksat

design stages as well as clear rules regarding protection or relocation. Responsibility implies that

networkmanagersshouldsupporttherelatedcostswhenutilitynetworkswerenotidentifiedatdesign

stagebutonlyduringtheperformanceofworks.

As already mentioned, the Government Decision no. 264 / 2003 provides for a large number of

derogationsfromtheruleofannualityofthebudgetandthereforeofadvancespaidfrompublicfunds.

The d

Documents

EU Funds for Infrastructure 3