I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Romania - at the threshold of accession Infrastructure development Environmental workshop

I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A

Romania - at the threshold of accession

• Infrastructure development

• Environmental workshop

– Stephen Pritchard part of UK twinning team


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


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


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


II. Why are structural funds important?

• Improve EU & National Competitiveness

• Meet challenge of globalisation

• Convergence with other MS - meet the obligations of the acquis


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)


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


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


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


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


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.


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?


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


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.


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,.


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.


Absorption capacity

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


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


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


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


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%


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


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


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


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!

Documents

I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Romania - at the threshold of accession Infrastructure development Environmental workshop