CEU eTD Collection Addressing StructuralFunds’absorptionchallenges: In partial fulfilment ofthe requirements for the degree of Master in Public Policy the caseofRomania’sbottleneck Supervisor: Professor Martin Kahanec Department ofPublic Policy Central European University Budapest, Hungary Submitted to Ildikó Szabó 2011 By CEU eTD Collection Abstract Key words: Cohesion Policy, Structural Funds, Absorption, Transport Infrastructure, Romania implications. guide very specific policy shortcomingsto that should beaddressed. In this way, the paper provides a the research includes the analysis of Romania’spolicy poor absorption rate and concludes by pointing at between EU countries, highlighting the centrality of absorption as a measuring indicator. The networksdisparities development in reducing importance their and function SF way the examines ownership constitute the major obstacles to Romania’sinvolved successful absorption of SF. The paper land of uncertainty the and system register land inadequate laws,the ill designed capacity, transportwith infrastructure. In doing so, it advances the argument that poor administrative for Funds EUStructural the absorb improving to hasfailed Romania why toexplain seeks paper This Romania’s use of SF and its i CEU eTD Collection and personal development possible. Service Reform Initiative, OSI Budapest which institution made my studies, thus my academic Last but not least, I would like to express my gratitudehis life guidance and steadfast encouragement throughout thisto one year. the Local Governmentfor Management of College Budapest the from Csanády Dániel Professor to grateful very am and Public Tóth from the Academic Writing Centre for their valuable feedback, comments and support. I I give myspecial thanks to mythesis supervisor, Professor Martin Kahanec and to Ágnes encouraged me during my master studies, and the completion ofthis paper. department colleagues, alumni and friends) who in one way or another contributed and been possible without the guidance and thesupport of several individuals (professors, This thesis and my graduation from the Central European University (CEU) would not have Acknowledgements ii CEU eTD Collection Bibliography...... 33 Appendix...... 32 ...... 30 AND CONCLUSION POLICY RECOMMENDATIONS is CHAPTER 3- Spending challenging: thecase ofRomania...... 20 12 CHAPTER 2-Theory and practice: absorption capacity...... 3 CHAPTER 1-Framingthediscussion: EUpolicy Cohesion INTRODUCTION...... 1 List ofAbbreviations...... v ...... iv Tables andFigures iii ...... Table ofcontents ii Acknowledgements...... i ...... Abstract contents Table of ..Ucmitder ilosi h rnpr etradisepaain ...... 23 3.3. Uncommitted euro billions in thetransport sectorand itsexplanations ...... 22 3.2. Importance of infrastructure development inRomania 3.1. Briefoverviewof the Romanian Cohesion Policy...... 20 2.4. and Modes levels ofanalysis...... 18 2.3. performance Absorption ofthe new member states...... 16 2.2. Whydoabsorption problems appear?...... 13 2.1. Whatisabsorption andwhy does it matter?...... 12 ...... 10 deals1.4. with money? Who the Institutions and responsibilities 1.3. StructuralFunds and key financial regulations...... 8 ...... 5 1.2. Principlesand Objectives ...... 3 1.1. Briefhistory of theEuropean Cohesion Policy iii CEU eTD Collection Table 3.Date of approval OPs and first call of application inRomania...... 26 Table 2. Financial allocation and absorption ratios by OPs in Romania (2007-2013)...... 22 Figure 2.EUSFs’ absorptionrate in the first two years ofEU membership...... 18 Table 1.Contracted and absorption ratios among NMS...... 17 Figure ...... 9 1.Objectives andfinancial instruments of EU SFs (2007-2013, EU27) Box 2.Objectives ...... 7 of the EU Cohesion Policy 2007-2013 1. Box Basic principles oftheEUCohesionPolicy...... 6 Tables andFigures iv CEU eTD Collection ito Abbreviations List of TEU - The Treaty on European Union NSRF - National Strategic Reference Framework SOPT ENV - Sectoral Operational Programme Environment SOPT- Sectoral Operational Programme Transport SOP- Sectoral Operational Programme SF - Structural Funds OP- Operational Programme ONCGC - The National Agency of Cadastre and Land Registration NMS – New Member State NGO - Non-Governmental Organization MS – Member State MC – Monitoring Committee MA- Managing Authority ISPA - Instrument for Structural Policies for Pre-Accession IB- Intermediate Body EU- European Union ESF – European Social Fund ERDF – European Regional Development Fund Commission European EC- CoR - Committee of the Regions CF – Cohesion Fund CEEC- Central Eastern European Country CA -Certifying Authority AA - Audit Authority v CEU eTD Collection INTRODUCTION networks involved with improving Romania’s use of SF and its implications. shortcomings that should beaddressed. In this way, the paper provides a guide to the policy specific institutional arrangements and actors involved, and highlights very concrete policy capacities at administrative inadequate of because that argues paper This the SF? absorb Romania cannot Why national level. However,does not have the capacity to absorb them. it goes it because use SF cannot Romania argued that itcanbe sense, Inthis Union. the by furtherprovided in the senseabsorption that it pointsratessynthesizes or encompasses (implicitlyofout or explicitly) the aforementionedSF, factors is thethat of low which refershistorical, political and economic nature could bementioned here. However, theto indicator that the capacitytremendous amount offinancial support in the expected way. Why? Many explanationsto of make use Nonetheless,of after several years of cooperation,this Romania still has not been able touse the investment capitalenvironment interventions among the newly accessed EU countries of 2004 and 2007. country that has received one of the highest shares of SF dedicated to transport and Cohesion Policy.(SOP ENV) receives about half of the total budget allocated to theObjectives of the In addition,Programme Transport (SOPT) together with Sectoral Operational Programme Environment the Operational Sectoral The 2007-2013. Framework Reference Strategic poor National its formulating infrastructurereflected in the fact that Romania gave high priority to infrastructure development when is reflectedThe importance of market expansion and the strategic geographic position of the country are by the factEuropean funds. that needs itas Romania asmuch needsRomania trade foreign Europe’s East. Middle the iseventually the and Balkans the Turkey, Greece, countries, Sea the Black to access itprovides expansion: this member of the Union can be understood. Romania – plays a strategic role in Europe’s Europe’s expansion. Thereof the amount of patience and capital that the EU has invested in in abottleneck represents still Romania that factremains the and aid, value-free isno There least developed neighbours, Europe is also helping herself. consolidation as a united and competitive actor in the international economy. By helping the developed ones.At thesame time, these funds have also played akey in role Europe’s important role in helping less developed European Member States to catch up with the more The Structural Funds (SF) of the European Union (EU) have undoubtedly played an 1 CEU eTD Collection limitations. implications of the analysis, provides some policy recommendations and presents its with a special attention to the worst performing OP. The paper concludes with the countries. The third chapter examines the reasons behind Romania’s low absorption capacity provides the reader with aninternational outlook about the absorption capacity of other CEE it and research the of framework theoretical the outlines chapter second The instruments. European Cohesion Policy by looking at its overall purpose, particular objectives and financial The paper is structured as follows. The first chapter provides a brief historical overview of the resources more successfully. comparative analysis with theOperational Programmes (OPs) that could absorb the available infrastructure development programmes will be partly explained with the help ofa reasons behind Romania’s deficient absorption capacity. The poor performance of legislation and programming regulations of the Cohesion Policy, the paper will present the (EC) and the Romanian Government. Through anextensive review of primary data as well as provided by the international accounting firm KPMG as well as bythe European Commission most up-to-date statistics on theabsorption data in Central and Eastern Europe (CEE) are The analysis. document and data secondary and primary both use of will make paper The which are the related policy shortcomings that could be addressed in the short term? implementation of these policies? How could theabsorption rate be increased in Romania and and design the for is responsible Who infrastructure? environmental and transport of area the has Romania not been able to optimally seize the opportunity provided by the SF, especially in the performance of a given country in relation to the use of SF and why does it matter? Why Thus, this paper seeks to answer the following questions: What does absorption tell us about and to facilitate them to find way outs from performance deadlocks. both Romanian and European decision makers with acommon understanding of obstacles, Romanian’s capacity to seize the opportunity provided bythe SF. In short, this paper provides addressing this issue; and tocontribute to the design ofpolicies directed at improving makers with aguide of the national-level institutional arrangements and actors responsible for absorption rates of SFs, especially onthe field of transport infrastructure; to provide policy low Romania’s with related shortcomings policy main the analyse to rates; absorption of Romania in thecontext of the EU Cohesion Policy with an emphasis on the low Based on the previous discussion, this thesis has the following objectives: toexamine the case 2 CEU eTD Collection 1.1. Brief historyCohesion1.1. Brief oftheEuropean Policy policy theEUCohesion discussion: 1–Framingthe CHAPTER rural areas atdifferent levels of development (SEA, Article 130A). ThereformoftheSFs had strengthen both economic and social cohesion, and reduce thedisparities between regions and increased (Hooghe 1996:30). The nine Community Members declared to engage in actions to countries joined the EU, namely Greece, Spain and Portugal, thus regional disparities further (SEA), which camethe end of intothe 1980s forcewith the firstAn integrated Community in policyrevision of economic and social 1987.cohesion was not established until of the TreatyThe of revisionRome, the Single Europeansubsidized “at the wasexpense of poorer regions elsewhere” Act(Bache 1998:40).needed be could MS the of regions wealthy relatively that meant It due2010:230). (Allen needs regional to the fact thatpolicies (1996:32), rather than allocated according to a comparativenew evaluation ofparticular based on a quota demanded by governments in order to co-finance their national regional Policy (Hooghe 1996:29). In theearly days, resources were distributed to the member states that brought about a considerable progress towards the establishment of a European Regional Denmark, Irelandregions” (Preamble, The Treaty andof Rome). With the first enlargement by the accessionthe of United less favoured the of backwardness andthe regions various the between existing differences Kingdom (1973), the reducing “by 2007:78-79) in Callanan (Brennan development” “harmonious and regional disparitiesof a regional policy in thesix founding members, yet it stated the need for their greater unity widenedThe 1957 Treaty of Rome did notincludeextensively an explicit provision oflegal and financial support financial and political factors throughout the last few decades. general processes which brought about its current state which was affected by economic, order to understand the allocation mechanism behind this policy, it is crucial to outline the In 2010:230). (Allen Union the of policy redistributive clearly only the represents SF (MS). reducing the gap in the level of development among different regions of the Member States Cohesion Policy aims at strengthening economic and social cohesion within theEU by institutions involved in their management. also presents the SF and their financial rules, and concludes with the examination of the the EU Cohesion Policy as well as theguiding principles and objectives of the policy field. It To start with, this chapter will first provide a brief historical overview on the development of 3 CEU eTD Collection 2 1 The EU cohesion expenditure was €233bn during the period 2000-2006 (EC DG Regional See http://ec.europa.eu/financial_perspective/questions/index_en.htm Policy) the increasing concentration of structural aid (bydecreasing the number of priority objectives approved by the European Council in 1999. Themain aspirations behind the reform included package for the period 2000-2006 (Manzella and Mendez 2009:16) Mendez and (Manzella 2000-2006 period the for package more difficult economic situation, the share of funding remained stable in thenew budgetary the to due Thus, 2010:93). (Sosvilla-Rivero GDP its in increase a 5% only EU, however the 2009:16). The accession ofthe Eastern bloc envisioned a 20% increase in thepopulation of pressures related to the introduction ofthe new common currency (Manzella and Mendez the EU), the increasing concern with unemployment and the strict fiscal consolidation enlargement (although it was undecided when and how many new member states were to join The next structural policy reform (Agenda 2000) reflected theforthcoming Eastern European budgetary period 1993-1999 (Medak 2003:34), in the so-called Delors II package. increased by the Commission again significantly, reaching the ECU 177 billion forthe effective implementation oftherevised Treaty,the size ofthestructural funds hasbeen representation of the European regions. In order to meet the additional objectives and Committee of the Regions (CoR) was established, which plays an important role in the direct them in fulfilling the convergence criteria (Manzella and Mendez 2009:15). In addition, the the less developed Member State (back than Greece, Ireland, Portugal and Spain) and support instrument, the Cohesion Fund with the main purpose to co-finance infrastructure projects in a key EU objective. Another important development was the establishment of a new financial reinforcement of the priority attached to economic and social cohesion through assigning itas integration bythe establishment of the Economic and Monetary Union (EMU) andby the November 1993). The revision of the Treaty of Rome represented a new era in European EuropeanFollowing the 1988 reform, the nextUnion milestone in the EU Cohesion Policy was The Treaty on (TEU) signed in Maastricht in February 1992 (it came into force in framework of the EU with the main focus on the establishment of the Internal Market Rivero 2010:92) in theso-called Delors-I package deal, which was the first financial (Sosvilla- 1989-1993 period the during resources annual the doubled which Funds, Structural effective way (Bache 1998:41). In1988, the European Council allocated ECU 64 billion to the Guidance Fund (EAGGF) with the main purpose to coordinate their activities in amore (ERDF), the European Social Fund (ESF) and the European Agriculture Guarantee and a stronger regional focus, and brought together the European Regional Development Fund 2 . The new regulation was regulation new . The 1 . 4 CEU eTD Collection 3 1.2. PrinciplesandObjectives Based on the Kok Report 2004 among regions and challenged the objective of convergence within the Union. Bulgaria, which as mentioned above significantly increased the gap in the level of development fact that 10 newreform of Cohesion Policy for themember prevailing financial framework 2007-2013 was led by the statesinstitutional role of the CoR was further strengthenedjoined (Kramer 2010:7-8). The most recent the TheEU followedgeneral subsidiarity by2007/C 306/47), althoughthe itdid not provide any specific working definitionaccession to the concept. principlethe EU besides economic and social cohesionof (Official Journal of the EuropeanRomania Unionwas also extendedandcompetence between the Union and the Member States and one of the policy objectives of to the regionalregarding and localequivalent legislator withlevel the Council in the preparation, negotiationSFs and implementation and the(KramerDecember 2010). Themostimportant changes were thatthe European Parliament becamean 2010:5).The last amendment oftheTEU, the Treaty ofLisbon cameabout in2007 (effective since In addition,2008:5). (Heichlinger shouldit declared be focused Commission the of 2005 revision tothe according simplified: be to needed targets to deliver ‘territorial a stronger,2008:5). As years have passed the Lisbon Strategy proved to bea very ambitious plan, thus its lastingclosely growth cohesion’ linked and toto createthemost competitive economy in the worldstructural and achieving full employment by 2010” and moreis as and funding a betterLisbonshared as jobsa meansStrategy to achieveIn the history of Cohesion Policy, another importantwas programme should be mentioned.its The launched primary goals in (HeichlingerMarchmonitoring and reporting requirements (Manzella2000, and Mendez 2009:17). whichsimplification ofthe programming documentsset and in turn, the reinforcement of the the targetand community initiatives), the growing decentralizationof in the policy implementation,“making the the EU the main principles are presented in Box 1 below. the ground of the main Objectives of the current programming period 2007-2013. The four Therefore, this section will present the fundamental principles of the Policy which provides principles. governing its understanding without discussed be cannot Policy Cohesion 3 , efforts 5 CEU eTD Collection finally, sustainable development (EC 1083/2006, Ch.4). shared management, the equality between men and women and non-discrimination and principles, namely the territorial level of implementation, the proportional intervention, the more five down lays 1083/2006”) “EC hereinafter 2006, 11July of No1083/2006 (EC) programming periods. Currently the general Cohesion Policy regulation (Council Regulation The above-mentioned basic principles have been complemented throughout the new engaulyrdcd ec h ereo ocnrto a enincreased been the have has Over concentration objectives of enlargement. funds degree 1995 the structural (Allen 2010:239). the hence of reduced, with number gradually of Cohesion six the been to of periods, criteria programming increased Objectives which economical sequential the defined and been objectives[1] under major five programminghave programmes period, geographical first the In national 2003:30). certain (Medak Policy funding introduced for structural of also need eligibility greatest in It are thus developed, less support. are which EU the of regions h anojcie,pirte n taei epnefraheigte,and them, achieving for response strategic identifies and regions, its priorities and country objectives, the the of main describes priorities. challenges regional (NSRF) the and and Framework situation national Reference on economic Strategic based current MSs National case-by-case the so-called subsidizing by The than submitted rather are plans which development projects multi-annual to according n rgamn eidt nte WrdBn 069.Ms fteEU the of Most from 2006:9). terms that real Bank in one (World spending to but 3. structural another required rate. is national pre-determined expenditure, to ona co-financing MS of national require programmes period the public level Therefore programming same national the 2007:300). one (Bourne least substitute it at to to uphold adds used and simply complements authorities”, not public is civil representing other body and appropriate and 2. other revised urban “any was and local, society” partners” it (Council Regulation social (EC) years No regional, 1083/2006, Art. 11). and the “economic “competent During monitoring to and 2007:300). the (Bourne and extended implementation programmes regions preparation, the national the that in of required involved partnership become Commission followed, that periods programming 4. 2003:29). (Medak SFs provided of the impacts foreseeable onthe indicators specific provides 1. Additionality: Concentration: Partnership: Programming: Box 1Basicprinciplesof the EU CohesionPolicy fiilyitoue n18 u ute teghndi the in strengthened further but 1988 in introduced officially hspicpewsitoue oesr htsrcua assistance structural that ensure to introduced was principle this hspicpeptfradtecnetaino ud nthose in funds of concentration the forward put principle this rm18 h Csatdt iac h einlpolicy regional the finance to started EC the 1988 From 6 CEU eTD Collection Accession). Programme forAgriculture andRuralDevelopment) ISPA (Instrumentand the for Structural Policies forPre- 4 The PHARE (Pologne, Hongrie Aide a la Reconstruction économique), the SAPARD (Special Accession most relevant for the purpose of this research. environmental infrastructure), the experiences of the implementation ofISPA projects are the Romania (ESPON 2008:9). Due to the main fields of intervention (transport and candidate countries: around one-fourth of the total budget of these funds was allocated to European Eastern and Central among highest second were the aid instruments accession available instruments financial main three were 2006, there financial impetus in order to be ready to effectively handle future SF. In the period of 2000- already eligible forpre-accession funds, which provided Romania as a candidate countrywith framework, the ObjectivesAs Romania joined the EU only at the beginning of the current multi-annual financial of 2000-2006 did not apply to the country. Nevertheless, it was USII1 ein hthv nenl eti xenlo aiiebres(r.7 ..The 1.). 7, (Art. borders maritime or external certain third internal, objective have has the that lowest allocation: regions 2, 5% of the III[1] total funding (Art.NUTS 20). for funds provides common cohesion policy The promoting 2c). neighbouring authorities 3, solutions (Art. for and experience exchanging by cooperation interregional border, Third,the‘ 20). (Art. support financial the total % of 16 to amount objective the improvement of the accessibility of workers (Art. 3, 2b). The resources dedicatedto this ‘ the states, Regulation Council 2006 the as First, mlyettruhicesn h ult fivsmn nhmncptl noainand innovation capital, human in investment of competitiveness quality and their the foster increasing to objective through first employment the the of outside thus objective, regions this the support for 5). available ‘ (Art. made the average were Community resources 19). (Art. Second, the resources the financial among of concerns weight highest of the has 75% It objective the than convergence % 2a). less of 3, is 5 capita (Art. and 81, per efficiency” Around innovation GDP administrative whose of and and regions protection those environment, development the the changes, the social of and capital, improvement economic human of to quality adaptability society, and the knowledge of physical improvement in and increasing the investment for through conditions employment improving and “by growth regions and states member least-developed supporting uoentrioilcooperation territorial European Box 2 Objectives of the EU Cohesion Policy 2007-2013 einlcmeiieesademployment and competitiveness Regional Source: EC 1083/2006 EC betv sitne oecuaecross- encourage to intended is objective ’ Convergence 4 . The country’ share from the pre- betv a eindto designed was objective ’ betv ie at aimed objective ’ 7 CEU eTD Collection Fisheries Fund (EFF) (Horvath 2005:460), theyet European and this (EAFRD) paper Development will forRegional Fund not Agriculture elaboratethe European period, on theprogramming last two. 5 1.3. Structural Fundsand keyfinancialregulations There are two more important instruments related to the regional policy which has been restructured in the recent labour market (Art. 2). supporting national policies and promotes financial assistance to help integration into the and job opportunities, promotes a high level of employment in the member states by the European Parliament and of the Council of 5 July 2006: it aims to enhance employment Cohesion Policy. The main task of the fund is stated in theRegulation (EC) No 1081/2006 of The ESF was set upenvironment, sustainablein tourism, culture, transport and energy1958 (EC No 1080/2006 Art. 3-4). withparticularly related theto research and technological development, electronic communication,Treaty to the financingof of productive investments, providesRome support to infrastructure building and isall three Objectives of thethe Cohesion Policy (Heijmand and Koch 2011:51-52). Itcontributesoldest the ERDF isfund the most important fund of the Cohesion Policy and its supporting projects of of the EUeconomies” (Art. 2). With the budget of EUR 201 billion forthe current seven-year period, imbalances through support for the development and structural adjustment of regional of the fund is “to1080/2006 of theEuropean Parliament and of the Councilreinforce of 5 July 2006), the main purpose target throughouteconomic the programming periods. According to the last regulation (ECNo and itsmain regarding changes several through 1975 andwent in was established ERDF The social cohesion by redressing the main regional the means through which Cohesion Policy aims to reach its goals. financial instruments and rules of the EU Cohesion policy will be presented in order to clarify EC 1083/2006in laid down been have Objectives main three The 2005:460). (Horvath 2013 in 55,3% to and and areonly 22,5% of the funds were allocatedpresented to these countries, this figure grew to 44,7% in 2007 representing 35,6% of the overall budget, with a majorin shift towards the NMS: while in 2006 Box 2 alsoabove. targeted in the Lisbon strategy. The Commission allocated EUR 347 billion forPolicy In Union,the which was reflected in the new Objectives of the Cohesion Policy forfollowing 2007-2013, and The 2004 and 2007 enlargement led to an exceptionally high regional discrepancy within the paragraphs the main Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund (CF) Structural Funds refer to three main instruments, namely the European Regional 5 . 8 CEU eTD Collection 7 Malta, Poland, Slovakia, Slovenia, Bulgaria and Romania (Heijmand and Koch 2011:52). 6 Regulation (EU) No 539/2010 Spainon atransitional Cyprus, the Greece, basis, Portugal, CzechRepublic, Estonia, Hungary,Latvia, Lithuania, allocation among the three Objectives and the related financial instruments presented above. financial the 1 demonstrates Figure 2011:52). Koch and (Heijmand railroads of development to environmental protectioninvestment in the infrastructure of the Trans-European Transport Networks, projects related such as convergenceenergy Objective. With the budget of around EUR 70 billion, the CF supportefficiency, fund this from aid financial receive the use of renewablenot haveexcessive public deficit. Inthe current multi-annual framework, 15 member states energy and the where the per capita grossdevelop the environment and transportnational infrastructure in less prosperous regions of the EU income is The CF was legallylower established in the1992 Maastricht Treaty withthan the main purpose to 90% of the EU 27 average and do Romania), the easing of the ‘n+2’ rule for the old MS and other simplifications of rules advance payments to deal with cash flow problems in some of the member states (including the funding on the economy” (COD/2009/0107). The main changes concerned additional policy, “to help toaccelerate investments in the member statesand toincrease the impact of amendment was approved by the Council in order to further simplify the rules governing the within three years from the year of commitment. In June 2010, a new proposal for financed by structural funds can bede-committed by the Commission if it has not been used “de-commitment rule” of the EU, means that the budgetary allocation toprogrammes tothe referred also regulation, latter The Portugal. and Greece for aswell states member financial rule the hashighest level of co-financing for the funds beenhas been increased from 80% to85% and the easedflexible, more became practices and regulations certain 2007-2013 for thus from enlargement, 2004 ‘n+2’ to ‘n+3’This (Cace huge etamount al. 2009:11)of money proved for tothe be twelvedifficult new to spend on time in many NMS of the Figure 1Objectives and financialinstruments of EU SFs(2007-2013, EU27) Source: KPMG (2008:7) KPMG Source: 6 . It finances project which fall under the scope of the 7 . 9 CEU eTD Collection 9 8 1.4. Whodealswiththe money?Institutionsand responsibilities Regional and local authorities as well as economic and social partners (EC No 1083/2006 National Strategic Art. 11) Reference Framework (NSRF) (1083/2006 Art. 58b). Art. (1083/2006 between the authorities of the management and control system of operational programmes principle, the Council Regulation requires a clear separation of functions both within and general a As (2005:6). requirements monitoring the regarding guaranteed be will principle execution and control, how the national co-financing will be secured and how the partnership the management of SFs, who will be in charge of the implementation of OPs, financial decision about issues such as which state agency (or ministry) will undertake theleading role in the Policy.which should bedesignated and set up by the MSs for the management and control system of As Horvat2013. Thereare three key authorities partly regulated by the before-mentioned legislation (2005)authorities which take part in the implementation of the Cohesion Policy between 2007 and explains,As pointed out before, the EC1083/2006 provides the basic guideline ofthe function of the each member state’s government has to make a the relevant partners and the Operational Programmes (OPs) on the basis of the available funds in partnership with (Darmer 2000:249). In the next stage, the MS prepares a national development programme each MS, and it allocates the funds for the priority objectives of the programming period of proposal the on based areas and regions eligible the assigns latter The Commission. the field), concerning the Policy is designed by the European Council based on the proposal of (Darmer 2000:249). The general regulation (such as the overall budget allocated to the policy on asystem ofshared responsibilities between the EC, the MS and the regional orlocal level To start with a broader picture, the administration of the SF is arranged in partnership based 1083/2006) under the general principles of management, monitoring and control systems. in the supervision and implementation processes are specified in the Regulation (EC functions are principles. The basic institutional set-up andthe main functions of these bodies institutional perspective, partnership, shared management, transparency and the separation of Nevertheless, the general principles of Cohesion Policy should be taken into account. From an (2002:180). regard this in solutions institutional of variety a great is there thus regulation, each country’s government freely decides about its own public administration structure and public administration of the MS. The lack of administrative criterion in the As Dimitrova (2002) states, no EU treaty provisions exist with regard to the design of the 9 . The implementation of the OPs is the responsibility of the MS. acquis implies that 10 8 CEU eTD Collection regulation itself. regulation complex institutional structure handling EU funds than it could beconcluded from the EU government decrees. Thus, depending on the national legislation, MS have amuch more by assigned agencies state often are assistance structural of beneficiaries The departments. responsibilities of SFs related tasks toother organizations, bodies, committees and the national legal system and practice. Yet, this regulation does not exclude the delegation of the management and control of EU funds, and regulate these organizations accommodated to To sum up, itis the responsibility of the MS to designate therequired institutional system for ‘first-level’ to the ‘second level’ IBs (NEI 2002:15). often in a ‘multi-tier’ implementation system in which functions are further delegated from the tasks are delegated to the IBs. This role can beassigned to Ministries and its departments, too, 59). AlthoughMAs remain present in thecourse of implementation, nevertheless, important These public orprivate bodies are designated and work under the supervision ofthe MA (Art. Intermediate bodies (IB) the operational programme (Art. 65). are in charge of periodic reviews related to the progress in theachievement ofmain targets of effectiveness and quality of the implementation of the operational programme” (Art. 65). MCs the asto itself is to“satisfy function its main and MAs the relevant with agreement A functioning of the management and control system of the operational programme” (Art. 62). 59). Its main functions are toensure that regular “audits arecarried out toverify the effective The expenditure statements and payment applications to the Commission (Art. 59). certify isto CA the of role main The 2000-2006. period previous the of Authority Paying the Certifying Authority managing body (Barca 2009:73). 2009:92). Project generation, appraisal and selection also belong to the responsibility of the and grants), thecriteria to fund projects and the process of delivering the funds (Mizell programme (Article 59-60). They decide on the funding allocations, instruments (such as loans at national, regional or local level) for managing and implementing each operational Authorities Managing Monitoring Committee Audit Authority (AA) is independent from both MAs and CAs (EC 1083/2006 Article 1083/2006 (EC CAs and MAs both from is independent (AA) (CA) was introduced for the current multi-annual framework replacing (MA) are responsible institutions (public/private authorities or bodies (MC) is also set up for each or several operational programme in programme operational several or each up for is alsoset (MC) play a crucial role in theimplementation of the Cohesion Policy. 11 CEU eTD Collection 2.1. What is absorption and why does it matter? capacity absorption practice: 2–Theoryand CHAPTER or region to deliver and implement Operational Programs is not perfect” (Kálmám 2002:32). reach 100% of its target values, which means that “the administrative capability of a country explanation, absorption problem occurs when the fund recipient region does not succeed to investment in a given fiscal year” (Kálmán 2002:34). According to Kálmán’s (2002) defined by the EU as “the inabilityEuropean funds within the assigned timeframe”of (Mota et al.recipient 2010:6). Absorption problems are countries governmentsto are able toeffectivelyspend and efficiently spend the financial allresources allocated via the available fundsThe capacity to absorb EU funds representsfor the extent to which “national and regional with? capacity problemduring the early post-accession according period revealed that many of them had to tackle absorption to their(2009)as well as Knezevic (2010) point out that the experience of the new EU MSs, especiallylow absorptionand procedures and release corresponding national funds (2003:12-16).ratios. Mrak and Horvat ButEU funds’, which involved thewhat precondition that member states establish the rightdoes institutions one actuallyas a composition offour things, one of them being the ability of‘maximizing absorption of deal reached (2003:12). Therefore, he offers a different approach and defines effective membership the benefits from that membership, as it is hard to know whether that maximum level is being author argues that being an effective member of the community is not only about maximizing Nicolaides (2003) with regard to thecandidate countries who wished to join theEU. The “effective membership”. The concept of “effective membership” was introduced by management and administration style. In this sense, absorption is part of what can be called newly accepted country can “absorb” not only European funds but also, the European process, an operational concept that helps to measure thedegree to which acandidate or accession. is Absorption an indicatortypically used in thecontext oftheEUintegration The concept ofabsorption should be understood within thewider framework of EU levels of analysis will be presented. Central Eastern European MS, placing Romania in a broader context. Finally, the possible thesis. Itwill give anoverview of the latest contracted and payment ratios of SF among the The following chapter will clarify the definition ofabsorption and other concepts used in this 12 CEU eTD Collection (2009:142). different stages of the policy implementation e.g. in the programming, fund allocation and payment procedures10 2.2. Why do absorption problems appear? This goes in line with Zaman et al. (2009) argument. The authors describe absorption as a process that prevails in arises due to different forms of government failures. The author suggests three main reasons main three suggests author The failures. government of forms different dueto arises According to the approach of Reszket managing authority can refuse the payment, hence, lowering the payment ratio (2009:12). to comply with the requirements of the programme funding throughout the project, the dependent variables. The overall process also depends on thedemand side. If beneficiaries fail (2009:11). Inthe understanding of the author, managing authorities are not the only prompt project evaluation and well-timed financial transfers to the grant scheme beneficiaries information about the cohesion funding (publicity), the availability of application guidelines, highly depends on the performance ofthe managing authority i.e. theaccessible and coherent of the funds on regional convergence (2010:6). absorption capacity leads to more favorable implementation records, thus to ahigher impact Indeed, Mota et al. (2010) also points out the main underlying assumption that higher does not have to deal with absorption problems (2002:32). positive macroeconomic effects ofSF can beachieved evento abroaderextent if the country an output oriented approach (developed by Herve and Holzmann 1998), which states that, the different sources as well which can hinder the economy from the optimal growth referring to economic, social and territorial cohesion. She concludes that absorption problems can have the previous input-oriented definition is overlooking the effects of SFs on the basic goal of The same author emphasizes that there is an important factor which one should keep in mind: whole process untilal. (2009) describes, absorption is related to the general frameworkthe and goes through the end of themanaging authorities and the beneficiariesproject out of the whole budget. However, as Tomescu et (2009:11)contracting represents how much financial allocation has been agreed upon between the budget of that period (KPMG 2010:7). Just like inany other kind of financial agreement, contracted ratio is calculated as the amount of actual contracted grants divided by the total frame as a share of the budget available forthe entire programming period, whereas referred to as payment -often rate absorption terms, Instatistical absorption. and contracting between made be ratio - equals When discussingthe the drawdown offinancial sourcesamount provided by EU SF, a distinction should of actual paid grants in the observed time ŋ (2008), a substantial segment of absorption problems 10 . Therefore, the successful absorption 13 CEU eTD Collection 11 See for example Horvat (2005:5), Knezevic (2010:19), Georgescu (2008:3) comprehensive study was carried out byHorvat (2005), who claims that “the importance of in the successfulThe role of institutions and human resources dealing with EU grants and thus their function absorption(2008:13). beneficiaries of projects,of tender-writing/consultancy/training and auditingEU companies fundsregional has beenprogramming periods, at national leveloffices, between central and local governments as well as inemphasized certain the for funds of amount highest the pursue countries when level community and finallybyagents several betweenimportantwho decision making positions allocating authorspublic transfers may beheld byrent-seeking disregard anyFinally, the ‘motivational failure’ must betaken intoconsideration, too. It suggestsgovernment that public(2008:11-12). body interest. decisions financial actual in voice no has allocation and transfer with dealing body regional the private considerably differ fromIn the one stressed by the ministries, regionalactors or local agencies;the or when casethese. There are cases when the priorities of the planninge.g. authority of the central government of directReszket (2008:11). interests conflicting and EU SF, rent-seekinglevel, which may lead tooverlapping or inconsistent competences, different policy priorities complexity of the established institutional system in theMS at national, regional and local canInstitutional failures also occur due classical principle-agents problems which arise due tothe occur at conditions of the candidate countries. institutional and administrative of improvement the targeting mainly funds accession consuming exercise (2008:10). For this reason, the EU established gradually increasing pre- procedures, well-organized as training, such measures (by efficiency bureaucratic of development exchangeimplementation. Administrative failure can beovercome only in the long run through the of number of personal) andexperience management capacity is an essential prerequisite of the policy features of public institutions. On the one hand, a well-functioning administrative (adequate and Secondly,best there are ‘institutional failures’ which arise from the structure and organizational practices),actors (2008:9), which may have an important effect on the absorption of EU funds. whichinformation asymmetry, uncertainty and complexity of information on theis side of public oftenbehind a low absorption. First, there are ‘fundamental informational failures’a caused by cost and time ŋ (2008) provides several practical examples for examples practical several provides (2008) 11 . A 14 CEU eTD Collection implementation properly (NEI 2002:2). (NEI properly implementation and reporting requirements, and to provide a proper financing and supervision as regards and share information among horizontal and vertical partners, to manage the administrative within thegiven time frame, toselect the supported programmes and project, to co-ordinate and competences of public authorities to prepare proper plans, programmes and projects The second determining factor is the 2010:52) (KPMG average 2.8% per the annualexpenditure as a consequence of their membershipGDP of the budget inthe countryincrease an involves automatically states member tothe funds EU of inflow of the yearly1083/2006, EU Annex fund,II. 7), but must whichnot go abovedetermined to each member4% states ofaccordingis theto their level GDPof economicabove development( (EC the CEEEU regulation it means that the maximum level of annual transfers from the cohesion funds is emphasized, which is definedFirst and measured of in all,terms of GDP (NEIstudies thedealing with absorption2002:2). theories. At the levelmain determinants first identifiedof in theNEI study (2002) which are often cited in other institutionalacceptable system set updemand side of EU funds, the latter bybeing “the ability by project applicants a to generate particular projects”As Šumpíková et al. (2003) points out, absorption capacity has constrainscountry on both supply and to administer(2003:2). (2005:9). policies” economic and the vs.central) funds.(federal system political the of organization capability, and capacity administrative ThereOn the are institutions, wage-setting economy, the of “structure level: three national the at a role play supply withside, the implementation absorptionlevels” (2005:9). The author does not refer merely to the institutions which are directly dealing of Cohesionabsorption problems depends mostly oninstitutional factors, bothat the EU and national Policy, capacity but more generally is to anrelated array of factors thatto the The third factor is the requirements of structural funding (NEI 2002:2). (both from the public and private sector) are able to apply due to pre-and co-financing guarantee these national contributions in multi-annual budgets”, and whether the beneficiaries applies whether the MS is able to macroeconomiccapacity absorption administrative capacity co-finance EU supported projects, whether it can “plan and financial absorption capacity financial absorption ofthe MS which refers, ( Cace 2009:16). Romania wasgranted Romania 2009:16). Cace ofthe fund receiving country is Horvat 2005:9). Thus, the Thus, 2005:9). Horvat ofthe county which inter alia inter , tothe ability 1 5 CEU eTD Collection 2.3. Absorption performance of the new member states member new the of performance Absorption 2.3. Baltic States, Latvia and Lithuania. Regarding the contracted ratio Estonia, Slovakia and the established: the best performing countries in both contracting and absorption are the two publishedThe latest available data on thecontracted and payment ratios of EU funds inin theCEECs was the KPMG Progress Reportperform in themiddle of theEUbudge-cycle. (2011).absorption ratios of SFs in CEECs. This data provides an overview on how the new MSs From The following part of this research willthe look at thelatest data concerning the contracted and report (2010:xxi). policy this the deliver toeffectively needed followingconsiderably can improved of Cohesion Policy” (2010:xxi).be The Commission observed that althoughtheir new MSs have administrativesound administration at national, regional and local levels [...] for the success and lasting effect capacityterritorial cohesionsince of the EC (2010) also drew the attention to the importancejoining of “strong and theAt the discussionEU, ofthe impact ofCohesion Policy, the lastfurther report on economic, social and efforts are (2003:2). economies recipient absorption capacities requires theconsideration of the effectiveness and efficiency ofthe supply side (Figure 3). The link that connects the well performing Cohesion Policy to the at as anendogenous variable which depends on the absorption capacity of both demand and (2003), which shows that the effective and efficient management of EU funds can be looked The arguments of the NEI study above were modeled in the research of Šumpíková et al. Figure 3 Linkage between absorption capacity and performance of EU funds Source: Šumpíková et al. (2003:3) et Šumpíková Source: 16 CEU eTD Collection can bede-committed by the EU if not spent. addressed as soon as possible, since Romania is putting at risk a huge amount of money which the attention toa serious problem in handing EU money in Romania which should be draws said above Allthe instance. for Estonia or inHungary as as much half about was only compared to other countries of the 2004 enlargement: in the first two years of membership, it cohesiondifference is still huge. In Figure 2below it can beeasilyfunds seen that theabsorption rate of another counterargumentwas here. However, if one controls for the year ofaccession, the alsohandling SF. The much lower level of economic developmentvery ofthese countries could be lowEU twoand theotherNMSs; ahalfyearslater than therefore theyhaveless experience (23.1%) the joined Bulgaria have and Romania that fact the considering surprising is not it that argue in Romaniaaverage andthecountries ofthe 2007 accession averylow with level of absorption.One can inBaltic countries as best performers, the Visegrad Groupthe together with Slovenia around the firstThese numbers post-accession let us conclude that there are three clusters of theyears NMSs in this matter: the Table 1). contracting since 2009; however, its absorption ratio is the lowest (7%) among all CEECs (see lags behind in terms of absorption as well. Romania made serious improvement in terms of contracting, Bulgaria has theSlovakia, Hungarylowest and Poland’s absorption rate is about average amongrate, CEEC. In terms of half as much as than theirthe contracted ratio wouldBaltic suggest, while Estonia performs slightly above the countriesaverage. and it seriouslymean. As regards the payment ratio, Slovenia and the Czech Republic are doing much better Czech Republic is above the average (53%), Poland, Hungary and Slovenia lie around the Czech Republic Czech Lithuania Romania Slovenia Average Hungary Slovakia Bulgaria Estonia Poland Latvia Table 1Contracted andabsorptionratios amongNMS Source: KPMG Progress Report (2010, 2011) December 2009 December 31% 23% 16% 35% 39% 23% 25% 27% 44% 41% 38% Contracted Ratio Contracted December 2010 December 53% 37% 45% 48% 51% 53% 55% 57% 60% 68% 76% December 2009 December 10% 18% 10% 12% 17% 13% 4% 2% 7% 8% 5% Absorption Ratio Absorption December 2010 December 17% 10% 27% 16% 16% 26% 17% 21% 29% 30% 7% 17 CEU eTD Collection economic and social cohesion (5th edicion issued in November 2010) by the EC 12 2.4. Modesandlevels ofanalysis Examples include the Annual Reports on implementation of SF (latest: 21st edition of 2009) and the Reports on Reports the and 2009) of edition 21st (latest: ofSF on implementation Reports Annual the include Examples thesis would not allow carrying out such an analysis even if it were limited to a certain sector. counts as a successful case in Romania. OPs still Development Resources Human the and Regional the Nevertheless, (2011:11). urban-rural development, but the other countries did notscore low in these areas either and resources human of fields the from came percentages contracted highest The assistance. case of transport, energy, economic development, public administration and technical that half of the ten intervention types performed below the average inRomania: this was the also provides a cross-country comparison for that in respect of contracting. The results show Absorption can belooked at bythe area of intervention as well. The KPMG Report (2011) properly European taxpayers’ money has been spent and how effectively on assessments ex-post and SF of effects potential the both on EC the by issued already been have and studies reports evaluation Several (2009:10). aid structural fostered, regional disparities decreased and employment reinforced as a result ofproper use of being is actually cohesion territorial and social economic, whether goals, stated its reach be examined at the level of EU public policy, andit can beasked whether the Policy is able to EU Cohesion Policycan becarriedout at threedifferent levels. Inthe broadest sense,it can which level this issue can beanalyzed. As pointed out byPerger (2009), the evaluation ofthe The aforementioned absorption theories gave an insight into the topic and let us determine at Figure 2 EU SFs’ absorption rate in the first two years of EU membership Source: International Business Promotion, Romania (2010) (Romania: 2007-2008, other countries: 2005-2006) 12 (Trón 2009:150). The scope of a master 18 CEU eTD Collection externalities on the whole policy (Trón 2009:161). negative and positive or effects over spill the calculate to able not are and 2009:159-160), reaching conclusions on the impact of the whole regional policy at an aggregated level (Trón Although they provide an accurateoverall policy goal (Perger 2009:11). picture Typically case studies belong to this group of studies. of a given project,whether they do not allow the drawing examine and projects large-scale also include outputs can assessments programme far-(2009) argues, and the Anotheroutcomes possible evaluation level would concern the specific projects themselves. As Perger of the projectimplementation of this interventions are not publiclyeffectively available. be originated to the very fact that the before mentioned ongoing evaluationand studies on the efficientlywill partly study this of limitations the Nevertheless, average. the below are ratio payment the served two specificthe areas of intervention: transport and environment, where both the contracted and the OP level, and look at the reasons behind the very low level ofabsorption in Romania, in the monitoring system also provides a constant feedback on the Policy. This thesis will target but 47-49), Article 1083/2006, No OPs (EC each of evaluation ex-post and implementation) general regulation ofthe Cohesion Policy requires ex-ante, ongoing (during the period of The 2009:11). (Perger intervention community’s the of outputs indirect or direct expected the whether theaim ofthe programmes has been achieved and whether the inputs have produced Efficiency andeffectiveness can be also assessed at level the of OPs by looking for evidences 19 CEU eTD Collection mania/chapters/chap_21_en.htm http://ec.europa.eu/enlargement/archives/enlargement_process/future_prospects/negotiations/eu10_bulgaria_ro 13 3.1. Briefoverview of theRomanianCohesion Policy thecaseofRomania 3–Spendingischallenging: CHAPTER See the exact requirements ESF and the CF (KPMG 2011:38). Inthe 2007 NSRF, the Government ofRomania identified regions areeligiblefor the‘Convergence’ Objective fromthe financial instruments ERDF, amount of EUR 23.3 billion. Due to the low level of economic development, all Romanian public contribution of around EUR 4.1 billion, thus the country is planning to spend a total EUR 19.2 billion (in 2004 prices) in Romania. This amount is complemented with the national In the current programming period 2007-2013, thefinancial allocation ofthe EU reached 2006:6). (Constantin the country for the administration of a much higher amount of financial inflow after accession requirements” of the EU to create the necessary legal and institutional framework and prepare necessities’ of the country to reduce economic and social disparities and the “external implement its National Development Plans (NDPs), which addressed both the ‘internal webpage). During the pre-accession period (2000-2006), Romania had to prepare and management budgetary and financial the least not but last and capacity, administrative and evaluation requirement); the establishment of the institutional framework and plan, theimplementation ofthe partnership principle ortheconformity with themonitoring of the NUTS regions), the programming capacity (such as the submission ofdevelopment to beadopted were the appropriate legal framework; the territorial organisation (establishment certain requirements ofthe requirements certain member of the EU. With regards to the EU Cohesion Policy, Romania had tocomply with official an became 2007 Romania 1st January on negotiation, long adecade almost After to explain the late implementation of EU funded projects. common explanatory variables of the low absorption rate of the two SOPs with the purpose and environment. This section will befollowed by an analysis which will present the most will then explain thecrucial role of the two poorly performing SOPs in thefield of transport First, it provides a synopsis of the Romanian Cohesion Policy during 2007-2013. Thepaper absorption of EU funds in general, and in thecase of infrastructure development in particular. The following chapter provides a critical analysis onwhy Romania was unable tospeed up the acquis in order to benefit from the SF. The main areas which had which areas main The SF. the from benefit to inorder 13 (EC 20 CEU eTD Collection under-the-prime-minister-s-authority__l2a112621.html 15 territorial dimension. 14 See theofficialannouncement http://www.gov.ro/authority-for-coordination-of-structural-instruments-passes- The main areas were: basic infrastructure, economic competitiveness, human capital, administrative capacity and other EU members. they constantly implement the besthave policies which they think better serves an effective useto of EU funds, but re-evaluateIndeed, each policy implementation is a learning process. Governments of the MS try totheir institutionalwhich joined structure members theother for that theis avalidargument It the institutions. of capacity’ ‘administrative EU in 2004, which thewas period some had to be theestablished from scratch. To some extent itcase explains the inadequate 2004-2006 in many member of the EU with thepurpose to handlemeant the three pre-accession funds; nevertheless, another Some of theseextra authorities and bodies have already existed before Romania became a full preparation time. Committees (MCs) were established by each OP (NSRF 2007). Authority is an associate body of the Romanian Court of Accounts. Finally, Monitoring The Certifying Authority is the Ministry of Economy and Finance for all OPs. TheAudit ofSOPT,OPACandOPTA. case Bodies, exceptinthe Intermediate tasks to are delegated are the ministries responsible for the management and implementation of the OPs. Several Office) Romania-Press of (Government Commission” European taken in order to facilitate increase in theabsorption of EU funds and is endorsed by the through EmergencyGovernment took this role from the MoF and gave the authorityOrdinance. to the Prime Minister AsFinance (MoF) with several committeesofficially at national and regional levels. In March 2011 the publishedNSRF is the Authority for Structural Instruments Coordination (ACIS) from the Ministry of (17 MarchThe responsible organization for the co-ordination2011), of the management of the Romanian “the measure wasGovernment of Romania established the following institutions in the programming document. the MS to coordinate, implement and control the interventions under their NSRF. The In line with theprinciples of subsidiarity and proportionality, it is the primary responsibility of Capacity Development and one Technical Assistance OP have been set up. Competitiveness and Human Resources Development), one Regional, one Administrative reflected in seven OPs: four sectoral (Transport, Environment, Increase of Economic the main challenges requiring long-term structural interventions 15 . The Managing Authorities 14 . These areas were then were areas . These 21 CEU eTD Collection 3.2. Importance 3.2.of infrastructure development Importance inRomania far. transport (SAR 2011:31), although noofficial announcement on that has been published so According to the‘n+3’ rule of the EU, Romania has lost about 81% of funds in thearea of weak and falls below the average in Romania. infrastructure. If we look at thecontracted ratio, the performance of these programmes is also of the funds supporting transport and 2% of those allocated to the environmental Almost four years after the launch of these programmes, Romania was only able tospend 1% and absorptionTable 2 only presentsnot the magnitude ofthese funds butalso theextremely low contracted rate in general, and in the case of the SOPT and SOP ENV in particular. programmes (see Table 2). thus almost 50% ofthe total budget was allocated to these infrastructure-oriented SOP Environment (SOP ENV). It is an important cornerstone of Romania’s development, This national development priority is supported by both the SOP Transport (SOPT) and the sewerage water, and drinking of quality poor as the well as waste inter-connectivity of lack networks, and system management, country concernsand the basic infrastructure e.g. underdeveloped road, therail, water, air transport lack of Asenvironmental emphasized in awarenessthe NSRF of (NSRFRomania 2007:4). (2007), one of the most urging challenges of the Table 2Financialallocation and absorptionratios by inOPs Romania(2007-2013) VI.Administrative OP OP Regional IV. Total VII. Technical OP Assistance Development Capacity Development Human SOP V. Resources Economic Competitiveness III. Increase SOP of Environment SOP II. I. SOP Transport SOP I. Source: OPs’ Programming Documents (2007) and KPMG (2011) Funding 2007-2013 19.213.036.712 3.476.144.996 3.726.021.762 2.554.222.109 4.512.470.138 4.565.937.295 170.237.790 208.002.622 Community (EUR) 4.038.360.695 1.098.406.807 1.131.727.010 National Co- National 1.1.1 4.089.358.714 613.213.718 3.011.102.426 456.880.317 657.561.936 42.559.448 38.011.459 funding 23.251.397.407 5.697.664.305 4.383.583.698 5.610.876.945 212.797.238 246.014.081 Total Co-financing 80% 85% 85% 85% 80% 85% 80% rate Budget 17,6% 13,0% 24,5% 18,9% 24,1% 100% share 0,9% 1,1% Contracted (12.2010) 45% 72% 34% 27% 33% 70% 43% ratio 15% (12.2010) Payment 12% 13% ratio 7% 9% 5% 4% 2% 1% 22 CEU eTD Collection 3.3. in the Uncommittedeurobillions itstransport sector and explanations Horvath 2009:13), which means an around ten times higher time cost. hit 320km/hr (Ilie 2011: 2), in Romania on “rail the average speed is 25-30 km/hr” (Suciu and illustrate, it can besaid that while inmany western European countries the railroad speed can Black Sea, theBalkans, Greece and eventually theMiddle East and the Mediterranean. And to literally “transporting” the expansion of the European market towards the countries of the in role astrategic plays Romania saidthat be must it EU, the of performance economic registered carsnumber in thesame period of time" (Oreviceanu 2011:2). Ontheside ofthe sector (in Romania) increased by 212% between 1989 and 2006 due to231% increase of Green-houseaddressed Gases by the(2009), SOPFurthermore, the transportENV. problem is entangled with theenvironmental For challenge that is example,emissions “according which meansof people are todying in preventable theaccidentscarbon related with transit infrastructure.latest 2011:2), (Oreviceanu 2008” and 2001 between Emissions casualties of number the dioxide in increase 25% “a Inventory (CO ofemployment) but also the social ones. For example, in terms of traffic safety, there has been only the economic ones that have been mentioned elsewhere (e.g. low labour mobility and regard tothe negative effects that a poor infrastructure has for thepopulation, there are not expansion and competitive integration of the European market into the world economy. With transports and roads have negative consequences for Romanian society and impede the of conditions poor the is because crucial SOPT The reasons. several for Romania for The successful absorption of both the SOPT and SOP ENV would beof strategic importance absence of a strongRomania points to the administrative capacity constrain. More explicitly it pointsadministrative to the The most common claim of the articles that were written about absorption problems in system: weak the case of theinstitutions OP Human Resources Development and the Regional OP. those which had a higher degree(Badea of contracting and absorption. As Table 2 illustrate, this is 2011:10),picture, this research will contrast the two worst performing OPs in terms of absorption withthe lack judgments about whichof cause is present strongly in one ora another OP. After the general for all OPspayment ratios in Romania in afew words. The factors which will be enlightenedin here are true the areas, it iscountry, unavoidable tospeak about the academic explanations of the very low level of Before looking for more specific reasons explainingalthough the absorption failure of two particular the scope of this research does not allow making 2 ) generated by the transport 23 CEU eTD Collection 17 16 The previously called Ministry of Environment and Sustainable Development The previously called Ministry of Transport, Construction and Tourism road, shipping and airport infrastructure, and state owned railway and motorway companies. A of administrators national project, with transport case the as ismostly or municipalities) of associations or councils county municipalities, authorities, (local administration public the of infrastructure-oriented OPs clearly show a pattern that the main beneficiaries are either bodies whom these funds are assigned to and which kind of organizations can deliver projects. Both be analyzed from Following the modelthe of Šumpíková (2003) presented in Chapterdemand 2, the absorption capacity can side i.e. fromMinistry. the viewpoint of subsidiarityof requires), while the beneficiaries.transport programme is centralized in oneparticular aims to bring the decision making closer tothe regional levelIt and local needs (as the principlecan be askedthe programming andnumber of developmentmonitoring regions, eight IBs have been set up with assigned responsibilities in activities.ENV, the implementation role is partly delegated to the regional level: according to the The latter responsibilitiesfollows are fully concentrated in the Ministry of Transport. In the case ofthe SOP a decentralisedthe SOPT it can be observed that there is no IBinvolved, thus the management model, whichDirectorate for Foreign Financial Affairs and the Ministry of Environment ministries: theMinistry of Transport and Infrastructure (MTI) OP management bodies, the Managing Authorities of both Programmes are the relevant stakeholders who are involved in theimplementation of the programme. On the side of the To continue with a more pointed out by Gherghinescuspecific et al. (2009:222). analysis(Laurentiu 2010:544). The deficit in transparency in public tender procurements was also of the failureinformation and the low financial and management capacity of the beneficiary, among others of the problemsSOPs, arise at the stage of the application due to the lack of specialized stuff, low levelone of beneficiaries the side of canthe On 2010:115). (Berica salaries oriented performance not looklow, at the both the insufficient number of personnel, the lack of relevant skills (SAR 2011:29-32) and concerns and inallOPs problem” a “cross-cutting is which administration, public Romanian Another often mentioned explanation is the shortage of human resources within the 2009:222). (Gherghinescu standards European at projects scale large elaborating in experience lackof the and 2010:544) (Laurentiu projects the of contracting and analysis in specialized strategic planning at the institutional level (Berica 2010:115), slow actions of the institutions 16 within theGeneral 17 . In the case of 24 CEU eTD Collection 18 See the programming documents of the relevant OPs. 3 it can beseen that the date of approval of the Programming Documents of each OPs by the The slow absorption of the SOPT can be explained by yet another factor as well. From Table cannot explain the low absorption in Romania (2011:31) beneficiaries which helped to overcome the liquidity problem, thus the global crisis itself Government took measures and extended the amount of pre-financing to Romania and the Romanian Academic Society (SAR 2011) argues that both the EC and the Romanian the However, (2011:12). investment” co-financing private and public for resources financial budget and 2% from localif the co-financing ratio has been decreased for Romania to 15% (13%co-financing), coming from thestate additional impediments to ensure the nationalstill contribution in theco-financing scheme. Even in several created crisis financial the that claims (2011) et.al. 2008. Constantin since crisis financial and cases “there is anThe low absorption rate inacute Romania is explained by some authors partly due tothe economic shortage of part which is a significant burden to deal with for local public authorities. their application, too. Nevertheless, large-scale projects entail a yet much bigger co-financing third sector actors. Pre-and co-financing is one of the main challenges encountered regarding or private of inthe case appear not does thisproblem tosaythat is not It as well. applicants comprise large-scale projects, which require a huge amount of financial commitment from the which implies the co-financing requirement of the OPs. The SOPT and theSOP ENV mostly This argument has an implication related to the financial absorption capacity of the MSs, EU funded projects deliver to applicants organizations) voluntary and charities associations, mutual cooperatives, opportunity for private (companies and cooperative societies) and third sector (NGOs, social Regional OP, where although local governments are also targeted, there is much more NGOs, thus not public sectors agents. The other OP with thehigh contracted ratio is the beneficiaries are enterprises, trade unions and associations, vocational training providers and Development, which performed high interms of contracting (yet not in absorption), the Priority Axes (for details see Table 5 in Annex). In the case of the OP Human Resources companies which perform or plan toperform logistics operations in Romania in oneof the to givesroom SOPT while also apply, can museums and universities institutions, research case of one of the priorities within theSOP ENV, non-governmental organizations (NGOs), relatively small portion of the total budget of these OPs is assigned to non-state actors. In the 18 . 25 CEU eTD Collection be much more difficult inthe case of SOPT. satisfactory if we take into consideration the ’n+3’ spending rule of the EU. However, this will can still catch up due tothe fact that it succeeded to contract 43% of its total budget, which is We can conclude that the SOP ENV with the second lowest absorption ratio among all OPs sectors. respected the in plans development clear-cut performance regarding long- and medium-term planning at government levels and the lack of longer preparation than the projects of the other OPs. But thefact still reflects the poor should beconsidered that the complexity of transport infrastructure projects may require a the failure of the OPs, yet the low absorption cannot be explained only by this factor. Also it From these data we can argue that there is a link between the late start of the applications and 2010:54). (KPMG 2009, they could contract only 4% of the total budget and pay out only 0.6% of the total second year of the financial framework was about tofinish. Nowonder that by the end of earlier than transport ones: the SOPT launched the first call only in October 2008, when the SOPT and the SOP ENV. Environmental infrastructure projects were launched one year September 2007 and March 2008. Here, a significant difference can be observed between the approved late, which led to the fact that the first applications were invited only between Although the programming period started in 2007, the documents were submitted and significantly. differs applications for call first of date as the as well Commission European Table 3Dateofapproval ofOPsand firstcallof in application Romania Development Capacity OP Administrative OP Technical Assistance Technical OP Development Resources Human SOP Regional OP Competitiveness Economic of Increase SOP Environment SOP Transport SOP Source: SAR (2011:30) Source: Date of approval by of approval Date 21/11/2007 22/11/2007 12/07/2007 12/07/2007 11/07/2007 12/07/2007 EC n.a Date of first call for call of first Date 15/05/2008 15/02/2008 10/09/2007 17/03/2008 08/10/2007 03/10/2008 applications n.a 26 CEU eTD Collection million coming from the SFs for transport development were used, the arrival of a new Finally, at the Ministry level, it can be pointed out that while from 2007 to 2010 only EUR 47 their own incompetence. of what the transport network should be. This again can hardly be blamed on anything but four years, the Romanian authorities have not even been able to develop the conceptual map application deadlinetechnical assistance in theelaboration of a General Master Plan for Transport, which had an set on Junestill non-existent. Furthermore, 7,the Romanian government recently2011 launched a tender for (The Railwaysystem” (SOPT 2007:3). It is worth mentioning that, four years later in 2011, this GTMP is Insider, development that2011). will be internally coherent and interoperable with the European Union In other provide for the “implementationwords, of the concept of a country-wide Romanian transport system after (GTMP), which this respect. Theshould SOPT mandated the elaboration of a General Transport Master Planning be the In the secondbasis place, we can also examine the SOPT 2007-2013 programming document in for future developmentincompetence can be behind this? of thefor producing such an incompletesector piece of legislation? Furthermore, what if not their and shouldif not the Parliament in general and the MPs in charge of transport in particular can be blamedalso improved or maintained, but without ever mentioning when, by whom and how. Now, whom Instead, the only thing this law does is to give a list of roads and rails that should be built, this law is almost useless because itdoes not contain any provisions to make it operative. establish any timeframe or deadlines; there are no clear budgetary provisions. Ina nutshell, ill designed. Itdoes not assign clear responsibilities to any governmental body; it does not grounds for the realization ofthe Transport network within thecountry. However, this law is The Romanian Parliament approved this law in2006, and itwas supposed to provide the Networks). Transport with theLaw for the Spatial Planning of the national Territory (Law No. 363/2006, Section 1 the incompetence of authorities. Let us proceed from thegeneral to theparticular, beginning transport sector that has been overlooked by the academic work refers straightforwardly to also argues that one element impeding a better absorption rate of SF in the Romanian contribute to thelow absorption of SF in theRomanian transport sector. However, this paper true in case of the SOPT. It has been mentioned elsewhere in this thesis that different factors incompetence of the responsible authorities implementing Cohesion Policy. This is especially The explanation which got much less attention is the lack of accountability and the 27 CEU eTD Collection 20 19 See the ONCGC webpage for more details http://www.ancpi.ro/pages/wiki.php?pnu=newsletterEN&lang=en The report is available http://www.ampost.ro/main.php?module=articleview&action=view&id=44&itemId=1 Sebastian Vladescu, from whose point of view The aforementioned evidence supports the claim ofthe former Finance Minister of Romania, incompetence of the previous Minister can explain such a contrast? more moneypurpose (Ilie 2011:4). Inother words, onlywas by changing the person in charge of the Ministry, absorbedMinister (Anca Boagiu) has translated in an increase of up to113 million euros used for this in three months than in three years. Again, what if not the is trying to modernize its land registration in time of massive privatization and the emergence reconstruction (Sztranyiczki 2003:47). The reason for these difficulties is easy tosee: Romania program, the administrative infrastructure for the use of modern property rights is still under and the EU gave financial assistance to support this tremendous job via thePHARE Although the World Bank provided significant loan toset up the new structure (from 1997), National Office for Cadastre, Geodesy and Cartography (ONCGC, webpage decided only in 1996 (Law of Cadastre and Land Registrationwas system nation-wide first up the set no. To farms. 7/1996), collective of estates real socialized register and it created the to Romania communist the by was established which athird, and Kingdom) Hungarian later Monarchy, Austro-Hungarian (earlier Banat and Transylvania inCrisana, register way to place in Oltenia, Wallachia, Dobruja and Moldavia (former Romanian Kingdom), another the EU because it inheritedsystem cadastre-registration integrated an have didnot Romania a nutshell, In three different systems from the past. There was one system in delays due tolack of possession of land in several occasions Annual Implementation Report of SOPT (May 2011), the Monitoring Committee indicates the In there. still is problem the nevertheless, 2007:49-50), (SOPT projects funded ISPA which has already led to timely preparation and lengthy land acquisition processes of the historically deep-rooted issue ofland registration and the uncertainty of land ownership, obstacle impeding the implementation of infrastructure projects. It concerns the complex and The final argument of this paper would like toemphasize animportant but rather overlooked That has not been the case (Ilie 2011:5). they would do everything in their power to attract EU funds so they can spend them. Romanians are incompetent more than they are corrupt. If Romanians were corrupt But states. inother than Romania in degree ahigher to maybepresent interests individual and Political (...) reasons objective valid, to 10percent and corruption to (...) the lack of motorways in Romania is due 60 percent to incompetence, 30 percent 19 . ) 20 . before joining 28 CEU eTD Collection of European integration. is aprecondition systems registration and administrative different the of integration national it requires an appropriate administrative background and political commitment. However, the if all financial resources would be available, it is not something which can be done overnight; legal status of real estate properties is uncertain, that is a clear responsibility of the state. Even In conclusion, if a unified system of registry is not well established, and as a consequence the land is uncertain, projects are delayed or simply cannot be approved. development projects, thus the absorption ofEU Funds. If the ownership ofa property ora the to obstacle isan itself system register land inadequate The farms. offamily thousands of 29 CEU eTD Collection CONCLUSION AND POLICYRECOMMENDATIONS AND CONCLUSION are paper tigers. market and open competition, not to mention the effective planning and efficient use of funds well as social and economic development. Without that, accountability, transparency, the free institutional stability isunavoidable forEuropean understanding of property, ownership as ownership. This study provided an example to demonstrate that legal, procedural and major obstacle lies on theinadequate land register system and the uncertainty of land Another measures. budgetary and timelines contains nor responsibilities, clear assign not does the Spatial Planning of the National Territory. This law is not operative given thefact that it The poor performance of these projects reflects ill designed laws, asis the case of the Law for absorption, which got less consideration or are not precisely indicated in the academic debate. infrastructure-oriented programmes there are other shortcomings impeding a higher rate of projects) and co-financing problems. Nonetheless, the analysis has shown that in the case of institutions, lack of trained personnel, low salaries, lack of experience in elaborating large scale as weak (such capacities administrative inadequate both from derived mostly be can but multifold, are absorption low behindRomania’s thereasons that hasdemonstrated paper This because it is putting at risk a huge amount of money which can be de-committed by the EU. only pay out around 1% of the allocated amount. Romania should speed upits spending especially striking in the case of the SOPT: the Ministry of Transport and Infrastructure could the Union. Asignificant amount of the assigned budget remained unspent, which was the end of 2010, Romania had far the lowest absorption rate (7%) among the new members of macroeconomic, financial and administrative absorption capacity of the receiving country. At The successful implementation of the Cohesion Policy depends to alarge extent on the and the Middle East. provide Europe’s trade with apassageway to the other parts of the continent, the Black Sea and economy its boost deficit, infrastructures excessive its reduce to Romania help would particular that on transport infrastructure – is crucial for boththe country and the Union. It and expansion. In the case of Romania, the successful implementation of the OPs – in with thehelp of SF plays an important role in strengthening Europe’s economic integration developed countries of Europe. At the same time, the development that can beaccelerated the most from them separates gap that the reduce to catalyst withafinancial MSs developed The EU Cohesion Policy and its instrument the SF play a fundamental role in providing less 30 CEU eTD Collection overcome. pointed out important challenges which require urgent action and political consensus to it However, forces. all driving to light shed to order in analysis empirical and research field absorption ofSF in thetransport infrastructure in Romania. That would require an extensive The scope of this study does not allow for an assessment that includes all aspects of low and endless fight against conditions inherited from the past. old an inertia, historic of akind or structures government inefficient or competence of lack incompetence means under social, economic and administrative terms. Whether it is really the the failure and incompetence of absorbing EU funds in Romania. The question is rather what Parliament. It would be mistaken to blame only certain private persons and public figures for affirmative orurgent procedures in other government branches, i.e. before courts and in the of government actors, e.g. ministries and other government agencies as well as some form of urgent need for targeted legislative actions aimed at better coordination and closer partnership Romania would likeIn addition, fast feedback and quick response to bottlenecksto are highly important. Hence,use if the developmentprogram implementation. opportunitiesmost likely should resultprovided in a partial redirection of funds to increase monitoring activity of byevaluation an such study, this of thefindings on Based theimplementation. program successful EU, there is an evaluate not only conditions but pre-conditions of effective financial absorption and and the European Commission. Considering the existing Romanian OPs, it would be useful to programs ex-ante evaluations must be taken seriously. This can be a lesson for both Romania In terms of policy making, it isworth noting that in the case of large scale development 31 CEU eTD Collection Appendix Assistance VII. Technical OP Capacity Development VI. OPAdministrative Total Development HumanSOP V. Resources IV. Regional OP Regional IV. I. SOP Transport SOP I. Economic Competitiveness Economic of Increase SOP III. Environment II.SOP Table 4. Number of projects submitted and approved 2007- and approved submitted 27 projects of 4.May 2011, Number Table Romania Source: Government of Romania-Press Office Romania-Press of Government Source: Submitted Projects 28.375 10.165 1.290 7.755 8.575 428 80 82 Approved Projects 2.893 1.738 2.338 7.621 332 208 65 47 Decisions Funding 5.840 2.003 1.474 1.764 302 195 59 43 ¬ Decisions % Decisions Funding 38,0% 22,8% 30,7% 100% 4,4% 0,9% 0,6% 2,7% ¬ 32 CEU eTD Collection

Table 5. OPT and OP ENV: Priority Axes and financial instruments 2007-2013, Romania OPERATIONAL PROGRAMMES AND PRIORITIES 2007-2013, ROMANIA Fund Beneficiaries I. SOP Transport Priority Axis 1 Modernization and development of TEN-T priority axes aiming at CF Romanian National Company for Motorways and National Roads, Romanian sustainable transport system integrated with EU transport networks Railway Company CFR S.A. (infrastructure company), Autonomous Regie River Administration of the Lower Danube – Galati National Company for Navigable Channels Administration Priority Axis 2 Modernization and development of national transport infrastructure outside ERDF Several National Companies Ex. Romanian National Company of Motorways and the TEN-T priority axes aiming at sustainable national transport system National Roads, TEN-T Airport companies, Romanian Railway Company Priority Axis 3 Upgrade the railway passenger rolling stock on the national and TEN-T ERDF National Company CFR Calatori railway networks. Priority Axis 4 Sustainable development of the transport sector ERDF EU companies which perform or plan to perform logistics operations in Romania, Relevant MTCT units CN APDM SA, CN APDF SA, CN ACN SA (Danube river and Canal ports administrations) based on investment in rail or maritime / waterway inter-modal transport , omanian National Company for Motorways and National Roads, Romanian Railway Company, Romanian Naval Authority Priority Axis 5 Technical Assistance ERDF MA Project Implementation Agency

II. SOP Environment Priority Axis 1 Extension and modernization of water and wastewater systems CF Local authorities (County Councils and Local Councils) through Regional Operating Companies Priority Axis 2 Development of integrated waste management systems and rehabilitation ERDF Municipalities, County Councils or Associations of municipalities of historically contaminated sites Priority Axis 3 Reduction of pollution and mitigation of climate change by restructuring ERDF Local authorities of the selected municipalities and renovating urban heating systems towards energy efficiency targets in the Priority Axis 4 Implementation of Adequate Management Systems for Nature ERDF Environmental NGOs , Administrators or custodians of protected areas, National Protection Agency for Protected Natural Areas and Biodiversity Conservation (NAPNABC), Biosphere Reserve “Danube Delta”, NGOs, research institutes, universities, and museums Priority Axis 5 Implementation of adequate infrastructure of natural risk prevention in ERDF National Administration of Romanian Waters most vulnerable areas Priority Axis 6 Technical Assistance ERDF MA and IBs Source: SOP Transport and SOP Environment Programming Documents (2007) 33 CEU eTD Collection Bibliography http://www.cse.uaic.ro/WorkingPapers/articles/CESWP2010_II4_BER.pdf Alexandru Ioan Cuza University of Ia Berica (2010): “Factors that influence the low rate of Structural Finds absorption in Romania”, 2011) repealing Regulation (EC) No 1164/94 No (EC) Regulation repealing and Fund aCohesion 2006 establishing 11July of No1084/2006 (EC) Regulation Council Fund and repealing Regulation (EC) No 1260/1999 the European Regional Development Fund, the European Social Fund on and the Cohesion provisions general down laying 2006 July 11 of 1083/2006 No (EC) Regulation Council 2011) 31 May (accessed: Prospects”, and Retrospects Crisis. to Transition Constantin, D, Goschin, Z. and Danciu, A.R. 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