BAZAAR GOVERNANCE Costs of clientelism in the local administration and state owned companies
EFOR annual report 2018 Authors: Sorin Ioniță Otilia Nuțu Septimius Pârvu
Bucharest, 2018 Report #62
The report can be read on www.expertforum.ro/annual-report-2018
The map of clientelism is accesible on www.expertforum.ro/en/clientelism-map EFOR acknowledges the support of www.termene.ro
BAZAAR-TYPE GOVERNANCE ...... 2 CLIENTELIZATION OF FUNDS FOR MUNICIPALITIES. BAZAAR-TYPE BUDGETS ...... 7 CLIENTELISM IN STATE-OWNED ENTERPRISES……………………………… 26 RISKS OF POLITICIZATION IN ECONOMIC GOVERNANCE ...... 37
INTRODUCTION Romanian), to the salary increases in two waves: for mayors and the other BAZAAR-TYPE GOVERNANCE elected representatives, in fixed amounts provided by law; for civil servants (a great amount), at intervals This is a study on the huge costs of that gave room for a margin of local uncertainty, lack of consistent rules decision-making. and permanent negotiations to share public resources, which have come to The local authorities enthusiastically be synonymous to politics in Romania cooperated in this vandalism. and the region. It is, in other words, a Municipalities ventured to give the study on “bazaar governance”. highest salaries, without any consideration for sustainability; in the We focused in particular on two very end, if it was allowed, why not? The important dimensions of the public future doesn’t matter anyway. The sector: the transfers of local timeline for governance in Romania development funds, which are the was reduced not to an election cycle, main source of investment in the which was bad anyway, but to no public infrastructure at sub-national more than five-six months, which is level in Romania and all over Europe; catastrophic. and State-Owned Enterprises, (SOEs). The effects became visible right before the end of 2017, when not only the The territorial allocation of investment poor communes in Moldova, which had funds (plus the public procurement increased the average salaries of their process that follows) and public, few employees, were left out of State-owned or municipal enterprises, money, but even the municipalities in are the main sources of political Bucharest, which silently started to patronage and illicit resources for the unify and restructure jobs. political parties. If such taps were to be controlled in a more transparent And we said “without measure“, which and objective way, the Romanian is not entirely true. The 3,185 mayors politics would be deprived of 80-90% of the country are rational beings who of the resources it now relies on in respond to incentives. But, in fact we campaigns and party-building. see that: (a) the one who is well- connected politically or irresponsible, Our 2018 report summarizes the who promises money he does not results of more EFOR projects that have, starts three projects and assess clientelism in these two finishes none, so that he can ask for domains that are crucial for the more money, gets more money at the governance system. end of the year when he screams for For instance, let us look at the emergency aid; while (b) the one who deterioration of the administration of is thrifty is taken for a fool, gets in local communities. Ever since the bad with the rest, and sometimes beginning of the year, USL (Social even the money put aside from its Liberal Union) 2.0 has “blessed” the own sources are taken away from him. local administrations with a wealth of This logic applies mutatis mutandis to gifts, from Ordinance 6 with SOE managers as well. engagement loans worth 30 billion, Plan B, i.e. good governance, stands inexistent money (also called no chance, no matter how much the Shhaideh ordinance-beyond measure UE shoves it down your throat. You - ordonanţa-Shhaideh-fără-număr in Policy brief 62 | 2018 Annual Report
can be the most honest local long tongue (let’s say, “better representative or manager of state- politicians“ in the Romanian sense owned company, you can have a of the word), but a type of Harvard management diploma: in a governance that erodes the total year or two, you are forced to adapt stock of public resources, by to plan A, the only plan possible in an discouraging the best ones: environment that is highly politicized, motivation moves from reforms to a unpredictable and characterized by chaotic fight for redistribution, and the negotiations of the spoil under the time and energy of a mayor or smart table. You either follow it or you take SOE manager will be spent with lobby off, banished by the voters and rent-seeking. In the end, all of themselves, or your own shareholders society becomes poor, as we know and employees (in other words, the from the sultanists of the 80s, even if State itself). some, who are now privileged, may take pride in an achievement now and This implacable counter-selection then. takes us back, step by step, to the model of administration of the last The European good governance years of the Ceaușescu era, called by system creates stability and certainty; the researchers of that time the other breeds uncertainty and tight sultanism: the most perverse and timeline for programming and carrying cynical version of authoritarianism, out any investment. The former based on tribal connections and system maximizes the use of money, systemic corruption instead of a because it can be planned ahead and specific management ideology or spent wisely. The latter system doctrine, in which the official rule and reduces the value of the same amount reality were far apart from each other. of money, for obvious reasons: And why is this a problem? In the (1) The money obtained by lobby end, someone might honestly ask why comes when least expected and must this fuss around clientelism, if it be spent fast, otherwise you lose it makes things work? After all, this is and don’t know whether you are going how politics works everywhere in the to receive it the following year. Any world: whoever is on top, wins. This whole trader knows that prices of time, our party is in power, so we get goods and services are higher when to cream off; next time, you will be in you buy them last minute, under the power and do the same. At country pressure of time. For instance, when level, the resources are the same, the the municipality receives the funds in only difference is that they are December and throws them out the directed to municipalities or window on God knows what, with the companies that are “smarter” and sole intention of not giving them back know how to elbow their way. That’s to the State budget. life, communities that want to grow (2) Second, companies that work with www.expertforum.r must find more cunning managers. municipalities or the State company This report is meant to answer this will automatically increase the price of particular question: what is wrong goods and services, charging a risk with clientelism in the public sector. premium, which is even higher as
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Our arguments in the sections below allocations are discretionary and
is that a bazaar-type governance is unpredictable. Uncertainty in a not only a neutral allocation to the bazaar-type governance comes costs. 3 advantage of some, who have a
Bazaar-type governance
(3) Third, if the national budget Moreover, a severe counter-selection makes bazaar allocations, then the on the long term arises, which mayors and company managers will discourages professionalism in be drawn in such “soft” game; their institutions and public and private interest in absorbing EU funds will companies. continue to drop, through projects
that are more difficult to develop and easier to check, as it really happens: In a nutshell: in the second EU financing cycle Bazaar-type governance and (2014 - 2020), absorption is lower budgets create more expensive than in the first cycle on the same public goods and services; date, a phenomenon that the Minister of European Funds himself pointed to Misuse of money with a short at the beginning of 20181. life and affected by the uncertainty of allocation, low (4) Fourth, if on a YOY basis funds are efficiency and ad-hoc priorities; allocated to smart beneficiaries, which are well connected politically, instead Bazar-type governance of those that make the best technical discourages innovation and projects, people will learn and will investment in real expertise, on adapt to the rules of the game: the long term; it is locally, nobody will invest in the opportunistic and favours spot capacity to write and carry out good transactions; projects, but in lobby mechanisms. As long as the rules of the People are not that irrational to invest game encourage bazaar-type in something that does not bring them budgets, the public any advantage. stakeholders’ interest in the In other words, a counter selection absorption of EU funds, more will occur in the public administration difficult and more transparent, and SOEs: fewer experts, more smart will continue to drop, despite people and intermediaries, plus jaded the official statements and obedient civil servants, who sign declaring them as priorities; anything the boss tells them to. Only stable and transparent Politically and economically solid rules, which enable real networks appear, with companies that prioritization and multi-annual win most of the tenders most of the planning, increase the value of times, although they do not have the the public resources spent; best offers and sometimes not even Good governance and the capacity to deliver, as shown in innovation will occur only if we the latest EFOR report. change the system of And what is most important for us incentives for the local elected
www.expertforum.r citizens, as a result of all such effects, representatives and SOEs; in is that the same amount from the other words, if we change the public funds is worth differently, rules of the game. depending on the magnitude of Another disturbing trend for 2017,
o clientelism in the allocation system. which may very well continue into this
4 1 https://www.hotnews.ro/stiri-esential- atentionare-privind-pierderea-fonduri-din- 22235557-marius-nica-ministrul-delegat- cauza-primarii-prefera-proiecte-fonduri- pentru-fonduri-europene-demisionat- buget.htm
Policy brief 62 | 2018 Annual Report
year also, is the strong offensive to sacrificing professionalism in reduce the autonomy and to institutions, even those that require politicize the regulatory and audit the highest technical competence, and authorities, created and governed by instead creating sinecures for various strict areas of acquis communautaire. party members. The repeated scandal The third section of this report in ANCOM is proof of how low can describes a few such cases. politics go to undermine agencies that were once seen in Brussels as models For instance, amendments were of best practices. submitted in Parliament to change the appointment rules in the management The bottom line of this section is that of the Competition Council, from we are facing a dilemma in Romania: the current system, which is fair and we are unaware of how to balance based on professional competency the democratic control of and cooperation among the State institutions against the powers, to a direct appointment by professional management of the Chamber of Deputies and the certain regulatory and audit Senate. Objectively speaking, it is authorities, which, according to the hard to understand why these EU practice, must be far apart from changes so long as the market the daily politics. In other states, arbitrator has improved its parliaments are an element of balance performance over the last for in in the selection and oversight of these indicators, which its external partners regulators. have also noticed. In fact, the purpose The Romanian Parliament proves to be is probably to arbitrarily reduce the the most catastrophic mechanism of current management’s term in office, appointment and control, favouring to make way for clients of the political imbalances, devious politicizations and parties. practicing the lowest form of de- In 2017, the management of the professionalization. The interference of Court of Accounts changed, and the political factor in the democratic individuals loyal to the current governance is unavoidable, for sure, governing coalition were appointed but finding a way in which it can be without many professional arguments. matched with a minimum promotion of What is worrying is that these genuine competence remains a topic individuals were responsible in the of a future agenda for us. last years for the very discretionary Unfortunately, against the current allocations of funds to the global political wave of populism and municipalities mentioned in the first anti-meritocracy, present in section of the report. In other words, Romania as well, and in other the main national auditor has been European states, too, it is hard to neutralized when it comes to bazaar- imagine how we can grow support for type budgets, one of the greatest moderation and competence. Not even www.expertforum.r vulnerabilities of Government: it is the arguments related to anti- hard to assume that it will be able to corruption need to benefit from a high be objective when it sees what its attention, as seen so many times current leadership has done in its when individuals criminally
previous roles. o
investigated or convicted are voted
The regulators on the energy and ITC again and voted in elections. markets (ANRE and ANCOM) are 5 testament to the disturbing trend of
Bazaar-type governance
Analyst Ivan Krastev has best summarized this phenomenon, when
he referred to his birthplace, Bulgaria – but he might just as well have referred to Romania: “Unsurprisingly then, it is loyalty — namely the unconditional loyalty to ethnic, religious or social groups — that is at the heart of the appeal of Europe’s new populism. Populists promise people not to judge them based solely on their merits. They promise solidarity, but not necessarily justice. Unlike a century ago, today’s popular leaders are not interested in nationalizing industries. Instead, they promise to nationalize the elites. They do not promise to save the people but to stay with them. They promise to re-establish the national and ideological constraints that were removed by globalization. In short, what populists promise their voters is not competence, but intimacy. They promise to re- establish the bond between the elites and the people. And many in Europe today find this promise appealing”2.
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2 Ivan Krastev, “The Rise and Fall of 6 European Meritocracy”, New York Times, 17 Jan 2017.
Policy brief 62 | 2018 Annual Report
To best reflect how public funds CHAPTER I are allocated and spent, we CLIENTELIZATION OF FUNDS have updated the Clientelism Map – and have mixed data that FOR MUNICIPALITIES. include both allocations, and BAZAAR-TYPE BUDGETS real transfers of funds to beneficiaries between 2004 and When it comes to the inefficient 2017. management of public funds and the For further details, visit financing of political parties, national www.expertforum.ro/harta- investment money is one of the main clientelism (RO) sources of clientelism and corruption. www.expertforum.ro/en/client As already shown in the Clientelism elism-map/ (EN) Index, political parties use investment money to secure the loyalty of mayors The difference between allocations and and heads of local councils and as payments/transfers is important, as in resources for elections. Moreover, the case of both investment funds, politicians seek options to increase and emergency funds, there are their own wealth and to get financing countless situations when local for the companies they manage authorities did not actually receive the directly or in which they pull the money, for various reasons. So, while strings3. allocations in fact show the politicians’ intention to distribute the money to In EFOR’s 2018 report, we continued their own party’s administration at a analysing the funds managed by the certain time (election period, for Ministry of Regional Development and instance), the execution of funds or Public Administration (MRDPA), in its payments show what is the real various forms and names, and by capacity of absorption of money Government (emergency funds) through projects completed, even in between 2004 and 2017. This is an the soft budgeting version, compared older project of ours that we will to the existing budgetary funds. continue and extend in other countries in the regions as well. In Chapter Allocations, we have analysed only the money the Unlike budget transfers, which have a Government distributed to local very clear destination, most of the budgets, not also the money that were amounts from the Emergency and given to ministries (see below), the Intervention Funds meet the percentage of which is different on a immediate needs of the local YOY basis. In the amounts managed administration and are controlled to a by MRDPA, apart from the National very low extent. There are not half as Local Development Programme (PNDL many procedures as in the case of EU www.expertforum.r – Government Emergency Ordinance funded projects, only controls of the No. 28/2013), we have included funds Court of Accounts4.
3 A detailed analysis on the correlation 4 The annual reports are generally critical of
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between public money and politics may be how the emergency funds are supplemented read in EFOR Report #61: Money and politics – and spent. For further details, please visit: correlation between public procurement and www.curteadeconturi.ro/Publicatii.aspx?niv1=1 7 political parties, www.expertforum.ro/banii-si- politica
Bazaar-type governance
allocated by Government Emergency (5) Throughout the fiscal year, the Ordinance No. 7/2007, Government Intervention Fund available to Decision No. 577/2007, but also Government may be increased by payments for thermal heating, Government from the Budgetary Reserve Fund available to Government, depending thermal rehabilitation etc. on the needs to ensure the amounts to An overview looks as follows: eliminate the effects of natural disasters. Allocation/payment Total Although these are funds that are type amount spent in exceptional cases, between Allocations from the Lei 7.6 bln. 2010 and 2018, the already Reserve / Intervention ambiguous rules regarding financing Fund (2008-2017) from the two funds suffered 37 derogations, most of them by Payments from the Lei 5.4 bln. emergency ordinances. For instance, Reserve / Intervention Fund (2004-2012) Budget Law No. 2/2018 provides that money may be allocated from the Payments by MRDPA or Lei 23.9 bln. Ministry of Regional Development, equivalent (2005-2017) Public Administration and European Allocations under NLDP 2 Lei 30 bln. Funds by Government Decision to (2017-2020) finance NLDP 2. Similar provisions Figure 1: Allocations and payments from were also introduced in the 2017 the Reserve / Intervention Fund and Budget Law, but there are derogations MRDPA in force in other years as well. In other words, the Reserve Fund may be
increased during elections, for The Reserve Fund: the political instance, to finance investment that is piggy bank not urgent. There is no clear control of expenses, The Intervention and Emergency especially of the investment made. Funds are regulated by Law No. Throughout the fiscal year, funds are 500/2002. Nevertheless, the often supplemented from the allocation rules are rather vague, and budgetary loans that some of the governments spend the money in the public authorities do not use. In some same unclear manner. Article 30 of years, the supplemented amounts the law provides that: may reach billions of lei; the highest allocations were between 2004 and (2) The budgetary reserve fund available 2008. On the other hand, the Court of to the central government shall be Accounts criticised in its annual distributed to main credit authorising reports the fact that such funds are entities of the State and local budgets, based on Government decisions, for the taken from the authorities, which get financing of urgent or unpredicted them back by allocations from the www.expertforum.r expenses arising during the fiscal year. Reserve Fund. Also, the allocated funds are often not spent, for various (4) The intervention fund available to reasons. For instance, the Alba County Government shall be distributed to main credit authorising entities of the State and Council received Lei 467,000 from the local budgets, based on Government Intervention Fund for road
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decisions, for the financing of urgent rehabilitation. The amount represents measures for eliminating the effects of a budget surplus as the procurement 8 natural disasters and supporting the was not made with that money. people affected. Similar examples’ are in Caraș Severin
Policy brief 62 | 2018 Annual Report
or Buzău counties (see the section went to the local administrations dedicated to procurement). In other through the supplementation of the counties, procurement projects are MRDPA, for the NLDP (like in other still supported by 2016 allocations, years, as well), which means that it is for emergencies. not visible in Government decisions which allocate the money, but in However, it is interesting to note that in election years, the amounts orders of minister. On the other hand, dedicated to incumbent political the transfers appear in the statistics parties increase significantly, as regarding the payments of the MRDPA. shown in the chart below, which may indicate the politicization and unpredictability of the allocation of these funds. From the period under review, 2008 was the most productive Figure 2. Allocations of the Reserve Fund for the Reserve Fund. 3.00 2.74
2.50 Billion 2.00
1.50
1.00 0.89 0.85 0.69 0.73 0.63 0.50 0.32 0.38 0.20 0.17 0.00 2006 2008 2010 2012 2014 2016 2018 and Intervention Fund for the local administration, 2008-2017; allocations for According to the Court of Accounts, ministries or other institutions apart from the Government increased the the local administrations were not factored amounts initially dedicated to in, except for few of them, where the emergencies from Lei 6.2 million to ATUs were identified in the Government Lei 3,678 bln.5; anyhow, it is almost Decision; we have only included those half the amount of 2006, when the decisions where we could further identify funds had reached Lei 6 bln. investment at ATU level, such as school building. Funds for churches allocated The table above is an estimated through the State Secretariat for Religious reflection of allocations for the local Affairs are not factored in. administration. 2008, 2009, 2012, Out of the total amount mentioned 2014 and 2016 were election years, above, almost a quarter of the funds and the graph shows how allocations
was allocated by 2 decisions: www.expertforum.r increased all these years, not related Government Decision No. 1155/2008 to elections, but to investment, (Lei 1.3 bln.) and Government payment of debts or salaries. On the Decision No. 1152/2008 (Lei 0.7 bln.). other hand, the decrease of 2013 is In the second case, the money went to partially false, as most of the money
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5 9 www.curteadeconturi.ro/Publicatii/RPA2008(M O).pdf
Bazaar-type governance
county councils, which decided how to each party out of the total amount allocate it further to localities. each year7. Between 2016 and 2017, most of the money, that is 66%, was distributed by Government Decision No. 975/2016 (Intervention Fund – 25.4%), Government Decision No. 0.82% 0.32% 2.08% 5.11% 6.64% PSD PDL PNL 41.60% UDMR 21.49% INDEPENDENT PC/ALDE/PLR/PUR PP-DD/UNPR ALTELE 21.95%
830/2017 (Reserve Fund – 21.7%) Figure 3. Allocations of Reserve and Government Decision No. Fund/Intervention Fund between 2008 and 468/2016 (Intervention Fund – 19%). 2017, party level (sus) If we take a look at allocations, most of the money allocated between 2008 and 2017 went to the Social- Democrat Party, 42%, while the National Liberal Party and the Democratic Liberal party were left with almost 20%. Communes were the biggest beneficiaries of the emergency funds, receiving 45% of the money6, followed by county councils, with 28% (some of such funds were redistributed to other local administrations).
Figure 3 illustrates allocations at party
www.expertforum.r level, while figure 4 shows the percentage of money received by
6 There are certain decisions whereby money 7 The Social Liberal Union does not appear as a
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is allocated at county level, and then county distinct organisation, because we showed the councils decide where the funds go. The party to which the mayor in question was 10 statistics above take into account only the first affiliated and to which he came back after the allocation, not the destination of the money alliance was terminated following redistribution.
Policy brief 62 | 2018 Annual Report
100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
PSD PDL PNL UDMR INDEPENDENT PC/ALDE/PLR/PUR PP-DD/UNPR
words, between 2009 and 2012, while Figure 4. Percentages out of each year’s the Democratic Liberal Party was in total, at party level power, Government obtained more funds for the administration of the County % of PSD PDL PNL same political colour, and in total 2012 when the Social Liberal BUCHAREST 4.65% 16.78% 5.68% 5.66% VÂLCEA 4.43% 48.48% 6.52% 37.82% Union won the elections, most SUCEAVA 4.34% 27.60% 43.32% 20.02% of the money went to the PRAHOVA 3.50% 60.98% 17.86% 11.83% Social-Democrat Party and its HUNEDOARA 3.39% 34.75% 10.51% 52.40% CLUJ 3.22% 11.21% 58.40% 20.33% allies. IAȘI 3.17% 61.15% 10.30% 27.07% As stated above, 2016 was an NEAMȚ 2.98% 46.27% 32.00% 7.18% BIHOR 2.95% 7.59% 16.01% 50.20% election year and we VRANCEA 2.95% 81.79% 5.08% 12.64% witnessed a visible increase of CONSTANȚA 2.79% 77.86% 9.17% 10.40% allocations compared to 2015, TELEORMAN 2.73% 71.23% 9.36% 18.15% BUZĂU 2.73% 64.78% 13.89% 20.01% even if the amounts are not BRAȘOV 2.66% 10.00% 48.97% 34.69% as high as in 2012 or 2014. MUREȘ 2.64% 12.26% 18.42% 17.08% The largest share (99.8%) BACĂU 2.63% 43.50% 14.02% 37.22% was allocated after the local MARAMUREȘ 2.59% 30.85% 34.15% 28.03% OLT 2.56% 73.54% 9.85% 13.52% elections, and Government BOTOȘANI 2.55% 36.90% 34.43% 23.02% Decision No. 975/2016 is the VASLUI 2.47% 74.64% 8.10% 12.63% peak of allocations, when Figure 5. Top 20 counties, 2008-2017, 40% of the money shared went to with the percentage allocated to the main parties; the differences up to the amounts local administrations. The allocation of in the first column were distributed to funds was made on 23 December to other parties pay off urgent expenses in order to eliminate the effects of the natural disasters caused by floods. In fact, in On the other hand, a more interesting
most of the years, allocations were www.expertforum.r statistics is the one related to the mostly made in December. There are percentage of money received by a Government decisions signed on 23 certain party each year. Figure 4 December or 30 December. This is in shows that the change of the fact proof of a poor administration of incumbent political party also
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public funds, as many local determines the beneficiary of most of administrations were forced to execute the money; so, every party uses such works or pay off debts in a very short 11 funds for their own benefit. In other period of time.
Bazaar-type governance
By comparison, there are years when
3.00 2.74
2.50 Billion
2.00 1.74 1.50 1.25 1.00 0.89 0.62 0.69 0.50 0.51 0.52 0.31 0.130.20 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012
Plăți FR Alocări FR
the real expenses do not exceed even Figure 6. Payments v allocations from half of the allocations, given than emergency funds some of the transferred funds come from Government decisions that do
not even fall within our scope of Figure 7. Payments of emergency funds, analysis on allocations because they 2005 – 2011 were approved by order of the minister of development. At party level, municipalities and 2.56% 4.98% county council run by the social 6.64% democrats received most of the money, almost one third, while the democrats received one 33.21% quarter, and the liberals almost one quarter. 22.84%
25.06%
www.expertforum.r PSD PD/PDL PNL UDMR INDEPENDENT PUR/PC/ALDE
Most of the funds were allocated to
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Suceava county, followed by Bucharest, Vâlcea, Hunedoara, 12 Prahova, Iași or Vrancea counties.
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Figure 8. Allocations (above) v payments (below), emergency funds, 2008
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The Clientelism Map is developed under the project Combating 13 Clientelism in Local Investment and Financial Transfers (CC-LIFT) financed by Open Society Foundations
Bazaar-type governance
Who were the real beneficiaries of the By Government Emergency Order No. transfers for investment? 6/2017, Government laid the foundation for the second stage of the
NLDP, which should cover the Making a comparison between financing of 9 500 objectives of new allocations and real transfers in the in investment, of which 2,500 nurseries the case of the money managed by and kindergartens and 2,000 pre- the MRDPA is a difficult task. On the university educational units. However, one hand, there is no clear statistics the 30 billion are not real funds, year-over-year and there is no logical existing in the budget for all the four and uniform system of counting the years, are maximum allocations that a projects approved8. An investment municipality or a county council can may have three different names in receive. In other words, if there isn’t different years, it is therefore difficult any money the following years, there to see how much each commune or are chances that a project will not county received during the period in receive funds. On the other hand, to question. finish an investment started, a mayor Moreover, the overlap between NLDP must borrow money, which increases 1 and NLDP 2 complicates things even public debt. worse, given that there are still plenty A total of Lei 19 bln. was allocated to of projects from the first stage under the first stage of the project, for 5,862 implementation, although in parallel, projects9, of which 4,442 are still investment are also made under NLDP under execution in the period 2015 - 2. In addition, at the beginning of 2019. For NLDP 2, 13,096 projects 2018, rumours appeared about a were submitted, which would translate potential NLDP 3, which will aid into a budgetary burden of Lei 67.4 mayors in 2019 election year and bln. Out of such projects, 6,851 were which will be implemented beyond selected, worth Lei 29.9 bln. 2020, which, given the administrative If we look at the payments, the chaos described above, can only make situation seems clearer than is with things even worse. allocations. True, there can be An example of lack of coherence is differences between the date of presented in the table below; a single approval of an investment and the project is listed in three tables with payment itself, considering that the allocations for different years under NLDP works on the basis of different forms. settlements. In other words, the
Ozun Asphalt surfacing DC 27, Covasna money may arrive very late in election 0+000-5+300, Ozun (DJ 2015- 103B) - Lisnău Vale, 5.3 2019 periods, or may very well not arrive at km, Ozun commune, all if the governing party changes, Covasna county leaving the local administration on its Ozun Asphalt surfacing DC 27, Covasna 0+000-5+300, Ozun (DJ 2014 www.expertforum.r own to pay off the debts to the 103B) - Lisnău Vale, 5.3 km supplier companies; this may also
Ozun Asphalt surfacing DC 27 generate the increase of public debt at (DJ 103B ‐ Lisnau Vale) 0+000‐ local level. But payments also show 5+300, 5.3 km who actually received the settlement
o money and if there is any connection
14 8 The list of all the investments under NLDP 1 9 www.slideshare.net/edezvoltare/programul- and 2 is available at: http://mdrap.ro/lucrari- national-de-dezvoltare-localapndl-etapa-a-iia publice/pndl/-8564
Policy brief 62 | 2018 Annual Report
with election periods or the change of Hungarians in Romania (5.5%). 2% of government. the money went to independent representatives, almost 1% to The biggest amounts were paid to People’s Party – Dan Diaconescu/ local authorities in 2007, 2008, 2015 National Union for the Progress of and 2016 (b). The second half of 2016 Romania and 2% to the Romanian coincides with Parliament elections. Humanist Party/Conservative Party/Liberal Reformist Party/Alliance 16.00%
14.00% 13.61% 12.66% 12.00% 11.27% 10.00% 9.57% 9.08% 8.00% 6.95% 6.82% 6.00% 5.72% 5.90% 4.55% 4.00% 4.07% 2.68% 2.84% 2.84% 2.00% 1.43% 0.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014a2014b 2015 2016a2016b 2017 of Liberals and Democrats. The Figure 9. Payments for investment remaining 2.6% were shared among managed by the MRDPA or equivalent, of other 26 political organisations. Figure total, 2005-2017 10 shows the share received by each 2014a= before migration; 2014b = after migration; 2016a = before local elections; party compared to the total transfers 2016b = after local elections of that year. The purpose of the NLDP is to support The counties that received the highest in particular the development of the percentage of amounts are Timiș countryside, urban regeneration and (3.53%), Iași (3.49%), Constanța (3.5 infrastructure at county level; most of %), Vâlcea (3.18%) and Olt (3.16%). the money went to communes, almost The counties that registered the 56%, while one third of the funds lowest percentages are Sălaj, went to county councils. During the Covasna, Ilfov or Ialomița (1.3%) – period under review, the money Figure 11. (transfers) actually went to 2,986 localities out of the total 3,228 The highest amounts per capita went administrative and territorial units to Baldovinești commune in Olt (including the 6 districts), of which County, which received an amount 2,859 communes; which means that more than 7,000 times higher that 242 ATUs have never received any Slobozia Bradului, which is at the www.expertforum.r money. bottom of the list, receiving only Lei 2.7 per capita. Despite the difference Most of the money went to localities in the number of inhabitants between whose mayors belonged to the Social- the top beneficiaries and the last ones,
Democrat Party (52%), followed by o these digits show us that still, there
the National Liberal Party (22%), the are major discrepancies in how funds Democrat Party/Democratic Liberal are allocated. 15 Party (13%), Democratic Alliance of
Bazaar-type governance
100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
PSD PNL PDL UDMR PUR / PC/ PLR / ALDE INDEPENDENT PP-DD/UNPR
Figure 10. MRDPA payments, amounts per year (97.4% of total value); the difference up to 100% was allocated to other parties
0.9
0.8 Billion 0.7
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0.4
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OLT
Alba
IASI
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ARGES
BACAU
BUZAU
NEAMT
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VASLUI
TULCEA
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PRAHOVA
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IALOMITA
CALARASI
HARGHITA
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MEHEDINTI
SATU MARE SATU
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CONSTANTA
HUNEDOARA
MARAMURES
CARAS CARAS SEVERIN
MUN. BUCURESTI MUN. BISTRITA BISTRITA NASAUD
www.expertforum.r Figure 11. Top payments by counties,
MRDPA funds 2005-2017
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Policy brief 62 | 2018 Annual Report
Allocations under NLDP 2 logic of such Programme, which is to support development in the
countryside and in small localities, the According to the MRDPA, NLDP 2 will allocation to some of the richest reduce the gaps in terms of municipalities may raise some serious allocations between counties, meaning questions. that Suceava, the county that would receive most of the money would receive only 2.47 times more money than Bucharest, thus reducing 1.88% 1.52% 1.08% 1.01% the ratio between the first and 4.72% the last county from 4.42, the difference in NLDP 1. The allocation criteria are the number of localities in a county, the population of the 56.76% county, the surface area of 31.93% the county or its financial capacity, i.e., income tax, and the result of the selection of the projects is a weighted value. Politically wise, the allocations seem to follow the results of PSD PNL UDMR ALDE INDEPENDENT UNPR Altele the local elections of 2016. Most of the money would go to the Figure 12. Allocations under NLDP 2, total municipalities and county councils of amounts per individual party the Social-Democrat Party, meaning 56.7% (59.5% if the calculation is not made per capita) of the money. The liberals would receive 31.9% of the money, and the Democratic Alliance of Hungarians in Romania would get 4.7%. For the local representatives of the Alliance of Liberals and Democrats, the amounts allocated were of 1.9% of the funds, and the National Union for the Progress of Romania received 1.1%. Most projects were approved for the Neamț County Council, Târgoviște,
www.expertforum.r the municipality of Hunedoara, and the Vrancea County Council10. Districts 3 and 4 are also among the first 10 administrative units that will benefit from the money. Given the
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10 According to the data available at 17 http://mdrap.ro/lucrari-publice/pndl, December 2017
Bazaar-type governance
Figure 13. Allocations under NLDP 2 (2017-2020); above – county councils, below – municipalities
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Policy brief 62 | 2018 Annual Report
120.00 113.22 109.63
100.00
80.00
60.00 55.28
40.00
20.00 10.98 3.46 5.43 6.19 0.00 2007 2008 2009 2011 2012 2013 2014 2015 2017
SECTOR 1 SECTOR 2 SECTOR 3 SECTOR 4 SECTOR 5 SECTOR 6
Figure 14. Payments to districts, MRDPA goes to the Vâlcea County Council as funds, per capita, period 2005 – 2017 well (208).
District 3 seems to be privileged in terms of money received for Beneficiary No. of Party investment. In 2014 and 2015, when projects the district was run by a social- Neamţ County 57 PSD democrat mayor, under the ruling of Council the Social-Democrat Party, the Târgoviște 40 PSD municipality received the largest amounts from the funds managed by Hunedoara 35 PSD the MRDPA. Vrancea County 32 PSD Council
District 3 30 PSD + The District 1 Municipality is in a UNPR similar situation between 2007 and Botoșani 26 PNL 2009. Such turnaround in terms of Cluj County Council 26 PNL funds shows that there is a connection District 4 24 PSD + between the political affiliation of the UNPR mayor and the incumbent political Cernica 24 PNL party. Dâmboviţa County 21 PSD Council
The Neamț County Council receives www.expertforum.r most of the money according to the Figure 15. Top 10 beneficiaries with the largest number of projects / Top 10 beneficiaries with NLDP 2 planning, i.e. 323 million. The the largest amounts / capita (below) Ialomița County Council has only 6 projects, but they received a large sum of money, i.e. 283 million. The o
Vrancea and Suceava county councils also may plan works worth Lei 234 19 and 221 million. Over Lei 200 million
Bazaar-type governance
Order No. 1851/2013 approving the Benef. County Per Amount Party capita application rules for the enforcement of the provisions of Government Bunila HD 33232,30 10.734.036 PNL Emergency Ordinance No. 28/2013
Bulzeştii HD 31934,15 9.005.431 PNL that the beneficiaries must fill in and de Sus may be published in open form.
Ceru- AB 28659,30 7.365.441 PMP Băcăinţi
Brebu nou CS 26598,40 7.926.325 PSD Allocations and procurement – what companies get the public Rîmeţ AB 25007,54 13.554.090 PSD money
Miceştii de BN 21219,31 24.062.700 PSD Câmpie For NLDP, we have already shown that Mehadica CS 20775,45 14.459.718 UNPR there is a high risk of politicization, in the sense that out of the ten counties Coşeiu SJ 20219,99 23.819.155 PNL analysed by the EFOR, 5-6 companies out of 50-60 companies that sign Vulturu CT 20111,01 15.043.041 PSD contracts gain more than half of the money. Such companies have Ludoş SB 19701,48 17.998.656 PSD connections with politicians or individuals with criminal files for tax Overall, the transparency of the evasion, bribery or frauds involving programme did not improve in 2016 European funds11. or 2017, although the allocated funds boosted. Although the lists of selected In order to see how the public projects are published, there is plenty procurement procedures financed from of information that should be posted emergency funds are carried out, we on the MRDPA website. The list of have requested over 100 contracting submitted projects is not published, authorities that received money nor is the detailed methodology of between 2014 and 2017 to tell us how evaluation and a possible rating they spent the money. By the requests showing why a project was chosen filed according to Law 544/2001, we over another or what the results of wanted to know the procurement the implemented programmes were. procedure that was used, the value of the contracts and the successful While the practitioners we consulted tenderers. We received 45 answers confirm that there are biased from city and municipalities of allocations and companies that are municipalities, cities and communes advantaged in the public procurement (12) and county councils (33), that the beneficiaries carry out, issues selected after the criterion of related to implementation or allocations from the Reserve Fund and settlements, such detailed data does www.expertforum.r the Intervention Fund over the last not exist in the MRDPA reports. No four years; of such entities, five success (or failure) indicators are county councils and eight published, nor the results of the municipalities had not received money monitoring (if any) or information on for investment, but for other
o the progress of investment. Such data
expenses. may be obtained from the annexes to 20 11 Details in the EFOR reports on procurement http://expertforum.ro/achizitiile-din-pndl/, under the NLDP, http://expertforum.ro/achizitiile-din-pndl-2/
Policy brief 62 | 2018 Annual Report
The overall consideration of the 9,465,200 allocated) and Repair of contracts amounts to Lei 147 million. 0.040 km DJ 218 Cosminele commune By analysing a number of 500 (Lei 31,200 allocated). For 2 other procedures (for some investment, projects, Repair of DJ 710, 0.030 km, there are more procedures), it came Adunati commune and Repair of 2 foot out that 30% were cases of direct bridges on DJ 710 Adunati commune,
Direct procurement Open tender Simplified procedure No data Request for offer Unadvertised negotiations No specifications No contract Delegated management No award Technical documentation is being prepared Own management Framework agreement. procurement. 22% of the cases used the technical documentation is still requests for tender or simplified under preparation. procedures. In almost 19% of the cases, no contracts were executed or there is no data in this respect, but it Figure 16. Types of procedures used for is most likely that such procurement the procurement from the Reserve / have not taken place or are still Intervention Fund, 2014 – 2017 ongoing. Certain contracting Although the amounts in question are authorities stated that the funds were small compared to other procurement returned or are a surplus in the in the infrastructure area, there are budget and the procurement did not counties where we found potential take place anymore; in a few cases, monopolies on works or possible the procurement did not finalise for political connections between the lack of tenderers. winning companies and the decision- makers. Here are a few examples12: For some of the investment, Teleorman County Council received procurement procedures are still on- 3.4 million by two Government going. For instance, in the Prahova decisions in 2014. All the procurement County Council, although the procedures were won by Tel Drum SA, allocation was made at the end of www.expertforum.r some of which were won in association 2016, the procurement is still in with Modul Proiect SA. We have not progress. Two such examples are: received any information on the other Consolidation and repair of DJ 102 N, 2.9 million allocated in 2014. 0.320 km, Ceptura commune (Lei According to the media, Tel Drum is
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12 The data related to company owners and 21 the graphs related to the procurement have been taken from www.termene.ro
Bazaar-type governance
closely connected to Liviu Dragnea, decisions in 2014 and 2015 (Lei 5 the president of the Social-Democrat million), were won by the joint venture Party13. Modul Proiect is owned by formed of T DANCOR ROMCONSTRUCT Dan Pena. SRL - OLT DRUM SA - BEBE TRANS ROM SRL. T DANCOR ROMCONSTRUCT He is seen as a close acquaintance of was managed by Cornel Ciocan until Liviu Dragnea, donating Lei 500,000 2013, Dan Ciocan’s brother, Olt to the Social-Democrat Party in the deputy. He was convicted for tax 2008 campaign14. The contracts were evasion. concluded by negotiations and no call In Suceava, 11 works were executed for tender was published. based on a frame contract signed with In Hunedoara, 45% of the funds was joint venture BIGCONF SRL won in a frame contract (11 works) by BOTOŞANI, CON BUCOVINA SA TRANSCONSTRUCT IMPORT EXPORT SUCEAVA, CALCARUL SA POJORÂTA. SRL. Three other contracts were won Big Conf is owned by Marilena Conțac, in joint venture with DRUPO SRL. the daughter-in-law of the former TRANSCONSTRUCT is managed by president of the Botoșani County Crina Andrica. In 2004, 2010 and Council (Social-Democrat Party), who 2011 the company was managed by was convicted in 2012 for conducting Emanoil Pup. He was investigated in a the financial operations resulting in criminal file in 2014 in which the incompatibility, money laundering and president of the Hunedoara County forgery. The company specialises in Council, Mircea Moloț, was accused of garment, and its NACE declared at the using his public office to make sure Trade Registry Office is 1413 – the county council financed Pup’s Manufacture of outerwear. Through company15. DRUPO is managed by another company, Con 2000, it made Teodor Doda and George Farcăș. donations to the Democratic Liberal Doda was convicted for complicity to Party18. The biggest contracts of the embezzlement and is seen in the local company were signed with the media as connected to both the Suceava Directorate for Roads and Social-Democrat Party, and the Bridges. National Liberal Party16. Fărcaș’s wife In Vrancea County, half of the funds is chief accountant for the Deva was won by Geovi Construct SRL Directorate of National Roads, and the based in Panciu, company owned by company had contracts with the Viorica Croitoru, the wife of Gheorghe Romanian National Company of Croitoru, the local councillor and vie- Motorways and National Roads17 president of the Social-Democrat Party (CNAIR). in Vrancea County, an acquaintance of The money that Olt county received, mayor Iulian Nica and the Social- allocated by three Government Democrat deputy Ciprian Nica19. The
www.expertforum.r 13 https://www.riseproject.ro/articol/dragnea- 17 oamenii-si-banii/ http://www.puterea.ro/campaniile_puterea/ca 14 http://liberinteleorman.ro/cum-faci-afaceri- mpaniile-puterea-constructorii-pe-bani-publici- de-succes-in-tara-lui-dragnea-reteta-modul- si-relatiile-lor-politice-xxx-hunedoara- proiect/ 136803.html
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15 18 https://www.botosaneanul.ro/stiri/contac- http://www.pna.ro/comunicat.xhtml?id=5597 afaceri-25-milioane-euro-cu-varul-flutur-prin- 22 16 https://ziarulunirea.ro/perchezitii-ale-dna- firma/ alba-la-consiliul-judetean-hunedoara-este- 19 vizat-presedintele-ioan-mircea-molot-294441/ https://www.ziaruldevrancea.ro/actualitatea/ul
Policy brief 62 | 2018 Annual Report
company received Lei 10,800,000 Money that keeps mayors captive through a simplified procedure, along with Transmir SRL, which received 9,788,610. Four other contracts were Although the amounts intended for the awarded by direct procurement to Reserve Fund and Intervention Fund, Cristilory Prod SRL (3) and Sotirex but also for investment under the SRL (1). The latter company was programmes managed under the established and is controlled by Victor MRDPA are significant, the allocation Roman, former county councillor in rules are vague and maybe what is Vrancea, then deputy for the Social- even worse, are not consistent in Democrat Party20. According to the time. The amounts in this report are local media, Cristilory Prod SRL, rather illustrative, as they are very controlled by Ghiorghiță Cristian, is difficult to centralise and present with connected to the Social-Democrat the highest accuracy – maybe also Party21. because the State cannot and will not put its data in order in order to ensure The examples above reveal a risk of transparency and clarity, which in politicization of procurement, even if their turn would ensure predictability the amounts are small compared to also. A bazaar-type budget, with no NLDP or European funds. They can be multi-annual rules and based on monopolised by inexperienced annual allocations negotiated at companies, but which benefit from informal level, is in fact the foundation political support, and can secure the of a clientelistic governance. labour force and the technical means by bringing third party supporters in As shown above, emergency the tender, which have expertise. allocations are based on a few These risks grow even more if provisions of the Public Finance Law procedures of direct purchase or (detailed in other laws also, such as negotiation without publication apply. Local Public Finance Law), which were subject to 37 exceptions. Practically, Another conclusion related to these are funds allocated by exception allocations and procurement is that in to the exception. certain counties the number of investments that were to be financed For instance, the budget laws of 2017 by emergency funds, but were not and 2018 introduced derogations that contracted, is high. In Buzău, the permit the allocation of resources to percentage is 56% (47 investment), the MRDPA to fund the NLDP, which and in Caraș Severin it is 23% (19 should not be per se a programme investment projects). This may that relies on urgent decisions, it indicate either a lack of consistent should rather have a long-term vision, planning at central level, or the lack of there should be an assessment of the the capacity to organise public resources needed for the four-year procurement on the beneficiaries’ cycle intended for each stage and
www.expertforum.r part. should not use quick financing. Last year, by Government Emergency
timele-stiri/1588833571-afacere-de-200-000- si-relatiile-lor-politice-xv-vrancea-
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de-euro-in-familia-psd-panciu.html 128546.htmlv 20 21 http://www.puterea.ro/campaniile_puterea/ca https://www.ziaruldevrancea.ro/actualitatea/ul 23 mpaniile-puterea-constructori-pe-bani-publici- timele-stiri/1588833571-afacere-de-200-000- de-euro-in-familia-psd-panciu.html
Bazaar-type governance
Ordinance No. 7, Government tried to and municipalities and county suspend for one year a series of rules councils. If he loses the elections, the regarding the spending of public equation changes radically, and the money in order to facilitate the new incumbent political party implementation of investment monopolizes investment funds. Even projects, risking chaos exceeding the worse, any political change may cause financial limits and changing the the blocking of payments, leaving destination of the funds22. projects started from the Emergency and Intervention Funds or under the Fund allocation should be predictable NLDP unfinished and the municipalities and should allow any mayor equal indebted to the companies that chances in obtaining money for the executed the works with their own community he runs; things should not money. happen as they did in 2012-2016, when a mayor from the incumbent It is extremely difficult to track the political party stood two times more connection between allocations and chances than a mayor from the the budgetary execution in this opposition party to get funds. bazaar-type system. First of all, Moreover, fund allocation should not differences are substantial in depend on the number of votes in emergency funds, and the amounts elections or on loyalty, even if de allocated are artificially increased, the facto the mayor is affiliated to another money is allocated, but not spent. A party. And the mayors’ migration in possible explanation is that such funds 2014 is a very good proof that 552 are used as tool for mayors and city leaders changed parties – most of presidents of county councils to be them to the Social-Democrat Party – incentivized in periods of elections – to receive more money23. In other the highest amounts are allocated in words, investment funds should not the very election periods – and then to be a mechanism that keeps local be left out of any funds. politicians captive, but rather a tool As regards the NLDP, even if the that helps them to actually grow amounts increased, procedures have disadvantaged communities and not become more transparent. The reduce development gaps. allocation criteria are too ambiguous The graphs related to the political to enable their accurate application, distribution of funds show that, in even in a post-factum fact, the incumbent political party
allocates the money to its own city
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22 For further details, see report Populism 2.0 23 See Migration Map at 24 and the rebirth of alternatives to liberal http://expertforum.ro/primari-clientelari/ democracy http://expertforum.ro/raport- anual-2017/
Policy brief 62 | 2018 Annual Report
analysis. The lack of a clear evaluation grid makes it difficult to estimate why a municipality wins and another loses. Also, as shown above, in the MRDPA programmes, allocations are not uniform and consistent, and the matching of data bases proves useless. This lack of clarity is a testament to the lack of transparency and is doubled by parallel allocations in Stages I and II of the NLDP, which makes it even harder to track investment. Procurement for the advantage of certain companies destroy competition and lower the quality of works. The lack of predictability related to the participation in a procurement procedure or subsequent payments for works triggers the rising of local or regional monopolies, in which certain companies win most of the procedures, since companies with no power or political connections have no possibility to participate in the tenders in this context of uncertainty created by bazaar negotiations.
The story of procurement and allocations, in a nutshell More graphic info on clientelism and companies affiliated to political parties – www.expertforum.ro/banipolitica
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Bazaar-type governance
CHAPTER II Last, the Bucharest Municipality came up with a new smart idea to CLIENTELISM IN STATE- fog the spending of public money: OWNED ENTERPRISES the newly-established 22 enterprises, which operate by rules that are completely ambiguous and Set aside the war for justice, which is that are also exempt from Law No. less spectacular, 2017 came with a 111/2016 for at least two years, series of comedowns in governance: received a budget of around EUR from the public budgets, managed 200 million. ever so discretionary, to independent All these deteriorations of the control regulators and oversight bodies that mechanisms and best governance were politicised without precedent altogether will contribute to a over the last years (ANRE, ANCOM, weakening of the anti-corruption fight Court of Accounts, ASF) and state- to at least the same extent as the owned companies. attempts on justice. We need to It was acted at several levels. In understand that not any wasting of state-owned enterprises, we can see: public funds is an act of corruption and not any act of corruption can be First, the traditional breach of Law proven in court; not every bad No. 111/2016 (former Government governance can be settled by Emergency Order 109, as prosecutors. On the contrary, the amended), which provides for the strengthening of administrative control competitive and transparent mechanisms, of objective rules of selection of management in state- allocation of money and employment owned enterprises. in state-owned enterprises are Then, there were repeated excellent measures to drastically limit attempts to amend the law to both the opportunities for theft and make exceptions for the very the wasting of money through bad “interesting” companies – all of the policies or mere incompetence. big companies, for instance, in the Let us take, for instance, state-owned energy and transport industries. enterprises (SOEs). In a study carried They took shape in December out for the European Commission, 2017, when Parliament adopted a which covered the last two years24, we surprising set of amendments to showed that there is a demonstrable Law No. 111/2016 which, and pretty obvious connection practically, eliminates the between governance in state-owned framework of corporate enterprises and their performance, governance for SOEs in Romania, between how SOEs are managed and replacing it with discretionary their output. Moreover, the findings measures decided by ministries, on
www.expertforum.r are valid for more than one country, a case-by-case basis (see and may be extrapolated worldwide: Politicization section of this tracking the quality of governance in report). state-owned enterprises in time and in several countries, there is a direct
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24 State-Owned Enterprises – Preventing Italy, Risk Monitor Bulgaria, Candole Partners 26 Corruption and State Capture, project on the Czech Republic. Romania, Bulgaria, The Czech Republic and Italy – CRPE, EFOR, Freedom House, Amapola
Policy brief 62 | 2018 Annual Report
correlation with the performance of of such country that would promptly state-owned enterprises. But, in order raise awareness when a state-owned to understand this connection, we first company receives, for instance, state need to clarify what is understood by aid incompatible with EU rules – this is the “governance” of state-owned an aspect that consolidates a good enterprises, and by their relation between the state, as owner, “performance”. and the company. 1. Governance in state-owned It is equally important to have reforms enterprises, or how well-managed in the fields where there are state- state-owned enterprises are, owned enterprises, such as: (i) for depends on several factors. creating functional and competitive markets, where practicable, or (ii) for There are best practice guidelines strengthening regulators, where there regarding the corporate governance are natural monopolies. Last, but not framework in general, and also for least, it is important that state-owned enterprises25, which refer demonstrable acts of corruption in to the entities themselves. The state-owned enterprises and guidelines refer to the functioning of supervisory authorities be criminally the boards of directors (including investigated and convictions be management selection), the obtained in well-built files. Thus, the relationship with the shareholders corporate governance framework of (majority – the state and minority), state-owned companied very much the state’s shareholder policy (the depends on the wider governance purpose for which the state holds an framework of a country. interest in the company in question), transparency towards the public, the If we try to build a set of indicators for relationship with the stakeholders in governance, they can only be general. qualitative. In the study referred to26, the experts of the four countries Assuming that we have a law that “rated” 1 (worst) to 5 (best) and covers such cases, and Law No. 111 is estimated the overall quality of pretty good in this respect, how the governance depending on all such corporate governance framework elements. For illustrative purposes, we actually works depends on the wider took several enterprises in Romania. corporate framework of such country. (2016 performance is explained at For instance, it is relevant whether an point 2). integrity agency exists and actually works, which assesses the conflicts of interest and incompatibilities of the managers of state-owned enterprises and checks their wealth and interest statements. This is a mechanism that strengthens the proper exercise of the www.expertforum.r role of the members of the boards of directors. It is also relevant whether there are tools in the competition field
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25 OECD Guidelines on Corporate Governance http://www.oecd.org/corporate/guidelines- of SOEs, corporate-governance-SOEs.htm 27 26 Note 20
Bazaar-type governance
particular, accused of conflict of
Governance Corruption and
framework prevention Result Political changes of Application Overall Corruption Prevention / ANI / Governance Performance in management of Law 111 sectorial scandals and change of rating in 2016 2016 (violations of GEO (wider reforms companies’ behavior after 109) framework - answer DNA file e.g. letters of expectation) CNADNR CE Oltenia Romgaz Transelectrica Hidroelectrica RADET ELCEN
Thus: interest because he had awarded contracts to its own company, he ● Romanian National Company of was finally removed from office, Motorways and National Roads. although late (he remained interim Government Emergency Order 109 manager another 5 months). The has never applied, the general governance rating of the management has never selected Romanian National Company of on competition criteria, although Motorways and National Roads is the Romanian National Company of extremely low, and its Motorways and National Roads performance, likewise: the speed falls under the scope of the order. at which motorways are being built In 2016, the additional regulations is living proof. brought by Law No. 111 applied partially, and the Ministry of ● CE Oltenia. Although there was a Transport published a letter of competitive selection of the expectation that would apparently management according to clarify the relationship between the Government Emergency Order 109, state of shareholder and the the man who won the position of company. However, no reform was general manager was Laurențiu made in the transport sector. Ciurel, a very influential man in the Despite some corruption scandals Social-Democrat Party at local in which the company was involved level. Despite the numerous (the Transalpina case, for scandals, such as his investigation
www.expertforum.r instance), it did not change its by the DNA, he remained in office practice: we have not seen any until he was dismissed because he increase of transparency in public had not managed to achieve the procurement or fewer scandals performance indicators. The entire regarding the tenders in electricity sector was reformed
o construction works over the last after 2012, although CE Oltenia
few years. Following a case built and CE Hunedoara benefitted from 28 by ANI, which involved former numerous ”exceptions” from the general manager Mircea Pop in rules applicable to the other
Policy brief 62 | 2018 Annual Report
market players (for instance, sustainability of the grid, as the preferential access on the market case when there were problems by Government Decision with the power outages that 138/2013). The company’s occurred in 2017. performance was extremely poor ● Hidroelectrica. The company is in in 2014 and 2015, only in 2016 did a delicate situation because of the it register fewer losses. The insolvency initiated in 2012, which dismissal of Mr. Ciurel was a had its upside as well: ultimately, governance test for CE Oltenia, the procedure brought a high level which the company passed in of transparency in how the 2016, but with great difficulty. company works and its financial ● Romgaz. The company benefitted performance improved significantly both from management compared to the era of the ”smart improvements through the guys”. But, again, we must keep in application of Government mind that profitability cannot be Emergency Order 109, and from the only measure of listing at the stock exchange Hidroelectrica’s performance: for (Bucharest and London), and instance, if profits are obtained by reforms in the energy sector excessive cost-cutting (such as (market liberalisation, a more maintenance or investment), this powerful ANRE). The DNA and jeopardizes the company’s DIICOT files involving key-players operation on the long term. in the field (DNA – Ioan Niculae; ● RADET and ELCEN. Government DIICOT – “cheap gas file”) Emergency Order 109 was partly discouraged the further conclusion applicable to such enterprises, but of preferential contracts and Law No. 111 was not, and the facilitated reform on the gas issues related to the transfers of market. Although Romgaz’s return subsidies from the municipality dropped over the last few years, were not solved either. this was a result of the general Consequently, they are still in a market conditions. In other words, major financial deadlock. The two Romgaz is acting more enterprises were not involved in “commercially” than in the times of scandals the size of those of other the unprofitable contracts with enterprises from the same sector, cheap gas. but poor governance, as we said ● Transelectrica. Listed also at the earlier, is not only the result of stock exchange, it benefitted from theft discovered by the the application of Government prosecutors. In the case of RADET Emergency Order 109 and Law No. in particular, there are reliable 111 and, to a lesser extent, the signs that, in the context of local general reforms in the sector. The politicization, the company’s
www.expertforum.r company has never been involved capacity to maintain in operation in corruption scandals of the an ever decreasing obsolete capital magnitude of those in Romgaz or stock is extremely limited. Hidroelectrica. Its financial In 2017, things got worse for state-
performance is reasonable, o
owned enterprises in general: either although the other aspects of new managers were not selected on performance should bear more competitive grounds in the enterprises 29 attention: for instance, mentioned above, as provided for by
Bazaar-type governance
Government Emergency Order 109 example, when we think of the (Transelectrica); or they are excepted performance of a state-owned from the application of Law No. 111 enterprise such as the Romanian (all); or, in the case of Bucharest, National Company of Motorways and ELCEN and RADET would be part of a National Roads, we cannot compare newly-established municipal company. the ”profitability” of the Romanian Profitable companies were forced by National Company of Motorways and Government in 2017 to allocate National Roads with that of a private dividends in advance, which affects car manufacturer; the mere their long-term development comparison of state-owned enterprises perspectives. Then, the energy with private companies, as all the regulator, ANRE, was subject to a studies mentioned do, disregards such strong political pressure, such as aspects. Parliament’s investigation into the For increased accuracy, we have functioning of the energy market, and clarified the differences between state- its management was selected on owned enterprises and private political grounds at the end of companies (in the example given, October, by choosing individuals between the Romanian National supported by the party, with unclear Company of Motorways and National competencies in the regulatory Roads and Dacia Renault). There committee27. already are a serious case-law and systematic analyses at the level of European institutions as regards state 2. Performance of state-owned aid and services of general economic enterprises interest29, and the definition of the By only listing the enterprises above, ”performance” of state-owned we get a hint that ”performance” does enterprises should start from here. not mean the same thing for all state- The purpose for which the state- owned enterprises, and that a state- owned enterprises is different from the owned company is different from a reason why a private person has an private one. There is a generous ownership in a company. A private literature as regards the assessment person seeks to maximize their of the performance of state-owned dividends, observing the legal enterprises at international level constraints; seldom does the state (European Commission, OECD, IMF28). own companies only for the purpose of An important finding of our research is receiving dividends. Most of the times, that most of the studies conducted so the state seeks to produce goods and far do not take into account the services for the public, that benefit the nature of the state-owned enterprises citizens. when they define performance. As There are two situations: such, the performance indicators may
www.expertforum.r be refined so as to obtain more ● purely commercial companies, that accurate information. As a practical operate in a competitive
27 See dedicated section of this report. Forward in a Post-Crisis Context, Institutional
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Paper 031, July 2016 28 International Monetary Fund WP/17/221 – SOEs in Emerging Europe: the Good, the Bad 29 30 and the Ugly, 2017; European Commission: http://ec.europa.eu/competition/state_aid/ove SOEs in the EU: Lessons Learnt and Ways rview/public_services_en.html
Policy brief 62 | 2018 Annual Report
environment, in the case of which assessment issues that arise in the the question that arises is to what case of the latter. extent should the state own such In the case of the former enterprises, company, instead of the private profitability can be assessed as such; person; as for the latter, performance may ● companies that offer public goods only be assessed in terms of delivery and services, where it is not the of quality goods and services at a cost beneficiary who pays, because the as low as possible for the budget. This financing comes from the budget; is not such a revolutionary idea in practically, they operate like public itself: European directives start from institutions. the concept of SGEI in order to determine the permitted state aid (or Romgaz or Oltchim are enterprises Government subsidy) that would make that fall under the first category; the it worth to create potential distortions Romanian National Company of in the competition environment. Motorways and National Roads falls under the second. Most of the enterprises fall in-between these two
Public services / goods Commercial services / goods
Budget pays (general taxation) Consumers pay (price) Public agency For-profit company
SOEs
Performance: delivery @ reasonable cost Clear separation public goods / profit Performance: profit maximization CNADNR Posta Romana Hidroelectrica HPP Romatsa Romsilva forest management CFR Infrastructure RADET DH Romgaz CFR Calatori Port Constanta TAROM airlines Oltchim Aeroport Otopeni RATB CFR Marfa Apa Vital CE Oltenia TVR Transelectrica (regulated) ELCEN categories, offering both public goods Source: Project on SOE30 and services, and commercial goods and services. An accurate definition of ”performance” takes into account the Concretely, for enterprises that are company’s position between the two ranked on the same place on the extremes – or, in more rigorous public – commercial goods/services terms, the share of the ”service of axis, comparable ratios can be general economic interest” (SGEI) designed. At the two extremes: component in the overall activity. ● for Romgaz, CE Oltenia and (to a The enterprises that are the closest to certain extent) Hidroelectrica, we a purely commercial activity can be can compare profitability ratios
www.expertforum.r compared with private companies amongst them and with the private when assessing performance; the sector; then, the logic extends to others, which deliver goods and components as well (e.g., services for the public, are more likely expenses: acquisitions; revenues: undervalued sales, comparable
to fall under the category of public o
institutions, in spite of all the 31
30 See note 20
Bazaar-type governance
with companies with similar substantial financial losses in the activities) upcoming years. ● for the Romanian National In the case studies below, we present Company of Motorways and three relevant examples: National Roads, the relevant Hidroelectrica, CFR Călători and the indicator is the budgetary expense Romanian National Company of per physical unit produced: for Motorways and National Roads. In a instance, per km of motorway few words, the link between governance and performance is more ● for CFR Călători, profitability than obvious: cannot be directly compared to that of a private company, only if ● once the operating framework in we separate the commercial which it was running improved, activity (proceeds from the sale of Hidroelectrica no longer loses its tickets) from the activity own profits to the advantage of the subsidized as public service (state ”smart guys”, and some cost aid from the budget as public elements have improved, such as service obligation, whereby the maintenance/works and staff. state promotes railway transport ● Enterprises where no substantial as less polluting and safer). As the reforms have been made, neither same subsidy is received by all at management level, or in the operators of passenger railway overall running of the sector transport, the profitability ratios (transport infrastructure, can be compared amongst them. passenger railway transport etc.), We can further go on with the performance is still poor, visibly investigation of the reasons why a lower compared to similar company is more or less performing: companies from other countries or for instance, we can also check the private companies in the same profitability and conduct of the field, if they exist. Here, analysed company’s (acquisition, performance is not measured in sales) partners. terms of profit, but in how the budget money is spent for quality The main conclusion we have reached services for the citizens. and could substantiate with data is that, the better a company is managed, the more performing it is, A. Hidroelectrica no matter how we define performance. In all cases, RO IT BG CZ performance means budget money Electricitate Hidroelectrica IREN NEK CEZ saved and well spent: either more substantial dividends (Hidroelectrica, First, we compared Hidroelectrica’s Romgaz), or fewer expenses for www.expertforum.r governance with that of the other rendering a public service (passenger energy producers from Bulgaria, Italy, railway transport, roads). This is The Czech Republic; then, over the extremely important, because starting years in Romanian, tracking the 2017, the governance framework in changes in the sector: the insolvency
o general and the corporate governance
of Hidroelectrica and the termination
of state-owned enterprises has been of some unprofitable contracts; reform 32 deteriorating, which means in the energy sector; strengthening of the regulator. For now, things do not
Policy brief 62 | 2018 Annual Report
look bad, but the impact of the anti- Then, we have compared the reforms of 2017 is expected to performance of Hidroelectrica with become more visible in the following similar companies from other years. countries (hydro, well-governed, listed 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General framework HidroE governance
Smart guys contracts - e.g. 2011, mn RON No smart guys, e.g. 2016 (except attempt 2013) Below market price sales 100% No transactions outside competitive market Foregone profits 80% 852 No foregone profits
60% 2304 40% 1452 20%
0%
Value Foregone profits
Smart guys vs regular traders - e.g. 2011, RON Ex- smart guys vs regular traders, e.g. 2015, RON Profitability of traders 40 600 17 20 Regular traders fare better - than "smart guys" 30 400
20 17 (20) Millions
Millions 200 Thousands 10 Thousands (40) 0 - 16 (60) Turnover/employee Profit / employee Turnover/employee Profit / employee
Alpiq RI Repower Alpiq RI Repower Alpiq RI Repower Alpiq RI Repower
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General framework HidroE governance
Overvalued inputs 50 50 GWh/employee Slightly better performance 40 40 Still large gap 30 30 Difficulties to fire excess 20 20 staff 10 10
0 0 Hidroelectrica AES Tiete CESP Verbund Hidroelectrica AES Tiete CESP Verbund
Third-party maintenance 5000 1600 1400 and works (EUR/MWh) 4000 1200 3000 1000 800 High improvement 2000 600 overachievement 400 possible underfinancing 1000 200 0 0 Hidroelectrica Verbund Hidroelectrica Verbund Overall profits
HidroE became profitable
www.expertforum.r at the stock exchange). We could not make a direct comparison on all
indicators with the other energy producers from the countries that fall
under the scope of the study due to o
the structural differences among
them. 33
Bazaar-type governance
We notice that in Hidroelectrica, an (almost) purely commercial company: Cost passenger / km ● there are not as many losses of Cost per passenger/km by railway company potential profits as in the times of 0.12 0.10 the ”smart guys”; 0.10
0.08 ● the profits of the ”smart guys” 0.07 0.07
have decreased once they lost the 0.06 0.05 preferential contracts with the 0.04
state; 0.02
0.00 ● there is still excess of staff BG RO IT CZ (mechanism of clientelization and For the passenger railway transport, it attracting votes at local level), but is easier, because we can compare the things have improved; profitability of state-owned passenger ● maintenance costs have dropped – railway transport companies with that probably too much from the of private companies or costs per perspective of the business’s passenger/km between state-owned sustainability and environmental and private companies, including from risks; several countries. Thus, the governance rating is presented below: ● the profits of Hidroelectrica have the worse governed a company is, the increased significantly further to higher the cost per passenger/km. the improvement of the company’s governance. Compared to a private company in terms of profitability, CFR Călători has too many employees, the labour B. CFR Călători productivity being almost double in the competing private company in the
same market, with a small variation of
RO IT BG CZ Feroviar CFR Călători TrenItalia BDZ (călători) CD (călători) RO IT BG CZ Drumuri CNADNR ANAS MRDPW RSD
Performance of CFR Călători compared to general profitability. Regiotrans (profit / turnover – line compared to turnover / employee – column)
www.expertforum.r
o
34
Policy brief 62 | 2018 Annual Report
C. The Romanian National Company of Motorways and
National Roads
The same thing is valid for the Romanian National Company of Motorways and National Roads as well: the worse the governance in a road company, the higher the costs per km of network. Compared to the similar countries from the three countries covered by our study, the Romanian National Company of Motorways and National Roads is the state-owned road company with the worst governance. Due to lack of data, to compare the Total investment cost efficiency of road administration, we considered the total costs with the maintenance of the transport network, the only digits available for all the Total investment cost Romania / km of countries in the same format, from network the data base of the OECD. We can compare amongst countries and over time for the same country. The total investment expenses per km of network in Romania, if we take into account that it is not motorways which are being built, exceeds the total investment in the other countries. Moreover, the highest expenses are in 2009, a year of crisis, when not even European funds were being absorbed; and in 2011, when there was the Transalpina case, which is far from being an example of best practice. In 2011, there was also the Transalpina case, a very advantageous To best understand the reasons for contract for Romstrade, with the results of the Romanian National corruption scandals: comparing the Company of Motorways and National www.expertforum.r profitability of Romstrade with that of Roads, we can detail on procurement Strabag, we notice that Strabag costs. Thus: in 2011, when constantly registers profit margins of investment expenses were the 2-3%, while Romstrade registers highest, the profitability of Romanian substantial variations.
o
construction companies far exceeded
that of foreign contractors, selected through fair tenders, often with 35
European funds.
Bazaar-type governance
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General framework CNADNR governance
Procurement Profitability partners
Foreign cos Romanian vs foreign less profitable e.g. 2011 (tenders)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General framework CNADNR governance
2500 200 150
2000 100 Millions Romstrade 50 Millions One-off spike: 1500 0 Transalpina -50 1000 since 2015 -100 insolvent 500 -150 -200 0 -250 2008 2009 2010 2011 2012 2013 2014
Turnover (left axis) Profit (right axis)
Strabag 2500 200 EU-funded
2000 150 projects Millions 1500 100 Millions take off in 2012 1000 50 500 0 0 -50 2009 2010 2011 2012 2013 2014 2015 2016
Turnover (left axis) Profit (right axis)
Romstrade 80 Strabag normal vs Strabag 60 rates of profitability 40 profitability 20 0 -20
www.expertforum.r -40 -60 -80 2009 2010 2011 2012 2013 2014
Romstrade Strabag
o
36
Policy brief 62 | 2018 Annual Report
things were before 2011, when these companies were managed in the
personal interest of the party’s
organisations in the territory, without CHAPTER III any mechanism of administrative control. RISKS OF POLITICIZATION IN We speak of companies with a total ECONOMIC GOVERNANCE turnover of Lei 60 bln. per year. Romania’s GDP is Lei 750 bln. For this huge mass of resources, managers A. How to rob state-owned should not be appointed following enterprises, with the law on your competitive criteria, instead side individuals from the inside should be named; also, we don’t need While Romania was caught up in the performance criteria, because small political war for justice, at the end of arrangements work just fine. In other 2017, Parliament quickly adopted words, the times of the smart guys substantial amendments to the from Hidroelectrica, or of Romsilva, corporate governance framework in which buys tanks, or of CFR, which state-owned enterprises (Law No. buys diving suits, are back. Practices 111/2016). As the press pointed out, long forgotten will revive. the role of the amendments is to make way to appointing obscure and What is the rationale invoked by the incompetent individuals at the head of MPs of the majority coalition of the state-owned enterprises. Social-Democrat Party and the Alliance of Liberals and Democrats for such All the relevant state-owned changes? It would have been hard for enterprises (Romgaz, Hidroelectrica, them to find a legitimate reason why CE Oltenia, TAROM, CNAIR – former the management of such companies Romanian National Company of will no longer be appointed by Motorways and National Roads, the competitive selections, following CFR group, Transgaz, Transelectrica, professionalism criteria. To cover the Romsilva, RAPPS, Loteria, Poșta lack of plausible explanations, it was Română etc.), alongside those that said (again) that a Sovereign the Government will consider relevant Investment Fund would be created, in the future, in case they forget any which would have its own performance in the first call, are excepted from the criteria. Somehow, the establishment obligation to comply with the law on of the SIF would be jeopardized if, in the corporate governance of state- the meantime, the companies that will owned enterprises. be included in its area of expertise are Not even the competitive selection of well managed – they must be first torn to pieces by a political management. the management is mandatory any www.expertforum.r more, nor are there all the other vital In fact, most likely the Fund will never aspects for the good governance of be established and it was from the companies, such as transparency, the start a mere pretext to mess up the rights of minority shareholders, the SOEs sector, where a few small steps reporting to the Ministry of Finance, o had been taken, but dangerous steps
the letters of expectation, and the for the parties towards transparency performance criteria. Practically, we and a reasonable management. 37 go back to the Middle Ages, to how
Bazaar-type governance
such decision are still being assessed, but it seems that there are mostly
procedural errors made because of the hastiness of passing the amendments through the two chambers of Parliament. In other words, most likely the amendments will be re-adopted as How did Parliament vote the ruining of the management order or draft law prepared with more framework for SOEs in care, if the majority coalition of the December 2017 Social-Democrat Party and the Alliance of Liberals and Democrats is elimination of the obligation to determined to restore the political appoint professional and control in state-owned enterprises. politically independent managers in the executive bodies and Boards of Directors B. How to subordinate energy (BoD); regulators to the political system: elimination of the obligation of ANRE state-owned companies The national energy regulatory regarding the public and transparent reporting of the authority (ANRE) had gained ground in annual and bi-annual financial the reform programme, in particular statements; after the entry into force of Law No. 160 / 2012, which transposed the elimination of the obligation to European Union’s Third Energy publish the identity (!), Package. The institution’s professional experience and independence was secured over the remuneration of the last few years through a relative management of state-owned stability of the management team, companies; doubled by an increase in the level of elimination of the possibility for professionalism within the institution. the minority shareholders to All this enabled the regulator to appoint members in the BoD enforce difficult measures, in which and limiting their access to the political factor is usually hesitant, company information; such as the liberalisation of the gas elimination of the companies’ and electricity sector, most often obligation to publish in a contrary to the populist ideas transparent manner the expressed in Parliament. decisions adopted by shareholders on the internet. The liberalisation of the gas market gained momentum between 2014 and 2017, using the window of opportunity offered by the low prices in such
www.expertforum.r In February 2018, right at the time of period, although there was permanent writing this report, the Constitutional opposition in the Chamber of Deputies Court declared unconstitutional the to such measures, which the changes made by Parliament to Law monopolistic distributors did not No. 111/201631. The consequences of
o always embrace wholeheartedly
38 31 www.hotnews.ro/stiri-esential-22283281- modificarile-privind-guvernanta-corporativa- intreprinderilor-publice-neconstitutionale.htm
Policy brief 62 | 2018 Annual Report
either. ANRE opposed the various maybe it was only the prelude on the amendments to the energy law that political arena and in the press for the violated the EU directives. appointment of a new management of ANRE. This management is more In October 2017, the terms of four of politically affiliated and with less the members of the ANRE board professional expertise, with no past expired, including that of the experience in the energy sector. At the president of the institution. Parliament same time, the duties of the regulator had the task of organizing a new were limited, by Government’s transparent and competitive selection, takeover of the monitoring of but, like in the past (in 2015, for distributors’ investments. The new instance) it failed miserably. Instead, president, Chiriţă, is a member of the throughout 2017, it connived political parliamentary investigation committee attacks and fed materials to the press, led by former minister Iancu; his first seeking to weaken and destabilize the statements pointed to an end of the ANRE management, taking advantage gas price liberalisation programme. of any opportunity: for instance, some temporary variations in the market At the beginning of 2018, the price, in January and August. Both Parliament adopted a law that limits Government and Parliament the independence of ANRE, by making requested the investigation in special the dismissal of the board members committees of the regulatory activity simpler: thus, they can be replaced if of ANRE, which allegedly was giving they act improperly in their duties, too much freedom to operators in the causing severe disturbances to the market. prices of electricity, gas and heating. The phrasing is ambiguous, The matter was quite hilarious for interpretable, and leaves room for those who understood what was manoeuvre for any future special happening, because the main committee that Parliament decides to beneficiaries of the floating prices set up, which may find at any time were the energy state-owned that some price variations in the enterprises themselves, under the market are “serious” and are ANRE’s administration of Minister Toma Petcu, fault. Any board member who does the one who requested the not adhere to Government’s or investigation of ANRE. Apparently, the Parliament’s ideas may thus be minister had not understood this. eliminated with the help of the law, so In October, shortly before the expiry the independence of ANRE is only on of the term in office of ANRE’s paper. management, the Chamber of All such changes come at a bad time, Deputies formed a special just when the existence of ANRE gets investigation committee for the complicated: it must secure the energy market, headed by deputy development of a functional gas Iulian Iancu. The debates in such market, to closely regulate the cross- committee exceeded far beyond the border interconnections (the BRUA
www.expertforum.r initially declared scope, entering the project, the connections with the area of political dispute, sliding into Republic of Moldova), to get prepared personal attacks against the for the next regulatory period of the management of certain multinational energy transmission and distribution in companies, such as OMV Petrom. the EU, to adopt smart metering rules
o
In the end, the committee did not in electricity and to come up with reach any clear conclusion, but maybe regulations for thermal energy, a task this was not the purpose after all, recently taken over from ANRSC. The 39
Bazaar-type governance
chances that it will pay off all of these parliamentary committee or by tasks are pretty slim. rejecting the agency’s annual report. Finally, the management of ANCOM was replaced again, this time C. How to subordinate ITC appointing former prime-minister regulations to the political Sorin Grindeanu as president, to system: ANCOM celebrate his reconciliation with the party after the crisis that had occurred in summer, when the Social-Democrat Probably the most spectacular Party removed his government by a involutions of 2017 occurred in the motion of no-confidence. Apparently, regulation of the communications the position was used as a sinecure, market. In spring, the procedure for as a EUR 7,500 salary per month is the appointment of the management not a trifle for a dismissed prime- of ANCOM changed by emergency minister. order, excluding the President of Romania from such process. The In other words, ANCOM ended a previous procedure had been agreed turbulent year weaker and more upon with the European Commission politicised than at the outset. There as being a reasonable procedure that are serious questions as to the protected the agency from temporary institution’s capacity to keep the political pressure, no substantial professional level of regulations, after reason for such change being given. a long period in which it had been The Legislative Council itself had its considered an example of best doubts about the fairness of the practice both in Romania, and in amendments and delayed the Brussels. approval. The obvious real reasons for the D. Attacks against the market change were that the president and arbitrator: Competition Council vice-president needed to be replaced before the expiry of their terms. The new president, appointed by the Talks in Parliament towards the end of Social-Democrat Party in May based 2017 regarding the Competition on the new procedure, probably had Council (CC) are even more surprising the most conflicting and bizarre term as nothing dramatic has happened in office: he caused a big public lately in this institution, highly scandal when he wanted to replace appreciated in all of the reports of our the professional staff of the agency foreign partners (European with staff from the Romanian Post and Commission, World Bank, etc.) as a the information services. solid institution, in process of In the end, in October 2017, the professional consolidation. The Parliament replaced the newly- institution operates in an area of strict
www.expertforum.r installed president of ANCOM in the Acquis Communautaire, where the end, but it used the opportunity to principle of free competition and severely amputate the regulator’s limitation of state aid are clear and independence, like it did with ANRE, fundamental for the proper functioning based on some new legal provisions, of the EU. which are ambiguous and
o
A functional review carried out by the
interpretable. They can be used any World Bank, commissioned by the time – and over-used easily – by 40 European Commission, and generated launching an investigation in a an action plan implemented over the
Policy brief 62 | 2018 Annual Report
last years32. The performance In addition, the number of members of indicators improved: more rapid the CC is reduced from seven to five; interventions, a better identification the position of executive manager is and investigation of cases in the eliminated, after it was established market, shortening of the following the recommendations of the investigation period and increase of functional review of 2010; and the the fines acknowledged by the courts. criterion of seniority becomes more important in the selection of the new All this have not kept the CC at bay members (minimum 15 years in from political attacks in the autumn of management positions), which 2017, when it was called upon to fight disqualifies younger experts, with against “speculators” responsible for a international experience or without the relative increase in food prices. An necessary connections in political increased inflation rate was to be parties to have been able to hold expected following Government’s public management positions. expansionist programme of public expenditure, mainly based on an Evidently, the proposals are attempts abrupt growth of salaries in the public at making the CC more receptive to sector, including local authorities. The the wishes of the governing alliance management of CC came up with and, probably, the first step towards some public statements in this regard the early replacement of the and promised to monitor the situation, management, whose term expires in but the tone was not as firm as ruling 2020, with individuals well-established the coalition of the Social-Democrat in the political arena, but who could Party and the Alliance of Liberals and not possible pass the professional Democrats would have wanted. screening in the current system. As a result, in November 2017, a group of MPs proposed a substantial E. Neutralisation of the Court of amendment of Law No. 21 / 1996 as Accounts regards the selection and appointment of the members of the Competition 33 Council . The current procedure, There have always been politicization which is balanced, and provides for a issues at the Court of Accounts, but consultative and independent board over the last couple of years, it tended for the selection, then an approval to gain a sort of “independence-by- from Government, Parliament default”, for the mere reason that the hearings and a final appointment by political leaders and groups that had the President of Romania, would be negotiated its membership replaced by a procedure that is disappeared in the meantime from the obviously more political: three fore ground of the political arena. members (including the president of the CC) are to be appointed by the Thus, in 2017 we assisted to a gradual Chamber and two by the Senate. process of re-grasping of control over Ironically, in the statement of the institution by the political forces of
www.expertforum.r reasons, this move is described as the day. The Court’s importance is “increase of the independence of the potentially high, as its mission is to Competition Council”. verify whether the public funds are spent properly by the central and local
o
32 World Bank. 2010. Romania - Functional www.openknowledge.worldbank.org/handle/10 Review : Romania Competition Council. 986/12281 41 Washington, DC. 33 www.senat.ro/legis/PDF/2017/17b481FG.pdf
Bazaar-type governance
authorities, including in the EU- or were approved as committed loans for state-funded investment programmes. the following period. In the last case, as we showed in the It is hard to believe that now the CA dedicated section of this report, in an will be too strict into verifying some outrageously discretionary and financing granted by its very politicised manner, which led to a management, in its previous position. waste of resources. While for the EU Not even as strict as it has started to funds there are other verification become recently – pretty less, but mechanism as well, when it comes to better than nothing, see the national funds, the Court of Accounts devastating report published in 2015 is the sole mechanism that ensures on the NLDP financing mechanism34. the integrity and efficiency of money spending. It is thus highly relevant that, in October 2017, the current coalition
installed as president, for a period of nine years, the former secretary of the Ministry of Regional Development (MRDPA), the main supplier of “soft” budgetary funds for the local administration, a person loyal to the current leadership of the Social- Democrat Party and the coalition. The other advisors appointed in the BoD on this occasion are affiliated to the same political group. The way in which the instruments for the financing of local investment worked, their size and effects of political clientelism they produced in the territory are described in detail in the previous section, as well as in other materials of the EFOR. Our webpage – www.expertforum.ro – offers updated interactive maps with allocations of funds and the link with the political variables, such as mayors’ migration from one party to another, the activity during election campaigns, etc. In fact, this is one of the most important mechanisms of www.expertforum.r clientelization of the Romanian public administration, and the size of such financing instrument is growing in the years to come: at the beginning of 2017, it is well-known that Lei 30 bln.
o
42 34 AP___%20MDRAP%20.pdf; www.curteadeconturi.ro/Publicatii/Sinteza___R http://expertforum.ro/clientelism-2016/
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