1. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Romania - at the threshold of accession Infrastructure development Environmental workshop –Stephen Pritchard part of UK twinning team

2. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A What this presentation will cover: Part I - regulatory context Part II - why are structural funds important? Part III - Importance of administrative capacity Part IV - lessons from the last wave of enlargement

3. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A I. Regulatory Context Indicative list of major projects must be included in programming documents All major projects must have a CBA, including: –Risk assessment –Sector impact assessment –Socio-economic impact assessment EIA conducted separately but should be integrated into appraisal EC carries out an appraisal of each project

4. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Definition of major projects EC approves projects in programme documents (Preamble paragraph 38 and 41 General Regulations) Indicative list of major projects (articles 36 (3). and 37 (1) h) of Gen Regs) Article 39 defines major projects as: –greater than 50 M€ or –25 M€ in the case of environment

5. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A II. Why are structural funds important? Improve EU & National Competitiveness Meet challenge of globalisation Convergence with other MS - meet the obligations of the acquis

6. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Competitiveness is important Economic growth slowing down in the core EU member states This might be compensated by fast growth in new members states –Average of EU 15 2.3% in 2005, (~ 3% 2006) –Average of EU 10 5.7% in 2005, (~ 6% 2006) But the EU is still not as productive as other economies (source: www.IMF.org.com/eternal/pubs)

7. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Globalisation is a challenge Technology leaders (developed economies i.e. Japan & USA) are driving globalisation –Economic advantage compared to low labour cost advantage of technology followers But the EU is not keeping up with technical advances, so EU losing competitiveness. –The fast growing economies of the new member states are not yet giving the EU technical advantage

8. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Convergence is also important Convergence important as competitiveness because it requires: –Meeting the demands of the acquis –Modernisation (technology) –Restructured economy industry, employment, reskilling, administration, development of services –Investment in infrastructure Improve existing and invest in new Stimulate economic activity, especially energy, environment, telecommunications & transport

9. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A How can Romania contribute to the EU? EU membership brings responsibilities –Implementing the acquis –Meeting fiscal policies These are largely outside your control, so what can you do? –Develop national, regional and local capacities –Select good projects –Implement projects on time & budget The next part highlights some points about capacity

10. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Part III Why is absorption capacity important? Ability to fully spend allocated resources –Effectively and –Efficiently To do this requires management capacity at all levels –Macro economics –Fiscal policy –Administrations

11. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Macro-Economic capacity Overall ability of the economy to generate viable investment opportunities financed by external investment support. –This depends on level of economic development (estimated ~4% of GDP) –But the EC believes that there is limited macro- economic capacity to absorb external investment support effectively and efficiently.

12. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Fiscal Capacity This is your ability to: –Co-finance EU supported programmes and projects –Meet additionality requirements –Plan and guarantee national contributions in multi-annual budgets and to collect these contributions from all partners Does your ISPA experience reflect your ability to do these things?

13. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Administrative Capacity (i) Ability of central and local authorities to: Prepare suitable plans, multi-annual programmes and projects in due time; Decide on programmes and projects; Co-ordination of principal partners; Cope with administrative and reporting requirements; and Finance / supervise implementation properly, avoiding irregularities

14. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Administrative Capacity (ii) Administrative absorption capacity: –Demand Project applicants generating projects that meet requirements –Supply Authorities to manage effectively and efficiently all stages of the programming cycle From initial planning to implementation and evaluation of projects.

15. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Administrative Capacity (iii) Organisation structure: –clear assignment of tasks and responsibilities to institutions involved in the management process. Human resources: –ability to detail tasks and responsibilities to appropriate staff and train or recruit staff to fill the identified job posts. Tools: –availability of various aids that enhance the system’s function, such as: equipment, methods, guidelines, manuals, systems, procedures,.

16. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A IV. Lessons from the last wave of enlargement Choose projects that are going to be successful –build on ISPA experience Identify priority locations for projects –this needs integrated sector strategies Remember: –50% split each for transport and environment –Projects chosen jointly with the EC.

17. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Absorption capacity EC believes that the new Member States have limited absorption capacity because of: –Ensuring additionality –Finding co-financing and –Preparing coherent programmes

18. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Additionality Structural funds may not replace public or other expenditure by the member state. This principle seeks to increase leverage and economic impact of cohesion policy Member states must keep national support equal in real terms to the existing levels This applies only to the Structural funds For the Cohesion fund, EU expenditure may replace national expenditure

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

20. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Programming Comprehensive multiannual development plan and programming documents Outlines of key strategic investment priorities on national and regional levels. Commitment to defined priorities by: –Describing concrete investment opportunities –Making financial resources available –Implementation & management structures in place

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

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

23. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A Programme design Sort out administrative and macro- economic absorption capacity Identify priorities for the use of available resources based on needs & capabilities Administrative decision should be based upon EC guidelines and priorities

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

25. I N S T R U M E N T E S T R U C T U R A L E I N R O M A N I A In summary - key messages The challenge to you is: Select & prepare projects properly Know why you need the money (acquis & competitiveness) Make sure your local, regional & national institutions work Hope your economy continues to grow!