Infrastructure

Quality infrastructure is critical for economic growth, and in Romania much still needs to be done to upgrade the country’s infrastructure to European standards. Governments have acknowledged the important role that infrastructure plays in economic growth, stating it to be a top priority. However, the pace of progress has been extremely slow, as improving infrastructure requires high amounts of resources. The state budget has limited funds allocated to infrastructure projects, absorption of EU funds for this purpose has been low and efforts to use alternative financing mechanism such as PPPs have not yet materialised.

Romania has one of the lowest densities of highways (2 km / 1,000 sqkm) and one of the highest number of inhabitants/km of highways (36,585) in the EU. Moreover, according to the 2014-2015 Global Competitiveness Report prepared by the World Economic Forum [1] – Romania ranks 122nd in the world, out of 139 countries for quality of roads. The challenges faced in the development of infrastructure can really be summarised as lack of clear visibility of a plan for infrastructure development, as well as a history of project delays and cancellations and cost overruns.

Positive Developments

In April 2012 the Ministry of Transport (MT) kick-started a project for the preparation of an infrastructure Master Plan for the period until 2030. The Master Plan has been now developed and it is in the process of fine tuning. This is a very welcome development.

We also note that EU funds absorption for infrastructure projects has increased to 56%. A momentum can now be built to roll out a number of projects, starting from the Master Plan.

In order for the Master Plan to be an effective roadmap for infrastructure development several measures should be considered in terms of operational roll out:

The time period covered by the Master Plan is quite long. There should be a prioritisation of the most important projects over shorter periods (e.g. 5 years). This prioritisation should also be adopted as a law by Parliament to ensure consensus around large projects and reduce discretionary changes of priorities in the short term.
The funding mechanism is not yet clear. Given the shortage of financial resources in the national budget, one of the main criteria for prioritisation should be the source of funding (as use of EU funds and private funds should constitute a strong alternative to state budget financing):
- Projects financed by the EU should be at the top of the list.
- Second on the list should be projects where private sector involvement is possible.
- Projects funded through the state budget should come third, releasing pressure on public funds.

Although not covered by the Master Plan, regional infrastructure development should also be made a priority. Here not only state or EU funded projects should be considered, but also other projects which are economically viable. Legislation should be passed to allow alternative mechanisms and financing for these projects.

As mentioned in the Chapter devoted specifically to EU funds, there has been an improvement in the rate of absorption, due to a number of measures being taken by the GOR to ensure the necessary financial resources to pre-finance and finance the implementation of projects benefiting from EU financing. These measures have succeeded in removing most of the barriers to financing and have led to a smoother roll out of projects.

The development of the current absorption rate (%)

Source: Ministry of European Funds

However, the level of absorption is uneven between the operational programmes. The programmes focusing on infrastructure projects (SOP Transport) are still not the best performing.

Current absorption rate of operational programmes

Source: Ministry of European Funds

Areas for Improvement

Management of the implementation of infrastructure projects

A number of projects have encountered delays and cost overruns resulting from design issues, developing tender books, a complex and administratively challenging procurement process, a lengthy and sometimes poorly co-ordinated process for obtaining the required approvals, lack of resources during the roll out for monitoring as well as other factors. These administrative challenges have afflicted infrastructure projects for the last two decades.

FIC Recommendations

Much can be achieved by taking measures to address this gap in administrative capacity. The FIC understands that this will take time, but a consistent approach will help improve capacity while at the same time, lead to the development of better infrastructure.

There a number of ways this can be achieved. We believe the following proposals, if adopted and maintained consistently, would result in improvement in administrative capacity and better implementation.

Program implementation unit

To improve coordination between the main stakeholders, the FIC recommends that the Romanian Government should set up a program implementation unit which could be within the MoT or a cross-ministerial body, which should be responsible for supervising the implementation of large infrastructure projects.

FIC Recommendations

This central unit should be resourced with technical, financial and legal expertise, as well as having the appropriate financial resources. The unit would be the overall responsible body for the carrying out of projects for the beneficiary, with clearly identified responsibilities, as well as authority to ensure that:

Consistency of performance is introduced into large project roll outs, as time passes and the unit matures;
Benchmarking is easier and can be a tool to provide guidelines and expert support to other projects on a case by case basis as and when requested;
An up to date and immediate project status is available and this department would facilitate addressing, minimising and eliminating potential problems during the project roll out;
Point of contact is brought to many relevant bodies as time passes;
The department would be permanent and hence loss of knowledge would be minimised.

Use of private sector expertise

Most infrastructure projects are by their nature very complex. Moreover, large infrastructure projects often require tailor-made, innovative solutions, which can be provided by highly experienced and knowledgeable experts. Considering the need, the existing resources at the Government’s disposal at times may not be sufficient to carry out multiple projects simultaneously.

FIC Recommendations

FIC members would strongly welcome greater involvement in infrastructure projects by the private sector, because some aspects of these can be outsourced. The private sector has considerable expertise which the Government can use; to facilitate the development of more infrastructure projects at a faster rate.

Recent experiences in which the GOR has contracted International Financial Institutions (the World Bank, the EIB and the EBRD) to prepare strategic sectorial analysis, represent, in the FIC’s opinion, positive examples of good practices in outsourcing such functions.

Use of financial instruments

As opposed to the traditional grant approach, the use of financial instruments would stimulate local public administration to identify those types of infrastructure projects able to generate enough income to repay the financing resources and would provide Romania with long-term financing mechanisms for infrastructure projects.

FIC Recommendation

Another recommendation aimed at increasing the impact of infrastructure projects, as well as maximising participation of the private sector in such projects – especially at municipal level – is to maximise the use of financial instruments in funding urban development projects. Besides the leverage effect that this approach has (by adding private to public resources), this would orient local and county public administration more to revenue generating projects and, by so doing, increase the economic growth in communities.

Public procurement

Public procurement is by far the biggest issue when considering large project rollout.

FIC Recommendations

The existing legal framework governing public procurement must be aligned with the new EU Public Procurement Directives. The new Directives encourage the public authorities to opt for innovative solutions, and not for the lowest price. The “best value for money” principle will allow the authorities to consider the technological component, the environmental impact, energy efficiency and life-cycle costs. This significant legislative reform in the public procurement sector should also offer the time to correct the procedural, regulatory and operational shortcomings that have been frequently raised by the business community and international fora. To achieve a better understanding of the parties involved i.e. the Contracting Authorities (CA) and Economic Operators (EOs), and to ensure better compliance, a review of the legal framework should be made in thorough consultation with both contracting authorities and economic operators. Where flexibility is allowed to the Member States as far as transposition into national law of the new EU Public Procurement Directives is concerned, an impact analysis of legislative changes must be carried out based on a cost/benefit analysis. This would also increase the stability of the overall procurement system.

As a consequence we propose the following measures to overcome existing bottlenecks and ensure a smoother roll out of projects:

Market analysis: One of the least developed functions of the public procurement system is the provision of stakeholders generally and of the contracting authorities with high quality, reliable and adequate market data. The significant variance of the budget proposed in tender documents for similar types of acquisitions, raises serious doubts as to the consistency of the market analysis on issues such as level of competition, levels per type of acquisition, market prices for each main category of goods, services and public works, access of European companies to the public procurement market in Romania, as well as access to public acquisitions for Romanian companies on European markets, trends for public acquisitions in Europe etc. Enforcement of this function will help the contracting authorities better shape their tender requirements (in terms of qualification criteria, budgets and evaluation grids) and enable economic operators to better plan their resources and participate in public procurement procedures.
Institutional architecture: The FIC noted in previous White Books that the institutional architecture overseeing the whole procurement system (regulating, monitoring, control and verification of public procurement) is very complex and - in the case of acquisitions financed by structural and cohesion funds - further institutions and authorities are carrying out control and verification activities. A simplification of the institutional architecture and a clearer delimitation of the control and verification functions between these institutions would be beneficial in accelerating procurement procedures and in avoiding conflicting opinions in control and verification of the process.

Staff capabilities: after simplifying and line streaming the institutional architecture and after eliminating excessive bureaucratic workflows inside the institutions involved in public procurement, an assessment should be carried out to determine whether staffing levels are adequate for regulators, monitoring and control institutions and contracting authorities. These institutions should possess not only a sufficient number of people but, even more importantly, adequate levels of staff capability and experience. Appropriate remuneration to retain the most competent staff, as well as tailor-made training should be ensured across the system.
Restoring credibility of the system:
- Use of reputable independent experts in the entire process, beginning from the drafting of the tender applications and especially in the evaluation of offers.
- Improving the way prevention and detection of conflicts of interests, is carried out, as well as ensuring that appropriate civil and criminal proceedings are pursued when rules on conflicts of interest have been breached.
Ensuring increased effectiveness of procurement: in full accordance with the principles set by the new directives for public procurement, the focus should be on cost-benefit perspectives and – as a consequence – changing the traditional paradigm of Romanian public procurement, which is based almost exclusively on price.