Accelerating the modernisation of transport infrastructure in Romania:

the use of EU funds

Alexis Gressier

CEROPE

Content

• Review of current absorption (SOP-T) • Analysis and recommendations – Governance

and planning • Analysis and recommendations –

Implementation • Legislative aspects • Role of private sector • Conclusion

Absorption of EU funds

• Three aspects:

– Modernisation of transport infrastructure needed by citizens and by the economy

– Inflow of financial resources with direct impact on GDP

– Lower pressure on budget

• But also: act as vector of the modernisation / reform of the infrastructure sector

Absorption of EU funds: December 2010

source: KPMG

Current absorption SOP-T

• Two main figures – status at 16/09/2011

– 19.26%: total value of EU share of approved projects against total EU share in SOP-T allocation, with 31 investment projects

– 2.87%: amount of payments (EU contribution) against global EU share in SOP-T allocation

• September 2011: 52% of total time period (2007-2015)

• But: need to take into account the project cycle

Forecasts - MA

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2007 2008 2009 2010 2011 2012 2013 2014 2015

SOP Transport Cumulated

Committed Contracted Paid

ISPA experience

Analysis: how reasonable is the forecast?

• Eligible value of projects under appraisal: 3.4 billion Euro (74.4% of global allocation), with

– 4 motorway projects

– 3 railway projects

The project contracting forecast might be achieved

Main risk: rate of payment, i.e. actual implementation

Not specific to EU funds

• Transylvania motorway • Bucharest – Ploiesti motorway • EIB funded projects (road rehabilitation) • Very limited railway rehabilitation projects funded by other funds

than EU Systemic deficiencies, not specifically related to EU funds:

- Weakness of public administration - Inappropriate governance - Insufficient planning

Over-optimistic forecasts postpone the necessary reform of the system

Delays create backlog: 2007-2010 implementation of ISPA instead of SOP-T, no current preparation for next programming period

Analysis and recommendations – Sector Governance

• Infrastructure projects: require long term planning and operational stability

Need for a clear strategy (master plan) • Reduce political interferences in implementation • Need for “arm-length” management of main

infrastructure companies (CN ADNR SA and CFR SA):

- Medium term management contracts - Set objectives and financial means (Performance

Agreements)

• Core: Functional Review Action Plan

Analysis and recommendations – Financial planning

• Rationalise public investment program

– Value of signed contracts for roads: in excess of 7 billion Euros

– Take into account all project costs

– Ensure adequate funding of maintenance

ensure medium term financial framework (in line with medium term budget)

• Ensure sustainable funding mechanism and coherence between road and rail

Analysis and recommendations • Human resources

– Remuneration system (unitary and attractive) – Staff retaining strategies (incentives and carriers), – Decision making systems, – Involve audit and control authorities, – Increased use of consultants and external services

• Project preparation – Focus on project preparation: shortcuts in preparation lead to

execution delays and cost overruns – Project preparation requires time and funds

• 4 to 5 years as a minimum (feasibility, EIA, design, land acquisition, utilities)

• Around 5% of project costs

– No “magic formula”

Implementation • Tendering :

– Standardise documents, criteria and interpretations – Increase coordination between authorities

• Contract management – Standardise contracts and procedures – Improve quality control – Contract = partnership – Role of control environment: harmonise interpretations – Favor timely solution of difficulties – Develop risk management, with adequate risk prevention measures,

including financial reserves – Develop financial management – Streamline role of external authorities: environment, state

inspectorate in construction, utilities managers, accreditation bodies

Legal aspects

• Changing the law is not the solution to lack of planning and deficient management (OUG 34, land acquisition)

• Law on utilities

• Advance payments

Role of private sector

• PPP: bad track record

Ensure streamlined legal framework (possible infringement procedure on current law)

Restore credibility

• Role of private sector in project management: – Not efficient if not accompanied by public sector

reform,

– Not efficient if limited to contract implementation.

• Increase technical assistance to management

Positive steps

• New law on land acquisition

• Tenders for motorways prior to project approval

• Start of contract standardisation

• Renegotiation of Transylvania motorway Bechtel contract

• Process of tendering for management of some State owned companies

=> but: partial measures do not solve the issues

Conclusions

• Short term priorities – No replacement projects – Focus on implementable projects – Start preparation of next programming period

• Recommendations: – prevent staff turn over by implementing improved human

resources policies (salaries but also carrier management, non – financial incentives and rewards)

– prevent managers turn over – streamline and simplify procedures – hire significant technical assistance in order to assist with

contract management – Establish reserve fund

Conclusions – Medium term – Streamline the sector management, in accordance with the

recommendations of the functional review

– Streamline the sector financial planning, by ensuring preparation of mid-term projections, linked with the State budget,

– Standardize tender documents and conditions of contracts

– Streamline, coordinate and simplify the role of the different actors in infrastructure projects (review bodies, control and audit entities, authorization issuers, etc)

– Prepare a law on public utilities that make utilities owners responsible

Overview

• Wide agreement over problems

• Many papers on solutions

• What might trigger reform implementation?

– Reports, Policy notes

– Funding institutions

– Loss of funds and delayed infrastructure improvement