Last year, the European Commission adopted the Large Infrastructure Operational Programme for Romania, which equated to a €9.5bn investment in the country’s transport, environment and energy projects.
However, Romania has historically used only a low level of the EU funding that has been made available to it, leading the government to introduce a range of measures to improve the country’s infrastructure development.
Many of these initiatives are now in force and law firms in the region are gearing up for the additional work that is about to go ahead.
Q: Romania has historically had a poor absorption rate when it comes to distributing EU funding efficiently. Has the government implemented any changes to makes sure infrastructure projects receive the correct level of funding?
Florian Nitu, managing partner, Popovici Nitu Stoica & Asociatii: That is indeed true. Infrastructure is by far the most complex in terms of feasibility assessment, planning, awarding, contracting, financing and implementation. As such, one needs to make sure the public authority involves benefits from properly qualified resources, a flexible legal framework, and transparency, competitiveness, impartiality throughout the entire process, with no back-door interference from politicians.
Romania has suffered in the past from one or many of these problems and it is trying hard to get rid of them. Indeed, new public procurement law was adopted in June 2016 aimed at fixing some of the procedural bottlenecks and ensuring transparency and competitiveness.
Mona Musat, managing partner, Mușat & Asociații: We have been involved in EU funding-related matters, and the feeling we have is that progress is being made, but there is still room for improvement.
The Romanian government still needs to improve the way in which projects are managed
Mona Musat
Certainly, as media reports have pointed out, the Romanian government still needs to improve the way in which projects are managed. Predictability of political decisions, rule of law, transparency and bureaucracy are all issues that could benefit from further enhancement in order to facilitate the absorption of EU funds.
In addition, the training of staff handling European funds is vital for increasing the absorption rate. Without people who are well prepared, able to deliver concrete results, focused on objectives, stable in their positions beyond political changes, and adequately incentivised and rewarded from the economic point of view, it is not possible to make the most of the European support.
Șerban Pâslaru, partner, Țuca Zbârcea & Asociații: The government took measures to ensure the co-financing needed by the local public administration so as to finalise a significant number of EU-funded projects by 30 June 2016.
According to recent legal enactments adopted by the government in 2016, the administrative and territorial units and the cross-community development associations may apply for Treasury loans to finalise EU- funded projects. The government took such measures insofar as failure to finalise these projects would trigger the refund of the amounts already disbursed within the projects during the programme eligibility period, to the European Commission.
A major change has been implemented in relation to new infrastructure projects: such projects will no longer be contracted based on the infrastructure technical design, but only based on the feasibility study. Another change envisages a mechanism of invoice disbursement from the revenues earned by the government of Romania, ensuring a payment buffer to public beneficiaries.
Q: How has the market reacted to these changes and has it produced an increase in infrastructure development work?
Nitu: This has yet to come. In fact, because of the multiple changes that are currently being made, the sector was significantly affected, with many projects put on hold or even cancelled. But the prospects are good. The interest from construction companies, engineering ventures and consultants across Europe is high and the state and local authorities have access to funding, either through their own means or from the EU.
Musat: Romania has issued its own list of projects, for which it was seeking finance. Among these projects was the construction of the Iasi-Bors highway and the expansion of the Bucharest subway network with a new line.
Public to private projects demand local proficiency. International firms can bring in their experience in similar projects elsewhere
Florian Nitu
As far as we are aware, there has been no official announcement about the financing of any Romanian project on that list, and for the moment, a significant number of infrastructure projects are on standby for different reasons: lack of construction authorisations, inspection of environmental agreements and further delay in proceedings for expropriation.
Q: Has your firm made any changes to its business in order to take advantage of the increased level of infrastructure development that has been promised – and if so, how?
Påslaru: One of the latest projects we have worked on is the European Investment Bank’s interests within a general assistance programme aimed at the Ministry of European Funds. The programme targets the integration of the new EU public procurement package into national law. Our legal team prepared the public procurement draft law supporting the efforts of the working group to transpose the new EU package.
We provided assistance in the national public consultation on the public procurement draft law
and we reviewed and incorporated the comments of various procurement entities, undertakings and civil society organisations.
Also, our experts prepared the first draft of the secondary legislation when implementing the public procurement draft law.
Musat: We pride ourselves in having acted for many multinational corporations and leading local players in infrastructure, projects and PPP, which appreciate the firm’s experience and creative thinking, with the right blend of legal ability and constructive commercial approach.
A selection of our recent projects includes advising a major international player in the design, manufacturing, maintenance and supply of equipment and components for railway systems in connection with its participation in the public tender launched by Metrorex (the local company that runs the Bucharest Metro) for the acquisition of 51 six-car subway trains to operate on Metro Line 5 with an estimated value of €344m.
Nitu: My firm is one of the market specialists in public procurement and public projects in general. Popovici Nitu Stoica & Asociatii has linked its name to landmark public-private projects such as the nuclear power plant in Cernavoda, and multiple road construction or rehabilitation projects. All our lawyers in the public projects team have undertaken EU law advanced education programmes and handled EU-funded projects. Together with our tax and financial consulting outfit, PNSA Tax, as well as a network of highly experienced technical experts, we think we are best placed to assist EU-funded infrastructure projects in Romania.
Q: Will the public procurement framework benefit domestic Romanian firms or is the new system likely to make it easier for international firms to win clients?
Musat: One of the many changes the new package of public procurement law has brought is the fragmentation of big contracts, which means that several companies can have access to procurement and building contracts. Also, the new legislative framework is based on the principle of better public funding management, similar to
that of private money, to achieve a better price-quality ratio. Under the legislation, the best offer translates as the best price, the best cost, and the most appropriate balance between price and quality.
It is important to adjust the framework to the new EU directives. In fact, Romanian legislation has taken over some of the EU directives. These new laws should afford greater flexibility, as the old public procurement process was very rigid and the focus so far had been on driving the lowest price, which doesn’t necessarily turn into the best ratio price-quality.
Another major impact will be on the database in which public procurement is recorded. This database is called the Electronic Public Procurement System (SEAP) and is much better than in other EU countries. Of course, there is still room for improvement in order to easily identify suspicious behaviour, such as agreements or cartels.
Nitu: Public to private projects, and in general projects designed and implemented locally, demand local proficiency. International firms can bring in their past – and, in some cases, extensive – experience in similar projects elsewhere. On the other hand, the reality is that across Europe, public specialist firms are mostly independent law firms. This becomes apparent after a cursory inspection of what the Brussels legal services market looks like in this area.
Therefore, I would say that in certain projects, a consortium of local and international firms could be the best approach, but in general local knowledge remains decisive.