Turning down free money
Local authorities are snubbing free EU cash in favour of loans for large infrastructure projects, Ana-Maria Nitoi finds out why
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Romanian local authorities and the central administration are beginning a trend of taking out loans or using their own funds for large infrastructure works instead of using EU money.
But the irony is that European funds are the single source of finance available to authorities, outside of their own budgets, which they do not have to pay back.
However local and central administration can only access EU funds based on projects drawn up very carefully. They also come with a large number of conditions. Since EU money became available for Romania, around ten years ago, the central authorities have managed to recruit or train specialists in EU project management.
But this situation is not always to be found outside of Bucharest. There are still towns and especially villages in Romania which have not been able so far to access any EU money for rehabilitation or infrastructure construction. One example is Fagaras, a town located in the tourist-rich Brasov county.
Another problem for authorities who want to get their hands on European funds is the paperwork, which takes a long time to process and to gain approval both by the central Romanian authorities and the European officials in Brussels.
“It is more efficient to take out bank loans than to wait until you can access EU money even though it is non-reimbursable,” says Nicolae Florin Oancea, vice-mayor of Deva city, Hunedoara county.
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Romania does not have a history of absorbing EU cash for large infrastructure projects. Only 35 per cent of the European money for roads, for allocation between 2000 and 2010, which arrives in Romania through the EU pre-accession fund ISPA, has been absorbed, according to the National Company for Motorways and National Roads (CNADNR).
From the plan of total spending on construction of the national road infrastructure in the first seven years after Romania’s accession to the EU, only 13 per cent of the cost is expected to come from the European Union.
Another five per cent of this money will arrive from external bank loans, while the Government will allocate the remaining 82 per cent from the national budget.
Head of CNADNR, Mihai Grecu, believes that the bureaucracy is heavier for the post-EU accession financing than the pre-EU accession funds. “We have to receive from other Romanian state institutions too many approvals in order to start an infrastructure project,” says Grecu. “Even the EU officials have asked the Romanian Government to reduce the paperwork.”
Between 2007 and 2013 around 2.5 billion Euro is available in EU funds to local authorities for modernising the infrastructure. Most of the money destined for infrastructure is aimed at the rehabilitation or construction of local roads and water supply. Gabriel Friptu, general director of the department that manages the Regional Operational Programme in the Ministry of Development, says that, according to the experience of the other EU member states, the European funds for local authorities have the highest absorption rate. “It’s quite logical for the public local authorities to want and need to spend money on modernisation,” Friptu says.
Municipal bonds are another source of financing for local authorities. These are debts that the municipalities put up for sale to allow a quick and fast cash-flow to fund their own projects. Marius Bostan, senior partner at consultancy company VMB Partners, says that municipal bonds will become more successful because, starting this year, pension funds will show their eagerness to invest in them.
The consultant emphasises the importance of the national strategy on infrastructure to be completed by the local strategies and for there to be no contradictions or overlapping.
He also advises the municipalities to analyse and identify types of financing that can be used for certain works. He gave Timisoara as an example of a city that has the most efficient use of investments made in infrastructure. The city has managed to attract many types of financing suited to the demands of each individual infrastructure project.
“Our calculations say the structural funds for water supply and sewerage are insufficient, covering only 25 per cent of the necessities of towns and cities,” says Bostan.
One solution, he adds, is to privatise the companies that manage the public utilities and to list them on the stock exchange.
In this way, the operators can attract funds from the capital market, an easy source to finance their own works for modernising or extending the water supply and sewerage networks.
Local challenges, local solutions
■ DEVA
Deva can be considered a success story in terms of local authorities which have managed to change the face of the city and spend money for rehabilitation of road infrastructure, sidewalks, parking spaces, water supply, sewerage and water treatment plants. Vice-mayor Nicolae Florin Oancea says the city is now attracting massive private investment, with 250 million Euro coming into Deva last year. Now the large players in Romanian retail, Kaufland, Real, Metro, Praktiker, Carrefour, Bricostore and Media Galaxy, have finally announced their presence in Deva. Delays in tax collection are a major problem in Romania. But in Deva the authorities say they are able to collect 90 per cent of the taxes in the allocated time period.
■ SIGHISOARA
Another success story is the historical town of Sighisoara in Mures county. The main attraction in the town is the Medieval citadel, protected by UNESCO, and situated on a fortified hill in the centre. Mayor Ioan Dorin Danesan says the biggest challenge is the works on infrastructure in the historical areas of the town. That is why many funds have been allocated for feasibility studies before construction works start, so that the status of the castle will not be affected. On the other hand, the local authorities have directed their attention towards the so-called ‘social infrastructure’. “The construction of a new municipal hospital in Sighisoara is due to start very soon,” adds the mayor. “We have also enlarged the Day Care Centre for poor people or those needing social assistance and we bought a building to transform into an old people’s home.”
