Bancherul - BANCI / ENGLISH / EU Funds in Romania: KPMG survey raises alarm

The “EU Funds in Central and Eastern Europe – Progress report 2011” has been compiled by KPMG’s EU Funding and Public Sector Advisory Services based on input received by KPMG practices in Central and Eastern Europe (CEE) from relevant authorities, said the company in a statement.

The purpose of this report is to provide an overview of the progress of the National Strategic Reference Frameworks in the second phase of the programming period 2007-13. This is the time during which all Member States are in the process of preparing plans for the upcoming programming period, namely 2014-2020. Successes and experiences from the current programming period constitute a good foundation and source of knowledge for every country. Appropriate conclusions from the experiences gathered should be applied in the process of drawing up strategies which will prove to the European Union that a given Member State will use the funds in a more productive manner within the forthcoming programming period.

Ever since countries in the CEE region joined the European Union, in 2004 and 2007, it has been obvious that effective use of EU support can foster the success of their economic performance. Therefore, it is the responsibility of the Member States to use this support appropriately and enhance economic and social cohesion. Romania and the countries in the CEE region have witnessed a significant reduction in foreign investment since the economic crisis set in, as investors have been moving away from emerging markets to target instead rapidly developing economies (such as the BRIC countries- Brazil, Russia, India and China), in search of more profitable business opportunities and safer markets.

In this context, it is essential for Romania to rally its resources and absorb the funds still available from the EU financing allocated until 2013 and to clearly define its priorities for the forthcoming financing period. However, the latest annual survey compiled by the KPMG member firms in the region, “EU Funds in Central and Eastern Europe”, show that in Romania the absorption rate of European funds continues to lag behind the absorption rate of numerous countries in Central and East Europe in many sectors. While Estonia, Latvia, Lithuania, the Czech Republic rank among the first, Romania continues to be consistently in the penultimate place with a little over 60% of funds contracted over the last 5 years out of the total European budget allocated to Romania, and in the last place with less than 15% reimbursed to beneficiaries.

Daniela Nemoianu (photo), Executive Partner, KPMG in Romania underlines: “The KPMG publication is a useful barometer not only for the government and the relevant authorities but also for companies interested in developing projects that involve European funds. The key drivers to reduce the growing gap are a coherent and consistent governmental strategy, anticipation of the macroeconomic and sector developments and employment of effective mechanisms to cut red tape, single out eligible, sound contractors and ensure a modern management by the authorities. From the beneficiaries’ perspective, what essentially matters is transparency of procedures, legislative stability and efficiency of the competitive process, as well as a documented selection of projects based on appropriate opportunity, eligibility and sustainability criteria. The forthcoming period will pose one of the most serious challenges for the public sector, with numerous priorities but tight budgetary restraints for Romania in 2012-2020. Whether it is about Pan-European transport corridors IV or IX, the development of alternative energy projects, Cernavoda reactors 3 and 4, rehabilitation of irrigation systems or about improvement of river channels for flood prevention and control, modernization of ports, airports and railways, health resorts or the ELI research project, health and education infrastructure, to which we can add regional and local projects, all require an extended exercise of systemically sustainable strategic projections, broad administration and management capabilities from the public authorities and institutions, specialised and dedicated resources, the capacity to come forward with viable and eligible projects for the absorption of European money, as well as efficiency and transparency at all levels and during all the stages.

Monitoring the execution and implementation of projects is even more important. Here the experience of the neighbouring countries that joined the EU in the first wave has shown the risks that can emerge where European funds are incorrectly used or reimbursed, with direct consequences in the form of sanctions imposed by the European Commission. Romania can, at any time, learn from the success or failure of the countries that were actively involved in the absorption of EU funds before us, being in a position to adapt best practice and most advanced methodologies to the local specifics. The authorities must call on specialists for the transfer of know-how and keep on taking the pulse of the local and international business and financial environment, where competition between states for attracting funds is tightening.”

Dinu Bumbacea, Partner Management Consulting and Public Sector adds: “The low absorption rate of EU funds in Romania is mainly caused by the lack of a consistent project development process. Requisites are obvious, and so is the positive impact that these non-refundable funds would have on the Romanian economy. Given the current level of development of the Romanian economy, compared to that of our EU partners, Romania should be a net beneficiary and not a net contributor. This is the only way to cover the gap that separates us from the more developed economies. EU funds absorption is, however, a complex and long-term process, with ups and downs – we are talking here about submission of projects, approval of projects, conclusion of contracts, payments and, last but not least, the audit of the utilization of EU funds. The investment made in time and resources will be rewarded after all these stages have been covered.”

Florin Banateanu, Director, Advisory Services, EU Funding and Public Sector within KPMG in Romania, adds: “Improving the absorption rate of EU funds is a regional and national priority, both for the public authorities involved and for the private sector, especially in the current economic context. In Romania, it is crucial for the public authorities in charge of each operational programme to focus now on the correct implementation of the projects in progress and on the quick reimbursement of the European funds allocated to our country. To meet this target, the rapid utilization of the technical assistance funds is a prerequisite for providing technical professional assistance to the beneficiaries of EU funds, so as to ensure an appropriate management of the projects in progress, as well as to adequately prepare reimbursement applications. Deferral of appropriate actions may lead to serious situations of default and implicitly to the loss of the funds already invested by beneficiaries from their own resources, whether public authorities or private firms. With over 15 years experience in this field, KPMG in Romania has been actively involved in the implementation of technical assistance projects, which has been demonstrated by the successful completion of several projects for the benefit of important public institutions. The main projects covered areas such as the evaluation and monitoring of operational programmes implementation, development of funding applications and project management.”