Cohesion policy has undergone a far-reaching reform for the 2014-2020 period. Based on the legislative proposals presented by the Commission in October 2011, the Regulations that entered into force in December 2013 contain a number of wide ranging changes to:
• improve effectiveness by targeting resources on key Europe 2020 objectives, establishing a performance framework and introducing ex ante conditionalities to ensure better investment;
• create closer linkages between Cohesion Policy and sound economic governance and European Semester processes;
• strengthen the intervention logic, simplify and harmonise implementation through a common set of rules applicable to all European Structural and Investment (ESI) Funds, better coordination of Union instruments, and measures for the reduction of administrative burden for beneficiaries;
• reinforce the territorial dimension of the policy through greater involvement of cities, new territorial delivery mechanisms and reinforced territorial cooperation; and
• provide increased opportunities for the use of financial instruments.
All of the above imply a fundamental redirection of how the policy is delivered in Member States and regions. For the reform to be successful and the policy to deliver the best contribution to EU priorities, it is essential that the new orientations are clearly reflected in the programming documents (partnership agreements and programmes) and effectively applied in the implementation of programmes on the ground. In order to provide better information about the policy and support a broader political debate, the regulations also foresee increased reporting requirements for the Commission about the achievements of the reformed cohesion policy , to make sure that implementation of the reform is appropriately monitored and followed up.
The new rules and legislation governing the next round of EU Cohesion Policy investment for 2014-2020 have been formally endorsed by the Council of the European Union in December 2013.
Financial instruments represent a resource-efficient way of deploying cohesion policy resources in pursuit of the Europe 2020 Strategy objectives. Targeting projects with potential economic viability, financial instruments provide support for investments by way of loans, guarantees, equity and other risk-bearing mechanisms, possibly combined with technical support, interest rate subsidies or guarantee fee subsidies within the same operation. Besides the obvious advantages of recycling funds over the long term, financial instruments help to mobilise additional public or private co-investments in order to address market failures in line with Europe 2020 and cohesion policy priorities. Their delivery structures entail additional expertise and know-how, which helps to increase the efficiency and effectiveness of public resource allocation. Moreover, these instruments provide a variety of incentives to better performance, including greater financial discipline at the level of supported projects.
Building on the implementation experiences with financial instruments in past cohesion policy cycles and reflecting the importance attached to them in the multiannual financial framework 2014-2020, the legislative and policy framework for 2014-2020 encourages further expansion and strengthening the use of financial instruments in the new programming period as a more efficient and sustainable alternative to complement traditional grant-based financing.
To encourage and increase the use of financial instruments in cohesion policy in 2014-2020 programming period, the new legal and policy framework:
– offers greater flexibility to EU Member States and regions in terms of target sectors and implementation structures;
– provides a stable implementation framework founded on a clear and detailed set of rules, building on existing guidance and experiences on the ground;
– captures synergies between financial instruments and other forms of support, such as grants;
– ensures compatibility with financial instruments set up and implemented at EU level under indirect management rules.
The common provision regulation includes a separate section on financial instruments – Title IV (Articles 37 to 46), allowing for a clearer presentation of the instruments’ specificities and regulatory requirements. Furthermore, implementation details are laid down in related secondary legislation (Delegated Acts and Implementing Acts). There will therefore be a single set of rules governing financial instruments for all five ESI Funds, ensuring consistency with the provisions of the Financial Regulation.
In contrast to the 2007-2013 programming period, the rules adopted for 2014-2020 financial instruments are non-prescriptive in regards to sectors, beneficiaries, types of projects and activities that are to be supported. Member States and managing authorities may use financial instruments in relation to all thematic objectives covered by Operational Programmes (Ops), and for all Funds, where it is efficient and effective to do so.
The new framework also contains clear rules to enable better combination of financial instruments with other forms of support, in particular with grants, as this further stimulates the design of well-tailored assistance schemes that meet the specific needs of Member States or regions. Financial instruments are a special category of spending and their successful design and implementation hinges on a correct assessment of market gaps and needs. Therefore, in the context of an OP, there is a new provision that financial instruments should be designed on the basis of an ex ante assessment that has identified market failures or sub-optimal investment situations, respective investment needs, possible private sector participation and resulting added value of the financial instrument in question. Such an ex-ante assessment will also help to avoid overlaps and inconsistencies between funding instruments implemented by different actors at different levels.
One of the most important benefits of using financial instruments in implementation of ESI Funds is their value added. At a general level, the qualitative value added includes :
• More responsible approach, better performance and financial discipline ;
• Simplicity of obtaining financing;
• Creation of a new generation of entrepreneurs;
• Encouraging entrepreneurship among less advantaged social categories;
• Introduction of new instruments including not only the early stage equity funds but also potentially the microcredit instruments;
• Supporting the buildup and modernisation of the financial system, including also the non-banking financial institutions;
• Creating competition among banks;
• Flexibility and adaptability;
• More cost-effective management;
• Quick disbursement of funds, absorption and less distortion of competition;
• Supporting competitiveness, innovation and entrepreneurship and creating employment.
The EU cohesion policy aims to deliver growth and jobs together with the targets and objectives contained within the Europe 2020 strategy. Choosing the best quality projects which offer best value for money and which impact significantly on jobs and growth is a key ingredient of the overall strategy. In this framework, Cost Benefit Analysis (CBA) is explicitly required, among other elements, as a basis for decision making on the co-financing of major projects included in operational programmes (OPs) of the European Regional Development Fund (ERDF) and the Cohesion Fund.
CBA is an analytical tool to be used to appraise an investment decision in order to assess the welfare change attributable to it and, in so doing, the contribution to EU cohesion policy objectives. The purpose of CBA is to facilitate a more efficient allocation of resources, demonstrating the convenience for society of a particular intervention rather than possible alternatives. The role of CBA in the broader framework of EU policy is discussed in light of the EU 2020 Strategy, the targets and objectives of the flagship initiatives and the main sectorial policies and cross cutting issues, including climate change and resource efficiency, in addition to synergies with other EU funding instruments such as the Connecting Europe Facility.
In order to get the approval for the co-financing of the major project, the managing authority (MA) of the programme(s) which submits the project is asked to make available the information referred to in Article 101 (Information necessary for the approval of a major project) of Regulation (EU) No 1303/2013, as follow:
• Details concerning the body responsible for implementation of the major project, and its capacity.
• A description of the investment and its location.
• The total cost and total eligible cost, taking account of the requirements set out in Article 61.
• Feasibility studies carried out, including options analysis, and the results.
• CBA, including an economic and a financial analysis, and a risk assessment.
• An analysis of the environmental impact, taking into account climate change mitigation and adaptation needs, and disaster resilience.
• An explanation as to how the major project is consistent with the relevant priority axes of the OP or OPs concerned, and its expected contribution to achieving the specific objectives of those priority axes and the expected contribution to socio-economic development.
• The financing plan showing the total planned financial resources and the planned support from the Funds, the EIB, and all other sources of financing, together with physical and financial indicators for monitoring progress, taking account of the identified risks.
• The timetable for implementing the major project and, where the implementation period is expected to be longer than the programming period, the phases for which support from the Funds is requested during the programming period.
The information in Article 101 represents the basis for appraising the major project and determining whether support from the Funds is justified.
According to Article 102 (Decision on a major project) of Regulation (EU) No 1303/2013, the appraisal procedure can take two different forms. It is up to the Member State to decide which of the two forms to apply for specific major projects under its OPs:
• the first option is an assessment of the major project by independent experts followed by a notification to the Commission by the MA of the major project selected. According to this procedure, the independent experts will assess the information provided on the major project according to Article 101;
• the second option is to send the major project documentation directly to the Commission, in line with the procedure of the 2007-2013 programming period.
In this case, the MS shall submit to the Commission the information set out in Article 101, which will be assessed by the Commission. Regardless of the procedure adopted, the aim is to check that:
• the project dossier is complete, i.e. all the necessary information required by Article 101 is made available and is of sufficient quality;
• the CBA analysis is of good quality, i.e. it is coherent with the Commission methodology; and
• the results of the CBA analysis justify the contribution of the Funds.
The effectiveness of public investments and the durability of their results depend on having in place suitable policy, regulatory and institutional conditions. Indeed, unsound policy frameworks and regulatory, administrative and institutional weaknesses are major systemic bottlenecks hindering effective and efficient public spending. It is therefore of the utmost importance that such systemic weaknesses are identified upfront and addressed in a proactive manner so that the prerequisites for an optimal use of resources from the EU budget are in place .
Regulation no. 1303/2013 that sets the general framework for the programming, management, implementation and control of the ESI funds introduces a new concept – the “ex-ante conditionality”. The definition provided for this concept is “a concrete and precisely pre-defined critical factor, which is a prerequisite for and has a direct and genuine link to, and direct impact on, the effective and efficient achievement of a specific objective for an investment priority” . The purpose of these prerequisites is to ensure, even before the approval of the operational programmes, that there is a strategic and coherent vision and the corresponding administrative capacity at the level of each member state for the regional development interventions to be appropriately implemented. The experience of the past programming periods proved that sometimes the efficiency of the investments was undermined by delays or bottlenecks generated by the institutional, political or regulatory frameworks of the member state.
These conditions are linked to :
1. policy and strategic frameworks, to ensure that the strategic documents at national and regional level which underpin ESI Funds investments are of high quality and in line with standards commonly agreed by Member States at EU level;
2. regulatory frameworks, to ensure that implementation of operations co-financed by ESI Funds complies with the EU acquis;
3. sufficient administrative and institutional capacity of public administration and stakeholders implementing the ESI Funds.
There are 7 general ExAC linked to the horizontal aspects of programme implementation and 29 thematic ExAC, which set out sector-specific conditions for relevant investment areas eligible for support under cohesion policy (investment priorities).
Ex ante conditionalities are anchored in the General Regulation (EU) 1303/2013 and we can define the as a key prerequisite for efficient drawing of funds from the European Structural and Investment Funds. Ex-ante conditionalities represent pre-conditions that all Member States will have to fulfil by the time of submitting the Partnership Agreement. Where the fullfilment of exante conditionalities is not perceived by the European Commission as sufficient, this fact may lead to non-payment or suspension of interim payments to the programme part concerned. Fulfilment of ex ante conditionalities and, where applicable, the schedule of their implementation is part of the Partnership Agreement and individual programmes. Ex-ante conditionalities must be fulfilled no later than 31 December 2016 (or within two year following the adoption of the PA).
The required ex-ante conditionalities define three categories of arrangements that Member States have to put in place:
1. Arrangements for the effective application of Union State aid rules.
2. Arrangements for training and dissemination of information for staff involved in the implementation of the funds.
3. Arrangements to ensure administrative capacity for implementation and application of Union State aid rules.
The European Commission has elaborated the implications of these ex-ante conditionalities in a document entitled “Guidance on Ex Ante Conditionalities for the European Structural and Investment Funds” . Since many State aid granting authorities also utilise structural funds in their measures for the support of undertakings, they need to comply with the ex ante conditionalities. But even if they would not use any structural funds, public authorities should still take into account the guidance issued by the Commission. This is because the Commission is indicating how public authorities can avoid granting aid that contravenes EU procedural and substantive rules.
The essence of the Commission guidance can be condensed into the following motto: Good procedures make good State aid. The most convincing proof that this simple motto is right is the striking difference between the outcome of assessment of notified and non-notified aid.
The Commission has elaborated the three elements of the ex-ante conditionalities in the structural funds Regulation as follows:
1. Arrangements for the effective application of Union State aid rules in the field of ESI Funds:
1.1 Measures are in place to prevent the granting of illegal aid
• Systematic verification to ensure that measures are covered by a Commission decision or the General block exemption Regulation.
• Consultation with authority with State aid expertise.
1.2 Capacity to enforce recovery orders with respect to both illegal and incompatible aid.
1.3 Capacity to ensure proper controls of compliance with the GBER and approved schemes.
• Procedures for checking eligibility and compatibility conditions.
1.4 Appropriate knowledge about any aid granted, including de minimis aid.
• Procedures for complete, accurate and timely reporting and publication of aid granted.
2. Arrangements for training and dissemination of information for staff involved in the implementation of the funds:
2.1 Existence of effective training strategy with quantitative indicators.
2.2 System of dissemination and exchange of information and experience and publication of guidance documents.
3. Arrangements to ensure administrative capacity for implementation and application of Union State aid rules:
3.1 Existence of a central body having the administrative capacity (sufficient number and qualified staff) to give substantive practical and legal advice.
3.2 Provision of appropriate technical assistance.
Ex-ante conditionalities were separately negotiated by each member state with the European Commission. Romania negotiated 36 conditionalities accepted by the government in 2014; 20 have been fulfilled so far, 11 are awaiting confirmation, while another five are under implementation.
The Commission has been closely monitoring the fulfilment of ExAC and has provided support to Member States to complete the action plans, including through technical assistance. It is to be considered how to make this process more effective in view of timely fulfilment of ExAC.
In order to assume the ex-ante conditionalities was signed the Memorandum on "The fulfillment and assumption of the ex-ante conditionalities in the context of the preparation and approval of the European funds programming documents allocated to Romania in 2014-2020 for the business, competitiveness and energy domains" between the Ministry of Regional Development and Public Administration and the Ministry of Economy.
The suspension of payments may be applied also later, if the member state does not report in the 2017 annual implementation report that all “ex-ante conditionalities” have been accomplished. Therefore, it is important to underline the role these conditionalities play in imposing on the member state to conceive and integrate the interventions that have an impact on regional development inside a larger strategic framework, at both national and European level, with the purpose of improving their results.
The Partnership Agreement (PA) is the programmatic document governing the spending of European funds by Romania in the current programming period 2014-2020.
The Partnership Agreement covers five European Structural and Investment Funds (ESIF): the European Regional Development Fund (ERDF), the Cohesion Fund (CF), the European Social Fund (ESF), the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF). For this period, the total amount of funds allocated to Romania is 33 billion, of which approximately € 23 billion is earmarked for cohesion policy.
The Partnership Agreement focusses on the following challenges and corresponding priorities:
– Promoting competitiveness and local development, with a view to reinforcing the sustainability of economic operators and improving regional attractiveness;
– Developing human capital, by increasing the employment rate and tertiary education attainment, but also tackling the severe social challenges and poverty levels, in particular for deprived or marginalised communities and in rural areas;
– Developing physical infrastructure, both in ICT and the transport sector, in order to increase the accessibility of Romanian regions and their attractiveness for investments;
– Encouraging sustainable and efficient use of natural resources through promotion of energy efficiency and a low carbon economy, protection of the environment and adaptation to climate change;
– Building a modern and professional public administration by means of a systemic reform aimed at overcoming the structural governance shortcomings.
These funds are the cornerstone of Romania’s ability to address medium and long-term development challenges. They will mobilise additional public national and private funding for growth and job creation and will reduce regional and social disparities in Romania. Investments will focus on enhancing innovation activity and competitiveness of enterprises in order to increase their added value, stimulate growth, job creation and improve the performance of the research and innovation system, including the quality of higher education, cooperation with the business sector and increased private investment.
One of the key challenges for Romania is to develop and upgrade its significant agricultural potential, currently too concentrated in low added value activities, while at the same time accompanying the farm restructuring process and releasing labour force needed by other competitive sectors. Investing in human capital and helping people enter the labour market and improve their skills will be a top priority in Romania with a focus on issues highlighted in the country specific recommendations.
A strong emphasis is placed on combating youth unemployment. The funds will finance initiatives to improve education and training systems with a view to better matching the labour force skills with the market needs, in particular for tertiary education and vocational education, but also focusing on early childhood education and care, primary and secondary education, especially for deprived communities, including Roma minority. The health sector will also be strongly supported, focussing on deprived communities and promoting an alternative to hospitals, like primary and ambulatory care or e-health services. Romania’s efforts to shift from institutionalised structures to community-based solutions for children, the elderly and persons with disabilities will also be supported by the ESIF.
The ESF will also support Romania's efforts to improve the quality of its public administration through structural reforms, together with tailored support to the most critical public institutions, building on the action plans prepared with the support of the World Bank. Investments in these areas will be instrumental in helping Romania to respond to the priorities of the Europe 2020 Strategy and country-specific recommendations and the corresponding policy reforms in education, employment, social inclusion and public administration.
The main task that the new Partnership Agreement directs to Managing Authorities is to ensure that European money is spent responding to the needs of European citizens.
For Romania, the priorities are as follows:
1. Promoting competitiveness and local development
2. Creating jobs
3. Reduce inequalities through social inclusion programs
4. Infrastructure development
5. Increasing energy efficiency and environmental protection
Romania was the eleventh country in the 28 EU Member States that signed the document in Brussels. The approval of the Partnership Agreement by the European Commission in the first half of the list of Member States has been a positive signal for Romania, indicating the possibility of a positive evolution in the absorption of funds.
Commenting on the adoption, Commissioner for Regional Policy, Johannes Hahn said : "Today we have adopted a vital, strategic investment plan that sets Romania on the path to jobs and growth for the next 10 years. This Partnership Agreement reflects the European Commission and Romania's joint determination to make the most efficient use of EU funding –Our investments must be strategic, according to the new Cohesion Policy- focusing on the real economy, on sustainable growth and investing in people. But quality not speed is the paramount aim and in the coming months we are fully dedicated to negotiating the best possible outcome for investments from the European Structural and Investment Funds in 2014-2020. Commitment is needed on all sides to ensure good quality programmes are put in place.”
The investment priorities for 2014-2020 are set out in the Partnership Agreement with the European Commission. In order to reach a modern and competitive economy and strengthen the regional and urban development, Romania identified in the Partnership Agreement with the European Commission five challenges to be tackled through Cohesion Policy:
● People and society, through improved employment, social inclusion and education policies, contributing to reach the national EU2020 targets ─ increase the employment rate to 70 %, reduce the number of people at risk of poverty with 580 000 by 2020, reduce the early school leavers down to 11.3 % and increase the tertiary education participation to 26.7%;
● Infrastructure, especially in transport, through improved accessibility of the less developed regions in Romania and connectivity with the international market, a more sustainable transport mix, improved traffic safety and travel time and a more sustainable urban transport;
● Economic competitiveness, through a more compact and modern R&D environment focused on businesses' needs and Romania's competitive sectors, and transformation of the traditional sectors through innovation and market development, targeting the increase of the GDP to be invested in R&D with 1.5 % by 2020;
● Resources, through the shift towards a low-carbon economy, including energy efficiency in the built-environment, promoting climate change adaptation, risk prevention and resource efficiency and protecting the environment, contributing to the national EU 2020 targets: reduce the green house emission and energy intensity with 19 % and increase the share of renewable energy to 24 %;
● Administration and government, through optimising the institutional environment and improving the quality of public services by the administration and the judiciary.
Several measures to improve the quality of investments have been intro¬duced for the 2014–2020 period:
• Ex ante conditionalities, which are preconditions attached to the pro¬grammes and which tackle the major systemic bottlenecks hindering ef¬fective public investment. They have also strength¬ened the administrative capacity to implement EU rules relating to public procurement, state aid, environmental legislation and anti-discrimination .
• Smart specialisation, which is the most comprehensive decentralised, innovation and industrial policy in Europe today. It brings together the key players — the research community, business, higher education, public authorities and civil society — to target support in line with local potential and market opportunities. The goal is to achieve critical mass, innovation and a move up the value chain.
• A stronger focus on results, which means that programmes must set specific objectives, translated into clear result indicators with targets and benchmarks. Regular reports show whether the programmes are achieving their goals and key indicators can be tracked online on an open data plat¬form to check their progress. There is also a performance reserve which can be released if pre-set targets are met.
The funding allocated to projects selected by the 2014–2020 programmes up to July 2017, amounts to 39% of the total available. Though this is similar to the previous period, implementation has been slow which suggests that sim¬plification and capacity concerns need to be further addressed. It is still too early to monitor progress towards achieving targets which will only become apparent once more projects have been completed.