Preliminary assessment of the first payment request of Romania

annually on a specific platform accessible to various administration, including the Environmental guards. Concerning the obligation of users to connect to existing public sewerage systems if they do not have an appropriate individual collection and treatment system, article 31 paragraph (14) has been modified to include a requirement that users, either natural or legal persons, including those who have their own water supply systems, shall be required to connect to the existing or newly established public sewerage systems. Concerning the requirement that the Law allows to organise, where appropriate, the provision of the water service only, on the condition that the collection of wastewater is done through individual collection and treatment systems that shall ensure the same level of environmental protection as centralised collection and treatment systems , article 2 paragraph (4) has been modified to include that only the water supply service may be organized in the territorial administrative units, provided that the collection of wastewater is ensured through individual systems appropriate for wastewater treatment. These individual systems ensure hygiene and health of the population and the protection of the environment at standards similar to centralized sewerage and treatment systems. Concerning the requirement to ensure the exceptional nature of adequate individual systems in the sense that these systems address situations where centralised systems are not technically and economically feasible, two new paragraphs (141) and (142) have been added after article 31 paragraph (14), providing that natural and legal persons have the obligation to use some appropriate individual systems or other appropriate systems which can ensure the same level of environmental protection, exclusively in the situation in which the installation of a public sewerage network is not possible for environmental or economic reasons. 37 Concerning the prohibition to discharge untreated wastewater from appropriate individual systems directly into the environment, two new paragraphs have been added after article 31 paragraph (14), providing that the direct discharge of the untreated wastewaters shall be forbidden from the appropriate individual systems into the surface waters, groundwater, or on the lands, without ensuring their proper treatment. Concerning the development of criteria for authorization, construction, registration/record, operation and maintenance of appropriate individual systems, article III (1) and (2) allow for the development of criteria by the relevant authorities. In particular, the article provides that the National Regulatory Authority for Community Services of Public Utilities (A.N.R.S.C.) shall elaborate the methodologies provided by art. 16, paragraph (2), letters c) and d) of the Law no. 241/2006, republished. Furthermore, the law provides that the Ministry of Environment, Water and Forests and the Ministry of Development, Public Works and Administration shall draw up the criteria for authorization, construction, registration, control and operation and maintenance of appropriate individual collection systems and wastewater treatment, which are to be approved by Government decision. Government Decision 714 approving the criteria was adopted on 26 May 2022. All the changes required by the CID Annex have been introduced in the Law No 241/2006. The Romanian Audit Authority also reviewed the milestone. The authority found that for the last amendment concerning the development of criteria for authorization, construction, registration/record, operation and maintenance of appropriate individual systems, the Romanian government developed the criteria but did not formally approve them. The authority recommended that the government approved them. The milestone requires amendments for the empowerment to develop the criteria and not for their application, therefore this conclusion is not relevant for the assessment of the milestone. As indicated above, the Commission notes that the Government Decision 714 approving the criteria was adopted on 26 May 2022. Therefore, the Commission considers the milestone as satisfactorily fulfilled. Commission Preliminary Assessment: Satisfactorily fulfilled Related Measure: Performance-based quality management in transport - Improving Number: 78 institutional capacity and corporate governance Name of the Milestone: Entry into force of the Law no. 50/2021 for the approval of the Emergency Ordinance no. 55/2016 on the reorganization of the National Company of Highways and National Roads in Romania - S.A. (C.N.A.I.R) and the establishment of the National Road Investment Company - S.A. (C.N.I.R) Qualitative Indicator: Provision in the law indicating the entry into force of Time: Q2 2021 the Law no 50/2021 Context: Milestone 78 is part of a reform which aims to enhance the quality of transport investments and services by improving the corporate governance and the performance of the State-Owned Enterprises operating in the transport sector, notably for those in charge of roads, railways, and metro. This reform contains four interrelated milestones and targets. Milestone 78 calls for the entry into force of the legislation on the reform of the National Company of Highways and National Roads in Romania (C.N.A.I.R) and the creation of a new Road Investment Project Management Company (C.N.I.R). Along with the entry into force of this legislation, 38 milestone 78 requires the adoption of a regulatory package for the purpose of ensuring solid corporate governance and performance of the two state-owned enterprises C.N.A.I.R and C.N.I.R. Evidence provided: In line with the verification mechanism set out in the Operational Arrangements, the following evidence was provided: 1. Copy of the publication in the Official Journal no. 315 of 29 March 2021 of law no. 50/2021 for the approval of the Emergency Ordinance no. 55/2016 on the reorganisation of the National Company of Highways and National Roads in Romania - S.A. (C.N.A.I.R) and the establishment of the National Road Investment Company - S.A. (C.N.I.R). 2. Summary document duly justifying how the milestone was satisfactorily fulfilled (Cover Note). The authorities also provided: 3. Government Emergency Ordinance no. 55/2016 on the reorganization of the National Company of Highways and National Roads in Romania - S.A. (C.N.A.I.R) and the establishment of the National Road Investment Company - S.A. (C.N.I.R). 4. Government Decision no. 864/2021 published in the Official Journal no. 815 of 25 August 2021 approving the statutes of the National Road Investment Company (C.N.I.R). 5. Government Emergency Ordinance no. 109/2011 on the corporate governance of public companies. 6. Government Decision no. 722/2016 on methodological norms of corporate governance. 7. Temporary mandate contract for C.N.I.R Board members until the corporate governance procedure is completed. 8. Government Emergency Ordinance no. 83/2016 on measures to streamline the implementation of transport infrastructure projects. 9. Performance contract of Board members with performance indicators. 10. Annexes approving the model of performance contracts set out in Government Emergency Ordinance no. 83/2016. 11. Tender specifications for the selection and recruitment of board members. 12. Details of the tendering procedure for selecting the companies which will handle the recruitment process of board members. 13. Law no. 111/2016 for the approval of the Government Emergency Ordinance no. 109/2011 on corporate governance of public enterprises. 14. Letter of expectations for C.N.I.R approved by Ministerial Order no. 1272/8 July 2022 guaranteeing that performance indicators/KPIs are included in the management contracts that will be signed with the board members. 15. Letter of expectations for C.N.A.I.R approved by Ministerial Order no. 1273/8 July 2022 guaranteeing that performance indicators/KPIs are included in the management contracts that will be signed with the board members. 16. Ministerial Order no. 1159/2021 for the appointment of state representatives in the General Meeting Shareholders for C.N.I.R. 17. Ministerial Order no. 1175/2021 for the appointment of the General Director of C.N.I.R.. 18. Temporary mandate contract for C.N.I.R General Director. 19. Regulation of the company approved by CA decision on 23/27.11.2022. 20. Ministerial Order no. 1172/2021 for the appointment of the interim members of the C.N.I.R board of directors. 21. Memorandum for the appointment of Secretary of State, Mr. Foghis, as interim manager of the board of directors of C.N.I.R.. 39  22. Government Emergency Ordinance no. 84/2003 establishing C.N.A.I.R. 23. Order 1952/2018 regulating the procedure for monitoring the implementation of the provisions for the Government Emergency Ordinance no. 109/2011 on the corporate governance of public enterprises. 24. Results of the procurement procedure for services for the recruitment and selection of candidates for the appointment of board members. 25. Framework agreement for the procurement of services for the recruitment and selection of candidates for the appointment of board members. 26. Substantiation note to Government Emergency Ordinance no. 109/2011 on corporate governance of public undertakings. 27. Ministerial Order no. 1345 issued on 28 July 2022 on the constitution of the selection panel for the selection of candidates for managements positions at C.N.A.I.R and C.N.I.R. Analysis: The objective of this reform is to enhance the quality of transport investments and services by improving the corporate governance and the performance of the State-Owned Enterprises operating in the transport sector, notably for those in charge of roads, railways and metro. The evidence provided by the Romanian authorities addresses the requirements included in the description of Milestone M78 in the CID Annex as follows: 1. The entry into force of the legislation on the reform of the National Company of Highways and National Roads in Romania - S.A. (C.N.A.I.R) and the creation of a new Road Investment Project Management Company (C.N.I.R); Law no. 50/2021 for the approval of the Emergency Ordinance no. 55/2016 on the reorganisation of the National Company of Highways and National Roads in Romania - S.A. (C.N.A.I.R) and the establishment of the National Road Investment Company - S.A. (C.N.I.R) was published in the Official Journal on 29 March 2021 and entered into force on 1 April 2021. As detailed below, this shall allow to focus a specific entity (C.N.I.R) on the efficient management and prioritization of the new road investments, while the other entity (C.N.A.I.R) shall focus on the management and maintenance of the existing road network. 2. Clear performance indicators, aligned with the Boards’ mandates and KPIs, sanctions and incentives in case of non-compliance, to assess the financial performance (revenue, profitability, involvement of State’s budget) and the performance of the service provided (e.g. via user satisfaction survey) for both companies; On 11 July 2022, the Commission received Ministerial Orders no. 1272 and 1273 approving letters of expectations which set legally binding and enforceable performance indicators (KPIs) for C.N.I.R and C.N.A.I.R respectively. Based on articles 1 and 9 of the Government Decision no. 722/2016 on methodological norms of corporate governance (annex 2), the KPIs are defined as “performance indicators enlisted in the annex to the Boards’ mandate contract” which are to be used to evaluate the efficiency of the administrators of the public companies. As such, the alignment of performance indicators with the Boards’ mandate is ensured. 40 The letter of expectations for C.N.I.R includes financial and non-financial KPIs, listed on pages 15-19. Examples of such financial KPIs which assess financial performance are: “degree of realization of revenue foreseen in the budget; profitability; increase in debt collection”. Example of non-financial KPIs which assess the performance of the service provided are: “carrying out an opinion survey on customer satisfaction; reduction of number by complaints/petitions from users and third parties; de-congestion of road transport in localities by implementing environmentally friendly projects”. The financial and non-financial indicators listed in the letter of expectations for C.N.I.R. are clearly linked to incentives and sanctions in a legally binding and enforceable manner for C.N.I.R, as reflected on page 20 of the letter. In this respect, the variable component of the members of the board's salaries (that is, three monthly fixed salaries) is linked to the level of accomplishment of the KPIs (below 20%, 20-40%, 40-60%, 60-80%, above 80%). For instance, in case of fulfilment of key performance at a level between 20 % and 40 %, no variable component is received and the fixed component of the salaries is decreased by 20%. In case of fulfilment of KPIs above 80%, the full variable and fixed components of salaries are paid to board members. The letter of expectations for C.N.A.I.R includes financial and non-financial KPIs, listed on pages 14- 17. Examples of such financial KPIs which assess financial performance are: “degree of realization of revenue foreseen in the budget; profitability; reduction of state intervention by reducing transfers earmarked for the payment of arbitrary rulings generated by investment projects”. Examples of non-financial KPIs which assess the performance of the service provided are: “conducting an opinion survey on customer satisfaction (users of infrastructure); increase in the number of satisfied users (by reference to the data recorded in the years 2023-2025); annual reduction in the number of deficiencies reported; increase in road safety by increasing the number of road safety inspections (out of the total network managed)”. The financial and non-financial indicators listed in the letter of expectations are clearly linked to incentives and sanctions in a legally binding and enforceable manner for C.N.A.I.R, as reflected on page 18 of the letter, with the same modalities as for C.N.I.R. Considering the above, it can be concluded that the performance indicators included in the two letters of expectations are clearly defined, are aligned with the Boards’ mandates and KPIs and that the sanctions and incentives in case of non-compliance with the performance indicators are comprehensibly determined, which in turn allows for the assessment of the financial performance (revenue, profitability, involvement of State’s budget) and the performance of the service provided (done via user satisfaction surveys) for both companies. 3. Corporate governance standards in line with the O.E.C.D. framework (professional Boards selected through an open, competitive and transparent procedure); This element is fulfilled by the provisions of Law no. 111/2016 for the approval of the Government Emergency Ordinance no. 109/2011 on corporate governance of public enterprises. The preambles on page 3 of Government Emergency Ordinance 109/2011 approved by the Law no. 111/2016, mention the alignment of the Government Emergency Ordinance with “the principles of corporate governance of state-owned enterprises developed by the Organisation for Economic Cooperation and Development (OECD) on the basis of the most advanced legislative and good practice standards of corporations”. 41 The process mentioned in the Government Emergency Ordinance 109/2011 approved by Law no. 111/2016, under article 5 (5-10) and article 29 (15-14), lists the steps for the recruitment process. This process ensures openness and transparency by rendering public the selection process for Board members as “the notice of selection of board members shall be published (…) in at least two widely distributed economic and/or financial newspapers and, (…) on the website of the public undertaking”. The process can be considered competitive as the selection documents to be made public also “must include the conditions to be met by the candidates and the criteria for their assessment” and “the selection shall be carried out in compliance with the principles of non- discrimination, equal treatment, and transparency (…)”. The selection procedures, as specified in the articles above, also foresee the use of “independent experts” during the selection process, in particular for autonomous corporations with more than 500 employees. This is in line with OECD standards, which consider a good practice the use of independent experts in the selection procedure, particularly for large SOEs engaged in economic activities. Finally, considering that the aim of the Government Emergency Ordinance 109/2011, as enshrined in their preambles, is to ensure that the selection of professional Boards of public companies is aligned with the principles of corporate governance of state-owned enterprises developed by the OECD, and taking into account that the preamble not only form an integral part of the Government Emergency Ordinance, but also serve for the interpretation of the provisions and of the overall purpose of this Ordinance, it can be concluded that Law no. 111/2016 for the