Preliminary assessment of the first payment request of Romania

approval of the Government Emergency Ordinance no. 109/2011 on corporate governance of public enterprises allows for the selection of professional Boards through an open, competitive and transparent procedure (as aligned with corporate governance standards in the OECD framework). 4. Primary and secondary legislation amended to make the company’s activities more effective and to reorient C.N.A.I.R.’s powers and institutional mechanisms; According to article 25 (1) of the Law no. 50/2021, C.N.A.I.R. must publish an activity report every six months detailing the progress of investment projects and the organisation and operation of the company. Articles 45 (1) and 46 prescribe that the monthly payments received by C.N.A.I.R. should be tied to its economic performance and the number of employees. It can be concluded that these provisions contained in the Law no. 50/2021 which amends Government Emergency Ordinance 55/2016 contribute to making C.N.A.I.R. more effective, as it increases the level of transparency of C.N.A.I.R.’s activities. Law no. 50/2021, amending Government Emergency Ordinance 55/2016, aims to reorient C.N.A.I.R.’s powers and institutional mechanisms, as demonstrated by the following amendments put forth: According to article 64 of the Law no. 50/2021, C.N.A.I.R. must transfer road infrastructure projects for the development of transport infrastructure to C.N.I.R. within three years. This article therefore reorients C.N.A.I.R.’s powers, as required by the CID Annex. Article 77 of the same Law provides that until the projects under implementation have been completed or handed over to C.N.I.R., C.N.A.I.R. must carry out specific activities such as the rehabilitation of motorways and shall receive funds for the expenditure related to such specific activities. Article 83 states that the investment projects subject to transfer to C.N.I.R. must be approved by the Ministry of Transport and Infrastructure. Articles 77 and 83 therefore reorient C.N.A.I.R.’s institutional mechanisms, as required by the CID Annex. 5. C.N.A.I.R. shall retain the current tasks in terms of road maintenance as well as existing 42  investments both at the level of major and minor projects. There shall be a transitional period of 3 years during which C.N.A.I.R. and C.N.I.R. shall run investment projects in parallel until C.N.I.R. is fully operational and all major investment projects shall be in the management of the C.N.I.R; As provided by Article 4 of the Government Emergency Order no. 55/2016, “C.N.A.I.R. has as its principal activity: maintenance, repair, management and operation of motorways, express roads, national roads, bypasses and other road infrastructure elements defined in accordance with the law, for the purpose of safe road traffic [...]”. Given that that Law no. 50/2021 does not modify this article, it can be reasonably concluded that all tasks related to road maintenance, including to the existing investments, both at the level of major and minor projects, are retained by C.N.A.I.R. Article 64 of Law no. 50/2021 provides without ambiguity that the transfer of road transport infrastructure projects for the development of transport infrastructure shall be transferred from C.N.A.I.R. to C.N.I.R. within a period of 3 years. Additionally, Article 77 of Law no. 50/2021 provides that:  “(1) Until the projects under implementation have been completed or all the projects specified in the Order of the Minister for Transport and Infrastructure, referred to in Article 83 of this Emergency Order, have been handed over to the C.N.I.R, whichever is the first, the C.N.A.I.R shall also carry out the following activities [...] b) ensure the implementation of unitary development programmes for the public road network […]  (2) Until the projects under implementation have been completed or all the projects referred to in Article 64 of this Emergency Order have been handed over to the CNIR, funds shall be allocated to CNAIR from the state budget and from the budget allocated to non- repayable funds, in accordance with the law, and for the following categories of expenditure necessary for the implementation of the projects […] a) rehabilitation of motorways, express roads, national roads, bypasses and other national road infrastructure elements for road transport infrastructure projects it has in its implementation […].” Based on the above provisions, it is concluded that investment projects shall run in parallel for C.N.A.I.R and C.N.I.R until C.N.I.R is fully operational and all major investment projects shall be under the management of the C.N.I.R. The evidence provided by the Romanian authorities addresses the description of the reform in the CID Annex as follows: 1. A new entity C.N.I.R. S.A. (National Company for Road Infrastructure) has been created by legislation entered into force in April 2021 to manage the investments in road sector, with the responsibility to ensure the implementation of the projects from the technical and economic documentation phase, tendering procedures, effective construction to reception. It is expected that 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. According to Article 8 of Government Emergency Ordinance no. 55/2016, C.N.I.R is mainly tasked with the management of the investments in the road sector and is also attributed the responsibility to ensure the implementation of road infrastructure projects, starting from the technical and 43 economic documentation phase to the tendering procedures, the supervision of the effective construction and the reception of the construction phase. Article 4 of the Ordinance provides that C.N.A.I.R shall focus on the management and maintenance of the existing road network. The analysis of Government Emergency Ordinance no. 55/2016 demonstrates that the competences attributed to C.N.I.R and C.N.A.I.R are in line with the description of milestone 78 and its corresponding measure. The preambles of Government Emergency Ordinance no. 55/2016 explain that the delays in the implementation of road transport infrastructure projects are due to C.N.A.I.R allocating time to both investment projects and maintenance. It can therefore be concluded that C.N.I.R’s focus on efficient management and prioritisation of new road investments allows C.N.A.I.R to allocate more time on the management and maintenance of the existing road network. This is aligned with the expectation presented in the description of the reform associated with milestone 78, that the creation of C.N.I.R shall allow C.N.A.I.R to better manage and maintain the road network. 2. This reform shall ensure a balanced representation of women in all reform processes and in the organisational structures specific to its implementation. It shall also aim to improve the representation of women in decision-making positions of companies undergoing this reform. Milestone 78 establishes the legislation and the regulatory package for C.N.A.I.R and C.N.I.R. To verify that the organisational structures specific to the implementation of the reorganisation of C.N.A.I.R and the establishment of C.N.I.R ensure a balanced representation of women, the panels selecting the members of the boards of directors of C.N.I.R and C.N.A.I.R shall themselves be gender balanced. 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.I.R and C.N.A.I.R lists the 7 members of the selection panel, 5 of which are women. Commission Preliminary Assessment: Satisfactorily fulfilled Number: 247 Related Measure: Financial instruments for the private sector - Portfolio guarantee for resilience Name of the Milestone: Signature of the contribution agreement between the European Commission and the Romanian Government Qualitative Indicator: Agreement signed Time: Q4 2021 Context: The objective of this sub-investment is to address financial hurdles faced by Romanian enterprises in accessing finance. In particular, the sub-investment shall target the liquidity/solvency challenges of Romanian enterprises, which arise from the significant and temporary reduction of their revenues, due to the COVID-19 crisis. The investment shall take the form of a portfolio guarantee, to be implemented as a contribution to InvestEU by the European Investment Fund (“EIF”). The signature of the Contribution Agreement is the steppingstone for the implementation of the investment C9.I2a. The Contribution Agreement allows Romania to contribute the dedicated funds to the InvestEU Programme, managed at EU level, which are then provided as a guarantee to attract private investments in the country via financial intermediaries (also known as “Member State Compartment”). Following the signature of the Contribution Agreement, and subsequently the guarantee agreement (not covered by this milestone), 50% of the total amount of resources shall be 44 approved by the InvestEU Investment Committee by Q2 2023 (Milestone 248), and the rest by Q2 2024 (Milestone 249). Evidence provided: In line with the verification mechanism set out in the Operational Arrangements, the following evidence was provided: 1. Summary document duly justifying how the milestone (including all the constitutive elements) was satisfactorily fulfilled, including references to the relevant provisions. 2. A copy of the signed Contribution Agreement. The Contribution Agreement defines all the financial instruments covered by Milestones 247, 250 and 259. Details about the characteristics of sub-investment C9.I2a can be found under Clause 11.2 and under Annex 4, Part 1. The authorities also provided: 3. a Memorandum of Understanding signed by Ministry of Investments and European Projects and the Ministry of Finance and addressed to the Secretary General of the Government of Romania introducing and justifying the signature of the Contribution Agreement. 4. A note prepared by the implementing partner including information on the number of beneficiaries the financial instrument is expected to support. Analysis: All elements of the CID Annex have been addressed. In particular:  The Contribution Agreement defines the financial instrument to be implemented as a portfolio guarantee (Clause of the Contribution Agreement [“Clause”] 11.2).  In line with the Contribution Agreement and Art. 10 of the InvestEU Regulation, Romania proposed the EIF as implementing partner (Clause 13.2). In line with Art. 15 of the InvestEU Regulation and as indicated in the Council Implementing Decision (“CID”), the European Commission and the EIF are to sign a guarantee agreement that implements the financial instrument (Clause 13.1).  In the wake of COVID-19, the portfolio guarantee aims at addressing: (i) the financial hurdles faced by Romanian enterprises in accessing finance (namely increased cost of finance, lack of collateral and impaired, as mentioned in Clause 11.1); (ii) liquidity/solvency challenges faced by Romanian enterprises due to their inability to meet their financial obligations resulting from the significant - temporary reduction of their revenues (Annex 4, Part 1, Section 3 and 4).  To do so, and consistently with the milestone description, the form of the financial instrument is set out as working capital, credit lines, investment loans or leasing (Clause 11.2 and Annex 4, Part 1, Section 10.d).  The target of the instruments are individuals and SMEs as defined in the Annex to Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises – that is, self-employed persons or enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. In line with the milestone description, the financial instrument is expected to support at least 1 500 beneficiaries – as stated in a dedicated note prepared by the implementing partner and in the summary document provided by Romania. The guarantee agreement will provide further and more refined detail about the final targeted companies (Annex 4, Part I, Sections 6 and 7).  The structure of the instrument enables to leverage private funds, as the minimum leverage of the financial product is set at four (clause 11.2). This is in line with the Council Implementing Decision.  The Contribution Agreement requires the Guarantee Agreement (to be signed by the European 45  Commission and the implementing partner) to include provisions ensuring compliance of the financial instrument and its supported transactions with the “Do no significant harm” Technical Guidance (2021/C58/01). In particular, the Guarantee Agreement sets out an obligation for the implementing partner to use InvestEU sustainability proofing and to comply with an exclusion list - as outlined in the CID Annex [COM(2021)608 final and ST12319/21 ADD 1]. In accordance with the description of the milestone, the Contribution Agreement ensures that the Guarantee Agreement shall exclude the following list of activities and assets from eligibility (Clause 4.7): o activities and assets related to fossil fuels, including downstream use (with the related exception concerning projects in power and/or heat generation, as well as related transmission and distribution infrastructure, using natural gas) o activities and assets under the EU Emission Trading System (ETS) achieving projected greenhouse gas emissions that are not lower than the relevant benchmarks (with further requirements concerning supported activities achieving projected greenhouse gas emissions that are not significantly lower than the relevant benchmarks).  The sub-investment is in line with Commission’s Guidance Note of 22 January 2021 (SWD(2021) 12 final) as the Contribution Agreement: i) ensures the implementation of the contribution via the guarantee agreement shall respect the requirements of the RRF Regulation (Clause 7.4); and that ii) it contains all the relevant information regarding the participation of Romania in the InvestEU Programme has been transposed into the Contribution Agreement: the policy objectives of the measure (Clause 11); the State aid dimension (Clause 3.5); the contribution to the Invest EU provisioning (Clause 5); the target amount of finance and investment to be mobilized (Clause 11.2 and Annex 4); the type of support to be deployed mobilized (Clause 11.2 and Annex 4); the targeted beneficiaries and the nature of the mobilized (Clause 11.2 and Annex 4); a timetable for deploying the financial instrument (Clause 11.2 and Annex 4); the name of the InvestEU implementing partner (Clause 13.2); a description of the monitoring system to report on the investment mobilized through the financial instrument (Clause 16.3).  In accordance with the milestone description, Clause 15.1 stipulates that returns to the financial instrument (that is, revenues generated from the management of assets and allocated to the Member State compartment, remuneration of the EU Guarantee under the Member State Compartment, amounts recovered and any other payments received) shall be reinvested to pursue the same policy goals, with the effect of such provisions extending after 2026.  In its summary of audits (issued in April 2022), the Romanian Auditing Authority argued that the milestone was not satisfactorily fulfilled because the Contribution Agreement had not been finalised at that stage yet. As a result, the Authority reported that the following legal provisions were not complied with: Article 5(1) of the Loan Agreement signed between the European Commission and Romania in 15.12.2021; Article 5(4) of Government Emergency Order No nr.124/2021. In fact, The Contribution Agreement was signed only on 24 May 2022, after the Authority’s checks. With the signature of the Contribution Agreement, Romania has therefore achieved the milestone. Commission Preliminary Assessment: Satisfactorily fulfilled Related Measure: Financial instruments for the private sector - Climate Action Number: 250 Portfolio Guarantee Name of the Milestone: Signature of the contribution agreement between the European Commission and the Romanian Government Qualitative Indicator: Agreement signed Time: Q4 2021 46 Context: The objective of this sub-investment is to deliver finance and investments to companies and the residential and building sector investing in energy efficiency improvements. The investment shall take the form of a portfolio guarantee, to be implemented as a contribution to InvestEU by the European Investment Fund (“EIF”). The signature of the Contribution Agreement is the stepping stone for the implementation of the investment C9.I2b. The Contribution Agreement allows Romania to contribute the dedicated funds to the InvestEU Programme, managed at EU