COMMISSION IMPLEMENTING DECISION on the partial suspension of the disbursement of the third instalment of the non-repayable support and the third instalment of the loan support for Romania 

the corporate governance of state-owned enterprises by enforcing OECD standards. [...] The reform is complemented by specific reform actions aimed at improving the corporate governance of state-owned enterprises in the energy and the transport sectors. These reforms are expected to contribute to the efficiency of state-owned enterprises and to the improvement of the quality of the services that they provide”. Furthermore, the Council Recommendation of 9 July 2019 (Recital 24) concluded that State-owned enterprises have a key role in critical infrastructure sectors such as energy and rail transport; EN 36 EN  (d) a downward adjustment of the corrected unit value was applied to the milestone (a factor of 0.186) as some of the elements included in the milestone contribute to meeting some of the objectives laid out in the Council Implementing Decision, namely the selection and appointment of the members of the board of directors of some of the SOEs in the transport sector on the basis of a transparent and competitive procedure, with a duration of the mandate of 4 years, remuneration based on KPIs and in compliance with good governance principles. In considering this downward adjustment, the Commission assessed the substantive progress towards the achievement of the objectives of the milestone, in accordance with the Commission methodology for the determination of payment suspension under the Recovery and Resilience Facility Regulation. In particular, based on the assessment above, each of the four dimensions of the milestone is considered partially met, as follows: – selection and appointment of the boards based on transparent and competitive procedures: The Commission assigned a weight of 35% to this dimension of the milestone. This reflects the critical importance of ensuring that appointments are made through a competitive and transparent process. Failing to do so would undermine the legitimacy of the board of directors and the governance structure of the relevant SOEs. This, in turn, could adversely affect the SOEs' performance and erode stakeholder confidence, highlighting why this element deserves a significant weight. This requirement was met at 85%, as the selection and appointment of the board members based on transparent and competitive procedures could be considered satisfactorily fulfilled for 28 out of 33 seats for all boards of directors combined; – with a duration of the mandate of four years: The Commission assigned a weight of 10% to this dimension of the milestone. While a 4-year mandate is essential to ensure that medium and long-term management plans are implemented, its effectiveness depends on selecting the right individuals through a competitive and transparent process. Without such a process, the long-term mandate could fail to deliver the desired governance and performance outcomes. This requirement of the milestone was met at 91%, as mandates are currently signed for 30 out of 33 seats for all boards of directors combined; – with remuneration of board members based on KPIs: The Commission assigned a weight of 20% to this dimension of the milestone. The remuneration scheme based on KPIs is an important tool for ensuring SOEs’ performance, however its effectiveness is driven by holding board members economically accountable. This requirement of the milestone was met at 70%, as KPIs were approved for 23 out of 33 seats for all boards of directors combined; – in compliance with good governance principles in line with the reform on SOEs: The Commission assigned a weight of 35% to this dimension of the milestone. This reflects the critical importance of ensuring observance with the OECD corporate governance principles, inter alia by limiting political interference in board processes, which could prevent board members from objectively carrying out their board duties. This requirement of the milestone was met at 82%, as the good governance EN 37 EN  principles were observed for 27 out of 33 seats for all boards of directors combined. (150) On this basis, an amount of EUR 19 851 718 should be suspended for Milestone 79. (151) Milestone 86: Signature of contracts for 50% of the works, following open and competitive tenders and relevant permits obtained (a) the unit value for the milestone was derived by dividing the loan contribution made available to Romania in the Council Implementing Decision of EUR 14 942 153 000 by the number of milestones and targets in that Decision related to the loan contribution, 210; (b) a coefficient of 0.5 was applied as this is an intermediary milestone followed by subsequent milestones and targets related to the same investment; (c) a proportional reduction to the corrected unit value was not applied to the milestone, as the Commission has identified there to be no progress towards the achievement of the milestone; (d) no upward adjustment of the corrected unit value was applied to the milestone, as the Commission does not consider that the investment is of major importance to justify any of the ratings underpinning the positive assessment of the RRP. In particular, the milestone is not considered key to achieving the climate objectives in the Staff Working Document of 27 September 2021. On this basis, an amount of EUR 35 576 555 should be suspended for Milestone 86. (152) Milestone 121: Improving corporate governance of State-owned companies in the energy sector (a) the unit value for the milestone was derived by dividing the financial contribution made available to Romania in the Council Implementing Decision of EUR 13 566 055 514 by the number of milestones and targets in that Decision related to the financial contribution (308); (b) a coefficient of 5 was applied to the milestone as it concerns the final step of a non-legislative reform; (c) an upward adjustment of the corrected unit value was applied to the milestone (a factor of 3) as the reform is considered by the Commission of particular importance to justify the rating for addressing all or a significant subset of challenges identified in the relevant country-specific recommendations. Specifically, SOEs rank among Romania’s largest companies and have a potentially critical role to play in economic growth and development, especially in sectors such as energy and transport 56. Against this background, in 2019 the Council recommended Romania to “strengthen the corporate governance of State-owned enterprises” (CSR 2019.5 subpart 2 and Recital 24) 57. Recital 15 of the Council Implementing Decision assessed that reforms “strengthening corporate governance of State-owned enterprises […] address long-standing country-specific recommendations”. Therefore, taking into account this measure, Recital 12 of the Council Implementing Decision concludes that the 56 State-owned enterprises (SOEs) play a significant role in Romania’s economy, especially in the energy and transport sectors. SOEs account for 8% of the total output of non-financial corporations and employ around 4% of the workforce in Romania. See: The role of state-owned enterprises in Romania. Volume 12, issue 1, January 2015 - Publications Office of the EU (europa.eu) 57 ST 10176/19. EN 38 EN  recovery and resilience plan for Romania is expected to effectively address “all or a significant subset of challenges (Rating A) identified in the relevant country- specific recommendations addressed to Romania, including fiscal aspects thereof”. Moreover, the Staff Working Document of 27 September 2021 58 (page 40) further specifies that the overall SOEs reform is assessed to improve the procedural framework for the implementation of corporate governance principles in state-owned enterprises and “aims to strengthen the corporate governance of state-owned enterprises by enforcing OECD standards [...]is complemented by specific reform actions aimed at improving the corporate governance of state-owned enterprises in the energy and the transport sectors. These reforms are expected to contribute to the efficiency of state-owned enterprises and to the improvement of the quality of the services that they provide”. Furthermore, the Council Recommendation of 9 July 2019 (Recital 24) concluded that State-owned enterprises have a key role in critical infrastructure sectors such as energy and rail transport; (d) a downward adjustment of the corrected unit value was applied to the milestone (a factor of 0.345) as some of the measures included in the reform contribute to meeting some of the objectives laid out in the Council Implementing Decision, namely the selection and appointment of members of the management and/or supervisory boards of some of the SOEs under the remit of Ministry of Energy. In considering this downward adjustment, the Commission assessed the substantive progress towards the achievement of the milestone, in accordance with the Commission methodology for the determination of payment suspension under the Recovery and Resilience Facility Regulation. In particular, each of the three dimensions of the milestone were taken into account as follows: – selection and appointment of the boards based on transparent and competitive procedures: The Commission assigned a weight of 70% to this requirement of the milestone. This reflects the critical importance of ensuring that appointments are made through a competitive and transparent process. Failing to do so would undermine the legitimacy of the management board and the governance structure of the relevant SOEs. This, in turn, could adversely affect the SOEs' performance and erode stakeholder confidence, highlighting why this element deserves a significant weight. This dimension was 61% fulfilled, as the selection and appointment of the board members based on transparent and competitive procedures could not be considered satisfactorily fulfilled for 41 seats out of 104 seats for all management and supervisory boards combined. – with a duration of the mandate of 4 years: The Commission assigned a weight of 10% to this dimension of the milestone. While a 4-year mandate is essential to ensure that medium and long-term management plans are implemented, its effectiveness depends on selecting the right individuals through a competitive and transparent process. Without such a process, the long-term mandate could fail to deliver the desired governance and performance outcomes; for eight companies out of 17 this element was met in the appointment process (Hidroelectrica, Oil Terminal, RATEN, Electrocentrale Group, Electrocentrale Bucharest, Electrocentrale 58 SWD(2021) 276 final. Commission Staff Working Document. Analysis of the recovery and resilience plan of Romania of 27.09.2021 (source: https://eur-lex.europa.eu/legal- content/EN/TXT/?uri=CELEX:52021SC0276). EN 39 EN  Craiova, Midia Green and Valea Jiului). The companies where the boards need to be reappointed in their entirety (CNCIR and CONPET) or partly (CE Oltenia, SAPE and Nuclearelectrica) cannot be counted toward fulfilment of this criterion. Also, for the three SOEs that should be transferred or merged (Eurotest, Radioactiv Mineral Magurele and ICSITPML) this requirement of the milestone cannot be considered satisfactorily fulfilled. For Romgaz, a board member has a mandate longer than 4 years, hence the overall board cannot be considered as having a mandate of 4 years. For 20 board members out of a total of 104 the milestone requirement is not fulfilled, hence this element of the milestone is 81% fulfilled. – with remuneration of board members based on KPIs: The Commission assigned a weight of 20% to this element of the milestone. The remuneration scheme based on KPIs is an important tool for ensuring SOEs’ performance, however its effectiveness is driven by holding board members economically accountable. For 5 SOEs out of 17, this element was met in the appointment process (Hidroelectrica, Romgaz, Oil Terminal, RATEN, Electrocentrale Group). For the companies where the boards need to be reappointed in their entirety (CNCIR and CONPET) or partly (CE Oltenia, SAPE and Nuclearelectrica), it cannot be concluded that the remuneration of boards is based on KPIs, and therefore these companies cannot be counted toward the fulfilment of this criterion. Moreover, for two SOEs (Electrocentrale București, Electrocentrale Craiova), the addenda with KPI were submitted at a later stage, following the observations letters sent from the Commission to Romania. In addition, for two SOEs (Midia Green and Valea Jiului), the KPIs documentation for some and all board members, respectively, is missing. Finally, also for the three SOEs that should be transferred or merged (Eurotest, Radioactiv Mineral Magurele and ICSITPML) this requirement of the milestone cannot be considered satisfactorily fulfilled. This element of the milestone was 75% fulfilled, as the remuneration of board members is not based on KPIs for 26 out 104 board members. (153) Based on the above, the Commission considers that the objective of the milestone has been met by 65.5%. (154) On this basis, an amount of EUR 227 936 161 should be suspended for Milestone 121. (155) Milestone 215: Entry into force of the legislative framework for reducing expenditure on special pensions (a) the unit value for the milestone was derived by dividing the financial contribution made available to Romania in the Council Implementing Decision of EUR 13 566 055 514 by the number of milestones and targets in that Decision related to the financial contribution (308); (b) a coefficient of 5 was applied to the milestone, as it concerns the entry into force of a reform; (c) an upward adjustment of the corrected unit value (i.e. the unit value resulting from the application of the coefficient) was applied to the milestone (a factor of 3), as the reform is considered by the Commission of particular importance to justify the rating for addressing all or a significant subset of challenges identified EN