Commission Staff Working Document: Analysis of the recovery and resilience plan of Romania amending the approval of the assessment of the recovery and resilience plan of 29 October 2021

EUROPEAN COMMISSION Brussels, 21.11.2023 SWD(2023) 382 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Romania Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) (ST 12319/2021, ST 12319/2021 ADD 1) of 29 October 2021 on the approval of the assessment of the recovery and resilience plan for Romania {COM(2023) 747 final} EN EN Table of contents 1. Executive summary ............................................................................................................................... 2 2. Objectives of the modification of the plan ............................................................................................ 2 3. Summary of the assessment of the plan ................................................................................................ 4 3.1. Comprehensive and adequately balanced response to the economic and social situation ............ 4 3.2. Link with country-specific recommendations and the European Semester .................................. 6 3.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence ........ 7 3.4. The principle of ‘do no significant harm’ ..................................................................................... 7 3.5. Green transition ............................................................................................................................. 9 3.6. Digital transition ......................................................................................................................... 10 3.7. Lasting impact of the plan ........................................................................................................... 11 3.8. Milestones, targets, monitoring and implementation .................................................................. 11 3.9. Costing ........................................................................................................................................ 12 3.10. Controls and audit ....................................................................................................................... 13 3.11. Coherence ................................................................................................................................... 15 3.12. REPowerEU ................................................................................................................................ 15 3.13. Cross-border or multi-country dimension or effect .................................................................... 16 ANNEX I: Climate tracking and digital tagging..................................................................................... 18 1 1. EXECUTIVE SUMMARY In 2022, Romania faced several structural challenges. Its economy was hit by the rise of energy prices and supply chain disruptions, which have been aggravated due to the Russian aggression against Ukraine. Inflation continued to exceed expectations in 2022, due to high energy and food prices and the pass-through to core components. For 2023-2024, inflation is expected to decline, but remain elevated compared to the inflation target set by the National Bank of Romania. On 8 September 2023, Romania submitted to the Commission a modified national recovery and resilience plan (RRP). For the modification of its RRP, Romania has relied on the following legal bases: Article 18(2) of Regulation (EU) 2021/241 (the ‘RRF Regulation’) to take into account the updated maximum financial contribution, Article 21 to amend the RRP due to objective circumstances and Article 21c to include additional resources from EU Emissions Trading Scheme (ETS) revenues or from the Brexit Adjustment Reserve (BAR) for its REPowerEU chapter. To help address the energy challenges that it is currently facing, Romania has included in the modified RRP a REPowerEU chapter. The proposed measures include two reforms and seven investments, structured along the following thematic areas: energy and permitting processes with a reform aiming at facilitating the identification of acceleration areas, complemented by two investments to install additional renewable energy; energy-efficiency building renovations and installation of solar panels for prosumers, with three new investments targeting public and private buildings, with a focus on vulnerable energy consumers and households affected by energy- poverty, complemented by a reform to put in place one-stop-shop offices, dedicated to providing information and assistance to private persons for the installation of renewable energy and for energy efficiency renovations; green skills; and improvement of the resilience of the electricity network. The implementation of these measures is expected to contribute to supporting the objectives in Article 21c(3) of the RRF Regulation. While the modified RRP changes some of the current measures, these changes do not affect the previous assessment of the coverage of a significant subset of the challenges identified in the country-specific recommendations (CSRs) for Romania in 2020 and 2019. The modified RRP represents a comprehensive and adequate response to Romania’s economic and social challenges. It maintains its focus on the green and digital transitions, promoting smart, sustainable, and inclusive growth, with measures prioritising economic cohesion, job creation, competitiveness, and innovation. Its 16 components, including the newly added REPowerEU chapter, continue to address the six pillars of the RRF Regulation and generally maintain the level of ambition despite several challenges. The plan continues to contain robust milestones, targets and verification mechanisms, and remains coherent with other policy commitments. Based on the assessment of the submitted modification and the REPowerEU chapter, the modified RRP for Romania receives an A rating on all criteria, except for costing (unchanged from the original RRP assessment). 2  (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Balanced CSRs Growth, DNSH Green Digital Lasting M & T Costing Control Coherence REPowerEU Cross- Response jobs… target target impact Systems border A A A A A A A A B A A A A (44.1%) (21.8%) 2. OBJECTIVES OF THE MODIFICATION OF THE PLAN 2.1. Main newly emerged challenges In 2022, Russia’s war of aggression against Ukraine led to a surge in energy and commodity prices in Romania and the EU as a whole. The 2023 Country Report1 identified challenges related to the higher demand for social services and social protection due to the energy crisis, as well as the low- quality education system with its unequal access. In addition, vulnerable groups have difficulties finding a job, and the business environment faces challenges. The report also points to challenges in the areas of decarbonisation and energy efficiency, circular economy, and digitalisation. Against this backdrop and to respond to the geopolitical and energy challenges that the European Union has faced since the beginning of 2022, Romania formally submitted a request to amend its RRP based on Article 18(2) and 21 of the RRF Regulation. Romania’s modified RRP also includes a new REPowerEU chapter pursuant to Article 21(c) of the RRF Regulation. The modified RRP includes two new reforms and seven investments in its REPowerEU chapter, while modifying 56 measures across all other 15 components of the RRP. The new allocation of the plan is EUR 28.5 billion. This amount takes into account the REPowerEU chapter (EUR 1.4 billion from ETS resources and EUR 43.2 million from the Brexit Adjustment Reserve), and the downward adjustment from EUR 14.24 billion to EUR 12.13 billion of the maximum financial contribution for Romania. Pursuant to Article 18(2) of the RRF Regulation, Romania has justified modifications to eight measures by the decrease of its maximum financial contribution. Several investments have been removed or downsized. These adjustments amount to EUR 2.11 billion, equivalent to the downward adjustment of the maximum financial contribution. Pursuant to Article 21(1) of the RRF Regulation, Romania has justified modifications to 48 measures due to objective circumstances. In particular, those modifications include adjustments to targets and milestones in both investments and reforms which Romania has identified as no longer being achievable in their current formulation, due to significant cost increases and delays caused by supply chain constraints. In 2022, Romania’s economy was impacted by multiple factors such as disrupted supply chains, particularly for construction materials and equipment, and price increases, notably for energy and constructions. The rise in construction prices made procurement 1 SWD(2023) 623 final. 3 for some of the initial projects under the RRP much more costly than expected and led to significant delays in some procurement processes. The amended RRF Regulation provides for additional support for reforms and investments helping to phase out imports of Russian fossil fuels and providing clean, affordable and secure energy to households and businesses across Europe. The modifications proposed under the RRP and the newly integrated REPowerEU chapter are aimed at addressing the CSRs addressed to Romania in the context of the 2022 and 2023 European Semester cycles. As part of the REPowerEU chapter, green energy investments should contribute to Romania’s strategic autonomy and strengthen its resilience in view of external shocks. The increasing share of renewables in the energy mix and the proposed energy efficiency investments are expected to reduce the share of imported fossil fuels. The chapter’s reforms and investments focus on the acceleration of green energy generation, boosting energy efficiency in buildings and re-/up-skilling the workforce in the field of green energy generation. Romania’s modified RRP preserves the level of ambition of the original plan while providing a balanced response to the economic and social situation of the country. The modified RRP effectively addresses a significant subset of the challenges identified in the relevant CSRs addressed to Romania in 2019, and 2020 in the context of the European Semester. It also addresses 2022 and 2023 CSRs. 2.2. Main elements of the modified components and REPowerEU chapter The most important modifications of the amended RRP, including the REPowerEU chapter are listed below by component. Component 1 – Water management Investment 1. Expansion of water and sewerage systems in agglomerations of more than 2 000 population equivalent, prioritised by the Accelerated Plan for Compliance with European Directives – In accordance with Article 21, Romania reduced targets 5, 6, 7 and 8 due to price increases for the materials needed to build water and sewage networks, in proportion to the increase in their price. Investment 2. Collection of waste water in agglomerations of less than 2 000 population equivalent which prevent the achievement of good status of water bodies and/or affect protected natural areas – In accordance with Article 21, Romania reduced targets 11 and 12 due to price increases for the materials needed to build sewage networks, in proportion to the increase in their price. Investment 3. Supporting the connection of the low-income population to existing water and sewerage networks – In accordance with Article 21, Romania reduced target 13 due to price increases for the materials needed to build connection to water and sewerage networks, in proportion to the increase in their price. 4 Investment 4. Adaptation to climate change by automation and digitalisation of water disposal and storage equipment of existing accumulations to ensure ecological flow and increase the security of water supply to the population and reduce the risk to floods – In accordance with Article 21, Romania reduced targets 14 and 15 due to price increases for the materials needed to build flood defence lines, in proportion to the increase in their price. Romania also requested a reduction of milestone 16 and target 17 due to price increases for the materials needed to rehabilitate dams, in proportion to the increase in their price. These targets were further reduced to account for disruptions on the supply side. Investment 5. Appropriate endowment of river basin administrations for flood monitoring, prevention and emergency response – In accordance with Article 21, Romania postponed the completion of target 18, due to supply chain disruptions and price increases having delayed the completion of the tender procedure. Component 2 – Forests and biodiversity protection Investment 1. Afforestation and reforestation national campaign including urban forests – In accordance with Article 18(2), Romania scaled down the investment and its targets 25 and 26, by 37% (from EUR 730 million to EUR 460.88 million). While the urban forest part of the investment remains unaffected, the afforestation/restoration part of the investment will be reduced from 56 700 ha to 26 760 ha. Investment 4.4. Implementation of a monitoring system for wild sturgeons along the Lower Danube – In accordance with Article 21, Romania postponed by one year the investment related to the monitoring system for wild sturgeons along the Lower Danube and the achievement of the related target 39 due to delayed permitting procedures. Additionally, following the market consultation, two interested tenderers indicated that the investment could not be carried out in such a short time. Investment 5. Integrated flood risk mitigation systems in forest river basins – In accordance with Article 21, Romania added to milestone 41 the formulation “where appropriate” for the installation of fish ladders to reflect the fact that they are not necessary in some instances. Component 3 – Waste management Reform 1. Improving waste management governance to accelerate the transition to the circular economy – In accordance with Article 21, Romania amended milestone 45 to clarify that the milestone covers actions set out in the National Circular Economy Strategy and Action Plan that are due by 2026. The modification in scope allows the National Circular Economy Strategy and Action Plan to also include longer-term actions, thereby allowing for greater ambition of both documents. Investment 1a. Establishment of voluntary collection centres – In accordance with Article 21, Romania deleted the requirement that the centres shall be located at the border or outside the Territorial Administrative Unit from targets 48 and 49. This allows the centres to be built as 5 geographically close to where waste is generated, which tends to increase collection rates. The modification therefore provides for a better alternative to reach the policy objectives of the measure. Investment 1c. Integrated centres for urban agglomerations concerning separate collection – In accordance with Article 21, Romania lowered targets 52 and 53, removing from them the municipality of Bacau, as it will be served by a waste collection centre serving all the local authorities in the county. The modification therefore provides for a better alternative to reach the policy objectives of the measure. Investment 3b. Air quality, radioactivity and noise monitoring equipment for the National Environmental Protection Agency – In accordance with Article 21, Romania reduced target 58 due to price increases for the air quality, radioactivity and noise monitoring equipment. The reduction is proportional to the increase in prices. Component 4 – Sustainable transport Reform 1. Sustainable transport, decarbonisation and road safety / Road decarbonisation in line with “polluter pays” principle – In accordance with Article 21, Romania replaced “law” with “legislation” in milestones 59, 60 and 66, as a manifestly better alternative considering these milestones will require several legislative acts. Romania also requested to reduce target 64 to reflect the removal of 7 600 recharging points from investment 1.3 in component 10 – Local fund. Investment 1. Modernisation and renewal of railways infrastructure – In accordance with Article 18(2), Romania removed the financing to the renewal and electrification of 110 km of railway lines in the sections Constanta-Mangalia and Videle-Giurgiu from this investment. As a consequence, milestones 72 and 73 and targets 74 and 75 have been amended to reflect this change. Investment 4. Development of the underground transport network in the municipalities of Bucharest and Cluj-Napoca – In accordance with Article 21, Romania replaced the envisaged construction of the section of the M4 metro line in Bucharest with a section of the M6 metro line and of the section Sf. Maria — United Eu