Banking, Finance & CM

State Aid Schemes and EU Funds – Instruments for Financing Projects in Romania

Over the past years, banks operating in the Romanian market have been approached with an increasing number of financing projects that aim to benefit from financial support from either state aid schemes or EU financing programmes.
Matei Victor Flora / Bogdan Ioniță

State aid

Since 2007, the Roman­ian State has opened five state aid schemes, three of which are still active.

Two of the active state aid schemes were intro­duced in 2008 (approved by Gov­ern­ment Res­o­lu­tion [GR] no. 7532008 [Scheme 753] and by GR no. 16802008 [Scheme 1680]). In 2012 ben­e­fi­cia­ries of these state aid schemes includ­ed SC Bosch Rexroth SRL (sen­sors man­u­fac­tur­ing), SC Clin­i­ca Polisano SRL (equip­ping a new med­ical clin­ic), SC DRM Draxl­maier SRL (auto­mo­tive cables) and SC Rom­cab SA (pro­duc­tion of elec­tric cables).

Appli­ca­tions under Scheme 1680 may be processed until 31 Decem­ber 2013. How­ev­er, pri­or to recent amend­ments to the scheme, projects also had to be ful­ly imple­ment­ed by the same dead­line. As most projects take longer than a year to com­plete, this meant that in fact appli­ca­tions could no longer be sub­mit­ted. In what we take to be a sign of the government’s con­tin­ued com­mit­ment to this financ­ing option, a gov­ern­ment res­o­lu­tion pub­lished on 17 Octo­ber 2012 extend­ed the imple­men­ta­tion peri­od for Scheme 1680 until the end of 2018 at the lat­est (sub­ject to the imple­men­ta­tion plan agreed specif­i­cal­ly for each project).

Cur­rent­ly, appli­ca­tions under Scheme 753 may be processed only until the end of 2012. But there are rumours in the mar­ket that the scheme’s cal­en­dar for both sub­mis­sion of appli­ca­tions and imple­men­ta­tion of the projects may be extend­ed to match the ones under the Scheme 1680: 31 Decem­ber 2013 and 31 Decem­ber 2018 respec­tive­ly.

The third active state aid scheme was approved in 2012 by GR 7972012 and is aimed at sup­port­ing invest­ments (i) based on which prod­ucts, ser­vices and inno­v­a­tive tech­nolo­gies are obtained or (ii) which include an infor­ma­tion tech­nol­o­gy and com­mu­ni­ca­tion (ITC) com­po­nent rep­re­sent­ing at least 20% of the invest­ment plan. The esti­mat­ed bud­get of the scheme is ca EUR 100 mln. Financ­ing approvals (acor­durile de finanțare) under this scheme will be issued in 2012 and 2013, with pay­ments to be made dur­ing 2013 – 2018.

In order to obtain state aid financ­ing, the appli­cant must demon­strate, among oth­ers, that the project will cre­ate and main­tain a min­i­mum num­ber of new jobs, finan­cial ratios and results, which over the next years will trans­late into prof­it tax, prop­er­ty tax and social secu­ri­ty con­tri­bu­tions in an aggre­gate amount at least equal to the state aid received. Dur­ing the five-year post-imple­men­ta­tion, the project will be sub­ject to detailed mon­i­tor­ing peri­od to ensure that these com­mit­ments are kept. In addi­tion, state aid will be dis­bursed only after the ben­e­fi­cia­ry sub­mits a let­ter of bank guar­an­tee secur­ing poten­tial state aid repay­ment requests in case of breach.

The investor apply­ing for state aid must have financ­ing in place to advance all project expens­es, as dis­burse­ments under the state aid scheme can be request­ed only after the rel­e­vant expens­es have been made. Project sup­pli­ers are to be con­tract­ed and paid fol­low­ing stricter (pub­lic pro­cure­ment type) pro­ce­dures. If the invest­ment is co-financed with bank financ­ing, the state aid financ­ing approval may be issued only based on a stan­dard­ised bind­ing let­ter of com­fort (scrisoare de con­fort anga­jan­tă) issued by the prospec­tive lender.

EU funds

As regards EU funds, the cur­rent pro­gram­ming peri­od (2007−2013) ends on 31 Decem­ber 2013, but the imple­men­ta­tion of projects can be extend­ed until the end of 2015.

Dur­ing this first pro­gram­ming peri­od, Roman­ian author­i­ties have had major dif­fi­cul­ties absorb­ing funds under the EU financ­ing pro­grammes. The Euro­pean Com­mis­sion has pre-sus­pend­ed, sus­pend­ed or imposed cor­rec­tions on sev­er­al, if not most, EU financ­ing pro­grammes for Roma­nia. We are hope­ful that, after the Decem­ber 2012 gen­er­al elec­tions, the Roman­ian Gov­ern­ment will com­mit the nec­es­sary resources to improv­ing EU funds absorp­tion in 2013 and then, dur­ing the pro­gram­ming peri­od 2014 – 2020, improve EU fund man­age­ment and absorp­tion by out­sourc­ing much of the process to pri­vate oper­a­tors, fol­low­ing the suc­cess­ful lead of Poland and the Czech Repub­lic.

The insti­tu­tion­al struc­ture and the reg­u­la­tions are dif­fer­ent for each EU financ­ing pro­gramme. Sim­i­lar to the state aid schemes, appli­cants must prove that they have the finan­cial capac­i­ty to imple­ment the project and must advance all expens­es under the project. Some EU financ­ing pro­grammes also pro­vide for lim­i­ta­tions applic­a­ble to the secu­ri­ty that can be cre­at­ed in favour of co-financ­ing banks over assets financed by EU funds.

Expe­ri­ence shows that the reim­burse­ment of costs by the author­i­ties may take up to 18 months, which is some­times longer than the imple­men­ta­tion dura­tion of the project. This issue must also be con­sid­ered when agree­ing on the terms of the bank co-financ­ing for the project. After imple­men­ta­tion, author­i­ties mon­i­tor the project for three to five years (when no mod­i­fi­ca­tions to the project are gen­er­al­ly admit­ted). Any breach of this oblig­a­tion may trig­ger reim­burse­ment of the EU funds received; banks co-financ­ing such projects will nat­u­ral­ly need to take this aspect into account.

Conclusion

Giv­en the chal­lenges of obtain­ing debt financ­ing in the wake of the finan­cial cri­sis, access­ing state aid schemes or EU funds could still prove inter­est­ing to both investors and lenders look­ing to finance projects in Roma­nia. This is despite the strict require­ments applic­a­ble to state aid schemes and EU financ­ing pro­grammes and the sys­temic risks result­ing from the Roman­ian insti­tu­tion­al and bud­getary lim­i­ta­tions applic­a­ble to both state aid and EU funds.

Experience shows that the reimbursement of costs by the authorities from EU funds may take up to 18 months, which is sometimes longer than the implementation duration of the project.