document of the world bankdocuments.worldbank.org/curated/pt/... · i document of the world bank...

i

Document of The World Bank

Report No: ICR0000759

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-46760)

ON A

LOAN

IN THE AMOUNT OF USD 18.6 MILLION

TO

ROMANIA

FOR A

Private and Public Sector Institution Building Loan

June 22, 2009

Private and Financial Sector Development Unit ECCU5 Europe and Central Asia

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

ii

CURRENCY EQUIVALENTS (Exchange Rate Effective June 9, 2009)

Currency Unit = Romania (New) Lei RON 1.00 = 0.333756 USD US$ 1.00 = 2.99620 RON

FISCAL YEAR

January 1 – December 1

ABBREVIATIONS AND ACRONYMS

ACH Automated Clearing House ANRE Romanian Energy Regulatory Authority ANRGN National Regulatory Authority in Natural Gas Sector in Romania BCR Banca Comerciala Romana BSE Bucharest Stock Exchange CAFR Chamber of Financial Auditors of Romania CAP Country Strategy and Action Plan CAS Country Assistance Strategy CCRF Accounting and Financial Reporting Council CEC Savings Bank CECCAR Body of Expert and Licensed Accountants of Romania CIA Certified Internal Auditor CNVM National Securities Commission DFID United Kingdom Department for International Development DMFAS Debt Management Financial and Analysis System DRG Diagnosis related groups EPS Electronic Payment System EU European Union EU PHARE European Union «Pologne, Hongrie Assistance à la Reconstruction Economique»

program FIAS Foreign Investment Advisory Service GD Government Decision GDP Gross Domestic Product GOR Government of Romania GSG General Secretariat of the Government GSRS Government securities trading IAS International Accounting Standards IBRD International Bank for Reconstruction and Development ICT Information and communication technology IT&C Information Technology and Communication IFRS International Financing reporting Standards IMF International Monetary Fund IOSCO International Organization of Securities Commissions ISC Insurance Supervision Commission JRP Judicial Reform Project JVA Jiu Valley Association JVR Jiu Valley Region KEP Knowledge Economy Project LCeN Local Community e-Networks M&E Monitoring and evaluation MCIT Ministry of Communication and Information Technology MOAI Ministry of Administration and Interior MOERYP Ministry of Education, Research and Young People

iii

MOEWM Ministry of Environment and Water Management MOH Ministry of Health MOJ Ministry of Justice MOL Ministry of Labor MOPF Ministry of Public Finance MOTCT Ministry of Transportation, Construction and Tourism MTEF Medium-Term Expenditure Framework NAFA National Agency for Fiscal Administration NAPA National Agency for Protected Areas NBR National Bank of Romania NVZs Nitrate Vulnerable Zones OP/BP Operational Policy/Bank Procedure OTC Over the counter market PAD Project Appraisal Document PAL Programmatic Adjustment Loan PDO Project Development Objective PFM Public Financial Management PIBL Private Sector Institution Building Loan PMU Project Management Unit PPIBL Private and Public Sector Institution Building Loan PPU Public Policy Unit PSAL Private Sector Adjustment Loan RAG Romanian Accounting Group ReGIS Real Time Gross Settlement system out of Romania ROSC Report on the Observance of Standards and Codes RTGS Real time gross settlement SaFIR Government securities registration and settlement system SCM Superior Council of Magistracy SDP Strategic Development Plan SENT Electronic multilateral netting system for small-value interbank payments of TransFond

S.A. SEPA Single euro payments area SME Small and medium sized enterprises SOEs State Owned Enterprises STP Straight through processing STEPS State Treasury Electronic Payment System STFD – TRANSFOND S.A. - Agent of the NBR for processing the interbank payments in Romania SWIFT Society for Worldwide Interbank Financial Telecommunication TA Technical Assistance TARGET2 Trans European Automated Real TimeGross Settlement Express Transfer TF Trust Fund TSA Treasury Single Account UNCTAD United Nations Conference on Trade and Development VAT Value-added tax

Vice President: Shigeo Katsu

Acting Country Director: Theodore O. Ahlers

Sector Manager: Sophie Sirtaine

Project Team Leader: Arabela Aprahamian

ICR Team Leader: Arabela Aprahamian

ICR Author Paula Genis

v

ROMANIA Private and Public Sector Institution Building Loan

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 63. Assessment of Outcomes .......................................................................................... 134. Assessment of Risk to Development Outcome ......................................................... 315. Assessment of Bank and Borrower Performance ..................................................... 316. Lessons Learned ....................................................................................................... 347. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 35Annex 1. Project Costs Financed by PPIBL and Financing ......................................... 36Annex 2. Outputs by Component ................................................................................. 47Annex 3. Economic and Financial Analysis ................................................................. 98Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 99Annex 5. Beneficiary Survey Results ......................................................................... 101Annex 5. Beneficiary Survey Results ......................................................................... 101Annex 6. Stakeholder Workshop Report and Results ................................................. 102Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ................... 103Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ..................... 110Annex 9. List of Supporting Documents .................................................................... 111Annex 10. PDO Indicators from the Implementation Status Report .......................... 112Annex 11. Original Components with Activities ........................................................ 116Annex 12. Beneficiaries of the Project ....................................................................... 118Annex 13. Revised Components, Beneficiaries and Expected Benefits ..................... 119Annex 14. Implementation Schedules of the World Bank Financed and Administered Projects during 1999-2008 .......................................................................................... 121

MAP

i

A. Basic Information

Country: Romania Project Name: Private & Public Sector Institution Building Loan (PIPBL)

Project ID: P069679 L/C/TF Number(s): IBRD-46760,TF-50477

ICR Date: 06/22/2009 ICR Type: Core ICR

Lending Instrument: TAL Borrower: ROMANIA

Original Total Commitment:

USD 18.6M Disbursed Amount: USD 18.5M

Environmental Category: C

Implementing Agencies: Ministry of Economy and Finance Cofinanciers and Other External Partners: European Union (EU) The Dutch Government B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: Effectiveness: 06/01/2002 11/25/2002

Appraisal: 11/26/2001 Restructuring(s):

Approval: 09/12/2002 Mid-term Review: 10/24/2005

Closing: 06/30/2005 12/31/2008 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Unsatisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Unsatisfactory

Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Moderately Unsatisfactory

Overall Borrower Performance:

Moderately Satisfactory

ii

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

Unsatisfactory

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Banking 30

Capital markets 2

Central government administration 40 39

Law and justice 8

Power 20

Public administration- Finance 51

Sub-national government administration 10

Theme Code (as % of total Bank financing)

Health system performance 4

Judicial and other dispute resolution mechanisms 8

Other accountability/anti-corruption 6

Other public sector governance 31

Public expenditure, financial management and procurement

51

E. Bank Staff

Positions At ICR At Approval

Vice President: Shigeo Katsu Johannes F. Linn

Country Director: Theodore O. Ahlers Andrew N. Vorkink

Sector Manager: Sophie Sirtaine Khaled F. Sherif

Project Team Leader: Arabela Sena Aprahamian Hiran Herat

ICR Team Leader: Arabela Sena Aprahamian

ICR Primary Author: Paula Genis

iii

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The goal of the Private and Public Sector Institution Building Loan (PPIBL) is: (a) to provide the required technical assistance (TA) to implement the policy measures which will be supported by the Private Sector Adjustment Loan II (PSAL II); and (b) to lay the ground for the reforms that will be implemented under the proposed Programmatic Adjustment Loan (PAL), formerly the Institutional and Governance Reform Structural Adjustment Loan. The PPIBL is a follow-on operation that will continue to provide the needed TA that began under the first Private Sector Institution Building Loan (PIBL) of which its entire amount is almost fully committed. The PPIBL is a natural continuation of the PIBL. The PPIBL will provide a small amount of funding to complete few remaining private sector actions while targeting the majority of the project resources to energy and public sector reforms. In this sense, it aims to achieve the following objectives: (i) a competitive financial sector predicated on the restructuring and privatization of state-owned banks, development of securities markets, and improvements in legal, regulatory and institutional support structures; (ii) enhancement of the private sector's role in the economy through the privatization of state-owned assets; (iii) a more efficient and service-oriented energy sector based on needed restructuring and privatization of key industries, introduction of a sound regulatory framework, reduction in arrears, and clarification of new tariff schemes to achieve cost recovery; (iv) a competitive private sector based on the creation of an environment conducive to private sector growth and development; (v) a more responsive, transparent and accountable public sector; and (vi) adoption of critical measures to provide social protection during the adjustment period and to establish effective poverty reduction mechanisms. I. Project Development Objectives used in this ICR The ICR evaluates the Project against: (i) whether the Project provided or not the required technical assistance (TA) to achieve the high level policy objectives contained in the PDO; and (ii) the extent to which the assistance provided contributed (a) to implementing the policy measures supported by the PSAL2 and (b) to laying the ground for the reforms implemented under the PAL (whether they contributed to specific PAL benchmarks or to deepening and/or broadening the Government reform program in the policy areas included in the PDO, but not necessarily reflected by specific PAL benchmarks). The ICR does not evaluate the Project against the high-level policy objectives (i)-(vi) included in the PDO (see Sections 2.1 and 2.3) as the Project cannot be alone accountable for the achievement of the outcomes envisioned by the PSAL 2 and PAL operations. However, the ICR provides an assessment on these policy reforms in Section 3.2 and Annex 2 for reference based on the evaluations made in the ICRs for PSAL2 and PALs and other more recent work undertaken by the Bank in the relevant policy areas. However, the ICR does not assess the provision of assistance in policy area (vi) because the PAD nor the loan agreement did not envision any funding for it under the PPIBL.

iv

II. Changes during the implementation and their impact on the Project The need for TA at the time of appraisal seemed almost limitless and the PPIBL had a broad mandate to contribute to a wide-range of high-level reform outcomes. The Project was initiated at a time of high commitment to reform, mainly led by the objective to facilitate the accession of Romania to the EU. However three developments affected the PPIBL and caused it to take a different track: (i) the PAL series preparation and implementation was delayed; (ii) other sources of funding, mostly grants, were made available to support the same PDO; and (iii) once the accession of Romania to the EU was assured, the PAL series was dropped and appetite for reforms decreased. The combined effect of these developments had three major impacts on the Project implementation: (i) The activities under Parts (components) A (Financial Sector Restructuring), B (Privatization Support for Enterprises), C (Privatization Support for Energy Sector) and D (Business Environment) (except for minor activities under A and D) were undertaken by alternative sources of funding, including the PIBL, Dutch Grants (TF050477 and TF054658) and EU resources. (ii) While upon the approval of the PAL the implementation of activities under Part E (Institutional Governance Reform) started with a delay and progressed slowly, the Ministry of Public Finance (MOPF) was engaging to reforming the public expenditure management both by including budget formulations reforms, but also budget execution strengthening measures. Among these, cash management became a first priority and all available loan funds (first the PIBL, then the PPIBL) were directed for this priority. Even though the PAD envisioned financing of goods at about 30% of the Loan, the emphasis of the PPIBL shifted from a TA operation supporting policy reforms towards a more likely investment operation as the MOPF expanded the Treasury modernization beyond what was envisioned in the PAD and about half of the PPIBL financing was directed to goods (that however included system development besides software and hardware). In 2005 the demand for funds from different ministries did eventually exceed the available funds, but nevertheless the Treasury modernization prevailed as the main activity under Part due to the commitment of the MOPF. (iii) Once the accession of Romania to the EU was assured, the PAL series was dropped, reform fatigue set in and the Project outcomes were affected negatively as the TA outputs were not used to the extent possible. Some PPIBL funds were put to alternative (good) uses, such as the provision of background studies and TA for other projects (tax administration reform, environment. III. Evaluation approach in the ICR The ICR evaluates the results of the Project activities irrespective of the source of financing. The Project refers to the original activities of the PPIBL, as defined in the PAD, and the new activities added through loan amendments. In addition to the PPIBL, these activities were financed by the earlier TA loan or the PIBL, the Dutch TF050477 linked to the PPIBL, the Dutch TF054659 linked to the PAL, as well as the EU (and some other sources) (Sections 1.7 and 2). As a result of the above approach, the ICR also evaluates the activities under Parts A, B, C and D funded by the PIBL and the activities funded for Part E under the Dutch Grants. Separate completion reports have been

v

prepared on the PIBL and the Dutch Grants. The approach to assess results - not only based on what was financed by the PPIBL, but based on the original objectives and targets - was chosen based on the ICR guidelines of the OPCS since neither the PDO nor the targets of the Romania PPIBL have been formally revised to reflect the de-facto significant changes in the PDO, design and project financing. IV. The Result Framework During the last year of supervision, the indicators in the result framework were retrofitted: (i) to reflect changes made during the implementation that were not formalized through formal restructuring; and (ii) to more comprehensively represent the original PDO (including the high level policy objectives included in the PDO) and activities described in the PAD. The retrofitting helped to address problems contained in the original result framework. Since the ICR does not evaluate the Project against the high-level policy objectives included in the PDO (see paragraph I), the related PDO indicators defined in the last ISR are provided in Annex 10 for reference. The below PDO indicators were designed, instead, to help in assessing the PDO against which the Project was evaluated. Guide to the Results Framework The definitions in the PDO indicator table have the following meaning: (i) Parts A-F refer to the different components, as follows: Part A: Financial Sector Restructuring and Privatization Support Part B: Privatization Support for State-Owned Enterprises Part C: Privatization Support for the Energy Sector Part D: Support for an Improved Business Environment Part E: Institutional and Governance Reform Part F: Project Management Unit (ii) Formally Revised Target Values are NA because the changes made during the implementation were not formalized through appropriate restructuring. (iii) Original Target Values, as defined in the below result framework, were not provided in the PAD nor in the loan amendments. They were developed for the purpose of providing more information about whether the TA was provided or not and about the extent. They refer to the total number of PSAL2 conditions/PAL benchmarks under the objective area where the Project provided actually TA. (iv) Actual Value refers to the number of TA outputs that contributed to (a) implementing the policy measures supported by the PSAL2 and/or (b) and (b) to laying the ground for the reforms implemented under the PAL and PAL (whether they contributed to specific PAL benchmarks or to deepening and/or broadening the Government reform program in the policy areas included in the PDO, but not necessarily reflected by specific PAL benchmarks). Section 3.2 provides more information. The definitions in the Intermediate Outcome indicator table have the following meaning: (i) Part in the definition of Indicators refers to components and various sub-components. See Section 3.2 and Annex 2.

vi

(ii) Original Target Values summarize the activities and outputs included in the PAD or loan amendments. (iii) The references in parentheses in the Actual Value Achieved column refer to the funding source. Annex 2 provides more information. Revised Project Development Objectives (as approved by original approving authority) The PDO was not formally revised. The key indicators were refined (see Section 2.3) during the last supervision missions through an aide memoire. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Part A: Part A: No.of TA outputs that contributed to (a) implem.the policy measures supported by the PSAL2 and/or (b) laying ground for the reforms impl. under the PAL

Value quantitative or Qualitative)

NA

1 PSAL2 condition; 9 PAL benchmarks - 10 in total

NA

(a) 1 output (it implemented 2 PSAL2 condition); (b) 10 outputs (they implemented 5 PAL benchmarks; contributed to 3 PAL benchmarks; 6 outputs helped w/GOR program) - out of total 11 outputs

Date achieved 04/15/2002 12/31/2008 12/31/2008 12/31/2008 Comments (incl. % achievement)

PDO (a) and (b) achieved substantially. See Section 3.2 and Annex 2.

Indicator 2 : Part B: Number of TA outputs that contributed to (a) implementing the policy measures supported by the PSAL2 and/or (b) laying ground for the reforms implemented under the PAL


NA 2 PSAL conditions NA

a) 2 (they implemented 2 PSAL2 conditions) - out of total 2 outputs


PDO (a) achieved highly. See Section 3.2 and Annex 2.

Indicator 3 : Part C: Number of TA outputs that contributed to (a) implementing the policy measures supported by the PSAL2 and/or (b) laying ground for the reforms implemented under the PAL

vii


NA

3 PSAL2 conditions; 6 PAL benchmarks - 9 in total

NA

a) 4 (they implemented 1 PSAL2 condition; contributed to 1 PSAL2 condition; 2 outputs helped w/GOR program) - out of total 4 outputs


PDO (a) and (b) achieved highly. See Section 3.2 and Annex 2.

Indicator 4 : Part D: Number of TA outputs that contributed to (a) implementing the policy measures supported by the PSAL2 and/or (b) laying ground for the reforms implemented under the PAL


NA NA NA

(b) 4 (4 outputs helped w/GOR program) - out ot total 9 outputs


PDO (a) and (b) achieved negligibly. See Section 3.2 and Annex 2.

Indicator 5 : Part E: Number of TA outputs that contributed to (a) implementing the policy measures supported by the PSAL2 and/or (b) laying ground for the reforms implemented under the PAL


NA 52 PAL benchmarks

NA

(b) 65 (they implemented 5 PAL benchmarks; contributed to 25 PAL benchmarks; 33 outputs helped w/GOR program) - out ot total 65 outputs


PDO (b) achieved substantially. See Section 3.2 and Annex 2.

(b) Intermediate Outcome Indicator(s)



approval documents)

Formally Revised

Target Values



Indicator 1 : Part A.1: the extent of TA provision to restructure CEC (Savings Bank) in preparation of privatization (through a twinning arrangement)

viii

Value (quantitative or Qualitative)

GOR had prepared a restructuring plan (met the PSAL2 Board condition).

TA to restructure CEC provided in preparation of privatization (PSAL2 2nd tranche condition); CEC restructuring and offer for privatization (PAL1-2 benchmarks).

NA

CEC restructured in 2004 (PIBL); offered for sale but not sold (Dutch TF050744); management changed in 2007.


PDO (a) and (b) for Part A achieved modestly. See Section 3.2 and Annex 2.

Indicator 2 :

Part A.2: the extent of TA provision to develop the capital markets by strengthening legal, regulatory and supervisory framework in line with the EU acquis and the institutional capacity of the National Securities Commission (CNVM) and the BSE


The legal and regulatory framework not aligned with the EU acquis; low regulatory and supervisory capacity of CNVM; Government securities not traded on the BSE.

TA provided for aligning the regulatory and supervisory framework to EU acquis (constituted/supported PAL1-2 for the legislation, CNVM#s capacity, mortgage markets); Government securities traded on the BSE.

NA

Legal and regul. framework developed in line with the acquis (CNVM, EU, TF050477); supervisory capacity stronger, staff trained, MIS/web portal developed (TF050477, PPIBL); Government securities traded on the BSE.



Indicator 3 : Part A.3: the extent of TA provision to strengthen the capacity of Insurance Supervision Commission (ISC) to regulate and supervise the insurance sector


ISC's capacity needed strengthening.

Provided TA to strengthen the ISC's capacity (constituted/supported PAL1 benchmark for assessing ISC's capacity).

NA

Contributed to strengthened ISC's capacity for supervising motor vehicle third party liability market and to modifying the accounting regulations in

ix

insurance field with acquis (Dutch TF050477).



Indicator 4 : Part B: the extent of TA provision for privatizing / working out the selected State Owned Enterprises (SOEs)


The GOR had selected 10 SOEs for privatization and 10 SOEs for workout and issued a request for proposal for selection of advisors for their privatization / workout (PSAL2 core Board condition).

8 SOEs privatized; 8 SOEs worked out (PSAL2 2nd tranche condition).

NA

16 SOEs privatized; 1 SOE liquidated through assets sale procedure; 3 SOEs liquidated through voluntary/judicial procedures. PIBL funded privatization of 4 SOEs and restructuring of 3 SOE (the rest funded by the GOR based on the same principles).


PDO (a) for Part B achieved highly. See Section 3.2 and Annex 2.

Indicator 5 : Part C.1: the extent of TA provision for strengthening the regulatory capacity of Regulatory Authority in Natural Gas Sector (ANRGN) and Energy Regulatory Authority (ANRE) (the extent of training staff)


ANRGN and ANRE had been established in 1999 to regulate the gas and electricity sectors, and their capacity needed strengthening.

Provided TA to strengthen the capacity of ANRGN and ANRE (supported broadly the energy sector reform under PSAL2/PAL).

NA

TA funded by EU and the Electricity Market Project. ANRGN was merged into ANRE in 2007. ANRE (and ANRGN until its merger) has built up a solid track record as probably the most competent regulator in the region.


PDO (a) and (b) for Part C achieved highly. See Section 3.2 and Annex 2.

Indicator 6 : Part C.3: the extent of TA provision to support privatization strategy for the electricity generation sector

x


GOR had launched preparation of restructuring and privatizing power sector from electricity distribution during preparation of PSAL2. GOR was planning to expand privatization to electricity generation.

Provided TA to develop a strategy for the electricity generation sector (PSAL2 condition).

NA

Privatization strategy for electricity prepared on EU funds and became part of Road Map (2003) that was characterized as exemplary by EU. Made significant progress. Successful implementation enabled entry into EU. Updated in 2007.



Indicator 7 : Part C.4: the status of reviewing the legal and regulatory framework for private competition in the energy sector (namely network industries)


GOR had to review the legal and regulatory framework in these areas (met PSAL2 Board conditions).

Provided TA to review the framework for network industries (supported PSAL2 objectives)

NA

Network ind.y study aggregated from tax, struct. and reg. ass. of electr., gas, oil and rvw of tariff meth. (PIBL, Dutch TF050477, Bank). Set up a transp. and predictable comm. and reg. frame for gas and power in line w/EU mkt lib. principles.



Indicator 8 : Part C.2: the status of examining the gas production technical tax regime


GOR had initiated the process of procuring consultant services for the review of the oil and gas production tax regime with a view to capture some of the windfall profits of domestic producers (PSAL2).

Provided TA to examine the gas production tax regime (supported a PSAL2 Board condition).

NA

Completed before approval of the PPIBL. Used as an input in the network industries and the Road Map approved in 2003 (PIBL).

xi



Indicator 9 : Part D.1: the extent of TA provision to strengthen e-business and establishment of telecenters by the Ministry of Communication and Information Technology (MCIT)


The legislative and institutional framework needed strengthening. TA was needed for its implementation.

Provided TA in these areas (no direct linkage to PSAL2/PAL conditions; supported GOR's business env. reform).

NA

Contributed significantly to designing 3 comp. in the Knowledge Economy Project which is strengthening e-business with satisfactory impl. progress (PPIBL). Established the Romania Gateway; 36.7% of GOR's services available online (GOR, Bank).


PDO (a) and (b) for Part D achieved negligibly. See Section 3.2 and Annex 2.

Indicator 10 : Part D.2: provide training of judges on bankruptcy


GOR was going to streamline bankruptcy legislation and planned training in implementing it (linked to PSAL2).

Provided TA in (supported the broad policy objectives of the judicial reform).

NA No TA provided.



Indicator 11 : Part D.3: extent of TA provision for refurbishing selected courts


Backlog and inefficiencies in court system.

Provided TA (supported the business environment reforms under PSAL2; overall objectives of the judicial reform under PAL).

NA

Designed a methodology for development of physical design standards; used as an input in designing the manual for the court infrastructure rehabilitation component under

xii

the Judicial Reform Project (Dutch TF50477).



Indicator 12 : Part D.4: carry out public awareness campaigns on business environment


FIAS had assessed the business environment. GOR was planning more reforms and intended to keep the business community info informed of the progress (linked to PSAL2).

Provided TA (supported the business environment reforms under PSAL2).

NA No TA provided.



Indicator 13 : Part D.5: improve business environment and e-business in Jiu Valley


Based on the Comprehensive Development Framework consultation, the community had developed a strategy approved by the GOR in 2001. TA was needed to undertake a competitiveness assessment of the region.

Provided TA (supported the PSAL2 policy objective of social protection and poverty reduction in areas affected by the economic transition).

NA

A survey of business opportunities used as input to a business development strategy for the region; IT&C to strengthen the Jiu Valley Association; IT & design and impl. of online tax collection system for six townhalls (PIBL).



Indicator 14 : Part E. 1.i.a: the extent of TA provision to the MOPF for public expenditure management in modernization of Treasury operations measured in terms of (1) volume of treasury transactions


The Treasury had a paper-based clearing and settlement mechanism.

Increased volume due to establishment of a secure and electronic connection

NA

STEPS was launched in 2005 and handled 28.8 million transactions in the first year (PIBL and PPIBL).

xiii

between the Treasury network and the banking system (STEPS) (supported the PFM reform under PAL)


PDO (b) for Part E achieved substantially. See Section 3.2 and Annex 2.

Indicator 15 : Part E. 1.i.a: the extent of TA provision to the MOPF for public expenditure management in modernization of Treasury operations measured in terms of (2) speed of final settlement


3.65 day duration for the final settlement (and maximum of 5.25 days)

Increased speed due to establishment of a secure and electronic connection between the Treasury network and the banking sys tem (STEPS) (PFM reform/PAL).

NA

Target achieved (PIBL and PPIBL). Real-time settlement in case of ReGIS and SaFIR; settlement in 2 hours in case of SENT.



Indicator 16 : Part E. 1.i.a: the extent of TA provision to the MOPF for public expenditure management in terms of (3) the ability to determine balances in Government accounts on an online real time basis


No such ability due to a lack of a centralized public accounting ledger.

The Treasury is able to determine balances in Government accounts on an online real time basis (PFM reform/PAL).

NA

Target achieved (PIBL and PPIBL). The Treasury has real time knowledge of bal. in its a/c and is better placed to make decisions for better cash man. and better ass. of borrowing needs (except that the commitment budg. remains to to be implemented).

Date achieved 04/15/2002 12/31/2008 12/31/2008 12/31/2008

xiv

Comments (incl. % achievement)


Indicator 17 : Part E. 1.i.a: the extent of TA provision to the MOPF for public expenditure management in terms of (4) the ability for the Treasury, its subordinate offices, spending units and clients to have on line real time access Treasury databases.


Distributed architecture in the Treasury system and lack of a general ledger and weak links in the treasury system. Thus, no rapid ability for the previously mentioned functions.

The above mentioned entities have ready (on-line real time) access to current year and historical budget execution data to carry out the previously mentioned functions (PFM reform/PAL).

NA

MOPF/Treasury able to produce government wide fiscal reports in a timely manner; to determine relevant information from databases readily and status of budget availability; undertake time series analysis on budget execution (PIBL and PPIBL).



Indicator 18 : Part E.1.i.b: the extent of TA provision to the MOPF in budget formulation


GOR had initiated a set of budget reforms aimed at preparing more realistic and effective program and results-oriented budgets. TA was needed to further develop and help implement them.

Provided TA to improve the program and results-oriented budget formulation reforms already underway (PFM reform/PAL).

NA

Built cap. in GSG, ministries and the frame for policy form. and integr. strat. planning (Dutch TF054659; PPIBL). Contributed to dev. the frame, tools for integr. strat. planning system. Designed macro model and built in-house forecasting capacity (PPIBL)



Indicator 19 : Part E.1.i.c: the extent of TA provision to the MOPF in debt management / foreign financing coordination (including number of staff trained)


TA needed for improved legislation on managing public debt. One issue

Provided TA to ensure better coordination and

NA Ugrade to UNCTAD#s DMFAS SW

xv

was that line ministries contracted external credits directly with a sovereign guarantee, and not included in the budget.

accountability for foreign-financed activities (PFM reform/ PAL).

implemented in 2006; a techn. serv. contract for Bloomberg fin. serv. 5/2006-mid-2008; trained MOPF staf and NBR (Dutch TF050477); improved legal framework and set up a modern debt agency (GOR).



Indicator 20 : Part E.1.i.d: the extent of TA provision to the MOPF in government accounting and financial reporting


The accounting and reporting system suffered from heavy dependence on manual accounting and bookkeeping processes. The quality of external financial reporting was not of a sufficiently high quality.

Provided TA to strengthen public sector accounting capacities (PAL2-3 benchmarks for improving the transparency in the functioning of the firms; PFM/PAL).

NA

Impr. reg. frame for fin. rep., acc., audit in line w/ acquis and to impl. CAP; cap. building in prof. bodies; helped prepare and monitor the Strategic Development Plan (Dutch TF050477, TF054659, PPIBL). Accrual acc. enforced to a limited extent.



Indicator 21 : Part E.1.i.e: the extent of TA provision to the MOPF in internal audit


The internal audit function had become effective in 2000 and concerned not only budget execution but also effectiveness of performance. TA needed to regulate internal audit activities.

Provided TA to strengthen internal audit (PFM reform/PAL).

NA

Training provided for 42 internal auditors for CIA certification some of which passed the exam and trained other internal auditors under the umbrella of IIA-Romania (now there are 120 internal auditors

xvi

with CIA) (Dutch TF050477, PPIBL).



Indicator 22 : Part E.1.i.f: the extent of TA provision to the MOPF in decentralization


TA needed for improving the Law on Public Finance for better local government budget management and in developing a stable and transparent financing mechanism that matched new expenditure responsibilities.

Provided TA to address certain risks posed by the ongoing decentralization process (PAL2 benchmark about an improved decentralization framework).

NA

Analyzed Romania's intergovernmental fiscal relations and local government finance; GOR implemented many of the recommendations in the reform package enacted in 2006 (Dutch TF054659).



Indicator 23 : Part E.1.ii: the extent of TA provision to the National Agency for Fiscal Administration (NAFA) to support analytical studies on revenue administration issues


TA was needed to NAFA#s capacity strengthening, in preparation of a planned project aiming to address fiscal vulnerabilities and modernize the public sector.

Provided TA to NAFA (PFM/PAL).

NA

Made rec. and provided direction for the dev. of organization and working processes in NAFA (Dutch TF50477, PPIBL); impl. funded by EU. Key result: NAFA#s improved ability to serve the taxpayers based on modernized IT system.


PDO (b) for Part E achieved substantially. See Section 3.2 and Annex

Indicator 24 : Part E.4: the extent of TA provision to the MOAI for preparation, development and implementation of a system for civil services monitoring indicators, management and impact of the Civil Service Reform

Value TA to strengthen public Provided TA to the NA Collected data on

xvii

(quantitative or Qualitative)

sector governance and capacity as part of the public administration reform.

MOAI (PAL1 benchmark about a study on the pay, grading and employment management and PAL3 benchmark about the law on salary setting).

the private and public sector remuneration for comparable positions and prepared a reform strategy and draft legislation for a unitary pay system in the civil service; not adopted (PPIBL).


PDO (b) for Part E achieved substantially. See Section 3.2 and Annex 2

Indicator 25 : Part E.5: the extent of TA provision to the MOJ, Superior Council of Magistracy and Courts for carrying out a program of judicial reforms


GOR's Judicial Reform Strategy adopted in 2003 but needing implementation.

Provided TA to the MOJ, Superior Council of Magistracy and Courts (support/constitute PAL1-2 reg. selecting judges; a court ration. study; selecting econ. man.; prep. budgets in courts; monitoring and evaluating jud. perf.; SCM cap.; revising Co. Law).

NA

Contributed to cap. building, IT infrastr. and some act. in MOJ and SCM; designing Jud. Reform Project (court ration. study; leg. frame for econ. managers; court perf. eval. system); revised Co. Law and reformed Civil Code (TF50477 and TF54659, PPIBL).



Indicator 26 : Part E.6: the extent of TA provision to develop a strategy and action plan for health insurance administration


TA needed for designing a strategy and action plan for the resource allocation and public spending in the health administration

Provided TA to take initial steps ensure more accountable, effective and fiscally prudent use of public financial resources devoted to the provision of health

NA Please see (v) (q).

xviii

care in Romania (PFM/ PAL).



Indicator 27 : Part E.7: the extent of TA provision to the MOAI and to the MOPF for improvements in intergovernmental fiscal relations


TA needed to build capacity for intergovernmental coordination and cooperation as part of the decentralization reform.

Provided TA to the MOAI and MOPF (supported a PAL2 benchmark).

NA See v (f).



Indicator 28 : Part E.8: the extent of TA provision to the General Secretariat of the Government (GSG) and Prime Minister Chancellery for reforms in policy making and administrative accountability


TA needed to support GSG to build policy formulation capacity towards better strategic prioritization and fiscal impact assessment.

Provided TA to the GSG and Prime Minister Chancellery (supported PAL2 bencmarks about on policy making procedures).

NA

Contributed to (1) des. and creating frame and a set of tools for pol. analysis and integr. strat. Plan., building cap, in GSG, ministries for impl. them, and (2) provided a design for an integr. IT syst. for tracking pol. form. process (TF54659,PPIBL).



Indicator 29 : Part E.9: the extent of TA provision to the MOL to carry out a labor code review, labor market study, strategy and action plan


TA needed to support labor market reforms.

Provided TA to the MOL (constituted and supported PAL1-2 benchmarks about the Labor code).

NA

Made recommendations to revise the Labor code (PPIBL). Six out of seven key recommendations were used to amend the Labor Code in

xix

2005. No funding requested for a labor markets study, strategy and action plan.



Indicator 30 : Part E.10: the extent of TA provision to the MOE for reforms in the education sector


TA needed to provide more adequate and equitable financing for education and to align the roles and responsibilities of education at the central and local level with financial decentralization.

Provided TA to the MOE (supported PAL2 benchmark about the Education Law).

NA

Recommendations in line with PAL not fully incorporated into 2004 leg. neither enforced in practice (PPIBL, Dutch TF54659). Others on the educ. adm. and fin. strategy adopted in 2005, but strategy has has not been implemented.



Indicator 31 : Part E.11: the extent of TA provision to the MOH for reforms in the health sector


TA needed for developing approaches to providing sustainable sources of financing for the Health insurance system, reducing corruption, improving effectiveness and efficiency of the system.

Provided TA to the MOH (supported PAL2 benchmarks about health sector financing, corruption, health sector legal package).

NA

Strengthened the 2006 Health Sector Reform Package; and enabled the national roll out of the new hospital finance system; informed of the magnitude of corruption in the health sector and of the overall health sector financing (Dutch TF54659, PPIBL).



xx

Indicator 32 : Part E.12: the extent of TA provision to the MOTCT for reforms in the roads and railway sectors


TA needed to rationalize the railway network and services, completion of interoperability and safety regulations with EU Directives, etc.

Provided TA to the MOCT (supported the PAL2 benchmark about primary and secondary mortgage market legislation; the overall PAL policy reform in the roads sector).

NA

Carried out a housing policy and subsidy review; a housing mortgage insurance scheme review; and a feasibility study on a partial credit facility for mortgage backed securities; funded the review of a civil works contract (Dutch TF54659 and TF50477).


NA

Indicator 33 : Part E.3: the extent of TA provision to the MOCIT for the development of the SMART-card system


TA to support GOR strategy for developing e-government applications, including development of SMART-card access to government functions and services.

Provided TA to the MOCIT to take initial steps for establishing a SMART-card system for use within the public administration (supported broadly the business environment reforms under PSAL2).

NA See iv.a.



Indicator 34 : (v) (s) the extent of providing TA to the MOEWM to carry out reforms in the environment and water management sectors


TA needed to prepare a planned environment management project to build capacity (including in a new national agency) and to implement the environment acquis and effectively absorb EU

Provide TA to the MOEWM (supported broadly the PFM reform/PAL and EU integration process/CAS)

NA

Carried out a diagnostic analysis and an action plan for implementation of the Nitrates Directive; drafted the first version of a strategy for

xxi

funds. contaminated area; and helped set up the operations of a new agency, NAPA (Dutch TF54659 and PPIBL).


NA

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 12/16/2002 Satisfactory Satisfactory 0.00 2 05/08/2003 Satisfactory Satisfactory 0.00 3 12/16/2003 Satisfactory Satisfactory 0.04 4 06/14/2004 Satisfactory Satisfactory 0.78 5 12/16/2004 Satisfactory Satisfactory 0.83 6 05/24/2005 Satisfactory Satisfactory 2.41 7 11/22/2005 Satisfactory Moderately Satisfactory 2.91 8 05/09/2006 Satisfactory Moderately Satisfactory 3.90 9 11/16/2006 Satisfactory Moderately Satisfactory 4.60

10 12/28/2007 Satisfactory Moderately Satisfactory 10.59 11 01/31/2008 Satisfactory Satisfactory 11.02 12 12/05/2008 Satisfactory Satisfactory 18.45 13 01/09/2009 Satisfactory Satisfactory 18.54

H. Restructuring (if any) Not Applicable

xxii

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design1 1.1 Context at Appraisal Country background. A few years before the appraisal of the Private and Public Institution Building Loan (PPIBL), the Romanian economy had begun growing again, reaching a real GDP growth rate of 5.3% in 2001. However, the way in which it was being financed led to growing macroeconomic imbalances, including a rising current account deficit. In 2000 the Government of Romania (GOR) defined a bold economic reform strategy to sustain the economic recovery and keep the country on a sustainable growth path. The strategy was consistent with Romania’s quest to accelerate its integration to the European Union (EU). Banking sector privatization and financial sector development. The GOR had been implementing an ambitious banking sector privatization and restructuring program since 1999 to end the public sector banking so as to eliminate it as a source of financing of loss-making state owned enterprises (SOEs) and to build a more competitive financial sector. The GOR planned to complete the privatization of the two remaining state commercial banks – the BCR and the CEC - (about 42% of the banking sector assets); strengthen the legal and regulatory framework; enhance banking sector infrastructure (i.e. payment systems, accounting and auditing framework); improve the functioning of the Government securities market; develop the capital markets for debt and equity instruments under proper supervision; and develop the Insurance Supervision Commission. Enterprise sector divestiture. Likewise, since 1999, the GOR had privatized or liquidated a range of SOEs and closed down non-viable and environmentally damaging mines. These reforms aimed at cutting arrears of SOEs to utilities, other commercial creditors, and the budget; reducing high fiscal and quasi fiscal costs of supporting loss-makers; improving efficiency of large industrial enterprises; and increasing the level of new direct investment and new owners, thus stabilizing the economy and providing a more fair environment for private sector growth. Yet there were still about 600 SOEs in early 2001 to be privatized in the manufacturing sector from the more than 7500 SOEs back in 1992. The private sector share of GDP was 69.1 % in 2002. The GOR’s intended to complete divestiture of the state portfolio in the manufacturing sector and to move towards second wave of privatizations/restructurings in the utility sectors (energy, mining, transport). Utilities sector reform. Utility companies had long suffered from low tariffs and poor payment discipline, resulting in the build-up of arrears and cross subsidies to inefficient state owned enterprises. The GOR intended to reduce the quasi-fiscal activities of energy utilities by carrying out a major reform of the electricity, oil and gas sectors that would introduce a modern legal, regulatory and institutional framework to: (i) encourage competition, efficiency, reliable service, fair pricing, and proper regulatory oversight; and

1 The length of the ICR is justified by the number of financing sources, complexity of the design and the policy objectives included in the PDO that call for discussion of the policy reforms.

2

(ii) to enhance the independence and strengthen the institutional capacity of the regulatory agencies. Business environment. The Romanian business environment was characterized2 by macroeconomic instability, uncertainty about regulatory policies, high tax rates and administration, high cost and difficult access to financing, corruption, contract violations, and anti-competitive practices. As result, Romania did not compare well among the Central and Eastern European countries either in the private sector output as % of GDP (2nd lowest) and average foreign direct investment as % of GDP (2nd lowest). The GOR planned further reforms to: remove barriers that impeded business development, including for e-business; rationalize fiscal inspection; streamline the building permit process; enforce corporate governance; advance tax reforms, including by the adoption of e-taxation; and ensure wider use of the international accounting standards and more efficient bankruptcy procedures. Institutional and governance reform. The GOR was acutely aware of having to launch reforms of the institutional, regulatory and governance framework to improve efficiency and effectiveness of allocation of public funds and delivery of public services. Frequent changes in legislation and weak institutional capacity had led to poor delivery of services and an acute impact on the business environment and private sector development; the public sector was perceived and experienced to be inefficient and poorly accountable at the central and local levels; and the large quasi-fiscal deficits implied that public resources were allocated in a non-programmed, discretionary manner during the budget year. In addition to continuing structural reforms, the GOR therefore laid the basis for a programmatic approach in 2000 to address these issues. Rationale for Bank assistance. The PPIBL was a follow-on technical assistance (TA) project designed to: (a) allow the completion of the activities remaining after the Private Sector Institution Building Loan (PIBL; FY99) to support the Second Private Sector Adjustment Loan (PSAL2; FY02); and (b) to support mainly energy and public sector reforms under the planned Programmatic Adjustment Loan (PAL; FY05). The loan was considered justified based on: (a) the positive experience in twinning an adjustment loan (PSAL) and a TA loan (PIBL) that allowed timely availability of funds and appropriate terms of reference, consistently designed to achieve the objectives of the policy reforms agenda3; and (b) the Bank’s extensive experience in complex reforms and strategic use of TA. These operations reflected the GOR’s priorities and constituted the key elements in the FY02-04 CAS. The operations were linked to the GOR’s continued progress in areas where the IMF’s 2001 standby agreement had highlighted the needs for reform and were coordinated with the EU accession program.

2 EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS) 2005. 3 The success of twinning the two projects attracted unanticipated donor funds - the Dutch TF050477 was approved in May 2002 and linked to the PPIBL to support it. The second Dutch Grant TF054659 was approved in January 2005 to support the PAL.

3

1.2 Original Project Development Objectives (PDO) and Key Indicators (from Project Appraisal Document)4 The goal of the Private and Public Sector Institution Building Loan (PPIBL) is: (a) to provide the required technical assistance (TA) to implement the policy measures which will be supported by the Private Sector Adjustment Loan II (PSAL II); and (b) to lay the ground for the reforms that will be implemented under the proposed Programmatic Adjustment Loan (PAL), formerly the Institutional and Governance Reform Structural Adjustment Loan. The PPIBL is a follow-on operation that will continue to provide the needed TA that began under the first Private Sector Institution Building Loan (PIBL) of which its entire amount is almost fully committed. The PPIBL is a natural continuation of the PIBL. The PPIBL will provide a small amount of funding to complete few remaining private sector actions while targeting the majority of the project resources to energy and public sector reforms. In this sense, it aims to achieve the following objectives: (i) a competitive financial sector predicated on the restructuring and privatization of state-owned banks, development of securities markets, and improvements in legal, regulatory and institutional support structures; (ii) enhancement of the private sector's role in the economy through the privatization of state-owned assets; (iii) a more efficient and service-oriented energy sector based on needed restructuring and privatization of key industries, introduction of a sound regulatory framework, reduction in arrears, and clarification of new tariff schemes to achieve cost recovery; (iv) a competitive private sector based on the creation of an environment conducive to private sector growth and development; (v) a more responsive, transparent and accountable public sector; and (vi) adoption of critical measures to provide social protection during the adjustment period and to establish effective poverty reduction mechanisms.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The PDO was not formally revised. The key indicators were refined (see Section 2.3) during the last supervision missions through an aide memoire.

1.4 Main Beneficiaries The primary target group included the Romanian economy as a whole, the private sector and citizens more generally. Benefits of structural reforms in the enterprise and financial sectors were enhanced prospects for growth and sustainability of macroeconomic stabilization. Benefits of institutional and governance reforms were a more predictable legal environment, more enforceable legal rights, streamlined administrative procedures and a more transparent, accountable and responsive public administration.

4 There are inconsistencies in the PDO between the PAD and the Loan Agreement. There are also inconsistencies in the key indicators within the PAD. See Section 2.

4

Annexes 11, 12 and 13 contain information on the original secondary target groups and additional secondary target groups in the public sector that were included through the 2004 and 2006 loan amendments (see Section 1.6).

1.5 Original Components The Project consisted of the following six Parts (components) (see Annexes 11 and 12):

Part A: Financial Sector Restructuring and Privatization Support Part B: Privatization Support for State-Owned Enterprises Part C: Privatization Support for the Energy Sector Part D: Support for an Improved Business Environment Part E:. Institutional and Governance Reform Part F: Project Management Unit (PMU)

1.6 Revised Components The components were not revised, but some new activities were added under Parts D and F and new sub-components were added under Part E. Two loan amendments were approved by the Bank management (one in 2004 and 2006 each) to revise the original components so as to reflect in them mainly the advancing and the deepening of the programmed public sector reform (see Annex 13). The 2004 amendment expanded support to: (a) the agreed PAL reform program that included a number of new activities introduced since the initial design dating back 2002; (b) a new PAL PMU established in the Prime-Minister’s Chancellery in 2004 to monitor the preparation and implementation of the PAL reform progress (its set-up in the Prime Minister’s Chancellery was seen as an insurance against political and implementation risks); and (c) some small new activities under Part D. The 2006 amendment provided support to prepare two projects planned in the FY06-09 CAS to deepen the public administration reform initiated under the PAL and necessary for the EU accession process; one for the National Agency for Fiscal Administration and the other for the Ministry of Environment. After the cancellation of the PAL, there were no additions to the procurement plan. These amendments were approved as minor changes by the Bank management. Retrospectively, a restructuring would have been appropriate to formalize the significant changes in the PDO, project design, as well as expenditure category and component costs, They resulted from financing practically four of the six components under parallel financing due to their overlapping objectives with those of the PPIBL (see Section 1.7).

1.7 Other significant changes Changes in financing the components and activities and in their costs, as defined in the PAD and in the subsequent loan amendments. The financing of the components and activities defined in the PAD (referred to as “the Project”) changed significantly during the implementation. The changes that took place during the implementation were not formalized appropriately through restructuring of the PPIBL. They resulted in about $15 million of parallel foreign financing, including $10 million from the PIBL, $3 million from the Dutch Grant TF050477, $2.3 million from the Dutch Grant TF054659,

5

and about $4 million of counterpart funding5 for the Project activities (see Annex 1) (excluding the EU). See Section 2.2 for explanation of the factors that led to this. In addition, the component costs, as far as financed by the PPIBL, changed significantly between the appraisal and the completion (see Annex 1). The significant changes that took place during the implementation were partially reflected in the reallocations of loan proceeds between disbursement categories approved by the Bank management (see below), but they were not formalized appropriately through restructuring of the PPIBL. Thus, Part E accounted for 89% of the costs financed by the PPIBL (and the counterpart funds) at completion compared to 55% of the baseline costs at appraisal. The cash management sub-component (E.1.i.a) accounted for 57% of the Part E total costs (there were no appraisal estimates available). Part F accounted for about 8% of the PPIBL baseline costs (of which 61% for the PPIBL PMU, including audits, and 39% for the PAL PMU) compared to the estimated 1% at appraisal (that represented the costs of the PPIBL PMU for one year since the PIBL financed the rest)6. In addition to Parts E and F, the PPIBL financed minor amounts under Part A (2% compared to the estimated 20%) and Part D (0.6% compared to the estimated 9%). The PPIBL did not finance any activities under Parts B and C. At completion $60,000 of the PPIBL was cancelled. Changes in disbursements by expenditure categories under the PPIBL. The Bank management approved a reallocation of loan proceeds in 2004 and 2008 from Consulting Services and Civil Works to Goods and Incremental Operating Costs in response to the request of the Borrower (see Annex 1)7. The reallocations were approved as minor changes (instead of formalizing them appropriately by restructuring the PPIBL). They led to significant changes in disbursements by expenditure category at completion. Disbursements under the Incremental Operating Costs Category accounted for 699% and Goods for 188% of the appraisal estimates. The nature of the PPIBL changed de facto from a TAL to an investment loan due to the actual share of about 50% of infrastructure investments of the PPIBL proceeds compared to 26% at appraisal. The increase in disbursements under Goods was mainly in response to the MOPF’s request for supporting a move to a modern Treasury which was a priority of the MOPF8 as a critical tool to improve public expenditure management. The PPIBL PAD envisioned primarily support to establish a connection between the Treasury and the interbank payment system, using the Transfond, so as to improve cash management. The additional investments that were made during the Project implementation were guided by the MOPF’s IT strategy from 2003 that was based on a number of recommendations from numerous reviews and recommendations made by the donor community to realize the full advantages afforded by implementation of a Treasury system9. One key input was the PAL team’s 2003 appraisal of the Romania’s Treasury IT system and recommendations

5 The amount of counterpart funding may include some counterpart funding for the PPIBL. 6 Later the 2004 amendment provided for the financing of the PPIBL PMU for another three years in addition to providing for financing of the costs of the PAL PMU. 7 The amendments were cleared by the Bank’s legal, loan and procurement or financial management departments. 8 Aide-Memoire dated April 4, 2003 9 Romania: Public Sector Financial Management, 1998; Romania: Building Institutions for Public Expenditure Management: Reforms, Efficiency and Equity, 2002; Romania: Country Financial Accountability Assessment (2003). By 2003 the EU was launching a multi-million dollar TA project for Treasury modernization, including support for designing the MOPF’s IT strategy.

6

with the initial cost estimates of $14 million (without taxes) for further modernizing the Treasury system (see Section 2.2). This appraisal (and the subsequent 2003 Country Financial Accountability Assessment, CFAA) proposed to upgrade the existing IT&C infrastructure and the systems to improve Treasury operations (which in turn improved cash management) instead of implementing an integrated package software. The reason for this strategy was that the Romanian Treasury already had several functional applications in place to support their functional processes and a very costly ministerial project would have been needed to replace these with an integrated package. The Bank IT/Treasury specialists recommended that the Treasury start by establishing a connection to the Transfond, the interbank payment system, and a debt management system as a short term measure to achieve some quick wins. As a longer term strategy, the Bank specialists proposed that the Treasury develop an integrated public financial management system, including a centralized and real-time public accounting ledger, public contracts central database, integrated budgetary credit management workflow, central data warehouse, and public finance portal. These recommendations were incorporated into the MOPF’s IT strategy from 2003 and over time were supported under the PIBL and PPIBL based on the MOFP’s requests. The strategy aimed at improving the shortcomings in the budget execution, and fell under the overall objectives of the PPIBL of improving public expenditure management, reducing arrears and improving the quality and delivery of public services. Changes in the implementation schedule of the PPIBL. Implementation of the PPIBL started with a 2-year delay as a result of: (a) delays in preparing the PAL due to delays in completing the PSAL2 that led to delayed effectiveness of the PPIBL; (b) the GOR’s request and the Bank’s agreement to disburse other ongoing loans and grants to finance the PPIBL activities before or instead of the PPIBL (see above and Annex 14); and (c) delays in implementing some overlapping activities under the PIBL which the PPIBL was designed to continue (Treasury modernization). After the implementation had started, the Bank management approved extension of the closing date three times for three and a half years in total for the following reasons: (a) on December 20, 2004, an extension was granted for two years until June 30, 2007 to allow implementation of the activities that had been identified with a delay under Part E to support the PAL; (b) on August 21, 2006, an extension was granted for one year until June 30, 2008 to enable the Borrower to utilize all the funds under the Loan for new activities that had been identified earlier to support the PAL under Part E10; and (c) on February 25, 2008, an extension was granted for six months until December 31, 2008 to enable implementation of the last contracts that were undergoing long procurement process under Part E.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Soundness of the background analysis. Significant background analysis was done in the context of the adjustment loans that the PPIBL was designed to support. The sound,

10 The extension notification indicated this was an exception to the closing date policy since then the closing dates were not extended to complete new actions proposed to be added after a project mid-term review.

7

extensive and high quality analysis11 identified the key sub-sectoral issues and institutional constraints and helped develop programmatic reforms. However, not equal analysis was done for identifying the specific TA activities and their expected contribution toward achieving the policy reform objectives (see below). The lessons about the importance of good PMU arrangements mitigated the risks from inadequate capacity of the beneficiaries through efficient administration of the large and complex TA by the PPIBL PMU. The lessons about the best practice privatizations led to provision of investment banks advisory services and introduced greater transparency to the process. Finally, the lessons from addressing the financial and private sector and public sector reforms together helped address the interlinked issues in these sectors. The rationale for twinning a policy reform loan with a TA loan, when expertise for reform implementation was needed, had been tested with successful outcomes in Romania (i.e. PSAL-PIBL). However, despite the recognized weak reform implementation capacity of the GOR, there was no clear rationale for incorporating Parts A-D under the PPIBL since, at the time of the approval of the PPIBL, the PIBL had unused funds for similar activities and the Dutch Government granted funds for some similar activities, as well (albeit unexpectedly)12. New TA for Part E was justified because the public sector reform agenda was expected to grow substantially under the PAL. The effectiveness delay of the PPIBL and the overlapping designs of the PIBL and the grants and the GOR’s preference to use first them delayed the start of disbursements under the PPIBL but did not affect the outcomes that were overall substantially achieved under all Parts with the help of the parallel financing. Assessment of the project design. The PDO was inconsistent within the PAD and between the PAD and the Loan Agreement; and the PDO in the PAD included low and high level PDOs and gave the impression that the PPIBL is accountable for the high level PDOs (“More specifically, it aims to achieve to the following objectives: (i)…(vi)”). The PPIBL cannot however be held accountable for the high level PDOs that, as such, were clear and important for the country and the Bank, and their ambitious agenda was justified based on the previous experience in implementing structural reforms. In particular, it is not clear why the high level PDO (vi) (social protection) was discussed in the PAD and included in the PDO in the PAD since no activities were planned for it under the PPIBL. The lower level PDO (“TA to implement the PSAL2 policy measures and to lay the ground for PAL reforms”) indicated different levels of accountability but was realistic. All original components of the PPIBL were reasonably linked to the lower level TA objectives except for two: (i) Part C included some activities already financed by the PIBL; and (ii) Part D included a number of different activities that were unrelated to each

11 See the PSAL2 and PAL ICRs (a QAG review conducted in 2005 gave a best practice rating for the Quality at Entry of the PAL1). Other analyses were done in addition to those listed in the PAL1 ICR, such as the Public Sector Financial Management Review (1998), Implementation of the Comprehensive Development Framework Principles in a Transition Economy, Fiscal Transparency ROSC (2002), Romania Public Finance Project Assessment (2002) to identify the strategic elements and implementation plan of the MOPF IT&C strategy, Country Financial Accountability Assessment (2003), Restructuring for EU Integration – the Policy Agenda (2004). 12 Interestingly, in 2001 the PIBL was fully committed, but as the privatization commitments were funded by the GOR, the PIBL accumulated unused resources by 2002.

8

other and not directly linked to the policy programs. In the end, Part C was financed by parallel financing and outcomes were not affected, while Part D results were only modest, since spreading resources between so many different purposes contributed to reducing the development effectiveness. As the component design followed the complexity of the policy programs, it led to high complexity that was a factor in delaying implementation of the Project despite the efficient PMU arrangements. Other factors included the high number of agencies involved in the implementation of the reform programs (and the ambitious high level PDOs), their limited institutional capacity and readiness to embark in the reform program and, in particular, their limited or even absent experience with the Bank’s projects coupled with the need for coordinated intergovernmental efforts. Finally, it was unrealistic to expect that the original 3-year implementation period would be sufficient for a complex TA loan that supported ambitious reforms. Adequacy of Government commitment. The GOR was fully committed to the ambitious program of structural and institutional reforms supported by the Project because they were anchored in the EU accession, a priority of the GOR. The commitments to the EU related to adoption of the acquis to “close” the negotiating chapters, but also to the overall need to achieve the status of a functioning market economy, a precondition for the accession. The GOR’s commitment was demonstrated by the successful implementation of the PSAL1/PIBL program, eventual completion of the Board actions of the PSAL2 with a timetable for subsequent actions under the PAL program and establishment of a high-level PMU within the Chancellery of the Prime Minister in 2005. Assessment of risks. The estimated risks were relevant, but some of them could have been higher or they could have included more risks. Due to the PPIBL’s linkage to the ambitious policy reforms, the risk rating of the GOR’s commitment could have been higher despite the demonstrated commitment at appraisal. The risks could also have included poor market conditions that affected the privatization activities and led to changes in the funding of the PPIBL’s activities (see Section 1.7), as well as the weak institutional capacity of the new beneficiaries under Part E for implementing and absorbing the TA that affected the implementation pace. Most importantly, the mitigation measures did not have alternative measures to help strengthen the results of the TA interventions in the possible absence of the leverage provided by a policy loan. This risk materialized and reduced some outcomes under Part E (see Section 2.2). No Quality at Entry assessments was carried out on the PPIBL. A Country Lending Assessment from 2004 gave an overall unsatisfactory rating to the PPIBL. The specific ratings were: moderately unsatisfactory rating for strategic relevance (especially for appropriateness of scope in the context of the CAS framework, clarity of the PDO definition and its consistency with the result framework, relevance to Romania’s strategies and adequacy of country and sector knowledge underpinning the project); unsatisfactory ratings for design (especially for use of lessons, implementation readiness at approval, adequacy of capacity assessments of project beneficiaries and appropriateness of monitoring project implementation and reviewing progress with the Borrower), implementation (especially for quality of Bank identification, assessment and

9

resolution of problems, quality of Bank actions and follow-up, performance and progress monitoring, and realism and quality of project’s performance reporting and risk rating) and Bank inputs and process (especially for quality of engagement of the project with strategic country clients and key counterparts); and satisfactory rating for participation and partnerships. Some criticism is valid (i.e. the M&E issues; adequacy of capacity assessments; weakness in the Bank supervision; relevance for a new TA loan). Based on the information at completion on the results achieved, some other criticism is not valid any more. Namely, the QAG assessed the project when the PPIBL was not active and other funds were used to finance its activities, while the ICR has the opportunity to take a holistic view on the results. Thus, all components, as described in the PAD, achieved their objectives on the average substantially irrespective of the source of funding. In addition, the Bank increased efforts to remedy the earlier slow progress and lack of proactivity towards the end of the Project.

2.2 Implementation Factors generally subject to government control Availability of parallel financing. Availability of parallel financing affected negatively the implementation of the PPIBL but it did not affect its outcomes that were achieved on the average substantially under the parallel financing. There were several reasons for availability of the parallel financing (see Annex 14). First, the Dutch Government offered the first grant (TF050477) to support the policy reforms unexpectedly in early 2002 under a tight deadline. Due to this, the GOR and the Bank agreed that some of the activities appraised under the PPIBL be financed under the grant (and that the PPIBL finance activities to be identified under the PAL). The GOR also preferred to disburse grant funds first as they were “cheaper” and they had a more limited implementation period. The grant was later amended to support public sector activities and extended until May 2006 in response to the GOR’s request; this affected Parts A, D and E. Second, the GOR requested and the Bank agreed that the PIBL be drawn down first for similar activities, given their similar design, prior to utilization of the PPIBL and that PIBL be extended January 200513; this affected Parts A, B, C and D. Third, the Dutch Government awarded the second grant (TF054659) in early 2005 to assist the PAL program (together with the PPIBL) and extended it until December 2007; this affected Part E. Fourth, the EU accession process attracted massive amount of capital inflows to Romania as foreign investment and privatization receipts and strengthened the growth so that the PPIBL financing lost its attraction and Project financing changed significantly. Often beneficiaries requested funds from several sources, including the PPIBL, and as the requested EU grant funds were approved in due time, the PPIBL financing was cancelled.

13 The PIBL was originally expected to close in June 2002, but it was extended until January 2005. It was fully committed yet in 2001 but as some of the privatization commitments made under the PIBL were cancelled due to the GOR’s decision to use its own funds for financing them, the PIBL had unused resources available in 2002 for similar activities as the PPIBL (the PPIBL was designed to complete the activities launched under the PIBL to support the PSAL2).

10

These factors affected the implementation of the PPIBL negatively and positively: (i) Parts A-D were financed by the parallel financiers except for minor amounts under Parts A and D; (ii) therefore disbursements under the PPIBL did not start until late 2004; and (iii) the availability of unused funds under the PPIBL allowed to widen and deepen the TA under Part E (i.e. cash management, tax administration, environment; see Sections 1.6 and 1.7). The subsequent availability of unused funds under the PPIBL led to substantial results, in particular, under the “cash management” (the Treasury modernization) sub-component. The difference in the actual costs ($25 million of foreign financing) and the estimate ($14 million without taxes) is explained by the fact that the actual work done under the Project went beyond what was defined in the PAD. The items financed by the Project were broadly in line with the items in the estimate provided by the Bank’s PAL team (except that the contracts data base was not implemented), but the intervention in the area of the clearing system went beyond establishing the connection to the interbank clearing system, as envisaged in the PAD, to modernize this system and the other interventions resulted in a more extensive renovation/ upgrade of the IT infrastructure ( i.e. replacement of servers, work stations etc.) than envisaged in the Bank’s PAL team’s cost estimates (see Section 1.7). Ultimately, these changes resulted in substantial improvements in speed, volume, controls and forecasts in Treasury operations and communication (see Section 3.2. and Annex 2). Government’s commitment to policy reforms during pre and post-EU-accession14. The EU accession context affected the implementation and outcomes of the Project, as defined in the PAD, both negatively and positively. On one hand, prior to accession, the Project (initially financed mainly by parallel financiers) performed well in its support of the reform agenda - first under the PSAL2 and, then after an initial delay, under the PAL that was anchored in the EU accession (a priority of the GOR). In addition to the reasons explained above, the initial delay in starting disbursements under the PPIBL resulted from the longer than anticipated preparation of the PAL1 that had started in 2002 and slowed down in 2003 but was overcome as the new 2004 Government reconfirmed the EU accession as its priority and adopted the PAL program as its own. Consequently, Part E under the PPIBL was expanded in scope to support the agreed PAL agenda and disbursements started (albeit with a delay, in 2005 and increasingly in 2006). On the other hand, as prospects for the EU accession firmed and after it had happened, the GOR’s determination to advance reforms waned. The Bank suspended further work under the PAL in January 2007, following the lack of response from the GOR to the Bank’s invitation to negotiate the PAL 2 in mid-2006. Subsequently, in the pre-accession context, the results of the Project interventions under Part E were undermined because the GOR was not motivated to implement the policy recommendations prepared under the Project and the Project had no leverage in the absence of the PAL. This factor affected, for example, the outcomes under the overall public expenditure management reform, civil services reform, judicial reform and education financing reform under Part E.

14 Romania started accession negotiations in February 2000; it signed the Accession Treaty in April 2005 with the joining date stated as January 1, 2007; and in September 2006 the EU recommended confirming joining, as scheduled.

11

Factors generally subject to implementing agency control Management effectiveness. Good performance of both the PAL PMU and PPIBL PMU helped implement the ambitious and complex policy and TA program satisfactorily and mitigate the lack of capacity in the beneficiary agencies and thus affected the implementation positively. The existence of the PAL PMU also strengthened the strategic relevance of the TA as it decided the TA interventions together with the PAL team15. Implementation delays (loan extensions) The PAD envisioned an unrealistic implementation period (3 years). It did not consider: (i) the risk of delays in preparing a complex policy program; (ii) the risk of low procurement and project management capacity of the beneficiaries; and (iii) the emerging agenda in modernizing the Treasury system. Thus, in addition to all the above factors, the PPIBL implementation delays resulted from the decision to finance the MOPF’s IT strategy that aimed at building an integrated public financial management system based on the input from the donors, including the Bank (see Section 1.7). The PAD envisioned investments in a short-term measure (connection to the interbank payment system) while the Project eventually began to support the longer term project for building an integrated public financial management system, as per the recommendations of the PAL and the CFAA. The loan extensions that were made to catch up with the implementation delays helped fully utilize the PPIBL for the new PAL related activities under Part E and increase the results, in particular, under the Treasury modernization sub-component. The project was not considered to be at risk at any time (see Section 5.1.b).

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design. In light of the current standards on M&E, the original M&E design was very weak. Besides the age of the project, this was perhaps due to the dependent and supportive role of a TA loan (see also 2.1). The PDOs and indicators were inconsistent within the PAD and between the PAD and the Loan Agreement. Some PDO indicators (i.e. “key milestones” as mentioned in the PAD for Part E) were not later defined; and others were not measured (i.e. “sound functioning of institutional support structures for market based growth”). The component level indicators were mostly outputs – which was appropriate in case of important outputs (i.e. “a privatization strategy”) – or lacked targets to indicate changes in the immediate project beneficiaries (“strengthen x’s capacity”). The result framework was not improved during the life of the project except for the last supervision missions during which discussions focused on how to retrofit the result framework to provide a fair basis for evaluation. New and refined indicators provided a framework for evaluation, but they did not, as such, could not suggest any means to evaluate the changes in the absence of targets (“provide TA to support x”).

15 After the PAL PMU was closed, the relevance did not necessarily reduce because the Project was thereafter mainly implementing previously agreed interventions.

12

M&E implementation. The PPIBL PMU monitored the project implementation and maintained and monitored very detailed tables on procurement of contracts and use of all loan and grant funds. While the PPIBL PMU collected data on the actual delivery of TA and the Bank supervision team reported on its completion, the PAL team and the PAL PMU focused on monitoring the outcomes and the progress of the policy reform, using additionally the quarterly report on the PAL indicators produced by the PAL PMU until late 2006. M&E utilization. The PPIBL PMU and the Bank supervision teams used the procurement and disbursement data to monitor the implementation progress and to discuss resource allocation. This data was reported in the Bank’s supervision reports. The PPIBL supervision reports did not monitor the results of the TA interventions until during the last year of supervision, as described above.

2.4 Safeguard and Fiduciary Compliance Financial management. The Borrower maintained a highly satisfactory financial management system. It respected the relevant IBRD loan and Dutch grants financial covenants by submitting to the Bank quarterly financial monitoring reports and annual audit reports in a timely manner and in a format and content acceptable to the Bank. Audit opinions were all unqualified and no internal control issues were mentioned. Counterpart financing received from the GOR was highly satisfactory. Procurement. The PMU procurement function was carried out satisfactorily and in accordance with the Bank's guidelines and the legal agreements.

Waivers. The Bank management approved an exception to the closing date policy in August 2006 and agreed to the use of Project cost savings for new activities to be added to the Project based on the enhanced value to the Project (OP/BP 13.30 and 13.25).

2.5 Post-completion Operation/Next Phase In March 2009 Romania agreed on a multilateral financial support package with the IMF, the Bank and the EU to address the effects of the global economic and financial crisis and promote the reform agenda of the GOR. This reform agenda will practically resume the reforms supported by the PAL but halted with the EU accession in 2007 (see Section 4). In addition, some Bank projects continue to provide TA to the PPIBL beneficiaries to support Romania’s integration with the EU. These include the Knowledge Economy Project (FY06), Judicial Reform Project (FY06), Health Sector Reform Project (FY05), Integrated Nutrient Pollution Project (FY08) and Hazard Mitigation and Emergency Preparedness Project (FY04).

13

3. Assessment of Outcomes16

3.1 Relevance of Objectives, Design and Implementation The PPIBL’s objectives, design and implementation are substantially consistent with Romania’s current development priorities and the Bank’s country strategies (CAS FY06-09). First, the core public sector reforms supported by the Project were in line with the GOR’s aim to access the EU that was the anchor of the PAL. The sub-components added in 2006 also aimed ultimately at improving the public expenditure management reforms although they did not support specific PAL conditions. The objectives remained appropriate after Romania joined the EU even though the GOR’s motivation for reforms waned. They have become again priorities for the GOR due to the global financial crisis (see Section 2.5). Second, the privatization and restructuring objectives were substantially relevant and were mostly achieved in accordance with the GOR’s strategies early in the Project life (except in the energy sector). The complex design and a large number of beneficiary agencies followed the model of the ambitious and complex PAL agenda that the Project supported. In this regard, they were relevant but they led to implementation delays (see Section 2.2). The Bank and the GOR responded appropriately to the shortcomings in the capacity by establishing and maintaining the PAL PMU under the PPIBL financing in 2005-2006 although more attention could have been paid to strengthen the implementation capacity of the beneficiary agencies. In addition, while Part C and D supported the GOR’s reform programs in respective areas, they were not linked to the PSAL2/PAL programs to the same extent or directly, respectively as the other components.

3.2 Achievement of Project Development Objectives The objectives were achieved to a substantially extent (see Table 1) against the PDOs explained in the Datasheet. The rating is calculated based on: (i) the component weights that were determined based on the original project cost allocations and the intentions of the PAD to focus on energy and public sector reforms; (ii) the weighted ratings of the components; and (iii) the total rounded rating. The following text describes the Project outcomes for evaluation purposes and the status of policy reforms for information. Table 1. Rating of the contribution of the components to the PDOs

Component Weight Rating Weighted rating Part A 0.1 3 = substantial 0.3 Part B 0.05 4 = high 0.2 Part C 0.2 4 = high 0.8 Part D 0.05 1 = negligible 0.05 Part E 0.6 3 = substantial 1.8 Rating 3.15 (about 3 = substantial)

16 It is important to read this section together with Annex 2 that describes the results of the TA activities and their outcome in terms of how they implemented or contributed to the benchmarks of the policy programs or supported the GOR’s reform programs.

14

Part A: Financial Sector Restructuring and Privatization Part A achieved the objective of providing the required TA and implementing PSAL2-supported policy measures, PDO (a), and laying the ground for reforms supported by the PAL, PDO (b), to a substantial extent (see the Datasheet and Annex 2). Funding was provided by the EU, PIBL, Dutch TF050477, PPIBL and the beneficiaries. The Project contributed to strengthening the capacity in the CEC and regulatory agencies effectively and can take some of the credit in that the CEC has improved its indicators; the CNVM has improved its compliance with the IOSCO standards; and the ISC has improved its capacity in specific fields, as demonstrated below. The success of the policy reforms – that the CEC was not privatized; that capital markets are not as developed as in the neighboring countries; and that enforcement needs strengthening – are affected by factors outside the control of the Project. 1. The Savings Bank (the CEC). The required TA was provided (under the PIBL and the Dutch TF059477) to restructure the CEC and offer it for sale, but the sale of the CEC was not completed as the GOR did not accept the bid price. Thus, the PSAL2/PAL policy objective – that the GOR exits from the banking sector – was not fully achieved. The ownership structure of the banking sector has changed significantly between 2002 and 2008 as a result of the policy reforms. About 5% of the total banking sector assets, representing the CEC, compared to about in 2002 remains in the State’s ownership. The CEC has undergone additional restructurings and management changes, resulting in improved operational efficiency, profitability and ability to diversify its activities to become less dependent on interest revenues (see Table 2). The banking sector overall has made similar progress, although starting from a better position. Going forward, the multilateral financial support package for the crisis will support financial sector reforms to enhance the resilience and functioning of the sector (see Section 4). Table 2. Financial indicators for the CEC and the banking sector in total

Indicators 31.12.2004 31.12.2008

CEC Banking sector

CEC (est.)

Banking sector

1.Aggregated Cost/Income Ratio 77.79% 61.6% 43.89%* 55.5%

2.Aggregated Capital Adequacy Ratio 47.12% 20.6 % 18.86%** 12.3 %

3. Return on equity 9.26% 22.53%

4. Aggregated Net Interest Income / Total net revenues (including the result from the credit provisioning activity

81.83% 53.25% 51.76% 52.44%

Source: CEC

2. The National Securities Commission (CNVM) and the Bucharest Stock Exchange (BSE) (see also Parts E.1.i.d and E.12). The Project (namely the Dutch TF050477 and the PPIBL) and, most importantly, the EU provided TA to strengthen the legal, regulatory and supervisory framework for the capital markets and the CNVM’s capacity. Thus, the legal and regulatory framework for capital markets/investment funds has been aligned

15

with the EU acquis and the regulatory regime has been largely updated to international standards17 in line with the PAL objectives. This work was funded by the CNVM and the EU and helped meet the related PAL1-2 benchmarks. The Project contributed to helping the CNVM develop the secondary legislation for supporting the development of new financial instruments (part of the secondary legislation for the regulated secondary market for mortgage backed securities - a PAL2 benchmark for mortgage markets) and the enabling environment for the development of corporate and municipal bonds market (the framework for setting up and supervising credit rating agencies). As a result of all the capacity building efforts (of which the EU provided a major amount), the CNVM’s supervisory capacity and enforcement activities have improved against the IOSCO standards, with an increase in the full compliance of the Principles and resolution of previously non-compliant Principles. These results helped meet the related capacity building benchmarks in the PAL. The PAL policy objective of developing a comprehensive legal, regulatory and supervisory framework was achieved at the time of the cancellation of the PAL2. The BSE has recently diversified its financial instruments, with the introduction of derivatives and government bonds trading. Government bonds have been listed on the BSE since August 2008 and this was expected to boost market liquidity in the long term; in practice, there is little trading, the main market being an OTC market supervised by the NBR.18 Despite these efforts, the capital markets have remained less developed than in neighboring countries and the markets for various financial instruments are on the average underdeveloped (including the secondary market for mortgage bonds and mortgage backed securities, as well as the corporate and municipal bonds market that the Project supported).19 3. The Insurance Supervision Commission (ISC) (see also E.1.i.d). The Project contributed to strengthening the ISC’s capacity to supervise the market for motor vehicle third party liabilities and provided recommendations used to align the relevant national laws in line with the EU acquis to strengthen ISC’s supervisory capacity in this area (thus helping meet the PAL1 benchmark). Thus, the ISC has increased the percentage of carriers of the motor vehicle insurance from 60% in 2003 to 90% in 2007 and expedited

17 The World Bank Capital Markets Technical Note, January 2009. 18 The World Bank Capital Markets Technical Note, January 2009. 19 While the capital markets framework and CNVM’s capacity have improved, market capitalization and liquidity have remained behind other Central and Eastern European countries despite significant growth until 2007 (from €8.8 billion in 2004 to €24.6 billion in 2007 on the Bucharest Stock Exchange) before dropping drastically in 2008 to €14.1 billion due to the financial crisis. Liquidity has decreased with annual turnover rising from €593 billion in 2004 to €4 billion in 2007 before falling back to €1.7 billion in 2008. The Romanian market lacks institutional investors due to an underdeveloped private pension funds, investment funds, and insurance market. The markets for various financial instruments are on the average underdeveloped. The Romanian bond market is still in an embryonic phase, although there has been an increase in the issuance of corporate and municipal bonds in recent years. The secondary market for bonds lacks liquidity. The corporate bond market that started trading on the BSE in 2001 has grown (from €60 million in 2005 to €184 million in 2008) but is underdeveloped, with six bonds outstanding in 2008. The secondary market for corporate bonds is illiquid. The municipal bonds markets that started trading on the BSE in 2001 has expanded in recent years, with higher values (from USD11.2 million in 2004 to USD 51 million in 2007 and to USD 105.6 million as of end-October 2008) and longer maturities (from 3.3 years in 2004 to 19 years in 2007 and 18.6 years at end-October 2008). The secondary market for municipal bonds is illiquid, although turnover has increased in recent years. Source: The World Bank Capital Markets Technical Note, January 2009.

16

the time required to process claims. The Project also contributed to modifying and implementing some accounting regulations for the insurance sector in line with the EU acquis and to designing the IFRS implementation strategy, both in accordance with the Country Action Plan for 2004-2009 that aimed at enhancing the quality of the financial reporting in Romania and the implementation capacity. The PAL policy objective of developing the insurance market was achieved at the time of the cancellation of the PAL2. Overall, the accounting regulations have been aligned with the EU Insurance Accounts Directive and the Fourth and Seventh Company Law Directives, as well as with the Transparency Directive, the IAS Regulation, and the Bank and Insurance Accounts Directives. However, while the regulations are largely in place, enforcement of the regulations remains weak20. Part B: Privatization Support for State-Owned Enterprises Part B achieved the objective of providing the required TA and implementing PSAL2-supported policy measures, PDO (a), to a high extent (see the Datasheet and Annex 2). Funding was provided by the PIBL and the GOR. The required TA for restructuring and privatizing pools of state-owned enterprises (SOEs) was provided to meet the key conditions in the PSAL2. Based on all the TA, the GOR successfully completed the privatization, workouts, restructuring, and liquidation of SOEs under the PSAL2 carried forward from the PSAL1. The PAL policy objective for privatizing the state manufacturing was achieved by end-2007 (except for some residual shares) (although the Project did not support privatization of SOEs during the PAL). The private sector’s share of the GDP has increased from 69.1% in 2002 to 70% in 2008 (remaining slightly under the PAL target of 75% by end-2008). Part C: Privatization Support for the Energy Sector Part C achieved the objective of providing the required TA and implementing PSAL2-supported policy measures, PDO (a), and laying the ground for reforms supported by the PAL, PDO (b) ,to a high extent (see the Datasheet and Annex 2). Funding was provided by the Dutch TF050477, PIBL, the World Bank Electricity Market Project (FY03), GOR and, most importantly, the EU. While the first two sources financed the required assessments of electricity and gas sectors envisioned under the PSAL2, the Electricity Market Project and additional EU funding continued and deepened the energy sector reform, as framed under the PAL2 and 3 (beyond the Project activities). Thus, the Project contributed to the development of the electricity sector strategy (a PSAL2 condition) that became part of the 2003 Road Map for the energy sector; to aligning the legal and regulatory framework for private competition in the energy sector; as well as to strengthening the National Regulatory Authority in Natural Gas Sector in Romania (the ANRGN) and the National Regulatory for Electricity (ANRE), later merged as the Romanian Energy Regulatory Authority (ANRE) in 2007. The PAL objective of establishing a modern electric power and natural gas sectors consistent with EU market

20 Romania Report on the Observance of Standards and Codes, Accounting and Auditing, June 2008.

17

liberalization principles was largely achieved at the time of the cancellation of the PAL2 and has now been fully achieved. Romania has been recognized as a regional market leader in South East Europe. Restructuring and privatization in the power and gas sectors. Significant progress was made in the restructuring and privatization of the energy sector since its unbundling of the sector in 2000 into three generation companies (Termoelectrica, Hidroelectrica and Nuclearelectrica), the transmission operator (Transelectrica), and the distribution company Electrica (holding eight electricity regional distribution companies). Five of the electricity distribution companies were privatized under the PSAL2/PAL2 and three are still held by Electrica. The electricity market operator (OPCOM Power Exchange) was launched in 2005 and has developed quickly into the most successful exchange in Eastern Europe. Along similar lines, Romania has restructured and privatized its gas sector, after unbundling it into the gas exploration and exploitation company (Romgaz), the gas transmission company (Transgaz) and two gas distribution companies (Distrigaz Nord and Distrigaz Sud). While the two gas distribution companies were privatized under PSAL 2, Romgaz remained in public ownership, although it was planned to be privatized under PAL3. In the oil sector, the Petrom was privatized under the PSAL2. Romania updated the 2003 Road Map for energy strategy in 2007 (a PAL2 benchmark) and approved the resulting “Romania Energy Strategy for the Years 2007-2020” in September 2007. This strategy reconfirmed Romania’s commitment to: (a) improving the competitiveness of electricity and gas markets; (b) supporting the development of the Energy Community and internal energy market of the EU, and more broadly; (c) proactively participating in the development and implementation of the new energy policy for the EU. The updated energy strategy from 2007 proposed the continuation of the privatization program, as well as continued development of Hidroelectrica (some of its units planned for sale under the PAL3) and rehabilitation of Turceni and Rovinari, resulted from Termoelectrica restructuring (planned for sale under the PAL3). Following the reversals in some reform areas made by the previous Government in 2008, the new Government cancelled the plans on establishment of a power holding company in January 2009, but whether it will resume the privatization program is not clear yet. Sound regulatory framework promoting competition within the gas and power sectors (including prices/tariffs). A transparent and predictable commercial and regulatory framework consistent with the EU market liberalization principles has been put in place. Thus, the electricity sector was liberalized in July 2007, and the gas sector was fully liberalized by July 2007. The ANRE has adjusted electricity and gas prices in accordance with its regulatory framework. Through a series of tariff adjustments by the ANRE (and the ANRGN) and major improvements in bill collection by the distribution companies (from about 65% at the turn of the century to about 100% by 2005 in both electricity and gas, ahead of privatization), the power and gas sector reached cost-recovery level by the end of 2004. The ANRE’s tariff-setting objectives for power and gas have been in line with international best practice (full transparency, public consultations, incentive-based regulatory regime with efficiency incentives in investments and operations). However, its recent electricity and gas distribution tariff orders have not fully reflected these objectives, and the electricity tariff order has deviated from the earlier agreed methodology.

18

Restoration of the ANRE’s standing would help increase private capital participation in the power sector. Reduction in arrears. As a result of the restructuring and privatization of the energy sector, the inter-enterprise arrears (delays of payment more than 3 months) in the energy sector have decreased from 2.5% of GDP in 2002 to almost zero of GDP as of end-2007; however, due to the financial crisis, the amount of arrears is expected to have increased. Part D: Support for an Improved Business Environment Part D alone achieved the objective of providing the required TA and implementing PSAL2-supported policy measures, PDO (a), and laying the ground for reforms supported by the PAL, PDO (b), to a negligible extent (see the Datasheet and Annex 2). Financing was provided by the PPIBL, the Dutch TF050477, the PIBL and the GOR. While several targeted TA activities were not carried out, the Project mostly contributed to identifying and designing e-business activities that are now being implemented under the Knowledge Economy Project (KEP; FY06) and are providing access to information and business opportunities. These activities did not directly support the PAL although they supported the business environment component in the Government’s strategy for convergence with the EU. Besides Part D, some of the Part E activities (described under the next component and not accounted for here) however also contributed to improving the business environment in specific areas and helped meet specific PAL benchmarks or supported the policy objectives broadly with satisfactory results. Thus, they contributed to: improved transparency in the functioning of firms by alignment of the financial reporting and auditing in the private sector with the EU acquis; improved efficiency of the court system; and improved commercial legislation to strengthen corporate governance. Overall, the business environment has improved, but there are areas requiring strengthening and so, on the average, Romania ranks the 47th of the 181 economies in 2009 in terms of “ease of doing business”. Romania has improved in terms of easiness to register a company (6 procedures and 10 days in 2009; 6 and 29, respectively, in 2004). Romania also ranks fairly well in enforcing contracts (31st, while 35th in 2008) although the number of procedures (31) and days (512) is still high (32 and 537, respectively in 2004). On the other hand, the main impediments to doing business in Romania are related to paying taxes (146th in 2009 while 137th in 2004 or 113 payments and a 48% tax rate in 2009, while 108 payments and 57.2% rate in 2006), employing workers (143th while 149th in 2008); registering property (114th while 111th in 2008), dealing with construction permits (88th while 89th in 2008) and closing a business (85th while 84th in 2008 or 3.3 years in 2009 compared to 4.6 years in 2004).21

21 Based on the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

19

Part E. Institutional and Governance Reform Part E achieved the objective of providing the required TA and laying the ground for reforms supported by the PAL, PDO (b), to a substantial extent (see the Datasheet and Annex 2). The required TA was provided to implement or contribute to specific PAL1 benchmarks and the planned PAL2 benchmarks at mid-2006 (except for completing the privatization of the CEC and one electricity generator company). In addition, half of the remaining TA outputs supported the underlying GOR’s reform programs in specific areas. Funding was provided by the PPIBL (where it was the largest component), the Dutch Grants TF050477 and TF054659, the GOR and the EU. More specifically, the Project contributed to: (i) improving the efficiency of selected Project beneficiaries through modernizing infrastructure (the Treasury system; debt management software; IT and communication software for the Court of Accounts and its 42 territorial offices; network capacity for the Ministry of Justice and the Superior Council of Magistracy for the statistical system of the court system); (ii) adapting the legal and regulatory framework in line with acquis or international standards by proposing/ providing input to the legal and/or regulatory framework (the strategic planning system; financial reporting in the corporate sector; the 2006 decentralization reform package; the amended Company Law; proposals on improved Civil Code (under discussion); the urgent areas in the environment sector; the 2005 Labor Code (improved but still problematic); the 2006 Health reform package); (iii) building the foundation for deepening the reforms in some policy areas under the World Bank or other donor funded projects (i.e. judicial reform; revenue administration reform; selected areas in the environment sector); and (v) strengthening the capacity of selected Project beneficiaries by providing training to staff. In addition, the Project contributed in a number of other policy areas where assessments were done and recommendations were made but where they did not have limited impact on policy reforms (i.e. education financing; civil service pay reform; action plan for dealing with corruption in the health sector, some recommendations on the health sector reform package; the medium term expenditure framework and implementation of the judicial reform).

With regards to the outcomes of the policy reforms, the PAL1 ICR assessed that, at the time of the cancellation of the PAL, the PAL policy objectives were achieved to a varying extent or could be evaluated only after the completion of all the three phases of the PAL based on the ICR of the PAL1, as follows: health sector reforms – largely achieved; public expenditure management (cash management, budget formulation, foreign financing coordination, Government accounting, internal audit, decentralization, revenue administration, the Court of Accounts), labor market and education financing reforms – partially achieved; civil service, judicial and policy formulation reforms – achievements could not be evaluated as they were to be completed after all the three PAL phases. However, more recently, the reforms have backtracked particularly in the public expenditure programs (education financing; civil service pay reform; action plan for dealing with corruption in the health sector, some recommendations on the health sector reform package; the medium term expenditure framework and implementation of the judicial reform) after EU accession and due to the fatigue of the reform.

20

1. (i) Public Expenditure Management Romania has gone a long way towards improving the public expenditure management with the goal of bringing it on a sustainable path and aligning it to the development priorities of the country. The public expenditure management reforms supported by the PAL with the Project’s assistance focused on a series of challenging dimensions (see below). As a result, the fiscal compliance has been considerably enhanced, and both revenue collection and public spending have increased substantially. Despite the progress, institutional, policy, process and capacity weaknesses continue to hamper aggregate fiscal discipline, the effectiveness of public resources allocation, and the alignment of resources with strategic priorities. They stem mainly from weaknesses in budget management, the absence of the medium term expenditure framework and program-based budgeting rules, lack of a unitary pay and employment system in the public sector, weak monitoring and evaluation arrangements, and inadequate accountability. These vulnerabilities have become more apparent during the recent crises. In this respect, the GOR and the Bank started the preparation of a crises response program that will focus on improvements in these areas (see Section 4).22 (a) Cash management within the Treasury system (Treasury modernization) The Project helped modernize the operations of the Treasury system and improve their efficiency by remedying most of the weaknesses highlighted by the Bank and other donors (see Annex 2). The modernized Treasury contributed and will contribute substantially to improving accountability, transparency and responsiveness of the Treasury operations. It helped Romania achieve the targets set for the conformance of its payment systems with the EU and international standards. It should be noted that the policy (legal and institutional) reforms that Romania carried out prior to these interventions constitute a major component in the overall reforms of modernizing the State Treasury because the implementation of the reforms is normally most difficult in terms of the political economy considerations involved. The elements of the new system - improved cash management, payment and receipts management and bank reconciliation - have been developed and implemented gradually since 2005 and will be completed this year (the improved budget management application will be in use starting with April/May 2009). The commitment management function remains to be implemented. When the Government implements this system, it is expected that it will further improve accountability, transparency, and responsiveness of the public expenditure management.

22 Partially based on Romania: the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

21

The interventions financed by the Project and their benefits are described below: 1. Modernized clearing and settlement inter banking system and connected with the State Treasury The Treasury implemented a secure and efficient method of transferring data between the Treasury systems and the banking network, fully compliant with the international banking standards (SWIFT) and European requirements for the EU accession. As a result of computerizing and automating cash flows, the efficiency of executing operations related to public debt and management of liquidity has significantly increased, with visible results in: Reducing the time between the point when the payment request is made and the point

when the funds become available in the beneficiary's account (practically in real time);

Improving the management of liquidity and liquidity risks at the State Treasury level; Eliminating paper support, as well as streamlining and rationalizing circuits for

payment instruments since these are processed by STP (Straight Through Processing); Managing government debt; and Managing financial assistance grants received by Romania, as an EU Member State

(see Annex 15 for more details on improvements in efficiency). In fact, according to the State Treasury, the payment solution implemented by the MOPF can be replicated in other European state Treasuries, thus assuring interoperability at government agencies and business communities in the European Member States. Going forward, the State Treasury is planning to anchor its further development to international banking standards as registered by SWIFT, as well as on international and European regulations. It plans to evolve the payment system in compliance with the TARGET 2 and the SEPA, scaling it up to provide the possibility to support the defined clearing and settlement mechanisms, and to align its business environment to the European environment. The State Treasury has also in mind expanding the operations profile, running in the direct manner the operations related to the management of the European funds and public debt (and thus involving multi-currency transactions). 2. Updated IT and telecommunications infra structure at the MOPF and at regional Treasury offices; improved connectivity between the MOFP and Treasury to the line ministries and spending units; and established central data warehouse comprising historical data for 7-10 years to enable time series analysis These interventions enabled: The setting up of the centralized public accounting ledger. This enabled the Treasury

to prepare accurate and consolidated government wide fiscal reports in an on-line real-time basis. These fiscal reports could be obtained on demand instead of waiting for several weeks after the end of a particular period. This gave the Treasury real time knowledge of balances in its accounts and it therefore was better placed to make

22

timely decisions regarding their use. This in turn enabled better cash management in the Treasury and better assessment of Government borrowing needs.

Better flow of information between the MOFP/Treasury and the Line ministries and spending units. This in turn enabled the spending units to determine the status of budget appropriations, releases, budget transfers and additional in year budgetary allocations, if any, in an online real time basis.

The access to the data warehouse gave the MOPF and other interested users access to data and capability to perform time series and other analyses that require data spanning several years on budget execution data.

3. Improved web-based communication between regional, local offices and the Treasury HQ, and between the line ministries and Treasury offices and functional internet portal for the MOPF clients

The successful implementation of these technologies enabled Treasury offices and Treasury clients, including spending units and providers of goods and services, and government employees online real time access to the Treasury central databases and data warehouse. This enabled:

Spending units to forward and track payment requests to the Treasury, determine their budget availability position and produce required reports.

Public institutions to determine the status of their payment requests, the available balance in their accounts and produce detailed reports on expenditures incurred and receipts.

Providers of goods and services to track the status of their invoices. Government employees could similarly track the status of payments due to them. Treasury and other authorized officials to access the data warehouse and perform

required analyses. (b) Budget formulation. The Project contributed to key reform measures and proposals to the legislation/procedures passed in 2006-2008 to establish the integrated strategic planning system with the objective of linking budgets to policies/ strategies and improving the policy content (see Part E.8); to preparing and monitoring the Strategic Development Plan (SDP) that guided the public expenditure management reform under the PAL and addressed program budgeting, accruals accounting, internal audit and external audit of financial statements and performance, as well as Treasury cash management; to building the in-house macroeconomic forecasting capacity in the MOPF through building a macro model that is now used in preparing macro and revenue projections, as part of the budget formulation process, updated quarterly with the new sets of data and run on a regular basis; and to providing a forum for discussing policies to support the real income convergence. The Project-funded TA supported the public expenditure management and policy formulation pillars of the PAL or its specific benchmarks. The guidelines for the preparation of the budget (the budget framework letter) have improved significantly, following the assistance of the advisor. Expenditure ceilings for

23

the current budget year are given in the framework letter. Unfortunately, the numerous budget rectifications within the year make those ceilings largely redundant. Under the coordination of the Directorate for Macroeconomic Analysis and Financial Policies in the MOPF the new GOR is however considering the building of a medium term budgetary framework a top priority and expects to advance this strategy under the coordination of the Directorate. (c) Foreign financing coordination. The legal and institutional framework and the capacity for foreign financing coordination have been significantly improved since 2002 to improve the public debt management. The Project contributed to improving the infrastructure of the MOPF and the NBR and institutional capacity for debt and risk management with the upgraded UNCTAC DMFAS software operational since 2006 and the Bloomberg financial services available since 2005. Under the new debt agency – the General Treasury and Public Debt Directorate – set up in 2007, the MOPF has continued improving the IT infrastructure and expects to replace the DMFAS by June 2009 by a new computerized IT system (FTI-STAR). The improved legal framework for public debt management, revised on the basis of the recommendations of the World Bank, the IMF and others, has addressed the issues raised at appraisal and will help control public debt and its cost. (d) Government accounting; and financial reporting (in the corporate sector)23. With regards to the public sector side for government accounting, the Project contributed to designing and monitoring the Strategic Development Plan (the SDP) – a PAL benchmark – during the PAL (see E.1.i.b). The accrual accounting has been introduced starting with January 1, 2006 for all the public institutions, but despite certain progress, this is happening in practice to a limited extent, mostly when it comes to reporting budget execution results. With regards to the financial reporting for the corporate sector24, the Project contributed to aligning the statutory framework to the acquis communautaire as it relates to financial reporting, to improving institutional capacity of professional bodies, and other stakeholders, including by training 50 high level professional in the International Financing Reporting Standards (IFRS), and to enhancing professional education and training. In many cases, recommendations were incorporated into the Country Strategy and Action Plan (CAP) updates to enhance corporate financial reporting in Romania25.

Romania has transposed the acquis communautaire into its accounting laws and regulations; a new Audit Law on statutory audit introduces the new requirements of the amended Eighth Company Law Directive.26 Some aspects of this law are already

23 Most of the TA activities were practically related to improving the financial reporting in the corporate sector. 24 The sectoral information is from the World Bank Report on the Observance of Standards and Codes for Accounting and Auditing (ROSC) (2008). 25 The Bank produced the first Accounting and Auditing Report on the Observance of Standards and Codes in May 2003. Based on the input from the Bank, the GOR approved the draft of the Country Strategy and Country Action Plan in November 2004 to enhance t h e q u a l i t y of financial reporting in Romania. 26 On November 7, 2008, Parliament enacted the law 278/7, the amended Audit Law, approving the Emergency Government Ordinance 90/2008 on statutory audit, dated June 24, 2008, and published on June 30, 2008 in Romania’s Official Gazette, Part I, 481/2008.

24

included in the financial reporting framework, such as professional education and licensing requirements, the public registry and the quality assurance system, but further strengthening will be needed for them to fully comply with the high quality requirements of the amended Eighth Company Law Directive. The Public Oversight System described in the new Audit Law is comprehensive but its practical implementation will be challenging.

Accounting rules are aligned with the Fourth and Seventh Company Law Directives, as well as with the Transparency Directive, the IAS Regulation (EU Regulation 1606/2002), and the Bank and Insurance Accounts Directives. Since 2007, listed companies have been required to use International Financial Reporting Standards as endorsed by the EU to prepare their consolidated financial statements. Financial statements are available at the trade registry, albeit not electronically.

However, Romanian Accounting Standards for the enterprise sector should be made comprehensive and complemented by authoritative guidance. Although Romania has implemented the relevant accounting directives, the absence of many elements of the necessary supporting infrastructure, combined with Romania’s rule-based accounting traditions, present challenges in ensuring that the principles contained in European Union legislation are applied in a manner that leads to high quality financial reporting.

(e) Internal audit. The Project contributed to improving internal audit skills in the public sector and to increasing the number of the CIA internal auditors in Romania to support the overall PAL objective of governance and public financial management reform. Since early 2000 the capacity for internal audit has been strengthened with considerable amounts of TA mainly from the EU with the result that there are 120 internal auditors with the CIA certification of which at least 5 internal auditors are from the public sector (the Project funded training for 3 auditors from the public sector who transferred knowledge to others; overall the Project trained 42 internal auditors). (f) Decentralization. The Project contributed to the legal and institutional framework for the intergovernmental fiscal relations and local governance finance and fiscal decentralization reform package enacted in 2006, in support of a PAL2 benchmark. Some of the recommendations (i.e. decentralization formula) were reversed in 2008 but reinstated in the 2009 budget by the new GOR. The reform package contained a list of critical reform measures and a number of amendments to address many key issues in intergovernmental fiscal relations and local governance finance (including an intergovernmental transfer formula for equalization grants). These measures have improved predictability of intergovernmental relations and local governance finance. Despite these critical reforms, effective decentralization and improvement of intergovernmental fiscal relations are incomplete27. 1. (ii) The National Agency for Fiscal Administration (NAFA). The Project contributed to identifying and prioritizing the NAFA's developmental needs during the first years of its

27 Romania: the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

25

operations; it enabled extensive direct transfer of knowledge from international experts to the NAFA specialists; and provided the vision and direction according to which the NAFA further developed its first strategy in 2007 for 2007-2011. The Project-funded TA resulted in a series of recommendations for the development of the organization and of the working processes within the NAFA. The key result is considered the NAFA's improved ability to serve taxpayers based on the IT strategy developed with the Bank-funded TA’s assistance and the subsequent transfer of the IT functions from MOPF to the NAFA in October 2007. Other recommendations helped design strategies for internal reorganization and improved business operations that have been subsequently implemented with considerable amounts of the EU assistance and continuous twinning partnerships with European tax administration that the Bank-funded TA complemented28. In addition, the Project resulted in a draft of a revised legal framework to harmonize the tax base for collecting payroll taxes and social contributions and to create a simplified and integrated declaration and payment environment; however, the implementation of the entire legal framework and the single tax return was postponed until January 2010 by the previous Government (some provisions were approved). With major assistance from the EU and foreign partners and Bank-funded TA and the NAFA’s efforts, Romania has made progress in the revenue administration reform by enhancing the effectiveness and efficiency of revenue collection and promoting integrity and transparency of the tax administration. Thus, revenues collected from taxes have increased from 28.76% of GDP in 2007 to 29.14% in 200829 (affected by many factors). The administrative burden to tax payers has been reduced, and effectiveness of the functioning of the tax administration has improved (see Annex 2). 2. The Court of Accounts30. The Project contributed to improving the efficiency of the work of financial controllers, judges and prosecutors in the headquarters and the 42 territorial offices of the Court of Accounts and to enabling electronic communication between them. These activities supported the implementation of the Strategic Development Plan for the Public Financial Management Reform for 2005-2007. 3. The Ministry of Communication and IT. See Part D. 4. The Ministry of Administration and Interior. The Project contributed to collecting valuable data on the private and public sector remuneration for comparable positions and preparing a reform strategy and draft legislation for a unitary pay system in the civil service in late 2005-early 2006, in support of the PAL1 benchmark and preparation for its implementation during the PAL3. The law for establishing a unitary pay system was not however approved and the strategy was not implemented. This has led to an increased share of the personnel costs in the budget; inequity in compensation and excessive demands by unions; unrealistic wage demands that can exceed the budget resources (the recent law mandating a 50% pay increase for the education sector is the latest example);

28 The EU has provided about Euro 75 million for implementation under PHARE 2003, 2004-2006. 29 Tax Administration in OECD and Selected Non-OECD countries: Comparative Information Series 2008”. OECD. January 2009. 30 The Court of Accounts is the supreme institution exercising external subsequent financial control over the formation, administration and use of the financial resources of the state and of the public sector.

26

and distortions in the labor market31. The GOR is however now resuming steps on civil service reforms, including public pay, under the financial package of the multilateral donors (see Section 4). 5. The Ministry of Justice (MOJ), Superior Council of Magistracy (SCM) and Courts. The Project contributed to helping implement the legislation adopted in 2004-2005 and the judicial reform strategy for 2003/5-2007; to building capacity and IT infrastructure in the MOJ and the SCM for carrying out their functions; to designing the Judicial Reform Project (JRP; FY05); to drafting revised legislation on trading companies in the field of corporate governance that constituted the amended Company Law in compliance with EU and OECD corporate governance standards effective as of December 1, 2006; and to drafting a reformed Civil Code that has been under debate since 2008. The Project supported or helped meet a number of the PAL benchmarks in the judiciary and business environment areas. More specifically, with regards to the judiciary, the Project activities contributed to the PAL policy objective of improved framework for enhancing efficiency and the accountability of the judiciary. The JRP is benefiting from the data analysis of judicial performance and options for court rationalization that the Project financed and is building upon it in a new consultancy assignment for optimizing the court system administration and performance to, among other things, reduce the duration of judicial proceedings and the backlogs. This assignment under the JRP will support the SCM’s efforts launched in early 2007 to reorganize the courts and to establish an optimal volume of work for individual judges and courts. The Project offered also valuable models for training; evaluating the professional activities of judges and prosecutors based on performance standards; and for the Law School Admission reasoning tests. In addition, the Project contributed to helping strengthen the economic and financial management in the court system that was introduced in the 2004-2005 legislation and provided input to regulations clarifying the role of the courts in the budget formulation and execution. Finally, the Project contributed to the continued automation of the judiciary and development of judiciary statistics (based not only on quantitative analysis but also on quality indicators of magistrates’ activity). While the judiciary met the EU accession conditions, implementation continues albeit slowly, as demonstrated by, for example, still the lengthy proceedings of court cases. Doing Business indicators for “enforcing contracts” have only slightly improved in 2004-2009: the number of procedures has declined from 32 to31, time from 537 to 512 days, and cost (% of debt) is the same (see Part D). 6. Public health insurance administration. See Part E.11. 7. The Ministry of Administration and Interior and the Ministry of Public Finance. See Part E.1.f.

31 Romania: the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

27

8. The General Secretariat of the Government (GSG) and Prime Minister Chancellery. The Project contributed to the GSG’s achievements in designing and creating a comprehensive framework and a set of tools for policy analysis, coordination and monitoring in line with the PAL benchmarks; to building capacity in the GSG and line ministries for implementing them32; and to providing a design for an integrated IT system for managing and tracking the policy formulation process (see also Part E.1.i.b). In designing this framework and tools an essential role was played by the international assistance funded by the EU (in particular, a twinning project with a foreign State Chancellery) and the Bank. Most of the proposals of all the international advisors were included in the legislation/procedures passed by the GSG in 2006-2008. As a result of the GSG’s efforts, the GSG PPU has made progress in improving both the process and substance of policy formulation work, at both line ministry level and in decision-making rules at the centre. A legal framework, standards and procedures for policy formulation/strategic planning and program oriented budget process have been created and introduced. In addition, the GSG PPU helped establish PPUs in all line ministries since 2005 to facilitate improvement in the quality of policies/strategies in line ministries. The GSG played an important coordination role in strengthening their capacity through different training sessions and regular meetings and brought the PPUs together as a knowledge sharing network. The PPUs require further capacity building in strengthening their position and relation with budget departments in respective line ministries but they have provided a new and important policy-making network across the government. Consequently, the 2009 budget resulted from the first policy and program oriented budget cycle. Based on the GSG’s methodologies designed with the international assistance (including the Project), (a) each line ministry prepared a sector strategy by May 2007; (b) each line ministry prepared the budgetary part of the strategic plan, including the indicator system for monitoring the programs/projects in the 2009 budget by June 2008; and (c) 30% of the line ministries’ policy submission met the GSG’s standards in 2007 with some ministries, such as the Ministry of Environment and Ministry of Internal Affairs, submitting better policies than others (for example, effective strategic planning by the Ministry of Environment has led to above average results in absorbing EU funds and meeting the EU acquis33). Despite this progress, the policy formulation/strategic planning and budget formulation process are not integrated into one process (see Part E.1.i.b). The GSG’s success in enforcing the above instruments and framework was limited due to the lack of strong political support and the absence of a medium term expenditure framework (MTEF) and weaknesses in budget management. After accession and especially after the recent Government changes, the GSG’s and ministries’ capacity has also deteriorated.

32 The PM Chancellery benefited from the TA provided to the GSG indirectly. No consultants were hired for the PM Chancellery. 33 Romania: the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

28

9. The Ministry of Labor (MOL). The Project contributed to the improvements to the Labor Code for the labor markets enacted in 2005 to increase the flexibility of the Romanian labor markets so that it would facilitate enhancing the competitiveness of the Romanian economy in Europe, stimulating growth and job creation and reducing structural unemployment. The Labor Code is improved but is still problematic. The labor market flexibility has continued to improve, but some rigidities persist, as evidenced by the Doing Business Report (see Part D). In addition to increased flexibility, substantial improvements in education, training and other reforms are also needed to support labor flexibility. 10. The Ministry of Education, Research and Young People (MOERYP). The Project contributed to designing the strategy and secondary legislation for implementing the education decentralization and per capita financing scheme that were introduced in the amended Education Law in 2004. However, the recommendations resulting from the TA were not fully incorporated into the adapted regulations, and the desired policy objectives were not achieved. The per capita financing formula in pre-university education was not implemented in line with the PAL policy objectives. The secondary legislation remained unsupportive of effective decentralization and new financing formula; the updated education strategy was not implemented; and the pilot (on paper) did not result in a national roll-out. Over the past ten years, Romania has produced and received a great deal of TA for education finance, budgeting and management. Much of this work has been of high quality yet little of it has been implemented. While a great deal of attention has been paid to budget procedures, expenditure norms, educational decentralization, and formula funding, there have been strong forces at work to preserve historical budgeting patterns and the historical process of budget negotiations between the central MOERYP and MOPF. The primary prerequisite for an improved system is the application of a per student funding formula that would increase transparency of funding flows and provide better incentives to education managers to optimize resource use.34 More recently, in response to the financial crisis, the new GOR will resume reforms in the education sector to improve fiscal management, promote a more efficient, improved quality of and equitable access to delivery of services. The two reform measures would be the introduction of standard costs/per capita financing and a student loan scheme (the Project funded TA made recommendations on the implementation to support the PAL policy objectives). These would generate fiscal savings that would enable greater access to and more horizontal equity in education services. 11. The Ministry of Health (MOH). The Project contributed to (i) strengthening the Health Sector Reform Package enacted in 2006 in a form acceptable to the Bank, in line with the PAL objectives, (ii) study results on the overall health sector financing on all levels of health care to enhance the framework and implementation of the decentralized health insurance system; (iii) enabling the national roll-out of the new hospital finance

34 Romania Public Expenditure and Institutional Review. Vol. II. The World Bank 2006.

29

system in 2006 (diagnosis related groups35); and to (iv) to establishing the magnitude of corruption in the health sector. The 2006 Health Sector Reform Package was a major step forward to improve accountability and governance in the health sector and integrated various provisions in a single Act (it provided for deeper reforms than what was envisioned at the stage of the PAL1 negotiation in 2004). However, there is still a gap between the legislation and its actual reinforcement. The case based financing of the hospitals which was rolled out progressively to all acute care hospitals by the MOH in 2006 - based on the methodology developed with the Project support - is contributing to more efficient provision of services in hospitals (i.e. shorter stays) (although it has some deficiencies). Reforms in the health sector have been substantial (in decentralizing of both the financing and the delivery of health services in different degrees) and are continuing, but many challenges remain36. Romania’s unfinished health reform agenda includes the needs for: (i) mobilizing additional resources for health; (ii) improving efficiency and equity of health financing and health service provision; and (iii) strengthening core public health functions.37 More recently, the new Minister of Health acknowledged the existence of specific studies delivered under the Project related to health sector financing and corruption in the sector and publicly expressed the intention to consider their recommendations. Moreover the Bank’s support was asked to update the hospital rationalization strategy. In addition, the new development policy loan financed by the Bank will address the unfinished agenda by focusing on mobilizing resources and improving efficiency and equity of service provision through the adoption of a drugs pricing and prescribing policy, introduction of co-payments with targeted support to vulnerable population trough a voucher scheme, the definition of a more realistic package of health services, the introduction of private insurance, and the adoption of an updated hospital rationalization strategy (see Section 4). 12. The Ministry of Transportation, Construction and Tourism (MOTCT). In accordance with the TORs, the consultants funded by the Project delivered a number of studies on key themes to support the mortgage market development under the PAL (housing policy strategy, mortgage insurance schemes and partial credit facility for mortgage – backed securities). No information was available on the results. For development of the mortgage markets, see Part A. In addition, an on-site advisor built capacity in the Economics and Budget Directorate in the MOTCT in 2006 as part of the wider TA to support the budget process reform (see Part E.1.i.b).

35 The DRG means that the hospital get funds according with the type of patients treated and not based on hospital structure (staff, equipment etc.), process (number of hospitalization days) or other determinants. This type of financing system provides a transparent and equitable allocation of funds to the hospitals, encourages the efficient use of resources at the hospital level, and works towards improving the quality of the services provided to the patients. 36 The Romania Public Expenditure and Institutional Review. Vol. II. The World Bank 2006. 37 Based on the Romania Public Expenditure and Institutional Review, Vol. II, the World Bank 2006; Romania: the World Bank Policy Briefs for the Government of Romania, January 22, 2009.

30

13. The Ministry of Environment and Water Management (MOEWM). The Project contributed to helping implement the budget process reform in the MOEWM as part of the wider TA under the PAL (see Part E.1.i.b), as well as to helping meet the prerequisites for using the EU funds in the most urgent areas in the environment protection area (in terms of where there was a financing gap), including: (i) protection of the water and soil against nutrient pollution, (ii) contaminated areas and (iii) nature protection (see Annex 2). The TA was expected to be followed by a new project to support the MOEWM in its efforts to fulfill the EU commitments assumed in the environment protection area. In the end, the project that was approved - the Integrated Nutrient Pollution Project (FY08) - focused on the first priority area where the EU did not provide funding, while the GOR deferred preparation of a project for the other two priority areas and is now benefiting from the EU funds to meet the needs. 3.3 Efficiency The PPIBL achieved the above results with substantial efficiency despite the extension of the implementation period. The closing date extensions resulted in full disbursement of the Loan to widen (in the case of the NAFA and environment) and deepen (in the case of Treasury modernization) the Project’s contribution to the public sector reform. The Project helped in the implementation of policy reforms under two operations and in the capacity building of institutions (i.e. MOPF, NAFA, GSG, MOJ, SCM) to develop and implement policy reforms on a sustainable basis. Despite these efficiency gains, a question arises whether more pro-activity should have been taken to postpone approval of the PPIBL as funds became unexpectedly available under the PIBL and the Dutch Grant TF050477 around the time of the approval of the PPIBL. As said in the Country Lending Assessment, “the justifying argument could be that the actual costs of putting in place resources that were not used were much less than the potential costs of not having the resources available had they been needed”. The use of unused resources for increasing the scale of assistance to the Treasury modernization, the largest component under the PPIBL, is expected to bring substantial results to the Government in terms of improved efficiency of public resources allocation. The Bank interventions for the Treasury system financed by the PIBL and the PPIBL amounted to about $25 million (of which PPIBL loan about $11 million). The amount required for such a Treasury upgrade, as that carried out under the PIBL/ PPIBL, depends on the size of the Treasury network (the number of offices to be upgraded), the volume of transactions that the Treasury processes, etc., and could vary widely from country to country. These amounts are broadly in line with other Treasury modernization initiatives undertaken by the Bank for similar size Treasuries (i.e. Ukraine and Kazakhstan).

3.4 Justification of Overall Outcome Rating Rating: Satisfactory The rating is based on: (i) the substantial consistency of the objectives with Romania’s current development priorities and the Bank’s country strategies (CAS FY06-09); (ii) substantial achievement of the objectives against: (i) whether the Project provided or not the required TA to achieve the high level policy objectives contained in the PDO; and (ii)

31

the extent to which the assistance provided contributed (a) to implementing the policy measures supported by the PSAL2 and (b) to laying the ground for the reforms implemented under the PAL and PAL (whether they contributed to specific PAL benchmarks or to deepening and/or broadening the Government reform program in the policy areas included in the PDO, but not necessarily reflected by specific PAL benchmarks); and (iii) substantially efficient use of resources to achieve the results.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development See other sections of the ICR. (b) Institutional Change/Strengthening See other sections of the ICR. (c) Other Unintended Outcomes and Impacts (positive or negative) See other sections of the ICR.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable.

4. Assessment of Risk to Development Outcome Rating: Moderate The risk rating is based on the following factors: (a) the GOR’s commitment to resume public and financial sector reforms - some of which were stalled with the EU accession - as part of the multilateral financial support package provided by the IMF, the Bank and the EU (the GOR will be able to re-utilize many of the TA outputs financed by the Project); (b) privatization transactions supported by the Project at large are mostly irreversible; and (c) reversals of the reforms in the energy sector would need to be agreed and consistent with the competition rules in the EU.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Unsatisfactory The rating reflects: (a) the relevance of the PPIBL activities largely to the key development priorities in the country and in the sector based on the extensive and good quality analytical work prepared under the PSAL2/pre-PAL; (b) efficient PMU arrangements; (c) use of lessons from combining structural operations with TA loans; and (d) use of lessons learnt in the privatization transactions (even though carried out under the financing of the PIBL and the GOR) and in the design of the broad (albeit after the amendment even more complex and ambitious) public sector component. The major shortcomings are related to issues in the areas of strategic relevance, M&E arrangements, implementation aspects and risk assessment, including: (a) the rationale for Bank assistance through a new TA loan when at the time of its approval the existing TA

32

loan had available funds for the same activities (except for Part E) and the Dutch Grant became available for the same activities – reasons that led to existence of a project that was not disbursed until in a couple of years; (b) the M&E design (unclear PDO and accountability of the Project for the PDO, weak quality of indicators and lack institutional development targets beyond a mere list of outputs and independent of the adjustment loans), as well as inconsistencies in the PDOs, indicators and component descriptions in the PAD and in the Loan Agreement; (c) the underestimation about the required implementation period of the Project and complex design; (d) the inadequacy of capacity assessments of beneficiaries; and (e) the absence of mitigation measures to replace the leverage provided by the PAL in case it be cancelled (as it was). (b) Quality of Supervision Rating: Moderately unsatisfactory The rating reflects: (a) regular supervision missions, most of the times combined with the PAL supervision missions with recommendations reflecting the understandings reached by the PSAL/PAL missions and the GOR for implementing the policy reform agenda; (b) supervision done for all “pooled” funds in a coordinated manner (the PIBL, two Dutch Grants and the PPIBL); (c) good cooperation between the Bank PSAL/PAL and the PIBL/PPIBL teams in the headquarters and in the country office (whereby the PAL team assisted the Borrower with the TORs and monitored outcomes and the PPIBL team supervised the fiduciary aspects) and with the PPIBL PMU and PAL PMU that allowed good coordination of the supervision effort (the team remained same for most of the life of the PPIBL); (d) detailed monitoring and reporting of the procurement and disbursement data prepared by the PPIBL PMU based on the TA outputs; (e) regular financial management and procurement supervision missions and review work; (f) cooperation with the donors that were attracted to the adjustment program due to its success; and (g) flexibility and responsiveness to meet the Borrower’s requests for TA through two loan amendments. The significant shortcomings relate to the inadequacy of supervision processes, including: (a) the lack of proactivity in restructuring the PPIBL to reflect: (i) the significant reallocations between expenditure categories, (ii) the change of the PPIBL from a TAL to an investment loan due to the actual 50% share of infrastructure investments of the PPIBL proceeds compared to 26% at appraisal (including significant IT investments); and (iii) the significant change in the PDO, de facto cancellation of most of the Parts A-D under the PPIBL financing and significantly increased scale of TA under the original Part E due to the use of parallel financing; (b) the lack of efforts until the last year of supervision to improve the M&E framework; (c) inappropriate PDO and implementation progress ratings until the end of 2005; and (d) the lack of a Treasury specialist in the supervision team after the closure of the PAL (although the lack was compensated by the hiring of a consulting firm by the Borrower to supervise the work of the SW developer and IT installer delivered by the consultant and involvement of a Bank IT procurement specialist). The project supervision and reporting focused on the delivery of the TA outputs and their completion, while the supervision of the PAL program focused on the progress of the policy reforms and results of the TA interventions. This followed from the “division of labor” between the PAL and PPIBL teams, but weakened the policy focus of the supervision after the cancellation of the PAL.

33

(c) Justification of Rating for Overall Bank Performance Rating: Moderately unsatisfactory Although there were major shortcomings in the design phase, the overall moderately unsatisfactory Bank performance is justified by improvements in the Bank supervision and a number of proactive actions taken towards the end of the Project life, as well as the satisfactory outcome of the Project.

5.2 Borrower Performance (a) Government Performance Rating: Moderately satisfactory The GOR was committed to the policy reform program that was anchored in the EU accession program and using TA in general to support it, as demonstrated by: (a) the achievement of the PSAL2 and PAL1 conditions and most of the PAL2 conditions by the time Romania was ready to be accepted to the EU; (b) the establishment of the high level PMU PAL in the Prime Minister Chancellery to help implement and monitor the PAL program and the use of the TA and its effective cooperation and coordination with the PPIBL PMU; and (c) the practically full disbursement of the PPIBL. The moderate shortcomings are related to: (a) the somewhat lacking commitment in the early phase to the use of the TA due to the availability of other funds and the subsequent extended implementation period that yet enabled in the end full disbursement of the loan; (b) the lack of even stronger implementation support to the beneficiaries so that they could have more quickly launched implementation activities and complete them once the PAL design and the TA needs were identified; and (c) the agreement to an overlapping design of the different Bank-funded and administered activities that led to delays in disbursing the PPIBL. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The PPIBL PMU administered and coordinated project implementation efficiently and with dedication throughout the Project and monitored the achieving of the PSAL I, PSAL II and PAL conditionalities, ensuring the timely release of scheduled tranches of the proceeds of the loans. The regular financial management supervision missions carried out by the Bank's Financial Management Specialist throughout the project life confirmed the highly satisfactory financial management arrangements in place. The PMU procurement function was carried out satisfactorily. The PMU’s performance was particularly good considering the complexity of the design, the challenging nature of institutional building in beneficiaries that lacked capacity in an evolving environment, and the volume of funds administered (the project costs included $30 million under the PIBL, $22 million under the PPIBL and two Dutch Grants of over $6 million during 1999-2008). The PPIBL PMU cooperated effectively with the PAL PMU in working with the beneficiaries to implement the TA. When the PAL PMU was closed in early 2007, the PPIBL PMU took efficient care of allocating funds to ensure that they are utilized by the closing date.

34

(c) Justification of Rating for Overall Borrower Performance Rating: Moderately satisfactory Despite the Implementing Agency’s satisfactory performance, the overall rating is moderately satisfactory due to the importance of the Borrower’s commitment and strategic supervision of the use of the TA that was lacking.

6. Lessons Learned Be pro-active. Restructure projects when needed, especially when moving from TA to an investment project and/or when parallel financing is mobilized so that each project could be evaluated on its own merits and so that the Government resources would not be wasted on undisbursed funds. The PPIBL was not restructured to reflect the de facto significantly changed PDO, project financing, as well as expenditure category and component cost allocations. This made the PPIBL funds initially redundant; it led to disbursement delays as the GOR preferred to withdraw the existing grant and loan funds before or instead of the PPIBL; and it made the GOR pay commitment fees for unutilized funds until 2005. It also complicated the Project evaluation that needed to cover all the sources of funding and made it somewhat artificial as no clear accountability lines were drawn between the Bank-related sources of funding since they were managed as a pool of funds. Choose PDO indicators carefully. A good result framework with good indicators and independent targets for institutional development provide a fair basis for supervising and evaluating developmental outcomes of a TA loan. In the case of the PPIBL, the result framework was very weak and it lacked independent targets for evaluating the institutional development results. As a result, supervision was bound to focus more on monitoring disbursements and completion of contracts than outcomes (it is true that the outcomes were monitored under the PAL). The project evaluation became also a complex exercise as it was not clear what is evaluated. Further, in the absence of independent institutional development targets, the evaluation of the Project’s success became unavoidably linked to the success of the policy programs while at the same time a TA could not be held accountable for reforms for which it has no leverage. Have a strong anchor for TA projects. The PAL and EU accession provided an anchor to the Project that initially helped achieve a lot (either itself, or through the Dutch grants) in terms of supporting the reform process. Once the anchor was raised after the cancellation of the PAL, the results of the TA interventions were inevitably undermined as the PPIBL had no leverage to motivate reforms (i.e. in the area of public expenditure management, civil service, judiciary and education financing). TA projects can work best as long as they have a strong anchor. Shift supervision responsibilities to appropriate department/staff. While the PPIBL’s original design had a strong public sector emphasis, during the implementation, the PPIBL changed de facto from a TA loan to an investment loan with major IT investments in the public sector. This required expertise in IT and Treasury systems that the Bank supervision team did not fully possess (the team included only an IT specialist). On its part, this weakened the Bank’s supervision impact as it relied only on the consultant hired

35

by the Borrower to supervise the design and installation phases. As public financial management and investment activities became prevalent, supervision should have shifted to an appropriate department in the Bank with relevant skills to maximize the Bank’s supervision input. Keep the design simple. The PPIBL was designed after the model of the complex and ambitious PAL program. In addition, the original Part D included other unrelated activities that further complicated the design. The design was therefore one more reason for the long implementation period and challenges in supervision and monitoring the Project properly. The complex design can therefore slow down the implementation process and spread the resources with the subsequently fewer developmental results. Set up PMU arrangements on the right level. The GOR maintained an experienced and sufficiently staffed PMU throughout the Project life and established a high level PAL PMU to monitor the preparation and implementation of the PAL reform progress in 2004-2006 (its set-up in the Prime Minister’s Chancellery was seen as an insurance against political and implementation risks). The location of the PAL PMU and the cooperation between the PMUs provided the required leverage to launch and expedite the project implementation because many of the beneficiary agencies had limited institutional capacity and readiness to embark in the reform program; they had limited or even absent experience with Bank’s projects; and there was a need for coordinated intergovernmental efforts.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The intermediate outcome indicators in Annex 10 that the Borrower refers to were moved to the Datasheet in the final version of the ICR. (b) Cofinanciers The comments of the Dutch Government are valid. The Bank team appreciated the assistance of and cooperation with the Donor. (c) Other partners and stakeholders Not applicable.

36

Annex 1. Project Costs Financed by PPIBL and Financing

(a) Project Cost Financed by PPIBL by Component (in USD Million equivalent) *

Components Appraisal Estimate

(USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

FINANCIAL SECTOR RESTRUCTURING

3.99 0.417 11

PRIVATIZATION SUPPORT FOR ENTERPRISES

0.60 0 NA

PRIVATIZATION SUPPORT FOR THE ENERGY SECTOR

2.26 0 NA

BUSINESS ENVIRONMENT 1.80 0.123 7 INSTITUTIONAL GOVERNANCE REFORM

11.25 19.422 173

PROJECT MANAGEMENT 0.24** 1.840*** 767

Total Baseline Cost 20.14 21.802 108

Physical Contingencies

1.02

0

NA

Price Contingencies

1.01 22

NA

Total Project Costs 22.17 21.824 98 Front-end fee PPF 0 0 NA Front-end fee IBRD 0.19 0 NA

Total Financing Required 22.34 21.824 98

*The information on the actual costs is from the financial management reports of the PPIBL prepared by the MOPF. **At appraisal, an allocation of USD 240,000 was provided for financing the PPIBL PMU for one year as the rest of the funds were provided under the PIBL. Later the PPIBL Loan Agreement was amended to finance the costs of the PPIBL PMU for another three years in addition to the costs of the PAL PMU (USD 711,000). The incremental operation costs of both PMUs totaled USD 1,399,894 at the end of the Project. *** This amount includes the incremental operating costs, project audits during 2003-2008 and IT equipments for the PPBIL and PAL PMUs, furniture, air conditioning, communications equipments, etc.

(b) PPIBL financing (in USD Million equivalent) *

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower (PPIBL) 3.74 3.29 88% International Bank for Reconstruction and Development (PPIBL)

18.60 18.54 99%

Total 22.34 21.83 98% *The information on the actual financing is from the financial management reports of the PPIBL prepared by the MOPF.

37

(c) Disbursement under the PPIBL by expenditure categories (in USD equivalent) *

Category

At appraisal % of Total

At Project End *

% of Total

% of Appraisal

Goods 4,900,000 26% 9,213,268 50% 188% Civil works 450,000 2% 0 0% - Consultant services (including project audit and training)

11,350,000 61% 7,926,838 42% 70%

Incremental operating costs 200,000 1% 1,399,894 8% 699% Unallocated 1,700,000 9% 0 0 - Total 18,600,000 100% 18,540,000 100% 99%

* The information on the actual disbursements by expenditure category is from the World Bank’s client database. See the Footnote under Table 1 (a). (d) Project Costs Financed by the PPIBL (including counterpart funds) by Sub-Component (in USD ‘000 equivalent)* Components Actual % of

Total A: Financial Sector Restructuring and Privatization Support 1. The CEC (the Savings Bank) 0 0 2. The National Securities Commission and the Bucharest Stock Exchange 417 1.9 3. The Insurance Supervision Commission 0 0 Total A 417 1.9 B. Privatization of the selected state-owned enterprises Total B 0 0 C. Privatization support for energy sector Total C 0 0 D. Improved business environment 1. Strengthening e-business 123 0.6 2. Training of judges and court personnel 0 0 3. Court refurbishing works and equipment to selected local courts 0 0 4. Public awareness campaign on business environment reforms 0 0 5. The Jiu Valley Region 0 0 Total D 123 0.6 E. Institutional and governance reform 1. Public expenditure management (i) MOPF (a) cash management (and public accounting) 11225 51.4 (b) budget formulation 343 1.6 (c) foreign financing coordination 0 0 (d) government accounting 80 0.4 (e) internal audit 3 0 (f) decentralization 0 0 Sub-total E.1 (i) 11651 53.4 (ii) National Agency for Fiscal Administration 1548 7.1 Sub-total E.1 13199 60.5 2. Court of Accounts 1372 6.3 3. Ministry of Communication and IT 0 0 4. Ministry of Administration and Interior (Civil Service Reform) 541 2.5 5. Ministry of Justice, Superior Council of Magistracy and Courts 1822 8.3

38

6. Public health insurance administration 0 0 7. Ministry of Administration and Interior and to the Ministry of Public Finance (intergovernmental fiscal relations)

0 0

8. General Secretariat of the Government and Prime Minister Chancellery 702 3.2 9. Ministry of Labor, Social Solidarity and Family 17 0.1 10. Ministry of Education, Research and Young People 18 0.1 11. Ministry of Health 839 3.8 12. Ministry of Transportation, Construction and Tourism 0 0 13. Ministry of Environment and Water Management 912 4.2 Total E 19422 89.0 F. PMU and PAL PMU PPIBL PMU 1129 0.4 PAL PMU 719 8.0 Total F 1840 8.4 Discrepancy** 22 Total PPIBL 21824 100.0

* The information is from the financial management report of the PPIBL prepared by the MOPF. **The discrepancy between the total PPIBL and the sum of the sub-component amounts comes likely from the fact that the sub-component costs have been rounded, while the total PPIBL is a total of amounts from the financial management report provided in smaller decimals.

(e) Financing of the Project by the PPIBL and parallel financiers (in USD ‘000 equivalent)*

Component PIBL Dutch

TF050477 Dutch

TF054659 PPIBL GOR Total Part A 761 1,893 0 417 480 3,551 Part B 887 0 0 0 NA 887 Part C 50 280 0 0 49 379 Part D 609 137 0 123 0 869 Part E* 7,772 699 2,310 19,422 3,132 33,335 Treasury of Part E 7,772 0 0 16,940 3,078 27,790 Part F** NA 0 0 1,840 1,840 Discrepancy*** 22 Total 10,079 3,009 2,310 21,884 4,101 41,301

*This table is imperfect but it provides an indication of the volume of parallel financing. The information was not part of the formal financial monitoring reports reviewed by the Bank as part of the PPIBL supervision. The table took into account of the total financing provided by the parallel financiers only those activities that were part of the “Project”, as defined in the PAD and legal amendments of the PPIBL. Therefore, the amounts are less than the total amount of these sources. The information on the GOR financing is not complete. In addition, some of the GOR financing for the PPIBL activities is included in the PPIBL column (i.e. for Part E, $440,000). **The costs financed by the GOR may include some counterpart funding for the PPIBL. *** The PMU was the same for the PIBL and PPIBL that were implemented simultaneously. It is not possible to provide information on how much the PIBL financed of the costs related to implementing the PPIBL project activities. ****The discrepancy comes likely from the fact that the total PPIBL includes the amounts provided in smaller decimals in the financial management report, while the sub-component costs in this table have been rounded.

47

Annex 2. Outputs by Component The below tables describe: (i) the activities planned in the PAD or loan amendments (the required TA); (ii) the Project outputs; and (iii) the Project outcomes in terms of: (i) whether the Project provided or not the required TA to achieve the high level policy objectives contained in the PDO; and (ii) the extent to which the assistance provided contributed (a) to implementing the policy measures supported by the PSAL2 and (b) to laying the ground for the reforms implemented under the PAL and PAL (whether they contributed to specific PAL benchmarks or to deepening and/or broadening the Government reform program in the policy areas included in the PDO, but not necessarily reflected by specific PAL benchmarks). The text refers to the status of meeting the PSAL2/PAL policy objectives for information, not for evaluation, as a TA loan cannot be held accountable for policy reforms. That information is based on the ICR on the PAL1. Part A: Financial Sector Restructuring and Privatization Support (PPIBL: estimated project costs $3.99 million/actual project costs $0.42 million) 1. The Savings Bank (the CEC)

Target at appraisal (as amended)

Project outputs Project outcome Funder

Engage restructuring and privatization advisors

Services of a restructuring advisor; the CEC restructured under a twinning arrangement in 2004

PDO (a) achieved Implemented the related PSAL2 condition

PIBL

Services of a privatization advisor; the CEC offered for sale

PDO (b) achieved Implemented the related PAL1-2 benchmarks

Dutch TF050477

The PPIBL did not finance activities related to the CEC. The targeted TA that was financed by the PIBL and the Dutch Grant TF050477 contributed to the Project PDOs (a) and (b). The restructuring of the CEC in 2004 was completed under a twinning arrangement and the CEC was prepared ready for privatization by the Privatization Commission with the advisor’s assistance. These outcomes helped meet the PSAL2 2nd tranche and the PAL1 & 2 conditions as far as taking actions towards the restructuring and the sale of the CEC were concerned. However, the winning bid did not meet the expected price of the GOR, and the CEC was not privatized. Therefore the PAL policy objective was not achieved. 2. The National Securities Commission (CNVM) and the Bucharest Stock Exchange (BSE)



TA to strengthen the legal, regulatory and supervisory framework for

A functional capacity assessment and recommendations for staff learning; incorporated into the CNVM’s annual objectives.

PDO (b) achieved Implemented the PAL1-2 benchmarks for the CNVM’s capacity building

Dutch TF050477

A study, a draft regulation and procedures for setting up an Arbitrage Chamber; accepted by

PDO (b) achieved Helped implement the Government’s reform

Dutch TF050477

48

the capital markets (EU) and the CNVM’s capacity

the CNVM which intends to implement them in the medium-term.

program in the capital markets (see the Letter of Development Policy) Integrated MIS operational since 4/08; and an

improved web-portal operational since 3/08. PPIBL

Public awareness strategy and campaign; cancelled after the 1st interim report; provided some input to EU-funded activities.

PDO (b) not achieved No outcomes

Dutch TF050477

CNVM instructions for setting up and supervising credit rating agencies; piloted and adopted by the CNVM; training provided.

PDO (b) achieved Helped implement the Government’s reform program in the capital markets

Dutch TF050477

Regulatory review of a regulated secondary market for mortgage bonds and mortgage backed securities and training; a number of new regulations adopted.

PDO (b) achieved Contributed to achieving the related PAL2 benchmark about mortgage markets

Dutch TF050477

Other activities to improve the legal and regulatory framework for the capital markets in line with the EU acquis and international standards.

PDO (b) achieved Contributed to achieving the PAL1-2 benchmarks for the consolidated law and secondary legislation for capital markets

CNVM, EU

Strengthen the BSU’s capacity to trade GOR’s securities on the stock exchange

Government securities traded on the exchange since August 2008.

PDO (b) achieved Helped implement the Government’s reform program in the capital markets?

BSU

The targeted TA that was financed by the Dutch Grant TF050477, EU, the PPIBL and the beneficiaries contributed to the Project PDO (b). It helped meet specific PAL benchmarks and/or contributed to implementing the Government’s reform program in the capital markets. The PAL policy objective of developing a comprehensive legal, regulatory and supervisory framework was achieved. The Dutch TF050477 and the PPIBL financed the following TA to: Carry out a functional capacity assessment to strengthen the capacity of the CNVM to

deliver its responsibilities in the framework of the EU single financial market and helped meet the PAL1 condition. The assessment suggested measures for strengthening the CNVM’s institutional capacity as a market regulator, covering the internal organization, the regulations and enforcement procedures for the 2004 consolidated law on capital markets, as well as the training and staffing requirements based on the IOSCO standards and in the context of accession to the EU. The capacity building program was presented to a number of 20 attendees in a workshop (including the CNVM’s staff and donors). The CNVM accepted the recommendations and incorporated them to a subsequent medium-term action plan for improving the institutional capacity as part of the CNVM's annual objectives.

Make recommendations for a relevant out of court mechanism to establish an Arbitrage Chamber for the securities sector in Romania, including a model for its organizational structure, governance mechanism and the scope of authority, a draft regulation and Chamber rules for its functioning in compliance with this mechanism, and an internal procedure manual for the personnel of the Arbitrage Chamber. The CNVM accepted the regulation and the rules in 2006 and intends to implement them in the medium-term.

Provide the design, supply and installation of an IT system to create an internally integrated database that became operational in April 2008. It has given the CNVM’s employees the possibility to more efficiently manage information related to authorization of regulated entities, registration of issuers, and incomes evidence.

49

Provide the design of an IT system to develop and implement a web portal for the capital market in Romania. The web-portal became operational in March 2008.

Launch activities for improving public awareness of and participation in capital markets among individual investors. The contract was cancelled after the first interim report based on unacceptable progress towards achieving the project results. Several activities like publication of awareness materials, as well as organization of events were included in the activities funded by the EU project.

Provide: (i) a draft CNVM instruction for setting up and supervising credit rating agencies; (ii) a pilot program for the simulation of the process of assigning a rating to an issuer; and (iii) a training program for 10 staff members in supervising such agencies. The TA helped create the framework for credit rating agencies in line with the existing international practices (IOSCO principles) and building the CNVM’s supervision capacity in this area. Further to this assistance, the CNVM adopted an instruction on this topic

(i) Produce three new draft regulations38 (secondary legislation) that were adopted in line with the PAL2 condition under the mortgage markets and that, together with the existing four laws for the primary and secondary market, constituted the legal framework for these markets; (ii) provide recommendations on instruments, actions, measures, and regulatory and institutional developments for establishing regulated secondary mortgage markets that have been considered within the internal policy of the CNVM; and (iii) deliver three training sessions of three days for 10 staff members in the field of mortgage lending, mortgage bonds and mortgage-backed securities. The TA contributed to developing the framework for a regulated secondary market for mortgage backed securities, a new financial instrument in the Romanian market.

The BSE did not request funding from the PPIBL for capacity building to enable trading of Government securities on the stock exchange. The objective of the TA was achieved on the BSE’s own funds: the BSE started trading Government securities on the exchange on August 25, 2008.

3. The Insurance Supervision Commission (the ISC)39



TA to strengthen the institutional capacity of the ISC to regulate and supervise the insurance sector

Design of a computerized system related to motor vehicle third party liability and recommendations on improving the related regulations in line with the acquis; the system procured in 2005 on the EU funds is operational since the end of 2005; the revised regulations adopted.

PDO (b) achieved Implemented the PAL1 benchmark for assessing the capacity

Dutch TF050477

TA to modify some accounting regulations and to draft instructions for supervision and assessment of the financial statements of the insurers and insurance brokers; supported the implementation process of the adopted accounting regulations and made recommendations on the strategy for the IFRS implementation

PDO (b) achieved Helped implement the Government’s reform program in the capital markets (see the Letter of Development Policy)

Dutch TF050477

38 Based on the TA, the following regulations were adopted: the CNVM Regulation no. 11/2006 on securitization of receivables; the CNVM Regulation no. 13/2006 on mortgage bonds; and the Joint NBR/CNVM Regulation no. 12/3/2006 on authorizing the agents and portfolio management companies based on the Law no. 32/2006 on mortgage bonds. 39 The Insurance Supervisory Commission (ISC) was established in July 2001 as an administrative and financial autonomous entity responsible for supervising the insurance market in Romania.

50

The PPIBL did not finance activities related to the ISC. The targeted TA that was financed by the Dutch Grant TF050477 contributed to the Project PDO (b) as it implemented a PAL1 benchmark and helped implement the Government’s reform program in the capital markets. The PAL policy objective of developing the insurance market was achieved. The Dutch TF050477 financed the following TA to: Help strengthen the ISC’s capacity to supervise the motor vehicle third party liability

market, thus helping meet the PAL1 condition. The consultant developed an architecture for a centralized integrated database on motor vehicle third party liability and provided recommendations on transposing into the Romanian regulations the specific EU Directives in this field. The ISC implemented the proposed centralized integrated database (CEDAM) on motor vehicle third party liability under the EU PHARE funds in 2005, and it has been operational since December 2005. The system can be used in real-time by the users (the ISC, insurers and police) to determine the coverage for a particular motor vehicle (or its lack thereof); to input and exchange data; to produce reports, etc. As a result, the ISC has increased the percentage of carriers of the motor vehicle insurance from 60% in 2003 to 90% in 2007 and expedited the time required to process claims. Based on the recommendations of the TA, the ISC also aligned the relevant national laws in line with the EU acquis to strengthen ISC’s supervisory capacity in this area.

(i) Help the ISC modify the accounting regulations that the ISC had drafted in line with the acquis prior to the IFRS implementation40; (ii) provide internal instructions and procedures to strengthen the ISC’s institutional capacity for supervision and assess the financial statements of the insurers and insurance brokers; and (iii) provide recommendations related to the strategy for implementing IFRS in the insurance sector, a complex process that is in progress. Thus, the modified Accounting Regulations in conformity with the EU Directives specific for the insurance field approved by the ISC`s Order no. 3129/2005 were adopted. The TA supported the implementation process of the provisions of the Accounting Regulations, which were modified by the ISC`s Order no. 7/2007, in order to enhance the amendments of the EU Directives. In addition, the TA supported the issuing of the ISC`s Order no 113.105/2006 approving the Norms regarding the criteria for approving the financial auditors to audit the financial statements of the insurance companies that supported compliance with the provisions of the proposal for the amending of the 8th Directive. The ISC`s Order no. 22/2008 assured compliance with the provisions of the European Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC.

40 The directives included: the COUNCIL DIRECTIVE on the annual accounts and consolidated accounts of insurance undertakings (91/674/EEC); the FOURTH COUNCIL DIRECTIVE on the annual accounts of certain types of companies (78/660/EEC); and the SEVENTH COUNCIL DIRECTIVE on consolidated accounts (83/349/EEC).

51

Part B: Privatization Support for State-Owned Enterprises (PPIBL: estimated project costs $0.60 million/actual project costs $0)


Project outputs Project outcomes Funder

TA to privatize selected state-owned enterprises

Privatization advisory services for 10 enterprises organized in 3 pools & restructuring advisory services for 10 enterprises organized in 4 pools; sold 16 and liquidated 4 SOEs

PDO (a) achieved Implemented the PSAL 2nd tranche condition

PIBL, GOR

PDO (a) achieved Implemented the PSAL 2nd tranche condition

PIBL, GOR

The PPIBL did not finance activities related to the privatization of state-owned enterprises (SOEs). The targeted TA that was financed by the PIBL and the GOR contributed to the Project PDO (a) as it helped implement the related policy conditions. Thus, the PIBL funded the privatization of four SOEs and the restructuring of three SOEs, while the rest of the targeted privatizations and restructurings were financed by the GOR. Although tenders were launched under the PIBL for all 20 companies to hire privatization/workout advisors, only two contracts were signed - one out of the three pools for privatization and one out of the four pools for workout - because of failed negotiations, lack of bids or timing issues. As a result, 16 SOEs were privatized, one SOE liquidated through an assets sale procedure through the Asset Resolution Agency, and three SOEs were liquidated through voluntary/judicial procedures. The PSAL2 policy objectives were met (the broader policy objective of the PAL of privatizing the state manufacturing sector was achieved by the end of 2007). Part C: Privatization Support for the Energy Sector (PPIBL: estimated project costs $2.26 million/actual project costs $0)



TA to strengthen the regulatory capacity of the National Agency for Gas Distribution

No information on specific outputs. Benefiting from the TA, over the years the ANRE (and the ANRGN until its merger) built up a solid track record as probably the most competent regulator in the region.

PDO (b) achieved Helped implement the Government’s reform program in the energy sector (see the Letter of Development Policy)

EU, the Electricity Market Project

TA to develop a privatization strategy for the electricity generation sector

Provided TA to prepare the privatization strategy that was used as an input to the Road Map for the energy sector approved in 2003.

PDO (a) achieved Implemented the PSAL2 condition

EU

TA to provide a legal and regulatory framework for private competition in the energy sector (namely network industries)

The Bank aggregated a number of studies that constituted the network study; the Road Map covered the framework issues. The legal and regulatory framework has been implemented consistent with the EU Directives.

PDO (a) achieved Helped implement the Government’s reform program in the energy sector (see the Letter of Development Policy)

PIBL, Bank, Dutch TF050477

TA to review the taxation system for the oil and gas sector.

Completed before approval of the PPIBL. Used as an input in the network industries and the Road Map approved in 2003.

PDO (a) achieved Contributed to a PSAL2 condition about efficiency improvements in the oil and gas sectors

PIBL

The PPIBL did not finance activities related to the energy sector. Instead, the EU, the Bank-funded Electricity Market Project (FY03), the PIBL and the Dutch Grant TF050477 financed TA in the targeted areas that contributed to the PDO (a) and (b).

52

1. Regulatory capacity of the National Regulatory Authority in Natural Gas Sector The National Regulatory Authority in Natural Gas Sector in Romania (the ANRGN) received capacity building support from the EU, resulting in the introduction and subsequent implementation of a new formula for gas distribution companies. The Government merged the ANRGN into the Romanian Energy Regulatory Authority (the ANRE) in 2007 in order to reduce the number of agencies and to have a better correlation between gas and electricity prices. The ANRE had received TA from the EU together with the Bank-financed Electricity Market Project (FY03) for developing a commercial framework for electricity trading with satisfactory results (demonstrated by a commercial framework consistent with the EU market liberalization principles), as well as for developing a new formula to calculate the tariff for the electricity distribution. Over the years the ANRE (and the ANRGN until its merger) built up a solid track record as probably the most competent regulator in the region. The new commercial code and a clear formula for establishing the tariff for the electricity and gas distribution facilitated the privatization of five electricity distribution companies (out of eight) and of two gas distribution companies (100 % of the gas distribution is private-owned). 2. Taxation system for the oil and gas sector See C.4. 3. Privatization strategy for electricity distribution sector

The privatization strategy for electricity distribution sector, mentioned in the PAD, was prepared using the EU PHARE funds in early 2000. It provided input to the Road Map for energy sector reforms approved by the GOR in 2003 that included the policies, tasks, targets and timetable for implementing the reforms mainly in the power and natural gas sectors. The Road Map was submitted to the EU as the official strategy that Romania would follow and that included the measures Romania would take to achieve compliance with the EU’s electricity and gas directives and other energy sector parts of the EU acquis. Romania’s energy market model was based on liberalization (gradual opening). The stated aim was to create “such structures and a market environment that would enable to respond and cope with the increasingly integrated European energy market”. The European Commission characterized the Road Map as “exemplary” and its successful implementation facilitated (for the energy sector) Romania’s entry into the EU in January 2007. The Road Map (and its 2007 version) benefited from several reviews by the Bank as part of supervising and preparing the PAL programs. 4. The legal and regulatory framework for private competition in the energy sector The legal and regulatory framework for private competition in the energy sector (namely in the network industries) was covered in the above Road Map which provided an energy market model based on liberalization. The network industries study was done by aggregating several studies, including taxation study, structural and regulatory assessment of electricity, gas and oil sectors funded by the PIBL before the approval of

53

the PPIBL, as well as a review of tariff methodologies funded by Dutch TF050477. This aggregation work was done by the Bank. The legal and regulatory framework has been implemented consistent with the EU Directives. Part D: Support for an Improved Business Environment (PPIBL: estimated project costs $1.80 million/actual project costs $0.12 million) 1. E-business



TA to the Ministry of Communication and Information Technology (MCIT) to strengthen e-business, including e-commerce, e-government, e-Romania Gateway and establishment of telecenters

Three consultancy assignments to improve access to knowledge by establishing local community e-networks (LCeNs); significant inputs to the design of the LCeN component in the Knowledge Economy Project (KEP).

PDO (b) negligibly achieved Helped implement the Government’s business environment component of its strategy

PPIBL

Draft design of operations of the Grant Facility of the KEP; used as the basis for the operational manual of the Grant Facility component

PPIBL

A business model for the e-Store; used as the basis for the Operational manual for the e-Store sub-component under the KEP.

PPIBL

No TA requested for e-government services (or e-procurement) from the PPIBL; the GOR has developed them from its own funds. The KEP includes an e-government services component.

GOR, KE Project

No funding was requested for e-Romania Gateway Portal by the MCIT from the PPIBL, following the changes in its priorities after 2004.

GOR, PIBL

The targeted TA that was financed by the PPIBL supported the business environment component in the Government’s strategy for convergence with the EU. As such, it strengthened e-business by providing significant inputs to the design of the Local Community e-Networks (LCeNs) component in the Knowledge Economy Project (KEP; FY06). These activities were not directly linked to support the PAL. No financing from the PPIBL was requested for e-government services.

The PPIBL financed the following TA to:

Help design the US$43 million "Improving Access by Establishing LCeNs" sub-component in the KEP. The consultants: (i) identified the typologies of the most knowledge disadvantaged communities eligible for the LCeN implementation and selected a sample of 80 rural and small urban communities with these typologies; (ii) carried out a survey in 100 communities, including the 80 communities and an additional 20 for benchmarking purposes, to assess the demand for knowledge driven activities and accordingly defined the LCeN’s functional model to address the needs of different target groups (teachers and students, citizens, businesses) under the KEP; (iii) designed the business and organizational model of the LCeN; (iv) prepared application and business plan templates, the design of a public awareness campaign in support of the deployment of LCeNs, a related training program for communities, and technical specifications for the LCeN’s equipment; and (v) piloted competitive selection of 9 future LCeNs from the 80, representing each of the community typologies, based on the above. The KEP applied the above selection criteria and methodology with some modifications and scaled up the exercise to select further 255 communities under the KEP component with satisfactory results. The 255 Local

54

Community e-Networks (LCeNs41) were established n 255 communities by the end of 2007. They are operational; represent 44% of the most disadvantaged communities in Romania; and cover a population of about 1.8 million people. In each of the 255 communities, the local electronic networks link the: (i) basic and lower secondary schools; (ii) local administration offices (Town Halls); (iii) public library; and (iv) Public Information Access Points. The KEP has already demonstrated results in terms of increased use of ICT as a pedagogical tool, improved networking between schools, increased ICT skills of pilot schools’ students and teachers, etc.

With regards to the Grant Facility sub-component42, design the eligibility criteria, application process and templates, selection mechanism, and the monitoring mechanism for use of the grants by the beneficiaries. This information was used as the basis for drafting an operational manual for the KEP. The Grant Facility was launched in August 24, 2008; 131 applications were received by November 24, 2008 and further 279 applications were received from 35 counties in the second round of submissions due by January 26, 2009. The grants are intended for facilitating innovative business solutions, including e-business adoption among natural persons, family associations, micro, small and medium enterprises, as well as wide collaboration and innovation between them, industries, RDIs, etc., to improve their competitiveness.

With regards to the Portal for E-Store, carry out an impact and needs assessment to design a business model for the e-Store, including organizational and legal structure, technological solutions appropriate for the portal, financial analysis and projection and supervision arrangements. This design was used as an input in designing the Portal for e-Store sub-component and for developing the technical specifications for the e-portal developed under the KEP. An e-Comunitate portal was launched in early 2009 with the resources page, web links to similar or complementary portals (such as the EU-funded e-SME Portal), Business directory, Product cataloging and Job directory to facilitate knowledge sharing. Due to a parallel financing from the EU for developing an e-Store portal, the KE portal e-Comunitate assists in the development of business opportunities in knowledge disadvantaged areas, by providing better access to information and thus fostering the socio-economic development of these communities. This portal complements and capitalizes the EU-funded e-Store portal.

No TA was requested for e-government (neither for the SMART-card system) services under the PPIBL as the Government developed them mainly from their own funds43.

41 Communities will be offered access to knowledge through “Local Communities e-Networks” (LCeNs) which provide a number of services and technologies, including computers, the Internet and communication services and specific content provision for different target groups (citizens, businesses and pupils) in rural and small urban communities. 42 The Grant Facility and Portal for E-Store sub-components constituted the US$11.9 million Promotion of E-commerce and Innovation Support for Micro, Small and Medium Enterprises Component in the KEP. 43 Regarding e-procurement, Romania has successfully implemented e-procurement starting with a pilot project in March 2002, without requesting the project’s support. The Romanian government involved key stakeholders, launched advertising campaigns, created training programs and put an emphasis on SME-user friendliness. In addition, a gradual implementation and strong political commitment helped to make it successful. Thus, since January 2007, all public procurement announcements of the GoR have to be published on the national portal “e-Licitatie’’ (www.e-licitatie.ro – on the GOR’s web-site) and are transferred to the EU Official Journal. It has hence become easier and faster for companies in Romania to participate in public procurement by simplifying access to information and to the bidding process, which is especially important for SMEs. Today, every company wishing to learn about contracts with the Romanian government can visit the national e-procurement website and register as a supplier. In 2007, 9,000

55

Overall 36.8% of the public basic services are available to citizens online and 67.8% of the basic business services are available online out of the 20 basic services agreed with the EU under the i2010 agenda. They include 12 e-Public services for citizens (income taxes; job search; social security benefits, passport and driving licence; car registration, building permission, declaration to Police, public libraries, birth and marriage certificates; enrolment in higher education; announcement of movement; health related services) and 8 public e-services for businesses (social contributions; corporate tax; VAT; company registration; statistical data; customs declaration; environment related permits; public procurement). The PPIBL did not finance the development of the e-Romania Development Gateway Portal, which was originally expected to be financed under the PIBL and subsequently transferred to the PPIBL, due to changed priorities of the new GOR in using the PPIBL funds. The PIBL funded some staff costs for it. The Portal was developed and managed by the eRomania Gateway Association within the Development Gateway initiative of the Bank. 2. Training of judges


Project output Project outcome Funder

Training to judges and court personnel in the area of bankruptcy

Not requested funding for specific training for judges from the PPIBL.

PDO (a) not achieved N/A

The PPIBL did not finance specific training for judges in bankruptcy, as originally targeted, as it was not requested (see Part E.5 for training for the MOJ/SCM). 3. Refurbishment of courts



Court refurbishing works and equipment to selected local courts

Designed a methodology for development of physical design standards; used as an input in designing the manual for the court infrastructure rehabilitation component under the Judicial Reform Project

PDO (a) achieved Helped implement the Government’s program to improve judiciary (during the PSAL2)

The Dutch TF050477

Not requested funding for works and equipment from the PPIBL (being financed under the Judicial Reform Project; FY06).


The PPIBL did not finance the targeted court refurbishing works and equipment to selected local courts; these activities were included into the design of the Judicial Reform Project (the JRP; FY06). However, as the first step, the Dutch TF050477 financed the work of a consultant to develop space planning and design standards for modest, functional and flexible court buildings that adapted international standards to the Romanian practice and custom and ensured cost-effectiveness. This activity contributed

contracting authorities used this modern public procurement facility and 160,000 notices and invitations to tender have been published through e-licitatie.

56

to the PDO (a) as it supported the implementation of the Government’s program to improve the judiciary. The standards were used as input in developing a manual for the $90 million Court Infrastructure Rehabilitation component under the JRP. The manual was envisioned to be used in rehabilitating/constructing about 25 locations under the JRP and in any other similar projects with the courts in future. Implementation of this component is however marginally unsatisfactory due to delays. It is likely that the JRP will complete rehabilitation of 10 courthouses versus the projected 25 by its closing date. 4. Business environment reform campaigns



Develop and implement a public awareness campaign on business environment reforms

Not requested funding for a public awareness campaign from the PPIBL.


The PPIBL did not finance a public awareness campaign on business environment (neither other financiers). Instead of developing “a communication strategy” under the Bank Projects, following Bank procurement rules, the GOR decided to develop concrete actions in order to raise awareness of the Government’s measures that have impact on business environment. 5. The Jiu Valley Region



TA to the Jiu Valley Region for implementing a business environment improvement strategy and for e-business

Household survey of business opportunities in Jiu Valley; input to a strategy and action plan approved by the GOR for the Jiu Valley Region.

PDO (a) achieved Helped implement the Government’s reform program for the reduction of poverty and unemployment in the areas affected by economic transition

PIBL

Video/ audio conferencing system for the Jiu Valley Association; the video system was placed in the Petrosani University and was used during the preparation of the Jiu Valley project, but also for connecting people to training and conferences opportunities.

PIBL

Design and IT equipment for an on-line information system for the collection of local taxes in six town halls; the system is in use.

PIBL

The PPIBL did not finance TA to the Jiu Valley Region. The targeted TA that was financed by the PIBL contributed to the PDO (a) as it helped implement the GOR’s reform program in the reduction of poverty and unemployment in the areas affected by economic transition. It represented the first step before launching a projected Bank-financed regional development loan that aimed at supporting private sector development in areas hit by the economic transition, such as the Jiu Valley Region (JVR) to support the related policy objectives of the PSAL2. The regional development loan did not however materialize following changes in the Bank’s assistance to Romania. The PIBL financed the following preparatory TA: A household survey of business opportunities in the JVR to support an assessment of

Competitiveness and Poverty Incidence in the JVR that resulted in a business plan and action plan approved by the GOR for the JV.

57

A video/ audio conferencing system and equipment for the Jiu Valley Association44 to facilitate easy communication. TThe video system was placed in the Petrosani University and was used during the preparation of the Jiu Valley project, but also for connecting people to training and conferences opportunities.

An on-line information system for the collection of local taxes and charges. The system was implemented on a pilot basis for six Town Halls selected by the GOR for the implementation of the Comprehensive Development Framework. The six town halls use the system for local collection of taxes for those who want to pay online. Most of the benefits were generated by internal efficiency gains due to the restructuring of the business flow within the administrations.

Part E: Institutional and Governance Reform (PPIBL: estimated project costs $11.25 million/actual project costs $19.42 million) 1. (i) Public Expenditure Management (a) Cash management within the Treasury system45 Background In 1991 the National Bank of Romania (NBR) elaborated a timetable for the reform of the Romanian payments system, structuring the process in two stages: Stage 1: The main objective was to modernize the interbank payments system in the national currency based on paper support, increasing the capacity of the NBR to implement monetary policy through liquidity supervision during the day and starting the transition towards a society with no cash. This was implemented by putting into operation the national payments system on paper support, DECONT-BNR, in 1995. At this stage, the average settlement duration of the payment instruments was about 3.65 days for a payment order and 5.26 days for a transfer debit payment instrument. Stage 2: The main objective was to implement an electronic system of transfer of funds and registration and settlement of securities. The general objectives were to facilitate the development of the economy by improving safety and efficiency of the interbank payments system; to transition towards a society with no cash; and to set up a robust legal framework for the payment systems with systemic importance and also, for the settlement systems, and for transactions with Government securities. The transition from a paper-based payment system to an electronic one was determined, on the one hand, by development of the financial markets and the significant increase of

44 The Government had approved a Development Strategy for the Jiu Valley Region prepared through a consultative process in the region which involved all relevant development stakeholders, including central and local authorities. One of the outcomes of this process, supported by the Bank as part of the Comprehensive Development Framework process in Romania, was the establishment of the Jiu Valley Association (JVA) - a stakeholder partnership group that included representatives of the central and local public sectors, private entities, and the community, and had a mandate to oversee the economic development of the region. 45 The ICR provides a more detailed background and assessment of the Project’s contribution to the Treasury modernization since it was the largest sub-component under Part E.

58

the activity carried out by the national payment system, and on the other hand, by the need to shift towards a predominantly cashless society and by the improvements in the cashless payments. Also, the final consumers requested for a safe, efficient, and low cost payment services. Box2. The National Bank of Romania Electronic Payment System (EPS). In 2000-2005 the NBR had a paper-based interbank clearing and settlement system. The connection between the State Treasury and the NBR, where the Treasury held its accounts according to the legislation, was manual. The exchange of paper documents between the MOPF and the NBR was manually intensive at both ends because each document had to be entered into the Public Accounting IT system. The NBR and the Company for Funds Transfer and Settlement - TransFond S.A. established in May 2001 - launched the work on implementing a fully automated real-time interbank EPS – STFD TransFond S.A.46 - funded by the EU-PHARE after the TransFond S.A. became operational. The TransFond S.A. was established due to Romania’s commitment to revamp the domestic financial and banking infrastructure in order to access the EU. It became responsible for processing the interbank payments in Romania and, as such, it took over, as the NBR’s agent, the operation of the paper-based payment system, which was thus outsourced by the NBR. The "Interbank Payment System" Project implemented by the NBR and TransFond under the EU PHARE project became operational in 2005 in three phases. At the incorporation date, the shareholders were the NBR and 28 commercial banks47. The EPS was designed as a single contact point for all the EPS participants (42 Romanian banks, the MOPF–the State Treasury) in order to provide customer services related to any issues which they might face in using the EPS system. According to its functional requirements, the implemented EPS was centralized with each participant entering payment instructions through the single point of access. This fundamental concept of the new system enabled the increasing of the system’s safety and improving of the management of the participants’ resources through a centralized ordering/sorting of the payments, depending on the priorities of the financial institutions. The participants to the EPS became the commercial banks operating in Romania and the Romanian Stock Exchange. The real time gross settlement (RTGS) and the government securities trading (GSRS) were architected on the SWIFTNet, while the net settlement (the Automated Clearing House; ACH) began to be performed on a TFDNet TransFonD’s (market infrastructure) proprietary network.

The first institutional measure in the extensive Treasury reform was to establish a State Treasury in 1992 (the Government Decision no.78/1992)48. It remedied the key

46 STFD - TransFond S.A. is: (i) the main supplier of interbank low-value cashless payment services. Except for the card payments (cleared by Visa and MasterCard), all low-value payments are cleared via an electronic system operated by STFD - TransFond S.A.., i.e. SENT, and the paper-based clearing houses system; (ii) the operator of ReGIS, managed by the NBR, within the boundaries of the mandate given by the NBR; and (iii) the technical operator of all 3 Electronic Payment System (EPS) components. The technical infrastructure, computer infrastructure, applications, systems telecom networks and security infrastructure are all managed by STFD - TransFond S.A., directly or by its partners. 47 The system went live in three separate stages: (i) April 8th, 2005: the ReGIS became operational. The RTGS system named ReGIS system processes the real-time settlement of large-value and/or urgent payments; (ii) May 13th, 2005: the first day of automated clearing through the SENT system. The ACH (Automated Clearing House) component, registered under the SENT trade mark in Romania. The State Treasury joined the other participants in the multilateral netting system; and (iii) October 3rd, 2005: the SaFIR service was launched. This was the third EPS component that ensures the deposit and settlement of Government securities. The SaFIR is the Romanian GSRS system. Once this stage was concluded, the EPS project implementation was considered to have been completed. The TransFond was the technical operator of this system. 48 The legal basis for the Treasury function of the MOPFP is the law on Public Finance (LPF) (Law 10/1991, further amended through Law 72/July 12, 1996 republished through Law 500/August 13,2002) which describes broadly the roles and responsibilities of the Treasury and the Government ordinance No 146/2002 on the Treasury which regulates in greater detail the operations of the Treasury. The Treasury organization was established under this legal framework and now consists of two General Directorates (GD), namely the General Directorate of Treasury and Public Debt and the GD of Treasury and Public Accounting within the MOPFP and a network of treasury offices (42 + 6 territorial offices at the territorial level and over 305 state Treasury territorial units). Total staffing of the Treasury at all these offices is about 6,500.

59

institutional weaknesses in the budget execution process in which, prior to the reform, the budget was executed through the banking system, via a range of banks, and the Ministry of Public Finance (MOPF) periodically deposited money in bank accounts held by the spending units in commercial banks. The budget execution was assured by the NBR. When the banking system developed and the NBR became more independent and mainly focused on monetary policy regulation, the budget execution activity was transferred to the Romanian Commercial Bank (BCR). Experimentally, the management of public funds was done through Treasury in five counties. Having in mind that some sectors of the economy did not benefit from enough resources, and it was consequently difficult for the local budgets to be balanced with resources, it was necessary to find a new mechanism/a financial instrument and a State Treasury was created mainly for the following reasons: It was not possible for the MOPF to determine in a timely manner the balances in

spending unit bank accounts and sizable idle balances could build up in them. Cash management was therefore weak.

More importantly, the MOPF did not have any ex-ante control on the actual expenditures made by spending units to ensure that such expenditure was in accordance with budget appropriations. The MOPF relied on periodic reports from spending units detailing expenditure incurred by them. These reports were often received after considerable delays and the MOPF had no independent means of verifying the accuracy and authenticity of these reports.

After the establishment of the Treasury and a network of Treasury offices across the country, spending unit Bank accounts in commercial banks were brought under the control of the Treasury and balances consolidated in a Treasury Single Account (TSA) at the NBR. The restructured budget execution process is summarized below: Following the MOPF’s notification of the main budget administrators in line

ministries (credit ordinators), the MOPF requested them to prepare and submit within 20 days, quarterly breakdown of the granted appropriations, including the amounts required by their secondary and tertiary ordinators in subordinate units. Based on revenue projections, the MOPF issued monthly spending limits to spending units. The limits were communicated to the respective regional and local treasuries and copied to the institutions concerned, each of which had accounts in the Treasury from which payments could be made. On the basis of this information credit lines were opened for each institution containing details of the relevant budget chapter and category of expenditure.

On receipt of goods and services, the institution checked the invoice and sent it to its designated local Treasury along with a payment order. The Treasury performed a control function by checking whether the expenditure was properly authorized and was within the spending limit for that institution and category of expenditure. If this was the case, the Treasury debited the institution’s account accordingly and made the payment. Payments could be made in cash (e.g., for salaries) and via a payable order for goods and services. Payable orders were transmitted by the regional Treasuries to

60

a branch of the NBR where the Treasury held its accounts and debited the regional Treasury and credited the payee account.

These reforms were designed to eliminate the key weaknesses in the budget execution process and ensured that: The Government has up-to-date and accurate information on the financial resources

available to it and can make informed decisions on budget releases, borrowings and investments since all Government resources were now in bank accounts controlled by the Treasury and balances from any regional Treasury bank accounts were routinely consolidated in a State TSA held at the NBR’s headquarters; and

All expenditure transactions initiated by spending units were in accordance with the budget appropriations passed by the Parliament and within spending limits imposed by the MOPF taking into account revenue projections and cash availability.

These reforms addressed the key institutional weaknesses of the budget execution process, and the consolidation of bank accounts in a TSA eliminated the idle balances in spending units accounts. The ex-ante control exercised by Treasury units on payment requests from spending units ensured that expenditure transactions were in accordance with budget appropriations and within spending limits. However, the realization of these reform objectives was critically dependent on: The information systems support and IT infrastructure available at the Treasury

offices at the center and the regional and district branches which process spending unit transactions and enable the imposition of necessary ex ante controls before a transaction is passed for payment;

The availability of a good telecommunications network that connects the central and regional Treasury systems and their ability to exchange information in a secure manner and in real time;

The availability of a good electronic means of connecting the spending units to the Treasury to enable them to pass their transactions to the Treasury for processing;

The availability of a good electronic connection between the Treasury offices and the banking network where the Treasury holds its accounts to enable it to process expenditure transactions; and

The availability of an automated interbank clearing and settlement system that could provide an efficient and secure means of affecting payments initiated by the Treasury, consolidate balances from regional branches in a TSA, and receive accurate information on revenue receipts.

However, the available IT&C infrastructure in the Treasury and MOPF impeded the capacity of the new Treasury to realize the full advantages afforded by implementation of a Treasury system.49

49 In the early years of the reform, the MOPF set up a basic network of information systems to support the Treasury functional processes and transaction processing. The application software was built using FOXPRO. The applications were implemented under a

61

A Bank sponsored diagnostic and other similar analyses carried out in 2001-2003 highlighted the following weaknesses with the Treasury system: Lack of electronic links between the line ministries and the Treasury offices and

fragility of the links between the Treasury office branches and the central offices; Lack of an automated interbank clearing and settlement system in the banking sector; Lack of secure and electronic connections between the Treasury network and the

banking network; Existence of distributed data bases and absence of a central ledger data base; and Use of heterogeneous and outdated IT equipment in the Treasury network. As a direct consequence of this, considerable resources were invested in manually feeding data into the system at the different administrative levels. As a result, the speed and accuracy of information transfer across the Treasury network and between the Treasury and its clients (the spending units/line ministries) and the banking network were severely impeded considerably reducing the realization of the main advantages that are afforded by the implementation of a Treasury system. On the functional side, the deficiencies in the IT and telecommunications infrastructure resulted in the following weaknesses.

The implementation of a distributed architecture and weak links between the

subordinate and the central office meant that a central ledger containing all payment and accounting data could not be implemented. As a result of this, rapid collection, consolidation and preparation of overall system wide reports was severely impeded;

Under the system described above, whereas the credit ordinators are required to record commitments and these are approved ex-ante by the MOPF controllers in spending units, such commitments were reported to the MOPF only on a quarterly basis. The Treasury therefore did not have a real time, on-line record of commitments before approving payment requests. This reduced its ability to monitor arrears, perform cash management and implement commitment accounting; and

The lack of a central database of all transactions and lack of availability of historical data impedes analyses that require exploiting time series of data for several fiscal years.

The Bank and other donors made a set of recommendations and bench marks for modernizing the Treasury operations based on various assessments made by them in 2001-2003. Their key features included the following:

distributed architecture with separate databases at subordinate Treasury offices. The systems at the local office were responsible for carrying out the basic transaction processing that is required in processing payments for spending units and recording receipts. Regional and Local Treasuries were connected via dial up connections to the central Treasury offices in the MOPF. Summary data was forwarded to the higher levels of the Treasury network. At this time the NBR had a paper-based interbank clearing system and the connection between the State Treasury and the NBR where the Treasury held its accounts was manual. The exchange of paper documents between the Public Accounting Directorate and the NBR was manually intensive at both ends because each document had to be entered into the Treasury system.

62

Modernizing the inter-bank clearing and settlement system used by the banking sector;

Setting up a connection between the State Treasury and the interbank payment system;

Renovation of the existing IT and telecommunications infra structure at the MOPF and at regional Treasury offices to enable a move from a distributed to a centralized architecture that would enable the setting up of a centralized public accounting ledger;

The use of web-based internet and intranet technologies to enable better communications between regional and local offices and Treasury HQ, and between the line ministries and Treasury offices;

The implementation of a centralized database containing up-to-date information on public investment contracts and commitments;

The implementation of a system for efficient flow of information from the MOPF to the line ministries and the Treasury regarding budget releases - credit management work flows;

Setting up of a central data warehouse comprising historical data for 7- 10 years to enable time series analysis; and

Setting up of an internet portal for the MOPF’s clients, including public institutions and providers of goods and services for these institutions, and for employee access.

The implementation of these recommendations involved investments for the following: Setting up an automated inter-bank clearing and settlement system and implementing

technologies to enable the connection between the Treasury and the interbank clearing system;

Installing and upgrading the server equipment and the center, the network connections between local and regional Treasury offices and line ministries and the center and deploying a new set of work stations across the network;

Upgrading the application software to an industry standard relational database (ORACLE) and associated application development tools;

Moving the application software from a client-server-based architecture to a web-based centralized architecture;

Installing data warehousing software; and Upgrading the application software used by the Treasury to enable it to implement the

additional functionalities including, the centralized accounting ledger, the commitments database; the budget release work flows.

The achievement of these benchmarks formed the specific objectives of the Bank’s intervention under the PIBL and PPIBL. Based on these recommendations, the MOPF used part of these funds under PIBL and PPIBL to implement these recommendations over the period 2003-2008.

63

Outputs



TA to improve cash management, revising the legal framework of governing Treasury functions, and training

Design, supply and installation of information systems for connection of the state Treasury to the electronic interbank payment system

PDO (b) achieved Helped implement the Government reforms in the public expenditure management

PIBL, PPIBL

Installation and upgrade of server equipment at the center, the network connections between local and regional Treasury offices and line ministries and the center and deployment of a new set of work stations across the network to support the migration from a distributed to a centralized architecture and the implementation of a real time public accounting ledger. Procurement of additional IT & C infra structure to support the migration to the Centralized architecture and implementation of the public accounting ledger.

PIBL, PPIBL

Technical assistance for improvement of the information systems for Treasury, public accounting and budget management

PIBL, PPIBL

Provision of additional equipment and IT infra structure upgrades to support the set of information systems and functionalities developed for Treasury

PPIBL

Republished the Law on Public Finance through Law 500/August 13,2002; adopted the Government Ordinance No. 146/2002 on the Treasury operations.

GOR

Trained 121 staff members: (a) 9 MOPF staff members participated in a risk management and analysis seminar (Dublin, Ireland); (b) 27 MOPF staff members participated in workshops organized by the Center of Excellence in Finance and the IMF (in Slovenia) on different topics, such as management of structural funds; cash management; budget analyses; fiscal sustainability in the health sector; introducing market value-based taxation of real property, etc. (c) 2 MOPF staff members participated in a training program on public enterprise restructuring and privatization organized by the International Law Institute; (d) 82 MOPF staff members participated in a complex set of training programs organized by a number of different international institutions on a diverse set of topics related to public finance reform for EU accession.; and (e) one MOPF staff member participated in external training on infrastructure in a market economy: public-private partnerships in a changing world.

PPIBL

The PIBL and PPIBL financed IT & C infrastructure and customized software development to modernize the Treasury system established by Romania (in addition to the considerable EU assistance), with significant efficiency and effectiveness improvements in its operations. In addition, the PPIBL financed training of 121 staff members from the MOPF under this sub-component. These activities contributed to the PDO (b) as they helped implement the GOR’s public expenditure management reforms. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. The GOR revised the legal framework of governing Treasury functions by its own efforts. The following outputs were designed, launched and developed with the assistance of the PIBL and the PPIBL. Design, supply and installation of Information systems for connection of the

state Treasury to the electronic interbank payment system (PIBL and PPIBL) To become a participant to the Electronic Payment System (EPS) and to benefit from its features (see Box 2), the MOPF needed to upgrade its own systems and establish a connection to the TransFond. The Bank support for this project was provided through two contracts. The first contract funded by PIBL started in 2004 implemented a turn key

64

system to connect the State Treasury to the EPS (TransFond). It included procurement of hardware and software and development of a software application to interface the Treasury systems with the TransFond and SWIFT. The contract implemented the following technical conditions: Connection to the SWIFT, secured by a back-up line, for access to the ReGIS50 and

the SaFIR51; Connection to a proprietary network (of the Romanian banks) that accesses the

SENT52 and some additional functions; A back up and disaster recovery plan; An operating plan in relation with the EPS in case of malfunctions or destruction of

the main centre; Hardware to install an on-line interface with the ReGIS and the SaFIR and the

interface with the SENT; Provision of security of the installed software and hardware systems and the access

to these; Audit of the implemented solution in order to obtain the final technical certification

required by the TransFond and the NBR and necessary to access the EPS. The MOPF (the State Treasury) became a direct participant (with the assigned BIC TREZROBU) to the national settlement closed user group, for all the three subsystems: the NBR’s real time gross settlement (ReGIS), the TransFonD’s net settlement (SENT) and the Government bonds registration and settlement system (SaFIR) since the 2nd quarter of 2005. Once the State Treasury became participant in the EPS, this eliminated the preferential treatment granted to it in the old payment system. The State Treasury had the same rights and obligations as other participants in the system (credit institutions in Romania). Obtaining the status of participant in this settlement system involved extensive efforts at the State Treasury level, both from financial and human resources points of view, since the solution that was to be developed included a number of business modules: a system for transferring funds in real time which enables automatic processing of

payments at the central level between the State Treasury in the MOPF and economic operators (Treasury clients - public institutions and business community) through banking institutions with access to the interbank EPS operated by the TransFond;

a control system based on a continuous accounting reconciliation of the operations that allows early detection and investigation of exceptions;

the monitoring system of the liquidity in real time; an electronic platform for placement of securities by the MOPF in the primary market

and a system for registration of issuance of Government securities;

50 ReGIS - Real Time Gross Settlement system out of Romania 51 SaFIR – The government securities registration and settlement system 52 SENT – The electronic multilateral netting system for small-value interbank payments of TransFond S.A.

65

a system for continuous monitoring and control of IT&C resources and financial transactions; and

a control system of the processes, operations and resources.

The system was further upgraded in June 2007 through another contract financed under the PPIBL to ensure liquidity management, continuous accounting reconciliation and competitive transactions report. This upgrade consisted of improving the efficiency of performance of the STEPS, adding additional business functionalities and implementing measures aimed at reducing the operational risk of financial transfers. This fulfilled a requirement to ensure readiness and compliance with reforms necessary for the EU accession. These two contracts helped the STEPS to become compliant with the European financial market regulations and financial industry standards. The STEPS is aligned with the financial industry regulations by its full compliance with the SWIFT standards and its readiness for the Target2 and SEPA. Since its implementation, the STEPS uses the EU identification codes, such as BIC, IBAN and ISIN. The fact that the STEPS uses banking instruments and standards creates an interoperability bridge with the business community. Thus, the implementation of the STEPS dramatically improved the service provided by the Treasury and Public Debt Directorate to the public administration and to the business community both by ensuring the same day final settlement and reduced operational risk. In particular, given the centralized architecture of the STEPS payment system engine and the high level of straight-through-processing, all transactions flow is performed online in real time. The Treasury clients place directly their payment orders to the closest Treasury Unit which captures it electronically, processes it and consolidates it (through the Treasury’s proprietary network) to a central payment engine. The Treasury collections are routed, according to their reference (IBAN account and fiscal number) to the client’s account. The funds transfers (payments and collections) are centralized, ensuring real time cash management and forecast. By ensuring real-time and resilient straight-through-processing of the funds transfer, the STEPS provides not only a higher velocity of fund transfers and a diminished operational risk, but also competitive tools for public liquidity management and successful debt administration. Efficiency improvements of the STEPS are demonstrated by the following data: The move from a manual clearing and settlement mechanism used in 2002 to

electronic, real-time system enable the Treasury to process 28,820,000 transactions in the first year (2005).

The implementation of the new electronic payment system brings along a significant increase in the processing speed of the interbank payments. Final settlement can take place a few seconds (ReGIS53 and SaFIR54) or hours (SENT) after the payment instructions are received by the EPS. More precisely, the funds transfer from the payer’s account to the beneficiary’ account takes place as follows: (i) in real time (as

53 Real Time Gross Settlement system out of Romania 54 SaFIR – The government securities registration and settlement system

66

soon as the funds are received from the sending participant) in case of the ReGIS and the SaFIR; and (ii) two hours at most after the funds are received in SENT (after clearing). SENT55 basically allows a payment order that a client presented at the bank’s desk early in the morning to be submitted to settlement on the same day and the bank at the receiving end should be able to make that particular amount available to its client by the end of the bank operating day.

The settled volume of transactions increased, as follows. ReGIS

Payments: +75.49% between 4/2005 - 4/2006; +28.03% between 4/2006 – 4/2007;and +55.30% between 4/2007 – 4/2008; and

Receipts: +52.86% between 4/2005 - 4/2006 ; +30.27% between 4/2006 – 4/2007; and +31.50% between 4/2007 – 4/2008.

SENT Payments: +30.77% between 5/2005 - 5/2006; +6.87% between 5/2006 –

5/2007; and +95.26% between 5/2007 – 5/2008; and Receipts: +66.07% between 5/2005 - 5/2006; +24.78% between 5/2006 –

5/2007; and +37.31% between 5/2007 – 5/2008. The gross settlement transaction fee for the Government accounted for 27% of the

level applicable in 5/2/2005, resulting in a net fee reduction of 72% in 2008. The settled volume of the MOPF’s transactions (reflecting the Government

expenditure and receipt transactions, payments through the State Treasury Electronic Payment System) increased between April 2005 and December 2008, as follows:

Table 3. Settled volume of the MOPF’s transactions April 2005-December 2008 Traffic growth between April 2005 and December 2008 (RON): SWIFT Traffic ReGIS/ SaFIR

Traffic payments 514.78%

Traffic receipts 131.48%

Traffic growth between April 2005 and December 2008 (RON): TFDNet Traffic SENT

Traffic payments 170.99%

Traffic receipts 67.31%

The fees have fallen down in comparison with the higher volume of the traffic due to

competitive payment system, enhanced interoperability with the economies of scale and increased skills of the staff (see Graph 1).

55 The electronic multilateral netting system for small-value interbank payments of TransFond S.A.

67

Graph 1. Evolution of Receipt and Payment Traffic vs. Value Fee April 2005-December 2008

It is clear that the implementation of the new settlement system required substantial investments. In this context, the costs related to the implementation of this system and also, the interconnection with the EPS in Romania, cannot be analyzed separately from the benefits this investment has on the State Treasury’s customers through: (i) reducing the financial costs, the settlement timing and streamlining of the payment circuits; (ii) facilitate expansion of business activities on new markets; and (iii) providing of new profitable and efficient services, such as e-invoicing, reconciliation and management of liquidity. In order to increase the visibility of the projects implemented by the State Treasury in the payment area, the MOPF has participated, along with the provider of the centralized payment solution of the State Treasury, to the SIBOS 2008 conference organized by the SWIFT in Vienna. The SIBOS is a conference that is organized annually as the main event in the financial industry (over 7000 participants from departmental and top management in the most important financial banking institutions and specialized solution all over the world). The results of the successful implementation of the STEPS by the State Treasury have been recognized also by awards by specialty magazines during 2007 and 2008. For example:

2007: Gala of Fin Media awards e-success prizes: the Romanian State Treasury, a SWIFT member, for supporting international banking industry standards and for its readines for TARGET2 and SEPA compliance;

2008: Gala of Fin Media awards e-support prizes: for sustaining the adoption of the SEPA-compliant settlements in national currency and for its leading position in promoting the SEPA standards within both Romania's and EU’s public institutions.

68

Installation and upgrade of server equipment at the center, the network connections between local and regional Treasury offices and line ministries and the center and deployment of a new set of work stations across the network to support the migration from a distributed to a centralized architecture and the implementation of a real time public accounting ledger (PIBL and PPIBL)

As mentioned above, the connection between the STEPS and TransFond was at the central level of the Treasury and the NBR. This required that Treasury move from its distributed to a centralized architecture where the main transaction databases are located at the center instead of being distributed across a network of databases spread across the local and regional Treasury offices. This required that the server capacity at the central level be augmented and the links that enable data transfer between the subordinate Treasury offices and the center be strengthened. The upgrade to the IT & C infra structure to accommodate a centralized public accounting ledger was carried out under two contracts funded by the PIBL and the PPIBL. The main objective of the first contract was to enhance the IT technical infrastructure for the Treasury at all the three levels of its organization structure, including, servers at the central level, work stations, printing facilities and communications equipment. This upgrade would support the first stage of migration to a central database using existing versions of the Oracle DBMS and client server technology and also implement a back-up and recovery system. This contract supplied the work stations, servers and systems software and communications equipment for the system to function effectively. The contract also supplied ancillary equipment, including printers, scanners, UPSs and office automation software. Based on this contract, 2,615 workstations and 814 printers were supplied for about 5,000 employees in the Treasury offices across the country. The application software for this migration was developed in-house. The General Directorate for IT from MOPF developed a software application which was implemented country wide on the upgraded infrastructure in January 1st, 2005. At the end of phase I, the new application system was in a position to consolidate data entered in local offices in a central database in order to ensure a secure connection between the Treasury systems and the TransFond. The system also enabled all data received from TransFond (e.g. in respect of Treasury receipts) to be stored centrally and dispatched to local offices. Procurement of additional IT & C infra structure to support the migration to the Centralized architecture and implementation of the public accounting ledger - phase 2: December 2004 In phase II of the implementation of the migration of the centralized architecture and implementation of the centralized public accounting ledger, the MOPF completed the

69

move to a centralized architecture and procured central infrastructure to enable implementation of web-enabled technologies which would allow the end-users to access the centralized Oracle database using a browser and a web application server. The Project financed the purchase of the Oracle DBMS software and application development tools and also paid for support/maintenance services for two years. This infrastructure was supposed to also support better interface with the application systems in the tax administration area and in the budget management area which were also moving to a centralized architecture. Technical assistance for improvement of the information systems for the

Treasury, public accounting and budget management (PIBL and PPIBL) The new ORACLE client server application to consolidate data at the central level in a central database and also to deploy data received through the TransFond to the operational public accounting units mentioned above was implemented in a client-server environment. The next phase of the transition was to implement technologies to enable end-users to take advantage of web-enabled technologies to connect to the central database using a browser and a web-application server to provide additional functionalities. Some of the IT &C infrastructure for this was procured under the second contract detailed above. To assist the Government in this migration and systems upgrade, TA support was first provided under a contract funded by the PPIBL to hire a consultant to define the technical specifications of equipment and services required for the upgrade of information systems in the MOPF and to assist the Government in their procurement and implementation. This assignment provided project management technical assistance to plan and implement the necessary activities required for the systems upgrade. The project then provided TA under two contracts to assist the Treasury in designing and doing the necessary application software development that would be necessary in their existing information systems. The objective of the first TA assignment funded by the PIBL was to hire consulting services for preparing the migration from the distributed database architecture to a centralized architecture and from client server technology to web enabled technologies. This assignment defined the centralized architecture of the data base and defined the approach and road map for migration to this architecture. Under the second assignment funded by the PPIBL funded by the project the following activities were carried out. Migration of the public accounting IT systems towards a centralized architecture

with a web-enabled interface; Implementation of information systems to create integrated work flows between the

MOPF and the budget holders to support the budget distribution, release and other budget related processes necessary during budget execution;

70

Creation of a central data warehouse to store fiscal data for 7-10 years and provide the MOPF with capabilities for carrying out time series and other analyses on this data;

To implement/enhance the internet MOPF Portal to enable its clients (public institutions and employees) to access the central database and the data warehouse; and

To provide specialized training to the MOPF staff in the use of these systems. Provision of additional equipment and IT infra structure upgrades to support

the set of information systems and functionalities developed for the Treasury (PPIBL)

To fully implement the new systems designed under the technical assistance described above, the IT & C infrastructure across the Treasury network needed further upgrades. Support was provided under two contracts. The main objective of the first contract was to provide for servers and associated equipment at the central level that will allow the implementation of the web-enabled applications designed under the contracts described above. The infrastructure was also to allow better interfaces with the application systems for tax administration and budget management. Support under the second contract provided work stations and associated equipment like printers, scanners UPSs, etc., equipment to the subordinate Treasury units. The MOPF did not implement the system for recording commitments and registering public investment contracts under the PPIBL funding, as per the MOPF’s IT strategy, because it would not have been possible to complete it within the duration of the project. Further, the establishment of such a database would also require participation from the line ministries and spending units that enter into the contracts in addition to the MOPF’s participation. The MOPF is planning to implement it using its own resources or the EU funds in the future after agreement has been reached with the line ministries and spending units as to their responsibilities for keeping it up-to-date. Thus, until the system for recording commitments and registering public investment contracts is implemented, budget execution at the Treasury will be carried out on a cash basis. Though the budget ordinators at spending units would ensure that commitments are recorded, the Treasury has no advance knowledge of these commitments. This can potentially affect the ability of the Treasury to monitor all commitments entered into by spending units and determine spending unit cash flow requirements unless ordinators made an effort to inform the Treasury well in advance of, for example, large payments that would become due in the coming months.

71

(b) Budget formulation



TA to improve budget formulation

Advisor in the budget department of the MOPF; recommended key measures to improve the budget process, calendar, guidelines and designed a pilot for applying “resource choice” strategic planning process; recommendations not effectively implemented.

PDO (b) achieved Helped implement the Government reforms in the public expenditure management and policy formulation

Dutch TF054659

TA to strengthen the in-house capacity of the Directorate for Macroeconomic Analysis and Financial Policies in the MOPF for macroeconomic forecasting (including a model); the model is in use.

PPIBL

Training for Ministry of Public Finance staff in budgeting and cost control Dutch TF054659

Organization of a 2-day “Romania Conference on Growth, Competitiveness and Real Income Convergence”; provided a discussion forum; distributed the book of conference proceedings to the participants and to government agencies.

PPIBL

The targeted TA that was financed by the Dutch TF054659 and the PPIBL contributed to the PDO (b) as it helped implement the GOR’s reforms in the public expenditure management and policy formulation. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. The Dutch Grant TF054659 and the PPIBL financed the following TA to: Help implement the budget reform in the MOPF (as well as in the General Secretariat

of Government, GSG, Ministry of Justice, Ministry of Education, Health, Ministry of Transportation and Ministry of Environment as part of a wider TA program to support the budget process reform under the PAL; see Parts E.5, 8, 10-13). The MOPF advisor identified a number of practical key reform measures for 2006-2007 to improve the budget process, such as: (i) a revised policy-centered budget preparation calendar; (ii) guidelines for simplified version of the ‘resource choice’ strategic planning process; (iii) practical steps for adapting the first guidelines developed by the MOPF in March 2006 for pre-budget planning in line ministries56 to become the means of implementing the ‘resource choice’ strategic planning in all line ministries; and (iv) knowledge transfer in several workshops organized for staff from the MOPF, the GSG and line ministries to exchange views on the progress of the assignment (involving about 100-200 participants). The MOPF advisor worked most closely with the GSG advisor who together made important contributions to the legislation/procedures passed by the GSG in 2007-2008 to establish the strategic planning and policy formulation framework and procedures (see E.8). The guidelines for preparing the budget have improved significantly, following the assistance of the advisor (unfortunately, the numerous budget rectifications within the year make those ceilings largely redundant). The advisors in the line ministries, in turn: (i) were involved with developing strategic planning processes in their ministries and preparing the newly required strategic plans; (ii) provided input to their ministries’

56 The MOPF instructed line ministries to present information on strategic planning by completing a newly-designed policy matrix and to submit information on program funding requirements in advance of the annual budget preparation in March 2006.

72

submissions for the National Development Plan for the MOPF; and (iii) made recommendations on the proposed financing system changes and their impact.

Strengthen the in-house capacity of the Directorate for Macroeconomic Analysis and Financial Policies in the MOPF for building the forecasts of budgetary revenues and expenditures and for evaluating the macroeconomic impact of various tax changes with a view to proposing more appropriate policy measures to the Government. In the previous years, the MOPF had relied on external work. The consultant delivered the customized macro-economic model for policy analysis and medium term forecasts and training for 6 staff members from the Macroeconomic Division of the Directorate in the use of the model. The model is used by the Directorate to check the consistency and coherency of the macroeconomic framework used in the budget preparation process. Moreover, the model was used in the preparation process of the Convergence Program for the sensitivity analysis and the estimation of structural, cyclical budget components, including output gap and potential GDP. The Directorate updates it quarterly with the new sets of data and runs it on a regular basis. Going forward, the model will be used in the process of building a medium term budgetary framework which is a top priority for the new Government.

Organize a two-day “Romania Conference on Growth, Competitiveness and Real Income Convergence” in Bucharest in April 2008, including finalization of the agenda, identification of speakers, logistics and preparation of a book of speeches. The conference was open to the informed public and the press, and it provided a forum for discussing which kind of growth sustaining public policies in the area of labor markets, education and human capital, infrastructure (particularly network infrastructure), agriculture, and energy could promote the growth and real income convergence of Romania as it tries to integrate with the EU. The book of the conference proceedings was distributed to the participants and all the Government agencies.

(c) Foreign financing coordination



TA to improve foreign financing coordination (incl. setting up a central unit or requiring MOPF’s sign-off of any foreign financed project)

An upgrade to the UNCTAD’s DMFAS, version 5.3; implemented in 2006

PDO (b) achieved Helped implement the Government’s reforms in public expenditure management

Dutch TF050477

Technical services contract for the Bloomberg Professional Services; from 2006 until mid-2008

Dutch TF054659

Adopted an improved legal framework for public debt management (the 2004 Public Debt Law and the Emergency Ordinance 64/2007 on the Public Debt)

GOR

Established a modern debt agency, the General Treasury and Public Debt Directorate within the MOPF, in April 2007

GOR

The targeted TA that was financed by the Dutch Grants TF050477 and TF054659, as well as the GOR contributed to achieving the PDO (b) as it helped implement the GOR’s reforms in the public expenditure management. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework.

73

The Dutch Grants TF050477 and TF054659 financed the following TA for: (i) An upgrade the existing UNCTAD Debt Management System (DMFAS version

5.3) for the State Treasury Management Unit in the MOFP and the NBR; (ii) a two-year maintenance agreement (until mid-2008); and (iii) training of the officials on the system and on formulating debt strategies and debt sustainability analysis (including a 2-week trip to Bucharest for a senior debt management expert). The upgraded system has been in use since 2006 and its maintenance is currently provided for free by the UNCTAD. This system will be replaced by a new computerized system (FTI-STAR) at the time when an entire database for public debt will have been created by the end of June 200957.

Nonexclusive and nontransferable right to use the Bloomberg Professional service information, data, software and equipment from 2006 until mid-2008 for the State Treasury Management Unit in the MOPF. The terminals were installed on the MOPF’s premises and have been operational since 2005.

With regards to other activities envisioned in the PAD, the MOPF implemented them without the PPIBL’s assistance. In accordance with the recommendations made by both the IMF and the World Bank, the GOR improved the legal framework for public debt management by adopting a new public debt law in 2004 in line with the acquis. The new law: (i) eliminated the possibility of the line ministries directly contracting loans with the guarantee of the State; (ii) made clarifications regarding the integration of the local public debt as part of the public debt; and (iii) clearly defined the objectives set out in the public debt management process, as well as the attributions of the State institutions in this intricate process. Based on further recommendations by the World Bank, the IMF and the foreign experts involved in the EU PHARE Project for “Improving the Treasury System in Romania”, the GOR passed Emergency Ordinance 64/2007 on the Public Debt, introducing changes, such as the following: (i) the MOPF can contract new Government public debt for financing the budget deficits and refinancing the existing Government public debt and can issue guarantees for loans/grant on-lending for beneficiaries only based on laws, in such cases needing the approval of the Parliament; (ii) starting 2009, MOPF takes over, for management purposes, the loans contracted by the main spending units with the guarantee of the State, or the loans directly contracted by the MOPF for on-lending to the main spending units, in a move to centralize all the Government public debt operations for which the only repayment source is the State budget and social security funds at the MOPF level, for a more efficient management of the budgetary resources and public debt; and (c) the obligation was introduced to elaborate the Government public debt management strategy on a medium term, which may be revised annually, and to define the strategic objective of the Government debt management which is to secure the financing needs at a Government level, along with minimizing the costs in the long run and reducing the risks associated with the Government debt portfolio.58

57 Romania’s Public Government Debt Management Strategy for 2008–2010. 58 Romania’s Public Government Debt Management Strategy for 2008–2010.

74

In addition, the public debt department of the MOPF was reorganized in April 2007 to a modern debt agency under the General Treasury and Public Debt Directorate by merging the three former general directorates involved in the public debt management. The new Directorate includes the contracting activity (front office), the risk analysis and management and the liquidity management (middle office) and public debt payments (back office). (d) Government accounting; and financial reporting (in the corporate sector)59 Target at appraisal (as amended)


TA to improve Government accounting (incl. developing accrual accounting capacities, accounting regulations and capacities)

On-site advisor on strategic management of the Public Financial Management Reform (PFM) for the President of the MOPF in 2004-2005; helped manage and monitor the PFM during the PAL (see E.1.i.b).

PDO (b) achieved Contributed to achieving the PAL1-2 milestones for the governance and PFM

Dutch TF050477

An Order of the MOPF from 2005 introduced accrual accounting in all public institutions from January 1, 2006. In practice, full accrual accounting is not in place in the absence of a public contracts database and lack of an integrated financial management system.


GOR

TA to improve financial reporting (in the corporate sector)

TA to the Accounting and Financial Reporting Council (CCRF) to implement the first phase of the Country Accounting Plan (CAP) to enhance the quality of financial reporting and contribute to essential improvements in the Audit Law at the time.

PDO (b) achieved Contributed to achieving the PAL2-3 milestones for improving the transparency in the functioning of the firms

Dutch TF050477

TA to implement the remaining accounting agenda under the 8th Directive (incl. how to set up the Romanian Accounting Group); recommendations included in the new Law on the Statutory Audit that ensured compliance with the 8th Directive and that was enacted by the relevant Emergency Government Ordinance of June 24, 2008 and was ratified on November 7, 2008.

Dutch TF054659

TA to implement the remaining auditing agenda in the 8th Directive (incl. the establishment of a public oversight system); recommendations included in the above Audit Law to ensure full compliance with the 8th Directive.

Dutch TF054659

TA to assess the institutional and legislative framework and the capacity and operations of the Body of Expert Accountants and Chamber of Auditors; recommendations were endorsed. Actions to ensure segregation of their roles included in the CAP.

PPIBL

Training programs to 50 key stakeholders from the regulatory bodies in the implementation of the IFRS

Dutch TF054659

The targeted TA in the area of Government accounting that was financed by the Dutch Grant TF050477 and the GOR contributed to the PDO (b) as it helped achieve the PAL1-2 milestones for the governance and Public Financial Management (PFM). The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. The additional TA that was financed by the Dutch Grant TF054659, the PPIBL and the GOR contributed to the PDO (b) as it helped achieve the

59 Most of the TA activities were practically related to improving the financial reporting in the corporate sector.

75

PAL2-3 milestones for improving the transparency in the functioning of the firms. The PAL policy objective of improving the transparency of firms was partially achieved. The Dutch Grant TF050477 financed the following TA for public financial management and government accounting to: Help improve the institutional capacity of the MOPF (and line ministries) for strategic

management of the PFM reform and, in particular, program budgeting, accruals accounting, internal audit and external audit of financial statements and performance, as well as treasury cash management. The TA was to ensure that the Romanian government could meet the EU requirements under financial control which would facilitate the accession to the EU. The advisor: (i) helped establish and make operational the Inter-ministerial Committee for the PFM reform; (ii) prepared the Strategic Development Plan (SDP) for the PFM reform for the period 2005-2007 to facilitate access to the EU (these were PAL1-2 conditions); (iii) helped lead efforts to manage the reform based on the recommended SDP that was approved; as well as (iv) monitored the progress of achieving the PAL triggers and conditionality related to the PFM Reform. In cooperation with the other budget advisors (see Part E.1.i.b), the advisor helped the MOPF and line ministries implement recommendations of the Country Financial Accountability Assessment, included in SDP, and made further recommendations which are under implementation.

With regards to results in accrual accounting, it has been introduced starting with January 1, 2006 for all the public institutions, but despite certain progress, this is happening in practice to a limited extent, mostly when it comes to reporting budget execution results because (i) the Treasury does not require copies of all contracts signed, thus lacking a complete view on commitments (as opposed to other countries, such as Moldova); (ii) the budget formulation is still done on a cash basis, and the entities in practice report both on a cash basis, as well as on an accrual basis; (iii) the fixed assets revaluation has been carried out on a regular basis and there are procedures for regular revaluations; (iv) there is no full commitment budgeting, although there is some progress with a relatively new concept introduced (as an "off budget" item) - "credite de angajament" - commitment budgets, which is used for example for multi-annual projects, and this is in addition to the standard regular budget openings - "credite bugetare" - regular budget openings; (v) there is no centralized public procurement contract database system; and (vi) the line ministries and the other budgetary entities do not have direct access to the Treasury systems.

The Dutch Grants TF050477 and TF054659 as well as the PPIBL financed the following TA for corporate financial reporting: Assist the Accounting and Financial Reporting Council (CCRF) develop, promote

and coordinate implementation of the first phase of the CAP to improve financial reporting in Romania on the basis of the recommendations of the 2003 Accounting and Auditing Report on the Observance of Standards and Codes (ROSC). The recommendations were included in an updated version of the CAP and consequently implemented. Recommendations included, for example, suggestions: (i) to strengthen

76

accounting and auditing professional bodies; (ii) to reform accounting education; (iii) to create an oversight system; and (iv) on which provisions in the Romanian legislation related to financial audit to transpose the 8th Company Law Directive. Based on the recommendations, the CCRF made a decision to establish the

Romanian Accounting Group (RAG) to address the issues arising from the adoption of the International Financial Reporting Standards (IFRS) and the increased influence of the IFRS on national accounting requirements in Romania.

Assist the CCRF to create the framework for establishing the RAG, including its overall architecture, organization structure, resources and governance arrangements, as well as procedures and decision-making processes for the main functions and the roles and responsibilities of other relevant stakeholders. In addition, the consultant gave substantial contribution to further comply with the 8th Directive. The recommendations were included in the first draft of the Law on the Statutory Audit, mainly to transpose Directive 2006/43/CE regarding the statutory audit of the annual accounts and of the consolidated accounts and the setting up of the RAG. The draft Law was enacted by the relevant Emergency Government Ordinance of June 24, 2008 and was ratified on November 7, 2008, with a delay. Once implemented, it provides a unified structure and central source of technical expertise on the IFRS in Romania. The RAG has however not been established yet.

Assist the MOPF to further implement the 8th Directive on Statutory Audit and, in particular, to create a framework for organising an effective system of public oversight on statutory auditors and audit firms. The consultant helped prepare a draft law regarding implementation of the 8th Directive. The recommendations were included into the above Law on Statutory Audit.

Assess the national legislation and practice of liberal professions in accounting and auditing area, based on the recommendations of the above first assignment, to ensure consistency with the EU and international standards and to propose a clear and logic demarcation of respective roles and responsibilities of the MOPF and of both professional bodies concerned (i.e. the Chamber of Financial Auditors of Romania (CAFR) and the Body of Expert and Licensed Accountants of Romania (CECCAR). The recommendations urged the CAFR and the CECCAR to: (i) strengthen their operations in a number of key areas; (ii) suggested the professional organisations, the MOPF, and the auditor/audit public oversight body (when created) focus their efforts and resources on a number of areas; and (iii) proposed an action plan to update the CAP. The MOPF endorsed the recommendations and included the recommended action plan to the updated CAP, including actions to ensure segregation of the roles of the MOPF, CAFR and CECCAR. The next step is the setting up of the public oversight body.

Provide a practical training course to 50 representatives from the regulatory bodies (the MOPF, the NBR, the ISC, the National Securities Commission and the Pension Supervision Commission) on the IFRS implementation in the second half of 2007. The program provided: (i) 20 days of initial training to all the participants; (ii) then specialized training from 10 to 20 days separately to each regulatory body on the IFRS transition issues arising in the special regulatory areas; and (iii) a five-day final session with all participants on the most complex issues arising within the program and required participation in debates and presentations on these topics.

77

(e) Internal audit



TA to improve internal audit

Trained about 42 staff in the public sector for the Certified Internal Auditor (CIA); some passed the exam and trained other internal auditors under the umbrella of IIA-Romania (now totaling 120)


Dutch TF050477

Application fee and tax for the CIA exam for 3 staff Dutch TF050477

Participation of 2 staff members from the Audit Department in the MOPF to a seminar on internal and external audit

PPIBL

No funding requested from the PPIBL for software and hardware for monitoring and providing search capacities for legal instruments governing internal audit and a data base on internal audits and their findings; addressed through other means

GOR

The targeted TA that was financed by the Dutch Grant TF050477, the PPIBL and the GOR contributed to the PDO (b) as it helped implement the Government’s reforms in public expenditure management. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. Following on the previous training funded by the EU PHARE, the MOPF through the Central Unit for Internal Public Audit Harmonization launched a training project for internal auditors from various organizations, such as the MOPF, Ministry of Industry, Ministry of Justice, Ministry of National Defense, Ministry of Labor, Ministry of Transport, Town Hall of Bucharest Ministry of Agriculture, and the Fiscal Administrations. Training supported the decentralization of internal audit into ministries and agencies launched after 2002. The Dutch TF050477 financed preparatory training to 42 internal auditors in the internal audit units of the above organizations for obtaining the CIA certification that they were preparing for, with the aim of further transferring the knowledge to other internal auditors. Three of the participants successfully completed the CIA exam in May 2006. Some of the CIA auditors trained other internal auditors under the umbrella of IIA-Romania (now there are 120 internal auditors). This training complemented the extensive internal audit training carried out since 2005 with the GOR’s and the EU’s funding. Overall, a government-wide internal audit system has been initially established, including: (i) the Law on Public Internal Audit from 2004 that regulates the organization (the Public Internal Audit Committee, the Central Harmonization Unit for Public Internal Audit, and internal audit services within public entities), types of audit (system, performance and financial audits), audit planning, tasks of internal audit, and framework for professional training; (ii) the requirement for public entities to have their own internal audit unit (or, for smaller entities, to use the services of the parenting ministry); and (iii) professional continued education is required by the law for all internal auditors. However, much more capacity is required, especially at the rural level, to fill in the available posts of internal auditors and build skills. Thus, all line ministries and large public agencies have their own internal audit unit with 2,159 posts of internal auditors out of which 1807 are occupied. At the level of local public administration, there are 2,159 posts of internal

78

auditors out of which 983 are occupied. An EU-funded twinning project is under implementation to improve the internal audit function at the rural level and to assure the adequate competencies and skills for internal auditors in the public sector. The PPIBL did not finance acquisition of an IT system, including a data base, as initially planned for the use of internal auditors to provide information on cases when reconciliations between financial documents of the taxpayers (i.e. the invoice of the seller and the cash book of the buyer) did not match. This initial request was related to the MOPF’s efforts in the early 2001 to improve the revenue collection because at that time there was a large tax evasion. The issue was addressed by the new legal framework drafted and specifically by the Fiscal Code, and there was no need to finance the initially requested TA from the PPIBL. (f) Decentralization



TA to improve decentralization

Review of intergovernmental fiscal relations and local governance finance; recommendations on fiscal decentralization policy reform design and implementation incorporated into the 2006 reform package, some were reversed in 2008 but reinstated in the 2009 budget

PDO (b) achieved Contributed to achieving the PAL2 milestone for an improved decentralization framework

Dutch TF054659

The targeted TA that was financed by the Dutch TF054659 contributed to the PDO (b) as it helped achieve the PAL 2 milestone for an improved decentralization framework. The Grant financed the work of a consultant to carry out a review of the proposed legal and institutional framework package for intergovernmental fiscal relations and local governance finance and fiscal decentralization reform issues. The consultant made a set of short and medium-term policy recommendations to move forward the reform agenda. The GOR incorporated many of the recommendations into the legal and institutional framework for the decentralization reform enacted in 2006; some were reversed in 2008 but reinstated in the 2009 budget by the new GOR.

1. (ii) The National Agency for Fiscal Administration (NAFA)



TA to support analytical studies on revenue administration issues

Trained NAFA’s staff: (a) a training/study tour in Bulgaria for the management officials and workshop Sinaia; (b) NAFA PMU training in Croatia; (c) a study tour of 7 NAFA officials in Finland;

PDO (b) achieved Helped implement the Government’s reform program for public expenditure management

Dutch TF050477, PPIBL

In anticipation of the planned Revenue Administration Reform Project (applies to all assignments), a consultant to produce a draft Project Implementation Plan and a Project Operational Manual; gave input to identifying NAFA's developmental needs

Dutch TF050477

An on-site advisor to develop a macroeconomic model for estimating compliance and revenues, recommendations for improved monitoring, client communication, etc; the model is in use, the M&E unit has been set up, many other results

PPIBL

79

An on-site advisor to recommend an improved organization structure for the NAFA, especially for the IT functions; accepted and implemented or are planned to be implemented


PPIBL

A consultant to draft new legislation, in cooperation with the NAFA etc, for the collection of social contributions, including the unification of the tax base for all the social contributions at the level of the income tax; adopted some provisions separately (regarding the pensions) but implementation of the full unification postponed until 1st of January 2010

PPIBL

An on-site advisor (2007) to draft an overall strategy, policy framework and developmental priorities, in cooperation with the NAFA, on information management and IC&T management; created an IT department in the NAFA in October 2007

PPIBL

The targeted TA that was financed by the Dutch TF050477 and the PPIBL contributed to achieving the PDO (b) as it helped implement the Government’s reform program for public expenditure management. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. The PPIBL and the Dutch Grant TF050477 financed the following TA to: Draft a project implementation plan and a project operational manual for the planned

Bank-financed Revenue Administration Reform Project (FY06). This TA was used to help the NAFA to assess its TA needs under the planned project. Eventually, the GOR did not approve the project at negotiations in 2006.

Build the NAFA’s capacity for compliance monitoring during 2007. In cooperation with the NAFA, the on-site advisor: (i) helped define a system of indicators to estimate tax compliance and a model to estimate non-collected revenues and VAT fraud; (ii) helped develop a system of mathematical models at the macroeconomic level for estimating revenues and tax compliance; (iii) recommended setting up a separate directorate for monitoring performance indicators; and (iv) provided practical recommendations for improving services to/communication with taxpayers. Based on the recommendations, the NAFA: (i) implemented the macroeconomic model referred above and tested it during the 2008 budget revision process; (ii) uses the analytical model in the discussions with the MOPF regarding the collection targets; (iii) set up a directorate general for strategic planning and monitoring the collection of budgetary claims by merging the planning and monitoring units; and (iv) carried out a customer survey and took a number of measures to reduce the administrative burden and to improve the efficiency of operations from the customer’s point of view60.

60 For example, companies can submit online tax returns country-wide; individuals receive the forms for tax returns by mail; tax payers can access a database containing most frequently asked questions and answers (funded by the EU); overall, tax payers have available more information on the NAFA’s web-portal; and taxpayers receive more information on issues related to taxes and social contributions through mass media than in the past.

80

Provide recommendations to the NAFA on organization structure and management system (for headquarters/regional office network, special taxpayer units), consolidation of functions, managerial roles, accountability, governance, internal control, risk management, evaluation of managerial performance, monitoring, reporting, and management information. The recommendations that were to be implemented during the planned project were accepted and implemented or are planned to be implemented. For example, (i) support functions, including the IT department, were transferred from the MOPF to the NAFA in 2007; (ii) the NAFA prepared its first strategy in 2007; (iii) it increased staff in the headquarters from 450 in 2007 to 1,300 in 2008 to better coordinate the territorial activity (although it still shares management of the county offices with the MOPF); (iv) the NAFA College (having a consultative role for the management) and the Endowment Committee have been set up, and (v) an internal commission was established to develop managerial/internal control.

Draft a revised legal framework to harmonize the tax base for collecting payroll taxes and social contributions and to create a simplified and integrated declaration and payment environment (previously, the legal provisions were part of different pieces of legislation). The work was done in coordination with the Inter-ministerial Committee and in cooperation with the NAFA. Part of the proposed provisions was adopted separately, in an Emergency Ordinance of the Government, in October 2007. As a consequence, the tax base for the social security contributions (pension's fund) approached significantly the tax base for the income tax (defined in the Fiscal Code) and the base for calculating contributions to the health fund. However, even though the institutions involved in the process had previously agreed on the principles proposed by the consultant, the Inter-ministerial Committee did not reach an agreement regarding the elimination of exceptions in the tax base for the contributions to the unemployment fund and decided in March 2008 to postpone the implementation of the proposed legal framework and the single tax return until 1st of January 2010. However, there are expectations that the proposed legal framework and the implementation of the single tax return would move forward during the new Government that has announced some reforms of the social contributions tax base and accepted the idea of regulating the social contribution's collection by the Fiscal Code and not by special pieces of legislation. In addition, as a result of this TA an inventory of the information needs was made for the NAFA and the Social Houses in order to redesign the information flow between the tax payers, the fiscal administration and the social houses. Further, after the conclusion of the consultant mission, a model for the future single tax return was made in the beginning of 2008. The single tax return is supposed to replace the existing four present tax returns which are submitted to the NAFA and to the Social Houses.

Draft an overall strategy and policy framework and developmental priorities on information management and the IT&C technology management in cooperation with the NAFA. Based on the strategy drafted by the consultant, the NAFA's IT functions and infrastructure were separated from the MOPF in October 2007. This was the key recommendation and the first step in the full separation. The recommendations are being further developed and implemented under the EU funds. Thus, PHARE 2005 and 2006 are funding a series of contracts for services and goods to develop the

81

NAFA’s IT&C system and the information management at the organization level. Importantly, the NAFA has now horizontal projects affecting all organizational and decisional structures and activities within the NAFA, such as electronic documents management and archives, identity and information management. In addition, there has been developed a concept for a major IT project that would result in the unification of the administration system for individuals and legal persons. This project is being implemented with the consulting assistance of the Spanish Fiscal Administration since May 2008 and is expected to last for two years.

As a result of the NAFA’s efforts and TA, the administrative burden to tax payers has been reduced, and effectiveness of the functioning of the tax administration has improved, as demonstrated by the following: The administrative burden to tax payers has been reduced, for example, as follows: (i)

special administrative structures have been set up for medium sized taxpayers (companies) at the level of each district and at the level of Bucharest municipality to improve quality of services; (ii) the procedures for tax submission have been modernized and simplified, respectively, as follows: (a) starting with January 1st, 2008, the tax returns are submitted in electronic format (for all districts and for all companies/legal persons); (b) the payment to the single account for the correct payers was introduced for the first time in September 2007 and extended for all categories of taxpayers in January 2008; (c) tax payments by credit cards have been made possible since October 2008, essentially for the physical authorized persons; (d) starting from 2007, the certificate for fiscal records has been issued on the spot, in the presence of the taxpayer; and (e) a database containing most frequent questions and answers related to tax matters is available for civil servants and, partially, for taxpayers.

Effectiveness of the functioning of the tax administration has improved, as follows: (a) there is a central database and is used for the application “administration of individual taxpayers” since the end of 2007; (b) in accordance with the EU requirements, the VIES and SEED systems were implemented for the intra-community exchange of information (before the end of 2006); (c) better measures have been carried out to abate arrears61 in the economy, a policy for preventing the incurring of new arrears has been adopted and specific related regulations have been improved; (d) a risk analysis for combating tax evasion has been developed; (e) a series of guidelines, methodologies and themes have been elaborated, with a view to increase efficiency and effectiveness of fiscal inspections; and (f) the elaboration of a methodology for the use of electronic control in fiscal inspections and the improvement and the update of the system of procedures for fiscal inspections are underway.

61 Arrears as of % of GDP have decreased: from 4.3% in 2006 to 2.9% in 2007 and to 2.5% in 2008. The stock of arrears has decreased by 19.4% from 2006 to 2007 (from 14.711,6 millions RON to 11.861,9 millions RON).

82

2. The Court of Accounts Target at appraisal (as amended)


TA (IT and training) to complement a broad TA program focused on financial and performance audit

IT equipment and systems for the headquarters and territorial offices of the Court of Accounts


PPIBL

Training for 3 staff members from the Court of Accounts and MOPF

Dutch TF050477

The targeted TA that was financed by the PPIBL, the Dutch TF050477 and the EU contributed to the PDO (b) as they helped implement the GOR’s reform program for public expenditure management. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. The PPIBL and the Dutch Grant TF050477 financed the following TA to: Supply and install modern IT and office equipment and systems (notebooks and

computers, printers, USB memory sticks, servers, software) to the headquarters and/or 42 territorial offices of the Court of Accounts for carrying out their daily work (in particular, the county offices were poorly endowed with IT equipment). The TA also supported the expansion of the “national data exchange system” between the territorial offices and the headquarters that had been designed and piloted on the EU PHARE funds and that facilitated documents exchange in electronic format based on a Lotus Domino platform. To complete its establishment, the TA helped extend the “national data network” by supplying a storage and archiving data system for the exchanged data through the NDN and a number of workstations in order to increase the network’s nodes number. The workstations procured under this contract were installed throughout the county offices for the main purpose of covering the communication needs between all the departments within each of the county offices. The following IT equipment was supplied and installed:

The Dutch TF050477 financed two training activities: (i) training courses for staff of the Court of Accounts organized by the General Accounting Office Washington D.C. and (ii) a training seminar on budgeting and cost control for 3 staff members from the MOF.

3. The Ministry of Communication and IT See Part D (a). 4. The Ministry of Administration and Interior (MOAI) Target at appraisal (as amended)


TA to the MOAI for civil services reform monitoring indicators, management and impact

Consultant for the National Agency for Civil Servants to carry out a comprehensive private/public sector salary survey and provide civil service salary reform options; the survey results and recommendations used as an input in the next assignment (strategy), and they provided valuable information

PDO (b) achieved Implemented the PAL1 benchmark about a study on the pay, grading and employment management within the central administration

PPIBL

83

Consultant for the same to design a sustainable unitary pay system; drafted a strategy, an action plan and a draft law to establish a unitary pay system. The law was however not approved and the strategy was not implemented.

PDO (b) achieved Contributed to the PAL3 benchmark on the civil service law on salary setting

PPIBL

The TA that was financed by the PPIBL contributed to the PDO (b) as it helped implement a specific PAL1 benchmark about a study on the pay, grading and employment management within the central administration and contributed to the PAL3 benchmark on the civil service law on salary setting. The PAL policy objectives were not achieved as the PAL was cancelled and the objectives were designed to be achieved after all the three PAL phases had been completed. The PPIBL financed the TA to: Carry out a survey comparing private and public sector salaries for similar positions

and to provide a replicable methodology for estimating civil service salaries and their wage bill impacts which would ensure consistent competitiveness (across positions) between civil service and comparable private sector positions. This review was a PAL1 benchmark. The consultant provided several civil service salary reform options, each of which ensured roughly consistent competitiveness across civil service positions and yielded a particular overall wage bill impact (the latter was related to the issue of fiscal sustainability of the wage bill). This information was used as an input to produce a strategy for establishing a unitary pay system for civil service under the second contract.

(i) Design a 4-7 year pay and employment management implementation strategy and action plan based on the previous assignment and work funded by the EU PHARE; (ii) draft a pay framework law (a draft Law on Civil Service Salary Setting) for a unitary pay system for the civil service; and (iii) helped develop the secondary legislation necessary for the unitary pay system implementation. The law was however not approved and the strategy was not implemented.

5. The Ministry of Justice (MOJ), Superior Council of Magistracy62 (SCM) and Courts



TA to the MOJ, SCM and courts for a program of judicial reforms

Court rationalization study for the MOJ and SCM by an expert in judiciary systems and an expert in court administration; recommendations on the court rationalization are providing input to a large study launched recently under the JRP. They will be used at the moment when the new codes (the civil procedural code and the penal procedural code) will be implemented since the recommendations are linked to the new competencies of the courts.

PDO (b) achieved Implemented the PAL1 benchmark about launching a court rationalization study

PPIBL

62 The SCM is the representative organ of the magistrates with competencies related, in principal, to this body. The SCM was given the mission to decide regarding the selection, recruitment, assignment and revocation of magistrates, as an institution profoundly independent to the executive and legislative powers.

84

Consultant for the MOJ to develop a legislative framework and training program for economic managers in courts

PDO (b) achieved Contributed to achieving the PAL2 benchmark about regulations for selecting and appointing economic managers/

PPIBL

Supply and installation of storage area network systems for the MOJ and the SCM to provide access to the automated judicial statistical system (design financed by the EU); operational and contributed to expanding the implementation of the ECRIS software

PDO (b) achieved Contributed to achieving the PAL2 benchmark about the SCM’s capacity

PPIBL

Professional training/study tours for the institutional strengthening of the SCM; 14 SCM members/staff participated in a study tour Spain and 10 to Ireland

Dutch TF050477

Consultant for the MOJ to develop a manual for planning and budgeting future investments in the court system

PDO (b) achieved Contributed to achieving the PAL2 benchmark about the regulations for preparing/ executing budgets in the court system

PPIBL

Consulting services for the SCM in establishing a trainers’ network to support the training of the commissions’ members in charge with the evaluation of the professional activities of judges and prosecutors

PDO (b) achieved Contributed to achieving the PAL2 benchmark about adopting new merit-based regulations on the criteria and evaluation procedures for magistrates’ professional activities

Dutch TF054659

Consultant for the SCM to develop logical reasoning tests in the Romanian language; fully developed under the Judicial Reform Project (JRP); in use and being further developed under the JRP

PDO (b) achieved Contributed to achieving the PAL2 benchmark about selecting and appointing judges

Dutch TF054659

Consultant for the SCM to develop a comprehensive, reliable and meaningful court statistics system and a comprehensive system of objective indicators measuring judicial performance; made recommendations for an initial design and different models of statistics and performance indicators.

PDO (b) achieved Implemented the PAL2 benchmark about developing a system for monitoring judicial performance

PPIBL

(TA to improve the legal framework for business environment)

Consultants for the MOJ to drafted revised legislation on trading companies in the field of corporate governance; amended the Company Law in compliance with EU and OECD corporate governance standards and effective as of December 1, 2006

PDO (b) achieved Implemented the PAL2 benchmark about revising the company law

PPIBL

Consultants for the MOJ to draft a reformed Civil Code; under debate since 2008

PDO (b) achieved Helped implement the Government’s reform program for improving business environment and modernizing the public sector

PPIBL

The targeted TA that was financed by the PPIBL, Dutch Grant TF050477 and TF054659 contributed to achieving the PDO (b) as they either helped implement or contributed to specific PAL benchmarks in the area of judicial reforms or business environment. The PAL policy objectives were partially achieved either because they were targeted to be completed after all the three PAL phases. The PPIBL financed four consultant assignments to assist the MOJ to: Identify the needs towards restructuring the organizational structure of the court

system and enhancing the court administration. While this TA did not lead to a final court rationalization strategy, the consultants’ recommendations that were mainly linked to the new procedural provisions and new competencies of magistrates and courts described in the new drafted codes (the civil procedural code and the penal procedural code) are expected to be reconsidered and applied at the moment when the new codes will be approved. In addition to this input, the findings of the TA were

85

used to design the JRP to help implement court rationalization. Thus, based on this study, the SCM has recently considered some of the recommendations and developed a court rationalization plan with a specific proposal on the court of first instances restructuring. The SCM is launching a larger consultancy under the JRP for developing a comprehensive plan for optimization of the court system.

Further define the role, functions and status of economic managers and to design a selection process and a training program for economic managers63. This TA helped implement the requirements of the 2004 legal package and further amendments in 2005. The consultant identified the training needs of economic managers and made recommendations on their specific job descriptions for courts and prosecutors’ offices, segregating the roles and duties of economic managers and court presidents and other involved parties, and, most importantly, on a training curricula and train-the-trainers plan for economic managers. The proposed improved job description and selection process for economic managers in courts were used in the regulation on economic managers (that was the PAL2 benchmark). In addition, the JRP is following up on developing the framework for economic management of the courts (and expects to develop training activities for court presidents and personnel).

Provide storage area network systems for the MOJ and the SCM to support their efforts in developing the automated statistical system in the court system. The judicial IT system (ECRIS project64) had been developed with support of the EU PHARE. Part of the courts, prosecutor’s offices and penitentiaries had been endowed with software applications and hardware. At that time, new data (new judicial indicators) were being added to the database and the new storage area network systems enabled the MOJ and SCM to use the updated data more efficiently. This contributed to improving the management of the court system by the MOJ and SCM (allocation of cases per judge/ court/ region, budgetary management, human resources management etc).

Support implementation of some essential changes in the budget formulation and execution process at the level of the MOJ, the SCM, the courts and the prosecutors’ offices65 that had been introduced since 2004. The TA was part of the larger TA to improve program budgeting funded by the Dutch TF054659 (see E.1.i.b). The consultant drafted a manual for planning and budgeting future investments in the

63 The “economic manager” program was institutionalized with the 2004 Law on the organization of the judiciary that provided for the transfer of economic and financial responsibilities to the courts and established the role and duties of the economic managers, as well as the criteria for his/her appointment. Later amendments, adopted in July 2005, introduced additional tasks for the court managers, as well as modifications with regard to the competency requirements of the economic managers. By these amendments, the economic managers were also responsible for: the efficient utilization of funds received from the state budget, social security budget or special funds budget and funds constituted from internal incomes; ensuring accountability within the court’s/prosecutor’s office through the maintenance of proper financial records and supporting documentation; coordinating the administrative activities of the court’s/ prosecutor’s office headquarters. 64 ECRIS project was initiated in 2001 to create and implement a national system for manage legislative cases and documents. ECRIS was first implemented during March-August 2002. National implementation was carried out using the EU PHARE funds. 65 In addition to introducing the role of economic managers in the courts, as explained above, the role of the Superior Council of Magistracy was increased in the field of formulating the budget, in the way that Council’s endorsement was needed for the budget projects elaborated at the level of the Courts of Appeal and of the Prosecutors’ offices attached to the Courts of Appeal for the courts or the Prosecutor’s offices within the jurisdiction of the Courts of Appeal and of the Prosecutors’ offices attached to.

86

court system, providing two important tools: one for budgetary programming and one for prioritizing investments. The manual included a methodology of planning investments performed by the MOJ. The manual provided input to the Regulation for the 2004 Law on Judicial Organization. The manual is used by the economic managers in carrying out their activities in courts and prosecutors' offices.

The Dutch Grants TF050477 and TF054659 as well as the PPIBL financed four consultant assignments to assist the SCM to: Carry out professional training/study tours for the institutional strengthening of the

SCM, including a study tour to Spain for 10 members of the SCM (and 4 representatives from the SCM’s staff) and a study tour to Ireland for 6 members (and 4 SCM's staff).

Establish a trainers’ network to support the training of the commissions’ members in charge of the evaluation of the professional activities of judges and prosecutors. The objective was to implement an improved system of performance evaluation and new/improved performance indicators. The consultant delivered a number of outputs, such as: (i) a data-base analysis of the magistrates readiness to conduct evaluations based on the new established criteria; and (ii) an institutional appraisal, training needs assessment and a proposed curricula based on the needs of the participative evaluation process. The consultant undertook the training seminars for: (i) the 80 magistrates, including 50 judges and 30 prosecutors, selected to be trained as future trainers; and (ii) 15 trainers, one for each Court of Appeal, selected out of the initial recruited magistrates to form the network of trainers in the participative evaluation process. The TA resulted in a number of outcomes. The SCM Plenum adopted a Regulation to establish the criteria and methodology for the evaluation of professional activity of magistrates (SCM Plenum' Decision no.676/2007). It included the main proposals made by the consultant regarding the content of the Evaluation Guide, the professional evaluation indicators (such as quality of work, integrity), mandatory participation of each evaluator in a specialized training program held by the National Institute of Magistracy (NIM). The magistrates who were involved in the TA program became trainers for the evaluators. Thus, fifteen training seminars for evaluators have been held between 2007 and now for each Court of Appeal.

Develop a new methodology for psychological testing of the magistrates by developing logical reasoning test in the Romanian language adapted to the specifics of the Romanian society. The methodology now used in the Law School Admission' reasoning tests is based on the one proposed under the TA and have been further developed under the JRP. The tests have been used at the National Institute of Magistrate's (NIM) admission contests starting with 2005 and, in the last two years, they have been tested at all law faculties within the country.

Assess the state of statistical court/judicial performance monitoring in Romania and develop the initial design of a comprehensive, reliable and meaningful court statistics system and a comprehensive system of objective indicators measuring judicial performance. This TA proved useful for the SCM in developing an objective system and indicators for monitoring court performance. The SCM used the recommendations for developing three main areas: (i) improvement of the statistical

87

system (under the ECRIS new versions); (ii) training for all evaluators of judges and prosecutors’ professional activity (continued and developed also under the next assignment); and (iii) training material of judges and prosecutors who are candidates for leading positions within the Romanian judiciary. Different modules of the NIM’s continuous training are based on the study’s recommendation (for example, the training module on “act of justice’ methodology”).The JRP has been designed to further improve monitoring of judicial performance. This TA also served as a support paper in the SMC’s recent efforts in preparing for a more comprehensive plan for optimization of court system under JRP (see above).

The PPIBL financed the following TA in the area of business environment to: Draft a law amending the Company Law no. 31/1990 in compliance with the OECD

principles on corporate governance and in line with acquis communautaire. The Romanian legal framework for corporate governance has been in compliance with international standards effective as of December 1, 2006.

Carry out a comparative analysis of various civil codes (especially with respect to commercial law) and to prepare a draft reformed Civil Code (books I-VII), also incorporating commercial obligation law, family law, special contracts law and private international law that were previously separate laws. The proposed draft Civil Code together with the secondary legislation has been under public discussion since July 2008. It is ready to be submitted for approval to the Parliament. Recently, the SCM has asked the approval of the Bank for developing impact studies in the framework of the JRP for all codes expected to be approved by the Parliament in order to evaluate the cost of implementing the new Codes’ provisions.

6. Public health insurance administration. See Part E.11. 7. The Ministry of Administration and Interior and the Ministry of Public Finance See Part E.1.f. 8. The General Secretariat of the Government (GSG) and Prime Minister Chancellery Target at appraisal (as amended)


TA to the GSG and PM Chancellery for reforms in policy making and administrative accountability

Consultant for the GSG to help develop procedures, indicators and build capacity for policy formulation; gave input to the general structure of the public policy document

PDO (b) achieved Contributed to achieving the PAL2 benchmark about policy making procedures

PPIBL

Consultant for the GSG to help streamline policy formulation processes, along with ensuring interface with budget system; contributed, together with the twinning project and the MOPF consultant, to setting up the strategic planning system. Their recommendations were taken into account when policy link with budget was elaborated in the Government Decisions approved in 2006 and 2008.

Dutch TF054659

88

25 staff members in the Public Policy Unit (PPU) GSG were trained in policy analysis, monitoring and evaluation techniques for policy making process; contributed to implementing the new procedures and building PPU capacity in line ministries

PDO (b) achieved helped implement the Government’s reform program for public expenditure management

PPIBL

Functional requirements and bidding documents for the design and implementation of an integrated system for managing and tracking policy formulation process; included in the GSG’ 2009 budget

PPIBL

The targeted TA that was financed by the PPIBL and the Dutch TF054659 contributed to the PDO (b) as it helped achieve the PAL2 benchmark about policy making procedures and implement the GOR’s reform program for public expenditure management. The PAL policy objectives were partially achieved due to the lack of a formal medium term expenditure framework. During the period 2005-2006 the GSG consultants coordinated their TA with other TA programs in the GSG – mainly the twinning project with the State Chancellery of Latvia that provided major contributions – and the budget advisor for the MOPF (see Part E.1.i.b) and provided useful information to support their TA. One of the key assignments financed for the GSG as part of the wider TA for the budget reform was centered on strengthening the capacity of the GSG to assist ministerial decision-making, along with ensuring interface with the budget system. The consultant worked closely with the other budget reform advisors placed in the MOPF and selected other ministries (including the consultants funded by the EU PHARE and others). The consultant (together with the MOPF budget advisor) wrote a number of very important reports focusing mainly on the following issues: (i) policy-making system with a special focus on institutional mechanisms and procedures for policy-coordination and strategic planning (including the role of the GSG); (ii) machinery of the center of the Government and the machinery of Government (including the functioning of inter-ministerial councils); and (iii) monitoring and evaluation issues related to the effective implementation of policy-coordination and strategic planning framework. The work done by the GSG and MOPF consultants contributed, together with the twinning project, to setting up the integrated strategic planning system which has 2 parts: the management side (Part I) and the budget side (Part II). Their recommendations were taken into account when policy link with budget was elaborated in the GDs approved in 2006 and 2008 on the two methodologies for strategic planning. The GD 1807/2006 concerned Part I of the strategic planning methodology at line ministries level, requiring each line ministry to clearly define its mission, vision, main directions of activities and priorities and carry on a brief functional review to be adopted at each line ministry level. The GD 158/2008 concerned Part II of the strategic planning methodology, including how to transpose the policy objectives set by the first part of the strategy of line ministries in effective programs and projects with clear budgetary requirements and how to monitor their effective implementation. This GD 158/also had a strong chapter on how measure the program/project result based on indicators. This part constituted the basis for preparing budget proposals by the line ministries. The GSG/DPP (department for public policies) used the consultant’s reports in its initial work for creating a methodological framework for policy monitoring and evaluation that started in 2008.

89

In addition to contributing to the above strategic planning system, the Bank-financed consultants’ reports informed the work carried out under the twinning arrangement to prepare the second GD 1361/2006 regarding the content of explanation (substantiation) of some legal proposals. The form for substantiation note designed by the GD 1361 is - for the first time - obligatory for law and Government ordinances drafts and for majority of Government decisions (only for Government proposals, not for proposals coming from the members of the Parliament). The GD 1361 placed more stress on the impact evaluation of legal proposal and sets a sort of minimum regulatory impact assessment that should be done by the initiator line ministry. Finally, the consultant cooperated with the twinning team to propose a clear division of functions between the GSG and the PM Chancellery regarding the policy coordination and strategic planning. The delimitation of their functions was approved by the Prime Minister in March 2007. More recently, the new GOR decided to abolish the Prime Minister Chancellery and to transfer its functions to the GSG. This is a decision, reflecting all the recommendations from foreign advisers (including the consultants funded by the PPIBL) from 2004-2006 (the GSG proposed a similar Government Emergency Ordinance in the fall of 2006 but the proposal was initially postponed and after few weeks cancelled by the former Prime Minister). The abolishment of the Chancellery did not however affect the core functions of the Prime Minister Office (formed by the Prime Minister advisers and their staff), which are to be preserved. The coordination of the Prime Minister Office and the GSG on procedural aspects and substance of policy is still to be defined. In addition, the PPIBL financed the following TA for GSG to: Build capacity in the GSG PPU established in 2003 and in the line ministries’ PPUs

required since 2005. Building on the GSG’s own work to establish systems and procedures for enhancing key aspects of policy management on the part of line ministries, the consultant: (i) provided valuable advice on designing the system for policy formulation, specifically the general structure of the public policy proposal (a concept paper); (ii) developed a number of monitoring indicators for the SDP Committee and the GSG to capture how well the policy formulation reforms are advancing their underlying objectives; and (iii) helped operationalize the PPUs in the line ministries. The consultant’s reports were used to some extent in preparing the Government Decision (GD) 775/2005 approved in July 2005 and effective as of January 2006, which for the first time set the content of policy documents and the connection between the policy documents and the legal proposals. This GD introduced a new system of policy formulation in Romania whereby policy formulation was to concentrate on substantial policy solutions instead of mere normative acts and required establishment of specialized PPUs in line ministries. These procedures included a PPU policy proposal template with the requirements for budget, monitoring and evaluation information aimed at better policy documents, strategic prioritization and enhanced fiscal assessment.

Provide training for 25 staff members of the GSG PPU in 2007 in policy analysis, monitoring and evaluation techniques for policy making process and, in particular, in

90

using more sophisticated instruments for assessing impact of policies and in selecting the appropriate instruments for different policies. This training proved important in helping the GSG PPU implement the newly clarified functions and to implement the strategy for improving the public policy planning and formulation system. It built on initial training in monitoring and evaluation provided in a twinning arrangement funded by the EU.

Prepare functional requirements and bidding documents for the design and implementation of an integrated IT system for managing and tracking the policy formulation process. The project was included in the GSG’s 2009 budget with the estimated costs of RON 2.5 million. The technical solution was designed in such a way that it can be adapted to the actual /future structure of the Government. The system would operate at the level of the GSG with the possibility of expanding it to the PPUs in line ministries. It would allow sending policy documents for the Government’s approval within the IT system and show information on the status. This would improve communication and consultation process for policy making between the GSG and the line ministries, its security and quality of policy documents, as well as reduce costs. The system would implement the procedures and timetable set for each step in the first Government Decision for policy making.

9. The Ministry of Labor (MOL) Target at appraisal (as amended)


TA to the MOL for carrying out a labor code review, labor markets study, strategy and action plan

Consultant to make recommendations to revise the Labor Code; many of them included into the amendments to the Labor Code enacted in 2005

PDO (b) achieved Contributed to achieving the related PAL1-2 benchmarks about the amendments to the Labor code

PPIBL

No funding requested for a labor markets study, strategy and action plan from the PPIBL.

PDO (b) not achieved N/A

Part of the targeted TA that was financed by the PPIBL contributed to achieving the PDO (b) as it helped achieve the PAL1-2 benchmarks about the amendments to the Labor code. The PAL policy objective of enhancing the flexibility of the labor market was partially achieved. The PPIBL financed the work of a consultant to assess the impact of the Labor Code on the labor force and businesses and to propose necessary adjustments with a view to enhance the flexibility of the labor market and improve the investment climate and the competitiveness of the Romanian economy. The consultant made recommendations to revise the Labor Code of which a critical number of seven were considered as conditionalities under the PAL and IMF Stand By programs and of which about six were considered for the Labor Code amendment (except for the conditionality related to the obligation of the non-signing parties to observe the Collective Labor Contracts). The amendments to the Labor Code were enacted in 2005.

91

10. The Ministry of Education, Research and Young People (MOE) Target at appraisal (as amended)


TA to the MOE for education reforms

Consultant to comment on the secondary legislation for the Education Law on education decentralization and financing; some recommendations incorporated into the amendments adopted in 2004

PDO (b) achieved Contributed to achieving the PAL2 benchmark about the Education Law

PPIBL

CS for making recommendations on the strategy for education administration and financing (scheme & financing formula); adopted the strategy in 2005 based on the recommendations, but not implemented

PPIBL

Consultant to assist in the budget process reform; built capacity (see Part E.1.i.b)


Dutch TF54659

The targeted TA that was financed by the PPIBL and the Dutch Grant TF054659 contributed to the PDO (b) as it helped achieved on its part the PAL 2 benchmark about the Education Law and implement the GOR’s reform program for public expenditure management. The PAL policy objective of more effective and efficient resource utilization in the education sector was partially achieved. The PPIBL and the Dutch Grant TF054659 financed the following TA to: Assist the National Council for Pre-University Education Financing and other

stakeholders in reviewing and enhancing the secondary legislation for implementing the amended versions of the Education Law and of the Statute of the Teaching Staff. The amendments introduced decentralized education management and per capita financing of pre-university education. The international consultant made recommendations on the design and implementation of the new management system, per capita financing formula and a decentralization pilot. The recommendations on the secondary legislation, that were in line with the PAL, were not fully incorporated into the version adopted in 2004 neither have they been enforced in practice. The recommendations on the education administration and financing strategy were adopted in 2005, but the strategy has not been implemented. The recommendations on the pilot suggested its postponement due to lack of clarity in the legislation on distribution of responsibilities, on the financing scheme, etc. Nevertheless, a pilot was carried out based on the existing norms with no subsequent national roll-out. The capacity building efforts were lost in the National Council for Pre-University Education Financing because the people who were involved in the decentralization and formula funding work and directly benefited from TA support left the working group in 2006.

Help implement program budgeting in the Budget and Finance Department of the MOERYP as part of the wider TA program whereby budget advisors were placed in the GSG and a number of line ministries (see Part E.1.i.b). Due to slow pace of the budget reform, the capacity building efforts resulted in little changes at that time.

92

11. The Ministry of Health (MOH) Target at appraisal (as amended)


TA to the MOH for health reforms

Consultant to design an implementation methodology for rolling out nationally a case-based mechanism for hospital financing and SW licenses; GOR accepted it and implemented from its own funds

PDO (b) achieved Contributed to achieving the PAL2 benchmark about implementing a health sector financing improvement plan

PPIBL

Consultant to develop a plan for improving transparency and decreasing informal payments in the health sector; main results disseminated in workshop to stakeholders with no other tangible results so far. The new senior management of the MOH acknowledged the existence to this study and expressed the intention to consider its recommendation s within the new health sector reform program.

PDO (b) achieved Contributed to achieving the PAL2 benchmark about preparing a plan for reducing corruption in the health sector

PPIBL

Consultant to carry out a study on health financing in Romania; some recommendations included in the Health Reform Package enacted in 2006. The new senior management of the MOH acknowledged the existence to this study and expressed the intention to consider its recommendation s within the new health sector reform program.

PDO (b) achieved Implemented the PAL2 benchmark about carrying out health sector financing study

PPIBL

Consultant to comment on the health reform legal package elaborated by the MOH and to develop the implementing regulations; GOR accepted them and the package was enacted in 2006.

PDO (b) achieved Contributed to achieving the related PAL2 benchmark about the health sector legal package

PPIBL

An on-site budget advisor in the Budget Department in the MOH and the Budget Department of National Health Insurance House during 2006; built capacity.


Dutch TF54659

The targeted TA that was financed by the PPIBL and the Dutch Grant TF54659 contributed to the PDO (b) as it helped achieve a number of PAL benchmarks and implement the Government’s reform program for public expenditure management. The PAL policy objective of building accountability for results around sector decision-making structures in the health sector was largely achieved. The PPIBL and the Dutch Grant TF054659 financed the following TA to: Continue the national roll-out of the hospital financing system based on the DRG

launched in early 2000’s reform, while the EU PHARE funds were being awaited for this activity. The consultant: (i) developed a comprehensive implementation methodology for continuing development of the Romanian case-based financing scheme and its implementation at central and local level; (ii) designed a training methodology that was rolled out at all implementing levels – central (National Health Insurance House) and local (hospitals and District Health Insurance House) – for the new proposed regulations and mechanisms; (iii) trained central and local staff involved in of the case-based financing; and (iv) made recommendations for improving the regulatory framework and data collection and analysis for case based financing, as well as for integration of case based financing with other public and health financing reform activities. The consultant’s recommendations on implementing the new financing mechanism for hospitals were included into the

93

Health Sector Reform Package enacted in 2006. The new hospital payment system was rolled out nationally on the MOH's own funds based on the methodology, leading to its introduction in 278 hospitals in 2006 (or 100% of all acute care hospitals proposed).

Assess the magnitude and the distribution of informal payments and corruption in the health sector. The assessment identified the main causes, the forms of manifestation within the sector, as well as the transparency in the pharmaceutical sector, and proposed a plan of interventions for decreasing the corruption in health sector. The TA helped establish the magnitude of the problem, and the main results were disseminated to stakeholders in a workshop, but overall the recommendations were not implemented.

Carry out of a study of the overall health sector financing on all levels of health care to support the GOR in implementing a decentralised health insurance system. The study complemented some earlier efforts that had focused on putting together the pieces of the health financing mechanism but that had suffered from a lack of strategy, political changes and influences, lack of data and conflict of interests/not clear definition of institutions roles and responsibilities. The study: (i) assessed the overall situation in the health sector financing in Romania and then formulated concrete results and made appropriate recommendations for a short and medium time period implementation through an action plan; (ii) provided a forecast of the adequacy of funding and potential sources; (iii) defined the basic package of services reimbursed by the National Health Insurance System and the allocation criteria among regions and types of services; (iv) identified the types of services that can be financed from other public sources (state budget, local budgets, social securities, private sources, etc); (v) made recommendations for an optimal regulatory framework for proper functioning of the social and private insurance systems; and (vi) disseminated the project results. Some recommendations were included in the Health Sector Reform Package enacted by the Parliament in 2006. Other recommendations that were not included are still valid.

Comment on the extensive health sector reform legal package elaborated by the MOH in 2006. The consultant helped strengthen it and align it with the EU legislation or policies and drafted the related secondary regulations, as well as assessed the impact of the new legislative package (and the proposed secondary legislation) and identified potential barriers for implementing the legal framework. The recommendations were accepted and incorporated into the Health Reform Package enacted in 2006.

For the on-site budget advisor, see Part E.1.i.b. 12. The Ministry of Transportation, Construction and Tourism (MOTCT) Target at appraisal (as amended)


TA to the MOTCT for health reforms in the roads and railways sectors

Consultant to assess the fairness commercial terms of a civil works contract for road construction; concluded as fair

PDO (b) not rated Helped implement the Government’s reform program in modernizing the public sector (broadly)

Dutch TF050477

Consultant to review the housing policy and subsidies; no information on the results achieved

PDO (b) achieved Contributed to achieving the PAL2 benchmark about primary and

Dutch TF54659

94

Consultant to design and implement the housing mortgage insurance scheme; no information on the results achieved

secondary mortgage market legislation Dutch TF050477

Consultant to design and implement an enhancement facility for mortgage-backed securities; no information on the results achieved

Dutch TF050477 &TF054659

An on-site budget advisor in the Economics and Budget Directorate in the MOTCT during 2006; built capacity (see Part E.1.i.b).


Dutch TF54659

The targeted TA that was financed by the Dutch Grants TF050477 and TF054659 contributed to the PDO (b) through the various activities that either helped implement the GOR’s programs in the public sector modernization and public expenditure management or helped achieve on its part a PAL benchmark. Besides the output related to the public expenditure management, these activities were not directly linked to a PAL policy objective. The Dutch Grants TF050477 and TF054659 financed the following TA to: Assess the commercial terms of a civil works contract awarded to a consultant for the

Brasov–Bors Motorway construction project. The civil works contract had been awarded but without a public tender. The contract conditions contained some special features wherefore, based on the IMF’s recommendations, an independent evaluation consultant was hired to assess the financial structure of the project and the unit prices in the contract in comparison with similar projects carried out by consultants in the region (including Romania) in order to determine if they represent fair prices to the project; the overall cost (or likely cost) of the project and their fairness; and other contractual mechanisms and the financial arrangements to determine if they are in line with other similar motorway projects. The conclusion of the assessment was that the contract price was fair and comparable with those of other road contracts in the region, with the caveat that the contractor was given the right to introduce new unit prices for those quantities not found in the reference section, which was used as the basis of the contract's unit prices.

Carry out: (i) review the then current housing policy documents and provide a comparative analysis regarding housing policy experiences in the new EU member states for the same reference period of time, quantitative evaluation of existing and contemplated subsidy programs and their impact on budget at different levels, housing policy goals, financial sector development etc; and made policy recommendations to the GOR; (ii) a feasibility study on mortgage insurance scheme aimed at helping develop the primary mortgage market by reducing credit risk to lenders who in turn would offer improved terms and conditions to borrowers; and (iii) a Partial Credit Facility for mortgage–backed securities in order to diversify the existing financing sources and to decrease the financing costs. No information was available on the results.

For the on-site budget advisor, see Part E.1.i.b.

95

13. The Ministry of Environment and Water Management (MOEWM) Target at appraisal (as amended)


TA to the MOEWM for reforms in the environment and water management sectors

An on-site budget advisor in the Budget Department in the MOEWM; strengthened its PPU that is playing a key role in the budget planning process. This planning by objective has not replaced the traditional budget exercise, but they are done in parallel (see Part E.1.i.b).


Dutch TF54659

Consultant to develop a strategy and action plan for monitoring and evaluating nutrient reduction activities in the Nitrate Vulnerable Zones; identified sites and developed action plans, and follow-up TA provided under a World Bank project

PDO (b) not rated Helped implement the Government’s reform program for modernizing the public sector

Dutch TF54659

Consultant to develop a national strategy for management of contaminated sites; based on the recommendations, the GOR issued the first version of a strategy in May 2008; it is being further developed under a PHARE project

PPIBL

Consultant to develop the National Agency for Natural Protected Areas and Biodiversity Conservation (NAPA) and subordinated bodies; provided a legal framework for the new agency

PPIBL

The targeted TA that was financed by the Dutch Grants TF054659 and the PPIBL contributed to the PDO (b) as it helped implement the Government’s reform program for public expenditure management and for modernizing the public sector. The activities related to the environment were not directly linked to a PAL policy objective. The Dutch Grant TF054659 and the PPIBL financed the following TA to: On-site budget advisor, see Part E.1.i.b. Provide support in the implementation of the EU Nitrates Directive (and new

Romanian legislation). The consultant: (i) reviewed the list with the Nitrate Vulnerable Zones or Nitrate Potentially Vulnerable Zones (NVZs) established through the Order 241/2005 issued by the MOEWM and performed detailed Diagnostic Analysis of the areas reconfirmed as NVZs; (ii) prepared Action Programs for the Nitrates Directive implementation on these areas; (iii) proposed and costed the necessary remedial measures; and (iv) developed the strategy and action plan for monitoring, evaluation and impact (the monitoring and evaluation plan consisted of a conceptual framework widely applied internationally and included a comprehensive set of indicators for carrying out a regular assessment of the quality of soil and groundwater with respect to pollution by nutrients from agricultural sources). The Integrated Nutrient Pollution Project (FY08) will help implement the Action Programs for the NVZs or most of them proposed under the TA, building on the previous World Bank and Global Environment Facility assistance in this area. The monitoring and evaluation indicators proposed under the TA are being used by the MOEWM together with other indicators, for reporting to the EU. The above Bank project will test the indicators in the program and will continue to assist the MOEWM in developing and consolidating the indicators in this area. Overall, these indicators can be used to provide information to policy makers and the public on the state of the environment and its changes; establish the causal link between activities/policies and the environment; and evaluate and adjust policies.

96

Help implement the EU requirements for contaminated areas. The consultant: (i) drafted an outline for the Romanian strategy -- a pre-requisite for the EU funds; (ii) made recommendations for improving the existing environmental institutional and legal framework with proposals prepared to bring it line with the agreed national strategy; (iii) designed the necessary technical guidelines to contain standards and detailed instructions on investigations, risk assessments and corrective action planning, and a compendium on remediation and drilling techniques; and (iv) in order to enable the completion of a nationwide inventory of contaminated sites, created an intranet-based inventory system which local environmental protection agencies are able to use to prioritize sites based on risk and invest in those that need urgent attention. Based on the TA, the GOR accepted a first version of a National Strategy for the Management of contaminated sites in May 2008 and launched more work to further elaborate the Contaminated Lands Strategy in December 2008 under a PHARE project. While the first draft strategy was critical to move this agenda forward when nothing had previously existed, the new study went into further detail to expand on some chapters of the Strategy and create a more detailed action plan. A first draft of the Strategy for Contaminated Lands was recently delivered for consultation/comments to the MOEWM, and the final version of the Strategy is expected to be approved by a ministerial order in the next few months. An action plan is under development to implement the strategy under the PHARE financed project as a continuation of the PPIBL. All these two documents depend on and are related with the national inventory of contaminated sites that is under preparation within the National Environmental Protection Agency - the template for such inventory was prepared under PPIBL and then the agency and local EPAs worked to complete the entire territory; this inventory is almost completed. The existence of the inventory has: (i) centralized the data on the contaminated sites in one location; (ii) improved transparency about the quality of lands where people and will further increase it as it will become more complete and the information will be updated; and (ii) introduced a system for their risk ranking.

Support the MOEWM in its efforts to implement the EU Directives in nature protection and biodiversity conservation66. The consultant: (i) made recommendations on the existing institutional context and legal framework regarding the functionality of the existing protected areas administrations, as well as their capacity for accessing the EU structural funds; (ii) identified and prepared a pipeline of projects for the National Agency for Protected Areas (NAPA) to develop and administer under the EU funds; (iii) provided further recommendations on the internal structure and operating documents of the NAPA; and (iv) drafted a 5-year institutional development plan that would create the operating conditions and projections for the NAPA, including the required legal framework, roles and functions of the NAPA and other organizations, a human resources plan (including a training plan), the costs and financing of establishing and running of the NAPA and its subordinated bodies

66 The MOEWM needed assistance in setting up the operations of a new agency, the National Agency for NAPA. The GOR had made a Decision on December 31, 2005 to establish NAPA in the future to administer environment protection issues and manage the EU funds for supporting “Natura 2000” implementation in Romania. This decision included a timetable for further elaborating its roles and responsibilities and structures.

97

(investment costs, maintenance and operation costs), and a communication plan. These outputs represented a full package of legal framework for this new national agency that took over functions from several ministries and were considered useful at the ground level in the formulation or roles and responsibilities for this agency. Consequently, the TA contributed effectively to have the NAPA set up and approved through the Government Decision no. 1320 from October 14, 2008 - with a total number of staff of 50 (the NAPA started to function in Brasov this year although with a very reduced number of staff). The existence of the NAPA is expected to make provision of the related functions more efficient and cost-efficient and improve accountability. This is importance since Romania has a lot of work in adapting the EU environmental standards, and the costs of the meeting of the environmental commitments of the acquis are very large.

Part F. PMU (PPIBL and PAL) (estimated project costs $0.24 million/actual project costs $1.84 million)



TA to the PPIBL PMU and PAL PMU for strengthening project management capacity and for performing their activities under PAL

PAL PMU staff, legal, public administration, public services, and private sector experts, as well as administrative and secretarial services, IT and other equipment, office furniture and equipment

PDO (b) achieved Helped implement the Government’s program supported by the PAL

PPIBL

PPIBL/PAL PMU staff, supplies, operational costs, and project audits in 2004-2008

PPIBL

The PPIBL funded the PIBL/PPIBL PMU in 2004-2008 and the PAL PMU in 2005-2006 until the latter was closed after the cancellation of the PAL2 in early 2007. The PMUs were instrumental in managing the implementation of the complex TA program that eventually included about 20 sub-components and four sources of financing. The PPIBL PMU was an independent unit operating within the MOPF under the minister coordination67. It employed the PMU director, a minister’s counselor until the closing of the PAL, administrative staff and experts in procurement, financial management and accounting from nine in 1999 to 12 in the busiest years and to three in 2008. The PAL PMU was established in 2005 in the Prime Minister’s Chancellery to: (i) ensure the highest level of coordination of the PAL reform agenda; (ii) coordinate and monitor the reform progress; (iii) keep the line ministries aware of the next steps in the PAL program; and (iv) report to the Prime Minister, the Chancellor and the Bank on the progress. The Project funded a pool of experts (one expert in public finance in 2004 and our experts in 2005-2006 to support PAL implementation, including an expert in capital markets, public services, public administration, justice and anti-corruption), as well as the PMU director, assistant director and administrative assistant. The PMU also The PAL PMU was closed in January 2007.

67 The PMU was established in 1999 under the Ministry of Transportation to implement the PIBL, then the PPIBL, and to monitor the PSAL condationalities. It was moved to the MoPF in November 2000. The PIBL funded the PMU from 1999 until 2004.

98

Annex 3. Economic and Financial Analysis Not applicable.

99

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Arabela Negulescu Senior Operations Officer ECSPF Operations Arben Maho Procurement Specialist ECSPS Procurement Doina Visa Operations Officer ECSIE Energy Elly Gudmundsdottir Counsel LEGEC Legal advice Eszter Kovacs Procurement Officer ECSPS Procurement Gary Reid Senior Public Sector Management Specialist ECSPE Public sector Hiran Herat Financial Management Specialist ECSPF Project team leader Irina Kichigina Senior Counsel LEGEM Legal advice Irena Tchoukleva Consultant ECSPF Operations James Dick Welch Consultant ECSPF Privatization Khaled Sherif Acting Sector Manager ECSPF Sector Manager

Marcelo Bueno Senior Financial sector Specialist ECSPF Banking sector and financial sector development

Nadia Sirghi Consultant ECSPF Private/Financial Sectors Development

Ramin Shojai Senior Private Sector Development Specialist

ECSPF Project team leader

Rodrigo Chaves Lead Financial Economist ECSPF Program team leader

Sorin Teodoru Consultant ECSPF Banking sector and financial sector

Varadarajan Atur Senior Financial Analyst ECSIE Energy/Power Sector

William Porter Lead Oil and Gas Specialist COCPO Energy/Petroleum Sector

Supervision/ICR Arabela Aprahamian Senior Operations Officer ECSPF Task team leader Arben Maho Procurement Analyst ECSPS Procurement Bogdan Constantinescu Senior Financial Management Specialist ECSPS Financial management Catalin Pauna Senior Economist ECSPE Public sector Corina Alexandrescu Senior Program Assistant ECCRO Operations George Moldoveanu Information Assistant ECCRO Operations Hiran Herat Financial Management Specialist SASHD Task team leader Ireneusz Smolewski Senior Procurement Specialist ECSPS IT procurement Irina Kichigina Senior Counsel LEGEM Legal advice

Nadia Sirghi Consultant ECSPF Private/Financial Sectors Development

Paulo Guilherme Correa Senior Economist ECSPF Task team leader

Ramin Shohaj Senior Private Sector Development Specialist

ECSPF Task team leader

Sorin Teodoru Consultant ECSPF Banking sector and financial sector

Tatiana Segal Operations Analyst ECSPF Operations Paula Genis Operations Officer ECSPF ICR

100

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY00 2 7.80 FY01 8 107.35 FY02 19 150.00 FY03 1 6.35 FY04 0 FY05 0 FY06 0 FY07 0 FY08 0

Total: 30 271.50 Supervision/ICR

FY00 0 FY01 0 FY02 0 FY03 3 56.82 FY04 12 54.12 FY05 27 97.73 FY06 27 114.77 FY07 25 122.18 FY08 10 37.58 FY09 26 99.06

Total: 130 582.26

101

Annex 5. Beneficiary Survey Results Not applicable.

102

Annex 6. Stakeholder Workshop Report and Results Not applicable.

103

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

104

Summary of Borrower’s ICR and/or Comments on Draft ICR 1. The Project context Development Objectives, Design and

implementation

The Private and Public Institution Building Loan (PPIBL) was signed on September 13, 2002 for the amount of US$18.6 million to provide technical assistance to achieve the targets and conditionalities established under the Private Structural Adjustment Loan (PSAL 11). The PPIBL was made effective on November 25th 2002 approved through OUG 135/2002 and ratified by the Parliament through the Law no 1112003. The PPIBL was approved to support reforms in both the private and public sectors. Related to the PPIBL, a Dutch Grant Fund (TF 050744 in amount of USD 3.17 Million) was approved in May 2002 to support part of the private sector activities included under PPIBL. The Grant Agreement was amended to include TA for public sector activities and was fully disbursed on April 2005. The initial objective of the PPIBL was to provide the required technical assistance to implement those policy measures supported by the PSAL II and to prepare the reforms to be supported by the proposed IGRPAL. During 2003-2005 the PPIBL was implemented in parallel with the Private sector Institution Building Loan (PIBL) signed on 1999 and having as main objective supporting the program under the PSAL I. The PIBL was fully disbursed on 2005, covering a main part of the activities provided to be financed under the PPIBL. Due to the impact of the reform programs and successfully implementation of PSAL I (the first Loan fully withdrawn in the scheduled dead-lines and ranked highly satisfactorily) the unexpected donors provided funds for financing part of activities provided in PIBL and PPIBL. The PHARE funds covered the technical assistance for privatization of state-own banking sector and the funds allocated to these activities were reallocated to cover supplementary needs identified by the Borrower and the Bank. While the activities provided under the PPIBL to complete the reforms initiated under the PSAL Ii have been financed by the savings amounts registered under the PIBL, the institutional and governance reform component was used to help in designing and implementation of the Programmatic Adjustment Loan (PAL) program. With respect to the privatization and business environment components under the original component provided in PPIBL and financed under PIBL and first Dutch Grant, the TA was provided to strengthen public expenditure management (treasury, public accounting, internal audit and decentralization process); external audit; e-government; public administration; rule of law; and health insurance administration. On May 09, 2005 the Bank has approved and signed a new Trust Fund TF054659 in the amount of EUR 2 million to support

105

the public administrative reform activities included under the PPIBL and also under the PAL. As a result of funds available under the new Dutch Grants and deleting of some activities due to availability of other grant funds (EU PHARE), several million dollars remained available to be utilized for other activities. In this respect, the PPIBL was amended two times to support the PAL program and the following additional activities were identified and included to be

financed by PPIBL and the second Dutch Grant.: (i) civil service reform; (ii) judicial reform; (iii) public expenditure management, (iv) service delivery in the education, health and infrastructure areas; and (v) intergovernmental fiscal relations. An amendment to the PPIBL was done in order to allow the financing of these activities. 2. Key factors affecting implementation and Outcomes Due to availability of other source of funds mainly grant funds provided by Dutch authorities and EU for similar activities the disbursements under the PPIBL started only at the end of 2004. More than2/3 of initial activities provided to be financed initially from the PPIBL were financed from alternative sources. During the Joint Portfolio Performance Review session for the PPIBL in 2004, it was agreed to up-date the procurement plan of the PPIBL in order to include new activities related to PAL Program, particularly establishing a Project Management Unit (PAL PMU) in the Prime Minister Chancellery, under direct coordination of the Head of Chancellery for monitoring and implementation of PAL Program. The up-dated procurement has been approved in the Cabinet Meeting on February 5, 2004 based on which the items and responsible ministries related to PAL program have been included in the Loan Agreement.

However, as a result of substantial delays in the approval of the PAL program (approved only on September 16, 2004 and effective on February 28, 2005) the implementation progress under the PPIBL was delayed. In April, 2006, a comprehensive list of activities related to PAL programs were provided to be financed Out of PPIBL, part of them were not eligible, or abandoned by the beneficiaries. In order to cover other needs, several new activities were identified by the Borrower to be funded out of the PPIBL proceeds. These included request from the Prime Minister’s Chancellery, National Agency for Fiscal Administration (NAFA) and the Ministry of Environment and Water Management (MEWM). The request from the NAFA and MEWM were for the preparation of new projects to be financed by the Bank.

The Bank agreed with the Government that funding should be provided for priority activities to meet PAL program objectives and on a first-come-first-served basis. Having in mind the overlapping of funds (PIBL, Dutch Grants, PHIARE

106

funds) which were not envisaged at the moment of PPI.BL signing the PPIBL funds could not be used in the initial implementation Øeriod of three years. The Borrower, as the Bank also considered that the initial period of implementation was not realistic, having in mind the complexity of the project and the large number of beneficiaries and topics to be financed out of the Loan. For this reason an extension of three years and a half was granted and the funds were fully committed and disbursed (excepting the amount of USD 60,000 representing the cost of a study related to the budget proceeds allocation which did not met the contract requirements and the beneficiary had not approved the payment. The respective amount was not disbursed and cancelled out of the Loan). 3. Assessment of the Outcomes

The PPIBL did not finance all activities included in the PAD but the development objectives were fully met, while for different components EU funds were provided after PPIBL signing (see energy, gas component, banking sector privatization) and objectives meet. Due to continue deterioration of the financial situation of the companies included in the main list of companies agreed to be privatized/restru ctured with technical assistance provided by PPIBL the beneficiary proceeded to the liquidation or used own funds for their restructuring, or sold them. Also, when PPIBL was signed the PIBL was in place, but having certain activities envisaged to be financed. Later the funds remained available under PIEL and activities from PPIBL were financed out of FIBL, and first Dutch Grant, based on the Government decision to use first grant funds (EU and Dutch) to cover urgent needs and priorities and the Bank fully agreed with the Government. In this context the PPIBL funds contributed to the achieving of the PIBL and Dutch Grants programs objectives. When the PAL was envisaged and agreed with the Bank the Government decided not to commit another TA loan, but to use the PPIBL funds to finance all TA requested by PAL program becoming attached to it fully contributing to the achieving of the development objective of PAL program. The Loan Agreement was amended periodically to support PAL program and other urgent needs of the Government without consequently adding the new development objectives in PPIBL but there were included in the PAL program for which the PFIBL were accountable and assured their fulfillment besides of the EU inlegration conditionalities. 4. Assessment of the Bank and Borrower performance The Government monitored and assessed the FPIBL not only as it was defined in the PAD but also as it was agreed in the loan amendments and in the collateral

107

financing (PIBL, Dutch Grants, PAL etc) since all the funds were designed and managed as a pool of funds and properly supervised by the Bank, even that the Bank prepared separate implementation completion reports for them. During the amendment made to the Loan in 2004 and 2006 new project activities were added under the institutional and governance reform to respond to the new needs emerging from the deepening of the policy and the institutional reforms in the public sector area. No new indicators had been introduced to reflect all the planned activities and results as all these activities achieved the PAL development objectives and were reflected in the PAL implementation completion report. But, in order to more accurately reflect the project activities added in 2004 and 2006 and to assess the project impact on achieving the development objective, the Borrower established a set of expected indicators outcome/outputs to serve as a basis for the Borrower to monitor and evaluate the progress of the Project and the achievement of the assumed objectives. The results on each new activity were assessed by the Borrower and beneficiaries and submitted to the Bank and inserted in the ICR (Annex 10— Intermediate outcomes indicators). The Government For the implementation of the program the Government established a PMU, under direct coordination of the minister of public finance, fully dedicated to the project and financed out of the Loan. The PMU was initially established for implementation of PIBL and further assigned for the management of the pool of projects. As PIBL was extended till 2005 initially in the PPIBL were provided funds for PFVU only for one year. The Government was fully determined to make the EU accession a reality and achieved an ambitious program of structural and institutional reforms. In this context was concluded the PAL Loan and establish a PMU within the Chancellery of the Prime Minister in 2005 as a guarantor of PAL program implementation. The Loan was amended and extended to include the PAL activities, funds have been provided for financing of both PAL and PPIBL PMU for another three years. These units operated very efficiently. Good performance of both the PAL PMU and PPIBL PMU helped implement the ambitious and complex policy and TA program satisfactorily and mitigate the lack of capacity in the beneficiary’s agencies. No risk was identified in project implementation. The Government provided adequate funds from local contribution. The Bank supported the program implementation in a very satisfactory and timely manner. 5. Lessons learned A key lesson learned from implementation of the project to be avoided in the further project is related to the negative impact on the projects implementation done by the repeated changes in the strategies and priorities of the Government in performing the public administrative reform. In many cases the PMU faced with lack of commitment from the beneficiaries (Government agencies and public entities) in achieving the objectives of the projects. In many cases they recorded

108

a huge delay in preparing the technical documentation including the TOR and adequate technical specifications in such a form and content to meet the procurement process requirements and to accelerate the bidding process. Some projects were abandoned or withdrawn from financing after performing all procurement steps, including signing the contract by the consultant. In many cases the staff nominated by the beneficiaries as their representative in the evaluation committees of the bids received for different projects were not available, or not very committed, or not even specialized for this activities and jobs. Many times the committees were changed and delayed the process. Part of these deficiencies were addressed by the PMU and the program continued on proper way and met the objectives, but mainly these inconsistencies contributed to the extension of the financing in order to have time to achieve the objectives and proper use the money. Under the public expenditure management component the main achievement of the project represented the institutional strengthening of the Ministry of Public Finance. Based on the findings of the World Bank assessment during March 2003 on the status of the IT infrastructure of the Ministry of Economy and Finance and the main recommendations made by the Bank, the Ministry prepared the IT strategy for the next five years. The Bank assessments made several recommendations for further development of the IT system, respectively: improvement of the software applications in order to facilitate a rapid and easy communication and to develop electronic relationships between financial partners; renewing the IT&C infrastructure based on Internet/Intranet technologies in order to increase both for the centralized real-time data processing and, an easy remote control management of the infrastructure. Based on these recommendations, the MPF decided to use part of the funds PPIBL loan for funding the above assignments and based on the Bank agreement had started an ambitious program for improving the State Treasury management.

The results stated on reforming of payment system to be compliant with financial market regulations and banking practice, ensuring the transparency and interoperability between the public sector and the business community, implementation of a real-time electronic payment system (EPS) replacing the manual intensive clearing and settlement mechanism, adding new business functionalities and reducing the operational risk, aligned to financial regulation by its full compliance with SWIFT registered standards and improvement of the Public Accounting IT infrastructure to support the Public Accounting central Oracle database and the web enabled application. The main business results of implementing the new application for Budget construction and Treasury centralization continues on the ongoing implementation of the Ministry of Public Finance reform process in these areas. The aim of the budget process was stated as helping the Government deliver, through better information for decision-making and, clearer managerial authority

109

and accountability. As a result, considerable effort had gone into the budget to develop a process whereby the Budget is developed within a proper planning framework. Implementing these applications, the main achieved results are: • Process for the collection and consolidation of data — offer one single

application for entering/collecting data; data are consolidated once; clear process; information available immediate — result: increase the productivity by reducing the clerical activity and having single source of truth

• Quality of data, as considerable work is required to be undertaken on initial

information supplied by budgetary owners; Using the General Registers and Nomenclatures assure that all information provided by Budgetary Owners are using the same reference data, increasing the quality of data and decreasing the chance to introduce invalid data.

• Timeliness of reporting the information generated — creating applications that are available over the WEB, all participants have to enter data in a timeframe well defined by MEF — result: giving time for decision making

• Reporting: Accountability and transparency: the possibility to have a clear

picture of public spending and transparency • Improve quality of service: creating the environment to facilitate the

collaborative work between MEF and Budgetary owners and increase the responsiveness of their requests

• Management improvement: prepare process of having aggregated views and

complex reports to management related to public expenditures • Governance & Public Sector Improvement: improve the data quality and the

Opportunity of versioning of the budgets and increase the responsiveness Given the complexity of the tasks and the need for the improvements, there needed to be continued coordination and leadership of the Ministry of Public Finance to ensure that relevant, accurate and timely information is available to Executive Government to allow it to monitor government finances.

110

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Comments received from the Dutch Ministry of Foreign Affairs on May 4, 2009: “In general, the PPIBL-program has encompassed a broad range of activities that were designed to cover specific needs in Romania's macro-economic and institutional capacity. In some cases, political or economic situations influenced the sustainability of the results. The lack of judicial reforms remains a source of concern and is one of the areas that further require strengthening. The Dutch Grants funded activities were punctual and catalytic for other, larger scale, activities. Given the short project cycle, the Dutch grants have been appreciated for their flexibility which helped moving things forward. The report reflects accurately the activities undertaken under the Dutch Grants.”

111

Annex 9. List of Supporting Documents Country Assistance Strategy of the World Bank Group for Romania (2001) & Country Partnership Strategy for Romania (2006) Doing Business Report (2009). EBRD-World Bank Business Environment and Enterprise Performance Survey (2005). Implementation of the Comprehensive Development Framework Principles in a Transition Economy. A case study of a Romanian experience. The World Bank (2002). Electricity Market Project: project appraisal document Judicial Reform Project: project appraisal document, implementation status reports PPIBL: aide-memoires, implementation status reports, terms of references and reports of consultants PIBL, PSAL and PAL1-2: project appraisal document/report and recommendation of the President report/program documents, respectively; implementation completion reports Romania Building Institutions for Public Expenditure Management: Reforms, Efficiency and Equity. The World Bank (2002). Romania Country Financial Accountability Assessment. The World Bank (2003). Financial Sector Assessment Program for Romania: Capital Markets Technical Note. The World Bank (2009). Romania Public Expenditure and Institutional Review. The World Bank (2006). Romania Public Finance Project Assessment by the World Bank (2002). Romania Public Sector Financial Management Review. The World Bank (1998). Romania Report on the Observance of Standards and Codes, Accounting and Auditing (draft). The World Bank (2008). Romania Restructuring for EU Integration – the Policy Agenda. The World Bank (2004). Social Sector Development Project: project appraisal document Tax Administration in OECD and Selected Non-OECD countries: Comparative Information Series 2008”. OECD (2009). World Bank Policy Briefs for the Government of Romania (2009).

112

Annex 10. PDO Indicators from the Implementation Status Report



approval documents)

Formally Revised

Target Values



Indicator 1 : (i)(a) % of the total banking sector assets held by the state owned banks Value quantitative or Qualitative)

About 40% (BCR, CEC) 0% - PSAL 2 and PAL objective

NA 5.5% (CEC)


-

Indicator 2 : (ii)(a)privatized state-owned assets in manufacturing sector and (b)increased private sector's share of GDP as %


Met PSAL 2 Board conditions; 69.1%.

Completed privatization in the manufacturing sector (PSAL2/PAL objectives); 75%.

NA

The state manufacturing sector was privatized by end 2007, except for some residual shares; 70% (12/31/2008).


-

Indicator 3 : (iii)(a)restructured and privatized SOEs in energy sector


Met PSAL2 Board conditions: Electrica reorganized in 8 distribution entities; unbundled gas sector; privatization of two distr. cos. launched.

PSAL 2(2nd): Offered and closed the sale of: 2gas and 2 electricity distribution companies; sold to strategic investor Petrom; adopted a privatization strategy for electricity generation sector.

NA

Privatized: 5 out of 8 electricity distribution companies (PSAL2/PAL2); 2 gas distr. cos. (PSAL2); Petrom (oil) (PSAL2); restructured Termoelectrica (PSAL2). Romgaz, Hidroelectrica, Rovinari are public (PAL3).


-

Indicator 4 : (iii)(b) strengthened regulatory framework for network (electricity and gas) industries

Value Gas regulatory agency Legal frame for NA Legal and regulatory

113

quantitative or Qualitative)

(ANRG); and electricity (ANRE) regulatory agency established. Regulatory frame in place.

increasing the independence of the regulatory agencies enacted; progressed liberalization of the electricity and gas markets in accordance with the Road Map.

framework for increasing the independence of the regulatory agencies in place (PAL2); 100% electricity and gas markets liberalized (PAL3); ANRGN and ANRE merged; OPCOM Power Exchange established (PAL2).


-

Indicator 5 : (iii)(c)amount of inter-enterprise arrears as % of GDP (in the energy sector)


2.5% < 1% NA

Almost zero (no info on 2008 but it is expected to have increased due to the financial crisis)


-

Indicator 6 : (iii)(d)status of clarifying new tariff schemes to achieve cost recovery


Tariffs do not achieve cost recovery.

Progressed price and tariff setting in accordance with the Road Map.

NA

Through tariff adjustments by ANRE (and ANRGN) improved collection (65% in c. 2000 to c. 100% by 2005 in both electricity and gas), reached cost-recovery in 2004 (PAL2).Recent signs of decline.


-

Indicator 7 : (iv)(a) easiness of doing business: number of procedures and days for enforcing contracts (Doing Business)


32; 537 NA NA 31; 512 (2009)

Date achieved 12/31/2004 12/31/2008 12/31/2008 12/31/2008 Comments -

114

(incl. % achievement)

Indicator 8 : (iv)(b) easiness of doing business: number of years to closing a business (Doing Business)


4.6 NA NA 3.3 (2009)


-

Indicator 9 : (iv)(c) easiness of doing business: number of procedures and days of starting a business (Doing Business)


6; 29 NA NA 6; 10 (2009)


-

Indicator 10 : (iv)(d) easiness of doing business: number of payments and total tax rate as % Value quantitative or Qualitative)

108; 57.2% NA NA 113; 48% (2009)


-

Indicator 11 : Private sector share of GDP (as %) Value quantitative or Qualitative)

69.1% 75% NA

Date achieved 04/15/2002 12/31/2008 12/31/2008 Comments (incl. % achievement)

Indicator 12 : (v)(a)cash surplus/deficit (%of GDP) Value quantitative or Qualitative)

-2.0% (deficit) NA NA -2.5% (deficit)


-

Indicator 13 : (v)(b)tax revenues % of GDP Value quantitative or Qualitative)

17.4% (World Bank data) NA NA 29.14% (data from the NAFA)

Date achieved 12/31/2002 12/31/2008 12/31/2008

115

Comments (incl. % achievement)

-

Indicator 14 : (vi) adoption of critical measures to provide social protection during the adjustment period and to establish effective poverty reduction mechanisms.


NA NA NA NA


Not provided information since the PPIBL did not envision any activities related to PDO (vi) in the PAD.

116

Annex 11. Original Components with Activities Part A: Financial Sector Restructuring and Privatization Support 1. Provide TA to the CEC to engage bank restructuring and privatization advisor(s) under a twinning arrangement, and to commence its restructuring in preparation for privatization within 60 days of First Tranche Release. 2. Provide TA in developing the capital markets by: (a) strengthening the legal, regulatory and supervisory framework in consistence with the EU acquis and the regulatory and supervisory capacity of the National Securities Commission; and (b) supporting the institutional strengthening of the Bucharest Stock Exchange to enable trading of Government securities on the exchange. 3. Provide TA in strengthening the institutional capacity of the Insurance Supervision Commission to regulate and supervise the insurance sector. Part B: Privatization Support for State-Owned Enterprises 1. Provide consultant’s services to the Government of Romania in privatization of the selected state-owned enterprises by disposing of at least 50% of its ownership stake in them. Part C: Privatization Support for the Energy Sector 1. Provide goods and consultants’ services (and training) to strengthen the regulatory capacity of the National Agency for Gas Distribution68. 2. Provide assistance to review the taxation system for the oil and gas sector. 3. Provide TA in developing a privatization strategy for the electricity generation sector. 4. Assist in providing a legal and regulatory framework for private competition in the energy sector (namely network industries), to increase prices and reduce arrears in the oil and gas sectors, and initiate efforts in other energy sectors to ensure that the growing problem of cross-subsidization and arrears is contained and brought under control69. Part D: Support for an Improved Business Environment 1. Provide TA to the Ministry of Communication and Information Technology to strengthen e-business, including e-commerce and e-government (including a review of the existing legal framework for e-business). 2. Provide training to judges and court personnel in the area of bankruptcy. 3. Carry out refurbishing works and provide equipment to commercial divisions of selected local courts (tribunals). 4. Develop and implement a public awareness campaign to improve the Government’s communication with the business environment on the business environment reforms. 5. Provide advisory services and goods to improve the local capacity in the Jiu Valley Region for implementing a business environment improvement strategy (including removing administrative barriers, improving the local public administration’s services and marketing of the region).

68 Annex 1 of PAD refers to training of the ANFG staff (should be ANFE) but it is not mentioned in the main text of the PAD neither in the Loan Agreement. 69 This activity is not mentioned in the Loan Agreement.

117

Part E: Institutional and Governance Reform 1. Provide TA and goods to improve public expenditure management, inter alia, in the areas of: (a) cash management for handling transactions (e.g., building a clearing house within the Ministry of Public Finance (MOPF) vs. contracting with the commercial banks, using Transfond), revising the legal framework for governing Treasury functions, and training of Treasury Department staff in cash management; (b) budget formulation for training of major budget institutions on how to prioritize their activities and budget proposals, how to define programs for the purpose of program budgeting, and how to build capacity to monitor performance in achieving program objectives; (c) foreign financing coordination for implementing legislation for improving coordination of foreign financing by assisting the MOPF staff in exploring options, such as establishing a central unit for coordinating foreign financing within the MOPF, ensuring that accounting improvements capture foreign financing, or requiring the MOPF to sign-off for any foreign-financed project, as well as for a study tour to Hungary to expose the key MOPF staff to that system for coordinating public debt; (d) government accounting for helping the MOPF to develop accrual accounting capacities, accounting regulations and procedures, and program accounting capacities; (e) internal audit for developing and installing software and hardware for monitoring and providing search capacities for legal instruments governing internal audit and a data base on internal audits and their findings; (f) decentralization for advising the Government on amendments to the Law on Local Public Finance, strengthening institutional capacities of local authorities on a pilot basis, in order to improve their accountability and providing advice to the Government on implementation of the equalization formula. 2. Provide advisory services, training and information technology to complement a comprehensive program of TA to the Court of Accounts which was already in place and being financed by the EU and the DFID. Training was to focus on financial and performance auditing for the Court of Accounts staff working at the local level (in the 28 Judets not already provided such training under the existing twining arrangement), auditing of privatization processes, program budget auditing, and fraud, corruption and TA evasion auditing. Information technology (hardware and software) was to be developed and installed to support financial and performance auditing. 3. Provide TA and equipment to the Ministry of Communication and Information Technology for advancing one or more of the efforts in developing e-government applications, such as e-procurement, a unified portal for access to government web-sites, and development of various national on-line registries and, at the minimum, in developing the SMART-card system. 4. Carry out a feasibility study for development of an integrated information system for document management to use throughout Romania’s public administration system. 5. Provide TA to institutions involved in the process of legal drafting and to judicial institutions to strengthen their procedures and processes for fair and speedy adjudication of disputes (“Rule of law”). 6. Provide TA to design a strategy and action plan for public health insurance administration and to launch their implementation. Part F: Project Management Unit (PMU): Provision of incremental operating costs to the PMU to continue its management capacity in carrying out the Project..

118

G o v e r n m e n t o f R o m a n ia

G e n e ra l S e c r e t a r ia t o f

t h e G o v e r n m e n t

P r im e M in is t e r C h a n c e l le r y

M in is tr y f o r S m a l l a n d

M e d i u m - S iz e d C o m p . , T r a d e ,

T o u r is m & L ib e ra l

M in is t ry o f A g r ic u l t u r e a n d R u ra l

D e v e lo p m e n t

M in is t ry o f C o m m u n ic a t io

n s a n d I n f o r m a ti o n T e c h n o lo g y

M in i s tr y o f C u l t u r e a n d

C u l t s

M in is t ry o f D e f e n c e

M in i s t r y o f D e v e lo p m e n t , P u b l ic W o rk s a n d H o u s in g

M in is t r y o f E c o n o m y a n d

F in a n c e

M in is t r y o f E d u c a t io n ,

R e s e a r c h a n d Y o u th

M in is t ry o f E n v i ro n m e n t

a n d S u s ta in a b le

D e v e lo p m e n t

M in is t r y o f F o re ig n A f f a i r s

M in is t r y o f I n te r i o r a n d

A d m in i s t r a t iv e R e f o r m

N a ti o n a l A g e n c y o f

F is c a l A d m in is t ra t io n

( A N A F )

N a t io n a l A g e n c y f o r

N a t u r a l P r o t e c t e d A r e a s a n d

B io d iv e r s i t y C o n s e r v a t io n

N a t io n a l A g e n c y o f

C iv i l S e r v a n t s

R o m a n ia n S a v in g s B a n k

(C a s a d e E c o n o m i i s i

C o n s e m n a t iu ni - C E C

A N R E - R o m a n ia n

E n e r g y R e g u la t o ry

A u t h o r i t y

C O U R T O F A C C O U N T S

G a s R e g u la t o ry

A g e n c y A N R G N

Annex 12. Beneficiaries of the Project

119

Annex 13. Revised Components, Beneficiaries and Expected Benefits

Original components

Revision of components70 Revised beneficiaries and expected benefits

D. Improved business environment 1. Strengthening e-business

* Added e-Romania Gateway and establishment of telecenters by the Ministry of Communication and Information Technology to the sub-component.

Increased knowledge sharing.

5. The Jiu Valley Region

* Added e-business to the sub-component. Increased knowledge sharing.

E. Institutional and governance reform 1. Public expenditure management

(i) MoPF * Added training to the sub-component. More skills building. (d) government accounting

* Added financial reporting to the sub-component..

Introduction and implementation of internationally-recognized accounting standards and financial audit requirements.

** Added a new sub-component: (1) (ii) provision of TA, goods and training to the National Agency for Fiscal Administration (NAFA) to support analytical studies on revenue administration issues.

To better address the issue of the improvements in the collection of contributions, the Government (the GOR) decided to create a separate agency, the NAFA, by merging the directorates responsible for the activities of tax administration within the MOPF. The NAFA became the single collecting agency for all the contributions and personal income taxes. It was to be the main beneficiary under the planned Bank-financed Revenue Administration Reform Project (FY06). It was established in January 2004, and required advice in identifying capacity building priorities to be funded under the planned project.

4. Integrated information system for document management

* Replaced with a new sub-component: 4. Provide TA, goods and training to the Ministry of Administration and Interior for preparation, development and implementation of system for Civil Services Reform monitoring indicators, management and impact.

The original activity was eventually cancelled due to the expected high costs. It was also thought that it could be funded under an EU grant. With regards to the new activity, after 2000, the GOR identified a public administration reform as a central objective of its program. It launched trimming of public sector staffing levels to reduce the fiscal burden of the public administration. The evolution of public sector wages was a source of inflationary pressures. Public administration was viewed as inefficient, and there was a need to strengthen its governance and capacity through TA to the Ministry of Administration and Interior.

5. Rule of law * Replaced with a new sub-component: 5. Provision of TA, goods and training to the Ministry of Justice (MOJ), Superior Council of Magistracy (SCM) and Courts for carrying out a program of judicial reforms.

The GOR had launched a number of important initiatives since 2000 aimed at reforming the judiciary and strengthening the rule of law. In September 2003 the GOR adopted a comprehensive Judicial Reform Strategy and an implementation plan. PPIBL was to participate in supporting the MOJ, SCM and Courts in implementing it.

- * Added a new sub-component: 7. Provision of TA, goods and training to the Ministry of Administration and Interior and to the MOPF for improvements in intergovernmental fiscal

The GOR had launched fiscal decentralization in 1998. Intergovernmental coordination and cooperation were considered key factors for successful decentralization and good local governance. TA to the Ministry of

70 * refers to the 2004 loan amendment and ** refers to the 2006 loan amendment.

120

relations. Administration and Interior and to the MOPF was required to build capacity and cooperation.

- * Added a new sub-component: 8. Provision of technical assistance, goods and training to the General Secretariat of the Government (GSG) and Prime Minister Chancellery for reforms in policy making and administrative accountability.

The GOR had adopted legislative changes to limit the scope of emergency ordinances. A new Public Policy Unit had been established in the GSG to build policy formulation capacity towards better strategic prioritization and fiscal impact assessment. TA was required to assist GSG and Prime Minister’s Chancellery in these efforts.

- * Added a new sub-component: 9. Provision of TA, goods and training to the Ministry of Labor, Social Solidarity and Family to carry out a labor code review, labor market study, strategy and action plan.

The GOR adopted a comprehensive employment plan that provided a legal basis for implementing labor market reforms. It was planning to enhance flexibility of the labor market to facilitate labor mobility. TA was required to assist the Ministry of Labor, Social Solidarity and Family in these efforts.

- * Added a new sub-component: 10. Provision of TA, goods and training to the Ministry of Education, Research and Young People (MOE) for reforms in the education sector.

The GOR had moved to a new phase in the education sector reforms. The objective was to provide more adequate and equitable financing for education and to align the roles and responsibilities of education at the central and local level with financial decentralization. TA was required to assist the MOE in these efforts.

- * Added a new sub-component: 11. Provision of TA, goods and training to the MOH for reforms in the health sector.

The GOR faced important challenges to provide health care to citizens. Compounding the impact of low spending (compared to the EU), resource allocation within the sector was inefficient. TA for health administration to the MOH was required to design a strategic and action plan and launch their implementation.

- * Added a new sub-component: 12. Provision of TA, goods and training to the Ministry of Transportation, Construction and Tourism (MOTCT) for reforms in the roads and railway sectors.

The GOR was launching a restructuring program aimed to establish the Romanian railway companies as viable business with good productivity. Work was required to rationalize the network and services, completion of interoperability and safety regulations with EU directives etc. TA was required to assist the MOTCT in these efforts.

- ** Added a new sub-component: 13. Provision of TA, goods and training to the Ministry of Environment and Water Management (MOEWM) to carry out reforms in the environment and water management sectors.

The 2006 CAS included a $50 million environment management project to build capacity (including in a new national agency) and to implement the environment acquis and effectively absorb EU funds. The PPIBL was amended to support the MOEWM in these activities.

E. Project Management Unit

* Added PAL PMU to strengthen their management capacity in carrying out the Project and to perform their activities under the Programmatic Adjustment Loan (PAL) proposed for Bank financing.

Because of the ambitious objectives of the reforms, the Government was aware of how much implementation effort it required (including TA support) and therefore established a high level PMU in the MOPF to coordinate implementation of the reforms. It was established in 2004 in the Prime-Minister’s Chancellery for monitoring the preparation and implementation of the PAL activities, and its funding was allocated to the PPIBL. The PAL PMU was headed by a director and five individual consultants responsible for implementation of the PAL program, one assistant director and administrative assistant.

121

Annex 14. Implementation Schedules of the World Bank Financed and Administered Projects during 1999-2008

2Q99 ..//.. 4Q01 1Q02 2Q02 3Q02 ..//.. 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 ..//..

PIBL

PPIBL TF050477

PSAL1

PSAL2

PPIBL

PAL 1

(PAL 2 dropped)

PAL TF054659

Original implementation period

Extended implementation period