ECA report: Money from PNRRs has a very hard time reaching the real economy

The European Commission paid to the EU member states, in the first three years, of the total amount of 724 billion euros foreseen in the Recovery and Resilience Mechanism (RMR), only 213 billion euros, which represents only a third of the funding allocated until the end of the year 2026, shows the audit report published yesterday by the European Court of Auditors (ECA) regarding the spending of sums intended for recovery following the Covid-19 pandemic.

Ivana Maletić, head of the MRR audit team, said: "We are sounding the alarm because, by the middle of the mechanism's application period, EU countries have used less than a third of the planned funds and achieved less of 30% of their predefined milestones and targets. (...) The timely absorption of the money from the MRR is essential: this way, blockages in the implementation of the measures towards the end of the mechanism period can be avoided and the risk of inefficient and erroneous expenses is reduced".

The auditors within the ECA are dissatisfied with the rate of use of the funds and especially with the fact that, of the 213 billion euros paid by the European Commission to the EU member states, very little money has reached the final recipients - small and medium-sized enterprises, large companies in the energy field or in education.

• Long delays in submitting payment requests

"In fact, almost half of the funds from the MRR paid to the 15 member states that provided the necessary information had not yet reached the final recipients", show the ECA experts, who also identified a problem: almost all member states submitted payment requests late to the European Commission.

According to the ECA auditors, the delay in the submission of applications was motivated by the central authorities of the member states through the prism of inflation or supply deficits, by the uncertainties regarding the rules related to the environment and by the insufficient administrative capacity.

ECA shows: "According to the situation at the end of 2023, the EU member states had submitted 70% of the planned requests, for an amount about 16% lower than expected; for various reasons, 7 countries had not received any funds at all for satisfactorily meeting milestones and targets. The Commission and Member States have taken some measures, notably in 2023, to facilitate uptake, but it is too early to assess their impact. There is a risk that not all planned measures will be completed on time. By the end of 2023, less than 30% of the total of more than 6,000 milestones and targets (in other words, progress indicators) had been submitted. Therefore, a significant number of them remain to be fulfilled - possibly the most difficult. Most countries prioritized reforms before proceeding with investment. However, the concentration of investments towards the end of the period risks leading to even more delays and slowing down absorption. Last but not least, payouts do not necessarily reflect the proportion and importance of benchmarks and targets. In other words, significant amounts could be paid without the Member States having completed the respective measures".

• Investments canceled by the Bucharest authorities

As far as our country is concerned, the European Commission has so far approved only two payment requests, the third request is still being confirmed with the experts in Brussels, in view of the failure to meet some benchmarks and targets. Furthermore, the report shows that, although the third payment request should have been submitted by the end of the first quarter of 2023, it was submitted at the end of last year, more precisely on December 15, and request number 4, which should have submitted at the end of the third quarter of 2023, it has not yet been forwarded to the European Commission.

These delays in payment are also reflected in the amounts received by our country on the PNRR, where until now only 21% of the 28.5 billion euros allocated initially has been paid to us by the Community Executive, a percentage that is far below the EU average, of 37%. Moreover, we are not doing well even in the situation of meeting the assumed reform benchmarks and targets, having a percentage of 14%, compared to the 19% average of the European Union at the end of last year.

The ECA auditors also found that the PNRR of our country included an investment for the construction of a distribution network prepared for hydrogen, an investment against which, during the visit by the representatives of the European Court of Auditors, the representatives of the Government stated that it would not could be completed by the end of 2026.

The ECA report states: "The main reasons cited were the innovative nature of the project and uncertainties regarding the legal and operational framework, as well as various risks related to technical implementation. By the time of the Court's audit, no progress had been registered with regard to this investment, and the Romanian authorities proposed the removal from the recovery and resilience plan of the sub-measure regarding the construction of the gas distribution network from renewable sources. The proposal was accepted by the Commission".

We mention that, according to the statements of Prime Minister Marcel Ciolacu, the Government will request the European Commission to cancel another hydrogen investment included in the PNRR. It is about the purchase of some hydrogen trains, and the Government's reasoning is based on the fact that the Railway Reform Authority organized the tender for these trains three times, but no bidding company came forward.

• Delays in meeting milestones

The quoted document also mentions the fact that in our country there were delays of eight months regarding the fulfillment of some milestones in the PNRR.

According to the European auditors: "Romania's recovery and resilience plan included an investment regarding the establishment of production/assembly/recycling units for batteries and photovoltaic cells and panels. The first milestone, planned to be reached in the third quarter of 2022, was the signing of the related contracts. However, this was achieved with a delay of more than eight months. The Romanian authorities launched the prior notification procedure for the state aid scheme in May 2022. This process took seven months. Consequently, the State aid scheme was officially notified to the Commission only in December 2022. The authorities launched the call for proposals for the investment in question in January 2023, including a standstill clause, as the State aid scheme was not yet in force, and they once extended the deadline for submitting applications. The state aid scheme was only approved in February 2023. From the discussions with the Romanian authorities it emerged that the uncertainty regarding the validity of the state aid scheme had been the reason for a low response rate".

The same document also states that the PNRR of our country includes an investment for putting into operation the combined production of heat and electricity in the district heating sector, with an installed electricity production capacity of at least 300 megawatts (MW). It is about cogeneration.

The ECA auditors state: "The initial milestone for this measure was the signing of contracts, followed by a target of commissioning a capacity of 300 MW. After presenting a first batch of contracts, the Commission expressed concerns about their validity and that they would be insufficient to cover the 300 MW target. Later, the Romanian authorities presented additional contracts, which they claimed covered a total capacity of 349 MW. The authorities also claimed that their initial understanding of the milestone was affected by certain inconsistencies between the English and Romanian versions of the Council Implementing Decision and the Operational Agreement. This resulted in a duration of six months for the evaluation procedure, at the end of which the Commission concluded that the milestone had still not been met satisfactorily, as the Romanian authorities had not provided reasonable assurance that the respective signed contracts were correlated with the central heating needs of the country. In addition, the Commission considered that the authorities had not accurately assessed whether the funding applications met the requirements set out in the call for proposals".

Consequently, the payment related to the fulfillment of this milestone has been partially suspended, conclude the experts of the European Court of Auditors, who state that if things continue in this way there is a high risk of not completing all the investments and reforms scheduled to be fulfilled by the end of the year 2026.