State aid: the spark that starts the engine of economic increase in Romania?
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Strada General Constantin Budişteanu, Nr. 28C
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IULIAN SORESCU
Associated Partner, Head of Financial Department
NOERR FINANCE & TAX S.R.L.
After 1989 the economic development of Romania was supported by various incentives or benefits offered to the investors, such as free trade zones, tax exemptions on profits or employees taxes, funds for low developed areas etc. However, once Romania has entered in European Union the number of such incentives that may be granted to various investors has been reduced as a common legal framework for all EU countries is intended to be applied.
Moreover, most of the actual incentives need to be agreed with EU before being announced and applied. The most important support measures for companies now are the EU structural funds and the state aid schemes.
In this article we will focus on the state aid schemes of main interest for medium and large companies, presenting their criteria of eligibility, the beneficiaries until present and available funds. Is the state aid a spark that can turn to full power the engine of Romanian economy?
DEFINITION OF STATE AID SCHEMES
The definition of State aid is presented in Article 87(1) of the EC Treaty which states that: “Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.”
In Romania, the main interest nowadays is focused on the state aid schemes that have as objective the regional development through stimulation of realizing investments and creation of new workplaces, approved by GD 1680/2008 (“medium scheme”) and GD 753/2008 (“large scheme”). It was also applicable a “de minimis” scheme through GD 1164/2007 but the success was so great that the funds were allocated until the half term of the scheme. The first following table presents the main characteristics of those schemes.
The medium scheme is aimed to support large investment projects by granting state aids for projects of at least EUR 5 mn and that create at least 50 new working places. The scheme has been recently enlarged by changing the eligibility criteria, by reducing the minimum thresholds for eligibility from EUR 10 mn to EUR 5 mn and the number of new working places from 100 to 50, in order to offer the SMEs category the opportunity to benefit as well. The enlargement came also as a result, as the number of eligible companies on the old criteria was limited and there was a risk that the funds would not be allocated over the life of the scheme.
Under this scheme there may be reimbursed 40% of the eligible costs in Bucharest/Ilfov region and 50% of eligible costs in the other regions, up to EUR 22.5 mn and respectively EUR 28.1 mn.
The large scheme, on the other hand, is more limited as it offers funds only for companies that are realizing investments of at least EUR 100 mn and are creating at least 500 new working places. The purpose is similar to the medium scheme, therefore to finance projects that are supporting the regional development. Also, inside the scheme the project needs to have eligible costs of at least EUR 50 mn.
Concerning the types of investment projects that are financed, most of production projects, medical services and tourism are eligible for state aids. However there are some fields of activity that are excepted explicitly, as presented in the second table.
ACCELERATED DISTRIBUTION FOR DE MINIMIS AND MEDIUM SCHEME
The potential beneficiaries are perhaps concerned of the rhythm of allocation of those funds, as the practice with EU structural funds was that the start on each operational programme is slow and the period of really obtaining the funds is very long. However, we have analyzed the trend of state aid allocation on the “de minimis” scheme and this is showing an exponential increase of the number of beneficiaries, after a timid allocation in the first year. In the case of “de minimis” scheme the funds allocated for the period 2007-2011 were allocated until 2010, ensuring a positive impact on the Romanian economy.
We really believe that this pattern will be repeated also for the medium scheme, with a small number of beneficiaries in 2009 followed then by very bold increases in beneficiaries in 2010 and thereafter. As a result, it is very probable that the funds will be entirely allocated before the end of the scheme, in 2013.
SUCCESS STORIES
On the medium scheme the Government financed in 2010 ten projects totaling an investment of EUR 711 mn and creating 4,767 new work places. Those projects benefited in total of about EUR 214 mn, out of which EUR 85 mn were already paid in 2010. There were financed two main categories of investments:
A. Investment projects for stimulation of economic development. Main beneficiaries were Pirelli, Renault, Aaylex Prod.
B. Investment projects for ensuring economic sustainable development. Main beneficiaries were Dacia, Delphi Diesel Systems, Premium Aerotec, Lufkin Industries, Remar and International Automotive Components Group.
On the large scheme, in 2010 Government approved the project for energetic efficiency for Turceni, in amount of EUR 296.5 mn. This project received about EUR 36 mn as state aid and will generate 500 new working places.
The table below presents a chronology of the public cases of state aid granted to investment projects on all those schemes.
STATE AID: AN INVESTOR PERSPECTIVE
Nowadays the market is more centralized and developing countries are struggling to attract investors in order to foster the economic development. This increased competition lead more countries to present similar conditions before the investors with regard to the fiscal regime, qualification of working force and infrastructure.
However, the practice showed us, as in Premium Aerotec success story, that granting state aid may make the difference for an investor in order to decide in favour of Romania. This fact is confirmed also by the executives of other well-known companies we are working with, companies that at their turn are also contemplating to invest in Romania.
