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Last call for state aid projects

We are in March 2013, the last year of validity of the framework negotiated by Romania with European Commission for state aid schemes.

 

Up-to-date outline  
 
 
This will automatically involve the fact that at end of 2013 all those schemes will expire and the files that would be still under the analysis at that date will be rejected. An important clarification to make is that the files approved until end of 2013 will receive payments according to the investment implementation plan, the last reimbursement being necessary to be performed before end of 2018.  
 
 
Practice has shown that applications for state aid are not always complete, additional clarification being necessary and therefore, a real time for analysis of a project by the state aid department is needed. The average time on our projects was between 2 and 5 months. Therefore, the last moment for submission of applications for state aid under this framework would be around end of July 2013, in order to avoid the risk of having the project rejected.
 
 
As a result, now it is the moment for companies to really take the decision whether a feasible investment project for expansion or diversification of activity in Romania may be constructed and presented to the state aid department or not, this being an unique opportunity to share the risks of a project with a serious partner, the Romanian Government.
 
 
Available schemes
 
 
In Romania, currently, almost all the fields of activity are covered by the state aid schemes, under the framework agreed at EU level, with the latest scheme approved GD 797/2012 (for IT&C, R&D, innovative products/processes etc.) meant to finance also the Romanian intelligence. Other schemes that have been proved popular are 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 with subsequent changes ("medium scheme") and GD 753/2008 ("large scheme"). It was also applicable a "de minimis" scheme through GD 1164/2007 for financing of up to 200.000 EUR, but the success of this scheme was so great that the funds were fully allocated until the half term of the scheme. The table below is presenting the main characteristics of the available schemes.
 
 
The medium scheme, the most popular available scheme, is aimed to support large investment projects by granting state aids for projects of at least 5 mil. EUR initial investment and that create at least 50 new working places. The scheme has been enlarged by changing the eligibility criteria, by reducing the minimum thresholds for eligibility from 10 to 5 mil. EUR and the number of new working places from 100 to 50, in order to offer the SMEs category the opportunity to benefit also. The enlargement came also as a result as the number of eligible companies on the old criteria was limited and it was the risk that the funds will not be allocated over the life of the scheme. Moreover, an enlargement of the scheme took place from the point of view of the fields supported, now also tourism and medical services being eligible beside the industrial production one.
 
 
Under this scheme there may be reimbursed 40% of the eligible costs in Bucharest/Ifov region and 50% of eligible costs in the other regions, up to 22,5 and respectively 28,1 mil. EUR. 

 
Status of schemes
 
 
At the end of year 2012, on the medium scheme (GD 1680/2008, including also beneficiaries of GD 1165/2007) the Government financed 35 investment projects totaling an investment of approximately 1,3 billion EUR and creating more than 10.500 new working places. Those projects benefited in total of more than 430 mil. EUR state aid.
 
 
Only in 2012 there were initiated more than 11 state aids on this scheme, that will generate more than 397 mil. EUR investment and more than 4.100 new working places, without considering the multiplier effect that is usually realized in the economy through partners. Available funds from the initial budget of 1.000 mil. EUR remaining to be allocated this year would be of more than 500 mil. EUR. 
 
 
Also on the GD 797/2012 scheme the first projects have been submitted in 2012 but still under analysis as at end of year 2012. Even if the budget is smaller, at 100 mil. EUR, it is expected that many investment projects in the Romanian intelligence would receive financing approval this year. 
 
 
Drawing a line now, we may say that if Romania would have been so successful as in the case of the state aid funds allocation also in the absorption of the EU funds, which now have an overall absorption rate of under 25%, a much more powerful change would have been observed in the Romanian economy.
 
 
Regional and social development through state aid
 
 
Investment projects usually generate for 1 EUR of state aid granted by the Romanian Government around 2-3 EUR of benefits back. Moreover, the state aid is supporting, through its nature, more regions in Romania, contributing to their economic and social development. As a result, the state aid schemes are not only to the benefit of the companies, which without state aid would not be able to realize the projects under the presented parameters, but also to the Romanian Government that is acting as a bank, investing in Romanian economy and collecting in exchange more taxes on salaries and on profits over the future periods. And this happens besides the other measurable effects in the region, such as development of partnerships with local universities, with professional schools, with local NGOs and realizing projects to make the local communities more responsible for their own well being. 
 
 
These are clear facts to support the idea that state aid is an important incentive that can contribute to the economic recovery of Romania, together with EU funds.
 

 
Future schemes
 
 
It is clear that where state aid schemes are available, the economic region is developing. As a matter of comparison, it is like the apparition of an oasis in a desert. It is not realizing wonders suddenly, but in time it becomes a preferred destination for travelers and starts to have a larger impact in the area. As more investors learn about the success of large or smaller Romanian or international companies benefiting from state aid, as in the cases of Renault/Dacia, Bosch, Continental, Arctic, Lufkin, Rombat and many others, they can feel that Romania is the right place to be supported for new investment projects and invest sustainably. 
 
 
There are various discussions at the European Union level in respect of the future framework approved for schemes for state aid in Romania. Expectations would be in general that the regions that have benefited mostly from state aid and EU funds, reaching a good development level, will have the state aid values/intensities reduced or even will not be eligible for state aid. This may be the case of Bucharest/Ilfov or of the West regions, but for the moment we do not have clear facts and data in this respect.
 
 
Conclusion
 
 
We have seen that the state aid schemes have the power to create and sustain regional development. Also, the state aid schemes have had a much higher success than the EU funds, probably due to the fact of being managed at central level (State Aid department within Ministry of Public Finances) and in a professional way. 
 
 
We do not know at present what new state aid schemes will be published under the framework to be approved for the next 7 year budget, their objectives, budgets and intensities. 
 
 
Important to note is that now it is the last call to start preparing a suitable project to benefit from state aid, which, after the analysis of the Ministry of Public Finances, may still receive a Financing Approval by the end of 2013. 
 
 

Read the full report in attached pdf document

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NOERR FINANCE & TAX