Country:

Romania

Subject:

Suspension of SAPARD payments

Introduction:

In its letter dated 9 June, the Directorate-General for Agriculture and Rural Development of the European Commission (DG Agri) has notified Romanian authorities that it is suspending 2008 payments from SAPARD pre-accession funds. This action affects altogether a total amount of 200 million EUR of subsidies which can be lost unless Romania realizes the requests of the DG effectively. This measure of the Commission has generated waves within Romanian public opinion not only because of the layoff season prevailing but also because of its political and, for many people, even practical importance.

Press sharply criticized the measures taken by the Ministry of Agriculture and Rural Development where they did not inform either the public or the farmers waiting for their decided payments on the contents of the letter and its consequences. Namely, the news about suspending payments was leaking out from the Commission directly to the Romanian press after a one month delay. Minister Dacian Ciolos is promising immediate measures and the entrainment of the responsible. In the meantime farmer associations are preparing to sue Romanian authorities for keeping back information and for being misled. Those farmers and associations whose support was already accepted are forced to suffer great loss because of high banking costs on running projects and the delay of payments.

Analysis:

Romania and Bulgaria, the two new EU member states were often criticized for corruption and the misuse of community sources. The last time it was Bulgaria seated at the 'dunce's seat' of the EU as the Commission suspended the transfer of more than 800 million euro referring that EU financial sources are used throughout corruption. Both in the case of Bulgaria and Romania, the payments of the pre-accession funds are at stake. These funds were typical mostly during the period prior to accession but their final utilization, closing and check are due now. Whereas, in Bulgaria, the Commission pointed out corruption, misuse and political influencing as the main reasons for suspending payments (and all the three funds, ISPA, SAPARD and PHARE are involved), in Romania, it is merely about the SAPARD (agriculture, rural development and food industry) program.

The Commission is not talking about corruption in the case of Romania, "merely" about the deficiency of the system judging, handling and controlling the supports. The communication of the Romanian authorities has visibly one goal: the problems faced in Romania shall not be mixed up with those seen at their southern neighbours and to prevent themselves from being mentioned in connection with corruption and misuse in any way.

During this year, several times, the Commission has warned the Romanian authorities with regards to deficiencies and incompletion around the managing of the agricultural and rural development funds. In March attention has also been raised in a letter that the Rural Development and Fishery Funding Agency (APDRP), which among others handles the SAPARD funds as well, does not advocate the financial interest of the European Union properly, furthermore from time to time accepts incomplete applications.

This agency can also be accused of not fulfilling the regulation of the 90 days period of the process of judgment and actual payment of demands, since examples show that already after 30 days payments have been transferred to applicants, which can provide unique opportunities for errors, even multiple or parallel payments. In this case primarily the two measures of the SAPARD program have been highlighted: 1.2 measurements concerning the hygiene of animals and plants, and the security of foodstuff, respectively 3.3 agrarian and environmental measurements.

In a letter on 5 May DG Agri informs the Romanian authorities that due to the lack of the effective handling of the order of procedure prescribed, it inhibits the payments of the two above described measures, which effects almost 1.2 million Euro. Emphasizing the penalty like action DG also required from the Romanian authorities that they shall in the future not demand the reimbursement of surplus charges generated by failed payments from Brussels.

The direct antecedent of the current around 200 million Euro suspended subsidy was a controlling audit made in Romania by DG Agri between 3-10 June. According to the verifications of this process the decision was made in Brussels to suspend the SAPARD payments for the whole year of 2008. In the letter of suspension the Romanian authorities were asked to prepare at latest until 31 August a complex plan of action, where all incompletion within the system are complemented.

This action plan shall primarily concentrate on the improvement of the management of controlling and operating of the system of subsidies, and enhance the transparency and verifiability. DG furthermore demands that the already considered applications and supported projects go under a process of re-control and if irregularities or imperfection are seen subsidies shall be paid back to the Brussels' cash register.

Already prior to the leaking of the letter, the authorities - setting a 31 July deadline - had prepared and sent an action plan to the DG. They were given the answer that the plan should include more specifications and that the new deadline for the final action plan was 31 August. The suspension of payments can be abandoned in case the Romanian authorities are able to prove that the evaluation of application, the granting, utilization and control of subsidies fully comply with the requirements.

Concerning this case, Minister Dacian Ciolos and László Klárik, head of the Agency responsible for the payments both said that they took immediate measures as a result of which the situation will be settled in a way that is also acceptable for Brussels. Meanwhile Agrostar, one of the biggest farmer associations threatened to initiate legal proceedings against the agency for misinforming those who were counting on the subsidies and who suffered significant financial damages due to non-payment. Most of the 1300 affected projects would have partly been financed from bank loans. Thus installments and interests are already due, though the projects have not even been realized.

As far as his personal responsibility is concerned, the minister stated that it was a mistake to concentrate exclusively on the funds available following the EU-accession and more attention should have been paid to the closure of pre-accession funds. He also claimed it a mistake that they did not inform the public in time, though he plead that they did not want a press scandal, therefore they rather concentrated on coping with the problems as soon as possible. The minister emphasized the responsibility of the agency, as well, as they were not able to evaluate and perceive the dangers and risks through their self-controlling mechanisms, by which they could have avoided strong criticism from Brussels. He stated that the issue is not simply about 200 million EUR, but about the credibility and image of Romania, about the country's acceptance by other European partners, in which they have suffered serious damages due to this issue.

In the meantime, several high ranking officials of the agency resigned, denying that their resignation is in relation with the issue. László Klárik, CEO does not consider himself to be responsible for the situation emphasizing that he had just taken over an already existing and working organization and he did not have either the time or the possibility to reshape it. He promised that they will immediately improve the efficiency of the system and eliminate the imperfections causing mistakes according to the action plan. Parallel, the staff of the agency was strengthened so that there is enough capacity to follow the projects. So far, only 10% of the projects have been checked on site which was, again, criticised by the DG advising that all the projects should be checked.

The authority's right to check projects is prevailing within 5 years after the closing of the project. Within this time the authority can check the fulfilment of the contracted conditions. If the project does not turn into an income producing enterprise the support shall be paid back to Brussels. As the CEO says, such cases can occur mostly when constructing pensions within the framework of the rural development projects. According to the CEO, the refreshed procedural order will be audited by the Romanian audit authority. If it finds it acceptable payments can be reopened from the national source. Transferring the EU funds to the Romanian state budget can be re-started only if the operation of the system is accepted by the Commission's audit organization, as well.

Summary:

Romania in her struggle to get rid of her negative judgment was undermined by the measures taken by DG Agri of the Commission. This case puts the spotlight on the poor general conditions of the country and the institutional system in respect of preparedness for the EU membership. Compared to the other CEE countries, Romania had to take a much shorter road and much less efforts to the accession. In respect of Romania and Bulgaria, the EU was more permissive regarding the conditions necessary to the membership. The consequences of the unprepared conditions are well to be felt by nowadays. The Commission, though, seems to be committed to prevent infringements by such drastic counter measures.