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Functional Reviews
 2011
International Bank for Reconstruction and Development / The World Bank
Romania Country Office, 31, Vasile Lascar st., Bucharest, sector 2, 020492, Romania
email: bmyers@worldbank.org, tel.: (+40 2 1) 201 03 11
All rights reserved
Functional Reviews
Acknowledgements
This brochure is a product of the staff of the
International Bank for Reconstruction and
Development/The World Bank, in cooperation
with Dalberg Global Development Advisors. The
Bank gratefully acknowledges the strong support
and collaboration by Dalberg Global Development
Advisors, especially NicolasTheopold (Project
Manager) and Wouter Deelder (Partner). The
Romania Functional Reviews, on which this
document is based, were prepared between
March and October 2010 by a World Bank
ii
team consisting of Bernard Myers (Overall
Task Team Leader and Center of Government),
SebastianEckhardt (Public Finance), HolgerKray
(Agriculture and Rural Development), Mohammed
Essakali ( Transpor t), Mariana Moarcas
(Pre-University Education), and Donatode Rosa
(Competition). For the Education sector, the
chapter has been updated to include findings
and recommendations from a second volume
delivered to the Government in March2011 on
the role of the local level.
 Table of Contents

Acknowledgements ................................................................................ ii
Glossary of Acronyms ............................................................................ iv

CONTENTS
Introduction .............................................................................................. v
1 Common Themes .......................................................................1
2 Center of Government ...............................................................5
3 Public Finance ............................................................................ 11
4 Competition Council ................................................................19
5 Education ....................................................................................27
6 Agriculture and Rural Development ......................................... 35
7 Transport .....................................................................................41

iii
 Glossary of Acronyms
AGWP Annual Government Work Plan
ANAF National Agency for Fiscal Administration
APDRP Paying Agency for Rural Development
APIA Agricultural Paying and Intervention Agency
ARD Agriculture and Rural Development
CAP EU Common Agricultural Policy
CHU Central Harmonization Unit
CEO Chief Executive Officer
CFR SA Societatea Naional de Ci Ferata (railway infrastructure company)
CFR Marf Societatea Naional de Transport Feroviar de Marf
(railway freight company)
COG Center of Government
DEA Department for European Affairs
DG Directorate General
EU European Union
EUR Euro currency unit
FBS Fiscal Budget Strategy
FRL Fiscal Responsibility Law
GOR Government of Romania
GVA General Secretariat of Government
GLOSSARY

HR Human Resources
MADR Ministry of Agriculture and Rural Development
MERYS Ministry of Education, Research, Youth and Sports
MoPF Ministry of Public Finance
MOT Ministry of Transport and Infrastructure
MTEF Medium-Term Expenditure Framework
NRP National Reform Program
OECD Organization for Economic Cooperation and Development
PPD Public Policy Department
PPU Public Policy Unit
PPP Public private partnership
RCC Romanian Competition Council
RNCMNR Romania National Company for Motorways and National Roads
RON Romanian Lei
SOE State-owned Enterprise

Measurements: 1 EUR = 4.2 RON/1 RON = 0.3 US$

km (s) Kilometers
km/h Kilometers per hour
pax-km A unit equivalent to the movement of one passenger
by one kilometer
route-km Kilometers of commercially operated railway route in network
Metric ton of 1,000 kilograms
tone A unit equivalent to the movement of one tonne of
tonne-km freight by one kilometer
track-km Kilometers of railway track in the network (including duplicate
and technical tracks)
train-km A unit equivalent to the movement of one train by one kilometer

iv
 Introduction
The material in this brochure is a high-level summary
presentation of the first six Functional Reviews of
the Romanian Public Administration and should be
considered for offi cial use only. The brochure does
not replace the content of the Romania Functional
Reviews, and should be not be quoted or referenced
directly. Any cross-reference or citations should be
made to the original text of the Romania Functional
Reviews. The ndings, interpretations, and conclusions
expressed in this volume do not necessarily re ect
the views of the Executive Directors of The World Bank
or the governments they represent.
The purpose of the brochure is to provide information
about these issues to the Romanian government
officials, European Commission officials, and
INTRODUCTION
World Bank staff. The brochure aims to provide a
concise and unied structure for the information in
the original reports with visual aids for presentation
purposes. It does not add any new information,
research, or analysis to the original reports.
Sectors are categorized as either line sectors
(Education, Agriculture, Transport) or functional
sectors (Center of Government, Competition Council,
Public Finance). The summary is intended to provide
a common framework between the reports where
possible, while recognizing that the differences in
structure between line and functional sectors require
different emphases, in particular with regards to the
tools used to set direction.
v
 Steve Rocha
1 Common Themes
Romania has changed over the last decades,
moving toward a market economy and joining the
Strategies and
European Union. Society and the economy have
evolved rapidly. The three line sectors (pre-university
Decision-Making
The quality of strategies and decision-making is a
education, agriculture and rural development (ARD),
second area where sectors share common challenges.
transport), and the three functional sectors (center
of government, competition, public nance) reviewed Sector-wide strategies: Sector strategies are identied
here are all facing new challenges and are adapting to as key to success across the sectors. They needed to be
a changed environment. updated in view of the new demands of a market-based
economy and of EU membership. Some sectors, such
The sectors differ in their characteristics and thus in their
as Agriculture and Rural Development, still lack an
strengths, the challenges they face, and the lessons
overarching strategy for the entire economic sector
that can be drawn from them. These differences are
and the institutions governing it. The strategies are
important to understand when deciding on and
needed to set the direction, reinforce accountability
implementing reforms, and more detailed summaries
for results, and help prioritization of expenditure.
of challenges and recommendations are presented
Other sectors, such as education, have made progress
for each sector in the following sections. Despite these
in developing sector-wide strategies. Here the focus
differences there are a number of common themes that
lies on implementing the strategies, making changes
emerge and that provide useful guidance across sectors.
to organizations, roles, and instruments. To this end

COMMON THEMES
these strategies need to be costed and prioritized.

Sector and Those sectors that are further in the development of

Institution Governance
Governance over economic sectors and over the
institutions in the sectors is an important area across
the board. In view of the transition to a market-based
economy and EU accession, two themes have emerged.
Accountability for results and enforcement
of policies: In many cases the sectors and the
institutions controlling them are not set up to provide
accountability for results or to enforce policies. For
example, the organization of the Ministry of Education
by functions rather than by educational programs has
made it difficult in the past to create accountability
for results. Another example is the Ministry of Public
Finance, which lacks the ability to ensure sound and
sustainable scal policies, as it does not have the
power to enforce scal discipline by line ministries,
unlike in other countries in the European Union.
Reforms are being implemented, however, such as
in the education sector, which is exploring the use of
performance contracts to create accountability, next
to organizational changes to the ministry.
Governance and separation of roles: The governance
of government institutions and State Owned
Enterprises (SOEs) is in some cases not on par with
needs in the sectors. In the transport sector SOEs need
stronger business plans and need to professionalize
their boards. At the moment Boards have many
political appointees, rather than ones chosen by
qualication. The transport sector is also challenged
by the multiple conicting roles the ministry plays:
it sets policy for the sector, owns SOEs, buys their
services, and regulates them. This creates potential
conict of interest, undermining effective governance.
sector-wide strategies can serve as role models for
sectors that have further to go in the process.
De-politicization of the administration: In several
instances the need to depoliticize structures and
decision-making is pointed out. This topic manifests
in two ways: rstly through a larger share of politically
appointed positions in key technical areas, and through
the politicization of debates and decisions. In the
transport sector, for example, political appointments
to SOE Boards are still very prevalent. Similarly in
education, politicization in decision-making needs to
be reduced to enable effective policies and decisions.
The same themes are mirrored in the functional sectors.
In the MoPF, for example, it is recommended that the
share of senior level career administrators is increased
vis--vis political appointments.
Quality of decision-making: Linked to the need for
strong strategies and lower politicization is the quality
of decision-making. Currently many policy decisions
are taken on an ad-hoc basis or are not sufficiently
informed by analyses. This theme especially comes
out at the Center of Government and at the Ministry of
Public Finance. At the CoG decision-making focuses
too much on legal compliance, rather than on policy
impact. Similarly at MoPF budget decisions should
be driven by top-down prioritization, rather than
by across-the-board changes. Changes have been
proposed, including a stronger role for central units at
the CoG in reviewing policy content before decisions
are taken. The introduction of an Annual Government
Work Plan (AGWP) would also help to improve the
quality of policy-making by establishing a clear policy
schedule with procedures and milestones, and which
would help to reduce the use of emergency ordinances.

1
Use of information in decision-making: The quality
of decision-making is directly linked to the use of
information in decisions. Currently there is relatively
weak demand for data in decision-making across
the sectors. This links directly with the overarching
themes of accountability for results, implementation
of strategies, and organizational needs. The use of
information is a process and organizational culture
question as much as it is a question of systems and
organizational structures. The reviews show that
currently there is both a weak supply and a weak
demand for information for decision-making.
Recommendations range from improving processes,
such as at CoG, to developing tools and instruments for
performance management, such as in the Agriculture
and Rural Development Administration
Organization
Reorganization to align with evolved requirements:
In many cases institutional structures in the sectors
are fragmented and not aligned with the needs
of the sectors as they have evolved. In the ARD
administration, for examples, fewer interfaces
between the Administration and policy beneciaries
are proposed to improve effectiveness. In transport,
the regulation of State Owned Enterprises could
be entrusted to a separate institution. In education,
structures should be changed in line with
decentralization, and to improve accountability
for results, by aligning structures with educational
programs, rather than with functions in the ministry.
Human resources: A more strategic approach
to human resources management is needed
throughout. This includes aligning job descriptions
with responsibilities, improving monetary and
non-monetary incentives and the introduction of
elements of performance management. In the ARD
administration, for example, a host of actions are
2
recommended that should help in aligning job
descriptions and in developing a performance
management culture. In education the use of
performance contracts follows similar objectives.
At the Competition Council the use of non-monetary
incentives has been proposed. In addition, the public
administration must emphasize the development
of key skills, which will help respond to the rapidly
evolving demands on the administration. The
current legislative framework may prevent ministries
from implementing some recommendations
independently, and therefore a more coordinated
and system-wide approach to human resource
management may be needed.
Learning and Use of
Existing Best-Practices
The final cross-cutting theme that emerges is
that of learning and use of existing best-practices.
For many of the challenges identied in the different
sectors, examples exist within the government
that can guide reform. In the education sector,
the agencies tend to have more dynamic and less
bureaucratic work processes than the ministry.
In the ARD administration, EU funded programs
show higher performance than nationally funded
ones. Whilst such performance differences within
sectors can pose challenges for the administration,
they can also serve to guide existing reform efforts.
On a cross-sector level, the education sectors work
on developing a sector-wide strategy can serve as
an example, and the RCCs work on management
quality can also be a case study for other institutions.
In summary, decision-makers from the different
sectors may benet from inspecting performance
differences within their organizations as well as
looking at examples of tools and actions from other
areas of government.
 Istvn Csuhai
2 Center of Government
Situation
Romanias accession to the European Union and In Romania, the only similar planning tool is a list of
the recently challenging economic and financial proposed legislation supporting the Government
climate has highlighted the need for strong and Program, but this has little bearing on the laws
sustained commitment to policy reform. Over the approved by the GoR only 31% of approved laws in
past decade, laws have been passed, institutions 2009 were from this program (Figure 1).
established, and significant investments made in
Figure 1: Percentage of 2009 laws from Legislative Program
implementing a modern policy process supported
by capable policy institutions. However, despite
these changes, a significant gap persists between
what is written in law and what occurs in practice;
31%
the quality of policy-making remains relatively weak 69%
compared to other European countries. Romania
cannot afford to defer reform in this core function of
government. Although measures such as the Fiscal
Responsibility Law (FRL) were recently adopted
in response to the crisis, additional measures are
needed to improve the quality of public policy, From Legislative Program
to unify budgeting and planning, and to monitor
implementation of national priorities. Not From Legislative Program

GOVERNMENT
Furthermore, there is a different approach for
Challenges EU-related policies. The government follows one

Direction
No formal methodology exists to translate
Romanias policy agenda into medium-term strategic
plans and budgets. Reforms to the policy process had
envisaged that Romanias strategic planning system
would introduce a priority-setting methodology to
link goals to plans, but the critical step of establishing a
priority-setting exercise at the beginning of the budget
process and the decision-making forum to guide this
process were never implemented. Although multi-year
strategic documents exist, there is no effective
mechanism to enable planning and budgeting on a
medium-term basis.
The link between policy priorities and resource
allocation is weak. The lack of a formal mechanism to
link the longer-term priorities with resource allocations
means that high-level strategies, such as the National
Reform Program (NRP), are approved and monitored,
but do not directly inuence the establishment of
priorities or budgets. Essentially, the responsibility
for identifying priorities and allocating the necessary
resources from within approved budgets is left to the
discretion of line ministries.
CENTER OF
process for EU-related policy issues, coordinated by the
DEA, and one for national policy issues managed through
GSG. These processes operate largely independently
and potential synergies are generally overlooked.
The policy formulation process is overly focused
on legal compliance and not sufficiently on policy
content. Policy formulation in the Romanian
Government is marked by low demand for analyses
and focus on legal compliance of policies rather than
their impact. This is evidenced by the relative absence
of public policy documents (Figure 2), the poor quality
of substantiation notes, and the limited role of the
Public Policy Department in reviewing policy issues
that are on the government meeting agenda.
Figure 2: Number of Public Policy Documents
40
30
20 36

Consequently, governmental planning tools are 10 4

weak compared to EU counterparts. The policy
process in Romania has a relatively strong focus on
0
legislative processes and on the passing of laws, rather
2006 2009
than on setting priorities and the content and quality of
policies. In most European governments, work plans
that set priorities and establish deadlines are developed
at least six months in advance for policy and legal
proposals that will require government approval.

5
The governments decision-making and policy
coordination processes need to become more
effective. Ad hoc committees continue to do the
work envisaged for the permanent network of 11
inter-ministerial policy committees.No formal process
currently exists to ensure that policy priorities guide
resource allocation decisions or that structured
deliberations occur concerning the policy rationale for
determining budget ceilings. The Coordinating Group
chaired by the Minister of Public Finance introduced a
potential source of policy priorities and decisions, but
its decision-making mandate (working on a consensus
basis), broad membership (12 Ministers, 4 agency heads,
General Secretary of Government), and form (open to
media, external invitees) were not conducive to making
trade-offs or tough policy choices.
Figure 3: Number of Decisions Announced at Preparatory Meeting
5 workload derives from special assignments and
28
Operationalization
Within the broader CoG, the number of agencies
(25) reporting to the Prime Minister, his advisors,
or the GSG, should be of concern. An excessive
number can consume the PMs time (or his advisors)
and may duplicate ministry functions and undercut
ministerial authority.
The organizational structure of the GSG undermines
the focus on policy coordination. Current reporting
relationships overload the GSG and divert management
attention. The number of direct reports (18) to the
General Secretariat of Government is too high, and the
diversity of its functions leaves little time for managing
the core policy process of government.
Within the GSG, the Public Policy Department (PPD)
spends less than half its time allocated directly
to policy management, while the majority of the
project support. Given the limited implementation
of policy process reforms in recent years, this is not
unexpected. In turn, the Public Policy Units (PPU), the
line ministry counterparts to the PPD, are undervalued
by senior ministry management and often do not
perform a meaningful policy role.

Figure 4: Number of Emergency Ordinances

Announced

Not Announced 250

200 228
Ad-hoc decision-making is reflected in the use of
decision-making tools. A high volume of ministry
proposals continues to be submitted on the 150
supplementary agenda at the weekly government
meeting. Also, it is widely perceived that the use
of emergency ordinances to override approved 100 111
parliamentary laws or to implement new laws awaiting
parliamentary approval remains a routine rather than
an exception. (Figures 3 and 4) 50
There is no formal progress monitoring at the
policy level. Even though the a rigorous monitoring 0
system was envisaged in 2005, there is no current 2008 2009
mechanism that systematically presents performance
information, such as a quarterly progress report on
priorities, or an annual report on ministry strategic
plans. Although monitoring of compliance with
instructions and deadlines does occur selectively, it
does not provide an adequate early warning system for
decision-makers. Monitoring and reporting would be
critical to improve the quality of the policy process and
its resulting policies.

6
Recommendations
Direction
The current need for reform requires a concerted
leadership effort from the government. Experience
from other countries shows that successful and
sustainable reform can be achieved in a relatively short
time. The Prime Minister, together with the Minister of
Finance, should take leadership of public policy and
nance reform, identifying it as a top government
priority. His/her and Ministers decision-making
time will be safeguarded for strategic rather than
legal or administrative issues, and the GSG should
be empowered by the Prime Minister to enforce rules
and assure the quality of ministry proposals.
The government should integrate policy and
financial planning to improve prioritization and
direction setting. Key steps include adopting
an integrated policy and financial planning
calendar, reinvigorating the governments strategic
planning process and establishing an appropriate
decision-making body to oversee both the policy and
nancial planning processes. Furthermore, it would
include the redesign and implementation of the public
policy document and substantiation note. Finally, it
would engage parliamentary authorities regarding
the Fiscal Responsibility Law (FRL), to constrain the
passage of laws that impose signicant nancial cost
on the government. The integration should include
the following actions:

Implement a priority-setting process at the
beginning of the planning cycle, as an initial
step in the development of the Fiscal Strategy;

Consolidate the budget planning and strategic
planning instructions and formats, issued
respectively by the MoPF and GSG, into a
uni ed methodology;

Design a streamlined strategic planning process
for ministries, where 3-year plans would be
updated annually, taking into account the
Box 1: Examples of Public Reforms
In 2000, Lithuanias Prime Minister decided to
overhaul the way in which policy and nancial
decisions were made. Over a two-year period,
the entire system was redesigned to ensure that
political direction was obtained at all key points,
that results were carefully measured, and that
policy and financial decisions were linked. A
2003 study of the results achieved indicated
significant improvements in (i) ministr y
compliance with government deadlines, (ii)
adherence to budget ceilings, (iii) the proportion
of government meetings devoted to priority
issues, and (iv) the percentage of the governments
legislative program that was delivered. In 2006, the
World Bank ranked Lithuanias strategic planning
governments strategic priorities and Fiscal
Strategy; the plans would be timed to feed into
the development of the MTEF, which forms part
of the Fiscal Strategy;

Ensure that the strategic plans reect both GoR
and European commitments;

Produce and publicly release an annual report
for each ministry that indicates achieved versus
planned results for each ministrys strategic plan.
The GSG should coordinate preparation of an Annual
Government Work Plan (AGWP). The new process will
require ministries to identify in advance all signicant
policy, nancial and legal documents to be submitted
for government approval over the coming year.
Revise standards and guidance to cover the
preparation and review of medium- to longer-term
strategic documents. In addition to using an annual
plan as a base, a stronger top-down approach
should be introduced, where the need for individual
public policy documents is identified through the
AGWP process. The procedures and timelines for
preparing, consulting on, reviewing and approving
policy and legal documents should be overhauled,
with a view to streamlining the process, avoiding
unnecessary delays, and focusing political attention
on priority matters.
The government should strengthen GSGs quality
assurance role. By requiring written comments from
GSG officials on all public policy documents and
expanded substantiation notes, and empowering GSG
to return to ministries documents that do not meet
approved quality standards, the GSG can increase the
quality of policy formulation.
and policy coordination systems as the best
among recent EU accession countries and higher
than the EU average.
In late 2005, Albanias government approved
a proposal to integrate six separate planning
s ystems (national strategy, government
program, EU integration, state budget, public
investment, external assistance). By 2007, a
new National Strategy for Development and
Integration had been approved, a priority-setting
methodology introduced, a decision-making
body chaired by the PM established to oversee
the process, and public investment integrated
with the budget process, with budget ceilings
respected by line ministries.
7
Strengthen inter-ministerial policy committees. To
improve the quality of policy documents and the
institutional support to decision-makers, inter-ministerial
policy committees could be strengthened by relying
less on ad-hoc committees. The weekly preparatory
meeting, chaired by GSG and held two days in advance
of the government meeting, has the potential to serve
as an effective coordinating mechanism, if more
emphasis is put on the policy substance of proposed
items and if the use of the supplementary agenda and
emergency ordinances can be reduced.
Establish an appropriate decision-making body
to oversee both the policy and nancial planning
processes. This body would emphasize the leadership
roles of both the Prime Minister and Minister of Public
Finance and would be structured to encourage their
substantive engagement on key policy and nancial
issues. Another option would be to revitalize the
Strategic Planning Committee, chaired by the Prime
Minister; the Minister of Public Finance could be
appointed as vice chair. The rationale would be that
such a body would enable the Prime Minister and
Minister of Public Finance to form a united front
against line ministry expenditure demands and
prevent direct approaches to the Prime Minister prior
to the government meeting. A third option would be
to deal with key issues at government retreats, which
would allow more time for in-depth discussion and
consensus building.
Operationalization
Restructure the CoG to increase the focus on
substantive policy issues. The number of agencies in
the CoG (i.e., reporting directly to the GSG or the PM)
should be more strictly limited, while the GSG should
consider a more consolidated senior management
structure. By reducing the number of direct reports from
18 to 5 or 6, the General Secretary position may be able
devote more time to policy management. Appointing a
senior political official to spearhead government-wide
implementation of policy management reform should
also be considered.
Strengthen the Public Policy Department and its
line ministry counterparts. The PPDs organization
should re ect its policy and planning mandate. A
potential structure could include six core divisions:
four policy sectors (economic; infrastructure;
social; justice & security), one central planning and
monitoring unit (strategic planning), and one project
management unit, which would coordinate and
service the various time-limited projects. A full-time
Prime Ministers Advisor should be appointed to
oversee the public policy reform process.

Initiate regular reporting on the AGWP progress.

To aid the quality of policy decisions further, the
government should improve its monitoring, evaluation
and results. To this end the government should
introduce a monitoring and quarterly reporting
system for the AGWP. It should use the preparatory
meeting as the primary forum for coordinating the
monitoring process and recommend measures to the
Prime Minister and government meeting to improve
compliance and preempt problems. Furthermore,
it should release annual reports summarising
results achieved, and it should set milestones and
performance indicators to monitor reforms.

8
CHALLENGES RECOMMENDATIONS
Lack of methodology
to translate the
Revise standards and guidance to cover the preparation and
policy agenda into
review of medium- to longer-term strategic documents
medium-term strategic
plans and budgets.

Link between policy Implement a priority-setting process at the beginning of the

priorities and resource planning cycle, as an initial step in the development of the
allocation is weak. Fiscal Strategy

The GSG should coordinate preparation of an Annual

Government planning Government Work Plan (AGWP)
tools are weak compared
to EU counterparts. The Government should strengthen GSGs quality assurance
role in preparation of the government meeting

Approaches to
Ensure that the strategic plans reect both Romanian and
EU-related policies and
European commitments
national policies differ.

Policy formulation Reinvigorate the governments strategic planning process

process is too focused on
legal compliance, rather Strengthen the Public Policy Department and its line
than on policy content. ministry counterparts

Lack of formal Initiate regular reporting on AGWP progress

progress monitoring at Use the preparatory meeting to monitor compliance and
the policy level. preempt problems

Governments Establish an appropriate decision-making body to oversee

decision-making both the policy and the nancial planning process
forum needs to be
more effective. Strengthen inter-ministerial policy committees

Reduce the number of agencies in the CoG

Adopt a more consolidated senior management structure
in the GSG

9
 Ziggy Smolinski | Dreamstime.com
3 Public Finance
Situation
The ministry has already taken important steps to
improve public nancial management. Romania
has a relatively lean and functionally focused Ministry
of Public Finance to serve as the backbone of its scal
governance arrangements. It is also able to implement
current fiscal austerity measures. Framework
legislation for budget management has been in
place since the organic budget law 500 was passed
in 2003. The legal framework has been reinforced
more recently, especially with regard to macro-scal
discipline, through the new Fiscal Responsibility Law
(FRL). The transposition of Aquis requirements into
national law resulted in changes in the internal control
environment, most importantly the establishment of
internal audit units across the government.
Despite reforms across a variety of functions,
obstacles remain. Within the ministry, best practices
exist alongside unreformed efforts. Reforms that
have been initiated in budget formulation, including
attempts at implementing program budgeting, require
further attention to ensure effi ciency and effi cacy.
Major initiatives reforming revenue administration and
unifying tax and social security contributions collection
in the National Agency for Fiscal Administration (ANAF)
have been taken. But challenges remain, particularly
in revenue collection performance and facilitating
voluntary tax compliance.
Challenges
Sector
In the wake of the global economic crisis, the
Government of Romania is facing substantial
scal challenges but also unique opportunities to
deepen and accelerate reforms. The government
is in the midst of implementing severe fiscal
austerity measures to contain the decit in a difficult
economic environment. Maintaining the current
scal adjustment path will be required to achieve the
3 percent budget decit target by 2012. Beyond these
acute consolidation pressures, effective and efficient
use of scarce public resources, including of EU funds,
is required not only to underpin economic recovery
but also to achieve the medium term policy objective of
economic convergence with other EU member states.
Current fiscal challenges have reinforced the
importance of strong scal institutions and public
finance management systems. The government
has recently adopted a new Fiscal Responsibility
Law to strengthen the institutional foundation for
more responsible fiscal policy making. If properly
implemented, the FRL will trigger profound changes
to the way public finances are managed. The law
reinforces a multi-annual budget planning process
through a scal budgetary strategy, strengthens the
authority of the Ministry of Public Finance (MoPF)
to impose scal discipline, and establishes a Fiscal
Council to provide an additional layer of independent
review and external scrutiny of scal policy. With the
legal framework in place, a key priority is now to adapt
core public nancial management processes to the
new requirements.
Direction
The Ministry of Public Finance (MoPF), ANAF, and
financial management units in line ministries
dedicate too much of their time and resources to
routine operations and functions. This limits their
ability to provide wider policy analysis, monitor fiscal
impact, manage the macro-fiscal position and risks,
and improve performance and efficiency in revenue
collection and public spending. The current budget
process is predominantly concerned with costing of
PUBLIC FINANCE
inputs. Limited attention is put on prioritization and
spending effi ciency. Consequently, the on-going
scal retrenchment has largely relied on input-based,
across-the-board cuts, for example of civil services
wages, rather than on targeted cuts in non-priority
spending programs and efficiency gains.
Romanias budget has in the past lacked credibility,
often undermining macro-fiscal discipline. The
actual budget, as implemented, deviates signicantly
from the original budget both in terms of fiscal
aggregates and composition of the budget (as
presented in Table 1, page 12). The causes of
deviations are unrealistic revenue estimates,
substantial supplemental budgets and in-year
expenditure increases, often due to spending
mandates created by laws adopted outside the
budget process without adequate consideration
of their scal impact. The actual budget remains a
strictly annual affair tenuously related to a medium
term scal outlook. Fiscal proigacy is a result of
institutional weaknesses in the budget system, in
particular the absence of a strong top down budget
process. The budget process, at least prior to the
introduction of the new legal framework, has been
largely driven by demands for spending, as opposed
to resource availability. While technically sound,
revenue estimation has reportedly been subject
to upward political pressures to allow for arti cial
increases in the available resource envelope. The
estimate is also used as a revenue target for the ANAF
and as such it is deliberately optimistic.
11
Table 1: Deviations across Expenditure Items
Operationalization
Functional 2006 2007 2008 The distribution of staff across MoPF is in large
part a result of organizational history rather than
Public Authorities 33.3 -3.7 -3.4 a reection of current needs. Staffing levels should
be rebalanced, as there are obvious areas that face
Defense -7.1 -28.6 -23.1
declining business needs: About 12% of the ministrys
Public Order 4.2 0.0 4.2 staff is employed by the units managing the EU
pre-accession funds, an area that will wind down in
Education 8.1 -19.2 -25.0 the near future. Equally, the Central Harmonization
Unit (CHU) for internal nancial control that performs
Health 6.1 -5.1 -15.6 ex ante financial control in 26 line ministries will
Social Assistance, phase out by 2011. The scal policy area has limited
2.1 0.0 -5.0 staff resources given the importance of the function.
Pensions
(Figure5). The role and functions of this unit could be
Environment -25.0 0.0 0.0 strengthened to include scal impact analysis, scal
risk monitoring and analysis and oversight of SOEs.
Industry 50.0 0.0 0.0
The allocation of human resources is not
Agriculture 0.0 -27.3 -50.0
determined on the basis of strategic priorities, and
Transport, the compensation system is opaque. There is an
20.0 11.1 2.6
Communication acute need to downsize the public administration in
the short term to contribute to scal consolidation
Economic 2006 2007 2008 targets. Untargeted budget cuts could endanger
the functioning of expenditure management and
Goods and Services -3.1 -16.4 -19.8 revenue collection in the short run through their
impact on human resources. The compensation
Wages 45.5 28.1 29.2
system at the MoPF is widely perceived as fragmented,
Capital Spending 34.4 0.0 -29.7 opaque and asymmetric. This risks undermining
staff motivation (as shown by the results of the staff
Subsidies 10.0 30.8 0.0 survey, in Figure 6). Compensation practices that
pre-date the new Unitary Pay Law included bonuses,
Legislation with signicant budgetary implications grants, and various forms of allowances, some
is routinely passed outside the budget process. of which were provided at the discretion of MoPF
Its impact needs to be monitored and managed managers while others are categorical, for example,
to protect fiscal sustainability. Such legislation, for staff involved in EU funded projects.
for example covering wage or pension
Figure 5: Distribution of MoPF Staff across Functional Areas
increases, has in the past undermined
responsible budgetary management. This Debt Management, Fiscal Policy, 1.4% Budget
re ects a weak culture of using data and 8.2% For mulation, 9.6%
Revenue Policy,
analyses to inform decision-making. 7.5% Budget Execution,
6.7%
Absorption of EU structural funds is the Others, 6.2%
lowest among EU 10 countries. Most new
PFM Policies and
member states faced initial bottlenecks Controls, 14.1%
Pre-Accession
in the implementation of structural funds, Programs, 12.4%
and Romania is no exception. Absorption
is adversely affected by a number of Coordination of EU
constraints at the level of beneciaries and Management
Mangement
and Funds and Payment
Certication, 10.6%
managing authorities. Liquidity constraints Support, 3.9% Corporate
in the financial sector have worsened Services, 20.7%
lending conditions and access to funds
for pre- and co-nancing of projects, in particular Top-level management and core execution
for private sector beneficiaries, but also for local functions are fragmented. The highest level of
governments. As of July 2010, only a low share of non-political line management and the departmental
nancing that was contracted was paid out. The low structure of the MoPF are fragmented. Below
contracting ratio suggests problems in the project the secretary level, the first layer of non-political
preparation, appraisal and approval stages. Once management comprises the heads of the first tier
approved and contracted, disbursement performance, operational units. There are a total of 35 such rst
measured by the ratio of disbursed to contracted tier operational units, which compares to about eight
funds, lags behind the EU 10 average. major top-level operational departments in other
European countries. (Table 2).

12
Figure 6: Percent of staff who agree with statement on rewards (33%):

Legend Favorable Unfavorable

How does the Ministry of Public Finance
compares with other employers? 43% 31% 18% 6%2%

I am proud to work at the Ministry of Public Finance. 51% 23% 16% 6%5%
In my work group, individual staff are held 48% 29% 14% 5%3%
accountable for their performance.
My manager demonstrates the technical competence to lead 61% 20% 9% 5%5%
the group effectively in meeting its overall goals.
I have a good understanding of what is 64% 25% 8%3%
1%
expected from me in my job.
0% 20% 40% 60% 80% 100%
Percentage Responses

While MoPFs organizational structure is impacted

by restrictions in the public administration
Recommendations
regulations, including staffing norms for types Sector
of administrative units, some organizational
Strengthening top-down elements of the budget
streamlining may be desirable to realize efficiency
process can help achieve aggregate scal control
gains through consolidation and to strengthen the
and to drive expenditure prioritization. Top-down
management structure of the ministry. Core budget
budgeting essentially divides the budget process
execution functions, such as credit opening, payment
into to a number of discreet and sequenced decision
processing, accounting, and reporting are fragmented,
points. First, a binding decision is established on the
and integration of such closely related functions
available resource envelope. This decision is taken
in the standalone IT system is lacking. Other core
based on scal aggregates that are consistent with
areas can be strengthened by further consolidation
macro-economic stability regardless of sectoral
of the ministrys organizational structure, with a re-
spending needs. Second, once the aggregate
alignment of human resources to strategic priorities.
expenditure level is determined broad strategic
This will achieve higher efficiency and greater support
inter-sectoral allocations are decided and translated
to the core areas.
into (multiannual) ceilings for individual sectors.
It support to core public finance could be These decisions are informed by government policy
modernized. While there have been initiatives priorities, as well as by the cost of existing policy
to improve IT support, for example through commitments which will constrain the room for
a m o d e r n ize d p ay m e nt s y s te m , f inan cial re-prioritization in any given year. Finally, detailed
reporting remains labor-intensive, with low decisions about allocation between different
levels of automation. The consequent lack of programs and activities are determined (by the line
reliable,timely and detailed revenue, expenditure and ministries) within the established sectoral ceilings.
commitment data for budget planning, monitoring,
expenditure control, and reporting negatively impacts
budget management. The current IT infrastructure
and systems are based on a large number of custom-
built applications that could be better integrated.

Table 2: Organization of Ministries of Finance Romania and International Comparison

1
France Germany United Kingdom Romania
Minister
Minister
Politically (Chancellor of Minister
2 Ministers 2 Parliamentary
Appointed Leadership the Exchequer) 3 State Secretaries
State Secretaries
5 junior ministers
1 General 3 (Permanent) 1 Permanent 1 General
Senior Management
Secretary State Secretaries Secretary Secretary
Top Level 17 Operational 9 Director 5 Managing 34 Operational
Operational
Management Units Generals Directors Units

Senior
2
Management Board Cabinet Meeting Management Treasury Board Ministrys College
Committee

1 These gures are derived from the Annual Reports of H.M. Treasury and H.M. Revenue and Customs for 2008-9.
2 Comprises the Permanent Secretary, Managing Directors, Director of Human Resources and Finance,
CEO of the Office of Government Commerce, and four Non-Executive Directors
13
A robust cabinet level decision-making process
reinforced by a strong MoPF is required to make
the top-down budget process work in practice.
The FRL and Fiscal Budget Strategy (FBS) aim to
reinforce the top-down elements of the budget
process. Both the determination of the overall spending
limit and the allocation of available scal space (or
indeed spending cuts) need to be supported by a
collective commitment by a strong alliance of players
in the budget process to adhere to agreed decisions.
A structured process of cabinet or sub-cabinet meetings
can help to facilitate a collective bargaining process
that formalizes decision points in the budget process.
Box 2: International Experience in
Top-Down Budgeting
Sweden: Sweden undertook significant
fiscal governance reforms during the major
consolidation effort after a nancial crisis in 1993
caused the Government decit to exceed than
12% of GDP. Today Sweden is widely considered
to have one of the strongest scal governance
systems in Europe with impressive results:
Between 1998 and the onset of the recent crisis
in 2009, the Swedish government run surpluses
every year, except for 2003 and 2004. Swedens
annual budget is anchored in a medium term
framework with rm, nominal spending limits for
3 years (current budget year and two out-years).
Every year the overall expenditure limit for the
third year and allocations for 27 expenditure
areas are collectively decided based on a
proposal by the Minister of Finance during a two
day cabinet budget retreat, which takes place
in mid March. Changes to sectoral expenditure
ceilings need to be accommodated within the
aggregate spending limit and have to be agreed
upon by all Cabinet members, including those
that absorb compensatory cuts.
In addition, the MoPFs fiscal policy formulation
function should be enhanced. The macro-economic
Directorate General in the MoPF has strong technical
capabilities to prepare sound forecasts and to advise
the ministry and government more broadly on the
appropriate scal policy stance and emerging scal risks.
To strengthen scal policy formulation, the Directorate
General for Fiscal Policy could be subordinated directly
to Minister. Also, the FRL requirement for the Fiscal
Budget Strategy (FBS) to include a statement signed
by the Prime Minister and Minister of Finance attesting
to the fairness and completeness of the information
included in the FBS should strengthen the Ministers
ability to resist pressures to increase revenue estimates
to an unrealistic level. Finally, the requirement in the
FRL for the independent Fiscal Council to analyze and
comment on the official macro-economic and budget
forecasts addresses this concern. It is important that
the Fiscal Council have adequate technical staff,
separate from the MoPF to carry out this task.
14
Improve the states oversight of SOEs by
centralizing this function in a single government
body. This could be either a dedicated unit in the MoPF
or a specialized agency subordinated to the ministry.
Centralized oversight of SOEs is the foremost good
practice recommended in the OECD Guidelines on
Corporate Governance of SOEs. This function would
enable the government to have a more accurate
picture of the asset, liabilities, and performance of
SOEs. It would help to ensure that the state maximizes
its utility as an owner of SOEs, while minimizing
potential fiscal risks emanating from SOEs and
reducing inefficient expenditure in SOE subsidies.
Direction
Refocus budget dialogue on policy and efficiency
issues. The MoPF should institutionalize a strategic
budgeting phase to drive expenditure prioritization,
based on base-line budgeting and justification
of new initiatives. The ministry should cultivate
revenue estimation, make better use of top-down
budgeting, and monitor scal impact. MoPF should
institutionalize prudent revenue estimation based on
best technical estimates, and insulate it from non-
technical revision. At the same time, it should institute
top-down budgeting, setting strategic priorities
before allocating budget lines. This would allow the
Finance Committee to create binding commitments
to ceilings. Lastly it should monitor scal impact of
new legislation.
The ministry should also redene the specic products
and services the budget department delivers to assist
decision-making during the annual budget process,
for example budget memoranda for each major
budget account. Such memoranda should analyze
sector challenges, policy objectives, and performance
track record (both financial and non-financial).
Recommendations regarding spending increases and
cuts should be based on this analysis.
Require all line ministries to identify where EU
structural funds could be accessed to nance capital
and other outlays eligible under these programs
and make sure co-nancing for EU funded projects is
prioritized. Especially for key strategic sectors (transport,
energy, research and development, rural development)
leveraging EU funds should become the main strategic
thrust of the national budget. To reinforce this strategic
focus, close collaboration between coordinating
authority and the budget department during the budget
dialogue with the line ministries is essential.
Operationalization
Reallocate human resources according to priorities,
and enhance strategic HR management. Particular
attention should be paid to areas that face declining
business needs and/or do not constitute core public
finance areas such as EU pre-accession programs,
preventive nancial control.
Areas with potentially increasing staffing needs include
scal policy formulation and macro-economic analysis,
IT, and EU structural fund coordination. Training will be
required to enable staff to respond to changing business
needs. The increasingly complex tasks performed by
the MoPF require a broad range of technical, analytical
and managerial skills.
Consolidate the first tier management structure
to enable more streamlined operations and better
coordination across functionally related areas.
Several options exist for the structure and portfolio
of directorate generals and their allocation across
different secretaries of state.
Modernize the IT environment. Romanias current
public finance systems need to be updated and
streamlined. Particular focus should be expended on
the following recommendations.

Conduct a comprehensive and detailed
IT audit to assess the MoPF's information
systems, practices and operations. A detailed
review is warranted to ensure high performance,
optimal use of IT resources and alignment of IT
investments with business priorities. It should
review the funding model, staffing levels, and
distribution of functions between the IT staff at
MoPF and its territories.

Better integrate the IT system supporting
budget management. While costly initially,
the integration of expenditure management
functions with a centralized data base and
general ledger to record all stages of the
transaction processing will provide solid
returns. There are several technical options
for modernizing MoPF Financial Management
systems; these options range from augmenting
existing systems, replacing a few components,
introducing computerized data exchange
mechanisms between related sub-systems
across the expenditure management cycle,
to investing in an integrated Public Financial
Management system.

Improve information timeliness through a
streamlined reporting system. This would
support improved financial analysis and
decision-making and comply with new
requirements stated in the FRL. The reporting
process could be streamlined through the
development of a well-designed treasury
general ledger module. This would enhance
more transparent reporting through the
inclusion of information on commitments,
accrued assets and liabilities utilizing integrated
enterprise planning IT solutions.
To strengthen revenue collection, a comprehensive
compliance policy should be developed. This would
help better target different types of risk, starting at the
front-end drafting tax law in such a way that compliance
risk is reduced, following up through taxpayer services
3 Only part of the administration could be audited, related to one year to several years and comprising all or only specied returns.
Also selective audits could be done in reference to a specic piece of third party information.
4 Romania. Improving Tax Compliance and Further Reforms; Story, Burgess and Casey, 2010.
and education, the use of third party information,
and nally through selective deployment of limited
professional resources.

Selective, risk based audit and enforcement
are key to effective compliance management
and efficient use of limited resources.
Institution-wide risk management should be
developed, deploying resources according
the level of risk involved and amount of
revenue at stake. This would include the use
of computerized audit selection and more
3
exibility in the type of audit with partial audits
(like a VAT refund audit) depending on the risk
assessment the tax administration has made.

The thresholds for large and medium sized
taxpayers could be reviewed. It should
be determined whether the reason for the
comparatively low yield in the large taxpayer
bracket is partly due to the level of the current
threshold. A multiple threshold (turnover, assets,
number of staff ) could be considered. In line
with IMF recommendations the threshold for
medium sized taxpayers should be lowered to
4
the VAT registration threshold of 35,000 so
as to categorize small business taxpayers as
those not requested to register for VAT, which
corresponds to international good practice.

In the large taxpayer segment compliance
should be encouraged through specialized
taxpayer services and increased effectiveness
of the audit function, in particular through
improved risk analysis and increased audit
coverage. Government should invest in the
development of audit methodology and
permanent education of audit staff. A certain
amount of specialization within the LTO could
be considered by creating specialized units
for certain industries like the financial and
insurance industry or in the case of Romania
the oil industry. International co-operation
and exchange of information can be especially
useful in this segment.

The cornerstones of enhanced compliance
management in the medium taxpayer
segment are reduced compliance costs and
computerized risk management directing
audits towards those taxpayers where risk
of fraud and amount of revenue at stake are
significant. Simplification of the tax system
and reduction of compliance costs is important
for the medium business taxpayer segment to
enhance voluntary compliance and to improve
the business climate, thus generating economic
growth and employment.
15
 Tax return procedures, for example, could be
limited to one yearly for corporate income tax
and quarterly returns for withholding taxes, social
contributions and VAT for the majority of medium
size business taxpayers, confining monthly
returns only to those businesses with larger
wages and turnover (say over 100,000). The
expansion of E-ling could contribute to reduced
compliance costs. In addition, efforts of the tax
administration for this segment should aim at
enhancing third party information, improving
(computerized) risk assessment and audit
selection, diversifying types of audit, directing
scarce professional resources to those cases
that are signi cant both from a viewpoint of
special as well as general prevention.

For small private and business taxpayers the
main objective will be to reduce the need for
direct contact with the tax administration
and to enhance voluntary compliance. The
handling of small taxpayers should absorb
relatively little resources and should in due
course be computerized completely. Revenue
at stake per case is small and opportunities
16
for underreporting can be reduced through
the use of third party information. Although
the 2005 changes in the personal income tax
law (introduction of a at income tax) allow
over 90% of natural persons to stay outside the
system, further simplication of the tax system
could be considered. Also, the number of tax
payments, together with the number of returns,
should be reduced and cash payments should
gradually be replaced by bank transfers. E-ling
should be made easy and free of charge. For
information and taxpayer services the internet
should be made the preferred channel with call
centers playing a supplementary role.

The envisaged shift in the compliance
management approach will require an
alignment in human resources. Investing
in an efficient training program for new
staff members and existing staff will need to
complement organizational and procedural
reforms. In particular, there will be increasing
need for experienced auditors and taxpayer
service experts.
CHALLENGES RECOMMENDATIONS
The MoPF is struggling Strengthen the role of the MoPF in leading the cabinet-level
to enforce scal discipline. process to agree on and enforce scal discipline targets

The MoPF does not play a

leading role in managing Improve the states oversight of SOEs by centralizing this
the states assets. function in a single government body

Within the MoPF, ANAF

and line ministry units,
too much time and Refocus budget dialogue on policy and efficiency issues, and
resources are dedicated implement a comprehensive compliance policy
to routine operations
and functions.

Romanias budget is
Improve the budgeting process and its outputs
not always credible, Strengthen revenue estimation
often undermining
Increase the use of top-down budgeting based on
macro-scal discipline.
strategic priorities

Legislation with
signicant budgetary
implications routinely Build capacity for budget analysis and enhance
is passed outside the administrative capacity
budget process.

The distribution of staff

across MoPF does not Optimize the number of core MoPF positions
reect current needs.

Better integrate IT systems supporting budget management

Public nance Conduct a comprehensive and detailed IT Audit to assess the
systems are often dated MoPF's information systems, practices and operations
and cumbersome.
Improve information timeliness through a streamlined
reporting system

17
 Steve Allen | JupiterImages.com
4 Competition Council
Situation
The Romanian Competition Council (RCC) is a
young organization that is making progress toward
its goal to meet EU standards. Established in its
present form in 2004 through the combination of two
legacy agencies, the RCC compares favorably with its
public sector counterparts. The RCC is charged with
actively guaranteeing market competition, enforcing
compliance to the law, ensuring that state aid provided
to rms meets rigorous EU restrictions, and advocating
and promoting broader understanding of competition
rules and benets.
Romanias ability to prosper in the common
market requires a strengthened commitment to EU
competition principles and their protection. At the
moment, Romanias legal and organizational framework
for enhancing competition is tenuous and the recent
economic and scal crisis puts recent gains at risk.
The current policy performance is characterized rst
by the Romanian government playing a too dominant
role in the economy, controlling at least one rm in 14
key sectors of the economy, and exhibiting a market
share above 50% in at least one segment of network
industries. Second, there is relatively low enforcement
of competition policy against hard-core cartels and
abusive practices, while merger review cases that do
not impose signicant threats to competition account
for the bulk of the workload. Compared to other EU
agencies, few cases have been nalized, and none of
the abuse of dominance cases has been concluded,
even though six were initiated before 2007. (Figure
7) Third, low staffing for competition enforcement
and economic analysis places the RCC at the bottom
of European Union rankings, with no internal target
deadlines to track performance. Lastly, advocacy
activities mainly focus on raising awareness of the
importance of competition law, rather than on tackling
anti-competitive regulation.
Figure 7: Anticompetitive Business Practices Enforcement: Case statistics in the Europe Region, 2008
a) Completed
poland
france
sweden
bulgaria
letonia
belgium
portugal
germany
estonia
lithuania
italy
netherlands
hungary
spain
nland
denmark
romania -2008
romania -2009
slovenia
0 50
Challenges
Structure
Governance structures and procedures do not
always follow best practices. Board members are
selected and appointed by the President of Romania
at the proposal of the cabinet, without formal vetting
or approval by Parliament (as had occurred until
2004). Also, the size of the RCC Board of Directors
could be reduced.
Romanias public sector knowledge of and
commitment to competitive market principles
do not appear to be as deep and thorough as they
could be. There are some deficiencies in the
operations of regulatory bodies, many government
actions that impact competition without due regard
to RCC concerns, and a legacy of a large public
presence through state-owned enterprises in many
economic sectors. The council has made strides
against all these aspects of an environment in
COMPETITION
which competitive market principles are not always
given consideration, but has not yet overcome
them. This environment in turn reects a history of
COUNCIL
state economic management that has not been
updated fully to meet the challenges and reect the
principles of the market.
This can be seen in the RCCs too-limited role in
reviewing and changing inappropriate draft legislation,
government decrees and ordinances impacting
competition. Too frequently, the view of the RCC
is not sought, or the RCCs opinions are not given
due consideration. Drafts for review are often
presented to the RCC with unpredictable and short
deadlines, overwhelming the capacity of the RCC to
respond in time.
b) Percentage (Completed/Under Investigation)
bulgaria
letonia
slovenia
germany
sweden
netherlands
poland
italy
france
lithuania
portugal
romania 2008
spain
romania 2009
united kingdom oft
austria
100 0% 50% 100%
19
Direction
A better alignment of the RCCs enabling legal and
political environment, mission, and institutional
capacity would be benecial. In the absence of an
agreed, clear, and focused strategy, the RCC essentially
has been adapting aspects of foreign models and
incrementally adjusting the inherited practices and
organizational structure of its legacy. While this may
have sufficed in the short-term, it is not sustainable,
and it should be noted the council has made progress
toward articulating a strategy. But the strategy still
consists of short mission and vision statements and a
long list of aspirations and potential actions, making it
difficult to coordinate so many mandates.
5 5
Particularly, Romanias State Aid proposals require RCC
staff and management attention. This also inevitably
raises issues of conflicts of interest and possible
policy confusion as the RCC simultaneously seeks to
eliminate anti-competitive behavior on the one hand,
and protects some rms from competition on the other.
Figure 8: Average Length (Duration) of Anticompetitive Practices Investigations
1200
1000
800
600
400
200
0
Preliminary Preliminary
Open Closed
2007 2008 2009
The following points provide particular obstacles to
continuing its progress:

The absence of internal case deadlines signicantly
reduces the benefit of RCC interventions.
Consistent with international practice, the
RCC has established deadlines for each of the
stages of a merger review process investigation.
However, the RCC has not established internal
deadlines for anticompetitive practice cases,
leaving the process more susceptible to delays;
the average length of time of formal cases has
steadily increased from around 100 days in 2007
to more than 1,000 in 2010, due to a large backlog
of open investigations (as shown in Figure 8).

The RCC does not prioritize investigations based
on strategic goals, which also undermines its
effectiveness. There is a risk that territorial offices
may try to signal their productivity by opening
20
Practices surrounding anti-competition
enforcement are not optimal. Despite the RCCs
positive investigation record, the country has not yet
caught up to other EU economies in the application
of competition policy. Compared to counterparts
in the region, the RCC exhibits relatively low cartel
enforcement: Few anticompetitive business practice
cases are concluded in a timely manner; workload
on competition focuses primarily on merger review
procedures, with fewer resources available for
conducting advanced economic analysis; and there
are few internal targets to track performance of RCCs
enforcement activity and advocacy work.
Formal Preliminary Formal
Cases Pending Pending
2010
more investigations that too frequently have little
merit. Territorial offices will need to understand
clearly what is expected from them and how they
are contributing to the larger goals of the RCC.
The RCC could monitor markets with significant
SOE participation more closely. Based on the
current status of SOEs in the Romanian economy,
the RCC needs to be more vigilant that SOEs do not
receive an unfair advantage that could potentially distort
the market and deter private participants. The RCC could
actively study these markets, including the role and
impact of state aids, as part of its activities to mainstream
competition policy within government bodies.
The RCC could put in place a high-quality
system of competition indicators to track market
performance, as well as criteria to identify which
markets are more prone to anti-competitive behavior
or exhibit higher entry barriers.
5 Initiatives to help rms or regions restricted and reviewed by the EU
Operationalization
The RCC could increase its capacity in economic
research. In the case of mergers and abuse of
dominance cases, the RCC needs to strengthen
economic analysis tools applied to the evaluation
of these cases, in particular in the case of relevant
market denition and competitive effects estimation,
as well as estimation of nes and damages. However,
the limited number of staff in the Economics Research
Department is a constraint. Moreover, compared to
EU counterparts, the RCC could improve the number
of competition and industrial organization-trained
economists. Changes in analysis of mergers will
demand a larger set of empirical and theoretical
economic skills. It is likely that there will be a higher
demand for econometric tools used in estimating
demand and competitive effects.
The RCC is organized on sectoral grounds, which
limits its ability to fulll core functions. While this
structure allows the organization to develop impressive
expertise on certain industries, it is not conducive
to cultivating and fully leveraging core talents and
focusing on competition enforcement, cartel busting,
and investigation of abuse of dominance issues. A
deep understanding of the industry is less important
for cartel investigations. An in-depth understanding
of economies of scale and scope, cost of entry,
differentiation of products in the market, and theories
of firm behavior is essential for assessing abuse
of dominance and merger review cases. Sectoral
specialization without the development of distinct skill
sets will not lead to an effective enforcement record.
Investigative leadership is not always clear. At one of
the largest territorial offices, almost all the inspectors
participate in all the cases, yet it is not clear who leads
the investigation. An analysis of the workload of the
territorial offices also reveals that team composition
varies signicantly between investigations, with an
average of four inspectors for preliminary investigations
and 10 competition inspectors for formal cases.
Figure 9: Allocation of Staff by RCC Division
Council and
Cabinet
4%
Territorial Competition
33% Directorates
25%
State Aid Directorate
and Monitoring
8%
General
Secretary Legal Directorate
13% 5%
Research
Communications
& Economics
(Internal & External)
6%
6%
Staffing is not fully aligned with responsibilities.
Competition inspectorates form a small share of
the total RCC staff, even though they are the main
units responsible for carrying out the competition
enforcement. Only 25% of staff are inspectors.
Furthermore, 33% of staff are scattered in territorial
offices throughout the country (as shown in Figure9)
without specic performance measures and target
deadlines. This seems inconsistent with the objective of
detecting and sanctioning infringements to competition
rules as indicated in the RCC 2009 Annual Report.
Compensation within the RCC is not encouraging
performance. Inspectors salaries are currently not
competitive in the market, posing the risk that the RCC
will be hollowed of its capacities.
And while the RCC is open to reform, good
communication from senior management to staff
is lacking. The RCCs current degree of openness
to reform is impressive, particularly its relatively at
management structure, apparent focus on team-
based operations, and consideration of a more
formal peer review system, among other initiatives.
Nevertheless, staff survey results suggest a signicant
communication gap between staff and senior
management. As the RCC is a knowledge-based
institution that needs to motivate highly educated
professionals (many with other career opportunities),
sensitive and effective organization management will
be critical to the RCCs long-term success.
Recommendations
Structure
Institutionalize the RCCs relationship with
Parliament. This could be done by holding formal
hearings to present the RCC Annual Report, where the
RCC would present the results of its activity for the past
year and explain the areas of focus for the following
year. The Annual Report could also be enhanced as
a reporting tool regarding its enforcement activity,
building transparency and thus strengthening the
reputation of the RCC.
In addition, the size of the RCC Board could be
reduced. The RCCs Board comprises seven members.
Practice varies, but on average, EU countries have ve
full-time board members. Top agencies, such as the
ones from the Netherlands and the United Kingdom,
only register three full-time members.
21
Reduce the dominant role of the state in several
economic sectors. This would strengthen the ability
of regulatory agencies to ensure competition in key
sectors such as transport, communication, and utilities,
and require any agency proposing legislation found by
the RCC to be contrary to competitive principles to
justify its position publicly. There are three key reform
areas: mainstreaming competition policy within the
government; strengthening regulatory agencies; and
further strengthening the RCCs legislative mandate to
promote competition.
Direction
Advance rules and actions suppor tive of
competition, and empower the RCC to police
these rules. The RCC should undertake and publish
a coherent strategy backed by results indicators to
achieve parity with EU comparators in the core areas,
and strengthen quality control and prioritization of
its strategic efforts. The government should provide
space for a redoubled RCC focus on competition
enforcement by providing the necessary supporting
environment for its work. RCC efforts should tackle
anticompetitive regulation, expand advocacy to
key groups within government, and implement
alternative advocacy tools. To do so, the RCC
should focus on a credible enforcement record.
Furthermore, it should become more vocal in order
to raise awareness of competition issues and advise
policy makers where wider government policies
affect competition in markets. This could be achieved
by conducting investigations and proposing reforms
to current anticompetitive regulations in key sectors
of the economy.
Establish a results framework for competition
enforcement. As a result of this implementation,
the RCC would be able to monitor its performance,
communicate its results to its main constituencies
and increase its accountability. In particular, the
RCC should consider establishing internal deadlines
for competition activities, keeping records and
monitoring the status of current investigations at the
top management level. (Currently, the RCC has no
updated database that tracks progress of ongoing
investigations.) The RCC also should report progress
on internal deadlines and targets monthly to the
Board, and communicate performance targets in its
Annual Report and website.
Design a system for monitoring markets. Traditional
criteria used to select markets for closer monitoring
include goods or services that: (i) are essential or that
account for a signicant part of consumer spending,
(ii) have linkages with other sectors / industries as a
provider of inputs and services, or (iii) have prior public
perception of high prices in that market.
22
Fortify supportive information technology and
knowledge management systems. The RCC appears
to make considerable use of modern information
technology both in its line operations as well as
administration. With increased emphasis on results
monitoring, tighter control over deadlines, and
increased digital use by Romanian rms, there is a need
to strengthen the utilization of information technology
in the RCC. A thorough assessment is required rst,
especially given the apparent intention to implement
an Enterprise Resource Planning System (ERP).
Additionally, more feedback to management and
better collection and use of operational information
could be helpful in enhancing the flexibility and
efficiency of the RCC. A robust operational reporting
system providing senior managers with critical
information on the status of investigations, outreach
efforts, staff developments, etc., could also enhance
the quality and timeliness of decision-making. A unit
with adequate staffing and funding should be created
to provide this management support.
Conduct staff surveys to monitor progress. Staff
surveys should be undertaken on a regular basis to
inform staff and management of evolving issues in RCC
performance. An annual exercise of this nature could
reveal important baseline and trend data over time,
providing valuable insight, and early warning, to senior
management from the perspective of frontline staff on
RCC operations and challenges.
Operationalization
Align staff skills with organizational needs. The RCC
should put in place actions to increase organizational
skills. Categorizing the different functions inside the
RCC, such as competition inspectors, case handlers,
and support is the rst step. It should also dene job
competencies for each position as a basis for training
programs and evaluations. Furthermore, the RCC
should ensure periodic rotation of personnel, and
provide exibility in assigning teams.
Undertake a major internal restructuring. Personnel
and resources need to be moved to the front
line of competition enforcement, especially to
identify and break cartels and abuse of dominance
practices (including, and especially by, state-owned
enterprises). The RCC should also reduce or eliminate
territorial presence, and reduce priority work in
mergers and, as soon as feasible, state aids. The RCC
has recently initiated a pilot program seeking to group
county teams into eight regional units (virtually and
electronically rather than through physical transfers)
to enhance critical mass, skills available to teams, and
physical and moral presence to undertake dawn raids
and other actions related to the more problematic
area of anticompetitive behavior. This effort should
be intensied along with the goal of having no more
than eight regional offices.
Organize the RCC by business line, rather than
by sector. Specialization by business line could
lead to better results, given that the nal objective
of a competition authority is to detect different
anticompetitive behaviors, an activity that requires
a distinct set of agency tools and skills. Benets of
a deeper specialization on anticompetitive practice
will include: (i) increasing the number of detected
hard-core cartels and the use of alternative
instruments, (ii) closing cases in a timely manner
since resources will not be crowded out to solve
merger cases, (iii) dedicating more resources to
tackle complicated abuse of dominance cases
and mergers, and (iv) advocating more effectively
by focusing sector expertise toward identifying
anticompetitive regulation.
Establish a new unit within the RCC to target
hard-core anticompetitive behavior. This would be
the rst step in a program to gradually restructure
the council along business practice lines designed to
support greater specialization of competencies in line
with EU standards. It needs to shift resources in order to
enhance specialization, and needs to better prioritize its
activities, if it wishes to meet its goal of achieving parity
with EU counterparts.
Introduce non-monetary incentives to reward
performance. Several incentives have been used
by competition agencies to reward productive and
innovative staff, including: (i) prizes and performance
rewards, (ii) developmental assignments in other
competition agencies, (iii) teaching and lecturing
antitrust and industrial organization courses in selected
universities, (iv) scholarships for graduate studies, and
(v) leading high-impact cases.
Boost internal communication. Any shift in strategy
or organizational structure will require heightened
internal communication. The cost should be relatively
small and the benefits tangible. Possible actions
include: establishing an internal electronic newsletter
and / or more frequent RCC-wide open assemblies.
Regardless of specic steps taken, the RCC needs to
convey key decisions better, promote internal debate,
outline external challenges, and recognize signicant
achievement by units and individual, etc. This would
enhance coherence in RCC operations and morale.

Improve human resource and financial

management, information technology, and
internal management. As part of this effort, the RCC
should take immediate steps, within the principles
of the governments uni ed pay system, to ensure
a level of compensation to core competition staff
commensurate with their responsibilities with
respect to the judiciary and private sector. The
RCC also should introduce more exible ways of
working across units. It should strengthen its efforts
to assemble teams combining the right mix of
experience and skills.

23
CHALLENGES
Governance structures
do not always follow
best practices.
Public sector knowledge
and commitment to
competitive market
principles are not as
deep as they could be.
RCC would benet from
better legal and political
environment, mission,
and institutional capacity.
Practices surrounding
competition enforcement
are not optimal.
Markets with signicant
SOE activity are not
monitored closely enough.
RCC lacks a system of
high-quality indicators to
track market performance
and economic
research capacity.
RCC organization
limits its ability to fulll
core functions.
Investigative leadership
is unclear and staffing
does not meet
organizational needs.
Compensation within
the RCC is not conducive
to performance.
24
RECOMMENDATIONS
Reduce the size of the RCC Board of Directors
Institutionalize the RCCs relationship with Parliament
Reduce the dominant role of the state in several
economic sectors
Strengthen ability of regulatory agencies to ensure
competition in key sectors
Advance rules and actions supportive of competition, and
strengthen the RCCs power to police these rules
Publish a coherent strategy backed by results indicators
Establish a results framework for competition enforcement
Report progress to the Board, through the Annual Report,
and on the website
Design a system to monitor markets
Include goods and services that are essential, constitute a
large share of spending, have linkages with other sectors, or
prior history of anti-competitive behavior
Strengthen supportive information technology and
knowledge management systems
Implement a thorough assessment in view of the plan to
implement an ERP
Organize the RCC by business line, rather than by its current
setup by sector
Align staff skills with organizational needs
Establish a new unit within the RCC to target
anti-competitive behavior
Improve human resource and financial management,
information technology, and internal management
Introduce non-monetary incentives to reward performance
 ALLUNIVERSITY PLACEMENT ROMANIA
5 Education

Situation
Romanias ability to compete in the global market
is directly driven by the relevance and quality
of its education. The government has invested
substantially in the education sector over the last
decade, but progress has been slow. Romanias
competitiveness is linked to the skills of its workforce.
This, in turn, is related to the quality and relevance of
education. The key challenge is to raise the level of
achievement in key subjects to current levels found
in other European countries (the achievement of
Romanian children in other key subjects are equally
poor, as can be seen in Figure 10 below). The
ministry has been trying hard to improve education
in terms of both relevance and quality. Between 20006
and 2009 the ministry has more than doubled the
more resources without improving the utilization
and effi ciency of these resources cannot result in
much change. Another reason is that the education
system is in need of depoliticization and that it only
recently developed a new strategic vision and it is in
the process of being restructured.
Romania recently enacted a new education bill, but
it is too early for changes to be apparent. The new
Law of National Education, enacted in early
2011, embraces the ministrys master plan for
decentralization. It systematically deals with the
division of labor among all the parties directly involved
in education, modifying and consolidating previous
laws, government orders and ministerial orders, and

expenditure per-student on pre-university education
(Figure 11, page 12) from 1,416 Lei to 3,868 Lei.
However, the increase in funding has not resulted
in improved learning. Romanian 15-year-olds
still lag behind their European peers in science,
mathematics, and reading comprehension. One
reason for this is that in education it takes a long time
to translate higher inputs of resources into higher
levels of achievement; at the same time, allocating
EDUCATION
completing the transfer of responsibility and authority.
It is important to note that the implementation of the
ministrys ambitious strategy is dependent not only
on its current decentralization efforts, but also on
factors beyond its control. In particular, the general
civil service and Ministry of Finance rules relating
to the structuring and staffing of ministries and the
management of nancial resources will continue to
inuence the sector as it reforms.

Figure 10: International perspective on test scores (PISA)

Reading Math Science

570
FIN
FIN
550 FIN FIN
FIN
FIN
530 EST EST
EST EST CZE
510 CZE
CZE
EST EST FRA FRA
OECD average FRA FRA FRA POR
490 FRA POR CZE SPA SPA
CZE ITA POR ITA
SPA
CZE SPA SPA ITA ITA
470 POR POR
ITA POR
SPA ITA
450

430 ROM
ROM ROM
ROM ROM
410

ROM
390
2006 2009 2006 2009 2006 2009

6 Measured in 2009 prices

27
Figure 11: Rising spending but not yet improvements on results

Romania: Real Expenditure per Student and TIMSS Math Scores

TIMSS (Math)
Expenditure per Student (Real, Index 1999=100)
300 480

250 475

200 470
(Index, 1999=100)

(TIMSS Score)
150 465

100 460

50 455

0 450

2008e
2006e

2007e
2000

2005
2002

2004
2003
2001
1999

Challenges
Sector
The structure of the pre-university education
sector is sound its effectiveness can improve
with stronger sector leadership and intra-agency
collaboration and coordination. All key functions
needed in the education sector exist. There are four
key agencies (Institute of Education Sciences (IES),
National Center for Assessment and Examinations
(NCAE), The Romanian Agency for Quality Assurance
in Pre-University Education (ARACIP) and the National
Center for Vocational Education and Training
Development) engaged in ve functional areas. There
are currently no overlaps between the agencies, but
their functional proximity creates potential for overlap
and requires coordination.
The number of schools and teachers is not aligned
with the number of students. Two million fewer
students are part of the pre-university system than
during its peak in 1985. The ministry has already made
efforts to align more closely the teaching force with
the current number of students; however, this is an
ongoing process and actions need to be continued
so as to result in the best correlation of teacher staff
and the student body at large. (Figure 12). The number
of schools and teachers operating is straining the
ministrys resources.
Decentralization needs to move in synch with the
capacity of schools, inspectorate offices, and local
authorities, and needs to be consolidated. School
boards are game changers in education. The ministry
has now decided that empowering the school boards
decision-making function is very important for
progress. However, the ministry must be sure to support
the school boards, as they become accustomed to
their newly expanded authority.
The inspectorate is key to decentralization, yet its
capacity is weak and it needs to be empowered. The
inspectorate is the implementer of all of the ministrys
strategies and plans. It is the ministrys most valuable
tool as it decentralizes; it is the organization that will
monitor operations in the schools, reporting back to
the ministry; it is also potentially the ministrys best
tool to help schools improve the quality of instruction.
However, the inspectorate is poorly structured, and
does not have the capacity to fulfill its multiple
strategic and operational functions. The content of
what it is doing, and the way it is organized weaken
its capacity. The inspectorates human and nancial
resources have been shrinking over the last ve years,
while its workload has been increasing. This means
that the inspectorate is now grossly under-resourced.

Figure 12: The decline in student numbers has not been matched by an adjustment of the number of teachers

115
110
105
1992/93=100

100
95
90
85 Enrollments
80 Teaching staff
75
70

28
Direction
The education sectors strategy is robust, but it has
not been costed. Romania has a strong core education
strategy. It was developed in 2008 and comprises a
vision, mission, and 11 strategic thrusts that have
the broad support of the public. However, while the
strategy is technically feasible, its nancial feasibility
is questionable. The ministry has not calculated
costs sufficiently, it has not prioritized the 11 strategic
thrusts, and it has not taken into account the human
and nancial resources required for implementation.
Therefore, the ministrys core strategy appears too
ambitious relative to its capacity.
The ministry needs to focus on its leadership role
in the sector. Senior managers spend more time on
operational issues rather than on strategic ones.
Currently, decision-making is highly centralized
at the top with limited delegation of authority to
lower levels. Even high-level managers spend the
majority of their time on operational issues rather
than concentrating eff orts on strategic direction.
With decentralization a larger share of operational
issues will be completed outside the ministry. As the
ministrys senior managers become less and less
preoccupied with daily aspects of operation, they
should refocus on the ministrys leadership role.
The demand for information and analysis is low
and management of information does not receive
adequate attention. Currently information is seen as an
operational, technical, and administrative asset, rather
than a strategic instrument. There is no organizational
home for the management of information in the
ministry. High-level decision-makers do not ask
for much information or analysis, and the quality of
information provided is low in line with demand.
Decentralization will increase the demand for
information and analysis, and MERYS is not yet
equipped to provide it. As action and decision-making
power is transferred to the schools, the demand for
information will increase. Knowledge gaps will emerge
for two reasons: the ministry is going to increase its
attention on matters of policy and strategy; and it is
going to require increased and different reporting and
evaluation of new roles, functions and arrangements.
The new law vaguely denes the role of the teacher.
There is no section dedicated to teachers, though
there are sections dedicated to most other players
in the education sector. An incomplete idea on
what is the role of the teacher can be deduced from
different sections in the law dealing with items such
as the curriculum. However, a full description of the
teachers role is missing.
Operationalization
The ministrys current organizational structure is
not optimal. The ministrys current structure does
not conform completely to good practice, and is not
conducive to promoting accountability, nor is it suitable
for decentralization efforts. The ministry is organized
predominantly by functions, rather than by educational
programs or operations. Units combine unrelated
functions and tasks, creating redundancy and making
teamwork unlikely. Civil service rules governing a
minimum number of staff per unit contribute to the
dysfunctional nature of the organization. This also
manifests in the system of providing textbooks, which
is fragmented and lacks vision, strategy, and oversight.
Management cultures and practices in the ministry
are not aligned with good practices. There is a strong
culture of bureaucracy manifested by lack of delegation
and complex work procedures. This is more prevalent
in the ministry than in the subordinated agencies.
There is little reward for good performance and there
are few penalties for weak performance. There is a
growing appreciation of the need to achieve greater
transparency inside the ministry, and portions of the
new law include efforts targeting just that. Ministerial
leaders and managers are beginning to share more
background information on important decisions, and
are providing clearer briengs on what is going on in
the ministry or in the sector.
Sector skills and research need to be strengthened.
Skills, competencies and deployment within the
teaching and non-teaching forces require review.
Within the ministry, training is needed to bolster project
management skills, as well as the highly specialized
prociencies required in areas such as procurement
and disbursement. Among Romanian teachers, skills
in the areas of didactics, information technologies,
science, and entrepreneurship could be enhanced.
There is little applied research on basic non-pedagogical
issues in Romania. At the university level, the focus is on
teacher training, educational psychology and didactics.
Other important subject areas are not taught, and there
are few opportunities and institutes to delve into them.
Subjects include comparative and international education,
history of education, anthropology and sociology of
education, public policy in education, economics of
education, statistics of education, and education nance.
The ministry is taking a progressive step by
introducing performance contracts, and it is
important that the right denition of performance
is introduced. As part of the ministrys push for
accountability the new education law requires all local
authorities to have management contractsdistinct
from employment contractswith the principals of
all schools under their jurisdiction. Even bolder is the
requirement for all schools to have performance
contracts with students parents. The mere introduction
of these contracts will not result, however, in progress
if their content is not focused on the right objectives.
29
The ministrys capacity to absorb project funds is
constrained. In 2010, the ministry had 58 Structural
Fund projects under implementation managed by its
different directorates and subordinated agencies, and
not by specialized project implementation units. The
greatest challenge lies in the ministrys absorption
of funds. This is evidenced in the execution rate of
existing projects. At the time of analysis, more than half
of the time had already elapsed on ten 3-year projects
whose implementation started in September/October
2008. At that point the ministry had been able to
disburse between 0% to 12.8% of the funds available
to these projects.
Recommendations
Sector
Put in place mechanisms to coordinate among sector
agencies. The ministry should build on the sound
structure of the sector and put in place mechanisms to
coordinate between agencies and to ensure integration
of outputs. Curriculum development should be placed
in an agency of its own, due to the large volume of
activities and its important role in reform.
Bring the school network in line with student
numbers. MERYS should use the momentum created
through the implementation of per student nancing
as well as the school network optimization efforts;
the ministry should look for opportunities to advance
the optimization agenda, at the same time allocating
resources for school busses and rehabilitation of
schools receiving students from closed units. A list a of
protected schools whose closure would impair access
to education should be put in place.
Link financing modalities to ongoing efforts to
strengthen accountability for results. The MERYS
should expand cost standards to include the full
recurrent cost of providing education. At the same
time, financing modalities should create a bigger
role for local authorities, more predictability and
transparency, improved communication and
consultation processes in general.
Conduct an extensive campaign aimed at
informing local authorities of all key aspects of
the new education law. Local authorities should be
knowledgeable about all of the laws main points, not
just those directly relating to them. The campaign
should also reaffirm the objectives of decentralization
and address any concerns local authorities may have
about the way forward.
Develop a 5-year action plan for the newly
empowered school boards. MERYS needs to make
a large thought and energy investment as the boards
assume their new role. It will be necessary to embark
large-scale training and development exercises
for school boards and it also will be necessary to
monitor and evaluate them closely. Evaluators should
be attached to school boards from day one and
30
should give real-time, constructive feedback on
their operations. An important step would be the
establishment of an entity similar to the Scottish
School Board A ssociation, whose mission is
solely dedicated to improving the performance
of school boards.
Revive the inspectorate. The ministry must enable
the inspectorate to balance better workload with
resources. Among other steps, it is necessary to
detach the two strategic arms from an organizational
standpoint. This would separate those whose job is
to provide pedagogical support to the schools and
provide managerial support to the principals, from
those whose job is to implement, monitor, and
control. Due to a high turnover of management
staff in the inspectorates, as well as lower but still
signicant turnover among inspectors, there is a need
for continual professional development for both.
Direction
Complete strategy work, costing and prioritizing
strategic thrusts. The ministry should get technical
assistance in costing its strategy and design. This
would ensure transfer of knowledge to ministry staff,
particularly in the design of plans calculation of costs
and assessment of feasibility.
Lighten the load of operational work carried by
senior staff. The ministry should analyze the current
level of delegation of authority, and opportunities for
further delegation. Furthermore, it should analyze
the ow of requests for information and decision, and
move implementation of Structural Fund projects
to the proper project implementation units. This
recommendation links with other recommendations
on reorganization.
Set up a directorate for information management
to address knowledge gaps in decision-making
processes. The ministry should set up a general
directorate for information management, tasked with
bringing about a paradigm change in the thinking of
managers and staff about information, increasing the
supply and availability of information and analysis. It
would facilitate the use of information in policy and
strategy development as well as daily operations. It
should conduct a comprehensive information needs
analysis and also examine all private data banks
to ensure there is no duplication and that potential
integration takes place.
Better define teachers role within the education
system. The new education law is fairly comprehensive
in breaking down and describing the roles of each
stakeholder in this sector. The exception to this
is the teacher, arguably the most important cog in
the instructional machinery, whose role has been
left ambiguous.
Operationalization
The ministrys structure should be adapted to
increase efficiency. The ministry needs to develop
a new organizational structure more in line with key
principles of organization structuring, its operations,
and its changing role in the sector:

The ministrys structure needs to better reect
the structure of work in the school system, i.e.
the operationally distinct education programs
that produce school graduates at different levels
and in different tracks. The structure needs to
make it possible to hold somebody accountable
for each education program.

The ministry needs to re-deploy staff from areas
of excess to areas of shortage based on priorities.

Rethink job and unit descriptions and improve
incentives. As decentralization occurs and
changes are implemented, positions will
be created, eliminated, and merged. This
is an opportunity to reconceptualize and
rewrite completely all the unit Regulations of
Functioning and all the job descriptions in the
ministry and its subordinated agencies.
Reform management culture and practices on an
ongoing basis. Because management culture takes
years to change, any action aimed at changing them
should be continuous. As a starter, the ministry and its
subordinated agencies should launch an on-the-job
mandatory general management-training program for
all persons in management positions. Additionally, the
ministry needs to work with the Civil Service Authority,
which is in charge of the design and administration of
promotion examinations. The CSA and ministry should
jointly introduce key knowledge, skills, and attitudes
from its training program into these examinations, so
that the promotion of people into and throughout the
management ranks is more closely related to necessary
knowledge, skills, and attitudes.
Conduct a skills needs analysis to identify skills gaps.
Based on this, the ministry should develop training
programs aimed at closing gaps. The onus for skills
development should be switched from organizations
to individual members of staff, and incentives for
self-development should be provided.
Establish a policy and agenda and strengthen
faculties so as to encourage research. To encourage
research, the ministry should strengthen faculties. Also,
a medium to long-term plan should be made by the
Institute of Education Sciences to develop the capacity
to carry out research in the non-pedagogical areas of
education. This applies particularly to economics of
education, education nancing and (with the growing
use of, and reliance on, international and European
benchmarks) comparative education.
Dene performance contracts clearly, with a focus
on learning results. This needs to be done over time,
in close collaboration with the schools as well as the
local authorities. The starting point may be a focus
on performance at the level of inputs and processes,
but the destination is learning results. The new
education law does not dene the content of these
contracts. The content and format will be developed
by the ministry in the near future in the form of
methodologies. It is extremely important to make sure
that these methodologies dene performance well,
and introduce the right elements of accountability.
The methodology should emphasize that the contract
is between two role players, creating a partnership
between them, and each is responsible for fullling
their obligations.
Implement organizational changes to increase
the capacity to absorb project funds. The ministry
should re-dene the role of the specialized project
support unit to become a full implementation unit for
Structural Funds projects. In this respect, the ministry
should address staffing aspects based on work load
analysis and required skills.
31
CHALLENGES
Effectiveness can
be improved through
stronger leadership and
intra-agency collaboration.
Number of schools
and teachers are not
aligned with the number
of students.
Financing modalities not
conducive to creating
accountability for results.
Local authorities not
fully informed of new
education law.
Newly empowered school
boards lack clear direction.
The inspectorate is key to
decentralization, yet its
capacity is weak.
The sector has a
strong strategy, but it
is not costed.
Too much focus on
operational issues.
Demand for information
and analysis is weak.
The role of teachers
in the system is not
fully dened.
32
RECOMMENDATIONS
Put in place mechanism to coordinate among
sector agencies
Place curriculum development into an agency of its own
Bring the school network in line with student numbers
Create a list of protected schools where closures would
impair access
Expand cost standards to include full recurrent cost of
providing education
Create a bigger role for local authorities
Improve predictability and transparency
Conduct extensive campaign of all aspects of the law
Reaffirm objectives of decentralization
Develop action plans for school boards
Embark on large scale training and development exercises
Monitor and evaluate progress closely
Consider establishing a school board association
Revive the inspectorate to better balance workload
with resources
Separate the two strategic arms of pedagogical and
managerial support
Cost and prioritize strategic thrusts
Lighten the load of operational work on senior staff
Increase delegation and decentralization to
redistribute tasks
Set up a directorate for information management to address
knowledge gaps in decision-making processes
Describe and break down the role of teachers
Clarify their contribution to the working of the system
CHALLENGES RECOMMENDATIONS
Set up the ministrys structure to better reect the work
The ministrys structure of the school system
is not conducive to
Re-deploy staff from areas of excess to areas of shortage
efficient operation.

3FUIJOL
KPC
BOE
VOJU
EFTDSJQUJPOT
BOE
JNQSPWF
JODFOUJWF

The ministrys current

Reorganize the ministry by educational program, rather than
organizational structure
by function
is not optimal.

Management culture
and practices are Reform culture and practices through an ongoing approach
not aligned with Launch on-the-job mandatory general management-training
good practices.

Sector skills and Conduct a skills needs analysis to identify skills gaps
research need to be
strengthened. Establish a policy and agenda to encourage research

Ministry is introducing Define performance contracts clearly, with a focus on

performance contracts; learning results
the right denition of First focus on performance at the input and process level,
performance is crucial. progressing towards learning results

The ministry is not set Re-dene the role of the specialized project support unit
up to absorb project Address staffing aspects based on workload analysis and
funds effectively. required skills

33
 Magalie L'Abbe
6 Agriculture and
Rural Development
Situation
Agriculture plays an important role in Romanias
rural economy and employment (approximately
30% of the rural population is employed in
agriculture, as shown in Figure 13). Forty- ve per
cent of Romanias population inhabits rural areas and
its potential contribution to economic growth and
convergence is high. That said, Romanias agriculture
potential remains unfulfilled. The transition from
(semi-) subsistence farming to agriculture is hindered
by a number of market failures, including land and
ownership fragmentation and poor access to credit.
Productivity remains low, and despite substantial
nancial support from the EU, the agriculture sector
has been unable to use its advantages to achieve
The ARD administration is characterized by a distinct
performance divide, which presents challenges and
opportunities. Services and agencies in charge of
programs benetting from EU nancing rank at the
upper end of the performance scale. Those related to
internal services or national programs achieved lower
performance ratings, which has negative spillover
effects. This presents a challenge, as lower performing
agencies need to be reformed more quickly than
EU-related services and agencies. It also provides an
opportunity, as good practice examples exist within
the administration that can be used to guide reform.
The strong performing parts of the ARD

RURAL DEVELOPMENT
broad-based growth. administration provide a clear vision for
institutional performance enhancement. Actions
The most pronounced constraints to Romanias should be based on a clearly shared vision for the

Agriculture and Rural Development (ARD)
Administration are operational deficiencies. This
was revealed in the functional review of core functions
at the central and regional branches of the Ministry
of Agriculture and Rural Development (MADR), the
two paying agencies (APIA, APDRP), and relevant
subordinated and associated agencies.
MADR and its agencies manage about 40% of
Romanias EU allocations. This is a substantial amount
and requires a domestic nancial management system
that coordinates smoothly with that of the EU.
Figure 13: Importance of Agriculture in EU Member States
AGRICULTURE &
sector and on a clear strategy that communicates this
vision. Ideally they should focus on:

Reducing points of interface with the policy
beneficiaries (co-location / integration of
agencies and territorial structures)

Integrating strategic functions with reporting
structures, reducing compartmentalization and
resulting functional fog

Reviewing and updating Rules of Organization
and Functioning (ROF) in the administration

Improving information systems to inform
decision-making by management and staff

Strengthening staff and teams through
i m p rove m e nt s to s t af f p e r fo r m a n ce
management systems, training, competence
teams, and simplication of hierarchy layers

35.0

30.0

25.0
Share in %

20.0

15.0

10.0

5.0

0.0
Lu
G em
Be ma ou
D giu y g
Ire m

Ita tri
N
C the
Fr ru and
M nce
Po ta
C tug
Sl ch l
Sp ven ep
Es n
Sl oni
La vak
G via a
Li ec
H ua
Po ga ia
Bu and y
Ro ar
Au and rk

yp rl

ze a
en m

un n
er b

re
th e
o

o a
al
a s

t
ly a

t
x

ai ia ub
l

l a

l
lg
s

um ia
an
i

r
n r

ia
s

lic

Share of agriculture in total GVA

Share of Agriculture in total employment

35
Challenges
Sector
Institutional fragmentation across ARD agencies
and between the center and territorial branches is
pronounced. Similar to other sectors, such as transport,
institutional fragmentation between agencies and
vertical layers creates administrative costs and
challenges in the interface with policy beneciaries.
This also causes overlaps in the delivery of functions,
most notably the processing of applications, delivery
of services, and controls. The agencies dealing with
EU funded programs, on the other hand, are more
effective in their structure and operation.
For some technical functions, engaging the private
sector could improve the provision of services and
goods. Decentralization of advisory services moves
in this direction, with Agricultural Chambers having
been formed to this end. However, their formation is
an incomplete reform, and ground rules need to be
adopted to enable them to function efficiently.
Direction
To be effective, the ARD administration reform must
follow a bold vision and be strategically targeted
at addressing the main challenges in the ARD
sector. These include dual farming systems with a
high share of (semi-)subsistence farming, signi cant
market failures in land and credit markets, need for
targeted socio-economic services and infrastructure
investments in rural areas, and deficiencies in
management of food safety and quality.
To date there is no comprehensive and inclusive
sector-wide strategy. No single document captures
the vision and strategy of the ARD administration to
guide policy formulation and implementation. Key
documents only cover CAP-funded domains, where
planning adheres to demanding EU strategy and
program formulation requirements, or cover specic
sub-sectors, without adequate articulation. As a
result, ARD policymaking remains driven in part by the
absorption of EU funds rather than by results.
Strategy formulation functions within MADR
are established but need improvement. Strategy
formulation functions within the ministry are dened
and operational (as seen in Figure 14 below). Yet
these functions are not yet appropriately valued, are
highly compartmentalized, and are subject to varying
management arrangements. Interfaces with the
Center of Government are not yet effective, reecting
the fragmented connections the GSG has with other
line ministries.
Planning and budget formulation in the ARD
administration currently differs between EU funded
and national programs. EU funded programs are
driven by clear medium term priorities. In contrast,
nationally funded programs are mainly planned and
funded as a function of semi-constant allocations
based on previous year expenditures.
The current budget structure does not support
effective strategic planning. The current functional
budget structure in MADR is a proper means of
accounting and complies with the public nance law
but neither its structure nor its display make it a tool for
strategic resource allocation, effective management,
performance management, and accountability. A
program budgeting approach would address these
shortcomings, and attempts in this direction have already
been made in parts of the Administration, for example in
the Directorate General for Rural Development.
Budget execution is undermined by three
distinct factors. Internal reporting processes and
formats require upgrading to provide feedback to
spending units.

Figure 14: Strategy formulation at MADR Level

MADR
GD for Rural General GD for Europ.
GD for Agricultural Policies ANPA
Development Secretariat Affairs

Analysis and Land Misc .Technical Unit for Public

Strategies Reclamation Units Policies

Develop the
Develop the Develop Land
Develop Land Develop Sub-
Develop Coordinate Develop
Develop Develop the
Develop the
v lop the RD
Deve
Develop
Agriculture and
Agriculture Reclamation
and Reclamation Sectoral
Sectoral Strategy
Strategy Romanias
Romanias Fisheries
Fisheries
Strategy
Strategy
Food Strategy
Food Strategy Strategy
Strategy Strategies
Strategies Development
Development Position in
Position in EU
EU Strategy
Strategy

Drought, Soil
NSP for Rural Institutional Position NS for
Erosion,
Development Strategic Plan Papers Fisheries
Desertic

36
Duplicate internal controls for payment processes
inhibit execution. Finally the process of allocation
of quarterly spending limits contributes to delays in
support payments to beneciaries.
Modern strategic performance management
systems are lacking in MADR. Such systems, and
Recommendations
Sector
The ARD administration should increase
consolidation and co-location of institutions
and/ or outsourcing of functions. Reform of the

related management information systems, are not multiple interfaces between MADR, its associated
commonly used in MADR, but are the rule in its paying agencies, and other government agencies will be
agencies. Absence of such tools limits the ability instrumental to addressing the challenges that its
of senior management and strategy functions to rural beneciaries are facing. Whereas the split of tasks
adequately target or improve internal processes, as among most agencies is generally clear, strengthening
well as service and program delivery. mechanisms for strategic and operational coordination
among concerned agencies represents a key need.
Operationalization Reducing fragmentation in service delivery and
MADR suffers from insuffi cient organization and decentralizing activities would help improve the
communication. The fragmentation and overlap provision of services. The increased involvement
that is observed across the sector in the delivery of private actors could also contribute to improved
of functions also applies to the internal structure provision of services and goods. To this end, the ARD
of MADR. It suffers from compartmentalization of should adopt ground rules on farmers representation,
activities, complexity of management layers, and nancing, and targeting for the delivery of advisory
poor delegation and communication. Management services in the newly created Agricultural Chambers.
and implementation needs for EU programs have led It should also work on scaling up the Integrated
to a structural schism within MADR, making the stated Agricultural Offices or on the further consolidation/
challenges more pronounced in the departments less co-location of its territorial services.
involved in EU fund management.
Figure 15: Job Motivation Ratings based on MADR survey, 2010
Human resource management I have a good understanding of what is
22 6 25 65 expected from me
strategy and systems are not
appropriately valued across The resources allocated for my task are
8 18 28 30 15 adequate to to a quality job
the ARD administration. The
ministr y s Human Resource I feel encouraged to nd new and better
9 12 27 24 27 ways of doing things
Strategy is insufficiently linked
to strategic and operational I am involved in decisions that affect
9 12 19 34 25 my work
requirements as dened by MADRs
strategy, tasks and functions. My job makes good use of my skills
3 5 13 19 60
and ablilities
Paying agencies have their own
I am motivated to contribute more than
strategies, which are much 17 19 16 27 21
is expected from me in my job
better developed. The difference
between MADRs HR strategy 1. I do not agree at all 2 3 4 5. I fully agree [gures in %]
and those of the paying agencies
highlights the performance divide within the ARD
administration. The government could use its existing
Direction
The ARD administration would benefit from
experience with HR strategies developed for the
developing a vision and a strategy that cover
paying agencies to help improve MADRs HR strategy.
the entire ARD sector and align domestic and
Job descriptions, staff performance assessments, EU programming cycles. This vision and strategy
and salary systems are not fully effective. Job would comprehensively cover the whole ARD sector,
descriptions in the ministry are serving neither as addressing the divide between nationally and EU
an effective base for technical work, nor for the funded programs. This would ideally be matched by
recruitment of qualified staff. The absence of a corresponding strategy for the (re-)organization
adequate staff performance systems makes it difficult of the administration. The sector-wide strategy
to evaluate staff performance and to link salary levels should include a broad set of actions that cover both
to performance. Furthermore, the ministrys salary CAP- and non-CAP-funded actions and policies,
systems are not conducive to effective functioning paying attention to:
of the ARD administration. The strongest internal

Removing bottlenecks in human capital, land,
resentments are caused by the wage differences and rural credit markets, as well as in value
among staff eligible and not eligible for up to 75% chain integration
salary top-ups for tasks related to the management of

Enhancing the quality of public goods and
EU funds (Figure 15).
services provided to promote agricultural and
rural development

37

Enhancing the management of rural resources
and mitigating / adapting to the effects of
climate change

Improving the quality of agri-food products

Improving income diversication and quality of
life in rural areas
Strengthening the strategy formulation functions
within MADR is key for implementing the sector-wide
strategy. To this end, MADR could consolidate strategy
development and strategic planning functions into
one strong unit that would coordinate and consolidate
inputs from relevant technical/ vertical departments
and stakeholders.
Further down the road, operational programs and
plans, including those for EU funded support, should
be devised to enact the sector-wide vision and
strategy. The administration should develop guidelines
and assign responsibilities for this process, ensuring
participation in the strategy process.
Applying program budgeting and eventually
performance budgeting would also help the
ARD administration to manage its programs and
resources more strategically, and would enhance its
accountability within a rolling MTEF.
Budget execution would be augmented by improved
processes and use of controls. Three initiatives would
enhance budget execution within MADR, particularly in
terms of program effectiveness and efficiency:

A fundamental upgrade of internal reporting
processes and formats within MADR to enhance
its use as a feedback to the various spending units
(in which only 30% of staff knows the budget for
the operations they on which they work)

Optimization and elimination of duplicate internal
controls for payment processes in MADR, based
on some already existing models that were
identied in the execution of EU funded programs

A joint Ministry of Public Finance and MADR review
of the process of allocating quarterly spending
limits, which currently inhibit the timely absorption
of EU funds and were found to contribute to delays
in support payments to beneciaries
Developing monthly performance reports with
performance indicators would help strategic
decision-making. The management team should
develop monthly nancial reports with performance
indicators that are easy to read and update, to help
management make strategic decisions, signal needs
for intervention, and help provide feedback for future
budget formulation.
38
Operationalization
MADR should reorganize activities and functions
to de crease fragmentation and incre ase
its effectiveness. To this end, MADR should develop
a restructuring plan, create professional teams,
clear spans of control, and command lines. In
parallel, these changes need to be mirrored in a
revised and simplied Regulation for Organization
and Functioning (ROF), accompanied by a manual
of procedures. Organizations and units should
also develop and introduce a performance
assessment tool to be applied at all levels to increase
ownership and commitment.
Develop a revised HR strategy. MADR should develop
an HR strategy that takes account of its overall
strategy, obligations, and ways of coping with the
requirements related to EU membership, and with
MADR structure, environment, and processes. The
government should use its existing good practices
from agencies in the ARD administration to guide
this process.
Four targeted actions would improve human
resource management: First, MADR should improve
its job descriptions and recruitment of qualified
staff. Second, staff performance assessments
focused on technical performance could signicantly
contribute to improving service delivery by MADR
and its agencies. Third, a review and adjustment of
pay scales, with a view to harmonizing pay structures
is recommended, as well as the creation of (possibly
non-monetary) incentives to staff not eligible for the
top-up for EU funded projects. And last, targeted civil
servant training is recommended to improve human
resources in MADR. The need for training can be
satis ed via internal capacity building and making
use of external expertise.
ARD management and staff should develop a
culture that views performance management
systems as legitimate and know how to use
them effectively. Both management and staff
should be aware that performance management
is not meant as a control mechanism, but as a
tool to improve output by strengthening ownership,
linking performance to a coherent and broadly
shared strategy, and assessing performance
through adequate indicators that re ect strategic
goals. A performance management system would
be launched and guided by MADR and would
national authorities in the assessment of
subordinated organizations.
CHALLENGES RECOMMENDATIONS
Institutional fragmentation
across ARD agencies
Increase consolidation and co-location of institutions and/
and between the center
or outsourcing of function
and branches
is pronounced.

There is no comprehensive
Develop a vision and a strategy that covers the entire ARD
and inclusive
sector and fully aligns domestic and EU programming cycles
sector-wide strategy.

Strategy formulation
Strengthen strategy formulation functions within MADR,
functions are
focusing on internal re-organization to consolidate strategy
established but
development and on improving analytic functions
need improvement.

Planning and budget

Inform reform of nationally funded programs by EU funded
formulation differs
programs. Better performance of EU funded programs is an
between EU funded and
opportunity for learning within the administration
national programs.

The current budget

structure does Introduce program budgeting and eventually
not support performance budgeting
effective planning.

Modern performance
Develop monthly performance reports with performance
management systems
indicators to help strategic decision-making
are lacking in MADR.

Reorganize activities and functions to decrease

MADR suffers from fragmentation and increase effectiveness
insufficient organization
and communication. Create professional teams, clear spans of control, and
command lines

Human resources Develop a revised HR strategy that better takes account of

strategy and MADRs overall strategy and obligations
systems are not Improve job descriptions, staff performance assessment,
appropriately valued. review pay scales, and conduct civil servant training

39
 Tom Rawlings | www.TomRawlings.com
7 Transport
Situation
Early reforms in Romanias transport sector
yielded some positive results, but did not go far
enough. Romanias transport sector went through
radical reforms during its early transition years,
but few changes have occurred in the intervening
time. The original reforms have not led to marked
improvements in transport policy administration,
nor to as much efficiency and efficacy of the main
delivery institutions in the railway and road sectors
as was hoped. For a decade and longer, each of the
four state-owned companies in the transport sector
has faced different but very signicant external market
challenges within difficult resourcing constraints. The
SOEs have not responded as well as they could have
to these challenges; the four transport entities have
not migrated to become autonomous state-owned
companies responsive to their markets, but have
remained branches of the Ministry of Transport and
Infrastructure (MOT), in corporate form.
The transport sector is heading in the right direction,
but faces governance, strategy and funding issues.
Currently, the sector does not match Romanian
expectations or European quality standards. MOT
prioritization is not optimal, contributing to high
and unsustainable fiscal costs, and EU funds are
underutilized. A ballooning capital investment program
has been overloaded with unfunded or inadequately
funded projects. The total authorized annual capital
expenditure for all modes of transport in 2010 was
more than six times the MOTs total annual budget,
and more than eight times the previous average annual
capital expenditures. The condition and reliability of
rail infrastructure assets is declining. Left in its current
state and scale, the industry isnt sustainable, and will
continue to have a negative impact on Romanias
competitiveness in the European market.
Challenges
Sector
The MOTs four competing roles create difficult
dynamics in the sector. The MOT plays four distinct
roles in the sector: It sets policy, owns SOEs, regulates
them, and procures services from them. The
coexistence of these conicting roles leads to conict
of interest. This becomes apparent in situations
such as when the Railways Supervisory Committee
(comprising MOT officers) has to adjudicate disputes,
while the MOT owns the two train operating
companies that use the railway network, and where
it also establishes the charges for use of the network.
There are plans to relocate the regulation function to
another ministry. The conict of interest also arises,
for example, when the MOT enters into a contractual
relationship with the passenger railway company CFR
Cltori, but fails to make the full annual payment for
the services it requests under the contract, while as an
owner it controls Calatoris board and management.
This sector and governance structure has not prevented
corruption as perceived by various stakeholders
interviewed. This remains a signicant challenge for
the transport sector in Romania.
The corporate governance of the four main
state-owned enterprises (SOEs) in road and railway
sectors is awed. Governance of these companies
does not meet most the standards suggested by
OECD guidelines on state-owned enterprises. As a
result, there is a distinct absence of strategic vision
and commercially skilled guidance by boards, which
contain signicant numbers of ministry career officials,
in many cases with political backing. This has either
permitted and / or contributed to a long-term decline
in many of the companies key performance indicators.
Specifically, the state-owned rail freight operator,
TRANSPORT
CFR Marf, seems unlikely to survive without a more
selective and aggressive business model, which
in turn is unlikely to be adopted under the existing
state ownership. Under the MOTs governance since
1998, CFR Marf has been more and more squeezed
between a deregulated road freight haulage industry
and a private rail freight industry. Labor and equipment
productivity is decliningabout half of what it was ten
years agoand CFR Marfs nancial situation is dire.
The passenger rail company, CFR Cltori, faces a
declining number of passengers per train (approximately
90 today from 170 ten years ago), and very low passenger
ows on branch lines, meaning the network is not used
efficiently and is not environmentally friendly. The
railway Passenger Services Contract (PSC) between the
government and CFR Cltori contains few incentives
for service rationalization, efficiency improvements or
revenue enhancement.
The National Company for Motorways and National
Roads (RNCMNR) faces the opposite challenge of the
railway system, as road transport demand is increasing.
Road infrastructure has been neglected in the past, and
while in recent years roads have enjoyed capital funding
priority over railways, RNCMNR has been unable to turn
the investments into improved motorways in a timely
manner or within budget. Road construction and
maintenance also remains less than efficient.
A high number of subsidiary companies exist under
each railway company, without adding enough
value. CFR SA owns seven such companies; CFR Marf
and CFR Cltori each own ve.
41
Together, these 17 companies employ around 14,000 them to develop better plans. When serious aws in
people, more than the total numbers of people basic corporate strategy endure over such a long
employed on some smaller EU railway systems, such period, the responsibility resides with the board of
as in Belgium, Sweden or Finland. There is no strong directors and the shareholders, as the boards role in
apparent reason for the number of subsidiaries. In nearly a joint-stock company is to establish and monitor the
all cases the subsidiary companies neither compete companys direction and strategy, and the shareholders
with private companies for the contracts that they role is to select the board.
receive from the parent, nor do they earn any signicant
income from contracts independently won from other A large share of Romanias current transport
companies. Nor are there any plans to divest them. infrastructure projects are not funded, not started,
or uncompleted. The authorized annual expenditure
Direction on capital works that is implicit in this program is many
times greater than what has traditionally been spent, or
A comprehensive policy framework is lacking in
than what is actually available to be spent. As mentioned
the transport sector. This is a result of half-nished
above, the ministry and the implementing entities have
reforms in the early transition years. Attempts to attract
been unable to utilize available EU funding fully.
private financing to the more challenging sphere
of transport infrastructure, through the specialized
mechanism of public-private partnerships (PPPs),
Operationalization
have not been successful. The sector needs a brief The MOT administration is fragmented and is
and realistic medium-term national transport strategy reactive in its approach. The modally-based
covering objectives, policies, and proposed programs administrative structure of the MOT at best does not
for the next ve years. encourage and at worst hinders the development
of a coherent overall transport strategy. It is also
Romanias state-owned companies lack robust unduly influenced by political considerations.
medium-term business plans. So far as can be judged, Aviation and maritime transport policy and
their boards and shareholders have not been driving infrastructure matters are both organized as
general directorates. Railway and
Figure 16: Sector Governance: Main Challenges
road transport (despite being far
Roles of Government
larger industries) are entrusted
to t wo separate lower level
directorates. And there is a separate
Strategy & Policy Need for an affordable transport strategy to guide Romanias transport
policies and investments through the years ahead. General Directorate for road
infrastructure and concessions.
Setting CFR Marf squeezed between deregulated road and private rail hauliers.
Infrastructure ownership by road/rail companies creating perverse accounts
Sector Structure There also is signi cant functional
and accountability.
overlap among the MOTs existing
Purchase of Transport
Services (PSC)
The current PSC for rail passenger services may not represent best value
for public money, and has also proven to be unaffordable.
structures leading to uncoordinated
action in the absence of effective
Rail passenger fare regulation exceeds needs of social goals.
mechanisms to work across units
Sector Regulation
MTI regulatory bodies insufficiently distanced from conicting functions. and to share information. In addition,
there are functions currently
Administrative Apparatus MTI is both fragmented but and not well structured to focus on its
disparate roles, especially in an era of challenge and difficult choices.
exercised by the MOT that would
normally be considered outside
the scope of the transport sector.
Figure 17: Corporate Governance: Main Challenges For example, the MOT continues to
Key elements of Corporate administer a number of medical and
Governance health facilities15 hospitalsand
100 percent ownership by the MTI which is politically conicted
services that have little to do with
Shareholding if company takes sound but unpopular decisions. Board promoting the public interest in
decisions subject to immediate veto by Shareholders.
the transpor t sector and for
Board of Directors
Neither independent, commercially oriented, nor diverse: wholly which its administrative expertise
dominated by delegates of MTI, who are career public servants.
appears limited.
CEO is appointed by MTI patronage, and becomesChairperson The Board
Chief Executive has no strong voice in the appointment.

Boards have neither called-for nor adopted regularly updated

Business Plan Corporate/Business Plans; so no agreed management performance
targets for the Board to monitor.

Transparency and No clear reporting, transparency or disclosure policy, and limited publicly
available information on performance.
Disclosure Partial auditing requirements.

42
Recommendations
Structure
The structure and governance of the sector need
Reconstitute CFR SA and RNCMNR as
to be strengthened both at the MOT level and in infrastructure delivery, management and
the SOEs providing services. The structure of the maintenance companies. Each company
sector is not conducive to effective oversight and would emerge with the function of asset
direction setting by MOT and SOE effectiveness is ownership and determination of strategic
limited as a result of poor governance and incentives. directions and main priorities of the rail and
The government should implement the following road networks falling directly to (and appearing
steps at the level of the MOT: within the accounts of) the state. Splitting
RNCMNR into two agencies is discouraged.

Divide the burden of ownership between the

Develop a performance contract with
MOT and another ministry. This would help
the RNCMNR. At the institutional level, the
eliminate the MOTs political conict caused by
relationship between the State and the
transport company decisions. The nomination
National Company for Motorways and National
of smaller, but more professional and more
Roads needs to be enhanced through a
independent boards of directors would also go
performance agreement.
a long way toward establishing best practices.
The boards should have a mandated role in the
selection of chief executives.
Direction
The ministry should prepare a medium-term

Reconsider what aspects of regulatory Romanian National Transport Strategy. Such a
strategy and policy fall under MOTs strategy would chart a clear policy framework and
responsibility. A task force should be created a realistic public resource envelope for the industry
for this purpose. It may lead to the establishment through the difficult years ahead. Policies for
in another ministry of an effective railway encouraging private sector participation in transport
regulatory function. Such a function would services and infrastructure should be included in
review the implementation of and disputes such a strategy. Suggested options include the
concerning the application of track access provision of integrated rail / bus systems, the piloting
rights and charges be established in another of private concessions for regional passenger railway
ministry. In addition, a multi-modal transport services, and the use of performance-based contracts
licensing and safety agency should be created. for road maintenance.
To make the SOEs more effective, the government
should consider taking the following actions: PPPs can be more successful and advantageous if made
slightly less ambitious; PPPs should focus on simpler

Improve SOE boards and management. and less costly highway projects than what has been
Boards of SOEs should become smaller and attempted so far, and for other elds, such as airports.
more independent to strengthen their ability
to oversee the SOEs. CEO appointments The government should re-establish a realistic
should be made purely on merit, through annual program of transport infrastructure. The
fixed-term management contracts with current annual program needs to be re-established
performance targets. using the three-year ceilings in the governments
scal strategy as a start, and in the future its assembly

Address transparency and disclosure. SOEs
should be more disciplined in the adoption and
should be required to present annually to
prioritization of projects. To obtain maximum
the shareholding ministries the companys
leverage from scarce domestic funds, there is a
medium-term business or corporate plan,
strong case for immediate priority to be given to
prepared by management and adopted by the
those projects for which EU funds are also available.
board. The minimum requirements on annual
reporting and disclosure of information
should also be raised, and an annual external
independent audit mandated in accordance
with international accounting standards.

Privatize CFR Marf, the rail freight operator.
This should be done in a way that will give it
the commercial freedom and opportunity to
contribute positively to the rapidly changing
European rail freight market. The government
has star ted the due diligence process
for such privatization.

43
MOT should require SOEs to develop better
business plans. The MOT should require SOEs to
present annual business plans that are prepared
by management and approved by the board to
shareholders. These plans should be consistent
with performance contracts between the state and
the SOE, and aligned with national policies and plans.
As part of this process, the MOT should:

I d e n t i f y a n d e v a l u a t e r e a l i s t i c ,
financially-sustainable options for CFR SA.
The national railway infrastructure company
needs to identify and evaluate realistic
options for a nancially sustainable network
that can properly serve the core markets in
which railway services may have long-term
competitive advantage. CFR SA should work
with the government and train operators to
do this. Based on such an assessment, the
government and the ministry should make a
decision on a more affordable public network.
Fig. 18: Sector Governance - Administrative Apparatus - Indicative structure for MTI
Minister
Cabinet
Internal
Control
General
Secretary
Multi-modal Budget, European and
Policy and
Strategy
Finance and
Management
International
Programs
Transport Safety
and Technical
TAROM
Regulation

Introduce modern corporate management
practices to the National Company for
Motorways and National Roads. The highway
planning and engineering design functions
must be strengthened, and the investment and
operations lines of business must be streamlined
with greater delegation to regional offices. The
cost-effectiveness of road maintenance can be
improved by shifting to a road asset management
approach, for example through long-term
contracts based on performance criteria.
Commission an independent business review
of railway subsidiaries. The boards of the three
main railway companies should examine such an
evaluation with a view to divesting companies that do
not provide core services and whose services can be
competitively procured. If no competitive procurement
opportunities are available for some core functions,
they should be transferred directly back under the
executive control of the parent company, as no
rationale for separate corporate existence can be made.
44
Operationalization
Restructure the administrative apparatus of the
ministry. This would reduce current fragmentation
of and overlaps in responsibilities, and separate the
ministrys potentially conflicting policy-making,
regulatory, ownership and client roles. The creation
of a multi-modal strategy and policy group within the
ministry would also contribute to greater consistency
in the administration of the road and railway
infrastructure and in its investment and cost recovery.
The government should consider reorganization of the
MOT into ve general directorates with the following
remit, each led by a qualied and experienced public
servant: transport strategy and policy, budget, nance,
and management, European and international
programs, management of the shareholdings, and
administration services (as in Figure 18). In addition,
the number of (formal) political appointeesnow
estimated to be 20should be reduced to the minimum
necessary to properly support the Ministers duties.
In addition, the ministry should consider
transferring the administration of
medical services and hospitals to
another, more relevant body. There
State
Secretaries are, of course, areas of occupational
health and safety that are important to
Indicative only: the state-owned transport companies
needs detailed
study and evaluation. but should be the responsibility of
those specific companies (either
through in-house or contracted out
service provision). Otherwise, MOTs
Management of Administration, Human
State
Ownership
Resources, Legal, IT,
Procurement, Property
administration of medical services and
hospitals should be transferred to the
MARFA CALATORI CFR RNCMNR responsibility of Romanias ministry
responsible for health, or to other
Airports, etc .
relevant bodies.
Establish training on policy development. If changes
to Romanias policy and planning systems are approved,
training on the related procedures will be required.
This training would include tailored programs for line
ministries, on developing policy, and also central
institutions, on assessing ministry proposals. These
processes will also need to be reected in training
provided to the Ministry of Public Finance (MoPF) and
line ministry officials working on the budget process.
Above all, senior management must be trained on the
purpose of these processes and their own roles and
responsibilities in oversight.
CHALLENGES RECOMMENDATIONS
Divide the burden of ownership between the MOT and
MOTs four competing another ministry
roles create difficult
dynamics in the sector. Reconsider what aspects of regulatory strategy and
policy fall under MOTs responsibility

Improve SOE boards and management

Corporate governance
Address transparency and disclosure
of the four main SOEs
in the road and railway Privatize CFR Marfa
sectors is awed. Reconstitute CFR SA and RNCMNR as infrastructure delivery,
management and maintenance companies
Develop performance contract with RNCMNR

A high number of sub-

sidiary companies exist
Commission an independent business review of
under each railway
railway subsidiaries
company, without
adding enough value.

A comprehensive policy
Prepare a medium-term Romanian National Transport
framework is lacking in
Strategy, and establish training on policy development
the transport sector.

Require SOEs to develop better business plans

State-owned companies
Identify and evaluate realistic, nancially sustainable options
lack robust, medium-
for CFR SA
term business plans.
Introduce modern management practices at RNCMNR

Many current
infrastructure projects Re-establish a realistic annual programme of
are not funded, not transport infrastructure
started, or uncompleted.

MOT administration
Restructure the administrative apparatus of the ministry with
is fragmented and is
a focus on reducing fragmentation and overlap
reactive in its approach.

45
Romania: Functional Review | Graphic Design and Production | grafacha | Steve Rocha | grafacha@me.com
Beneficiary: General Secretariat of the Government

Project title: Functional Review of Central Public Administration in Romania - I

SMIS Code: 19,881

Financed by the Operational Programme Administrative Capacity Development of ESF

during the period 05 July 2010 - July 4, 2011

Project title: Functional Review of Central Public Administration in Romania - I

Project co-financed by European Social Fund

Editor: General Secretariat of Government

Date of publication: February 2011

This report does not necessarily represent the position of the European Union and the
Romanian Government.