The World Bank Report No: ISR15418 Implementation Status & Results Romania Development Policy Operation - DDO (P130051) Public Disclosure Copy Project Name: Development Policy Operation - DDO (P130051) Program Stage: Implementation Seq.No: 4 Status: ARCHIVED Archive Date: 25-Jun-2014 Country: Romania Approval FY: 2012 Product Line: IBRD/IDA Region: EUROPE AND CENTRAL ASIA Lending Instrument: Development Policy Lending Implementing Agency(ies): Key Dates Board Approval Date 12-Jun-2012 Original Closing Date 31-Dec-2015 Planned Mid Term Review Date Last Archived ISR Date 23-Oct-2013 Effectiveness Date 11-Jan-2013 Revised Closing Date 31-Dec-2015 Actual Mid Term Review Date Program Development Objectives Program Development Objective (from Program Document) The objective of the proposed DPL-DDO is to support the Government of Romania’s efforts to meet the fiscal sustainability goals as defined by the EU Fiscal Compact. The reforms proposed to be supported aim to: (i) improve public financial management to enhance the efficiency of public spending and the Government’s revenue- raising capacity through better enforcement of tax laws; (ii) improve governance of SOEs in the energy sector to generate savings, and attract the private capital needed to modernize plants and increase their competitiveness; and (iii) enhance fiscal sustainability of public health care through the reduction of unjustified outlays and the reallocation of resources to high-return preventive care and health promotion programs. In addition, the DPL-DDO contributes to the Government’s fiscal buffer, but without requiring actual disbursement of funds. The overarching objective of the Country Partnership Strategy (CPS) 2009-2013, updated by a Progress Report was presented to the Board in December 2011, is to pursue public sector reform, growth and competitiveness, and social and spatial inclusion. The DPL-DDO approaches these reform objectives from the perspective of fiscal sustainability, which the Government sees as a prerequisite for the longer term growth under the CPS. Has the Program Development Objective been changed since Board Approval of the Program? Yes No Overall Ratings Previous Rating Current Rating Public Disclosure Copy Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Satisfactory Satisfactory Implementation Status Overview A. Macroeconomic framework The macroeconomic framework for the operation remains satisfactory. Economic growth has accelerated in early 2014, driven by exports and industrial production. There are also signs of improvement in the domestic demand, driven by private consumption. Firm macroeconomic policies (fiscal, monetary, incomes), anchored in the program with the IFIs, have largely corrected the external and internal imbalances, improving the confidence of the markets in the Romanian economy. As a result, an important rating agency has recently upgraded Romania to investment grade. Thus, all major rating agencies place now Romania in the investment grade category. Furthermore, Romania successfully issued its first ever 30-years bond in early 2014. In spite of the remarkable macroeconomic consolidation, Romania continues to face several external and domestic risks which require close attention Page 1 of 5 The World Bank Report No: ISR15418 from the government. Main external risks include a slower than expected recovery in the Eurozone, which can adversely affect Romania's exports and growth prospects, and the tightening of the global financial conditions, which can trigger capital outflows, putting pressure on the currency and the interest rates. Main internal risks include the still large quasi- fiscal activities of state-owned enterprises (SOEs), especially in transport, and the slow progress in implementing good corporate governance practices in SOEs. The approaching presidential elections, to be held in late autumn 2014, can slow down reforms, with potential implications for the relationship with IMF and the EC, as both institutions have ongoing Public Disclosure Copy precautionary agreements with Romania. B. Implementation of the reform program The implementation of the government’s reform program supported by the DPL-DDO has continued. In key areas, such as public investment management, energy price liberalization and private participation in key SOEs, the pace of reforms was maintained. In the health sector there has been renewed focus on key aspects of the reform agenda, such as the review of the lists of subsidized medicines and treatments. Specifically: - In the public sector, reforms in public finance management and tax policy and administration have continued. The Government has taken important regulatory and institutional steps to reform the public investment framework, and has advanced the restructuring of the tax administration. However, further efforts would be required in order to consolidate the sustainability of the reforms adopted. - In the energy sector, solid progress has been made on implementing legal and regulatory reforms, especially with respect to the liberalization of the electricity and gas markets; gas price increases proceeded as agreed, and the electricity market was fully liberalized for non-households. Good progress has been made towards putting in place the safety net offering protection to poorest households from energy tariff increases and the government is working to further improve the coverage and the targeting of the safety net. Good progress has been made towards the introduction of transparent and competitive contracting for Hidroelectrica, and improve the profitability of the company by cutting costs and eliminating inefficient investments, in spite of the fact that the company was put back into insolvency at the request of the courts. Progress has been made in terms of introducing payment discipline among SOEs and arrears have been reduced, but efforts need to continue to ensure the sustainability of the situation. Private sector participation in the energy sector has advanced substantially through a number of successful IPOs and SPOs (Transgaz, Nuclearelectrica, Romgaz, the latter listed dually in Bucharest and London), and the preparation of a large majority privatization of an electricity distributor (Electrica) is in its latest phases. While these are remarkable achievements, the SOE corporate governance reform agenda has registered mixed results, particularly in the transport sector, where a number of SOE GSMs and boards appointed according to the new governance framework (GEO 109/2011) have been revoked. -Positive steps have been taken in health care sector reforms, particularly regarding the hospital network rationalization and the reduction of the number of hospital beds. The introduction of the e-prescription has helped to improve the efficiency and the governance of the health system. Steps have been taken to introduce the health technology assessment and rationalize the package of compensated medicines, but these represent only initial actons in what is an overall a complex medium-term agenda. Results Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target Tax revenue, in billion Euros Amount(USD) Value 37.00 39.40 37.50 Public Disclosure Copy Date 30-Dec-2011 31-Dec-2013 31-Dec-2014 Comments Tax revenues Final figures for 2013 (for the whole subsection). Tax administration cost, % of revenues Percentage Value 1.11 1.15 1.05 Sub Type Supplemental Consolidated budget revenues (% of GDP) Percentage Value 31.40 31.70 Page 2 of 5 The World Bank Report No: ISR15418 Sub Type Supplemental Hidroelectrica's annual gross pre-tax revenues, Amount(USD) Value 755.00 700.10 898.00 Public Disclosure Copy in million Euro Date 31-Dec-2011 31-Dec-2013 31-Dec-2014 Comments Final figure for 2013. Hidroelectrica's annual net profit, in million Text Value 1.4 163.2 (end-2013) Euro Sub Type Supplemental Electricity sales at regulated tariffs, % of total Percentage Value 50.00 27.00 25.00 Date 31-Dec-2011 31-Dec-2013 31-Dec-2014 Comments The electricity market was fully liberalized for non- households on January 1, 2014. In 2013, 73.0% of electricity supply was provided via the electricity exchange OPCOM. Electricity tariffs to non-residential consumers Text Value regulated fully deregulated deregulated Date 31-Dec-2011 01-Jan-2014 31-Dec-2013 Comments Electricity tariffs for non- residential consumers was fully deregulated in January 2014. Sales through OPCOM Power Exchange, % of Percentage Value 25.00 73.00 50.00 total Date 31-Dec-2011 31-Dec-2013 31-Dec-2014 Comments In 2013, 73% of of electricity was sold via OPCOM. Electricity sales through directly negotiated Percentage Value 25.00 4.75 20.00 bilateral contracts, % of total Date 31-Dec-2011 11-Jun-2014 31-Dec-2014 Public Disclosure Copy Comments The team estimates that around 1.95Twh of electricity will be sold through bilateral contracts in 2014, representing around 4.75% of the total. There is only one active bilateral contract ongoing (outside OPCOM), of Hidroelectrica, which expires in 2018. Page 3 of 5 The World Bank Report No: ISR15418 Savings from excluding specific drugs currently Amount(USD) Value 0.00 100.00 compensated, million Euros Date 31-Dec-2011 31-Dec-2013 31-Dec-2014 Comments The government has not Public Disclosure Copy finalized the computation of an estimate yet. Number of beds contracted by National Health Number Value 129524.00 121579.00 123127.00 Insurance House Date 31-Dec-2011 11-Jun-2014 31-Dec-2013 Comments The number of beds The number of beds approved contracted by MoHealth and by MoHealth and HIH for the Health Insurance House 2013 (distributed by county (HiH) for 2014 (distributed by and hospital). county and hospital) has continued to decline and further reductions are envisaged. Ministry of Health budget allocation to Percentage Value 10.00 15.00 prevention and promotion programs, % of total Date 31-Dec-2011 31-Dec-2013 31-Dec-2015 Comments Not yet finalized by MoHealth Hidroelectrica's number of bilateral sales Text Value 10 contracts contracts Date 31-May-2012 30-Sep-2013 Comments All bilateral contracts with traders have been canceled. Two contracts with producers have expired in 2013 and the last two contracts will expire in 2015. No new bilateral contracts have been concluded. General government budget deficit (% of GDP) Text Value 4.2 2.5 3.0 Date 31-Dec-2011 31-Dec-2013 31-Dec-2014 Public Disclosure Copy Comments Final figure for 2013. The initial target was slightly widened, in agreement with the IMF and the EC to allow for higher co-financing of the EU funds. Structural fiscal deficit (% of GDP) Text Value 4.9 1.8 1.0 by 2015, as per the EU Sub Type Fiscal Compact Supplemental Page 4 of 5 The World Bank Report No: ISR15418 Data on Financial Performance (as of 23-Oct-2013) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date Public Disclosure Copy P130051 IBRD-81760 Effective 12-Jun-2012 11-Sep-2012 11-Jan-2013 31-Dec-2015 31-Dec-2015 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P130051 IBRD-81760 Effective USD 1,333.30 1,333.30 0.00 962.04 399.99 72.00 Tranches Tranche 1 Amount (USD) Expected Release Date Actual Release Date Status 0 Pending Released Key Decisions Regarding Implementation The implementation of the DPL-DDO program remains satisfactory. Restructuring History There has been no restructuring to date. Related Operations There are no related projects. 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