After becoming a member of the European Union on 1 January 2007, Romania has amplified the process of harmonising its laws with the acquis communautaire. As a result, the country has made significant amendments to its commercial legislation, as demonstrated in recent EBRD sector assessments, and has substantially reformed the legal framework applicable to investments. Consequently, the business climate has improved, leading to an investor friendly environment. Overall, the objective in the short term should be the effective implementation of laws and regulations and improvement of the enforcement process. There remains a noticeable gap between the quality of the laws “on the books” and the practical application (effectiveness) of such laws in a number of sectors.
- Access to Finance
- Capital Markets
- Contract Enforcement and Judicial Capacity
- Corporate Governance
- Debt restructuring and bankruptcy
- Electronic Communications
- Energy and resource effiency
- Energy legal and regulatory reform
- Public Procurement
The Law on Security Interests is generally considered to be modern and market oriented, providing a number of features required for economic efficiency of the credit market (such as the possibility to describe generally the charged assets and to cover the whole of the enterprise).
While the Civil Procedure Code would provide for a court-supervised enforcement procedure, the Law on Security Interests provides lenders with the option of enforcing the security interest privately, without court involvement. However, private enforcement can be hampered by a deficient institutional framework and debtor obstruction. Furthermore, the position of the secured creditor in bankruptcy is not clear and certain claims such as tax claims may supersede that of the registered charge holder. Despite some remaining uncertainties, Romania has established one of the most advanced regimes for secured transactions in the EBRD region. In general, Romanian laws relating to secured transactions have been amongst the most advanced in the EBRD region and have continued to be updated.
(Assessment of Secured Transactions 2013 – country report)
EBRD Legal Reform Projects
The EBRD undertook extensive preparatory work on consensus building with the Romanian authorities with a view to introducing a new law, which was developed in draft form. Following input from the World Bank, the Law on the Legal Treatment of Security Interests in Personal Property was adopted in 1999.
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Romania.
The Bank’s recent assessment of Romania in the context of the EBRD Local Capital Markets Initiative has revealed a number of shortcomings. Capital markets have been slow to develop with effectively no local bond market in place. Taxation legislation promotes a public debt securities market, but there are no such provisions for corporate bonds. One area where the legal and regulatory framework is working well in Romania is in investor protection (mainly built on the EU acquis). But there are significant needs for improvement, including: simplifying the offering document approval process and reducing the fees; revising repo law and regulations to reflect current market practices; clarifying the rules and regulations on derivatives transactions; harmonising legislation and regulations to eliminate gaps and overlap resulting from the implementation of EU law; revising the existing bond mortgage legislation and potentially expanding the structure to other assets. Additional long-term recommendations include allowing intermediaries to allocate debt securities on a discretionary basis and improving the availability of credit ratings. The EBRD will consider how to best engage in policy dialogue and potential technical cooperation with the Romanian authorities in the context of its Local Capital Markets Initiative.
The Judicial decisions assessment conducted by the EBRD found that in Romania judicial decisions are relatively predictable (in comparison to the rest of the region) and of a relatively high quality. One major and ongoing concern related to the large backlog of pending cases and pending litigations. This has invariably led to Romania being criticised by the ECHR for the rather long duration of the civil and commercial
disputes and the unreasonably long statutory time-frames for resolving cases.
The 2007 EBRD assessment on corporate governance showed Romania being in “High Compliance” with the OECD Principles of Corporate Governance (see Chart 4). As can be observed in Chart 5, the Assessment has found that the majority of areas assessed are in compliance with international standards, with the exception of responsibilities of the board. In this particular area the assessment has found some shortcomings, such as the fact that monitoring and managing potential conflicts of interest are not included in the responsibilities of the board. The EBRD is also scheduled to complete an assessment of corporate governance in 2014/2015.
(2013 Assessment of Corporate Governance of Companies – country report)
The main law governing insolvency proceedings for businesses (including sole traders) in Romania is the Law No. 85/2014 regarding preventative insolvency proceedings and insolvency proceedings (the Insolvency Law), effective from 28 June 2014. The Code of Civil Procedure contains certain provisions with respect to procedural issues relevant for insolvency proceedings.
In addition to the Insolvency Law, provisions relating to insolvency office holders (IOHs) are found in the Emergency Governmental Ordinance 86/2006 on the Organisation of Activity of Insolvency Practitioners effective from 22 November 2006 (as amended). These are supplemented by the Statute on the Organisation and Exercise of the Insolvency Practitioner Profession, which includes provisions regulating the organisation and function of the National Union of Insolvency Practitioners in Romania (UNPIR), the regulatory body for insolvency office holders (IOHs) in Romania. A statutory code of professional conduct sets out a code of ethics for IOHs.
Based on the results of the assessment, a reliable and well-functioning legal framework appears to exist for the IOH profession in Romania. Nevertheless, a few minor improvements would be desirable to further improve IOH capacity and performance.
The bank has previously conducted assessments of the insolvency legal framework in 2009, 2006 and 2003.
The electronic communications sector has been fully liberalised since 2003. Though effective competition has been slow to take hold, a significant number of competing operators now offer services. The main legal basis for electronic communications regulation is the Government Emergency Ordinance 79/2002 on the general regulatory framework for communications, amended by several laws and government emergency ordinances.
The European Commission initiated infringement proceedings for non-communication of transposition measures in July 2011 and adopted a reasoned opinion in November 2011. Romania has adopted the EU 2009 framework in the meantime by emergency ordinances - the main one came into force on December 31, 2011 and another one on e-privacy on April 26, 2012. One of the two infringement procedures for not transposing the framework was closed on February 27, 2012. The other one (on the Citizens’ Rights Directive is still pending and it is expected to be closed before the end of 2012.
An adequate legal and institutional framework for sustainable energy is in place. Energy pricing encourages energy efficiency investments, although some cross-subsidies still persist. Support systems for energy efficiency and renewable energy are in line with EU practices. In 2003, Romania transposed into domestic legislation the Directive 2001/77/EC on the promotion of electricity produced from renewable energy in the internal electricity market. It also adopted an action plan called “The Energy Strategy of Romania for the period 2007-2020.” In Romania, the renewable energy target to be achieved is 11% of gross energy in 2010. The target was set at 33% of gross electricity consumption in 2010 and Romania has made good progress toward this goal.
Romania is a signatory of the Energy Community Treaty, which aims at establishing an Integrated Energy Market Organisation in South-East Europe. The tariff and regulatory system have been strengthened but more efforts have to be made to secure a level playing field to all investors.
The former national energy monopoly has been unbundled into generation, transmission, and distribution. However, private sector participation in the sector is limited. State-owned enterprises still dominate the generation segment. There is greater private sector participation in distribution (five distribution companies out of eight were privatised). The market has been gradually liberalised, reaching 100 per cent opening in July 2007, but effective competition is still limited, due to the lack of private ownership in the generation sub-sector. The quality of Romanian institutions is fairly high. A regulatory authority (ANRE) is well established, but nowadays its independence is questionable since it is a budgetary institution; the Romanian government has pledged to restore independence, following infringement procedures on the non-application of the EU’s third internal energy market package.
Romania does not have a specific policy framework for Public-private partnership (“PPP”), however PPP is referred to as an important issue in the Government strategy on the acceleration of the reform of public administration.
Concession agreements are regulated by the Government Emergency Ordinance no. 34 (the “Ordinance”) of 2006. In addition, Law no. 178 (“PPP Law”) regulating public-private partnerships came into force in November 2010.
The concessions legislation has been assessed by the EBRD as being in “Medium Compliance” with international standards. The Assessment has identified that the law does not contain a detailed concessions definition and the scope of the law is also not entirely clear. The Assessment has further found that security and support issues are not comprehensively regulated by the law. In particular, the Law does not clearly state which types of security can be provided and does not include the most common type of guarantees in project financing. Further, the Law does not provide which authorities may provide financial or economic support for the implementation of concessions
- PPPs/Concessions Assessment - country report (2012)
- PPPs/Concessions Assessment – country report (2008)
EBRD Legal reform projects
Technical Assistance with road concessions.
The EBRD has previously reviewed the Concessions Ordinance and provided
recommendations to improve the legal framework for the granting of concessions for highways in Romania. The Bank has also previously provided assistance to the Romanian Government with the identification, tender, negotiation and award of a contract for an initial motorway concession.
In the EBRD’s 2010 assessment of public procurement law and practice, Romania scored “Medium Compliance” with international procurement standards (71 per cent) (see Chart 8 below). The PPL in Romania is based on sound principles of EU public procurement directives and has not been found to have any major weaknesses. The PPL promotes competition and efficiency in public procurement but safeguards concerning accountability, transparency, integrity and stability are not as strong as in other EU Member States in the EBRD region.