Vol. XV No.7/8
July-August 2010



 EU Funding – An Alternative Source of Financing in Romania

As the recession in Romania continues without any certainty as to its duration and conventional sources of funding remain hesitant to provide financing, businesses are increasingly anxious to find alternative sources of money. With internal customary financial resources mostly scarce and bank financing in short supply and often impossible to obtain, it is frequently a necessity for a company to find an alternative funding solution just to survive. Our October 2009 Romanian Digest™ article, “Romanian Sate Aid in a Time of Crisis”, presented a potential solution for those companies. (For more details, please visit our Digest Archive at http://www.hr.ro/digest/200910/digest.htm). This article provides an overview of another potential alternative financing solution for companies through the utilization of financing schemes organized by the European Union (“EU”). Individuals or legal entities that are performing certain specified activities in an EU member state, such as Romania, should obtain more specific information on the financial plans currently available at the EU level in their industry using the sources described in this article. For those who are active in fields such as energy, manufacturing, transport, human resources, agriculture, research and development, information technology and communication, an EU funding scheme may be just the solution.

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General Considerations

Financing is available under EU financing schemes either through specific programs developed at the EU level, such as PHARE, or through programs developed by other EU member states based on bilateral agreements with Romania. This article describes only some of those programs and does not provide a presentation of all of the potential funding schemes available within the EU.

Since EU financial programs represent a particularly significant financing tool for individuals and legal entities operating in Romania, the Romanian Government created the Romanian Authority for Structural Funding (“ACIS”) within the Ministry of Finance, charged with the role of coordinating at the national level all of the non-refundable support granted by the EU. Therefore, any legal entity or individual intending to obtain funds granted at the EU level should obtain specific information from ACIS by accessing its website at www.fonduri-ue.ro.

However, even when provided with the requested information from ACIS, a potential applicant must further evaluate carefully all of the eligibility criteria applicable to the specific financing scheme being considered. Usually, each financing scheme is applicable only to specific categories of beneficiaries; hence it is very important for the potential applicant to assess whether it fits into one of those categories. A failure to observe a particular provision may lead to a rejection of the file by the competent authority, even if all of the other conditions have been properly fulfilled.

EU financing schemes are primarily aimed at providing support to small and medium sized enterprises (“SMEs”), since they are considered to be the heart of the economy of any state. According to the provisions of Law 346/2004 regarding stimulation for establishing and developing small and medium enterprises, eligible SMEs are the “undertakings” that cumulatively fulfill the following conditions: they have an annual median number of employees smaller than 250; they have a net turnover of up to €50 million in lei, or they hold assets that do not exceed the equivalent in lei of €43 million based upon the last approved financial accounts of the company.

There are also opportunities which require a substantial capability from the applicant, either in terms of financial wherewithal or human resources, and such companies are defined as “large undertakings”; they are the undertakings that are not included in the definition of SMEs set forth in Law 346/2004. Moreover, there are other opportunities where the beneficiaries may also be individuals or non-governmental organizations.

Another significant aspect to be taken into account is the fact that EU financial programs are available only for the development of projects in determined areas and, more specifically, for the performance of particular activities under such projects. Furthermore, there are situations in which the public procurement legislation must be observed and complied with fully.

Moreover, there are situations in which the financing schemes do not cover the entire project, but only parts of it, and in such cases the applicant must be prepared to find other available funds to implement the rest of the project. The applicant should verify its own availability to cover the remainder of the requisite financing, and, secondly, the possibility to obtain the rest of the necessary funds through a credit, loan or state aid program. However, no matter what the source is for the rest of the funds, the legal and financial documents attesting to the availability of such funds must be well prepared, since any failure to elaborate and submit these documents in the requested format would lead to the rejection of the file and to the impossibility of the applicant to further pursue the project.

Of course, obtaining a credit, a loan or even state aid to cover the rest of the needed funds would require the preparation and submission of even more documents, both legal and financial, and that is why applicants for such financial programs usually resort to specialized legal and financial advice and counseling, in order to be certain that they would not face any risks in having their access to such funding blocked. Needless to say, any applicant for funds provided under an EU financing scheme is interested in obtaining the respective funds as soon as possible, so as to be able to initiate the project and obtain profits. Therefore, any delay in providing the requested information or documents or any blockage in the process to obtain the financing might trigger substantial losses for the applicant.

Furthermore, regardless of the specific field of the project, or of the determined eligibility criteria for the applicant, the latter must pay close attention to the financing agreement to be concluded in order to obtain the requested funds. Such funds will be provided only based on this financing agreement concluded with the competent authority, and any non-compliance with the obligations undertaken by the beneficiary through this agreement may trigger its liability, sometimes leading to the obligation to pay large penalties, or even to the obligation to reimburse the funds it had received. Therefore, even if the funds provided under the EU financing schemes may be just the solution for individuals or companies in need of financial resources, this could easily turn into a burden difficult to overcome if the respective individual or legal entity does not approach this alternative responsibly.

As previously mentioned, this article does not provide an exhaustive presentation of the financing schemes currently available at the EU level, since its purpose is only to attract investors’ attention to this particular alternative financing solution. There are, however, specific areas of activity which are considered as core activities in the EU member state economies and, consequently, there are many financial schemes available for those particular fields.

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Particular Funding Schemes

Schemes in the Energy Field
A very significant industry which has been increasingly attractive to investors is the energy field. The importance of this industry to the economy has also been acknowledged at the EU level, and, consequently, specific financing schemes have been set up for this particular area.

For instance, a financing program is currently available for large undertakings and for SMEs, to increase energy efficiency, i.e., investing in facilities and equipment specific to companies active in this industry in order to ensure the production, transportation, distribution and supply of electricity, as well as investing in highly efficient cogeneration capacities.

This financing program covers expenses for buildings and facilities; expenses for technological and functional equipment; expenses for gear fitting; intangible assets purchase, such as software, patents, licenses, and know-how.

The financing under this program may be for as much as approximately € 9,523,800 and up to approximately € 19,047,619 in case of investments made in highly efficient cogeneration capacities. The projects for which financing is available under this scheme may have a maximum value of €50,000,000. However, in cases utilizing this financing scheme, there a co-financing requirement and, consequently, the interested applicant must carefully observe the specific applicable conditions. The next estimated call date for submissions for this scheme is November, 2010.

Schemes in the Production Field
Another area which may represent a good business opportunity is production. The beneficiaries for such a grant are SMEs, and the following activities may be financed: creating a new production unit; expanding an existing unit so that production is increased; diversifying the production of an existing facility by launching new products or services; the modernization of a company; purchase of intangible assets; or consultancy and specialized training.

Under these projects, the basic activity which may receive financing is the acquisition of property. Even though such a transaction may seem easy to conclude, close attention should be paid to it, especially in cases involving the acquisition of land where there are specific legislative provisions which must be rigorously observed. Moreover, in cases involving the acquisition of intangible assets, compliance with intellectual property legislation is required.

There are two estimated call dates for submissions under this scheme during this year, i.e. July and September 2010.

Schemes in the Field of Transportation
Many investors have tried over the past years to develop public-private partnerships in order to use the respective funds for the development of infrastructure projects. At this point, such investors may also attempt to obtain funds provided under EU financing schemes in order to develop various infrastructure projects. However, as in all the other cases, the specific eligibility conditions, as well as provisions regarding the specific activities which may be financed, must be very closely observed.

Schemes in the Field of Agriculture
Another area of great importance in Romania which should bring about the revival of significant rural projects is agriculture. Perhaps this is the reason why there is a large variety of financing schemes available in this field. In this context, it is important for an individual or legal entity intending to obtain funds to develop projects in the agricultural field, to analyze carefully all the available financial schemes to find out which one is the most appropriate in terms of eligibility conditions to the applicant or the activities to be financed.

For instance, even if available in the field of agriculture, there are specific financing programs which provide funding for tourism projects to be developed in rural areas. Consequently, in such instances, any interested individual or legal entity potentially seeking to obtain funds available under such a program must analyze the specific eligibility criteria for the applicant.

Schemes in the Field of Human Resources
Another important industry for which funds may be provided under EU financing schemes is the human resources field. In difficult economic times when unemployment is skyrocketing, such funds allow companies to maintain the staff they need for the development of their activity and properly train them in new areas to help relieve a company’s economic distress.

At this point, EU is trying to provide the necessary protection both to individuals, as well as to companies, by providing finance for SMEs and large companies which are hiring new employees. For instance, there is such a financing scheme which covers the costs corresponding to mentorship programs for entry level employees, and there is also another financing scheme which covers the salary costs for new employees, and also for newly employed persons coming from rural areas. That way, EU institutions and bodies seek to offer the necessary protection for unemployed persons, for persons coming from underprivileged conditions, such as rural areas, and also for the companies that are hiring these persons, since the protection provided to individuals facing social and economic problems is a paramount concern to any nation.

Schemes in the Field of Innovation and Eco-efficiency, Research and Development, IT&C
There is a number of EU funding programs for projects to be developed in many fields which may be turned into more specific projects like research, development or innovation services; purchasing software, patents, licenses, know-how; purchasing publications, subscriptions and paying membership fees; purchasing software applications or information technology and communications equipment; participation at industry fairs, international exhibitions and economic missions; and services regarding the promotion on new internal market or on international markets.

Schemes in the Environmental Field
Recent changes in climate, melting glaciers and the horrendous oil disaster in the Gulf of Mexico have turned people’s attention to environmental issues. Governments have come to understand that no new economic activity should be developed unless there is strict compliance with environmental protection laws. That is why EU financing schemes provide various options for companies active in environmental protection.

For instance, EU financing schemes are available for projects regarding waste management; extension and modernization of water systems; rehabilitation of polluted areas; and implementation of the adequate management systems for environmental protection.

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EU funds are available and this is a fact. Individuals and legal entities should be aware that this is not a far-away dream, but a viable option which can be turned into reality. Despite firms in Romania with the expertise to counsel clients regarding available EU financing programs, few potential applicants resort to them and when they do, it is often too late and the damage has already been done. Many potential applicants do not take the time to prepare well the files they need to submit to the competent authority. Even worse, many of those who were lucky enough to receive EU funds do not treat the implementation of the projects very seriously, and they find themselves in the untenable situation of having to reimburse the funds received and the corresponding penalties.

EU funds are available – and they may just be the solution for the financing needs of many companies and individuals – but only for those who are willing to treat this opportunity seriously and professionally.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2010 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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