News

• Context

EGO no. 60/2022 (hereinafter referred to as ~EGO~) provides the general framework for the implementation and management of the resources allocated to Romaniathrough the Modernization Fund (hereinafter referred to as ~MF~), by regulating the following aspects:

• Appointment of the Ministry of Energy as national authority for the implementation and management of the funds allocated to Romania from the MF;
• Identification of the priority sectors and key programs;
•  The governance of the Fund for Modernization and Administrative Expenses;
• Monitoring, reporting and transparency aspects;
• The regime of the suspended investments;
• Applicable rules for the MF;
•  Investments financing from the MF;
•  The decision to terminate the financing contract;
• Modification and completion of some normative acts.

• About the Modernization Fund

MF is an instrument created by the EU to modernize the energy system by financing investments directed transforming the energy sector. MF objectives aim at the transition to a low-carbon energy system by stimulating investments in renewable energy sources, transport networks including the distribution of thermal energy, improving energy efficiency in energy production, including in the transport, buildings, construction, agriculture and waste sectors, and for appropriate transition in coal-dependent regions.

The fund is available for investments in two types of projects: priority¹ and non-priority², the Ministry of Energy being designated as the national authority for the implementation and management of the funds allocated to Romania from the MF.

The mechanism for allocating the funds  from the Modernization Fund shall be implemented through key programs, developed based on the priority sectors (i.e : renewable energy sources, renewable energy sources in the electricity sector; renewable energy sources in the heating and cooling sector; energy infrastructure, transformation activities; electricity transmission and distribution networks; natural gas transmission and distribution networks, natural gas storage, nuclear energy, including research, innovation and development; the production and use of green hydrogen; production of the biofuels).

According with the Article 21(1) of EGO, Ministry of Energy uses the pre-financing and reimbursement mechanism for implementing the Modernization Fund.

• Priority and non-priority projects

In a nutshell, the priority projects are related to areas as:

• production and use of electricity from renewable energy sources;
•  improving energy efficiency;
• energy storage;
• network modernization;
•  supporting the  transition in fossil fuel-dependent regions.

Other types of projects can also be financed by MF but are classified as non-priority investments. Projects in these areas must be relevant to the purpose of the energy systems transformation and improvement of energy efficiency.

The selection of the investment proposals for each investment will be done through a competitive selection procedure or, as an exception, through a non-competitive selection procedure defined by the Supervisory Committee according to each investment area. The Supervisory Committee shall be organized within the Ministry of Energy, by order of the Minister, issued within 30 days from the date of entry into force of the EGO.

Investment proposals aim priority¹ or non-priority² investments related to an individual project or a multiannual scheme. Beneficiaries of the funds can be any public or private entity financed through the Modernization Fund based on a contract concluded with the Ministry of Energy or with the central authorities to which the Ministry of Energy has delegated the investments management.

• Key programs. Financing

The Modernization Fund is implemented through the key programs provided in the Article 3 (6) of EGO.

Financing from the Modernization Fund for the implementation of priority and non-priority investments may be achieved through grants, financial instruments, as defined in Article 2(u) of EGO³. The actual method of granting financing shall be indicated in the documentation for each procedure for the selection of investment proposals.

According with the Article 21(2) of EGO for the direct grants, the Ministry of Energy can grant a pre-financing of the investment. In this respect, the grant beneficiary must submit a pre-financing application for the amount mentioned in the financing contract, according to the model included in the documentation for the selection of the investment proposals. The Ministry of Energy transfers the amount to the beneficiary within the terms stipulated in the financing contract. After paying the invoices for the goods/services necessary for the implementation of the investment, the beneficiary shall submit the reimbursement request according to the financing contract. The deadlines to submit the reimbursement requests are mentioned in the implementation schedule stipulated in the financing contract. The type of the reports to be issued by the auditors are included in the documentation of the procedures for the selection of investment proposals.

As per the EGO, after concluding the financing contract, it is mandatory for the beneficiary to collaborate with an independent financial auditor to verify the costs requested for reimbursement from the Ministry of Energy, according to the eligibility criteria applicable to the investments financed. The auditor shall issue an individual report for each request for reimbursement.

The financed amounts are paid to the beneficiaries in tranches structured according with the technical phases of the investments or stages of the execution, as defined in the documentation of the selection procedures for the investment proposals elaborated by the Ministry of Energy.

According with the Article 20(2) of EGO, the beneficiaries are obliged to submit the reimbursement applications. The period between two requests for reimbursement may not exceed two years. The financed amount unusedat the end of the financial year can be used in the next year for the same purpose.

To be eligible for funding, the expenses must comply with the eligibility conditions in the Applicant’s Guide. According to art. 22(2) of EGO, an expense is considered eligible, if cumulatively meets the following general conditions:

1. to be committed and paid during the investment implementation;
2. to be duly justified through documents in accordance with the applicant’s guide and the financing contract;
3. to be necessary for the implementation of the investment;
4. to comply with the EGO provisions, the provisions of the applicant’s guide and all other documents of the procedure for the selection of investment proposals;
5. to be registered in the beneficiary accounts.

• Termination/suspension of the financing contracts

Termination of the financing contract may occur in case of an identified irregularity or double financing. In the termination decision, the amounts to be reimbursed by the beneficiary shall be individualized.

According with the art. 10 of EGO, (1) the investment shall be suspended, by order/decision of the Minister of Energy, in any of the following cases:

1. the initiator of the investment has not financed the investment for a period longer than two consecutive years;
2. the initiator of the investment has not spent the total revenue from the FM within five years from the date of the relevant payment decision of the European Commission.

Investments suspended shall no longer receive funding from the MF.

• Modification and completion of some normative acts

Regarding the amendments of other normative acts, EGO also provides:

1. completing Article 10 of EGO no. 115/2011 on establishing the institutional framework and authorizing the Government, through the Ministry of Finance, to bid the greenhouse gas emission certificates assigned to Romania at UE level. The amendments are related to the financing method for the administrative expenses necessary for the implementation and management of the Modernization Fund.
2. amendment of the Article 1 of the Law no.  490/2004 on the financial incentive for staff managing Community funds. The amendments are related to the salary increases for the employees managing such funds.

¹ Priority investment – According to Art. 10d (2) of 2003/87/CE Directive: At least 70 % of the financial resources from the Modernization Fund shall be used to support investments in the generation and use of electricity from renewable sources, the improvement of energy efficiency, except energy efficiency relating to energy generation using solid fossil fuels, energy storage and the modernization of energy networks, including district heating pipelines, grids for electricity transmission and the increase of interconnections between Member States, as well as to support a just transition in carbon-dependent regions in the beneficiary Member States, so as to support the redeployment, re-skilling and up-skilling of workers, education, job-seeking initiatives and start-ups, in dialogue with the social partners. Investments in energy efficiency in transport, buildings, agriculture and waste shall also be eligible.

²  Non-priority investment – An investment that does not fall within at least one of the areas listed in Article 10d(2) of Directive 2003/87/EC

3 Guarantees, preferential loans, partial repayment of bank loans, additional payments on interest on bank loans or other forms such as contracts for difference or cogeneration bonuses, which are granted by the coordinator of a multiannual scheme and/or investments through a legal entity, acting as a financial intermediary as defined in point 34 of Article 2 of Regulation (EU) No .651/2014