Public Funding Is Not A Bottomless Well: The Case For Performance Indicators In Public Contracts

Nicolaie Moldovan addresses business leaders at this year’s CEO Conference in Cluj-Napoca, Romania

In times of crisis, local communities need strong and responsible leaders who choose lasting solutions. At the same time, the reconfiguration and reevaluation of the partnership between companies and municipalities, between the private and public spheres, based on performance indicators and certain guarantees, need to become a priority of the legislative, financial and action agenda in Romania. The communities of the future will otherwise not exist without this partnership.

Romania needs to base much more of the development of its local communities on public-private partnerships than it has done to date due to bad legislation, lack of experience, real guarantees or fears of investigation and control bodies.

These are two of the messages I sent out during a recent discussion at the CEO Conference in Romania, one of the key meetings of business leaders in the country, dedicated to current challenges including the war in Ukraine, energy prices, the effects of the pandemic, disruption of supply chains, soaring inflation and much more.

Companies with turnovers of hundreds of millions and even €1bn per year, leading development banks, reputable consulting companies and key media outlets participated. They are all looking for and pioneering new business models that bring to the same table the public administration and the private enterprise, new technologies and solutions to the old problems of public institutions. In this event, we talked about projects including the financing of energy efficiency for public buildings or the provision of low-cost public services for the population and municipalities, but also about what a sustainable public institution means.

Investments in major infrastructure will decrease after 2030, and the costs of repair and maintenance of works executed 10-15 years ago will increase in the budgets of town halls, county councils and other public institutions. That is, of course, the citizens’ budget.

The biggest mistake city managers can make is to remain hardened to the endless existence of non-reimbursable funds. There are over 77,000 public buildings in Romania, of which only 10% have been developed with such funds (with more to come). Some will be nZEB (nearly zero-energy), while others will be equipped with photovoltaic panels and/or heat pumps. However, the percentage of those which will need serious refurbishing remains significant. But what happens to those for which the budget for repairs and modernization is no longer with the EU or the Government?

Long-term public budget managers need to find other solutions for financing the administration of both public buildings and a sizable amount of public services, including nurseries, schools, hospitals, universities, nursing homes, student halls, theatres, cultural centres and museums.

One solution is that of performance contracts based on adequately audited and solidly guaranteed savings. In which the parties win, but the citizens, the end customers, do not lose. With such safeguards in place, investment costs and operating expenses, especially energy, would decrease considerably. It's simple: the bill for the works would be supported by the energy savings guaranteed by the company that executes the design, the works and the financing and operation of the objectives until the investment is recovered.

This type of solution needs to be thought of as integrated at the level of cities, neighbourhoods and building complexes, and be based on smart metering and monitoring systems.

I am convinced that when the free money comes under increasingly stricter conditions, we will begin to consider the alternatives needed by local communities that much more.

A special thank you to Doingbusiness.ro and Veolia for inviting me to participate in their conference.