Written by Dr. Sebastian Sipos-Gug - Ebuild srl, EECFA Romania
Romanian construction is poised to grow in both 2022 and 2023. The main drivers of growth vary, including low interest rates and excess liquidity that boost the residential subsector or the use of EU 2014-2020 cohesion funds to help boost civil engineering. At the same time, the pandemic and the responses to it negatively impact construction, mainly in terms of hotel and restaurant construction, but also when it comes to office buildings. The EU Recovery and Resilience Facility (RRF) is another potential source of funding that could help counter these negative effects and maintain Romania's construction sector on a positive growth rate for the near future.
What is the PNRR?
The National Recovery and Resilience Plan (PNRR) contains the projects and measures Romania aims to implement in order to benefit from the EU's Recovery and Resiliency Facility (RRF). The RRF is a temporary instrument used as a means to mitigate some of the pandemic's effects on the members’ economies and has a total funding budget of EUR 723.8 bln (out of which EUR 29.2 bln are available for Romania).
The RRF sets minimum targets for climate spending (37%) and digital spending (20%), which Romania has pledged to exceed (41% and 21%, respectively). Romania's Recovery and Resilience Plan includes 171 measures (out of which 107 are investments) and has six pillars, mirroring those of the RRF.
How do the RRF and PNRR work?
Out of the total amount, Romania can receive EUR 14.2 bln in grants and EUR 14.9 bln in loans (this is 13.09% of 2019's GDP). A pre-financing payment of 13% of each financing source has been granted to Romania, with the remainder of the loans and grants arriving in up to 10 installments, which are themselves conditioned on the achievement of the milestones agreed with the EU in the PNRR. These milestones include several legal, policy and administrative reforms, as well as the completion of investments on time. Thus, the amounts received could be delayed or even rejected if Romania fails to achieve its milestones and targets.
How will this impact the construction segments?
Residential construction
The PNRR has provisions for both new construction and renovation of dwellings. In terms of renovations, the plan has EUR 1 bln allotted for improving the energy efficiency of around 4.3 mln sqm of residential stock. To put this into context, in 2019, the entire residential renovation market in Romania totaled EUR 800 mln (source: NSI). This measure has a deadline of June 2026, and the first step is for the Romanian Government to create a national support scheme (by March 2022) and the local authorities will award the actual contracts.
Regarding new construction, 4418 new units will be built for the housing of young people from vulnerable communities and 1104 new units for teachers and healthcare professionals in areas where access to these services is lacking, such as villages and small towns. The assignment of contracts will again be tasked to local authorities, according to a grant scheme built on national level.
The program has a deadline of 2022 for the assignment of contracts and 2026 for the actual construction. The impact of this measure on the construction segment would be rather small, since, for comparison, in 2019 there were 67488 new residential units constructed across the country (source: NSI).
Non-residential construction
The PNRR should impact several types of non-residential construction, but mainly healthcare, education and public buildings.
In terms of healthcare, there are several investments planned:
- Renovation of at least 3000 family doctors' practices by the end of 2023.
- 124 additional neonatal intensive care beds would be made available through the modernization/extension of 25 intensive care units, by the end of 2024
- 30 outpatient care units would be built or renovated, also by 2024.
- 200 community centers would be built or renovated by mid-2025.
- And finally, by mid-2026, 25 new hospitals would be partially financed by the program with a focus on the energy efficiency of buildings. This would also cover the required medical equipment.
When it comes to education, there are also several projects planned, including:
- 110 new childcare facilities (EUR 230 mln),
- 10 mixed integrated vocational campuses (EUR 338 mln),
- 300 000 sqm of educational spaces to be renovated, another 46
- 400 sqm built with a "green" focus and 3 200 electric school minibuses to be purchased (EUR 425 mln),
construction and modernization of 19520 reading places, 6625 canteens and 19130 student housing places for universities (EUR 260 mln), - Additionally, 75 000 classrooms and 10 000 labs would be re-equipped across the country (EUR 600 mln).
The total budget of these investments in healthcare and education exceeds EUR 4 bln if we include the equipment. For comparison, the total expenditure for the construction of healthcare, education and recreational buildings in 2019 was EUR 284 mln (source: NSI) so the impact of the PNRR here could be rather large.
The renovation of public buildings is also included in the plan with a target of 2.3 mln sqm to be renovated with a focus on improving energy efficiency on a total budget of EUR 1170 mln and another 1.3 mln sqm for moderate renovation (EUR 575 mln). For comparison, in 2019 the entire administrative building segment saw less than EUR 266 mln invested in renovation (source: NSI), so here, again, PNRR could help grow the construction segment.
Civil engineering
PNRR targets several civil engineering segments as well, with a focus on public utilities, transportation and energy.
In terms of public utilities, the water network would be expanded with 1600 km and sewers with 2900 km until mid-2026 on EUR 800 mln. For reference, in 2020, compared to the previous year, the networks increased with 1500 km and 1898 km, respectively, so this would in effect be comparable to the current yearly output in this segment. Another focal point is waste management with EUR 1239 mln allotted for various investments in waste collection, monitoring and recycling.
Sustainable transportation takes up more than 1/4 of the total PNRR budget, with an EUR 7.62 mln allocation. This would include:
- EUR 3.480 bln for railroad infrastructure - 2426 km of rail renewals, 315 km of modernized rail and 110 km of electrified rail. For reference, in 2019 the value of railroad construction was EUR 185 mln (source: NSI).
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EUR 3.095 bln for the construction of 429 km of motorways (equivalent to the amount of new motorways completed between 2012 and 2020). The program will finance several segments on the A1, A3, A7 and A8 Motorways. For comparison, in 2019, EUR 227 mln were spent on motorway construction (source: NSI).
- EUR 600 mln for the metro networks in Bucharest (5.2 km) and Cluj Napoca (7.5 km).
- EUR 620 mln for green transport infrastructure - electric vehicle charging stations (52) and urban bicycle lanes (1091 km).
When it comes to energy, the focus is of course on renewable and green initiatives:
- EUR 460 mln for 3000 MW of new wind and solar plants and developing battery storage facilities (480 MWh). For comparison, the net generating capacity for wind and solar power across Romania in 2021 was 4273 MW (source: Transelectrica), so this program would significantly increase production capacities.
- EUR 515 mln for renewable gas transportation, green hydrogen production and energy storage using hydrogen (1870 km distribution pipeline).
- EUR 300 mln for methane production for electrical and central heating (1300 MW).
- EUR 280 mln for battery and photovoltaic panel production and recycling (2 GW worth of batteries /year).
Conclusion
The PNRR's impact would be maximized by reaching the appropriate milestones and targets on time, and by using this program together with other financing sources, like the national budget or other sources of EU funding.
Thus, if implemented fully, it could have a positive impact across the entire construction sector, from residential and non-residential renovation, to road, railroad and energy related construction.
Detailed construction forecast up to 2023 for Romania is available in the latest EECFA Construction Forecast Report. If you would like to receive a sample report or an offer please use one of the following contact buttons or send an e-mail to sales@proidea.ro.
