Romania Revamps System for Heating Benefits

A poverty and social impact analysis (PSIA) designed for Romania evaluated options for replacing the European nation’s heating subsidies with a more well-targeted system of benefits.

The study explored what impact this reform would have on Romanians who must heat their homes for five or six months out of the year.

Driving reform was a mandate by the European Union that Romania eliminate heating subsidies for apartment dwellers and the government’s need to cut spending in general, but also a desire to make the system of subsidies fairer.

Sulfina Barbu, Romania’s minister of labor and social protection; Lacramioara Corches, general director of the country’s social assistance programs; and Emil Tesliuc, a senior economist with the World Bank, presented the results of the study in early November.

Corches said that before reform, 21 percent of the country’s population received 83 percent of all heating subsidies – even though the wealthiest Romanians made up 40 percent of that group. The nation’s poorest, meanwhile, received a small fraction of the assistance.

"There was a big gap between the distribution of the population and the heating benefits and this had to be corrected,” Corches said.

A team from the World Bank and from the Romanian government partnered to determine how alternative programs would affect household incomes, government finances and benefit coverage. Working under a tight deadline and with limited funding, the team was able to generate a new model in just a couple of months that was submitted into an emergency government ordinance. Under the new income-based system, which was adopted in September 2011, fiscal costs were reduced while benefits were channeled to those most in need.

While energy costs rose for some citizens, most people saw their costs go down or stay the same, Barbu said. “I believe the team managed to come up with a solution that works for Romania,” she said. “So far, the social impact has been good.”