The role of the maritime and inland waterway sector in Romania’s economy-Author Laurențiu MIRONESCU
Maritime industry in Romania
In Romania, maritime transport was a commercial activity that developed in the period immediately after the Second World War, similar to most of the Eastern European countries, as a consequence of the obsession for industrial development focused on heavy industry in a context not based on market principles but rather on a Soviet-inspired industrial subjectivism.
The focus of Romania’s national economy on the development of heavy industry has accentuated the demand for raw materials, which has made the shipbuilding sector a priority.
It was not by chance that the Romanian shipbuilding sector was geared towards ship types designed for liquid or solid bulk transport, specific to the transport of priority categories of raw materials for the national economy of Socialist Romania.
In 1955, the national maritime transport operator Navrom Constanța was established. HCM No 368, NAVROM Constanta, the Romanian maritime transport company, is established.
In September 1959, the Central Committee of the Romanian Communist Party discusses the proposals for the development of shipping until 1975. Since 1955, the year of the establishment of NAVROM, Romania has been developing its fleet in the absence of shipyards with experience in shipbuilding. Thus, between 1955 and 1975, ships for the transport of solid or liquid bulk cargoes were purchased from foreign sources, either second-hand or new-built, which the Romanian shipbuilding sector could not design, build and deliver. Based on the principle of autarky, the performance of Romania’s maritime industry was analysed mainly in terms of volumes transported for the national economy.
At the same time as the acquisition of tonnage from external sources, a priority programme for the development of ship production was launched, which led to the development of shipyards in Galati, Braila, Tulcea, Constanta and Mangalia and their specialisation in order to eliminate external purchases, the application of series production principles, and the reduction of the types of ship being built simultaneously in a shipyard. Romania’s naval effort meant the development of the industry horizontally: in 1989, about 300 companies had direct contractual relations with the naval sector, supplying raw materials, materials, mechanisms, machinery, installations, equipment and other components necessary for the construction and operation of shipping vessels.
The construction of the first 55,000 tdw ore carrier, m/n Tomis, delivered by Constanta Shipyard was Romania’s entry into the ranks of large shipbuilding countries, a moment that continued with the first delivery of the 150,000 tdw large tanker m/n Independence, delivered by Constanta Shipyard on 27 May 1977.
The period 1976 – 1989 was the period of production of ships built in Romania: cargo ships from 1,600 to 15,555 tdw, ore carriers from 12,000 – 165,000 tdw, oil tankers 39,000 – 155,000 tdw, specialised Ro-Ro and Ferry ships. The unrealistic targets set by the state leadership, the economic mutations of the centralised system, the aggressive development policy of the naval sector incompatible with the principles of autarky of the national economy brought Romania’s shipping fleet into an extremely difficult situation at the end of 1989: 288 ships with a cumulative tonnage of 5,614,000 tdw, of which 105 were out of service for repairs or scrapping and debts of US$ 29 million to fuel, equipment and other suppliers.
Conclusions:
Retrospective of the decisions taken by Romania in the maritime sector between 1955 and 1989 shows a systemic approach to sectoral development to the benefit of decreasing dependencies of the national economy. The limited experience of the domestic shipbuilding sector in the period under review was taken into account, acquiring ships from external sources, while placing human resources on a learning curve by setting up educational structures dedicated to the naval sector.
Resilience of the Romanian maritime sector
The resilience of an economy is its ability to cope with a catastrophic event such as an economic crisis, a financial crisis or a pandemic. Analysing the period 1990 – 1993, the parliamentary commission of inquiry into the situation of Romania’s maritime transport fleet concluded in its report of December 1993 that, despite the pronounced strategic, economic and political character, despite the potential of the Constanta port complex, the hub of maritime and river traffic for Central Europe, the shipping sector is neglected from a legislative point of view. Given that in 2023, 30 years after the above statement, Romania’s maritime administration has not yet managed to implement one of the pillars of global maritime legislation, the Maritime Labour Convention (MLC 2006), has not managed to implement the Nairobi International Convention on the Removal of Wrecks, adopted in Nairobi on 18 May 2007, and does not have a strategy for the Ballast Water Treatment Convention of 2004, the legislative neglect of the shipping sector continues.
Applied at the level of the Romanian maritime sector, the concept of resilience would mean its ability to cope with a complex of circumstances, such as: the inability of governments over the last 30 years to realise the importance of waterborne transport and its potential enormous benefits for Romania, and the inability to appreciate the naval and port heritage still existing and operational.
The indifference of the Romanian state towards this field of activity has meant that, more than 30 years after the changes of 1989, Romania has no naval strategy to highlight the comparative advantages, competitive advantages and opportunities for the benefit of the national economy.
Shipping is, by excellence, an area of activity that involves interaction with many other downstream sectors, other modes of transport and other activities in the national economy. The lack of coordination both within the shipping sector and with other sectors of the national economy, namely regional development, energy, logistics, trade, makes it extremely difficult to develop a national shipping policy.
Importance of the shipping sector in the Romanian economy.
After 2000, the public in Romania has witnessed the development of beliefs that emphasise Romania’s geostrategic importance. From the point of view of Romania’s projection in the field of maritime freight volumes, Romania’s position determines challenges and conditionalities that need to be taken into account when developing a national maritime policy.
As a port in the semi-enclosed Black Sea basin, the Port of Constanta in particular does not have direct connectivity with maritime routes linking the Middle East, Far East and Australia and African countries to Europe. Being accessed only through the Turkish Straits, the Port of Constanta has a reduced size of the market served compared to the nearby ports of the Mediterranean Sea, being conditioned and restricted to the reception of cargo flows representing Romania’s imports and exports and part of the transit cargo to and from Central European countries that do not have a direct exit to the sea. Preliminary research on the amendment of the Port of Constanta’s Master Plan shows, at the level of 2022, a captive hinterland of approximately 45% of Romania’s surface area, the rest of the country having alternative connections with ports in the Adriatic Sea or, depending on the specifics of cargo flows, with ports in the Hamburg – Le Havre area.
In figures, Romania’s trade in 2022 is as follows:
Exports (€ million) 91951.60 FOB conditions +23.1% compared to 2021
Imports (€ million) 126046,50 CIF conditions + 28,1% compared to 2021
Of the total volumes of goods generated in 2022 by Romania’s trade, the distribution by mode of transport is:
Road 12%;
Naval 20%;
Rail 68%;
Romania’s maritime traffic in 2022:
Import 42% (25,094,952 tonnes);
Export 38% (23,165,482 tonnes);
Transit 20% (11,821,844 tonnes);
Romania’s maritime transport fleet – post 1989
On 31 December 1989, Romania’s shipping fleet consisted of 301 vessels with a total carrying capacity of 6,185,101 tdw, as follows:
290 seagoing vessels belonging to the Maritime Fleet Operating Company Navrom Constanța, with a total carrying capacity of 5,966,261 tdw.
11 maritime vessels belonging to the Galati Technical and Material Supply Base, commercially operated by ICE Navlomar, with a total capacity of 218,840 tdw.
The misguided strategy of the Romanian government between 1980 and 1989 led to a technically disastrous situation of the maritime fleet, which in 1989 had reached a fleet of vessels with an average age of about 15 years, energy-starved, morally ageing and a degree of inoperability of about 45%.
Between 1990 and 1999, various forms of organisation and attempts were made to attract the funds needed for refitting and operationalisation, objectives which were impossible given the existing legislative context of the period. In May 1992, the first strategy for the restructuring and development of transport for the period 1992-2005 was drawn up. The strategy was not assumed by the government, so it did not generate programmes, but it mentioned as necessary for the whole period: US$ 4.78 billion for the whole period of which US$ 1 billion exclusively for the fleet.
The failure of the state to rescue the shipping sector led in 2003 to the deregistration of the last Romanian-flagged shipping vessel, a situation that still exists today, when Romania has no commercial shipping vessels registered under its own flag.
Governmental disinterest and dilettantism in the field of shipping seems to be the only constant over the last 30 years since, under Chapter 2.I.4. Sustainable Transport, the National Recovery and Resilience Plan adopted on 28 October 2021, mentions semantic constructs such as “(…) at present, due to the management and privatisation policies of the 1990s, the fleet has a much reduced capacity and is in an increasing process of degradation”. The PNRR, moreover, makes no mention of any investment in naval or port infrastructure, and the efforts of the National Company for the Administration of Constanta Sea Ports to include in the national resilience plan the repair of the northern breakwater of the Port of Constanta have proved futile in the context of the government’s indifference to the naval sector.
Maritime transport in Romania in 2023
Currently, Romania has no commercial shipping vessels. Moreover, due to the de facto lack of functionality of Romania’s maritime administration which has failed to implement international maritime conventions, the call of a Romanian-flagged maritime vessel to any port outside Romania is questionable.
There are many arguments for the existence of a commercial maritime fleet in Romania.
From 1959 to 1989, Romania was a country that attached particular importance to the naval sector, both in terms of shipbuilding and waterborne transport, inland waterways and maritime transport. Romania still has the largest concentration of shipyards in the European Union; within a radius of less than 1,000 kilometres there are still operational shipyards at Orșova, Turnu Severin, Giurgiu, Cernavoda, Brăila, Galați, Midia, Constanța, Agigea, Mangalia, and non-operational ones at Hârșova and Sulina. Shipbuilding has been the catalyst for the horizontal industry producing naval equipment and installations, ships being the top of a pyramid made up of subsequent activities that have generated jobs and Romanian expertise in a specialised field, producing added value.
Between 1970 and 1989, specialised education benefited from an integrated approach, both at pre-university level (high schools of marine education in Orșova, Giurgiu, Galați, Brăila, Tulcea, Constanța) and at higher education level – the Mircea cel Bătrân Marine Institute, established in August 1973. In the 17 years of its existence as an institution of higher technical education, the Mircea cel Bătrân Marine Institute produced around 8,000 merchant marine officers, with a retention rate in the merchant fleet of over 90%.
By 2023, despite a substantial demand for specialised seagoing personnel for inland navigation, there are no specialised, dedicated maritime high schools in Romania’s Danube ports.
Only one pre-university structure in Romania could be considered as a navy school, namely the National Military College Alexandru Ioan Cuza. Established by order of the Ministry of National Defence No. MS 52/02 April 2018 and considered the successor of the Alexandru Ioan Cuza Military High School of Navy, abolished in 1998, the National Military College has no projection in the civilian fleet for its graduates who are not admitted to the Mircea cel Bătrân Naval Academy.
At the academic level, Romania has two university structures that offer programmes dedicated to seafarers, the Maritime University of Constanta and the Mircea cel Bătrân Naval Academy. In the absence of the maritime valence of the Romanian state, both institutions are faced with constant challenges related to: the lack of relevance of the study programmes to the realities of today’s industry, the constant negative demographic trend of the Romanian population and the decreasing attractiveness of the profession of merchant marine officer perceived as difficult, the lack of applied practice segments on board ships, the increasing difficulty of the minimum 12-month on-board training periods and, subsequently, of professional insertion.
Romania’s flag
Principle of registration of ships under the flag of a State: A ship is a mobile business that follows the most favourable fiscal and civil regime.
The favourable tax regime initiative emerged in the European Union in the early 1990s as a way of countering the phenomenon of flagging out – the disappearance of seagoing ships registered under European flags. The favourable tax regime meant the abolition of the corporate tax applied to shipping activities and the introduction, similarly to flags of convenience, of the tonnage tax, a modest flat-rate cost applied to a ship registered in a European state, in the hope that its existence in operation would stimulate vertical and horizontal industry in that state.
The introduction of the tonnage tax is in line with the transport policy guidelines of the European Union, which controls about 39% of the world fleet in terms of transport capacity. Attracting European-flagged vessels and employing EU seafarers is therefore a European policy desideratum.
Tonnage tax models:
In the EU27 plus the UK, in 2022, there are 18 countries granting tax relief to ships operating under their flags, through schemes applicable for 10-year periods, with the approval of the European Commission. All 18 countries have introduced tonnage tax instead of corporate tax, plus various investment facilities, value added tax, accelerated depreciation, tax deductions for employed seafarers, etc.
In Europe, there are two models of tonnage tax applied to maritime transport: the Elen model (Greece, Malta, Cyprus) and the UK model (Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Sweden, UK). Both models have the same principles of application of the tonnage tax, the differences being in the unit of time to which the amount of the tax is related; the Greek model – annually, the British model – every 24 hours.
The introduction of tonnage tax would be an advantage for the state budget and the Romanian economy̌. Estimating a benefit is difficult, but it is known from international practicě that, in shipping, each job on board generateš between 12 – 15 jobs on land. The share of direct, indirect and induced shipping activities in the GDP of European countries is on average between 2% and 6%.
As far as we are concerned, in 2023, 35 years after having more than 6 million tonnes of transport capacity, Romania will have no operational commercial seagoing vessels under its flag. The granting of fiscal and administrative incentives is aimed at future business, with the direct aim of attracting them to Romania.
Romania’s total tonnage, reported to the International Maritime Organization, is 75,000 tdw (below 100th place worldwide), consisting exclusively of technical vessels (tugs, pilot boats, supply vessels, etc).
The development of maritime business will have a direct positive impact on Romania’s maritime administration, bringing into the institutional reality of the 21st century procedures of the 1990s and an indirect and induced impact on other adjacent economic activities: university education, training and education, ship operation, port safety services, pilotage, towage, port operation, shipping, insurance, legal, inspection, survey, classification, domestic transport, trade business, shipbuilding and repair and other shipping related activities, activities generating taxes and duties to local budgets.
Case study: Romanian Tonnage Tax (ROTT)
Proposed value of the Romanian tonnage tax (ROTT):
The initiative group made up of specialists from the Romanian Centre for Training and Development of Shipping Personnel CERONAV and the Romanian Naval League has submitted, as early as 2021, to the Romanian Parliament the legislative proposal for the introduction of the tonnage tax in Romania. From a technical point of view, the proposal is based on the British model, where, in order to increase the attractiveness of the Romanian flag for the registration of large ships, an additional calculation step is introduced, for ships over 50,000 tdw, similar to the Belgian model.
NT tax – calculated daily
0 – 1.000 1.001 – 10.000 10.001 – 25.000 25.001 – 50.000 50.001 +
€0,50 €0,35 €0,20 €0,10 €0,05
The proposed amount of annual tonnage tax for a 50,000 tdw vessel is at the Polish level, almost double the average of the Greek taxing states and below the average of the UK taxing states.
Ratio of proposed tax to European average tax:
ROTT/UETT = 33.397/35.609 = 0.94%, thus demonstrating that the tonnage tax proposal in Romania is well-intentioned and not likely to harm good competitive practice through a dumping tax regime.
The tonnage tax proposal in Romania also contains corrections according to the age of the vessel, in order to encourage the registration of the newest vessels under the Romanian flag, with the most up-to-date propulsion and equipment, with a view to reducing the impact on the marine environment.
Vessel age (years) Correction (%)
Up to 5 – 30
5 – 10 – 15
10 – 15 0
15 – 20 + 5
Note: According to Ministry of Transport Order 2/2004, vessels older than 20 years cannot be registered in Romania.
Taxation of shipping companies:
For eligible shipping companies, the proposed corporate tax is 0%, with tonnage tax replacing corporate tax.
The profit tax on the sale of ships (directly ineligible activity) is proposed to be:
The usual tax for Romanian companies (current 10%), if in three years the revenues are not reinvested in ships – repairs, purchases etc;
0% if in maximum 3 years the income from the sale is reinvested in the construction, repair, modification, refitting of other eligible vessels (Polish model).
The ROTT proposal mentions measures to attract vessels as young as possible, namely: tonnage tax reductions in the first 2 years for newly registered vessels of 50% in the first year and 25% in the second year, similar to the model in operation in Portugal. Also similar to Portugal, additional reductions of 20% are proposed for ships over 50,000 NT if they use innovative environmental conservation technologies.
An accelerated depreciation scheme is proposed for the construction of new ships on profits invested from other activities: 20% in the first year, 15% in the next 2 years, 10% in the next 5 years. (Belgium model)
As regards value added tax (VAT), the legislative proposal to introduce tonnage tax in Romania contains VAT exemption for the following operations on eligible vessels:
construction, maintenance, repair, modification, refitting, conversion;
supply of equipment, spare parts;
supply of rescue equipment;
towage, pilotage and salvage operations;
supply of food, bunkering and supplies;
classification and survey;
leasing and chartering;
insurance and agency (model Sweden, UK, France)
Other proposed facilities:
20% reduction in tonnage tax for EU management (Malta model).
50% tonnage tax reduction for passenger ships (Greece).
5-year tonnage tax exemption for Romanian-built ships, if they remain eligible (Greece model).
For seagoing personnel: the legislative proposal mentions tax deductions to encourage the employment of EU personnel, similar to other countries. Minimum eligibility conditions for applying deductions for crew members of Romanian-flagged vessels – EU nationality and tax domicile in Romania, employed by an eligible company, under the conditions of Romanian law.
The eligible company will have to meet, cumulatively, the conditions of employing a minimum of 50% EU resident seafarers and employing cadets on board each vessel in the amount of: minimum 1 cadet in the deck compartment and minimum 1 cadet in the engine compartment. As far as seafarers are concerned, European practice is diverse, with a wide range of exemptions and deduction thresholds depending on the state. For example, the Netherlands grants seafarers on board Dutch ships 40% deduction from the payment of contributions, in Portugal seafarers are exempt from dues, as in the UK.
The legislative proposal to introduce tonnage tax in Romania states:
Full tax deduction on income from wages, but not more than €100,000 per year;
50% deduction of social and health contributions, but not more than €100,000 per year;
Three scenarios have been developed to assess the potential impact on the state budget:
- for an average model ship of 50,000 NT,
- for 10 ships
- for 100 commercial ships registered under the Romanian flag.
In case of scenario 1, a model ship registered under the Romanian flag, according to the proposed tonnage tax rate, can bring in tonnage tax revenues of 33.397 euro/year. In case of scenario 2, the amount is multiplied by 10 – 333.970 euro/year, and in case of scenario 3, by 100 – 3.339.700 euro/year.
Revenue to the budget from seafarers’ salaries. Estimating the net salary of a seafarer employed in the world maritime fleet at between €2,500 – €20,000/month at sea, depending on the level of qualification and position on board the ship, gives, with a degree of approximation to the detriment of the final figure, an average net salary of €5,000/month. Considering an average seagoing period of 6 months per year, a contribution and health insurance rate of 37.5% (current), CAS 2.25% employer’s contribution, tax exemption and 50% deduction from the legislative proposal, this results in an income to the budget of 5,500 euro/year for a single seafarer.
As regards the estimate of the number of jobs created directly by the registration of ships under the Romanian flag, we can consider 20 to be an average number of crew members of a commercial ship. If we introduce the obligation to employ a minimum of 50% of EU staff, the impact on jobs will be: minimum 10, 100, 1,000 jobs directly caused by the registration of a ship, 10 or 100 ships under the Romanian flag.
Total cumulative revenue to the state budget (tonnage tax + contributions from the wages of seafarers) can be estimated at:
33,397 + 20 x 5,550 = 144,397 euro/year – scenario 1 (one vessel);
10 x 33397 + 200 x 5.550 = 1.443.970 euro/year – scenario 2 (10 vessels);
100 x 33397 + 2000 x 5.550 = 14.439.700 euro/year – scenario 3 (100 vessels).
144.397 Euro/year 1.443.970 Euro/year 14.439.700 Euro/year
The overall total impact of the introduction of the tonnage tax in Romania can only be estimated. Apart from the fiscal facilities, shipowners are also attracted by the permeability of the administration, the reduced bureaucracy and the real-time institutional reactions, given the imperative nature of the decision in maritime transport. The existing institutional context of a failed maritime administration in Romania does not give grounds for optimistic expectations. Neither does the lack of priority given to the legislative proposal on the introduction of tonnage tax in Romania, which has been on the parliamentary agenda for almost two years, provide optimistic premises for reviving maritime transport in Romania.
Brief conclusions:
An analysis of Romania’s strategic naval positioning shows strengths of which we do not seem fully aware and which mainly relate to the legacy of years of a system that has considered the naval sector to be of national strategic importance.
Romania has a substantial inland waterway network (Danube, Danube-Black Sea Canal, Poarta Albă Midia Năvodari Canal) and a territorially balanced port infrastructure connected by rail. The shipbuilding sector is well represented. The human resource in the shipbuilding sector is still one of Romania’s strengths, the result of an integrated, dedicated specialist education system which is only just being set up in Western Europe, at a much reduced quantitative level. At present, Romania has the largest fleet of ships on the Danube.
The weaknesses lie in the stubbornness with which the political factor has managed to avoid putting naval issues on the public agenda. The apparently strategic position of the port of Constanta has its limits, mainly imposed by the size and financial constraints imposed on ships engaged in the transit of Turkish straits. The port of Constanta can only benefit from its links with the centre of Europe, in particular the pan-European Corridor VII following the Danube, if the commercial depth of the river’s waters is ensured. Given that the dredging of the Danube is carried out in sectors for which the riparian countries are responsible, the ridiculously low productivity of the Bulgarian authorities is affecting the flows of goods shipped upstream and, directly, the port of Constanta.
The future of the Romanian shipping industry is also affected by other unrecognised and consequently unaddressed problems. Demographic decline, lack of coordination, both within the naval institutional system and with the rest of the stakeholder matrix, bureaucratic barriers, timidly addressed digitisation, legislative framework incompatible with the reality of maritime transport worldwide are factors that need to be taken into account when developing Romania’s maritime policy. Currently, Romania’s maritime strategy is the subject of a project under the coordination of the Ministry of Transport; from the analysis of the first deliverables, it seems that the focus of this strategy is the Romanian port industry and less the development of maritime transport as an industry in Romania.
In the current institutional and legislative context, it is more than unlikely that the private sector will be involved in the registration of shipping vessels under the Romanian flag, even assuming that the problems related to the international maritime conventions of the Romanian administration would disappear overnight. A private entity bases its financing on banks or consortia of banks that dictate the flag of the ship under construction according to the institutional trust relationship it has with the maritime administration under whose flag it will register its ship. As Romania’s maritime administration has consistently failed to deliver on its commitments over the last 30 years, the natural flow of shipbuilding financing and registration under the Romanian flag becomes impossible.
The involvement of a European state in maritime transport is nothing new. For example, Poland has two state-owned companies flying the Polish flag and offering more than 3,000 jobs: POLSTEAM and CHINAPOLBROCK, a joint Polish-Chinese company.
The revitalisation of maritime transport in Romania can only be started with the involvement of the state, taking into account the substantial maritime heritage we still have and which has created a way of life for a large part of the population emotionally linked to the state’s maritime transport fleet. Despite the implosion of a large part of the national economy, Romania still has captive cargo categories (grain, auto, rolled products, liquid bulk products) with real commercial potential for domestic transport. In the absence of state intervention, the danger of Romania’s shipping power declining to extinction is more than possible.
An integrated approach that restores Romania’s naval capabilities in the context of the 21st century would maintain the country’s naval know-how and promote the sustainable development of naval activities whose tradition has been interrupted beyond recognition.