Revenues Sharing in Mineral Exploration: Local Authorities’ Incentives towards Economic Diversification in Romania

Abstract

The proper management of exhaustible natural resources requires the responsible management of the revenues generated from the exploitation of these resources and addressing a broad set of political and economic challenges. This paper is intended to demonstrate that understanding the positive effects of natural resource revenues on economic diversification in extractive regions plays a significant role in economic development when considering the contribution of extractive industries. Using national and sectoral data, this paper, on the one hand, examines how mining revenues are managed and spent in relation to the Romanian tax structure and regime and, on the other hand, how the diversification of the local economy can be achieved. The case study presented herein X-rays the complex realities faced by those regions in Romania, where the predominant economic activity is the extractive industry. The results provided by this analysis led us to the conclusion that although the distribution systems related to the extractive revenues give precedence mostly to the producing territories and seek, in particular, to transfer the benefits to the impacted areas, in the case of Romania, we are witnessing a failure in determining local economic diversification.

1. Introduction

Generally, natural resources are of the essence of the global economy and for a good quality of life. Minerals and metals are indispensable for the development of modern society, but we must bear in mind that resources are finite and nonrenewable, and access to resources is a strategic security issue. EU Member States are nowadays committed to a double transition towards climate neutrality and digitization, but in the complicated post- COVID-19 pandemic context, they have to face the challenges of ongoing energy and geopolitical and military crises, which disrupt regional and global supply chains generating instability on multiple levels [1,2].

Romania has a wealth of useful mineral deposits with various contents. When deciding to extract reserves, the Romanian state, as the owner of the resource, must achieve its objectives not only through the possibility of increasing revenue to the state budget but also because this increase can lead to the development of local communities [3]. If both objectives are not met, the state has the possibility to postpone the exploration of the deposit or, depending on its strategic interests, it can increase its involvement in response to crisis situations.

Romania supports the national development of a sustainable and environmentally responsible economic model. According to the Constitution, subsoil resources are the property of the Romanian State. The interests of the Romanian State are expressed through mineral resources policy documents via the nonenergy mineral resources strategy that is adapted to the new economic reality [4,5].

The exploitation of mineral resources faces the challenges of balancing economic development with environmental protection, adapting to technological advances, and securing sufficient investment both to expand production and to upgrade existing operations [6].

First and foremost, a mineral resource is exhaustible in the sense that, once extracted and sold, it cannot be resold, nor can it benefit the original owner. Exceptionally, when a subsoil asset is turned into a financial asset, it is considered to be saved and invested in a regenerative way, contributing to economic diversification in regions subject to extractive activities.

Secondly, even when revenue sharing between the private and public sectors has been proven to be more successful, mineral resource extraction has generally had the effect of reducing income levels and increasing poverty compared to emerging countries that are not resource-rich [7]. In this context, some authors [8] asked themselves whether an analysis of the role of justice in the extractive industry is necessary because in order to address inequities, honesty and equality in society should be ensured.

New approaches have been expressed over the last few years by Bouterige et al. (2020) [9] or Liford and Guj (2021) [10], focusing on the gold mining countries in Africa. They examine the interests of governments and companies in mining taxation by formulating estimates based on mining case studies and tax regimes. Therefore, in relation to extractive industries, including mining, it is stated that [11] there appears to be “no literature comparing the administrative success of different types of existing tax regimes” in the mining sector at present.

This paper focuses, on the one hand, on how the management and spending of mining revenues are carried out in relation to the Romanian tax structure and regime and, on the other hand, on how to achieve the diversification of the local economy.

2. Materials and Methods

From a methodological point of view, the research is based on a qualitative approach, having as a key element the comparative analysis of the literature and the main documents governing the implementation of the 2020 climate and energy package and, in particular, the financial support approved by the European Commission to support coal and energy companies in order to implement climate change policies.

The documents selected are directly related to the central research questions, and at the same time, the criteria for their selection ensures authenticity in terms of expressing the relevant policy. They form part of the conceptual framework of the research as they include elements that highlight the issues related to the problems investigated. A few of the qualitative analysis methods described in the literature [12,13,14,15,16,17,18,19,20,21] compose the central methodological approach for conducting the research: the analysis of documents, their themes, and their content. The selected analysis process reduced the volume of collected texts and enabled an understanding of the phenomenon of local economic development [13].

In preparing this paper, we have tried to provide answers to two questions: (i) How can we try to assess the actual distribution of mining revenues between the state and the local authorities? (ii) To what extent have local authorities succeeded in achieving local economic diversification in extractive regions to avoid adverse economic, social, and environmental impacts?

In order to answer the above questions, this paper uses a critical analysis of the way in which the state taxes the mining sector, as illustrated by an examination of royalties and other public revenues from the exploitation of mineral resources and a case study relevant to coal-fired power generation in Romania. The example used in this paper is the model of a national energy company, i.e., Complex Energetic Oltenia, an example that adversely affects economic diversification due to the restructuring and decarbonization plan.

3. Literature Review and Theoretical Analysis

3.1. Economic Diversification in Extractive Regions

The proper management of nonrenewable resources requires addressing a broad set of political and economic challenges. Understanding the positive effects of (mineral) royalties [22] on economic diversification in extractive regions plays an important role when considering the contribution of extractive industries to economic development. Royalties and other revenues accruing to public budgets from natural resource exploitation are the very topics of the discussion: if mining companies make profits in excess of what is needed to invest and produce, then the excess revenues belong to the resource owner, usually the nation [23,24]. In this context, there is a shift of paradigm in the management of resource exploitation revenues from the policies geared towards fiscal stabilization to the policies that promote economic diversification [25].

Concerns about dependence on extractive industries at the regional or local level have prompted discussions about the need to develop more diversified local economies that can avoid falling victim to boom-bust cycles or becoming ghost towns once resources are depleted [26,27,28]. For instance, over the past 30 years, Romania has undergone extensive industrial restructuring, which resulted in a decline in domestic production and the operational closure of most unprofitable mines. These situations have generated job losses, economic and social impacts, and have left behind historical environmental pollution, affecting the quality of life of the inhabitants of mining areas.

There is a growing interest in developing public policies to encourage other economic sectors in extractive regions, in particular, via the strategic allocation of resource exploitation revenues. In contrast, national-level policies for economic diversification have been widely discussed [29,30,31], local policies in the states that distribute resource exploitation revenues to territories where extraction is actually performed play a crucial role in strategically allocating these revenues and promoting economic diversification [27]. In this context, the role of local authorities in promoting economic diversification is challenging and calls for an examination of the processes that shape resource mobilization [32].

Generally, the literature [33] indicates that local authorities fail to convert revenues from resource exploitation into economic diversification. As such, these contributions provide a solid starting point to discuss (in depth) the processes underlying the relationship between revenues from resource exploitation, local economic development, and local authorities. More specifically, this contribution provides a systematic examination of the policy processes underlying the allocation and investment of revenues from resource exploitation at the local level and the related consequences for other local economic sectors. In order to do so, the following section delves into the analysis of the literature, tackling the policy processes that determine the mechanisms for distributing and spending resource revenues.

3.1.1. Decoding Local Policies Regarding the Distribution of Revenues from Resource Exploitation

The authors that refer to the curse of resources (A term coined by Auty in some of his early writings in the 1970s and 1980s, according to Frankel (2010), demonstrating a contrast between a country’s resource wealth and poor patterns of growth and development) are firm about the role of institutions, such as clear and transparent rules, in stimulating local development via the strategic allocation of resource revenues [34]. However, managing resource revenues at the local level for development purposes relies on the existence of clear rules and forecasts guiding public spending. As Arellano-Yanguas (2019) [32] demonstrates, the specific forms of resource revenue spending are more important than the institutional capacity to manage these revenues as they reflect the motives and drivers of resource-based public investment.

Arellano-Yanguas’ [32] critique relies on a Peru case study in which resource-rich local governments do not perform well in terms of socioeconomic standards. This contribution extends such a critique to the effects of resource revenues in local economies, pointing out that these effects are not exclusively related to institutional performance, considering factors such as skills, planning, and accountability and also the specific social and political factors that underlie local spending.

Therefore, the states should have fiscal alternatives to local development policies to benefit fully from natural resources. Since such local development requirements increase the costs of multinational companies (MNCs), the cost of imposing local development requirements is the foregone taxes that could be used for development purposes. When considering these options to maximize the benefits for the host country, Issabayev (2019) [35] points out that the positive spillover effects of local development policies are economic growth, industrial growth, or welfare. In addition, most resource-rich countries have imposed requirements on MNCs to promote local development. Broadly speaking, local development policy should be an additional obligation imposed on foreign partners, over and above the direct tax revenues collected, and aimed at stimulating the host country’s economy. In this respect, Norway is one of the countries that successfully implemented local development in the oil industry as a development policy plan in the early 1970s.

As already covered by Mejia and Meneses [36], there is a wide range of types of expenditure allocations at the local level, such as public services or infrastructure, and each allocation has some type of particularity that explains how it manifests itself. For this reason, it is of the essence to carefully examine the place-specific conditions that define how local resource revenues are invested and the related effects of these investments.

According to some recent opinions [32,37], one of the most common manifestations of resource revenues at the local level is the development of various forms of infrastructure that attempt to address different objectives, such as sanitation, connectivity, or boosting local economies.

While such investments make sense, given the infrastructure gaps that characterize the areas in the extractive regions, this type of investment also reflects the contingent forms in which state-building and local politics manifest themselves. Arellano-Yanguas [32] points out that the massive translation of resource revenues into public infrastructure responds both to regulatory schemes that assess local government efficiency through the ability to spend the annual budget and to the greater pressure that local populations put on local authorities.

Irarrazaval and Viale [38] elaborate on the latter point by arguing that the lobbying of investment is underpinned by a new culture of political action in which citizens often question and hold local authorities to account. In this sense, conflicts over resource revenue spending reflect local alliances to make issues visible and push authorities to work on them. As such, local authorities define short-term investment strategies based on job creation for the local population and the development of infrastructure projects that make their management visible [32]. In this sense, the display of revenues via infrastructure, such as roads or buildings, acts as a window for the state to show that it is consolidating its territorial project. Such a window is even more prominent when the areas of extraction benefiting from the transfer are historically marginalized places, where public infrastructure appears as a symbol of modernization and progress derived from resource extraction and driven by the active involvement of local authorities in managing the community and boosting local development [36,38].

In practice, the consequences arising from mineral taxation may take years or decades for governments to notice without providing useful policy feedback [35]. However, changes in exploration spending at the local level should provide an early indicator of the impact of mining royalties [39].

Despite the well-known theoretical effects, little empirical evidence has been developed to understand how mineral exploration responds to taxation. Investment during the exploration phase depends largely on the geological potential of the jurisdiction and the investment climate or institutional framework in which exploration takes place [39].

There are global initiatives as well, such as the OECD-led initiative, to reform aspects of energy and resource extraction taxation [40,41]. In addition, this OECD initiative outlined that energy and mineral resource extraction represents a significant revenue-raising opportunity for many governments. After COVID-19, the need for more revenue will be even stronger and clearer, and it is therefore essential that tax reform takes place both internationally and nationally. At the international level, there is a need for more transparency in taxation, while at the national level, tax reforms are needed to raise revenue.

In this context, the potential effects of mining revenues [42] on local economic diversification rely not only on institutions and compliance but also on the day-to-day interaction between local authorities and civil society [43], which is particularly complex in historically marginalized, remote places that have waited too long for development. As these factors have prevented extractive revenues from being invested in projects that foster a transformation of production structures in local areas, there is a need to understand the potential consequences this could have on other economic sectors. The next section addresses the political factors that shape spending and examines the site-specific conditions that shape the consequences of revenues on local economies.

3.1.2. Profitability of Mining and Its Effects on the Diversification of the Local Economy—Case Studies from Romania

Before discussing revenue distribution, one must look at the structure of local authority entities and the specific configuration of how the competencies are allocated to the different government tiers to analyze if the local authority entities have the capacity to provide or fail to provide sound management of local affairs.

Romania is characterized by a three-tier territorial system of authorities [44,45]: central, county, and local. The Romanian Counties are the administrative-territorial units at the intermediate level, while Communes, Towns, and Municipalities (Cities) are at the local administrative level. The lack of regions forced the authorities to find a compromise solution. Eight development regions have been set, which are formed by the association of several counties. These entities have only economic functions.

Regarding the management of local public affairs, the situation in Romania looks as follows: the responsibility of the self-governing belongs to the County or Local Council, with the Mayor/Chairman of the County Council as the initiator and as the authority who implements the decision.

This section also includes a brief analysis of how budget revenues are distributed from the central level to the local level, which needs financial resources to produce the economic diversification referred to in the first part of this study.

Therefore, according to Romanian financial and tax regulations, the most important taxes, levies, and contributions are intended to provide funds to the public budgets of the state. The financial-budgetary system is a two-tier system: the central level, consisting of the state budgets, and the local level, consisting of the budgets of the administrative-territorial units, i.e., the county budgets and the budgets of the municipalities, towns, and communes.

The State collects the most important sources of budgetary revenue from the state budget and then, from the amounts collected, redistributes important parts to balance local budgets. For the purposes of decentralization, local authorities have been assigned increasingly important tasks, although with no counterweight tax decentralization via the allocation of resources to ensure that these tasks can be fulfilled. This reality is explained by the fact that according to article 135 (2) of the Romanian Constitution, the State is responsible for ensuring the balanced development of all regions of the country. In fact, this argument has been used to make sure that the sitting political power does not lose control over a significant part of public financial resources. In this way, Romania’s financial decentralization process has been significantly slowed down.

Unfortunately, the stated goal could not be achieved, so there are important regions that have managed to achieve a significantly higher level of economic and social development than other areas of Romania. At the same time, the State is confronted with various development priorities, even for regions with a better economic situation; the amounts collected for the state budget are often insufficient to ensure a balanced and sustained development of the entire national territory.

An exclusive analysis of the way in which Romania distributes or transfers a significant part of its mining revenues to local authorities will reveal that, although the formulas and rules that make up the systems for distributing the sums are very different and complex, there are two relevant points that should be highlighted.

First, we shall briefly review the general financial, budgetary, and fiscal policies put in place by Romania, that is, the mechanisms through which the revenues from the exploitation of resources are allocated to local authorities. In its declared strategy, the government [46] intends to implement a tax policy focused on providing an incentive and nondiscriminatory environment while focusing on measures that strengthen its transparency, stability, and predictability. From a tax point of view, mining activity is carried out according to the provisions of the Tax Code approved by Law 227/2015, with subsequent amendments and additions. The provisions of this law are generally applicable to all sectors of the economy and do not contain express mentions of the mining sector and its related services.

Thus, the main direct taxes are the corporate income tax and, for small operators with low turnover, the microenterprise income tax. Taxation on labor is made up of tax on the income earned by individuals (mainly payroll tax), social security contributions (to the pension fund), and social health insurance contributions (for free health insurance). Indirect taxation is made up of VAT and excise duties (if any), but these apply only to energy products. All these taxes are sources of revenue for the state budget.

In summary, local budgets are made up of two main categories of revenue: own revenue and amounts allocated from the state budget. The own revenues of local budgets are regulated in the Tax Code and consist of local taxes and charges, namely the tax and charge on land and buildings, on means of transport, on the charge for the issue of certificates, permits and authorizations, and other special charges.

Amounts are allocated from the state budget to local budgets according to a procedure (Sums are distributed from the state budget to the budgets of the counties, which, in turn, distribute revenues to all the budgets of the localities within the territorial radius of the respective county) known as the balancing of local budgets. The role of these allocations is to reduce the gap between the communities that generate sufficient revenue of their own and those that are unable to meet the costs of local maintenance.

Second, special attention needs to be paid to the financial-budgetary regime specific to the extractive sector. This analysis starts from the definition of the concession contract in the Romanian Administrative (Referred to in article 302 of the Romanian Administrative Code) Code.

In the public sector, the right to exploit an asset relates to its very substance. For instance, mining royalties are not limited to the mere use of mineral resources external to those goods but extend to the exploitation of those goods, which leads to the appropriation of the goods resulting from the exploitation. Thus, the minerals resulting from the exploitation belong to the beneficiary of the right of exploitation, in which case we consider that the royalty also includes the value of the materials resulting from the exploitation of goods belonging to the public domain of the State or to the public domain of administrative-territorial units. Under these conditions, the level of royalties should depend on the price charged on national or even international markets for goods resulting from the exploitation of natural resources of the Romanian State [47].

According to article 307(1) of the Romanian Administrative Code, royalty is a source of revenue for the State or local budgets, and para. 2 sets out the way in which these amounts are distributed between budgets. Thus:

• A total of 40% given to the local budget of the county on whose territory the exploitation activity exists;
• A total of 40% given to the local budget of the commune, municipality, town or city, as appropriate, on whose territory there is an exploitation activity;
• A total of 20% given to the State budget.

An analysis of these regulations reveals that this legal provision is sometimes in conflict with the provisions of other regulations governing the operating royalties resulting from the concession of State natural resources to various economic operators, i.e., the provisions of Law No 85/2003 on mining, as subsequently amended and supplemented, which, in Article 451¹(1), states that (1) in principle, the mining royalty shall be a revenue to the State budget with the exception of the mining royalty obtained from the concession of the exploitation of surface resources and natural mineral waters, which shall be a revenue as follows:

• A total of 35% given to the local budget of the county on whose territory the exploitation activity exists;
• A total of 45% given to the local budget of the commune, municipality, town, or city, as the case may be, on whose territory there is an exploitation activity;
• A total of 20% given to the State budget.

Similarly, Petroleum Law No 238/2004, as amended, establishes in article 49(4) that the oil royalty is due to the State budget.

Given that the provisions of the mining and oil legislation have the force of a special law and take precedence over the Romanian Administrative Code, which is the general law, we note that royalty revenues are, in fact, important sources of revenue for the State budget, and not for county and local budgets.

Additionally, according to the mining regulations, license and permit holders owe, in addition to royalties, some fees for the prospecting, exploration, and exploitation of mineral resources. Unfortunately, these are also paid to the State budget so that most of the revenue from these activities goes to the central State budget, depriving local authorities of important sources of revenue that could enable them to financially support economic development and diversification programs, which are so necessary for regions where extractive activities give a monocolored and dependent aspect to the local economy.

Consequently, the structure of the Romanian financial-budgetary system is highly centralized, which significantly limits local authorities’ ability to build up their own financial resources that would allow them to intervene consistently in the local economy. Therefore, in the short term, one may say [48] that a detailed analysis of the mining fiscal regime is necessary to provide a detailed picture of this situation, and based on this, an incentive and predictable fiscal framework for investments can be created.

At the same time, one may say that it is important to establish whether the budgetary revenues generated by these industries have had any effect on the diversification of the productive structure of the territories under scrutiny. Although sector-related production data are not available at the county and local level, the existing data so far from the studied region (Gorj County) fail to reflect a significant increase in the relevance of other productive sectors, such as agriculture, tourism, or manufacturing. Therefore, the importance of the extractive sector has remained dominant in this region.

4. Results and Discussion—Case Study: Complexul Energetic Oltenia (CEO) and the Impact of Its Reorganization on the Regional Economy

4.1. Institutional Challenges and Industry Support Programs in the CEO Case

Complexul Energetic Oltenia (CEO) is a State-owned company established based on Government Decision No 1024/2011 regarding the merger of the National Lignite Company Oltenia with three other energy-producing companies, namely Rovinari Energy Complex, Turceni Energy Complex, and Craiova Energy Complex. An industrial colossus was thus created, which provides 30% of Romania’s electricity consumption needs, i.e., the thermal energy resulting from the burning of fossil fuels (coal) obtained by exploiting it in the Oltenia coal basin. CEO is, therefore, Romania’s largest coal producer, accounting for more than 95% of Romania’s lignite production, which it uses in its own power generation capacity.

The whole company spans the territory of two counties, namely Dolj County, where most of the thermal power plants are located, and Gorj County, where the lignite quarries and the mining activity of the complex are located. It has around 12000 direct employees and five branches, four of which are thermal power plants, and one is a mining production branch [49].

From a financial standpoint, it’s important to note that CEO generates all its revenue from its own operations, such as the sale of electricity production, lignite production, thermal agent supply, the rental of assets, and system technology services. It’s worth mentioning that CEO does not receive any subsidies from public budgets.

Due to the increase in the price of greenhouse gas emission certificates, CEO experienced a significant decrease in expenses and incurred massive financial losses in 2018 and 2019 [50]. In response, the European Commission approved a loan of €251 million from the Romanian government to the company in February 2020 for a six-month period. However, the costs of purchasing carbon certificates due to European climate change policies and the carbon credit scheme became unsustainable, accounting for 41% of the company’s 2018 turnover and 45% of its 2019 turnover [49].

Due to the burden of the costs of purchasing carbon certificates, CEO was unable to repay the loan it received. In order to address this situation, CEO submitted a restructuring plan to the European Commission, which was approved by the Romanian government. The plan includes a decarbonization investment plan aimed at ensuring the company’s financial recovery until 2026 and focuses on building eight photovoltaic parks on closed slag and ash dumps. The funding for the plan was initially planned to come from the Modernization Fund based on EU Directive 2018/410 and would be provided by both the company and the Romanian government.

The initial solution proved insufficient to support both the ongoing costs of carbon certificates for CEO’s energy installations and the costs required for the company’s transition to a different energy profile. As a result, the Romanian government, after negotiations with the European Commission, decided to provide State aid in the form of revenues obtained from the privatization of certain assets held in the accounts of the National Bank of Romania.

Despite the state aid, CEO’s financial difficulties persisted as the company lacked the funds to purchase the necessary greenhouse gas emission certificates for its installations and to pay for the certificates related to the electricity produced.

The European Commission authorized the granting of restructuring aid to CEO in the form of:

• A nonrefundable transfer or grant worth EUR 1090 million to finance the purchase of greenhouse gas certificates from 2021 to 2025;
• A state-guaranteed loan of EUR 195.8 million to finance the company’s working capital;
• A contribution to the company’s share capital;
• The conversion of EUR 251,046.025 thousand in restructuring aid granted by the State into a grant. This decision was made via European Commission Decision No C 553 (2022).

The Decarbonization Plan aims to reduce the company’s reliance on fossil fuels and increase the use of renewable and gas-fired energy. The plan consists of constructing eight photovoltaic plants, rehabilitating a micro-hydro power plant, and building two gas-fired power plants. The funding for the plan is expected to come from the Modernization Fund under EU Directive 2018/410 and the Fair Transition Fund 2021–2027.

The government solutions include the development of renewable energy, energy efficiency and energy storage projects, support for SMEs to transition to a low-carbon economy, support for skills development and retraining for workers in the transition to new jobs, and investment in new infrastructure. The aim of these actions is to provide alternative economic opportunities to workers and communities affected by the restructuring of CEO and to help the region transition to a low-carbon economy. The allocation of the FTF funds will be guided by the National Energy and Climate Plan and the Regional Operational Programs, which outline the goals, strategies, and measures for the transition to a low-carbon economy in Romania.

The priority focuses on developing entrepreneurship, small and medium-sized enterprises, research, innovation, and digitization. The second priority involves investments in low-emission, clean energy technologies and infrastructure, including photovoltaic parks and natural gas as a bridging technology. The third priority aims to reduce pollution and strengthen the circular economy. The fourth priority aims to increase employment through retraining and job search assistance, financial support for those close to retirement, and mobility packages. These priorities aim to ensure a fair transition for the affected regions and communities.

In July 2022, the Romanian government established a state aid scheme for investment grants in the manufacturing industry with a budget of EUR 300 million and a maximum of 30 companies to benefit. The application process and agreements for funding will occur in 2022–2023, while payments will be made from 2022–2027. The state aid complies with Commission Regulation (EU) No 651/2014, declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the EU.

The grants are granted in compliance with EU regulations, and both Dolj and Gorj counties will receive 60% of the funding, which is approximately EUR 9 million. A key condition of the scheme is that the investment must be maintained in the region for at least 5 years (3 years for SMEs) after the completion of the investment. Replacing outdated or destroyed equipment is allowed as long as the economic activity is maintained in the region for the required minimum period.

When reviewing these measures, one can say that the government is attempting to take the financial burden of carbon certificates off the shoulders of CEO to allow the company to support, mostly by itself, the systemic restructuring and decarbonization of its electricity production, such as the European Union’s 2050 goal [51].

4.2. Restructuring Solutions for Local Economic Diversification in Extractive Regions

Recently, local development has become a widely discussed issue in many industries. Economic diversification, as tackled and presented in this paper, can be addressed in different ways. The solutions to grow economic diversification may be political and financial in nature and will require the efforts of both central and local authorities [52]. The authorities will have to identify the most effective strategies to ensure that the region and its residents can adapt to the changes brought about by the decarbonization of CEO. This implies that the region will require significant economic restructuring in order to mitigate the impact of the transition from coal to a more sustainable energy mix, especially in Gorj County.

When analyzing how local authorities of Gorj County have already adopted a strategy for its economic restructuring, one can say that they should rather consider the concrete solutions that have already proven their viability in other regions of the world. In the USA, for instance, coal mines in West Virginia have been closed, and huge photovoltaic parks have been built on their sites, as well as organic agricultural production, i.e., without the use of chemical fertilizers. Small-scale manufacturing has also been encouraged, using other local natural resources such as wood, forest fruits, and medicinal plants. At the same time, specific tourism infrastructure has been created, and marketing strategies implemented to promote the region. Such economic diversification solutions are to be welcomed because, in addition to their main objective, they allow the time and conditions necessary for the natural recovery of the environment in regions inevitably affected by mining.

While it is commonly argued that specific solutions may come from central or local authorities, the way they are put into practice can be a good start. Indeed, the initiatives require funds, which may come either from European nonrefundable funds or from national funds, mainly from the State budget.

It is generally agreed that linkage between ministries is a common problem worldwide, and typically, the national ministry of minerals or mines is the key ministry responsible for the minerals sector. Local development requires close co-operation and integration between the government and the local authorities.

In our case, there are weak strategies for economic diversification; therefore, Gorj County is economically a monoindustrial county, and the economy is largely concentrated on coal-fired power generation and related activities. The main economic entity in Gorj County is CEO, which is the basis for the electricity production of the thermal power stations that are also part of the complex and are mostly located in the neighboring county of Dolj. The transition to climate neutrality may result in the closure of coal-based activities and impact the majority of the county’s population, putting jobs in the energy sector at risk. The impact of CEO extends to 70% of Gorj County’s economy through a large number of interdependent private companies. The use of local small-scale suppliers can make good business sense, but there are many challenges experienced in this field due to the uncertainty of the context. For instance, the coal transport services have a yearly contract worth around EUR 22 million, 70% of which is carried out by road vehicles. This requires a chain of related services, such as maintenance, repairs, and insurance, creating many jobs that depend indirectly on CEO survival.

Considering this context, the industrial change in Gorj County may result in job losses and an uneven economic impact across the region. However, the county has a well-educated workforce and resources for production and innovation. Therefore, there may also be specific challenges, particularly those related to deindustrialization and skills shortages in occupations for the new generation, as well as low levels of production outside traditional areas.

The environment and sustainable energy sector have significant potential for development based on the medium and long-term availability of resources and the research work carried out by specialist institutes and centers. The development and consolidation of the energy sector, and in particular the sustainable energy sector, and the environmental, economic, and social reintegration of land affected by mining operations are some of the issues to be addressed in the coming period.

In order to support the economy during the upcoming challenging period, the local authorities are implementing various solutions, such as granting state aid for restructuring, tax incentives for companies involved in research and development [52], partnerships between universities and SMEs for joint research and innovation projects, and financial instruments for entrepreneurship support. These measures aim to provide support to businesses and help them overcome difficulties, encourage innovation and development, and boost economic growth.

While CEO is an example of a State-owned enterprise struggling to survive, the same cannot be said of other states that, in a similar situation, have provided support for the development of local suppliers and created an environment conducive to sustainable business linkages between local producers and larger corporations. However, the potential that the benefices return to a local economy is greatly diminished when most goods are procured internationally and, in some cases, even the labor workforce is also imported. Therefore, success in this field requires well-coordinated policies spanning several domains. Unfortunately, there are few successful examples of extractive regions. One is the Botswana Diamond Hub, which is responsible for the practical implementation of national policy across the sector, with measures aimed at creating an enabling environment for the industry to thrive and attract investment.

In South Africa, for instance, the concept of beneficiation is articulated in the 1998 Mining and Minerals Policy, which recognizes the need to adopt policies that create an enabling environment for the development of the country’s mineral wealth.

The Mining Beneficiation Strategy adopted by the government in 2011 aims to promote the development of the mineral value chain and “facilitate” economic diversification, job creation, and industrialization. The strategy also aims to accelerate progress towards a knowledge-based economy and contribute to GDP growth in terms of mineral value added per capita. The aim of the strategy is to provide “a framework that will enable the orderly development of the country’s mineral value chains, thereby ensuring that South Africa’s mineral wealth is developed to its full potential and for the benefit of the entire population” [53].

According to White [42], in South Africa, for instance, the framework for a mining strategy includes a range of policies, regulations, and programs aimed at promoting the development of the mining industry. The strategy also includes incentives through the Income Tax Act and industrial support programs, and there are provisions related to the way in which a State-owned mining company supports the developmental goals of the government. It is considered that this type of company “should ensure competition for existing producers, helping to maintain prices for downstream activities, identify innovative activities and projects, and mobilize private as well as public resources to develop the mining value chain” [53]. More broadly, it is suggested that while mining companies have joined and are committed to transformation, “the complexities associated with the transformation of the mining industry require effective collaboration between government and industry” [53]. Indeed, the open dialogue and trust needed to address current challenges and create solutions for the benefit of not only individual stakeholders but the country as a whole do not appear to be reconciled.

In the end, success in increasing local economic diversification requires co-operation and collaboration between the government, mining companies, and local authorities. A well-designed and implemented policy framework, coupled with targeted industrial development programs and services, is critical to promoting local economic growth and creating sustainable business opportunities for local companies. It is important to strike a balance between policy enforcement and the creation of an enabling environment for businesses to thrive.

5. Conclusions

The main purpose of this paper was to examine the extent to which the use of extractive revenues contributes to the diversification of local economies. The results presented in this article can be summarized in the formulation of several recommendations.

Economic diversification is the only realistic solution to combat poverty in regions with a monocolor economy in extractive regions, especially those with mineral extraction. On the one hand, it is generally agreed that not all extractive industries generate poverty. In Romania, for instance, natural gas extraction is extremely profitable, which is reflected in the level of prosperity in these regions. The same outcomes are applicable to oil extraction in all countries with significant oil resources. However, even where extractive industries are profitable, there is a tendency to develop a monocolor economy, which creates great vulnerability. Appropriate solutions must be tailored to the specific situation of each extractive region. On the other hand, the strategies regarding the economic restructuring of these regions must be drawn up and implemented by local authorities at the lowest level, as they must be tailored to the specific characteristics of the region. This requires legislative measures to decentralize decision-making to the level closest to the region undergoing economic restructuring.

Part of the analysis is related to the use of resource revenues and how to invest them in economic diversification. This means not only discussing whether to allocate some of the revenues to alternative productive sectors but also why local authorities have not invested in diversification in the first place, what the incentives or barriers are to this kind of investment, and what can be done about it. In this context, it features that economic diversification strategies should be supported by large financial resources. This means that in the case of unprofitable industries, there will be no financial flows available to support such measures. Solutions might, therefore, come mainly from public funds of all kinds. In the case of EU Member States, these funds may come from the EU budget or from national public funds. For the budgetary system of the State, it would be preferable to allow as much funding as possible from local public revenues, but such a solution depends on the degree of fiscal decentralization in that State. A different option for economic diversification policies should be based on a green economy, whether it is agriculture or ecotourism, green industries such as the IT industry, or value-added processing of all the raw materials available in the region. In this way, other types of resources could be identified, and more profitable economic activities could be developed. The green economy is proving to be much more profitable than the polluting and energy-intensive economy and is the direction in which much of the world economy seems to be heading. The financing of these economic transformation measures for extractive regions can also be supported by green finance, such as green banking and green insurance, creating tailor-made products. Additionally, identifying tax incentives to stimulate specific economic activities, such as green activities, could be a good start.

These challenges are doubled by the discussion about human resources and how easily the workforce adapts its skills to new economic realities. Such a workforce can create added value and, where it is lacking, should be attracted to the regions concerned by all kinds of direct incentives. Motivating wage incomes, tax incentives for certain target groups, or indirect incentives, such as decent housing conditions, educational, medical, and other infrastructures existing in the region could be conducive measures to make the extractive regions attractive.

Another part of the discussion concerns indirect government support through the creation of special economic protection zones. This can take the form of measures such as not taxing investments and new economic activities to be established in the region to stimulate capital inflows into the region. This is providing government guarantees for the public loans taken out by local authorities to support various investment programs in the region or stimulating the provision of low-interest bank loans (subsidized by the government if necessary).

The findings of this article can be summarized in two related points. Firstly, the extent to which local authorities have prioritized the use of resource revenues by investing them in various forms of public infrastructure, thereby promoting an image of modernization and progress for the local population and the eventual transfer of resource revenues to the local population through the creation of new jobs. When analyzed together with the other examples, the case study does not lead us to identify a boom in a particular sector of activity linked to resource revenues that have led to a possible interaction between local authorities and the local population. Secondly, the impact of such spending on local economies is different in each case.

In this context, this research contributes to the literature on natural resources and development by examining the local processes that shape the development and diversification of local economies. The development and consolidation of the energy sector, especially sustainable energy, and the environmental, economic, and social reintegration of areas affected by mining are some of the issues to be addressed in the coming period.