Select Committee on European Scrutiny Seventh Report



Special Report No. 19/2000 by the Court of Auditors on the
management by the Commission of the programme of
assistance to Palestinian society.

Legal base:
Document originated: 16 October 2000
Forwarded to the Council: 15 December 2000
Deposited in Parliament: 17 January 2001
Department: International Development
Basis of consideration: EM of 25 January 2001
Previous Committee Report: None
To be discussed in Council: March 2001
Committee's assessment: Politically important
Committee's decision: For debate in European Standing Committee B, together with the Commission Communication on the Barcelona Process (see paragraph 1 above)


  4.1  Following the Oslo Accords of September 1993, the European Community started a special programme to support the Middle East peace process and the development of Palestinian society, and substantially increased its financial assistance. From 1994 to 1999, total EC commitments financed under the three main budget headings amounted to 639 million euros (see chart below).

  4.2  The objective of the European Court of Auditors (ECA) in carrying out this audit was to assess the extent to which the Commission had taken the necessary action to ensure the best possible implementation of the programme.

The ECA's report

  4.3  The Court has taken into account various constraints affecting the Commission's ability to manage the programme.

— The complexity and volatility of the local political situation

  4.4  Factors under this heading include the effects of the 30-year Israeli occupation. Political developments, including setbacks in the peace process, can change the situation rapidly. The circulation of people and goods between the Gaza Strip and West Bank areas is complicated, sometimes uncertain, and at times impossible. In periods of tension both areas are sealed off, with a considerable negative impact on the Palestinian economy. The land registry is incomplete and sometimes unclear.

  4.5  All Palestinian trade with the rest of the world has to go through Israeli-controlled border points. The Palestinian Authority (PA) is dependent on transfers by Israel for a large part of its operational budget. In 1997, Israel blocked all these transfers. This caused a financial crisis, which prompted the EU to intervene in favour of the PA with the Special Cash Facility.

— The weakness of the Palestinian institutions

  4.6  The independent Task Force set up to assist the PA and the donor community to improve the efficiency and credibility of the emerging Palestinian self-governing institutions reported in 1999 that the PA had managed, in the short period since its establishment, to achieve a number of important objectives, despite complex conditions and limited jurisdiction. However, the Court says:

    "important reforms still have to be implemented in order to ensure a constitutional government, political accountability, judicial review and the transparent management of public resources. Accounting for the domestic revenue and expenditures of the PA lacks transparency and completeness. Cases of financial waste and mismanagement had already been observed by the Palestinian national audit institution."

  4.7  The influx of aid, concentrated in a limited geographical area, is considerable, but the capacity of the Palestinians institutions to absorb assistance is limited and there is a lack of co-ordination between the various donors at the operational level. There are more than 50 official aid agencies, along with a highly developed NGO sector.

— Positive results

  4.8  The audit highlighted a number of positive results, noting that "in particular, the Commission has played an important role in sensitive and urgent political situations, in which it has shown itself able to respond quickly." The ECA comments positively on the fact that a significant proportion of the programme is implemented through local tenders, thus supporting the local economy. Infrastructure projects on, for instance, the water supply, sewerage and school construction have improved the quality of life for Palestinians.

— Structural weaknesses in the Commission's programming and management procedures and systems

  4.9  To quote from its Executive Summary, the Court found that:

"a)  decision-making is heavily centralised, slow and cumbersome; responsibilities are fragmented and co-ordination between units needs to be improved. The number and skills of staff available are not adequate to manage effectively a programme of this size and scope. Furthermore, adequate management information tools are lacking;

"b)  there are no indicators against which the Commission's performance in managing the programme can be assessed. In addition, the results of an external evaluation of the programme were not adequately followed up since the Commission did not set up a precise timetable of actions to be taken;

"c)  there is no pipeline of projects, to be identified, prepared, approved and launched in a continuous process. In order to commit the large volume of budgetary funds available annually, many projects were decided under pressure and without sufficient preparation. Shortcomings were also noted in the implementation and monitoring of certain projects.

"d)  co-ordination with the other donors, including the Member States, was insufficient, particularly at the operational level. The Commission should play a major role in co-ordinating the donors, in accordance with the relative size of its programme of assistance."

  4.10  In a fuller comment on the Commission's central services, the Court says that it was not able to find analyses and assessments "carried out as part of the normal management processes, of how many, and what type of staff, the responsible services of the Commission considered necessary at the central level for the implementation of the programme itself and all the other responsibilities of the West Bank and Gaza Strip desk".

  4.11  The report records that in 1994 the Representative to the Occupied Territories, who had been based in Brussels, moved to Jerusalem. As the Israeli authorities were not prepared to allow the Commission Representative to open and operate an office in that capacity, a European Commission Technical Assistance Office (ECTAO) was set up to manage the aid programme. Its activities were taken over in 1998 by the EC Representative Office (ECRO). It took the Commission five months to appoint a new Representative in 2000, leaving one official to manage all the activities.

  4.12  ECRO depended on technical assistance which, from 1998, was provided by a "Meda-Team". After eighteen months only one member of the original team of six was still in post. One reason for the high turnover is that contracts have to be renewed every year, so many experts look for longer-term assignments. For one year from early 1999, the post of private sector expert was not replaced, initially for procedural reasons, but then because Commission services were unable to agree on the choice of candidate.

  4.13  Because of the heavy workload, the ECRO staff had to learn on the job, with little time devoted to professional training. Nevertheless, their contribution is highly regarded by the PA and by other agencies.

— The legal and budgetary framework of the programme

  4.14  The Auditors say:

    "Since 1994, EU actions in support of Palestinian society have been financed mainly on three budget headings:[19] B7-4200 (Community operations connected with the Israeli-PLO peace agreement), with yearly commitment appropriations of 50 million euro, intended to honour the Washington pledge; B7-4210 (Aid to UNRWA),[20] which provides financing for the EC-UNRWA Conventions;[21] and B7-4100 (MEDA), on which projects of assistance to Palestinian society have been funded along with those for other Mediterranean non-member countries. From 1994 to 1999, total commitments for the Palestinians on these three budget headings amounted to 639.1 million euro, and total payments to 447 million euro (see Chart 1)."

  4.15  We reproduce Chart 1 at the end of this paragraph. It illustrates, vividly, the outstanding commitments under two of these budget headings.

  4.16  In addition to the projects financed under these three main budget headings, the Auditors identified commitments for more than 66 million euros under 12 other budget headings in the external actions part of the budget. One project, on counter-terrorist assistance to the PA, was funded from three different budget headings, with different procedures and financing decisions. The Court notes, furthermore that, the European Investment Bank made available 214 million euros in loans and risk capital for 11 projects.

— Findings on the projects examined

  4.17  The Court describes the European Gaza Hospital as a "huge project (32.4 million euros committed), in an area and field where aid is much needed, and has a very high visibility."

  4.18  It comments:

    "In this case, the Commission did not take active responsibility in the early years of the project, other than by providing the funds, while leaving everything else to UNWRA. Although the Commission had no representation on the spot until 1994, it did not consider it necessary to arrange for any form of expert-type independent monitoring of the project".

  4.19  When the Commission started to take control in 1997, it initiated three different lines of action to provide funds for physical alterations to the hospital, for the purchase of equipment and supplies and for an International Management Team (IMT). The Court says:

    "However, the administrative process leading up to the three related Financing Agreements was rather poorly handled by the Commission. All deadlines and/or timetables set/prepared by the Commission were grossly optimistic and systematically overestimated the Commission's own capacity to get the necessary administrative actions prepared, decided and implemented. Consequently, it took the Commission more than two years (counting from March 1997) before its activities resulted in any action on the ground, i.e. the arrival of the IMT in August 1999. At that time however, the Financing Agreement for the remodelling work on the hospital had still not been signed by UNWRA."

  4.20  The decision by the Commission to provide assistance to the Palestine Housing Council (PHC) is described by the Court as an ambitious step for which the Commission deserves credit. It then points out deficiencies in the management of the project, both by the PHC and the Commission. At one point they were not on speaking terms.

  4.21  Assistance was also given to the Palestinian Legislative Council (PLC). In 1997, the Commission committed 5 million euros to finance the construction of a temporary seat for the PLC. At the end of 1999, after several denials by the Palestinian authorities, "it was found that they had already begun to construct a building for the PLC in another location, in the context of a different project, not funded by the EU; this rendered the EU project superfluous".

  4.22  The Court says that another high profile project, involving the provision of technical assistance and equipment to the PLC, for which 3 million euros were committed, has suffered particularly badly as a result of the Commission's handling of procurement procedures.

— The Court's Conclusions and Recommendations

  4.23  The Court concludes that the Commission's management of the programme of assistance to Palestinian society has had positive aspects and results and has encountered considerable external constraints. It then says:

    "The special local conditions and their dynamic nature require, to an even greater extent than for other developing countries, adequate resources, good interservice co-ordination, an authoritative presence on the ground, clear objectives, timely decisions, efficient systems and operational procedures, as well as close monitoring and control. In this respect, nevertheless, the impact of the programme has been reduced by structural weaknesses and failures in the Commission's programming and management procedures and systems, which are the responsibility of the Commission and independent of local constraints ... These deficiencies are not unique to the programme of assistance to Palestine, but affect EU co-operation policy generally. The remedies, therefore, should be seen in the perspective of a more general reform of Commission structures and procedures in this field.

    "The Commission's management has sometimes focussed its attention on the procedural details, at the expense of the results which were expected from the actions financed. The implementation setbacks experienced by highly visible projects (such as the European Gaza Hospital and the technical assistance to the PLC), to which factors within the Commission's control contributed, have had the consequence of undermining the EU's image as a manager of much needed aid".

  4.24  Amongst the Court's recommendations are:

    —  that the Commission should reassess its priorities, either allocating adequate resources or reducing the scope of the programme to a manageable size. Crucially, adequate staff and effective management information systems should be allocated;

    —  that the European Commission Representative Office (ECRO) should be considerably reinforced and given substantial authority. Prevention and detection of any mismanagement should be improved; and

    —  that the preparation of projects should be substantially improved, and a pipeline of projects created. "The current situation, whereby project preparation tends to be too quick and superficial, and implementation consequently often delayed, should be corrected".

The Commission reply

  4.25  Responding to the audit, the Commission says that the principal obstacle, in its view, to efficient project management has been the lack of human resources. It responds to many of the auditors' comments on its poor management by pointing out that it has embarked on an overhaul of the management of its external assistance programme. It says that it will take the Court's recommendations fully into consideration. It notes that the body of procedure applied to external aid has been growing continuously and growing in complexity and says that it has been criticised in the past for not following the procedures meticulously.

  4.26  On the European Gaza Hospital and Palestinian Housing Council projects, the Commission says that these were started in 1990-91. ECRO and the Palestinian Authority were only set up in 1994 and before that there was no counterpart responsible for strategy and co-ordination. It was the Commission that kept the project alive. The Commission says that it has perhaps not done enough to publicise its decisive role in preventing the project from failing.

  4.27  In response to the Court's recommendations, the Commission makes a number of points:

    —  a central theme of the Commission's plans for reform is that scarce resources should be focussed on core activities. In future, the Commission and the Member States will take strategic policy decisions and not attempt to micro-manage projects;

    —  the reorganisation of the Commission's staffing should remedy the very serious staff shortfalls and end the dependency on outside consultants. ECRO should be considerably reinforced;

    —  the MEDA regulations were revised in September 2000 but the Commission's proposals for simplifying the procedures have not yet been positively received by the Member States in the MED-Committee; and

    —  on mismanagement, the Commission says that it can improve its control mechanism, but mismanagement by other important bodies, such as the United Nations in the case of the Gaza Hospital, lay beyond its control.

The Government's view

  4.28  The Secretary of State for International Development (the Rt. Hon. Clare Short) says that the Government endorses the report and welcomes the budgetary support provided to the Palestinian Authority. She says that it recognises the external constraints on the EC programme, in particular the complexity of the political situation and the weakness of the Palestinian institutions. However, she says, the impact of the programme has been reduced by poor management.

  4.29  The Minister comments that the shortcomings highlighted have been common in EC programmes and that the Government has been pressing hard for improvement. It welcomes recent steps to reform the financial and staff management of EC programmes. It also welcomes the adoption for the first time of a Development Policy with poverty reduction as a central objective. If implemented, these reforms should significantly improve the impact of this and other EC programmes, according to the Minister, who adds:

    "The UK remains committed to working with the EC, other donors and the PA to support the building of a Palestinian state, within the context of the Middle East Peace Process, based on sustainable economic and social development, democracy and human rights, which will particularly benefit the poor."


  4.30  We support the Government in its objective of working with the European Community, other donors and the Palestinian Authority to assist the building of a Palestinian State, within the context of the Middle East Peace Process. The Commission has now taken steps to reform the financial and staff management of European Community programmes. Nevertheless, this report by the European Court of Auditors does call into question the suitability of officials, whether working for the European Commission or a United Nations agency, to be put in charge of costly building projects.

  4.31  The Gaza Hospital is a notorious failure and we would have welcomed a statement on what is now happening on this project.

  4.32  In paragraph 1 of this Report we consider the Commission's Communication on "Re-invigorating the Barcelona Process". This Communication, which was a "think piece" for the November Euro-Mediterranean Ministerial meeting in Marseilles, and widespread dissatisfaction with the Common Strategy on the Mediterranean which was adopted at the Feira European Council,[22] suggest that the European Union's policy towards the area needs to be re-examined.

  4.33  We have recommended the Commission Communication for debate in European Standing Committee B, to cover European Union policy on the Euro-Med partnership and assistance to the Middle East. We recommend that this document be debated with it.


  Cumulative Commitments: 152.4 Mio EUR
  Cumulative Payments: 120.0 Mio EUR

  Cumulative Commitments: 277.7 Mio EUR
  Cumulative Payments: 121.7 Mio EUR

  Cumulative Commitments: 209.1 Mio EUR
  Cumulative Payments: 205.3 Mio EUR

19  The budget heading references in the report follow the 1999 budget. Back

20  United Nations Relief and Works Agency. Back

21  The 9th EC-UNRWA Convention (OJ No. L. 282, 1.11.1996, p. 68) provided for 105.9 million euro from 1996 to 1998; the 10th EC-UNRWA Convention (OJ No. L. 261, 7.10.1999, p. 36) provided for 120.8 million euro from 1999 to 2001. Back

22  (21271) - ; see HC 23-xxviii (1999-2000), paragraph 7 (1 November 2000). Back

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