17 Preparing candidate countries to manage
EU Structural Funds
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14729/04
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| European Court of Auditors' Special Report No. 5/2004 concerning Phare support to prepare Candidate Countries for managing the Structural Funds
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| Legal base | Article 248 EC
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| Department | International Development
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| Deposited in Parliament | 24 November 2004
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| Basis of consideration | EM of 5 December 2004
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| Previous Committee Report | None
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
17.1 A key issue facing the European Union in the context of the
2004 enlargement is the great disparity in average income between
the older Member States and the new ones from Central and Eastern
Europe.[55] Whereas 22%
of the population of the pre-enlargement Union live in regions
with less than 75% of the pre-enlargement average per capita gross
domestic product, 93% of the population of the new Member States
are living in regions where the per capita GDP is less than 75%
of the enlarged EU average. To help overcome these disparities,
nearly all regions of these new Member States will be eligible
for support as "Objective 1"[56]
regions from the three main Structural Funds: the European Regional
Development Fund (ERDF), the European Social Fund (ESF) and the
European Agricultural Guidance and Guarantee Fund.[57]
In addition, all the countries concerned will be eligible for
the Cohesion Fund.[58]
17.2 The Phare programme was established to help
the applicant countries of central and eastern Europe to prepare
to join the EU, and especially to manage the Structural Funds.
In March 1997, the Commission proposed a reform of the Phare programme.
Thereafter the Phare budget — approximately €1.5 billion
per annum — was to be allocated in principle to institution-building
and to investment support. For the period 2004-2006 approximately
€13.2 billion was allocated under the Structural Funds towards
Objective 1 support for these countries, as well as a further
€7.5 billion for the Cohesion Fund. To benefit properly from
this funding, new Member States needed to be able to identify,
prepare and implement priority programmes and projects within
the timeframes laid down.
17.3 Accordingly a "Special Preparatory Programme
for the preparation of the Candidate Countries for EU Structural
Policy" (SPP), covering each Candidate Country, was financed
from the 1998 Phare programme for a total of €60 million.
It funded institution-building and small pilot investment projects
of the type financed from the Structural Funds, to begin to give
Candidate Countries operational experience in Objective 1 procedures.
Then, in 2000, two new pre-accession instruments were created.
ISPA (annual budget: €1 billion) had similar objectives and
procedures to the Cohesion Fund. SAPARD (annual budget: €500
million) aimed at contributing to the implementation of the acquis
communautaire in agriculture and at solving specific problems
in the agricultural sector and rural areas. In addition, the 2000-2006
Guidelines for Phare provided for Economic and Social Cohesion
(ESC) investment programmes in each country, implemented through
measures similar to those financed by the Structural Funds, in
the areas of productive sector investment, development of human
resources and business-related infrastructure. The guidelines
also stated that institution-building activities (the remaining
30% of Phare funds) would particularly reflect the importance
of these ESC programmes by addressing weaknesses of the administrations
with responsibilities in this area at central, regional and local
level. The aim was to devote approximately 35% of countries' national
Phare programmes to investment support for ESC.
The Court of Auditors' Report
17.4 Against this background, the objective of the
Court's audit was to assess how effective the Phare programme
had been in preparing Candidate Countries for managing the Structural
Funds.[59] It accordingly
focused on the Special Preparatory Programme for the Preparation
of the Candidate Countries for EU Structural Policy (SPP) and
the Economic and Social Cohesion (ESC) investment programmes.
The Court examined:
- the extent to which the overall
approach followed by the Commission provided an effective basis
for preparing the Candidate Countries for managing the Structural
Funds;
- how far Phare had provided adequate preparation
for Structural Fund structures and procedures;
- whether Phare funding was allocated as foreseen
to this purpose and to what extent this funding was implemented
efficiently; and
- the effectiveness of institution-building projects
in meeting their objective of preparing beneficiary countries
for managing the Structural Funds.
17.5 The outcome is helpfully summarised in the Explanatory
Memorandum of 5 December from Secretary of State for International
Development (Mr Hilary Benn):
"The report concludes that the Commission
should be commended for helping prepare countries to access Structural
Funds, even though the impact at the time of accession was more
limited than envisaged. This was partly due to inexperience and
insufficient institutional development in Candidate Countries.
The Court recognise that it was not possible to remedy these shortcomings
in the short time available.
"A key finding is that the 'learning
by doing' aspect of institution building in Phare has been less
successful, as it differed significantly from Structural Funds
in terms of implementing structures, programming procedures and
control systems.
"The report also recommends that a sectoral
approach — used in the case of Greece, Ireland and Portugal
— should be adopted rather than the current practice of
regionally focused programmes. Such an approach would better prepare
Candidate Countries for the management of Structural Funds. Also,
when programmes under the Structural Funds were negotiated in
2001, it was stipulated that each new Member State should have
only one programme, instead of several Regional programmes. As
a result, the Commission adjusted its programming guidelines to
be more in line with the approach of Structural Funds, but a significant
portion of 2001 funding for ESC programmes continued to be regional.
"It was planned that programming and
implementation would be decentralised to Candidate Countries under
the Extended Decentralised Implementation System (EDIS) by 2002,
with the Commission retaining only ex-post control (i.e. evaluation,
etc.). The intention was to prepare countries for full programme
responsibility, as under the Structural Funds. However, no new
Member State received EDIS accreditation before accession in 2004.
The Court states that the Commission is partly to blame, as they
failed to apply early pressure on countries to implement EDIS.
Also, Candidate Countries were content to have the system of safeguards
provided by the Commission. The Commission argues that accreditation
requires rigorous conditions, something Candidate Countries unfortunately
could not meet in the time available. However, considerable pressure
was brought on Candidate Countries to comply, leading to the stipulation
of a formal requirement to implement EDIS in the Act of Accession
at the Laeken European Council in 2002.
"The Court found that multi-annual programming
was not introduced, even though this is instrumental in preparing
for the use of Structural Funds. Despite requirements to prepare
Preliminary National Development Plan (PNDP) in 1999, countries
failed to deliver quality products in time. As a result, multi-annual
programming was not introduced in 2002, and only Hungary established
a programme lasting more than one year. The Commission however
argues that the exercise of producing and revising PNDPs did help
acceding countries prepare the Structural Funds Development Plans
and programming documents in 2002-2003.
"According to plans, 35% of the funds
for Phare National Programmes should be devoted to ESC programmes.
Progress among countries has varied considerably with only Poland,
Romania and Hungary able to commit 35% to this measure. This was
principally due to difficulties in absorbing funds.
"Even though Phare programmes must be
completed within a three year project cycle, only 71.7% of ESC
2002 commitments were committed by the end of 2003. The Court
considers that this delay in disbursement has slowed down preparations
for Structural Funds, and highlights the weaknesses in administrative
capacity. The Commission argues that 71.7% is not such a bad result
for a new instrument, and states that many of the noted weaknesses
has since been addressed.
"The Court makes several recommendations
for future programmes in this area:
- There is a need for more institution-building
support in preparation for Structural Funds;
- Considerable resources should be devoted to moves
towards EDIS (and a clear strategy should be put in place to do
this);
- Future managing authorities should have the status
of Phare implementing agencies;
- More assistance should be given to implementing
agencies;
- The introduction of multi-annual programming,
based on National Development Plans."
The Government's view
17.6 The Minister makes the following comments:
"Preparation for Structural Funds is
one of the key aspects of pre-accession funding for Candidate
Countries. The report highlights several important areas where
this aspect of Phare might have worked better. One of the most
important is the move to EDIS, as experience in project management
is key to the effective use of Structural Funds. Delays in adopting
the EDIS was partly due to the Candidate Countries not fulfilling
the necessary criteria for decentralised control. We understand
that the need for early preparation for EDIS has been incorporated
in the Commission's preparation of a new pre-accession instrument
after 2007.
"We agree that there is a need to move
to multi-annual programming. At present, both Romania and Bulgaria
have multi-annual programmes under Phare. The implementation delays
highlighted by the report, and in other areas such as disbursement
of funds, are in our view to some degree inevitable. The 2004
accession process was the largest ever, and the countries involved
of very nature to previous enlargements. Being a unique process,
it has been an important learning experience for the Commission
as well as the New Member States and the remaining Candidate Countries.
"The nature of the accession process
means that there is an element of unpredictability in the necessary
timescales. For example, there were only two years between the
setting by Council of the date of accession, and accession itself.
In addition to this, the three-year programming cycle makes rapid
impact difficult. We understand that the need for the earliest
possible start to pre-accession activities will be addressed with
future accession processes.
"We support this report and welcome
the Commission's willingness to learn lessons from this last accession
process. While there is room for real improvement, we consider
the accession process a success and are confident that the positive
effects of the process will continue well after the event of accession."
Conclusion
17.7 The implications of this Report are similar
to those emanating from the audit of SAPARD, which we examine
in paragraph 16 of this Report. What bears repetition is the
scale of expenditure on external assistance overall proposed by
the Commission for the next Financial Perspective — some
€95 billion — and the shift towards decentralisation
and local "ownership". The Court strongly endorses
the need for a clear strategy towards increasing the resources
distributed under the Extended Decentralised Implementation System
(EDIS), which seems appropriate. The Minister comments that "we
understand that the need for early preparation for EDIS has been
incorporated in the Commission's preparation of a new pre-accession
instrument after 2007". We would have hoped that the Minister
knew for certain that this was so; likewise his "understanding"
that "the need for the earliest possible start to pre-accession
activities will be addressed with future accession processes".
The new pre-accession instrument to which he refers is one of
four proposed new, all-embracing EU external assistance instruments,
which we examined on 1 December.[60]
In so doing, we drew attention to the need to ensure that the
right management mechanisms are in place in order to ensure the
effectiveness of significant amounts of expenditure. Those mechanisms
will need to ensure that the lessons learned here and elsewhere
are properly incorporated. When the central assistance instruments
are further scrutinised, we accordingly hope that the Minister
will be able to provide us with assurance on these matters.
17.8 In the meantime, we clear this Court of Auditors'
Report.
55 The Czech Republic, Estonia, Hungary, Lithuania,
Latvia, Poland, Slovenia and Slovakia. The Phare programme also
provides assistance to Bulgaria and Romania, which are expected
to join the European Union at a later date. Back
56
Objective 1 funding is allocated to EU regions defined as lagging
behind in their development by the fact that their gross domestic
product per capita is below 75% of the EU average. Approximately
two-thirds of Structural Funds are allocated to this objective.
Back
57
The principal objective of the ERDF is to promote economic and
social cohesion within the EU through the reduction of imbalances
between regions or social groups. The ESF is the main financial
instrument of the EU's employment policy. The EAGGF is designed
to contribute to the structural reform of the agriculture sector
and to the development of rural areas. For the Structural Fund
programming period 1994-1999, 52% of funds were spent through
the ERDF, 30% through the ESF and 16% through the EAGGF. The remaining
2% were spent through a fourth Structural Fund, the Financial
Instrument for Fisheries Guidance (FIFG). Back
58
The Cohesion Fund finances environment and transport infrastructure
projects in countries whose GNP per capita is below 90% of the
EU average. Back
59
The Court also carried out a separate audit on the management
of the SAPARD pre-accession instrument, which we consider in para
16 of this Report. Back
60
(26042) 13687/04 (26043) 13688/04 (26044) 13689/04 (26045) 13690/04;
see HC38-i (2004-05), para 13 (1 December 2005). Back
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