16 Phare programme in Bulgaria and Romania
| (27641)
10984/06
—
| Special Report No. 4/2006 concerning Phare investment projects in Bulgaria and Romania, prepared by the European Court of Auditors
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| Legal base | Art 248 EC |
| Document originated | 27 June 2006
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| Deposited in Parliament | 14 July 2006
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| Department | International Development
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| Basis of consideration | EM of 17 July 2006
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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, but further information requested
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Background
16.1 The Phare programme provides financial assistance to countries
in Central and Eastern Europe which are candidates to join the
European Union. The Commission and the National Authorities share
the management: the Commission has overall responsibility for
managing the programme, while the recipient countries have primary
responsibility for undertaking and operating the projects.
The Court of Auditors' Report
16.2 The purpose of the Court's audit was to assess the performance
of Phare supported investment projects in Bulgaria and Romania.
The conclusions are based on the examination of a sample of projects
financed under the Phare National Programmes 2000. The final payments
for these programmes were made in 2005. The Court examined 11
complete or almost complete Phare supported investment projects
involving 48 contracts for Phare support under the "Phare
National Programmes 2000". The value of the audited projects
was €14 million for Bulgaria and €51 million for Romania.
The total allocations in 2000 under the investment programmes
were €34.6 million in Bulgaria and €146.6 million in
Romania.
16.3 The Court says that the audited projects were
generally in line with the overall investment objectives of Phare,
namely to facilitate the alignment with EU norms and standards
or to assist in the context of Economic and Social Cohesion programmes.
The Court also got assurance that, in general, the projects were
put into place in accordance with the conditions of the supply
and works contracts. But for over half of the investment projects
audited, assets were not, or only partially, being used for the
intended purpose:
"Outputs and results lagged considerably
behind schedule, sometimes by up to two years. These shortcomings
were due to the continuing lack of both administrative capacity
and national resources. This illustrates the need for the National
Authorities to make further substantial efforts to finalize the
projects and to achieve the underlying project objectives."
16.4 Phare support for the two projects led by international
financial institutions is described as "problematic".
In Bulgaria, the Post-Privatisation Fund was found to have lacked
efficiency and effectiveness (low level of equity investments
opposed to high management costs), whereas in Romania the Phare
contribution "did not provide clear added value for a better
regulatory infrastructure in the electricity market The technical
viability of the investment goods is not assured and their longevity
is at risk. With regard to the supported business parks and incubators
many management problems are still to be solved to achieve the
desired economic viability."
16.5 While the Commission's checking of projects
prior to financing (ex-ante control) proved to be effective,
the Court criticises the Commission's overall management of investment
projects in three particular areas:
— "it
overestimated the management capacity of the public authorities
in Bulgaria and Romania and often agreed with them overambitious
targets and deadlines;
— it neglected the principles of sustainability
and co-financing;
— it did not consider enough the expected
added value and catalytic effect of Phare money in activities
led by international financial institutions."
16.6 To improve the effectiveness of assistance the
Court made the following recommendations:
— National
Authorities should make further substantial efforts to finalize
the projects and to achieve the underlying objectives of the audited
projects. The Commission should follow up to ensure that this
happens and also improve monitoring so that corrective action
is taken on all underperforming projects.
— The Commission should adopt a more realistic
programming approach for Bulgaria, Romania and the new candidate
countries. This should include improved needs assessment ensuring
complementarity with other sources of investment support, and
improvements in the project fiche so that it better fulfils its
function of directing and monitoring.[51]
Quality assurance of project documentation should also be improved
to assist implementation and monitoring.
— The Commission should specify the resources
for maintenance of assets and the requirements for co-financing
at the programming stage. The monitoring of sustainability should
include achievement of economic targets, e.g. in terms of job
creation.
— The Commission should improve its analysis
of the "additionality" and "catalytic effect"
of Phare resources especially in projects led by International
Financial Institutions (IFIs). The Phare implementing guidelines
state that the support for investment "should not displace
other financiers, especially from the private sector or from the
internal financial institutions" ("additionality").
They also state that the support for investment "must act
as a catalyst for priority, accession-driven actions which would
otherwise not take place or which would only take place at a later
date" ("catalytic effect").
16.7 The Commission's response states that, since
the Court's examinations, significant developments have taken
place in a number of the projects. On the individual recommendations
the Commission refers to: increased management capacity in the
National Authorities and twice-yearly joint monitoring committees
to ensure prompt corrective actions; the introduction of multi-annual
planning to better match assistance to needs, combined with better
quality control of project plans; more rigorous co-financing reporting
requirements; and regular meetings between the Commission and
IFIs to help address the issues of additionality and catalytic
effect.
The Government's view
16.8 In his 13 July Explanatory Memorandum, the Parliamentary
Under-Secretary of State at the Department for International Development
(Mr Gareth Thomas) says:
"Enlargement is a major issue for the EU.
The UK is supportive of enlargement. Pre-accession assistance
played a significant part in the 2004 accession process and also
in bringing Bulgaria and Romania, the remaining members of this
group, close to joining the EU. The May 2006 Monitoring Reports
on Bulgaria and Romania confirmed that both countries are on track
to join in January 2007. There will be further reports in October.
"Substantial pre-accession funds are being
provided to both Bulgaria and Romania. Over €500m has been
allocated to Bulgaria and €1.4bn to Romania for the period
2000-04. Similar levels of assistance will be provided between
2004 and accession.
"We welcome the Court of Auditors' report,
and other monitoring and evaluation processes that seek to improve
the effectiveness and risk management of this substantial and
important support. In particular we agree that effective programming
requires a thorough assessment of needs and clarity on what the
national authorities and other donors, in particular the IFIs,
are best able to provide. We also agree that ongoing monitoring
linked to the ability to make changes to underperforming projects
is an essential part of meeting needs.
"But the Commission rightly points to the
changes that took place since programming year 2000. Firstly,
the administrative capacity of the Bulgarian and Romanian authorities
has improved, with substantial additional attention given by the
Commission to administrative capacity. Secondly, we agree with
the Commission that multi-annual planning has brought benefits.
Multi-annual planning and programming is an effective and predictable
way to provide assistance in sectors which have been identified
as priority fields for accession. The quality of the project documentation
within the programmes has also been improved to better assess
the state of readiness for each project.
"Lessons from Phare will be taken up under
the new Instrument for Pre-Accession (IPA) which from 2007 will
replace the current mechanisms to deliver assistance to EU Candidate
and Pre-candidate Countries. The UK has been successful in strengthening
the Instrument's emphasis on social and economic development and
the importance of evaluation in ensuring efficiency."
16.9 Finally, the Minister says that although there
are no direct financial implications from this report, "the
UK is promoting increased emphasis on evaluation and lesson-learning
in new EC external relations instruments to ensure that continued
improvements are made to increase value for money from this financial
assistance". There have been preliminary discussions of the
report, and "the aim is likely to be for Council approval
before the summer break".
Conclusion
16.10 Even though no doubt unintended, there
is an aura of Pollyanna in some of what the Minister says. There
is no reason to suggest that the sample of the audited projects
was in any way unrepresentative, and they are drawn from a total
of almost €2 billion in 2000-04, with similar levels between
2004 and accession. We are not sure that other observers would
agree with the upbeat tone of his view that "the May 2006
Monitoring Reports on Bulgaria and Romania confirmed that both
countries are on track to join in January 2007". It would
also have been more reassuring if the Minister had been able to
say not just that, but a little more about how, the lessons learned
will be integrated in the successor IPA, which we cleared at our
last meeting along with two of the other new Instruments for External
Action (the European Neighbourhood Partnership Instrument and
the Stability Instrument).[52]
16.11 All in all, we should like to have had a
greater degree of reassurance than at present that future such
Reports will not be making the same observations in a few years'
time with regard to current and future candidates' pre-accession
assistance. We should therefore be grateful if, when he submits
the IPA implementing regulation (which will set out the ways in
which it will be managed), the Minister would illustrate,
with reference to the findings of this Court of Audit Report,
how the lessons learned have been incorporated.
We now clear the document.
51 Financing Memoranda are accompanied by the so-called
Project Fiches which set out the details of all projects to be
implemented. Project Fiches are key planning documents, giving
the objectives of each project including indicators of achievement
and the timetable for implementation. As a rule, projects have
to be implemented within three years of the signature of the Financing
Memorandum. Back
52
(27654): HC 34-xxxv, para 11 (12 July 2006). Back
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