1 EU pre-accession funding
for Croatia
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15365/09
+ ADD 1
COM(09) 590
| Commission Annual Report on the Instrument for Structural Policy for Pre-accession (ISPA) in 2008
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| Legal base | — |
| Document originated | 29 October 2009
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| Deposited in Parliament | 9 November 2009
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| Department | International Development
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| Basis of consideration | EM of 24 November 2009
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| Previous Committee Report | None; but see (30090)14904/08: HC 19-viii (2008-09), chapter 18 (25 February 2009) and HC 19-iii (2008-09), chapter 5 (14 January 2009)
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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 | Not cleared; for debate in European Committee B, along with Commission Communication 14685/09 and Commission 2008 Annual Report 5271/10
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Background
1.1 Prior to 2007, there was a trio of pre-accession support programmes:
— PHARE,
which provided assistance in adopting the acquis communautaire
(the entire body of European laws, including treaties, regulations
and directives) through improving administrative capacity and
supporting related investment;
— SAPARD (Special Accession Programme for
Agriculture and Rural Development), which finances agricultural
and rural development; and
— ISPA (Instrument for Structural Policies
for Pre-Accession), which finances major infrastructure projects
in the transport and environment sectors.
1.2 Both ISPA and SAPARD were designed to lay the
groundwork for the countries concerned to be able properly to
implement structural and cohesion funds upon accession.
1.3 From 1 January 2007, the Instrument for Pre-Accession
replaced these and the other similar existing instruments (Turkey
pre-accession instrument and CARDS).[1]
The IPA will provide a total amount of €11.468 billion over
the 2007-13 Financial Perspective.
1.4 ISPA is
implemented by the Decentralised Implementation System (DIS) under
which EC Delegations must endorse procurement documents before
tenders are launched or contracts signed.
So too PHARE.
1.5 SAPARD, however, is implemented
in a fully decentralised manner under the Extended Decentralised
Implementation System (EDIS), which involves administrations in
candidate countries fully managing EU pre-accession funds.
1.6 Having been awarded Candidate Country status
in June 2004, Croatia has benefited from ISPA as of 1st January
2005. Following the accession of Bulgaria and Romania on 1 January
2007, Croatia is now the sole ISPA beneficiary.
1.7 The 2007
Commission Report, which we considered on 14 January and 25 February
2009, noted various challenges: much attention
was paid to the transformation of the relevant unit of the Ministry
of Finance into a separate government agency — the Central
Finance and Contracting Agency — in order to improve the
recruitment and retention of additional suitably experienced staff
(as recommended by the Commission's auditors in 2006); tenders
were launched only at the end of the year, and very little progress
was apparent regarding the disbursement of funds. In sum:
- no new ISPA projects were adopted
in 2007;
- Six projects had been approved;
- 100% of the ISPA funds set aside for Croatia
had been committed;
- progress in implementing ISPA measures was slow,
amounting by the end of 2005-07 to €6.2 million, or 10.5%
of budgetary commitments.
1.8 There were a number of reasons for the slow speed
of Project Implementation: above all the Implementing Agency
had suffered from a lack of suitably experienced staff and poor
management; final beneficiaries lacked experience in preparing
and running international tenders; the excessively bureaucratic
procedures established by the Croats to manage and monitor the
project implementation process also adversely affected the speed
of project implementation, and the Commission on a number of occasions
had suggested that these procedures be streamlined.
1.9 With regard to Project Monitoring, the
Commission highlighted the need to accelerate the tendering and
contracting processes and to ensure that the technical assistance
contracts for the preparation of future project pipelines were
contracted out as soon as possible in order to prevent later problems
with IPA fund absorption. However, on the basis of the number
of tenders launched by the end of the year, the Commission expected
a significant increase in payments in 2008.
1.10 On Financial Management and Control,
the Commission noted that the principal requirements are close
to those applicable to the Cohesion and Structural Funds but that,
due to the slow progress in project implementation, no ISPA audits
were carried out in 2007. However, an advisory audit by DG Regional
Policy in April 2007 on the CFCU had been concerned by the high
staff turnover and, consequently, the insufficient level of checking
documents prior to submission to the EC Delegation for endorsement.
Nonetheless, the Commission noted that the current aim was for
Croatia to achieve EDIS (i.e., ex-post control only) by the end
of 2009. This was notwithstanding that, under Contribution
to Community Policies and regarding Public Procurement,
the Report said:
"From the start of ISPA, the fulfilment of legal
requirements for sound, fair and transparent public procurement
as enshrined in the PRAG[2]
has proved to be a major challenge. In many cases, ensuring compliance
with EU procurement principles has lead to delays in the implementation
of ISPA projects. The Commission services —especially the
EC Delegation in Zagreb — had to intervene frequently, not
only to check that procedures were correctly applied but also
to rectify errors, to liaise with dissatisfied bidders, and to
explain to the implementing agency how the procedures concerned
should be implemented. Regularly, the quality of the tender documents
needed to be improved resulting in the very late announcement
of tenders. The cumulative effect of these interventions was additional
delays to the implementation process."
1.11 Furthermore, looking at the ISPA contribution
to the implementation of environmental policy and compliance with
EU standards, the Commission said that the environmental authorities
also faced problems, with the high staff turnover cancelling out
of any benefits received through training and experience, which
had wider implications for the introduction of IPA, "with
its greater number of bodies and a stream of additional projects",
and where "the provision of sufficient financial and human
resources for implementation (including monitoring, inspection,
the provision of permits and reporting) needs to be ensured."
1.12 In an uncharacteristically brief Explanatory
Memorandum of 11 November 2008, the Minister of State at the Department
for International Development (Mr Gareth Thomas) expressed the
view that once the new structure was fully staffed, the remaining
projects should be implemented quickly. He also said that as ISPA
had stopped programming, there were minimal policy implications
for the UK. He was concerned to see that the allocated funds were
spent appropriately and that there were no further delays.
Our assessment
1.13 We shared the Minister's concern but were by
no means as sanguine as he apparently was. We noted that the best
way of ensuring the integrity of EU enlargement policy was to
ensure that candidate countries were fully able to take on the
responsibilities of EU membership, and fulfil the values that
underpin the EU, before accession takes place; and that this lesson
should be learned with regard to planned future accessions. We
further noted pressure for the conclusion of negotiations on Croatia's
membership application by the end of 2009 — even though
the Commission judged that reform efforts still needed to be pursued
in particular in the all-too-familiar areas of the judiciary and
public administration, the fight against corruption and organised
crime, the promotion of minority rights, including refugee return,
the pursuit of war crime trials, and access for ICTY[3]
to documents.
1.14 Also, recalling what the Report had to say about
the Commission ensuring close coordination among the three pre-accession
instruments, PHARE, SAPARD and ISPA, with the PHARE Management
Committee playing a special role, we noted that, previously, the
Commission had accordingly produced a single Report on all 3 instruments;
given the sums of money involved both in Croatia and more widely
and, as the Commission themselves pointed out, the implications
for effective implementation of the successor IPA, we felt that
this was of more than historical interest, and asked the Minister
to provide the answer to this question as soon as possible.
1.15 It also seemed to us that it could by no means
be assumed that, as the Minister put it, "once the new structure
is fully staffed the remaining projects should be implemented
quickly", or that proper EDIS accreditation by the end of
the second half of 2009 was realistic. Plainly, performance in
2008 would be vital. Again, given the then pressure for accession
at the end of 2009 and experience hitherto in the region, we felt
that this too was of more than academic interest. We therefore
asked the Minister also to provide this information as soon as
possible. In the meantime we retained the document under scrutiny.
1.16 In his response of 6 February 2009, the Parliamentary
Secretary at the Department for International Development (Mr
Michael Foster) provided relevant information about the 2007 Progress
Reports on the other pre-accession instruments. He said that he
shared the Committee's concern over the timeliness of information
from the Commission and that he would continue to press for earlier
reports to be made available. He acknowledged that Croatia's performance
in managing funds had fallen "well short of what is required",
and said that "progress must be made on this, as on other
areas, before accession can be contemplated and without regard
to any presumed timetable."
Our assessment
1.17 We judged this to be an adequate response, and
cleared the document.
1.18 We also considered it to be relevant to the
debate that we had already recommended on the new Instrument for
Pre-Accession and the related Multi-Annual Financial Framework[4]
(which debate took place on 23 March 2009).[5]
The 2008 Commission Annual Report
1.19 In a very sketchy Explanatory Memorandum of
24 November 2009, the Parliamentary Secretary at the Department
for International Development (Mr Michael Foster) notes only that:
— by
the end of 2007 the Commission had committed 100% of the funds
set aside for Croatia, with €29.5 million (£26.3 million)
focused on the environment sector and €29.3 million (£26.1
million) on the transport sector;
— implementation was slow during 2007,
but has since picked up; and
— in 2008 a total of €7.88 million
(£7.04 million) in payments were made, representing 13.3%
of ISPA funding, compared with €124, 629 (£111,393)
for 2007;
— tendering and contracting has now been
completed for 3 out of the 6 ISPA projects.
1.20 In the Report, however, the Commission notes
that:
— tendering
and contracting is "still slower than desirable [which] reflects
continuing poor management and coordination, as well as a shortage
of suitable staff";
— the transformation of the Implementing
Agency, from within the Ministry of Finance , into the separate
Central Finance and Contracting Agency, with higher salary levels
than in the civil service, "does not seem to have had the
immediate effect that was anticipated", with the CFCA still
having trouble recruiting and retaining suitable staff ;
— preparations for the introduction of
the IPA has diverted the attention of some of the key bodies involved
in implementing the ISPA projects due to the necessity to reorganise
their staff and to obtain accreditation for the management of
IPA funds;
— the principal requirements for both the
financial management and control and the treatment of irregularities
are close to those applicable to the Cohesion Fund and the Structural
Funds;
— the key elements relate to the establishment
of internal financial control systems and procedures that can
ensure transparent and non-discriminatory procurement procedures,
the accuracy of declared expenditure, adequate internal audit
capability, sufficient audit trail and appropriate treatment of
irregularities;
— due to the slow progress in ISPA project
implementation it was decided that no ISPA audits would be carried
out in Croatia during 2008;
— under the system of ex-ante approval,
priority is given to ensuring that sufficient control procedures
are put in place regarding project implementation and payments;
— the management of pre-accession funds
carries an inherent risk since the funds are delivered by a variety
of organisations and systems;
— eligibility of expenditure is determined
by compliance with rules and conditions fixed at Community and
national level which can lead to complexity and risk of misinterpretation;
— notwithstanding the lack of audits thus
far, and all the other difficulties highlighted, the Croatian
authorities plan to submit an application for the waiving of ex-ante
controls during the second half of 2010 for ISPA projects.
The Government's view
1.21 The Minister comments as follows:
"As ISPA has stopped programming, there are
minimal policy implications for the UK from the 2008 annual report.
However, we are concerned to see that the allocated funds are
spent appropriately and that there are no further delays. We are
working with the European commission and Member states to ensure
that this happens.
"The European Court of Auditors published a
report in December last year which reviewed ISPA and judged that
there had been a coherent strategy, and that ISPA projects did
increase compliance with EU standards or improve the links to
the Trans-European network. The Court highlighted the significant
delays and recommended corrective action to the Commission. In
reply, the Commission agreed with the Court's recommendations,
and noted that many of the reasons for the delays in the early
stages of ISPA had been addressed. As selection of ISPA projects
will be evaluated in an ex post evaluation exercise."
1.22 The Minister concludes by noting that no date
has yet been agreed for a Council discussion of the ISPA.
Conclusion
1.23 We are surprised, and disappointed, that
— beyond general expressions of concern that the allocated
funds are spent appropriately and that there are no further delays,
and of working with the Commission and Member States to ensure
that this happens — the Minister does not directly address
the important considerations highlighted in the Commission Report
and set out in paragraph 1.20 above.
1.24 We are particularly puzzled as to the basis
upon which, with only three of the six ISPA projects underway
and the Central Finance and Contracting Agency still plainly struggling
to do its job effectively, the Croatian authorities are minded
to seek the waiving of ex-ante controls. We can also see
nothing in this Report to substantiate the statement that the
Minister attributes to the Commission that "many of the reasons
for the delays in the early stages of ISPA had been addressed".
1.25 The Committee has taken a sustained interest
in the lessons identified by the accession of Bulgaria and Romania,
and that they should be effectively incorporated into subsequent
accessions, and specifically that of Croatia. This has hitherto
focussed on issues at the heart of a properly functioning governance
system based on the effective implementation of laws by an accountable,
independent and effective judiciary and bureaucracy. But Bulgaria
has shown itself also to be delinquent with regard to the proper
spending of post-accession funding. The question thus arises as
to what safeguards there will need to be in place prior to Croatia's
accession in order to ensure that there is no such possibility
arising there after accession. Against that background, neither
this Report nor the Minister's response is at all reassuring.
1.26 Elsewhere in this Report we consider the
latest Annual Report, for 2008, on the post-2007 arrangements
under the IPA and a Commission Communication detailing the proposed
breakdown of the overall IPA envelope, by country and by sector,
for the period 2011-13. The Report says that "the overall
objective on monitoring is to enhance the relevance, effectiveness,
efficiency, impact and sustainability of the assistance to the
western Balkans and Turkey". This is entirely appropriate.
But, once again, "no programme level evaluation was carried
out during 2008 as the implementation of the first and second
year of IPA only began in 2008 so no lessons can be identified".
1.27 In the case of Croatia, this does not hold:
as this ISPA Report notes, staff have been diverted away from
implementation of current support under the pre-2007 regime due
to the necessity to reorganise their staff and to obtain accreditation
for the management of IPA funds.
1.28 As noted at the outset, the IPA amount to
€11.47 billion over the 2007-13 Financial Perspective. All
in all, we are still unable to see clear indications that lessons
are being identified in the pre-2007 processes and that they are
being implemented either in the present accession negotiations
or more widely in the post-2007 pre-accession finance arrangements.
We therefore recommend that this Report is debated, along with
the Commission Report on the IPA 2008 Annual Report and the 2011-13
MIFF, in the European Committee.
1 The Community Assistance for Reconstruction, Development
and Stabilisation (CARDS) programme supported western Balkans
countries (Albania, Bosnia and Herzegovina, Croatia, Macedonia,
and the then Federal Republic of Yugoslavia) to make progress
on post-conflict stabilisation and accession to EU membership,
as part of the Stabilisation and Association Process. €5.13
billion (£3.50 billion) has been provided under CARDS between
2000 and 2006. Back
2
The Practical Guide to PHARE, ISPA and SAPARD contract procedures. Back
3
International Criminal Tribunal for the former Yugoslavia. Back
4
See headnote: (30090)14904/08: HC 19-viii (2008-09), chapter 18
(25 February 2009) and HC 19-iii (2008-09), chapter 5 (14 January
2009). Back
5
See http://www.publications.parliament.uk/pa/cm200809/cmgeneral/euro/090323/90323s01.htm
for the record of that debate. Back
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