Report

concerning the financial accounts of the European Agency for Reconstruction and the implementation of aid for Kosovo for the year 2000, accompanied by the replies of the Commission and of the European Agency for Reconstruction

(2001/C 355/01)

CONTENTS

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SUMMARY

I. In June 1999, after the war in Kosovo, the Council confirmed the European Union's desire to play a leading role in the rapid implementation of reconstruction efforts in Kosovo. As early as July 1999 a task force was established by the Commission in Pristina to launch the first phases of the reconstruction programme. In November 1999, the Council set up a European Agency for Reconstruction to operate with effective and flexible rules allowing, however, full managerial accountability and transparency. The operational centre of the Agency has a considerable degree of management autonomy and was to be initially located in Pristina in order to embark on the reconstruction work in Kosovo. The Agency's general services are located in Thessaloniki(1). In February 2000 the Agency took over the responsibilities of the task force. In 2000 the Agency was responsible for 266 million euro of the budget of nearly 306 million for Kosovo reconstruction.

II. The audit assessed the financial statements of the European Agency for Reconstruction for the financial year ended 31 December 2000, the efficiency of the European Agency for Reconstruction in Kosovo in 2000 at the level of its organisational structure (see paragraphs 21 to 28), its operational budget management (see paragraphs 31 to 35) as well as its programme implementation (see paragraphs 36 to 55). In this context it also examined whether matters affecting economy (see paragraphs 56 to 59) or the effectiveness of the interventions (see paragraphs 60 to 66) had been neglected.

III. The results of its financial audit enabled the Court to obtain a reasonable assurance that the annual accounts for the financial year ended 31 December 2000 are reliable and that the underlying transactions are, taken as a whole, legal and regular. However, the Court recommends that the Agency should adopt a reliable computerised system of budgetary accounts as soon as possible (see paragraphs 67 and 68).

IV. The Court concludes that in 2000 the efficiency of the Agency's administration and its budget management was high. It managed to achieve most of the ambitious objectives set for its first year of activity in the fields of energy, housing, transport and agriculture (see paragraph 69). At the end of 2000 more than 90 % of the funds committed before December 2000 were contracted and more than half of the committed funds for operations were paid. It tried to pay attention to the principles of both efficiency and economy (see paragraph 70). By applying the rules in force in a very flexible way the Agency managed to obtain lower prices and stimulated the regional economy (see paragraph 71). The Court recommends the Agency not to disperse its efforts, but to continue to focus its human and financial resources on the latest reconstruction priorities (see paragraph 73).

V. The Court considers that the functioning of the Governing Board of the Agency should be improved (see paragraph 75). It also urges the Commission, which is funding the United Nations Interim Administration in Kosovo (UNMIK) EU pillar in charge of Kosovo reconstruction, to take much more action to set up a policy framework and a strategy to ensure the sustainability of EU-financed investments in Kosovo, which is not ensured in the prevailing circumstances (see paragraphs 76 and 77).

INTRODUCTION

1. This report is in two parts. Part 1 consists of the report on the accounts of the Agency for the financial year ended 31 December 2000, addressed to the European Parliament and to the Council in accordance with Article 8 of Council Regulation (EC) No 2667/2000 of 5 December 2000. Part 2 sets out the results of an examination of the efficiency of the Agency in implementing the 1999 and 2000 reconstruction programmes for Kosovo.

Background to the Agency

2. After the war in Kosovo, the United Nations Interim Administration in Kosovo (UNMIK) was set up in June 1999 under UN Security Council Resolution 1244 (see Annex 1). The European Union, through both its Member States and the Commission, is playing a prominent role in the reconstruction of Kosovo. It provides about 80 % of the Kosovo Peacekeeping Force (KFOR) (in total 40000 soldiers) and heads the UNMIK department in charge of reconstruction.

3. Within days of the conflict ending, the Commission had ECHO back in place to continue humanitarian aid(2). In July 1999 the Commission established a task force (TAFKO) to launch the first phases of the reconstruction programme for Kosovo. The task force was given the responsibility for all phases of the operation after the programming process, from programme and project design, through contracting to payment.

4. Given the pace of return of refugees, the pressure to deliver on economic development and reconstruction was immense, in particular through measures designed to alleviate the housing problem and assure basic public services. The European Council considered that it was necessary to take account of the specific requirements of the reconstruction of Kosovo, which would demand the rapid implementation of numerous projects, measures to support returning refugees and the provision of expertise covering a wide range of fields. It therefore decided to set up a European Agency for Reconstruction, which was expected to be organised and managed in a way that would allow "rapid implementation" of the reconstruction programmes "while at the same time ensuring full managerial accountability and transparency in management"(3). The mandate of the Agency is summarised in Annex 2.

5. On 20 February 2000 the Agency took over the responsibilities of the task force on a more autonomous basis. It was responsible for the implementation of 266 million euro of the nearly 306 million euro programmed for Kosovo reconstruction in 2000 (see Table 1).

Table 1

Kosovo reconstruction assistance programmed for 2000 (Article B7-5 4 6)

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Source:

DG RELEX.

The Court's audit

6. The Court examined the financial statements of the European Agency for Reconstruction for the financial year ended 31 December 2000. In accordance with Article 8 of Council Regulation (EC) No 2667/2000 the budget was implemented on the responsibility of the director of the Agency. He is also responsible for the drawing up and presentation of the financial statements, in accordance with the financial provisions provided for in the same Article. The Court of Auditors is required to audit those accounts pursuant to Article 248 of the Treaty establishing the European Community.

7. The audit was carried out between November 2000 and May 2001. Besides giving an opinion on the Agency's financial accounts for the year 2000 an important objective was to assess the efficiency of the European Agency for Reconstruction in implementing the 1999 and 2000 reconstruction programmes financed under budget Article B7-5 4 6 "Aid for the reconstruction of Kosovo". In this respect the Court assessed the Agency's efficiency at the level of its organisational structure, its management of the operational budget and its programme implementation. It also examined whether matters affecting the economy or the effectiveness of the interventions had been neglected. In its audit of the Agency's efficiency the Court used as reference the findings of its previous special report on reconstruction in Bosnia and Herzegovina(4) and its 1999 Annual Report(5).

8. The audit involved file review at the Agency's headquarters in Thessaloniki and its operational centre in Pristina, as well as on-the-spot checks of the programme implementation in Kosovo. It focused on the programmes in the fields of energy, housing, transport and agriculture (with a global value of 145 million euro) because their objectives were concrete and had to be reached before the end of the year 2000. The audit included a visit to the Delegation in Sarajevo to compare the deconcentrated system(6) of implementing the Obnova Regulation(7) with the operations of the Agency. Corroborative data was obtained from monitoring bodies and other donors in Bosnia and Kosovo.

9. Although the main auditee in this report is the Agency, the responsible services of the Commission have been involved in the audit and contradictory procedure regarding this report, particularly in relation to Part II, which concerns the efficiency of the Agency.

10. The Court undertook its audit in accordance with its auditing policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. Accordingly, it examined the accounting records and applied the audit procedures it deemed necessary in the circumstances. By means of this audit, the Court obtained a reasonable basis for the opinion expressed in paragraph 67.

PART I - FINANCIAL AUDIT FOR THE YEAR 2000

11. The Agency became operational at the beginning of 2000. Table 2 shows the implementation of the appropriations for the financial year 2000(8).

Table 2

Implementation of the budget - financial year 2000

Agency: European Agency for Reconstruction

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12. The Agency's initial budget for 2000 for Kosovo amounted to 266 million euro. At the end of 2000, after successive increases and the extension of the Agency's activities to Serbia, the budget amounted to 682 million euro, including 399,5 million euro made available at the end of 2000 but to be disbursed in 2001.

13. The Agency's budgetary appropriations for administrative and staff expenditure (Titles I and II) are managed as non-differentiated appropriations, whereas, for operating expenditure (Title III), they are managed as differentiated appropriations. In future, it would be preferable if the budget were to show the estimated annual payment appropriations needed for the subsequent financial years. Although the Agency's Financial Regulation does not require such a presentation, it is a sensible practice for differentiated appropriations and is in line with the general Financial Regulation.

14. The Court's audit of the expenditure under Title III, representing 97 % of the commitments entered into in 2000, did not give rise to any significant remarks. Commitments amounting to 259,5 million euro, or 93 % of the appropriations provided for in 2000 under Title III (279,4 million euro), were entered into in 2000.

15. The Agency has not yet introduced the computerised SI2 budgetary accounts system and uses spreadsheets instead. Given the risk that the use of spreadsheets poses for the integrity of the data, the SI2 system should be introduced as soon as possible. In several cases, errors or shortcomings were observed in the Agency's use of spreadsheets. Moreover, reconciliation with the budget is difficult and is not done regularly.

Financial statements and accounts

16. Tables 3 and 4 show, respectively, the revenue and expenditure account for the financial year 2000 and the balance sheet at 31 December 2000.

Table 3

Revenue and expenditure account for the financial year 2000 - European Agency for Reconstruction

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Source:

Table prepared by the Court of Auditors on the basis of data provided by the Agency.

Table 4

Balance sheet at 31 December 2000 - European Agency for ReconstructionSource:

Table prepared by the Court of Auditors on the basis of data provided by the Agency.

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Financial provisions

17. Article 21 of the Agency's Financial Regulation provides that financial control will be carried out by the Commission's Financial Controller. However, an agreement concluded in February 2000 between the Commission's Financial Controller and the Agency provides that, in the interest "...of the decentralisation of the financial control of the Agency, prior authorisation by the Financial Controller is not necessary...".

18. This agreement, which aims at reducing administrative delays, limits control over the implementation of the budget. In actual fact, given that prior approval by the Financial Controller at commitment level is very general, there is, de facto, no ex ante check over the implementation of the Agency's budget. Moreover, the Agency has not taken adequate steps to compensate for the absence of ex ante controls, for example, by creating the post of internal auditor, as suggested in the Court's Opinion No 6/99. However, during the second quarter of 2001 steps were taken to allocate an official of DG Audit exclusively to the Agency.

19. The Agency proposed implementing provisions in September 2000 to comply with Article 74 of the Agency's Financial Regulation, but these had not yet been approved by the Commission in September 2001.

TAFKO contract management

20. In addition to implementing its own budget, the Agency has taken over the management of the contracts entered into by the Task Force for Kosovo (TAFKO) that were still being implemented when the latter ceased operations. These contracts, which amounted to 60,9 million euro, are managed outside the budget. In February 2000, 31 million euro were left to be paid by the Agency, which has since settled 26,9 million euro, leaving 4,1 million euro outstanding as of 31 December 2000. In the interests of budgetary regularity and transparency, it would have been preferable for the funds set aside for the management of these contracts to have been incorporated in the Agency's budget.

PART II - EFFICIENCY OF THE AGENCY: SOUND FINANCIAL MANAGEMENT AUDIT

Administrative efficiency

Functioning of the Governing Board

21. The Agency's Governing Board, by the very nature of its composition, was designed more as an administrative board than as a management body. Bringing together each month more than 20 persons, including one Commissioner, appears, in the light of the Mostar experience, to be a very serious constraint.

22. Experience during 2000 confirmed the Court's concerns:

(a) the structure of the Agency's Governing Board is rather heavy: up to 23 representatives of the Member States attend the monthly meetings in Thessaloniki. The members of the Governing Board spent a large part of the first six meetings discussing the language arrangements, which have to be decided unanimously;

(b) the Commission insisted on a Member of the Commission being chairman of the Governing Board, but the Member appointed did not attend any of the meetings in 2000;

(c) organising the monthly meetings represents an extra workload and distraction for the Agency.

23. The new Agency Regulation(9), adopted in the wake of the adoption of the CARDS Regulation(10) replacing the former Obnova Regulation, partly meets this concern by stating that the Governing Board should be convened by the Chairman whenever necessary, and at least once every three months, but not necessarily every month.

24. Some members of the Governing Board wanted to decide on financing proposals for the reconstruction of Kosovo made by the Commission, whereas this is the responsibility of the Management Committee (see Annex 3). Moreover, the approach adopted by the Member States' representatives on the Management Committee and the Governing Board is not necessarily coordinated. For example, for one financing proposal the representative of one Member State gave a positive opinion at the Governing Board but the representative of the same Member State in the Management Committee voted against.

Organisation of the Agency

25. The Agency's general services are located in Thessaloniki but the Agency may establish operational centres with a considerable degree of management autonomy (Article 3 of Council Regulation (EC) No 2667/2000). In 2000 the Governing Board authorised the Agency to recruit 51 temporary expatriate staff and 54 local staff. The Agency recruited 48 temporary staff (39 in Pristina and 9 in Thessaloniki) and 50 local staff (40 in Pristina, 8 in Thessaloniki and 2 in Skopje).

26. In accordance with the Staff Regulations, all Agency staff based outside the Community receive an allowance for exceptional living conditions, a risk premium amounting to 40 % of their salaries, the payment of their accommodation costs up to a maximum of 1278 euro a month, and some extra leave (around 20 days per year).

27. The budgetary authority decided that the Agency's operating expenditure would be funded under budget Article B7-5 4 6 "Aid for the reconstruction of Kosovo" for an amount equivalent to not more than 8 % of its total budget. In 2000 the Agency's running costs (staff, premises and equipment) amounted to 8,6 million euro. This represents 3,1 % of the Agency's budget, excluding the funds made available at the end of 2000 for 2001(11).

28. In 2000 the Agency had 2,5 employees for every 10 million euro managed (not including back-up staff at Commission headquarters), compared with an average of 2,9 officials at the Commission for the management of all external assistance and between four and nine officials in Member States' bilateral aid agencies(12). However, the corresponding units in AIDCO manage more complex programmes covering many sectors, whereas the Agency's work in 2000 consisted mainly of large contracts focused on a limited number of sectors.

Human resources management

29. The good performance of the Agency in 2000 in implementing the reconstruction programme is largely due to the individual commitment of dedicated staff. The team members were recruited on the basis of the qualifications needed for rapid and professional implementation of the reconstruction programme. They have been working intensively in sometimes rather difficult circumstances.

30. The challenge for the Agency now is to sustain a level of dedication among its staff appropriate to a future situation that is likely to be less urgent and less demanding. In view of the rapid growth of the Agency and the recent creation of new operational centres, a new distribution of the staff between its headquarters in Thessaloniki and its operational centres is likely to be required.

Management of the operational budget

31. At the end of 2000 the Agency had committed 96,4 % of the funds allocated to it for Kosovo reconstruction. In February 2000, when the Agency took over from the task force, 49 % of the Obnova funds committed in 1998 and 1999 were contracted, of which 23 % were paid. By the end of 2000, 88 % of the funds committed in 1998 were paid, and 88 % of the funds committed in 1999 were contracted, of which 75 % were paid. At the same date 79 % of the funds committed in 2000 were contracted, of which 55 % were paid (see Table 5).

32. According to Article 4(14) of Council Regulation (EC) No 2667/2000 the Governing Board presented a draft annual report to the Commission by 31 March 2001 on the Agency's activities in 2000 and how they were financed. This report was adopted by the Commission in June 2001 and submitted to the European Parliament and the Council on 31 July 2001(13).

Table 5

Programme overview up to 31 December 2000

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Source:

European Agency for Reconstruction.

Contracting

33. At the end of the year 92 % of the 2000 funds committed between February and November 2000 were contracted. The recourse to the suspensive clause(14) allowed the Agency to sign contracts for a global value of 50 million euro within a week of the Commission decision to approve financing proposals for a total of 130 million euro in May 2000. The average period needed for contracting operational funds after a Commission decision was 153 days for both 1999 and 2000 programmes and 71 days for the 2000 programme. This performance compares favourably with the time needed by the Delegation in Sarajevo to contract the Obnova programmes (see Table 6). However, the Delegation in Bosnia, unlike the Agency in Kosovo, often needs time to reach an agreement with the three local communities involved before launching a tender or signing a contract.

Table 6

Average time needed for contracting after a Commission decision

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Source:

European Agency for Reconstruction and Commission Delegation in Bosnia and Herzegovina.

34. Because of the emergency situation, the Agency did not always strictly respect the Obnova rules applicable to tendering, which are often inappropriate in these circumstances.

Energy sector

It was essential to restart one of the units of a power plant by the end of November 2000. Normally such a major overhaul requires about a year. In February 2000 UNMIK requested the Agency to award a contract by direct agreement to the company that had already carried out some emergency repairs under a previous contract. The Agency preferred to launch a restricted accelerated tender procedure. Although better than a direct agreement, this tender procedure for a works contract of 40 million euro did not comply with the basic Obnova Regulation(15) which allows, under certain conditions only (fulfilled in this case), a restricted invitation to tender for works contracts not exceeding 10 million euro. The short period between the sending of the tender dossier and the deadline for submission (five weeks) provided a competitive advantage to the company which had already worked in the plant. Only two companies (with a price offer of 34,5 and 37,6 million euro) could respond with bids in time. However, neither of the two offers was considered technically acceptable and the tender was cancelled at the end of May 2000. In agreement with DG Relex, the Agency subsequently negotiated a direct contract with a consortium consisting of the two companies concerned. It contracted the consortium for 40 million euro on the condition that the unit would be recommissioned at the end of November 2000 at the latest, in order to be fully operational during the peak load of winter 2000/2001. This ambitious objective was finally achieved.

Housing sector

For the procurement of construction materials, 46 offers were accepted for opening. The outcome of the formal evaluation of the tenders showed that local tenderers with the better priced bids had immense difficulties in submitting some tender documents correctly, namely the certificate of nationality, certification concerning bankruptcy, the certificate of origin or a bank guarantee. The strict application of the agreed formal selection criteria would have resulted in only seven tenders passing the formal evaluation. In this case, however, the total contract amount for the 14 lots would have amounted to about DEM 110 million whereas DEM 85 million had been budgeted for supplies. Under normal circumstances the open tendering procedure should have been cancelled, because all formally acceptable bids exceeded the available budget. In order to secure the execution of the project, the Agency decided, instead of requiring a bank guarantee, to insert a contract provision allowing it to deduct a 10 % cumulative retention of all payments as security. As of the end of 2000 the Agency had not experienced serious problems with the performance of the contracted suppliers.

Payments

35. Between February and October 2000 payments for operational expenditure were processed within 13 days on average (between the receipt of the invoice and the date on which payment was sent to the bank). By comparison, the Delegation in Sarajevo managed to process the payments in the framework of the Obnova Regulation within an average period of 43 days during the second half of 2000(16). With regard to current purchases of goods (Title II), the time taken by the Agency to make payments was found, on the basis of a sample, to be around 25 days.

Programme implementation

General objectives set for 2000

36. The 2000 work programme for the reconstruction of Kosovo approved by the Commission and the Governing Board concentrated the bulk of the resources available in 2000 on five areas: energy, housing, transport, environment and economic development/agriculture. The Commission and UNMIK considered these sectors to be essential building blocks for the wider reconstruction effort. Considering that progress in energy, housing, transport and agriculture was season-sensitive, the Agency wanted to launch the projects in these areas quickly and accordingly set very ambitious objectives, to be reached before the winter 2000-2001. The Court examined whether these objectives were being achieved at the end of 2000.

Energy

Objectives

37. The 2000 energy programme amounted to 60 million euro. Its general objective was to allow the energy sector to move away from the quasi-emergency holding and stabilisation phases towards making energy generation more stable and productive as a first step to assuring the self-sustainability of the sector. In parallel with this programme, the Agency allocated 28 million euro to UNMIK for energy imports under the 2000 reconstruction programme.

38. To increase the power generation capacity and, crucially, the reliability of the electricity supply, urgent and extensive overhauls to the two power stations were needed. As a result of consultations with UNMIK and other donors, the intervention of the Agency focused on the newer of the two power stations (Kosovo B). As an integral part of the overall effort in the sector, the Agency had also to support the rehabilitation of the lignite coal mines that feed the two power stations. The expected increased production from the mines aimed to match the increased demand for fuel for the newly overhauled units at the power stations.

Results at the end of 2000

39. At the end of 2000, 96 % of the funds committed for this sector during the year up to December were contracted, and 59 % of that was paid. The overhaul of unit 2 at Kosovo B power station was completed at the beginning of December 2000 before the onset of winter. Unit B1 was running, with some unplanned power cuts, and the repairs continued during the winter. Although the level of production in the lignite mines had increased, it had not yet reached two thirds of the objective (9000 tonnes a day compared to an objective of 15000 tonnes) at the end of 2000, but production was still increasing(17). Although power cuts were still occurring, the output of the two power stations ensured that there was usually sufficient electricity, thanks also to EU-funded energy imports, mainly from Bulgaria, the Former Yugoslav Republic of Macedonia (FYROM) and Montenegro.

Housing

Objectives

40. The overall objective of the programme amounting to 55 million euro was to support the Kosovars in reconstructing some 8000 war damaged houses in the year 2000. This had to be done with grant assistance targeted at the most vulnerable households, especially poorer families and those in temporary accommodation. Reconstruction work on the houses was normally to be undertaken by the beneficiaries on a "self-help" basis, with quality control and any necessary technical support coming from the NGO implementing partners. Where it was deemed necessary to supplement the self-help approach, a beneficiary could also be allocated labour support, or a works contractor for the most vulnerable, especially in the case of completely destroyed homes.

41. In December 2000 an additional amount of 5 million euro was allocated to this programme because the project was focusing increasingly on the most severely damaged houses (56 % of the total number assisted), thus requiring additional materials. The supplementary funding also allowed the target to be increased to 8400 houses.

42. At the same time the Agency also continued with the implementation of the 1999 housing programme amounting to 14 million euro. This programme for the rehabilitation of 3600 houses (usually without a roof) was initiated by the task force in 1999, but most of the work was carried out during the first half of 2000.

Results at the end of 2000

43. Out of the 60 million euro committed in 2000, nearly 100 % was contracted and 54 % paid at the end of the year. The programme was initially delayed because municipalities were slow to identify the most vulnerable families who were to benefit from the programme. Often this problem could have been reduced both through a stronger presence by UNMIK and more professionalism on the part of some NGOs. At a later stage the programme also suffered from border-related bottlenecks in the supply of building materials coming from or through FYROM.

44. At the end of December 2000, activity had commenced on some 7700 construction sites in 23 of the 30 municipalities. More than 50 % of the 8000 houses initially foreseen were fully completed, more than 65 % were weatherproof and habitable. In early April 2001, according to monitoring reports, all the houses already had roofs on. Of the combined target of 12000 houses to be reconstructed (3600 under the 1999 programme and 8400 under the 2000 programme) with 74 million euro of funding, a total of 8170 homes had already been completed by the Agency during the year 2000. According to NGOs' progress reports, a further 2000 houses already had roofs on and 1530 were at earlier stages of reconstruction, leaving just 300 more to be started.

45. The pace at which the Agency managed to rebuild houses contrasts with the slow implementation of similar programmes in Bosnia before their management was devolved to the Delegation in Sarajevo. In a letter dated 31 October 2000 the head of UNMIK pillar IV (dealing with reconstruction) said he had been "most impressed by the speed with which the European Agency for Reconstruction has disbursed funds, both in comparison with other EU programmes and with other multilateral agencies in Kosovo, and also the low administrative costs and value for money [that the Agency has]".

46. The Agency drew the lessons from past experience in Bosnia and Herzegovina (see the Court's Special Report No 5/98 on reconstruction in former Yugoslavia (period 1996 to 1997)(18). It gave priority to the most disadvantaged people, exercised stronger control over the NGOs appointed and ceased to entrust the purchase of building materials to the NGOs, using instead private sector suppliers managed by a procurement specialist appointed by the Agency.

Transport

Objectives

47. An effective transport infrastructure is essential for Kosovo's reconstruction. The road network is overloaded and in a poor condition and the railway network was under-utilised, mainly due to a lack of appropriate rolling stock. The Agency had to face the constraints presented by limited time for the work, the logistical issues related to supplies and the limited resources. The 2000 programme (15 million euro) therefore focused on the resurfacing of three of the main roads in Kosovo (the Pristina-Skopje road to the Blace border being the top priority), as well as the repair of two important road bridges destroyed by NATO bombing in 1999.

Results at the end of 2000

48. At the end of 2000, 79 % of the funds committed in this sector in 2000 were contracted, of which 61 % were paid. Most of the work foreseen was completed or on schedule, except the Blace border crossing.

Agriculture

Objectives

49. In 2000 the Commission approved a financing proposal for fostering the economic development of Kosovo amounting to 25 million euro. Among other measures, an amount of 10 million euro was earmarked to boost the rural economy. Agriculture is the most important sector in the Kosovo economy, representing about 50 % of GDP in 1999/2000. Yields fell, together with GDP, throughout the 1990s mainly because of reduced access to fertilisers and a decline in agricultural services.

50. The main task for the Agency in this sector was to ensure the availability of 37500 tonnes of fertiliser, or 40 % of overall requirements, for the winter wheat and spring cropping season, benefiting at least 30000 farmers, or 40 % of all farm households. The objectives were to ensure increases in the production and yields of major crops for the domestic market by restoring soil fertility. To strengthen the involvement of private sector wholesalers, distributors and retailers in the distribution and sale of farm inputs, in particular fertiliser, it was proposed to provide dealer credit.

Results at the end of 2000

51. As at 31 December 2000, 97 % of the funds committed to this programme in 2000 were contracted, of which 53 % was paid. The planting fertilisers (NPK) were delivered in September 2000 in time for winter planting. Part of them (2000 tonnes) was delivered free of charge to vulnerable farmers, including minorities, under the supervision of the FAO. The rest was auctioned and contracts were signed with more than 100 dealers.

52. The Agency managed to offer farmers planting fertiliser at an affordable price. The planting fertiliser delivered was widely used and an improved winter crop was expected. According to research carried out at farm level by the University of Pristina, farmers all over Kosovo had access to the product at an average price that was 30 % lower than the market price in 1999, and 86,6 % of them purchased planting fertiliser imported by the Agency. The provision of fertiliser was crucial for the resumption of commercial agricultural production and for reversing the decline in overall agricultural output.

53. The auctioning of the fertilisers also contributed to the development of market economic practices. It initiated competition, while at the same time contributing to sustained growth by enabling the private sector to resume the primary role in the supply of fertilisers as well as other agri-inputs. The credit facility allowed suppliers to restore and refurbish warehouses, to replenish stocks and to increase warehouse capacity.

54. At the end of 2000, 83 out of 103 dealers had paid the first instalment into the revolving fund and others who had partially paid the instalment had to pay the remaining amount plus a penalty before mid-April 2001. Six dealers who did not pay used false documents and gave false information about their business in order to gain access to the credit. They resold the fertilisers immediately at a lower price than cost. Investigation was still going on in September 2001.

55. As for the selling of urea fertiliser, the Agency had to cancel the auction because the prices were so high that the fertiliser would have been unaffordable for the beneficiary farmers. The Agency subsequently fixed a lower sales price and distributed it on a pro-rata basis to those dealers selected for the earlier planting fertiliser distribution who had performed satisfactorily. According to the Agency the farmers received most of the fertilisers in time for the spring planting. However, part of the delivery was delayed until April 2001 because transport had to be re-routed through Serbia after the closure of the FYROM/Kosovo border.

Economy of the Agency's operations

56. In general, the Agency followed the principles of competitive tendering aimed at securing the economically most favourable terms and conditions in its procurement. For reasons of urgency, the Agency sometimes preferred to launch a restricted tender instead of an open international tender. It was often compelled by the special circumstances to reduce the standard period between the date of publication of the tender notice and the deadline for the receipt of bids. This may have reduced competition, but it contributed to the Agency's achieving most of its objectives.

57. On the other hand, by adapting the standard tendering procedures to allow local suppliers to tender, the Agency managed to keep prices low (see second box, paragraph 34). The average cost of reconstruction per house was estimated at 6167 euro for the 1999 and 2000 programmes and 7143 euro for the 2000 programme which focused on the most heavily damaged houses. This compares favourably with the average cost of about 10000 euro in Bosnia and Herzegovina(19).

58. In Bosnia and Herzegovina, however, the reconstruction of houses was intended to encourage the return of refugees or displaced persons. In Kosovo the refugees had already returned and, therefore, the Agency could more often ask the beneficiaries to contribute to the reconstruction. Moreover, in Bosnia and Herzegovina about 80 % of the 450000 houses to be repaired ranged from badly damaged to totally destroyed compared to 70 % of the 120000 houses to be repaired in Kosovo. Furthermore, in Kosovo, the traditional housing construction standards are lower than in Bosnia and Herzegovina, even if the houses rebuilt by the Agency are often of better standard than the original ones, and labour costs are 30 % lower than in Bosnia and Herzegovina.

59. According to data collected by the Court the average house reconstruction costs of the Agency appear to be lower than those of other donors in Kosovo. The cost per house of another major international organisation is reported to be 40 % to 45 % higher than Agency unit costs.

Effectiveness of the Agency

Short-term impact of the investments

60. According to the Commission(20), the reconstruction programmes had a positive impact on the economy of neighbouring countries that suffered from the embargo imposed on the Federal Republic of Yugoslavia during the previous years.

Sustainability of investments

61. Although the ambitious objectives had largely been achieved at the end of 2000, there are some major risks as regards the sustainability of the investments made in the various sectors, mainly because of a lack of medium and long-term strategy for the province. UNMIK still had a crisis management approach until mid-2000 and it took nearly a year to develop a medium-term policy.

62. The main question in the energy sector is whether the Kosovo power station will one day be able to work without the help of external donors. The power stations have to become economically viable enterprises. No real strategy was developed for the Kosovo Electricity Company. The majority of consumers do not pay for electricity. A valid revenue structure with a sound electricity tariff system and a proper management accounting system are needed. In the medium term the Agency intends to reorient its efforts from emergency aid towards normal development aid but, in the meantime, a stronger commitment by UNMIK to restructuring the energy sector is required.

63. The sustainability of investments in the transport sector raises some concern. Roads were overloaded, mainly because of the heavy military traffic. The maintenance of the roads is not assured. There is no funding mechanism and there are no plans for the establishment of a road maintenance system. At the end of 2000 UNMIK had not yet defined a transport policy. For the railway sector a master plan was also still missing.

64. In October 1999, UNMIK imposed a set of customs duties and sales taxes collected at the border at a combined rate of 26,5 %. The application of these high rates to agricultural inputs tends to discourage agricultural output, development of food processing, technological change in agriculture and the development of an articulated network of agricultural input suppliers. However, as of the end of 2000, UNMIK had not modified those taxes.

Coordination

65. The Council insisted on coordination with UNMIK, and the international financial institutions, the EIB, the UNHCR and the NGOs. The Agency organises meetings with UNMIK, the Member States represented in Pristina and other main donors on a weekly basis and more often if necessary. At the end of 2000 the EIB, which is also represented on the Governing Board, and the EBRD had not yet started to implement projects in Kosovo, mainly because of the lack of a legal framework.

66. When contracting with NGOs in the framework of the housing programme the Agency applied the same fee rates as ECHO in order to avoid competition between the two sources of EU funding. The phasing out of ECHO activities in Kosovo in the fields of housing/shelter, health, agriculture, water and sanitation was well coordinated with the activities carried out by the Agency in those sectors.

CONCLUSIONS AND RECOMMENDATIONS

The Court's opinion

Part I - Financial audit for the year 2000

67. The Court's examination has enabled it to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 2000 are reliable and that the underlying transactions are, taken as a whole, legal and regular.

68. However, without wishing to weaken its audit opinion, the Court must draw attention to the risks that derive from the points made in paragraphs 15 and 18. Given the inherent risks of keeping the accounts by spreadsheet and with a view to strengthening its internal control, the Agency should be sure to introduce a reliable computerised budgetary accounts system as soon as possible (see paragraph 15).

Part II - Efficiency of the Agency

69. The efficiency of the Agency's administration is high (see paragraph 27), although the low ratio of the number of employees to the total value of aid managed (see paragraph 28) could also be considered to be a risk factor affecting sustainability (see paragraph 30). In both contracting and payments for operational activities the Agency has been very fast (see paragraphs 33 to 35). Moreover, as regards programme implementation the Agency managed to achieve most of its ambitious objectives set for the year 2000 in the fields of energy (see paragraph 39), housing (see paragraphs 43 to 45), transport (see paragraph 48) and agriculture (see paragraphs 51 and 52). The Agency's efficiency was largely due to the high level of commitment of its staff (see paragraph 29).

70. Although the usual period for tendering was often reduced and might have affected competition (see paragraph 56), the Court did not find any evidence that a longer period would have allowed lower prices to be obtained without jeopardising the implementation deadlines. The favourable average cost of reconstruction of houses funded through the Agency compared with other donors is a good indicator that not only efficiency considerations but also those of economy were taken into account (see paragraph 59).

71. The very flexible application of the rules in force, which involved the Agency taking risks, also allowed many local and regional companies to take part in the reconstruction process. This contributed to reducing the reconstruction costs (see paragraph 57) and to stimulating the recovery of the economy in the Balkan countries which have been severely affected by the conflicts in the region during the last decade (see paragraph 60).

72. The outstanding performance of the Agency is also due to the fact that in 2000 it focused its human and financial resources on a limited number of priority areas.

Recommendation 1

73. The Agency should make sure that it does not disperse its efforts but develops a practical sectoral programme in accordance with the latest priorities.

74. The monthly meetings of the Governing Board represented an extra workload for the Agency. The idea of having the Governing Board chaired by a Member of the Commission proved to be unrealistic (see paragraphs 21 to 24).

Recommendation 2

75. A meeting of the Governing Board every three months should be more than sufficient. The new Council Regulations (EC) No 2666/2000(21) and (EC) No 2667/2000(22) help to clarify the respective roles of the Management Committee and the Governing Board. The Commission should, however, specify the responsibilities of both bodies more clearly, in order to allow the Agency to address rapidly the new reconstruction priorities in the region.

76. The sustainability of the investments financed in the energy and transport sectors was not assured because, instead of developing long-term perspectives, UNMIK still had a crisis management approach, which was no longer appropriate in 2000 (see paragraphs 61 to 64).

Recommendation 3

77. To ensure the sustainability of the investments financed, a policy framework and a mid- and long-term strategy are required. This is outside the Agency's competence, but the Commission bears a large responsibility for this unsatisfactory situation, as the EU heads the UNMIK pillar in charge of reconstruction in Kosovo.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 10 October 2001.

For the Court of Auditors

Jan O. Karlsson

President

(1) Having been allowed by Council Regulation (EC) No 2667/2000 of 5 December 2000 to establish operational centres with a considerable degree of management autonomy in the Federal Republic of Yugoslavia, the Agency has now opened offices in Belgrade and Podgorica.

(2) See Special Report No 2/2001 on the management of emergency humanitarian aid for the victims of the Kosovo crisis (ECHO).

(3) Council Regulation (EC) No 2454/1999 of 15 November 1999 (OJ L 299, 20.11.1999, p. 1) amended by Regulation (EC) No 2667/2000 of 5 December 2000 on the European Agency for Reconstruction (OJ L 306, 7.12.2000, p. 7).

(4) See Special Report No 5/98 on reconstruction in former Yugoslavia (period 1996 to 1997) (OJ C 241, 31.7.1998, p. 1).

(5) Annual Report concerning the financial year 1999 (paragraphs 5.28 to 5.31 and 5.75 to 5.78) (OJ C 342, 1.12.2000).

(6) "Deconcentration is defined as the transfer of responsibilities within the Commission from headquarters to Delegations" (in "Phare deconcentration - Instructions for Delegations").

(7) Council Regulation (EC) No 1628/96 related to aid for Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the former Yugoslav Republic of Macedonia (OJ L 204, 14.8.1996, p. 1), last amended by Regulation (EC) No 2454/1999 of 15 November 1999 (OJ L 299, 20.11.1999, p. 1) and repealed by Regulation (EC) No 2666/2000 (see footnote 6).

(8) Note: the appropriations allocated include 65,9 million euro of appropriations not used by TAFKO.

(9) Council Regulation (EC) No 2667/2000 of 5 December 2000 on the European Agency for Reconstruction (OJ L 306, 7.12.2000, p. 7).

(10) CARDS: Community Assistance for Reconstruction, Development and Stabilisation - Council Regulation (EC) No 2666/2000 of 5 December 2000 on assistance for Albania, Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the Former Yugoslav Republic of Macedonia, repealing Regulation (EC) No 1628/96 and amending Regulations (EEC) No 3906/89 and (EEC) No 1360/90 and Decisions 97/256/EC and 1999/311/EC (OJ L 306, 7.12.2000, p. 1).

(11) In 2000 the Agency has the use of free offices in Thessaloniki and Pristina.

(12) Commission internal document on the reform of the management of external assistance - Problems and proposals, May 2000.

(13) COM(2001) 446 final.

(14) The contract is only awarded if the financing decision is made by the Commission.

(15) Council Regulation (EC) No 1628/96 as last amended by Regulation (EC) No 2454/1999 of 15 November 1999 (OJ L 299, 20.11.1999, p. 1).

(16) The contractual obligation is to pay within 60 days.

(17) 12000 tonnes in April 2001.

(18) OJ C 241, 31.7.1998.

(19) See Annual Report concerning the financial year 1999, paragraph 5.76 (OJ C 342, 1.12.2000).

(20) See Report from the Commission to the European Parliament and the Council on the implementation of macrofinancial assistance to third countries in 1999, COM(2000) 682 final, 27 October 2000.

(21) Council Regulation (EC) No 1628/96 related to aid for Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the former Yugoslav Republic of Macedonia (OJ L 204, 14.8.1996, p. 1), last amended by Regulation (EC) No 2454/1999 of 15 November 1999 (OJ L 299, 20.11.1999, p. 1) and repealed by Regulation (EC) No 2666/2000 (see footnote 6).

(22) Council Regulation (EC) No 2454/1999 of 15 November 1999 (OJ L 299, 20.11.1999, p. 1) amended by Regulation (EC) No 2667/2000 of 5 December 2000 on the European Agency for Reconstruction (OJ L 306, 7.12.2000, p. 7).

ANNEX 1

UNITED NATIONS INTERIM ADMINISTRATION MISSION IN KOSOVO (UNMIK)

On 10 June 1999 the United Nations Interim Administration in Kosovo, known as UNMIK, was set up under UN Security Council Resolution 1244. All legislative and executive authority with respect to Kosovo, including the administration of the judiciary, is vested in UNMIK and is exercised by the Special Representative of the Secretary-General. The Special Representative is assisted in his tasks by four deputy special representatives. Each is responsible for one major component of the Mission and each component is assigned to an organisation which takes the lead role in a particular area, as follows:

(a) interim civil administration: the United Nations;

(b) humanitarian affairs: the Office of the United Nations High Commissioner for Refugees (UNHCR);

(c) institution-building: the Organisation for Security and Cooperation in Europe (OSCE);

(d) reconstruction: the European Union.

After restructuring in 2000 the new structure is the following:

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ANNEX 2

MANDATE OF THE EUROPEAN AGENCY FOR RECONSTRUCTION

Council Regulation (EC) No 2454/1999 emphasises that:

(a) the reconstruction programmes should be managed in accordance with effective and flexible rules and procedures ensuring rapid implementation;

(b) the operational centre of the Agency with a considerable degree of management autonomy shall be established initially in Pristina in order to embark upon the reconstruction work in Kosovo using the Agency's general services located at its seat in Thessaloniki;

(c) the Agency will pursue its activities initially in Kosovo; it is for the Council, acting on a proposal from the Commission, to take any decision on extending the Agency's activities to other regions of the Federal Republic of Yugoslavia;

(d) the Agency's mandate should allow it to manage the programmes of other donors contributing to the reconstruction of the region, in particular in the context of the cooperation established with the appropriate financial institutions.

The Agency's duties include:

(a) identification and analysis of requirements;

(b) preparing the reconstruction programmes for Kosovo;

(c) all aspects of the project implementation cycle;

(d) conclusion of financing agreements, signature of contracts and coordination with other donors and international financial institutions.

ANNEX 3

STAGES IN THE PROGRAMMING OF THE RECONSTRUCTION PROGRAMMES

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(1)

(1) CARDS:

Community Assistance for Reconstruction, Development and Stabilisation.

The commission's replies

SUMMARY

V. Measures to improve the functioning of the Governing Board have been incorporated in the new Council Regulation No 2667/2000 on the European Agency for Reconstruction.

In terms of establishing policy frameworks and sustainable investment strategies, UNMIK has improved its capacity for doing both, mainly through its public reconstruction and investment programme, which provides clear budgetary and investment guidance for its own central budget and for the donor community.

Sector-specific policy discussions have now started between the Commission and UNMIK, focusing in particular on private sector development, energy, taxation and trade policy. Macroeconomic policy is regularly discussed in the framework of the working level steering group for south-east Europe. The Commission is also monitoring closely the work of the EU-led pillar of UNMIK, notably through the mechanism established under the exceptional financial assistance instrument whose disbursement depends on satisfactory compliance with economic policy conditions.

In order to protect the significant EC investments to date in Kosovo, the Commission is working closely with UNMIK, the European Agency for Reconstruction and EU Member States on a benchmarking exercise to ensure that appropriate institutional actions are being undertaken by UNMIK.

PART I - FINANCIAL AUDIT FOR THE YEAR 2000

17. In order to comply fully with obligations in regard to control under various financial regulations, the Commission, in a communication adopted by the College on 25 April 2001, defined the role of financial control during the transitional period of the reform in the context of devolution of the management of external aid to delegations and agencies.

18 and 19. In the second quarter of 2001, a DG Financial Control official was exclusively dedicated to the Agency, is regularly on-site and will, inter alia, perform regular transaction controls including those which are ex ante.

This new approach aims at combining the advantages of ensuring operational efficiency and regulatory compliance. The ensuing amendment to the Financial Regulation as well as several key issues concerning the implementing provisions have been the subject of discussions between the Commission and the Agency over the past months. The final draft is about to be submitted to the Court of Auditors. The draft amendment to the Financial Regulation also provides for the appointment of an internal auditor.

PART II - EFFICIENCY OF THE AGENCY: SOUND FINANCIAL MANAGEMENT AUDIT

22. (a) The Commission, as chair of the Governing Board, has advocated a pragmatic linguistic arrangement which is based on the constructive cooperation of the members of the Governing Board.

(b) and (c) The requirement for a Commissioner to be chairman of the Governing Board, and for the Agency to organise the Board's monthly meetings has already been lifted in the new Agency regulation (Council Regulation No 2667/2000) which provides for a more flexible arrangement whereby the Board meets as and when necessary, but at least once every three months.

24. The incidents cited by the Court did occur during the early days but were very much exceptional and never presented a serious hindrance or delay to the commitment of funds. The new CARDS Regulation adopted in December 2000 clarifies the role of the Board and the role of the Management Committee and no such problems have recurred.

26. Annex X to the Staff Regulations, laying down special and exceptional provisions applicable to officials serving in a third country, applies here. Kosovo specifically is a hardship posting and potentially dangerous.

33 and 34. In addition to the particular constraints experienced in Bosnia and Herzegovina as mentioned by the Court, it should be noted that the Commission Delegation in Sarajevo has made only limited use of the suspensive clause due to the fact that the assistance to Bosnia and Herzegovina is no longer immediate post-war emergency support and anticipatory tendering was only exceptionally justified.

35. The average period for payments applied by the Delegation in Sarajevo (43 days), is well within the contractually prescribed payment period of 60 days.

45. The comparison relates to the period before devolution of the management of this project to the Delegation in Sarajevo. Direct comparisons between Kosovo and Bosnia and Herzegovina in relation to return programmes are difficult to make. In the latter, the implementation of return programmes frequently takes place in a hostile environment. Return programmes in Bosnia and Herzegovina are broader than in Kosovo and cover, in addition to housing, utilities, job creation components and social infrastructures.

48. Delays over the Blace border crossing were mainly due to the negotiations with the authorities of the Former Yugoslav Republic of Macedonia on the scope of the project and UNMIK's provision of the expropriation permits.

56. The Commission considers the Agency's flexible application of the tendering rules to be justified in the light of the special circumstances.

57. EUR 10000 was the average cost of reconstruction per house in Bosnia and Herzegovina in the call for proposals launched by the EC delegation in 2000. However, a September 2001 study carried out by the EC return monitoring and evaluation facility shows that over a sample of 9951 housing units rehabilitated since 1996 the average cost has been EUR 7430.

61. The Commission shares the Court's view on the need for a policy framework and long term strategy. UNMIK has improved its capacity for establishing policy frameworks and sustainable investment strategies, and in those sectors where the EC is the leading donor the Commission is providing direct support in defining key policy frameworks and their compliance with EU policy, and is reviewing, with UNMIK, the Agency and with EU Member States, the measures and institutional actions which still need to be adopted by UNMIK to ensure sustainability.

The Court's criticism of UNMIK's crisis management approach should take into account the fact that UNMIK operations began only in June 1999, following 78 days of armed conflict between NATO and Yugoslav forces. UNMIK inherited a province ravaged by war as well as a host of economic and social difficulties arising from 40 years of chronic underinvestment. Despite the emergency, UNMIK managed to formulate a coherent budget strategy and to procure funding from international donors when Kosovo had no legal status to be eligible for loans from the international financial institutions. UNMIK's public reconstruction and investment programmes for 2000 and 2001 to 2003 have served as a basis for a policy framework.

62. In 1999 and 2000 by far the greatest share of UNMIK's work in the power sector consisted of day-to-day management, for which the staff of the Kosovo Electricity Company were poorly prepared. In the second half of 2000, and with considerable assistance from the donor community (and notably from the European Agency for Reconstruction) progress began to be made on management and structural issues. The Company is now taking over greater responsibility for operations, leaving an increasingly supervisory and regulatory rule for UNMIK which is addressing the long-term strategic policy for the sector.

63. At the end of 2000 there was no comprehensive and medium-term transport strategy, but separate sector strategies have been produced, including a business plan for the railways, and these are providing the building blocks for a properly integrated strategy. UNMIK is now considering plans to put road maintenance on a sustainable basis, by funding it from a special levy on fuel products.

64. Kosovo's revenue base had to be created virtually from scratch, which explains why the fiscal regime put in place by UNMIK at the beginning of its mandate, with the primary objective of securing sustainable revenues for the Kosovo budget, may have had some undesirable effects on local production. The Commission has recommended that UNMIK review this policy as soon as the conditions permit a widening of the taxation base. To that effect, sales tax was replaced with VAT on 1 July 2001. Its operation over the 12 months to July 2002 is being carefully monitored, and UNMIK is considering further modifications to its fiscal policy.

65. The international financing institutions, including the EIB and EBRD, have difficulty in operating in Kosovo because their statutes confine their operations to partnership with sovereign States, and so they have no legal basis for operating in Kosovo. Although the EIB and the EBRD are not yet able to play a role as donors, they have provided valuable advice to UNMIK.

CONCLUSIONS AND RECOMMENDATIONS

73. The Commission shares the Court's opinion that the Agency should continue to focus its efforts on key sectors according to the needs on the ground and the CARDS Regulation. The Commission is currently drafting the Federal Republic of Yugoslavia (FRY) 2002 to 2006 country strategy paper, as well as the three-year multiannual indicative programme, which will be the basis for the Agency's annual programmes in the future.

74 and 75. The requirement for the Governing Board to have monthly meetings and to be chaired by a Commissioner has been lifted. In the course of 2001 the Governing Board will meet five times which, considering the extension of the operations of the Agency to the whole territory of the FRY, is deemed very efficient. The Commission considers that the new Council Regulations provide sufficient clarity in respect of the roles of the Governing Board of the Agency and of the CARDS Management Committee.

76. The Commission considers that there was still a need for crisis management in 2000 given the scale of the problems at stake. However, the Commission agrees that UNMIK should have devoted more effort to shifting more quickly from an emergency to a long-term developmental policy-making approach.

77. The Commission shares the Court's view on the need for a policy framework and long-term strategy. The Commission will pursue the issue of the development of a sustainable policy and regulatory framework with UNMIK and also with the provisional institutions for self-government which are to be elected in Kosovo.

The agency's replies

SUMMARY

III. A more reliable system (SI2) will be fully operational by the end of 2001.

PART I - FINANCIAL AUDIT FOR THE YEAR 2000

15. The Agency recognises that the financial accounting system used before the introduction of Sincom2 was inadequate, although this was the only feasible solution to becoming operational at the start-up of the Agency. The intention is that Sincom2 will be fully operational by the end of 2001.

Financial provisions

17. The agreement of 22 February 2000 reflects the principles of the Commission's reform of financial management and control in April 2000.

18. The absence of an internal auditor does not mean that the Agency's authorising officer(s) and accountant exercised no ex ante controls at all. This is supported by the fact that the Court identified no material errors.

TAFKO contract management

20. The contracts worth 60,9 million euro were already signed by the Commission at the date of the handover. The budget of the Agency is the mechanism through which the Governing Board authorises the director to sign commitments (contracts) with third parties. Therefore, the amounts already contracted at the moment of the handover should not be included in the budget.

The 31 million euro left to be paid by the Agency were not integrated in the budget of the Agency since for 2000 the budget of the Agency did not mention any payment appropriations.

PART II - EFFICIENCY OF THE AGENCY: SOUND FINANCIAL MANAGEMENT AUDIT

Programme implementation

Transport

48. The reason for the delays over the Blace border crossing were mainly caused by the need to reach an agreement with the FYROM authorities on the scope of the project and by delays by UNMIK in providing the necessary expropriation permits.