Opinion on:

- the proposal for a Council Regulation establishing a Cohesion Fund, and - the proposal for a Council Regulation implementing the Cohesion Fund Regulation (1) (94/C 133/13)

On 2 February 1994 the Council, acting under Article 130d of the EC Treaty, decided to consult the Economic and Social Committee on the abovementioned proposals.

The Section for Regional Development and Town and Country Planning, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 15 February 1994 (Rapporteur: Mr Little).

At its 313th Plenary Session (meeting of 24 February 1994), the Economic and Social Committee unanimously adopted the following Opinion.

1. Introduction

1.1. Article 130d of the Treaty, as amended at Maastricht, provides for the establishment of a Cohesion Fund. The European Council, meeting in Edinburgh, specified its scope and the conditions under which it is to operate.

1.2. In December 1992, the Commission presented a proposal for a Regulation establishing the Cohesion Fund and, simultaneously, a proposal for establishing an interim cohesion financial instrument. The Committee's Opinion on these proposals (Rapporteur: Mr Giesecke) (1) indicated strong support for the objectives of the Fund and, subject to a number of constructive comments, also for the Commission's proposals.

1.3. Pending ratification of the Maastricht Treaty, Council adopted a Regulation on 30 March 1993 (No 792/93) establishing the interim cohesion financial instrument under Article 235 of the Treaty as it then stood.

1.4. The purpose of the current Commission document is twofold:

Firstly, it is to lead to the establishment of a Cohesion Fund Regulation under the new legal basis and which will take over from the interim cohesion financial instrument.

Secondly, it is to establish a separate Regulation laying down detailed rules for implementing the Cohesion Fund Regulation. There is no equivalent document associated with the interim Regulation which instrument, itself, specified that certain detailed rules of the Structural Funds 'Coordinating Regulation' (No 4253/88 replaced in July 1993 by 2082/93) would apply.

2. Summary of Committee's recommendations

2.1. The Committee strongly supports the proposals for a Cohesion Fund Regulation subject to the comments which follow:

2.2. The Committee's key recommendations are that:

- guidelines should be laid down for consultation with regional authorities and the economic and social partners on the selection of projects;

- the total budget commitments made for projects each year should bear a direct relationship to the indicative allocation amongst Member States;

- there should be scope for assisting eligible projects, in exceptional cases, where the total cost falls short of ECU 10 m.;

- the Cohesion Fund Regulation should be re-examined in 1996.

2.3. The Committee welcomes the proposed introduction of a separate implementing Regulation which will assist in clarifying procedures to be followed and is in broad agreement with the content of the proposals for that Regulation. It should have been formally consulted on the said Regulation.

3. General comments

3.1. The Committee reiterates its support for the objectives of the Fund.

3.2. The Commission's proposals regarding the establishment of a Cohesion Fund are very largely based on its December 1992 document COM(92) 599 (1); no action thereon was taken by Council because of the delays in ratifying the Maastricht Treaty. The amendments to the earlier draft take account, to some extent, of the Committee's Opinion on COM(92) 599 and also take account of experience gained during 1993. The Committee gives a strong welcome to those revised proposals for a Cohesion Fund Regulation - both in general terms and for many of the features therein.

3.3. The Commission has not previously set out detailed proposals for implementing the Cohesion Fund Regulation. Its current proposals contain many provisions similar to those in force for the Structural Funds under the 'Coordinating Regulation', modifications having been made where appropriate. The Committee welcomes the proposed introduction of a separate implementing Regulation which will assist in clarifying procedures to be followed and is in broad agreement with the content of the proposals for that Regulation.

3.4. The Cohesion Fund interim instrument will remain in force until 1 April 1994 at the latest. The Committee urges the Commission and the other parties involved to act with urgency so as to ensure that the Cohesion Fund instrument is in place in time to avoid any interruption to the flow of Community assistance. The Committee, itself, has played its part by responding to the Commission's request to provide its Opinion within a very short timescale.

4. Specific comments

4.1. Selection of projects: consultation

Neither of the proposed Regulations sets out any guidelines or recommendations as to how Member States should determine priorities when submitting projects which they deem to be eligible. Notwithstanding the responsibility of a Member State Government for the economy of the country as a whole, there is a strong case that the views of regional authorities and of the economic and social partners should be taken into consideration. The Committee is concerned that there is no provision for such consultation within the current proposal particularly in the light of the written assurance received from the Commission on this aspect following its consideration of the Committee's submission (2).

4.2. Allocation of funds between beneficiary countries

4.2.1. The European Council, meeting in Edinburgh, approved the criteria proposed by the Commission (in COM(92) 599) to be used in determining an indicative allocation of the Fund resources among the beneficiary countries.

4.2.2. The indicative allocation, resulting from the application of those criteria, has also been agreed by the European Council and is as follows:

Spain52 to 58 %Greece16 to 20 %Portugal16 to 20 %Ireland 7 to 10 %4.2.3. There being no other proposed rules affecting the allocation of funds among the countries concerned, it can be inferred that the final allocation of funds will be determined simply by the accumulation of the values of approved projects.

4.2.4. The Committee feels that the wide bands of the indicative allocation may lead to dissatisfaction with the actual allocation of resources in due course. Should each beneficiary country receive an allocation equal to the mid-point of each band - the minimum all are likely to target - 99,5 % of the total resources would be absorbed leaving an inadequate reserve for flexibility. The Committee suggests that it would be better for the indicative allocation to be set in narrower bands.

4.2.5. Under the proposed Regulation, there is no guideline given as to the allocation of funds amongst beneficiary countries on a year by year basis: it appears to be the intention that the indicative allocation should apply only to the period 1993-99 as a whole. Thus, the situation could arise whereby a beneficiary's allocation is outwith the specified range, at the time of suspension under Article 6 or of becoming ineligible under Article 2.3. Such a situation may also lead to dissatisfaction.

The Committee advocates that the Regulations should stipulate that the commitment of budget appropriations for projects should be subject to rules, to be applied by the Commission, to ensure that the resultant total of commitments each year for each Member State bears a stated direct relationship to the indicative allocation already agreed.

4.3. Preliminary studies

4.3.1. The granting of assistance for preliminary studies and technical support measures is endorsed by the Committee as is the clarification of the latter given in the latest proposal.

4.3.2. In order to fall within the scope of the Fund under Article 2, such studies and measures must themselves be deemed to be 'projects'. That it is so intended, is confirmed by the wording of Article 1 of the proposed implementing Regulation.

4.3.3. However, in a number of instances the proposed Regulation fails to draw a necessary distinction between projects in general and projects which are simply preliminary studies. In order to make the position clear, the Committee asserts that the Regulation should state categorically that the following do not apply to preliminary and technical studies:

- Art. 9.2(restricting aid to 90 % of expenditure)- Art. 10.3,

third sentence

(minimum threshold for projects)- Art. 10.4(information to be given with applications).4.3.4. The Committee believes that preliminary studies should be subject to an approval process similar in principle to that prescribed under Article 10 but without the full paraphernalia called for under 10.4. A concise alternative should be incorporated in the Regulation so that the process, leading to approval of preliminary studies projects, is made clear.

4.4. Minimum threshold for projects

4.4.1. It is proposed by the Commission that the total cost of projects or groups of projects may in principle not be less than ECU 10 m.

4.4.2. Such a limit would exclude projects, especially in the field of environmental protection, and which, although having a significant impact and matching the Cohesion Fund's objectives and field of application, do not involve such a large investment and cannot be linked to other suitable projects which would enable the proposed threshold to be reached.

Under the interim Cohesion Fund instrument, numerous projects lower in value than ECU 10 m. have been approved. Notwithstanding the greater emphasis which should be given to long-term projects in the period to 1999, that experience tends to support the idea that projects or groups of projects, should not be excluded simply because they do not meet an arbitrary ECU 10 m. threshold.

The case for concentrating aid is acknowledged but, nevertheless, the Committee concludes that there should be scope for assisting projects or groups of projects, in duly justified and exceptional cases, meeting the eligibility criteria, where the total cost falls somewhat short of ECU 10 m.

4.4.3. The application of the term 'in principle' to a quantitative threshold is a little unusual and is ambiguous. It is proposed by the Committee that the Regulation should state more clearly the extent to which, and the basis on which, discretion may be exercised to deviate from the threshold.

4.5. Regional impact within Member States

It is quite possible, as previously pointed out, that the economic gap between regions within a beneficiary State could widen as a direct result of Cohesion Fund intervention. Compensatory measures may have to be taken including the use of Structural Funds' resources. The Commission should report on this aspect in due course.

4.6. Re-examination of the Regulation

4.6.1. The Committee repeats its contention that a re-examination of the Cohesion Fund Regulation should take place earlier than 1999 in the light of its innovative features. That re-examination could take place in conjunction with the review of beneficiary countries' eligibility in 1996.

4.6.2. The matters to be the subject of a 'mid-term review' could include:

i) the operation of the project selection and approval procedures

ii) the economic impact being generated at Member State level and within internal regions

iii) a comparison of the actual cumulative allocation of project commitments and payments to each beneficiary, with the indicative allocation

v) the utilization of the available balance of funding arising in the event of suspension (under Article 6) or ineligibility (under Article 2.3) of a Member State.

4.7. Implementing Regulation

4.7.1. It appears to be the intention, under Article 15 of the proposed Regulation and the preamble to the proposed implementing Regulation, that the latter be adopted without regard to the Opinion of the ESC and without the assent of the European Parliament. To follow such procedure would be a contravention of Article 130d of the Treaty of European Union.

4.7.2. In any event, the Commission's proposals for the two Regulations are inextricably linked. Accordingly, the Committee has incorporated its comments on the proposed implementing Regulation within this Opinion.

5. Comments on the text of the proposed Regulation establishing a Cohesion Fund

5.1. Article 2.3

5.1.1. The Committee considers that the reference in the last sentence to projects which are to lose entitlement to assistance should omit the word 'important' and that the description used should be identical to the wording used in the last part of Article 6.1.

5.1.2. The Committee suggests that the wording used should provide sufficient flexibility to allow aid for further stages of projects when required to complete a distinct physical entity such as a bridge.

5.2. Article 6

The Committee's recommendations regarding Article 2.3 apply to this Article also with the exception that it is the word 'large' which should be omitted.

5.3. Article 7.2

The Committee feels that the term 'productive investments in the environmental sector' is not self-explanatory and should be made clear.

5.4. Article 10.5

In the view of the Committee, already expressed in its earlier Opinion, some flexibility should be permitted on a yearly basis and it should be sufficient to establish an appropriate balance (assumed to mean a near-equal split) between the fields of the environment and transport infrastructure, over the duration of the whole funding period.

5.5. Article 13

To ensure value for money, detailed checks are prescribed for the evaluation and monitoring of projects both in progress and after completion. The necessity for such checks is not only endorsed by the Committee but it would like independent scrutiny by, for example, the European Investment Bank to be mandatory for all the projects receiving assistance from the Cohesion Fund above a prescribed threshold.

5.6. Article 14

The Committee notes that the Commission will present an annual report on the activities of the Fund and acknowledges the Commission's assurance that it will be asked to deliver an Opinion thereon. However, a contrary conclusion might be drawn from the wording of the second paragraph of Article 14.1 and the Committee suggests that the text should be clarified.

6. Comments on the text of the proposed Regulation implementing the Cohesion Fund Regulation

6.1. Articles 4.2(c) and 4.3(c)

It is considered that it would be excessive to hold back a balance equal to 20 % of a project's total commitment pending completion reports, as this could pose financial problems for those implementing the project: it is common business practice for a retention of 10 % to be held back. The Committee recommends the deletion from Article 4.2(c) of the words 'This percentage may be increased to 90 % for major projects and in justified cases' and the addition to both Articles 4.2(c) and 4.3(c) of the following words: 'This percentage may be increased to 90 % when required to meet expenditure already incurred'.

6.2. Article 6

In the interest of consistency and co-ordination, there should be a similar provision to that within Article 4 of the Structural Funds co-ordinating Regulation whereby regional and local authorities and the economic and social partners participate in the monitoring and assessment of Cohesion Fund operations.

Done at Brussels, 24 February 1994.

The Chairman

of the Economic and Social Committee

Susanne TIEMANN

(1) OJ No C 39, 9. 2. 1994, p. 6.

(2) OJ No C 108, 19. 4. 1993, pp. 53-56.

(3) OJ No C 38, 12. 2. 1993, p. 18.