[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 28.10.2005

SEC(2005) 1348

COMMISSION STAFF WORKING PAPER

Annex to the : 16th Annual Report on the implementation of the Structural Funds (2004) {COM(2005) 533 final}

TABLE OF CONTENTS

Part 1: General analysis of activities 3

Part 2: Analysis per Member State 47

Part 3: List of major projects 146

Part 4: Financial figures 150

Part 5: Allocation of the performance reserve 176

Part 6: Use of Structural Funds in the 2000-06 period by objective and field of intervention 179

Part 1: General analysis of activities

Introduction

The year 2004 was marked by four important events: allocation of the performance reserve, followed by the mid-term review of the programmes in the EU-15, EU enlargement and the start of negotiations on the regulatory framework for the 2007-2013 programmes on the basis of the Commission proposal.

Allocation of the performance reserve , which was put into effect in 2004, is an innovation introduced in the 2000-2006 programming period. It is governed by Article 44 of Regulation (EC) No 1260/1999, which stipulates that 4% of the initial resources should be held back for allocation at mid-term to programmes performing the best. The Commission report concluded that the reserve acted as an incentive for capacity building and better management practices across the Member States, despite different methods used for assessing performance and making allocation proposals.

Article 14 of Regulation 1260/1999 lays down that the programmes can be adapted following the mid-term evaluation and allocation of the performance reserve. In consequence, most of 2004 was devoted to the discussions on the mid-term review of the programmes in the EU-15. It provided an opportunity for many Member States to take into account the priorities identified in the Lisbon and Gothenburg Strategies and earlier Commission recommendations in that respect. Preliminary analysis shows that Member States have recognised the importance of the Lisbon and Gothenburg priorities in many amended programmes.

The enlargement of the EU resulted in the inclusion of, on the whole, less developed regions in the EU. Over 92% of the population in the new Member States live in regions with a GDP per head of under 75% of the EU-25 average and 61% live in the areas below 50%. The European Union will assist the new Member States to reduce these disparities. In total, EUR 24 billion of Community aid (at current prices) is allocated to the EU-10 for the 2004-06 programmes. Of the EUR 14.96 billion from the Structural Funds, 61% will be from the ERDF, 25% from the ESF, 12% from the EAGGF-guidance section and about 2% from the FIFG. Although their Community Support Frameworks and Single Programming Documents were not been formally approved until the effective date of accession (i.e. 1 May 2004), the new Member States had the possibility of committing Structural Funds money from 1 January 2004 provided that selected projects complied with the relevant Community legislation.

In July 2004, the Commission adopted a legislative proposal for the new cohesion policy post-2006. This proposal includes key ideas formulated in the debates launched by the Commission at the beginning of 2004 with the publication of the Third Report on Economic and Social Cohesion;[1] these debates continued around Europe throughout the year (e.g. the Third Cohesion Forum organised in Brussels in May, Seminar “Open days” in September, etc.). The legislative package includes a proposal for a general regulation, a regulation for each financial source (ERDF, ESF and Cohesion Fund) and a new proposal for cross-border cooperation. For the 2007-2013 period, the Commission proposes to allocate EUR 336.1 billion to three priorities: A “Convergence objective” is proposed for the regions with a GDP below 75% of the EU average and the outermost regions, phasing out support for the regions affected by the ‘statistical effect’ of enlargement[2] and the Member States eligible for the Cohesion Fund (EUR 264 billion or 78.5% of the total contributions from the Funds). A “Regional competitiveness and employment objective” will target all regions not be covered by the Convergence objective to improve their competitiveness and promote labour market policies in line with the European Employment Strategy and the Lisbon strategy (EUR 57.9 billion or 17.22% of the total allocation from the Funds). The “European territorial cooperation objective” will aim to facilitate cross-border and trans-national cooperation and exchange of experience (EUR 13.2 billion or 3.94% of the total).

ANALYSIS OF IMPLEMENTATION

BUDGET IMPLEMENTATION

General overview

The EU budget for 2004 was the first with 25 Member States (EU-25). The accession of the ten new Member States (EU-10) in May 2004 resulted in additional budgetary needs which were covered by means of an amending budget.[3] This chapter refers to the EU-25 budget, unless stated otherwise. Budget 2004 was also the first EU budget with an activity-based structure.[4]

Chart 1 shows the evolution of appropriations entered in the budget since 1994. For commitment appropriations, the peak of 1999 occurred due to re-budgeting of part of the Structural Funds' Edinburgh allocation which had not been used in the previous years. By contrast, the new 2004 peak reflects a net increase of commitment appropriations: increase in both the SF allocation decided upon at the Copenhagen European Summit for EU-10 and the 2004 tranche of the old Member States (EU-15) performance reserve (EUR 2 779 million). For payment appropriations, 2004 marks an absolute peak, due mainly to good progress of EU-15 programmes, but also to the payments on account for EU-10.

Chart 1: Commitment and payment appropriations entered in the budget [5] from 1994 to 2004 (EUR million)

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Chart 2 shows the actual execution of commitments and payments (including amounts carried forward) each year from 1994 to 2004.

Chart 2: Execution of commitments and payments (all types of appropriations from 1994 to 2004 (EUR million)

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THE COMMITMENTS PROFILE OF 2000 AND 2001 WAS DISTORTED BY THE DELAYS IN THE ADOPTION OF THE NEW PROGRAMMES AT THE BEGINNING OF THE 2000-2006 PROGRAMMING PERIOD, LEADING TO significant carry-over of appropriations. Since then, commitments have reverted back to the normal annual instalment level corresponding to the Berlin profile. As for implementation of the Copenhagen allocation, all the available appropriations were committed in 2004. This, of course, is a great achievement in the first year of the programmes concerned. To put things in perspective, in the first year of the EU-15 programmes of the current period, around 50% of available commitment appropriations could not be committed due to delays in programming.

With regard to payments, the delays in the adoption of the programmes, as well as slow progress in the closure of the programmes of the pre-2000 period, were the reason for the low level of execution in 2001 and 2002 (around EUR 20 billion). In 2003, the execution of payments improved significantly, to EUR 26.2 billion. 2004 was even better, with payments of EUR 31.5 billion, of which EUR 1.5 billion for payments on account in the new Member States. Execution of the EU-15 2000-2006 programmes (at 99% of available appropriations) was excellent. Significant progress was also made in the closure of the pre-2000 programmes, where the outstanding commitments (RAL)[6] decreased from EUR 9.2 billion in 2003 to EUR 3.3 billion.

Implementation in commitments in 2004

In 2004, the commitment appropriations available for the Structural Funds totalled EUR 35 353 million, i.e. 86% of the appropriations for structural operations and 32% of the budget. Commitment appropriations for the ten new Member States, according to the Copenhagen profile, amounted to EUR 3 812 million.

Table 1 gives details of the appropriations available by Objective and by Fund.

Table 1: Appropriations available in 2004 (EUR million, including any transfers)

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The appropriations available increased by EUR 4.2 billion (14%) vis-à-vis 2003, when available appropriations totalled EUR 31 130 million. This increase is mainly explained by the accession of EU-10, whose commitment appropriations account for 90% of the increase. The carry forward of appropriations from 2003 does not appear in the table, given that the amount was lower than EUR 1 million (only EUR 0.3 million).[7] In 2004, an amount of EUR 3.3 million was also made available again[8] for the Irish Objective 1 programmes, in connection with "force majeure" circumstances linked to the foot and mouth disease outbreak in Ireland.

Implementation by Fund and by Objective is shown in Table 2. Commitments made total EUR 35 212 million, practically 100% of the total available appropriations, as would be expected under the essentially automatic commitment procedures.[9] The entire budget foreseen in Copenhagen for EU-10 programmes was committed.

Only EUR 141 million in appropriations were not ultimately committed, for two different reasons. First, within the context of the mid-term review a large number of EU-15 programmes received a fresh allocation from the performance reserve of EUR 8.2 billion to be newly programmed over 2004-2006 (EUR 2.8 billion for 2004 alone).[10] Although the bulk of the associated 2004 commitments were made in time, for a (very) few programmes this was not possible before the end of the year, although the preparatory stages of the commitments were completed in all cases. Consequently, an amount of EUR 115.2 million of commitment appropriations was carried forward to 2005, in accordance with Article 9(2)(a) of the Financial Regulation. The remaining EUR 26 million of uncommitted appropriations are technical assistance appropriations that lapsed.

Table 2: Implementation of commitments in 2004(EUR million)

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The automatic commitment rules do not apply to technical assistance and innovative measures, where new decisions are taken each year. The utilisation rate for these instruments experienced a considerable decrease to 77% in 2004, when compared with the previous years (96% in 2001, nearly 100% in 2002 and 94.5% in 2003).

Implementation in payments in 2004

Available payment appropriations

More conservative budgets and more proactive management of these budgets were adopted to improve the rate of execution. For the 2004 budget, the rate of increase of payment appropriations in comparison to 2003 was limited to 2.3 % for EU-25 (conclusions of the Council's second reading of the general budget of the European Communities for the financial year 2004). At the same time, the European Parliament and the Council invited the Commission to propose a preliminary draft amending budget in 2004 in case payment appropriations proved insufficient.

By the end of September 2004, the execution of payments from the Structural Funds (all programming periods included) amounted to EUR 21 billion, representing 75% of the authorised appropriations, significantly above the typical monthly pattern of execution. The Commission reacted to the risk that the remaining appropriations would not be enough to cover the needs and submitted a preliminary draft amending budget, after receiving additional information justifying its concerns from the Member States. A total additional amount of EUR 3.7 billion was eventually made available for the Structural Funds in Amending Budget No 10, at the end of November 2004. This was funded by transfers of EUR 1.7 billion from Agriculture (Heading 1a of the Financial Perspectives), an increase of EUR 1.5 billion in the revenue forecast, and a call on the Member States for EUR 500 million in new resources. Available appropriations at the end of the year amounted to EUR 31 780 million, including the allocation of EUR 1 707 million to EU-10.

Table 3 shows the payment appropriations available by chapter and by Fund (all appropriations together). A distinction is made between payment appropriations for programmes of the current 2000-06 period and payment appropriations for programmes from earlier periods. The appropriations available totalled EUR 31 780 million, including transfers and amending budgets.

Table 3: Payment appropriations available in 2004 (EUR million, all appropriations together and including transfers)

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Execution in payments

2004 marked the highest payments ever in the Structural Funds: EUR 31 516 million, an increase of 20% from 2003. This was a significant improvement in comparison with the trend of the first four years of the current programming period, when implementation of the Structural Funds 2000-2006 programmes trailed expectations and led to significant under-execution of payment budgets.

The outcome of the 2004 budget execution is well illustrated by Chart 3, which clearly shows the dramatic improvement in budget management achieved since 2002: under-utilisation of payment appropriations was almost non-existent in 2004 (EUR 264 million or 1% of available appropriations).[11] This was made possible by the good progress of payments (EUR 31 516 million[12] in actual payments in 2004, from EUR 26 243 in 2003; in 2004, EUR 1 550 million was paid out to EU-10 programmes[13]), and by the more proactive budget management stance adopted by the Commission in recent years.

Chart 3: Under-utilisation of payment appropriations from 1994 to 2004

(Left-hand scale: absolute amounts in million, and right-hand scale: relative rate)

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OUTTURN (SEE Table 4 below) totals EUR 31 516 million, or (a remarkable) 99% of available appropriations, leaving only EUR 264 million unused.

Outturn - analysis by Objective and by Fund

Table 4 gives a breakdown of outturn by Objective and by Fund. The rates of execution relative to available appropriations are shown in the last column and row.

Table 4: Payments in 2004(EUR million)

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Amongst objectives, overall budget execution was best for Objective 2 (100%). The implementation of Objectives 1 and 3, as well as of the Community Initiatives, was also close to 100%. This is a significant improvement, especially for the Community Initiatives, which only used 48% of available appropriations in 2003. FIFG outside Objective 1 programmes also improved their execution rate, though less dramatically (from 60% in 2003 to 83% in 2004). Only Innovative measures and technical assistance executed less than in 2003, their implementation rate decreasing from 90% to 78%.

The execution of the appropriations allocated to the pre-2000 programmes increased by 40 percentage points from 2003, reaching 99% in 2004 (even though the actual amount of payments made did not vary significantly).

Table 5 compares payment rates in 2003 and 2004. It once again illustrates the excellent budgetary performance of 2004.

Table 5: Comparison of payment rates in 2003 and 2004

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Overall, the payment rate increased from 89% in 2003 to 99% in 2004. The overall improvement is mainly due to the earlier programmes lines, given that the payment rate for the 2000-2006 programmes was already fairly high (96%) in 2003. Most 'objectives' executed quite well in 2004, though there is clearly room for significant improvement in FIFG outside Objective 1 and Innovative Measures and Technical Assistance.

An analysis of the performance of the different funds is shown in Chart 4, which compares utilisation by fund in 2003 and 2004 (2000-2006 and earlier period programmes combined together).

The ERDF, EAGGF-Guidance and ESF all executed very well (execution rates of 98% to 100%), improving significantly over 2003. The special programme for peace and reconstruction (PEACE)[14] also improved from a meagre 49% pay rate of 2003, but it still did no better than paying 80% of its appropriations. The FIFG was the only fund with a deteriorating performance, from a payment rate of 86% in 2003 to 81% in 2004.

Chart 4: Utilisation rate by fund in 2003 and 2004

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Analysis of under-utilisation in 2004

Under-utilisation in 2004 was almost non-existent. Table 6 summarises the outturn.

Table 6: Payments on old programmes and new programmes (EUR million)

Appropriations available* | Outturn | % |

Old programmes | 3 622 | 3 585 | 99.0% |

Current programmes | 28 158 | 27 930 | 99.2% |

TOTAL | 31 780 | 31 515 | 99.2% |

(*) Appropriations available are after transfers and Amending Budgets in the course of the year

Payments on old programmes

At EUR 1 044 million, the budget adopted for these programmes was far too small in relation to the RAL. That budget, as proposed by the Commission in its Preliminary Draft Budget 2004, had been calculated at the beginning of 2003 on the assumption that most of the RAL would be cleared in 2003. However, clearance of the RAL in 2003 progressed slower than anticipated. By the end of the year, many closures were still waiting for complementary information from the managing authorities in the Member States and it was uncertain when most of the programmes could be closed. Under these circumstances, the Commission decided to use internal transfers to increase the funding of these lines during the first months of 2004 as need be and to wait for a robust estimation of 2004 closures before proposing any additional funding by the budgetary authority.

By autumn, the Commission had arrived at a good estimation of actual needs and proposed a preliminary draft amending budget. The lines were eventually reinforced by Amending Budget No 10. Execution at the end of the year stood at EUR 3 585 million. Decommitments on the RAL amounted to EUR 2 277 million.[15] Thus, outstanding commitments at the end of 2004 stood at EUR 3.3 billion, 64% below the RAL at the end of 2003 (EUR 9.2 billion).

The Commission now expects to close the bulk of the remaining programmes in 2005, either through final payments or through decommitments.[16]

Payments on programmes for the 2000-2006 period

From an allocation of EUR 28.1 billion, EUR 27.9 billion, i.e. 99.2% of appropriations available at the end of the year, were paid. This amount exceeded the initial budget of EUR 26.9 billion by EUR 1 billion. The payments on account amounted to EUR 1.5 billion, representing 5% of the total payments made. These consisted almost entirely of payments on account for the EU-10 programmes for the period 2004-2006 (payments on account for EU-15[17] were only EUR 23.7 million).

Execution of EU-15 programmes

Despite the good execution in 2004 of the current EU-15 programmes, budgetary implementation in payments is still lagging behind original expectations for the current programming period. This is illustrated in Table 7, which compares actual execution with the assumptions implicit in the initial Financial Perspectives. At the end of 2004, accumulated payments are trailing initial expectations by over EUR 23 billion.

The cumulative “backlog” of payments in relation to the estimates contained in the Financial Perspective continued to increase in 2004, although the annual difference between actual payments and the latter estimates had started to narrow in 2003.

Table 7: Comparison between assumptions in the financial perspectives and budget outturn, EU-15

€ billion | 2000 | 2001 | 2002 | 2003 | 2004 | TOTAL |

Financial Perspectives | 9.2 | 19.6 | 25.6 | 27.6 | 30.2 | 112.2 |

-of which, payments on account | 8.0 | 6.0 | 0.0 | 0.0 | 0.0 | 14.0 |

-of which, reimbursements | 1.2 | 13.6 | 25.6 | 27.6 | 30.2 | 98.2 |

Outturn | 5.9 | 14.7 | 19.2 | 22.7 | 26.4 | 88.9 |

-of which, payments on account | 5.9 | 7.7 | 0.4 | 0.0 | 0.0 | 14.0 |

-of which, reimbursements | 0.0 | 7.0 | 18.8 | 22.7 | 26.4 | 74.9 |

-of which, reimbursements | -1.2 | -6.6 | -6.8 | -4.9 | -3.8 | -23.3 |

This led the Commission and the budgetary authority to adjust the payment budgets downwards. Table 7A illustrates this point.

Table 7A – Differences between (initial) Financial Perspectives and Budgets, [18] EU-15

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Execution of EU-10 programmes

The payments made to EU-10 programmes in 2004 consisted almost exclusively of advance payments.[19] They amounted to EUR 1 550 million, while the total amount of interim payments (all made for Objective 1 programmes) was EUR 23.7 million. The following table summarises the outcome. It should be noted that Community initiative INTERREG programmes have been excluded from the comparison table since the new Member States participate in existing programmes where payments are made to the country managing the programme, i.e. an old Member State, and therefore it is not possible to single out the share of EU-10. It is also worth noting that no INTERREG advance payments have been made to EU-10, since advance payments for the programmes concerned were made when the programmes were originally adopted.

Table 7.B: Comparison between assumptions in the financial perspectives and budget outturn, EU-10

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Interim payments were slightly below the Financial Perspectives assumption but payments on account were executed as anticipated.

Transfers made in 2004

During 2004, only one transfer (of commitment appropriations) was proposed by the Commission and accepted by the budgetary authority. The transfer was made in order to ensure consistency between the rounding approach (to the nearest million) used in the yearly technical adaptation of the Financial Perspectives, and the rounding (to the nearest euro) used to define the amounts in current prices available for the Structural Funds programmes for the new Member States under Heading 2 of the Financial Perspectives. To this effect, transfers from technical assistance to the mainstream programmes were made across all the Funds. The overall budgetary effect of these transfers was zero.

Numerous transfers were made by the Commission itself under its own prerogatives established in the Financial Regulation (a list of these transfers is attached in part 6 of the annex). These transfers were made essentially for two reasons. For commitment appropriations, to adapt the budget to the programming changes made in the mid-term review of the programmes. For payment appropriations, the lack of payment appropriations prior to amending budget No 10 required transfers to the budget lines where the appropriations were most urgently needed.

End-of-year concentration

Typically, commitments implementation in the Structural Funds is concentrated in the first half of the year and payments implementation at the end of the year. To a certain extent, this reflects the accounting system of the regulatory framework.

Under Regulation (EC) No 1260/1999, after adoption of the programmes commitments are made by 30 April of each year, almost automatically following the annual instalments decided upon for each adopted programme. Thus, apart from 2000 (when the first programmes were adopted), commitments have typically been front-loaded. This was also the case in 2004. However, in 2004 commitments for the EU-10 programmes and the EU-15 mid-term review and the ensuing allocation of the performance reserve resulted in a relative increase in the execution of commitments later in the year. In particular, the allocation of the performance reserve to the programmes led to an exceptional concentration of commitments in December, when 8% of the whole year’s commitments were made.

Conversely, payments are typically concentrated in the last months of the year. For the 2000-2006 programmes, Member States are invited to group their payment applications in three batches over the year, with the last application to be sent, in accordance with the Structural Funds regulation, by 31 October each year. The pattern of actual payments, very much back-loaded, continues to suggest that this procedure has been less than smooth.[20] In fact, about a quarter of all payments made during a year have been paid in December since 2002 (though there was a slight improvement from 2003 to 2004, which was remarkable because the appropriations from amending budget No 10, more than 10% of all the appropriations available at year end, could not be made available before the beginning of December).

Chart 5, on the concentration of commitments and payments in December, and Chart 6, on the monthly implementation pattern in 2004, illustrate the points made above.

Chart 5: Concentration of commitment and payment appropriations in December (percentage executed in December)

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Chart 6: Monthly implementation pattern in 2004 (EUR million)

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FINALLY, CHART 6A DEPICTS THE CUMULATIVE MONTHLY EXECUTION OF COMMITMENTS AND PAYMENTS (COMMITMENTS AND PAYMENTS MADE UP TO A CERTAIN MONTH AS A percentage of all commitments and payments made during the year) from 2002 to 2004. For commitments, the programming of the performance reserve and of the new EU-10 programmes fully explains the differences between the 2004 pattern and the usual one.

For payments, 2004 confirms once more the relative stability of the monthly evolution of payments. Indeed, the payment curves since 2002 are fairly similar. In 2004, though, the curve is slightly more front-loaded, reflecting an earlier start of payments in the year. During 2004, payments by each month up to November were roughly 10 percentage points above the corresponding payment percentages in 2003. For instance, by July 2003, only 40% of the payments executed during that year had already been made. By July 2004, the percentage was 50%. It remains to be seen if this acceleration is maintained in 2005 and the following years.

Chart 6A – Monthly implementation patterns in 2002, 2003 and 2004 (%)

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IMPLEMENTATION BY MEMBER STATE

Chart 7 shows the commitments and payments made in 2004 by the EU-25 Member States (all appropriations combined). In the case of EU-10, the vast majority of payments (99%) consisted of payments on account.

Because of the cross-border nature of some operations, for which there is often a single accounting commitment per programme (INTERREG, PEACE, BORDER REGIONS), commitments and payments in these operations cannot be allocated to a specific Member State in the accounts; hence the existence of the "other" column in the chart. Certain technical assistance operations are likewise not attributable to a Member State.

After the beginning of the programming period 2000-2006, 2003 was the first year when outstanding commitments (RAL) decreased for some EU-15 Member States. This trend continued and consolidated in 2004, when seven of the fifteen Member States managed to decrease their RAL. Absolute RAL reductions were bigger for Spain (EUR 500 million) and Ireland (EUR 361 million), but payments exceeded commitments for Denmark, Finland, Luxembourg, Portugal and Sweden as well.[21]

Chart 7: Commitments and payments in 2004 by Member State, all programmes

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Chart 8, which shows total commitments and payments from the beginning of the programming period 2000-2006, provides a more accurate picture of the current relative weight of the different Member States in the Structural Funds. Although EU-10 programmes only started in 2004, they have been included in the chart.

Chart 8: Commitments and payments from 2000 to 2004 by Member State, all programmes (EUR million)

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Looking at payments, Spain is by far the largest beneficiary, accounting for a quarter of total payments. The five biggest beneficiaries, in ranking order, Spain, Germany, Italy, Portugal and Greece, absorb almost three-quarters of all payments.

While this information is undoubtedly useful, it cannot be used to analyse the relative performances of individual Member States in the implementation of Structural Fund programmes. The annual amount of commitments and payments for a given Member State depends directly on the share of that Member State in Structural Fund allocations or outstanding commitments. Analysis of the relative performance in implementation should therefore be made by reference to the country's allocation, although the difference, in relative terms, between commitments and payments also suggests how effective Member States have been in executing the programmes on the ground.[22]

“N+2” rule [23]

The ERDF n+2 impact communicated at the end of 2004 to Member States was EUR 56.1 million for 26 programmes and concerned INTERREG programmes in the main. This represented only 0.3% of the annual commitment for ERDF. These figures will be definitive once the agreement of the Member State concerned has been received.

Provisional figures for the other Structural Funds gave a higher percentage: the N+2 rule had an impact on ESF of EUR 123.5 million (1.3% of the annual commitment), on EAGGF of EUR 44.4 million (1.5% of the annual commitment), and on FIFG of EUR 70.2 million (12.5% of the annual commitment).

For all 4 Funds overall, the impact should be around 0.96% of the total 2002 annual commitment.

Programme Implementation

Objective 1 and 2

EU 15

In 2004 the Member States and the Commission gave priority to the allocation of the performance reserve and the mid-term review. These exercises allowed the Member States to adapt their programming documents while taking account of both possible changes in the socio-economic situation or labour market and the findings of the mid-term evaluations. This led to qualitative shifts in a number of priority fields and provided a better opportunity to contribute to the priorities of the revised European Employment Strategy (EES) and to the achievement of the Lisbon and Gothenburg strategies, as recommended by the Commission, while taking into account the experience of the current programming period and the specificities of each Member State.

In terms of substance, early analysis of the changes to programmes, based also on the information submitted to the Commission by Member States in their certified expenditure claims,[24] highlights the following issues:

- Objective 1 programmes continue to gear their investments towards traditional ERDF-type projects such as basic infrastructure, especially transport. Thus, allocation of the performance reserve and the mid-term review in these areas continue to focus on the development of large road and rail projects as well as ports, airports and local transport initiatives. In some Member States with large Objective 1 areas, more emphasis seems to have been placed on research and innovation.

- Many Member States used the performance reserve to increase their support for the knowledge-based economy, through cooperation between research institutes and businesses, the development of business clusters and research centres, investment in broad-band access, the establishment of regional innovation strategies, the training of researchers, and applied research projects (e. g. France, Italy Objective 1, Spain Objective 1).

- As regards the productive sector, support for SMEs is the most frequent area of investment in both Objective 1 and 2. The performance reserve and mid-term review were used to support entrepreneurship through grant aid for the start-up of small, innovative and large enterprises, the development of business parks, consultancy support and the introduction in some Member States of risk capital financing measures (e. g. Germany both Objective 1 and 2, Portugal Objective 1, Netherlands Objective 2, Austria Objective 1). Measures promoting economic growth and competitiveness seem to have been reinforced, particularly in Objective 2 areas (e. g. Sweden, Germany).

- Human resource development continues to be an important dimension in the majority of Objective 1 and 2 programmes, and the performance reserve in several Member States targeted these programmes as a way of creating employment.

- Some Member States (e.g. Italy and Portugal) used the mid-term review to include measures targeting improved management structures and capacity building within the public administration.

- Environmental risk prevention has been included in programmes, e. g. in France and Portugal.

The mid-term review also allowed Member States to introduce changes in the structure of the programmes, in order to simplify their implementation. Complex programmes containing a large number of measures have proved more difficult to implement, which may result in absorption capacity problems. As mono-funded programmes are easier to manage, the mid-term evaluation recommended in a number of multi-funded programmes the consolidation of ESF activities under one priority, especially for Objective 2 programmes.

New Member States

For the 2004-06 period, the total budget allocated to the ten new Member States amounts to almost EUR 9.5 billion for the ERDF, and EUR 3.744 billion for the ESF. All commitments scheduled for 2004 (over EUR 2.2 billion for the ERDF and EUR 912.5 million for the ESF) were executed by the Commission. In terms of payments, in 2004 the new Member States received a 10% advance payment on contributions from the Funds to the assistance in question, and a further 6% advance payment will be transferred to each programme in 2005, as laid down in Annex II of the Treaty of Accession. In addition, interim payment claims were submitted by Latvia (0.5% of total allocated sources for 2004-06) and Hungary (0.04% of total allocated sources for 2004-06) for the ERDF. No interim payment claims were submitted for the ESF.

Altogether, 21 programmes (18 in Objective 1 and 3 in Objective 2 regions) are co-financed by the ERDF and 15 programmes, excluding Equal, are co-financed by the ESF (12 in Objective 1 regions, and 3 in Objective 3 regions) in the ten new Member States for the 2004-06 period. Under Article 15(6) of Regulation 1260/1999, the Member States should submit their programme complements to the Commission for information within 3 months of adoption of the Programme by the Monitoring Committee. The Commission received all the programme complements in 2004.

The available data show that the ERDF contributions concentrate on the productive environment, especially assistance to SMEs (about 50% of total allocation) and basic infrastructure (about 30%). In most cases project selection is well under way. Encouragingly, the number of applications sometimes exceed the financial sources earmarked for the measures concerned. For example, this is the case in Lithuania for the transport infrastructure measure, in Slovakia in support for the private sector, building and reconstruction of tourism infrastructure and business activities in tourism, and in the Czech Republic for environmental and tourism infrastructure measures.

All programmes co-financed by the ESF were launched in 2004. The first series of calls for proposals were published for almost every programme. Initial experiences indicate that the interest of beneficiaries has exceeded expectations. Nevertheless, the uneven quality of projects, the unequal geographic coverage of projects, and the deficiencies in management structures are common problems in the majority of the new Member States.

Objective 3

In Objective 3 areas the Member States also concentrated their efforts on the mid-term evaluation, the mid-term review and the allocation of the performance reserve. The evaluations confirmed that ESF assistance plays a crucial role in promoting regional development and has a positive impact on regional competitiveness.

The main message stemming from the mid-term evaluation reports is that the strategy initially agreed upon for ESF contributions remains relevant in the majority of the cases, and that it continues to contribute to the implementation of the European Employment Strategy. The recommendations mainly concerned the fine-tuning of the programmes, including in certain cases the need to shift the emphasis away from, or to put additional focus on, certain policies. Changes to programmes were based on the findings of the mid-term evaluation, and mainly originated from changes in the socio-economic environment or in the legislative framework, and policy recommendations addressed to Member States.

Furthermore, many of the changes aimed at simplifying programmes, increasing the flexibility to respond to socio-economic challenges or reducing the allocations to measures which have major underspendings. By way of example, several programme changes introduced mergers of priorities and measures to simplify the structure of the programmes and to facilitate management and implementation.

As for the allocation of the performance reserve, no specific policy field was prioritised in all Objective 3 programmes. The performance reserve was allocated to several different priorities (e.g. active labour market policies, social integration), and technical assistance also received performance reserve allocations (e.g. Finnish and Swedish programmes).

Fisheries outside Objective 1

The year 2004 is an important turning point for the implementation of structural policy in the fields of fisheries and aquaculture. All stakeholders have since absorbed the radical reform of the Common Fisheries Policy of December 2002. The main aspects of the reform were discontinuation of aid for the renewal of fishing vessels and the permanent transfer of Community vessels to non-member countries, which is no longer allowed as of 2005. Assistance for modernising fishing vessels may be granted only to vessels at least five years old; this must be designed to improve on-board safety and the quality of products or working conditions, to switch to more selective fishing techniques or to equip vessels with a vessel monitoring system (VMS). It may not be used to increase the catch capacity of vessels. Furthermore, changes in the terms and conditions for aid from Member States to fishermen and shipowners who temporarily cease their fishing activities have also been introduced, along with changes in the aid for the retraining of fishermen, which is widened to include diversification into other activities while they continue to fish part-time.

The mid-term review provided an opportunity to adapt the programmes to the new requirements of the reform. The mid-term review and allocation of the performance reserve have been completed for 48 programmes. For one programme the Member State has not provided the necessary information to the Commission for the revision of its Single Programming Document.

As regards implementation, although some countries with significant allocations continue to make very good progress, other countries are having problems. This is why in 2005 decommitments of up to EUR 70 million (12% of an annual instalment) are programmed under the ‘N+2’ rule. This relatively high decommitment rate can be explained mainly by the fact that the fisheries sector is in a difficult situation, particularly fishery resources, which is not conducive to encouraging investment in the sector, especially in regions outside Objective 1 and in the northern countries of the Community.

Community Initiatives

INTERREG

With the accession of ten new Member States to the EU in 2004, new cross-border programmes were launched and amendments were introduced to upgrade the existing programmes to include the new states as partners. A total of 11 new programmes were launched (either INTERREG or Neighbourhood Programmes): Estonia / Latvia / Russia, Latvia / Lithuania / Belarus, Lithuania / Poland / Russia, Poland / Ukraine / Belarus, Czech Republic / Poland, Poland / Slovakia, Slovakia / Czech Republic, Hungary / Czech Republic / Ukraine, Slovenia / Hungary / Croatia, Hungary / Romania / Serbia and Montenegro, Italy / Malta.

12 existing cross-border programmes were amended to integrate the new ERDF funding for the new Member States (for example, the programmes Austria-Slovenia or Finland-Estonia). A further five existing transnational cooperation programmes were amended as a result of enlargement (Western Mediterranean, Baltic Sea, Alpine Space, C.A.D.S.E.S. and Archimed), along with the networking programmes (Interact, ESPON and the INTERREG III C programmes for interregional cooperation) for which all the new Member States are also eligible. In total, the additional ERDF funding for INTERREG for the new Member States amounts to EUR 479 million for the period 2004 to 2006. Together with the indexation funds for the period 2004 to 2006, this has brought the ERDF budget for INTERREG III up to some EUR 5.8 billion.

During 2004, the Commission examined the mid-term evaluation reports for all the INTERREG programmes. Many programmes were amended in 2004 as a result of the mid-term review process and also to integrate the indexation funds for the period 2004 to 2006, as per the Regulation.

The Wider Europe process

Since late 2002, the Commission has been reflecting on how, after enlargement, an overarching policy approach to the EU’s neighbouring countries could be developed. The result was the “Wider Europe” Communication of March 2003, which proposed an Action Plan per neighbouring country to map out the development of the EU’s relations with that country. That Communication embraced the idea of a single “Neighbourhood Instrument” which would support cross-border cooperation on both sides of the external borders of the Union. The objective was to have a single financial instrument that did not suffer the coordination problems faced by existing programmes trying to combine funding from INTERREG, PHARE, Tacis, CARDS or MEDA.

On 29 September 2004, the Commission proposed to the European Parliament and Council a new regulation establishing a “European Neighbourhood and Partnership Instrument” (ENPI) for the period 2007-2013. However, the so-called “Neighbourhood Programmes” were already launched in 2004. The new “Neighbourhood Programmes” are based on previous INTERREG programmes and will include, in addition to ERDF funding, a specific allocation of funding from Tacis, CARDS or MEDA (as appropriate) for the external country borders. It is also planned to launch joint calls for projects on both sides of the border, using common procedures, thus facilitating the cooperation process. The total indicative budget estimated for the period 2004-2006 for the “Neighbourhood Programmes Facility” is of the order of EUR 131 million (EUR 75 million from Tacis, 45 million from CARDS and 11 million from MEDA).

At the same time, the Commission has adopted a proposal for a Regulation to create a new instrument for candidate countries, the Instrument for Pre-accession (IPA), which will replace PHARE for Member State borders with Western Balkan countries and Turkey (financing Bulgaria, Romania, Croatia and Turkey).

Other issues

In 2004, the Commission closed the remaining projects within the framework of the RECITE programme (previous Article 10 pilot projects). Other Article 10 pilot actions and two remaining TERRA projects are still being audited.

Leader+

Leader+ sets out to encourage and support integrated pilot strategies for local rural development.

73 Leader+ programmes have been approved for the period 2000-2006. Payments in 2004 for these programmes amounted to EUR 238 million from EAGGF-Guidance. Due to the lead time of this initiative (e.g. selection of Local Action Groups - LAGs), the first years of the programming period were characterised by low financial execution. Although payments up to 2004 account for only 15.9% of the amount programmed for the whole programming period, considerable progress was made in 2004.

The LAGs selected cover an area of 1 577 386 hectares and have a population of 52 738 212.

Of the expected 938 LAGs, 892 have finally been selected. The selection process started in 2001 and finished with the selection in mid-2004 of 12 local action groups in Sicily. The local development strategy theme “development of natural and cultural resources” is the most popular (with one third of the LAGs having chosen it), followed by the subject “quality of life” (chosen by 25% of LAGs). More than 20 000 projects have been approved by the local action groups since the beginning of the programming period. The main areas of funding are as follows: tourism, support for SMEs, renovation and development of villages and rural heritage, basic services to the rural population and rural economy.

Transnational cooperation projects (Action 2 of the Leader+ initiative) have slowly started. There are many more inter-territorial projects within Member States than transnational projects between Member States.

Two meetings of the Leader+ Steering Committee were held in 2004. This Committee, which was chaired by the Commission, brought together representatives of the national authorities and networks. It examined the progress achieved in implementing the Community Initiative, particularly as regards cooperation. In October 2004, a Leader+ seminar was organised on the “Quality of life in rural areas”.

Subsequent to the Act of Accession, there is no implementation of the Leader+ Community Initiative as a separate programme in the new Member States. These Member States can, however, implement a “Leader+-type Measure” in their rural development programmes.

Urban

2004 was largely devoted to the launching of work on thematic networks (URBACT programme).

15 thematic networks have been approved, and 3 other projects are under way. The networks are organised around the following themes: social exclusion, integration of people of foreign origin, integration of young people, employment and economic activity, project governance, physical regeneration of urban areas, citizen participation, transport and environment, the information society, prevention of urban insecurity, public-private partnership, training, integrated approach.

3 horizontal Working Groups will be created (capitalisation, the inhabitants' place and local economic development). A Working Group on the creation of a European exchange platform has been discussed (proposal of the Netherlands). 150 cities are partners, including 36 cities from the new Member States.

2004 was a very important year for the Urban Audit. The data collection for the year of 2001 in the cities in the EU-15 was completed and published on a dedicated website[25] and in a book. The perception survey was carried out in 31 cities and the results were also published online and in a booklet. The website, the Urban Audit book and the Perception Survey booklet were all three officially opened and distributed at the City Summit in October 2004. To obtain a time series for all the 258 cities involved in the Urban Audit, a new round of grant agreements was launched and adopted by the Commission. This grant agreement will allow for co-financing of the cost of collecting data for the years 1991 and 1996.

Equal

As regards EQUAL, 2004 is a landmark year: on the one hand, the end of the first part of implementation of the Partnerships of development (DPs) and the capitalisation of their results at European, national or local levels and, on the other hand, the launching of a second call for proposals in the Member State, plus selection and start-up at the end of the year.

As part of the capitalisation of results ("mainstreaming"), the European thematic group, in partnership with the national thematic networks, organised several thematic conferences. The first European conference on asylum applicants at the beginning of April in Dublin dealt with the challenges of integration into the European Union for this target group and presented the best practices of socio-professional integration. It was followed by a second conference in Antwerp on the "Strengthening of the social economy", which examined how the social economy approach contributes to involving the challenges such as demographic changes, reform of the welfare state and discrimination and inequalities on the labour market.

A new focus for support activities at EU level targeted strengthening the institutional capacity and the efficiency of the national managing teams for EQUAL. In this context, the Commission initiated learning platforms for Member States to exchange good practice in translating EQUAL principles into reality:

- by establishing ad hoc working groups, coordinating and reviewing the drafting of guides for transnational cooperation, mainstreaming and partnership, and

- by organising learning seminars for disseminating good practice to all bodies involved in the implementation of EQUAL at national level, as well as for those involved in implementing other Structural Funds programmes (including on evaluation, transnational cooperation, planning of partnerships, and gender mainstreaming).

Several EQUAL publications were produced and are available on the EQUAL site.[26] A general publication presents the Initiative, its principles and its mid-term results; three guides focus on the transnationality, on partnership and on the dimension of gender mainstreaming; the last publication gathers together the results of the EQUAL projects. Moreover, the Europe-wide mid-term evaluation of the EQUAL programme was made public at the beginning of 2004. It is based in particular on the evaluations carried out in each Member State.

In 2004, new decisions were adopted either to incorporate changes of programming within the framework of the mid-term review and indexation or to draw up new Community Initiative Programmes (CIPs) for the new Member States. Consequently, during the year, 27 decisions were adopted.[27] Accordingly, the calls for proposals were launched in all the Member States in line with national provisions in order for there to be a common start of the DPs on the ground at the end of 2004.

Lastly, during 2004, the Commission made numerous closures of Community Initiative programmes from the 1994-99 period.

Innovative Actions

ERDF

A further 16 regions submitted proposals for an ERDF regional programme of innovative actions during 2004, and by the end of the year 139 programmes had been approved from a possible 156 eligible regions. The total value of the programmes is EUR 660 million, of which EUR 344 million ERDF. Experimental activities and pilot projects are co-financed in the context of a regional strategy drawn up by the regions to promote innovation in one or more of three strategic themes exclusively linked to the Lisbon and Gothenburg objectives, i.e. research and technological innovation, e-Europe and sustainable development.

A major event in 2004 was the prize-giving ceremony for the winners of the European Regional Innovation Awards competition. This was designed to invite regions to identify their most innovative projects or actions in each of the three strategic themes, which were then judged by a high level independent panel of judges chaired by the former Prime Minister of Portugal, Mr António Guterres. The ceremony was held during the April 2004 plenary session of the Committee of the Regions and attracted much positive publicity.

As far as the administration of the programmes is concerned, comprehensive checklists and models for the amendment and eventual closure of the programmes were prepared during 2004 to ensure sound financial management and to help identify best practices.

ESF

In 2004, the implementation of innovative measures under Article 6 of the ESF Regulation in the current programming period was well under way. Both thematic fields announced in the 2001 Commission Communication[28] have been implemented (35 projects in the field of social dialogue have been finalised, while 85 projects in the field of local employment are under way). Moreover, 33 projects have been selected under the first application round of the new call for proposals on “ Innovative approaches to the management of change ”. As these projects have yielded, and continue to generate, concrete and innovative outcomes at European, national and regional/local level, the Commission is convinced that future Article 6 project promoters will take these results and outputs into account in their own work. Future project promoters will thereby benefit substantially from earlier projects, in particular from the cooperation structures created at local and regional level. In order to make these results more widely known (and to mainstream their outcomes), the Commission has launched a call for proposals on the “ transfer and dissemination of innovation from ESF Article 6 projects ”.

The external evaluation provided for in the Communication has almost been finalised for the projects in the field of social dialogue and is progressing, as planned, for the projects in the field of local employment strategies. In addition, a call for tender was launched to engage external evaluators for projects in the field of managing change.

Sustained monitoring efforts are reflected in quarterly reporting by projects, project visits and the organisation of seminars for project promoters.

Transparency is systematically sought through the publication of project directories and of all relevant information on the Commission's website,[29] in particular as regards procedures and outcomes of calls for proposals and calls for tender. In addition, the Commission is actively encouraging the creation of networks between project promoters and the dissemination of project results and outcomes.

With the aim of promoting more frequent and better exchange of information on Article 6 innovative actions, the Commission will continue to inform both the Member State authorities responsible for the ESF, and the various ESF monitoring committees, of the outcome of the calls for proposals launched under Article 6 and on the progress of the selected projects. In this respect, the Commission is pleased to acknowledge that more and more Member States are involving Article 6 projects in activities organised in the framework of the mainstream ESF, which thereby benefits from their achievements and results.[30]

FIFG

During 2004, actions were taken to implement projects selected under the calls for proposals launched in 2002 and 2003. Three projects were closed. In 2004, no call for proposals was launched.

An ex-post evaluation of the results of projects selected within measure “Innovative actions” has been launched. The results are expected in 2005.

Consistency and Coordination

Consistency with other Community Policies

Competition

Since a large part of the assistance from the Structural Funds directly benefits individual businesses, it is essential to ensure that the Community's cohesion policy is conducted in full compliance with State aid rules. In this connection, Regulation (EC) No 1260/1999 states in particular that assistance to be approved by the Commission must include all the elements required for the ex-ante assessment of the compliance of the measures envisaged with State aid rules.

Accordingly, during 2004 the Commission paid particular attention to ensuring compliance with State aid rules (1) of the operational programmes and single programming documents for the new Member States for 2004-06, (2) of amendments to the 2000-2006 programmes and single programming documents of the old Member States, and (3) on assessing competition aspects of certain major projects eligible under Articles 25 and 26.

In addition, the Commission continued its efforts to draw up, on the basis of a comprehensive consultation exercise of Member States and other stakeholders, Revised Guidelines for national regional aid for the period after 2006. This review, which was already decided upon by the Commission in April 2003, constitutes part of the overall modernisation of the State aid architecture, as announced in April 2004 in the Commission’s communication on a pro-active competition policy,[31] which aims to meet the requests of numerous European Councils for “less and better targeted aid”, and thus to contribute to the achievement of the Lisbon objectives. The review of regional aid rules will bear in mind the principles laid down in the Third Cohesion Report, ensure consistency with the Commission’s proposals for the future cohesion policies of July 2004, and concentrate the access of large firms to regional investment aid on the regions most in need. At the same time, the regional aid intensities that can be approved by the Commission will take into account, in particular, the inability of poorer Member States to compete with richer States in subsidy races if the present levels of regional aid ceilings are maintained.

Environment

In 2004, the enlargement of the EU brought new environmental challenges. For the ten new Member States, it is estimated that some EUR 720 million will be spent on environmental priorities for the period 2004-6, which represents 4.8% of the EUR 15 billion allocated to the Structural Funds for the new Member States. This compares with 13% out of EUR 196 billion in the EU-15 for the period 2000-6 (see Annex to the Annual Report 2003).

However, it should be borne in mind that some EUR 8.5 billion is also allocated to environment in the Cohesion Fund. The proportion of Structural and Cohesion Funds to be spent on environmental measures for the period 2004-06 is put at 21.3% in the new Member States for the period 2004-06, which is a higher proportion than in the EU-15.

All the new Member States have highlighted water and waste management as important priorities for expenditure. Investments and infrastructure needs remain very high for most of the Member States in order to meet the requirements of most of the key “investment-heavy” directives, such as waste and water (in particular urban wastewater treatment), but also in the area of air quality and industrial pollution control. Support for environmental infrastructure through the Structural actions is therefore an important priority for the new Member States.

The same problems that occurred in 2003 with regard to compliance with environmental legislation and policy continued into 2004. However, particular difficulties were encountered in the new Member States with the application of the Environmental Impact Assessment Directive and the Birds and Habitats Directives (for the Natura 2000 network). Taking a proactive approach, Commissioners Barnier and Wallström jointly wrote to all the new Member States on 1 March 2004 warning them about the difficulties of co-financing without complete Natura 2000 lists.

The mid-term review of the programmes has been an opportunity for many Member States to take account in their strategies of the priorities identified by the European Strategy for Sustainable Development adopted in Gothenburg in June 2001.

The Third Cohesion Report published in February 2004 and the proposed Structural Funds Regulations from July 2004 included environmental and risk prevention as one of three funding priorities. Such a commitment is necessary considering the high costs of implementing environmental legislation.

The Expert Network of Environmental Authorities for the Cohesion Policy (ENEA) was re-activated in September 2004 after a 5-year break, and in future is planning to meet twice a year. It brings together national experts mainly from environmental ministries as well as from the Regional Environmental Centre (REC) and environmental NGOs. The ENEA is forward looking, and therefore Working Groups have been established to examine the key issues of: application of the Strategic Environmental Assessment Directive to the Structural Funds; Environmental Capacity Building; the contribution of the future Cohesion Fund to environmental goals; an evaluation of environmental success in the current period; and the Water Framework Directive.

Internal Market

Article 12 of Regulation 1260/1999 provides that operations receiving Community funding must be in conformity with, inter alia, the rules on the award of public contracts. Greater decentralisation has been introduced into the management of the Structural Funds, increasing the responsibility of the Member States and, in particular, of the managing authorities, for the award of contracts financed by the Community Funds.

To ensure that these procedures comply with Community rules, the Commission encourages the national authorities to adopt various preventive measures, such as appropriate training for staff involved in awarding contracts and issuing procedural guidelines.

The Commission will ensure that procedures on public contract awards are in conformity with Community law by checking the transposition of relevant Directives, screening and validating actions at the programming stage as well as detecting and correcting irregularities whenever Community funding is concerned.

Transport

The revised Community guidelines for the development of the Trans-European network were adopted on 29 April 2004.[32] These Guidelines comprise 30 priority projects of European interest across EU-25, with costs of around EUR 225 billion. Being projects of European interest will allow concentration of TEN-T funding from Cohesion and Structural Funds.

Coordination of Instruments

The Structural Funds and the Cohesion Fund

Aid granted by the Cohesion Fund provides financing for transport infrastructure projects in the fields of Trans-European networks and the environment. The Cohesion Fund enables the beneficiary Member States to channel significant public investments into these two fields of common interest, while meeting the objectives as regards reduction of the budget deficits envisaged by the convergence programmes drawn up under Economic and Monetary Union.

As a result of the enlargement of the European Union, the ten new Member States have since been eligible for the Cohesion Fund. There are now 13 benefiting Member States. Ireland is no longer eligible for the Fund since 1 January 2004. This is due to the level reached by its per capita GNI, which is now higher than 90% of the Community average.

The principal coordination instrument between funding under the Cohesion Fund and the Structural Funds is the strategic reference framework (SRF). Regulation (EC) No 1164/94 stipulates that "Member States also provide the results of the environmental impact in accordance with Community legislation and their conformity with a general strategy in the field of the environment or of transport at territorial or sectoral level".

The four old Member States benefiting from the Cohesion Fund presented their SRFs for the environment and transport sectors at the end of 2000. The ten new Member States presented their SRFs during the first half of 2004. Since then, decisions to finance projects by the Cohesion Fund have been subject to a verification process to avoid duplicate financing with programmes adopted under the Structural Funds. In addition, SRFs make for better complementarity between the two instruments.

Thus, in certain cases, these SRFs form an integral part of the programmes approved under the Structural Funds for the period 2000-2006, which strengthens coordination between funding under the Cohesion Fund and the Structural Funds.

The Structural Funds and the EIB/EIF

In addition to continuing efforts in 2004 to coordinate and complement ERDF and Cohesion Fund funding, on the one hand, and the EIB, on the other, at the end of 2004 the Commission and the EIB intensified their dialogue and stepped up preparatory work for greater cooperation in the next programming period 2007-2013.

The objectives set for that period include greater cooperation at all stages of the programming phase, helping interested Member States to improve preparation of their major projects, appraising major project files submitted by the Member States, and monitoring implementation of projects and programmes. This greater cooperation would tie in with the specific statute and institutional role of each partner. Negotiations are expected to conclude in 2005.

On the basis of its framework contract with the Commission for the current programming period 2000-2006, in 2004 the Bank assisted in appraising 15 major ERDF projects and 25 Cohesion Fund projects.

In 2004, the European Investment Bank lent a total of EUR 43.2bn (2003: 42.3bn) for projects contributing to the European Union’s political objectives. Financing in the EU-25 Member States totalled EUR 39.7bn (of which EUR 3.8bn in the 10 new Member States), and EUR 3.5bn was made available in non-EU countries.

Lending in the Accession Countries (Bulgaria, Romania) amounted to EUR 119 million, and in the Western Balkan countries the EIB assisted development projects to the tune of EUR 461 million.

In 2004, the European Investment Fund (EIF) – the EIB group’s specialised venture capital arm and guarantee instrument – acquired holdings worth EUR 358 million in venture capital funds, bringing its aggregate portfolio to EUR 2.8bn, and provided a total of EUR 1.4bn in guarantees for SME portfolios of financial intermediaries.

Fostering cohesion by contributing to the reduction of imbalances between regions is the EIB’s prime task and its first operational priority. With the Union’s eastward enlargement, this priority has become even more important since all of the new Member States qualify as designated assisted areas.

Within the EU-25 countries, individual loans (loans for individual projects appraised by the Bank) worth EUR 21.5bn were granted in 2004 for investment designed to tap the economic potential of assisted areas. A further EUR 7bn was made available as credit lines (global loans) to partner banks for the financing of SME ventures and smaller-scale public investment. The total lending of EUR 28.5bn for regional development represents some 72% of the EIB’s aggregate lending within the EU-25.

The main sectors of lending in regional development areas were transport and telecommunications infrastructure (accounting for 39% of the individual loans granted), industry and the services sector (20%), urban infrastructure (14%) and health and education infrastructure (11%). In the new Member States the EIB continued its efforts to support foreign direct investment, as this contributes to the transfer of both know-how and capital into the region and, therefore, to the modernisation and restructuring of industry.

Evaluations

Mid-Term Evaluation

The mid-term evaluations were carried out on the basis of the partnership principle under the provisions of Regulation 1260/1999, which specifies a role for the Commission, the Member States, the Managing Authority, the Monitoring Committee and the evaluator. The meta-evaluation carried out by the Commission of the mid-term evaluations of Objective 1, 2 and 3 Programmes identified that they were generally of a higher quality than those undertaken in the past, with some excellent examples. The Commission’s examination of the quality of the evaluations resulted in two-thirds being rated as of good or excellent quality. The Commission’s perception was that the resources allocated to the mid-term evaluation were appropriate and higher than previous allocations, but that cost effectiveness was limited by a number of factors. The mid-term evaluations in general were based on an appropriate mix of methodologies, including desk research, primary research and, for larger programmes, some macro-economic modelling. Significant improvements were evident in the quality and rigour of the evaluations.

The mid-term evaluations were used mainly by Managing Authorities, Monitoring Committees and implementing bodies in the Member States to improve the implementation of Structural Funds. They had generally a strong impact in improving implementation systems, particularly the further development of systems of indicators, implementing horizontal priorities and improving selection criteria.

Performance Reserve

The performance reserve was an innovation for the 2000-2006 period and is governed by Article 44 of Regulation 1260/1999, which states that 4% of resources should be held back at the initial programming stage for allocation at mid-term to programmes performing well. The performance reserve does not apply to Community Initiatives. The results of the mid-term evaluation were of the utmost relevance for the allocation of the performance reserve. The performance of each programme, priority or measure was assessed on the basis of ex-ante indicators set up for three categories of criteria: financial absorption, key effectiveness and management. As a general rule, most of the programmes and priorities performed well and were therefore allocated a performance reserve.

In total, over EUR 8 billion was allocated to Structural Fund programmes in March 2004 through the performance reserve mechanism, EUR 6 billion under Objective 1, EUR 1 billion each under Objectives 2 and 3 and EUR 50 million under the Financial Instrument for Fisheries Guidance (FIFG) outside Objective 1.[33] While in some cases ESF was allocated a higher proportion, in certain Objective 1 and 2 programmes all the additional resources were directed towards ERDF.

The Commission report on the implementation of the Performance Reserve in Objective 1 and 2 regions concluded that its major strength was the ability to act as an incentive for capacity building in good management practices. The fact that targets and deadlines were involved meant that regions and Member States took action to ensure that:

- resources were spent;

- evaluations were produced on time;

- monitoring systems were put in place;

- financial control systems were implemented; and

- project selection was increasingly transparent.

A second conclusion is that there was great diversity in the detail of the methods used for assessing performance and making allocations. While this is to be expected for the first implementation of an innovative instrument, any such future instrument would benefit from more clarity in its definition from the outset.

Other Evaluations

During 2004, the Commission carried out or completed a series of evaluations, these including ex-post evaluation reports of the Community Initiative INTERREG II, of a sample of projects co-financed by the Cohesion Fund, of innovative actions – Regional Innovation Strategies (RIS) and Regional Information Society Initiatives (RISI), of an Article 6 ESF Innovative Measure entitled "Adaptation to the new economy in the framework of social dialogue", the completion of ex-post evaluation of ESF operations conducted under Objectives 1, 3 and 4, Community Initiatives Adapt and Employment, the mid-term report of the EU-wide evaluation of the Community Initiative EQUAL 2000-2006, and ex-post evaluation of the FIFG measures of the 1994-99 period. Furthermore, a strategic evaluation on the contribution of the Structural Funds to the Lisbon strategy was produced.

The INTERREG II evaluation demonstrated that the strategies were largely appropriate and their respective goals were achieved. INTERREG II programmes have been found to involve significantly less isolation of border regions concerned and to improve the mobility of their populations and goods by providing transport facilities. Transport-orientated programmes were the most frequently implemented, and benefited from the largest part of resources. These were followed by activities designed to improve energy networks, and then by trans-national programmes, which mainly provided flood prevention facilities. It has been concluded that INTERREG II was most successful in areas with only some degree of isolation, and in those where the tradition of trans-border cooperation was well established. The main criticism of the evaluation was that the lack of compatibility between the Community’s external and internal financial instruments made it difficult to coordinate programmes.

Evaluation of the sample of Cohesion Fund projects carried out during 1993-2002 found that they have to a large extent achieved their objectives by improving the transportation and environmental situation in the countries concerned. The study concluded that the global quality of the projects could be enhanced by introducing additional quality assurance, selecting only mature projects and always identifying measurable and quantifiable goals, results and impacts. The necessity for risk analysis is confirmed, and it is recommended that it should be required for all complex projects. Also, adequate, professional management of projects should be ensured in all cases.

Evaluation of the Regional Innovation Strategies and Regional Information Society Initiatives - RIS-RISI - found that the Initiatives had contributed to more innovative policies and development strategies, and had succeeded in transferring their vision to a wider audience. The programmes have mobilised key regional stakeholders and achieved consensus on the actions needed to create an innovation-friendly environment. It has been established that pilot actions have instituted demand-led and bottom-up approaches for strategy development and that innovation has been integrated into existing regional strategic frameworks.

External evaluation of the projects financed under the Article 6 ESF Innovative Measure entitled "Adaptation to the new economy in the framework of social dialogue". The evaluation reviews the achievements of the call for proposals through an analysis of project activities. Emphasis has been placed on assessing factors which contribute to project success (operational factors, framework conditions, etc.).

The ex-post evaluation of ESF to assess the results and impacts of ESF operations conducted under Objectives 1,3 and 4, Community Initiatives Adapt and Employment concluded that ESF support generated a variety of substantial impacts from improving the labour market position of beneficiaries, contributing to the implementation of active labour market policies, and supporting various policy priorities (e.g. equal opportunities). It produced 'system' and 'capacity building' effects, such as developing a long-term perspective towards labour market policy through multiannual programming and developing a partnership-based approach to labour market policy and supporting the emergence of a monitoring and evaluation culture. From a 'Community added Value' perspective, ESF co-financed action was also found to be highly relevant across the EU since it supported policy and process effects such as the partnership approach and networking between a spectrum of official stakeholders and generated financial and leverage effects within the public/private sectors. Despite the numerous achievements, evaluators also identified weaknesses principally related to procedural complexity, a tendency to be 'resource driven', and monitoring and evaluation arrangements that could be further improved. Results and knowledge generated by this evaluation will find use in drafting the next report on social and economic cohesion, ESF 2000-2006 implementation and policy development concerning future ESF operations.

The main recommendations of the mid-term report of the EU-wide Evaluation of the Community Initiative Equal were to step up and promote diagnostic activity at all levels (local, national, trans-national, EU-wide), since good diagnosis is key to innovation and the assessment of impacts. More attention should be paid to the quality of employment, and not only to the improvement of labour market access, and more employer-targeted actions are needed. A common understanding of the EQUAL principles, particularly empowerment (such as participation in decision-making and improvement of access to rights), innovation (such as a continuous experimentation, evaluation and feed-back process) and mainstreaming (more than just dissemination, and requiring the setting up of mechanisms to drive the policy-making processes) should be promoted, and links between National and European Thematic Groups tightened.

The principal aim of the strategic evaluation of the contribution of the Structural Funds to the Lisbon Strategy was to assess the contribution of the current generation of Structural Funds to the Lisbon strategy, to analyse the policy framework at national and regional level for such a contribution and to explore potential and limits for the future. Achievement of Lisbon strategy objectives has so far been mixed and varies across Member States. The relative failure in delivering these objectives lies in the weakness of its implementation mechanism. It has, however, had a significant independent impact as regards resources allocated to R&D, IT infrastructure investment, and information society-related activities for developing skills. Structural Funds contribute significantly to the objectives of the Lisbon Agenda, even if there is, with the exception of the European Social Fund, little formal integration between the Lisbon Agenda and the Structural Funds. In many regions, more than two-thirds of Structural Fund expenditure is allocated to activities that are directly relevant to the Lisbon Strategy objectives and a number of impacts from this support on the achievement of the Lisbon Strategy quantitative targets can be detected. In regions where a lower share of Structural Fund expenditure is directly relevant for the Lisbon strategy, the main reason is the significance in Structural Fund support for basic physical infrastructure, reflecting particular investment needs in the least prosperous regions. The strategic evaluation highlights three main ways of increasing the complementarities and synergies between Lisbon and the Structural Funds:

- Since the Lisbon strategy is primarily an agenda for growth and competitiveness, measures should be taken to increase the growth effects of Structural Fund support through higher efficiency and effectiveness of their contributions.

- The future Convergence and Competitiveness objective of the Structural Funds opens greater opportunities for interaction and complementarities with the Lisbon strategy. The new Competitiveness and Employment Objective, in particular, should be used actively to promote a stronger take-up of the Lisbon Strategy by Member States and regions.

- In order to achieve this objective, the resources of the proposed Objective must be concentrated, allowing it to make a significant impact. To maximise the effects of the objective on the implementation of the Lisbon strategy, it is recommended that a direct linkage be ensured with national policies and programmes, that the resources of the Objective be concentrated geographically and/or thematically, and, in this context, that measures be put in place to multiply and mainstream experience from supported regions or prioritised thematic fields.

- The Lisbon strategy governance structures should be adapted to allow more direct and closer formal integration and synergy between Structural Fund support and the Agenda, including through greater involvement of the regional and local authorities.

The ex-post evaluation report of FIFG actions in the period 1994-1999 was made available in February 2004. It indicated that, at Community level, the FIFG had a positive impact on various aspects, but not employment. This is primarily due to the reduction measures for the fleet, aquaculture, processing and marketing.

The evaluation also concluded that:

- financial support was given for the demolition of vessels which, in view of their age and weak competitiveness, would in any case be scrapped;

- co-financing within the framework of setting up joint enterprises was used rather to perpetuate the presence of the beneficiaries already operating outside Community waters than for the transfer of capacities outside Community waters;

- projects aimed at conforming to the health and environmental regulatory standards, although eligible under the Structural Funds, would probably have been carried out in any case, without co-financing from the FIFG, due to the relevant regulatory requirements.

The evaluation results have been applied in an effort to improve both the management and implementation of FIFG assistance during the 2000-2006 programming period and the implementation of the reform of the CFP. The results of the evaluation were taken into account in the preparation of the proposal on the new “European Fisheries Fund for the period 2007-2013”, to help solve problems that might arise after enlargement.

Other activities carried out in 2004

Capacity building in monitoring and evaluation

In 2004, increased provision for guidance and promotion of evaluation efforts focused on the new Member States, as Structural Fund assistance was launched with accession. Much of the work concerned the promotion of evaluation and the provision of guidance for the development of evaluation capacity in the Member States. Structural Fund programmes are implemented by regional and national authorities in partnership with the Commission and therefore their evaluation is also carried out in partnership. The Member States have responsibility for ex ante evaluation. Member States in consultation with the Commission are responsible for mid-term evaluation, while ex post evaluation is the responsibility of the Commission in collaboration with the Member States. During 2004, three main evaluation-promoting events were organised by the Commission. These were a Capacity Building Seminar for the new Member States, a Technical Group on Evaluation meeting, and a Seminar on the Mid-Term Evaluation.

Methodological guidance

During 2004, the Commission undertook a number of projects to provide evaluation guidance. The main project was the new Guide to the Evaluation of Socio-Economic Development, which was completed in May 2004, and is now available via the EU Regional Policy website, or directly at the homepage.[34]

Regulation 1260/1999 - Article 42(4) - requires an update of the mid-term evaluation for all programmes for which a mid-term evaluation was carried out by the end of 2005. In 2004, following consultations with the Member States, the Commission published guidance spelling out the issues to be covered in the update.[35]

Report on the Mid-Term Assessment of Additionality in 2000-2006 in the regions of Objective 1

Additionality, one of the Structural Funds’ four principles, stipulates that, in order to achieve a genuine economic impact, the appropriations of the Funds may not replace public or other equivalent structural expenditure by the Member State. As a general rule, the national level of expenditure should be at least equal to the amount of average annual expenditure in real terms achieved in the previous programming period. The Commission initiated the process of mid-term additionality assessment in July 2003, inviting Member States to submit all necessary information and data concerning expenditure in all Objective 1 regions between 2000 and 2002. The assessment was completed in December 2004. Of the thirteen Member States concerned, nine complied fully with the principle of additionality. Both macro-region countries - Germany and Italy - missed their respective expenditure targets agreed at the ex-ante verification. In 2000, 2001 and 2002, Germany spent nearly 4.5% less, and Italy 5.6% less than anticipated. France’s structural spending was short of the amount established at the time of ex-ante assessment by 5.08%. Ireland missed its target by nearly 1.5% during the three years in question. In cases of non-compliance, however, it is still possible for the Member States concerned to achieve targets for the entire period 2000-2006.

CONTROLS

ERDF

The audit strategy established by the Commission identifies the audit objectives over a three-year period and sets out the actions to achieve these objectives. The strategy is reviewed annually, and provides a basis for a rolling three-year work plan. The main objectives of the audit strategy for 2004 were to:

- obtain reasonable assurance that the management and control systems put into place by beneficiary countries are functioning effectively to prevent and detect errors and irregularities and ensure the legality and regularity of the underlying operations and the accuracy of the expenditure declared to the Commission;

- check the accuracy of the amounts concerned;

- carry out financial corrections where the beneficiary country’s control procedures have proven inadequate.

According to these objectives, the main actions planned in 2004 were (1) to verify the reliability of closure procedures carried out by Member States for the 1994-1999 programme period, (2) to seek reasonable assurance on the systems implemented by Member States (EU-15) for the 2000-2006 programme period and (3) to seek reasonable assurance on the set-up of the systems on the basis of descriptions communicated to the Commission by the new Member States.

Period 1994-1999

For the closure of the period 1994-1999, the Commission has maintained its strategy of gaining reasonable assurance that the final payments were made on a sound basis by checking the information provided by the Member States at closure, making corrections where justified, and by carrying out closure audits on a sample of programmes to verify the reliability of the closure process completed by Member States and in particular the closure statements under Article 8 of Regulation 2064/1997.

The final examination of some 250 closure statements under Article 8 of Regulation 2064/1997 was carried out by the audit unit, covering cases where deficiencies were identified on the first desk check and further information or additional controls had been requested. Flat-rate corrections were proposed where remaining deficiencies led to the conclusion that there was inadequate assurance regarding the regularity of part of the expenditure concerned.

Closure audits have been completed on 56 programmes covering all Member States. In 2004, this involved 88 missions, of which 40 were carried out by external auditors under a framework contract. The programmes audited give coverage of 25-60% of ERDF contributions in all but one of the Member States. In addition, one INTERREG II C programme has been audited. The audit findings for certain programmes led to the suspension of the closure process because of their seriousness. In most cases, closure of the programme was completed, and any financial consequences of the closure audits will be by way of recovery.

Period 2000-2006 (EU-15)

A new audit enquiry was launched in the second half of 2004 which will continue to the end of 2006. The objectives are to verify that the systems, as described, work effectively in practice, and that there is no significant level of irregularity in the interim expenditure claims. A detailed audit plan has been drawn up for each Member State, taking account of the way in which the ERDF is managed and controlled and the risks identified. 8 audits were carried out in 2004 in different Member States, focusing on the Managing Authorities, Paying Authorities, intermediate bodies and control bodies. Some weaknesses have been detected, which are being followed up with the Member States.

Coordination meetings were organised during the first part of the year with EU-15 Member States to discuss control issues with the national control bodies, covering all the Funds.

Period 2004-2006 (EU-10)

As regards the new Member States, the audit work has concerned the assessment of the system descriptions submitted under Article 5 of Regulation 438/2001. Detailed coordination arrangements were agreed with the other Structural Funds Commission departments for this work, and a model for presenting the required information was sent to the new Member States at the beginning of the year. All descriptions for ERDF have been received within or very close to the deadline of 3 months from the date of programme adoption. The first assessment was made and letters sent to the Member States for 9 (out of 19) programmes. The work, including fact-finding missions, will be completed in the first half of 2005.

ESF

As part of the Commission's proposals to the Member States to move towards the concept of single (integrated) auditing, in 2004 the Commission started to implement an audit strategy which is designed to obtain maximum assurance concerning the systems in place, not only via its own audits and other Community audits (the European Court of Auditors is moving towards system audits), but, increasingly, also based on the results of national audits, which are more regular (and more systematic) than during the previous programming period. This implied a new strategic approach to ESF auditing, based on greater and more effective collaboration with the national control authorities.

As such, in 2004, the ESF audit strategy can be summarised as follows.

2000-2006 programming period (EU-15)

- regular review of the national control systems in order to obtain a high level of confidence in their findings. This review not only included systematic analysis of the national audit reports forwarded to the Commission and close monitoring of the recommendations they contain (desk review), but also, and above all, working meetings with the control authorities (coordination, supervision, advice) and on-the-spot reviews of the national reports and inspections (monitoring of checks). The assurance that the audit strategy notified is being implemented is crucial and is acquired by analysing the Article 13 standardised reports, and also by holding more regular and more targeted meetings than at present (e.g. at least twice a year) on the coordination of ESF controls;

- continued ESF audits on a number of targeted systems identified using a risk analysis covering all Member States and all adopted programmes, taking account of the results of audits already carried out by the Member States.

The 2004 risk assessment focused primarily on those programmes which represented the highest financial impact factor. As such, a significant volume of ESF funding could be covered by these systems, leading to coverage of around 70% of the programming period's total available funding (excl. reserve and indexation). In 2004, 42 system audits were carried out in the EU-15 Member States and 17 coordination meetings were held with the designated Articles 10 and 15 national control authorities.

2004-2006 programming period (EU-10)

System descriptions were reviewed following Article 5 reports, supplemented by on-the-spot fact-finding missions in the new Member States. In 2004, 5 fact-finding missions were carried out in the EU-10 Member States.

1994-1999 programming period

One of the main objectives for the audit service was also to continue verifying the reliability of methods used by the national authorities to establish certificates under Article 8 of Regulation 2064/97. As such, 3 closure audits were carried out in 2004 (ES, DK and BE-Flanders).

EAGGF

In accordance with its audit strategy and its annual work plan, in 2004, the Commission's EAGGF audit service carried out the following audit work:

Closure 1994-99

Examination of the closure statements presented by Member States under Article 8 of Regulation 2064/97 continued in 2004. At the end of 2004, only the closure statements for 24 programmes of the 1994-99 programming period (out of a total of 381 programmes) had not been concluded. For 23 programmes, examination of these statements concluded that the procedure provided for under Article 24 of Regulation 4253/88 for the purposes of applying a financial correction would be appropriate.

Also, in 2004, the audit service responsible for EAGGF carried out 5 missions in Member States. These missions were closure audits designed to verify that the procedures applied by Member States at the closure of the 1994-99 programming period were sufficient to ensure compliance with Community rules. The programmes were selected on the basis of risk criteria and mainly covered the biggest national programmes for Objective 5a measures.

2000 – 2006 programmes

Examination of the descriptions of the management and control systems set up by Member States continued in 2004. By the end of 2004, this examination had been concluded for almost all programmes. Moreover, in 2004, 17 audit missions were carried out in Member States by the audit service (most of them with the support of a private audit firm). This audit work allowed DG AGRI audit services to identify certain situations which were not satisfactory (accounting for some 2-3% of the EAGGF payments in 2004). These are currently being discussed with the Member States to find ways of making the appropriate corrections. Recommendations for improvement were also sent to Member States in several other cases.

FIFG

The ex-post control sector had given priority to verifying the closure of 1994 – 99 programmes and to reviewing the management and control systems for 2000 – 06. Beyond that, it was decided to increase the checks on innovative actions in 2004 and in particular in 2005. National authorities are not involved in these actions, for which the Commission paid beneficiaries directly.

A total of 8 on-the-spot controls were carried out in 2004.

Five on-the-spot controls concerned the verification of the management and control systems of 2000-2006 programmes (EUR 407 million) in four Member States, followed by audits on-the-spot. Bilateral contacts with a number of Member States continued during 2004. By the end of the year, the “Article 6” procedure was not yet completed for 6 Member States (8 programmes), but for four of those Member States the procedure was finalised at the beginning of 2005.

One FIFG control concerned the closure of 1994-1999 programmes (EUR 1.1 million). For the programming period 1994-99, the ex-post control sector had to deal with the assessment and analysis of the winding-up of declarations and payment claims for the 52 FIFG programmes. The majority of these documents were received during the first quarter of 2003. At the end of 2004, most of the winding-up declarations and payment claims had been assessed.

Two projects of innovative actions were audited for an amount of FIFG aid of 236 000 EUR. An amount of 15 000 EUR was found not to be eligible.

In total, 19 structural projects were audited (EUR 5.35 million), FIFG aid amounting to EUR 1.8 million. An amount of 77 000 EUR was found not to be eligible.

OLAF

During 2004, OLAF undertook 29 operational missions in the Member States regarding measures co-financed by the Structural Funds. For 22 of these missions, Regulation (EC) No 2185/96[36] concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities' financial interests against fraud and other irregularities served as a legal basis. Seven other missions were assistance missions, either to the national administrations or to the judicial authorities.

In addition to operational controls and their coordination at Community level, OLAF also provided assistance in the coordination of investigations undertaken by the competent national administrative and judicial authorities.

Sixteen missions focused on the ESF, of which five related to cases opened in 2004, ten referred to controls started in 2003 and one in 2001, three missions concerned the ERDF for controls opened in 2003, two missions FIFG cases opened in 2003 and one the EAGGF Guidance Section for a case opened in 2003.

The controls showed evidence of false invoices and false declarations without any justification.

In 2004, OLAF also undertook three complementary audits pursuant to the commitments expressed in the Report addressed to the European Parliament and to the Court of Auditors on audits performed in the 15 Member States in application of Commission Regulations 1681/94 and 1831/94 concerning systems and procedures for the notification and monitoring of irregularities, and of Article 8 of Regulation (EC) No 438/2000. One of these audits has been undertaken jointly with DG REGIO (Germany - Brandenburg) while the other two were performed solely by OLAF (Italy - Regions of Campania and Abruzzi-Molise) and Spain (autonomous Community of Catalonia). These audits confirmed the conclusions of the audits carried out in 2003 in the 15 Member States, and the Commission committed itself to amending Regulation 1681/1994, which is currently under way.

In 2004, the Member States themselves notified the Commission, in accordance with Regulation (EC) No 1681/94, of some 3037[37] cases of irregularities, involving EUR 431 million, which affected payments incurred during both the 1994-1999 and 2000-2006 periods. Both the amounts and the number of cases increased compared to 2003. This is very likely to affect the finalisation of the closure of the programmes for the 1994-1999 period. It shows nevertheless an increased awareness by the Member States of their obligations and therefore better reporting rather than more irregularities.

Articles 3 and 12 of Regulation (EC) No 1681/94 provide that Member States must notify the Commission of all cases of irregularities amounting to EUR 4 000[38] or more. Regulation (EC) No 1681/94 distinguishes between fraud[39] and others irregularities.

OLAF's involvement in the closure of the 1994-99 programmes allowed it to ensure the financial follow-up and application of Article 5 of the above-mentioned Regulation in a significant number of cases. The latter obliges the Member States to inform the Commission on a case by case basis of the procedures initiated as a consequence of the irregularities notified and of any significant changes made to these procedures. However, since the closure exercise is not yet finished, any assessment would be premature.

In some cases the Commission was not informed of any follow-up of the notified cases. This involves in particular programmes in the first programming period, although certain programmes had been closed for some time. Nevertheless, legal procedures for irregularities are still ongoing at national level and the final audit of the amounts relating to these irregularities has been suspended until finalisation of these procedures.

COMMITTEES ASSISTING THE COMMISSION

Committee on the Development and Conversion of Regions (CDCR)

The CDCR acted as management committee under the procedure provided for in Article 47(3) of Regulation (EC) No 1260/1999 on the following issues:

- Amendment of the guidelines INTERREG III and INTERREG IIIC. The Committee gave a favourable opinion.

- Commission Regulation (EC) No 448/2004 of 10 March 2004 amending Regulation (EC) No 1685/2000 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the eligibility of expenditure of operation co-financed by the Structural Funds and withdrawing Regulation (EC) No 1145/2003. The Committee gave a favourable opinion.

As a consultative committee, the CDCR processed, among other things, the Technical assistance measures planned for 2005 and approval of the lists of the areas eligible under Objective 2 and approval of programming documents of the new Member States.

In addition, the CDCR also acted as a forum for information and discussion of any specific points relating to implementation of the Structural Funds and the 3rd Cohesion Report.

Overall, at the 10 meetings of the CDCR organised in 2004, some 46 subjects were covered. The CDCR working group on “Territorial and Urban Development” assists the CDCR on particular issues relating to spatial planning and urban questions; five meetings of this working group were organised in 2004.

ESF Committee

The ESF Committee held 5 Plenary sessions in 2004, and its Technical Working Group met eight times.

The Committee adopted 3 Opinions during the course of the year. The first was by written procedure on the amendment to Commission Regulation (EC) No 1685/2000.

In May, the Committee held an extraordinary session in order to adopt its opinion on the programming documents of the new Member States,