REPORT FROM THE COMMISSION - ANNUAL REPORT OF THE INSTRUMENT FOR STRUCTURAL POLICY FOR PRE-ACCESSION (ISPA) 2001

TABLE OF CONTENTS

Foreword

Introduction - Key messages for 2001

ISPA budget in 2001

Commitments in 2001

1. Projects proposed by Candidate Countries

1.1. ISPA Funds for the Environment

1.2. Funds for Enhancing Trans-European Transport Links

1.3. Technical Assistance - Project Preparation

1.4. Technical Assistance - EDIS

1.5. Implementation and payments

2. Technical Assistance at the Community's initiative

2.1. Activities in 2001

2.1.1. Action Programme 2001

2.1.2. Activities already started in 2000 and still ongoing

Specific action points in 2001

3. Financial Management and Control

4. Enhancing the understanding of Environmental Impact Assessment Directives

5. Public procurement

6. Modifications to the legal framework

7. Preparation for "EDIS" (Extended Decentralised Implementation System)

8. Project Monitoring

9. The evolution of Co-financing

10. Co-ordination among pre-accession instruments

11. Communication programme

Global overview of Financial Assistance

Overview per country of Financial Assistance

12. Bulgaria

13. Czech Republic

14. Estonia

15. Hungary

16. Latvia

17. Lithuania

18. Poland

19. Romania

20. Slovakia

21. Slovenia

List of Abbreviations

Useful Information Sources

Foreword

This annual report on the activities of the ISPA fund covers the calendar year 2001. It provides information on the second year of the pre-accession instrument which was set up as part of Agenda 2000.

The reporting format reflects the requirements of the Instrument for Structural Policy for Pre-Accession Regulation. It has been adapted to take into account the comments made by the European Parliament, the Economic and Social Committee and the Committee of the Regions.

Introduction - Key messages for 2001

This is the second Annual Report by the Commission on the Instrument for Structural Policies for Pre-Accession (ISPA).

The first Annual Report, COM (2001) 616 final included an overview of the strategic priorities that ISPA beneficiary countries were requested to prepare before any funding proposal is decided by the Commission. This annual report focuses on the measures (projects) that were decided in 2001, progress in implementation as well as the efforts to prepare Candidate Countries for the fully decentralised management of ISPA and for improving the financial management and control systems.

Key messages for 2001

* In 2001, 94 new projects were decided by the Commission. Community funding of these new projects amounts to over EUR 1.1 billion out of a total cost of EUR 2.3 billions to be co-financed by the ISPA Beneficiary states [1] and international financial institutions.

[1] Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia.

* Together with the projects already decided in 2000, the Commission approved a total of 169 ISPA projects, amounting to EUR 6.6 billion, of which the EU will finance EUR 3.9 billion (64.4 %).

* With the decisions taken in 2000 and 2001, the Commission has already allocated about more than 40 % of the funds foreseen for environmental projects for the whole ISPA period, and more than 60 % that are set aside for the transport sector.

* The amounts committed in 2001 were divided fairly equally between the environmental and transport sectors: 52% of the 2001 budget were allocated to environmental projects, and 48% for the transport sector. With these commitments the Commission corrected the slight funding inequality between the two sectors that existed in 2000.

* With decisions taken in 2000 and 2001, a total of EUR 59.9 million for 30 TA measures was mobilised to strengthen the project pipeline for 2002 and beyond, including projects for the Cohesion Fund.

* With the signing of the first works contracts, 2001 was the first year of real progress on the ground.

* ISPA is currently implemented through the Decentralised Implementation System (DIS). With this system, procurement documents are checked in advance (ex ante approval) by the Commission. In 2001, the Commission made technical assistance (TA) funds available to assist Candidate Countries in taking the necessary measures to analyse and improve the capacity of the national implementing agencies to manage Community assistance in a fully decentralised manner.

* In autumn 2001, the Commission undertook systems audits to assess the extent to which the Candidate Countries have established management and control systems that comply with the requirements defined in the ISPA Regulation [2].

[2] EC n° 1267/1999, as amended.

ISPA budget in 2001

The budget for the Ispa instrument comes from two budget lines B7-020 and B7-020A. The first line foresees the means to be used to co-finance projects (measures) [3] in the Candidate Countries in the environment and transport domains as well as for technical assistance (TA) to identify the best projects or for the preparation of projects. TA projects that assist the Candidate Countries to move toward decentralised management can receive funds from this line. From the B7-020A line, funding for projects at the Commission's initiative is possible.

[3] The terms "measure" and "project" both refer to the unit of assistance grants to the beneficiary countries and are used interchangeably in this document.

Table 1

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EUR 1.080 million was allocated from the Commission budget for the ISPA instrument in 2001. The B7-020 line originally received EUR 1 060 560 000. This amount was then increased by EUR 41 243 301, which was carried forward from the 2000 budget, and by EUR 7 392 169 transferred from budgetary line B7-020A. As a result, for projects on the initiative of the Beneficiary Countries EUR 1.109 million was available.

From the original B7-020A budget (EUR 19.44 million) EUR 11 989 526 was committed for projects on the Commission's initiative. As mentioned EUR 7.3 million was transferred to the other line and, for administrative reasons, EUR 58 305 was carried-forward to line B7-020 A for 2002.

Commitments in 2001

1. PROJECTS PROPOSED BY CANDIDATE COUNTRIES

Overview

Between 2000 and 2001, the European Commission decided, following the favourable opinion of the ISPA Management Committee [4], a total of 169 projects proposed by the Candidate Countries (B7-020 budget line), amounting to a total eligible cost of EUR 6,113 million, of which the EU will finance EUR 3,938 million or 64.3 %. The normal ISPA funding ceiling for projects stands at 75 %, or 85 % in exceptional circumstances. For TA projects (i.e.: to prepare for decentralised management) the funding ceiling is normally to 100 %.

[4] The ISPA Management Committee, which is composed of Member States representatives, gives an opinion on ISPA measures before a Commission decision is issued.

Of these interventions, 100 correspond to environment projects, 64 to transport projects and 5 projects for technical assistance for EDIS. With the funding decisions taken in the first two years of ISPA, the Commission could allocate at this stage more than half of the funds set aside for the period 2000 to 2006.

In 2001 ISPA commitment appropriations from budget line B7-020 were mainly used for the 94 new ISPA measures and second tranches [5] for projects decided in 2000 (EUR 1.109 billion). Of this, EUR 2.7 million was committed for TA for EDIS, and EUR 26.1 million for project preparation. A total of 94 new projects with a total project cost of EUR 2.3 billion were decided on by the Commission, Community funding for these new projects is over EUR 1.1 billion. The remainder is to be co-financed by the beneficiary states (national sources at central, regional, and local level), and international financial institutions (IFIs). The average Community grant rate stood at 64 % of project cost in 2001.

[5] ISPA measures are committed in annual tranches, i.e. committed are spread at least over two years. Consequently, commitments for the budget year 2001 also include second tranches for some projects already decided in 2000.

The amounts committed from the 2001 B7-020 budget were divided fairly equally between environmental and transport sectors: 52 % was allocated to environmental projects, whilst transport projects received 48 %. With these commitments the Commission countered the slight funding inequality between the two sectors that had emerged in 2000.

1.1. ISPA Funds for the Environment

51.92 % of the ISPA budget this year went to environment projects. More than half of ISPA funding in the environmental sector for the year 2001 was dedicated to sewage treatment projects. Primarily the projects focused on sewerage works to extend, replaced or repair current systems in the beneficiary countries. Approximately 26 % of funding was assigned to drinking water projects, the majority in conjunction with waste water treatment projects. About 15 % of the funding in this sector was applied to solid waste management, primarily to landfill projects. As in 2000, air pollution did not receive any funding in 2001.

In 2001, the Commission decided the first "Group of Projects" which allows the Commission to fund smaller projects, following a coherent strategy. For example investments along the same river basin. This approach was endorsed by the Ministers of the Environment of the Candidate Countries at the Informal Ministerial Meeting with Commissioner Wallström in November 2001.

Table 2: ISPA Budget 2001 - Environmental sector by sub-sector

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1.2. Funds for Enhancing Trans-European Transport Links

The aim of ISPA in the transport sector is to contribute to the building of the future trans-European transport network. The instrument finances transport infrastructure projects promoting sustainable mobility based on the criteria of Decision N° 1692/96 of the European Parliament and of the Council of 23 July 1996 [6]. The measures should enable the beneficiary countries to comply with the objectives of the Accession Partnerships and must ensure interconnection and interoperability within national networks as well as between these networks and the EU's .

[6] Community guidelines for the development of the trans-European transport network.

The preparation of projects needs to take account of the ten multi-modal Pan-European transport corridors, endorsed at the third Pan-European Transport Conference at Helsinki in June 1997. Projects to be financed by ISPA as a priority need to be on the backbone network, as identified by TINA (Transport Infrastructure Needs Assessment) exercise, but can also relate to projects on the rest of the TINA network.

Technical adaptations were undertaken with the Candidate Countries on Decision 1692/96/EC (guidelines for the development of the TEN-T network). The base for this technical adaptation has been the "TINA" network. When a Candidate Country becomes a Member State this network will form a part of annex 1 the TEN-T guidelines.

Table 3: ISPA Budget 2001 - Transport sector by sub-sector

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The ISPA funds spent in the Transport Sector have focused on the extension and improvement of the TINA (Transport Infrastructure Needs Assessment) network, in order to facilitate the connections between the European Union and the Accession countries. Over half of the ISPA Budget for the transport sector in 2001 was dedicated to road projects including new construction and improvements to meet EU capacity and safety standards. About 40% of the funding was assigned to rail projects involving primarily the rehabilitation and upgrading of existing infrastructure to EU standards.

1.3. Technical Assistance - Project Preparation

Project preparation during 1999 and 2000 was mainly financed by the Phare Programme and bilateral aid from Member States. Some projects proposed for funding in 2001 were still prepared in this way, however certain Candidate Countries began in 2000 to use ISPA TA funds for project preparation.

By the end of 2001, 30 TA measures for project preparation were decided - this is separate from TA for EDIS - with a total eligible cost of EUR 59.9 million (in 2001 the Commission decided on 18 TA measures with a total eligible costs of EUR 47.9 million). These funds will be used to prepare investment projects for presentation to the Commission for ISPA funding. TA has been an effective mechanism supporting project investments funded by ISPA that helps to ensure to high level project quality, particularly in terms of preparation, management and impact.

The development of a strong and high-quality project pipeline is essential for ensuring the Commission receives a sufficient number of suitable projects, to be presented in 2002 and beyond. The preparation of a strong project pipeline is not only essential for ISPA, but also for the Cohesion Fund for those ISPA beneficiary countries that will join the EU in the first wave. With the Cohesion Fund, Community assistance for infrastructure projects similar to those financed through ISPA will substantially increase. Some Candidate Countries already use ISPA TA funds to finance preparatory studies for projects to be submitted to the Cohesion Fund.

1.4. Technical Assistance - EDIS

The objective of the Commission is that Candidate Countries likely to join the EU in 2004 will mostly operate under the Extended Decentralisation Implementation System (EDIS) in the course of 2003. The Candidate Countries concerned are currently at the first stage of the implementation of EDIS, the 'gap assessment' (as defined in a 'Road Map to EDIS for PHARE and ISPA') proposed to Candidate Countries in 2001.

The Commission made available TA funds in order to prepare for EDIS. These funds were approved for the National Authorities in Estonia, the Czech Republic, Poland, Latvia and Lithuania. In the case of Bulgaria, Phare funds are currently allocated to the setting up of EDIS. Hungary, Romania, Slovakia and Slovenia have recently requested such TA funds and will benefit from them in 2002. This assistance will also help in strengthening the implementation structures for the Cohesion Fund.

1.5. Implementation and payments

The projects that ISPA finances are large infrastructure projects that are implemented over several years. They require a certain lead time for preparatory work so as to ensure efficient and proper project implementation. Actual implementation progress on the ground requires, as with any major public infrastructure investment, very detailed preparations, including tender dossiers, and procedures (with the strict application of Community procurement rules). The preparation of high-quality tender documents requires highly skilled expertise, which need building up in Candidate Countries. The tender process for large infrastructure contracts takes, at best, nine months from the publication of a procurement notice to the signing of the contract.

Furthermore, it must be noted that from a legal point of view, ISPA funds only became available in January 2000. For administrative reasons the Commission could only formally decide on the first ISPA measures in the last part of 2000. With the signature of a Financing Memorandum by the Commission (usually signed on the same date as the Decision) expenditures for an ISPA measure become eligible for ISPA funding. Contrary to the Structural Funds and the Cohesion Fund, the Financing Memorandum for a particular measure needs to be countersigned by the national authorities, which in turn must follow their respective constitutional procedures, in some cases involving ratification by Parliament. This is a process, which has proven in the past to take several months, whereby control is entirely outside the powers of the Commission. Only once the Financing Memorandum is counter-signed, can payments be made. The Commission has encouraged Candidate Countries at several occasions to speed up this process, and it is hoped that for projects decided in 2002, the limit between decision and the claim for the first advance will substantially be reduced.

It is therefore not surprising that the first substantial payments were only made in 2001, which total around EUR 200 million in that year, as the first ISPA projects were decided not much before the end of 2000. These payments include 21 % of the amounts committed in 2000.

ISPA payments in 2001 were mainly advanced payments and these are divided in two parts:

* The first part, normally 10 % of the ISPA assistance is paid to the National Fund in the Candidate Countries at their request after the signature of the Financing Memorandum.

* The second part, normally a further 10 % is released upon fulfilment of certain strict conditions in the implementation cycle such as the award of the first significant contract comprised in the project, usually a works contract. These conditions are often linked to environmental measures (such as on the completion of the public consultation procedure), technical clarifications, and - most importantly - the establishment of proper project implementation and supervision structures. The payment of the second tranche of the advance reflects real implementation progress on the ground.

Further intermediate payments are paid according to implementation progress (to contractors). Reflecting the early stages of implementation, the Commission has only received a very limited number of intermediate payment claims.

Table 4: project payments scale

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Table 5

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At present, the procedures for managing measures financed by the ISPA fund require ex-ante control, i.e. decisions concerning procurement and award of contracts are taken by the contracting authority and referred to the EC Delegation in the beneficiary country for endorsement.

The DG Regional Policy ensured punctual strategic, and ad hoc advice to the colleagues in the Delegations (responsible, according to the de-centralisation policy of the Commission, for the decisions concerning project implementation) on procurement matters.

2. TECHNICAL ASSISTANCE AT THE COMMUNITY'S INITIATIVE

Overview

The allocation provided under B7 - 020A for the year 2001 amounted to EUR 19.44 million. Of this amount, the Commission committed EUR 12 million for activities to be carried out for a period of three years, with disbursement foreseen until end of 2004 (Action Programme 2001). In addition, a contract was signed for revising the application process for environmental projects.

As in 2000, the funds that were not committed for TA measured were transferred to budget line B7-020 and made available for investment measures in the beneficiary countries (EUR 7 392 169).

The priorities that are addressed through the Action Programme include:

(i) to improve the quality of project selection, preparation and appraisal;

(ii) to facilitate project implementation;

(iii) to launch and assist the decentralisation process;

(iv) to elaborate on financial engineering;

(v) to strengthen information and communication.

The far-reaching scope of these priorities mean that it cannot be expected that the objectives will be fully achieved in one year. The Commission therefore proposed to cover with this Action Programme a period of three years (2001 - 2003).

2.1. Activities in 2001

2.1.1. Action Programme 2001

According to Article 11 (2) CR 1266/99 governing the co-ordination of aid in the pre-accession framework, expenditure related to monitoring shall be eligible for assistance from the Community budget. Consequently, the Commission concluded Financing Memoranda with the national authorities in Candidate Countries to provide financial assistance for certain organisational expenditures of Monitoring Committees. Eligible expenditures include interpretation and translation, leasing of rooms, necessary electronic equipment, travel expenditure for participants coming from outside the location of scheduled meetings, support for the elaboration of monitoring guidelines, and other expenditures necessary for ensuring the smooth operation of the Monitoring Committees.

Total amount allocated for this activity: EUR 1 000 000.

Supplementary support to EC Delegations

Under the 2000 TA measures for reinforcing the Delegations, resources were made available to recruit additional staff and cover related administrative costs. These resources cover a period of 3 years. The actions continued in 2001 (see below).

Under the 2001 TA funds, additional resources were made available for small-scale technical assistance (SSTA) and, short-term expertise managed by the Heads of Delegation. This technical assistance serves to assist the Commission with (extra muros) support for a broad range of expertise including verification of tender documents, supervision of tendering and evaluation procedures, contract preparation, supervision and control of implementation, ad-hoc and small-scale training of the implementing authorities in the beneficiary countries, and country specific information/communication about ISPA related issues.

Total amount for this activity: EUR 3 500 000.

Framework contract for Public-Private Partnership (PPP)

Given the specificity and complexity of PPP schemes, there is a need for the Commission to have access to specialised consulting firms. Consequently, a multiple framework contract was signed in 2001 with suitable and reputable international consulting firms with experience in assisting countries and institutions in privatisation and concessions. The contract, similar to the technical framework contracts concluded in 2000, allows on a case by case basis to mobilise appropriate human resources for assisting in the identification, appraisal implementation and monitoring of PPP-projects.

This action allows the Commission to rely also on outside support for developing guidelines for dealing with the complex issues involved in PPP schemes such as:

* the choice of the most appropriate type of PPP (BOT *build, operate and transferb, operational concession, privatisation, etc);

* selection of the concessionaire and private partner, respecting the basic principles of transparency, equal access and competition;

* review and advice on concession contracts;

* the monitoring of the implementation of the PPP scheme in order to ensure that the public interest and objectives of PPP schemes are safeguarded.

Total value of the contract: EUR 3 100 000.

Seminar and training sessions

In order to make applicant countries more familiar with the various concepts of Private Public Partnerships and inter-municipal co-operation in the management and financing of public utilities, the Austrian "Federal Ministry for Agriculture, Forestry, Environment and Water Management" and the Commission (DG Regional Policy and DG Environment) organised a joint seminar in Vienna on 17 and 18 September 2001 with participants from many countries both within the existing European Union and the Candidate Countries. The conference was a good example of sharing experiences between countries and providing the accession countries with new and useful insights based on previous experience.

Experts and professionals from various member states presented a number of co-operation models from their countries. From the models described, the balance between the roles of the state and the private sector differs considerably. There was considerable interest at the conference in the strengths and weaknesses of different kinds of organisation and considerable discussion about the reasons for this diversity in organising and managing basic environmental services within Europe.

One important lesson, which was learned from this seminar, is that there is no universal model of co-operation and no single best-practice example was recommended as the most suitable approach to finding private sector partners. For those responsible for environmental management in the applicant countries there are a number of options for increasing investment and improving efficiency, but each solution must be adapted to the needs and circumstances of each country.

Total value of the grant agreement: EUR 77 740.

Quality enhancement for environmental project applications

Specialised services were contracted to improve the understanding and the quality of applications in the water sector - the area which receives the largest share of assistance in the environmental sector. The emphasis of work was on environmental issues relating to the design of water projects.

Total value of the contract: EUR 47 831.

Some of the activities of the Action Programme to be organised for 2002 onwards

In early 2002, DG Regional Policy organised additional information events that were financed by the Action Programme. In January 2002, DG Regional Policy invited national authorities involved in the ISPA process to an "ISPA Partner Meeting" to take stock of the experience gained during the first two years of ISPA and to define near-term priorities related to programming and implementation, and in particular as regards financial management and control issues.

In Spring 2002, DG Regional Policy and DG Environment organised two seminars (in Riga and Prague) to bring together national experts involved in the ISPA process and water officials with responsibilities for implementing the relevant criteria of the "acquis communautaire". The focus was to discuss the possibilities of using ISPA funds (and upon accession, the Cohesion Fund) for preparatory work required under the new Water Framework Directive. Consequently, the focus of the Water Framework Directive workshops was on linking the process of integrated river basin management planning, as required by the newly adopted Water Framework Directive and the process of allocating ISPA funds for improving the quality of water in Candidate Countries.

Early in 2002, DG Regional Policy signed framework contracts for communications and public relations activities for the Cohesion and Structural Funds, as well as for ISPA. ISPA's contribution was committed from the Action Programme.

2.1.2. Activities already started in 2000 and still ongoing

* Local technical assistance (Deconcentration). In 2000, EUR 7 million was allocated for the reinforcement of the EC Delegations with qualified technical staff. The commitment is designated to pay the local staff reinforcement, for a period of up to three years. In 2001, about 40 specialised technical staff were recruited to reinforce the delegations' procurement and supervision capacity.

* Framework contracts for specific technical tasks:

- Two framework contracts were signed in 2000 and funds committed from the 2000 budget. In 2001, a total of EUR 112 410 were paid out.

- Framework contract with the European Investment Bank (EIB): a contract with the EIB was entered into in 2000, securing access to the expert knowledge of the bank's technical staff for a duration of six years. The European Regional Development Fund (ERDF) and the Cohesion Fund have entered similar parallel arrangements with the Bank.. The budgetary commitment for this assignment was EUR 210 000.

* Seminars on the Environmental Impact Assessment Directive : in 2001, seminars were organised to enhance the understanding of the national authorities on the requirements of the EIA Directive (see section 3). EUR 33 434 was paid in 2001 for this activity.

Table 6: Budgetary allocations and payments for technical assistance - 2001

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Table 7: Budgetary allocation for technical assistance - 2000

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Specific action points in 2001

3. FINANCIAL MANAGEMENT AND CONTROL

It is a joint responsibility of the Candidate Countries and the Commission that the Community assistance made available under ISPA - EUR 7,280 million during the period 2000 to 2006 or EUR 1,040 million per year (in 1999 prices) - is well managed and well spent.

EC Regulation 1267/1999 prescribes [7] that Candidate Countries should have established by no later than 1 January 2002 an adequate management and control system that can ensure:

[7] EC No 1267/1999 of 21 June 1999 article 9 (1).

- Proper implementation of the ISPA assistance;

- Separation of the functions of management and control; and

- Accurate expenditure declarations, emanating from accounting systems based on verifiable supporting documentation.

The regulation further requires the Candidate Countries to verify that measures have been properly carried out, to prevent irregularities, take actions against them and to recover any amounts lost as a result of irregularity or negligence.

EC Regulations are not directly applicable in Candidate Countries and these requirements are therefore included and expanded in Annex III of each Financing Memorandum.

For all 10 ISPA Candidate Countries, in the period October 2001 until January 2002, systems audits were carried out by the Commission with the objective to assess to what extent the Candidate Countries have established management and control systems that comply with the requirements of Annex III of the Financing Memoranda, to assess the adequacy of these systems and to provide recommendations.

The results of the audits indicate that the Candidate Countries have made significant efforts in setting up management and control systems and that generally there has been good progress towards meeting the requirements of Annex III of the Financing Memoranda. However, further serious steps need to be taken in a number of key areas to deal with the general weaknesses identified below:

* Internal audit does not yet function well in practice, often due to a lack of staff resources and experience;

* It is (in a number of countries) not clear how and by whom checks will be carried out on expenditure to be claimed from the European Commission for reimbursement of interim payments;

* Lack of a proper segregation of functions between accounting, payment and audit;

* Use of different accounting and reporting systems in the different bodies involved in the execution of a measure;

* Many amendments and additions to the management and control systems have been made. There is a clear need for the NAO in some cases issue a complete package of the Implementation Paper that provides a full and updated description of the management and control system in use in the Candidate Countries;

* Lack of close co-operation and co-ordination between the different ISPA bodies;

* Need for detailed Procedure Manuals in each ISPA body, describing practically the steps for the performance of the different tasks;

* Lack of procedures that can ensure appropriate treatment of irregularities (prevention/detection/recovery/reporting);

* Need to finalise agreements between NAO/SAO (Sectoral Authorising Officer) and SAO/Implementing Agencies that establish the delegation of tasks and the reporting; and

* Need to develop a system of on the spot checks to verify the adequacy of the management and control systems and to check - on a sample basis - project expenditure.

Candidate Countries are now addressing the observations and recommendations included in the audit reports. In 2002 the Commission audit services will follow up on these actions. Also the topics not covered in the first round of missions such as tendering and contracting and the supervision of Final Beneficiaries will be subject of audit in the next round. Finally, financial audits - with the objective to provide reasonable assurance on the legality and regularity of expenditure made in the beneficiary countries - will be started up in the course of 2002.

4. ENHANCING THE UNDERSTANDING OF ENVIRONMENTAL IMPACT ASSESSMENT DIRECTIVES

Projects need to be in line with the main EC environmental policy principles, in particular those concerning preventive action, damage rectified at source and the polluter pays principle. There is also an emphasis on the obligation of combining individual infrastructure development within a broader management plan.

One key element of environmental legislation to be observed in transport and environment projects is the Environmental Impact Assessment (EIA) Directive 85/337/EEC as amended by 97/11/EC. This sets out the legal basis for the assessment of potential effects of large infrastructure projects on the environment and is taken as a reference when assessing compliance in this area of the proposed projects.

It is important to note that the construction of transport and environmental infrastructure eligible for ISPA is in general covered by either Annex I (under which an EIA is compulsory) or by Annex II (under which national authorities have to decide whether a full EIA is necessary, on the basis of pre-defined criteria) of this directive. An important requirement of the EU Environment Impact Assessment Directives is the consultation of the population concerned, as well as the relevant environmental authorities. From the outset, and in the absence of a concrete legal basis aligned with the EU acquis requirements in most of the beneficiary countries, the Commission insisted on some minimum standards to be fulfilled during the different stages of the environmental assessment procedures. In this way, during the course of 2001, most countries will have completed transposition of the EIA Directives (85/337/EEC and 97/11/EC), but continuous checks and concrete advice and support from the Commission are still necessary in order to ensure proper implementation of the rules. EIA procedures are complex, not only because of the technical nature of the necessary impact studies but also because of the need to co-ordinate and involve many different actors, and can take a long time to be completed. Proper timing and an early start to the procedures are therefore essential in the context of ISPA applications and this is an aspect where countries need to improve.

Another important element related to this analysis of potential environmental impacts of ISPA projects, is the assessment of potential effects on environmentally sensitive areas from the point of view of nature protection. In order to avoid irreversible damage to areas that might become part of the future Natura 2000 network in the beneficiary countries (following implementation of directives 79/409/EEC on the protection of wild birds and 92/43/EC on the protection of habitats), an adequate analysis is requested for each project. To facilitate this analysis, in 2001, the Commission prepared a new version of the Annex I of the ISPA application form. This now includes a more specific questionnaire on the potential impacts to future Natura 2000 areas, in line with the current practice for member states in the context of Cohesion and Structural Fund projects.

To enhance the understanding of national authorities as regards the requirements of the EIA Directive and consequently to improve the quality of funding applications, the Commission funded in 2001, 10 thematic seminars. The objective was to build on the experience gained during the first year of ISPA and to improve the way the authorities in the beneficiary countries carry out EIA studies. Following this, the recommendations produced would then be used in the tendering and contracting phase. The ten seminars were attended by Candidate Countries Ministry representatives, by staff from the Implementing Agencies (the national body responsible for project implementation) who manage the project cycle from the feasibility studies to the tendering and contracting phase and by Commission Officials. Local stakeholders were also involved in the organisation and attended some of the activities. An international consultant delivered general information on the EC Directive and the EIA procedure and produced certain experiences that allowed for overall stock-taking. In particular cases from the experience of the Cohesion Fund process were highlighted. Where possible, the seminars were attended by representatives from the EIB, EBRD and World Bank. These IFIs have shown a strong interest in participating in the development of the ISPA pipeline in all ten Candidate Countries.

5. PUBLIC PROCUREMENT

Measures financed by the Commission with the ISPA fund must be compatible with Community policies; in particular, they must comply with competition and public procurement rules. This relates, more specifically to respect for the principles concerning tendering rules. In this context, the principles laid down in the provisions of Title IX of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, must be applied. In addition, each Financing Memorandum concluded with the beneficiary country for a specific project contains in the annexes specific reference to detailed rules on tendering and contracting procedures.

Since the beginning of 2001, the procurement rules which beneficiary countries are obliged to follow for service, works, and supply contracts have been detailed in the "Practical Guide to Phare, ISPA & Sapard Contract Procedures" (PRAG). This does, however allow for the use of "FIDIC" (Fédération international des ingénieurs-conseils) conditions of contract for works projects. Limited to beginning of the year 2001, some procedures were authorised to be completed under the previous DIS system as well.

It should be noted that the use of FIDIC conditions of contract allows for the differentiation of projects in which the onus of design and responsibility are best placed on the contractor who therefore has the obligation to deliver accordingly on certain performance criteria (Design and Build Conditions of Contract). These conditions are most suited for certain kinds of works, particularly in the environment sector.

Almost all works contracts are coupled with a service contract for independent supervision (the "Engineer" in FIDIC terminology) who provides appropriate professional independent control in order to ensure the smooth and controlled execution of works.

6. MODIFICATIONS TO THE LEGAL FRAMEWORK

In 2001 there were two modifications of the legal framework in which ISPA operates. These modifications essentially relate to the eligibility of tenders to bid for ISPA contracts.

Council Regulation (EC) No 2500/2001 [Regulation concerning pre-accession financial assistance for Turkey and amending Regulations (EEC) No 3906/89, (EC) No 1267/1999, (EC) No 1268/1999 and (EC) No 555/2000].

Council Regulation (EC) No 2500/2001 of 17 December 2001 concerning pre-accession financial assistance for Turkey amends Regulation (EC) No 1267/1999 by extending the eligibility of participation in ISPA tendering to Cyprus, Malta and Turkey.

Article 12/3 of Council Regulation No 2500/2001 modifies Council Regulation No1267/1999 (the ISPA Regulation) by inserting a new paragraph to Article 7 which extends to eligibility to participate in invitations to tender and contracts to natural and legal persons of the said countries on the same terms that apply to all natural and legal persons from the Member States and the beneficiary countries. This regulation which entered into force on 30 December 2001, modifies also the other two pre-accession regulations for Phare and Sapard.

This amendment to the ISPA Regulation must be applied to measures already approved for ISPA financing through a corresponding amendment to the Financing Memoranda that were concluded in 2000 and 2001. These modifications of the Financing Memoranda are undertaken in the first half of 2002.

Council Regulation (EC) N° 2382/2001 amending Council Regulation (EC) N° 1267/99 establishing an Instrument for Structural Policies for Pre-Accession.

After the first year of implementation of ISPA, it became necessary to carry out a technical modification of the Council Regulation establishing this Instrument.

In managing ISPA the Commission seeks - in line with the principle established in the ISPA Regulation - co-financing from international financing institution. This co-financing appreciably improves the quality of project preparation (IFI appraisals), strengthens the leverage effect obtained with Community credits and better ensures effective implementation.

However the majority of these banks (especially EBRD, the World Bank, Nordic Investment Bank etc.) are obliged to apply open public tender procedures to third country nationals, procedures which are incompatible with the provisions of the Financial Regulation applicable to the general budget of the European Communities. As a result, there is a considerable risk that this co-financing may not be taken into consideration as a complement to (or eligible counterpart of ) ISPA support.

The applicant countries, given their limited budgetary resources, have significant recourse to international banks to find the counterpart necessary to ISPA funding. The inadmissibility of co-financing provided by international banks as expenditure eligible under ISPA therefore jeopardises the financial set-up and subsequently the implementation of a high proportion of projects proposed to ISPA.

The solution to this problem was to have inserted in the ISPA Regulation a provision allowing in accordance with Article 114 2 of the Financial Regulation applicable to the general budget of the European Communities, that in exceptional cases, nationals of third countries may participate in tenders on projects receiving external aid financed from the Community Budget.

This modification should also permit the counterpart financing provided by the international financial institutions to be considered as expenditure eligible under ISPA, each time that this counterpart is indispensable for the co-financing of the ISPA project and even where it arises from public tendering procedures open to third countries (in accordance with the rules to which these financial institutions are bound). The Commission examines the measures concerned on a case-by-case basis and where justified applies the derogation as provided for in Article 6a (2) of the ISPA Regulation as amended.

When the Parliament examined the Commission's proposal to amend the ISPA Regulation with regard to the eligibility rules in the case of IFI-cofinancing, the Parliament delivered a positive opinion but proposed certain amendments concerning financial control and the handling of irregularities. Taking up the concerns expressed by the Parliament, which are fully shared by the Commission, it issued a declaration at the adoption of the amendment by the Council in which the Commission confirmed the reinforcement of the conditions to combat fraud and irregularities which are already foreseen in the Financing Memoranda. Following this request, the Commission is revising in 2002 the relevant annex of the Financing Memorandum to align it closely with the provision of the draft Commission Regulation [8] laying down detailed rules as regards the management and control system for assistance granted from the Cohesion Funds and the procedure for making financial corrections to such assistance. With these modifications, to be introduced in 2002, the Commission will strengthen the provisions for the management and control system and the reporting of irregularities, but also reduce the differences that exist between ISPA and the Cohesion Fund. By narrowing the gap between these two financing instruments the Commission will achieve an additional benefit which will facilitate the transition from ISPA to the Cohesion Fund upon accession.

[8] DRAFT COMMISSION REGULATION LAYING DOWN DETAILED RULES FOR THE IMPLEMENTATION OF COUNCIL REGULATION (EC) N° 1164/94 AS REGARDS THE MANAGEMENT AND CONTROL SYSTEMS FOR ASSISTANCE GRANTED FROM THE COHESION FUND AND THE PROCEDURE FOR MAKING FINANCIAL CORRECTIONS TO SUCH ASSISTANCE.

7. PREPARATION FOR "EDIS" (EXTENDED DECENTRALISED IMPLEMENTATION SYSTEM)

Article 12 (2) of Regulation 1266/1999, gives the Commission the power to confer on implementing agencies in Candidate Countries management of aid on a decentralised basis and to waive the requirement of ex ante approval for tendering and contracting procedures. This is known as the "Extended Decentralised Implementation System" - EDIS. The exercise of this power by the Commission is subject to the satisfaction that specific conditions and criteria have been met by the implementing agency(ies) concerned. These requirements cover notably effective internal control, an independent audit function, an effective accounting and financial reporting system, adequate staffing arrangements and respect for the principle of separation of powers. In addition, national procurement rules must be endorsed by the Commission as meeting the requirements of Title IX of the Financial Regulation.

The Commission sent to Candidate Countries in December 2000 the document "Preparing for Extended Decentralisation of PHARE and ISPA Programmes" which sets out guidelines and checklists to assist in the preparation for meeting the conditions for EDIS. During 2001 the Commission prepared a further document giving a more detailed explanation of the procedural stages leading to EDIS. This document "Roadmap to EDIS for ISPA and PHARE" was discussed with candidate countries and formally sent out in its final form in October 2001. It sets out the four stages: gap assessment / gap filling / compliance assessment and / preparation for Commission decision.

For the first 3 stages for ISPA, technical assistance is available. By the end of 2001, five decisions for technical assistance support had been taken (Estonia, the Czech Republic, Poland, Latvia and Lithuania) and 4 were in the pipeline.

Whilst the Candidate Countries are strongly encouraged to move toward EDIS and are supported in this process, it should be recalled that they are in any event responsible for the setting up of adequate management financial control systems by virtue of Article 9 of Regulation 1267/1999 (see section 6).

8. PROJECT MONITORING

All ISPA projects are subject to the provisions of the ISPA Regulation and the Financing Agreement for each ISPA measure in respect of both monitoring and evaluation. Implementation progress is reviewed systematically and periodically by Commission services, in particular through the Monitoring Committees. They are organised twice a year by the national authorities.

Statistical data to monitor the physical and financial progress serves as useful indicators with which to assess the effectiveness of implementation, and in addition to offer an evaluation of the broader economic and social impacts of ISPA.

The National ISPA Co-ordinator (NIC) is responsible for the organisation of the Monitoring Committees.

The main responsibilities of the Committee include:

* monitoring the overall implementation of ISPA projects in the country;

* monitoring the implementation of each ISPA project in the beneficiary country; this monitoring shall use financial and physical indicators;

* examining progress reports, and approving the annual progress reports;

* proposing (for submission to the Commission) any adjustments in terms of amounts and conditions which may be required on the basis of the outcome of the monitoring;

* deciding, with the agreement of the Commission, any additional responsibilities for the Committee.

The first two rounds of Monitoring Committees were organised in 2001 in all Candidate Countries. Summaries from these meetings are communicated to the ISPA Management Committee.

9. THE EVOLUTION OF CO-FINANCING

The ISPA Regulation sets a ceiling for the contribution of ISPA funds for measures. The rate of Community assistance may be up to 75 % of public expenditure. In exceptional cases the assistance rate may be increased to 85 %, even to 100 % in case of TA projects at the initiative of the Commission. The rate of assistance shall be reduced to take into account of the availability of co-financing (and the revenue-generating potential of the investment).

The sources for co-financing are essentially contributions from the national budget or municipal sources (usually in the case of environmental projects). The EIB and other International Financial Institutions, in particular EBRD, continued to remain key partners for providing co-financing. An additional asset of co-financing with these international lending institutions is certainly their expertise in project implementation. With both IFIs, the Commission met regularly both on horizontal level to discuss and co-ordinate policy issues related to programming and implementation, and on country level. As far as possible, joint project identification and appraisal missions are organised for those sectors and projects for which co-financing is thought. Several such missions were undertaken in 2001.

In 2001, the average grant rate was about 64 % for all projects (almost the same as for 2000), thereby achieving significant leverage already in the first operational years of ISPA.

The actual rate of co-financing for transport investment projects range from 44 % for a rail project in Lithuania to 75 %. For environmental investment projects, the grant rates range from 47% for a drinking and waste water project in Lithuania to 75 %. As in 2000, there were no projects for which a grant rate of 85 % was applied (but this higher rate was applied for some TA projects).

European Investment Bank (EIB)

The results of the first two years of co-operation between ISPA and the EIB are very positive. This co-operation has taken place at two different levels. First of all, several co-ordination meetings were held during the first two years of implementation of ISPA in order to set up the working framework and make the Co-operation Agreement (signed in 2000) operational. The aim of the agreement was to set up the basis for successful co-operation between the Commission and the EIB, in order to identify how best to combine ISPA grants with loans provided by the EIB. The main objective was to maximise the leverage effect of the EC grants and to especially target the EC budget resources towards those projects that require a larger grant contribution.

Secondly, at the project level, the exchange of information was carried out at a very early stage in the procedure of project identification in order to identify possible proposals for co-financing. Collaboration with the EIB resulted in the joint co-financing of several projects in 2001 (see table 8).

In such cases, proposals submitted by the Candidate Countries are appraised by both institutions and the results shared by them during the assessment process. However, in this context it is important to mention some initial difficulties in achieving this efficient co-operation between ISPA and the EIB. These include inter alia the complexity of both ISPA and EIB procedures, the problem of timing when the decision-making procedures of both institutions do not run in parallel and the need for the relevant beneficiary country to deal with both institutions on a timely basis to optimise the utilisation of the Commissions' and the banks' resources for its projects.

In the case of the projects that are not co-financed by the EIB, the Co-operation Agreement foresees that the EIB may be consulted or invited by the Commission to participate in appraising some ISPA projects. This allows the Commission to benefit from the EIBs technical assistance. During 2000 and 2001, 19 "first reactions" were sought from the EIB (see table 9).

Table 8: 2001 ISPA Projects co-financed by the EIB

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Table 9: List of first reaction executed by the EIB within the framework contract Year 2000-2001

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European Bank for Reconstruction and Development (EBRD)

The good working relationship with the EBRD established at the beginning of ISPA continued in 2001. There were regular exchanges of information and co-ordination meetings, continued harmonisation of approaches to the appraisal of projects and also detailed discussions of methodological issues. The Commission had known since 2000 that it was necessary to modify the ISPA Regulation to enable expenditure financed by the EBRD to be considered as matching eligible expenditure. This modification was completed in December 2001 ensuring that projects could be financed by combinations of ISPA and loan finance from the EBRD (see chapter 7).

The EBRD's specialist skills in structuring grant/loan combinations of funding, including public-private partnership arrangements, continued to be useful in preparing projects supported by ISPA. The EBRD can lend directly to municipalities and utility companies without a sovereign guarantee which adds an additional element of flexibility to co-operation with ISPA.

The number of projects which ISPA and the EBRD will co-finance differs greatly from sector to sector and from country to country. For 2001, the projects in which ISPA and the EBRD co-operated are as follows:

Table 10: 2001 ISPA Projects Co-financed by the EBRD

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Other financial institutions

Information at project level was again exchanged in 2001 with the Nordic banks and other institutions. The collaboration with the Nordic Investment Bank (NIB) and with the Nordic Environment Finance Corporation (NEFCO) resulted in the joint co-financing of three measures in Latvia. This entails a total expenditure of EUR 94.94 million, to which the NIB contributes EUR 3.411 million and NEFCO EUR 3.116 million. The Swedish International Development Co-operation Agency (SIDA) finances a parallel twinning arrangement with the solid waste company of the Liepaja region in Latvia. Preparation of projects was also supported in Lithuania: SIDA for the Kaunas WWTP, the Finnish Ministry of Environment for Klaipeda's waste management and DEPA for Vilnius' waste management.

Table 11: ISPA Projects co-financed by the NIB and the NEFCO

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In addition, there is one measure in Latvia that involves parallel co-financing with the World Bank (EUR 2.378 million - Liepaja Solid Waste).

Public Private Partnerships

One possible solution for mobilising additional funds is to involve the private sector in the provision of public services. This is one of the reasons for which some countries are now beginning to use Public-Private Partnership (PPP) arrangements. Another important factor for involving the private sector into the ISPA process is the experience that reputable international operators and utility firms can provide. PPP-schemes therefore should generally enhance operational and managerial efficiency.

This trend has gathered momentum as medium-sized and smaller towns and cities have to comply with Community legislation for higher drinking water quality, cleaner waste water treatment and better waste management. But also in the transport sector, the involvement of private partners in the operation, management and investment is becoming an important factor.

Consequently, such PPP-schemes are becoming more and more important also in the framework of ISPA activities. However, there are particular situations where the question is how far the ISPA grant can go into a privatisation situation with the complication of existing concessions already awarded without the necessary guarantees in terms of transparency and fairness. An additional issue is that ISPA should not replace private partners, thus remaining truly 'additional'.

In the case of Candidate Countries, there is certainly a need to provide advice to municipalities and other public entities seeking private partnership arrangements.

It is recognised that there are cases in which there may be a risk whereby the benefits of an ISPA grant are accrued by the private company rather than by the public, e.g. if the national authority has privatised assets with the view that the private investor provides the investment to achieve compliance with environmental legislation or undertaking modernisation. There is the risk that these investments are already calculated into the selling price. Therefore, providing an ISPA grant would effectively mean paying twice.

The EU principles on the public procurement procedure must be followed by all Implementing Agencies in the beneficiary countries in the area of PPP for projects co-financed with ISPA funds.

The extreme weaknesses of the regulatory powers in the Beneficiary Countries was mentioned as a risk building factor against a completely de-regulated approach to markets: during the execution of a concession contract the powers could end up being extremely unbalanced on the side of the Concessionaire. This situation in terms of handling of the contractual parameters such as tariffs could be very dangerous if the regulatory authority does not have the required expertise and capacities to cope with complexity and change.

To address these deficiencies, the Commission mobilised in 2001 a framework contract for EUR 3.1 million after an open international procedure to analyse, advise and assist the Commission and the public authorities on dealing with PPP issues relevant for ISPA projects (see table 6).

10. CO-ORDINATION AMONG PRE-ACCESSION INSTRUMENTS

As required by Council Regulation (EC) No 1266/1999 Co-ordinating Pre-accession assistance, the Commission ensures close co-ordination among the three pre-accession instruments, Phare, Sapard and ISPA. In line with the provisions of that Regulation, the Phare Management Committee plays a special role in general co-ordination of the three pre-accession instruments.

Co-ordination with the (PHARE) Joint Monitoring Committee

The Joint Monitoring Committee is responsible for co-ordinating the monitoring of each pre-accession instrument (Phare, Sapard and ISPA) and for assessing the overall progress of EU - funded assistance in the beneficiary countries.

The Joint Committee will receive the minutes of the ISPA monitoring committee and may issue recommendations to the ISPA Committee or to the Commission when relevant.

The meetings of the ISPA Monitoring Committee meetings are arranged, when possible, to coincide with the Joint Monitoring Committee meetings.

Co-ordination within the Commission

Within the Commission, an inter-services Co-ordination Committee, including representatives from all relevant Commission services (Enlargement, Agriculture, Regional Policy, Budget, Health and Consumer Protection, Legal Service) have met regularly times since March 2000. The agenda for the meetings in 2001 and early 2002 included financial control and management, procurement issues, stock-taking on moves towards Extended Decentralised Implementation (EDIS), and the issues related to the transition towards Structural Funds and the Cohesion Fund.

Co-ordination with EC Delegations

Periodic meetings were organised by the Commission services (Enlargement, External Relations and Regional Policy with the experts in EC Delegations responsible for Phare and ISPA implementation to discuss programming and implementation issues, in particular related to tendering and contracting. At present - before EDIS - EC Delegations are responsible for ex-ante approval/endorsement of tender documents, evaluation committees and contracts. Communication and information

11. COMMUNICATION PROGRAMME

A 2001-2006 communication programme was prepared outlining the information to be provided to the different target groups for ISPA. It specified the importance to explain the procedures during the first year and to show results from 2002 on. It will be implemented by using the framework contracts that the Commission (DG Regional Policy) concluded early in 2002 and contracts still to be concluded for carrying information and communication activities in relation to different funds related tot he economic and social cohesion (the European Regional Development Fund, the Cohesion Fund and ISPA).

Dialogue with non-governmental organisations (NGOs)

The Commission Services continued to participate in the NGO's Dialogue project, which began in mid-1999. It is a series of meetings between Commission officials from several directorates-general (but predominantly the Directorate-General for Environment) and representatives of environmental NGOs from Member States and Candidate Countries. The objectives of the dialogue are to inform the NGOs of the enlargement process and to enable them to present their opinions on the process to the Commission. The dialogue meetings are organised and facilitated by the Regional Environmental Centre for Central and Eastern Europe (REC), which is partly funded by the EC.

The Commission also encouraged national authorities to enhance the exchange of information with NGOs, by, for example, organising informal meetings with NGOs with the view to discussing investment priorities and developing an information and communication strategy in which NGOs have a role. Furthermore, the national authorities may invite NGOs to participate in ISPA Monitoring Committees as observers.

Website

The website was updated regularly with information sheets on projects signed by the Commission, new versions of parts of the Financing Memorandum annexes, a revised ISPA Manual (which explains ISPA programming and implementation procedures and practice), and new brochures on ISPA progress (see below). As such it is an important tool to distribute information about the pre-accession instrument.

Towards the end of 2001, this site was also used to welcome the visitors of the Member States and of the Candidate Countries in their own language.

Seminars

Cohesion Fund Forum

At the Second Cohesion Fund Forum (May 2001) organised by the Commission the Commission services presented a broad range of aspects related to the programming and implementation of ISPA, and progress so far.

Seminars on Procurement

In winter 2001, DG Regional Policy commenced a series of seminars in all Candidate Countries with the main focus on procurement issues. The requirements and procedures of PRAG and FIDIC - as well as public procurement principles in general - were explained and guidance was provided on critical tendering and contracting issues, such as selection/award criteria and evaluation. The seminars targeted national authorities, in particular the implementing agencies as well as EC Delegations. This training activity, which will continue in 2002, is a critical element in the Commission's effort to reduce risk related to ISPA implementation.

Seminars on the Environmental Impact Assessment Directive (EIA)

In 2001, seminars were organised to enhance the understanding of national authorities about requirements of the Environmental Impact Assessment (EIA) Directive (see section 3).

Seminar on 'Co-operation Models for Environmental Infrastructure Projects'

Financed by the Technical Assistance funds, the Commission together with the Government of Austria organised a seminar to familiarise national authorities in Candidate Countries with the various concepts of PPP in September 2001 (see section 2.1.4). Notes on proceedings were prepared and made available on the website.

Publications

In February 2001, a brochure was published with the most important data on projects committed and ISPA events in 2000. This brochure was used as a complement to the Annual Report 2000.

The brochure detailing the addresses of EC delegations in the Beneficiary Countries and of the National ISPA Co-ordinators was updated regularly.

Specific brochures were produced with information about the state of play in the different Beneficiary Countries throughout the year.

Global overview of Financial Assistance

This chapter describes the financial assistance and its distribution by sector and sub-sector. The statistics in the tables refer to the total project cost, the total eligible project value, the total ISPA contribution decided by the Commission, the commitments made by the Commission for 2000 and 2001, the total commitment and the payments made in 2001. This data is expressed for each of the 10 beneficiary countries.

The sub sectors for environment and transport are as follows:

* Environment:

- Drinking water

- Drinking and Waste Water

- Drinking Water, Sewage Water and Solid Waste

- Waste Water Treatment

- Solid-Waste Management (landfills, incinerators)

* Transport:

- Road

- Rail

- Rail and Road

- Aviation

* Technical Assistance:

- Project Preparation:

This is a package designed to facilitate development of projects for both the environment and transport sector. Priorities are set out for five key areas:

- Improve the quality of project selection

- Facilitate project implementation

- Launch and assist the decentralisation process

- Elaborate on financial engineering

- Strengthen information and communication

- EDIS:

Technical assistance funds are made available to provide for the setting up of this key aspect in the management of community funds upon accession (see section 5).

Table 12: ISPA Budget 2001: Commitments by Country and Sector

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The table provides information on the commitments for the 94 projects decided in 2001, and the second tranches for projects decided in 2000.

Overview per country of Financial Assistance

Table 13: Total ISPA Grant for New Projects Decided in 2001: Country and Sector

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Table 13 shows for all projects decided in 2001 the total amount of ISPA funds that are foreseen for these projects, including tranches that will be committed in subsequent years (multi-annual commitment).

Table 14: ISPA Finance by Sector for projects decided in 2000 and 2001

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The table shows the total ISPA funds, that have been committed and decided in 2000 and 2001 (169 projects), as well as the total project costs for these projects.

12. BULGARIA

In 2001, Bulgaria received a total ISPA commitment allocation of EUR 106.8 million. This was divided between the transport and environment sectors - EUR 61.9 million and EUR 44.9 million respectively. Technical assistance measures accounted for EUR 4 million of these commitments in 2001. The allocation for Bulgaria represents 9.63 % of the overall ISPA budget in 2001.

Programming

The ISPA programming framework is governed by the environment and transport strategies drawn up by the Bulgarian authorities in agreement with the Commission. These strategies contain indicative lists of priority projects and are subject to review.

* In the case of transport infrastructure, emphasis is placed on completing or upgrading the main Trans-European Networks and developing border connections (5 of the 10 priority TINA corridors cross Bulgaria). The country is keen to capitalise on its strategic location between Greece, Turkey and Central Europe.

In the case of environment, the Bulgarian Government and ISPA focus on the following priorities:

* Water quality - the Government's National Programme for Priority Urban Wastewater Treatment Plants is being implemented with the help of ISPA. The upgrading of sewerage networks and water supply systems is also planned. Other key areas involve improving the quality of drinking water; reducing loss in the water supply network; replacing and upgrading the sewerage network.

* Urban waste - selective collection, recycling, and the construction of new landfills complying to EU standards are essential requirements. The Government's National Waste Management Programme lays down strategic guidelines for this sector. This highlights the need to reduce the quantity of municipal waste; stabilise the amount of industrial waste; utilise biodegradable waste components; install facilities for safe treatment and disposal of waste; increase the share of recycled waste; and promote reusable packaging.

* Air pollution - although emissions have decreased due to the decline of heavy industry, there are still serious problems in 14 identified regional "hotspots". Power generation facilities and heating plants based on low-quality coal are a major source of SO2 and NOx emissions.

Implementation

The function of National ISPA Co-ordinator is carried out by the Minister for Regional Development and Public Works and the Deputy Prime Minister.

The Implementing Agencies currently designated for ISPA are the Ministry of Transport, the Ministry of Environment, the Roads Executive Agency and a Joint department of the Ministries of Regional Development and Environment. For the larger projects (Sofia Airport, Plovdiv-Svilengrad railway rehabilitation and the Danube Bridge) dedicated project management and implementation units have been set up supported by technical assistance.

A total of 5 environmental investment projects, 3 transport investment projects and 1 TA project in the transport sector were approved for funding by ISPA in 2000 and 2001. In 2001, 5 new projects were approved, 3 environment projects and 2 transport projects, of which 1 was for TA.

The following projects were submitted to receive ISPA financing but were not approved pending further assessment:

* Ljulin motorway - 19 Km section on corridor IV Sofia ring road to Daskalovo junction.

* Maritsa 2 power plant - new FGD units.

* Centre for Hazardous Waste Treatment - new facility for treatment and disposal of hazardous waste.

Preparation for tendering and contracting proceeded in the case of all approved projects during the course of 2001.

While the whole of the available ISPA allocations were committed in 2000 and 2001, the payments made up to the end of the year amounted to EUR 15.8 million, representing the first advances on projects approved in 2000.

Monitoring and Evaluation

The work of the monitoring committee will be supplemented by regular meetings in the EC Delegation offices in Sofia, monitoring reports by the implementing bodies and site visits by Commission staff.

The Monitoring Committee met in June and November 2001. Attention was drawn in the meetings to the slow progress in implementing ISPA projects and the limited capacities of some of the implementing agencies. The disruption to the ISPA co-ordinating unit and the implementing agencies in the Ministry of Regional Development following the change of Government in June 2001 was also noted. These deficiencies were acknowledged by the Bulgarian authorities who undertook to reinforce the structures concerned and to report to the Commission on actions taken.

Similar issues were highlighted in the review of the implementing agencies undertaken under the "Twinning Project" BG/98/SPP/02, sub-project 3 "Capacity Review of Implementing Agencies."

Co-financing with IFIs

Co-operation with the IFIs has been an important feature in the case of Bulgaria where there has been close contact with the EIB in particular. Four of the nine ISPA projects approved in 2000 and 2001 involve EIB financing, with two significant cases of joint co-financing (redevelopment of Sofia airport and Plovdiv-Svilengrad railway electrification and upgrading). In total, co-financed projects account for some EUR 240 million of ISPA assistance (almost 70% of the total approved). Given the funds' focus on large-scale infrastructure projects, in which loan and grant assistance are often combined, the need to maximise the leverage of limited ISPA resources is a crucial objective. The pipeline of projects for 2002 also includes possible co-financing with the EIB and the EBRD.

EDIS

The consultants SIGMA have been asked to assist the Bulgarian authorities in reviewing the implications of extended decentralisation of the implementation of the PHARE and ISPA programmes (EDIS) for the Bulgarian administration, in line with the general 'Road Map'. This review will examine the capacity of the National Fund, implementing agencies, public financial control and public procurement, and will take into account the Bulgarian authorities' strategy for the transition to the Structural Funds. ISPA technical assistance will also be made available in 2002 to undertake a full audit of the organisation and capacities of the ISPA Implementing Agencies. This is the first stage or 'gap assessment' of the EDIS Road Map.

Financial Management and Control

An audit of the financial management and control systems of the ISPA implementing agencies was undertaken in December 2001 by the Directorate-General for Regional Policy's audit unit. A report on its main findings will be sent to the Bulgarian authorities early in 2002 with recommendations on improvements. The Bulgarian authorities will be given a three month deadline in which to act on the findings. A follow up of the audit will be carried out during 2002.

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* group of 6 projects

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Table 3: Technical Assistance Measures 2000-2001

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13. CZECH REPUBLIC

In 2001, commitments amounting to EUR 66.9 were made to the Czech Republic, which represents 6.03 % of the annual ISPA budget. EUR 26.1 million was committed to environment projects and EUR 40.3 million to transport projects. Technical assistance was granted to assist the Ministry of Transport in project preparation. The commitment made for this in 2001 was EUR 160 000. In addition, EUR 544 722 was committed to support the introduction of EDIS for ISPA in the Czech Republic.

Programming

From a strategic point of view, priority was given to road transport in 2001, thus complementing the emphasis placed on rail transport in 2000. For environment, as in 2000, the projects adopted were almost exclusively related to the waste water sector, with some ancillary work on drinking water infrastructure being financed.

Although the commitments in the transport sector reflected the priorities in the ISPA transport strategy paper, with which the Commission is satisfied, in the environment sector a recurring element in 2001 was the lack of applications received for areas other than water.

In 2001 the Commission has urged the Czech Republic to revise the environment strategy paper to take account both of the results of the accession negotiations on the environment chapter and the conclusions of PHARE projects designed to assist in the development of investment strategies for the solid waste and air pollution sectors.

Implementation

The function of National ISPA Co-ordinator is carried out by the Deputy Minister for Tourism and European Integration.

The Implementing Agency for the 2000 environment projects, the Centre for Regional Development, was replaced by the State Environment Fund for all ISPA projects from 2001 onwards. Given the lack of experience of this body in large scale infrastructure projects, the Commission, in particular through the Prague Delegation, will provide advice as and when is necessary.

With regard to implementation, work on the projects adopted in 2000 was restricted to the preparation of tender files and, for the transport sector, to the publication of call for tender for the works contracts. Whilst it is expected that contracts can be awarded in the transport sector in the first half of 2002, a significant delay has occurred in the advancement of environment projects. Accordingly only service contract assignments for project preparation, for which ISPA assistance was granted in 2000, were awarded in 2001.

A total of 6 environmental investment projects and 1 TA measure were approved in 2000-2001. In the transport sector, 6 investment projects and 1 TA measure were approved. In total, 7 new projects were approved (decided) in 2001. This included 3 environment projects, 2 transport projects, 1 transport TA, and 1 horizontal TA measure for preparation of EDIS.

Payments in 2001 were confined to first advance payments, as a consequence of tender procedures not being completed during this period. Payment in 2001 amounted to EUR 10.1 million.

Monitoring and Evaluation

The work of the monitoring committee will be supplemented by regular meetings in the EC Delegation offices in Prague, monitoring reports by the implementing bodies and site visits by Commission staff. The first two ISPA monitoring committees were held in 2001.

Co-financing with IFIs

In the course of 2001 co-operation intensified between the Commission and EIB regarding the co-financing of two large projects in the transport sector. Applications were received for one of these projects, namely completion of the Prague-Dresden motorway, but adoption of the project has been postponed due to environmental considerations and the need to revise the cost-benefit analysis. So far there are no specific plans for co-financing with EBRD in the Czech Republic, although this situation is subject to regular review.

EDIS

As the Financing Memorandum for EDIS was only signed at the end of 2001, the main implementation of this important measure is expected in 2002. Some progress has been made. A core group has been established under the auspices of the NIC, and the Czech authorities have started Stage I of the ISPA Road-Map by means of a self-assessment exercise.

Financial Management and Control

An audit visit was conducted by the audit services of the Directorate General for Regional Policy to the Czech Republic in November 2001. This visit had as its objectives to assess to what extent the Czech Republic has established a management and control system in compliance with the provisions of the ISPA Regulation as well as to follow up on the progress made for the implementation of EDIS for ISPA. The main conclusions of this audit were that further progress needs to be made in completing the legal framework of the ISPA implementation structure, improving internal audit capacity, establishing procedures for the handling of irregularities as well as finalising written procedures.

Table 1: Projects Decided and Commitments 2000-2001

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Table 2: Projects Decided in 2001

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Table 3: Technical Assistance Measures 2000-2001

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14. ESTONIA

In 2001, Estonia received a total ISPA commitment allocation of EUR 29.9 million. This was divided between the transport and environment sectors - EUR 12.2 million and EUR 17.3 million respectively. TA measures in both sectors accounted for EUR 996 000. In addition one TA measure concerned the preparation for EDIS and EUR 348 608 was committed in 2001. The allocation for Estonia represents 2.70 % of the overall ISPA budget in 2001.

Programming

The ISPA programming framework is governed by environment and transport strategies drawn up by the Estonian authorities in agreement with the Commission. These strategies contain indicative lists of priority projects and were reviewed at the end of 2001.

In the case of transport infrastructure, emphasis is placed on upgrading the main trans-European networks as Corridor I and connecting links between Corridor I and Corridor IX. Priorities in the road sector include upgrading the Via Baltica and Tallinn-Narva road. Priorities in the rail sector focus on the modernisation of railway lines in the mentioned Corridors and construction of a border station to Russia. The Commission endeavours to foster sustainable transport structures with adequate ISPA support to invest in rail infrastructure. Due to the privatisation of the main rail-links and the particularities of the privatisation legislation, the Commission has not yet found the opportunity to support rail projects in Estonia, with the exception of one measure for technical assistance.

In the environment sector, the main priorities are related to the insufficient water and waste water treatment systems. A major negative environmental impact relates to the inadequate water and waste management systems. The main sources of hazardous waste are the oil shale industry and power production in the North-East of the country. The revised ISPA strategy presents a valuable attempt by the Estonian authorities to improve the previous version.

Implementation

The function of National ISPA Co-ordinator in 2001 was carried out by the Minister of Finance.

The Implementing Agencies currently designated for ISPA are the Estonian National Road Administration, Estonian National Railway Administration and the Environmental Investment Centre.

A total of 4 investment projects and 1 TA measure were approved in the environment sector, 1 investment project and 1 TA measure in the transport sector and 1 horizontal project for EDIS (TA) in 2001. Overall, throughout the period 2000-2001, 9 environment projects (including 2 for TA) and 4 transport projects (including 2 for TA), as well as the TA for EDIS were approved.

The following projects were submitted in 2001 for financing by ISPA but were not approved pending further assessment:

* Pärnu water management

* Narva water management

Preparation for tendering and contracting proceeded in the case of all approved projects during the course of 2001. Two works contracts and one service contract have been signed (value EUR 16.96 million). In addition two tenders for service contracts were launched during the course of the year.

Payments made up to the end of the year amounted to EUR 7.9 million, representing the first advances on projects approved in 2000 and early 2001.

Monitoring and Evaluation

The work of the monitoring committee will be supplemented by regular meetings in the EC Delegation offices in Tallinn, monitoring reports by the implementing bodies and site visits by Commission staff. The Monitoring Committee met in May and October 2001.

Co-financing with IFIs

One transport project (Via Baltica) out of six ISPA projects approved in 2000 involves EIB financing. Two environment projects (Pärnu landfill and Tartu waste water system) and one road project of eight ISPA projects approved in 2001 involve EIB financing. In total, co-financed projects account for some EUR 51 million of ISPA assistance (62 % of the total approved in 2000 and 2001). The Nordic Banks (NIB, NEFCO) and Nordic environmental protection agencies not only actively contribute to projects invested in by ISPA, but also play a useful role in the provision of technical expertise to help produce high quality applications for ISPA assistance. As a concrete example, NEFCO will provide co-financing for the improvement of the Narva water and wastewater network renovations that are both financed by ISPA.

EDIS

Estonia is well advanced in the EDIS process. ISPA technical assistance was granted in 2001 to support stages I to III of the Road Map to EDIS. Tendering for stages I and III were concluded in 2001 and the contract was signed in January 2002. Stage I was finalised in April 2002. Stage II, 'gap plugging', will start in April or May 2002. It is envisaged that full EDIS status for ISPA should be achieved in Estonia before the end of 2002.

Financial Management and Control

An audit of the financial management and control systems of the ISPA implementing agencies was undertaken in October 2001 by the audit unit of the Directorate-General for Regional Policy. As a general conclusion, Estonia has developed a comprehensive organisation structure and procedures for the implementation of ISPA projects, even though some tasks remain to be clarified and improved upon.

The main findings of the audit mission were sent to the Estonian authorities early in 2002 which set out recommendations on improvements needed to meet the requirements of Article 9 of Council Regulation (EC) N° 1267/1999.

Table 1: Projects Decided and Commitments 2000-2001

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Table 2: Projects Decided in 2001

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Table 3: Technical Assistance Measures 2000-2001

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15. HUNGARY

In 2001, Hungary received a total commitment allocation of EUR 90.8 million. Of this, EUR 48.2 million was assigned to transport projects and EUR 42.6 million to environment projects. Commitments for technical assistance measures in both sectors accounted for EUR 2.4 million. The overall allocation for Hungary consists of 8.18% of the total ISPA budget for the year.

Programming

The ISPA programming framework is governed by the environment and transport strategies drawn up by the Hungarian authorities in agreement with the Commission. These strategies contain indicative lists of priority projects and are subject to review.

In the case of transport infrastructure, the main objectives are:

* Promotion of integration into the EU;

* Improved co-operation with neighbouring countries;

* Contribution to balanced regional development; protection of human life and the environment;

* Effective, market-oriented transport regulations.

In the case of environment, the main priorities for ISPA are for the initial stage of ISPA financing (2000-2001) water protection and municipal waste treatment. In addition to these, the priorities for the programming period 2000 - 2006 include the incorporation into the ISPA environment projects of measures to improve air quality. The Hungarian authority's strategic objective is to achieve sustainable development by integrating environmental protection considerations into all sectoral policies.

Implementation

The Implementing Agencies currently designated for ISPA are the Ministry of Transport and Water Management and the Ministry of Environment.

In the environment sector, a total of 9 projects, of which 3 are for TA, were approved for ISPA funding in 2001 and a total of 2 projects were approved in the transport sector, which includes 1 TA measure. Overall throughout the period 2000-2001, 15 environment projects were approved, where 4 were for technical assistance, and 8 projects were approved in the transport sector, of which TA accounted for 4 projects.

Preparation for tendering and contracting proceeded in the case of all approved projects during the course of 2001. In the transport sector, one works contract and three service contracts have been signed, and four additional works tenders have been launched. In the environment sector, one technical assistance project was contracted.

While the whole of the available ISPA allocations were committed in 2000 and 2001, the payments made up to the end of the year amounted to only EUR 27.2 million, representing the first advances on projects approved in 2000.

Monitoring and Evaluation

The work of the monitoring committee is supplemented by monthly meetings in the EC Delegation offices in Budapest, monitoring reports by the implementing bodies and site visits by Commission staff. The Monitoring Committee met in April and October 2001.

Co-financing with IFIs

Co-operation with IFIs has been an important feature in Hungary where there has been close contact with the EIB in particular. At the request of the Hungarian government, the EIB approved two framework loans in December 2000, one for each sector, for the projects approved in 2000 to complement ISPA co-financing. The relevant loan documentation was signed in September 2001 and in December 2001 respectively. Furthermore, six environmental projects and one transport project decided in 2001 will, in principle, be co-financed with EIB. All the ISPA projects approved in 2000 involve EIB financing. In total, co-financed projects accounted for some EUR 524 million of ISPA assistance in 2000. For the projects approved in 2001 the appraisal of the EIB is still on-going.

EDIS

The stage I: 'Gap Assessment' which concerns the organisation and capacities of the ISPA Implementing Agencies, was carried out by the Hungarian Government Control Office. It was sent to the Commission in March 2002. The stage II: 'Gap plugging' will be finished by the end of 2002 and stage III 'Compliance assessment' will be launched by the Hungarian authorities at the beginning of 2003.

Financial Management and Control

An audit of the financial management and control systems of the ISPA Implementing Agencies was undertaken in October 2001 by the Directorate-General for Regional Policy's audit unit. The main findings were sent to the Hungarian authorities early in 2002 with recommendations on improvements needed to meet the requirements of Article 9 of Council Regulation (EC) N° 1267/1999.

Table 1: Projects Decided and Commitments 2000-2001

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Table 2: Projects Decided in 2001

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Table 3: Technical Assistance Measures 2000-2001

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16. LATVIA

In 2001, Latvia received a total commitment allocation of EUR 48.1 million in ISPA assistance. Of this, EUR 21.7 was assigned to transport projects, while EUR 25.8 went to environment projects. Technical assistance measures totalled EUR 3.3 million for both sectors. One TA measure concerned the preparation for EDIS, which amounted to a total ISPA contribution of EUR 700 000. In 2001, EUR 560 000 was committed in 2001. The overall allocation for Latvia consists of 4.33% of the total ISPA budget for the year.

Programming

The ISPA programming framework is governed by environment and transport strategies drawn up by the Latvian authorities in agreement with the Commission. The strategic objectives in the field of transport are as follows:

* The Transport Infrastructure Needs Assessment (TINA) network development (Road Corridor I) is the main focus for large-scale investments.

* The existing rail infrastructure is sufficient for the current traffic flows and for an increase in volume. Rehabilitation and upgrading of the existing east-west railway infrastructure as well as safety improvements are the priority in the medium term.

As concerns the environment strategy, Latvia faces problems concerning water and waste treatment, which requires large scale investment:

* The major environmental concerns relate to the low levels of wastewater treatment and connection to the sewage network. The water supply systems need to be upgraded in order to expand population coverage. Drinking water quality needs to be improved and the issue of leakage within the water system needs to be addressed.

* The second cause of environmental damage and related health hazards concerns the disposal of mainly urban waste. The 558 known landfills in Latvia at present do not meet European standards, waste is not collected selectively and there is no organised recycling system.

Implementation

The function of National ISPA Co-ordinator is carried out by the Minister for Special Assignment for Co-operation with International Financial Agencies.

The Implementing Agencies designated for ISPA are the Ministry of Transport and the Ministry of Environment. For all measures dedicated project management and implementation units have been set up, often supported by technical assistance.

The implementation of ISPA measures began in 2001 with the signature of 5 contracts in the field of transport concerning the works under the measure 'Via Baltica Road: Gauja-Lilaste', the related supervision contract as well as technical assistance in the rail sector (3 contracts). Two tenders for transport and environment measures (one each) were published in 2001.

A total of 5 new environment projects were approved (decided) in 2001, of which 1 was for technical assistance for water and waste. In the transport sector, 3 projects were approved. Finally, one technical assistance measure concerned the preparation of EDIS. Overall, throughout the period 2000-2001, 17 projects were approved. 8 for environment, 8 for transport and in addition, one for EDIS.

While the whole of the available ISPA allocations were committed in 2000 and 2001, the payments made up to the end of the year amounted to EUR9.1 million, representing the first advances on projects approved in 2000, two second advances as well as one interim payment.

Monitoring and Evaluation

The first two ISPA Monitoring Committee meetings were held in May and October 2001. Attention was drawn in the meetings to the slow progress in the implementation of ISPA projects (especially at the tendering and contracting phases) and the limited capacities of the implementing agencies. The overall outcome has been a positive improvement of the implementing agencies and the necessary steps have been taken to reinforce the structures.

Co-financing with IFIs

All the environment infrastructure measures approved for ISPA funds are co-financed with IFIs. These include four measures with the EIB (Riga and Ventspils Water, Ventspils Solid Waste and East Latvian River basins), four measures with the NIB (Jelgava Water, Liepaja and Ziemelvidzeme Solid Waste and East Latvian River basins), three measures with the NEFCO (Jelgava and Ventspils Water and East Latvian River basins), one measure with the EBRD (Riga Water) and one measure with the World Bank (Liepaja Solid Waste). In the transport sector, the EIB, the EBRD and the World Bank finance parallel projects. In total, joint co-financed measures accounted for some EUR 88.7 million of ISPA assistance (this concerns the environment sector only).

EDIS

A technical assistance measure was approved for EDIS at the end of 2001. The tendering of the first stage (or 'gap assessment' of the EDIS Road Map) was launched early in 2002 and should begin in May 2002. This is to examine the capacity of the National Fund, implementing agencies, public financial control and public procurement. The target date for the implementation of EDIS for ISPA is mid 2003.

Financial Management and Control

An audit of the financial management and control systems of the ISPA implementing agencies was undertaken in December 2001 by the Directorate-General for Regional Policy's audit unit. The main findings were sent in April 2002 to the Latvian authorities with recommendations on improvements needed to meet the requirements of Article 9 of Council Regulation (EC) N° 1267/1999. A follow up of the audit will be carried out.

Table 1: Projects Decided and Commitments 2000-2001

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Table 2: Projects Decided in 2001

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Table 3: Technical Assistance Measures 2000-2001

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17. LITHUANIA

In 2001, Lithuania received a total commitment allocation of EUR 50.5 million. This was divided between the transport and environment sectors - EUR 14.5 million and EUR 35.7 million respectively. Technical assistance measures in both sectors accounted for EUR 6.3 million. In addition, one TA measure was committed for the preparation of EDIS for which EUR 305.136 was committed in 2001. The allocation for Lithuania represents 4.55 % of the overall ISPA budget in 2001.

Programming

In the transport sector, the strategy presented to the Commission in December 1999 complies with EU guidelines. The Commission and the Lithuanian authorities have identified the following main priorities for ISPA funding:

* Completing and improving the European Corridors that pass through Lithuania (I, IA, IXB, IXD).

* Rail projects are of particular significance, with plans to completely renew the East-West Corridors IXB and IXD.

* Development of a European gauge track linking the Polish border to a Logistics and Interchange centre at Kaunas: outline agreement has been reached with Poland on a strategy to upgrade the route.

In the environment sector, the strategy was presented to the Commission in September 2000 and includes an outline of the project pipeline for the first three years of the programme. This has identified projects in the field of:

* Water

* Waste water

* Solid waste

A strategy for air quality is now under development and the first projects are expected in 2003-2004.

For water and waste water improvements, an approach by catchment/drainage area has been adopted and the first projects are due in 2002

Implementation

In June 2001 the function of National ISPA Co-ordinator was transferred from the Ministry of Foreign Affairs to the Ministry of Finance.

The Implementing Agencies currently designated for ISPA are the Transport Investments Directorate in the Ministry of Transport and the ISPA Implementing Agency of the Ministry of Environment. However, the CFCU is also responsible for the implementation of ISPA environmental projects until the Implementing Agency established by the Ministry of Environment is fully operational.

Preparation for tendering and contracting proceeded well as outlined here.

Only one project achieved significant physical progress in 2001: the first phase of 2000/LT/16/P/PT/001, Upgrading of IXB Transport Corridor (Stage 1), was tendered, contracted and largely implemented during the summer months. Tenders were published for 2000/LT/16/P/PT/002, Development of Via Baltica road in 2000 - 2003 (Pan European Corridor I), 2000/LT/16/P/PT/003, Development of Pan-European Corridor IA in the Years 2001-2004 and 2000/LT/16/P/PT/004, Modernisation of Telecommunications, Power Supply and Signalling on Crete Corridor No IX B but it was not possible to sign contracts for these projects during the year. On the environment side, tenders were published for 2000/LT/16/P/PE/001 Rehabilitation and Extension of Water Supply and Sewage Collection Systems in Vilnius (Stages I and II), and 2001/LT/16/P/PA/002 (support to the project preparation activities for ISPA environment projects).

A total of 9 environment projects, 6 transport projects and 1 TA for EDIS were approved for funding by ISPA between 2000 and 2001. In 2001, a total of 11 projects were approved (decided). This included 6 investment and 1 TA project in the environment sector, and 2 investment and 1 TA project in the transport sector, as well as a TA measure for EDIS.

The ISPA contribution to projects in 200 and 2001 was largely committed and payments made up to the end of the year amounted to EUR 12.39 million, representing the first advances on projects approved in 2000 and notably the second advance and first intermediate payment for the project 2000/LT/16/P/PT/001.

Monitoring and Evaluation

ISPA Co-ordinator to review the technical and financial progress of projects. The work of the monitoring committee will be supplemented by regular meetings in the EC Delegation offices in Lithuania, monitoring reports by the implementing bodies and site visits by Commission staff.

The ISPA Co-ordinator is responsible for ensuring that the reports on implementation of each project are drawn up, for submission in draft to the Joint Monitoring Committee and, ultimately, to the Commission. The first two meetings were held in May and October 2001.

Co-financing with IFIs

All the projects approved for financing in 2000 were co-financed with the EIB, normally through allocations from global loan agreements.

In 2001, the EBRD also co-financed a project in the environment sector, while the EIB continued to be present. The same situation is expected in 2002. The Nordic Investment Bank and other Nordic financing institutions are involved in project preparation at present - specifically they are involved in an environmental framework facility for investments in the municipal sector.

EDIS

Lithuania presented its proposals in response to the Commissions' Road Map for EDIS in 2001. Support for these was agreed in the form of technical assistance, allocated at the end of the year for implementation of Stage I. It is hoped that EDIS will be in place for ISPA by end 2002.

Financial Management and Control

An audit of the financial management and control systems of the ISPA implementing agencies was undertaken in December 2001 by the Directorate-General for Regional Policy's audit unit. The main findings were sent to the Lithuanian authorities early in 2002 with recommendations on improvements needed to meet the requirements of Article 9 of Council Regulation (EC) N° 1267/1999. A follow up of the audit will be carried out during 2002.

Table 1: Projects Decided and Commitments 2000-2001

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Table 2: Projects Decided in 2001

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Table 3: Technical Assistance Measures 2000-2001

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18. POLAND

In 2001, Poland received a commitment total of EUR 406.6 million. Of this, EUR 228.0 million was assigned to environment projects, while EUR 177.6 million went to transport projects. Technical assistance measures in both sectors received EUR 5.5 million. One TA measure concerned the preparation for EDIS. The total amount committed in 2001 was EUR 984 000. The overall allocation for Poland consists of 36.65% of the total ISPA budget for the year.

Programming

The Polish Government has prepared n