[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 27.10.2006

SEC(2006) 1373

COMMISSION STAFF WORKING DOCUMENT

Annex to the 17th Annual Report from the Commission on Implementation of Structural Funds (2005) {COM(2006) 638 final}

TABLE OF CONTENTS

Part 1: General analysis of activities 3

Part 2: Analysis by Member State 24

Part 3: List of Major Projects 111

Part 4: Financial Figures 117

Part 5: Use of Structural Funds in the period 2000-2006 by Objective and Field of Intervention 154

Part 1: General analysis of activities

INTRODUCTION

In May 2005, Commissioner Hübner presented the Third Progress Report[1] which provided an update on the situation of the regions in the enlarged EU in terms of incomes, employment and productivity. Sixty-four regions, representing more than one quarter of the EU population, have a per capita GDP that is less than 75 % of the Community average. The enlarged Union displays considerable differences in wealth: in 2003; levels of per capita GDP ranged from 41 % of the EU average in Latvia to 215 % in Luxembourg. Ireland is the second most prosperous country with a GDP that is at 132 % of the EU average. In all the new Member States, per capita GDP is less than 90 % of the EU-25 average, and in Bulgaria, Estonia, Latvia, Lithuania, Poland and Romania it is less than half the EU-25 average.

The year 2005 was marked, on the one hand, by an intensive effort to bring the 2000-2006 programming period to a successful conclusion and, on the other hand, by the preparation of the new generation of the cohesion policy programmes for 2007-2013.

In July, the Commission presented a communication on draft Community strategic guidelines for economic, social and territorial cohesion[2]. These guidelines will determine the priorities for the next generation of cohesion policy programmes by helping the Member States to place the emphasis on areas of vital importance to growth and jobs. They form the link between the Member States’ operational programmes and the regulations governing the European Regional Development Fund, the European Social Fund and the Cohesion Fund. The guidelines propose three general priorities: to improve the attractiveness of the regions and cities, to encourage innovation and improve knowledge for growth, and to create more and better jobs. The guidelines were subject to public consultation in the latter part of 2005. The comments put forward will be taken into account in the final version of the guidelines to be formally presented by the Commission to the Council once the new regulatory framework for the 2007-2013 period is adopted.

Two new initiatives were presented by the Commission and the European Investment Bank in 2005[3], representing a new and more consolidated co-operation between the two institutions, with the aim of developing high quality projects and enhancing public-private partnerships. The JASPERS initiative (Joint assistance to support projects in the European regions) will help the authorities in the Member States that benefit from Cohesion Fund support to identify and prepare high-quality projects with a view to submitting them to the Commission. The aim of JEREMIE (Joint European Resources for Micro to Medium Enterprises) is to facilitate access to finance for small and medium-sized enterprises and micro-enterprises (including one-person firms) which often have the most difficulty in accessing finance from traditional commercial sources.

ANALYSIS OF IMPLEMENTATION

Budget Implementation

ERDF

Budgetary implementation in 2005 was highly satisfactory in general. In all, 99.96 % of commitment appropriations were implemented in 2005 (against 99.70% in 2004). The appropriations for ERDF technical assistance were not totally utilised.

Concerning payments, the implementation rate was 99.65% (99.03% in 2004). In particular ERDF technical assistance did not use all the dedicated appropriations for 2005. The commitments from previous years on which payments remained to be made[4] reached EUR 55.4 billion at the end of 2005 (compared to EUR 48.97 billion EUR in 2004), of which EUR 39.9 billion were for the ERDF (EUR 35.9 billion in 2004). Total commitments reached EUR 27.1 billion in 2005 (EUR 26.5 billion in 2004).

It should be recalled that for cohesion policy, which supports investments in major investment projects, for example, it is normal for resources to be committed well in advance of payments to be made, as the latter reflect implementation (construction etc.) on the ground.

The financial management of the Structural Funds is subject to rules which set limits on the period during which payments relating to earlier commitments must be received: the so-called "n+2 rule"[5]. The open balance of commitments made in 2000-2003 was EUR 3.4 billion at the beginning of 2006. After the analysis of exceptions to the "n+2 rule" (State aid, major projects etc.), the estimate of decommitted resources was EUR 42 million (0.19 % of total commitments). This mainly concerns the programmes of INTERREG and Greece.

ESF

Implementation of the budget in 2005 was highly satisfactory. 99.93 % of commitment appropriations were implemented in 2005 (against 99.07% in 2004). The appropriations for ESF technical assistance were not fully utilised.

Concerning payments, 99.86% of appropriations were implemented (99.31% in 2004), including EUR 720 million of additional appropriations allocated to ESF through the global transfer and an amending budget. ESF technical assistance did not use all dedicated appropriations for 2005.

The total RAL at the end of 2005 was EUR 20.74 billion (compared to EUR 19.35 billion in 2004), of which EUR 20.44 billion were for the ESF current programming period (EUR 18.59 billion in 2004). The RAL relating to earlier ESF programming periods decreased from EUR 762.1 million at the end of 2004 to EUR 304.7 million at the end of 2005(down by 60%).

As regards the application of the "n+2 rule" rule at the end of 2005 to the commitments for 2000, 2001, 2002 and 2003, 17 programmes were involved, making a total ESF amount of EUR 125 131 596 (0.35% of the corresponding amount committed). For those programmes, DG EMPL has initiated an arbitration procedure with the Member States. The amounts to be decommitted will not be fixed until this procedure is completed.

EAGGF Guidance Section

The rate of implementation of the budget was very high in 2005, at 99.37% for commitment appropriations and 99.93% for payment appropriations.

Compared to 2004, commitments were up by 8.8% and payments were up by 4.7%.

Payments amounted to EUR 3 587 million, of which EUR 3 099 million for the programmes 2000-2006 (Objective 1: EUR 2 753 million; Leader+ EUR 334.5 million; PEACE EUR 11.5 million) and EUR 487.4 million for the closure of 78 programmes from the programming period 1994-1999.

The total RAL at the end of 2005 was EUR 7 085 million (compared to EUR 7 657 million in 2004).

Following the implementation of the "n+2 rule" rule, an amount of EUR 37.2 million was decommitted (1.28% of total commitments for the corresponding instalment). Twenty-one Leader programmes and five Objective 1 programmes were affected. The programmes of Ireland, Germany, Italy and Spain were the ones most directly concerned.

FIFG

In 2005, 99.57% of commitment appropriations and 94.16% of payment appropriations were implemented. There was a substantial difference between Objective 1 regions, with a percentage of 99.81%, and regions outside Objective 1, where the payment rate was 77.74%.

The total RAL for the FIFG at the end of 2005 was EUR 222 million (compared to EUR 165.5 million in 2004).

As regards the implementation of the "n+2 rule", estimates for decommitments were EUR 50 million for 2005 (8.9% of total commitments for 2003).

Programme Implementation

Objective 1

According to the information provided by the Member States in their certified expenditure claims (for details, see part 5), the Objective 1 programmes are continuing to focus their investments on basic infrastructure projects (40.1%), with over half of all investment in this category being spent on transport infrastructure (54.3%). More than one third (34.5%) of the Objective 1 resources is invested in the productive environment, with the focus continuing to be on assisting SMEs and the craft sector (30.4%). 23.4% of the investment in projects targeted at human resources was spent in Objective 1 regions. Labour market policies (with 32.1%) and education and vocational training (30.1%) are the main areas of spending, accounting for an almost equal share.

Objective 2

In Objective 2 regions, the main focus of the programmes continues to be on the productive environment, with over half of all financial resources devoted to this category (57%). Within this field, assistance to SMEs and the craft sector predominated (57.2%). The second most important area of intervention was basic infrastructure, accounting for 28.7% of all Objective 2 resources spent in this area. Unlike the Objective 1 programmes, the most important area in financial terms was planning and rehabilitation of brown field sites and other areas (43.9%). In the human resources category (which accounts for 10.1% of all investment in Objective 2 regions), the main areas of investment were workforce flexibility, entrepreneurial activity, innovation, information and communication technologies (31.2% of the total).

Objective 3

The main emphasis of ESF in 2005 continued to be on support for the European Employment Strategy, particularly those measures aimed at improving employability in the labour market, lifelong learning and equal opportunities, while measures to promote entrepreneurship declined in importance. There was a difference in the implementation of programmes in financial terms between EU15,where the programmes have been established longer and EU10, where certain Member States experienced difficulties in 2005 - the first full year of programme implementation following accession in May 2004.

Fisheries outside Objective 1

The year 2005 saw an improvement in the implementation of the structural policy in the fisheries and aquaculture sector, as reflected in financial implementation. In particular, the measures supported were closely aligned with the objectives of the 2002 reform of the Common Fisheries Policy.

The updated mid-term review confirmed that the adaptation of programmes following the mid-term review had been effective.

The de-commitment rate continued to be relatively high in 2005. However, it was considerably lower than in the previous year, pointing to an improvement in the consumption of FIFG programmes.

In 2005, the sector faced severe difficulties as a result of the increase in operating costs due to the economic situation, in particular higher fuel prices. In practical terms, the combination of depleted stocks, restrictive management measures, major increases in costs and static or decreasing income has meant that many vessels with high fuel consumption are operating at a loss.

This led to a more rapid consumption of the appropriations available for adapting the capacity of the fishing fleet. Consequently, a request was made by the Member States for the financial plan to be modified in order to reinforce the priorities related to the fleet.

Community Initiatives

Interreg

The implementation of 81 INTERREG III/Neighbourhood programmes continued to make good progress in 2005. A total of 133 INTERREG monitoring committee meetings were held. One important task for programmes was to update the mid-term evaluations, so that reports could be finalised by the end of the year. As a consequence, almost all programmes were amended in 2004 to take account of the evaluation results. In addition, 37 amending decisions were taken. New programmes resulting from enlargement, many of which are Neighbourhood Programmes, made a particular effort to get off to a successful start. In addition, the INTERACT support programme continued to contribute to efficient and effective implementation of INTERREG III programmes by organising a large number of best practice events and producing effective management manuals for co-operation.

The level of de-commitments under the "n+2 rule" rule fell from EUR 50 million in 2004 to EUR 23 million for INTERREG. Joint long-term efforts by programme authorities and the Commission contributed to this positive trend.

Leader +

Some 73 LEADER+ programmes were approved for the period 2000-2006. The payments in 2005 for these programmes amounted to EUR 332 million from EAGGF Guidance. Because of the lead time of this initiative (e.g. selection of Local Action Groups - LAGs), the initial years of the programming period were characterised by low financial implementation. Although payments prior to 2005 represented only 31.5% of the amount earmarked for the whole programming period, in 2005 considerable progress was made.

Out of some 938 LAGs, 892 were finally selected. The local development strategy theme “Using natural and cultural resources” proved to be the most popular (chosen by one third of the LAGs), followed by actions to promote quality of life (chosen by 25% of the LAGs). The monitoring reports submitted in 2005 indicate that 26 178 projects had been approved since the start of the programming period. The main areas of intervention are tourism, support to SMEs, renovation and development of villages and rural heritage, basic services to the rural population and the rural economy.

Meanwhile, transnational cooperation projects (Action 2 of the LEADER+ initiative) have slowly got under way, with 224 projects approved for the whole programming period (data for 2000-mid 2005).

Urban

Urbact

The year 2005 was largely devoted to continuing the work of the thematic networks and to mainstreaming activities. Twenty thematic networks were approved. Networks are organised around the following topics: social exclusion, integration of foreign nationals, integration of young people, economic activity and employment, project governance, physical regeneration of urban areas, citizens’ participation, transport and environment, the information society, prevention of urban insecurity, public-private partnership and training. Six cross-cutting Working Parties were created (capitalisation, the inhabitants' place in local economic development, European Knowledge Platform, Skills Symposium, safety for all, and cities as engines of the knowledge economy). A total of 179 cities are partners, including 36 cities in the new Member States.

Urban Audit

2005 was an important year for the Urban Audit. The data collection for 2001 in the EU cities was completed and added to the dedicated website and the Urban Audit 2005 book. The updated website[6] and the Urban Audit book were both published at the same time as the informal meeting of Member States in Bristol in December 2005. Also in December, Commissioner Hübner held a press conference on the Urban Audit. An initial analysis based on the “Cities and the Lisbon Agenda” report was presented.

A call for tenders was signed to start the analysis of the Urban Audit results; conclusions are expected by November 2006.

Equal

2005 saw the operational start-up of the 2000 Development Partnerships projects in the second round of EQUAL, including around 400 projects in the new Member States, which had been selected at national level in 2004. Around one third of the second-round Development Partnerships are working on the theme of employability, with proportionally fewer working on each of the other eight themes.

The results of the approximately 1 400 Development Partnerships of the first round of EQUAL, which had finished their work during 2004 and 2005, were the subjectof a large number of seminars, conferences and events at local, national and European level, including:

- A major EQUAL mainstreaming conference, highlighting the results of the first round entitled "Free Movement of Good Ideas", held in Warsaw on 25 and 26 February

- An Agora on Age Management, entitled "Experience is Capital" in Paris in June

- A Policy Forum on "Gender Equality: a Key to Change" in Madrid in June

- An ESF seminar on "Exchanging experiences in sound planning" in Vilnius on 17-18 November

- An ESF seminar on "Integrating Innovation and Transnational co-operation into ESF Programmes for 2007-2013" in Brussels in December.

These events, and others, were prepared by the Commission and the Member States working in partnership through a number of thematic working groups in each of the EQUAL programme’s thematic fields, and in the horizontal fields of Partnership, Mainstreaming, Innovation, Gender Mainstreaming and Transnationality. The aim was to extract maximum benefit from the outcomes of the EQUAL programme at every level in order to inform future policy and practice, including the shape of the Member States' ESF programmes for the next programming period.

Innovative Actions

ERDF

In 2005, regional authorities submitted bids for 51 new proposals for regional programmes for innovative actions. 28 were selected and 22 of these were the subject of a financing decision before the end of the year. This means that 174 programmes have been approved since 2000. These programmes are based on three themes: knowledge and technological innovation, the information society and sustainable development, and allowing regions to experiment with new approaches and to launch innovative projects. Following the closure of three programmes in 2004, 24 more were closed in 2005.

Also in 2005, the networks for inter-regional co-operation - ERIK for technological innovation and Iannis for information society - had their second programmes approved.

In addition, in order to learn some lessons from programmes for innovative actions, an external evaluation was launched, which will be the subject of a call for tenders in 2006.

ESF

During the year, 38 projects relating to Local Employment Strategies were finalised. In 2005, 28 projects were selected under the second round of the call for proposals on "Innovative approaches to the management of change". Some seven projects were selected on the "transfer and dissemination of innovation from ESF Article 6 projects" which is designed to encourage the take-up of new ideas in the main programmes.

FIFG

During 2004 and 2005 actions were taken to implement projects selected following calls for proposals launched in 2002 and 2003. 18 projects were closed, 11 projects are due to be closed in 2006.

An ex-post evaluation of transnational projects for innovative actions in the fisheries sector was finalised in 2005. It assessed 10 projects for innovative actions financed under the call for proposals published in Official Journal (IA projects) and a further 5 projects for innovative actions among those financed by the FIFG as part of the operational programme for 2000-2006 (OP projects). The evaluation suggested that projects funded under the specific programmes tended to perform better than the IA projects as regards effectiveness, efficiency, quality of the monitoring system and sustainability.

No calls for proposals were launched in 2005.

CONSISTENCY AND COORDINATION

Consistency with other Community Policies

Competition

Under Regulation (EC) No 1260/99 Member States must verify that all operations comply with EC legislation, including the rules on state aid. Where the Commission is informed of any breach of EC legislation or where audits demonstrate that this is the case, appropriate action is taken.

In order to provide full transparency, Member States indicate the State aid regimes for which Structural Funds’ assistance is used in their programmes. Any substantive modification of this list requires a new Commission decision. No infringement cases were brought to the attention of the Commission in 2005.

In preparation for the period 2007-2013 the Commission is reviewing the various State aid rules. One of the aspects of these rules is the regional State aid guidelines. The Commission adopted a new text for these guidelines on 16 December 2005.

Environment

The Commission has continued to encourage investments in the environment in 2005 through the Cohesion Policy. The main focus has been on providing co-financing for the investment heavy acquis for urban wastewater, water supply and waste management, especially in the new Member States. Other important areas of investment have been in eco-innovation and rehabilitation of polluted soil. The promotion of sustainable development as a cross-cutting principle has been achieved with investments in environmentally-friendly transport and energy, introducing environmental criteria into project selection, and by pro-actively ensuring compliance of projects with environmental legislation. The application of the Strategic Environmental Assessment Directive to the future Operational Programmes as part of ex-ante evaluation is a particular challenge for Member States. The European Network of Environmental Authorities (ENEA) composed principally of environmental administrations in Member States continued its work during 2005. For the list of major projects supported in this field by the ERDF, see part 3 of the annex.

Internal Market

Compliance with public procurement rules is extremely important in the context of the European single market. Where the Commission is responsible for approving individual projects, it ensures that these rules are followed or that the Member State commits itself to doing so.

As part of the programming function the Commission reviews the information from Member States in the annual reports on the operational programmes or the single programming documents. In 2005, DG REGIO and DG MARKT developed a modus operandi to co-ordinate the Commission’s action on infringements.

The Commission also uses its audit capacity to detect possible problems in the area of public procurement. In the case of Spain, doubts about compliance with public procurement procedures have resulted in a formal reservation being made by the Commission concerning the Spanish management and control system.

Transport

Following the revision of the Community guidelines on the development of trans-European networks, transport priorities are the main issue in cohesion policy. In preparation for the period 2007-2013, many new European transport policy initiatives - such as ERTMS, Motorways of the Sea or the 30 priority projects of TEN transport - feature in the draft Community Strategic Guidelines on Cohesion. For the list of major projects supported in this field by the ERDF, see part 3 of the annex.

Gender equality

The Commission continued its work to promote gender equality in the Structural Funds and the Cohesion Fund. The High-Level Working Group on gender equality, created in 2004, met twice to exchange best practices.

Coordination of Instruments

The Structural Funds and the Cohesion Fund

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

As a result of the enlargement of the European Union in May 2004, ten new Member States are covered by the Cohesion Fund. There are now 13 beneficiary Member States. As a result of its economic growth, Ireland has not been longer eligible for the Fund since 1 January 2004. Its per capita GDP in 2006 stood at 138%, which is higher than the eligibility threshold of 90% of the Community average.

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

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

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

The Structural Funds and the EIB/EIF

In 2005, in addition to continuing the efforts to coordinate and complement funding from ERDF and the Cohesion Fund and the EIB operations for the current programming period 2000-2006, the Commission and the EIB began to prepare for greater cooperation in the next programming period 2007-2013.

The objectives set for the coming period focus on more cooperation at all stages of the programming work (including National Strategic Reference Frameworks and operational programmes), as well as a coordinated approach to monitoring the implementation of projects and programmes.

Helping Member States that are eligible for the Cohesion Fund to improve their preparation of major projects to be co-financed by the Cohesion Fund or the ERDF in the next period 2007-2013 is a major challenge and objective for these Institutions and the Member States. JASPERS (Joint Assistance to Support Projects in European Regions) is a new technical assistance facility to be managed by the EIB, agreed and set up in 2005 by the Commission and the EIB, in partnership with the EBRD, to assist cohesion Member States in this respect.

Improving access to finance and risk capital for SMEs in the regions of the EU is a key element of the Lisbon agenda, as well of the Commission’s Communication of July 2005, “Cohesion Policy in support of growth and jobs, Community Strategic guidelines 2007-2013”. In this context, the Commission and the EIB Group (EIB-EIF), launched a new joint initiative “JEREMIE” (Joint European Resources for Micro to Medium Enterprises) in 2005 to improve access to finance and to develop micro credit for SMEs in the regions supported by the Structural Funds in the forthcoming period.

Commissioner Danuta Hübner and the EIB Group presented these new initiatives and discussed them with Ministers responsible for the Structural Funds in the 25 Member States and in the candidate countries, at a Ministerial meeting held in Brussels on 11 October. In the light of comments made at the Ministerial meeting, the Commission, in partnership with the EIB Group, updated its proposals and presented them to all the regions of the EU at a conference held in Brussels on 24 November 2005. Representatives of the regions, the social partners and the European banking sector welcomed the JASPERS and JEREMIE initiatives.

At the Conference of 24 November, the announced intention of Commissioner Danuta Hübner and the EIB, in partnership with the Council of Europe Development Bank, to work closely together on their coordinated approach to financing urban development and renewal in the next programming period of the Structural Funds was also welcomed by representatives of the regions, social partners and the EU financial sector.

The Commission and the EIB Group made a lot of progress in 2005, launching new joint policy initiatives and preparing their enhanced cooperation in programming and implementing the next generation of programmes. All this will be further consolidated and implemented on the ground in 2006.

EVALUATIONS

During 2005, two major evaluations were completed. One was a thematic evaluation of the Structural Funds’ contribution to the Lisbon strategy, while the other was an ex-post evaluation of Cohesion Fund projects completed between 1993 and 2002.

Evaluation results

Evaluation of the Structural Funds’ contribution to the Lisbon strategy

In relation to the Lisbon Agenda, the Structural Funds contribute significantly to its objectives, even though there has been, apart from the European Social Fund, little formal co-ordination between the Lisbon Agenda and the Structural Funds. In many regions, more than two thirds of Structural Fund expenditure is currently allocated to activities that are directly relevant to the Lisbon objectives and a clear impact can be seen in relation to quantitative targets. In regions where a smaller share of Structural Fund expenditure is directly relevant to the Lisbon Agenda, the main reason is the importance of Structural Fund support for basic physical infrastructure, reflecting the particular investment needs of the least prosperous regions.

The study on the contribution of the Structural Funds to the Lisbon Strategy is being used by the Commission in the ongoing discussion with the Member States on the future design of cohesion policy. This includes both general policy at EU level and policy at the level of individual Member States. The study is a valuable help in ascertaining the room for manoeuvre of the Structural Funds in supporting the Lisbon agenda, taking into account the circumstances of the different Member States.

Strategic evaluations

During 2005, three strategic studies for the programming period 2007-2013 were launched:

- Strategic evaluation on Transport Investment Priorities under the Structural and Cohesion funds.

- Strategic evaluation on the Environment and Risk Prevention.

- Strategic evaluation on the innovation-based economy.

These evaluations will serve as input for the negotiations with the Member States plus Bulgaria and Romania for the next programming period (2007-2013), to prepare the Strategic Reference Frameworks and Operational Programmes and to contribute to the preparation of the fourth report on Economic and Social Cohesion. They will be completed in mid-2006.

Other evaluation activities

Capacity building

During 2005 the Commission developed a web-based guide to the evaluation of socio-economic development. The objective was to further enhance evaluation capacity among those responsible for evaluation both in administrations and in the market. The Guide is to be used both by administrations (Community, national, regional and local) and by evaluators.

Developing systems for monitoring and evaluation is a challenging task, particularly for the new Member States. The Commission worked co-operatively with the new Member States in this area, attending seminars and training events and providing advice and guidance.

The Rail Baltica project, to run from Warsaw - Kaunas - Riga – Tallinn, has been approved as a priority project under the TEN-T guidelines. The project crossesfour Member States and has implications for Cohesion Fund expenditure in all four of them. The Commission has launched this study in order to undertake a thorough assessment of the feasibility of the project and the possible investment options. The study will be completed in October 2006 and will be used to inform decisions on whether and how to proceed.

Methodological work

Study of the measurement of employment effects: Measuring employment effects using a bottom-up approach is a difficult but necessary task in order to demonstrate the added value and impact of structural interventions, especially in the case of regional or other small-scale interventions. This study examines good practice in this area, and Member States are encouraged to improve their methods in this regard. The study is due to be issued in March 2006.

Ex ante evaluation is a regulatory requirement. The new regulations introduced a number of changes to the requirements for the 2000-2006 period. The existing working paper was therefore revised to take account of experience to date. This working paper will be used by the Member States in carrying out their evaluations.

Indicators are a regulatory requirement. Based on experience gained through the current programming period, the existing working paper was revised in consultation with Member States.

FIFG

The updates of the mid-term evaluations of the FIFG for the period 2000-2006 did not lead to any major changes in programming. The main conclusions were the following:

- In general, FIFG programmes started up slowly and with some delay. They have been running behind target in terms of both commitments and actual spending. This underperformance of programmes can be explained by various factors, such as the lack of financially robust project sponsors, the fragmentation of the industry and uncertainty about the economic future of the fisheries sector.

- The reform of the CFP, which resulted in the phasing out of public aid for construction and modernisation, has led to the whole fisheries sector adopting a ‘wait and see’ approach. This has slowed down investment and led to delays in the implementation of the programmes.

FINANCIAL CONTROLS

ERDF

The audit strategy established by the Directorate-General for Regional Policy is a three-year rolling plan of the overall audit work to be carried out by the Audit Directorate.

The main objectives of the audit strategy for 2005 were:

- to have reasonable assurance that the management and control systems established by the beneficiary countries comply with the regulatory requirements and function effectively, so as to provide reasonable assurance on the legality and regularity of expenditure;

- to check the accuracy of the amounts concerned and, in the event that irregularities and deficiencies are detected through the audits carried out by the Commission, to recommend remedial action and follow up the implementation of such measures, to ensure that they are dealt with satisfactorily and in a timely fashion; and

- to propose financial corrections where the beneficiary country’s control procedures have proved inadequate.

Based on these objectives, the main actions planned for 2005 were: (1) to perform further closure audits for the programming period 1994-1999 and to follow up completed closure audits with the launching of financial correction procedures, where applicable; and, for the 2000-2006 period, (2) to seek reasonable assurance on the systems implemented by Member States (EU15) and (3) to complete the assessment of the systems descriptions and the verification of the functioning of these systems for the new Member States (EU10).

Period 1994 – 1999

For the closure of the period 1994-1999, the Directorate General for Regional Policy developed a strategy for gaining reasonable assurance that the final payments had been made on a sound basis by checking the information provided by the Member States at closure, making corrections where justified, and by carrying out closure audits on a sample of programmes to verify the reliability of the closure process completed by Member States, and in particular the closure statements under Article 8 of Regulation (EC) no 2064/1997.

During 2005, closure audits were completed on 56 programmes covering all Member States (EU15), thus bringing to an end the on-the-spot audit work under this audit examination. The audited programmes cover between 20 and 60% of the ERDF contribution in all Member States except one, and provide an overall coverage of 35% of the ERDF contribution for mainstream programmes (31% of the total ERDF allocation). Because the project audits were carried out in two tranches, the follow-up with Member States has not been completed for the majority of programmes audited. Financial corrections will be carried out in appropriate cases.

Period 2000 – 2006 (EU15)

The audit survey, which was launched in mid-2004 to examine the effective functioning of key elements of management and control systems in Member States for mainstream programmes, continued in 2005 and is due to be completed by the end of 2006. The audits comprise two phases: a systems review and an audit of a representative sample of projects. At the end of 2005, audits had been carried out on 52 programmes.

The main problems identified from the work carried out so far are deficiencies in first-level management checks and weak procedures for certification of expenditure by the paying authority, which give rise to a risk for the Commission as regards the reliability of the statements of expenditure submitted. Furthermore, several Member States have been identified where there are problems with particular implementation issues, such as measures to fulfil the "n+2 rule", compliance with public procurement and environment directives and/or rules on publicity. Action plans were agreed, where necessary, with Member States and corrective measures will be followed up.

Period 2004 - 2006 (EU10)

As regards the new Member States, the audit work concerned the assessment of the system descriptions submitted under Article 5 of Regulation (EC) No 438/2001 and verification audits on the functioning of the systems as described. The assessment of the set-up of the systems was carried out in close collaboration with the other Directorates General involved in the Structural Funds and lproduced satisfactory conclusions. Because of limited expenditure declared to the Commission, auditing of the functioning of the systems was delayed until the end of the year. The audits conducted revealed some weaknesses, such as insufficient quality control of management verifications and lack of coverage or insufficient quality of the audit work carried out by the national audit bodies.

ESF

Period 2000-2006 (EU 15)

- Continuation of the audit for the ESF programmes identified as "high or medium risk"

Out of a total of 214 ESF operational programmes, 55 programmes (of which 34 were new) were audited by DG EMPL Unit F3 in 28 audits during 2005. In terms of the total funding available over the programming period, a coverage of almost 79% was achieved (around 82% if the national audit results are included). Overall, for the period 2000-2005, Unit F3 audited 115 operational programmes.

The audits are not only robust systems that provide a reasonable assurance of full compliance with the regulatory framework; they have also so far detected the following weaknesses in the management and control systems for some programmes, compared to the required level of compliance with the regulations: inadequate first-level verifications by some managing authorities or intermediate bodies; breaks in the audit trail; weak certification processes or inadequate certification procedures; insufficient or non-existent separation of functions; weaknesses in the IT systems; and an insufficient level of publicity of ESF funding. Appropriate action has been taken by the Commission, in coordination with the managing authorities concerned, to remedy these systemic weaknesses and correct past expenditure where necessary.

Under the single auditing approach with the national ESF audit authorities, 24 programmes were covered by national audits and included DG EMPL's audit results for 2005. This figure corresponds to definitive audit results communicated to the Commission either through the Article 13 annual control reports or on the basis of individual reports (Article 38(3) of Regulation (EC) No 1260/1999). The Commission is aware of many other on-going audit reports.

It is worth mentioning that the remaining programmes to be audited make up only a small proportion of the total ESF appropriations for EU-15 in 2000/2006: at the end of 2005, around 20% of ESF appropriations for 2000/2006 for EU-15 not yet covered by DG EMPL audits were distributed over 73 programmes, most of them at regional level. In that regard, an exchange of ESF audit results with the Member States is crucial.

- Follow-up audits for EU 15

The cases of non-compliance detected in the systems in previous years, or the positive assurance level obtained on large programmes in previous audits, indicate the need for a follow-up with a view to verifying the better compliance or functioning of weak systems, or the continuation of good compliance and value for money of systems that were positively assessed. The 2005 audit plan allowed little room for ad hoc audits; 6 follow-up audits were carried out in 2005 covering 11 operational programmes.

2004-2006 (EU 10)

In all, 28 system descriptions following Article 5 reports were received for the ESF and DG EMPL evaluated 20 cases where the disruption was common to all Funds, as part of a coordinated exercise with the other Structural Fund Directorates General. On-the-spot auditing of a sample of existing systems covered 19 of the 25 programmes in all new Member States, making up around 87% of the total funding available for EU 10 in the programming period.

1994-1999 programming period

In 2005, 14 closure audits took place (a first phase to review the process of the establishment of winding-up statements by the winding-up body provided for in Article 8 of Regulation (EC) No 2064/97). These audits covered 40 programmes from the period 1994/99 in 8 Member States.

Integrated audit approach

Since 2004, as part of its Audit Strategy, DG EMPL has developed a “mutualisation” concept with national ESF audit authorities, aimed at putting the single auditing approach into practice by sharing audit results with Member States and obtaining part of its assurance level on systems from the national audit results.

In 2005, 24 meetings were held with the national control bodies under Articles 10 and 15 ESF, based on a standard template, with the further objective of providing an updated follow-up to DG EMPL’s recommendations on open audit.

EAGGF

DG AGRI followed the same basic approach as DG REGIO and shared the same general objectives.

For the 1994-1999 period, seven audits were carried out in 2005, completing the planned ex-post audit programme for this period. Programmes accounting for 32% of total expenditure were audited in this programme. A number of financial correction procedures are under way: 10 bilateral meetings with the Member States, covering 29 programmes, were held during the year. The financial corrections should be made in 2006.

Seven audits were carried out for the period 2000-2006 (EU-15). Typical problems identified were: inadequate management controls, failure to verify eligibility criteria in accordance with the provisions of the agricultural legislation, and a low level of independent controls.

For the 2004-2006 period (EU-10) the analysis of systems descriptions was completed and 4 audits were undertaken. Given the synergies between the systems, these audits were carried out jointly for expenditure falling under EAGGF Guidance, EAGGF Guarantee and SAPARD, and took full account of the work of other Structural Fund audit units.

FIFG

The ex-post control sector of DG FISH carried out a total of 7 on-the-spot controls in 2005.

Three on-the-spot controls concerned the verification of management and control systems of the 2000-2006 programmes in three Member States (for a total of €273m). After these audits, the management and control systems of all programmes for which DG FISH is in charge (or where management of FIFG appropriations has been subdelegated to specific authorities) were subjected to on-the-spot audits.

One audit (Spain) concerned the closure of the 2000-2006 programme to promote the conversion of fishing vessels that, up to 1999, had been dependent on the fishing agreement with Morocco (€171m) and the follow-up of the implementation of audit recommendations concerning the management and control systems of the two FIFG Spanish programmes (€1.712m). 46 structural projects were checked (€10.6m), for which FIFG aid amounted to €7.3m. As most of these projects were not verified in Spain until January 2006, the amount of possible non-eligible expenditure has not yet been determined.

Three on-the-spot controls concerned innovative actions where seven projects were audited in three Member States (Italy, United Kingdom and Spain) for an amount of €1.09m, with FIFG aid amounting to €0.758m. An amount of €0.118m was found to be non-eligible (10.8%), the maximum financial impact for DG FISH being €0.016m. The main problems detected concern irregularities such as over-declaration of staff costs and travel and subsistence expenditure, VAT and payments for undocumented expenses. The audit findings are still being discussed with beneficiaries.

Lastly, DG FISH carried out missions to assess the functioning and efficiency of the managing and payment authorities of the new Member States.

OLAF

In 2005, OLAF undertook 43 missions in the Member States relating to measures co-financed by the Structural Funds.

Some 24 of these missions were conducted under Council Regulation (EC) No 2185/96, [7] of them involving on-the-spot checks; 19 checks were conducted for other purposes, namely to gather information or to assist national administrations or judicial authorities.

As regards the 24 missions under Regulation (EC) No 2185/96, 53 economic operators were subjected to on-the-spot controls; 32 hearings were also conducted in relation to these controls.

- Twelve missions concerned cases with ESF funding, of which eight related to cases opened by OLAF in 2005, two to cases opened in 2004, one in 2003 and one in 2001;

- Nine missions concerned cases with ERDF funding, of which five were opened in 2005 and four in 2004;

- Two missions concerning FIFG were related to cases opened in 2005 (1) and in 2004 (1).

- The last mission concerned EAGGF Guidance funding relating to a single case opened in 2005.

Typical problems identified included false declarations, false invoicing and failure to comply with public procurement rules.

Moreover, during 2005, OLAF conducted two supplementary audits concerning the application of Commission Regulation (EC) No 1681/94 as regards the systems and the procedures for the notification and the monitoring of irregularities, and concerning the application of Article 8 of Regulation (EC) No 438/2001. Both audits were carried out in Italy (in the Marche and Lombardia regions). They confirmed the conclusions of the audits conducted in previous years in the 15 Member States.

In 2005, the Member States themselves communicated to the Commission, in accordance with Regulation (EC) No 1681/94, some 3 356 cases of irregularities involving EUR 466 617 970, which have affected payments made during the periods 1994-1999 and 2000-2006. Both the amounts and the number of cases involved showed a slight increase over 2004[8]. These results are probably due to the work being done to finalise the closure of the programmes for the period 1994-1999 and, encouragingly, to a greater awareness by the Member States of their obligations. Therefore, the increase is likely to be due to increased vigilance and better reporting rather than to an increase in the actual number of irregularities.

Under Articles 3 and 12 of Regulation (EC) No 1681/94 Member States must communicate to the Commission all the cases of irregularities equal to or greater than EUR 4 000. Regulation (EC) No 1681/94 does not distinguish between suspected fraud and other irregularities.

In 2005, Regulation (EC) No 1681/94 was amended by Regulation (EC) No 2035/2005[9]. In line with the initiatives launched in 2002-2003 to simplify the management of the Structural Funds, the Commission also undertook to examine the provisions of the Regulation and to propose amendments aimed at simplifying procedures, while ensuring that the Community’s financial interests are protected.

The amendment in question reflects these aims. The specific amendments include:

- definition of “irregularity” in accordance with Article 1(2) of Council Regulation(EC) No 2988/95 ;

- definition of the term “suspected fraud” ;

- clarification of the point in time when a new case must be reported ;

- removal of the obligation to report cases of simple bankruptcies, with the exception of cases of suspected fraud ;

- electronic transmission of details of irregularities ;

- raising of the reporting threshold from EUR 4 000 to EUR 10 000 ;

- re-definition of the objectives in order to place more emphasis on risk analysis.

COMMITTEES ASSISTING THE COMMISSION

Committee on the Development and Conversion of Regions (CDCR)

The Committee on the Development and Conversion of Regions (CDCR) acts as a management committee when it deals with rules implementing the Structural Funds Regulation (EC) No 1260/1999 and as a consultative committee when dealing with other points relating to the same Regulation.

In 2005, the Committee, in its role as a management committee, dealt with the amendment of Regulation (EC) No 1681/1994 concerning irregularities and recovery of sums wrongly paid in connection with the financing of structural policies and the organisation of an information system in this field.

Furthermore, the Committee was consulted on the revised proposals regarding various types of technical assistance measures financed under Article 23 of Regulation (EC) No 1260/1999.

The CDCR also acted as a platform for consulting the Member States on (a) the new system of categorisation of areas of intervention for 2007-2013 and (b) the draft guidelines on closure of assistance (2000-2006) from the Structural Funds.

In addition, the CDCR acts as a forum for information and discussion of any specific points related to the implementation of the Structural Funds. Thus, in 2005, the CDCR discussed a wide range of issues concerning the new regulations on the Structural Funds and the Cohesion Fund for the next programming period (2007-2013), in particular the following:

- Commission working document – Draft Commission Regulation setting out detailed rules for the application of the Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund,

- Draft working paper on ex ante evaluation,

- Draft working paper on indicators for monitoring and evaluation: a practical guide.

Lastly, the CDCR was consulted on the draft technical assistance budget for 2006, and its members were informed about the assessment of the closure of the 1994-1999 programmes.

The CDCR Working Group on “Territorial and Urban Development” has been tasked with assisting the CDCR and the Commission in implementing Regulation (EC) No 1260/1999, in particular on issues related to urban and rural planning (this working group held five meetings in 2005). Overall, some 28 subjects were examined during the seven meetings of the CDCR in 2005.

ESF Committee

The committee, which was set up pursuant to Article 147 of the Treaty (ESF Committee) met four times in Plenary Session, and its Technical Working Group met six times. It discussed a wide range of issues relating both to current implementation of the ESF and to preparations for the future programming round. In this context, it adopted a number of opinions: on the draft Guidelines for Closure 2000-2006; on the proposed revision of Regulation (EC) No 1681/94 concerning irregularities; on the draft Community Strategic Guidelines and on the draft Commission Implementing Regulation.

Committee on Agricultural Structures and Rural Development (STAR)

The STAR Committee met eight times in 2005 and gave favourable opinions on 32 amendments to rural development programmes under Article 44(2) of Council Regulation (EC) N° 1257/1999 and 13 amendments to rural development programmes under Article 4 of Council Regulation (EC) N° 1268/1999. The Committee was also consulted on the draft Commission Regulation amending Commission Regulation (EC) No 1681/94 concerning irregularities and the recovery of sums wrongly paid in connection with financing of the structural policies and the organisation of an information system in this field.

Committee on Structures for Fisheries and Aquaculture (CSFA)

The Committee was consulted on four occasions in 2005 on the following subjects:

- 22/02/2005: Consultation on the work programme “FIFG technical assistance” for 2005 under Article 23 as provided for under the Regulation (EC) No 1260/1999 laying down general provisions on the Structural Funds

- 22/03/2005: Vote on the draft Commission decision amending Commission Decision No C (90)1923/99 of 30/10/1990 fixing the financial assistance of theCommunity for the modernisation project in the sector of aquaculture (project No I/0016/90/02 – Azienda Agricola LE CANNE); exchange of views on best options for on-board electronic recording and transmission of data.

- 12/10/2005: Preparation of Community Guidelines for State Aids for rescue and restructuring of firms in the fisheries sector.

- 09/11/2005: Preparation of Community Guidelines for State Aids for rescue and restructuring of firms in the fisheries sector; Consultation on the draft Commission Regulation amending Commission Regulation (EC) No 1681/94 concerning irregularities and the recovery of sums wrongly paid in connection with the financing of the structural policies and the organisation of an information system in this field.

Part 2: Analysis by Member State

BELGIUM

For Belgium, 2005 was mainly the year of the update of the mid-term evaluation carried out in 2003, which led, at the end of December, to the approval by the monitoring committees of the reports on the update. The dual purpose of the reports was to adapt the current programmes and to propose material for consideration for the period 2007-2013.

Objective 1

For Belgium’s sole Objective 1 programme (Hainaut), almost the entire budget - which was intended to cover expenditure until the end of the period, including the performance reserve allocated - was assigned to measures and/or projects.

Two new amending decisions were adopted. The first, on 12 December 2005, confirmed the IFOP de-commitment for an amount of EUR 198 707 under the "n+2 rule" rule for 2002 and the second, on 21 December 2005 adjusted the financing plan with a view to ensuring optimum consumption of the remaining budget.

At the end of 2005 the level of the expenditure presented for payment to the ERDF was in excess of EUR 291 662 330.82 i.e. 68.21% of the ERDF appropriation. For ESF, the payment claims transmitted to the Commission at the end of 2005 amounted to €105m (52% of the total ESF appropriation). Overall implementation for the EAGGF at the end of 2005 amounted to EUR 15 865 508, i.e. 36.00 % of the EAGGF appropriations. The "n+2 rule" rule was not applied in 2005 for any of the four funds.

Objective 2

For the seven Objective 2 programmes from which Belgium benefits, the annual report of each programme was approved by the corresponding monitoring committee, forwarded to the Commission and examined by the geographical unit. For each programme, two monitoring committee meetings were held, in June and December 2005.

The main subjects dealt with by the monitoring committees were :

- the approval of: the Annual Implementation reports for 2004, the update of the Mid-term evaluation reports and the programme modifications mentioned above;

- follow-up of the n+2 situation;

- the preparation of the 2007-2013 programmes, which received particular attention.

Regarding the Objective 2 SPD in the Walloon Region (Meuse-Vesdre and Rural), the December 2005 monitoring committees ratified changes based on the sound management of each programme, which called for a re-adjustment of the financing plan and the adoption of new amending decisions in 2006,

The levels of ERDF expenditure are respectively EUR 74 721 775.75 and EUR 30 018 049.55, corresponding to 53.87% and 54.72% of the ERDF appropriation. For ESF, payment claims presented up to the end of 2005 amount to €12.7m (49% of the total ESF appropriation) and €2.6m (46% of the total ESF appropriation) respectively.

For all four Objective 2 programmes for Flanders, nearly all of the allocated funds have been committed. The payments level is such that it fully covered the required n+2 level for the ERDF (total ERDF payments: EUR 96 924 296.76, which means an average spending of 55.24% of the total ERDF contribution).

For ESF, the total payment claims presented to the Commission for the three Flemish Objective 2 programmes with ESF (no ESF budget allocated for Oost-Vlaanderen) amounts to €7.5m or 43% of the total ESF budget. Only the programme for Antwerpen did not meet the n+2 target, and will be the subject of a decommitment of €0.1 million.

In the first half of 2005, three of the four programme complements were adjusted to the mid-term review decisions of the SPDs (Limburg, Kustgebied-Westhoek, Oost-Vlaanderen).

The Programme Complement for Antwerpen was amended towards the end of the year. This was mainly to reflect the mid-term review changes to the SPD, but a few additional movements between measures were also decided and the Communication Plan was adapted to the changed circumstances in Antwerpen.

The SPD was modified for “Kustgebied-Westhoek (West-Vlaanderen)”, in order to make a few small budgetary transfers between priorities and to amend the indicators accordingly.

The Brussels Capital Region modified the programming complement of the Objective 2 SPD to ensure consistency with the latest decision amending the programme, which affected the amount of the performance reserve for one of the two main priorities of the SPD.

The expenditure of the ERDF (the only fund involved) continued to progress in 2005, but was concentrated at the end of the year since the two payment requests were submitted to the Commission in December for an eligible total ERDF amount of EUR 7 724 661.49, avoiding a de-commitment under the "n+2 rule". At the end of 2005, the level of expenditure presented to the ERDF for payment exceeded EUR 23 277 928.39, at 50.73% of the ERDF allocation.

On top of the day-to-day management of the 2000-2006 programmes and the closure of the 1994-99 programmes in Belgium, there was intense preparation in 2005 for the forthcoming period 2007-2013. A bilateral meeting with the Belgian authorities was held to prepare the Community Strategic Guidelines. Consistency with the revival process of the Lisbon strategy was also an important topic in 2005. Preparatory and follow-up meetings were held to prepare the Belgian National Reform Programme. The NRP presented by Belgium for the purpose of drawing up the Commission report to be communicated to the Council in early 2006 was assessed.

The first phase of the preparation of the NSRF plans was completed. For Belgium, a first meeting with the national and regional authorities was held in December.

Objective 3

The total ESF appropriation for Objective 3 is €798.4 million, divided among 5 operational programmes. All 5 programmes are performing according to plan.

For the Federal SPD, the total ESF budget amounts to €72.1 million. The level of expenditure declared to the Commission amounts to €29.8 million (41% of the total ESF appropriation).

The Flemish programme involves a total ESF budget of €392.5 million. The total budget has been allocated to projects and these projects can run until 2007. The declared expenditure at the end of 2005 amounted to €231.3 million or 59% of the total ESF budget.

The programme for Wallonia has a total ESF budget of €297.9 million. At the end of 2005, the level of expenditure amounted to €173.3 million or 58% of the budget. The programme is being implemented as planned.

The ESF budget for the Brussels region amounts to €24.7 million. At the end of 2005, 75% of this budget (€18.6 million) had already been claimed from the Commission.

The German-speaking Community has a separate Objective 3 programme, with a total ESF budget of €11.2 million. At the end of 2005, the level of expenditure claimed from the Commission amounted to €9.5 million or 85% of the total budget. The implementation of this programme is well advanced.

For each of the 5 programmes, an update of the mid-term evaluation was approved by the monitoring committee and transmitted to the Commission by the end of 2005.

Fisheries outside Objective 1

Two amending decisions were adopted: the first was to confirm the FIFG de-commitment for an amount of EUR 8 059 453.91 under the "n+2 rule" for 2002 and the second to adjust the financing plan with a view to optimum consumption of the budget still available based on sound management and to allow the financing of a scrapping scheme set up in response to the economic crisis in the fishing industry.

A first meeting of the Monitoring committee was held in June 2005 and a second one in December 2005. The main subjects dealt with by the Monitoring committee were:

- approval of the Annual Implementation report for 2004, of the up-date of the Mid-term evaluation reports and of the above-mentioned programme modifications;

- follow-up of the "n+2" situation;

- preparation of the 2007-2013 EFF programme.

The level of expenditure presented to the FIFG for payment at the end of 2005 was EUR 8 490 876.14, i.e. 30.63 % of the FIFG appropriation (including the advance payment).

Community Initiatives

Urban

There are three Urban II programmes in Belgium. The programmes for Brussels, Antwerp and Sambreville were all approved on 12 November 2001 and all three were amended in 2004. Each programme receives €7.173 million from the ERDF. The total budget for Brussels is €14.9 million, for Antwerp €22.9 million and for Sambreville €17.1 million.

Annual reports for 2004 were submitted by all three programmes and approved.

Because of losses under the n+2 rule, the Antwerp programme had to be amended. This process was completed by the end of 2005.

For all three programmes, the management authority is the region. The monitoring committees of each programme met at least once.

All three programmes achieved the n+2 goals for 2005.

Equal

The EQUAL programme in French-speaking and German-speaking Belgium was established with 6 different governments, including 21 ministers with responsibility for these matters. The approach was therefore determined by the federal, regional and Community levels, and covers the Brussels territories and Wallonia. It takes the needs of each region into account, but also envisages a horizontal approach by sector of activities. The vulnerable groups covered by the EQUAL measures are, in particular: the poorly educated, those on minimum income, young people under 25, women, the disabled, workers of foreign origin, the elderly, the long-term unemployed and asylum seekers. The EQUAL programme has been implemented without any problems. However, the programme is not innovation-and mainstream-oriented, and the groups at risk of exclusion from the labour market would have benefited from new, effective integration measures. The principle of partnership was the major element of the programme and it delivers genuine value added on the ground.

The EQUAL programme in Dutch-speaking Belgium is proceeding at the same rate, although with a slight under-utilisation of the financial resources. In this connection, it is appropriate to mention that the principle of innovation is also the aim of Objective 3, where its implementation is simpler. Consequently, there is a preference on the part of the promoters to take this route. For the end of 2005, the "n+2 rule" rule (Article 31(2) of Regulation (EC) No 1260/99) will have to be applied for the second time, but this time for a lower amount: EUR 2 471 138.

Leader

Belgium has two Leader+ programmes: one for Flanders, involving total public expenditure of EUR 7 984 000, and one for Wallonia, involving total public expenditure of EUR 20 669 294. Both programmes were amended in 2005 to modify the financial tables to take account of indexation and of a "n+2 rule" decommitment.

At the end of 2005, total financial implementation came to EUR 3 839 579, i.e. 26.80 % of total EAGGF expenditure earmarked for the period 2000-2006

Closure of the 1994-99 programming period

In 2005, the Commission services definitively closed all the programmes from which Belgium benefited for the period 1994-99; the 10 programmes co-financed by ERDF that were still open at the beginning of 2005 were closed during that year. For ESF, 15 of the 17 programmes were closed. Two Flemish programmes for which assistance has been reduced are due to be closed in 2006.

Cyprus

Objective 2

Whereas 2004 was largely spent establishing the necessary management structures, the first half of 2005 was marked by the launch of a number of calls for proposals and grant schemes. At the end of the year, the contracting rate for the ERDF had reached 51%. However, the relatively late publication of calls for proposals led to a delay in implementation, which is reflected by the fact that the total sum of reimbursements was only EUR 208 000 or 0.7% of the ERDF budget for Cyprus. Although not yet critical, the modest implementation performance in 2005 may make it difficult for the country to meet the first deadline for automatic de-commitments which comes at the end of 2006. This situation was discussed in October with the Permanent Secretary of the Planning Bureau, who is the Head of the managing authority.

In July, a joint meeting of the Monitoring committee was held in Nicosia to review the implementation of the Structural and Cohesion Funds. The Monitoring committee was well organised and brought all relevant stakeholders together. Also in July a very positive mission was carried out to discuss the Lisbon Agenda with the major stakeholders with a view to preparing the National Reform programme for Cyprus. In October, the first kick-off mission for the National Strategic Reference Framework was held, followed by the annual review meeting.

Objective 3

The Single Programming Document for Objective 3 for the period 2004-2006 covers a total budget of €43.8 million, of which the ESF contributes €21.9 million.

Whereas in 2004 activities centred mainly on the necessary administrative and institutional preparations for implementation, 2005 saw the start of actual implementation. Moreover, in the second half of the year preparations began for the new programming period 2007-2013.

As far as the current period is concerned, two monitoring committee meetings were held in Nicosia for the SPD Obj.3, in January and June 2005 respectively. The 2004 Annual Implementation Report was submitted to the Commission on 30 June 2005 and was discussed at the Annual Review Meeting for Objective 3 held in October.

At the end of 2005, the contracting rate for ESF reached approximately 70% and implementation on the ground had started for most of the final beneficiaries. Furthermore, regarding financial implementation, a second advance payment of EUR 1 316 711 or 6% of the total ESF allocation was made, and two interim payment requests were submitted before the end of the year so as to fulfil the requirements of the n+18 rule. However, the two interim payment requests that were presented amounted to only EUR 202 769 or 0.9% of the total ESF allocation, reflecting some delays in implementation. Therefore, although it is not yet critical, absorption in 2005 points to some implementation problems which should be closely monitored by the Cypriot managing and paying authorities so as to avoid any risk of the "n+2 rule" rule being applied at the end of 2006.

Fisheries outside Objective 1

Cyprus’ Fisheries Operational Programme, adopted by the Commission in 2004, entered its second year of implementation with the focus on organisational aspects. At the end of 2005 a good proportion of the programme’s resources had been allocated by the managing authority and the first payment was received within the n+18 deadline. However, implementation remained slow due to bottlenecks in the contracting and tendering process.

The first annual report was also received and included all the information required by Article 37 of Regulation 1260/1999. In the report the managing authority also details the steps taken by the Cypriot authorities to ensure the proper implementation of the programme.

The monitoring committee met twice in 2005, discussing: the measures to be financed; the tasks of the Managing authority and final beneficiaries; monitoring and evaluation of progress; communication and awareness raising, and approval of minor changes to the programme complement.

Community Initiatives

Equal

The EQUAL programme for Cyprus comprises three priorities: employability, equal opportunities for men and women, and asylum seekers. Seven projects were selected in 2005. Projects were completed in action 1 (adoption of the development partnerships and transnational cooperation). Action 2 (implementation of the work programmes) had not yet been launched in 2005. The implementation of the EQUAL programme in Cyprus is encountering problems which seem to be due to a lack of resources. As a result, there were delays in the tender for the programme complement (not officially sent until 27 October 2005, i.e. with several months’ delay), the confirmation of the provisions of Article 5 and the mid-term evaluation of the programme. The audit which was carried out in December 2005 under the single programming document of Objective 3 and the EQUAL programme showed that the systems of management and control give a reasonable assurance that the applicable rules are being complied with. Nevertheless, taking into account the still limited level of project implementation and of payment requests, the audit team decided to restrict assurance to the second "acceptable assurance" level. The audit team also expressed some doubts regarding the administrative capacity of the management authority and the intermediate agency once implementation reaches its cruising speed. The minimum objective n+18 (in Article 32(2) of Regulation (EC) No 1260/99) was reached.

CZECH REPUBLIC

2005 was a very challenging year for every managing authority in the Czech Republic for two reasons – the first challenge was how to successfully absorb all allocated resources during the current period and the second was the start of preparatory work for the new programming period 2007-2013. Concerning the current period, all Operational Programmes have already been launched, and the necessary administrative organisations for the management of the funds have now been set up and are operational.

For most Operational Programmes a sound project pipeline has been developed (with the exception of SPD Objective 2 Prague), which ought to be able in theory to absorb the available budget. Nevertheless, most of the Operational Programmes recorded a slow start in the first half of the year, although now implementation is taking off. A satisfactory number of projects (and budget amount) were selected, but the implementation of projects on the ground is still lagging behind. Thus, all Managing Authorities will have to shift their focus from the internal administrative organisation to implementation of projects on the ground.

The second set of advance payments of 6% of the total SF-allocation per programme were executed for each programme. Each Operational Programme submitted a request for an interim payment before the end of the year in order to fulfil the requirements of the n+18 rule. Concerning the "n+2 rule", only the Operational Programme on Industry and Enterprise has already reached the threshold for the end of 2006; the remaining Operational Programmes still need to absorb considerable amounts to avoid the risk of decommitments.

The first Annual Implementation Reports for 2004 were submitted for each Operational Programme in due time. Most of the Annual Implementation Reports were complete, of good quality and often provided very detailed information. All of them were deemed admissible and thus accepted by the Commission without objections of principle.

Objective 1

The Community Support Framework for the period 2004-2006 covers a total budget of EUR 1 954 million of which €1 454 million is contributed by the Structural Funds (63% ERDF, 25% ESF, 11.5% EAGGF and 0.5% FIFG). Within the framework of the CSF five Operational Programmes are being implemented.

The CSF managing authority, located in the Ministry for Regional Development, is responsible for the effectiveness, correct management and discharge of assistance provided by the Structural Funds in the Czech Republic.

Three meetings of the monitoring committee for the CSF were held in 2005: on 12 January, 1 June and 23 November. The committee adopted, inter alia, the Community Support Framework Evaluation Plan 2004-2006 – Evaluation Activities for 2005. The most extensive exercise of the plan is the ex-ante evaluation of the National Development Plan with an eye to the next programming period. This has been launched simultaneously with the Strategic Environmental Assessment (SEA) and the quantitative assessment of the macroeconomic impact (HERMIN model). These three exercises are being carried out in parallel with the programming process and are expected to contribute significantly to the quality of future strategies. According to the 2005 Evaluation Plan, several on-going evaluations have been already undertaken in the Czech Republic at national level, e.g. assessment of the efficiency of the current implementation system, the quality of the selected indicators and the complementarity and synergies between the programmes co-financed by the Structural Funds and national programmes.

The Joint Regional Operational Programme (JROP) which is the largest OP, with a 31.2% share of the total Objective 1 allocation (28% ERDF, 3.2% ESF), held two Monitoring committee meetings in 2005: on 13 April and 20 October 2005. Implementation of the JROP measures has been slow: Although 67% of the budget has been approved (contract between final beneficiary and managing authority), only 0.28% has been implemented and a mere 0.01% certified. The best-performing measures of JROP are those aimed at supporting regional transport infrastructure and the development of tourism infrastructure. Two interim payments of EUR 1 347 633 were submitted by the end of the year, representing 0.33% of the total budget for 2004 – 2006.

The Operational Programme Industry and Enterprise is the third largest OP, with 17.9% (ERDF only) of the total Objective 1 allocation. Two monitoring committee meetings were held for this OP in 2005: on 19 May and 9–10 November. The managing authority opted for a continuous submission of applications, which resulted by the end of December 2005 in 368 approved individual projects, corresponding to EUR 144 109 114 (41.43% of the total budget). The most popular measures remain the schemes aimed at supporting small and medium-sized enterprises, innovation schemes and two loan schemes designed to help entrepreneurs who are starting up and firms at the initial development stage; on the other hand, schemes aimed at energy savings and renewable sources of energy are lagging behind for the moment. By the end of 2005, requests for interim payments amounted to EUR 23 483 373, which is the highest figure for all Operational Programmes in the Czech Republic. This Operational Programme has already reached the threshold for the "n+2 rule" rule by the end of 2006.

The Operational Programme Infrastructure is the fourth largest OP, with almost 16.9% (ERDF only) of the Objective 1 budget allocation. Two monitoring committees were held for this programme in 2005: on 15 March and 9 December. The launch of the Operational Programme Infrastructure was quite slow, and the priority aimed at reducing the negative environmental impacts of transport in particular is lagging behind. Nevertheless, despite the slow start at the beginning of the year, some priorities have been catching up, particularly those linked to improving roads, airports and water infrastructure. One interim payment request for EUR 2 486 528 was submitted to DG REGIO. This amount corresponds to 1% of the total allocation of this OP for 2004 – 2006.

The Operational Programme Human Resources Development accounts for 21.9% of the total Objective 1 allocation. Two monitoring committee meetings were held for this programme in 2005: on 17 June and 15 December. Implementation of the OP HRD measures has been slow; in particular, the measure aimed at modernising public employment services is lagging behind. The best performing measures are focused on enhancing the quality of school education and schools facilities, and developing support systems for education and measures focused on enhancing the capacity of social services providers. Only one interim payment request of EUR 2 132 788.80 had been submitted by the end of the year, representing 0.67% of the total ESF allocation for 2004 – 2006.

The Operational Programme for Rural Development and Multifunctional Agriculture (RDMFA) is the smallest OP, with almost 12% (11.5% EAGGF and 0.5% FIFG) of the Objective 1 budget allocation in the CR. Two monitoring committee meetings were held for this programme in 2005: on 14 June and 15-16 November. The implementation of the programme continued to progress and calls for applications were launched in January, March, August and November. The trend already recorded during 2004 continued and investment in agricultural holdings was once again the most popular measure in 2005. Three interim payment requests amounting to a total of EUR 16 502 942 were submitted to DG AGRI during the year. This corresponds to 9.91 % of the total EAGGF allocation 2004-2006 for this OP. Within the OP, 66 FIFG-related projects were agreed. Two claims for reimbursement (covering a total amount of EUR170 000 of FIFG) were paid.

Objective 2

The Single Programming Document Prague Objective 2 is funded by €71.3 million of Structural Funds (ERDF only). Two monitoring committee meetings were held for this programme in 2005: on 25 May and 1December. Progress of the SPD Objective 2 is still clearly lagging behind other programmes in the Czech Republic. After three calls for proposals, the rate of approved budget in relation to total available budget was only 15.5% and the rate of actual expenditure/available budget is still nil (0.04%) and covers only expenditure related to Technical Assistance. Whereas the other programmes indicate sufficient projects in the pipeline which will be able to absorb the total budget, the risk with the SPD Objective 2 is that even the potential projects in preparation will remain limited. The current amount of approved projects which still have to be implemented (€22.1m) would not be sufficient to avoid the risk of "n+2 rule" by the end of 2006 (threshold: €23.8m).

Objective 3

The Single Programming Document for Objective 3, Prague has an allocation of €58.8m financed by ESF. One monitoring committee meeting was held for this programme in 2005. Implementation of the SPD 3 measures has been slow; in particular, the measure aimed at active employment policies is lagging behind. The best performing measure is focused on strengthening the capacity of social services providers (overall grant). Only one interim payment request of EUR 19 882 24 had been submitted by the end of the year.

Community Initiatives

Equal

Regarding budget implementation, two advance payments were made for the EQUAL programme. The programme complement was accepted and first intermediate payment request was received at the end of October 2005. Therefore, in theory, no problems are expected as far as the N+18 rule is concerned. Up to the beginning of October 2005, the Czech management authority for EQUAL had made no payment to the development partnerships selected (DPs) for their activities in action 2 (the programme launching phase), which was to have started in July 2005. Moreover, the majority of DPs had not received the reimbursement of their expenditure for action 1 (the preparatory phase), which was supposed to end in June 2005. According to the Czech management authority, these payment delays were due to Czech legislation (CZ 40/2004) which does not allow financing activities by partnerships owing to the ban on carrying out transfers between partnership promoters and their partners. The DPs also complain about inadequate guidelines and the shortage of implementation handbooks.

Leader

A Leader+-type measure is included in the Objective 1 OP Rural Development and Multifunctional Agriculture, and the Czech authorities have selected 10 Local Action Groups (LAGs) for the implementation of local development strategies.

GERMANY

Objective 1

In 2005, all but one of the German Objective 1 programmes made changes to their respective financial plans which, in most cases, involved transfers between ERDF priorities, but without altering the allocation between funds. In Saxony, the Commission approved a transfer of €156m from the ESF into the ERDF. For Mecklenburg-Vorpommern an amount of €30m was allocated from the EAGGF into an ERDF priority. In Sachsen-Anhalt, an amount of €1.3m for the EAGGF priority of the programme was supplemented by a further €1.3m. For Brandenburg, the Commission approved a couple of technical corrections to the decision. In the programme for Berlin, Technical Assistance from the ERDF was increased by €4.5m and in the priority for support to small and medium-sized enterprises the ERDF contribution was reduced by €9.3m. For Thüringen, the Commission approved the transfer of €26m from the ERDF between two priorities with the aim of reinforcing university and urban infrastructures, and a €1.6m reduction in EAGGF-related Technical Assistance. With the exception of Saxony, the proportion between the various Structural Funds within the programmes remained unchanged.

As a rule, programme changes were made in line with the principles set out in the Commission’s “simplification” paper of 2003, with the aim of achieving a better match between available national government co-financing and EU funds, and of shifting funds from under-performing into better-developing measures. Financial transfers were generally very limited in relation to the overall volume of the programmes. In general, the recommendations made by the independent evaluators in the respective updated mid-term evaluations for these programmes, which were conducted in 2005, were taken into account by these programme changes.

In all, the Commission adopted an amending decision in 2005 for each of the six regional programmes. For the Federal Operational Programme on “Transport” no programme change was necessary.

Moreover, the German authorities submitted to the Directorate General for Regional Policy a number of applications for a contribution from the Structural Funds under Articles 25 and 26 of Regulation (EC) No 1260/1999. After careful assessment, the Commission approved the following major projects under the Operational Programmes for Thüringen and Sachsen-Anhalt : “Papierfabrik Adolf Jassa” located in Schwarza, Thüringen“ (Structural Funds’ contribution €20.1m), “Südzucker Bioethanol” in Zeitz, Sachsen-Anhalt (€13.7m), “IDT-Impfstoffwerk” in Dessau-Tornau, Sachsen-Anhalt (€6.6m), “RapidEye”, Brandenburg (€18.5m), all of which are revenue-generating productive investments. It further approved an infrastructure project for a railway connection between Halberstadt and Vienenburg, which is to be financed under the Operational Programme “Transport” administered by the Federal Ministry of Transport.

Acting as the lead representative of the Commission, the Directorate-General for Regional Policy assumed its role of advisory partner in some 15 Monitoring committee meetings for the programmes concerned. There was no annual general meeting in 2005 between the Commission and the German federal and regional authorities, although a number of bilateral meetings were held between the competent regional services and Commission departments.

In financial terms, ultimately all but one of the German Objective 1 programmes were able to avoid any losses under the "n+2 rule" for ERDF commitments for the year 2003. However, the Objective 1 programme for Berlin had difficulty spending all of the ERDF allocations available to it.

As regards the ESF Objective 1 national programme and the ESF Priorities within the German regional Länder Objective 1 programmes, the financial and physical implementation of ESF Priorities is well advanced. By the end of 2005, the number of participants in ESF projects had reached more than 1.6 million (from approximately 300 000 in 2005) and nearly 90% of the resources for 2000-2006 are committed at national level. Only the ESF priority in the programme for Saxony was affected by a loss of €44 m under the "n+2 rule".

In total, the adaptation of the German ESF programmes to the recent labour market reforms (Hartz) was successfully accomplished by the Länder through a significant increase in their own measures, especially in the field of qualifications and employment of older workers.

With an eye to the new programming period 2007-2013, the German authorities responsible for Objective 1 programmes have started to reflect on their strategic orientations and thematic priorities. While some regions have only just entered the preparatory phase (for example, a regional conference on the issue was held for Berlin), others such as Sachsen-Anhalt and Mecklenburg-Vorpommern have already made a great deal of progress in defining possible strategies and contents of future programmes. In 2006, the German Objective 1 regions must accelerate and intensify their preparations for the new programming period. However, negotiations with the Commission on the contents of future programmes cannot start untilagreement has been reached on the National Strategic Reference Framework for Germany, which the German authorities are expected to submit by mid-2006.

The FIFG Programme under the Community Support Framework for Germany within Objective 1 has continued to support a large-scale project for processing mainly Baltic Sea herring, including modern landing facilities on the island of Rügen. Overall funding commitments amounted to €68.685 million from FIFG compared to a Programme cover of €97.768 million. For the year 2005 itself, €8.674 million were paid out. At the end of 2005, a sum of €6.237 million was deemed to be de-committed as a consequence of the "n+2 rule"; this is being put down to a lack of interest among investors. In the wider context of the "n+2 rule", programme changes were introduced which reduced the programme cover accordingly, including by transferring certain amounts to the EAGGF within the CSF.

Objective 2

Most of the German Objective 2 regions submitted a request to the Commission to amend the programme, including the financial plan. However, these changes were generally minor and mainly reflected the need to adapt the programmes in order to optimise financial implementation and to avoid losses under the "n+2 rule". In some cases, such as Bavaria, Baden-Württemberg, Hamburg and Hessen, the Technical Assistance allocation was reduced in favour of operational priorities. Owing to difficulties in adapting the programme to the German labour market reforms, the programme for North-Rhine Westphalia has lost €4.3m from the ESF commitment for 2003 which it was unable to spend before by end of 2005.

In the Bavarian programme, for example, about €24m of Structural Funds were withdrawn from the priority supporting investment in undertakings, which was affected by a general slowdown in the investment activities of Bavarian undertakings. This development was mainly due to fierce competition between Bavaria and other German regions and the new Member States, which are allowed to offer higher levels of state aid to undertakings. An equivalent amount was allocated to the promotion of tourism.

In total, the Commission adopted nine amending decisions in 2005, two of which were for Bavaria and Bremen. North-Rhine-Westphalia and Lower-Saxony each submitted an application in 2005 for an amending decision, although it was no longer possible for it to be adopted in the same year.

As for the Objective 1 programmes, the Directorate General for Regional Policy represented the Commission in some 17 Monitoring committee meetings and thus fulfilled its responsibility as advisory partner for the regions.

With an eye to the future programming period 2007-2013, most of the German regional authorities began their preparations in 2005. In particular, the update of the mid-term evaluations served as an initial reference point for possible future priorities. By end of the year, however, only one region (Berlin) had held public conferences on the issue, and only one region (Bremen) had submitted a first draft of a strategy paper to the Commission. Others (such as North-Rhine-Westphalia) commissioned a preliminary analysis of their strengths/ weaknesses and opportunities/threats. As a rule, progress on the preparation of future programming in German Objective 2 regions was less than expected. This was partly due to the fact that the adoption of the regulatory frameworks and the EU budget had not been completed by the end of the year.

Objective 3

Germany presented a request to amend the Objective 3 Programme which had been adopted until end-2005. The request was based on Art. 14(2) of Regulation (EC) No 1260/1999 according to which a programme may be revised in the event of significant changes in the socio-economic situation and the labour market. The amendment is an adaptation which results from the changes of the legal environment of German Labour Market Policy. The new law leads to changes in the labour market the impact of which could not have been predicted at the time of the previous modification request on 30 September 2004, which pre-dated the entry into force of the new law. This law also has an impact on the implementation of the ESF in Germany. Thus, a further modification of the programme was necessary.

As a result of the modification, the Priority "Active and preventive Labour Market Policy" was increased by €102m, primarily in the measure to combat high and rising levels of unemployment among young people. The reduction of €193.5m in the Priority "Adaptability and Entrepreneurship" was the main reason for the change. Reductions were made in particular in the field of qualifications of employed persons. This was due to the bad economic situation in Germany. The reduction was criticised by the Commission. Germany already does not have a good ranking in the training of employed people. The German authorities have been encouraged to develop new concepts for the future.

Two monitoring committee meetings were held which were attended by DG EMPL. The Annual Meeting was held in Germany at the invitation of the German authorities.

Fisheries outside Objective 1

As at the end of 2005, without the advance payment of €7.784m, legally binding commitments of €34.385 million had been made against €87.168 million of committed FIFG funding, i.e. 30.9%, and against payments of €21.66 million, i.e. 19.5%. The low implementation rate is explained by the generally weak economic development inside the programme region and the modest co-financing rates outside Objective 1. Most investment went into processing and marketing; aquaculture performed more strongly than fleet investments, as new constructions had become impossible since the end of 2004, due to the reform of the CFP. For the first time, a substantial de-commitment of €26.382 million had to be made, which included parts of the annual commitment for 2001 and the entire amount committed for 2002. Two Monitoring committee meetings took place in Hanover, in May and November 2005.

Community Initiatives

Urban

There are twelve URBAN II programmes in Germany with a total ERDF contribution of €150.9 million (Berlin, Bremerhaven, Dessau, Dortmund, Gera, Kassel, Kiel, Leipzig, Luckenwalde, Mannheim/Ludwigshafen, Neubrandenburg and Saarbrücken). The six programmes in the new Länder each receive €15.1 million, with the exception of Leipzig which receives €14.9m. The six programmes in the western part of Germany each receive an ERDF contribution of €10.1m. The total eligible cost of the twelve programmes is €276.8 million.

For all programmes an annual report for 2004 was received and accepted in 2005. Similarly, the updates of the Mid-term Evaluation were adopted by the Monitoring committees in 2005.

For nine programmes, the managing authority is at the level of the “Bundesland” in which they are located. In the case of three cities, the managing authority has been transferred from the Land to the city during the programming period.

In general, the monitoring committees met once or twice a year, usually in Spring and Autumn 2005. Cities that met only once sent all relevant information by written procedure to the members of the Monitoring committees and sent updated information on the state of implementation of projects.

All German and Austrian URBAN II cities met regularly as part of the German/Austrian URBAN II Network. In 2005, three Network meetings took place: Potsdam in February, Saarbrücken in June and Kiel in September. The Saarbrücken meeting was organised as a European urban conference (in co-operation with URBACT and the URBAN France network), where more than 300 urban actors from all EU Member States took part. Programme managers, the Federal Ministry for Economy and Technology and the Commission use these occasions to meet and discuss programme management issues. By combining these events, there was no need to hold separate Annual Review meetings between the programme managements and the Commission in 2005.

Eleven programmes met the "n+2 rule" for 2003 in 2005. Saarbrücken did not comply with the rule.

Equal

After the initial problems with implementation and technical assistance, these aspects of the programme have meanwhile improved and it now operates quite well. In particular, the procedure for selection of the development partnerships and the speed of payments have improved very considerably compared with the first round of EQUAL. Germany has just produced a mid-term evaluation update report on innovation, which shows that the innovation rate in EQUAL in Germany is fairly high and of good quality. The key issue in Germany is still co-financing. As Germany did not set aside a national budget for co-financing but left it instead to the DPs to find their own co-financing (via the agency for employment , regional financing, etc), co-financing is heavily dependent on the laws and regulations in force on the labour market and was affected by the broad reforms in this direction in 2004. This is why Germany required a considerable reduction in co-financing (EUR 90 million) in 2004. After negotiations, a reduction of €28 million of national co-financing was accepted and a new decision was approved, with a new programming complement received and accepted. Following the inaccuracies in the decision of 20 December 2004, a new decision incorporating the corrections was adopted in 2005. Co-financing is complicated and difficult, and remains a big problem for the majority of PDs.

The change of government resulted in the Ministry for Economic Affairs and Labour being split into two. EQUAL now comes under the Ministry of the Labour, but the responsible officials remain the same and there will be no change of direction in the programme.

Thematic work in Germany for the 2nd EQUAL programme concentrates on the creation of companies and the social economy; the transition from school to working life for young people; lifelong apprenticeship in SMEs; reconciliation of family life and working life; and ex-prisoners. There are no problems for the "n+2 rule" in Germany.

Leader

Thirteen German regions (Bundesländer) and the national network are participating in the Community Initiative, Leader+. The total eligible costs estimated for 2005 were EUR 179.664 million, which included an EAGGF Guidance contribution of EUR 118.278 million. In 2005, EUR 79.72 million were paid on 2003 and 2004 commitment. Commitments of 2005 have not yet been utilised.

Seven German regional programmes were amended in 2005. A fairly low demand for Action 2 (support for cooperation between rural territories) resulted in a shifting of the budget to Action 1 (Integrated territorial rural development strategies of a pilot nature). The Leader+ measures were rarely amended. In four Leader+ programmes a total amount of EUR0.147 million had to be decommitted due to the "n+2 rule".

Concerning the MTE-updates, the quality assessment also showed a remarkable improvement in the Leader+ programmes compared to the MTE reports themselves, including good analysis, conclusions and recommendations with regard to the future Leader approach.

Closure of the 1994-99 programming period

In a letter of February 2005, the German authorities challenged the basic method applied by the Commission for the closure of the 1994-99 ESF-Programmes. In its answer the Commission described the legal position. It also asked the Bund and the Länder to make a clear statement as to whether they accept the Commission's calculation for the closure payments, or to set out the points on which they disagree. Until end of 2005 the calculation was accepted - or has to be considered as accepted - for 26 programmes. However, for 14 programmes the closure proposal was rejected. For 5 programmes, the Commission is still awaiting confirmation. The treatment of German closure cases remains a matter of concern, given Germany’s objections to some of the closure principles themselves (e.g. intervention rates, flexibility), combined with the large number of "irregularities" declared, which prevent full closure of many programmes. In addition, possible flat-rate corrections due to insufficient control systems are also contributing to delays in the closure of some programmes. As for EAGGF, 16 programmes, of which 11 payments and 5 recoveries, were closed amounting to a total of EUR 96.569 million paid in 2005.

Denmark

Objective 2

For the current programming period there is only one Objective 2 Programme for Denmark. The Programme initially totalled €617 million, of which €189 million from the Structural Funds (€27 million are for phasing-out regions). After the allocation of the performance reserve, the Structural Funds’ contribution is €197 million (of which €29 million for phasing out), plus €217 million from the national public sector (an increase of €9 million compared to the initial allocation) and €194 million from the private sector (a decrease of €30 million).

The programme aims to create the conditions for self-sustaining growth in the regions of Denmark that are facing structural difficulties. It combines actions under the European Regional Development Fund (ERDF) (71%) and the European Social Fund (ESF) (29%).

The eligible areas are five geographical sub-regions: Bornholm (Obj. 2), Lolland, Falster and Møn (Obj. 2), Nordjylland (Obj. 2 and phasing out), parts of the counties of Viborg, Århus, Ringkøbing and Sønderjylland (Obj. 2 and phasing out) and Sydfyn and islands not covered by the regions mentioned above (Obj. 2).

During 2005, two Programme Monitoring committee (PMC) meetings were held, one in April and one in September. The meetings focused primarily on the state of play of implementation, including the "n+2 rule", modification of the programme following a desire to establish a venture capital fund and the future of the structural funds in Denmark. As well as at the September PMC meetin