Proposal for a Council Regulation (EC) amending Annex II to Regulation (EC) No 1164/94 establishing a Cohesion Fund
Date: 1998-03-18
Institutions: European Commission
Subjects: Cohesion Fund, economic and social cohesion, environmental protection, trans-European network, transport infrastructure

COMMISSION OF THE EUROPEAN COMMUNITIES 

*rïï 

-fa 

Brussels,  18.03.1998 
COM(1998) 130 final 

98/0104 (AVC) 
98/0118 (CNS) 

Proposal for a 
COUNCIL REGULATION (EC) 
amending Regulation (EC) No  1164/94 establishing a Cohesion Fund 

Proposal for a 
COUNCIL REGULATION (EC) 
amending Annex II to Regulation (EC) No  1164/94 establishing a Cohesion Fund 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

The  Cohesion  Fund  was established  by Article  130d of the Treaty  of Maastricht.  It was 
preceded  by  the provisional  cohesion  financial  instrument,  and was set up in May  1994 
by a Council Regulation on which the assent of the Parliament had been obtained. 

Since  then  the  Fund  has provided  broadly  equal  amounts  of finance for  projects  in  the 
fields of trans-European transport networks and the environment. It has raised the level of 
implementation  of  environmental  Directives  in  the  beneficiary  countries  and  improved 
the  position  of  trans-European  networks  and  access  to  them.  The  four  beneficiary 
countries  have made progress  in terms  of real  convergence  but  so  far  none  has reached 
the  threshold  of  a  GNP  of  at  least  90%  of  the  Community  average  laid  down  by  the 
Protocol on Economic and Social Cohesion annexed to the Treaty. 

In Agenda 2000, the Commission  accordingly  argued for the Fund to continue. 

This proposal  for a Regulation, together with a proposal to amend Annex II to the current 
Regulation, is made in accordance with Article  16 of the Regulation. 

I. 

The general background 

1.1 

Continuation of the Cohesion Fund 

The  basic  objectives  of  the  Fund,  which  was  set  up  to  further  the  Union's  task  of 
promoting  economic  and  social  cohesion  and  solidarity  among  the  Member  States,  are 
still relevant today. 

The introduction of the single currency will not alter the basic situation. The Commission 
is thus proposing  that the  four  current beneficiaries  should  remain  eligible  for assistance 
from  the Fund. 

However,  as the  current  rules  provide,  there  will  be  a mid-term  review  in  2003.  If any 
country  ceases  to be  eligible,  there  will  be  no Community  phasing-out  of support,  as  is 
planned in the case of the Structural Funds. 

1.2 

Adjustments  to the Cohesion Fund 

Four years after  it was set up, with changes  in a specific  macrocconomic context, that of 
the forthcoming  single currency, the acquisition  of considerable management  experience, 
and the obligation to seek greater efficiency  and simplification  imposed by Agenda 2000, 
the  Cohesion  Fund  requires  adjustment  in  only  a  limited  number  of  areas.  There  is  no 
reason  to  disturb  the  legal  structure  of  an  instrument  which  is  operating  in  a  very 
satisfactory  fashion.  The  current  Regulation  will,  therefore,  remain  in  force,  as  the 
Commission  is proposing only amendments to the text. 

1.3 

The provisions to be amended 

After  obtaining  the assent of the Parliament,  the Council  adopted  the Regulation  and its 
Annexes in May 1994. 

Annex  II  to  the  Regulation  sets  out  in  detail  the provisions  for  implementing  the  basic 
principles to be found in the Regulation. Article K states that the Council may amend the 
Annex by a qualified majority,  after consulting Parliament. 

The  Commission  considers  it  appropriate  to  make  use  of  these  two  procedures  and  to 
distinguish in its proposals between those that concern the basic principles and those that 
affect  the implementing provisions. 

The  changes  to  be  made  to  the  basic  principles  are  set  out  in  Part  II  of  this 
Explanatory  Memorandum  and  those  to  the  implementing  provisions  are  to  be  found 
in Part III. 

II. 

Amendments to the basic principles 

2.1  Macroeconomic conditionality (Article 6) 

While  the  introduction  of  the  euro  will  not,  in  the  Commission's  view,  alter  the 
conditions of eligibility  for the Cohesion  Fund,  the  Fund  will  need  to embrace the aims 
of  the  Stability  Pact.  That  means  that  macro-economic  conditionality  will  continue  to 
apply  both  to  countries  which  arc  not  participating  in  the  euro  and  to  those  which  are. 
The  first  group  will  continue  to  be  subject  to  the current  provisions.  In  the  case  of  the 
second  group, the Commission  has clearly stated that this conditionality  will continue to 
apply and that the provisions laid down by the Stability and Growth Pact, particularly the 
stability programmes, should be respected. For participating  countries, the  re-emergence 
of an excessive public deficit  would be a serious occurrence. The Commission  considers 
that  it  would  be  wrong  to  wait  until  such  an  event  was  confirmed  before  suspending 
finance.  Accordingly,  it  proposes  intervening  either  under  the  Council  Regulation  on 
multilateral  surveillance,  where  a  serious  divergence  from  the  medium-term  budgetary 
objective or the adjustment  path is continuing or worsening, or under the excessive public 
deficit procedure, where it considers that such a deficit exists. 

2.2 

Greater use of other sources of complementary private finance (Article 7) 

Experience  has  demonstrated  that  some  projects,  especially  large-scale  ones,  generate 
substantial  revenue, which  makes  them  attractive  for  mixed  public-private  financing.  In 
conjunction  with  the  EIB,  the  Cohesion  Fund  contributes  to  establishing  the  financial 
arrangements for projects by supplementing resources from  business and, more generally, 
through  public  works  concessions.  This  multiplier  effect  should  be  increased,  and  the 
Commission's  view  is  that  the  mobilization  of  public  and  private  resources  should 
render  projects  profitable  in  sectors  which  have  not  traditionally  benefited  from 
private investment. 

2.3 

Better application of the polluter-pays principle (Article 7) 

Experience with managing the Fund has shown that it could constitute an obstacle to the 
introduction  of  charges  in  the  field  of  the  environment.  Where  such  charges  exist,  the 
revenue  generated  is  deducted,  subject  to  certain  conditions,  from  the  expenditure  base 
used  to  determine  assistance  from  the  Cohesion  Fund,  so  reducing  the  grant.  This 
outcome  should  be  corrected,  since  it  represents  an  obstacle  to  the  introduction  of  the 
polluter-pays  principle  as  required  by  Article  130s  of  the  Treaty.  The  Commission  is 
therefore  proposing  that,  subject  to  the  maximum  limit,  rates  of  assistance  should  be 
positively adjusted  so as not to discourage the cohesion  countries from  applying a proper 
pricing policy in the field of the environment. 

However,  it  should  be  clear  that  the  polluter-pays  principle  can  be  applied  only  in  the 
context of a Community framework  setting out guidelines. 

2.4 

A larger role for the Member States in financial  control (Article 12) 

The Member States should have greater responsibility  for financial control  and the sound 
financial  management  of  Community  appropriations  and  for  coordination  and 
cooperation  with  the  Commission  on  matters  relating  to  financial  supervision.  The 
Commission  intends to amend the Regulation  in this respect. 

Hi.  Amendments  to Annex II 

3.1  More effective  assistance 

3.1.1  Concepts to be clarified 

Experience  has  shown  that  the  lack  of  shared  definitions  of  "project",  "groups  of 
projects"  and  "stages  of  projects"  has  meant  that  the  Fund  has,  in  some  cases,  been 
unable  adequately  to  achieve  its original  aim  of  financing  major  projects.  The excessive 
fragmentation  of  projects  into  instalments  and  the  lack  of  a  guarantee  that  the 
Commission  can  finance  complete  and  operational  systems  threaten  to  reduce  the 
effectiveness  of  the  grants.  The  Commission  therefore  considers  it  essential  to  clarify 
these concepts and so is proposing a set of definitions  (Article A). 

3.1.2  Fuller assessment of alternatives and of environmental impact 

The  provisions  currently  in  force  do  not  require  any  substantial  modification.  However, 
the information  provided by the  Member Stale when  it submits a project  docs not always 
enable  the  Commission  to  check  that  all  the  alternatives  have  been  investigated  and  to 
measure  the  environmental  impact  of  the  solution  selected.  The  Commission  proposes 
tightening up the Regulation on these points (Article B). 

3.2 

Simpler but more rigorous  financial  management 

The Commission considers thai the present provisions can be improved without  changing 
the basic principle of the Cohesion  Fund  with  regard  to financial  management,  that  is, a 
close  link  between  commitments  and  payments  on  the  one  hand  and  actual  project 
implementation on the other. 

First,  the  Commission  is  proposing  a  simpler  system  for  budget  commitments,  which 
should  normally  be  made  at  the  beginning  of  each  financial  year.  This  means  that  the 
amount  of  appropriations  available  for  the  approval  of  new  projects  would  be  known 
sufficiently  early in the year (Article C). 

In  the  case  of  payments,  it  is  important  not  to  favour  the  first  year  of  the  project. 
Financing  plans  are based  on total  cost but  their  annual breakdown,  as proposed  by  the 
Member  States,  does  not  always  correspond  to  implementation  in  practice.  This  means 
that substantial advances are paid before work has begun or in situations where it will not 
restart in the immediate future  (Article D). 

The  payments  system  should  be  adjusted  in  this  respect  and  so  the  Commission  is 
proposing a single advance not exceeding  10% of the assistance from the Fund. 

It  is  also  vital  that  subsequent  payments  reflect  actual  expenditure.  In order  to  comply 
with  this  principle,  the  Commission  proposes  reimbursing  expenditure  certified  and 
actually paid. 

The  system  of a single  advance,  followed  by  reimbursements  regularly  spaced  over  the 
year,  is  both  simple  and  demanding.  Reimbursements  will  be  subject  to  specific 
conditions, particularly in terms of the monitoring indicators. 

The  genuineness  of  the  commitments  from  the  Community  budget  should  also  be 
clarified.  Very  often  commitments  are  opened  but  give  rise  to  no  financial  movements 
because,  as  the  work  has  not  begun,  nothing  happens.  This  freezing  of  commitment 
appropriations  prevents  them  from  being  rapidly  reallocated  to  other  projects.  This 
situation  should not be allowed to continue  and the Commission  is proposing  a series of 
measures which would penalize projects that are not implemented. 

3.3  Making financial corrections (Article H) 

Under the current rules, the Commission  may reduce, suspend  or cancel  assistance from 
the Cohesion Fund where it detects an irregularity or where changes to an operation mean 
that  it no longer merits the assistance. However, this is difficult  to apply  in practice. The 
Commission  wishes  to  introduce  a  system  of  financial  corrections  which  could  be 
restricted  to  irregularities  or  extended  further  if  the  irregularity  reveals  more  general 
shortcomings in the system of management and supervision in the Member State. 

Legal basis 

The  Commission  is  tabling  two  sets  of  proposed  amendments.  The  first  concern*  the 
Articles of the Regulation  itself and requires the approval of the Council  after  the assent 
of  Parliament  has  been  obtained  in  accordance  with  Article 130d  of  the  Treaty.  The 
second  concerns  amendments  to  Annex  II  to  the  Regulation,  which  the  Commission 
proposes the Council  adopt,  in  accordance  with  Article  K of that  Annex,  by a  qualified 
majority  after  Parliament has been consulted. 

Proposal for a 
COUNCIL REGULATION (EC) 
amending Regulation (EC) No 1164/94 establishing a Cohesion Fund 

98/0104 (AVC) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community,  and in particular the 
second paragraph of Article  130d thereof, 

Having regard to the proposal from the Commission1, 

Having regard to the assent of the European Parliament2, 

Having regard to the opinion of the Economic and Social Committee3, 

Having regard to the opinion of the Committee of the Regions4, 

(1)  Whereas pursuant  to Article  16(1) of  Council  Regulation  (EC) No  1164/945, the 

Council is to re-examine that Regulation before  31 December  1999; 

(2)  Whereas  the  basic  principles  of  the  Cohesion  Fund  laid  down  in  1994  should 
continue  to  govern  the  Fund's  activities  until  2006  although  experience  has 
shown the need for improvements; 

(3)  Whereas,  while  the  single  currency,  the  euro,  will  affect  the  macroeconomic 
situation  of the Community,  it will not remove the need  for  the eligibility  of the 
beneficiary  countries to be based on gross national product; 

(4)  Whereas  all  the  Member  States  participating  in  the  euro  are  to  submit  to  the 
Council  a  stability  programme  setting  out  in  particular  their  medium-term 
objective  for achieving a budget that is nearly in balance or is in surplus; 

(5)  Wfiereas by Decision No  1692/96/EC6, the European  Parliament  and  the Council 
adopted  Community  guidelines  for  the  development  of  the  trans-European 
transport network; 

(6)  Whereas, during  the  transitional  period  (1  January  1999 to  31  December  2001), 
all references  to the euro should normally also be read as references  to the euro as 
a  monetary  unit,  as  provided  for  in  the  second  sentence  of  Article  2  of 
Council Regulation No ..../987; 

1  OJ 
2  OJ 
3  OJ 
4  OJ 
s  OJL  130, 25.5.1994, p.  1. 
()  OJ L 228, 9.9.1996, p.  1. 
7  OJL 

(7)  Whereas,  however,  changes  concerning  macroeconomic  conditionality  should 

be made; 

(8)  Whereas  the  procedures  for  the  strengthening  of  the  surveillance  of  budgetary 
positions and the surveillance and coordination of economic policies were set out 
in Council Regulation (EC) No 1466/978; 

(9)  Whereas  the  preliminary  and  final  figures  for  the  public-sector  borrowing 
requirement, gross domestic product and gross national product must be compiled 
in  accordance  with  the  rules  of  the  European  System  of  Integrated  Economic 
Accounts  established  by  Council  Regulation  (EC)  No 2223/96(),  as  amended  by 
Regulation (EC) No 448/9810 ; 

(10)  Whereas  the  Resolution"  on  the  Stability  and  Growth  Pact  adopted  by  the 
Amsterdam  European  Council  on  17  June  1997  sets  out  the  roles  of  the 
Member States, the Commission and the Council; 

(11)  Whereas  macroeconomic  conditionality  as  it  applies  to  all  Member  States 
participating  in  the  euro  should  be  assessed  by  reference  to  the  early-warning 
system introduced by the Stability and Growth Pact and in the light of individual 
Member States' responsibilities with regard to the stability of the euro; 

(12)  Whereas, while  the principle  of  a high  level  of  assistance  is  retained,  the  search 
for  other  sources  of finance should  be promoted;  whereas  the  rates of  assistance 
should  be  varied  to  improve  the  leverage  of  Fund  resources  and  to  take  better 
account of the rate of return  on projects; whereas application  of the polluter-pays 
principle  laid  down  in  Article  130r  of  the  Treaty  must  be  complied  with  in 
operations financed by the Fund; 

(13)  Whereas the responsibility  of the Member State for  financial  control work should 

be clearly laid down; 

(14)  Whereas there should  be provision  to ensure continuity  of finance for  operations 

in progress and their adjustment  to the new regulatory requirements; 

(15)  Whereas Regulation  (EC) No  1164/94 should be amended  accordingly, 

HAS ADOPTED THIS REGULATION: 

Article  I 

Regulation (EC) No 1164/94 is amended as follows: 

(1 ) 

The following paragraph 4 is added to Article 2: 

K  OJ 1.209, 2.8.1997, p. 1. 
<;  OJ 1.310,30.11.1996, p. 1. 
10  OJL58,  27.2.1998, p. 1. 
11  OJ C 236, 2.8.1997, p. 1. 

'4. 

To  be  eligible  under  the  Fund  from  1  January  2000,  the  beneficiary 
Member  States  must  have  introduced  a  programme  as  provided  for  in 
Articles 3 and 7 of Council Regulation (EC) No 1466/97.* 

The  four  Member  States  meeting  the  GNP  criterion  referred  to  in 
paragraph  1  are Greece, Spain, Ireland and Portugal. 

A  mid-term  review  as  provided  for  in  paragraph  3  shall  be  carried  out 
before the end of 2003 based on per capita GNP as shown by Community 
data for the period 2000 to 2002. 

* 

OJ L 209, 2.8.1997, p. 1." 

(2) 

Article 3 is amended as follows: 

(a) 

Paragraph  1  is amended as follows: 

(i) 

In the first indent, the word "Fifth" is deleted. 

(ii) 

The second  indent is replaced by: 

interest, 
infrastructure  projects  of  common 
transport 
financed by  Member  States,  which  are  identified  within 
the  framework  of  the  guidelines  adopted  by  Decision 
No  1692/96/EC  of  the  European  Parliament  and  the 
Council  of 23 July  1996 on the development  of the trans-
European transport network.* 

* 

OJL 228, 9.9.1996, p. 1." 

(b) 

In paragraph 2, the second indent is amended as follows: 

(i) 

The introductory phrase is replaced by the following: 

"technical  support  measures,  including  publicity  and  information 
campaigns, particularly:" 

(ii) 

In point (b), the word "supervision" is inserted after "monitoring". 

(3) 

In Article 4, the following third and fourth  subparagraphs arc added: 

"From  1 January  2000,  total  resources  available  for  commitment  in  the  period 
2000 to 2006 shall be EUR 21 billion at 1999 prices. 

Commitment appropriations for each year of that period shall be EUR 3 billion at 
1999 prices." 

(4) 

Article 6 is amended as follows: 

(a) 

Former paragraph 4 becomes paragraph 2. 

(b) 

Paragraph 3 is replaced by the  following: 

"3. 

Paragraphs  2  and  3  shall  apply  from  1  January  2000  to  the 
Member States participating in the euro. 

No  new  project  or,  in  the  case  of  major  projects,  no  new  project 
stage shall be financed by the Fund where: 

(a) 

(b) 

either  the  Commission  adopts  a  recommendation  with 
regard to the Member State concerned which it addresses to 
the  Council  under  Article  6(3)  of  Regulation 
(EC) 
No  1466/97  with  a  view  to  preventing  an  excessive 
public  deficit, 

or  the  Commission  adopts  a  recommendation  pursuant  to 
Article  3(2)  of  Regulation  (EC)  No  1467/97  in  respect  of 
it  addresses  to 
the  Member  State  concerned  which 
the Council. 

The  suspension  of  financing  shall  cease  once  the  Commission 
finds that the Member State has taken effective  steps to correct the 
situation  referred  to  in the  recommendation  made  under  (a)  or (b) 
of the second  subparagraph, or: 

(i) 

(ii) 

in the case  referred  to  in (a),  if the  Council  docs  not  adopt 
the  recommendation  referred 
in  Article  6(3)  of 
Regulation  (EC) No  1466/97  within  three months  from  the 
date 
that 
the  Commission 
recommendation to it; 

on  which 

addressed 

to 

in  the  case  referred  to  in  (b),  if  the  Council  does  not 
decide  by  the  deadline  laid  down  in  Article  3(3)  of 
Regulation  (EC)  No  1467/97  that  an  excessive  public 
deficit  exists. 

OJL 209, 2.8.1997, p. 6." 

(c) 

The following paragraph 4 is added: 

"4.  Where checks on the target deficit  figures  contained 
in the recommendation referred  to in paragraph  1 or 
paragraph  5  reveal  an  appreciable  and  unjustified 
difference  for a reference year between the data  first 
sent  by 
the  statistics 
validated  by  the  Commission,  the  latter  may,  after 
considering  the  explanations  of  the  Member  State 
concerned,  take  steps  to  suppress  all  or part  of  the 
assistance granted since the previous check." 

the  Member  State  and 

(d) 

Former paragraph 2 becomes paragraph 5. 

(5) 

Article 7 is amended as follows: 

(a) 

Paragraph  1 is amended as follows: 

(i) 

The second subparagraph is replaced by the  following: 

"However,  from  1 January  2000  this  rate  may  be  reduced  to  take 
account  of  the  project's  capacity  to  generate  revenue  and,  where 
appropriate, of any application of the polluter-pays principle." 

(ii) 

The following third subparagraph  is added: 

"To  achieve  this, the  Commission  shall  maximize  the  leverage  of 
Fund  resources  by  encouraging  greater  use  of  private  sources 
of  funding." 

(b) 

In  paragraph  2,  the  words  "the  expenditure  on  which  the  calculation  of 
and "is based" are deleted. 

(6) 

Article  10 is amended as follows: 

(a) 

In paragraph 3, "ECU" is replaced by "EUR". 

(b) 

(c) 

In  paragraph  4,  in  the  eighth  line,  the  word  "possible"  before  "impact" 
is deleted. 

In the third  indent  of paragraph  5, the words "including  the  polluter-pays 
principle," are inserted after the words "on the environment". 

(7) 

Article  12 is amended as  follows: 

(a) 

Paragraphs  1  and 2 are replaced by the  following: 

"1. 

The  Member  States  shall  have  primary  responsibility  for  the 
financial  control of projects. 

10 

In  order  to  guarantee  successful  completion  of  the  projects 
financed  by the Fund, Member States shall: 

verify  on  a  regular  basis  that  operations  financed  by  the 
Community have been properly carried out; 

prevent  irregularities  and  take  administrative  and  legal 
action against them; 

recover  any  amounts  lost  as  a  result  of  irregularity  or 
negligence.  Except  where  the  Member  State  and/or  the 
implementing  authority  provide  proof  that  they  were  not 
responsible 
the 
Member State shall remain  liable for reimbursement  of any 
sums unduly paid. 

irregularity  or  negiglence, 

the 

for 

2.  Member States shall cooperate with the Commission  to ensure that 
assistance  from  the Fund  is used  in accordance with  the  principles 
of sound financial  management. 

Member States shall inform the Commission of the measures taken 
for  those purposes  and,  in particular,  shall  notify  the  Commission 
of  the  description  of  the  management  and  control  systems 
established  and  previously  verified  by them  to ensure the  efficient 
implementation  of  operations.  They  shall  regularly  inform  the 
Commission  of  the  progress  of  administrative  and  judicial 
proceedings.  In 
the 
Commission  shall  take  the  necessary  steps  to  ensure  that  the 
information  exchanged remains  confidential." 

the  Member  States  and 

that  context, 

(b) 

Paragraph 4 is replaced by the following: 

"4. 

The  Commission  shall  ensure  that  Member  States  have  smoothly 
functioning  management and control systems which guarantee that 
Community funds  are effectively  and correctly used. 

Without  prejudice  to  checks  carried  out  by  Member  States  in 
accordance  with  national  laws,  regulations  and  administrative 
provisions and without prejudice to Article  188a of the Treaty or to 
any  inspection  arranged  on  the  basis  of  Article  209(c)  of  the 
Treaty,  the Commission  may, through  its officials  or  agents, carry 
out  on-the-spot  checks,  including  sample  checks,  in  respect  of 
projects  financed  byt  he  Fund,  and  may  examine  the  control 
arrangements  and measures established  by the national  authorities, 
which  shall 
taken  to 
that end." 

the  Commission  of  measures 

inform 

(8) 

In  Article  16(1),  the  words  "before 
"by 31 December 2006 at the latest". 

the  end  of  1999"  are  replaced  by 

11 

Article 2 

Applications submitted before the entry into force of this Regulation shall remain valid 
provided that, where necessary, they are supplemented to comply with the requirements 
of this Regulation within two months of its entry into force. 

Article 3 

This  Regulation  shall  enter  into  force  on  the  third  day  following  the  date  of  its 
publication in the Official Journal of the European Communities. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. 

Done at Brussels, 

For the Council 
The President 

12 

Proposal for a 
COUNCIL  REGULATION  (EC) 
amending Annex II to Regulation  (EC) No 1164/94 establishing a Cohesion  Fund 

98/0118 (CNS) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European  Community, 

Having  regard  to  Council  Regulation  (EC) No  1164/94  of  16 May  1994  establishing  a 
Cohesion Fund12, and in particular Article K of Annex II thereto, 

Having regard to the proposal from the Commission13, 

Having regard to the opinion of the European  Parliament, 

Whereas, in order to make the Fund more effective,  the concepts of "project",  "groups of 
projects"  and  "stages  of  a  project"  and  the  criteria  for  grouping  projects  should 
be defined; 

Whereas the system of financial management should be simplified  while retaining its link 
with the actual implementation of operations; 

Whereas,  during  the  transitional  period  (1  January  1999  to  31  December  2001),  all 
references  to  the  euro  should  normally  also  be  read  as  references  to  the  euro  as  a 
monetary unit, as provided  for in the second  sentence of Article 2 of Council  Regulation 
No ..../98'4; 

Whereas that simplification  should be accompanied  by improved checks that  expenditure 
has  actually  been  incurred  and  greater  responsibility  by  the  Member  State  for  ensuring 
sound financial  management; 

Whereas  the  Commission  and  the  Member  State  should  improve  their  cooperation  on 
checking projects and this cooperation should be made systematic; 

Whereas,  where  irregularities  are  detected,  there  should  be  a  system  of  financial 
corrections to protect the financial interests of the Community; 

Whereas Annex II to Regulation  (EC) No  1164/94 should be amended  accordingly, 

12  OJL  130, 25.5.1994, p.  1 
"  OJ 
14  O JL 

13 

HAS ADOPTED THIS REGULATION: 

Article 1 

Annex II to Regulation (EC) No 1164/94 is amended as follows: 

(1) 

Article A is replaced by the following: 

"Article A 
Designation of projects, of stages or groups of projects 

1. 

The Commission  may, in  agreement  with  the beneficiary  Member  State, 
group projects  together and designate technically  and  financially  separate 
stages of a project  for the purpose of granting assistance. 

2. 

For the purposes of this Regulation, the following definitions shall apply: 

3. 

4. 

(a) 

a "project" is an economically indivisible series of works  fulfulling 
a precise technical  function  and  with  clearly  identified  aims  from 
which to judge whether the project  complies with the criterion laid 
down in the first indent of Article 10(5); 

(b) 

a "technically  and financially independent  stage" is one which can 
be identified  as operational in its own right. 

A  stage  may  also  cover  preliminary,  feasibility  and  technical  studies 
needed for carrying out a project, 

To comply  with  the  criterion  in the  third  indent  of  Article  1(3),  projects 
meeting the following  three conditions may be grouped: 

(a) 

(b) 

(c) 

they  must  be  located  in  the  same  area  or  situated  along  the  same 
transport corridor; 

they  must  be  carried  out  under  an  overall  plan  for  the  area  or 
corridor  with  clearly 
in 
Article 1(3); 

identified  goals,  as  provided  for 

they  must  be  supervised  by  a  body  responsible  for  coordinating 
and  monitoring  the  group  of  projects  in  cases  where  the  projects 
are carried out by different  competent authorities. 

(2) 

In Article B(2), the second sentence is replaced  by the  following: 

"The  beneficiary  Member  States  shall  provide  all  necessary  information,  as  set 
out  in  Article  10(4),  including  the  results  of  feasibility  studies  and  ex  ante 
appraisal-,  the  results  of  the  environmental 
impact  assessment  and  their 
consistency  with a general  environmental  strategy  at administrative  unit  or sector 
icvel,  an  indication  oJ  the 'alternatives  that  were  not  chosen  and  m  appropriate 
cases  the  (inks  between  projects  of  common  interest  located  along  the. s-anie 
transport corridor, to make this appraisal as effective  as pos-ible.'" 

(3) 

Article C is amended as follows: 

(a) 

Paragraph 2 is amended as follows: 

(i) 

In  the  second  subparagraph  of  point  (a),  the  second  sentence  is 
replaced by the following: 

"Commitments  in  respect  of  subsequent  annual  instalments  shall 
be based on the initial or revised financing plan for the project and 
shall normally be made at the beginning  of each budget  year and 
no later than  1  March of the current year, based on the expenditure 
forecasts for the project  for that year." 

(ii) 

Point (b) is replaced by the  following: 

"(b) 

for  projects  to  be  carried  out  over  a  period  of  less  than 
two  years  or  where  Community  assistance  is  less  than 
EUR  50  million,  an  initial  commitment  of  80%  oi" 
assistance  may  be made when the  Commission  adopts  the 
decision to grant Community assistance. 

The  balance  shall  be  committed  according 
implementation of the project." 

to 

the 

(b) 

The following paragraph 5 is added: 

"5. 

Except  in  duly justified  cases, the  assistance  granted  to  a  project, 
group  of  projects  or  project  stage  on  which  work  has  not  begun 
within two years of the date of its expected start, as indicated in the 
decision granting assistance, shall be cancelled." 

(4) 

Article D is amended as follows: 

(a) 

In paragraph  1, the second sentence is replaced by the following: 

"Payments  may  take  the  form  either  of  advances  or  in  intermediate 
payments or payments of balances  in respect  of expenditure  certified  and 
actually paid." 

(b) 

Paragraphs 2 and 3 are replaced by the following: 

"2. 

Payments shall be made as follows: 

(a) 

a  single  advance  of  up  to  10% of  the  Fund  assistance  as 
initially  decided  shall  be  paid  when  the  decision  granting 
Community  assistance 
is  adopted  and,  except  where 
duly  justified,  after  signature  of  the  contracts  relating  to 
public procurement. 

15 

All  or  part  of  the  advance  shall  be  reimbursed  by  the 
designated  authority  or  body  referred  to  in  paragraph  1 if 
no  payment  application  is  submitted  to  the  Commission 
within  12  months  from  the  date  on  which  the  advance 
is paid. 

(b) 

intermediate  payments  may  be  paid  provided  that  the 
project is progressing satisfactorily  towards completion and 
shall  be  made  to  refund  the  expenditure  certified  and 
actually paid, subject to the following  conditions: 

the  Member  State  has  submitted  an  application 
describing the progress of the project  in terms of its 
physical  and financial indicators  and  its  conformity 
with  the  decision  to  grant  assistance,  including 
where  appropriate  any  specific  conditions  attached 
to the assistance; 

the  observations  and  recommendations  of 
the 
national  and/or  Community  inspection  authorities 
as 
upon, 
have  been 
regards  the  correction 
or 
of 
presumed irregularities; 

in  particular 
any  observed 

acted 

the  main  technical,  financial  and  legal  problems 
that  have  arisen  and  the  measures  taken  to  correct 
them have been indicated; 

any  departures  from  the  original  financing  plan 
have been analysed; 

the  steps  taken  to  publicize  the  project  have 
been described. 

(c) 

(d) 

the  total  amount  of  the  payments  made  under  (a)  and  (b) 
may  not  exceed  80% of  the  total  assistance  granted.  This 
percentage may be increased  to 90% for  important  projects 
committed in annual instalments and in justified  cases. 

the  balance  of  Community  assistance  calculated  on  the 
basis  of  expenditure  certified  and  actually  paid  shall  be 
paid provided that: 

the  project,  stage  of  the  project,  or  group  of 
projects,  has  been  carried  out  according  to  its 
objectives; 

16 

the  designated  authority  or  body  referred  to  in 
paragraph  1 submits  an  application  for  payment  to 
the  Commission  within  six  months  of  the  deadline 
for completion  of the work and for expenditure  laid 
down  in  the  decision  granting  assistance  to  the 
project, stage of project or group of projects; 

the  final  report  referred  to  in  Article  F(4)  is 
submitted to the Commission; 

the  Member  State  certifies  to  the  Commission  that 
the 
for 
payment and in the report is correct; 

information  given 

the  application 

in 

the  Member  State  has  sent  the  Commission  the 
declaration referred  to in Article G; 

all the information  and publicity  measures drawn up 
by  the  Commission  under  Article  14(3)  have 
been  implemented. 

3. 

If  the  final  report  referred  to  in  paragraph  2  is  not  sent  to  the 
Commission  within  12 months of  the final date  for  completion  of 
the  works  and  payments  as  given  in  the  decision  granting 
assistance,  that  part  of  the  assistance  representing  the  remaining 
balance for the project  shall be cancelled." 

(c) 

In paragraph 4, the words "and in paragraph 3 point d)" are deleted. 

(d) 

The following paragraph 4a is inserted: 

"4a.  The Member  States  shall  ensure  that  applications  for  payment  are 
submitted  to  the  Commission  as  a  general  rule  twice  a  year,  by 
1 March and  1  October at the latest." 

(e) 

In paragraph 5, after the words "for payment", the following  is added: 

"provided budget funds  are available." 

(f) 

The following paragraph 7 is added: 

"7. 

The  Commission  shall  lay  down  common  rules  on  the  eligibility 
of expenditure." 

(5) 

Article E is amended  as  follows: 

(a) 

In  the  title  and  in  paragraphs  1 to  4,  "ecu(s)"  is  replaced  by  "curo(s)" 
where required. 

(b) 

In paragraphs  1  and 3, the words "or in national currency" are deleted. 

17 

(c) 

The following paragraph 5 is added: 

"5. 

For  Member  States  not  participating  in  the  euro,  the  conversion 
rate shall be the Commission's financial accounting rate." 

(6) 

Article F is amended as follows: 

(a) 

The following  second subparagraph is added to paragraph 4: 

"This report shall include: 

(a) 

a description of the work carried out, accompanied by the physical 
indicators, the expenditure by category  of work  and any measures 
taken under specific clauses in the decision granting asssitance; 

(b) 

information  on all publicity measures; 

(c) 

(d) 

certification  that  the  work  conforms  to  the  decision  granting 
assistance; 

an  initial  assessment  as  to  whether  the  anticipated  results  as 
indicated  in  Article  13(4)  are  likely  to  be  achieved,  including 
in particular: 

the actual starting date of the project; 

the way in which it will be managed once finished; 

confirmation,  if  appropriate,  of  the  financial  forecasts, 
especially  as  regards  the  operating  costs  and  expected 
revenue; 

confirmation  of the socio-economic  forecasts,  in  particular 
the expected costs and  benefits; 

an  indication  of  the  environmental  protection  measures 
taken,  and  their  cost,  including  compliance  with  the 
polluter-pays principle." 

(b) 

The following  second subparagraph is added to paragraph 5: 

"The  decision  granting  assistance  shall  include  appropriate  arrangements 
for making the modifications  differentiating  between  them on the basis of 
their nature and importance." 

ta 

(7) 

Article G is replaced by the following: 

"Article G 
Checks 

1. 

As part of their responsibilities, the Member States shall: 

(a) 

(b) 

(c) 

ensure  that  projects  are  managed  in  accordance  with  ail  the 
applicable Community rules; 

guarantee  that  the  declarations  of  expenditure  are  accurate 
and  result 
systems  based  on  verifiable 
supporting documents; 

from  accounting 

present  to  the  Commission,  al  the  winding-up  of  each  project,  a 
declaration  drawn  up by a person  or department  having  a  function 
the  designated  managing  authority.  This 
independent  of 
declaration  shall  summarize  the conclusions  of  the checks  carried 
out  and  shall  assess  the validity  of the application  for  payment  of 
the  final  balance  and 
the 
the  certificated  declaration.  The 
expenditure  covered  by 
Member States shall attach their opinion to this declaration  if they 
consider it necessary. 

legality  and  correctness  of 

the 

2. 

Before  carrying  out  an  on-the-spot  check,  the  Commission  shall  give 
notice  to  the  Member  State  concerned  with  a  view  to  obtaining  all  the 
assistance  necessary.  The  Commission  may  carry  out  on-the-spot  checks 
without  notice.  Officials  or  agents  of  the  Member  State  concerned  may 
. take part in checks. 

The Commission  may require the Member State concerned  to carry out an 
on-the-spot  check  to  verify  the  correctness  of  payment  applications. 
Officials  or agents of the Commission may take part in such checks. 

The  Commission  and  the  Member  States  shall  cooperate  to  coordinate 
programmes  and  methods  relating  to  checks  so  as  to  maximize  the 
usefulness  of  those  carried  out.  The  Member  State  concerned  and  the 
Commission  shall 
information 
concerning the results of the checks carried out. 

immediately  exchange  any  relevant 

3. 

The Commission  and  the  Member  States  shall  cooperate  to  examine  and 
evaluate at least once a year: 

(a) 

(b) 

the  results  of  the  checks  carried  out  by  the  Member  State  and 
the Commission; 

any  comments  made  by  the  other  national  or  Community 
supervisory bodies or institutions; 

19 

(c) 

the  financial  impact  of  the  irregularities  identified,  the  steps 
already  taken  or  still  required  to  correct  them  and,  where 
necessary, adjustments  to the management and control systems. 

Following  this  examination  and  without  prejudice  to  the  measures  to  be 
taken immediately by the Member State under Article H, the  Commission 
shall  draw  up  conclusions,  particularly  regarding  the  financial  impact  of 
any  irregularities  identified.  These  conclusions  shall  be  addressed  to  the 
Member  State  and  the  managing  authorities  of  the  assistance  concerned. 
They  shall  be  accompanied,  where  necessary,  by  recommendations  or 
requests for corrective measures to remedy the management  shortcomings 
found  and  correct  those  irregularities  detected  which  have  not  already 
been corrected. 

The Member  State and managing  authorities  concerned  shall  immediately 
take 
the  Commission's 
recommendations or requests. 

the  necessary  measures 

to  comply  with 

4. 

The  responsible  body  and  authorities  shall  keep  available  for  the 
Commission  all  the  supporting  documents  regarding  expenditure  on  any 
project  for  a period  of three years  following  the last  payment  in respect of 
a project. 

That period  shall  be suspended  in the event  of  legal  proceedings  or at the 
reasoned request of the Commission." 

(8) 

Article H is amended as follows: 

(a) 

The title is replaced by: 

"Financial corrections". 

(b) 

Paragraph 2 is amended as follows: 

(i) 

The  words  "an  improper  combination  of  funds"  are  inserted 
after  "irregularity". 

(ii) 

The second subparagraph  is replaced by: 

"Any  reduction  or cancellation  of the  assistance  shall  give  rise  to 
recovery of the sums paid." 

(c) 

The following paragraph 2a is inserted: 

"2a  Where the Commission  considers that  an irregularity  has not  been 
corrected  or that  all  or part  of an  operation  docs  not justify  either 
all  or  part  of  the  assistance  granted  to  it,  the  Commission  shall 
conduct  a  suitable  examination  of  the  case  and  request  the 
Member State to submit  its comments within a specified  period. 

20 

After  the  examination,  if  no  corrective  measures  have  been 
undertaken by the Member State, the Commission may: 

(a) 

reduce or cancel the advance referred to in Article D(2); or 

(b) 

cancel all or part of the assistance granted to the measure. 

The  Commission  shall  determine  the  size  of  a  correction  taking 
into  account  the  nature  of  the  irregularity  and  the  extent  of  any 
failures in the management and control systems." 

(d) 

In paragraph 3, the second sentence is replaced by the  following: 

"To  such  sum  shall  be  added  interest  on  account  of  late  repayment  in 
accordance with arrangements to be adopted by the Commission." 

(e) 

The following  paragraph 4 is added: 

"4. 

The  Commission  shall 
implementing  paragraphs  1 
European Parliament thereof." 

lay  down 

the  detailed 

to  3  and 

shall 

rules 
inform 

for 
the 

(9) 

Annex II is amended as follows: 

(a) 

Point 2 is replaced by 

"2. 

the economic  and  social  impact  of the  Fund  in the  Member  States 
and  on  economic  and  social  cohesion  in  the  Union,  including  the 
impact on employment;". 

(b) 

In point 4, "( 1 ) and (2)" are deleted. 

Article 2 

This Regulation  shall enter into force on the third day following  that of its publication  in 
the Official Journal of the European Communities. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. 

Done at Brussels, 

For the Council 
The President 

21 

FINANCIAL STATEMENT 

1. 

TITLE OF OPERATION 

Cohesion Fund 

2. 

BUDGET HEADING  INVOLVED 

B2-3000 

3. 

LEGAL BASIS 

Article  16  of  Regulation  (EC)  No  1164/94  of  26  May  1994  establishing  a 
Cohesion Fund 

4. 

DESCRIPTION OF OPERATION 

4.1 

General objective 

To continue efforts  to further  cohesion in countries whose per capita GNP 
is below 90%o of the Community  average 

4.2. 

Period covered 

2000-2006 

5. 

CLASSIFICATION  OF  EXPENDITURE 

5.1 

Non-compulsory  expenditure 

5.2 

Compulsory  expenditure 

6. 

TYPE OF EXPENDITTURE 

Subsidy for joint financing  with other sources in the public and/or private sector 

7. 

FINANCIAL  IMPACT 

7.1  Method of calculating total cost of operation 

The  Cohesion  Fund's  financial  resources  for  the  period  2000-2006  are 
set  out 
the  Commission's  Communication  Agenda  2000, 
i.e. ECU 20.3 billion at  1997 prices. 

in 

8. 

FRAUD PREVENTION MEASURES INCLUDED IN PROPOSAL 

22 

9. 

ELEMENTS OF COST-EFFECTIVENESS  ANALYSIS 

9.1 

Objectives 

The  Cohesion  Fund  contributes financially towards projects  in the  fields 
of  the  environment  and  the  trans-European 
transport  networks  in 
Member States whose per capita GNP is less than 90% of the Community 
average,  calculated  on  the  basis  of  purchasing  power  parities,  namely 
Spain, Greece, Ireland and Portugal. 

9.2  Grounds for the operation 

In  its  Communication  Agenda  2000,  the  Commission  opted  for  the 
continuation of the Cohesion Fund, including for the countries which will 
be  participating  in  the  forthcoming  single  currency.  The  latter  remain 
eligible  for  contributions  from  the  Fund  where  they  meet  the  cohesion 
criterion, i.e. where, despite the significant  progress made, their GNP still 
falls below 90% of the Community average. Under the circumstances, the 
Commission  has  taken  the  view  that  major  financial  resources  should 
continue to be spent on them. 

9.3  Monitoring and evaluation of the operation 

9.3.1 

In  conjunction  with  the  beneficiary  countries  concerned,  the 
Commission systematically assesses the projects. 

When  making  such  assessments,  the  Commission  cooperates, 
where  appropriate,  with  the  EIB.  Once  the  aid  application  is 
received,  the  Commission  assesses  the  projects  presented  by  the 
Member States with regard to the following  criteria: 

their  medium-term  economic  and  social  benefits,  to  be 
weighed  against  the  resources  mobilized;  the  assessment 
must be based  on a cost-benefit  analysis carried  out by the 
Member States; 

the 
the  contribution 
implementation  of the Community  policies  in the fields of 
the environment and the trans-European networks; 

the  projects 

can  make 

to 

the  striking  of  a  suitable  balance  between  environmental 
and transport projects. 

The Commission  assesses the anticipated  impact  of the project  by 
conducting a quantitative cost-benefit  analysis. 

The  beneficiary  Member  States  concerned  must  provide  all  the 
information  necessary,  including  the  results  of  feasibility  studies 
and  ex  ante  evaluation,  so  the  assessment  can  be  made  as 
efficiently  as possible. 

23 

The  Commission  also  vets  aid  applications  to  check  in  particular 
whether  the administrative  and  financial  mechanisms  enable them 
to be implemented  efficiently. 

9.3.2  The practical  details  and the timetable  for  the assessment  fall  into 
various  categories.  In  addition  to  the  ex  ante  evaluation  of  the 
projects  referred  to  in  point  1,  the  Commission  undertakes  an 
ex post  evaluation  of  the  projectts  in  conjunction  with  the 
Member State. 

Furthermore,  in  order  to  assess  the  projects'  macroeconomic 
impact, econometric studies have been undertaken  and the findings 
are being drafted  to evaluate the results achieved. 

9.4 

Coherence with financial  programming 

The  proposed  amendment  is  in  line  with  DG  XVI's  broad  objective  of 
promoting  a regional  and  cohesion  policy  as defined  in  Article  130a and 
130d of the Treaty. 

> 

24 

IMPACT ASSESSMENT FORM 

THE IMPACT OF THE PROPOSAL ON BUSINESS, WITH SPECIAL REFERENCE 
TO SMALL AND MEDIUM-SIZED  ENTERPRISES 

Title:  Proposal  for  a  Council  Regulation  amending  Regulation  (EC)  No  1164/94 

establishing a Cohesion Fund and of Annex II thereto 

Reference number 

The proposal 

1. 

Under Article  16(1) of the Regulation  establishing a Cohesion  Fund, the Council 
is to review the Regulation before the end of  1999 on the basis of a proposal  from 
the  Commission  in  accordance  with  the  procedure  laid  down  in  Article  130d  of 
the Treaty. 

The  proposal  forms  part  of  the  follow-up  to  the  Commission's  Communication 
Agenda 2000. Its objectives  are to amend the provisions in force to adapt them to 
the  environment  of  the  forthcoming  single  currency,  make  them  more  efffective 
and simplify  certain aspects of commitments and payments. 

Impact on enterprises 

2. 

3. 

4. 

Cohesion  Fund  assistance  is  intended  to  provide  support  for 
infrastructure 
projects  relating  to  trans-European  transport  networks  and  measures  in  the 
environmental field. 

Under  Community  law  on  public  procurement,  projects  must  ensure  fair 
competition  for  sectors  not  excluded.  During  the  appraisal  of  projects  and  their 
follow-up, the Commission  is to ensure compliance. 

The proposal  is aimed  at maintaining  the Cohesion  Fund. Thanks  to the scale of 
the assistance provided  in the beneficiary  countries  and  in  those  two sectors, the 
Fund  is  having  a  major  impact  on  completing  the  trans-European  transport 
network  and bringing the Member States concerned  up to standard  in compliance 
with  the  Directives  on  the  environment,  as  well  as  on  employment  and  the 
competitive  position  of  enterprises.  The  matter  are  more  closely  integrated  into 
the internal market thanks to better  infrastructure. 

5. 

No. 

Consultation 

6. 

Commission departments and  European  Investment Bank. 

25 

ISSN 0254-1475 

COM(98) 130 final 

DOCUMENTS 

EN 

01  06  11  14 

Catalogue number  :  CB-CO-98-191-EN-C 

ISBN 92-78-32478-7 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

26