Special Report No 5/98 on reconstruction in former Yugoslavia (period 1996-1997) with the Commission's replies (submitted pursuant to the second subparagraph of paragraph 4 of Article 188c of the EC Treaty)
Date: 1998-05-07
Institutions: European Court of Auditors
Subjects: EU aid, EU financing, EU programme, Yugoslavia, economic reconstruction

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I

(Information)

COURT  OF  AUDITORS

SPECIAL  REPORT  No  5/98

on  reconstruction  in  former  Yugoslavia  (period  1996-1997)  with  the  Commission’s  replies

(submitted  pursuant  to  the  second  subparagraph  of  paragraph  4  of  Article  188c  of  the  EC
Treaty)

(98/C  241/01)

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CONTENTS

Paragraph
reference

Page

PREFACE:  CONDITIONS  IN  FORMER  YUGOSLAVIA . . . . . . . . . . . . . . . . . .

1 — 9

1.  INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 — 1.4

2.  SUMMARY  OF  PRINCIPAL  OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . .

2.1 — 2.13

3.  DESIGN  AND  IMPLEMENTATION  OF  AID  PROGRAMMES . . . . . . . . . .

3.1 — 3.55

Commission  strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1 — 3.27

Planning  of  DG  IA  measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2 — 3.9

Planning  of  ECHO  measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.10 — 3.12

Organisation  of  DG  IA  departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.13 — 3.25

Organisation  of  ECHO  departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.26 — 3.27

Programme  implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.28 — 3.55

Rate  of  utilisation  of  appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.28 — 3.32

Project  preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.33 — 3.35

Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.36 — 3.45

Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.46 — 3.50

Project  monitoring  and  evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.51 — 3.55

4.  IMPACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.59

Geographical distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.7

Entities  constituting  Bosnia-Herzegovina . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.5

Croatia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.6 — 4.7

Sectoral  distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.8 — 4.59

Housing  and  refugee  return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.8 — 4.19

Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.20 — 4.22

Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.23 — 4.26

Energy  (electricity  and  gas)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.27 — 4.31

Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.32 — 4.40

Water  and  domestic  waste  management . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.41 — 4.44

Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.45 — 4.48

Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.49 — 4.53

Private  sector  development  and  economic  reintegration . . . . . . . . . . . . . . .

4.54 — 4.56

Support  for  public  administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.57 — 4.59

5.  CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1 — 5.12

4

6

7

9

9

9

10

10

12

12

12

15

15

18

19

20

20

20

21

21

21

24

24

25

26

27

28

28

29

29

30

Annexes  1-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

Abbreviations  and  acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38

The  Commission’s  replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39

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PREFACE:  CONDITIONS  IN  FORMER  YUGOSLAVIA

1. Reconstruction 
Bosnia-Herzegovina  and,  to  a  lesser  extent,  Croatia.

former  Yugoslavia 

in 

concerns 

two 

countries 

in  particular:

Bosnia-Herzegovina

The  institutions  created  by  Dayton  in  Bosnia-Herzegovina

2. The  peace  agreement  divided  Bosnia  into  two  entities,  each  with  a  large  measure  of
independence, namely, the Federation of Bosnia-Herzegovina, with a population of Muslims and
Croats,  and  Republika  Srpska,  where  the  population  is  made  up  of  Serbs.  Ten  cantons  were
established  within  the  Federation,  forming  an  intermediate  level  of  government  between  the
entity  and  the  municipality.

3. As  Bosnia  was  not  an  independent  State  before  the  war  new  institutions  had  to  be
established at all levels of the State, the entities and the cantons. The fragility of the institutions
that  were  emerging  in  Bosnia-Herzegovina,  the  tensions  between  representatives  of  the  ethnic
communities  within  the  State  and  Federation  authorities  and  the  dispersal  of  responsibility
among  the  State,  entity,  cantonal  and  municipal  governments  made  it  particularly  difficult  for
providers  of  funds  (including  the  European  Commission)  to  find  responsible  partners  for
operations  in  the  country  during  the  period  1996-97.

Economic  situation

4. The cost of immediate war damage in Bosnia was estimated at between 15 150 and 30 300
Mio  ECU (1).  The  country’s  infrastructure  was  in  poor  condition  before  the  war  and  has
deteriorated  further  since  then,  owing  to  lack  of  maintenance.  Industrial  production  in  1995
was not more than 10 % of the pre-war level, and the economy was in need of radical reform.
At  the  end  of  1995  80 %  of  the  population  was  dependent  on  humanitarian  aid.

5. At the end of 1997 the situation in Bosnia was still giving cause for concern. GDP, which in
1996  rose  by  50 %,  reaching  554  ECU/head  of  population,  increased  by  a  further  35 %  in
1997,  but  was  still  extremely  low (2).  Industrial  production  was  still  only  20 %  of  the  pre-war
level (3).  As  of  the  same  date  some  20 %  of  the  population  continued  to  rely  on  food  aid  and
health  care  remained  dependent  on  international  aid (4).

Situation  of  refugees  and  displaced  persons

6. Out of a pre-war population of four million inhabitants 250 000 people were killed and one
million  displaced  within  the  country,  whilst  a  further  1,3  million  fled  to  other  countries.
Generally  speaking,  the  refugees  originated  in  towns  in  Bosnia-Herzegovina,  whereas  the
displaced persons were people who left their villages during the war in search of relative safety
in  the  towns,  in  many  cases  occupying  houses  that  had  been  abandoned  when  the  inhabitants
fled abroad. In order to enable the refugees to return, it was first necessary to help the displaced
persons  reoccupy  their  own  homes  in  war-torn  areas.

(1)  Source:  World  Bank:  Priority  reconstruction  programme,  November  1996,  Volume  3.
(2)  See  Table  A  at  the  end  of  this  preface.
(3)  Source:  Economist  Intelligence  Unit  Country  Report,  first  quarter  1998.
(4)  Source:  European  Community  Humanitarian  Office.

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7. At  the  end  of  1997  800 000  people  were  still  displaced  within  Bosnia-Herzegovina,  whilst
only 200 000 refugees had returned; 612 000 refugees were still abroad, 263 000 of them in EU
Member  States,  including  220 000  in  Germany,  without  any  lasting  solution  having  been
found (5) (6).

Croatia

8. The  reconstruction  programme  in  Croatia  centred  on  eastern  Slavonia,  the  region  which
suffered  the  most  war-damage  and  was  under  UNTAES (7)  control  during  the  period
1996-1997.  The  cost  of  immediate  war  damage  in  the  area  was  estimated  to  be  around  1 000
Mio ECU. The reintegration of this region into the Republic of Croatia requires that the Croats
be allowed to return in peace, but the rights of the Serb population must also be protected. This
has  been  a  serious  constraint  on  the  reconstruction  process  (see  Table  A).

The  context  of  Community  action

9. The  Court  of  Auditors  wishes  to  point  out  the  nature  of  the  conditions  under  which  the
reconstruction  operations  were  undertaken,  as  their  subsequent  implementation  was  seriously
affected  by  local  conditions.  The  salient  features  were:

a)  the  need  for  urgent  action,  arising  from  the  political  situation  and  the  need  for

reconstruction  work  to  start  at  the  beginning  of  1996;

b)  the  politically  unstable  situation  within  the  country,  with  some  parties  obstructing

implementation  of  the  peace  settlement;

c)  the  difficulty  of  obtaining  the  agreement  of  government  authorities  in  the  different  entities
(required  under  Community  rules)  led  to  delays  in  carrying  out  the  various  measures;

d)  complex,  and  relatively  inflexible,  legal  and  financial  instruments  that  required  the
simultaneous application of two regulations and several budget items. The Council adopted
the  reconstruction  Regulation  (1628/96),  after  consultation  of  the  European  Parliament,  at
the  end  of  July  1996.  The  tendering  procedures  and  thresholds  that  had  been  used  for  the
TACIS programme were transposed in this Regulation, but were unsuitable for the unusual
circumstances  prevailing  in  former  Yugoslavia.  In  response  to  various  criticisms  concerning
aid  to  former  Yugoslavia  the  Council  adopted  Regulation  (EC)  No  851/98 (8)  on  20  April
1998,  after  consulting  the  European  Parliament.  In  the  main,  this  Regulation  follows  the
Commission’s  proposals 
flexible  and  speeding  up
implementation.

for  making  procedures  more 

(5)  Source:  UNHCR  ‘Repatriation  and  Return  Programme  1998’.
(6)  Some  700 000  refugees  have  found  durable  solutions  outside  Bosnia-Herzegovina.
(7)  UNTAES  =  United  Nations  Temporary  Administration  in  Eastern  Slavonia.
(8)  OJ  L  122,  24.4.1998,  p.  1.

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TABLE A

Economic  data  regarding  the  republics  of  former  Yugoslavia

Slovenia (1)

Croatia

Bosnia-Herzegovina

Federation

Republika
Srpska

Serbia-
Montenegro

Ex-Rep.  of
Macedonia

(1996)

(1995)

(1996)

(1996)

(1995)

(1995)

20 300
2,0
12
16,3
8 152

56 538
4,5
26
14,6
3 250

26 537
2,4
28
2,3
864

25 053
1,4
?
0,5
392,0

87 968
10,8
35
9,9
920

25 713
2,1
22
1,8
860

2,85

2,86

(2)

(2)

?

?

4,4
1,1
34,4
60,1

7,3
9,7

14,0
3,0
48,0
35,0

17,0
2,1

13,5

20,7

65,8

33,0
10,8

17,8

32

50,2

39,0
?

15,0
5,0
45,0
35,0

?
?

16,0
5,0
50,0
29,0

?
16,0

Area  (km²
No.  inhabitants  (mio)
%  of  cultivated  land
GNP  (109  USD)
GNP/inhabitant  (USD)
Gross  external  debt
(109  USD)

Distribution  of  GNP  by
sector  (in  %)
Agriculture
Extractive  industries
Industry
Services

Unemployment  rate  (%)
Inflation  rate  (%)

(1)  By  virtue  of  its  special  situation  Slovenia  participates  fully  in  the  PHARE  programme  and  does  not  receive  any  aid

under  the  reconstruction  programmes  for  former  Yugoslavia.

(2)  The  state  of  Bosnia-Herzegovina’s  external  debt  is  estimated  at  3,38  x  109  USD.
Sources:  ATLASECO  1998;  The  Economist  Intelligence  Unit.

1.  INTRODUCTION

1.1. Following the conclusion of the Dayton-Paris peace
settlement  at  the  end  of  1995 (9),  the  European  Union
(EU) allocated an overall indicative amount of 1 000 Mio

ECU  for  postwar  reconstruction  in  former  Yugoslavia
over  the  period  1996-1999 (10)  (see  Table  1).  This
amount essentially comprises the EU’s contribution to the
5 100 Mio USD (3 880 Mio ECU) priority reconstruction
programme  for  Bosnia-Herzegovina  that  was  adopted  by
the  international  community  at  the  end  of  1995 (11).

Budgetary  sources  of  aid  for  reconstruction  in  former  Yugoslavia  (1996-1999)

TABLE  1

Reconstruction  aid

Aid  for  economic
reforms

PHARE  programme  (DG  IA)
Specific  headings  (DG  IA)
Emergency  aid  (ECHO)

400
400
p.m. (1)

Total

800

200
—
nil

200

(Mio  ECU)

Total

600
400
p.m.

1 000

(1)  The  decision  on  ECHO  aid  is  taken  annually  in  the  course  of  the  budget  procedure.  It  is  not  subject  to  multiannual

planning.

(9)  The  General  Framework  Agreement  for  Peace  in  Bosnia  and
Herzegovina was initialled at Dayton on 21 November 1995
and  signed  at  Paris  on  14  December  1995.

(10) Communication  from  the  Commission  on  The  European
Union’s  financial  contribution  to  reconstruction  in  former
Yugoslavia,  COM(95)  581  final,  18  December  1995.

(11) The  World  Bank  set  out  the  programme  in  the  document
‘Bosnia  and  Herzegovina:  Priorities  for  Recovery  and
Growth’  prepared  for  the  first  donors’  meeting  held  in
Brussels in December 1995. The programme was seen as the
first  phase  of  the  reconstruction  process.

(cid:252)
(cid:253)
(cid:254)
(cid:252)
(cid:253)
(cid:254)
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Annex  1  contains  a  breakdown  of  the  budgetary
appropriations for the EU and describes the allocation of
responsibilities  among 
the  Commission  departments
concerned.

situation and the present report is the result of that work.
The  Court  briefed  the  Commission  on  its  findings
throughout  the  inquiry.

1.2.
In  its  1996  annual  report  the  Court  of  Auditors
pointed  out  that  the  progress  of  the  reconstruction
programme  was  very  slow.  In  view  of  this  alarming
situation (12)  the  Court  undertook  a  review  of  the

1.3. Table  2  shows  that  Bosnia-Herzegovina  was  the
principal recipient of reconstruction aid over the 1996-98
period.

TABLE  2

Analysis  of  Commission  aid  for  reconstruction  and  economic  reform  in  former  Yugoslavia  financed  from
the  1996  and  1997  budgets,  situation  at  31  December  1997  (including  emergency  reconstruction  aid)

Country

Commitments

Contracts

Payments

(Mio  ECU)

Reconstruction

Bosnia
Croatia
Serbia-Montenegro
FYROM

Subtotal

Economic  reform

Bosnia
Croatia
Serbia-Montenegro
FYROM

Subtotal

Source:  Court  of  Auditors

522,9
19,3
0,0
0,0

542,2

12,0
0,0
0,0
58,0

70,0

Total

612,2

273,9
12,7

0,0

286,6

5,5
0,0
0,0
7,5

13,0

299,6

199,5
8,6
0,0
0,0

208,1

0,8
0,0
0,0
1,1

1,9

210,0

1.4. The objectives of the Court’s audit were to evaluate
the  Commission’s  management  of  reconstruction  aid  in
Bosnia-Herzegovina  and  Croatia  and  to  assess  the
concrete  effects  of  that  aid  at  the  end  of  1997,  i. e.
midway  through  the  1996-99  programme (13).  Four
on-the-spot  audits  were  carried  out  in  1997  and  two
visits  were  made  at  the  end  of  1996  to  the  Member

State-based  procurement  agencies  responsible  for  the
supply  programme (14).  The  visits  were
Bosnian 
supplemented by detailed review of the accounts and files
at  the  Commission’s  headquarters  in  Brussels.

2.  SUMMARY  OF  PRINCIPAL  OBSERVATIONS

(12) Annual report concerning the financial year 1996, OJ C 348,

18.11.1997,  paragraphs  14.26  —  14.31.

(13) The operating costs of the Office of the United Nations High
Representative (OHR) were financed to the extent of 10 Mio
ECU  in  1995  and  4,6  Mio  ECU  in  1997  using  CFSP
appropriations (B8-013). They were not audited because they
lie  outside  the  reconstruction  operations  framework.  It  is
expected  that  they  will  be  audited  in  the  near  future.

2.1. The  reconstruction  programme  for  ex-Yugoslavia
was  started  as  a  matter  of  urgency  at  the  end  of  1995.

(14) Essential  aid  programme  (EAP).

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Two  years  later,  almost  all  action  taken  concerned  the
Croat-Muslim  Federation  of  Bosnia-Herzegovina  (see
paragraph  1.3  and  paragraph  2  of  the  preface)  and  the
rate  of  implementation  was  low  (see  paragraph  3.30).

that  it  would  have  wished  and  on  several  occasions  was
presented  with  a  fait  accompli  when  operations  were
abandoned  or  cut  (see  paragraph  4.13).

in 

strategy 

it  had  outlined  a  very
2.2. Despite  the  fact  that 
(see
four  Communications 
ambitious 
paragraph  3.1)  and  clear  guidelines  existed 
(see
paragraph  3.11),  the  Commission  subsequently  omitted
to  draw  up  a  practical 
implementation
programme,  which  would  have  made  it  possible  to  carry
out that strategy in a coordinated manner (see paragraph
3.3), especially as regards ECHO aid. Such a programme
would  have  been  particularly  useful  in  coordinating  the
measures  on  which  refugee  return  relies.

sectoral 

2.3. The  Commission  concluded  contracts  with  two
procurement  agencies  under  a  programme  for  the  supply
of  125  Mio  ECU  of  equipment  to  Bosnia-Herzegovina,
but  without  adequate  preparation,  and  was  obliged  to
suspend the programme because it had over-estimated the
beneficiary  administrations’  management  capabilities  (see
paragraph  3.5).

2.4. Commission  action  was  directed  towards  a  large
number  of  activity  sectors  (see  paragraphs  3.4  —  3.6),
but  the  Commission  did  not  equip  itself  with  the
resources  needed  to  fulfil  its  aspirations  and  did  not
redeploy  to  its  operational  units,  either  in  Brussels  or
locally,  the  human  resources  that  were  needed  for  the
multitude  of  measures  to  be  carried  out  properly  (see
paragraphs  3.13  —  3.25).  Furthermore,  the  units  in
question  did  not  adequately  review  their  procedures  to
take  account  of  the  need  for  speed,  which  slowed  down
both  the  decision-taking  process  and  the  rate  at  which
measures  were  implemented  (see  paragraphs  3.28  —
3.37,  3.41,  3.46  —  3.50).

2.5. As  a  result  of  the  coexistence  of  three  separate
regulations  governing  the  budget  articles  used  to  finance
the  reconstruction  measures,  similar  operations  were
subject  to  different  rules  and  the  European  Union’s
correspondingly
procedures 
management 
complicated  (see  paragraphs  3.36  —  3.37).

were 

2.6. Use  of  the  UNHCR  to  implement  housing  repair
projects  added  a  costly  link  to  the  chain  of  command,
without  adding  any  additional  technical  skills  (see
paragraph  3.55).  Moreover,  the  cooperation  procedures
which the Commission sought to impose on the UNHCR
were  incompatible  with  the  global  method  of  funding
which  the  latter  employs  on  its  own  programmes  (see
paragraph  5.7).  Finally,  the  Commission  was  not  able  to
exercise  the  level  of  supervision  of  UNHCR  operations

2.7. Even  though 
land-mines  continue  to  claim  a
considerable  number  of  victims,  as  well  as  delaying  the
reconstruction  programme,  the  amount  of  funds  devoted
by  the  Commission  to  mine  clearance  measures  is  very
small and use of the funds has been particularly slow (see
paragraph  3.32).  Furthermore, 
the  appropriations
earmarked  for  this  activity  in  1997  were  not  used.

lower 

than  expected 

2.8. Housing reconstruction encountered many obstacles
when  projects  were  not  thought  through  carefully  at  the
beginning and the number of households that returned to
their  homes  was  much 
(see
paragraph 4.13). On a number of occasions housing was
renovated,  but  remained  unoccupied,  either  because  the
work  was  interrupted  or  because  security  and  living
conditions 
(including  employment  prospects)  were
impossible  (see  paragraph  4.18).  The  number  of  homes
repaired  is  insufficient,  which  delays  the  return  of
displaced  people  to  their  homes  and  also  slows  down
refugees’  return,  even  though  the  latter  is  one  of  the
European  Union’s  main  objectives  (see  paragraphs  3.8
and  4.8  and  Annex  3).

2.9.
In  general  the  renewal  of  infrastructure  in  the
health  and  education  sectors  has  had  a  visible  impact.
Institutional  reforms  are  still  necessary  in  both  these
sectors,  in  order  to  ensure  that  services  continue  to
function  (see  paragraphs  4.22  and  4.26).

impact 

2.10. As of end-1997 energy-sector projects had still had
little 
(see  paragraphs  4.29  —  4.30).  The
Commission  did  not  ensure  that  the  equipment  supplied
under the EAP was installed (see paragraph 4.28) and the
other  projects  had  still  not  started,  because  of  delays  in
preparing  calls  for  tenders  (see  paragraph  4.30).

2.11. Substantial  sums  were  committed  in  the  transport
sector,  although  there  was  only  an  indirect  link  between
these  measures  and  the  question  of  refugee  return  (see
paragraph  4.33).  However,  the  visibility  of  the  aid
earmarked  for  the  reopening  of  public  transport  services
in  Sarajevo  served  to  demonstrate  the  EU  presence  (see
paragraph 4.34).

2.12. Although  agriculture  is  an  important  source  of
employment,  Commission  support  for  this  sector  has
remained  relatively  modest  (see  paragraph  4.49).  Some

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significant measures were undertaken in the areas of Una
Sana  and  Banja  Luka,  but  only  after  mid-1997  (see
paragraphs  4.52  and  4.53).  Commission  support  for  the
industrial  sector  was  similarly  limited  (see  paragraphs
4.54  —  4.56).

the  Commission  stated  that  coordination  was  to  ensure
‘the  use  of  expertise  and  know-how  specific  to  the
various  fund  donors’.  It  did  not  even  draw  up  a
coordinated internal implementation programme, and the
approaches  adopted  by  DG IA  and  ECHO  have  not
always been complementary.

2.13. Apart  from  setting  up  a  Customs  and  fiscal
assistance office (CAFAO) (see paragraph 4.58), which is
manifestly efficient and effective, the Commission did not
attach  sufficient  importance  to  the  reform  of  public
administration,  despite  the  enormous  institutional  needs
of  Bosnia-Herzegovina  (see  paragraph  3.7).

3.  DESIGN 

AND 

IMPLEMENTATION  OF 

AID

PROGRAMMES

Commission  strategy

In  parallel  with 

the
3.1.
Commission  outlined  its  strategy  for  reconstruction  in
former 
complementary
in 
Communications  at  the  end  of  1995 (15).

the  Dayton  agreement, 

Yugoslavia 

four 

Planning  of  DG IA  measures

3.2. Regulation  (EC)  No  1628/96 (16)  laid  down  the
following  objectives  for  the  reconstruction  programme:
‘to underpin the reconstruction process, to encourage the
return  of  refugees,  reconciliation  and  regional  economic
cooperation,  and  to  create  the  economic  and  social
conditions 
the
development  of  the  recipient  countries’.  These  objectives
reiterate  those  of  the  Communication  mentioned  in
footnote (15)  (a).

foundations 

that  will 

the 

lay 

for 

3.4. As  Annexes  2.1  and  2.2  demonstrate, 
the
Commission  selected  large  spheres  of  intervention  that
enabled  it  to  respond  to  all  sorts  of  demands,  but
ultimately resulted in a dissipation of effort, which it was
unable  to  control  because  it  had  not  mobilised  sufficient
human  resources.

It 

it  had  only 

supply  programmes. 

In  1996,  priority  was  given  to  a  125  Mio  ECU
3.5.
Essential  Aid  Programme  (EAP)  which  was  to  provide
emergency  supplies  in  order  to  restart  the  economy  of
Bosnia-Herzegovina  by  meeting  priority  needs  in  nine
sectors (17).  The  Commission  undertook  this  operation
limited  experience  of
though 
even 
reconstruction-related 
thus
supplied  medical  and  educational  equipment  without
taking  into  account  ECHO’s  activities  in  the  same  areas.
With  regard  to  the  EAP  (Supply),  the  Commission  relied
extensively  on  the  local  authorities  to  identify  needs  and
distribute  goods.  Its  over-estimation  of  the  managerial
capabilities  of  the  authorities  in  Bosnia-Herzegovina
meant  that  it  did  not  provide  the  necessary  level  of
Implementation
technical 
problems  thus  resulted  in  the  Commission’s  suspending
the  EAP  in  November  1996,  after  it  had  committed  83
Mio  ECU.  The  balance  of  42  Mio  ECU  was  used  for  a
programme of aid that was mobilised through projects of
the  conventional  type,  whereby  the  Commission  retains
responsibility  for  the  works  up  until  the  final  hand-over,
which  was  not  the  case  with  the  supply  programmes.

support  and 

supervision. 

3.3. The  Commission  did  not  adopt  a  practical  sectoral
implementation  programme  for  carrying  out  its  strategy.
its  own  strengths  and
It  ought  to  have  evaluated 
weaknesses, as well as those of other donors, in order to
identify  the  sectors  in  which  it  could  make  the  greatest
contribution and should have prepared its programme on
that  basis,  within 
international
the  Communication
framework  provided 
mentioned  in  footnote (16)  (d).  In  that  Communication

coordinated 
in 

the 
for 

3.6. DG  IA’s  1997  programme  comprised  three  areas
which  between  them  covered  virtually  every  sector,
namely:

a)  private-sector  development  and  institution-building;

(15) (a)  SEC(95)  1597  final,  27.9.1995;

(b)  COM(95)  564  final,  17.11.1995;
(c)  COM(95)  581  final,  18.12.1995;
(d)  COM(95)  582  final,  20.11.1995.

(16) Council  Regulation  (EC)  No  1628/96  of  25  July  1996,

OJ  L  204,  18.18.1996.

(17) This  programme  was  in  response  to  the  World  Bank’s
request for an initial wave of financing estimated at 360 Mio
ECU  and  concerning  10  sectors  of  activity  (COM  (95)  3507
of  14.12.1995).  The  EU  mine-clearance  operations  were
financed  separately  from  the  EAP  (see  paragraph  3.32).

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b)  social-sector  support  (refugees,  housing,  health  and

education);

c)  infrastructure  (energy,  transport,  telecommunications

and  water  supply).

3.7. Over  the  period  1996-97  the  Commission  did  not
play a significant role in the area of economic reform and
institution-building  (see  paragraphs  4.54  and  4.57),
especially  in  the  health  and  education  sectors,  where
needs  were  particularly  acute  (see  paragraphs  4.22  and
4.26).

3.8. Given  the  importance  that  the  EU  Member  States
place  on  refugees’  return  the  Commission  should  have
made  this  issue  one  of  its  priorities  when  it  first  became
involved,  in  1996.  It  would  also  have  been  more  logical,
given that the two other main providers of funds (USAID
and  the  World  Bank)  offer  only  limited  aid  to  the
housing  sector.  The  Commission  is  free  to  determine  the
remits  of  its  own  departments  and  should  have  made
ECHO,  rather  than  DG IA,  responsible  for  the  question
of  refugees’  return,  on  the  grounds  of  the  experience
gained  by  ECHO  in  the  social  sector  during  the  war
years. In fact, ECHO is not only the principal partner of
the  United  Nations  High  Commissioner  for  Refugees
(UNHCR),  who,  in  turn,  is  responsible  for  coordinating
refugee  aid (18),  but  the  NGOs  with  which  ECHO
concluded  partnership  agreements  usually  also  have
responsibility 
implementing  refugee-aid  projects.
Moreover, the humanitarian aid procedures allow ECHO
to  handle  urgent  rehabilitation  measures  more  rapidly
than  DG IA  (see  paragraph  3.31),  especially  as  regards
the  agreement  of  the  local  authorities,  tendering  and  the
level of advances to partners (up to 80 % of the total for
the  operations  in  question).

for 

framework, 

appropriations 

operations,  ECHO  does  not  (see  Table  1)  and  whereas
conventional  humanitarian  aid  can  be  adapted  to  an
annual 
rehabilitation
assistance  requires  a  longer-term  outlook.  In  reality,
ECHO  is  not  even  in  a  position  to  draw  up  annual
estimates  and  the  initial  budget  for  article  B7-2 1 4  was
not  enough  to  cover  the  whole  of  1997  (see  Annex  1
paragraph 3). Whereas there were substantial calls on the
contingency  reserve  in  chapter  B7-9 1 0  of  the  budget  in
1996,  in  1997  additional  funds  were  taken  from  the
PHARE  programme  during  the  second  half  of  the
financial year (19).

3.11. Despite  the  intentions  which  the  Commission
published  in  its  Communication  to  the  Council  and  the
European  Parliament  on  linking  relief,  rehabilitation  and
development (20),  DG IA  and  ECHO  did  not  adopt  any
joint  arrangements  for  the  gradual  disengagement  of  the
Humanitarian  Office  during 
the  1996-99  period.
Similarly  the  task  force  comprising  staff  responsible  for
humanitarian  aid  and  staff  from  development  aid
departments,  which 
the
transition,  was  not  responsible  for  drawing  up  aid
programmes.

should  have  coordinated 

3.12.
In  1996  ECHO  focused  its  activities  on  basic
social  infrastructure  (particularly  schools  and  health
facilities)  as  well  as  water  and  electricity  supply
infrastructure,  but  its  involvement  in  the  housing  sector
was  limited.  The  projects  proposed  by  the  NGOs  were
appraised,  but  there  were  no  criteria  to  ensure  that
selection  was  systematic  and  transparent.  ECHO,  on  the
other  hand,  adopted  an  intersectoral  approach  and  a  set
of  coherent  criteria  for  the  1997  projects,  which  should
improve  the 
impact  of  the  aid  from  this  source,
particularly  in  the  housing  sector,  where  its  involvement
has  increased.

3.9. With regard to infrastructure projects, the European
Union differs from other donors in that its procedures are
not  fast  enough  and  it  does  not  have  the  expertise
required  if  it  is  to  achieve  a  real  impact  within  a
reasonable  space  of  time.

Organisation  of  DG IA  departments

Planning  of  ECHO

3.10. Even  though  DG IA  has  a  multiannual  financial
framework  which  allows  it  to  plan  its  rehabilitation

3.13. DG IA’s inability to redeploy the human resources
needed  for  the  reconstruction  operations  was  the  main
stumbling  block  in  the  programme  of  aid  for  former
Yugoslavia. The sum of 1 000 Mio ECU was approved at
level  without  a  proper  assessment  of  the
political 
Commission’s  managerial  capacity  having  been  carried
out  beforehand.  The  Commission  had  already  pointed

(19) See  Special  Report  No  2/97  concerning  humanitarian  aid
from  the  European  Union  between  1992  and  1995,  OJ
C  143,  12.5.1997,  paragraphs  2.14  to  2.16.

(18) Under  the  Dayton-Paris  accord  (Annex  5).

(20) COM(96)  153  final,  30.4.1996.

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out  that  its  departments  did  not  have  sufficient  staff,  in
its  ‘Communication  on  the  reconstruction  in  former
Yugoslavia:  EU  aid  administration  and  international  aid
coordination’, and stated that it would take the necessary
corrective  measures  (see  footnote (15)(d)).

intent  and 

this  declaration  of 

3.14. Despite 
the
programme’s financial and political importance, both the
development  of  sectoral  guidelines  and  the  management
and  on-the-spot  monitoring  of  projects  in  1997  were  in
the  hands  of  just  five  task  managers  in  Brussels,  none  of
whom  were  permanent  members  of  the  Commission’s
staff, and most of whose contracts end in mid-1998. The
Commission  Delegation  in  Sarajevo  was  also  short  of
staff  for  monitoring  the  reconstruction  programme,  to
which  it  assigned  only  two  auxiliary  staff  supervised  by
the  Head  of  Delegation  and  his  assistant.  The
Commission did not open an Office in Croatia until April
1997.  In  September  1997  the  Office  still  had  only  one
special  envoy,  assisted  by  local  staff (21).  In  Bosnia  and
Croatia  the  Commission  has  not  used  local  staff  to
monitor  programmes,  unlike  other  donors,  although  it
does  do  this  in  its  Delegations  in  PHARE  countries.

the Commission had to pay agency fees of 5 000 ECU to
the  agencies  for  straightforward  transfers  of  funds.

in  eastern  Slavonia,  DG IA  used
3.17. Similarly, 
unorthodox  procedures  to  finance 
its  administrative
expenditure.  In  this  instance  it  used  an  NGO,  supervised
by  an  expert  on  contract,  as  a  screen  to  employ  27
people  in  Vukovar  to  draw  up  and  implement  its
reconstruction  programme (23).  The  Commission  kept  its
Vukovar  ‘branch’  open  without  any  changes,  even  after
the Zagreb Representative’s Office opened in April 1997.
Even  though  this  is  better  than  nothing  as  a  way  of
mobilising aid, it is unacceptable for the European Union
to  use  such  arrangements  when  it  is  working  with  other
donors and the United Nations mission (UNTAES) in the
region  and  is  the  largest  donor  in  eastern  Slavonia.

staff  at 

shortage  of 

3.18. The 
the  Commission
Delegation  in  Sarajevo  and  its  limited  decision-making
powers  have  reduced  the  scope  for  local  coordination
with  other  donors.  For  example,  the  OHR  in  Bosnia (24)
has  set  up  a  system  of  sectoral  task  forces  comprising
representatives  of  the  various  donors, 
in  order  to
encourage  coordination,  but  the  Commission  does  not
chair  any  of  these  task  forces  and  is  unable  to  make  any
significant  contribution  to  them,  because  of  its  lack  of
on-the-spot  resources.

3.15. A  useful  comparison  is  Poland,  which  has  an
annual  funding  allocation  comparable  to  that  of  Bosnia.
The  Warsaw  Delegation  has  18  category  A  staff,  10  of
whom  are  local.

3.19. Management  of  the  programme  in  Bosnia  has
remained  highly  centralised,  even 
though  PHARE
programme  management  is  substantially  decentralised
and  Regulation  (EC)  No  1628/96 (25)  provides  that
Commission  assistance  shall,  as  far  as  possible,  be
granted  on  a  decentralised  basis (26).  Notwithstanding
this  requirement  the  role  of  the  Commission  Delegation
in  Sarajevo  has  remained  marginal,  through  being  often
ill-defined.

largely 

In  1996  the  financing  of  the  Commission’s  office
3.16.
in  Sarajevo  was 
improvised.  A  substantial
proportion  of  the  Office’s  running  costs  were  met
through  the  EAP:  personnel  (463 582  ECU),  equipment
(282 000  ECU)  and  operating  costs  (157 000  ECU),
whereas  such  expenditure  should  have  been  financed
the
from  Part  A 
Commission’s  budget (22).  These  operating  costs  were
covered  out  of  the  cash  advances  that  the  Commission
paid  to  the  procurement  agencies  that  were  responsible
for  implementing  the  programme.  As  well  as  lacking
the
transparency, 
Commission  Office  unduly  dependent  on  the  agencies
that it was also responsible for supervising. Furthermore,

(administrative  expenditure)  of 

irregular  procedure  made 

this 

(21) An  assistant,  a  secretary  and  a  driver.
(22) See  the  Annual  Report  concerning  the  financial  year  1996,

3.20. While  the  difficulties  encountered  by  the  EAP
(Supply)  partly  account  for  the  Commission’s  centralised
approach (see paragraph 3.5), this centralisation has itself
caused  problems,  not  only  during  the  negotiation  of
in
financing 
Bosnia-Herzegovina,  but  also  when  the  content  of  the
projects  was  being  determined.  In  other  central  and
eastern  European  countries  the  Commission  has  set  up  a

agreements  with 

authorities 

the 

(23) Many  of  these  people,  as  well  as  the  expert,  were  former
members  of  the  team  set  up  by  the  European  Union  to
administer  the  town  of  Mostar  between  1994  and  1996.
(24) The  Office  of  the  High  Representative  was  set  up  under  the
Dayton  Agreement  to  oversee  civilian  aspects  of  the  peace
agreement  (see  paragraph  1.4,  note  13).

(25) Article  5.
(26) With  the  exception  of  the  supplies  EAP,  namely  83  Mio

paragraphs  14.29  to  14.31,  OJ  C  348,  18.11.1997.

ECU.

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for 

the  programme 

financial  management 

system  of  programme  management  units  (PMUs)  to
mobilise  its  PHARE  aid.  Under  this  system,  which  was
introduced  in  the  light  of  the  recommendations  made  by
the  Court 
the
its  Special 
in 
report  concerning 
implementation  of  the
decentralised  system  for  the 
PHARE  programme (27),  the  number  of  PMUs  is  limited
and 
is
centralised  in  one  of  them.  In  Bosnia  such  a  system
would 
between
decentralisation  and  the  over-centralisation  that  was
adopted  there.  PMUs  are  set  up  in  the  ministries  of
beneficiary  countries  and  are  staffed  by  both  national
civil  servants  and  foreign  consultants,  the  latter  being
financed  under  the  PHARE  programme.  The  PMUs  are
supervised  by  the  local  Commission  Delegation.  This
system  provides  an  important  interface  between  the
Commission and the ministries and facilitates dialogue on
aid implementation.

compromise 

provided 

have 

a 

3.21.
In  Bosnia  the  World  Bank  has  set  up  structures
comparable  to  the  PMUs  in  the  various  ministries  of  the
two  entities  to  manage  the  international  aid  which  it
coordinates. The Commission has made little use of such
structures. At the end of 1997 the World Bank indicated
that  it  would  very  soon  have  disbursed  the  bulk  of  the
funds  that  it  intends  to  devote  to  reconstruction.  The
Commission  should  take  over  the  lead  role  by  providing
technical  assistance  to  these  structures,  in  order  to
support the institution-building process needed to achieve
sustainable  recovery  in  Bosnia.

to 

the 

further 

consequence  of 
the  Commission  Delegation 

lack  of
3.22. A 
decentralisation 
in
Sarajevo  has  been  the  slowness  of  the  programme
implementation  procedures  (see  paragraphs  3.28  —
3.50).  This  approach  is  in  marked  contrast  to  that
selected 
reconstruction
the  European  Union’s 
programme  in  Mostar,  where  39  expatriate  civilian  staff
were  employed  to  administer  the  programme  on  the
spot.

for 

In  the  same  context,  it  should  be  noted  that
3.23.
CAFAO (28),  which  is  one  of  the  Commission’s  most
successful  operations  in  Bosnia  (see  paragraphs  4.58  —
4.59),  is  managed  in  a  highly  decentralised  manner  by
DG XXI (29).  The  office  of  around  35  staff  thus  operates
under the authority of the local representative, a DG XXI
consultant. The latter has considerable independence and
carries  the  responsibility  of  implementing  its  programme
himself,  without  excessive  intervention  by  Commission
headquarters.

around  a  dozen  expatriate  staff  and  some  twenty
locally-employed staff. Similarly, USAID, the third largest
donor,  set  up  an  office  in  Sarajevo  with  some  twenty
expatriate  staff  and  around  one  hundred  local  staff  to
cover  the  whole  of  Bosnia.

among 

turnover 

directors 

responsible 

3.25. The  lack  of  an  implementation  programme  for
both  the  allocation  of  aid  and  the  strengthening  and
restructuring  of  DG IA’s  departments  is  partly  linked  to
the 
for
reconstruction  in  former  Yugoslavia.  In  the  beginning
and  until  October  1996  two  separate  directorates  in
DG IA  were  responsible  for  managing  the  reconstruction
programme:  the  first  for  PHARE  and  the  second  for  the
other  budget  headings.  Both  directors  were  replaced  at
the  end  of  1996  by  a  single  director  who,  in  turn,  was
transferred in mid-1997, but the latter’s replacement was
lack  of
not  appointed  until  November  1997.  This 
continuity  in  programme  management  slowed  down
decision-taking  and  led  to  prevarication  among  those
responsible  for  implementation.

Organisation  of  ECHO  departments

located 

In  contrast  to  DG IA,  almost  all  the  ECHO  staff
3.26.
responsible  for  Bosnia  are 
in  country.  For
example,  in  September  1997  17  staff  (including  16
experts  on  contract)  were  divided  among  five  regional
offices. These regional offices have considerably increased
ECHO’s  performance  in  identifying  the  projects  that  are
likely to satisfy local needs. There is, however, a risk that
the  arrangements 
the
unsatisfactory  procedures  for  renewing  the  contracts  of
experienced,  non-permanent  staff.

jeopardised  by 

could  be 

3.27. Whilst  ECHO’s  operations  in  Bosnia  are,  in  fact,
decentralised  in  terms  of  personnel,  its  procedures  for
authorising  projects,  contracts  and  payments  are  still
centralised. Decentralisation in these areas could result in
even  more  rapid  mobilisation  of  funds,  even  if  it  means
thresholds  above  which
establishing  a  system  of 
authorisation  would  have 
from
headquarters.

to  be 

sought 

Programme implementation

3.24.
In  1996  the  World  Bank  also  opted  for  extensive
decentralisation  of  its  operations  in  Bosnia,  where  it  has

Rate  of  utilisation  of  appropriations

(27) OJ  C  175,  9.6.1997.
(28) Customs  and  Fiscal  Assistance  Office
(29) Directorate-General  for  Customs  and  Indirect  Taxation.

3.28. Table  3  shows  the  main  budget  headings  relating
to  reconstruction  in  former  Yugoslavia,  with  the  rates  of
implementation  as  at  31  December  1997.

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Rate  of  implementation  of  aid  for  rehabilitation  and  reconstruction  in  former  Yugoslavia  financed  from  the  1996  and  1997  budgets,
situation  at  31  December  1997

TABLE  3

Budget heading

Budget article

Budget  Orig Budget  Rev

Commit-
ments

Budget  Orig Budget  Rev

Payments

Commitment  appropriations

Payment  appropriations

(Mio  ECU)

Calldown
rate  of
commit-
ments
entered
into
(%)

Phare

B7-500 (1)
B7-500 (1)
B7-543 (2)

1996
1997
1997

128,00
0,00
127,00

128,00
0,00
73,00

128,00
0,00
73,00

50,52
41,28
115,00

50,52
41,28
22,50

50,52
41,28
0,68

39,47
0,00
0,93

Subtotal

255,00

201,00

201,00

206,80

114,30

92,48

46,01

Reconstruction

B7-541
B7-541

1996
1997

33,00
58,00

33,00
120,40

32,90
119,10

22,00
55,00

22,00
40,00

4,70
22,87

14,29
19,20

Subtotal

91,00

153,40

152,00

77,00

62,00

27,57

18,14

Refugees

B7-542 (3)

1996
1997

30,00
0,00

30,00
0,00

30,00
0,00

30,00
0,00

30,00
0,00

4,10
0,00

13,67
—

Subtotal

30,00

30,00

30,00

30,00

30,00

4,10

13,67

Europe  for  Sarajevo

B7-545
B7-545 (4)

1996
1997

35,00
30,00

35,00
23,60

35,00
23,60

25,00
15,00

25,00
19,00

Subtotal

65,00

58,60

58,60

40,00

44,00

Customs  assistance
missions 
in 
with Bosnia-Herzegovina

association

B7-7002
B7-544

1996
1997

7,10
4,10

7,10
8,10

7,10
8,10

7,10
4,00

7,10
7,00

0,50
4,13

4,63

7,10
4,76

1,43
17,50

7,90

100,00
58,77

Subtotal

11,20

15,20

15,20

11,10

14,10

11,86

78,03

Action  concerning
anti-personnel  mines

B7-615
B7-661

1996
1997

Subtotal

6,70
2,40

9,10

6,70
2,40

9,10

6,70
0,00

6,70

6,70
2,40

9,10

6,70
2,40

9,10

3,40
0,00

50,75
—

3,40

50,75

Subtotal  DG  IA

1996
1997

239,80
221,50

239,80
227,50

239,70
223,80

141,32
191,40

141,32
90,90

70,32
73,72

29,34
32,94

1996-97

461,30

467,30

463,50

332,72

232,22

144,04

31,08

Subtotal  ECHO
(B7-214) (5)

1996
1997

20,06
58,63

20,06
58,63

20,06
58,63

11,14
52,91

11,14
52,91

11,14
52,91

55,53
90,24

1996-97

78,69

78,69

78,69

64,05

64,05

64,05

81,40

Total  Commission

1996
1997

259,86
280,13

259,86
286,13

259,76
282,43

152,46
244,31

152,46
143,81

81,46
126,63

31,36
44,84

1996-97

539,99

545,99

542,19

396,77

296,27

208,09

38,38

(1)  Article  B7-500  does  not  contain  any  annual  budget  allocation  for  reconstruction  in  former  Yugoslavia.
(2)  The  figures  do  not  include  the  economic  aid  to  FYROM,  namely  23  Mio  ECU.
(3)  The  budget  allocation  for  refugees  for  1997  is  included  in  the  reconstruction  allocation.
(4)  The  revised  budget  for  payment  appropriations  includes  14  Mio  ECU  of  1996  appropriations  carried  over  exceptionally  to  1997.
(5)  ECHO  does  not  set  a  specific  budgetary  allocation  for  its  rehabilitation  measures  in  former  Yugoslavia.

C  241/14

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Official  Journal  of  the  European  Communities

31.7.98

3.29.
Implementation of the appropriations allocated by
the  EU  for  reconstruction  was  slowed  down  by  the  lack
of  an  implementation  programme,  shortage  of  staff,
excessive  centralisation  and  the  institutional  weaknesses
of  the  local  authorities.  As  a  result,  the  Commission
transferred  130  Mio  ECU  of  payment  appropriations
(59,1 %  of  the  initial  appropriations)  from  the  budget
headings  for  former  Yugoslavia  to  other  budget  articles
in  1997.  EIB  loans  and  macro-financial  assistance  were
not  utilised,  whilst  cooperation  with  the  EBRD  remained
very limited.

3.30. As  of  31  August  1997,  the  latest  date  at  which
comparable  figures  are  available  for  all  donors,  the
disbursement  rate  of  the  EU’s  reconstruction  programme
(29 %)  was  relatively  low  compared  with  that  of  other
donors,  whose  average  was  close  to  52 %  (see  Table  4).
This  shortcoming  appeared  to  be  largely  due  to  the  EU’s
aid  implementation  procedures.  At  31  December  1997
the disbursement rate was still only 31 % (see Table 3). If
the EAP (Supply) is excluded, the payments represent not
more  than  17 %  of  commitments.

TABLE  4

Aid  mobilised  by  the  international  community  at  31  August  1997

Commitments

Payments

(Mio  ECU)

Donor (1)

Amount

(%)

Amount

Fraction  of
commitments  (%)

DG  I/A  (reconstruction)
ECHO
EU  administration  in  Mostar (2)

Subtotal  Commission

Member  States
Other  European  countries
Arab  countries
United  States
Japan
World  Bank
EBRD
Other  countries

422
47
36

505

600
197
147
431
175
475
90
120

Subtotal  other  donors

2 235

15
2
1

18

21
8
5
16
6
17
3
4

82

Total

2 740

100

123
35
35

193

328
124
49
335
52
248
2
35

1 173

1 366

29
74
97

38

55
63
33
78
30
52
2
29

52

50

(1)  The  UNHCR  is  considered  not  as  a  donor  but  as  an  agency  which  collects  funds  from  donors  in  order  to  implement

action programmes.

(2)  The EU administration in Mostar was the subject of Special Report No 2/96 concerning the administration of Mostar
by the European Union (OJ C 287, 30.9.1996), the operations financed under the CFSP are not discussed in the present
report.

Source:  World  Bank  and  Commission,  November  1997.

the  operation)  and 

3.31. ECHO’s  internal  procedures  are  actually  designed
to  mobilise  humanitarian  aid  quickly  (payment  of
advances representing up to 80 % of the total contracted
for 
the
for
implementation 
commitments  entered  into  is  74 %).  In  addition,  ECHO
assistance  does  not  require  the  government  authorities  in
the  recipient  country  to  authorise  each  operation  in
increased  risk  resulting  from  paying
advance.  The 

this  has 
(the  disbursement 

improved 
rate 

rate 

substantial  advances 
the
relatively  stable  relationship  between  ECHO  and  its
partners,  which 
partnership
contracts (30).

is,  however, 

lessened  by 

governed 

by 

is 

(30) See  Special  Report  No  2/97  concerning  humanitarian  aid
from  the  European  Union  between  1992  and  1995,  OJ  C
143,  12.5.1997,  paragraphs  4.11-4.21.

31.7.98

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C  241/15

cooperation 

3.32. Even  though  land-mines  kill  or  injure  an  average
of  35  people  a  month  in  Bosnia (31)  and  despite  the  fact
that  mine-clearance  operations  have  often  been  a
preliminary  to  reconstruction  projects,  the  small  amount
of  donor  aid  available  in  this  sector  has  been  mobilised
slowly 
of
and 
Bosnia-Herzegovina  has 
inadequate,
because of reluctance to mobilise the necessary resources.
In  the  case  of  the  European  Union  there  were  no
payments  from  the  special  budget  article  for  mine
clearance  (B7-6 1 5  6,7  Mio  ECU),  owing  to  the
problems  of  finding  contractors  able  to  carry  out  the
work. In 1997, the funds allocated to this budget heading
(B7-6 6 1)  were  cut  to  2,4  Mio  ECU  and  no  clearance
work  had  been  committed  as  at  31  December  1997.

on 
the 
remained  very 

part 

Project  preparation

In 

the  case  of  both  PHARE  aid  and 

3.33.
the
reconstruction  aid  (B7-5 4)  the  Commission’s  extremely
limited  presence  on  the  ground  diminished  its  ability  to
analyse  local  circumstances  and  prevented  projects  from
being  identified  and  fully  processed  within  reasonable
time-scales.  All  too  often  proposals  were  drawn  up
following  short  visits  by  Commission  consultants  or
agents  who  had  neither  detailed  knowledge  of  local
constraints  nor  a 
the  national
administrations,  both  of  which  are  essential  if  project
proposals  are  to  be  sound.  The  redefinition  of  the
Vukovar  reconstruction  project  (5,3  Mio  ECU)  in  July
1997, a year after it had been approved, provides a good
illustration  of  this  (see  paragraph  4.6).

stable 

link 

to 

3.34. The  International  Management  Group  (IMG)  set
up  in  1993  under  the  aegis  of  the  UNHCR (32)  employs
some  140  foreign  and  local  staff  throughout  Bosnia  and
approximately  60 %  of  its  budget  is  financed  by  the
European  Union,  but  DG IA  has  only  used  IMG’s
services  intermittently,  unlike  ECHO,  which  has  often

called  on  them.  IMG’s  assistance  is  particularly  useful  in
examining  the  proposals  and  specifications  put  forward
by the consultants or NGOs when technical proposals are
submitted.  The  use  of  IMG  in  a  more  operational
capacity  under  the  authority  of  a  single  Commission
representative  (who  would  be  responsible  for  all  the
measures  financed  by  the  EU  budget)  is  an  avenue  that
should  be  explored  at  the  earliest  opportunity.

be 

(and 

could 

described 

proposals 

3.35. The  Commission’s  approach  is  over-reliant  on
NGO 
as
NGO-demand  driven).  By  acting  in  this  way  the  EU
delegates  its  responsibilities  to  NGOs  over  which  it  does
not  have  adequate  control.  This  is  confirmed  by  the  way
in  which  the  Commission  called  together  dozens  of
NGOs  on  23  January  1998  and,  without  further
for
clarification,  asked 
encouraging the return of refugees (sum involved: 70 Mio
ECU)  by  19  February  1998.  In  1996  and  1997  the
administrative  procedures  between  submission  of  NGO
projects  and  signature  of  DG IA  contracts  normally  took
six  months.  In  some  cases,  projects  had  to  be  redesigned
because  they  were  overtaken  by  events  during  these
administrative delays.

submit  projects 

them 

to 

Contracting

3.36. The  existence  of  two  Regulations  (see  Annex  1
paragraph 2) for similar operations (33) has hampered the
Commission’s  managerial  task.  For  example,  at  the  end
of  1997  contracts  were  still  being  processed  by  two
departments, depending on the financing source used (34),
despite  the  similarity  of  the  measures  in  question.

3.37. The  general  conditions  for  PHARE  contracts  are
designed  for  technical  assistance  to  support  economic
restructuring  measures, 
priority
reconstruction programmes. In an attempt to remedy this
shortcoming,  the  Commission  made  an  exception  for  the
EAP, so that contracts were awarded following restricted
invitations  to  tender.  Table  5  sets  out  the  procedures
under  which  these  contracts  were  awarded.

rather 

than 

(31) Source:  Report  on  demining  activities 

in  Bosnia  and
Herzegovina  by  the  United  Nations  demining  action  centre
between  January  1996  and  September  1997.

(32) IMG  was  set  up  to  enable  reconstruction  operations  in
Bosnia to start quickly once hostilities had ended. See Special
Report  No  2/97  concerning  humanitarian  aid  from  the
European Union between 1992 and 1995, paragraph 2.25(a),
OJ  C  143,  12.5.1997.

(33) The  third  Regulation  on  emergency  aid  applies  only  to  the

operations  funded  by  ECHO.

(34) Directorate  B  for  PHARE  contracts  and  Directorate  F  for
contracts  financed  in  accordance  with  Regulation  (EC)  No
1628/96.

C  241/16

EN

Official  Journal  of  the  European  Communities

31.7.98

Procedure  for  awarding  contracts  under  the  essential  aid  programme  (EAP)  (supplies)

TABLE  5

Awarded by:

Cases  where  applicable

Value  of  contract

Minimum
number  of
enterprises
to  be
consulted

Minimum  time
allowed  for
submission  of  tender

Private
treaty

a)  humanitarian  measures
b)  purchase  of  spare  parts
c)  any contract for less than 10 000

ECU

Consultation
by  fax

a)  all  contracts  for  a  value  of  more
than  10 000  ECU  and  less  than
100 000  ECU

b)  reconstruction  and  housing  or
supply  of  equipment  for  public
administration

not  significant

1

unspecified

a)  less  than

100 000  ECU

b)  between

100 000  ECU
and 
ECU
c)  more  than

1  Mio

1  Mio  ECU

5

7

12

5

12

5  days

10  days

15  days

10  days

21  days

Restricted
call  for
tenders

Any  contract  outside 
categories

the  above

a)  between

100 000  ECU
and 
ECU
b)  more  than

1  Mio

1  Mio  ECU

3.38. Two  procurement  agencies  concluded  contracts
totalling  73  Mio  ECU 
(see  paragraph  3.5)  with
enterprises  in  Member  States  or  PHARE  countries  under
the  EAP.  The  Commission  took  3,7  Mio  ECU  from
programme  funds  in  order  to  pay  these  intermediaries.

to  be  abandoned 

that  other  measures  had 
in
consequence.  It  was  actually  not  in  the  procurement
agencies’  interest  for  the  prices  tendered  to  be  the
lowest  possible  because  their  remuneration  was
calculated  as  a  percentage  of  the  contract  price;

3.39. Review of a sample of 76 contracts accounting for
71 %  of  the  purchases  made  under  the  EAP  (Supply)
revealed  the  following  shortcomings:

d)  in  39 %  of  cases  the  enterprises  consulted  had  not
been  allowed  the  minimum  time  for  submitting  their
tenders  (see  Table  5);

a)  the  procurement  agencies’  files  contained  no  written
account of the criteria used to select the tenderers that
were  on  the  restricted  lists.  In  many  cases  the
enterprises  from  which  tenders  were  sought  did  not
make  bids  because  they  did  not  produce  the  type  of
goods  requested;

b)  on average, fewer than two tenders were received that
actually  complied  with  the  technical  specifications
governing the contracts and there was, therefore, very
little  price  competition;

c)  in  46 %  of  the  cases  examined,  the  lowest  tender
was  higher  than  the  budget  for  the  operation,  so

e)  one of the agencies refused to pay successful tenderers
the 60 % advances stipulated for supplies contracts in
the  PHARE  Regulation,  which  meant  that  fewer
tenders  were  received  and  also  allowed  the  agency  to
retain  substantial  funds  at  the  bank  for  an  extended
period;

in 

f)  the  other  agency  was  unable  to  show  who  had  been
present 
tender  examination  committee.
Furthermore  in  the  case  of  both  committees  the
committee  members  had  not  signed  declarations  of
impartiality;

the 

31.7.98

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g)  the  procurement  agencies  several  times  sought  bids
from enterprises that were unlikely to be interested in
tendering,  solely  for  the  purpose  of  establishing  a
geographical  balance  between  the  tenderers  for  the
contract  concerned;

access to PHARE contracts for all countries participating
in  the  programme,  those  same  countries  do  not  have
access to the contracts funded on the basis of Regulation
(EC)  No  1628/96.  Such  distinctions  are  absurd.

h)  the  main  contract  in  the  electricity  sector  (4,9  Mio
increased  to  6,4  Mio  ECU  following  an
ECU, 
amendment of the  contract) was awarded  to the only
enterprise that had submitted a tender for each of the
19  lots.  The  various  items  could  have  been  obtained
at  considerably  lower  cost (35)  if  the  contracts  had
been  awarded  lot-by-lot,  as  was  the  case  with  other
contracts.  This  method  would  have  cost 
the
procurement  agency  more  in  administrative  terms,
however,  and  its  remuneration  for  the  operation
would  thus  have  been  proportionately  lower;

i) 

in  the  case  of  three  contracts  involving  agricultural
supplies  to  a  value  of  990 385  ECU  the  contracts
were  awarded  to  enterprises  whose  bids  were  not  the
most  advantageous  or  to  enterprises  whose  bids  were
unacceptable.

3.40. Whilst Croatia has access to contracts financed on
the basis of Regulation (EC) No 1628/96, it did not have
access  to  PHARE  contracts  and  was  excluded  from  the
EAP,  even  though  it  has  always  been  Bosnia’s  main
supplier. Moreover, whilst the PHARE Regulation allows

3.41. Regulation  No  1628/96  allows  service  contracts
for  a  value  of  less  than  200 000  ECU  to  be  awarded  by
private treaty, in order to speed up implementation of the
reconstruction  programme.  The  Regulation  does  not,
however,  contain  a  similar  derogation  for  supplies  and
works  contracts,  even  though  a  far  higher  proportion  of
aid  is  mobilised  in  that  way.

3.42. As  of  end-1997,  of  the  contracts  concluded  by
DG IA  outside  the  EAP  only  11,3 %  by  value  had  been
awarded  following  invitations  to  tender  (see  Table  6).  In
fact,  88,7 %  of  contracts  were  concluded  with
non-profit-making  organisations  (NGOs,  public  bodies
and 
international  organisations)  or  under  other
circumstances  where  the  Financial  Regulation  (Article
118(2))  permits  private  treaty.  All  the  ECHO  contracts
international
were  also  concluded  with  NGOs  or 
organisations,  but  under  the  procedures  applicable  to
humanitarian 
reasons  of
transparency,  and  given  the  competition  to  which  these
organisations  are  exposed 
in  order  to  obtain  EU
subsidies,  the  selection  of  each  operator  should  be
justified  by  a  note  from  the  Commission’s  operational
the  organisation’s
departments  detailing, 
previous  work  and 
services
provided (37).

inter  alia, 
the  quality  of 

aid (36).  However, 

the 

for 

(35) The  Court  estimates  that  the  savings  that  could  have  been
achieved  by  contracting  each  lot  separately  are  of  the  order
of  978 000  ECU.

(37) See  Special  Report  No  2/97  concerning  humanitarian  aid
the  European  Union  between  1992  and  1995,

from 
OJ  C  143,  12.5.1997,  paragraphs  3.13  and  3.15.

(36) Council  Regulation  (EC)  No  1257/96  of  20  June  1996,

OJ  L  163,  2.7.1996,  p.  1.

C  241/18

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Official  Journal  of  the  European  Communities

31.7.98

Method  of  awarding  contracts  under  the  reconstruction  programmes  (non-EAP)  (1.1.1996-31.12.1997)

TABLE  6

PHARE

Regulation  (EC)  No  1628/96

TOTAL

No

%

Value

%

No

%

Value

%

No

%

Value

%

(Mio  ECU)

1
4
1
21

2,70
10,81
2,70
56,76

0,29
11,00
0,75
4,21

1,13
42,78
2,92
16,37

21,00
14,00
4,00
0,00

24,14
16,09
4,60
0,00

27,72
38,20
2,78
0,00

37,19
51,25
3,73
0,00

22,00
18,00
5,00
21,00

17,74
14,52
4,03
16,94

28,01
49,20
3,53
4,21

27,94
49,08
3,52
4,20

4

10,81

0,11

0,43

46,00

52,87

3,90

5,23

50,00

40,32

4,01

4,00

31

83,78

16,36

63,63

85,00

97,70

72,60

97,41 116,00

93,55

88,96

88,75

Contractor

Private  treaty

NGO
International  organisations (1)
Bosnian  institutions
Framework  contracts
Amounts 
below 
threshold

statutory

Subtotal
private  treaty

Calls  for  tenders

All  contractors

6

16,22

9,35

36,37

2,00

2,30

1,93

2,59

8,00

6,45

11,28

11,25

Total

37 100,00

25,71 100,00

87,00 100,00

74,53 100,00 124,00 100,00 100,24 100,00

(1)  UNHCR  contracts  represent  37 %  of  total  value

3.43. Many  contracts  concluded  with  NGOs  or
international organisations comprise a high proportion of
work that is subcontracted to construction companies, in
principle  following  invitations  to  tender.  Until  August
1997 international invitations to tender were required for
contracts  between  the  Commission  and  NGOs  whenever
operations  were  valued  over  10 000  ECU,  which  slowed
such  operations  down.  In  the  case  of  PHARE,  the
procedures  for  implementing  works  contracts  were  not
adopted  until  November  1997.

3.45.
In  former  Yugoslavia  ECHO’s  monthly-fee  scale
for  local  staff  is  280  ECU,  which  is  far  too  low  for
NGOs  to  be  able  to  recruit  and  keep  quality  local
staff (40).  ECHO  operational  contracts  proved  to  be
unsuitable  for  relatively  complex  rehabilitation  projects,
in  the  sense  that  no  final  version  of  the  project
specifications  was  drawn  up  and  there  were  no  rules  for
setting the guarantee period for works or determining the
retentions  to  be  made  pending  acceptance  of  the  works.

3.44. DG IA  did  not  attempt  to  limit  the  fees  paid  to
NGOs  and  international  organisations  and  did  not  reach
an  agreement  with  ECHO  in  order  to  ensure  that  the
Commission  follows  a  uniform  approach  when  the
operations  in  question  are  of  a  similar  nature (38).  For
example,  DG IA  accepts  a  considerably  higher  level  of
fees 
identical
operations.  Moreover,  there  are  considerable  differences
in fees, from contract to contract (between 2 566 and 12
100  ECU  per  month (39)).

those  accepted  by  ECHO 

than 

for 

(38) See  Special  Report  No  2/97  concerning  humanitarian  aid
the  European  Union  between  1992  and  1995,

from 
OJ  C  143,  12.5.1997,  paragraphs  4.23  and  4.24.

(39) According  to  the  ECHO  scale  the  top  rate  of  fees  for

expatriates  is  3 800  ECU  per  moth.

Payments

3.46. Projects  were  often  held  up  as  a  result  of  the
slowness with which advances were paid. A review of the
contracts 
financed  under  Regulation  No  1628/96
revealed  that  in  40 %  of  cases  the  Commission  had  still
not paid any advance three full months after work on the
contracts  had  started,  which  is  late  for  contracts  whose
duration 
limited  to  six  months  and  for
beneficiary  organisations  whose  cash  flow  is  usually
small.

is  often 

(40) Special  Report  No  2/97  concerning  humanitarian  aid  from
the  European  Union  between  1992  and  1995,  OJ  C  143,
12.5.1997,  paragraph  4.22  (c).

31.7.98

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C  241/19

3.47.
In half of the cases the delays were due to the fact
that NGOs’ applications were not submitted in good and
due  form.  The  bank  guarantee  procedures  caused  many
delays where DG IA was concerned, whereas ECHO does
not  require  guarantees  for  similar  operations.

payments  that  the  procurement  agency  was  to  make  to
enterprises  from  Bosnia-Herzegovina.  Some  enterprises
were  obliged  to  suspend  or  slow  down  their  work  in
order  to  avoid  suspending  payment  themselves.  This
situation  was  the  result  of  the  inefficient  procedures  set
up  jointly  by  the  Commission  and  the  agency  and  was
made  worse  by  the  shortcomings  of  the  banking  system
in Bosnia-Herzegovina.

cases 

In  other 

the  Commission’s 

3.48.
internal
administrative  procedures  were  the  cause  of  the  delay.
For example, applications for advances must be approved
by  operational  departments  that  are  already  overloaded.
The approval is purely formal and is unnecessary when a
contract  has  been  duly  concluded (41).  Delays  also  arose
as  a  result  of  the  fact  that  the  Commission  departments
were  slow  in  processing  files,  despite  the  urgency  of  the
operations  concerned.

3.49. The  case  of  the  rehabilitation  of  a  small  part  of
Bosnia’s  National  Parliament  building,  which 
is
questionable  in  itself  (it  involved  the  renewal  of  the  first
floor  of  the  six-storey  building,  but  did  not  include  the
central  first-floor  chamber)  and  was  co-financed  by  the
World  Bank,  provides  a  good  example  of  the  difficulties
caused  by  late  payments.  Even  though  completion  of  the
project  was  planned  for  the  end  of  October  1996,  the
contracts  relating  to  the  European  Union’s  contribution
were  not  signed  until  April  1997,  with  August  1997  as
the  new  expiry  date  (a  10-month  delay).  Despite  this
initial  delay,  the  Financial  Controller  (DG  XX)  blocked
the advance-payment application submitted in May 1997,
taking  the  view  that  the  advance  should  be  paid  in  ecu
and  not  German  marks,  despite  the  terms  of  both  the
financing  agreement  and  the  contract.  DG XX  insisted
that  the  financing  agreement  and  the  contract  must  be
amended,  and  the  advance  was  not  paid  until  October
1997  in  consequence.  This  first  advance  made  it  possible
to  start  work,  but  progress  was  again  hindered  by  the
Commission’s  tardiness  in  paying  subsequent  advances.
Until  the  work  financed  by  the  Commission  makes  it
possible  to  complete  the  World  Bank’s  part,  which  was
almost  finished  in  February  1997,  the  Parliament  of  the
State  of  Bosnia-Herzegovina  sat  in  other  buildings  that
had  been  renovated  by  another  donor.

on
3.50. Under 
housing-sector  projects  was  hampered  by  delays  in  the

progress 

(Supply) 

EAP 

the 

(41) Under  the  TACIS  programme  administered  by  DG  IA,
applications  for  advances  are  not  subject  to  approval  by
operational  departments.  The  accountant  must  in  all  cases
ensure  that  the  payment  is  accompanied  by  the  supporting
documents  stipulated  in  the  Financial  Regulation.

Project  monitoring  and  evaluation

3.51. Except for humanitarian aid, there is no consistent
mechanism  for  monitoring  and  evaluating  reconstruction
activities  (B7-5 0  and  B7-5 4).  The  logical  framework
method that is applied to other external aid is not used in
the preparation of the Commission’s financing proposals.
Moreover, none of the Commission’s offices in Bosnia or
Croatia are equipped to undertake a serious review of the
operations.

3.52. The  Commission  engaged  consultants  to  oversee
the  EAP  (Supply)  in  May  1996,  four  months  after  the
programme  had  started.  Initially  their  effectiveness  was
diminished  because  their  mandate  conflicted  with  that  of
the  procurement  agencies,  which  had 
their  own
representatives  in  Bosnia.  The  Commission  did  not
institute  procedures 
following  up  consultants’
observations  and  recommendations  quickly.  It  financed
an  evaluation  of  the  EAP  (Supply)  in  October  1997,  but
the  findings  are  not  expected  to  be  known  before  April
1998.  The  accounts  of  the  programme  funded  by  the
Commission  must  be  audited  when  the  results  have  been
published.

for 

3.53. The  Commission  did  not  pay  sufficient  attention
to  certain  financial  aspects  of  the  EAP:

a)  in  the  agricultural  sector,  the  Commission  did  not
adopt  procedures  for  managing  the  counterpart
funds (42)  generated  by  sales  of  supplies  (motor
cultivators:  4,6  Mio  ECU;  pesticides:  0,25  Mio  ECU)
(see  paragraph  4.51);

b)  there  were  no  arrangements  for  checking  the  interest
earned  by  the  procurement  agencies  on  the  cash
advances  paid  by  the  Commission,  even  though  the
interest  in  question  amounted  to  at  least  1,21  Mio
ECU  at  the  end  of  1997;

(42) Funds  generated  by  the  sale  to  final  beneficiaries  of  goods

supplied  to  the  authorities  in  Bosnia-Herzegovina.

C  241/20

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31.7.98

c)  lastly, 

the  Commission  did  not 

institute  basic
accounting controls for advances. For example, it did
not  require  funds  received,  expenditure  paid  and
funds  available  at  bank  to  be  reconciled  at  regular
intervals.  The  Court  thus  found  that  the  sum  of  the
advances  recorded  in  one  agency’s  accounts  was  89
527  ECU  lower  than  the  payments  recorded  by  the
Commission.

practically impossible for Commission departments to
carry  out  proper  supervision (44);

d)  in the case of one housing-repair contract financed by
the  Commission  through  the  UNHCR  in  the  canton
of Una Sana, it was not possible for the Court to gain
assurance  as  to  the  use  of  459 000  DM  of  materials
that  were  invoiced  in  respect  of  apartments  repaired
in  Velika  Kladusa.

3.54. Outside  the  EAP,  DG IA  set  up  a  system  during
the second half of 1997 to monitor the housing sector in
Bosnia,  but 
it  did  not  organise  any  continuous
monitoring for the rest of the reconstruction programme,
which  nevertheless  accounted  for  70 %  of  all  the  funds
committed  as  of  31  December  1997.

4.  IMPACT  OF  THE  OPERATIONS

Geographical  distribution

3.55. Although  the  UNHCR  was  also  paid  by  the
Commission to oversee utilisation of the 45 Mio ECU of
reconstruction  projects  that  DG IA  and  ECHO  financed
through  it,  several  difficulties  were  noted  with  regard  to
the  management  of  the  operations:

a)  UNHCR  usually  uses  the  same  NGOs  as  the
Commission to carry out reconstruction projects. The
EU  pays  the  UNHCR  to  verify  technical  aspects  of
the  operations,  even  though  the  latter  has  very  little
experience  in  this  field.  The  Commission  would
achieve a better cost/efficiency ratio if it implemented
the  housing-reconstruction  projects 
itself  via  the
NGOs;

b)  in  several  cases (43)  Commission  funds  were  allocated
by  UNHCR  as  finance  for  projects  other  than  those
provided  for  in  the  contracts  concluded  between  the
Commission  and  UNHCR.  Faced  with  a 
fait
accompli,  the  Commission  systematically  approved
the  amendments  ex  post  facto.  In  other  cases  the
amounts allocated to some subprojects were increased
significantly,  to  the  detriment  of  others,  but  the
Commission  was  not  informed  before  the  end  of  the
contract;

c)  the  Commission  did  not  require  the  UNHCR  to
forward  the  subcontracting  agreements  concluded
with  its  partners.  This  lack  of  information  makes  it

Entities  constituting  Bosnia-Herzegovina

4.1. The Federation received approximately 90 % of the
aid.  Although  it  had  been  intended  that  30 %  of  the
funds should be allocated to Republika Srpska, failure to
comply  with  the  political  conditions  imposed  by  the
European  Union  and  some  aspects  of  the  Dayton
Agreement led to the aid being suspended several times in
both 1996 and 1997, notably in an attempt to bring war
criminals  to  justice.  In  neither  entity,  on  the  other  hand,
was  aid  conditional  on  the  progress  of  economic
reforms.

4.2.
In terms of projects very little has been achieved by
way  of  bringing  the  two  entities  together.  The  main
action  in  this  area  was  the  re-establishment  of  telephone
communications  (see  paragraph  4.46).  Some  housing
repair  projects  (notably  in  Posavina)  also  gave  rise  to  a
certain  amount  of  trade  between  entities.

S a r a j e v o

4.3. Mobilisation  of  the  65  Mio  ECU  funding  allocated
to  Sarajevo  by  DG IA  in  1996  and  1997  has  been
extremely  slow  and  had  had  little  effect  by  the  end  of
1997.  Among  the  main  reasons  for  this  are  the  difficulty
the  Commission  has  had  in  establishing  a  constructive
dialogue  with  the  Sarajevo  authorities  and  the  fact  that
within DG IA one person has been designated to manage
both  the  Europe  for  Sarajevo  and  the  refugee-return
programmes.

(43) Including  the  DG  IA  contract  of  October  1996  for
reconstruction  in  eastern  Slavonia  (see  paragraph  4.13  (d),
2,7  Mio  ECU)  and  the  ECHO  contract  of  June  1996
covering  operations  in  Bosnia-Herzegovina  (28  Mio  ECU).

(44) Special  Report  No  2/97  concerning  humanitarian  aid  from
the  European  Union  between  1992  and  1995,  OJ  C  143,
12.5.1997,  box  2.

31.7.98

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C  241/21

U n a   S a n a   ( F e d e r a t i o n )

4.4. Although  this  canton  is  a  priority  area,  because  of
its  high  potential  for  refugee  return  from  EU  Member
States (45), action in the area has been modest. In August
1996  the  Federation  authorities  submitted  a  39,5  Mio
ECU  programme  proposal 
the
Commission,  following  consultation  with  Germany (46),
but  the  Commission  did  not  think  it  possible  to  base  a
financing  plan  on  the  proposal.  At  the  end  of  1997  no
overall  plan  had  been  adopted  and  no 
integrated
programme  had  yet  been  proposed.

the  canton 

for 

to 

groundwork  was,  by  and 
(see
paragraph  3.55).  The  Croatian  government  is  itself
making  a  significant  effort  towards  reconstruction  in  the
region  and  is  seeking  to  give  returning  Croats  priority
over  returnees  of  Serb  origin.

insufficient 

large, 

Sectoral  distribution

B r c k o   ( R e p u b l i k a   S r p s k a )

Housing  and  refugee  return

4.5. Only  after  the  deferral,  in  February  1997,  of  the
arbitration  decision  on  the  future  of  the  town  did  the
donor  community  elect  to  make  this  a  priority  area  for
reconstruction  aid.  As  of  end-1997,  DG IA  had  still  not
taken  any  significant  action.  In  fact,  even  though  2  Mio
ECU  was  allocated  to  an  integrated  programme  for
returnees 
in
November  1996,  the  contract  to  implement  this  measure
had  still  not  been  signed  at  the  end  of  1997.

the  reoriented  EAP 

to  Brcko  under 

Croatia

4.6. Although a 5,29 Mio ECU programme to assist the
very heavily damaged town of Vukovar was approved by
the  Commission  in  July  1996,  the  Commission  aid  had
very  little  impact  in  1996  because  the  project  was  badly
prepared  and  had  to  be  redefined  in  July  1997  (see
paragraph  3.33).  By  the  end  of  1997  funding  for  the
repair  of  apartments  and  water  and  electricity  supply
networks  was  beginning  to  have  an  effect.

4.7. A  major  housing  repair  scheme  (2,7  Mio  ECU)  for
implementation  by  the  UNHCR  in  front-line  villages  of
eastern  Slavonia  has  been  blocked  for  more  than  a  year
because  of  the  obstructive  attitude  of  the  Croatian
authorities.  In  this  case,  too,  the  UNHCR’s  project

the  EU  programmes.  Under 

4.8. The return of refugees to Bosnia is one of the main
these
priorities  of 
circumstances  the  impact  of  housing  repair  measures
cannot  be  assessed  solely  in  terms  of  the  extent  and
quality  of  the  repairs:  their  effect  on  refugee  return  must
also  be  taken 
into  account.  ECHO  has  tried  to
complement  the  action  taken  by  DG IA  and  has  focused
its  own  intervention  on  internally  displaced  persons  and
those  directly  affected  by  the  war.

4.9. According  to  the  UNHCR,  refugee  return  was
much  less  than  expected,  in  both  1996  and  1997.  In
1996  some  88 000  refugees  returned,  as  against  a  target
of  200 000,  and  in  1997  106 000  refugees  returned,
compared  with  forecasts  of  200 000.  Refugees’  plans  to
return  are  still  significantly  affected  by  the  continuing
political  and  security  problems  within  the  country,  as
well  as  the  slowness  of  the  reconstruction  process (47).
Moreover,  the  return  of  the  most  highly-qualified  people
is  the  most  difficult  to  organize  and  this  is  delaying
economic  recovery  still  further.

4.10. The  cost  of  the  damage  in  the  housing  sector  has
been  estimated  at  4 000  Mio  USD (48).  Approximately
half of the 1,3 Mio homes, 80 % of which were privately
owned,  suffered  war  damage.  Commission  funding
represented 
donor
commitments,  but  only  8 %  of  donor  disbursements  for
the  1996-97  period.

approximately 

32 % 

all 

of 

(45) The  UNHCR  forecast  for  this  canton  in  1997  was  27  000
people returning, which is 17% of the forecast for the entire
Federation.

(46) According  to  the  UNHCR  there  were  still  220 000  refugees
who had originated in Bosnia-Herzegovina and were living in
Germany without the prospect of permanent accommodation
at  the  end  of  1997.

(47) At  the  end  of  1997  UNHCR  estimated  that  the  number  of
refugees  remaining 
in  EU  Member  States  was  around
263 000  (consolidated  appeal  for  1998;  repatriation  and
return  operation  1998).  In  addition  to  this  there  were
335 000  refugees  in  other  former  Yugoslav  republics  and
800 000  persons  displaced  within  Bosnia.

(48) World Bank Reconstruction Program: sectoral programs and

priorities,  April  1996.

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31.7.98

4.11. Housing  reconstruction  under  the  first  tranche  of
the  EAP  started  just  before  winter  1996-97.  At  that  time
the  Commission  was  uncertain  whether  to  supply
materials  or  carry  out  entire  projects.  As  a  rule  other
housing  reconstruction  projects  (non-EAP)  did  not  get
under  way  until  the  second  half  of  1997,  firstly,  because
of  the  delays  inherent  in  the  Community  procedures  for
examining  project  proposals  (see  paragraph  3.35)  and,
secondly,  because  the  NGOs  found  it  difficult  to  identify
beneficiaries  and  housing  which  met  the  Dayton  criteria
for  refugee  return  and  were  acceptable  to  the  local
authorities.

to  approximately  10 700 

4.12. By  31  December  1997  the  Commission  had
funded  repairs 
individual
houses,  of  which  6 300  had  been  completed.  This
represents  2 %  of  the  total  repairs  to  be  carried  out.  In
the  interests  of  effectiveness,  the  work  had,  until  that
date,  systematically  concentrated  on  the  least  damaged
homes,  because  they  were  the  least  expensive  to  repair.
Table  7  shows  the  main  private-housing  repair  schemes
contracted  out  by  the  Commission.

TABLE  7

Implementation  of  individual  housing  repair  projects  (1996-1997)
(excluding  communal  areas  of  buildings)

Project  start  between

Commission
department

Project value
(Mio  ECU)

Number  of
homes
rehabilitated  at
31.12.1997

Number  of
homes  in  course
of  rehabilitation
at  31.12.1997

Total  number  of
homes

January  and  June
1996

July  and  December
1996

January  and  June
1997

July  and  December
1997

DG  I/A

ECHO

DG  I/A

ECHO

DG  I/A

ECHO

DG  I/A

ECHO

Total

DG  I/A

ECHO

Commission

Source:  Court  of  Auditors

—

3,2

13,2

2,0

14,0

6,6

14,4

14,0

41,6

25,8

67,4

—

1 785

1 410

469

—

0

325

0

1 089

1 182

73

1 422

840

620

81

1 386

—

1 785

1 735

469

2 271

913

2 042

1 467

3 921

2 127

6 048

2 408

2 226

4 634

6 329

4 353

10 682

4.13.
In  a  number  of  cases  it  was  not  possible  to  carry
out  all  the  housing  repairs  that  were  provided  for  in  the
contracts.  For  example:

a)  in Gorazde (49)  400  homes  were  to  be  repaired  under
the  EAP  at  a  total  cost  of  2,33  Mio  ECU.  Only  42

(49) Enclave  of  the  Federation  in  eastern  Bosnia.

were  finished.  Work  on  a  further  334  homes  was
abandoned, 
leaving  two  thirds  of  these  houses
uninhabitable.  No  start  was  made  on  the  repairs  to
the  remaining  24  homes.  The  NGO  responsible  for
the  project  over-paid  the  construction  company  by
787 000  DM,  which  has  never  been  recovered  by  the
Commission.  These  problems  occurred  even  though
the  project  was  supervised  by  three  agencies:  the
for
procurement  agency, 

the  NGO  responsible 

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coordinating the work and the consultants responsible
for  monitoring  the  EAP;

contracts  for  projects.  The  Commission  adopted  this
50 %  limit  so  as  not  to  create  resentment  among  the
people  who  remained  in  Bosnia  during  the  war.

b)  at 

(Una 

Sana) 

Krupa 

Bosanska 

a
UNHCR-implemented  project  for  the  total  repair  of
400 houses was converted into a project for the repair
of  500  roofs,  as  the  municipality  had  given  the
UNHCR  an  undertaking  that  it  would  carry  out  the
rest  of  the  work.  In  the  end  only  435  roofs  were
repaired  and  the  municipality  did  not  respect  its
undertaking,  with  the  result  that  in  September  1997
half  the  houses  were  still  unoccupied  because  they
were uninhabitable;

c)  at  Stolac  (Mostar  region)  100  houses  were  to  be
repaired  (0,9  Mio  ECU)  to  house  Muslim  refugees.
Only 66 houses were repaired and around 20 of them
were occupied in September 1997. There was, in fact,
strong  Croatian  opposition  to  the  return  of  these
refugees  and  two  of  the  repaired  houses  were  set  on
fire;

in 

two  pilot  villages 

d)  in  eastern  Slavonia  the  UNHCR  received  2,7  Mio
ECU  in  October  1996  for  the  rebuilding  of  600
(Antunovac  and
houses 
Ernestinovo)  on  the  front-line.  As  of  September  1997
none  of  the  homes  had  been  repaired  and  only  20
proposals  had  been  approved  by  the  Croatian
authorities.  It  was  only  in  October  1997  that  the
UNHCR advised the Commission of the difficulties it
was  experiencing  and  proposed  to  cut  the  number  of
dwellings for repair to 325, so as to release funds for
the  renovation  of  public  buildings  (schools,  health
centres,  etc).

4.14.
In the longer term the 67,4 Mio ECU mobilised by
the  Commission  for  housing  (see  Table  7)  is  to  benefit
some  10 000  refugees  who  fled  to  EU  Member  States,  as
well  as  37 500  other  beneficiaries  (displaced  persons,
mainly).  At  the  end  of  1997  the  Court  estimated  the
number of people who had been rehoused in this way to
be  around  5 000  refugees  and  22 500  displaced  persons.
In  1996  most  of  the  beneficiaries  of  the  reconstruction
work  were  displaced  persons,  because  the  Commission
had  not  adopted  any  housing  programme  that  gave
priority  to  refugees.  Since  then,  and  for  most  of  the
projects  funded  in  1997,  the  Commission  has  tried  to
ensure  that  50 %  of  beneficiary  households  are  refugees
returning  from  EU  Member  States,  but  it  has  not
systematically  included  this  requirement  in  the  main

4.15. There  were  two  possible  solutions  to  the  problem
of  which  refugees  should  benefit  through  Commission
reconstruction  projects:

a)  to  identify  refugees  who  wanted  to  return  provided
that accommodation was available for them and only
then  to  carry  out  the  repairs;

b)  to  carry  out  reconstruction  work  in  areas  where
refugees  were  likely  to  resettle  and  to  allocate  the
homes  to  families  that  had  already  returned  to
Bosnia,  thus  encouraging  those  remaining  in  host
countries  to  return.

In  practice  following  the  first  approach  was  difficult,
because  of  the  time  neeed  for  identify  refugees  in
Member  States.  Although  the  second  approach  has  been
widely  followed, 
it  cannot  be  established  that  the
rehabilitation  of  housing  stock  was  a  cause  of  the
refugees’  return.

4.16.
In  view  of  the  very  large  volume  of  essential
repairs and the limited resources available, the number of
homes  repaired  would  have  been  much  greater  if  the
most  disadvantaged  people  (usually  people  who  had
remained  in  Bosnia  during  the  war)  had  been  given
priority  when  the  funds  were  allocated.  It  would  then
have  been  necessary  to  combine  this  system  of  grants
with a system of subsidised loans for the better-off, who,
as  a  general  rule,  were  refugees.

4.17. Policy  in  this  area  has,  in  fact,  remained  unclear.
Not  until  October  1997  was  a  loan  scheme  developed  in
cooperation  with  the  KfW.  Whereas  the  beneficiaries  of
Commission  projects  undertaken  through  UNHCR  were
selected  on  the  basis  of  economic  and  social  criteria (50),
those criteria were not normally included in the contracts
concluded  directly  between  the  Commission  and  NGOs,
with the result that the terms on which beneficiaries were
selected  varied  widely  from  one  NGO  to  another.

4.18. The  final  impact  of  these  projects  has  been  lower
than  the  number  of  repairs  would  suggest:  many  of  the
remained  unoccupied.  For
renovated  houses  have 
example,  40 %  of  the  houses  renovated  during  the  1996
project  in  Una  Sana  were  still  unoccupied  in  August
1997.  In  many  cases  they  remained  unoccupied  because
the  repair  work  was  carried  out  in  isolation,  instead  of

(50) Households  with  at  least  one  handicapped  person  or  one
person over the age of 65; average monthly income less than
25  DM.

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31.7.98

forming  part  of  an  integrated  project  that  encompassed
social infrastructure, water and electricity supply and job
creation.

Nevertheless,  many  schools  were  still  suffering  from
shortages  of  teaching  staff  and  educational  materials  at
that  date.  While  these  problems  are  outside  ECHO’s
remit,  it  might  have  been  expected  that  DG IA  would
provide  technical  assistance  to  support  and  reform  the
school  system.

living 

in  the  apartments 

4.19. Most  of  the  building  repair  projects  for  buildings
under multiple occupation were confined to the repair of
roofs, windows and the communal areas of buildings. By
the end of December 1997 some 6 270 apartments (75 %
of them in Sarajevo) had been repaired in this way under
the  1996  and  1997  budgets.  Most  of  the  beneficiaries
in  question.
were  already 
Whereas  in  Bosnia  repairs  to  the  private  areas  of
buildings  had  barely  begun  by  the  end  of  1997,  because
of  problems  of  establishing  ownership,  in  Vukovar,  on
the  other  hand,  repair  work  covered  the  complete
renovation  of  two  buildings  containing  a  total  of  142
individual  apartments  and  was  expected  to  be  completed
by  the  end  of  1997  (cost  3,4  Mio  ECU).  In  Vukovar  the
Commission  funded  a 
joint  committee  for  housing
allocation,  which  significantly  improved  transparency.

Education

4.20. Half  the  schools  were  seriously  damaged  or
destroyed  as  a  result  of  the  war  and  there  has  been  no
regular  education  budget  since  the  1991-92  academic
year.  The  schools  that  remained  open  were  short  of
teachers,  basic  furniture  and  educational  materials.  In
1996-97  Commission  commitments  and  disbursements
amounted 
total  donor
commitments  and  disbursements.

to  29 %  and  21 %  of 

4.21. Under  the  EAP  2  Mio  ECU  was  allocated  to  the
education  sector,  for  the  supply  of  furniture  to  schools.
The  programme  covered  about  20 %  of  the  Federation’s
primary school needs. As the furniture was supplied by a
local  enterprise,  the  programme  provided  some  impetus
to the restarting of the economy in the country. However
the furniture was of poor quality and the criteria used to
designate  the  beneficiary  schools  were  not  transparent.
The  DG IA  funds  would  have  been  better  spent  if  the
schools repaired by ECHO had been given priority when
the  funds  were  allocated,  as  the  choice  of  them  was
justified.

4.22. The  school  rehabilitation  projects  handled  by
ECHO  have  had  a 
that
approximately  100  schools  had  been  repaired  under  the
1996  and  1997  programmes  by  the  end  of  1997.

significant 

impact, 

in 

Health

4.23. Between  35 %  and  50 %  of  health  infrastructure
was  affected  by  the  war,  depending  on  the  region,  and
the medical services lost around half their staff. Shortages
of  drugs  and  basic  supplies  were  still  a  threat  at  the  end
of  1997.  In  1996-97  Commission  commitments  and
disbursements for this sector represented 15 % and 20 %
respectively  of  aid  from  all  donors.

the 

supplies  were  not 

4.24. Despite  its  experience  of  health  sector  reforms  in
central  and  eastern  Europe  the  Commission  has  started
very  few  such  projects  in  Bosnia.  The  low  level  of
funding  is  partly  because  it  has  tried  to  work  in
partnership  with  the  Federal  Ministry  of  Health,  whose
efficiency  is  undermined  by  ethnic  conflicts  within  the
Ministry.  6  Mio  ECU  was  allocated  for  the  purchase  of
medical  equipment  and  ambulances  under  the  EAP  in
1996, but the Ministry drew up distribution lists without
consulting hospitals and clinics and in consequence some
local
of 
requirements (51).  Moreover,  equipment  was  held 
in
warehouses  in  Sarajevo  for  long  periods,  because  of
disagreements  within  the  Ministry.  At  the  end  of  March
1997  equipment  to  a  value  of  some  2,5  Mio  ECU  was
still  in  store  in  Sarajevo,  even  though  distribution  had
started  in  December  1996.  The  Ministry  was  unable  to
provide the Commission with comprehensive distribution
lists.  As  was  the  case  with  the  education  sector,  given
that  ECHO  had  had  experience  of  the  health  sector
during  the  war,  coordination  between  Commission
departments  would  have  been  useful  in  ensuring  that
equipment,  in  particular,  was  channelled  to  the  health
facilities  that  had  been  repaired  by  ECHO.

suitable 

for 

4.25. The  Commission  was  to  equip  a  laboratory  for
quality  control  of  medicines  as  part  of  a  2  Mio  ECU
project  funded  from  the  remaining  EAP  funds.  However,
the  Ministry  could  not  decide  the  site  of  the  laboratory
(whether  it  should  be  in  a  Croat  or  Muslim  area)  and  it

(51) Several  ambulances  were  allocated  to  hospitals  that  had  no

need  of  them.

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was  a  year  before  the  decision  on  its  location  was
taken.

network in Sarajevo were delayed, with the result that
pipes  from  other  sources  were  used  instead;

4.26. ECHO  aid  has  had  a  significant  impact  through  a
wide-ranging  programme  of 
repairing  around  70
dispensaries. However, the health system is still in a state
of  crisis  and  there  is  a  need  for  reform.  Most  of  the
expenditure  is  still  being  met  through  humanitarian  aid,
for  which  ECHO 
largest  donor.  Efficient
the 
coordination  between  Commission  departments  would
have  allowed  DG IA  to  fund  technical  assistance  as  a
contribution  to  the  reform  of  the  health  sector.

is 

Energy  (electricity  and  gas)

to  determine 

c)  the  Commission  relied  on  the  central  electricity
company 
for
equipment  to  be  supplied  to  its  local  branches.
However, 
latter  were  not  properly
consulted,  even  though  they  were  responsible  for  the
repairs,  some  ultimately  received  only  part  of  the
equipment  that  they  needed;

specifications 

since 

the 

the 

d)  although  a  contract  had  been  concluded  with  a
consultant  (see  paragraph  3.52),  the  Commission  did
not  systematically  monitor  the  equipment  delivered
and, as of April 1997, it did not have an inventory of
the  equipment  that  had  actually  been  installed.

4.27. Half the generating capacity and 60 %  of  the  grid
were  damaged  during  the  war  and  a  large  part  of  the
distribution  network  was  destroyed.  The  gas  pipelines
illegal
also  deteriorated  and  54 000  unsafe  and 
connections  were  made 
In  1996-97
Commission commitments and disbursements represented
22 %  and  13 %  respectively  of  all  donor  aid.

in  Sarajevo. 

4.29. The  effects  of  the  EAP  in  the  energy  sector  were
mixed:

a)  the  EAP  contributed  towards  the  restoration  of  a
basic  level  of  generating  capacity  in  the  Muslim
enclave  of  Gorazde.  Six  transformers  were  supplied
but,  as  of  April  1997,  a  further  40  were  still  needed
in  order  to  satisfy  the  demand  for  electricity;

4.28. The  energy  sector  is  the  largest  EAP  component,
but  its  effectiveness  has  been  considerably  reduced,
because  the  Commission  simply  supplied  equipment  and
spare  parts  without  ensuring  that  they  were  installed.
Various  shortcomings  were  noted  during  on-the-spot
visits:

resources  and 

in  consequence 

a)  the  local  electricity  companies  did  not  have  the
necessary 
some
equipment  remained  unused.  For  example,  0,9  Mio
ECU  was  earmarked  for  the  repair  of  transformers
and high-voltage lines to provide the electricity supply
for  10 000  people  in  the  Turbe  region  of  Central
Bosnia.  The  equipment  was  not  installed,  however,
and  the  electricity  supply  was  barely  sufficient  for
lighting;

b)  equipment and spare parts were supplied to repair the
generators  in  the  two  largest  thermal  power  stations
in  the  Federation,  at  Kakanj  and  Tuzla  (2,2  Mio
ECU).  The  EAP  provided  some  12 %  of  the  total
financing. The World Bank decided against providing
funds  for  the  project  in  Tuzla,  however,  as  the
investment  was
for 
economic 
questionable  because  of  the  size  and  age  of  the  unit;

justification 

the 

c)  in  1996  the  EAP  contributed  to  the  recovery  of  coal
production  by  providing  some  25 %  of  all  donor
financing  for  the  mines  that  supply  the  power
stations.  Over  the  period  December  1996  —  March
1997  the  Tuzla  mining  company’s  lignite  production
rose  from  133 000  tonnes  to  193 000  tonnes  per
month  (a  45 %  increase);

b)  the supply of equipment was rarely an integral part of
plans  for  repairing  the  supply  networks.  Deliveries
were  often  late,  or  beneficiary  authorities  were  not
informed when they were to take place. For example,
the  main  contract  for  the  electricity  sector  (4,9  Mio
ECU)  was  signed  in  September  1996  and  stated  that
deliveries  were  to  be  completed  by  December  1996
(see  paragraph  3.40(h)).  However,  only  20 %  of
deliveries  had  been  made  by  that  date  and  they  were
not  finally  completed  until  June  1997.  Supplies  of
piping  (0,265  Mio  ECU)  for  repairs  to  the  gas

d)  aid  was  also  granted  for  the  repair  of  the  gas  supply
network  for  4 000  households  in  the  Novi  Grad
quarter  of  Sarajevo.  The  project  included  the  supply
of  meters,  metering  being  an  essential  part  of  billing
for  consumption  and  ensuring  that  the  distributor  is
financially  viable.  However,  the  project  also  covered
the  provision,  free  of  charge,  of  4 000  cookers  and
4 000  radiators  (0,9  Mio  ECU),  even  though  the
World  Bank  estimated  that  most  households  could
afford  their  own  appliances.

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31.7.98

4.30. Apart  from  the  EAP  and  ECHO  intervention,
Commission  funding  has  had  very  limited  impact  on  the
energy  sector.  Although  an  amount  of  13,5  Mio  ECU
was  committed  in  the  electricity  sector  (budget  heading
B7-5 4 1) in December 1996, the call for tenders was not
issued  until  November  1997,  because  of  the  size  of  the
project,  the  slowness  of  Commission  procedures  and  the
difficulty  of  dealing  with  three  different  distribution
companies (52).  The  additional  7  Mio  ECU  reallocated  to
this  project  from  the  EAP  in  November  1996  had  not
been  mobilised  either.  For  this  reason  no  part  of  the
1997  programme  had  begun  by  the  end  of  1997.

4.31.
In the case of this 13,5 Mio ECU programme, the
Commission’s  decision  to  allocate  4,5  Mio  ECU  to  each
of the three Elektropriverda does not meet the provisions
of  Annex  9  to  the  Dayton  agreement,  which  envisaged
the  reunification  of  the  public  utilities  which,  in  the
electricity,  water, 
telecommunications
transport  and 
sectors,  were  split  between  the  three  ethnic  groups.  As  a
result  of  opposition  from  the  local  authorities  the  donor
community  has  only  been  able  to  implement  this  annex
gradually.  In  the  case  of  the  electricity  reconstruction
programme  work  on  a  strategic  survey  of  the  sector  did
not  begin  until  October  1997,  even  though  the  donors
agreed  in  November  1996  that  such  a  study  should  be
carried  out. 
the
reconstruction  activities,  in  order  to  identify  postwar
changes  in  the  pattern  of  demand  before  any  further
investment  is  undertaken.

is  particularly 

important 

for 

It 

Transport

G e n e r a l

4.32.
In  January  1996  28 %  of  the  main  road  network
was in need of immediate repair. None of the ten bridges
between  Bosnia  and  Croatia  were  passable  and  a  further
70  important  bridges  in  the  interior  of  the  country  had
been  seriously  damaged  or  destroyed.  Public  transport
functioned with difficulty and Sarajevo airport was closed
to civilian flights, because of the condition of the runway,
terminal  and  control  tower.  In  1996-97  Commission
commitments  and  disbursements  represented  26 %  and
15 %  of  all  donor  commitments  and  disbursements.

4.33. Transport  is  the  second  largest  sector  for  rhe
Commission  reconstruction  appropriations.  The  needs  of
this  sector  are  enormous  and  capable  of  absorbing  a
substantial  volume  of  funds.  It  was  not  possible  to
intervention  on
evaluate  the 
refugees’  intentions  of  returning.

indirect  effect  of  this 

U r b a n   t r a n s p o r t

4.34. The supply of buses and the repair of tramlines in
Sarajevo  were  the  most  visible  components  of  the  EAP.
By  the  end  of  the  war  there  were  only  20  operational
buses  in  Sarajevo,  compared  with  300  in  1991.  The
supply  of  33  buses  under  the  EAP  made  it  possible  to
reopen  75 %  of  the  network,  albeit  with  a  reduced
service.  Nevertheless,  as  of  April  1997,  the  Sarajevo
public  transport  company  still  did  not  have  the  funds
that  it  needed  in  order  to  continue  to  operate  services.

B r i d g e s

4.35. The Bosanski Samac bridge across the Sava which
separates  Croatia  and  Bosnia  was  to  be  repaired  as  part
of  the  1996  reconstruction  programme  (10  Mio  ECU).
This  is  a  high-priority  project  for  Bosnia  because  the
bridge  is  a  vital  part  of  the  link  between  Budapest  and
the  Adriatic  via  Croatia  and  Sarajevo.  The  financing
decision  was  taken  in  December  1996  and  the  project
duration  was  to  be  18  months.  At  the  end  of  1997  the
repair  work  had  not  started.  Work  on  clearing  mines
from  the  area  did  not,  in  fact,  begin  until  August  1997
as,  following  a  disagreement  over  the  choice  of  the
enterprise that was to design the new bridge, the contract
was  not  signed  until  August  1997.  As  a  result  of  the
delays,  the  project  completion  date  has  been  deferred  by
18  months  (end-1999).  According  to  a  consultants’
report  dated  December  1997,  the  project  cost  was  to  be
increased  from  10  to  11,5  Mio  ECU,  because  the
foundations  suffered  erosion  following  the  destruction  of
the  bridge.  If  the  Commission  again  delays  its  decision
this  particularly  important  link  will  not  be  opened  until
after  the  year  2000.

R o a d s

(52) Each  of  the  ethnic  communities  in  Bosnia  has  its  own

electricity  supply  company  (Elektropriverda).

4.36. The  main  project  (3  Mio  ECU)  under  the  roads
part  of  the  1996  reconstruction  programme  was  the
restoration of 23 km of the northern corridor linking the
eastern  and  western  parts  of  Republika  Srpska.  The

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Serbian  authorities  regard  this  as  a  priority  project,
because  it  enables  traffic  to  cross  from  one  area  to  the
other  without  passing  through  the  Federation.  Although
a  decision  was  taken  in  November  1996,  the  call  for
tenders  for  the  works  was  not  issued  until  November
1997.

this  project  has  been  insufficient  to  ensure  that  the
rehabilitation  of  the  airport  is  designed  to  be  a  single,
jointly-funded  operation.

4.37. The  1997  roads  programme  (5,45  Mio  ECU)  also
included two other projects concerning Republika Srpska.
The  first  is  a  1,35  Mio  ECU  project  to  rebuild  the  road
between  Pale  and  Lukavica (53),  the  seat  of  the  Serb
representative  in  the  triumvirate  presidency  of  the  State
of  Bosnia-Herzegovina.  The  second,  a  1,35  Mio  ECU
project  for  the  resurfacing  of  another  road  in  the  east  of
Republika  Srpska  (from  Ustipraca  to  Foca)  would  make
it  possible  to  avoid  the  main  road  which  passes  through
the  Muslim  enclave  of  Gorazde.  The  Commission  was
considering the future of these two suspended projects at
the  end  of  1997.

the  poor  quality  of 

4.38. Road  maintenance  equipment  was  supplied  to  18
maintenance  units  throughout  the  country  under  the
EAP.  The  supplies  had  only  limited  impact,  however,
because  of 
the  Ministry  of
Transport’s  technical  specifications  for  the  equipment
and  the  very  limited  operating  budget  available  to  the
maintenance  units.  As  an  example,  the  capacity  of  the
mobile  asphalt  plants  (five  for  347 170  ECU)  and  rollers
(five for 332 665 ECU) was unsuitable for the volume of
resurfacing work that had to be undertaken. Moreover, a
mobile  road  laboratory  purchased  for  Republika  Srpska
(107 459  ECU)  was  still  unused  in  April  1997,  because
the recipient had neither the necessary means of transport
nor  the  requisite  know-how.

C i v i l   a v i a t i o n

4.39.
In  the  civil  aviation  subsector  the  Commission
contributed  to  the  refurbishment  of  the  passenger
terminal  at  Sarajevo  airport  (6,8  Mio  ECU)  as  part  of  a
project for the repair of the entire airport, in which most
Western  donors  have  been  involved  since  mid-1996.

IMG 

4.40. Although 
in
November  1996,  the  first  emergency  work  did  not  start
until  October  1997.  Due  to  the  winter  the  main  work
couldn’t  start  before  April  1998.  Donor  coordination  on

submitted  an 

estimate 

Water  and  domestic  waste  management

4.41. At the end of 1995 it was estimated that the leaks
in 60 % of the water supply network were so serious that
normal  supply  was  not  possible.  There  had  been
significant  deterioration  of 
the  sewers  and  waste
collection  services  had  stopped.  In  1996-97  Commission
commitments 
sector
represented  23 %  and  13 %  of  all  donor  commitments
and  disbursements.

and  disbursements 

this 

in 

4.42. The  EAP  has  had  a  limited  impact  in  the  water
supply sector. While the programme did, however, supply
equipment and materials to 62 of the 69 municipalities in
the  Federation,  the  Commission  was  unable  to  influence
distribution plans and ensure that deliveries were made as
foreseen.  In  actual  fact,  the  supplies  were  in  part
distributed  on  an  arbitrary,  political  basis,  some  of  the
largest beneficiaries being in the Croatian area, where the
need was least acute. In addition, the equipment supplied
was  not  always  suitable  for  local  needs,  because  the
technology  was  significantly  more  advanced  than  that  of
the  equipment  used  before  the  war.  For  example,  the
donors  supplied  modern  leak-detecting  equipment  far  in
excess of Bosnia’s requirements and as a result most of it
has  remained  unused.  Local  water  companies  often
lacked  the  resources  to  install  and  use  the  equipment
supplied and needed to be restructured so that they could
carry  out  the  repair  and  maintenance  programmes.

4.43. Apart from the EAP and humanitarian aid (6 Mio
ECU)  EU  reconstruction  aid  (20,6  Mio  ECU)  has
contributed  relatively  little  towards  improving  water
supplies,  because  priority  was  given  to  drafting  and
preparing  calls  for  tenders  for  projects  with  a  scope  that
exceeded  the  emergency  repair  framework. 
In  the
meantime the water supply networks in some areas, such
as  Sarajevo,  have  continued  to  deteriorate,  with  leakage
rates  sometimes  as  high  as  70 %.  However,  a  firm  base
for  action  in  1998  was  being  established.

(53) A  suburb  of  Sarajevo  in  the  Serb  entity.

4.44. Neither  the  Commission  nor  any  other  donor  has
undertaken  any  large-scale  operations  in  the  area  of

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waste  management,  and  there  are  serious  risks  to  public
health. ECHO provided funds for a waste disposal site in
Una  Sana  canton  (0,7  Mio  ECU),  but  work  started
without the agreement of the local authorities; the facility
was poorly constructed and never used. ECHO is finding
it difficult to require the NGOs to undertake the requisite
corrective  action,  because  its  operational  contracts  are
unsuited  to  rehabilitation  projects.  A  needs  assessment
for  Sarajevo  was  funded  in  the  first  quarter  of  1997  and
in
was  to  be  followed  by  supplies  of  equipment 
December  1997.

Telecommunications

4.45. A  study  by  the  EBRD  in  1996  estimated  the  total
war damage in the telecommunications sector at 176 Mio
ECU (54).  The  donors  made  no  progress  in  this  sector  in
1996,  because  of  the  opposing  interests  of  the  two
entities.  In  1996-97  Commission  commitments  and
disbursements  represented  33 %  and  16 %  of  the
international  aid.  However,  donor  commitments  actually
amounted  to  only  17 %  (30  Mio  ECU)  of  the  forecasts
for  the  period.

important  breakthrough  was,  however,
4.46. An 
achieved  in  September  1997  when  4,7  Mio  ECU  was
mobilised  from  1996  appropriations  and  was  used  as
funding for the restoration of telephone links between the
entities (albeit with a very low capacity of 30 lines, which
was saturated by the end of 1997). It was not possible to
achieve  the  objective  of 
increasing  the  number  of
connections  between  the  entities  to  90  lines  before  the
end  of  1997  because  of  security  problems  in  Republika
Srpska.

4.47. The  Federation  was  granted  4  Mio  ECU  of  aid
under  the  1996  budget  for  the  purpose  of  restoring  the
telephone  network  in  the  areas  to  which  refugees  were
returning,  but  the  aid  had  still  not  been  disbursed  at  the
end  of  1997.  The  Federation  opposed  it,  because  it  was
dissatisfied  with  the  way  in  which  the  links  between  the
two  entities  had  been  restored.

in  restoring 

inter-entity
4.48. The  progress  made 
telephone  connections  is  partly  due  to  the  very  strong
political pressure brought to bear by the Commission and
relayed  through  the  other  donors.  This  pressure  is
strikingly  different  from  the  attitude  adopted  in  other
sectors  and  also  brought  about  the  signing,  by  the  three

(54) 220  Mio  USD.

telecommunications  services,  of  a 
‘Memorandum  of
agreed principle’ which is intended to be the precursor of
a  joint  law  on  telecommunications.  The  three  companies
are  also  participating  in  a  joint  training  programme,
funded  by  the  Commission  (0,07  Mio  ECU),  which  was
launched  in  September  1997.

Agriculture

4.49. Before  the  war  40 %  of  the  population  of
Bosnia-Herzegovina  was  wholly  or  partly  dependent  on
agriculture.  Around  80 %  of  machinery  was  destroyed
during the war and 70 % of the livestock slaughtered (55).
Donors  (including  the  Commission)  have  nevertheless
made  only  a  modest  contribution  in  this  sector (56)  and
agriculture  was  not 
integrated
programmes.  In  1996-97  Commission  commitments  and
disbursements  thus  amounted  to  24 %  and  20 %  of  all
donor  commitments  and  disbursements.

included 

the 

in 

4.50. According  to  reports  from  the  monitoring  office
engaged  by  the  Commission,  items  supplied  under  the
EAP included:

a)  1 300 motor cultivators (57) in the three regions of the

Federation  (4,6  Mio  ECU);

b)  fertilizers  and  pesticides  for  the  two  entities  (2,1  Mio

ECU);

c)  equipment  for  the  dairy  sector  in  the  Federation  (0,4

Mio  ECU).

4.51. These  items  were  distributed  too  late  for  them  to
have  any  impact  in  1996.  Their  utility  was  subsequently
reduced  when  a  significant  proportion  of  the  products
proved  to  be  unsuitable  for  the  local  conditions.  For
example,  the  smaller  motor  cultivators  (5—7  kW)  were
not  powerful  enough  for  the  mountainous  terrain  to  be
found  in  two  of  the  three  regions  —  Gorazde  and
Mostar.  On  the  other  hand,  the  capacity  of  most  of  the
milk-refrigeration equipment far outstripped the potential
output  of  the  farms  in  the  region.  Lastly,  in  the  main
beneficiary  region  (Tuzla)  the  fertilizers  and  pesticides
that should have been distributed to farms free of charge

(55) Source: Bosnia-Herzegovina reconstruction program: sectoral
programs  and  priorities.  Prepared  by  World  Bank  and
European  Commission,  April  1997.

(56) Donors  committed  only  53 %  of  the  funds  forecast  in  this

sector  in  1996-97.

(57) This  aid  corresponded  to  approximately  5 %  of  national
requirements  for  this  type  of  equipment.  Within  the  same
framework  the  World  Bank  funded  7,5 %  of  requirements.

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were,  in  fact,  sold  and  the  proceeds  of  these  sales  could
not  be  audited.

4.52. The  main  EU  aid  apart  from  the  EAP  was  a  3,0
Mio  ECU 
import  programme  accompanied  by  a
programme  of  technical  assistance  for  the  Una  Sana
(Federation)  and  Banja  Luka  (Republika  Srpska)  regions.
The  project  proposal  was  submitted  in  November  1996,
but  the  discussions  with  the  NGO  concerned  were  not
concluded until May 1997 and the equipment (essentially
60  tractors  and  trailers)  was  only  delivered  between
mid-September  and  mid-October  1997.  It  thus  arrived
too  late  for  the  1996-97  agricultural  season.  However,
farm  equipment  user  associations  involving  440  local
farmers  have  been  set  up  under  the  technical  assistance
arrangements, as a mechanism for hiring out the tractors
and  other  machinery  to  farmers  in  1998.

4.53. There  was  a  significant  increase  in  operations
during  the  second  half  of  1997,  when  the  Commission
arranged  for  the  importation  of  560  cattle  into  the  same
two regions. The first consignments were delivered at the
end  of  September  1997  and  in  December  1997  5 000
sheep  were  distributed  in  central  Bosnia  (600 000  ECU).

Private  sector  development  and  economic  reintegration

4.54. Despite  an  unemployment  rate  of  around  60 %
(which  is  tempered  somewhat  by  the  black  economy) (58)
and  the  need  for  the  country’s  economy  to  move  from  a
socialist  system  to  a  market  economy,  the  Commission
has  had  only  a  limited  role  in  this  area  and  has  not
adopted  a  clear  strategy  for  future  action.  In  1996-97
Commission commitments and disbursements represented
13 %  and  7 %  of  total  international  aid.

4.55. At  the  end  of  1997  the  Commission’s  two  largest
projects,  namely  an  economic  recovery  programme  (16,5
Mio ECU) and an EU investment guarantee trust fund for
Bosnia-Herzegovina  (10,5  Mio  ECU),  had  barely  started.
By  the  end  of  1997  the  Fund  had  still  not  provided  any
guarantees.  In  the  case  of  guarantees  the  budgetary
technique  employed  makes  it  possible  to  provide  cover
without  mobilizing  funds  immediately.  In  this  instance  it

would  have  been  possible  for  the  Commission  to  devote
10,5  Mio  ECU 
its
participation  in  the  guarantee  fund.

to  projects  without 

foregoing 

4.56. Another  project  that  was  supported  involved  the
Zica  Wire  Drawing  Factory  in  Sarajevo,  which  received
an  investment  subsidy  of  1  Mio  ECU.  The  enterprise
manufactures  cables  for  the  construction  industry.  This
was  the  only  Commission  initiative  in  favour  of  a  large
industrial  enterprise.  The  Commission  hoped  that  this
initiative would stimulate employment. It has remained a
one-off  operation.

Support  for  public  administration

4.57. Donors  faced  a  difficult  choice  in  the  area  of
public  administration,  due  to  the  large  number  of  new
institutions  at  State,  entity  and  canton  level  and  the  lack
of  training  for  new  and  existing  civil  servants.  Although
support  in  this  area  may  put  the  representatives  of  the
local  authorities  in  a  better  position  to  participate  in  the
implementation  of  the  reconstruction  programme,  the
Commission has devoted a relatively small amount to this
area,  concentrating  on  the  institutions  at  State,  rather
than  entity  and  canton  level.

4.58. The  Commission’s  main  action  in  this  area  has
the  establishment  of  a  Customs  and  Fiscal
been 
Assistance  Office  (CAFAO)  which  reports  to  DG XXI
(see  paragraph  3.23).  CAFAO  made  a  very  significant
impact  through  the  creation  of  and  subsequent  support
for a Federation Customs service, which began operations
in  April  1996.  Customs  duties  provide  approximately
80 %  of  the  Federation’s  budgetary  resources (59).  It  is
unlikely  that  the  Customs  service  would  be  able  to
function  without  CAFAO’s  intervention,  partly  because
of ethnic rivalries. Since the beginning of 1997 assistance
has also been provided for the Republika Srpska Customs
service.  CAFAO,  which  is  investigating  fraud  in  the  two
entities, 
the  High
Representative  a  number  of  files  on  diversion  of  funds
totalling  53  Mio  USD  in  1997.  As  of  the  beginning  of
1998 
fiscal  resources  had  not  been
recovered. In addition 1 150 customs officials in the two
entities  are  taking  part  in  a  training  programme.

the  Office  of 

the  diverted 

forwarded 

to 

4.59. CAFAO  drafted  a  temporary  Customs  law  which
provides 
in
Bosnia-Herzogovina,  but  it  is  not  yet  in  force.  The

territory 

customs 

unified 

for 

a 

(58) The  Economist  Intelligence  Unit,  Country  report,  third

quarter  1997.

(59) In  1997  Customs  duties  were  expected  to  provide  500  Mio
DM  of  the  Federation’s  total  budget  of  615  Mio  DM.

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31.7.98

Commission also funded the drafting of foreign trade and
investment  legislation,  which  was  adopted  in  June  1997.
It  has  also  provided 
institutional  support  for  the
newly-created  central  bank  (1  Mio  ECU),  as  well  as  the
Ombudsman (0,75 Mio ECU) and statistical services (0,1
Mio  ECU).

5.  CONCLUSION

5.1. Since  the  political  stability  of  the  Balkans  is  a
matter  of  serious  concern  for  the  European  Union,  the
Council  and  Parliament  have  placed  1 000  Mio  ECU  at
the  Commission’s  disposal  for  the  period  1996-99,  thus
ensuring that the latter is among the leading providers of
funds  for  the  process  of  reconstruction 
in  former
Yugoslavia.  This  is  in  addition  to  the  humanitarian  aid
granted  by  the  budgetary  authority  each  year,  which
amounted  to  315  Mio  ECU  between  the  beginning  of
1996  and  the  end  of  1997.

the  Commission  emphasised 

the  peace  agreements  were  signed 

in
5.2. When 
December  1995 
the
importance  of  rapid  reconstruction  measures  and  the
necessity  of  coordinating  these  measures  with  the  aid
from other providers of funds in order to lend support to
institutions  which  would
the  establishment  of  new 
facilitate 
ethnic
communities  in  Bosnia-Herzegovina  (see  footnote (15).  It
therefore  advocated  that  each  donor  deploy  adequate
resources in the areas in which it had the most experience
and  expertise.

reconciliation  between 

three 

the 

the  aid 
setbacks, 

5.3. Although  the  political 
level  responded  to  the
urgency of the situation by adopting the decisions on aid
from  the  European  Union  very  quickly,  the  actual
suffered  a  number  of
mobilisation  of 
and
technical 
both 
organisational 
administrative,  which  were  not  experienced  to  the  same
extent  by  most  of  the  other  donors.  Thus  at  the  end  of
1997  mobilisation  of  aid  from  the  European  Union  was
still  slow  (see  paragraph  3.30),  the  problem  of  the
refugees  who  had  found  shelter  in  a  number  of  Member
States  had  still  not  been  satisfactorily  resolved  for  those
States  (see  paragraph  3.8)  and,  with  a  few  rare
exceptions,  the  action  taken  by  the  European  Union  still
had  a  very  low  profile  (see  paragraph  4.34).  Moreover,
delays  in  implementing  the  reconstruction  measures  are
particularly apparent in Republika Srpska, due to a series
of interruptions to the aid programme for that entity (see
paragraphs  1.3  and  4.1).

in  former  Yugoslavia,  neither  at 

in  deploying  sufficient  human  resources  to  the  task  of
reconstruction 
its
headquarters in Brussels nor in the areas that were under
reconstruction  (see  paragraphs  3.13  and  3.14).  In  this
connection  it  derived  little  benefit  from  the  experience
acquired  in  Mostar,  which  some  months  earlier  had
demonstrated  the  importance  of  having  a  sufficient
number  of  qualified  staff  on  the  ground (60).  Moreover
DG IA drew little benefit from the experience acquired by
ECHO  (with  which  it  cooperated  at  arm’s  length)  (see
paragraphs  3.8  and  3.11),  nor  (from  the  reconstruction
angle)  from  the  work  of  the  international  management
group 
in
Bosnia-Herzegovina  since  1993  (see  paragraph  3.34).
Similarly,  coordination  with  the  Office  of  the  High
Representative  (OHR)  in  the  country  was,  in  practice,
too  slight  for  the  European  Union  to  be  able  to  occupy
the  position  which  it  should  have  held,  given  the  volume
of  funds  which  it  had  decided  to  make  available  (see
paragraph 3.18).

(IMG)  which 

operating 

been 

had 

5.5. The  Commission  did  not  develop  a  practical
sectoral implementation programme for ensuring that any
coordinated  action  would  be  taken  in  accordance  with
priorities  which  took  into  account  the  areas  where  its
services already had experience (see paragraph 3.3). As a
result  aid  was  mobilised,  but  was  dissipated  before  it
gathered  the  momentum  needed  for 
it  to  achieve
impact  (see  paragraph  3.4).  In
significant  sectoral 
particular,  such  a  strategy  should  reflect  the  importance
attached  to  the  refuge-return  question.  In  this  respect
more  concrete  collaboration  between  Commission  staff
States,  UNHCR
and  organisations 
representatives 
in  each  country  and  the  municipal
authorities  in  the  areas  affected  by  refugee  return  would
have  been  desirable.

in  Member 

5.6. The EAP (Supply) was not adequately prepared, the
shortcomings  of  the  authorities  in  the  Federation  of
Bosnia-Herzegovina  and  in  Republika  Srpska  were  not
recognised  and  the  Commission  was  over-hasty 
in
assigning  responsibility  for  the  implementation  of  the
programme to procurement agencies which were not in a
position  to  verify,  on  the  ground,  whether  supplies  had
actually been distributed to beneficiaries. All these factors
resulted 
in
November 1996, after which it was converted to projects
of the conventional type (see paragraph 3.5), thus causing
new  hold-ups  in  the  implementation  process.  In  the  case
of  the  non-EAP  projects  the  unsuitability  of  the  existing
Regulations  and  the  time  taken  to  adopt  the  basic

in  the  breaking-off  of  the  programme 

5.4. Despite 
(see
its  clear  declarations  of 
paragraphs 3.1 and 3.3), the Commission did not succeed

intent 

(60) See  Court  of  Auditors’  Special  Report  No  2/96,  paragraphs

92  and  93.

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regulations  required  for  new  budget  headings  to  be
mobilised  (see  Annex  1,  paragraph  3)  were  not  the  only
causes of delay. The administrative delays inherent in the
Commission’s  internal  decision-taking  procedures  are
inadmissible  in  an  emergency  context.  Furthermore  the
Commission  departments  did  not  systematically  follow
the  procedures 
though
reconstruction  projects  were  difficult  to  implement  using
traditional  procedures  for  economic  restructuring  (see
paragraphs  3.33  —  3.35).

for  emergency  aid,  even 

sector  EAP 

of these areas functioned efficiently. Moreover the action
taken  by  ECHO  and  DG IA  was 
insufficiently
coordinated  (see  paragraphs  4.21,  4.22  and  4.26).  In  the
energy 
supplies  were  not  adequately
monitored  (see  paragraph  4.28)  and  the  effectiveness  of
the  aid  varied.  Apart  from  a  substantial  improvement  in
bus  and  tram  services  in  the  town  of  Sarajevo  (see
paragraph  4.34)  Commission  support  for  the  transport
sector  had  little  impact,  because  of  the  serious  problems
encountered  by  the  projects  (see  paragraphs  4.35  —
4.40).  Lastly,  progress 
the  areas  of  public
administration  and  economic  reform  was  modest  (3.7,
4.54  —  4.57).

in 

the 

5.7.
Implementing  housing  repair  projects  through  the
UNHCR  is  not  very  satisfactory  (see  paragraph  3.55).  It
leads  to  additional  delays  at  the  approval  stage,  without
guaranteeing  that  the  works  will  be  better  executed  by
the  NGOs  to  which  they  are  subcontracted.  The
procedures  followed  by  the  UNHCR  in  implementing
projects  and 
its  accounting
shortcomings 
procedures do not, in fact, allow the Commission to keep
these  operations  under  review.  If,  in  this  context,  it  is
considered  essential  for  the  Commission  to  contribute
funds  to  the  UNHCR  it  would  be  administratively  more
efficient  to  make  a  global  contribution  in  response  to  its
appeals for funds, because the results obtained would not
be  any  different.  The  specific  audit  requested  by  the
Commission  is,  in  fact,  an  irrelevance,  because  of  the
fungibility  of  UNHCR  finance (61).

in 

5.10. Two  years  after  the  Dayton  and  Paris  agreements
the  reconstruction  aid  mobilised  by  the  EU  continues  to
fall  short  of  its  declared  aims.  This  is  partly  due  to  the
problematical environment in former Yugoslavia, but it is
also  a  consequence  of  the  Commission’s  inability  to
deploy  sufficient  human  resources,  as  well  as  the  poor
quality  of 
cooperation  between  Commission
departments.

the 

In 

the 

this 

context 

5.8. The  number  of  refugees  returning  continued  to  be
much  lower  than  expected,  in  both  1996  and  1997  (see
paragraph  4.9). 
sometimes
discriminatory  policies  of  local  authorities,  insecurity  in
the  country  (see  paragraph  4.9)  and  the  way  in  which
housing  and infrastructure repair  works were  carried out
(see  paragraph  4.11)  were  severe  constraints.  By  the  end
of 1997 the homes of some 6 300 refugees and displaced
persons  had  been  repaired  through  the  Commission  —  a
very  modest  achievement  (see  paragraph  4.12).  In  many
cases  homes  remained  unoccupied  even  after  they  had
been repaired, because the work had not been undertaken
within  the  integrated  framework  of  projects  which  also
included social infrastructure, water and electricity supply
and  job  creation  (see  paragraph  3.11).

In  the  areas  of  health  and  education  ECHO’s
5.9.
impact was fairly marked. On the other hand, DG IA did
not  mobilise  the  support  needed  to  ensure  that  the
government departments responsible for the management

5.11. EU  aid  was  scattered  over  an  excessive  number  of
sectors,  as  a  result  of  very  limited  practical  coordination
with  the  main  providers  of  funds  and  the  Office  of  the
High  Representative.  This  phenomenon  was  further
magnified  by  a  desire  to  satisfy  requests  from  the  central
authorities  in  the  entities  of  Bosnia-Herzegovina  asking
for the Community aid to be distributed among the main
structures  in  the  entities.  Under  these  circumstances  it  is
important 
decentralise
the  Commission 
management  of  its  aid  effort  to  the  delegations  and  to
focus  it  on  a  smaller  number  of  sectors,  in  order  to
respond better to the urgent needs of certain regions and
communities  that  are  especially  affected  by  the  question
of  the  peaceful  return  of  refugees.

for 

to 

5.12. Finally,  it  is  important  for  the  Commission  to
establish  its  credibility  with  the  authorities  in  these  areas
by  ensuring  that  any  support  which  it  provides  is
adequately  publicised.  Otherwise  there  is  a  danger  that
the  beneficiary  populations  will  be  unaware  of 
its
presence in the area. A first step in this direction could be
taken  by  stating  clearly  and  visibly  that  Commission
measures are funded by the European Union and not just
by  ECHO,  PHARE,  CAFAO,  EAP  or  Obnova (62).

(61) See  Annual  report  concerning  the  financial  year  1995,  OJ  C

(62) Obnova — Programme for reconstruction in Bosnia, Croatia,

340,  12.11.1996,  paragraphs  11.39  and  11.40.

Serbia,  Montenegro  and  FYROM.

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This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  its  meeting  of  7  May
1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

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ANNEX  1

SOURCES  OF  FUNDING  FOR  EU  AID  FOR  RECONSTRUCTION  IN  FORMER  YUGOSLAVIA

1.  EU  aid  comes  from  two  main  sources:

(a)  600  Mio  ECU  from  the  PHARE  programme,  400  Mio  ECU  of  which  was  allocated  for
reconstruction  in  the  areas  of  the  country  that  had  been  devastated  by  war  and  200  Mio  ECU  for
programmes  to  assist  the  transition  to  a  market  economy;

(b) 400  Mio  ECU,  derived  from  the  additional  margin  of  475  Mio  ECU  under  heading  4  (External
action)  of  the  1996-1999  financial  perspective  which  was  released  during  the  1995  Cannes
Summit.

2.  These  two  funding  sources  are,  in  turn,  governed  by  separate  legal  bases:

(a)  with regard to the 600 Mio ECU, the Regulation governing the PHARE programme (1), which covers
general  budget  headings  B7-5 0 0  and  B7-5 4 3;  Bosnia (2)  and  the  Former  Yugoslav  Republic  of
Macedonia  (FYROM)  became  eligible  for  assistance  under  this  programme  in  1996 (3);

(b) a  Regulation  covering  reconstruction  in  Bosnia,  Croatia,  Serbia-Montenegro  and  FYROM  and
mobilising  400  Mio  ECU  (budget  articles  B7-5 4 1,  B7-5 4 2  and  B7-5 4 5) (4).  The  Regulation  did
not  enter  into  force  until  August  1996,  which  delayed  the  start  of  this  programme  (called
‘Obnova’).

3.  The Commission gave responsibility for management of the 1 000 Mio ECU to the Directorate-General
for External Relations ‘Europe and the Newly Independent States’ (DG IA). This aid is supplemented by
humanitarian aid (budget heading B7-2 1 4) managed by another Commission department, the European
Community  Humanitarian  Office  (ECHO) (5).  Between  1992  and  1995  ECHO  mobilised  some  1 180
Mio  ECU  for  humanitarian  aid  in  the  whole  of  former  Yugoslavia  and  was  to  devote  an  increasing
proportion  of  its  post-war  assistance  to  emergency  rehabilitation  projects.

4.  A budget heading for specific measures concerning anti-personnel mines also earmarked 6,7 Mio ECU in
1996  (B7-6 1 5)  and  2,4  Mio  ECU  in  1997  (B7-6 6 1)  for  measures  to  be  carried  out  in  former
Yugoslavia.  Finally,  there  was  provision  for  measures  to  assist  the  Customs  services  (CAFAO)  totalling
7,1  Mio  ECU  in  1996  (B7-7 0 0 2)  and  8,1  Mio  ECU  in  1997  (B7-5 4 4).

(1)  Council  Regulation  (EEC)  No  3906/89  of  18  December  1989,  OJ  L  375,  23.12.1996,  p.  11.
(2)  Council  Regulation  (EC)  No  753/96  of  22  April  1996,  OJ  L  103,  24.6.1996.
(3)  Council  Regulation  (EC)  No  463/96  of  11  March  1996,  OJ  L  65,  15.3.1996.
(4)  Council  Regulation  (EC)  No  1628/96  of  25  July  1996,  OJ  L  204,  14.8.1996.
(5)  The  legal  base  for  the  humanitarian  aid  is  Council  Regulation  (EC)  No  1257/96  of  20  June  1996,

OJ  L  163,  2.7.1996.

ANNEX 2-1

Allocation of aid by activity sector (commitments at 31.12.1997)

Social sector

Infrastructure

Economic and institutional
development

Other

180
180

160
160

140
140

120
120

100
100

80
80

60
60

40
40

20
20

0
0

U
C
E
o
i
M

s
e
e
g
u
f
e
r

d
n
a

i

g
n
s
u
o
H

n
o
i
t
a
c
u
d
E

h

t
l

a
e
H

y
g
r
e
n
E

t
r
o
p
s
n
a
r
T

e
t
s
a
w

l

d
o
h
e
s
u
o
h
d
n
a
r
e
t
a
W

i

s
n
o
i
t
a
c
n
u
m
m
o
c
e
e
T

l

e
r
u
t
l
u
c
i
r
g
A

r
o
t
c
e
s

e
s
i
r
p
r
e
t
n
e

e
t
a
v
i
r

P

ECHO

DG IA: Projects

DG IA: EAP

r
e
h
t
O

e
m
m
a
r
g
o
r
P

t

n
e
m
e
g
a
n
a
m

i

n
o
i
t
a
r
t
s
n
m
d
a
c

i

i
l

b
u
P

C

2
4
1

/

3
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n

C
o
m
m
u
n
i
t
i
e
s

3
1
.
7
.
9
8

 
 
 
 
 
 
 
 
 
 
 
 
 
31.7.98

EN 

Official  Journal  of  the  European  Communities

C  241/35

Aid  for  reconstruction  in  former  Yugoslavia  by  activity  sector  at  31  December  1997

ANNEX  2-2

Activity sector

Commit-
ments

%  of  sector
commitments

Contracts

%  of  sector
contracts

Payments

(Mio  ECU)

%  of  total
payments

Housing  and  refugees 

Education 

Health 

Total:  Social  sector 

Energy 

Transport 

Water  and  household  waste 

Telecommunications 

Total:  Infrastructure 

Agriculture 

Private  enterprise  sector 

Public  administration 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

Total:  economic  and  institutional  development 

Other 

Programme management 

Total:  other 

TOTAL 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

DG  IA:  EAP 
DG  IA:  Projects 
ECHO 

Subtotal 

12,0 
104,3 
42,3 

158,6 

2,0 
16,4 
13,8 

32,2 

7,0 
5,5 
8,0 

10,4 
56,9 
42,3 

9,7
25,8
35,4

29,25 % 

109,6 

38,24 % 

70,9 

34,05 %

5,94 % 

2,0 
2,2 
13,8 

18,0 

8,8 
0,0 
8,0 

6,28 % 

2,0
2,2
11,8

16,0 

8,5
0,0
6,1

7,68 %

20,5 

3,78 % 

16,8 

5,86 % 

14,6 

7,01 %

211,3 

38,97 % 

144,4 

50,38 % 

101,5 

48,74 %

12,63 % 

12,34 % 

18,6 
0,3 
6,7 

25,6 

14,7 
2,8 
0,0 

17,5 

8,4 
6,7 
5,1 

18,5
0,1
4,5

8,93 % 

23,1 

11,09 %

6,11 % 

14,7
1,6
0,0

16,3 

8,4
2,4
4,0

7,83 %

10,79 % 

20,2 

7,05 % 

14,8 

7,11 %

0,0 
5,8 
0,0 

5,8 

2,02 % 

2,91 % 

209,7 

38,68 % 

69,1 

24,11 % 

0,0
3,8
0,0

3,8 

58,0 

7,3
2,9
0,0

1,82 %

27,85 %

4,22 % 

10,2 

4,90 %

7,15 % 

6,59 % 

17,97 % 

0,0
5,1
0,6

5,7 

2,8
12,0
0,0

14,8 

30,7 

2,6
7,6
1,2

2,74 %

7,11 %

14,74 %

3,28 % 

11,4 

5,49 %

4,6
1,0
1,0

6,6 

18,0 

3,17 %

8,66 %

4,06 % 

6,60 % 

4,54 % 

15,20 % 

3,58 % 

7,3 
4,8 
0,0 

12,1 

0,0 
19,5 
1,0 

20,5 

2,8 
16,1 
0,0 

18,9 

51,5 

0,0 
7,7 
1,7 

9,4 

7,8 
3,3 
1,1 

19,8 
42,0 
6,7 

68,5 

15,9 
51,0 
0,0 

66,9 

8,9 
44,5 
5,1 

58,5 

0,0 
15,8 
0,0 

15,8 

7,9 
14,1 
0,0 

22,0 

0,0 
35,8 
0,0 

35,8 

2,5 
22,1 
0,0 

24,6 

82,4 

0,0 
17,7 
1,7 

19,4 

7,0 
11,3 
1,1 

19,4 

38,8 

3,58 % 

7,16 % 

12,2 

21,6 

4,26 % 

7,54 % 

542,2 

100,00 % 

286,6 

100,00 % 

208,2 

100,00 %

C  241/36

EN

Official  Journal  of  the  European  Communities

31.7.98

ANNEX  3

Commission  projects  in  the  private  housing  sector  31.12.97

Project
value
(Mio
ECU)

Number
of  houses
already
rehabili-
tated

Number
of  houses
still  to  be
rehabili-
tated

Total
number  of
houses

Number
of
returned
EU
refugees

Number
of  EU
refugees
currently
returning

Total
number  of
refugees

Other
returnee
benefici-
aries

Other
benefici-
aries
currently
returning

Total
number  of
other
benefici-
aries

Location

DG  I/A

Gorazde

Central  Bosnia

Central  Bosnia

Una Sana

Odzak

Eastern Slavonia

2,3

2,7

1

2,7

1,8

2,7

150

450

150

300

360

0

0

0

0

0

0

325

150

450

150

300

360

325

July-Dec  96

13,2

1 410

325

1 735

Una Sana

Anvil  (RS)

Odzak

Una Sana

Una Sana

Una Sana

Central  Bosnia

3,2

0,6

3,3

2

0,6

0,5

3,8

543

110

93

198

47

42

56

176

32

347

2

53

108

464

719

142

440

200

100

150

520

68

203

68

135

162

0

635

1 225

11

60

445

127

57

95

0

0

0

0

0

146

146

266

2

990

5

143

146

68

203

68

135

162

146

608

1 823

608

1 215

1 458

0

0

0

0

0

0

1 316

608

1 823

608

1 215

1 458

1 316

781

5 711

1 316

7 027

1 491

1 328

13

1 050

450

270

203

1 170

1 265

504

100

990

5

95

340

1 832

507

1 050

450

180

472

1 170

1 265

407

60

445

85

132

95

Jan-June  97

14

1 089

1 182

2 271

2 020

2 722

4 742

2 552

3 204

5 756

Mostar  region

Mostar  region

Gorazde

Una Sana

Sarajevo-Stup

Sarajevo-Dobrinja

Vukovar

3,3

2,4

0,5

0,8

2

2

3,4

827

253

97

103

0

0

142

41

168

7

74

130

200

0

868

421

104

177

130

200

142

507

467

0

26

0

0

65

14

437

0

12

290

450

0

521

904

0

38

290

450

65

2 582

508

443

388

0

0

575

166

282

25

268

290

450

0

2 748

790

468

656

290

450

575

July-Dec  97

14,4

1 422

620

2 042

1 065

1 203

2 268

4 496

1 481

5 977

DG1A  Total

41,6

3 921

2 127

6 048

3 719

4 071

7 791

12 758

6 002

18 760

ECHO

Sarajevo

RS

1,6

1,6

1 155

630

Jan-June  96

3,2

1 785

Travnik

Lokve

Stolac

Kalesija

0,49

0,077

0,9

0,57

281

35

72

81

July-Dec  96

2,037

469

Sadba

0,6

36

0

0

0

0

0

0

0

0

0

1 155

630

520

284

1 785

803

281

126

35

72

81

16

32

36

469

211

36

16

0

0

0

0

0

0

0

0

0

520

284

4 678

2 552

803

7 229

126

1 138

16

32

36

142

292

328

211

1 899

16

146

0

0

0

0

0

0

0

0

0

4 678

2 552

7 229

1 138

142

292

328

1 899

146

31.7.98

EN

Official  Journal  of  the  European  Communities

C  241/37

Location

Novi  Seher

Gorazde, Sarajevo

Gorazde

Jan-June  97

Zebina

Lokve

Ilovaca

Gorazde

Maglaj

Kakanj

Soukbunar

Hadzici

Kasatici

Vogosca

Faletici

Ilijas

Novi  Seher

Novi  Seher

Kresevo

Kakanj

Vinac

Vitez

Stolac

Glavaticevo

Bijela

Osmaci

Celic

Gradac

Project
value
(Mio
ECU)

Number
of  houses
already
rehabili-
tated

Number
of  houses
still  to  be
rehabili-
tated

Total
number  of
houses

Number
of
returned
EU
refugees

Number
of  EU
refugees
currently
returning

Total
number  of
refugees

Other
returnee
benefici-
aries

Other
benefici-
aries
currently
returning

Total
number  of
other
benefici-
aries

0,162

1,1

2,288

2,444

6,594

0,36

0,88

0,169

0,079

0,8

0,68

0,172

0,82

0,4

1,25

0,172

0,25

0,628

0,3

0,3

0,62

0,344

1,1

2,17

0,95

1,578

37

0

0

0

73

0

0

0

0

0

0

0

0

0

0

0

0

0

37

0

44

0

0

0

0

0

0

0

0

0

320

320

200

840

40

25

27

23

32

15

19

77

28

110

52

120

50

0

55

0

33

42

27

40

80

229

55

207

37

913

40

25

27

23

32

15

19

77

28

110

52

120

50

37

55

44

33

42

27

40

80

229

55

207

17

0

0

0

33

0

0

0

0

0

0

0

0

0

0

0

0

0

17

0

20

0

0

0

0

0

0

0

0

0

144

144

90

378

18

11

12

10

14

7

9

35

13

50

23

54

23

0

25

0

15

19

12

18

36

103

25

93

624

17

144

144

90

411

18

11

12

10

14

7

9

35

13

50

23

54

23

17

25

20

15

19

12

18

36

103

25

93

661

150

0

0

0

0

1 296

1 296

810

150

1 296

1 296

810

296

3 402

3 698

0

0

0

0

0

0

0

0

0

0

0

0

0

150

0

178

0

0

0

0

0

0

0

0

162

101

109

93

130

61

77

312

113

446

211

486

203

0

223

0

134

170

109

162

324

927

223

838

162

101

109

93

130

61

77

312

113

446

211

486

203

150

223

178

134

170

109

162

324

927

223

838

328

5 613

5 941

July-Dec  97

14,022

81

1 386

1 467

37

ECHO:  Total

25,853

2 408

2 226

4 634

1 084

1 002

2 085

9 752

9 015

18 768

Commission:  Total

67,453

6 329

4 353

10 682

4 803

5 073

9 876

22 511

15 017

37 527

It  was  assumed  that  90  %  of  ECHO  project  beneficiaries  were  in  the  ‘other  beneficiaries’  category  and  10  %  were  refugees.

Average  number  of  persons  per  dwelling:  4,5

C  241/38

EN

Official  Journal  of  the  European  Communities

31.7.98

Abbreviations  and  acronyms

CAFAO

Customs  and  Fiscal  Assistance  Office

DM

EAP

EBRD

ECHO

EIB

EU

German  Mark

Essential  Aid  Programme

European  Bank  for  Reconstruction  and  Development

European  Community  Humanitarian  Office

European  Investment  Bank

European  Union

FYROM

Former  Yugoslav  Republic  of  Macedonia

IMG

KfW

International  Management  Group

Kreditanstalt  für  Wiederaufbau  [Reconstruction  Loan  Corporation]

NATO

North  Atlantic  Treaty  Organisation

NGO

OHR

PMU

Non-governmental organisation

Office  of  the  High  Representative

Programme  Management  Unit

TACIS

Technical  Assistance  to  the  Community  of  Independent  States

UNHCR

United  Nations  High  Commissioner  for  Refugees

UNTAES

United  Nations  Temporary  Administration  in  Eastern  Slavonia

USAID

United  States  Agency  for  International  Development

31.7.98

EN

Official  Journal  of  the  European  Communities

C  241/39

REPLIES  OF  THE  COMMISSION

2.  SUMMARY  OF  PRINCIPAL  OBSERVATIONS

for 

the 

2.1. Within  one  week  of  the  Dayton  Agreement,  the
Commission,  together  with  the  World  Bank,  mobilised
the  international  community  through  the  first  donor
conference 
reconstruction  of  Bosnia  and
Herzegovina  held  in  December  1995.  The  Commission
was able to decide at the end of 1995 to commit funds in
early  1996  for  a  programme  of  essential  aid  (the  EAP
programme  financed  through  Phare),  and  sent  staff  to
Sarajevo  at  the  beginning  of  1996  for  the  purpose  of
setting  up  and  monitoring  the  operation.  In  this  respect,
the Commission provided a rapid response to the urgency
of  the  situation  arising  after  the  Dayton  Agreement.

The  Commission  has  been  working 
difficult  circumstances:

in  particularly

some  parties  obstructing 

—  The  political  situation  on  the  ground  has  been
unstable,  with 
the
application  of  the  peace  agreements.  Yet  these
agreements  made 
the  central
authorities  set  up  under  them  a  precondition  for  the
implementation 
programmes.
Approval  was  not  obtained  until  November  for  1996
and  September  for  1997.  The  Commission  was
therefore  quite  unable  to  implement  its  programmes
immediately.

the  approval  of 

Community 

of 

—  The  application  of  the  political  conditions  laid  down
by  the  High  Representative  and  the  Council  of
Ministers  has  posed  problems.  Execution  has,  for
example,  been  slowed  down  by  the  suspension  of  aid
to  the  Republika  Srpska  on  two  occasions.

—  Complex,  constrictive  legal  and  financial  instruments
are  cited  by  the  Court.  The  transposition,  against  the
Commission’s  advice,  of  the  procedures  and  ceilings
of  the  TACIS  programme  in  Regulation  (EC)  No
1628/96  delayed  that  Regulation’s  adoption  to  the
end of July 1996. This accounts for the need, prior to
that  date,  to  use  the  trialogue  procedure  to  obtain
funds.  Until  April  this  year,  all  the  Commission’s
the  Regulation  were
proposals 
systematically 
them  more
to  make 
restrictive.

amend 
corrected 

to 

Despite  these  difficulties,  by  the  end  of  1996,  the  budget
under chapter B7-5 4 was 99.9 % committed. At the end

of 1997, the revised budget for chapter B7-5 4 (excluding
the  financial  protocol  line)  was  99.5 %  committed.
Taking  the  1996-1997  period  together,  the  volume  of
budgetary  resources  committed  by  the  Commission  for
the  reconstruction,  including  humanitarian  aid  was  ECU
542.2  million  of  which  ECU  286.6  million  had  been
contracted  and  ECU  208.1  million  paid.  This  rate  of
contracting  and  payment  contrasts  favourably  compared
with  other  external  aid  programmes  funded  by  the
the  difficult
Community  budget,  particularly  given 
conditions  in  Bosnia-Herzegovina.  The  Commission  has
also  funded  non-reconstruction  activities,  outside  the
scope  of  the  Court’s  report  for  which  the  figures  are  not
included  above,  in  the  field  of  democracy,  human  rights
and  CFSP  joint  actions.

is 

in 

the 

the 

strategy 

taken  up 

international 

2.2.
In  autumn  1995  the  Commission  published  four
communications  announcing  a  comprehensive  strategy.
This 
reconstruction
programme drawn up by the Commission and the World
Bank. They submitted the programme to different donors
at three international conferences, obtaining the approval
of 
the
Commission  draws  up  guidelines  for  the  strategy’s
implementation. These guidelines are then translated into
sectoral  programmes  comprising  a  series  of  integrated
projects,  notably  for  refugees.  The  Memoranda  of
Understanding signed with the Bosnian authorities for the
1996  and  1997  programmes  also  provide  an  overall
those
framework 
programmes.

community.  Each  year 

implementation 

the 

for 

of 

2.3. The  essential  aid  programme  (EAP),  drawn  up
straight  after  the  Dayton  Agreement  and  introduced  in
January  1996,  has  provided  assistance  crucial  to  getting
reconstruction under way. The programme has permitted
the  provision  of  equipment  for  schools,  buses,  tractors,
agricultural  inputs,  equipment  for  the  electricity  sector
etc. This programme was the first major response from a
member  of  the  international  community  to  the  problems
of  reconstruction.

the 

refocused 

The  Commission 
equipment-supply
programme  for  several  reasons.  It  became  aware  of  the
difficult  environment  in  which  it  was  operating:  the
substantial  risk  of  fraud,  denounced  at  the  time  by  the
High  Representative,  the  lack  of  transparency  in  the
management of aid and the risk that aid might not reach
its 
to
centralise  the  programmes.  At  the  time  the  political

intended  recipients 

the  Commission 

forced 

C  241/40

EN

Official  Journal  of  the  European  Communities

31.7.98

situation  in  Bosnia-Herzegovina  meant  there  was  little
point  decentralising  the  programme  to  the  country’s
authorities.  In  taking  this  decision,  the  Commission  was
defending  the  Community’s  financial 
interests.  The
programme  has  been  refocused  on  fewer  sectors.

2.4. Given  the  constraints  on  creating  new  posts,  the
Commission  has  redeployed  staff  to  reinforce  the  teams
managing  this  assistance.  These  measures  have  had  the
following  results:

be  amended,  the  Commission  submitted  an  amendment
to  that  annex.  The  Council  retained  the  original
arrangements  and  accepted  few  of  the  Commission’s
proposals.  The  Commission  submitted  another  proposal
substantially  amending  the  Regulation  in  January  this
year.  This  time  the  Council  and  Parliament  took  on
board  the  major  criticisms  of  Community  action  in
former  Yugoslavia  and  went  along  with  the  broad  thrust
of  the  Commission  proposal.

—  A  22-member  team  was  set  up  at  Sarajevo  office  in
late  1996,  some  seven  months  after  its  opening.  It
comprises  4 A  grades  (including  the  head  of  the
office), 1 B grade, 1 C grade and 16 local staff, seven
of  them  expatriates.  The  Commission  then  seconded
an  A-grade  official  to  the  administration  in  Mostar
(EUAM)  to  close  the  accounts  for  the  EU’s  activities
(ECU  200  million)  and  assigned  another  A-grade
official  to  the  OHR.

2.6. The Commission is required to work with UNHCR
in  the  case  of  refugees  since  the  Dayton  Agreement
assigned  a  mandate  to  UNHCR  specifically  for  this
purpose. Considerable problems were encountered during
discussions  with  the  UNHCR  on  the  EC  contribution  to
housing  projects  implemented  by  NGOs  through  the
UNHCR.  The  conditions  under  which  the  UNHCR
wished to receive EC contributions were, in some aspects,
contrary  to  the  requirements  of  the  Financial  Regulation
and  lacking  in  transparency.

—  In  1996  a  new  unit,  DG IA-D-1, 

reconstruction, 

and 
coordination, 

‘Bosnia  and
including
Herzegovina 
international 
aspects,
multi-country  programmes  for  former  Yugoslavia’,
was  set  up  in  Brussels.  At  the  end  of  1997  this  unit
had  a  staff  of  21,  two-thirds  of  them  assigned  to
former Yugoslavia.

horizontal 

As  far  as  external  technical  expertise  is  concerned,  1998
is  the  first  budgetary  year  for  which  the  Commission  is
authorised  to  use  operational  credits  for  technical
support  for  programme  implementation,  to  a  maximum
of 2-3.5 % of programme costs. This contrasts with other
donors  such  as  USAID  who  may  go  above  15 %  for
similar  types  of  expenditure.

2.5. The  1996  budget,  published  on  29  January  1996,
includes  three  headings  specifically  for  assistance  to
former Yugoslavia. Pending a legal basis, the Commission
was authorised to use ECU 7 million of the appropriation
for  heading  B7-5 4 1,  the  remaining  ECU  20  million
being held in reserve. The use of the ECU 20 million was
the
in 
subsequently  authorised 
trialogue.  In  April  1996  the  Commission  presented  a
draft  Regulation  for  the  reconstruction  headings;  it  did
not  enter  into  force  until  14  August  1996.  In  the  course
of  discussions,  the  Commission  proposal  underwent
major  amendments,  notably  the  addition  of  an  annex  on
the  award  of  contracts  based  on  the  TACIS  Regulation
and  wholly  unsuited  to  the  situation  in  Bosnia.  In  July
1997, i. e. the earliest date at which the Regulation could

framework  of 

the 

instructors  and  mine-clearers. 

2.7. The  Commission’s  mine-clearance  programme  has
It  has
trained  both 
provided  equipment  and  cleared  mines  from  many  areas
to  permit  both  the  return  of  refugees  and  the  execution
of large-scale infrastructure works. This scheme has been
carried  out  in  close  coordination  with  the  international
and  local  institutions,  and  the  Commission  has  taken
great care to avoid being caught up in the shady business
dealings  for  which  this  sector  is  notorious.  Some  delays
are  attributable  to  the  care  with  which  the  proposals
submitted  were  analysed.  Currently,  the  Commission  is
financing,  in  coordination  with  the  BiH  Mine  Action
Centre,  a  programme  aimed  at  developing  civil  defence
capacities  in  the  sphere  of  mine-clearance.  The  main
advantage  of  this  scheme  is  that  it  addresses  local
mine-clearance capacities and thereby increases the speed
and  effectiveness  of  the  operation.  The  commitment  of
the  appropriations  for  1997  has  been  delayed  by
difficulties 
the  Bosnian
the  negotiations  with 
authorities.  Planned  for  1997,  these  funds  were  carried
over  to  1998  and  committed  on  26  March,  enabling  a
contract  to  be  signed  between  the  Director-General  of
DG IA and the prime ministers of the Federation and the
Republika  Srpska.

in 

2.8. Through  the  Essential  Aid  Programme  in  1996  and
the  reconstruction  programmes  in  1996  and  1997,  the
Commission has repaired a total of 13 030 housing units
allowing  by  the  end  of  the  programme  period  the  return

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of  more  than  50 000  persons  (refugees  and  internally
displaced)  in  Bosnia.

The  return  of  refugees  and  displaced  persons  does  not
depend  solely  on  the  availability  of  housing.  There  are
numerous  variables  which  influence  when  a  family  will
return to its repaired home, including the availability of a
job,  education  facilities,  and  a  reluctance  to  return  to
rural  areas  because  of  changing  social  attitudes.  The
policy followed by the Commission is based on voluntary
return  and  respects  the  stringent  conditions  of  the
Dayton  Agreement  which  require  return  to  the  original
location  of  the  family.

the  Commission,  working  closely  with 
the  OHR,
approved  support  programmes  drawn  up  over  the  year,
for  introduction  in  the  course  of  this  year,  to  strengthen
the  Central  Bank,  the  Ombudsman,  the  Human  Rights
Commission  and  the  Constitutional  Court.

3.  DESIGN 

AND 

IMPLEMENTATION  OF 

AID

PROGRAMMES

Commission  strategy

2.10. A number of actions in the energy sector have had
some  success  such  as:

Planning  of  DG IA  measures

—  the  delivery  of  equipment  to  coal  mines  which  has

helped  increase  production  by  30 %,

—  the  delivery  of  coal  and  other  inputs  to  electricity
production  which  has  helped  make  power  cuts  in
Sarajevo  largely  a  thing  of  the  past,

—  the  distribution  of  gas  in  Sarajevo  has  helped  restore
supplies  to  3 800  families  and  electricity  supplies  in
Tuzla  have  helped  20 000  people.

2.11. The  short  term  objective  of  transport  actions  was
not  to  influence  refugee  return  but  to  restore  basic
transport services, in particular in Sarajevo. This has been
successful. Effects on refugee return will only occur in the
longer  term.

2.12. The  two  sectors  mentioned  demanded  careful
analysis before taking action. Though agriculture initially
received  no  major  funding,  the  situation  has  changed
considerably 
in  1997  and,  especially,  1998.  The
convincing  results  referred  to  by  the  Court  have  been
achieved  by  thoroughly  preparing  viable  projects  (with
the  assistance  of  a  project  coordination  unit  that  had
already shown its mettle with the World Bank) in a now
stable environment. For its part, the industrial sector had,
with  a  few  exceptions,  to  be  completely  reorganised
before  it  could  benefit  from  assistance  programmes.

2.13.
It  would  have  been  unrealistic  to  embark  on
massive  public  administration  programmes  before  the
basic institutions, and particular those provided for in the
Dayton Agreement, were in place. At the end of last year,

is 

in 

the 

the 

strategy 

taken  up 

international 

In  autumn  1995  the  Commission  published  four
3.3.
communications  announcing  a  comprehensive  strategy.
This 
reconstruction
programme drawn up by the Commission and the World
Bank. They submitted the programme to different donors
at three international conferences, obtaining the approval
of 
the
Commission  draws  up  guidelines  for  the  strategy’s
implementation. These guidelines are then translated into
sectoral  programmes  comprising  a  series  of  integrated
projects,  notably  for  refugees.  The  Memoranda  of
Understanding signed with the Bosnian authorities for the
1996  and  1997  programmes  also  provide  an  overall
framework 
those
programmes.

community.  Each  year 

implementation 

the 

for 

of 

This  budget  effort  was  the  subject  of  a  report  to  the
Council,  which  noted  its  main  conclusions  at  the  general
affairs  meeting  of  29  April  1997.

3.4. The  European  Commission  was  entrusted  with  the
management of the largest donor contribution for Bosnia.
The first allocations of funds in 1996 reflected the urgent
needs  affecting  a  wide  range  of  sectors,  but  also  the
limited absorption capacity of the individual sectors. The
EAP  focused  on  the  ten  key  sectors  most  affected  by  the
war.  In  addition,  the  weaknesses  of  the  institutional
set-up  as  well  as  non  reliable  local  counterparts  obliged
the  Commission  to  intervene  in  different  fields.

The  second  largest  donor,  the  World  Bank,  also  covered
a  wide  range  of  sectors  and  activities.

For the 1997 allocations, a more systematic programming
approach has been developed with priorities based on the
objectives  set  by  the  international  community  and  the
Member  States  as  agreed  in  the  conclusions  of  the  Peace
Implementation  Conferences  and  Steering  Boards  and
within  the  Council  meetings.

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31.7.98

3.5. The  EAP  was  the  Community’s  response  to  the
reconstruction  programme  drawn  up  by  the  Commission
and the World Bank with the backing of the IMF, which
was approved by the international community at the first
donor  conference  in  1995.

Support for refugees was and remains the first priority in
executing  the  budget  for  Bosnia-Herzegovina.

The  Commission  refocused  the  EAP  for  several  reasons.
It became aware of the difficult environment in which the
programme  was  operating:  the  substantial  risk  of  fraud,
denounced  at  the  time  by  the  High  Representative,  the
lack  of  transparency  in  the  management  of  aid  and  the
risk  that  aid  might  not  reach  its  intended  recipients
forced  the  Commission  to  centralise  the  programmes.  At
the  time  the  political  situation  in  Bosnia-Herzegovina
meant there was little point decentralising the programme
to  the  country’s  authorities.  In  taking  this  decision,  the
Commission  was  defending  the  Community’s  financial
interests.  The  programme  has  been  refocused  on  fewer
sectors.

that 

It  would  have  been  unrealistic  to  embark  on
3.7.
large-scale  institutional  support  programmes  before  the
basic institutions, and particular those provided for in the
Dayton  Agreement,  were  in  place.  It  was  not  until  the
Quick  Start  Package  of  autumn  1996 
the
international community started taking a more systematic
approach.  The  Commission  has  been  given  responsibility
for  everything  relating  to  foreign  trade  and  the  central
banking  system.  Its  assistance  has  been  swift  and
successful.  Such  has  been  its  success  that  it  has  been
asked  to  extend  its  assistance  to  the  sphere  of  taxation
(CAFAO) and commercial banking (training scheme), and
other  donors  dealing  with  the  commercial  law  have
sought  its  help.  The  Commission  has  also  been  asked  by
the  High  Representative  to  handle  assistance  for  the
organisation of the main institutions of State (Parliament,
the  Presidency,  Council  of  Ministers,  and  Ministers  of
State). This assistance has been in place since autumn last
year.  The  Commission  is  also  helping  the  Central  Bank
and  other  Dayton  institutions,  e. g.  the  Ombudsman,  the
Human  Rights  Commission  and  the  Constitutional
Court.  Last  but  not  least,  the  Commission  has,  since  the
start  of  the  year,  been  identifying  each  entity’s  needs  in
the  matter  of  reorganising  the  judicial  system.

services 

for  all  groups, 

The  safe  and  orderly  return  of  the  many  refugees  and
displaced  persons  calls  for  a  large  number  of  schemes
aimed  at  establishing  adequate  safety,  rehabilitating
housing  and  basic  infrastructure,  restoring  health,  social
and  education 
including
minorities,  and  launching  economic  activities  permitting
the reintegration of refugees into the economic and social
fabric.  It  is  difficult,  in  such  conditions,  to  distinguish
clearly  between  return  programmes  and  other  aid
activities.  Only  a  combination  of  such  schemes  can  have
any  lasting,  beneficial  impact  on  return.  Given  that  the
return  of  refugees  and  displaced  persons  is  so  complex,
the  Commission  has  sought  to  use  every  means  available
to  promote  that  process.

To  bring  the  reconstruction  process  under  way,  the
Commission  has  developed  a  large-scale  programme
(ECU  125  million)  to  deliver  the  equipment  and  supplies
necessary  to  relaunch  vital  sectors  of  an  economy
wrecked  by  war.  This  activity  was  better  handled  by
DG IA,  which  already  had  some  experience  of  supplying
goods  to  the  Caucasus,  Macedonia  and  Albania  and
standardised  procedures  developed  for  Phare/TACIS.
Note  also  that  the  Community’s  effort  to  assist  Bosnia’s
reconstruction,  coupled  with  the  overriding  wish  to
maintain  the  peace, 
is  a  new  experience  for  the
Commission  and  the  other  donors:  it  was  inevitable  that
the  instruments  used  would  have  to  be  adapted  to
circumstances.

Within  the  Commission,  DG IA’s  programmes  were
geared  more  to  infrastructure,  institutional  support  and
the  rehabilitation  of  housing,  while  ECHO  sought  to
support  social  and  vital  infrastructure  (health,  education,
emergency rehabilitation).

the  Commission  has  been
Since  December  1996 
developing  an  action  plan  in  support  of  health  reforms.
This  inter-DG  strategy  is  being  implemented  this  year.

During  the  programme’s  crucial  start-up  phase,  the
activities  of  Commission  departments  were  coordinated
by  an  interdepartmental  working  party  chaired  by  the
Deputy Director-General of DG IA. ECHO, DG XXI (for
CAFAO) 
involved
and  other  departments  were 
throughout  this  exercise.

3.8. The  Commission  fully  executed  the  budget  line  for
refugees  decided  in  1996  by  the  budget  authority.

This  formal  coordination  was  backed  up  by  numerous
informal  and  operational  contacts  between  departments.

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3.9. The  donors’  programme  involved  a  division  of
labour.  The  EBRD,  for  example,  handled  the  energy  and
telecommunications  sectors,  while  the  World  Bank  dealt
with transport and water. The Commission was involved
in  a  number  of  sectors  in  coordination  with  the  other
donors. For example, it handled the reconstruction of the
telecommunications  system  which  restored  connections
between  the  Republika  Srpska  and  the  Federation  last
September  (cf.  3.30.).

Planning  of  ECHO  measures

3.10. Although  the  Commission  has  announced  an
envelope  of  ECU  1  billion  for  reconstruction  for  the
period  1996-1999,  budget  execution  takes  place  with  in
an  annual  framework.

the  Commission  has  decided 

In  view  of  the  continuing  humanitarian  needs  in
3.11.
Bosnia, 
to  maintain
substantial  humanitarian  aid  alongside  reconstruction
assistance.  These  activities  are  coordinated  by  the
interdepartmental  working  party  and  informal  contacts
(cf.  3.8.).

3.12. ECHO’s  activities  in  the  housing  sector  were
limited  in  1996,  the  main  operation  being  a  pilot  project
set  up  by  the  UNHCR.  It  was  not  until  last  year,  after  a
request of the High Representative, that ECHO really got
involved  in  this  sector.

Organisation  of  DG IA  departments

3.13. Given  the  constraints  on  creating  new  posts,  the
Commission  has  redeployed  staff  to  reinforce  the  teams
managing  this  assistance.  These  measures  have  had  the
following  results:

—  A  22-member  team  was  set  up  at  Sarajevo  office  in
late  1996,  some  seven  months  after  its  opening.  It
comprises  4 A  grades  (including  the  head  of  the
office), 1 B grade, 1 C grade and 16 local staff, seven
of  them  expatriates.  The  Commission  then  seconded
an  A-grade  official  to  the  administration  in  Mostar
(EUAM)  to  close  the  accounts  for  the  EU’s  activities
(ECU  200  million)  and  assigned  another  A-grade
official  to  the  OHR.

—  In  1996  a  new  unit,  DG IA-D-1, 

Herzegovina 
international 

and 
coordination, 

reconstruction, 

horizontal 

‘Bosnia  and
including
aspects,

multi-country  programmes  for  former  Yugoslavia’,
was  set  up  in  Brussels.  At  the  end  of  1997  this  unit
had  a  staff  of  21,  two-thirds  of  them  assigned  to
former Yugoslavia.

As  far  as  external  technical  expertise  is  concerned,  1998
is  the  first  budgetary  year  for  which  the  Commission  is
authorised  to  use  operational  credits  for  technical
support  for  programme  implementation,  to  a  maximum
of 2-3.5 % of programme costs. This contrasts with other
donors  such  as  USAID  who  may  go  above  15 %  for
similar  types  of  expenditure.

For  1998,  the  Commission  has  decided  to  devolve  the
implementation  of  Community  assistance  to  staff  in
Bosnia.  The  Delegation,  and  in  particular  its  head,  are
going  to  be  given  greater  powers.  It  is  also  going  to
increase  staffing  at  its  offices  in  various  Bosnian  towns
outside  Sarajevo,  and  thus  its  presence  on  the  ground,
especially  in  Banja  Luka  and  Mostar.

For the first time in the 1998 budget there are allocations
for  ex-Yugoslavia  followed  by  a  comment  which  allows
the  Commission  to  use  operational  funds  for  technical
support  purposes  —  up  to  2 %  for  Phare  and  3,5 %  for
Reconstruction,  otherwise  known  as  the  STAP  facility.
This  facility  will  help  in  part  to  resolve  some  of  the
human  resources  problems 
faces.
However,  it  contrasts  with  USAID  which  benefits  from
over  15 %  support  for  similar  expenditure.

the  Commission 

3.14.-3.15. The Commission has decided to increase the
size  of  the  Delegation  in  Bosnia  and  Herzegovina.  The
staff  selected  will  take  up  their  duties  this  spring.  The
Commission  will  then  have  21  A-grade  staff  in  Bosnia
and  Herzegovina  (10  officials  and  11  local  technical
assistance  staff)  and  10  C-grade  staff,  three  of  them
officials.  In  total,  the  Delegation  will  have  a  staff  of  36,
17  of  them  officials.  It  is  also  launching  an  invitation  to
tender  to  set  up,  in  Bosnia,  a  technical  assistance  unit  to
prepare  and  supervise  projects  under  its  control.

3.16. The  EAP  in  Bosnia  was  launched  under  extreme
conditions.  Given  the  importance  and  amount  of  the
financial assistance involved, the need to ensure adequate
control,  and  the  extremely  complex  situation  following
the  armed  conflict,  a  visible  and  operational  presence  of
the  Commission  was  considered  essential  to  assist  the
implementation  of  the  programme.

The EC Office in Sarajevo in the first half of 1996 was a
technical office which was opened primarily to implement

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31.7.98

the  Essential  Aid  Programme.  The  staffing  comprised
technical  and  external  experts  and  it  was  therefore
justified  to  use  operational  credits  for  this  purpose.  At
that time the Commission could not use credits from Part
A  of  the  Budget  as  the  decision  to  establish  a
Commission  Delegation  in  Sarajevo  was  not  taken  until
24  April  1996.

Running  costs  relating  to  the  functioning  of  the  office
were  progressively  absorbed  as  the  official  Commission
presence in Sarajevo was consolidated. This was achieved
firstly  through  an  advance  account  and  then  an  imprest
account.  The  two  major  running  costs  of  office  rent  and
staff  salaries  were  met  using  credits  from  Title  A6  of  the
EC  budget  with  effect  from  June  and  November  1996
respectively.  However,  the  availability  of  extra  credits  in
Part A of the Budget would have made the Commission’s
task easier.

government  apparatus,  in  transition  from  Communism
system  to  a  Western-style  democracy,  did  not  seem  to
offer  the  Commission  the  guarantees  necessary  for  the
decentralised  implementation  of  Community  aid.

to  centralise 

the  management  of 

It is in full awareness of all the risks that the Commission
has  opted 
its
programmes.  Its  experience  of  the  EAP  bears  out  its
judgement.  The  Commission  deliberately  chose  not  to
create  PMU-type  structures  in  Bosnia:  their  proliferation
in  some  Phare  countries  has  attracted  criticism  and  they
are  currently  being  rationalised.

As  a  result  of  subsequent  improvement  in  the  political
the  establishment  of  more  reliable
structures  and 
institutions  in  Bosnia  Herzegovina,  the  Commission  is
preparing  from  spring  1998  to  deconcentrate  certain
functions  by  transferring  resources  to 
in
Sarajevo.  (see  the  remarks  in  3.13.-3.15.).

its  office 

in 

the 

taken 

implementation  of 

3.17. The specific situation of Eastern Slavonia has to be
taken  into  consideration  in  order  to  understand  the
decisions 
the
Commission’s projects. The region was under the control
of  UNTAES  whose  mandate  expired  15  January  1998,
the date of the full reintegration of the region to Croatia.
During this period UNTAES was the institution in charge
of 
the  only  official
counterpart  to  the  Commission.  However,  given  that
UNTAES  had  no  legal  statute  it  was  not  possible  to
formalise  an  agreement  with  the  Commission.

the  administration,  and  was 

Therefore,  given  its  overall  personnel  constraints,  the
Commission had recourse to the procedures described by
the Court in order to ensure an adequate level of staffing
and  administration  on  the  spot  of  the  funds  concerned.
This  has  enabled  the  Commission  to  speed  up  the
mobilisation  of  Community  aid.

3.20.-3.21. As  stated  in  3.13.-3.15.,  the  Commission  is
implementation  by
taking 
reinforcing  its  office  in  Sarajevo.

to  deconcentrate 

steps 

In  addition,  the  Commission,  together  with  the  Bosnian
Ministry  of  Agriculture,  Water  and  Forestry,  has
developed  an  approach  not  to  create  PMUs  but  to
reinforce  the  administrative  capacity  of  some  public
institutions:

—  In  the  water  sector,  a  Project  Coordination  Unit  was
formally  established  in  October  1997  to  offer  an
interface  between  the  Commission  and  the  relevant
identifying  and
ministry 
implementing  the  projects.  The  role  of  the  unit  is
limited  to  the  technical  management  of  the  projects.

the  Federation 

in 

in 

involved 

is  actively 

coordinating 

in  the
3.18. The  Commission 
Economic  Task  Force 
the  overall
reconstruction  process.  It  is  also  actively  involved  in  the
sectoral  working  parties,  especially  in  sectors  receiving
Community  financing,  which  it  has  asked  the  IMG  to
chair 
technical  know-how  and
its 
in  view  of 
understanding  of  the  needs.

In  order  to  respond  quickly  to  the  emergency
3.19.
situation  arising  after  the  end  of  the  conflicts 
in
Bosnia-Herzegovina,  the  Commission  implemented  the
EAP  using  a  sub-contracted  arrangement.  However,  the
difficulties  described  in  3.5  led  the  Commission  to  stop
the  programme  and  centralise  its  management.  At  the
time,  the  situation  in  Bosnia,  a  country  emerging  from  a
war  with  a  weak,  complex  and  barely  functioning

—  More  recently,  the  Commission  agreed  at  the  end  of
1997  to  fund  the  Agriculture  Implementation  Unit
supported  to  date  by  the  World  Bank.

Given the difficulties in the region, there was no question
setting  up  PMUs  in  the  ministries  during  the  start-up
phase  (cf.  3.19).

The  Commission  is  no  less  involved  in  coordinating
international  aid  than  the  World  Bank.

3.22. The  measures  taken  to  strengthen  the  capacity  of
the  Delegation  are  described  in  3.13.-3.15.  In  addition,

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the  Commission  is  putting  in  place  a  technical  assistance
unit  on  the  ground,  and  an  audit  facility.

the  managers  of  offices  on  the  ground  are  asked  two
months  before  contracts  expire  whether  renewal 
is
recommended  and  whether  consultants  wish  to  continue
their  missions.

As  far  as  the  Mostar  programme  was  concerned,  almost
all  staff  in  the  city  were  provided  by  Member  States  at
little  or  no  cost  to  the  Community  budget.  The
Commission detached an official to Mostar and provided
costs  of
support 
administering  the  action  were  met  from  the  operational
budget  in  accordance  with  the  Joint  Action.  These
arrangements  are  more  generous  than  those  permitted
under  existing  legislation  for  the  reconstruction  or  Phare
budget  lines.

technical  assistance.  The 

for 

to 

of 

the 

regularly 

President 

3.23. The  Head  of  EC  CAFAO  consults  with  the
management  in  DG XXI  on  a  quasi-daily  basis  and
reports 
the
inter-departmental group. This line of command allows a
decentralised  system  to  work  without  losing  control  of
the  operation.  The  effectiveness  of  the  EC  CAFAO
financial
operation 
management  relies  on  back-up  and  support 
from
Brussels,  be  it  management  guidance,  organising  the
supply  of  the  international  staff,  the  purchase  of  the
necessary  equipment,  the  management  of  the  funds  with
the procurement agent, the control of the local budget of
CAFAO  etc.

terms  of  organisation  and 

in 

applying 

arrangements 

3.24. The  World  Bank  and  USAID  (up  to  15 %  of
programme  costs)  benefit  from  greater  flexibility  in  the
financial 
programme
management  costs  than  the  Budgetary  Authority  which
has,  on  an  exceptional  basis,  permitted.  the  Commission
to use 2-3.5 % of programme costs. USAID benefits from
the  possibility 
to  contracts
exceeding  several  million  ecus  without  formal  tendering
in
procedures  (e.g.  operating  costs  of  their  office 
Sarajevo).

to  conclude  addenda 

to 

3.25. The  Commission  appointed  a  new  Director  for
Ex-Yugoslavia  on  1  November  1997.  In  addition,  a
Special  Advisor  with 
for
coordinating  aid  on  the  spot  in  Bosnia  as  well  as  in
Brussels  was  appointed  on  1  December  1997.

responsibility 

specific 

Organisation  of  ECHO  departments

3.26. Given  the  particular  nature  of  humanitarian  aid,
the  consultants  recruited  for  ECHO  missions  on  the
ground  are  employed  on  renewable  six-month  contracts.
Since  it  takes  about  six  weeks  to  prepare  such  contracts,

3.27. To  enhance  operational  efficiency,  ECHO 
is
currently considering the scope for decentralising some of
contracting  and  payment  procedures.  ECHO
its 
Bosnia-Herzegovina has, since 1996, been able to manage
projects  up  to  a  limit  of  ECU  42 000.

However, consultation of headquarters remains necessary
for  the  purposes  of  managing  contracts.  Without  such
consultation,  headquarters  would  find  it  difficult  to
monitor  the  proper  conduct  of  operations  in  the  field.
Such decentralisation would also appreciably increase the
costs  of  technical  assistance.  Should  it  nevertheless  take
place, the Commission would need more staff to enable it
to  send  humanitarian  specialists  into  the  field.

Programme  implementation 

Rate  of  utilisation  of  appropriations

3.29. Much  as  the  Commission  would  have  liked  it  to,
the EIB’s statutes prevented its involvement in the process
because  of  a  Bosnian  debt  connected  with  the  pre-war
debt  to  the  EIB.  In  May  the  Commission  will  be  putting
proposals  to  the  Council  aimed  at  enabling  the  EIB  to
play  its  part.

3.30. The  Court  seeks  to  draw  comparisons  between
actions financed by the Commission and those funded by
other  donors.  Such  a  comparison,  however,  neglects  to
note  that  other  donors  implement  actions  of  a  very
different  nature.

For  example,  the  World  Bank  provides  its  support
essentially through loans. Managing a loan scheme differs
significantly  from  a  grant  re´gime  such  as  the  one
provided  by  the  Commission.  Grants  are  provided  with
no  guarantee  other  than  the  political  commitment  of  the
beneficiary.  In  order  to  protect  public  funds,  controls  on
the  disbursement  of  grants  are  therefore  much  more
complex  and  slower  than  those  for  loans.  In  contrast  to
this  situation,  loans  are  repayable  and  guaranteed  by  the
beneficiary  state.  Their  repayments  are  credited  to  the
balance  sheet  of  the  bank.  Political  conditionality  is  less
the
In  spite  of 
of  a  constraint. 

this  handicap, 

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disbursement  performance  of  grants  provided  by  the
Commission  and  the  loans  of  the  World  Bank  is  broadly
similar.

Commission in the preparation of the programmes in the
sectors  where  they  have  a  real  expertise  such  as  to
identify  projects  and  means  of  implementation  (SRSA,
among  others,  was  identified  by  the  IMG  as  a  suitable
NGO  for  Gorazde).

the  case  of 

the  European  Union,  where 

As  far  as  USAID  is  concerned,  a  substantial  component
of  the  assistance  they  provided  was  in  the  form  of  credit
lines 
to  small  businesses,  again  with  more  rapid
disbursement  rates.  The  decision-making  procedures
applying  to  USAID  are  also  markedly  more  simple  than
in 
the
Commission  had  to  operate  under  a  Regulation  with
much  stricter  public  procurement  rules.  Indeed,  the
Reconstruction  Regulation  imposed  by  Council  was  in
fact  a  simple  transposition  of  the  TACIS  Regulation,
quite  unsuited  to  the  situation  in  Bosnia.  In  contrast  to
the  United  States,  which  worked  initially  mainly  where
their  troops  are  based,  European  Union  aid  initially
comprised both entities. Aid to the Republika Srpska was
suspended  first  in  1996  and  then  in  1997  because  of  the
requirements  of  the  Dayton  Agreement,  and  this  also
slowed  down  disbursement.

instructors  and  mine-clearers. 

3.32. The  Commission’s  mine-clearance  programme  has
trained  both 
It  has
provided  equipment  and  cleared  mines  from  many  areas
to  permit  both  the  return  of  refugees  and  the  execution
of large-scale infrastructure works. This scheme has been
carried  out  in  close  coordination  with  the  international
and  local  institutions,  and  the  Commission  has  taken
great care to avoid being caught up in the shady business
dealings  for  which  this  sector  is  notorious.  Some  delays
are  attributable  to  the  care  with  which  the  proposals
submitted  were  analysed.  Currently,  the  Commission  is
financing,  in  coordination  with  the  BiH  Mine  Action
Centre,  a  programme  aimed  at  developing  civil  defence
capacities  in  the  sphere  of  mine-clearance.  The  main
advantage  of  this  scheme  is  that  it  addresses  local
mine-clearance capacities and thereby increases the speed
and  effectiveness  of  the  operation.  The  commitment  of
the  appropriations  for  1997  has  been  delayed  by
difficulties 
the  Bosnian
the  negotiations  with 
authorities.  Planned  for  1997,  these  funds  were  carried
over  to  1998  and  committed  on  26  March,  enabling  a
contract  to  be  signed  between  the  Director-General  of
DG IA and the prime ministers of the Federation and the
Republika  Srpska.

in 

Project  preparation

3.33. The  measures  described  in  3.13.-3.15  and  3.22.
are  designed  to  improve  the  situation  of  Commission
services  on  the  ground  in  Sarajevo.

The  IMG  is,  however,  only  involved  in  certain  sectors
(energy,  housing,  transport  and  water).  It  is  therefore
unable  to  help  the  Commission  in  sectors  such  as
education, 
institutional
development.

agriculture 

health, 

or 

3.35. At  the  NGO  meeting 
in  January  1998  the
expectations  and  requirements  of  the  Commission  were
fully  explained.  The  Commission  presented  a  detailed
document of over 400 pages setting out clear instructions
on  drawing  up  proposals.  The  proposals  received,
representing about 200 projects, have been examined and
evaluated  on  the  basis  of  pre-established  technical
criteria.  The  Court’s  description  of  this  exercise  as  being
‘NGO  demand-driven’  fails  to  take  account  of  these
factors.

In  the  humanitarian  field,  the  Commission  supervises
NGOs  and  their  activities  through 
its  on-the-spot
technical  assistance  staff,  who  enable  ECHO  to  play  an
active  role  and  keep  the  initiative  in  its  partnership  with
the  NGOs  in  the  field.  ECHO  also  makes  frequent  visits
to its partners’ headquarters to check their administrative
and  financial  capacities  and  the  accuracy  of  data  in  their
descriptive  and  financial  reports.  Last  but  not  least,
ECHO  also  evaluates  projects  and/or  programmes.

Contracting

3.36. The  existence  of  two  separate  Regulations  reflects
the  Budgetary  Authority’s  decision  in  1996  to  create  a
new  line  specifically  for  reconstruction,  for  which  a  legal
base  is  necessary.  In  1995,  the  budget  allocation  having
been established, Phare seemed to be the only instrument
available.

3.37. The  derogations 
standard  procedures
introduced  in  the  EAP  enabled  the  Commission  to  speed
up  the  implementation  of  the  programme  in  response  to
an  urgent  situation.

from 

3.34. The  IMG  was  created  at  the  initiative  of  the
Commission.  It  has  consistently  been  used  by  the

3.39. The Commission has launched a financial audit of
the  EAP  and  will  address  the  points  raised  by  the  Court
concerning  the  Procurement  Agents  in  that  context.  As
far  as  the  Commission’s  own  actions  are  concerned:

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a)
Short-lists of suppliers drawn up by the Procurement
Agents  (PAs)  were  based  on  a  register  collected  through
an  open  call  for  expressions  of  interest  issued  by  the
Commission.  The  register  gathered  a  total  of  1 692
potential  suppliers  (from  14  EU  and  11  Phare  countries)
covering  all  eight  sectors  of  EAP.

c)
In a Bosnia emerging from war and where there was
still  a  considerable  risk  of  instability,  it  is  easy  to
understand  why  the  lowest  bids  sometimes  exceeded  the
sum  initially  allocated  for  the  operations.

d) The  terms  of  reference  for  contracts  between  the
Commission  and  procurement  agencies  were  very  precise
with  regard  to  the  procedures  governing  equipment
purchases.  In  some  cases  the  Commission  authorised
derogations  from  the  normal  deadlines  laid  down  by  the
Phare  rules  to  respond  to  the  urgency  of  the  situation.

g) The  Commission  took  care  in  checking  lengths  of
short-lists  and  provided  statistics  on  their  geographical
distributions  among  Member  States.

Complaints  were  received  from  some  Member  States
pointing  out  that  the  number  of  contracts  awarded  to
their respective national manufacturers did not reflect the
level  of  their  contribution  to  the  EU  budget.  These
for  a  completely
remarks  conflict  with 
independent 
EAP
the 
approach 
programme.

to  managing 

the  need 

3.40. As  laid  down  in  Regulation  1628/96,  the  Phare
countries  enjoy  access  to  contracts  on  an  exceptional
basis.  This  differentiation  was 
the
Commission  by  the  legislative  authority.

imposed  on 

to 

the 

3.41. Contrary 
the
Commission,  the  Council  imposed  stricter  ceilings  on
more  flexible  procurement  procedures  in  particular  for
supplies  and  works  contracts.

initial  proposal  of 

3.45. The  scale  used  by  ECHO  to  cover  the  costs  of
local staff will shortly be updated, notably in view of the
failure  of 
in
Bosnia-Herzegovina.

reflect  current  conditions 

fees 

to 

contracts 

for  preparing 

ECHO’s  procedures 
for
rehabilitation  in  Bosnia-Herzegovina  require  the  partner
to  draw  up  a  preliminary  specifications  for  approval  by
the 
IMG  and  ECHO  Bosnia-Herzegovina  before
contracts  are  drawn  up  and  signed.  These  specifications
cannot be included in the contract because they generally
undergo  many  changes  in  the  course  of  works.  If  they
were included, each change would require the contract to
be  amended,  generating  a  considerable  amount  of  red
tape.

The duration of the guarantee is agreed between the firm
carrying  out  the  works  and  the  recipient  of  the  project.
At  the  end  of  each  project,  the  NGO,  the  construction
firm  and  a  representative  of  the  recipient,  often  the  local
council,  carry  out  a  joint  inspection,  at  the  end  of  which
the  recipient  usually  accepts  the  works  and  takes
possession  of  the  building.  ECHO  Bosnia-Herzegovina
also  asks  the  IMG  to  carry  out  the  final  inspection  of
works  before  approving  the  final  payment,  which  in
ECHO’s  case  is  always  20 %.

Payments

3.46.-3.48.
It  may  be  possible  for  advance  payments  to
be  made  directly  by  the  financial  unit  of  DG IA.
However,  this  would  need  to  be  clearly  specified  in  the
contract.  The  Commission  will  examine  the  feasibility  of
this  procedure.  Requests  for  normal  payments  should
continue  to  be  sent  to  the  operational  services  in  order
that  the  service  rendered  can  be  verified  and  the  request
endorsed  ‘Conforme  aux  faits,  bon  à  payer’,  as  required
by  the  Financial  Regulation.  The  setting  up  of  a  local
payments  system  on-the-spot  to  accelerate  procedures  is
envisaged.

In  view  of  the  circumstances,  the  use  of  NGOs
3.42.
helped  cut  costs,  speed  up  procedures  and  manage  a
large-scale  operation  more  effectively.

3.47. A  standard  format  for  a  bank  guarantee  has  now
been  developed  and  is  annexed  to  each  contract.

A  standardised  form  for  completion  by  the  manager  is
now  an  integral  part  of  the  dossier.

Nevertheless,  whatever 
format,  many  bank
guarantees have to be returned to the contractors for the
following  reasons:

their 

3.43. Rules  governing  sub-contracting  were  amended  in
the  August  1997  vade-mecum  following  the  Court’s
comments  on  this  aspect.

1. The  date  of  validity  on  the  bank  guarantee  is
incorrect:  it  does  not  comply  with  the  general  conditions
and  specifies  too  early  an  expiry  date.

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2. The  bank  account  mentioned  on  the  bank  guarantee
(which  directly  affects  the  validity  of  this  guarantee)  and
the bank account on the contractor’s request for payment
do  not  tally.  The  Commission  cannot  execute  such  a
payment  without  undermining  the  bank  guarantee.  This
is  therefore  a  question  of  substance  rather  than  of  form.

3.49. The  decision  to  repair  the  Parliament  and  the
choice  of  the  parts  to  be  repaired  were  put  forward  by
the  OHR  and  the  World  Bank.  The  project  had  already
been  appraised  and  invitations  to  tender  prepared  when
the  Commission’s  financial  support  was  sought.  The
Commission  could  have  refused  to  take  part  because  the
new  invitations  to  tender  it  had  to  launch  under  its  own
procedures  meant  there  was  no  way  it  could  meet  the
deadlines.  Given  the  absence  of  other  funds  and  the
political  importance  of  rebuilding  the  Parliament,  the
Commission pledged its backing for the works requested,
which  did  not  include  the  main  chamber.

The Director-General of DG IA visited the site on 3 April
after  consulting  the  High  Representative.  The  project
plays  a  strategic  role  in  the  international  community’s
efforts  to  bring  together  the  central  authorities  and  the
Parliament  of  Bosnia-Herzegovina  in  these  premises.  All
concerned on the spot confirm the redundancy of the old
chamber  in  view  of  the  availability  of  suitable  smaller
meeting  rooms.

Project  monitoring  and  evaluation

3.51. For the EAP programme, Technitas were given the
specific  task  of  monitoring.  The  role  of  the  Programme
Officers  was  therefore  to  accompany  the  programme  on
the  ground  in  close  liaison  with  the  Task  Manager  in
the  overall
Brussels  who  retains  responsibility 
monitoring.

for 

the 

reconstruction 

For 
programme,  monitoring
arrangements  exist  for  the  sectors  of  housing  (since
mid-1997),  water  (since  October  1997)  and  (since
December 1997) agriculture. A more systematic approach
will draw upon the budget remarks of the Ex-Yugoslavia
lines in the 1998 budget which allows for a proportion of
the  operational  credits  to  be  used  for  technical  support
purposes.  Part  of  these  credits  are  to  be  used  for
monitoring  purposes.

3.52. A draft evaluation report will be sent to the Court
when  it  becomes  available  in  May,

is 

the  process  of
3.53. a) The  Commission 
developing  arrangements  with  Bosnian  authorities
concerning  the  utilisation  of  the  counterpart  funds
generated by the repayments of the loans made under the
Phare  moto-cultivators  project.

in 

In  line  with  the  1998  Agriculture  Financial  Proposal,  an
umbrella  organisation  will  be  created  to  both  provide
seed  capital  and  credit  facilities  in  rural  areas  and
coordinate  the  management  of  the  counterpart  funds.
Priority  support  will  be  given  to  those  initiatives  that
generate  employment  in  rural  areas  and  process  local
produce.

b) The payment system is based on cash-flow estimates.
The  Commission  cannot  estimate  the  operating  funding
needed until projects have become operational (i. e. at the
time  of  the  first  interim  payments  and  after  the  payment
of  advances).

c) The  financial  accounts  will  be  consolidated  just
before  the  closure  of  the  accounts  for  the  special  funds.

3.54. All  projects  are  currently  supervised  by  technical
agencies  (IMG,  specialist  contractors  etc.).

requested 

repeatedly 

3.55. b) The  Council 
the
Commission  to  fund  the  UNHCR  in  the  case  of  refugees
since  the  Dayton  Agreement  assigned  a  mandate  to
UNHCR  specifically  for  this  purpose.  Considerable
problems  were  encountered  during  discussions  with  the
UNHCR  on  the  EC  contribution  to  housing  projects
implemented  by  NGOs  through  the  UNHCR.  The
conditions  under  which  the  UNHCR  wished  to  receive
EC  contributions  were,  in  some  aspects,  contrary  to  the
requirements  of  the  Financial  Regulation  and  lacking  in
transparency.

c)
Since  May  last  year  every  ECHO  contract  with  the
UNHCR has included a clause requiring ‘sub-agreements’
to  be  transmitted  to  ECHO.

4.  IMPACT

Geographical  distribution

Entities  constituting  Bosnia-Herzegovina

U n a   S a n a   ( F e d e r a t i o n )

4.4. Whilst  Una  Sana  is  a  priority  case  for  returning
refugees,  the  Commission  has  never  subscribed  to  the

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in 

shortcomings 

the  proposal.  When 

plan  proposed  by  the  Federation  authorities  because  of
certain 
the
Commission  proposed  to  include  other  elements  (e. g.
social  infrastructure  and  repairs  to  basic  infrastructure)
considered  essential  to  encourage  refugees  to  return,  this
was not accepted by the Federation authorities which led
to  delays 
the
Commission  continued  to  fund  programmes  in  Una  Sana
independently  of  the  proposal  made  by  the 
local
authorities.  There  is  also  an  agricultural  project  worth
over  ECU  2  million  which  represents  a  significant
contribution  to  this  sector.

the  negotiations.  Nevertheless, 

in 

A  study  was  sought  after  the  Commission  received  many
plans and requests for funding in the Una Sana area. The
study  gave  a  clearer  picture  of  the  huge  needs  in  this
canton  and  constituted  the  basis  of  further  planning  for
the  region.  This  includes  the  ECU  141  million  Refugee
programme for 1998 and for which a Refugee Workshop
was  held  in  January  1998  to  brief  and  prepare  the  main
players  likely  to  be  responsible  for  the  programme’s
implementation.  Part  of  this  programme  will  be  destined
for  Una  Sana.

B r c k o   ( R e p u b l i k a   S r p s k a )

4.3.-4.5. The  return  programme  also  enabled  a  number
of  projects  to  be  financed  in  Brcko.

Croatia

limited 

4.6. An  initial  presence  was  established  by  UNTAES  in
the  Vukovar  area  during  the  1st  semester  of  1996.  The
initial  decision  for  the  1996  programme,  made  against  a
background  of  political  pressure  to  begin  reconstruction
information
measures,  was  based  upon  the 
available  during  the  early  period  of  the  presence  in  the
area.  Once  the  Commission’s  implementing  agency  was
more firmly established it became evident that changes to
the  programme  were  required  to  more  closely  align  the
constituent  elements  with  the  reconstruction  needs  and
political  requirements  of  the  area.  To  have  done  nothing
pending  clear  identification  of  the  exact  needs  would
have  seriously  delayed  the  Commission’s  (and  hence
EU’s)  response  to  the  area’s  needs,  an  option  considered
to  be  politically  unacceptable.

contingent on the trialogue (see 2.5) and the adoption of
reconstruction Regulation. As a result, projects could not
begin  until  autumn  1996.  In  order  to  further  accentuate
the  return  of  refugees  and  displaced  persons,  the
Commission  organised  on  January  23 1998  a  workshop
with  NGOs  in  order  to  launch  a  comprehensive  return
programme  financed  from  the  1998  budget.  Following
this  workshop  attended  by  more  than  200  NGOs,  the
Commission decided on March 27 to develop a ECU 141
including  an  ECU  105  million
million  programme 
housing  programme  allowing  the  rehabilitation  of  5 000
houses. This programme is now under implementation. A
first  tranche  of  ECU  63  million  for  rehabilitation  of
houses  has  already  been  launched  and  contracts  were
signed in Sarajevo with 23 NGOs on April 3. The repairs
are  going 
the  1998
reconstruction period (mainly during spring and summer)
and  will  be  achieved  before  the  winter  period.  The
programme  foresees  the  return  of  20 000  additional
persons  in  1998.  A  second  tranche  is  ready  and  will  be
launched  as  soon  as  the  budget  earmarked  for  it  is
available (i. e. when the ECU 30 million reserve placed in
the  1998  Budget  is  lifted).  Projects  are  selected  and
contracts  are  ready.

implemented  during 

to  be 

4.13.  a) Gorazde:  The  Commission  asked 
the
procurement  agent  Italtrend  to  recover  the  amount
overpaid  to  SRSA  for  works  not  carried  out,  an  amount
calculated  by  an  outside  auditor  at  DM  787 384.  The
Commission has recently concluded that SRSA, unable to
recover  advances  paid  to  its  subcontractor  Bosna  Auto,
was unable to repay the sum and was now contesting the
validity  of  the  audit.  The  Commission  is  now  studying
the  possibility  of  legal  action.

c) The  Stolac  pilot  project  was  very  difficult  to
implement  because  of  the  great  tension  between  Croats
and Bosnians in this part of Bosnia-Herzegovina. Progress
has  nevertheless  been  made:  the  rehabilitation  of  95
houses  was  completed  in  March,  and  the  owners  have
since  returned  to  94  of  them.  Furthermore,  this  pilot
project  encouraged  many  members  of  the  minority  to
return  to  Stolac  of  their  own  accord  in  March  and
April.

Sectoral  distribution

Housing  and  refugee  return

4.10.-4.11. The  rehabilitation  of  housing  depended  on
the  availability  of  budget  resources,  which  was  itself

4.14.
It  has  been  impossible  for  the  Commission  to
concentrate  only  on  refugees  because  of  the  social  unrest
this  may  cause  in  any  given  community.  Without  the
return  of  displaced  persons  to  their  homes,  there  is  little
chance of having refugees returning. The Commission has
increasingly  used  the  following  breakdown  for 
its
reconstruction  programmes:  50 %  for  refugees  returning

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from  the  EU,  40 %  for  displaced  persons  and  10 %  for
vulnerable persons.

In  1997  the  Commission  focused  on  social  infrastructure
projects  (Bihac  hospital,  rehabilitation  of  schools)  to
flank  the  housing  rehabilitation  programme.

Through  the  Essential  Aid  Programme  in  1996  and  the
reconstruction  programme 
in  1996  and  1997,  the
Commission has repaired a total of 13 030 housing units
allowing  the  return  by  the  end  of  the  programme  period
of  more  than  50 000  persons  (refugees  and  internally
displaced)  in  Bosnia.

4.16.-4.17. The system of loans developed with the KfW
could  not  be  introduced  earlier  because  there  was  no
legal  framework  in  Bosnia  for  such  a  scheme.  Moreover,
the  ownership  of  properties  is  the  subject  of  dispute,
which  makes  any  system  of  rehabilitation  loans  difficult
and  requires  the  Commission’s  support  for  properties.
Lastly,  there  was  no  reliable,  unified  banking  system  in
Bosnia.  In  view  of  these  factors,  it  would  have  been
difficult 
earlier  without
this 
endangering  the  management  of  European  public  funds.

to  develop 

system 

4.19. The  reason  that  the  repairs  focused  on  external
works and communal areas (except for Eastern Slavonia)
was  because  of  the  ownership/tenancy  issues:  this  work
was  designed  to  preserve  the  buildings  and  enable  their
use  by  their  current  occupants,  rightful  or  not.  When
ownership/tenancy  issues  could  be  solved,  repairs  were
also carried out in the apartment itself: this is the case of
Vukovar  through  the  Housing  Allocation  Committee.  A
similar  setting  is  currently  being  designed  for  Sarajevo
The
with 
EC/US/OHR 
joint 
a 
ownership/tenancy 
if  any
instrumental 
significant  return  to  the  cities  is  to  be  achieved.

issues  are 

initiative. 

Education

Before  this  scheme  was  set  up,  the  Commission  had  no
option  but  to  accord  grants  for  the  rehabilitation  of
housing.

likened  to  aiding  the
Promoting  return  cannot  be 
vulnerable.  Return,  if  it  is  to  last,  must  focus  on
communities and not on individuals selected according to
social  and  economic  criteria.  More  generally, 
the
Commission has tried to encourage the minority to return
wherever the start of a process of return is thought likely
to  trigger  wider,  spontaneous  movements  of  return,  so
freeing  accommodation  currently  occupied  by  displaced
persons  and  enabling  refugees  to  return  from  abroad.

4.21. The  education  programme  of 
the  EAP  has
industrial
significantly  contributed  to  reviving 
local 
production.  SIP  Konjuh,  one  of  the  largest  furniture
manufacturers in BiH before the war, was able to re-start
production,  to  specialise  in  furniture  for  schools  (which
was not in its range of products), and to increase its staff
from  384 
today.
Furthermore,  the  improved  quality  control  imposed  by
EAP has contributed to make SIP Konjuh competitive on
the  international  market:  this  company  exports  by  now
40 %  of  its  production  world-wide.

to  1 200  employees 

in  1994 

The  goods  were  distributed  to  schools  by  the  Bosnian
authorities  according  to  criteria  of  their  own.

4.18. The  rate  of  occupancy  of  homes  rehabilitated  by
the  end  of  1997  is  70 %,  slightly  higher  than  the
UNHCR’s  estimates 
the  donors  as  a  body
(60-65 %).

for 

Health

Note,  however,  the  following  points:

—  The  approach  sometimes  used  for  reconstruction
(self-help)  leaves  owners  free  to  complete  the  works
at  their  convenience,  which  means  that  works  are
sometimes  finished  after  the  contract  with  the  NGO
has  ended.  This  is  not  the  case  of  houses  repaired  by
contractors  (the  other  approach  used),  where  the
beneficiary  receives  a  turnkey  home.

In  October  1997 

the  PHARE  Management
4.24.
Committee  approved  a  Health  Programme  of  ECU  5.7
million  in  support  of,  among  other  actions,  Primary
Health  Care  and  Health  Financing  Reform  and
Pharmaceutical  Sector  Development.  Three  tenders  were
launched  between  December  1997  and  January  1998.  It
is  presently  foreseen  that  the  first  teams  will  be  on  the
ground  in  March-April  1998.

—  Political and security issues also have to be taken into

account.

4.25.
In  December  1997,  the  BiH  Council  of  Ministers
finally  agreed  on  the  location  for  the  Laboratory  for
Quality  Control:  Sarajevo.  Following  this  decision,  an

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action  plan  was  agreed  with  the  Federation  Minister  of
Health  under  which  a  re-assessment  of  the  contents  and
objectives of the project will be undertaken jointly by the
Commission  and  the  Federation  Ministry  of  Health.

services  had  a 

4.26. Commission 
complementary
approach  to  action  in  the  health  sector.  The  projects  of
ECHO  were  targeted  towards  the  local  level  whereas
DG IA  sought  to  intervene  at  the  entity  level.  This  was
constrained  by  institutional  difficulties  such  as  those
mentioned in 4.25 of the Court’s report. Throughout the
process 
the  Commission  ensured  close  cooperation
between  its  services.

Energy  (electricity  and  gas)

4.28.-4.29. The  effects  of  the  EAP  energy  sector  actions
include:

1. E l e c t r i c i t y   d i s t r i b u t i o n

—  A successful inter-entity project between Gorazde and

Visegrad  has  been  carried  out  though  the  EAP.

—  In  the  Tuzla  region,  electrical  distribution  has  been

secured  to  20 000  people.

—  In  Odzak,  27  km  of  electrical  lines  have  been

repaired.

2. T h e r m a l   P o w e r   P l a n t s

Power  plants  had  not  been  affected  directly  by  war
destruction,  but  rather  by  the  lack  of  spare  parts  and
scarce  supply  of  coal.  The  EAP  contributed  to  supply
both.

The  Kakanj  power  plant  is  now  able  to  produce  up  to
40 %  of  its  pre-war  capacity  and  power  cuts  in  Sarajevo
are  largely  a  thing  of  the  past.  The  city  of  Tuzla  would
still  be  in  darkness  without  assistance  from  EAP.

3. G a s

Pipes  and  regulators  delivered  under  EAP  (and  installed
in  cooperation  with  the  World  Bank)  have  provided  gas
to approximately 3 800 families in the Novi Grad area of
Sarajevo  which  had 
severe
destruction.

suffered  particularly 

The  project  included  the  supply  of  individual  gas  heaters
and  cookers  for  each  family  partly  to  ensure  revenues  to
Sarajevogas.

approximately  30 %,  to  200 000  tons.  The  coal  is
delivered  to  the  Kakanj  power  plant.  The  mine  is  now
planning  to  reach  a  production  of  500  —  600 000  tons
in the near future and at the same time to increase safety
conditions  for  the  miners.

Impact  is  comparable  in  the  coal  mine  of  Tuzla,  which
was  able  to  start  with  a  third  shift  of  miners.

4.30. The  first  part  of  ECU  13,5  million  has  now  been
contracted  and  is  underway.  Concerning  the  second  part
of  ECU  7  million  programme  from  budget  line  B7-5 4 3,
the  Commission  waited  for  the  remarks  from  the
beneficiaries  at  the  tender  evaluation  stage  in  order  to
avoid  conflicts  and  cancellation  of  projects  during  the
implementation stage.

4.31. Responsibility  for  applying  the  Dayton  Agreement
lies  with  the  Bosnia-Herzegovina  authorities,  under  the
supervision  of  the  High  Representative.  All  main  donors
the  same  approach  regarding 
followed 
three
the  Dayton
in 
Elektroprivreda-entities 
Agreement  and  with  the  full  agreement  of  the  High
Representative.

line  with 

the 

The  allocation  of  the  budget  was  decided  as  a  result  of
the  urgent  needs  of  the  Elektroprivredas.  Their  aim  is  to
build  on  this  and  develop  inter-entity  projects.

Transport

G e n e r a l   r e m a r k s

4.33. Refugee return ultimately depends on an improved
economic 
transport
infrastructure  plays  a  major  role  in  the  revival  of  the
economy.

environment. 

Investing 

in 

B r i d g e s

4.35. A  clear  reason  for  the  delay  of  this  project  is  the
difficulties  encountered  in  trying  to  cooperate  with  the
Bosnian  authorities.  The  completion  date  is  now  forecast
to  be  July-August  1999.  Preparatory  work  prior  to  the
main 
repairs  has  proved  beneficial.  Preliminary
underwater  investigations  have  provided  more  precise
information  on  the  state  of  the  existing  bridge  and
enabled  a  more  accurate  estimate  to  be  made  of  the  cost
of  the  repairs.

4. C o a l   M i n e s

R o a d s

With  assistance  of  the  equipment  delivered  by  EAP,  the
mine  of  Breza  was  able  to  increase  its  production  by

4.36. The  contract  has  now  been  awarded  and  was
signed  in  April  1998.

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4.37. The  projects  in  Republika  Srpska  were  suspended
for  political  reasons.

4.38. Consultations  were  made  directly  with  the  road
maintenance  units  by 
to
determine  their  exact  requirements.

the  Procurement  Agent 

In  the  case  of  the  asphalt  and  crushing  plants,  the
specifications,  in  terms  of  capacity  and  performance,
were  presented  by  the  road  maintenance  units  to  the
Procurement  Agent.  However,  the  Commission  was
unable  to  approve  the  request  as  the  unit  price  far
exceeded  the  available  budget  (by  a  factor  of  5  times).
Instead, the Procurement Agent offered alternative mobile
plant, for which the unit price was within budget, but for
which the performance and capacity were much reduced.
This  alternative  was  accepted  by  the  road  maintenance
units  and  the  Ministry.

C i v i l   a v i a t i o n

4.40. The  work  on  this  project  is  scheduled  to  be
completed  in  May  1998.

Despite  the  delays,  which  were  principally  the  result  of
difficulties  in  cooperating  with  the  local  beneficiaries,
progress  has  been  made.  This  has  been  achieved  using
funds  from  a  variety  of  donors.  The  EU’s  contribution
has included the civil aviation masterplan which has seen
the  creation  of  a  secretariat  representative  for  civil
aviation  in  Bosnia  (3  entities).

Water  and  domestic  waste  management

4.44. Following  the  study  of  the  waste  management
strategy  for  the  Sarajevo  Canton,  the  Commission  has
earmarked  additional  funding  for  the  development  of  a
waste strategy covering the entire State of Bosnia. This is
seen  as  a  necessary  pre-condition  for  the  development  of
new  projects 
in  the  sector.  Funding  for  follow-up
initiatives  will  be  considered  under  new  programmes
developed  in  1998  in  particular  for  the  Sarajevo  landfill.

ECHO,  in  close  cooperation  with  the  NGOs,  the  local
authorities  and  the  IMG,  is  now  trying  to  remedy  the
problems  raised  by  the  Court.

Telecommunications

funding
4.46. This  success  was  achieved 
managed  by  the  Commission 
in  spite  of  political
difficulties  encountered  during  the  implementation  of  the
programme.

through 

4.48.
It is easier to bring political pressure to bear in the
telecommunications  sphere  than  in  other  sectors  because
the  network  effect  and  the  economies  of  scale  are  so
great.  The  Commission  has  used  this  means  of  political
pressure  to  strengthen  implementation  of  the  peace
agreements.

Agriculture

4.49. Recognising  the  key  role  agriculture  has  to  play,
two agricultural programmes of ECU 5 million each were
approved  by  the  Phare  Management  Committee  in  May
and  October  1997.  These  programmes  are  supporting,
among  other  actions,  the  revamping  of  agricultural
production and the regeneration of the livestock sector in
BiH.  A  follow-up  agricultural  programme  for  ECU  20
million has already been developed and was presented to
the  Phare  Management  Committee  in  March  1998.

4.51.  The  1 300  motor  cultivators  delivered  under  EAP
have provided replacement for approximately 5 %  of  the
equipment  destroyed  during  the  war,  while  the  World
Bank  covered  a  further  7,5  %.  However  the  actual
impact is probably larger since the majority of cultivators
have  been  allocated  to  the  most  destitute  farmers  and
returnees.  The 
impact  of  small  and  medium-size
lactofreezers  is  probably  rather  low  in  the  short  term
since  livestock  population  had  declined  by  60 %  during
the  war.  It  should  nevertheless  grow  rapidly,  and  is
furthermore  complementary  to  the  Commission’s  long
term  strategy  for  the  sector,  for  example,  to  the
successful  delivery  of  cows  under  EAP.

4.52. A  substantial  review  of  the  project  proposed  by
the  NGO  concerned  had  to  be  undertaken  by  the
Commission  so  as  to  make  it  consistent  with  the
objectives  of  the  Commission’s  own  programme.  The
revised  proposal  from  ARP  was  only  received  in  March
1997  and  a  contract  signed  by  the  Commission  on  18
April  1997  thus  allowing  the  NGO  to  mobilise  in  May.
Similarly,  once  the  revised  project  had  been  received,  the
tendering  process  for  appointing  a  Procurement  Agent
could commence. Notwithstanding the above constraints,
tractors  and  implements  were  delivered  in  time  for  the
preparation  of  fields  for  winter  crops.

Private  sector  development  and  economic  reintegration

4.54. The  Commission’s  action  in  the  domain  has  been
geared  towards  the  economic  integration  of  refugees  and
displaced  persons,  and  has  therefore  complemented  its
main  sphere  of  intervention.  The  situation  in  Bosnia
cannot,  moreover,  be  compared  with  that  elsewhere  in
Central  and  Eastern  Europe.  Economic  transition  has
been  a  complement  to  two  fundamental  components  of

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Community action, namely the physical reconstruction of
the  country  following  the  war  and  the  construction  of  a
new  state  in  the  wake  of  the  peace  agreements.  It  is
therefore  normal  that  the  Commission  should  have
focused  its  efforts  on  the  priorities  and  made  choices  in
this  sphere.  Economic  recovery  is,  however,  receiving
international assistance: the World Bank and USAID have
targeted  their  efforts  on  this  issue,  doing  far  less  in  the
field  of  the  return  of  refugees  than  the  Commission.
There  has  therefore  been  a  division  of  labour  between
donors  and  good  coordination,  which  accounts  for  the
Community’s  limited  action  in  this  sphere.

The  Commission  has  provided,  and  will  continue  to
provide,  sizeable  technical  assistance  to  the  Central
institutions.  Existing  measures  have  already  made  a
significant  impact  on  Customs,  the  start-up  of  central
banking  and  approximation  of  legislation.

5.  CONCLUSION

4.55. The  EU  Investment  Guarantee  Investment  Trust
Fund  for  BiH  is  designed  to  provide  political  risk
insurance to companies wishing to develop their activities
within  the  country  but  who  have  been  deterred  by  the
perceived 
the  national
changes 
Government.

risks  of 

to/by 

The innovative nature of the scheme meant that the time
taken  to  develop  the  proposal  into  a  sound  project  took
longer  than  would  be  the  case  for  more  straightforward
proposals.  The  detailed  Framework  Agreement,  together
with a side letter covering certain financial arrangements,
was  signed  by  the  Commissioner  in  July  1997.  The
Framework  Agreement  became 
from
September  1997  following  signature  by  the  Bosnian
authorities.

effective  as 

A  total  of  9  preliminary  applications  have  been  received
in respect of investments totalling ECU 158 million in the
fields  of  manufacturing,  construction,  telecoms,  energy
and  tourism.  These  are  currently  being  assessed.

4.56. Selection  of  the  Zica  Wire  Drawing  Factory  was
based  upon  the  catalytic  effect  that  support  to  the
company would bring to the reconstruction efforts within
the 
region.  The  Factory’s  products  are  essential
transport
components  of 
infrastructure  projects,  as  well  as  housing  schemes
throughout  the  region.  The  project  is  underway  and  a
number  of  jobs  have  been  created.

the  major  energy  and 

Support  for  public  administration

5.1. The  decision  to  launch  a  substantial  programme  of
aid to the former Yugoslavia was not accompanied at the
time  by  corresponding  allocations  of  resources  for  the
Commission 
the  programme.  The
Commission  has  taken  steps  in  1998  to  improve  the
situation  by  transferring  personnel  to  Sarajevo  and  has
made  proposals,  both  legislative  and  budgetary,  designed
to  ease  existing  constraints.  These  are  detailed  below.

implement 

to 

for 

5.3. Within  one  week  of  the  Dayton  Agreement,  the
Commission,  together  with  the  World  Bank,  mobilised
the  international  community  through  the  first  donor
Conference 
the  reconstruction  of  Bosnia  and
Herzegovina  held  in  December  1995.  The  Commission
was able to decide at the end of 1995 to commit funds in
early  1996  for  a  programme  of  essential  aid  (the  EAP
programme  financed  through  Phare),  and  sent  staff  to
Sarajevo  at  the  beginning  of  1996  for  the  purpose  of
setting  up  and  monitoring  the  operation.  In  this  respect,
the Commission provided a rapid response to the urgency
of  the  situation  arising  after  the  Dayton  Agreement.

The  Commission  has  been  working 
difficult  circumstances:

in  particularly

some  parties  obstructing 

—  The  political  situation  on  the  ground  has  been
the
unstable,  with 
application  of  the  peace  agreements.  Yet  these
agreements  made 
the  central
authorities  set  up  under  them  a  precondition  for  the
implementation 
programmes.
Approval  was  not  obtained  until  November  for  1996
and  September  for  1997.  The  Commission  was
therefore  quite  unable  to  implement  its  programmes
immediately.

the  approval  of 

Community 

of 

4.57.
It  would  have  been  unrealistic  to  embark  on
massive  public  administration  programmes  before  the
basic institutions, and particular those provided for in the
Dayton  Agreement,  were  in  place.  The  Commission,
working  closely  with  the  OHR,  has  approved  support
programmes  for  introduction  throughout  this  year.

—  The  application  of  the  political  conditions  laid  down
by  the  High  Representative  and  the  Council  of
Ministers  has  posed  problems.  Execution  has,  for
example,  been  slowed  down  by  the  suspension  of  aid
to  the  Republika  Srpska  on  two  occasions.

—  Complex,  constrictive  legal  and  financial  instruments
are  cited  by  the  Court.  The  transposition,  against  the

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Commission’s  advice,  of  the  procedures  and  ceilings
of  the  TACIS  programme  in  Regulation  (EC)  No
1628/96  delayed  that  Regulation’s  adoption  to  the
end of July 1996. This accounts for the need, prior to
that  date,  to  use  the  trialogue  procedure  to  obtain
funds.  All  the  Commission’s  proposals  to  amend  the
Regulation  were  systematically  corrected  to  make
them  more  restrictive.  Not  until  this  year  did  the
Parliament  and  the  Council  take  on  board  the
criticisms directed at aid to former Yugoslavia and go
along  with  the  main  thrust  of  the  Commission’s
proposals  to  make  procedures  more  flexible  and
speed  up  implementation.

Despite  these  difficulties,  by  the  end  of  1996,  the  budget
under chapter B7-5 4 was 99,9 % committed. At the end
of 1997, the revised budget for chapter B7-5 4 (excluding
the  financial  protocol  line)  was  99,5 %  committed.
Taking  the  1996-97  period  together,  the  volume  of
budgetary  resources  committed  by  the  Commission,  in
addition  to  humanitarian  aid,  was  ECU  542,2  million  of
which  approximately  ECU  286,6  million  had  been
contracted  and  ECU  208,1  million  paid.  This  rate  of
contracting  and  payment  contrasts  favourably  compared
with  other  external  aid  programmes  funded  by  the
the  difficult
Community  budget,  particularly  given 
conditions  in  Bosnia-Herzegovina.  The  Commission  has
also  funded  non-reconstruction  activities,  outside  the
scope of the Court’s report and for which the figures are
not  included  above,  in  the  fields  of  democracy,  human
rights  and  CFSP  joint  actions.

The  Court’s  comparison  of  actions  financed  by  the
Commission  and  those  of  other  donors  does  not  take
into account the different nature of the support provided.
For  example,  the  World  Bank  provides  its  support
essentially through loans. Managing a loan scheme differs
significantly  from  a  grant  re´gime  such  as  the  one
provided  by  the  Commission.  Grants  are  provided  with
no  guarantee  other  than  the  political  commitment  of  the
beneficiary.  In  order  to  protect  public  funds,  controls  on
the  disbursement  of  grants  are  therefore  much  more
complex  and  slower  than  those  for  loans.  In  contrast  to
this  situation,  loans  are  repayable  and  guaranteed  by  the
country  concerned.  Their  repayments  are  credited  to  the
balance  sheet  of  the  bank.  Political  conditionality  is  less
of  a  constraint. 
the
In  spite  of 
disbursement  performance  of  grants  provided  by  the
Commission  and  the  loans  of  the  World  Bank  is  broadly
similar.  On  1  January  1998,  the  World  Bank  had

this  handicap, 

expended  around  ECU  260  million,  compared  with  a
Commission  total  of  around  ECU  275  million.

As  far  as  USAID  is  concerned,  a  substantial  component
of  the  assistance  they  provided  was  in  the  form  of  credit
lines 
to  small  businesses,  again  with  more  rapid
disbursement  rates.  The  decision-making  procedures
applying  to  USAID  are  also  markedly  more  simple  than
in 
the
Commission  had  to  operate  under  a  Regulation  with
much stricter public procurement rules. In contrast to the
United  States,  which  worked  initially  mainly  where  their
troops are based, European Union aid initially comprised
both  entities.

the  European  Union,  where 

the  case  of 

5.4. The  Commission  accepts  the  Court’s  criticism  that
the  resources  allocated  to  managing  the  reconstruction
programme  in  ex-Yugoslavia  were  not  commensurate
with  the  budgetary  allocation  decided  at  political  level.
Given  the  other  budgetary  priorities  managed  by  the
Departments  concerned 
to  Central  and
Eastern  Europe,  the  pre-accession  strategy,  the  Newly
Independent  States,  CFSP,  Democracy  and  Human
Rights,  Humanitarian  Aid)  there  are  limits  to  what  can
be  achieved  by  redeployment  of  existing  resources.

(Assistance 

Given  the  constraints  on  creating  new  posts,  the
Commission has nevertheless redeployed staff to reinforce
the  teams  managing  this  assistance.  These  measures  have
had  the  following  results:

—  A  22-member  team  was  set  up  at  Sarajevo  office  in
late  1996,  some  seven  months  after  its  opening.  It
comprises  4 A  grades  (including  the  head  of  the
office), 1 B grade, 1 C grade and 16 local staff, seven
of  them  expatriates.

The Commission then seconded an A-grade official to
the  administration  in  Mostar  (EUAM)  to  close  the
accounts  for  the  EU’s  activities  (ECU  200  million)
and  assigned  another  A-grade  official  to  the  OHR.

—  In  1996  a  new  unit,  DG IA-D-1, 

reconstruction, 

and 
coordination, 

‘Bosnia  and
including
Herzegovina 
international 
aspects,
multi-country  programmes  for  former  Yugoslavia’
was  set  up  in  Brussels.  At  the  end  of  1997  this  unit
had  a  staff  of  21,  two-thirds  of  them  assigned  to
former Yugoslavia.

horizontal 

As  far  as  external  technical  expertise  is  concerned,  1998
is  the  first  budgetary  year  for  which  the  Commission  is
authorised  to  use  operational  credits  for  technical

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support  for  programme  implementation,  to  a  maximum
of 2-3.5 % of programme costs. This contrasts with other
donors  such  as  USAID  who  may  go  above  15 %  for
similar  types  of  expenditure.

coordination  meetings,  both  in  Brussels  and  in  the  field,
and  led  to  the  development  of  close  links  between  the
relevant  departments  in  the  Member  States.

decentralising 

These  measures  will  be  completed  by  those  described  in
3.13-3.15: 
of
Community  assistance  to  Bosnia,  increasing  the  powers
of the Delegation and transferring staff to the Delegation
from  April  this  year.

implementation 

the 

Coordination  between  the  Commission’s  departments  is
described  3.11.-3.12.  above.

is 

in 

the 

the 

strategy 

taken  up 

international 

5.5.
In  autumn  1995  the  Commission  published  four
communications  announcing  a  comprehensive  strategy.
This 
reconstruction
programme drawn up by the Commission and the World
Bank. They submitted the programme to different donors
at three international conferences, obtaining the approval
of 
the
Commission  draws  up  guidelines  for  the  strategy’s
implementation. These guidelines are then translated into
sectoral  programmes  comprising  a  series  of  integrated
projects,  notably  for  refugees.  The  Memoranda  of
Understanding signed with the Bosnian authorities for the
1996  and  1997  programmes  also  provide  an  overall
those
framework 
programmes.

community.  Each  year 

implementation 

the 

for 

of 

to 

the 

took 

set  up 

initiative 

At  the  London  Conference  of  December  1996,  the
Commission 
the
‘Reconstruction  and  Return  Task  Force’  (RRTF)  which,
under  the  aegis  and  presidency  of  the  OHR,  coordinates
reconstruction activities aimed at promoting return. Since
1997 the RRTF has brought together all major players in
international  assistance,  among  them  the  UNHCR,  the
World  Bank,  the  United  States  and  the  Commission,
laying  down  in  its  six-monthly  reports  the  international
community’s  policy  on  support  for  the  return  of
displaced  persons  and  refugees.

concentrated 

the  Commission  has 

In  1998 
its
reconstruction  efforts  on  a  major  refugee  programme
worth  ECU  141  million.  A  first  tranche  of  ECU  65
million,  for  integrated  refugee  return  programmes,  was
committed  on  30  March  1998.  Other  packages  will
follow  as  soon  as  the  Budgetary  Authority  lifts  the  ECU
30  million  reserve  in  the  1998  Budget.

5.6. The  essential  aid  programme  (EAP),  drawn  up
straight  after  the  Dayton  Agreement  and  introduced  in
January  1996,  has  provided  assistance  crucial  to  getting
reconstruction under way. The programme has permitted
the  provision  of  equipment  for  schools,  buses,  tractors,
agricultural  inputs,  equipment  for  the  electricity  sector
etc. This programme was the first major response from a
member  of  the  international  community  to  the  problems
of  reconstruction.

the 

refocused 

The  Commission 
equipment-supply
programme  for  several  reasons.  It  became  aware  of  the
difficult  environment  in  which  it  was  operating:  the
substantial  risk  of  fraud,  denounced  at  the  time  by  the
High  Representative,  the  lack  of  transparency  in  the
management of aid and the risk that aid might not reach
to
its 
centralise  the  programmes.  At  the  time  the  political
situation  in  Bosnia-Herzegovina  meant  there  was  little
point  decentralising  the  programme  to  the  country’s
authorities.  In  taking  this  decision,  the  Commission  was
interests.  The
defending  the  Community’s  financial 
programme  has  been  refocused  on  fewer  sectors.

intended  recipients 

the  Commission 

forced 

In  1997  the  Commission  also  proposed  a  ‘Deputy  High
Representative’  with  special  responsibility  for  the  RRTF,
Mr Andrew Bearpark. The RRTF has also set up regional
and  local  branches,  which,  with  the  Commission’s  active
involvement,  establish  priorities  for  each  region  and
municipality.

In the matter of cooperation with the Member States, the
Commission,  in  1996,  initiated  close  cooperation  with
the Member States most directly concerned by the return
of  refugees  to  Bosnia-Herzegovina,  organising  a  meeting
on  the  subject  in  Brussels  on  7  August  1996.  This
to  a  series  of
cooperation  has  since  given  rise 

As regards procedures, the 1996 budget, published on 29
January  1996,  includes  three  headings  specifically  for
assistance to former Yugoslavia. Pending a legal basis, the
Commission  was  authorised  to  use  ECU  7  million  of  the
appropriation  for  heading  B7-5 4 1,  the  remaining  ECU
20  million  being  held  in  reserve.  The  use  of  the  ECU  20
million was subsequently authorised in the framework of
the  trialogue.  In  April  1996  the  Commission  presented  a
draft  Regulation  for  the  Reconstruction  headings;  it  did
not  enter  into  force  until  14  August  1996.  In  the  course
of  discussions,  the  Commission  proposal  underwent
major  amendments,  notably  the  addition  of  an  annex  on

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the  award  of  contracts  based  on  the  TACIS  Regulation
and  wholly  unsuited  to  the  situation  in  Bosnia.  In  July
1997, i. e. the earliest date at which the Regulation could
be  amended,  the  Commission  submitted  an  amendment
to  that  annex.  The  Council  retained  the  original
arrangements  and  accepted  few  of  the  Commission’s
proposals.  The  Commission  submitted  another  proposal
substantially  amending  the  Regulation  in  January  this
year.  This  time  the  Council  and  Parliament  took  on
board  the  major  criticisms  of  Community  action  in
former  Yugoslavia  and  went  along  with  the  broad  thrust
of  the  Commission  proposal.

5.7. The  mandate  of  UNHCR  in  relation  to  refugees  is
defined  in  the  Dayton  Agreement  to  lead  and  coordinate
action  in  this  field.  The  Commission  is  therefore  obliged
to  work  with  UNHCR  in  this  context.  Considerable
problems  were  encountered  during  discussions  with  the
UNHCR  on  the  EC  contribution  to  housing  projects
implemented  by  NGOs,  through  the  UNHCR.  The
conditions  under  which  the  UNHCR  wished  to  receive
EC  contributions  were,  in  some  aspects,  contrary  to  the
requirements  of  the  Financial  Regulation  and  lacking  in
transparency.  The  Court’s  idea  of  a  global  contribution
to  UNHCR’s 
therefore  needs  more  careful
consideration.  The  Commission  intends  to  examine  this
question  in  light  of  the  general  conditions  concerning
financial  arrangements  with  the  UN  currently  under
discussion.

funds 

5.8. Through  the  Essential  Aid  Programme  in  1996  and
the  reconstruction  programme  in  1996  and  1997,  the
Commission has repaired a total of 13 030 housing units
allowing  the  return  by  the  end  of  the  programme  period
of  more  than  50 000  persons  (refugees  and  internally
displaced)  in  Bosnia.

As  far  as  the  occupancy  rates  of  houses  is  concerned,  at
the  end  of  1997  this  was  70 %  for  Commission  funded
programmes,  slightly  above  the  average  for  the  other
donors.

In  1998,  the  Commission  is  reinforcing  its  action  on
return  by  the  measures  described  in  5.5.

5.9. There have been some successes in the energy sector
of  the  EAP  programme  :

—  A successful inter-entity project between Gorazde and

Visegrad  has  been  carried  out  though  the  EAP.

—  In  the  Tuzla  region,  electrical  distribution  has  been

secured  to  20 000  people.

—  thermal  power  plants  have  increased  production  and
reduced

in  Sarajevo  have  been 

power 
cuts 
significantly,

—  the  supply  of  equipment  to  the  mine  of  Breza  has

helped  increase  coal  production  by  30 %.

In  the  transport  sector  a  number  of  road  projects  have
been  delayed  by  the  suspension  of  aid  to  Republika
Srpska  for  political  reasons.

Help  for  public  administration  has  been  targeted  on  the
Customs  office,  of  considerable  importance  for  public
revenues  of  Bosnia-Herzegovina.  Other  key  institutions
which  are  receiving  support  in  1998  include:  Central
Bank,  Ombudsman,  Human  Rights  Commission,  the
the  commercial  banking
Constitutional  Court  and 
sector.

In  the  health  and  education  sectors,  the  constraints  on
DG IA  are  more  a  reflection  of  the  relevant  local
authorities’ inability to accept the assistance offered them
(cf.  Laboratory  for  Quality  Control)  than  any  lack  of
coordination 
departments.
between  Commission 
Likewise,  in  the  education  sector,  the  lack  of  a  political
will  to  harmonise  curricula  continues  to  hamper  the
re-establishment  of  multi-ethnic  schools.

5.10. The  Commission  accepts 
the  resources
devoted  to  managing  assistance  for  former  Yugoslavia
were  not  commensurate  with  the  political  decision  to
provide  extra  budgetary  resources.  Measures  to  redeploy
staff  were  taken  and  are  detailed  in  5.4.

that 

The  activities  of  Commission  departments  were
coordinated  by  an 
interdepartmental  working  party
chaired  by  the  Deputy  Director-General  of  DG IA.
ECHO,  DG XXI  (for  CAFAO)  and  other  departments
were  involved  throughout  this  exercise.

This  formal  coordination  was  backed  up  by  numerous
informal  and  operational  contacts  between  departments.

of 

the 

the 

beginning 

reconstruction
5.11. At 
programmes  in  1996,  assistance  was  spread  over  a
number  of  key  sectors  in  order  to  provide  a  response  to
the  emergency  situation  of  the  time.  Later  in  1996,
support  was  concentrated  on  a  more  limited  number  of
the  Commission’s  programmes
sectors. 
concentrated  over  60 %  of  all  resources  for  the  former
Yugoslavia on a single priority, namely the refugee return
programme.

In  1998, 

5.12. The  Commission  accepts  the  Court’s  criticisms
concerning  staff  resources,  complex  procedures  and  the
visibility  of  EU  assistance  in  Bosnia-Herzegovina.

The  constraints  under  which  the  Commission  had  to
operate  have  been  described  in  the  preamble  to  the
Court’s  report  as  well  as  in  points  5.3.  and  5.5.

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The  Commission  decided  early  in  1998  to  respond  to
these  difficulties  by  taking  the  following  measures:

—  bringing  together  all  Commission  services  in  one

building in Sarajevo.

—  simplifying 

procedures 
reconstruction  Regulation

by  modifying 

the

—  transferring an additional 15 staff to its Delegation in

Sarajevo  from  Spring  1998

—  giving  the  Head  of  Delegation  in  Sarajevo  additional

powers

The Commission is willing to propose additional changes
to  the  Regulation 
in  order  to  simplify  procedures
further.

Taken  together,  and  with  the  support  of  the  budgetary
and  legislative  authorities  of  the  EU,  these  measures
should  help  deliver  a  more  visible  and  effective
implementation  of  EU  assistance  in  Bosnia-Herzegovina.