Special Report No 11/98 concerning the development of the PHARE and TACIS private sector for the 1991 to 1996 period (Programmes in support of SMEs, regional development and the reorganisation of businesses) together with the Commission's replies (submitted pursuant to Article 188 (4) (2) of the EC Treaty)
Date: 1998-09-16
Institutions: European Court of Auditors
Subjects: CIS countries, Central and Eastern Europe, EU programme, industrial restructuring, regional development, small and medium-sized enterprises

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/1

I

(Information)

COURT  OF  AUDITORS

SPECIAL  REPORT  No  11/98

concerning  the  development  of  the  PHARE  and  TACIS  private  sector  for  the  1991  to  1996
period

(Programmes  in  support  of  SMEs,  regional  development  and  the  reorganisation  of  businesses)
together  with  the  Commission’s  replies

(submitted  pursuant  to  Article  188  (4)  (2)  of  the  EC  Treaty)

(98/C  335/01)

Acronyms

AIDR

BCC

EBRD

BSC

—  Agency  for  Industrial  Development  and  Revitalisation

—  Business  Communication  Centre

—  European  Bank  for  Reconstruction  and  Development

—  Business  Support  Centre

Desiree

—  Commission  management  database

DPS

ESC

GKRP

LEA

MSDC

NIS

PARD

CCEE

RDA

RIC

RIF

SES

—  Development  of  the  private  sector

—  Enterprise  Support  Centre

—  State  SME  Support  Committee

—  Local  Enterprise  Agency

—  Market  Skills  Development  Centre

—  Newly  independent  States

—  Polish  Agency  for  Regional  Development

—  Countries  of  Central  and  Eastern  Europe

—  Regional Development Agency

—  Regional  Investment  Company

—  Regional  Investment  Fund

—  Subcontracting  Exchange  for  Slovakia

SMEDA

—  Small  and  Medium-sized  Enterprise  Development  Agency

SSTA

Struder

EU

PMU

—  State  Sport  and  Tourism  Administration

—  Structural  development  for  selected  regions

—  European  Union

—  Programme  management  unit

C  335/2

EN

Official  Journal  of  the  European  Communities

3.11.98

CONTENTS

Paragraph
reference

Page

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

1.1 — 1.6

The  objectives  of  the  PHARE  and  TACIS  programmes . . . . . . . . . . . . . . . . . .

1.1

The  political  context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2 — 1.6

The  PHARE  programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2 — 1.3

The  TACIS  programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.4

The  development  of  the  private  sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5 — 1.6

2.  THE  AUDIT  FIELD  AND  OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1 — 2.7

Audit  field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1 — 2.4

The  objectives  and  scope  of  the  audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.5 — 2.7

3.  SUMMARY  OF  THE  MAIN  OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . .

3.1 — 3.9

The  preparation  and  management  of  the  programmes . . . . . . . . . . . . . . . . . .

3.1 — 3.5

The  efficiency  of  the  implementation  procedures . . . . . . . . . . . . . . . . . . . . . . .

3.6 — 3.7

Assessment  of  the  measures  implemented . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.8 — 3.9

4.  THE  PREPARATION  AND  MANAGEMENT  OF  THE  PROGRAMMES . .

4.1 — 4.27

The  quality  of  the  preparation,  implementation  deadlines  and  the  scheduling
of  measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.11

The  implementation  of  measures  and  the  drafting  of  the  consultants’
contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.12 — 4.16

The  flow  of  information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.17 — 4.20

The  monitoring  and  evaluation  of  programmes . . . . . . . . . . . . . . . . . . . . . . . .

4.21 — 4.27

5.  EFFICIENCY  OF  IMPLEMENTATION  PROCEDURES . . . . . . . . . . . . . . . .

5.1 — 5.22

The  choice  and  conception  of  instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1 — 5.11

Technical assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.12 — 5.16

Cooperation  between  the  various  parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.17 — 5.22

6.  ASSESSMENT  OF  THE  MEASURES  IMPLEMENTED . . . . . . . . . . . . . . . . .

6.1 — 6.34

Measuring  the  impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.1 — 6.4

External  constraints  on  the  projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.5 — 6.8

Budgetary implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.9 — 6.10

The  long-term  survival  of  the  institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.11 — 6.14

The  legality  and  regularity  of  transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.15 — 6.19

Assessment  by  country  audited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.20 — 6.34

7.  CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.1 — 7.16

The  management  of  aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.3 — 7.9

The  effect  of  the  aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.10 — 7.16

3

3

3

3

5

5

5

5

6

6

6

7

7

8

8

9

10

10

11

11

13

14

14

14

15

16

18

18

19

21

22

23

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

25

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/3

1.  INTRODUCTION

The  objectives  of  the  PHARE  and  TACIS  programmes

1.1. Support  for  the  restructuring  of  the  economies  of  the  countries  of  Central  and  Eastern  Europe  and  the  newly
independent  States  (NIS)  was  included  from  the  outset  in  the  Regulation  governing  the  PHARE  and  TACIS
programmes (1). This aid comprises various sectoral components, one of the most important of which is the development
of the private sector. As from 1994, a distinction was established between the strategies pursued by PHARE and TACIS,
as  a  result  of  which  PHARE  countries  aiming  to  join  the  EU  received,  for  example,  more  sustained  aid  in  the  regional
development  sector.

The  political  context

The  PHARE  programme

1.2. Since  the  Copenhagen  European  Council  meeting  of  June  1993,  relations  between  the  European  Union  and  the
PHARE  countries (2)  have  been  conducted  with  a  view  to  their  accession.  The  Essen  and  Madrid  European  Council
meetings  (December  1994  and  December  1995  respectively)  subsequently  stressed  PHARE’s  key  role  as  a  financial
instrument  in  the  ‘pre-accession  strategy’,  while  association  agreements,  known  as  ‘Europe  agreements’,  were  signed
between the European Union and most of the Central and East European countries. A structured dialogue was established
at  the  Head  of  State (3)  and  ministerial  levels  and,  in  May  1995,  the  Commission  published  a  White  Paper  on  the
preparedness  of  the  associated  States  of  Central  and  Eastern  Europe  for  inclusion  in  the  Union’s  single  market.  Under
Agenda  2000  (15  July  1997),  the  PHARE  programme  remains  the  main  instrument  for  preparing  these  States  for
membership,  but  with  an  emphasis  on  two  major  areas:  institutional  support  (30 %  of  resources)  and  the  financing  of
investment  (70 %  of  resources) (4).

1.3. The  central  role  of  the  development  of  the  private  sector  in  the  PHARE  programme  has  been  emphasised  several
times (5). This is reflected in its share of the budget: ECU 999 million (6) for 1991 to 1997, or 14 % of the total PHARE
budget  for  that  period  (see  Table  1).

(1)  Council Regulation (EEC) No 3906/89 of 18 December 1989 (OJ L 375, 23.12.1989), as last amended by Council Regulation (EC)
No 753/96 of 22 April 1996 (OJ L 103, 26.4.1996. Council Regulation (EEC) No 2053/93 of 19 July 1993 (OJ L 187, 29.7.1993);
Council  Regulation  (EC)  No  1279/96  of  25  June  1996  (OJ  L  165,  4.7.1996).

(2)  Albania, Bosnia Herzegovina, Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, the Czech

Republic  and  the  FYRM.

(3)  European  Councils  of  Cannes  and  Madrid  in  June  and  December  1995  respectively.
(4)  The  entry  into  force  of  the  accession  partnerships  in  March  1998  formalised  these  new  tendencies.
(5)  In  particular,  the  Commission’s  report  on  the  implementation  of  the  PHARE  programme  in  1992  to  1993  (20  February  1995),
Commission  communication  to  the  Council  and  the  European  Parliament  concerning  industrial  cooperation  with  the  Countries  of
Central  and  Eastern  Europe  (14  March  1995)  and  the  Commission’s  report  on  the  implementation  of  the  PHARE  programme  in
1994  (20  July  1995).
(6)  Source:  Desiree  database.

C  335/4

EN

Official  Journal  of  the  European  Communities

3.11.98

TABLE 1

PHARE – GLOBAL AND PSD ALLOCATIONS (1991 to 1997)

1 800
1800

1 600
1600

1 400
1400

1 200
1200

1 000
1000

U
C
E
n
o

 800
800
Mio ECU

i
l
l
i

m

 600
600

 400
400

200
 200

 0
0

AL
AL 

BG
BG 

BH
CS
BH  CS  CZ 

CZ

EE
ES  HU 

HU

LV
LE 
Pays
Country

LT
MA
LI  MA 

PL
PL  RO 

RO

SI
SL 

SK
SR 

AU
AU 

PHARE PROGRAMMES FOR 1991 to 1997 GLOBAL AND PRIVATE SECTOR DEVELOPMENT ALLOCATIONS BY COUNTRY

PSD
DSP

xxxxxxxxxxx
GLOBAL

8 000
8 000

7 000
7 000

6 000
6 000

5 000
5 000

4 000
4 000

3 000
3 000

2 000
2 000

1 000
1000

 0
0

TOTAL

TOTAL

million ECU

ALBANIA
(AL)

BULGARIA
(BG)

BOSNIA-HERZEGOVINA
(BH)

EX-CZECHOSLOVAKIA
(CS)

CZECH
REPUBLIC (CZ)

ESTONIA
(ES)

HUNGARY
(HU)

LATVIA
(LE)

PSD ALLOC.
TOTAL ALLOC.

7,00
453,90

2 %

72,50
100 % 580,50

12 %

3,00
100 % 251,81

LITHUANIA
(LI)

FYROM
(MA)

PSD ALLOC.
TOTAL ALLOC.

35,70
229,30

16 %

8,80
100 % 143,00

POLAND
(PL)
6 % 196,20
100 % 1 372,35

1 %

70,00
100 % 199,00

ROMANIA
(RO)

14 % 147,40
100 % 804,21

35 %

28,00
100 % 344,00

8 %

21,10
100 % 134,60

16 % 148,50
100 % 680,04

22 %
100 %

20,98
174,60

12 %
100 %

SLOVENIA
(SL)

SLOVAKIA
(SR)

OTHERS
(AU)

18 %

21,05
100 % 116,00

18 %

54,20
100 % 173,50

31 % 164,50
100 % 1659,39

10 %

998,93
100 % 7 316,19

14 %
100 %

TACIS GLOBAL AND PSD ALLOCATIONS (1992 to 1997)

800
800

700
700

600
600

500
500

U
C
E
n
o

i
l
l
i

m

400
400

Mio ECU

300
300

200
200

100
100

0
0

PSD
DSP

GLOBAL

xxxxxxxxxxx

2 500
2 500

2 000
2 000

1 500
1500

1 000
1000

 500
500

 0
0

AR 
AM

AZ 
AZ

BI 
BY

GE 
GE

KA 
KZ

KI  MO  MG 
KG
MG
MD

RU 
RU

TA 
TJ

TU 
TM

UR 
UA

UZ 
UZ

AU 
AU

Pays
Country

TACIS PROGRAMMES FOR 1992 to 1997 GLOBAL (NATIONAL PROGRAMMES) AND PRIVATE SECTOR DEVELOPMENT: ALLOCATIONS BY COUNTRY

TOTAL

TOTAL

million ECU

ARMENIA
(AR)

AZERBAIJAN
(AZ)

BELARUS
(BI)

GEORGIA
(GE)

KAZAKHSTAN
(KA)

KYRGYSTAN
(KI)

MOLDOVA
(MO)

MONGOLIA
(MG)

PSD ALLOC.
TOTAL ALLOC.

13,54
33,20

41 %
100 %

8,00
37,47

21 %
100 %

19,82
42,63

46 %
100 %

13,65
34,42

40 %
100 %

32,32
82,60

39 %
100 %

0,82
37,93

2 %
100 %

9,31
41,10

23 %
100 %

3,96
14,60

27 %
100 %

RUSSIA
(RU)

TAJIKISTAN
(TA)

TURKMENISTAN
(TU)

UKRAINE
(UR)

UZBEKISTAN
(UZ)

PSD ALLOC.
TOTAL ALLOC.

228,06
792,63

29 %
100 %

1,30
11,23

12 %
100 %

6,10
31,20

20 %
100 %

70,94
314,13

23 %
100 %

12,36
65,78

19 %
100 %

OTHERS
(AU)

39,53
797,63

TOTAL

5 %

459,70
100 % 2 336,55

20 %
100 %

Source: Desiree data base

 
 
3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/5

The  TACIS  programme

1.4. Relations  between  the  countries  of  the  former  Soviet  Union  and  the  European  Union (7)  have  been  consolidated
through Partnership and Cooperation Agreements. These agreements define political, commercial, economic and cultural
cooperation  between  the  European  Union  and  the  NIS.  The  restructuring  and  development  of  companies  remain  key
objectives  of  the  TACIS  programme.  Between  1992  and  1997,  commitments  in  these  areas  amounted  to  ECU  459,7
million (8),  or  20 %  of  the  total  TACIS  budget  for  the  period  (see  Table  1).

The  development  of  the  private  sector

1.5. Basically,  the  notion  of  support  for  the  private  sector  takes  the  following  forms:

(a)  the  privatisation  of  State-owned  companies (9);

(b) aid  for  the  restructuring  of  companies;

(c)  the  promotion  of  foreign  investment;

(d) aid  for  the  SME  sector  (directly  or  via  regional  development).

1.6. Originally,  support  programmes  for  the  development  of  the  private  sector  were  managed  independently  of  the
measures in support of regional development. With effect from 1992, in certain PHARE countries where the Commission
wished  to  encourage  the  implementation  of  regional  development  policies,  there  were  cases,  particularly  in  Poland  and
Hungary,  where  SME  support  programmes  overlapped  with  certain  components  of  the  regional  development
programmes.

2.  THE  AUDIT  FIELD  AND  OBJECTIVES

Audit  field

2.1. The  audit  concerned  programmes  in  support  of  SMEs  and  aid  for  regional  development  and  the  restructuring  of
companies.  Operations  involving  the  promotion  of  foreign  investment  and  privatisation  were  not  included  in  the  audit
because  they  concern  preparations  for  the  transfer  of  ownership  rather  than  relaunching  the  activities  of  companies  as
such.

2.2.
In  all  the  countries  SMEs  play  a  central  role  in  the  process  of  economic  reform.  Their  level  of  development  differs
according to the country concerned. The Commission has not laid down strict criteria to define which companies may be
eligible  for  PHARE  or  TACIS  SME  aid,  as  it  did  for  SME  aid  within  the  EU (10).

2.3. Aid  for  SMEs  and  regional  development  comprises  non-financial  aid  (advice  regarding  policy  formulation,
institutional  support,  the  creation  of  SME  support  agencies,  training  and  information)  and,  in  the  case  of  PHARE,
financial  aid  (financial  instruments  in  support  of  SMEs  and  minor  infrastructures).

2.4. PHARE and TACIS business restructuring support consists of two parts. On the one hand, there is in-depth support
for a given sector, company or group of companies: technical assistants make diagnoses in respect of the companies, draw
up  recommendations  and  implement  them.  On  the  other  hand,  certain  services,  similar  to  those  offered  by  the  SME
support agencies, are offered on demand (financial instruments, advice, ad hoc aid, training, information) and supplied by
programme  management  units  or  specialised  agencies.

(7)  Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Russia, Tajikistan, Turkmenistan, the Ukraine

and  Uzbekistan.

(8)  Source:  Annual  TACIS  report  1996.
(9)  Adaptation  of  the  legal  framework,  launching  of  privatisation  measures  in  accordance  with  different  techniques,  the  transfer  of

property,  etc.

(10) See paragraph 6.47 of the Court’s Annual Report concerning the 1996 financial year, concerning the Commission’s recommendation

of  3  April  1996  on  the  definition  of  SMEs  (OJ  C  348,  18.11.1997).

C  335/6

EN

Official  Journal  of  the  European  Communities

3.11.98

The  objectives  and  scope  of  the  audit

2.5. The audit concerned the regularity of the use of the funds supplied and the soundness of the financial management
of  operations  conducted  on  behalf  of  the  private  sector  in  the  PHARE  and  TACIS  countries  over  the  1991  to  1996
period.  In  particular,  an  assessment  was  also  made  of  the  extent  to  which  Commission  programmes  had  contributed  to
establishing viable companies.

2.6. These findings are based on audit visits carried out in 1996 and 1997 in Bulgaria, Hungary, Poland and Slovakia, in
the  case  of  PHARE,  and  in  Uzbekistan,  Turkmenistan  and  Russia  in  the  case  of  TACIS,  as  well  as  visits  to  the
Commission’s  headquarters  (see  Table  2).

TABLE  2

Budget  and  projects  audited

BG

HU (1)

PL (1)

SK

RU

TM

UZ

Total

SME  —  Regional  development
Number  of  projects
Amount  (million  ECU)  (a)

Restructuring  of  businesses
Number  of  projects
Amount  (million  ECU)  (b)

12
17,28

9
55,60

13
88,80

7
23,80

7
14,30

11
24,80

8
14,40

18
23,80

15
25,60

7
33,70

1
0,90

1
0,95

2
3,20

51
203,88

2
4,40

62
127,65

Total  amount  (a+b)

42,08

70,00

112,60

49,40

48,00

1,85

7,60

331,53

Total  private  sector  budget

72,50

174,50

217,50

54,20

228,06

6,10

12,36

765,22

%  audited

BG  =  Bulgaria
RU  =  Russia

58 %

40 %

52 %

91 %

21 %

30 %

61 %

43 %

HU  =  Hungary
TM  =  Turkmenistan

PL  =  Poland
UZ  =  Uzbekistan

SK  =  Slovakia

(1):  Data  1990  to  1997  (31  December  1997).
Source:  Desiree  database.

2.7. These  countries  were  selected  either  on  the  basis  of  the  volume  of  appropriations  that  they  had  been  allocated
(Poland,  Hungary  and  Russia)  or  because  of  the  particular  difficulties  that  were  being  experienced  in  a  given  sector
(Bulgaria  and  Slovakia).  In  the  case  of  Uzbekistan  and  Turkmenistan,  support  for  the  development  of  the  private  sector
was  examined  in  the  context  of  broader  enquiries.

3.  SUMMARY  OF  THE  MAIN  OBSERVATIONS

The  preparation  and  management  of  the  programmes

3.1. The  observations  formulated  in  this  report  refer  to  the  first  wave  of  PHARE  and  TACIS  programmes,  a  large
number  of  which  were  still  being  implemented  at  the  end  of  1997.  When  appraising  these  programmes,  account  must
therefore be taken of the particularly uncertain context that prevailed at the time and the lack of previous experience that
could  serve  as  a  reference  point.  Thus,  the  results  varied  from  one  country  to  another.  The  effects  of  support  for  SMEs
and regional development may be considered positive in all the countries visited except Bulgaria. For Slovakia, the work
carried  out  to  assist  regional  development  was  not  very  conclusive.  In  the  field  of  support  for  the  reorganisation  of
businesses,  for  all  the  countries,  most  of  the  projects  provided  for  interventions  in  three  stages:  diagnosis,
recommendations and implementation of the recommendations. Things rarely went beyond the first two stages. The fact
is  that  local  resistance  and  the  funds  needed  to  carry  out  the  planned  changes  turned  out  to  be  greater  than  expected.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/7

3.2. On various occasions, the project specifications prepared by the technical assistants (consultants) responsible for the
implementation of the projects turned out to be unrealistic when they came to be put into effect. This caused delays and
disruptions in the programme schedules, so that projects where the expected results depended on the success of previous
projects  were  started  without  the  necessary  results  being  available.  This  raises  two  questions:  that  of  the  quality  of  the
project  specifications  and  that  of  the  haste  that  prevailed  when  they  were  being  drawn  up  (see  paragraphs  4.1-4.9).

3.3. By emphasising the mobilisation of resources rather than the achievement of results, the contracts did not encourage
a  sense  of  responsibility  on  the  part  of  the  technical  assistants.  Thus,  it  was  possible  for  them  to  carry  out  a  series  of
tasks,  even  inconsistent  and  ill-adjusted  ones,  without  having  to  draw  any  consequences  from  actions  in  relation  to  the
expected  results  (see  paragraph  4.16).

3.4. The  implementation  of  certain  programmes  suffered  from  too  many  interruptions  (political  changes,  staff  turnover
at the Commission), whereas other programmes that had clearly lost any sense of direction were being carried on by force
of  inertia  (fear  of  administrative  procedures,  refusal  to  disturb  budgetary  implementation)  which  prevented  them  from
being  abandoned  or  redirected  (see  paragraphs  4.12-4.15).

3.5. With  regard  to  the  national  programmes,  inadequate  exchanges  of  information  between  the  PHARE  and  TACIS
departments  reduces  the  efficiency  of  the  management  of  the  programmes  in  support  of  the  development  of  the  private
sector. The Commission’s approach encourages neither the sharing of experiences concerning comparable instruments nor
the  evaluation  of  the  quality  of  the  experts,  or  their  results  (see  paragraphs  4.17-4.20).

The  efficiency  of  the  implementation  procedures

3.6. On  several  occasions,  the  efficiency  of  the  instruments  adopted  for  the  development  of  the  private  sector  was
adversely  affected  by:

(a)  poor  operational  rules  (see  paragraphs  5.2-5.3);

(b) an  inappropriate  choice  of  instruments  in  relation  to  the  local  context  (see  paragraphs  5.4-5.7);

(c)  competition  between  different  instruments  applied  in  the  same  region  (see  paragraphs  5.8-5.9);

(d) excessively  complex  financial  instruments  (see  paragraph  5.10);

(e)  insufficient  financial  resources  in  relation  to  the  problems  to  be  solved  (see  paragraphs  4.6  and  5.11).

3.7. Whilst  the  services  provided  by  the  technical  assistance  teams  in  most  cases  complied  with  project  specifications,
several  failures  showed  that  some  of  the  technical  assistants  in  charge  of  projects  had  adopted  an  excessively  passive
attitude  towards  the  problems  encountered  (see  paragraphs  5.12-5.16).  However,  the  difficulties  noted  in  respect  of
coordination  and  cooperation  between  participants  were  essentially  the  result  of  bad  planning  or  the  absence  of  a
coherent  political  strategy  (see  paragraphs  5.17-5.22).

Assessment  of  the  measures  implemented

3.8.
It continues to be difficult to measure the tangible effects of measures in support of the development of the private
sector.  The  absence  of  reliable  indicators  and  the  lack  of  summary  reports  on  activities  make  it  impossible  to  obtain  an
overall  picture  of  the  impact  that  the  programmes  have  (see  paragraphs  6.1-6.3).  With  regard  to  the  degree  of
implementation of the measures, the assessments are contradictory and vary from one country to another (see paragraphs
6.20-6.34).

3.9.
In most of the countries, the national budgets made it difficult for PHARE or TACIS aid to be co-financed and then
replaced  by  national  funds.  Furthermore,  the  possibilities  for  obtaining  funding  from  local  sources  are  limited  by  the
unstable political and legal environment and the fact that it is difficult to gain access to credit (see paragraphs 6.5-6.8 and
6.11-6.15).

C  335/8

EN

Official  Journal  of  the  European  Communities

3.11.98

4.  THE  PREPARATION  AND  MANAGEMENT  OF  THE  PROGRAMMES

The  quality  of  the  preparation,  implementation  deadlines  and  the  scheduling  of  measures

4.1. Programmes in support of the development of the private sector are most often characterised by ambitious but very
vague objectives which create problems when they come to be translated into operational terms. These problems are made
worse by undue haste in the commitment of appropriations and the drafting of technical specifications, owing to a desire
to  improve  budgetary  implementation  at  any  price.

Poland

4.2. The  launch  in  May  1994,  with  insufficient  preparation,  of  the  SME  subsidy  mechanism  (ECU  32  million)
under  the  Struder  programme  (regional  development)  resulted  in  the  postponement  of  its  expiry  date  and  in  the
reallocation of more than ECU 10 million to other components of the programme. The same programme provided
for a guarantee fund. This was initially linked to the subsidy mechanism, but had to be separated from it because it
had  been  launched  without  any  evaluation  of  the  SMEs’  practical  needs  and  before  the  banks  participating  in  the
programme  had  been  consulted.

4.3.
In  the  tourism  sector,  a  second  programme  had  been  launched  before  the  first  had  produced  any  results.  A
third programme (ECU 6 million), which was justified above all by a desire to speed up the implementation of the
budget  at  all  costs,  was  adopted  despite  the  fact  that  no  assessment  had  been  made  of  the  first  two
programmes.

Bulgaria

4.4.
In  the  case  of  the  SME  programme  in  Bulgaria,  badly  conceived  specifications  and  a  poor  appraisal  of  the
abilities of the successful tenderer in the first phase of technical assistance resulted in several extensions which more
than doubled the cost (from ECU 0,54 million to ECU 1,24 million) and length of the initial contract. The second
programme in favour of the private sector was also implemented without account being taken of the results of the
previous programme, whereas the success of the measures in the second programme depended on it. As a result of
this inconsistency, the three financial instruments scheduled (the guarantee fund, the own resources mechanism and
the  regional  investment  funds)  were  discontinued  and  the  programme  was  completely  redirected  (see  paragraph
5.14).

4.5.
In  the  tourism  sector,  the  financing  agreement  for  the  1993  budget  year  (due  to  expire  at  the  end  of
December 1995) was not signed until December 1994 and was not received by the Tourism Committee, the project
beneficiary  and  partner,  until  April  1995.  This  delay  left  only  a  few  months  to  structure  and  implement  the
programme  and  the  corresponding  measures  could  not  be  correctly  ranked.  Approximately  50  projects  lacking
genuine predefined priorities were therefore launched at the same time, including a master plan which should have
been  available  beforehand.

4.6. As  regards  assisting  the  restructuring  of  the  mechanical  sector,  the  contract  (ECU  0,8  million)  provided  for
successive intervention phases: the development of a strategy for restructuring the sector and then the development
and  implementation  of  an  action  plan  for  10  preselected  companies.  Considering  these  terms  of  reference  to  be
unrealistic,  the  consultant  asked  for  the  requirements  of  the  second  and  third  phases  to  be  made  less  stringent.
Consequently, priority was given to the search for partners, but only for half of the 10 initially selected companies.
As  a  result,  the  dimension  and  scope  of  the  project  changed.

Other  countries

4.7. Similar  problems  were  also  uncovered  in  Russia,  with  regard  to  the  strengthening  of  the  SMEDAs,  and
Slovakia,  in  respect  of  regional  development  support.

4.8. Such  practices  give  rise  to  project  specifications  that  are  subsequently  considered  unrealistic  by  the  contractors
(owing  to  their  implausibility  or  failure  to  take  sufficient  account  of  local  constraints)  and  which  lead  either  to  the
extension  of  programmes  or  technical  assistance  contracts  or  to  the  cancellation  or  redirection  of  measures.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/9

4.9. The  delays  created  by  failure  to  prepare  operations  disrupt  the  sequence  of  the  various  phases  of  the  programmes
and  jeopardise  the  measures  undertaken.  The  content  of  the  programmes  and  the  timetable  for  planned  measures
therefore lose both coherence and realism. Thus, projects where the outcome depends on the success of previous projects
are  nevertheless  undertaken  in  an  inappropriate  context  and  without  the  necessary  results  being  available  beforehand.

Russia

4.10.
In Russia, a project was undertaken without a named beneficiary. Its project specification (support for SME
policy  (ECU  1  million))  merely  provided  for  assistance  to  be  given  to  ‘t h o s e   R u s s i a n s   who  are  responsible  for
the  design  of  programmes  to  promote  SME  development’.  No  further  details  were  given.  The  subsequent
designation  of  the  State  SME  support  committee  (GKRP)  as  a  beneficiary  did  not  improve  the  situation.  As  the
GKRP  had  not  participated  in  the  planning  of  the  project,  its  contribution  to  the  experts’  work  was  remote.  In
such  cases,  the  ‘demand-driven’  approach  was  obviously  not  applied  and  the  role  of  the  Commission  or  of  the
consultants  should  be  clarified.

4.11. As a general rule, in the Commission’s project files a clear reference to the consultant responsible for drafting the
project  specifications  must  be  introduced,  since  the  consultant  is  often  responsible  for  the  difficulties.  It  would  then  be
possible  to  draw  up  a  register  of  competent  drafters  and  remove  the  names  of  those  whose  analyses  have  not  produced
satisfactory  results.  None  of  the  projects  contained  a  reference  of  this  sort.

The  implementation  of  measures  and  drafting  of  the  consultants’  contracts

In  Bulgaria,  Uzbekistan  and  Russia,  project  suspensions  disrupted  the  implementation  of  the  SME  support
4.12.
programmes.  Significant  changes  in  management  staff  at  the  Commission  in  Brussels  and  local  political  changes  were
often  the  cause  of  these  suspensions.

4.13. Other projects suffered from inertia (Hungary, Poland) which prevented them from being redirected or suspended.
The  sluggishness  of  the  administrative  and  budgetary  procedures  ensures  that  programmes  that  have  lost  any  relevance
are  not  discontinued.  The  measures  are  then  pursued  with  the  sole  aim  of  using  up  committed  appropriations.

Hungary

4.14.
In  Hungary,  a  convertible  loan  programme  (ECU  1,89  million)  was  preserved  at  all  costs.  The  instrument
was  included  in  the  1990  programme  but  could  not  be  developed  within  the  time  stipulated.  So  as  not  to  forego
the  budget  that  had  been  allocated,  a  framework  agreement,  which  was  approved  by  the  Delegation,  was  signed
with  a  financial  intermediary  in  December  1994.  However,  in  November  1996,  not  a  single  loan  had  been
approved.

Bulgaria

4.15. Various suspensions disrupted the implementation of the SME and regional development programmes. First
the  technical  assistance  teams  were  evicted  from  their  offices  by  the  authorities  which  owned  the  buildings  and
were  thus  prevented  from  working  effectively.  Secondly,  the  lack  of  any  genuine  handing-over  of  responsibilities
between  successive  consultants  led  the  Commission  temporarily  to  suspend  the  regional  development  support
contract.  Lastly,  a  succession  of  four  different  managers  at  the  Commission  in  Brussels  in  as  many  years  did  not
make  it  possible  to  overcome  the  difficulties  raised  by  the  Bulgarian  authorities.

C  335/10

EN

Official  Journal  of  the  European  Communities

3.11.98

4.16. Failures  of  this  kind  illustrate  a  problem  related  to  the  very  nature  of  the  specifications.  Although  consistent  in
terms  of  the  aims  of  the  financing  agreements,  consultants’  contracts  are  too  often  drafted  without  adequate  attention
being  given  to  the  local  context.  Although  they  include  a  list  of  activities  to  be  undertaken  and  services  to  be  rendered,
the  objectives  to  be  attained  remain  vague.  This  situation  suits  the  contractors,  on  whom  there  is  little  obligation  to
achieve results and who, in the event of difficulties, can always hide behind the unrealistic nature of the specifications to
justify the mediocrity of their own performance. The result is inertia in the implementation of contracts, as it is easier for
contractors  to  perform  a  series  of  tasks  that  are  inconsistent  and  ill-suited  to  the  local  situation  than  to  have  to  learn
from  their  mistakes  and  risk  having  operations  suspended  or  contracts  renegotiated.

The  flow  of  information

4.17. The  exchange  of  information  on  programmes  between  the  various  PHARE  and  TACIS  operational  departments
remains a weak point. For example, no information is available on the quality of the performance of consultants (11). This
is  especially  true  of  specification  drafters,  contracting  companies  and  experts.

4.18. Thus,  the  first  technical  assistance  team  for  SMEs  in  Bulgaria  was  granted  several  contract  extensions  (total
amount:  ECU  1,24  million)  although  it  had  achieved  no  tangible  results  (see  paragraph  5.14).  Similar  problems  were
observed  in  Poland  (tourism)(see  paragraph  5.13).

4.19.
Information of this kind on the background of the consultants (see paragraph 4.11) would, however, be useful as
it would enable better informed choices to be made when projects are being planned. It would also clarify procedures by
distinguishing more clearly between the successive roles played by each participant in the various stages of a project cycle.
The fact is that consultancies too often limit their role to purely organisational work by bringing together a team of staff
recruited  on  the  basis  of  project  requirements.  Numerous  experts  are  thus  approached  at  the  same  time  by  several
tendering companies. These latter, who feel little sense of responsibility as they will not be blacklisted in the event of poor
performance,  are  thus  more  interested  in  getting  paid  as  intermediaries  than  in  the  proper  completion  of  their  tasks.

4.20. As results are not recorded for either PHARE or TACIS within the Commission, it is not possible to assess a given
sector  or  instrument.  It  even  appears  that  the  sectoral  dimension  common  to  the  PHARE  or  TACIS  countries  has  to  all
intents and purposes been ignored in the Commission’s approach. It is thus difficult for the SME manager of a PHARE or
TACIS  country  to  benefit  from  the  experience  of  a  similar  policy  in  another  country.

The  monitoring  and  evaluation  of  programmes

4.21. The  situation  as  regards  ongoing  monitoring  and  evaluation  has  gradually  improved.  At  the  end  of  1997,  both
PHARE and TACIS comprised units with specific responsibility for these matters, assisted by external teams working on
the spot. The conclusions of these monitoring and evaluation units should improve the control of contracts, projects and
programmes  (necessary  in  view  of  enlargement).  However,  there  are  limits  to  what  can  be  done  in  this  way.

Poland

4.22. The  components  of  the  Struder  programme  launched  in  1992  all  suffered  from  a  lack  of  monitoring.  The
central agency (PARD) paid little attention to the operating expenditure of the regional development agencies. No
overall  appraisal  of  training  and  evaluation  measures  had  been  made  by  mid-1997.  Although  the  SME  subsidy
system was experiencing teething trouble and plans had originally been made for an appraisal every six months, an
intermediate evaluation was not made until May 1996. As the resulting recommendations had only been made six
months  before  the  project’s  expiry  date,  none  of  them  could  be  adopted.  Furthermore,  no  monitoring  of  SME
beneficiaries  had  been  organised  as  of  the  end  of  1997.

(11) Performance  scoring.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/11

4.23.
In  the  case  of  tourism,  the  plethora  of  committees,  departments  or  groups  responsible  for  supervision  did
not stop several contracts being maintained even though the contractors’ performance was mediocre (see paragraph
5.13). Lastly, a loss of revenue totalling approximately ECU 300 000 must be attributed to the lax management of
funds  received  by  the  tourism  programme  management  unit,  which  is  not  supervised  by  the  Commission (12)  (low
rates  of  interest  on  money  deposited  in  bank  accounts).

Slovakia

4.24. As  only  restructuring  projects  covered  by  a  current  technical  assistance  contract  are  monitored  on  a
company-by-company  basis  by  the  programme  management  unit,  it  is  impossible  to  express  an  opinion  on  the
practical impact of support whose long-term effects (increasing market shares and profits) only become perceptible
after  technical  assistance  has  been  completed.

Other  countries

4.25. Other  cases  observed  in  Hungary,  Russia  and  Uzbekistan  also  involved  monitoring  problems.

4.26. At  the  end  of  1997,  monitoring  and  assessment  were  characterised  by  the  following  shortcomings:

(a)  the  time  required  by  the  Commission  in  Brussels  to  become  aware  of  problems  that  arise,  together  with  the

advantages  afforded  by  proximity,  were  good  reasons  for  stepping  up  monitoring  at  Delegation  level;

(b) monitoring  and  evaluation  were  carried  out  solely  by  consultants,  as  the  Commission  does  not  analyse  the  effects  of
the  consultants’  work  on  the  organisation,  working  methods  and  results  of  project  beneficiaries  (see  paragraph
6.3);

(c)  at  the  end  of  1997,  monitoring  and  evaluation  were  neither  comprehensive  nor  uniform.

4.27. The  possibility  of  organising  concerted  and  coordinated  monitoring  with  other  donors  should  be  examined.

5.  EFFICIENCY  OF  IMPLEMENTATION  PROCEDURES

The  choice  and  conception  of  instruments

5.1. On  several  occasions,  the  instruments  implemented  in  support  of  SMEs  or  regional  development  turned  out  to  be
unsuitable.  As  a  result,  the  effectiveness  of  the  projects  concerned  was  considerably  reduced.  The  reason  was  either  the
unsuitability  of  the  instrument  to  the  surrounding  context  or  unsatisfactory  operating  rules.

Poland

5.2. As well as a lack of preparation (see paragraph 4.2), many technical obstacles limited the potential usefulness
of  the  guarantee  fund.  Although  initially  designed  to  operate  in  tandem  with  SME  subsidies,  the  guarantee  fund
was  uncoupled  from  these  latter  because  it  was  introduced  late.  These  delays  were  compounded  by:

(a)  a rate of commission considered too high by beneficiaries (3 %, when a government fund would have charged

between  1,2 %  and  1,8 %);

(12) See Special Report No 3/97 concerning the decentralised system for the implementation of the PHARE programme, paragraphs 3.30

and  4.19  (OJ  C  175,  9.6.1997).

C  335/12

EN

Official  Journal  of  the  European  Communities

3.11.98

(b) an  excessively  long  decision–making  process  within  the  bank  responsible  for  management;

(c)  an  application  procedure  that  was  too  complex  and  too  centralised.

Russia

5.3. The  project  for  strengthening  the  SME  Development  Agencies  (SMEDAs  —  ECU  2  million)  did  not  create
sufficient  cooperation  between  the  parties  involved.  It  presupposed  that  the  regional  SMEDAs  would  provide
offices, certain logistical facilities and some of the staff. In a difficult economic context, and despite the agreement
of the National SME Agency, such requirements could not fail to create conflicts with the agencies whose financial
stability  was  threatened.  By  not  taking  into  account  what  was  to  become  the  principal  concern  of  the  agencies,
namely  their  financial  independence,  this  project  immediately  created  situations  of  conflict  and  produced  results
that were contrary to the purpose that had been assigned to it. Rather than strengthening the SMEDAs, it deprived
them  of  certain  resources  for  its  own  needs.  For  its  part,  the  national  agency  had  no  authority  to  mobilise  the
regional  agencies.  This  project  also  lacked  coherence  because  sectoral  choices  were  made  without  any  relation  to
local realities and because there was nothing to unify the five sites selected. The result was five small independent
projects, a fact which prevented the monitoring and assessment unit from delivering its overall conclusions within a
reasonable  time.  This  lack  of  uniformity  already  characterised  the  previous  project  for  setting-up  the  SMEDAS
(ECU  3,5  million).  Its  large  number  of  small  assorted  modules  gathered  together  under  one  single  contract  made
management  and  assessment  particularly  complicated.  The  subsequent  project  was  similarly  ill-assorted,  to  the
extent  that  the  person  responsible  judged  the  terms  of  reference  of  the  contract  to  be  the  worst  that  he  had  ever
seen.

5.4.
Instruments  that  had  proved  their  worth  in  a  given  country  and  context  were  sometimes  reproduced  in  a  new
context  without  adequate  modifications.  This  was  true,  for  example,  of  the  model  selected  for  regional  development  in
the  Czech  Republic  and  also  applied  in  Poland  and  Slovakia.

In  other  cases,  instruments  that  had  been  developed  for  a  given  environment  were  put  to  use  belatedly,  with  the

5.5.
result  that  they  became  ineffective  due  to  changes  in  the  initial  context.

Bulgaria

5.6. The three years needed for the launching of the SME credit line meant that the mechanism in question (loans
in hard currencies with the exchange risks to be borne by the borrower) was completely unsuited to the context of
economic  decay  that  prevailed  in  1995/96,  with  a  300 %  devaluation  of  the  lev  against  the  dollar.

5.7. Cases were also observed of mechanisms that were relatively easy to reproduce being adopted in some countries but
not  in  others.  Thus,  subsidies  for  SMEs  and  minor  infrastructure  could  have  been  used  in  support  of  regional
development  in  Bulgaria  or  Slovakia  but  were  restricted  to  Poland.

5.8. Problems also arose from a confusion of roles, or even competition between the various instruments used by a given
donor.  Examples  of  this  are  particularly  instructive  in  the  SME  and  regional  development  programmes  in  Hungary  and
Bulgaria.  An  excessively  vague  definition  of  the  tasks  entrusted  to  both  the  SME  support  agencies  and  the  agencies
concerned  with  regional  development  led  to  a  confused  situation  whenever  both  types  of  agency  were  working  in  the
same geographical area.

5.9. The  low  success  rate  of  the  PHARE  SME  guarantee  programmes  is  explained  by  the  limited  advantage  offered  by
this instrument over credit lines for SMEs. Indeed, as the amounts lent come from budgetary funds, the rates offered are
very much lower than market rates. Guarantees can, at best, only offer prime borrower rates on the bank loans that they
accompany. Thus, where these two instruments are simultaneously available, the chances of SMEs being steered towards
guarantees  are  very  small.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/13

5.10. Evaluation of the results of investment funds needs substantially more time (13) than for conventional instruments.
However, the deadlines envisaged in the financing agreements considerably underestimate reaction times. Instruments that
were technically more advanced (e.g. convertible loans for SMEs in Hungary and Bulgaria) turned out to be too complex
for  an  immature  banking  environment  and  were  not  very  successful  with  the  SMEs.  Moreover,  at  the  expiry  of  the
programmes, the agreements do not clearly establish what is to happen to ‘revolving’ funds. This problem is particularly
sensitive  when  the  body  responsible  for  mobilising  loans,  guarantees  or  other  instruments  (investment  funds)  is  not
directly  answerable  to  the  public  authorities.

5.11. Finally,  with  regard  to  the  reorganisation  of  companies  in  Bulgaria,  Slovakia  and  Russia,  the  financial  resources
mobilised  for  each  company  turned  out  to  be  inadequate  for  the  implementation  of  the  recommendations,  even  though
provision  was  made  for  implementation  in  most  of  the  contracts.

Technical  assistance

5.12. For  the  majority  of  the  projects  examined,  the  technical  assistance  provided  complied  with  the  project
specifications  and  the  transfer  of  know-how  therefore  took  place  under  satisfactory  conditions.  However,  where  failures
were  found  (Bulgaria,  Poland,  Russia  and  Slovakia),  it  turned  out  that  the  technical  assistants  in  charge  of  the  projects
had  been  slow  to  react  to  the  problems  encountered  or  that  there  had  been  conflicts  with  local  managers.

Poland

In  the  tourism  sector,  there  was  an  inadequate  transfer  of  know-how  and,  in  two  cases,  it  was  found  that
5.13.
poor  service  had  been  provided.  In  one  of  these  cases,  not  only  had  contracts  not  been  terminated  despite  the
disappointing services provided by the consultant, but the company in question had also benefited from five further
contracts  amounting  to  a  total  of  ECU  1,35  million,  which  subsequently  met  with  further  implementation
problems.

Bulgaria

In  the  SME  and  regional  development  sectors,  the  performance  of  the  first  technical  assistance  teams
5.14.
provided by the same consultant remained well below the level required in their contract specifications. Preparatory
work  intended  to  create  the  conditions  necessary  for  the  introduction  of  the  financial  instruments  was  not  carried
out  (insufficient  research  into  the  legal,  administrative  and  financial  background).  Without  this  preliminary  work,
the  operations  envisaged  became  unrealistic.  Subsequently,  the  consultant  did  not  fully  assess  the  extent  of  the
problems and did not propose the suspension of the contract. The numerous extensions of the contract, which had
been  negotiated  privately  with  this  consultant  (ECU  1,24  million),  only  accentuated  a  failure  which  seriously
compromised  subsequent  measures  and  which  was  the  main  cause  of  the  redirection  of  the  programme  and  the
abandonment  of  three  financial  instruments  (see  paragraph  4.4).

5.15.
In the case of tourism (Poland) and SMEs (Bulgaria), the difficulties were accentuated by the poor performance of
several technical assistance teams. In Slovakia, inadequacies were found in terms of information (knowledge of the project
specifications  on  the  part  of  the  regional  development  agency)  and  communication  between  the  participants  in  the
regional  development  support  programme.

5.16. The effectiveness and cost of technical assistance could be improved if more systematic recourse were had to firms
of  consultants  combining  both  local  and  Western  experts (14).  Furthermore,  this  would  provide  greater  scope  for  the
transfer of know-how, as was noted for the assistance provided for the reorganisation of companies in Poland. This need
was  felt  especially  in  Poland  in  the  tourism  programmes  and  in  Hungary  within  the  regional  development  programme
management  unit.

(13) Regional  Investment  Fund,  Seed  capital  and,  Equity  schemes.
(14) See  the  Annual  Report  of  the  European  Court  of  Auditors  for  the  1993  financial  year,  paragraph  12.36  (OJ  C  327,  24.11.1994).

C  335/14

EN

Official  Journal  of  the  European  Communities

3.11.98

Cooperation  between  the  various  parties

5.17. Coordination  and  close  cooperation  between  the  various  parties  involved (15)  are  essential  for  an  effective
implementation of the programmes. In several cases bad planning or the lack of a coherent political strategy contributed
to  the  implementation  difficulties.

Poland

5.18. Cooperation between the tourism programmes and regional development proved to be almost non-existent.
In  June  1997,  no  action  had  been  taken  and  no  discussions  had  taken  place  in  conjunction  with  the  regional
development agencies. Cooperation between the regional development agencies and the Polish Agency for Regional
Development  (PARD)  was  also  inadequate  and  was  limited  to  mere  exchanges  of  information.

Slovakia

5.19. Ambiguities regarding the composition of the management bodies of the Regional Development Agency and
the  Regional  Investment  Company  and  their  respective  roles  caused  major  conflicts.  The  independence  of  the
bodies set up and their composition thus encouraged uncooperative or even hostile behaviour on the part of these
two  agencies.  This  behaviour  led  to  the  failure  of  the  pilot  project.

5.20. Disagreements  between  the  local  manager  and  the  foreign  experts  led  to  premature  termination  of  the
technical  assistance  contract  (ECU  0,3  million)  and  the  pilot  project.  The  person  responsible  for  the  Regional
Development Agency, who did not possess the specifications for the technical assistance contract, could not secure
the  services  of  foreign  experts.

Russia

5.21. Cooperation  between  the  EBRD,  which  managed  the  SME  loan  schemes,  and  the  SMEDAs  supported  by
TACIS  was  non-existent  in  most  regions.

5.22.
In practice, failure to define links beforehand results in insufficient active cooperation between programmes whose
fields of activity are closely related. This is also true of policies involving regional development and SMEs in Hungary, for
which  the  lack  of  a  clear  definition  of  the  fields  of  intervention  creates  rivalry  between  projects  (local  networks).  The
solution  to  these  problems  therefore  depends  on  the  national  political  authorities’  clarifying  the  responsibilities  of  each
party involved.

6.  ASSESSMENT  OF  THE  MEASURES  IMPLEMENTED

Measuring  the  impact

6.1. Even though it is a difficult exercise to measure the tangible impact of policies in support of the development of the
private  sector,  it  is  nevertheless  indispensable  and  the  Commission  must  ensure  that  it  is  done.  This  difficulty  is  due,  on
the one hand, to a lack of reliable indicators in many situations and, on the other hand, to the impossibility of isolating
the precise contribution of the measures financed by PHARE or TACIS in terms of measurable effects in situations where
other  instruments  are  contributing  to  the  same  objectives  and  the  market  itself  constitutes  the  main  driving  force  of
development.

Bulgaria  and  Russia

6.2.
In  Bulgaria,  visibility  remains  mediocre  in  the  SME  sector:  four  years  after  the  launching  of  the  SME
programmes  (ECU  24,5  million  in  November  1996),  this  sector  still  had  no  statistics  —  a  major  indicator  in  the
assessment  of  development.  This  lack  of  reliable  statistics  also  characterised  the  programmes  implemented  in
Russia.

(15) The  local  authorities,  the  Delegation,  the  technical  assistants,  the  PMU  and  the  EBRD.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/15

6.3. With  regard  to  the  company  restructuring  programmes  in  the  countries  examined,  there  were  no  summary  data  to
enable  the  assessment  of  either  the  degree  of  implementation  of  the  recommendations  or  the  tangible  effects  on  the
companies’ situations. In Poland, the PMU estimated that approximately 50 % of the beneficiary companies had adopted
and  applied  the  recommended  restructuring  plans.  In  the  other  countries,  appraisal  was  even  vaguer.  This  kind  of
approach  makes  it  impossible  to  identify  success  factors  that  should  be  included  in  future  projects.  Moreover,  the
shortcomings recorded in programme management (especially in terms of the submission of reports, the consolidation of
the  results  obtained  and  monitoring  and  assessment)  further  underline  the  unreliable  nature  of  any  measurement  of  the
impact  of  the  measures  implemented  by  the  Commission.

6.4. Be  that  as  it  may,  PHARE  and  TACIS  have  contributed  to  the  profound  change  in  mentality  vis-à-vis  the  private
sector that has occurred. In most of the countries visited, private initiative has not only been legalised but also very widely
promoted.  This  success  cannot  be  dissociated  from  the  implementation  of  support  for  local  SME  networks  and  regional
development.  Close  support  is  thus  always  at  hand,  whether  in  the  form  of  Local  Enterprise  Agencies (16)  in  Hungary,
Business  Support  Centres (17)  and  Regional  Development  Agencies (18)  in  Poland,  Slovakia  and  Bulgaria  or  Small  and
Medium-sized  Enterprise  Development  Agencies (19)  in  Russia,  Uzbekistan  and  Turkmenistan.  These  networks  are  all
necessary  vehicles  for  training  activities,  advice  and  financial  measures  (micro-credits).

External  constraints  on  the  projects

6.5. The cultural divide, the survival of old structures, resistance to change on the part of certain categories of political
and economic agents and, in many cases, a deterioration in the standard of living, are all aspects of the context in which
the projects are having to operate. The intensity and extent of these elements vary from one country to another, but they
must  be  taken  into  account  in  order  to  ensure  that  only  realistic  measures  are  undertaken.

Bulgaria

6.6. A  poor  assessment  of  the  political  and  legislative  context,  together  with  resistance  (to  a  considerably
underrated  degree)  to  change  within  the  ministries  and  the  public–sector  companies  caused  projects  that  were  too
complex  or  too  ambitious  to  fail  (see  paragraph  4.4).

Uzbekistan  and  Turkmenistan

6.7. The  principal  constraints  noted  in  other  PHARE  and  TACIS  countries  were  felt  even  more  acutely  in  these
two  countries.  The  underdeveloped  nature  of  the  banking  system  and  the  difficulty  companies  experience  when
trying  to  obtain  foreign  currency  constitute  two  major  obstacles  to  the  rise  of  the  private  sector.

In  all  the  countries,  external  constraints  affected  the  implementation,  the  impact  and  the  lasting  character  of  the

6.8.
measures.  These  constraints  belonged  chiefly  to  one  of  the  following  three  categories:

(a)  insufficient  resources  in  the  national  budgets  to  accompany  and  distribute  PHARE  and  TACIS  aid  effectively;

(b) an  unstable  political  and  legal  environment  which  was  often  ill-suited  to  the  programmes  that  were  to  be

implemented;

(c)  great  difficulty  in  gaining  access  to  credit,  especially  for  SMEs.

(16) LEAs.
(17) BSCs.
(18) RDAs.
(19) SMEDAs.

C  335/16

EN

Official  Journal  of  the  European  Communities

3.11.98

Budgetary  implementation

6.9. The  instruments  used  by  DG  IA  to  monitor  the  accounts  are  in  need  of  a  thorough  reform.  Under  the  Desiree
system,  the  only  way  to  access  information  concerning  support  for  SMEs,  regional  development,  privatisation  or  the
reorganisation of businesses is by measure title. All these types of aid are put together under the same heading (code PR),
the  only  level  of  analysis  accessible.  In  addition  to  this  serious  shortcoming  concerning  the  destination  of  funds,  there  is
also the question of the nature of the aid. Here too, the aid provided for training, advice, financial instruments etc. could
only  be  grouped  together  by  titles  whose  reliability  was  uncertain.  Furthermore,  support  for  the  financial  sector  is
included  under  private  sector  development  in  TACIS  but  not  PHARE.

6.10. An  examination  of  budgetary  implementation  using  the  Commission’s  management  database  (Desiree)  showed
that,  overall,  for  both  PHARE  and  TACIS,  the  programmes  in  support  of  the  development  of  the  private  sector  had
progressed considerably more than the overall average for all programmes (see Table 3). However, a country by country
examination  of  implementation  yields  more  heterogeneous  results  (see  Table  4).  From  this  point  of  view,  as  of  31
December 1997, the situation was particularly worrying in Bulgaria and Romania. Payments under the ECU 22,5 million
programme  committed  in  1992  in  favour  of  the  development  of  the  private  sector  in  Bulgaria  represented  only  28 %  of
the  initial  commitment  (see  paragraphs  4.4  and  6.25-6.28).  In  Romania,  two  programmes  with  a  total  budget  of  ECU
100 million showed worrying payment rates: a programme of ECU 30 million committed in 1992 and paid out at a rate
of 62 % and another of ECU 70 million committed in 1993, whose payment rate was little more than 40 %. In these two
countries,  these  programmes  were  launched  without  the  necessary  legal  and  institutional  frameworks  (see  paragraph
4.9).

Implementation  rates  of  PHARE  and  TACIS  programmes  as  of  31.12.1997.

TABLE  3

All programmes

Private  sector  development  programme

(in  %  of  commitments)

PHARE
Agreed
Paid  out

TACIS
Agreed
Paid  out

Source:  Desiree  database.

68
51

83
45

77
59

87
51

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/17

TABLE 4

PHARE - TOTAL ALLOCATIONS  (1991 - 1997)

U
C
E
o
M

i

200
200

180
180

160
160

140
140

120
120

100
100

Mio ECU
80
80

60
60

40
40

20
20

0
0

AL 
AL

BG 
BG

BH  CS  CZ 
BH
CS

CZ

ES  HU 
EE

HU

LE 
LV
Pays
Country

LI  MA 
LT
MA

PL  RO 
PL

RO

SL 
SI

SR 
SK

AU 
AU

PHARE PROGRAMMES 1991 - 1997 DEVELOPMENT OF THE PRIVATE SECTOR: ALLOCATIONS BY COUNTRY

DOT
ALL.
xxxxxxxxxxxx
CONTR
PAYÉ
PAID

1000
1000

900
900

800
800

700
700

600
600

500
500

400
400

300
300

200
200

100
100

0
0

TOTAL

TOTAL

In million ECU

ALBANIA
(AL)

BULGARIA
(BG)

BOSNIA-HERZEGOV.
(BH)

EX-CZECHOSLOVAKIA
(CS)

CZECH 
REPUBLIC (CZ)

ESTONIA
(ES)

HUNGARY
(HU)

LATVIA
(LE)

ALLOCATION
AGREED
PAID

7,00
6,79
6,59

100 %
97 %
94 %

72,50
46,73
32,39

100 %
64 %
45 %

3,00
3,00
0,32

LITHUANIA
(LI)

FYROM
(MA)

POLAND
(PL)

ALLOCATION
AGREED
PAID

35,70
21,75
16,65

100 %
61 %
47 %

8,80
2,86
0,40

100 % 196,20
32 % 163,05
5 % 152,52

100 %
100 %
11 %

70,00
69,91
67,78

ROMANIA
(RO)

100 % 147,40
83 % 110,33
65,12
78 %

100 %
100 %
97 %

100 %
75 %
44 %

28,00
28,13
20,27

100 %
100 %
72 %

21,10
19,30
12,95

100 % 148,50
91 % 104,60
95,81
61 %

100 %
70 %
65 %

20,98
15,06
3,71

100 %
72 %
18 %

SLOVENIA
(SL)

SLOVAKIA
(SR)

OTHERS
(AU)

TOTAL

21,05
16,90
12,46

100 %
80 %
59 %

54,20
32,68
25,90

100 % 164,50
60 % 126,86
73,56
48 %

100 %
77 %
45 %

998,93
767,94
586,43

100 %
77 %
59 %

TACIS - TOTAL ALLOCATIONS (1992 - 1997)

250
250

200
200

150
150

U
C
E
o
M

i

Mio ECU
100
100

50
50

0
0

AR 
AM

AZ 
AZ

BI  GE 
BY
GE

KA 
KZ

KI  MO  MG 
KG
MG
MD

RU 
RU

TA 
TJ

TU 
TM

UR 
UA

UZ 
UZ

AU 
AU

Pays
Country

TACIS PROGRAMMES FOR 1992 - 1997 DEVELOPMENT OF THE PRIVATE SECTOR BY COUNTRY

DOT
ALL.
xxxxxxxxxxxx
CONTR
P A Y É
PAID

500
500

450
450

400
400

350
350

300
300

250
250

200
200

150
150

100
100

50
50

0
0

TOTAL

TOTAL

In million ECU

ALLOCATION
AGREED
PAID

ALLOCATION
AGREED
PAID

ARMENIA
(AR)

13,54
10,82
6,89

RUSSIA
(RU)

228,06
196,51
106,31

AZERBAIJAN
(AZ)

BELARUS
(BI)

8,00
7,43
4,88

100 %
93 %
61 %

19,82
18,04
13,84

100 %
91 %
70 %

GEORGIA
(GE)

13,65
13,62
8,82

TAJIKISTAN
(TA)

TURKMENISTAN
(TU)

UKRAINE
(UR)

1,30
0,00
0,00

0 %
0 %
0 %

6,10
3,40
2,17

100 %
56 %
36 %

70,94
58,67
35,36

100 %
80 %
51 %

100 %
86 %
47 %

Source: Desiree database.

KAZAKIHSTAN
(KA)

KYRGYSTAN
(KI)

MOLDOVA
(MO)

MONGOLIA
(MG)

100 %
100 %
65 %

100 %
83 %
50 %

32,32
29,63
18,30

100 %
92 %
57 %

0,82
0,82
0,62

UZBEKISTAN
(UZ)

OTHERS
(AU)

12,36
12,36
5,19

100 %
100 %
42 %

39,53
38,01
24,07

100 %
100 %
76 %

100 %
96 %
61 %

9,31
4,80
4,29

TOTAL

459,70
398,06
232,98

100 %
52 %
46 %

100 %
87 %
51 %

3,96
3,95
2,24

100 %
100 %
57 %

 
 
C  335/18

EN

Official  Journal  of  the  European  Communities

3.11.98

The  long-term  survival  of  the  institutions

6.11.
In spite of the success achieved in setting up the local agencies, they all had to face the same challenge — that of
guaranteeing  their  own  future  and  hence  their  financial  survival.  They  all  also  had  to  face  the  same  constraint  —  the
insufficient number, or even total lack, of SMEs willing to pay them for services that had hitherto been rendered free of
charge.  Even  in  the  countries  where  support  for  SMEs  was  a  government  priority,  the  local  networks  depended  upon
PHARE  or  TACIS  funding  to  balance  their  operational  budgets.  In  cases  where  the  governments  concerned  were  not
fulfilling their co-financing commitments or did not take any interest in the question, the Commission had drawn up no
overall  strategy  for  the  withdrawal  of  PHARE  or  TACIS.

6.12. The risk of seeing part of the local infrastructure created to support SMEs or regional development disappear in a
short space of time goes hand in hand with the risk of losing the know-how acquired by the staff of the bodies created.
This  risk  has  even  been  increased  because  once  staff  became  aware  of  their  employers’  financial  fragility  this  knowledge
sometimes led them to anticipate the problems and quit their jobs. For example, the director and advisers of the support
centre for the Olsztyn SMEs in Poland left their posts in 1996. Even if all is not lost at the level of the country concerned,
given that these people, having received management training, can soon find other jobs, the leverage effect expected from
these  networks  is  drastically  reduced  and  dependence  on  foreign  technical  assistance  is  increased.

Poland

6.13. The  problem  of  survival  affects  the  Business  Support  Centres  (BSCs),  the  SME  Foundation  (Programme
Management  Unit)  and  most  of  the  bodies  created  under  both  programmes  for  the  development  of  tourism  (ECU
12,5  million).  The  Regional  Investment  Companies  (‘RICs’)  have  only  been  able  to  operate  thanks  to  the  sums
earned  on  funds  placed  with  banks  pending  investment  in  projects.  The  more  participation  these  bodies  take  in
companies,  the  more  they  reduce  the  resources  that  allow  them  to  operate  and,  therefore,  survive.

Russia

6.14. Except  for  the  Moscow  agency,  which  enjoys  substantial  support  from  the  municipal  and  regional
authorities (80 % of its budget), the future of the SME Development Agencies (SMEDAs) remains doubtful beyond
1998 and their need to search for funds is likely to take precedence over their role of providing services for SMEs.
The  question  of  survival  also  affects  the  Business  Support  Centres,  which  are  supposed  to  become  local
consultancies.

The  legality  and  regularity  of  transactions

6.15. Where  anomalies  were  found,  they  mainly  involved  a  failure  to  comply  with  the  rules  for  calls  for  tender
introduced  for  the  PHARE  and  TACIS  programmes  and  the  financing  of  operating  costs.

Poland

6.16.
In  order  to  commit  funds  before  the  expiry  date  of  the  regional  development  programme  (31  December
1996),  a  call  for  tenders  for  a  training  project  (ECU  0,4  million)  was  prepared  too  hastily  (three  weeks).  At  the
same  time,  the  criteria  for  drawing  up  the  restricted  list  of  candidates  were  not  specified  and  only  one  company
submitted  a  bid.  Haste  therefore  acted  as  an  obstacle  to  competition.  In  the  same  programme,  five  contracts
amounting  to  ECU  0,6  million  ECU  were  awarded  by  private  treaty  without  any  suitable  justification.

Bulgaria

6.17. A contract for training courses in management techniques amounting to more than ECU 4 million (a basic
contract  of  ECU  1  million  plus  seven  addenda)  was  concluded  by  private  treaty,  which  was  irregular.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/19

Slovakia

6.18. The  technical  assistance  contract  (ECU  0,3  million)  for  the  Slovak  Regional  Development  Agency  was
awarded in muddled circumstances. Cross-checks between the companies that provided the experts on the technical
assistance  team  appointed  after  the  call  for  tenders  and  those  found  on  the  restricted  tender  list  point  to  the
existence  of  a  strong  risk  of  collusion  between  these  companies.

6.19. Although the rules governing PHARE state that operating costs may only be covered during the launch phase of a
project, and must be phased out during that period, these costs were paid for out of the PHARE budget (20), in particular
in  the  following  programmes:

(a)  SMEs  (ECU  1,5  million)  in  Poland;

(b) regional  development  (ECU  5,4  million)  in  Poland;

(c)  tourism  (ECU  0,4  million)  in  Poland;

(d) SMEs  (ECU  0,2  million  ECU)  in  Slovakia.

Assessment  by  country  audited

Poland  (ECU  217,5  million) (21)

6.20. Despite an obsolete legal framework, the SME programmes (ECU 17,2 million) resulted in the correct organisation
of  the  SME  Foundation  and  a  clear  strategy.  For  the  regional  development  support  programme  (Struder,  ECU  78,82
million),  whose  budget  was  sufficiently  large  to  meet  the  local  needs,  the  situations  of  the  various  components  varied:

(a)  the part in support of minor regional infrastructures gave positive results (ECU 18,43 million), in particular in that it

sped  up  numerous  investment  decisions;

(b) the SME subsidy mechanism (ECU 31,93 million) had a less marked effect because, apart from the disbursement rate,
its objectives were unclear. Thus, in 90 % of the cases examined, investments had already been decided on before the
subsidies were granted and only 30 % of the investments were part–financed with bank loans, despite the fact that a
leverage  effect  in  favour  of  bank  loans  was  theoretically  one  of  the  objectives;

(c)  six years after the funds had been made available, the two regional investment companies envisaged (ECU 3 million)

were  operational  but  only  took  their  first  investment  decisions  in  November  1997;

(d) the  guarantee  fund  (ECU  7  million),  on  the  other  hand,  was  completely  unused.

In the tourism sector, the two main projects aimed at strengthening the institutional framework (the reorganisation

6.21.
of  the  SSTA  and  the  setting  up  of  a  National  Tourist  Office)  were  not  carried  out.

6.22. Regarding  support  for  industrial  restructuring,  the  results  of  the  sectoral  studies  can  be  considered  satisfactory,
except  for  the  steel  sector.  In  the  latter  case,  the  technical  assistance  measures  initially  envisaged  in  the  financing
agreement (ECU 2 million) were replaced by technical modernisation projects for four companies in the sector. However,
according  to  a  report  drawn  up  by  a  Canadian  consultant  for  the  Polish  Government,  the  sums  made  available  in  this
way  represented  only  0,1 %  of  those  needed  for  the  modernisation  of  the  sector.  Finally,  the  investment  fund  (‘FEDA
fund’,  ECU  5  million)  provided  for  in  the  1994  programme  had  still  not  seen  the  light  of  day  in  June  1997.

(20) See Special Report No 3/97 concerning the decentralised system for implementing the PHARE programme, paragraphs 3.20-3.30 (OJ

C  175,  9.6.1997).

(21) The  1990-1997  programmes.

C  335/20

EN

Official  Journal  of  the  European  Communities

3.11.98

Hungary  (ECU  174,5  million) (22)

In Hungary, measures in support of SMEs (ECU 63,8 million) differed according to the financial instruments used.
6.23.
The  micro-credits  distributed  through  local  agencies  were  popular  with  the  SMEs,  while  loans  distributed  by  the  bank
networks  had  achieved  a  disbursement  rate  of  only  20 %  by  the  end  of  1996.  A  convertible  loan  mechanism  (ECU  2
million)  was  not  operational  in  November  1996  although  more  than  six  years  had  been  necessary  for  its  development.

6.24. The training measures (ECU 2 million) under the company restructuring support programme have not achieved the
aims laid down in the financing agreements. Whereas they were designed for around 12 000 participants, only 1 100 took
part.  Clearly,  the  objectives  of  these  training  activities  were  far  too  optimistic  in  view  of  the  fact  that  the  market  was
saturated  in  this  field  —  more  than  100  institutions  were  offering  management  courses.

Bulgaria  (ECU  72,5  million)

6.25. Aid  for  SMEs  and  regional  development  (ECU  27,4  million)  originally  involved  three  financial  instruments,  all  of
which  were  abandoned (the  guarantee  fund,  investment of own funds and regional investment funds). No national SME
agency  was  set  up  and  certain  projects  were  in  a  precarious  state  at  the  end  of  1996,  in  particular  in  respect  of  credit
lines. Thus, slightly more than ECU 6 million had been reallocated to new projects which did not satisfy the guidelines of
the  initial  financing  agreement  and  ECU  6  million  had  quite  simply  been  decommitted.  In  November  1996,  compared
with  the  initial  forecasts,  actual  expenditure  (less  than  ECU  6  million  on  the  1991,  1992  and  1993  programmes)  had
achieved  a  much  lower  impact  than  the  objectives  laid  down  in  the  financing  agreements.

6.26. Support  for  the  restructuring  of  companies  resulted  in  measures  whose  lack  of  realism  and  breadth  allowed  little
hope  for  significant  results,  given  the  political  and  economic  situation  prevailing  at  the  time  in  the  country  in  question.
These  sectoral  activities  were  divided  into  three  phases:

(a)  an  analysis  of  the  situation  of  the  sector  and  the  companies  involved  for  the  development  of  a  strategy;

(b) the  selection  of  a  limited  number  of  viable  companies  for  which  a  restructuring  plan  could  be  adopted;

(c)  the  supplying  of  technical  assistance  to  all  or  some  of  the  companies  selected  for  the  implementation  of  the

recommended  measures.

None of the 20 cases examined in the mechanical engineering and metallurgy sectors went beyond the second phase (ECU
2,4  million).

6.27.
In  the  tourism  sector,  an  initial  ECU  1,1  million  study  regarding  the  drafting  and  implementation  of
recommendations  on  privatisation  had  to  be  abandoned  and  ECU  500 000  was  simply  written  off.  A  second  study
relating  to  the  preparation  of  a  legal  framework  for  tourism  was  also  abandoned.

In  respect  of  support  for  the  restructuring  of  companies,  in  addition  to  the  sectoral  activities  in  favour  of
6.28.
companies  selected  in  advance,  significant  sums  (ECU  10,5  million)  were  also  committed  for  services  offered  by  the
programme management unit (the ‘counter’ approach), including a technical assistance component (ECU 5,2 million) and
a  training  component  (ECU  4,3  million).  In  the  absence  of  any  ex–post  assessment  of  this  ‘counter’  approach,  the
advantages gained by the companies could not be evaluated and the usefulness of the funds spent remained to be proved.
Although, in addition to the organisation of training courses (ECU 4,2 million), the main contract included the setting-up
of  a  body  capable  of  continuing  any  measures  that  were  launched,  this  body  never  saw  the  light  of  day.

(22) The  1990-1997  programmes.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/21

Slovakia  (ECU  54,2  million)

6.29.
In Slovakia, the aid given to SMEs (ECU 23,6 million ECU) was implemented as planned. The network of agencies
is active and the various instruments provided (SES, Spinoff) have been well used. The fact that these measures have been
concentrated  within  the  National  SME  Development  Agency,  which  enjoyed  unambiguous  political  support,  largely
contributed  towards  its  success.

6.30. As  regards  regional  development  (ECU  7,5  million),  the  pilot  experiment  tried  out  in  one  region  of  the  country
was  a  failure.  The  absence  of  a  clear  strategy,  the  political  and  economic  constraints  specific  to  the  region  selected  and
ambiguities in the respective roles of the Regional Development Agency and the Regional Investment Company were the
main  causes  of  failure.  In  such  circumstances,  the 
implementation  of  programmes  remained  slow  and  the
cost-effectiveness  ratio  low.  In  respect  of  support  for  company  reorganisation  (ECU  22,6  million),  the  diagnosis  and
implementation  of  the
recommendation  phases  were 
recommendations  in  question.

indeed  carried  out,  but  were  seldom  followed  by  the 

Russia  (ECU  228,06  million)

6.31. With  the  exception  of  the  SMEDA  reinforcement  project,  the  SME  projects  have  indeed  been  implemented.  Their
impact,  however,  has  remained  limited  because  of  their  small  size  in  relation  to  the  country’s  vast  needs.

6.32. Moreover,  the  spreading  of  budgetary  resources  too  thinly  also  characterised  the  projects  in  support  of  the
restructuring  of  companies.  In  the  programmes  examined  this  support  took  three  directions:

(a)  direct  aid  for  the  restructuring  of  major  companies;

(b) special  sectoral  assistance:  definition  of  a  sectoral  policy  and  aid  for  the  restructuring  of  companies;

(c)  the  setting–up  of  Enterprise  Support  Centres  (ESCs).

Whilst the final beneficiaries did appreciate the aid provided and modified their working practices and their organisation
as  a  result,  the  impact  of  the  change  was  not  quantifiable.  In  addition,  the  amounts  allocated,  compared  to  the  size  of
Russian  companies,  did  not  allow  much  room  for  hope  for  significant  effects.

Uzbekistan  (ECU  12,4  million)

6.33. The setting up of a company support network (‘SMEDAs’, ‘BCCs’, ‘MSDCs’ and regional advisers) constitutes the
most  visible  aspect  of  the  results  of  support  for  the  development  of  the  private  sector  in  Uzbekistan  (ECU  7,6  million).
With the exception of the Samarkand agency, the level of activity of the other bodies has remained limited and produced
modest results. The same is true for the support given to the silk sector (ECU 0,8 million), which is experiencing serious
problems  in  attracting  foreign  investors.

Turkmenistan  (ECU  6,1  million)

6.34.
In  spite  of  an  extension  of  the  restructuring  programme,  studies  concerning  10  companies  have  not  gone  beyond
the  diagnosis  stage  and  implementation  of  the  recommendations  had  still  not  begun  at  the  end  of  1996.  In  addition,  an
SME  development  agency  (SMEDA)  set  up  in  Ashkabad  had  little  chance  of  financial  independence  after  the  end  of  its
technical  assistance  contract  in  January  1998.

7.  CONCLUSIONS

7.1. Generally  speaking,  a  clear  distinction  must  be  made  between  the  tangible  effects  of  the  measures  on  the
intervention  sectors  and  the  consultants’  activities.  When  projects  did  not  give  the  expected  results,  difficulties  were
generally  the  result  of  management  errors,  badly  designed  intervention  schemes,  sub-standard  work  on  the  part  of  the

C  335/22

EN

Official  Journal  of  the  European  Communities

3.11.98

technical  assistance  teams,  a  lack  of  cooperation  between  the  various  players  or  external  constraints  that  were  not
overcome.  As  for  tangible  effects,  it  is  difficult  to  quantify  the  results  of  PHARE  and  TACIS  measures  (see  paragraphs
6.1-6.4) in terms of either the nature of the interventions (e.g. advice on sectoral policies) or groups of beneficiaries (e.g.
the  effects  on  SMEs  as  a  whole).  This  being  the  case,  the  Commission  should  endeavour  to  define  more  clearly  the
objectives  of  its  interventions  and  establish  clear  reference  points  against  which  the  results  obtained  can  be  measured.

7.2. However, certain interventions are quantifiable, for example, in terms of the number of training courses or pieces of
advice  provided  or  loans  and  other  financial  aid  granted.  These  quantitative  assessments  are  carried  out  on  an  ad  hoc
basis  at  local  level  but  are  not  consolidated,  in  particular  at  sectoral  level  (see  paragraph  4.20).  Consequently,  it  is  not
possible to answer essential questions, such as the overall usefulness of the measures, their effects on employment and the
growth of companies’ profits, with the aid of tangible and quantified information. Nor is it possible to make comparisons
between  instruments  or  geographical  areas,  even  though  such  comparisons  would  be  useful  for  the  planning  and
management  of  the  Commission’s  schemes.  Comparisons  of  loan  default  rates  would  have  to  be  made,  analyses  of  the
causes  of  success  or  failure  would  have  to  be  carried  out  and  ratios  of  technical  assistance  costs  to  results  obtained  by
intervention  type  would  have  to  be  calculated.

The  management  of  aid

7.3. Certain  results  are  perceptible,  despite  the  lack  of  quantitative  indicators,  but  to  an  extent  that  differs  from  one
project  or  country  to  another  (see  paragraphs  6.10  and  6.20-6.34).  Whatever  the  constraints  of  the  political  and
economic contexts, if implemented in good time, measures based on sound management would have attenuated some of
the  failures.

7.4. Greater  care  should  therefore  be  taken  in  the  planning  of  the  measures.  More  realistic  measures  and  better
organised  timetables  would  be  likely  to  make  the  projects  more  coherent.  Thus,  the  Commission  should  refrain  from
launching operations whose success depends on the prior existence of a solid legal background that has not yet been set
up  (see  paragraphs  4.1-4.10,  5.1-5.10  and  6.10).

7.5. The  technical  assistants  (consultants)  should  be  made  answerable  for  the  results  of  the  projects  under  their
responsibility.  From  the  moment  the  contract  specifications  are  drawn  up  tangible  objectives  to  be  achieved  should  be
preferred  to  lists  of  activities  to  be  undertaken  and  services  to  be  provided.  In  this  context,  it  would  be  possible  to
envisage  the  drawing  up  of  a  blacklist  of  consultants  who  use  unrealistic  or  vague  tender  specifications  as  a  pretext  to
justify poor performance on their own part, without having tried to have their brief redefined. Under the current system,
the  poor  work  carried  out  by  certain  consultants  in  connection  with  a  given  project  did  not  prevent  them  from  being
subsequently  selected  for  others.  This  lack  of  transparency  was  particularly  critical  in  respect  of  the  experts  responsible
for  the  drafting  of  tender  specifications  (see  paragraphs  4.11,  4.14-4.16,  5.12-5.14).

7.6. Except  for  the  management  of  programmes  covering  several  countries,  the  Commission’s  geographical  approach
hindered the free flow of information from one sector of activity to another (see paragraphs 4.17-4.20 and 6.1-6.3). This
resulted  in  an  absence  of  a  common  approach  on  the  part  of  the  managers  of  the  central  departments  as  regards
programme  monitoring  and  an  inadequate  compilation  of  the  experience  gained  in  the  various  countries  and  sectors  of
activity.

7.7. The  creation  of  special  units  responsible  for  monitoring  the  projects  does  not  relieve  the  managers  of  their  own
responsibilities in the running of the measures. They act more like contract managers than project managers and, despite
receiving  extensive  reports  from  their  consultants,  are  unable  to  make  succinct  quantitative  assessments  of  the
programmes under their responsibility. In this connection, proper control of the operations implemented requires progress
at  three  levels:

(a)  strengthening  the  role  of  the  Delegations;

(b) better  analysis  of  the  impact  of  the  intervention  of  the  consultants;

(c)  improvement  of  the  consistency  of  monitoring.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/23

7.8. Managers  should  be  provided  with  implementation  reports  of  a  similar  and  synthetic  structure  for  projects  of  the
same kind. The development of standardised monitoring tools should enable the consolidation of assessment conclusions
and the formulation of concrete recommendations by instrument and intervention sector, thus making it possible to learn
from  experience  in  a  systematic  way,  to  the  benefit  of  future  measures.  In  the  absence  of  standardisation  of  this  kind,
situations  will  only  be  assessed  with  considerable  delays  and  it  will  be  impossible  to  make  the  necessary  adjustments  in
good time. The question of monitoring is all the more vital because, in the context of accession negotiations, the granting
of  funds  will  be  conditional  on  compliance  with  a  schedule  adopted  for  the  implementation  of  the  measures.

7.9. When  applied  in  an  appropriate  context,  the  instruments  adopted  in  support  of  SMEs  and  regional  development
have  proved  effective  (see  paragraphs  6.20(a),  6.29  and  6.31).  However,  ignorance  of  the  conditions  and  context
necessary for them to operate smoothly remains the weak point of the Commission’s aid schemes. This also highlights a
divergence between the political declarations of the authorities of the beneficiary States (very favourable to SMEs) and the
acts  needed  to  follow  them  (rapid  adoption  of  suitable  legislation  and  the  appropriate  budgetary  decisions).  The  most
outstanding  successes  have  occurred  in  countries  that  have  acted  consistently  from  this  point  of  view.

The  effect  of  the  aid

7.10. The  most  noteworthy  effect  is  the  political  and  cultural  change  to  which  PHARE  and  TACIS  have  probably
contributed  in  all  the  countries  concerned,  if  only  by  stimulating  private  initiative.  In  these  same  countries,  there  have
been noticeable changes in the attitudes of the political authorities: SMEs have become a political priority in so far as they
constitute  the  most  important  or  even  only  source  of  alternative  employment,  given  the  consequences  of  the  industrial
reorganisation  that  is  itself  inevitable  in  the  context  of  a  market  economy  (see  paragraph  6.4).

7.11.
In the fields of SMEs and regional development, the creation of local networks able to give assistance on the spot
(information,  advice  and  training)  and  financial  mechanisms  in  favour  of  SMEs  are  the  most  tangible  results  of  PHARE
and  TACIS  intervention.  However,  there  is  still  no  overall  strategy  for  how  the  survival  of  the  support  bodies  is  to  be
ensured  when  the  PHARE  and  TACIS  schemes  come  to  an  end.  Their  survival  is  all  the  more  hypothetical  as  both  the
public authorities and the companies involved are faced with a shortage of funds and the latter are not particularly keen
to  pay  for  services  that  have  hitherto  been  offered  free  of  charge.  Rapid  integration  of  these  bodies  (PMUs)  within  the
corresponding  public  authorities  would  avoid  the  loss  of  knowledge  gained  at  a  high  price.  Furthermore,  it  would
contribute  towards  strengthening  the  public  authorities,  a  priority  goal  in  the  new  PHARE  guidelines  (see  paragraphs
6.11-6.14).

7.12. The  question  of  the  long-term  survival  of  the  bodies  set  up  in  this  context  also  presupposes  clarification  of  the
notions  of  support  for  SMEs  and  regional  development.  These  policies  often  overlap  and  networks  may  compete  with
each  other  both  in  the  search  for  funds  and  in  terms  of  the  services  offered  to  their  customers  (see  paragraphs  5.8  and
5.19-5.22).

7.13. Support for the restructuring of large companies either involves in-depth intervention at sector or company level or
the  offering  of  services  from  ‘counters’  (local  agencies  or  programme  management  units).

7.14. The  assessment  of  in-depth  intervention  is  the  more  complex  of  the  two:

(a)  the  projects  are  only  monitored  for  the  duration  of  the  technical  assistance  contracts,  whereas  the  main  effects  are

expected  to  emerge  in  subsequent  years  (see  paragraphs  (4.26  and  6.3);

(b) too often, operations have not gone beyond the diagnosis and recommendation stage, and the recommendations have

not  been  implemented  (see  paragraph  4.24);

(c)  the  financial  resources  made  available  for  each  company  are  often  derisory  in  relation  to  the  scale  of  the  problems
encountered  and  cannot  themselves  guarantee  the  implementation  of  the  recommended  changes  (see  paragraphs  4.6,
5.11,  6.26,  6.28-6.30  and  6.32).

C  335/24

EN

Official  Journal  of  the  European  Communities

3.11.98

7.15. The à la carte services (see paragraph 6.28) offered by the programme management units or the local agencies are
often  directed  at  small  businesses  and,  theoretically,  offer  several  advantages,  in  that  this  approach:

(a)  improves  the  leverage  effect  produced  by  the  Community  funds  by  stimulating  the  professional  capacities  of  local

consultants;

(b) requires  the  active  involvement  of  the  beneficiaries  and  backs  their  desire  for  change.

However,  no  ex-post  assessment  has  been  carried  out  with  a  view  to  finding  out  the  impact  of  the  approach  in
question.

7.16.
If  the  experiments  carried  out  on  the  restructuring  of  companies  have  proved  to  be  not  very  convincing
(recommendations  drawn  up  but  not  carried  out),  the  reason  is  that,  here  even  more  than  elsewhere,  there  is  a  great
divergence between the funds available and the size of the problems to be solved. Only a convergent approach adopted by
the EU and the other donors could have enabled convincing results to be achieved. From this point of view and given its
role,  the  EBRD  should  be  the  Commission’s  main  partner.  The  funding  of  studies  by  PHARE  or  TACIS  prior  to
investments, in cooperation with the EBRD, should make it possible for a sufficient amount of capital to be mobilised in
their  wake  (loans)  to  guarantee  effective  implementation  of  the  measures  recommended.  Another  method  that  deserves
consideration  would  be  for  the  Community  budget  to  take  over  part  of  the  risk  by  guaranteeing  a  part  of  the  loans.

This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  the  Court  meeting  of  16
and  17  September  1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/25

REPLIES  OF  THE  COMMISSION

INTRODUCTORY  COMMENT  OF  THE  COMMISSION

lack  of  resources  on  the  part  of  the  end  beneficiaries  to
implement  recommended  restructuring  plans.

the  programmes
The  Commission  considers 
launched  under  PHARE  and  TACIS 
to  stimulate
development  of  the  private  sector  have  made  a  sizeable
impact  in  the  short  time  that  they  have  been  running.

that 

At  the  time  when  the  programmes  were  first  proposed,
there  was  neither  the  concept  of  a  market  economy  nor
the  culture  of  development  through  the  private  sector  in
any  of  the  beneficiary  countries.  The  majority  of
employment  opportunities  were  restricted 
large
state-owned  and
companies 
state-controlled.  The  EU  was  thus  faced  with  the  task  of
both  developing  programmes  to  physically  reform  and
nurture  a  market-based  private  sector,  and  also  with
changing the political and cultural environment to enable
reforms  to  be  implemented.

that  were  primarily 

to 

immensity  of  this  task,  resources  under
Given  the 
PHARE  and  TACIS  were  not  sufficient  to  meet  all  needs
of  beneficiary  countries.  The  Commission  has  therefore
targeted  the  limited  resources  available  towards  actions
designed  to  create  a  catalytic  effect  and  stimulate  further
internally  developed  measures.  Policies  have  also  been
developed to coordinate interventions with those of other
international  donors  such  as  the  EBRD,  the  World  Bank
and  the  EIB.  Disbursement  of  the  resources  allocated  to
private 
the  Court
acknowledges, been more rapid than that for the PHARE
and  TACIS  programmes  as  a  whole.

sector  development  has, 

as 

The  results  to  date  concerning  SMEs  have  been  positive.
The  interim  evaluation  concluded  that  ‘PHARE  activities
in  SME  development  have  been  very  relevant  to  the
reform  process,  have  introduced  new  institutions  for
SME  development  and  have  extended  support  to  SMEs
on  an  unprecedented  scale.’  The  programmes  have
delivered  relevant  support  to  the  transition  process  in
most  PHARE  and  TACIS  partner  States.  As  mentioned
by the Court, awareness of the importance of the private
sector  and  the  role  of  SMEs  within  a  market-oriented
economic system has increased considerably to the extent
that  political  and  cultural  thinking  concerning  private
sector  development  have  both  changed  markedly.

Programme  effectiveness  and  impact  have,  in  certain
cases,  suffered  as  a  result  of  political  instability  and  a

The  Commission  has  progressively  increased  its  capacity
to  monitor  and  evaluate  the  programmes.  Dedicated
monitoring  and  evaluation  units  were  established  in
October  1996,  and  the  logical  framework  method  for
evaluation  has  been  adopted 
to  ensure  consistent
evaluation  methodologies.  Contracting  procedures  have
been  strengthened  by  the  harmonisation  of  PHARE  and
TACIS  procedures  as 
from  February  1997,  and
instruction  manuals  have  been  revised  and  updated  to
ensure 
to  all
practitioners.  The  PHARE  programme  was  reoriented  in
March  1997  to  adapt  the  programme  to  measures  aimed
at  supporting  the  accession  strategies  of  candidate
countries.  Reform  of  the  TACIS  regulation  is  also
underway  with  the  aim  of  more  closely  adapting  the  aid
regime  to  the  evolving  requirements  of  the  beneficiary
countries.

sound  guidance 

is  available 

that 

the  results  of 

These  measures  will  enable  the  Commission  to  build
the  private  sector  measures
upon 
implemented  to  date  and  ensure  closer  alignment  of
future  measures  to  the  needs  of  partner  States.

2.  THE  AUDIT  FIELD  AND  OBJECTIVES

Audit  field

2.2.
In  the  initial  phases  of  the  PHARE  programme  a
flexible  definition  of  SMEs  was  used  since  this  was
considered  more  appropriate  to  the  reality 
in  the
countries  concerned.  In  particular,  businesses  in  those
countries  were  generally  much  larger  than  those  in  the
Union  as  regards  the  number  of  employees.  More
recently  the  standard  EU  definition  of  SMEs  has
increasingly  been  used,  where  appropriate.  For  example,
under  a  specific  PHARE  programme  targeted  towards
small  firms,  the  eligibility  criteria  have  recently  been
restricted  to  those  SMEs  which  satisfy  the  Commission
recommendation  of  3  April  1996.

3.  SUMMARY  OF  THE  MAIN  OBSERVATIONS

The  preparation  and  management  of  the  programmes

3.1. The  Court’s  report  covers  primarily  the  period
influenced  by  the  initial  set-up  phase  of  the  PHARE  and
the
TACIS 

programmes. 

situation 

The 

in 

C  335/26

EN

Official  Journal  of  the  European  Communities

3.11.98

beneficiary  States  regarding  private  sector  development
has  improved  since  then.

whole,  of  the  strategy  undertaken  in  the  area  of  support
to  SMEs.

It  is  also  important  to  note  that  at  the  time  these
programmes  were  designed  they  were  breaking  entirely
new  ground.  While  it  was  clear  that  private  sector
development  was  crucial  to  a  successful  transition
process,  there  were  few  precedents  on  which  to  base  the
design  of  programmes.  In  addition,  and  as  recognised  by
the  Court  elsewhere  in  its  report,  the  level  of  political
commitment  to  private  sector  development  has  been
crucial.  In  Bulgaria,  for  example,  the  lack  of  political
to  agreed  private  sector  development
commitment 
programmes  is  by  far  the  most  important  factor  in  the
delays  which  affected  these  programmes.

(a) The  Commission  accepts  that  certain  problems  were
encountered  (such  as  the  reluctance  of  certain  banks  to
participate  in  financing  schemes)  and  such  issues  are
being  addressed  as  part  of  the  follow-up  to  the  interim
evaluation.

(b) The  efficiency  of  the 
implemented
depends  strongly  on  the  economic  context  which,  as  the
Court  points  out  in  the  example  of  Russia,  can  be
extremely  difficult.

instruments 

3.2.
In  view  of  the  urgency  of  helping  the  nascent
private sector in the recipient countries, it was not usually
impact  assessments  of  earlier
possible  to  wait  for 
follow-on
programmes  before 
programmes.  To  have  done  so  would  have  risked  losing
momentum  in  the  sector,  and  would  in  many  cases  have
undermined 
follow-on
programmes.

taking  decisions  on 

sustainability  of 

the 

the 

3.3. The main responsibility for the success or failure of
programmes rests with the recipient government, which is
responsible  for  ensuring  a  conducive  policy  context.
There  is  therefore  a  limit  to  the  extent  to  which
responsibility  for  impact  can  be  transferred  to  technical
assistance teams.

3.4. While  the  Commission  has  tried  to  assess  and
support  the  development  of  private  sector  policy  in  the
recipient  countries,  it  cannot  be  held  responsible  for  the
sudden policy changes which have affected the success of
programmes  in  some  countries.

3.5. Contacts  and  consultations  between  PHARE  and
TACIS  personnel  are  carried  out  on  an  informal  basis,
including PHARE officers attending TACIS evaluations of
tenders  and  vice  versa.  Evaluation  reports  circulate
among 
further
contributing to cross-fertilisation of ideas and recognition
of  matters  of  common  concern.

the  PHARE  and  TACIS 

teams, 

The  efficiency  of  the  implementation

3.6. For  both  PHARE  and  TACIS,  recent  independent
operational reviews have confirmed the coherence, on the

(c) The  Commission  is  reviewing  draft  strategic  plans
concerning  the  use  of  financial  instruments  in  order  to
avoid  overlaps,  and  to  promote  synergy  and  fruitful
cooperation.

(d) The  Commission  accepts  that  certain  instruments,
such as guarantee funds, are complex to design and have
so  far  had  limited  success  under  PHARE.  But  given  their
potential  to  act  as  a  catalyst  to  establishing  sustainable
forms  of  financing  to  SMEs,  the  Commission, 
in
consultation  with  beneficiary  countries,  considered  their
adoption to be worthwhile at the time. However, success
has  been  blunted  by  the  reluctance  of  local  banks  to
participate  in  the  schemes.

(e)
It is agreed that the amount of funds allocated under
PHARE and TACIS are not comparable with the needs of
the countries concerned. In a climate where a wide range
of  priorities  is  competing  for  the  limited  resources
available  it  is  simply  not  possible  to  meet  all  funding
requirements.  However,  the  Commission  has  sought  to
focus efforts on actions where the impact of PHARE and
TACIS  funding  in  the  enterprise  restructuring  sector  can
be most effectively deployed and have a catalytic effect of
the  partner  States’  own  efforts  to  stimulate  development
of  the  private  sector.  Moreover,  efforts  have  been,  and
continue  to  be,  made  to  coordinate  funding  activities
with  other  donors  such  as  the  EBRD,  the  World  Bank
and  the  EIB  to  maximise  the  impact  of  the  limited
resources.

3.7. Difficult judgements had to be made with regard to
programmes  that  were  not  making  as  swift  progress  as
had  originally  been  hoped.  In  several  of  the  cases
mentioned  the  principal  reason  for  slow  progress  was  a
lack of commitment to the programme from the recipient
authorities.  The 
the
Commission  (where  the  only  realistic  alternative  was  to
abandon  the  programme)  has  been  vindicated  in  some
cases.  For  example,  the  Struder  programme  in  Poland
was  slow  to  start  but,  in  part  as  a  result  of  active
management  by  the  Commission,  eventually  developed

engagement 

continued 

of 

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/27

into  a  successful  programme;  the  Polish  authorities
estimating that grants are expected to create over 11 000
jobs.

The  Commission  has  followed  up  on  implementation  of
the  scheme  closely  and  guarantee  applications  are  now
being  processed.  The  Commission  is  of  the  opinion  that
reduction  of  the  number  of  instruments  would  have
reduced  the  programme’s  overall  impact  and  character.

Assessment  of  the  measures  implemented

3.8. The  Commission  recognises  that  measuring  the
impact  of  private  sector  development  can  be  difficult  for
the  reasons  given  by  the  Court.  Units  specifically
dedicated to the tasks of monitoring and evaluation have
been  established.  Specific  evaluations  of  sectors  such  as
SMEs,  privatisation, 
are  underway.
Assessment of programmes on a sampling basis is already
provided  by  the  evaluation  unit  and  ongoing  assessment
is  provided  by  monitoring  teams.

restructuring 

important  constraint.  But 

3.9. The  general  climate  in  the  beneficiary  countries  is
an 
through  constructive
engagement,  the  Commission  seeks  not  only  to  operate
within  the  climate,  but  also  actively  to  change  it.  The
demonstration  effect  of  a  successful  SME  development
programme such as Struder has played an important role
in  changing  attitudes  within  the  beneficiary  public
administrations  to  the  private  sector.

4.  THE  PREPARATION  AND  MANAGEMENT  OF  THE

PROGRAMMES

The quality of the preparation, implementation deadlines
and  the  scheduling  of  measures

4.1. The  Court’s  report  covers  primarily  the  period
influenced  by  the  initial  set-up  phase  of  the  PHARE  and
TACIS  programmes.  It  is  important  to  note  that  at  the
time these programmes were designed they were breaking
entirely  new  ground.  While  it  was  clear  that  private
sector  development  was  crucial  to  a  successful  transition
process,  there  were  few  precedents  on  which  to  base  the
design  of  programmes  and  criteria  on  which  detailed
objectives  could  be  formulated.  In  addition,  and  as
recognised  by  the  Court  elsewhere  in  its  report,  the  level
of  political  commitment  to  private  sector  development
has  been  crucial.  In  Bulgaria,  for  example,  the  lack  of
political 
sector
to 
development  programmes  is  by  far  the  most  important
factor  in  the  delays  which  affected  these  programmes.

commitment 

private 

agreed 

Poland

4.2. Struder has been an experiment for PHARE and for
Poland and the programme has played an important role
in 
regional
situation 
development  in  Poland.

improving 

regarding 

the 

4.3. The  Commission  undertook  initiatives  to  improve
the  situation  and  intervened  with  the  government  to
change  the  orientation  of  the  tourism  programme.  While
the  development  of  Poland’s  tourism  strategy  was  a
protracted  process,  it  has  resulted  in  a  high  level  of
regional  involvement  and  good  degree  of  ‘ownership’  of
the final strategy by the Polish authorities and the private
sector.

Bulgaria

4.4. The  Commission  was  aware  of  difficulties  by  the
end  of  1994  in  relation  to  the  delayed  start  (mid-1993).
Subsequent  reorientation  discussions  and  agreement  on
reallocation did extend until mid-1995. All the efforts put
in  the  design  of  the  SME  programme  were  driven  by  the
Commission,  getting 
the  Bulgarian  Government’s
agreement in each step of the process at a very slow pace
and with great difficulties. This perceived lack of political
commitment towards the development of a national SME
strategic  policy  became  clearer  during  programme
implementation.

The  development  of  the  SME  sector  is  to  be  speeded  up
by  the  newly  elected  government,  which  has  approved  a
draft  SME  strategy,  including  the  SME  agency  for  which
technical  assistance  is  to  be  provided.

4.5. The  tourism  privatisation  strategy  project  was
launched  at  a  time  when  the  1992  privatisation  law  was
in  suspense  due  to  internal  government  controversies.
Eventually,  the  Bulgarian  government  abandoned  the
agreed  sector  approach;  this  ultimately  dictated  the
premature  termination  of  the  project.

4.6. Under  the  contract  and  addendum  all  parties
concluded  that  a  certain  level  of  success  had  been
achieved  concerning  direct  contracts  with  Western
partners,  transfer  of  know-how,  familiarisation  with
Western business practices and mechanisms, and fostering
of  business  relationships.  However,  it  was  accepted  that
it  would  require  further  initiatives  to  provide  concrete
results in broader cooperation and development of deeper
relationships  since  management  was  still  relatively
inexperienced  in  business  with  foreign  partners,  thus

C  335/28

EN

Official  Journal  of  the  European  Communities

3.11.98

justifying  the  addendum  for  further  support  to  the
sector.

The  implementation  of  measures  and  drafting  of  the
consultants’  contracts

Other  countries

4.7. Within  Russia,  entrepreneurial  activity  had  only
been  legal  for  a  few  years,  and  so  the  starting  point  for
SME  development  was  almost  zero.  In  1992  the  EU  had
no  experience  of  drafting  or  running  projects  in  this
sector  in  the  Russian  context.  It  was  not  until  the  1995
projects  began  that  the  situation  became  somewhat
clearer  and  previous  experience  both  within  the  TACIS
system  and  on  the  part  of  the  EU  and  Russian  parties
could  be  taken  into  account.  A  recent  independent
operational  review  of  the  TACIS  strategy  in  the  private
sector  development  area  completed  in  January  1998  has
confirmed  the  coherence,  on  the  whole,  of  the  strategy
undertaken  in  the  SME  sector  and  specifically  on  the
SMEDA  network.

4.8.
In  the  beneficiary  countries,  the  political  and
economic  context  is  continuously  changing  and  when
defining  or  preparing  a  project,  certain  developments  are
difficult  to  predict.  Thus,  changes  often  occur  between
project  definition  and  project 
implementation.  The
inception  phase  of  the  project  is  foreseen  to  take  into
account these circumstances and readapt the project work
plan  to  ensure  the  smooth  running  of  the  project.
Throughout  project  execution  unforeseen  changes  might
also  take  place  which  require  project  extensions  and/or
budgetary  modifications  (usually  within  the  overall  value
of the original contract) in order to ensure the delivery of
the  planned  outputs  and  the  achievement  of  impact.

Russia

4.10. The  observation  refers  to  a  project  designed  in
1992  when  the  SME  in  Russia  was  a  dynamically
emerging  sector.  However,  in  a  country  where  private
entrepreneurship  was  a  new  phenomenon,  the  serious
lack of appropriate legislation was apparent. Against this
background, it was considered appropriate to provide the
assistance.  The  case  pointed  out  by  the  Court  is  an
exception which is justified. It is normal practice to have
statements  of  endorsement  signed  by  the  beneficiary
before  launching  tenders.

4.12. The  Commission  considers  that  changes  in  policy
within  the  beneficiary  countries  was  the  principal  factor
to  adversely  affect  programme  implementation.  Such
fluctuations in policy made it more difficult to maintain a
consistent  line  in  delivery  of  the  actions  concerned  and
inevitably  made  programme  management  more  difficult.

Changes  in  the  central  staff  of  the  Commission  in  part
reflect the difficulties in finding suitably qualified internal
personnel.  Reliance  on  short-term  external  contract  staff
can  lead  to  frequent  staff  changes  for  some  projects.

Hungary

4.13-4.14. When  work  started  on  the  detailed  design  of
the  convertible  loan  scheme,  the  Commission  indicated
on  several  occasions  that  it  had  serious  doubts  over  the
design of the scheme. Despite the Commission’s view, the
Hungarian  authorities  continuously  expressed 
their
preference  for  establishing  a  quasi-equity  type  scheme.

The  allocation  of  ECU  1,89  million  (now  approximately
ECU  2  million  including  accumulated  interest)  will  be
recovered  from  the  Hungarian  authorities  based  on  the
draft  final  audit  report.

Bulgaria

4.15. Notwithstanding 
the  extremely  difficult  and
uncertain  political  environment  characterising  SME
development in Bulgaria, the technical assistance team did
not  perform  to  the  standard  expected.

and 

4.16. Certain  early  programmes  especially  on  SME
restructuring,  were
enterprise 
development 
characterised  by  a  reduction  of  the  planning  stage  in
order to respond rapidly to the request of the government
when  the  transformation  process  in  Eastern  Europe
began  in  1990.

4.11. There  is  informal  consultation  across  units  on  the
quality  of  consultants.  The  quality  of  the  terms  of
reference  (TOR)  is  ultimately  the  responsibility  of  the
Commission, and TOR produced by external consultants
are  subject  to  careful  review  by  the  individual  task
managers  before  being  issued.

The  policy  context  for  PHARE  and  TACIS  operations
has  become  clearer  with  successive  programmes.  These
operations  have  enabled  Commission  services  and
contractors  to  acquire  a  far  more  detailed  knowledge  of
the  political  and  economic  conditions  that  exist  within
these  countries  than  was  possible  during  the  inception
stages  of  the  earliest  programmes.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/29

Since  the  early  programmes,  there  has  been  an  evolution
in  terms  of  planning  and  definition  of  objectives.  For
example,  in  Poland,  the  Struder  (regional  development)
programme  designed  in  1992,  incorporated  more  clearly
defined  objectives.  This  has  been  instrumental  in  the
development  of  a  regional  development  policy  in  Poland,
although  this  process  is  not  yet  completed.  Under  both
PHARE  and  TACIS,  contractors  are  now  obliged  in  an
initial progress document (termed the inception report) to
list in detail the objectively verifiable indicators of success
for  each  element  of  the  project.  This  is  the  basis  of  the
monitoring 
contractors’
performance.

assessment 

teams’ 

of 

The  flow  of  information

4.17. Contacts  and  consultations  between  PHARE  and
TACIS  are  carried  out  on  an  informal  basis,  including
PHARE  officers  attending  TACIS  tender  evaluations  for
TACIS  contracts  and  vice  versa.  Evaluation  reports
circulate  among  the  PHARE  and  TACIS  teams,  further
contributing to cross-fertilisation of ideas and recognition
of  matters  of  common  concern.

4.18. Past  contract  extension  practice  based  on  the
natural  wish  to  secure  continuity  within  the  project
management unit (PMU) in Bulgaria has in the meantime
been  superseded  by  clear  and  stringent  guidelines  on  the
conditions  and  limits  to  contract  addenda  including
amounts.

Concerning  the  problems  cited  by  the  Court  relating  to
Poland,  see  comments  at  5.13.

4.19. See  comments  at  4.11.

approves  work  programmes  every  six  months,  and  these
constitute  an  additional  monitoring  tool.

impact  study,  together  with  regular  reporting
The 
provided by the Polish regional development agency, have
identified the number of SMEs supported, the amount of
investment  generated,  the  number  of  jobs  created,  and
the  number  and  value  of  municipal  small  infrastructure
projects  supported.  This  information  is  also  available
from  the  monitoring  and  assessment  report  produced  by
the  Commission  in  June  1997.

Having  overcome  the 
programme  has  proved  to  be  a  success.

initial  difficulties  the  Struder

the 

tourism  programme.  While 

4.23. The  Commission  undertook  initiatives  to  improve
the  situation  with  the  Government  to  change  the
orientation  of 
the
development  of  Poland’s 
tourism  strategy  was  a
protracted  process,  it  has  resulted  in  a  high  level  of
regional  involvement  and  good  degree  of  ‘ownership’  of
the final strategy by the Polish authorities and the private
sector.

Large  balances  of  funds  maintained  on  accounts  result
from  incorrect  estimations  of  cash  needs  by  the  PMU.
These are mainly due to an over-estimation of the pace of
implementation,  the  non-acceptance  of  work  performed
by  contractors,  or  the  late  submission  of  invoices  by
contractors.

The  Commission  is  well  aware  of  this  general  problem.
Efforts are being made to re-evaluate in a systematic way
the actual needs on the basis of the amounts available on
the 
contracting/
implementation,  and  the  PMU’s  past  forecasting  records
when  granting  an  advance  payment.

stage  of 

accounts, 

actual 

the 

4.20. See  comments  at  3.5.

Other  countries

The  monitoring  and  evaluation  of  programmes

Poland

4.22. The  lack  of  experience  of  regional  development
agencies  in  working  with  experts,  the  lack  of  regional
development  plans,  and  the  language  barriers  were  all
part of the environment in which the Struder programme
had  to  operate  and  why  in  fact  the  programme  was
created.  Since  1996,  the  Commission  has  established  a
systematic monitoring and assessment system, and reports
relating  to  the  Struder  programme  were  issued  in  1997.
The  Polish  authorities  are  now  required  to  monitor  at
least  20 %  of  the  SME  projects  funded  by  PHARE.  In
line  with  the  PHARE  programme  rules,  the  Commission

4.25.
In  the  case  of  Hungary,  despite  written  requests,
the  Commission  has  experienced  difficulties  in  obtaining
copies  of  final  reports  of  monitoring  activities  from
certain  PMUs.  In  one  case,  the  difficulty  in  obtaining
the
such 
Commission’s decision not to approve a second extension
of  a  particular  technical  assistance  contract  in  1996.

reports  was  a  contributory 

factor 

to 

For  Uzbekistan,  the  Court  refer  to  procedures  for  the
monitoring  of  experts  under  one  specific  contract.  The
Commission  can  confirm  that  under  TACIS  procedures
time  sheets  are  now  required  with  all  invoices  for  fees.

(a) The  Commission 

4.26.
the  process  of
deconcentrating  procedures  whereby  more  functions  will
be  devolved  to  the  delegations  within  the  partner  States.

in 

is 

C  335/30

EN

Official  Journal  of  the  European  Communities

3.11.98

long-term 

the  delegations 

Funds  authorised  under  the  STAP  facility  will  be  used  to
recruit  within 
technical
assistance  directly  linked  to  programme  implementation.
Short-  term  technical  assistance  will  also  be  provided
under  the  framework  contracts  to  enable  delegations  to
recruit  independent  experts  tasked  with  attending  tender
evaluations, preparing terms of reference, monitoring and
assessment.

(b)
In  addition  to  examination  of  the  consultants,  from
1996  onwards  the  monitoring  exercise  also  examines  the
deliverables  to  the  beneficiary  organisation  and  the
adequacy to their needs. The monitoring is completed by
the  evaluation  exercise  which  is  responsible  for  the
assessment  of  the  impact.

(c) An  evaluation  unit  has  been  operational  for  little
more than a year. Complete coverage of the PHARE and
TACIS  programmes,  evaluated  on  a  sector  and  country
basis,  inevitably  takes  time  to  complete.

individual countries will vary and the prevailing economic
conditions  may  mean  that  similar  financial  instruments
are  not  required  to  the  same  degree.

It  is  for  this  reason  that  the  Commission  proposes  to
implement  a  horizontal  SME  programme  to  tackle  the
problems  common  to  all  PHARE  countries.  At  the  same
time specific regional problems will be addressed through
in  regional  development
specific  measures  defined 
programmes  applicable  to  specific  countries.  In  this  way
both common and specific problems facing SMEs will be
addressed.

5.5.
It  is  inevitable  that  in  certain  cases  particular
instruments  can  be  rendered  less  applicable  if  the  initial
conditions  subsequently  change.  The  Commission’s
objective  is  to  adjust  the  instruments  appropriately  when
such  a  problem  becomes  apparent.

4.27. The  Commission  has  already  examined  this  issue
and  does  not  consider  it  appropriate  to  take  further
measures.

Bulgaria

5.  EFFICIENCY  OF  IMPLEMENTATION  PROCEDURES

The  choice  and  conception  of  instruments

5.1. For  both  PHARE  and  TACIS,  recent  independent
operational reviews have confirmed the coherence, on the
whole,  of  the  strategy  undertaken  in  the  area  of  support
to  SMEs.

The  Commission  accepts  that  certain  problems  were
encountered  (such  as  the  reluctance  of  certain  banks  to
participate  in  financing  schemes)  and  such  issues  are
being  addressed  as  part  of  the  follow-up  to  the  interim
evaluation.

Russia

5.3. The  Commission  agrees  with  the  observations  of
the  Court 
in
subsequent  projects  the  lessons  learnt  were  taken  into
consideration.

this  particular  case.  However, 

for 

economy 

long  delayed  PHARE  SME  credit 

5.6. The 
line
unfortunately  coincided  with  the  virtual  collapse  of  the
Improved
Bulgarian 
macroeconomic 
the
proposed  restructuring  of  the  banking  sector,  mean  that
it  should  be  possible  to  disburse  the  credit  line  more
quickly  in  the  future.

during 
circumstances, 

together  with 

1996. 

5.7. See  comments  at  5.4.

5.8. For  Bulgaria,  see  comments  at  5.6.

For  Hungary,  the  Commission  is  reviewing  both  draft
strategic  plans  (SME  and  regional  development)  in  order
to  avoid  overlaps,  and  to  promote  synergy  and  fruitful
cooperation.

For  the  1995  regional  development  and  1996  SME
programmes,  PMUs  have  been  requested  to  provide
written agreement concerning the division of tasks. Under
the  programme  for  1997  ECU  3  million  for  SME
development  has  been  allocated  under  the  regional
development  programme  to  be  implemented  through  the
relevant  local  enterprise  agencies.  These  measures  form
part of an ongoing process of review by the Commission,
in  consultation  with  the  Hungarian  Government,  aimed
at  ensuring  the  most  effective  positioning  of  the  SME
programme  within  the  context  of  regional  development.

is  that  the
5.4  and  5.7. The  Commission’s  view 
problems  facing  SMEs  tend  to  be  broadly  similar  across
most, if not all, PHARE countries, although the intensity
of  such  problems  will  inevitably  vary  between  individual
regions.  For  example,  political  constraints  within

5.9. Guarantee funds are complex to design and have so
far  had  limited  success  under  PHARE.  However,  given
their  potential  to  act  as  a  catalyst  to  establishing
sustainable forms of financing to SMEs, the Commission,

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/31

in  consultation  with  beneficiary  countries,  considered
their  adoption  to  be  worthwhile.  However,  success  was
blunted by the reluctance of local banks to participate in
the  schemes.

5.10. For  Bulgaria,  see  comments  at  5.6.

A  study  on  the  status  of  the  PHARE  loan  scheme  (PLS)
in  Hungary  is  currently  under  way  to  determine  the
arrangements  for  the  future  administration  of  the  funds.
This  will  also  serve  as  a  source  of  background
documentation  to  the  complete  review  of  the  PHARE
SME  programme  (which 
in  the  1996
programme).

included 

is 

Concerning the fate of the revolving funds the Hungarian
authority  concerned  (HFEP)  holds  and  implements  state
funds, and as such, it is fully subject to regular inspection
by the State Audit Office and the appropriate Hungarian
ministry  (MITT).

5.11. Certain  activities  have  often  started  with  soft
restructuring,  which  might  have  enabled,  after  a  certain
time,  the  companies  to  free  funds  (through  increased
profit) to implement in-depth restructuring recommended
by  the  initial  project.  Thus,  very  often  recommendations
are  implemented,  but  perhaps  two,  three  or  even  four
years  after  the  end  of  the  projects.

Bulgaria

5.14. The  principal  difficulties  stemmed 
the
uncertain  political  environment  characterising  the  SME
subject  in  Bulgaria.  The  Commission  has  taken  steps
aimed  at  preventing  similar  occurrences  in  the  future.

from 

5.16. The  participation  of  local  consultants  is  already
being  encouraged.  The  number  of  consultants  in  these
countries has expanded rapidly and this field of expertise
is a source of knowledge that can provide good value for
money  and  which  the  Commission  constantly  seeks  to
utilise.  Terms  of  reference  for  new  projects  within  the
beneficiary countries require good local knowledge on the
part  of  prospective  consultants  and  this  is  often  best
fulfilled  by  local  experts.  Moreover,  terms  of  reference
now  specify  that  prospective  tenderers  should  submit
locally engaged personnel for consideration. For example,
the  terms  of  reference  for  the  forthcoming  framework
contract  for  audits  of  PHARE  and  TACIS  programmes
state that local experts should be proposed as part of the
complement  of  experts  required.

Cooperation  between  the  various  parties

5.17. As  explained  in  5.18  to  5.22  there  were  other
factors  contributing  to  the  difficulties  concerned.

Technical assistance

Poland

5.12. As  the  Court  acknowledges,  the  majority  of
projects  under  which  technical  assistance  was  provided
have proved to be satisfactory. The Commission does not
consider that setbacks encountered under certain projects
were  due  to  the  delayed  reactions  of  technical  assistants
under  contract  to  the  Commission.

5.18. The  Struder  programme  adopted  a  demand-driven
approach  on  the  basis  of  proposals  and  requests  for
assistance from regions. The Polish regional development
agency  was  active  in  assisting  the  regional  authorities
through  the  elaboration  of  regional  development  plans,
the  SME  scheme,  tender  documentation,  and  training
programmes  for  project  preparation.

Poland

Slovakia

5.13. The  Court’s  remarks  refer  to  two  different
the  Commission
contracts.  For 
recommended  informally  to  close  the  contract.  However,
the  company  was  proposed  and  selected  again  by  the
Polish  authorities.

first  contract, 

the 

from  Western 

The  Polish  tourism  programme  has,  more  than  other
programmes,  benefited 
consultants.
However, it is difficult to strike the right balance between
tourism
Western 
programme  suffered  mostly  from  a  lack  of  commitment
on the side of both the authorities and the private sector.
Political  factors  and  economic  dominance  within  Poland
were  the  principal  reasons  for  this.

consultants.  The 

and  Eastern 

5.19. The  hostile  attitude  of  the  regional  development
agency led eventually to an unsatisfactory performance of
the  programme.

Russia

5.21. The cooperation between EBRD’s regional venture
funds  (RVFs)  in  Russia  and  TACIS’  enterprise  support
centres  (ESCs),  has  been  less  extensive  than  anticipated.
However, the Commission is in the process of negotiating
a  draft  agreement  between  EBRD  and  TACIS  on
modalities  for  future  TACIS  Support  and  cooperation  to
been
EBRD 

Agreement 

activities. 

has 

C  335/32

EN

Official  Journal  of  the  European  Communities

3.11.98

reached  at  technical  level  pending  final  approval  in  both
EBRD  and  with  the  Commission.

6.  ASSESSMENT  OF  THE  MEASURES  IMPLEMENTED

Measuring  the  impact

Bulgaria

6.2. Although  there  have  been  a  number  of  surveys  and
studies  of  the  private  sector  in  Bulgaria,  there  is  still  a
lack  of  detailed  information.  This  is  particularly  due  to
the  rapid  changing  economic  environment,  but  also  due
to  the  fact  that  the  National  Institute  of  Statistics  does
not  currently  keep  adequate  information.

encountered  when  operating 

The absence of reliable statistics in Russia continues to be
a  serious  problem  and  constitutes  one  of  the  many
restrictions 
technical
assistance  projects.  When  defining  projects,  to  a  great
extent  reliance  must  be  placed  on  less  quantitative  data,
e. g.  experience  from  previous  projects  and  sector  studies
make  it  possible  to  detect  problems  at  the  level  of
individual  enterprises,  industrial  sectors  or  particular
institutions.

TACIS  assistance  to  the  reform  of  the  Russian  statistical
system  started  in  1993.  A  cooperation  programme  with
is  presently  under
the  Russian  ministry  concerned 
implementation.

6.3. The  degree  of  implementation  of  recommendations
and  their  impact  on  enterprises’  performance  is  the
objective  of  the  evaluation  exercise.  Though  it  may  be
possible to carry out a qualitative evaluation and identify
best practices for dissemination, it will remain difficult to
carry  out  full  quantitative  evaluations  except  of  specific
projects.

External  constraints  on  the  projects

6.5. The  Commission  shares  the  opinion  of  the  Court
on  the  need  to  take  local  constraints  into  account.  It
considers  that  such  local  constraints  and  the  local
economic  context  have  been,  and  are,  taken  fully  into
account  in  the  TACIS  countries  given  as  examples.

Bulgaria

6.6. See  comments  at  4.4.

Uzbekistan  and  Turkmenistan

6.7. The  weakness  of  the  banking  sector  in  Uzbekistan
and Turkmenistan is a real constraint on the development

of  the  private  sector.  The  Commission  has  sought  to
tackle this by a large bank training programme providing
ECU  2,5  million  assistance  to  the  regional  bank  training
centre 
and  1997.
Subsequently,  an  ECU  1,6  million  project  has  been
launched  that  is  designed  to  deliver  consultancy  services
directly into banks, to strengthen the association of banks
and  to  further  high-level  bank  training.

in  Tashkent  between  1994 

The problem of currency convertibility in Uzbekistan is a
severe one. It affects not only inward investment, but also
access by domestic enterprises to raw materials, and new
technology.  The  lack  of  convertibility  of  the  currency,
coupled with other macroeconomic rigidities also reduces
the  incentives  for  enterprises  to  restructure,  and  their
capacity  to  benefit  from  restructuring.

6.8. See  comments  at  3.9.

Budgetary implementation

6.9. Although  the  management  information  system  was
improved in 1996, the Commission shares the opinion of
the  Court  on  the  need  to  further  improve  this  system.
Such an improvement is presently under way. However, it
might  prove  difficult  to  introduce  the  detailed  levels
suggested  by  the  Court.

6.10. The  major  reason  for  the  low  disbursement  levels
in Bulgaria, is due to the lack of government commitment
towards  private  sector  development,  and  the  continuous
reorganisation  of  the  key  decision-makers.

The  long  term  survival  of  the  institutions

6.11-12. The  Commission  has  sought  to  progressively
decrease  PHARE  and  TACIS  support  to  running  costs
with other sources providing a correspondingly increasing
proportion  of  funds.  However,  this  approach  needs  to
recognise  the  role  that  authorities  in  the  partner  States
must  play 
long-term
the 
sustainability  of  these  development  agencies.

in  helping 

secure 

to 

Experience  in  the  EU  and  other  economies  with  a  lively
SME  sector  have  proved  that  training  and  support
structures  for  SMEs  cannot  subsist  without  public
funding.  The  Commission  does  not  have  direct  influence
on the level of support the local and federal governments
choose  to  provide  to  such  organisations.

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/33

Poland

6.13. The  Commission  has  also  been  concerned  for  the
long-term  sustainability  of  the  Polish  SME  foundation
(thusfar  the  driving  force  behind  the  country’s  SME
policy).  This  problem  was  resolved  during  the  last
PHARE  implementation  review  meeting  held  in  May
1997 in Warsaw. The Ministry of the Economy has made
a  commitment  to  fund  from  its  budget  an  equivalent
amount  of  ECU  900 000  towards  the  payment  of  the
operational costs of the SME foundation. An SME law is
now  also  under  preparation  in  Poland  to  transform  the
foundation into a state agency to implement the national
programmes 
In  addition,  USaid  partly
contributes  to  the  costs  of  the  SME  foundation.

for  SMEs. 

in 

reduced  to  28  in  1998.  Following  dialogue  with  the
Government, it was agreed that the 1997 programme for
Poland will not contain funds for PMU operational costs
in  any  sector.  The  government  has  allocated  ECU  4,5
its  1998  budget  to  contribute  to  PMU
million 
operational  costs  in  the  PHARE  programme  from  1998
onwards. This, together with the strategy for phasing out
PMUs  and  the  new  PHARE  orientations,  which  the
Commission  issued  in  March  1997,  will  allow  the
complete  abandonment  in  Poland  of  the  payment  of
PMU  operational  costs  by  PHARE.

The  PHARE  contribution  to  running  costs  in  the  Slovak
Republic  as  concerns  the  SME  agency,  has  been  granted
in  a  digressive  way.

Russia

6.14. Based  on  experience  of  SMEDAs  in  the  EU  the
Russian SMEDAs will not be able to survive without the
support  from  the  local  administrations.  As  regards  the
SME sector, all terms of reference prepared for the action
programmes 1996/97 and 1998/99 contain the obligation
for the contractor to apply an exit strategy. This entails a
phased  reduction  in  the  financial  contribution  to  core
costs  and  management  support  to  be  matched  to  a
corresponding  increase  in  earned  income.

Assessment  by  country  audited

Poland  (ECU  217,5  million)

6.20-6.22.
In  general  the  PHARE  programme  in  Poland
has  performed  satisfactorily.  Certain  actions  have  been
less  successful,  as  could  normally  be  expected  of  any  aid
programme,  where  beneficiaries  are  asked  to  introduce
sometimes  difficult  reforms.

The  legality  and  regularity  of  transactions

6.15. As  outlined  in  6.17  to  6.22  certain  anomalies  can
be  explained.

6.21. The current position concerning the Polish tourism
and  guarantee  fund  projects  is  to  be  assessed  as  part  of
the  upcoming  PHARE  implementation  review.

Bulgaria

6.17. The  possibilities  for  direct  contracting  have  been
significantly restricted as part of the revision of tendering
and contracting procedures. A system now exists to verify
the  principle  of  open  competition  in  the  framework  of
the  decentralised  implementation  procedures.

Slovakia

(See the comments at 6.13 on operational costs of
6.19.
the  SME  foundation).  The  Commission  has  already
commented  on  the  findings  of  the  Court  in  the  DIS
report  regarding  the  payment  of  salaries,  operating  costs
and  high  turnover  of  staff  of  PMUs  in  Poland.

In the case of the Polish regional development agency, the
number  of  Polish  staff  paid  by  the  programme  has  been
reduced  from  94  to  67  in  1997  and  will  be  further

6.22. The  privatisation  and  restructuring  of  the  steel
sector in Poland is a highly sensitive issue, as reflected in
the  recent  trade  disputes  between  the  EU  and  Poland.
The  financing  memorandum  was  approved  at  the  time
when  the  Polish  Government  was  preparing  the  steel
restructuring  plan.  The  plan  did  not  materialise  in  the
time foreseen and resources were focused on a number of
activities 
the  objective  of
restructuring  and  privatisation  of  the  sector  concerned.
These  were  approved  by  the  Commission  through  the
work  programme  system,  in  line  with  PHARE  rules.

instead  but 

still  with 

For  legal  reasons,  the  investment  fund  (FEDA)  scheme
could  not  be  operated  by  the  PMU.  It  required  the
establishment  of  a  different  legal  basis.  At  the  time  that
the  FEDA  scheme  was  approved,  the  Commission  had
been assured that this would happen quickly. Discussions
on  FEDA  were  therefore  pointless  until  the  appropriate
legal  framework  had  been  established.  This  finally
occurred  in  June  1996,  nearly  one  and  a  half  years  after
the  signature  of  the  financing  memorandum.  In  the
meantime,  the  FEDA  scheme  has  been  reallocated,  at  the
request  of 
flood  damage
reconstruction  programme.

the  government, 

the 

to 

C  335/34

EN

Official  Journal  of  the  European  Communities

3.11.98

Hungary  (ECU  174,5  million)

6.23. See  comments  at  4.14.

both  foreign  and 
diversified  package  of  services  and  training.

local  —  and  the  enhanced  and

6.24 SME business leaders do not always have access to
relatively  costly  private 
training  courses.  Training
measures  organised  under  PHARE  provide  a  more  viable
alternative  and  have  had  some  success.

7.  CONCLUSION

Bulgaria  (ECU  72,5  million)

the 

commitment  of 

6.25. The  difficulties  cited  by  the  Court  illustrate  the
lack  of 
former  Bulgarian
Government.  On  the  one  hand  financing  memoranda
were  signed  committing  the  government  to  implement
programme  objectives.  However,  these  changes  either
never  occurred  or  were  limited  to  organisational  aspects.
The  new  government  has  created  the  SME  agency,  to
which  the  PHARE  programme  is  presently  providing
strengthening
technical  assistance  and 
support.

institutional 

6.26-6.27. The programmed actions were not completed
because  of  a  lack  of  government  commitment.

Slovakia  (ECU  54,2  million)

6.30. Concerning  the  pilot  enterprise  restructuring  and
privatisation 
the
recommendations  in  the  studies  were  taken  on  board  by
the  management  of  the  companies.

programme, 

number 

of 

a 

7.1. The  Commission  agrees  that  the  development  of
clear  objectives  and  of  measures  for  assessing  their
achievement  is  important,  while  also  sharing  the  Court’s
view  (3.8  of  its  report)  that  this  can  be  difficult.  The
introduction  of  the  log-frame  approach  is  an  important
step in the right direction, as have been the setting up of
the  special  dedicated  monitoring  and  assessment  and
evaluation  units  as  described  above.  But  the  Commission
does  not  consider  that  where  programmes  have  not
achieved the expected results this is generally due to poor
design  or  management.  In  some  cases  these  may  have
been  contributory  factors,  but  these  are  the  exception
rather  than  the  rule.  Overwhelmingly  the  major  factor
where  programmes  have  not  succeeded  as  planned  has
been  a  lack  of  political  commitment  from  the  recipient;
this has normally been impossible to predict, and difficult
to manage.

7.2. Contacts  and  consultations  between  PHARE  and
TACIS  personnel  are  carried  out  on  an  informal  basis,
including PHARE officers attending TACIS evaluations of
tenders  and  vice  versa.  Evaluation  reports  circulate
among 
further
contributing to cross-fertilisation of ideas and recognition
of  matters  of  common  concern.

the  PHARE  and  TACIS 

teams, 

Russia  (ECU  228,06  million)

6.31-32.
It  is  agreed  that  the  amount  of  funds  allocated
under  TACIS  is  not  comparable  with  the  needs  of  the
country. In a climate where a wide range of priorities are
competing  for  the  limited  resources  available  it  is  simply
not  possible  to  meet  all  funding  requirements.  However,
the  Commission  has  sought  to  focus  efforts  on  actions
where  the  impact  of  TACIS  funding  in  the  enterprise
restructuring  sector  has  been  felt.

It  is  difficult  to  evaluate  PHARE  or  TACIS  impact  at
sectoral  level  or  in  relation  to  specific  instruments.
However, the new evaluation unit has launched a number
of  sectoral  and  instrument  evaluations  with  a  view  to
addressing these issues, to providing required feedback at
the  level  of  programming  exercise  and  to  allowing  for
cross-fertilisation  between  different  areas.

The  management  of  aid

Turkmenistan  (ECU  6,1  million)

6.34. At  the  end  of  the  TACIS  project  concerning  the
creation  of  the  SMEDA  in  Asghabat,  the  financial
sustainability  had  reached  approximately  35 %  by
January  1998.  A  follow-on  project  started  in  May  1998
entitled ‘Support for SMEDA Asghabat’ for a duration of
nine  months.  The  expected  financial  self-sustainability
will  be  approximately  60 %  at  the  end  of  this  project.
The increase is justified by the great number of clients —

7.3.
In  general  the  technical  assistance  under  PHARE
and  TACIS  has  performed  satisfactorily.  However,  the
fact  that  certain  actions  have  been  less  successful  is
inevitable in the context of wide-ranging aid programmes
where  beneficiaries  are  asked  to  introduce  sometimes
difficult  reforms.

7.4. The Commission has taken care in programming to
ensure  that  measures,  while  ambitious,  are  also  realistic.
In  the  early  part  of  the  period  covered  by  the  report,
governments’  policies  were  at  a  very  early  stage  of

3.11.98

EN

Official  Journal  of  the  European  Communities

C  335/35

subject 
change.  Nonetheless 

to  unpredictable,
development,  and  often 
significant  and 
the
sudden 
Commission could not ignore the need to provide help to
reforming governments to set in place a conducive policy
environment  and  to  demonstrate  concrete  results  quickly
in  this  vital  but  fragile  sector.  While  accepting  that,  with
hindsight,  some  programmes  appear  over-ambitious,  the
Commission  contends  that  a  more  cautious  approach
would  have  resulted  in  missed  opportunities.

It is inevitable that in certain cases particular instruments
can  be  rendered  less  applicable  if  the  initial  conditions
subsequently  change.  The  Commission’s  objective  is  to
adjust  the 
instruments  appropriately  when  such  a
problem  becomes  apparent.

7.5. Where  possible  consultants’  TOR  should  include
the  achievement  of  objectives  rather  than  simply  a  list  of
activities.  The  Commission 
that
consultants  provide  clear  outputs  such  as  reports  and
services  rendered  which  are  substantiated  by  appropriate
documentation.  Payment  of 
if
consultants  have  not 
contractual
obligations.

is  withheld 

to  ensure 

invoices 

fulfilled 

seeks 

their 

The  Commission  is  seeking  to  improve  the  quality  of
TOR  and  performance  of  consultants  through:

(a)  informal  consultation  across  PHARE  and  TACIS

units  on  the  quality  of  consultants,

(b) review  of  TOR  produced  by  external  consultants  by

task  managers  before  being  issued,

(c)  and  greater  knowledge  of  local  circumstances  by  the
Commission’s  central  and  delegation  services  and
consultants.

It  would  be  difficult  to  hold  consultants  responsible  for
the  final  results  of  projects,  particularly  in  cases  where
their  role  is  the  provision  of  technical  assistance  and
advice.  The  final  decision  as  to  whether  the  advice  is
intended  results  are
acted  upon  (and  whether  the 
ultimately achieved) lies with the beneficiary who may, or
may  not,  choose  to  act  upon  the  advice  received  from
consultants.

7.6. Contacts  and  consultations  are  carried  out  on  an
informal  basis, 
including  PHARE  officers  attending
TACIS  tender  evaluations  for  TACIS  contracts  and  vice
versa.  Evaluation  reports  circulate  among  the  PHARE
and 
to
cross-fertilisation  of  ideas  and  recognition  of  matters  of
common concern. Units specifically dedicated to the tasks

contributing 

further 

TACIS 

teams, 

of  monitoring  and  evaluation  have  been  established.  The
production  of  evaluation  reports  on  sectors  like  SMEs,
privatisation,  restructuring  will  help  to  provide  some  of
the  necessary  answers  concerning  sectoral  issues.

is 

in 

(a)

the  Commission 

the  process  of
7.7.
deconcentrating  procedures  whereby  more  functions  will
be  devolved  to  the  delegations  within  the  partner  States.
Funds  authorised  under  the  STAP  facility  will  be  used  to
recruit  within 
technical
assistance  directly  linked  to  programme  implementation.
Short  term  technical  assistance  will  also  be  provided
under  the  framework  contracts  to  enable  delegations  to
recruit  independent  experts  tasked  with  attending  tender
evaluations, preparing terms of reference, monitoring and
assessment.

the  delegations 

long-term 

the  Commission’s  monitoring  and 

include  examinations  of  consultants, 

evaluation
(b)
activities 
the
deliverables  to  the  beneficiary  organisation  and  the
adequacy  of  their  needs.  Evaluations  subsequently  gauge
the impact of actions enabling the success or otherwise of
the  intervention  to  be  determined  and  the  measures  that
may  need  to  be  taken  to  improve  future  performance.

(c)
the  Commission  is  taking  steps  to  improve  the
coherence  of  monitoring.  For  example,  under  PHARE,
monitoring  and  assessment  of  programmes  will  be
undertaken  by  an  independent  contractor  (a  consortium
of  EU  and  CEC  companies)  comprising  27  long-term
experts  with  appropriate  short-term  technical  support.
The  monitoring  and  assessment  unit  has  established  a
standard 
improve
regularity,  homogeneity  and  practicality  of  reports.  A
system  of  follow-up  of  recommendations  within  such
reports  ensures  that  they  are  not  forgotten.

for  all  assessments 

template 

to 

sectoral 

7.8. The  evaluation  unit,  set  up  in  January  1997,  has
completed or will shortly complete, for both PHARE and
instrument
TACIS,  14 
evaluations  and  3  country  evaluations.  12  other
evaluations  are  to  be  launched  by  the  end  of  year.
Complete 
the  PHARE  and  TACIS
programmes,  evaluated  on  a  sector  and  country  basis,
inevitably  takes  time  to  complete.

evaluations,  10 

coverage  of 

Results  of  completed  evaluations  and  preliminary  results
for  those  ongoing  have  already  been  provided  to
Parliament, Member States, Commission services and the
Court  of  Auditors.

C  335/36

EN

Official  Journal  of  the  European  Communities

3.11.98

A  new  methodology  for  monitoring  and  assessment  of
programmes is now in place. Homogeneity of approach is
ensured  through  a  standard 
‘template’  whereby  all
reports  follow  the  same  format.  The  template  focuses
assessments  on  the  achievement  of  objectives  and  the
provision  of  concrete  and  practical  recommendations  for
the  management  and  design  of  future  programmes.
Recommendations  are  systematically  followed  up  by
those  responsible  for  implementation  of  the  programme.
The  reports  are  given  a  wide  circulation,  so  that  lessons
learned  from  one  programme  can  be  applied  to  similar
programmes  elsewhere.

an 

can  be 

7.9. The  Commission  shares  the  opinion  of  the  Court
on  the  need  to  take  local  constraints  and  the  local
economic  context  fully  into  account  and  recognises  that
such  factors  and  the  general  climate  in  the  beneficiary
countries 
constraint  on
implementation  of  measures.  It  does  not  consider  that
programme implementation was systematically affected in
an  adverse  manner  due  to  its  initial  misreading  of  local
conditions. Programmes were developed in the context of
the  political  environment  at  that  time.  Thereafter,
subsequent changes in the political landscape were apt to
affect  certain  programmes.

important 

The  effect  of  the  aid

7.11. The  Commission  takes  note  that  the  Court
recognises  that  the  financing  of  actions  undertaken  on
behalf  of  SMEs  contributes  to  achieving  one  of  the  main
objectives  of  the  PHARE  and  TACIS  programmes  i. e.
bringing  about  a  transition  to  a  market  economy.  The
Commission  considers  this  a  commendable  achievement
given the complete absence of such a culture within these
countries when the PHARE and TACIS programmes were
first  conceived  and  the  relatively  short  periods  during
which  the  programmes  have  been  up  and  running.

7.12. The  Commission  has  sought  to  progressively
decrease  PHARE  and  TACIS  support  to  running  costs
with other sources providing a correspondingly increasing
proportion  of  funds.  However,  this  approach  needs  to
recognise  the  role  that  authorities  in  the  partner  states
must  play 
long-term
the 
sustainability  of  these  development  agencies.

in  helping 

secure 

to 

Experience  in  the  EU  and  other  economies  with  a  lively
SME  sector  have  proved  that  training  and  support
structures  for  SMEs  cannot  subsist  without  public
funding.  The  Commission  does  not  have  direct  influence
on the level of support the local and federal governments
choose  to  provide  to  such  organisations.

7.13. SME  development  and  regional  development  are
linked,  and  are  increasingly  being  treated  together  to
ensure  greater  clarity  in  the  support  provided  for  SMEs.
In addition, the delegations and project management and
coordinating  units 
the  partner  States
increasingly  ensure  coordination  on  the  spot.

located 

in 

7.15. The  evaluation  unit  is  attempting  to  evaluate  the
impact  of  projects  by  undertaking  expost  evaluations,
evaluating  impact  of  all  the  projects  developed  since  the
beginning  of  the  PHARE  and  TACIS  programmes.

The  observation  on  the  lack  of  financial  resources  to
meet  the  needs  of  partner  States  applies  to  all  EU  and
other 
international  aid  programmes.  Availability  of
financial  resources  is  granted  on  the  basis  of  various
criteria  such  as  absorption  capacity  and  previous
performance. There are competing demands and priorities
for  PHARE  and  TACIS  funds  and  it  will  never  be
possible  to  meet  all  funding  requirements.  However,  the
Commission  has  sought  to  focus  PHARE  and  TACIS
funding  on  actions  where  the  impact  can  be  most
effectively  deployed  and  have  a  catalytic  effect  of  the
partner  States’  own  efforts  to  stimulate  development  of
the  private  sector.

7.17. See  comments  at  7.15.

In  addition,  the  Commission  has,  and  is,  continuing  to
coordinate  funding  activities  with  other  donors  such  as
the EBRD, the World Bank and the EIB to maximise the
impact  of  the  limited  resources.  The  special  technical
assistance  facility  which  PHARE  and  TACIS  is  providing
to  the  EBRD  for  the  purpose  of  preparing  investment
projects  is  viewed  as  working  well  and  efficiently.  An
evaluation  has  been  launched,  and  an  evaluation  report
will  be  available  at  the  end  of  1998.  In  addition  to  this
facility, close cooperation with the EBRD is taking place,
in  the  field  as  well  as  between  Brussels  and  London.