Opinion of the Committee of the Regions on: - the 'Proposal for a Council Regulation (EC) amending Regulation (EC) No 1164/94 establishing a Cohesion Fund', and - the 'Proposal for a Council Regulation (EC) amending Annex II to Regulation (EC) No 1164/94 establishing a Cohesion Fund'
Date: 1998-11-19
Institutions: European Committee of the Regions
Subjects: EU financial instrument, European Investment Bank, Single European Act, coordination of aid, environmental protection, transport infrastructure

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monitoring and evaluation) of such measures. The first
step should be representation on the committees which
are to monitor and assess ISPA measures, regardless of
whether they — as provided in the draft regulation —
are competent for the execution of a project or are
directly concerned by a project.

The projects to link applicant countries to the
3.5.
trans-European networks are intended to strengthen
economic and social cohesion between the future
accession areas and the EU as a whole. Planning measures
to link the accession candidates to the TENs should be
geared both to the needs of border regions in the present

Member States and to those of all the areas affected by
the development of these networks. In this context, the
COR once again emphasizes the need to continue to
give appropriate support to cross-border cooperation
under Interreg and Phare/CBC (1), ensuring full compati-
bility between projects funded under the two pro-
grammes. The Commission is asked in future to place
support for this kind of cooperation on a joint financial
and organizational footing so as to remove administrat-
ive obstacles to the implementation of cross-border
projects, making it the sole form of support for cross-
border cooperation.

(1) Cross-border cooperation.

Brussels, 18 November 1998.

The President

of the Committee of the Regions

Manfred DAMMEYER

Opinion of the Committee of the Regions on:

— the ‘Proposal for a Council Regulation (EC) amending Regulation (EC) No 1164/94

establishing a Cohesion Fund’, and

— the ‘Proposal for a Council Regulation (EC) amending Annex II to Regulation (EC)

No 1164/94 establishing a Cohesion Fund’

(1999/C 51/03)

THE COMMITTEE OF THE REGIONS,

having regard to the Proposal for a Council Regulation (EC) amending Regulation (EC)
No 1164/94 establishing a Cohesion Fund and the Proposal for a Council Regulation (EC)
amending Annex II to Regulation (EC) No 1164/94 establishing a Cohesion Fund (COM(98)
130 final) – 98/0104 (AVC) — 98/0118 (CNS) (1);

having regard to the Council Decision of 19 May 1998 to consult it on this subject, in
accordance with Article 130d and the first paragraph of Article 198c of the Treaty establishing
the European Community;

having regard to the Bureau decision of 13 May 1998 asking Commission 1 (Regional policy,
structural funds, economic and social cohesion, cross-border and inter-regional cooperation)
to prepare the opinion;

having regard to the draft opinion adopted by Commission 1 on 30 September 1998 (CdR 235/98
rev.) (rapporteurs: Mr Apostola´kos and Mr O’Neachtain);

(1) OJ C 159, 26.5.1998, p. 7.

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whereas Regulation (EC) No 1164/94 establishing a Cohesion Fund(1) and the European
Commission communication Agenda 2000 (COM(97) 2000 final);

whereas the Opinion of the Committee of the Regions on the Cohesion Policy and the
Environment (CdR 134/96 fin)(2) and its Opinion on the Views of the Regional and Local
Authorities for European Structural Policy (CdR 131/97 fin)(3),

adopted the following opinion at its 26th plenary session (meeting of 19 November 1998).

1.

Introduction

The purpose of the Cohesion Fund established
1.1.
in 1994 following the Maastricht Treaty was to help the
less prosperous Member States prepare for EMU and the
budgetary discipline that this implied, while maintaining
efforts to reduce the development gap and increase their
capacity for growth and prosperity. The fund is in effect
a means of compensating the weakest Member States for
undertaking substantial spending on the infrastructural
projects required for social and economic growth, while
seeking to control their budget deficits.

1.2. On 16 March 1998 the European Commission
published its proposal for amending Regulation (EC)
No 1164/94 establishing a Cohesion Fund. The proposal
does not entail a radical reform, but rather seeks to
adjust the Fund in relation to a number of key elements.
As stated in the Communication ‘Agenda 2000’ the
Cohesion Fund is to continue to provide assistance to
the four current recipient Member States, which are
eligible under the criterion of per capita GNP being less
than 90 % of the Community average; Greece, Ireland,
Portugal and Spain. The Cohesion Fund is to be allocated
some ECU 21 billion (1999 prices) for the period
2000-2006 at a rate of ECU 3 billion per year.

The main areas of amendment are:

— The stipulations regarding macroeconomic con-
ditionality will continue to apply. The participating
Member States must ensure that they avoid any
unnecessary public debt. Those countries participat-
ing in the Euro must also meet the provisions laid
down in the Stability and Growth Pacts. In situations
where it is evident that these conditions are not
being met the Commission will intervene and freeze
finance.

— The Commission proposes that there should be
greater use of other sources of complementary
private finance.

(1) OJ L 130, 25.5.1994, p. 1.
(2) OJ C 34, 3.2.1997, p. 22.
(3) OJ C 64, 27.2.1998, p. 5.

— In the interests of encouraging the Polluter-Pays
Principle, the Commission is introducing a provision
to vary its rates of assistance in order to avoid
discouraging this principle.

— Member States will be given increasing responsibility
in relation to Financial control. The Member States
are to have responsibility for verifying to the Com-
mission that operations have been properly carried
out and when irregularities occur the Member State
must take any necessary administrative or legal
action. Member States shall be responsible for
reimbursing any funds paid which are the subject of
irregularities.

— In the interests of ensuring that the most environmen-
tally sustainable option is chosen there is to be
a fuller assessment of alternatives to the project
proposed and the environmental impact thereof.

— The Commission proposes simplification of Finan-
cial Management — but the management and
monitoring of funds is to be more rigorous.

2. General comments

The Commission’s decision to maintain the
2.1.
Cohesion Fund notwithstanding EMU is widely wel-
comed by the Committee of the Regions. The first report
on Economic and Social Cohesion in the EU, published
in November 1996 shows that structural policies have
had a strong equalizing effect. The Committee of the
Regions in particular recognizes the crucial part played
by the Cohesion Fund in convergence between the
Member States, but recognizes that so far none has
reached the threshold of a GNP of at least 90 % of the
Community average.

The COR notes that while advances have been
2.2.
made in the Cohesion countries in the fields of both
transport (which is vital to these countries due to their
peripherality) and environmental services (where these
countries may have lagged behind in the implementation
of EU Directives) there is still significant work to be
done improving such infrastructure. Indeed in a number

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of the Cohesion countries a considerable infrastructural
deficit still exists. The demands for continued improve-
ment and the conflict between investment in such
infrastructure and the necessity of ensuring budgetary
restraint both for those not participating in the Euro
and those participating in the Euro (in the light of the
provision of the Stability and Growth pact), provides
the rationale for the continuation of the Fund.

The Committee of the Regions also believes that
2.3.
the Cohesion Fund has a continuing role to play in
achieving environmentally sustainable development in
the Member States concerned. Given the commitment
to sustainable development and environmental protec-
tion in the Amsterdam Treaty, the COR believes the
Cohesion Fund is a key means of further addressing the
needs of the Member States in the areas of environmental
protection, particularly in the field of protection and
management of water resources, as well as the collection,
treatment and recycling of waste.

2.4.
The Committee of the Regions recognizes that
the changes proposed are in the interests of efficiency,
equity and greater protection of the environment, and
that the minor nature of the changes reflects the relative
success of the Cohesion Fund and its operation to date.
However, the Committee of the Regions has a number
of concerns regarding: general funding considerations,
the greater use of private funding, some aspects of the
Polluter-Pays Principle and a number of the proposed
changes relating to financial management.

2.5.
A number of the proposed amendments to the
regulation increase the environmental dimension of the
Cohesion Fund. The Committee of the Regions fully
agrees with a greater emphasis on ensuring that the
impact of projects on the environment are fully assessed,
that any alternatives are adequately appraised and that
attempts are made to introduce suitably designed, fiscal
measures and charges which impose the costs of pollution
and environmental damage on those responsible for
these.

The Committee of the Regions recognizes that
2.6.
efforts to promote growth and convergence of productive
capacity and real income levels within the Cohesion
countries can place the environment at risk, but would
point out that real costs do exist for the Cohesion
countries in efforts to balance this growth with environ-
mental protection measures. While welcoming the
increased emphasis on the Polluter-Pays Principle, the
Committee of the Regions believes there is a need for
further guidelines on how this provision will be operated
in practice.

2.7. While recognizing that the financial changes
proposed are in the interest of efficiency and simplicity,
the Committee of the Regions is concerned that proposed
amendments may have implications for local and
regional authorities as implementing agencies.

The Committee of the Regions is particularly
2.8.
concerned regarding the possible decommitment of any
unspent funds from the Cohesion Fund budget. The
Committee of the Regions calls for a revision of the
terms of this provision to ensure that unspent funds can
be redirected to other worthy cohesion projects.

The Committee of the Regions notes that the
2.9.
Commission proposes the amendment not only of
Regulation 1164/94 which requires a unanimous vote in
the Council, but also the Annexes which need a qualified
majority. The Committee of the Regions would hope
that amendments to the Annexes would not undermine
the philosophy of the Cohesion Fund by introducing
changes which would not be subject to a unanimous
vote by Council.

3. Specific comments

3.1. Scope and operation of

the Cohesion Fund

(Article 2)

3.1.1. While the Committee of the Regions supports
the idea of applying the eligibility criteria strictly, there
may be a need to consider a transitional arrangement
after 2003. Unlike, the revised Structural Funds regu-
lation, in the present Cohesion regulation there is no
possibility of phasing out of support, and it is stated
that not only new projects but stages of projects (where
important projects are split into stages) will no longer
be funded once the eligibility criteria is exceeded. The
Committee considers that an abrupt suspension of
Cohesion Fund support would have an adverse effect
on many regions. It may be appropriate for a transitional
period for phasing out support after the mid term review
in 2003, in order to cushion the cohesion countries from
economic and social shocks, to consolidate their progress
and to facilitate further adjustment to the new con-
ditions. By introducing some limited transitional
arrangements after 2003 the progress made in the
Cohesion countries can be safeguarded.

3.2. Macroeconomic conditionality (Article 6)

3.2.1.
The Committee of the Regions concurs with the
Commission’s continued emphasis on Conditionality. It
considers that it is necessary to continue macro-economic

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policies geared towards stability and growth. The
conditionality principle must be implemented without
disrupting development in the Cohesion countries.

3.3. Greater use of other sources of complementary

private finance (Article 7)

3.3.1.
The Committee of the Regions would accept
that the proposed amendments to the Regulation would
ensure that greater private funding is utilized in large
scale projects which have potential for generating
revenue. This would increase the leverage of and
multiplier effect of Community funding. The Committee
of the Regions recognizes that it is useful to encourage
private investment, in order to make structural policies
more efficient and to promote the multiplier effect. The
COR has already made this point in its opinion on
‘Views of the Regional and Local Authorities on
Arrangements for European Structural Policy’ (1).

3.3.2.
The Committee of the Regions would however,
point out that the interests of private and regional/local
operators may well differ and that this could stand in
the way of private sector funding. There are often
difficulties in encouraging such investment in transport
and environmental services in certain more peripheral
areas of countries. There is also a need to ensure that
there is an equitable provision of infrastructure and
services and it should be noted that in some cases local
and regional authorities are best placed to provide
(finance) and maintain this type of infrastructure.

3.3.3.
The Committee of the Regions believes that
public private partnerships should be encouraged, but
that notwithstanding a commitment to such partner-
ships, that the decisions regarding the revenue generating
potential of the projects and their suitability for private
involvement should be made at Member State level in
conjunction with input from the local and regional
authorities involved.

3.4. Environmental issues: Better application of the
Polluter Pays Principle (Article 7) and fuller assess-
ment of alternatives and environmental impact
(Article B)

The Committee of the Regions considers that
3.4.1.
protecting and enhancing the environment, as well as
reducing the disparities in the environmental situations
of different regions, are necessary preconditions for a
successful cohesion policy. Thus the COR welcomes the
enhanced consideration of environmental issues in the
Cohesion Fund.

3.4.2.
In this regard the Committee of the Regions
reiterates the point made in its opinion on Cohesion
Policy and the Environment (2) that it is important that
the Commission ensures that the 50/50 divide between
environment and transport infrastructure, be maintained
and monitored,
in order to achieve environmental
sustainability. However, in order to ensure that the
needs and circumstances of each region can be accommo-
dated, it must remain possible to make exceptions in
duly justified cases and apply the Regulation with some
flexibility in the balance.

3.4.3.
The Committee welcomes the amendments
made which allow the Commission to adjust the rate of
assistance for the Cohesion Fund so as to encourage the
Polluter-Pays Principle, thus reducing the disincentive
to the cohesion countries in applying a proper pricing
policy.

However, in assessing the new emphasis on the Polluter-
Pays Principle in the Regulation there is some clarifi-
cation required. Firstly, there is a need for clarification
regarding the determination of the rate of assistance. A
decision on the rate of assistance should be taken in
consultation with the Member State and the relevant
regional and local authorities. Secondly, while the
Polluter-Pays Principle is a key element of current EU
environmental policy, the full implementation of the
principle could be onerous for many of the Cohesion
countries, where there has been less emphasis on the
implementation of charges. The COR believes it is
therefore necessary that the application of the Polluter-
Pays Principle is considered obligatory, but the possi-
bility must remain to make exceptions for cases where
it is evident that the local conditions do not yet allow
for the (full) implementation of the principle.

In the light of these concerns the Committee of the
Regions would like to see further thought on the manner
in which the Commission will implement this element
of the Regulation. The Committee of the Regions
considers that there is a need for the introduction of
Community Guidelines on the Polluter-Pays Principle
and its application to different projects.

3.4.4.
The Committee of the Regions believes that
the amended Regulation in proposing a fuller assessment
of alternatives not chosen and of environmental impact,
will go some way to ensuring that infrastructural and
ultimately economic development does not occur at the
expense of an intact environment. The Committee of
the Regions does however, consider that assessing
alternatives in a full and complete manner could have
negative implications on the financial and staffing
resources of regional and local authorities and would
like to see guidelines regarding the number of alternatives
to be assessed and the level of assessment required.

(1) CdR 131/97 fin — OJ C 64, 27.2.1998, p. 5.

(2) CdR 134/96 fin — OJ C 34, 3.2.1997, p. 22.

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3.5. Financial control (Article 12)

The Committee of the Regions welcomes the
3.5.1.
proposed changes in the interests of applying the
principle of subsidiarity.
It is recognized that the
devolution of power is accompanied by more responsi-
bility on behalf of the Member States.

3.6. Clarification of concepts (Article A)

3.6.1.
The implementing provisions will be amended
to include definitions of terms such as project, group of
projects and stages of projects. The Committee of the
Regions welcomes this clarification, and hopes that it
facilitates the financing of major projects and that it
prompts a more strategic approach towards infrastruc-
ture provision in the Member States.

3.6.2. However, the Committee of the Regions points
out that because of the situation in several of the
cohesion countries a number of the projects, particularly
those in the environmental arena, have been of small
size but have a significant impact on environmental
quality. There is thus a need to ensure that such
definitions do not jeopardize the funding of smaller —
though vitally important projects (which are provided
for under Article 10 Paragraph 3 of Regulation (EC)
No 1164/94). We thus suggest that the paragraph
defining a project Article A Paragraph 2(a) be revised to
state that all
the criteria set down in Article 10
paragraph 5 of Regulation (EC) No 1164/94 be complied
with rather that only the first criterion as proposed by
the Commission. This will ensure that not only the
social and economic benefits of a project will be
considered in defining a project but that local authorities’
own priorities will be considered, together with its
contribution to and compatibility with other Com-
munity policies.

3.7. Financial management (Article C, Article D)

3.7.1.
The Committee of the Regions commends the
fact that the Cohesion Fund Regulation is to be amended
rather than being replaced and that the administrative
arrangements will remain largely the same. This will
allow a seamless passage into the new period and will
result in uninterrupted implementation of the Regulation
from its initial introduction in 1994.

3.7.2.
The Committee of the Regions welcomes the
proposal that the Commission will give budget commit-
ments at the beginning of every financial year. This will
remove some of the uncertainty regarding financial
commitments, it will allow regional and local authorities
to better co-ordinate their own budget lines and will
allow those involved in the planning process to have a
relatively clear idea of the amount of Community
financial assistance they can expect.

3.7.3.
The Commission proposes the introduction of
measures to penalize projects where work has not been
implemented,
to allow monies committed to such
projects to be reallocated. The amended Regulation will
allow the cancellation of financing to a project not
started after a period of two years of its expected start
date, except in duly justified cases. The COR agrees
about the necessity for (a) tighter controls on projects’
starting dates, and (b) for ensuring that funds may be
reallocated. These are important preconditions for
effective use of resources and for the continued legitimacy
of funding.

The COR points out that local and regional authorities
may experience difficulties and delays in moving a
major infrastructural project through planning and legal
procedures, compulsory purchase and public consul-
tation. In particular, unforeseen delays can arise due to
third party intervention in procedures, which could
delay the start date of work on the project.

The Committee of the Regions would urge that in
recognition of these difficulties the Commission would
give a commitment to consider the particular circum-
stances surrounding each project and exercise a degree
of flexibility with regard to the implementation of this
proposal.

3.7.4.
The amendments recommend that payments
will not favour the first year of the project. The
Commission proposes giving an advance of not greater
than 10 % assistance in the first year. The Committee
of the Regions considers that the reduction in the ceiling
of the initial advance from 50 % to 10 % may put
pressure on Exchequer budgets and on local and regional
authority budgets (particularly those where resources
are constrained) in initial stages of a project.

3.7.5.
The Committee of the Regions also considers
that the amount to be held over as a final payment (20 %
in most cases 10 % in important projects) also places an
excessive burden on the budgets of local administrations.

3.7.6.
The Committee of the Regions feels that the
period ‘of two months after receipt of an admissible
application for Payment’ within which payment is to be
made by the Commission should be mandatory rather
than a ‘general rule’.

The proposed amendments to the Regulation
3.7.7.
suggest that following the first advance, payment will
be made/reimbursed on receipt of certified expenditure.
The reimbursements will be dependent on the project’s
fulfilment of certain conditions, including its progress in
terms of specified monitoring indicators. The Committee
believes that the introduction of more rigorous financial

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management and monitoring could place pressure on
local authorities and regional authorities given the tight
timescales now specified for reporting and the greater
level of detail to be provided in such reports. The
Committee of the Regions while recognizing the benefits
of closer monitoring and more detailed reporting, would
submit that the timeframes introduced will place an
undue administrative and financial burden on local and
regional authorities.

3.8. Monitoring and Evaluation (Article F)

3.8.1.
The Committee of the Regions stresses the
importance of involving regional and local authorities
on Monitoring Committees. It is vital that evaluation
and monitoring be regarded as an expression of partner-
ship (as it is in the Structural funds) and that local and
regional authorities should be engaged at all phases of
the Cohesion Fund from priority setting to monitoring
and evaluation.

3.8.2. Given the costs involved for national, regional
and local authorities in the monitoring and evaluation
of projects funded under the Cohesion Fund the Com-
mittee of the Regions would like to see some of
these expenditure costs being considered as eligible
expenditure.

3.8.3.
The Committee of the Regions welcomes the
addition of information on the impact of the Fund on
employment as an element of the Commission’s annual
report on the Fund.

4. Conclusions

4.1.
The Committee of the Regions welcomes the
Commission proposal to continue Cohesion Fund sup-
port and believes that the fund will continue to play a
fruitful role in addressing the infrastructural deficit
which exists in the four beneficiary Member States. The
COR also commends the decision to amend rather than
replace the existing Regulation and believes that this
will allow for a seamless transition between the two
periods of financing.

4.2. While welcoming the greater emphasis on public
private-partnerships the COR believes that decisions
regarding the revenue generating potential of projects
and their suitability for private funding should be made
at Member State level in consultation with the local and
regional authorities involved.

4.3.
The Committee of the Regions recommends that
guidelines be introduced on the application of the
Polluter-Pays Principle. The COR also recommends that
the
notwithstanding the environmental worth of

Polluter-Pays Principle, the principle should not be a
requirement of all projects and exceptions must be
possible for cases where the implementation of the
principle causes difficulties disproportionate to the
benefits of the principle.

In the interests of gaining public support for the
4.4.
Polluter-Pays Principle particularly in the domestic
sphere, the Committee of the Regions would urge the
Commission to support the funding of information and
awareness raising exercises (either from other sources
or from the technical assistance tranche of the Fund).
This would encourage changes in producer and con-
sumer behaviour, which is a vital element in the
introduction and maintenance of market based instru-
ments.

4.5.
The Committee of the Regions believes that
the future funding of small scale projects should be
safegaurded. The COR would argue that notwithstand-
ing the need to finance large projects and to ensure a
strategic approach to project development, a number of
small scale projects may be of particular relevance in
the Cohesion Countries. It is vitally important that the
local administrations set their own priorities in this
regard.

4.6.
The Committee of the Regions is concerned by
the decision of the Commission to decommit unspent
funds from the Cohesion Fund. The Committee of
the Regions believes that there is a need for some
reconsideration of this issue. The Committee of the
Regions is convinced that unspent funds should be
channelled into other Cohesion Fund projects.

4.7.
The Committee of the Regions expresses its
concern regarding the reduction in the ceiling of the
initial advance to projects from 50 % to 10 %. The COR
calls upon the Commission to consider increasing the
proposed initial advance from 10 % to 30 %, so as to
ensure that sufficient funds are available in the initial
stages of projects.

4.8.
The COR also believes that the amount held
over as a final payment should be no more than 5 % this
would ensure that finance is available during the works
process and would facilitate the progress of projects.

The COR agrees with the Commission that it is
4.9.
reasonable to cancel funding for those projects not
started after a period of two years of their expected start
dates. The COR supports the Commission view that in
duly justified cases this will not occur and would urge
the Commission to judge each project on a case by case
basis and with flexibility.

4.10. Given the increased assessment, monitoring and
evaluation commitments outlined in the amended

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Regulation, the Committee of the Regions would wel-
come the ability to include such assessment, monitoring
and evaluation as eligible expenditure for co-financing
by the Cohesion Fund.

4.11.
The Committee of the Regions would urge the
Commission to ensure that local and regional authorities
are engaged at all phases of the Fund from priority
setting to monitoring and evaluation.

4.12.
Finally, given the procedures outlined in the
regulation for amending both the Regulation and its

Annexes, the COR would like an assurance that amend-
ments to the Annexes would not undermine the philos-
ophy of the Cohesion Fund by introducing changes
which will not be subject to a unanimous vote in the
Council.

4.13.
The Committee of the Regions calls on the
Commission to revise the proposal for Council Regu-
lation amending the Regulation establishing a Cohesion
Fund together with the proposal for a Council Regulation
to amend Annex II to this Regulation and, in so doing,
to take account of the Committee of the Region’s
suggestions.

Brussels, 19 November 1998.

The President

of the Committee of the Regions

Manfred DAMMEYER

Opinion of the Committee of the Regions on the ‘Communication from the Commission to
the Member States on the links between regional and competition policy: Reinforcing
concentration and mutual consistency’

(1999/C 51/04)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission to the Member States on the links
between regional and competition policy: Reinforcing concentration and mutual consistency (1);

having regard to the decision of the Bureau of 15 July 1998 to draw up, in accordance with
the fourth paragraph of Article 198c of the Treaty establishing the European Community, an
opinion on the subject, and to instruct Commission 1 for Regional Policy, Structural Funds,
Economic and Social Cohesion, Cross-Border and Inter-Regional Cooperation to prepare the
Committee’s work on the subject;

having regard to the draft opinion (CdR 236/98 rev.) adopted by Commission 1 on 30 September
1998 (rapporteurs: Mr Henry and Mr Mun˜oa),

at its 26th plenary session of 18 and 19 November 1998 (meeting of 19 November) adopted
the following opinion.

PART A: GENERAL FRAMEWORK OF THE COM-
MUNICATION

1. Problem and possible solutions

1.1. Current situation
1.1.1.
According to the Commission data, in 1994 to
1999 a total of 50,6 % of the population of the Union

(1) OJ C 90, 26.3.1998.

lived in regions eligible for Community structural aid,
while 46,7 % lived in areas covered by regional incentives
under Article 92(3)(a) and (c). It also appears from
the Commission’s regional data that 6,6 % of the
Community population lived in regions eligible under
the Structural Funds where competition policy precluded
the granting of regional aid, whilst 2,7 % of
the
Community population lived in regions which were
covered by a national regional-aid scheme but were not
eligible under the Structural Funds.