Special Report No 19/2000 on the management by the Commission of the programme of assistance to Palestinian society, together with the Commission's replies
Date: 2000-10-12
Institutions: European Court of Auditors
Subjects: EU aid, EU financing, EU programme, Palestine question, development policy, peacekeeping

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 19/2000

on the management by the Commission of the programme of assistance to Palestinian society,
together with the Commission’s replies

(pursuant to Article 248(4) second subparagraph of the EC Treaty)

(2001/C 32/01)

CONTENTS

Paragraph

Page

GLOSSARY OF ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Context and background of European Union (EU) assistance to Palestinian society . . . . . . . .

The legal and budgetary framework of the programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Court’s audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXTERNAL CONSTRAINTS ON THE PROGRAMME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The complexity of the political situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The weakness of Palestinian institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

POSITIVE RESULTS OF THE PROGRAMME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COMMISSION’S FORMULATION AND MANAGEMENT OF THE PROGRAMME. . . . . . . .

Budgetary execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Skills of staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Strategy and planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Project preparation: taking into account risks, constraints and procedural implications . . . .

Performance indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Project implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of action and responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Public procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monitoring and reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

5-15

5-7

8-11

12-15

16-22

16-20

21-22

23-24

25-65

26-28

29-37

29-36

37

38-42

43-47

48-53

54-55

56-59

56

57-59

60-63

64-65

3

4

4

4

5

7

7

7

8

8

8

8

9

9

10

10

10

11

12

12

12

12

13

13

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Paragraph

Page

FINDINGS ON THE PROJECTS EXAMINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The European Gaza Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Palestine Housing Council (PHC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Projects in support of the Palestinian Legislative Council (PLC) . . . . . . . . . . . . . . . . . . . . . . .

Construction of a building for the temporary seat of the PLC . . . . . . . . . . . . . . . . . . . . .

Provision of technical assistance and equipment to the PLC . . . . . . . . . . . . . . . . . . . . . . .

Other projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COORDINATION WITH OTHER DONORS AND THE PALESTINIAN AUTHORITY . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66-83

66-68

69-75

76-79

76

77-79

80-83

84-88

89-91

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

13

13

14

15

15

15

15

16

16

18

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GLOSSARY OF ACRONYMS

Ad Hoc Liaison Committee

Common Foreign and Security Policy

Consultative Group

Country Strategy Paper

Directorate-General

European Community

European Commission Representative Office

European Commission Technical Assistance Office

European Investment Bank

European Union

International Management Team

Joint Liaison Committee

Local Aid Coordination Committee

Local Rural Development Programme

Mediterranean Partnership

Non-Governmental Organisation

National Indicative Programme

Palestinian Authority

Palestine Housing Council

Palestinian Legislative Council

Palestine Liberation Organisation

Service Commun RELEX (Joint External Relations Service)

Sector Working Group

Technical Assistance Office

Tripartite Action Plan on Revenues, Expenditure and Donor Funding for the Palestinian Authority

Task Force on Project Implementation

United Nations

United Nations Development Programme

United Nations Relief and Works Agency

United States Agency for International Development

AHLC

CFSP

CG

CSP

DG

EC

ECRO

ECTAO

EIB

EU

IMT

JLC

LACC

LRDP

MEDA

NGO

NIP

PA

PHC

PLC

PLO

SCR

SWG

TAO

TAP

TFPI

UN

UNDP

UNRWA

USAID

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EXECUTIVE SUMMARY

1. Following the Oslo Accords of September 1993, the European
Community (EC) started a special programme to support the
Middle East peace process and the development of Palestinian
society, and substantially increased the financial assistance it had
already provided in this field. From 1994 to 1999, EC total com-
mitments financed under the three main budget headings devoted
to support the development of Palestinian society amounted to
639 million euro, and total payments to 447 million euro (see
Chart 1).

(c) there is no pipeline of projects, to be identified, prepared,
approved and launched in a continuous process. In order to
commit the large volume of budgetary funds available annu-
ally, many projects were decided under pressure and without
sufficient preparation (see paragraphs 47-53). Shortcomings
were also noted in the implementation and monitoring of cer-
tain projects (see paragraphs 56-59, 66-83);

(d) coordination with the other donors, including the Member
States, was insufficient, particularly at the operational level.
The Commission should play a major role in coordinating the
donors, in accordance with the relative size of its programme
of assistance (see paragraphs 85-87).

2. The Court has carried out an audit with the objective to assess
the extent to which the Commission has taken the measures nec-
essary to ensure the best possible implementation of the EU policy
of support to the peace process and the development of Palestin-
ian society. The audit has taken into account the various external
constraints affecting the Commission management, such as the
complexity and the volatility of the local political situation, the
lack of territorial contiguity between the areas under Palestinian
administration, Israeli government policy towards Palestinian soci-
ety, and the weakness of Palestinian institutions (see paragraphs16-
22). The situation in the area is also marked by a high overall
influx of aid, by a limited capacity of the Palestinian institutions
to absorb assistance and by drawbacks at the operational level in
donors’ coordination (see paragraphs 50, 79, 86).

INTRODUCTION

Context and background of European Union (EU) assistance
to Palestinian society

5. The EC started to provide assistance to Palestinian society in
1971. Initially, aid was limited to Palestinian refugees and chan-
nelled through UNRWA (1). In 1981, in connection with its politi-
cal support for the Middle East peace process, the EC started to
provide direct aid, through non-governmental organisations
(NGOs); this new approach was subsequently stepped up in 1991
following the Gulf crisis.

3. The Commission’s management of the programme of assis-
tance to Palestinian society has had positive results. The pro-
gramme has supported the peace process, in particular by fund-
ing the Palestinian Authority (PA); it has also contributed to
economic and social development by financing education and
infrastructure projects (see paragraphs 23-24).

4. However, the impact of the programme has been reduced by
structural weaknesses in the Commission’s programming and
management procedures and systems. It was found that:

(a) decision-making is heavily centralised, slow and cumbersome;
responsibilities are fragmented and coordination between units
needs to be improved (see paragraphs 38-42). The number
and skills of staff available are not adequate to manage effec-
tively a programme of this size and scope (see paragraphs 29-
37). Furthermore, adequate management information tools
are lacking (see paragraphs 60-61);

(b) there are no indicators against which the Commission’s per-
formance in managing the programme can be assessed (see
paragraphs 54-55). In addition, the results of an external
evaluation of the programme were not adequately followed
up since the Commission did not set up a precise timetable of
actions to be taken (see paragraph 64);

6. After the Oslo Accords of September 1993 (also known as
Declaration of Principles), the international community, at the
donors’ conference of Washington, pledged 2 400 Mio USD over
five years (1994-1998) to the development of the Palestinian
economy, in order to underpin the peace process. The EC started
a special programme of assistance (2) by pledging 500 Mio ECU
from 1994 to 1998: each year, 50 Mio ECU was to be provided in
grants; 250 Mio ECU in long-term loans would be made available
for the whole period by the European Investment Bank (EIB). The
EU pledge was renewed for the same amounts for the years 1999-
2003 at the Washington ministerial meeting of November 1998,
where donors’ representatives pledged an additional amount of
over 3 000 Mio USD. Per head of population, Palestinian society
is one of the main recipients of EU aid in the world; the EU is the
largest donor to Palestinian society (3).

7. The influx of aid from donors is considerable, and concen-
trated in a limited geographical area. For the 1994-1999 period,

(1) The United Nations Relief and Works Agency, in charge of Palestin-
ian refugees in the West Bank, Gaza Strip, Jordan, Lebanon and Syria.
(2) Council Regulation (EC) No 1734/94 of 11 July 1994, on financial and
technical cooperation with the Occupied Territories (OJ L 182,
16.7.1994, p. 4).
In a document published in 1998, the Commission calculated that
budget aid per capita over the period 1991-1995 was ECU 258 for the
Palestinians, ECU 23 for the ACP countries and ECU 11 for the other
Mediterranean countries (COM(97) 715 final).

(3)

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total commitments amounted to 4 039 Mio USD and total dis-
bursements to 2 613 Mio USD (1). The number and variety of
donors are also considerable: more than 50 official aid agencies
are involved, along with a highly developed NGO sector (2).

Council Regulations (EC) No 2824/98 (5) and (EC) No 2840/
98 (6); the EC-UNRWA Conventions; and Council Regulation (EC)
No 1488/96 (7). A bilateral Framework Convention on the imple-
mentation of financial and technical cooperation was signed in
1998.

The legal and budgetary framework of the programme

8. Since 1994, EU actions in support of Palestinian society have
been financed mainly on three budget headings (3): B7-4 2 0 0
(Community operations connected with the Israeli-PLO peace
agreement), with yearly commitment appropriations of 50 mil-
lion euro, intended to honour the Washington pledge; B7-4 2 1 0
(Aid to UNRWA), which provides financing for the EC-UNRWA
Conventions (4); and B7-4 1 0 0 (MEDA), on which projects of
assistance to Palestinian society have been funded along with
those for other Mediterranean non-member countries. From 1994
to 1999, total commitments for the Palestinians on these three
budget headings amounted to 639,1 million euro, and total pay-
ments to 447 million euro (see Chart 1).

10. The EU continued to support projects carried out by NGOs
and specific actions implemented by UNRWA; other actions were
decided in the framework of the Common Foreign and Security
Policy (CFSP). In addition to the projects financed from the above-
mentioned three main budget headings, the Court identified com-
mitments for more than 66 million euro, which at the end of
1998 were available for ongoing measures in support of Palestin-
ian society under 12 other budget headings of subsections B7 and
B8 (External actions) of the budget (8). Different regulations are
applicable to these 12 budget headings. One project examined in
the context of the audit was financed under three different budget
headings (see paragraph 80).

9. The regulations applicable to the three budget headings are
respectively: Council Regulation (EC) No 1734/94, as amended by

11. From 1995 to 1999, the European Investment Bank (EIB)
made available 214 million euro in loans and risk capital for 11
projects.

(1) PA Ministry of Planning and International Cooperation (MOPIC),
1999 Third Quarterly Monitoring Report on Donors’ Assistance.
(2) The Secretariat of the AHLC: ‘Improvement of Aid Coordination for

West Bank and Gaza’, 30.9.1999.

(3) The budget heading references in the report follow the 1999 budget.
(4) The ninth EC-UNRWA Convention (OJ L 282, 1.11.1996, p. 68) pro-
vided for 105,9 million euro from 1996 to 1998 ; the 10th EC-UNRWA
Convention (OJ L 261, 7.10.1999, p. 36) provided for 120,8 million
euro from 1999 to 2001.

(5) OJ L 351, 29.12.1998, p. 13.
(6) OJ L 354, 30.12.1998, p. 14.
(7) Council Regulation (EC) No 1488/96 of 23 July 1996, on financial
and technical measures to accompany (MEDA) the reform of eco-
nomic and social structures in the framework of
the Euro-
Mediterranean partnership (OJ L 189, 30.7.1996, p.1).

(8) These 12 budget headings concern food aid, humanitarian aid, help
to refugees, measures to support NGOs, environment, aid for popula-
tion policies and programmes, rehabilitation, human rights and
democracy, prevention of conflicts and support for peace processes.

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EU ASSISTANCE TO PALESTINIAN SOCIETY 1994-1999

Chart 1

1.1. Budget heading B7-4 1 MEDA
 (only projects of assistance to Palestine)

1994

1995

1996

1997

1998

1999

1.2. Budget heading B7-4 2 0 Community operations connected with the
Israel/PLO Peace Agreement

1994

1995

1996

1997

1998

1999

1.3. Budget heading B7-4 2 1 UNRWA

1994

1995

1996

1997

1998

1999

Mio EUR
60,0

50,0

40,0

30,0

20,0

10,0

0,0

Mio EUR
160,0

140,0

120,0

100,0

80,0

60,0

40,0

20,0

0,0

Mio EUR
60,0

50,0

40,0

30,0

20,0

10,0

0,0

Commitments

Payments

Cumulative outstanding
commitments

Cumulative commitments:
152,4 Mio EUR
Cumulative payments:
120,0 Mio EUR

Commitments

Payments

Cumulative outstanding
commitments

Cumulative commitments:
277,7 Mio EUR

Cumulative payments:
121,7 Mio EUR

Commitments

Payments

Cumulative outstanding
commitments

Cumulative commitments:
209,1 Mio EUR

Cumulative payments:
205,3 Mio EUR

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The Court’s audit

12. Previous Court audits have been carried out on specific
aspects of EU assistance to Palestinian society. The results of these
audits were published in the Annual Report concerning the finan-
cial year 1995 (1) and in Special Report No 4/96 on the accounts
of the European electoral unit, set up by the Joint Common For-
eign and Security Policy Action concerning the observation of the
Palestinian elections (2).

13. The European Parliament has always been keenly interested
in the implementation of the programme of assistance to Palestin-
ian society and in the Commission’s management of it. The issue
was dealt with in the context of the 1997 discharge procedure, in
particular concerning the European Gaza Hospital, the Palestine
Housing Council (PHC) and the projects in support of the Pales-
tinian Legislative Council (PLC). In its resolution concerning the
role of the EU in the peace process and its future assistance to the
Middle East, adopted in March 1999, the European Parliament
stated that it awaited with interest the results of the work of the
Court of Auditors on the effectiveness and the regularity of the
EU financial assistance (3).

14. The Court’s audit essentially focused on the three main bud-
get headings mentioned in paragraph 8. The audit included checks
at the Commission’s central services in Brussels and a mission on
the spot, in November 1999, to the Gaza Strip and the West Bank,
and to the European Commission Representative Office (ECRO)
in Jerusalem. A selection of 18 projects, representative of all main
sectors of intervention (health, housing, infrastructures, support
to the private sector, education, institutional capacity building,
recurrent costs), and the ninth and 10th EC-UNRWA Conven-
tions, were examined. These projects were implemented in the
period from 1995 to 1999, with the exception of the Palestinian
Housing Council and the European Gaza Hospital, which started
at the beginning of the 1990s. The commitments relating to these
projects and to the Conventions amount to 527 million euro in
total.

15. The objective of the audit was, taking into account the vari-
ous external constraints affecting the Palestinian situation (see
paragraphs 16-22), to assess the extent to which the Commission
has taken the measures necessary to ensure the best possible
implementation of the EU policy of support to the Middle East
peace process and the development of Palestinian society. In some
cases, these external constraints can prevent implementation as
planned, or can even block implementation completely. When
examining whether the performance of the Commission has been
effective as the organisation responsible for implementation, the
Court has sought to separate those matters over which the Com-
mission has control, from those which, due to the external con-
straints, are considered to be essentially outside the Commission’s

(1) OJ C 340, 12.11.1996.
(2) OJ C 57, 24.2.1997.
(3) Point 21 of the resolution (OJ C 175,21.6.1999, p. 282).

control. The Court also examined whether the Commission has
identified performance indicators and applied them in order to
assess the effectiveness of its management, at the level of the glo-
bal programme and of its main components (4). In carrying out
the audit, the findings of a recent evaluation of the programme (5)
and a number of other evaluations and audit reports on indi-
vidual projects or actions were taken into account.

EXTERNAL CONSTRAINTS ON THE PROGRAMME

The complexity of the political situation

16. The Oslo Accords started a process involving the redeploy-
ment by Israel from some of the territories occupied in 1967, and
the establishment of Palestinian self-government in those areas;
this process is still ongoing. Due to the effects of the occupation,
which has lasted for more than 30 years, the land property reg-
istry is incomplete and sometimes unclear. Moreover, the situa-
tion may change rapidly as a result of political developments, or
setbacks, in the peace process. All these factors must be taken into
account when deciding the location, the objectives and the com-
ponents of a project, and subsequently, during its implementa-
tion.

17. The Gaza Strip and the West Bank areas under Palestinian
administration lack territorial contiguity, which, under the local
political circumstances, makes the circulation of people and goods
complicated, sometimes uncertain or even impossible. Palestin-
ians living in the Gaza Strip are only allowed to travel to the West
Bank, and Palestinian residents of the West Bank to the Gaza
Strip, provided they have special permits, issued by the Israeli
authorities. Border security checks are time-consuming, even in
periods of relative calm.

18.
In periods of tension, Israel has adopted the policy of seal-
ing off the West Bank and the Gaza Strip, which has had a con-
siderable negative impact on the Palestinian economy, by increas-
ing unemployment (6), hindering trade,
increasing costs, and
slowing down the implementation of development projects.

19. All Palestinian trade with the rest of the world has to go
through Israel or Israeli-controlled border points. All goods
imported from third countries to the Palestinian self-ruled areas

(4) The task essentially consisted of assessing whether the Commission
has established the means of judging whether its own performance is
satisfactory.

(5) CEPT II: ‘Evaluation of the EC programme of assistance to the West
Bank and Gaza Strip — Final report and annexes’, January 1999, set
out in the Commission’s staff working paper SEC(1999) 408.
(6) On a daily average, Palestinian workers in Israel dropped from 116 000
in 1993 to about 30 000 in 1996 (Source: World Bank, quoted in The
Economist Intelligence Unit: ‘Country Profile, Israel/The Occupied
Territories, 1999-2000’).

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are physically inspected by the Israeli customs, and can be blocked
for security reasons. A similar treatment is applied by the Israeli
authorities to Palestinian exports (1).

20. The PA is still dependent on transfers by Israel for a large
part of the resources of its operational budget (2). In 1997, Israel
blocked all such transfers, causing a financial crisis, which
prompted the EU to intervene in favour of the PA by the adop-
tion of the Special Cash Facility.

The weakness of Palestinian institutions

In 1999, the report ‘Strengthening Palestinian Public Institu-
21.
tions’ (2), prepared by an independent Task Force (3) and sup-
ported, among other donors, by the EU, provided a comprehen-
sive and systematic assessment of the institutional structure and
capacities of the PA. According to the report, the PA, in the short
period of time since its establishment, has managed, under com-
plex conditions and with limited territorial jurisdiction, to achieve
a number of important objectives (4).

22. However, important reforms still have to be implemented in
order to ensure a constitutional government, political account-
ability, judicial review and the transparent management of public
resources. Accounting for the domestic revenues and expendi-
tures of the PA lacks transparency and completeness. Cases of
financial waste and mismanagement had already been observed
by the Palestinian national audit institution (5).

may be made of the decisions to provide significant budgetary
support to the PA after its establishment, by financing recurrent
education costs, and in 1997 through the Special Cash Facility
(see paragraph 20). Also, the Commission, in 1999, led the work
on the updating of the Tripartite Action Plan on Revenue, Expen-
diture and Donor Funding for the Palestinian Authority (TAP) (6).

24. Moreover, the programme is implemented through a signifi-
cant proportion of local tenders, thus supporting the local
economy. It provides for the financing of sectors which are impor-
tant for the social development of the population, such as higher
education. Infrastructure projects (e.g. roads, water supply, sewer-
age and stormwater drainage networks, school construction) have
also improved the quality of life of Palestinians.

THE COMMISSION’S FORMULATION AND MANAGEMENT OF
THE PROGRAMME

25. However, the audit has also shown a number of important
structural weaknesses and failures in the Commission’s program-
ming and management procedures and systems, which have had
the effect of reducing the impact of the programme, and which
are summarised in this report. While the external constraints have
affected considerably and adversely the effective implementation
of the programme, matters for which the Commission has respon-
sibility and over which it should exercise control are also impor-
tant in explaining unsatisfactory performances.

POSITIVE RESULTS OF THE PROGRAMME

Budgetary execution

23. The audit highlighted a number of positive results of the
programme. The grants pledged have actually been committed,
and the programme has provided important political support to
the peace process: in particular, the Commission has played an
important role in sensitive and urgent political situations, in which
it has shown itself able to respond quickly. As examples, mention

(1) SEC(98) 1769.
(2)

In 1998, Israel collected on behalf of the PA and then transferred to it
taxes and duties amounting to 40 % of the PA’s domestic revenue
(Report of the Independent Task Force, chaired by M. Rocard and
directed by H. Siegman: ‘Strengthening Palestinian Public Institutions’,
sponsored by the Council on Foreign Relations, 1999).

(3) The independent Task Force was created to assist the PA and the
donor community to improve the efficiency and credibility of the
emerging Palestinian self-governing institutions.
In particular, the election of the President and of the Legislative Coun-
cil, the setting up of a cabinet, the creation of a public administration
and the maintaining of public order.

(4)

(5) Palestinian General Control Institution, First Annual Report, 1996.

26. The Court has carried out an analysis of the budgetary
execution of the projects and actions financed for the Palestinians
under the three main budget headings B7-4 1 0 0, 4 2 0 0 and
4 2 1 0 from 1994 to 1999, on the basis of the data contained in
the Commission’s accounting system (see Chart 1). The trend in
the volume of assistance provided has been influenced by the
financing of the PA recurrent costs and by the Special Cash Facil-
ity. In 1995 and 1996 the financing of recurrent costs accounted
for 30 % of the total commitments, but was gradually phased out
in the following years. In 1997, the volume of assistance was
influenced by the Special Cash Facility, which alone accounted for
20 % of commitments and 28 % of payments. In 1998 and 1999,
in contrast, almost the total amount of funds was committed for
projects of a more complex nature, for which disbursements are
generally less rapid.

(6) The TAP, agreed in 1995, sets out the respective commitments of the
PA, Israel and the donor community in order to overcome the exist-
ing constraints to development in the West Bank and Gaza Strip.

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27. Concerning budget heading B7-4 2 0 0, payment appropria-
tions equal to 14 million euro were carried over to the financial
year 1999. Therefore, at the beginning of the financial year 1999,
payment appropriations available for the budget heading totalled
64 million euro. According to the Financial Regulation (1), pay-
ment appropriations may be carried over when the appropria-
tions provided for the heading concerned in the budget for the
following financial year do not cover requirements. However, in
1999, only 16 million euro was paid from this budget heading.
Due to this low rate of disbursements, payment appropriations
totalling 40 million euro were transferred during 1999 from this
budget heading to other chapters of the budget.

28. Structural weaknesses and failures in the Commission’s pro-
gramming and management procedures and systems have con-
tributed to slowing down the implementation of projects and
therefore to reducing the rate of disbursements. In particular, by
the end of 1999 there had been no payments on 10 important
projects committed from 1996 to 1998 under budget heading
B7-4 2 0 0 and totalling 49,5 million euro. Six of these projects,
corresponding, with one exception, to the oldest commitments,
were examined in the context of the audit (2) (see paragraphs 38,
51, 57-59, 66-68, 76-79).

Human resources

Number of staff

The Commission’s central services

DG, the programme is handled on a full-time basis by two people:
the desk officer and an assistant. In the technical unit of the SCR,
most of the projects are the responsibility of one official, who is
also responsible for other non-Palestine projects.

30. Notwithstanding the recent reinforcement of the geographi-
cal desk, and the fact that staff of other services also partici-
pate (4), the total number of staff available is insufficient to man-
age a programme of this size and scope effectively.

The field office

31. Following a request from the Dublin European Council in
1990, the Commission, in 1991, appointed a Representative to
the Occupied Territories, who initially worked in Brussels. In Feb-
ruary 1994, the Representative moved to Jerusalem with three
technical assistants. The Israeli authorities did not allow the Com-
mission Representative to open and operate an office in that
capacity. Therefore, a European Commission Technical Assistance
Office (ECTAO) was set up locally for the management of the aid
programme. The conditions for the work of the ECTAO were
defined in 1994, on the basis of an exchange of letters between
the Commission and the Israeli authorities. According to this
agreement, the office would be staffed by a maximum of six people
who would be granted privileges and immunities identical to those
enjoyed by United Nations (UN) officials (5) in Israel and in the ter-
ritories under Israeli administration, plus some local personnel.
The agreement, which places an external constraint on the num-
ber of staff, is still in force.

29. At the Commission’s central services in Brussels, the respon-
sibility for the management of the projects and actions financed
under the B7-4 1 0 0, 4 2 0 0 and 4 2 1 0 budget headings is
mainly shared between the geographical unit of the External Rela-
tions Directorate-General (formerly DG I. B) and the technical
unit of the Joint External Relations Service (SCR). In neither ser-
vice, however, does the allocation of Commission staff reflect the
priority given by the EU, financially and politically, to the pro-
gramme. The Court was not able to find analyses and assess-
ments, carried out as part of the normal management processes,
of how many, and what type of staff, the responsible services of
the Commission considered necessary at the central level for the
implementation of the programme itself and all the other respon-
sibilities of the West Bank and Gaza Strip desk (3). At the RELEX

(1) Article 7 of the Financial Regulation of 21 December 1977 applicable
to the general budget of the European Communities (OJ L 356,
31.12.1977, p.1), as last amended by Council Regulation (EC)
No 2673/1999 of 13 December 1999 (OJ L 326, 18.12.1999, p. 1).
(2) Technical assistance and temporary seat building for the PLC; final
equipment for the European Gaza Hospital; Ramallah Radio Station;
MSP III ; PDF (PLE/98/06).

(3) There have been assessments made of a global nature of requirements
as part of the Decode exercise, but this was a special exercise to pre-
pare for the ‘Commission of tomorrow’. This is not the same as the
responsible services making, on a regular basis, assessments of need
in order to support bids for additional staff as part of the normal bud-
getary process.

32.
In 1998, the activities of ECTAO were taken over by the
European Commission Representative Office (ECRO) which, at
the end of 1999, was staffed, in addition to the Commission’s
Representative, by three officials and two European experts on
two-year contracts. The Representative has had diplomatic status
since 1992, whereas the three officials and two European experts
are covered by the agreement with the Israeli authorities. Addi-
tionally, the staff of the office was completed by nine local agents.
Technical expertise was provided by a new TAO, the MEDA team,
consisting of six professionals, plus administrative support (see
also paragraphs 35-36).

33. At the end of 1999, therefore, the number of ECRO’s offi-
cials and experts was below the ceiling fixed by the agreement
with the Israeli authorities. Following an inspection in 1996, the
Inspection des Délégations recommended reinforcing ECRO by
two A posts and one C post. The Commission, because of a lack
of budgetary funds, did not allocate the second senior permanent
post, which was allowed for under the abovementioned agree-
ment. This post could have been entirely devoted to the manage-
ment of development issues.

(4) For instance, the financial, tendering and contract units of the SCR.
(5) The Commission Representative had already been granted diplomatic

status in 1992.

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In 1999-2000,

it took the Commission five months to
34.
appoint a new Representative. During this time, and pending the
accreditation procedure which has followed, there was only one
official to manage all the activities. In view of the size and the
high profile of this politically sensitive programme, this was
insufficient to carry out the task.

The MEDA team

35. From its establishment, ECRO depended for the manage-
ment of assistance actions on the support of technical assistants.
From 1998 onwards, this support was provided by TAOs, called
MEDA teams. The MEDA teams provide an important technical
input, but the limited duration of the contracts makes them only
a short-term solution. The scope of their action is also limited,
since they cannot carry out public authority tasks. A further limi-
tation to the effectiveness of the MEDA team based in Palestine
has stemmed from the high rate of replacement: at the end of
1999, about one and a half years after the signature of the con-
tract, only one member of the original team of six was still in
post. One reason for this high turnover is the fact that the con-
tract has to be renewed every year, which leads many experts to
look for longer-term assignments.

36. Since the beginning of 1999, the Commission had been
unable, for more than one year, to decide on the replacement of
the Palestine MEDA team private sector expert. Initially this was
for procedural reasons, then it was because the responsible ser-
vices could not agree on the choice of the candidate. In the absence
of the expert, adequate planning and monitoring has not been
carried out in this essential component of the programme.

Skills of staff

37. A large and complex programme such as that in favour of
Palestinian society should preferably be managed by staff with
experience of comparable programmes. This has not, however,
been the case. In addition to the insufficient number of staff in
ECRO and at the central services, the educational and experience
profiles of those who are there do not always correspond to the
tasks to be performed. As a result, key members of staff have in
practice had to learn by doing. Also, because of the stretched
resources and heavy workload, staff can devote only limited time
to professional training. This should not in any way detract from
the commitment and hard work demonstrated by the staff on the
programme. Their contribution is highly regarded by the Palestin-
ian authorities and by their interlocutors in other agencies.

This caused implementation delays to and blockages of projects
examined during the audit (1).

39. Moreover, responsibilities are fragmented and coordination
between units needs to be improved. Currently, despite the cre-
ation of the SCR, the respective tasks of the units are not clearly
defined. Some project files have been transferred from the geo-
graphical unit to the SCR; others have stayed in the geographical
unit. Also, the technical unit in the SCR is not responsible for the
implementation of all new projects. In some cases, the allocation
of responsibilities for project implementation and monitoring is
unclear, with the result that ultimately no action is taken (2).

40. Within units, comprehensive job descriptions,
including
tasks to be performed, are lacking at the central services; for
ECRO, they were prepared only at the end of 1999.

41. At the moment, procedures are heavily centralised: in prac-
tice ECRO must refer to the central services for all important deci-
sions. This not only creates implementation delays, but also under-
mines ECRO’s profile when dealing with other major donors on
the spot. Interlocutors, beneficiaries, other donors, commented
that it was very frustrating for them that people on the spot in
ECRO, who were clearly in a position to take a decision, were
unable to do so because they lacked the appropriate authority.
This contrasts with the example of the World Bank’s local office.
Because of the special situation in Palestine, the Country Direc-
tor, based on the spot, is the head of the World Bank programme,
with full authority.

42.
In order to be able to take action quickly and effectively in
the complex and rapidly evolving Palestinian scenario, the Com-
mission needs to devolve substantial authority, including financial
authority, from the central services to ECRO. The devolution can,
however, only take place by reinforcing ECRO, through the provi-
sion of adequate human resources and management tools, such
as access to Sincom and databases. In this respect, the Commis-
sion’s pilot exercise in devolving responsibility to field offices, first
of all in the special case of Sarajevo, and more recently to South
Africa, Morocco, Egypt, Jordan, and in the context of the post-
hurricane Mitch reconstruction programme in Central America,
is to be welcomed. It is to be hoped that this pilot exercise will
enable the Commission to extend the process of devolution of
authority and responsibility to Delegations.

Organisation

Strategy and planning

38.
In addition to the geographical unit in the RELEX DG, and
the technical unit in the SCR, several other services in the SCR,
such as the legal affairs, public procurement, financial and audit
units, and the Financial Controller, are involved in the manage-
ment and control of the programme. Within each service the
levels. As a result,
decision-making process involves several
decision-making is slow, cumbersome and sometimes even unclear.

43. The Commission’s strategy for the assistance to Palestinian
society is set out in:

(1) Palestinian Development Fund (PDF), Centre for Private Enterprise

Development (CPED).

(2) PHC, technical assistance for customs administration (PLE/97/11).

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(a) Country Strategy Papers (CSP), which state the general long-

term strategy;

(b) triennial National Indicative Programmes (NIP), which formu-

late the mid-term sectoral strategies;

(c) annual financing plans, in which projects to be funded are

identified.

This strategy is developed within the context of the Euro-
Mediterranean Partnership and of the Palestinian Development
Plan, prepared by the PA with the support of the World Bank, and
which constitutes the basis of the international donor communi-
ty’s strategy.

44.
In the 1996-1998 NIP no performance indicators or quanti-
fied objectives were set out, with a view to assessing the degree of
progress made in the implementation of EU cooperation policy
towards Palestinian society. Although there was a description of
past assistance, both the NIP and its update, relating to 1997-
1999, lacked an assessment of the lessons learnt from previous
experiences, which should be taken into account in the context of
the planned activities. Moreover, the issue of coordination with
the strategies of other donors was not addressed (1).

45. At the end of 1999, a 2000-2006 CSP and a 2000-2002 NIP
were being respectively finalised and prepared. For these docu-
ments, compared to the past, the consultation procedure with the
Member States, which takes place notably at the Med-Committee
level, has been set out in more detail in order to take their obser-
vations better into account.

46. The PA’s institution building capacity is a key priority of the
programme. The Court, while acknowledging the support recently
given by the Commission to the preparation of the abovemen-
tioned report ‘Strengthening Palestinian Public Institutions’, notes
that up to now the Commission has started projects in this field,
but achieved few concrete results. Most results have been in the
form of the supply of equipment to the Palestinian institutions,
whereas little progress has been made on the more substantial
issue of upgrading the structures, systems and administrative
capacities of the Palestinian institutions. In this respect, the failure
of the project OT/96/03 to provide technical assistance to the Pal-
estinian Legislative Council (PLC) was particularly serious (see
paragraphs 77-79) .

47. The Commission has not yet been able to set up a pipeline
of projects, to be identified, prepared, approved and launched in
a continuous process. Instead, many projects are prepared and
decided under pressure, in order to commit the large volume of
budgetary funds available annually. Most of the decisions and
commitments for projects are actually made at the end of the
financial year. Little consideration is given to the size of project

(1)

In 1996, the Commission recognised the need to assess previous
experiences and deal with donor coordination in these documents
(note No 11771 of 24 July 1996 by Mr Prat, Acting Director-General
of DG I. B).

portfolio which can be managed effectively by the Commission’s
services, in Brussels and on the spot, and to the capacity of the
Palestinian institutions to absorb assistance.

Project preparation: taking into account risks, constraints and
procedural implications

48. Preparation was inadequate for some projects decided in the
early 1990s (2); this was partly due to the fact that, at that time,
the PA did not yet exist, ECRO had not yet been established and
the programme had to be managed from Brussels. However, inad-
equate preparation has also been observed for more recent
projects (3). A significant reason for this is the pressure on the
Commission to commit all available funds by the end of the year
(see paragraph 47).

49.
In particular, the technical unit responsible for implementa-
tion should be closely associated with project preparation; cur-
rently, this is often not the case. The creation of the SCR and the
splitting of the project cycle have exacerbated this unsatisfactory
situation. In 1999, some financing proposals, for a total of 9,5 mil-
lion euro of EU financing, were presented to the Med-Committee,
for the Member States representatives’ consideration, before all
the Commission units involved were agreed; as a result, these pro-
posals required further work, after the positive opinion from the
Committee, but before the Commission’s decision (4). This is most
unsatisfactory: projects should not be submitted to the advisory
committee before the service responsible for their implementa-
tion is in agreement with the proposal.

50. At the operational level of the projects the coordination
mechanisms do not work as effectively as they should to take
account of the intense donor activity and the huge influx of funds.
The audit has shown cases where, since the aid pledged by the
Commission for a certain action did not come with the expected
rapidity, the Palestinian authorities turned to other donors to
obtain the funding. The Commission’s preparation has thus been
done in vain, which implies a waste of
its resources (see
paragraphs 77-79, 81, 82).

In general, the logical framework analyses annexed to the
51.
Financing Proposals examined lack a thorough risk/constraint
assessment. For some of the projects examined (5), specific pro-
cedural implications and constraints on the ground were not taken
into account, with the consequence that subsequently implemen-
tation was blocked or delayed; this in turn has contributed to
reducing disbursements.

(2) European Gaza Hospital, PHC.
(3) Cargo-handling facility (PLE/99/0217), social rehabilitation pro-

gramme for Palestinian ex-detainees (PLE/99/02).

(4) Gaza solid waste consolidation (PLE/99/01), primary health care (PLE/
99/0215), social rehabilitation programme for Palestinian ex-detainees
(PLE/99/02).

(5) CPED, MSP I-II, counter-terrorist assistance to the PA.

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52. For both the ninth and 10th Conventions with UNRWA, the
Commission was late in concluding the negotiations, with the
result that fund transfers to UNRWA were significantly delayed (1).
In the case of the 10th Convention, a significant reason for the
delay was an internal debate within the Commission about the
extent to which the EC’s contribution to UNRWA’s General Fund
should be specifically earmarked to identified items. As earmark-
ing a contribution to the General Fund would be neither appro-
priate nor feasible, the debate was purely academic and time-
consuming. Contrary to the final decision not to earmark, the text
of the Convention in a number of articles allows earmarking, in
particular on the Commission’s reporting requirements. UNRWA
reports on specified parts of its programmes which happen, inci-
dentally, to amount to approximately the amount of the Commis-
sion’s contribution. This reporting is, however, purely notional as
the Commission’s funds are co-mingled with all other donors’
contributions to the General Fund (2).

53.
In the case of the Local Rural Development Programme
(LRDP), the Commission insisted on separate reporting by UNDP,
which is the implementing agency. This requires UNDP to create
special management information and accounting systems. At the
end of 1999, the UNDP office in Jerusalem was still unsure of the
form this information should be presented in. As the EU contri-
bution is by far the largest part of the project financing, it would
be preferable for the Commission, together with UNDP, to have
defined one single management reporting, monitoring and con-
trol system for the whole programme.

Performance indicators

54. Performance indicators are necessary to enable assessments
to be made of whether or not the objectives of programmes are
being met, results are being achieved, and whether the Commis-
sion services are performing adequately. In the context of a pro-
gramme where external constraints as described above can dis-
rupt significantly the implementation of the programme, it is
important for the Commission to identify some indicators that
refer to those parts for which it has direct responsibility. It is only
in this way that it can separate out its own performance and
determine whether it is performing as well as it should, notwith-
standing what happens in those areas over which it has no direct
control.

55. Performance indicators could be established for such mat-
ters as the speed with which internal decisions are taken and
inputs are delivered at all stages of implementation, and for dead-
lines by which adequate management resources, procedures and
systems should be in place. The Commission has not, however,
identified any such indicators against which its own performance

(1) For example, the first transfer for 1999 under the 1999-2001 Con-
vention was not made until the end of October 1999. As the Com-
mission is a major donor to UNRWA, and as UNRWA is chronically
short of funds, such delays cause difficulty to UNRWA.

(2) On the issue of earmarking, see also the Court’s Special Reports
No 2/97 on humanitarian aid (OJ C 143, 12.5.1997, p. 1), and
No 5/98 on reconstruction in former Yugoslavia (OJ C 241, 31.7.1998,
p. 1).

in managing the programme can be assessed. In such circum-
stances, there can too easily be a tendency to consider that it is the
external constraints within which the Commission has to try to
implement the programme that are the main reasons for all fail-
ures of implementation. For example, the Commission’s report
on the lack of progress with the implementation of the pro-
gramme (3) highlights a number of constraints affecting the pro-
gramme, but makes virtually no reference to shortcomings in its
own management.

Project implementation

Timing of action and responsiveness

56. The Palestinian situation, for the reasons explained above,
requires quick action and the ability to respond effectively to
changing circumstances. However, as described in para-
graphs 57-59 and 66-83, project implementation has often been
marked by long delays caused by cumbersome procedures within
the Commission, or by management deficiencies. For some of the
projects examined (4), the services in charge of implementation
have taken action without proper consideration of the practical
consequences of their decisions; procedural arguments have also
hindered implementation.

Public procurement

57. The majority of the projects examined have experienced
delays and blockages in the various procedures related to the
preparation and implementation of invitations to tender for tech-
nical assistance (5) and for equipment (6). This had a negative
impact on project activities and results and contributed to reduc-
ing disbursements.

58. The Commission services consider that a tendering proce-
dure should on average take six to nine months. However, in six
of the nine cases observed by the Court it took from one to more
than three years to carry out the whole procurement procedure;
in the remaining three cases, following the suspension or the can-
cellation of the invitations to tender, the procedures have not
been relaunched at all and the contracts have never been awarded,
although the projects, formally, have not been modified. For two
of the projects audited, extensions of the Financing Agreements
became necessary only because of delays in procedures related to
invitations to tender (7).

59. The delays have often been caused by communication and
coordination difficulties between ECRO and the central services,

(3)

Justification for the transfer of appropriation No 53A/99 (1999 Noten-
boom procedure), SEC(1999) 1608 final, p. 26.

(4) European Gaza Hospital, CPED, technical assistance to the PLC, insti-
tutional capacity building, counter-terrorist assistance to the PA.
(5) School construction, MSP III, technical assistance to the PLC, PHC,

European Gaza Hospital.

(6) MSP I-II, university equipment, institutional capacity building, school

construction.

(7) MSP I-II, university equipment.

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and between different services in Brussels. In some of the cases
examined, the Commission services did not take action for months;
the relevant files did not provide any information about the rea-
sons (1).

ments of September and November 1999, which were presented
to a Council Working Group. However, the list of the actions to
be taken was insufficiently precise and did not have a definite
timetable.

Monitoring and reporting

60. The geographical desk at the RELEX DG (formerly DG I. B)
should be the focal point for coordination and the flow of infor-
mation on the programme between the different Commission ser-
vices involved. At the end of 1999, however, the Commission did
not have an effective management information system, covering
all budget headings: it has not been able, either at the level of the
desk, or of ECRO, to provide the Court with a complete list of all
projects financed in support of Palestinian society, under all bud-
get headings, from 1995 to 1999. Neither does the way in which
projects are coded within the Commission’s Sincom accounting
system allow all the relevant projects to be identified. In the cur-
rent state of the information systems, it is only possible to com-
pile a complete list by examining the accounting records for each
budget heading manually and extracting the individual transac-
tions.

61. Since ECRO only has a list of the projects financed under the
three main budget headings, but no complete list of the projects
funded under all the budget headings, it has no means of monitor-
ing the latter systematically, but only on a case by case basis. Also,
ECRO and the MEDA team do not have up-to-date information
on the financial progress of projects, or online access to Sincom.

62. Among the projects examined, two completely different ones
were financed under the same budgetary commitment (2), with
the consequence that it is not possible to carry out the financial
monitoring of the individual projects on the basis of the data in
the Commission’s Sincom accounting system, unless each and
every payment is examined.

63.
In some cases the reporting provisions in the Financing
Agreement were inadequate or unclear, resulting in delays in the
payments, blockages and ineffectiveness in the implementing
phase (3).

Evaluation

64. Pursuant to Article 6(2) of Council Regulation (EC) No 1734/94,
the Commission carried out an external evaluation of the pro-
gramme’s main projects. The evaluation focused on projects in
the fields of support to the private sector, infrastructure, educa-
tion and institutional capacity building. The Commission set out
its comments on the follow-up of the evaluation in two docu-

(1) MSP I-II, MSP III, school construction, technical assistance to the PLC,

institutional capacity building, PHC.

(2) University equipment, OT/96/02a, and school construction, OT/96/

02b.

(3) European Gaza Hospital, PHC, institutional capacity building, family

planning.

65. Apart from the global evaluation mentioned in the previous
paragraph, concerning one project examined which was imple-
mented in two subsequent phases, the Commission stated, at the
request of the Member States’ representatives in the Med-
Committee, that it would carry out an evaluation of the first phase;
however, the second phase was prepared and approved before
that evaluation report was available (4).

FINDINGS ON THE PROJECTS EXAMINED

The European Gaza Hospital

66. The European Gaza Hospital is a huge project (32,4 million
euro committed), in an area and field where aid is much needed,
and has a very high visibility. In this case, the Commission did not
take active responsibility in the early years of the project, other
than by providing the funds, while leaving everything else to
UNRWA. Although the Commission had no representation on
the spot until 1994, it did not consider it necessary to arrange for
any form of expert-type independent monitoring of the project.

67. From the beginning of 1995 the question of the operation
and management of the hospital was under discussion between
the three parties involved (PA, UNRWA, EC). In April 1996 the
Commission for the first time expressed the need for an interna-
tional management consultant to be engaged, but no concrete
action was taken. When UNRWA’s financial problems became
apparent in September 1996, the Commission felt that UNRWA
might have lost control of the project, and it decided (September
1996) to take action and sent in consultants to review the situa-
tion (end 1996).

In the light of their reports, the Commission started to take

68.
control of the project (March 1997) and was able:

(a) to convince UNRWA to take responsibility for the project
until the Palestinian authority was able to take over owner-
ship;

(b) to obtain the agreement of the Palestinian authorities to take
over the running of and the financial responsibility for the
hospital; and

(c) to obtain the agreement of both parties for an international

management team in charge of commissionning.

(4) School construction phase II.

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The Commission initiated three different lines of action to provide
funds for physical alterations to the hospital, for the purchase of
final equipment and supplies and for the International Manage-
ment Team (IMT). However, the administrative process leading up
to the three related Financing Agreements was rather poorly
handled by the Commission (1). All deadlines and/or timetables
set/prepared by the Commission were grossly optimistic and sys-
tematically overestimated the Commission’s own capacity to get
the necessary administrative actions prepared, decided and imple-
mented. Consequently, it took the Commission more than two
years (counting from March 1997) before its activities resulted in
any action on the ground, i.e. the arrival of the IMT in August
1999. At that time however, the Financing Agreement for the
remodelling work on the hospital had still not been signed by
UNRWA.

of which clearly attributable to the PHC, the main technical assis-
tance input to improve its management did not arrive. Various
technical assistance inputs were, however, provided by the Com-
mission during the life of the project.

In 1998, the Financial Controller of the Commission reported

72.
the following weaknesses in the project (3):

(a) there had been significant cost increases, which meant that
the housing units were no longer affordable for Palestinians
earning low and average incomes;

(b) part of these cost increases were due to inappropriate archi-
tectural design, the use of Italian marble in the flats, and the
increased size of the units;

The Palestine Housing Council (PHC)

(c) the rate of sales was low (30 %) so that the revolving fund was

not being established;

69. At the beginning of its programme of assistance to Palestin-
ian society, in 1991 the Commission decided to provide assistance
to the newly-established Palestine Housing Council (PHC). In view
of the political as well as social importance of housing for the
Palestinians at this time, as well as the untried nature of the PHC,
this was an ambitious step for which the Commission deserves
credit.

70. The intention, as expressed in the Financing Agreements of
1991 and 1994, was to establish a credit-funded housing pro-
gramme. Although beneficiaries were not required to pay the full
economic cost of the units, the repayment terms were to be estab-
lished so as to create a revolving fund for future housing develop-
ment. The initial project documents referred to housing for lower
or modest income families, but the project was not established as
a social housing programme. Other objectives fixed for the pro-
gramme were to provide employment to Palestinians who had
lost their jobs in Israel, stimulate internal economic activity in the
Gaza Strip and in the West Bank, encourage training in construc-
tion methods and management, and institution building (2).

71. As the PHC was a new organisation, the Financing Agree-
ments provided for technical assistance of a technical and man-
agement nature to be provided to it. USAID was also supporting
the organisation at this time. However, for several reasons, some

(1) This refers to: changing the nature of one draft Financing Agreement
from completion of construction to remodelling, plus the problem of
the proper signatory to this Financing Agreement, UNRWA or the PA;
changing a global commitment for various other technical assistance
tasks in order to include the technical assistance for the hospital man-
agement, necessitating a last-minute re-submission to the Med-
Committee; changing its position on who should contract the man-
agement team, UNRWA or the EU, all of which caused further delay
in the signing of the management contract.
It can be argued that there were too many, too ambitious objectives
for the project.

(2)

(d) the PHC was in breach of the Financing Agreements (4);

(e) the provisions of the Financing Agreements, notably in the
areas of reporting and Commission influence on key deci-
sions, were deficient.

The operational services did not reply to these observations.

73. Following the mission of the Financial Controller, a further
audit of the PHC projects was launched by the Commission’s
operational services. This found that, while it was true that there
had been cost overruns, the PHC suffered from various manage-
ment deficiencies, and the allocation of the units in Gaza had not
been in accordance with the terms of the Financing Agreement,
the Commission had, however, not provided the technical assis-
tance to the PHC provided for in the Financing Agreement. It was,
therefore, not in a strong position to reclaim any funds from the
PHC. Further, with regard to the final payment due of 6,7 million
euro (out of total funding of 39 million euro), it argued that the
Commission could either decide to withhold it or set certain strict
conditions on its payment. At the end of 1999, more than one
year had passed without any action on this audit report, and with
no service of the Commission aware of the need to react one way
or the other — the matter was entirely blocked. At the end of
1999 the management of the PHC was still hoping that the Com-
mission would resume its support.

74.
In some respects, the PHC project can be considered a suc-
cess. 1 100 flats were constructed on 19 sites, to a reasonably
good standard (5). In addition to the employment of building

(3) All of these criticisms were based on documents in ECRO and discus-

sions with ECTAO personnel.

(4) ECRO had formally pointed this out to the management of the PHC

in March 1996.

(5) The European Parliament’s rapporteur noted that the USAID units
were finished to a higher, more expensive, standard than those funded
by the Commission. The units seen by the Court’s auditors were not
luxurious by the standards of the area.

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workers, Palestinian professionals (architects etc.) found employ-
ment after being expelled from the Gulf. The claims concerning
the use of Italian marble are not confirmed by any objective evi-
dence, and it is surprising that the operational services of the
Commission failed to rebut the charges emphatically. While it is
true that the unit costs rose because of lack of financial planning
and poor cost control by the PHC, including relaxing the size of
the accommodation, some, at least, of the cost increases (1) were
due to the impact of closures and strikes on the cost of building
materials. Although the PHC failed initially to stop its Director in
Gaza from allocating units without applying the repayment con-
ditions provided for, which subsequently led to a decline in repay-
ments on the units in the West Bank (2), at the end of 1999 there
was some evidence that the PHC was in the process of turning
this round.

75. The Financing Agreement was incomplete in that it failed to
provide for the Commission’s involvement in key decisions con-
cerning implementation. Reporting provisions were weak. In the
first Financing Agreement, insufficient provision was provided for
managerial technical assistance, despite this project having an
important institution-building component. Although the Com-
mission followed the project closely, by means of ECTAO staff
and technical assistants, the records of meetings reveal at times
indeed breakdown in communication,
considerable tension,
between the PHC and the Commission. While the direct cause of
the failure of the major technical assistance tender can be attrib-
uted to the PHC, the fact remains that, for whatever reason, a key
component of the PHC project, to be provided by the Commis-
sion, failed to materialise, weakening the PHC’s ability to manage
the project as required by the Commission.

Projects in support of the Palestinian Legislative Council
(PLC)

Construction of a building for the temporary seat of the
PLC

76.
In 1997, the Commission committed 5 million euro to finance
the construction of a building for the temporary seat of the Pal-
estinian Legislative Council in Ramallah. Delays in approving the
Financing Agreement were caused in part by the PA changing the
location of the building. According to the Financing Agreement,
the project had an implementation period of two years, from
August 1999 to August 2001. However, at the end of 1999, after
several denials from the Palestinian authorities it was found that

(1)

It is a valid point of criticism that the reporting provisions and the
Commission’s monitoring of the project did not permit cost variances
to be identified and explained in the normal manner.

(2) Which had been allocated in accordance with the agreed terms and
conditions, and where the beneficiaries had started to repay the loans
correctly.

they had already begun to construct a building for the Palestinian
Legislative Council in another location, in the context of a differ-
ent project, not funded by the EU; this rendered the EU project
superfluous.

Provision of technical assistance and equipment to the
PLC

77. Another high profile project, involving the provision of tech-
nical assistance and equipment to the PLC, for which 3 million
euro was committed, has suffered particularly badly as a result of
the Commission’s handling of procurement procedures. The Com-
mission’s service responsible for the implementation of the project
included in its invitation to tender for the provision of technical
assistance the same firm which, under a short-term technical
assistance contract in the preparatory phase of the same project,
had drafted the terms of reference for the invitation to tender and
the project definition report; these documents were annexed to
the tender documentation. Of the five firms which had been
invited to tender, this one was the only bidder. As a result, the
invitation to tender was cancelled.

78. The short-term technical assistance contract with the above-
mentioned consultant, which had been concluded by private
treaty, was extended until January 1997. The consultant was then
awarded a new contract, from May to September 1997, also by
private treaty (3). Although the activities carried out, as described
in the final report by the consultant, were in accordance with the
terms of reference of the contracts, the PLC representatives, met
by the auditors on the spot, stated that they were not satisfied
mainly because of a lack of consultation with the PLC on the mat-
ter.

79. A second invitation to tender was suspended in February
1998, after a request for clarifications from the services of the
Commission’s Financial Controller, and subsequently it was never
awarded, or relaunched. The invitation to tender for equipment
has never been launched. As no progress has been made since
1997, other donors moved in to finance the activities originally
foreseen for this key EU project. However, until the time of the
audit, at the end of 1999, the Commission had neither reformu-
lated nor cancelled the project.

Other projects

80. The implementation of the project on counter-terrorist assis-
tance to the PA (4) has been complicated and delayed by the fact
that funds were coming from three different budget headings,
with different procedures and financing decisions.

81. Because of the very high influx of aid and the insufficient
coordination between donors on the ground, delays in starting

(3) The total amount of these contracts is EUR 595 009.
(4)

Joint Action 97/289/CFSP and PLE/97/10.

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implementation meant that micro-projects which were supposed
to receive EU financing had already been funded by other donors
or were no longer of high priority, because of changing circum-
stances. As a result, project identification had to be carried out
twice, causing more delays and a waste of technical assistance
financial resources (1). Also, the heavily centralised procedures
which are currently used to decide on project identification are
inappropriate for this kind of programme involving micro-
projects (2). The responsibility for the decision on the selection of
the micro-projects should be devolved to ECRO, in order to make
the implementation quicker and easier, without impairing the
Commission’s monitoring and control.

In the case of a large Primary Health Care Programme,
82.
because of insufficient preparation and coordination of donors,
even before the implementation had started the project was already
out-dated and needed to be thoroughly reformulated.

83. For another project, the local account was to be replenished
by the Commission provided that the Palestinian implementing
agency justified the use of at least 80 % of the previous advance.
However, because of the time necessary for the Commission to
process payment requests (up to three months), this provision
meant that advance funds were used up before the next payments
were received, with the result that the Palestinian implementing
agency had to pre-finance the project from its own funds for
more than 1 million euro (3).

COORDINATION WITH OTHER DONORS AND THE
PALESTINIAN AUTHORITY

84. The structures and arrangements for coordination between
donors are well developed. Structures for aid coordination include
the Ad Hoc Liaison Committee (AHLC), with senior representa-
tives of the major donors, and the Consultative Group (CG), with
senior technical representatives of all donors and UN agencies. At
the local level, the corresponding venues are respectively the Joint
Liaison Committee (JLC) and the Local Aid Coordination Com-
mittee (LACC); in addition, Sector Working Groups (SWG) pro-
vide a forum for discussion, between the PA and the donors, of
the sectoral policies and programmes; the Task Force on Project
Implementation (TFPI) focuses in particular on the implementa-
tion constraints.

85. At the AHLC level, the Commission, in 1999, took a leading
role in the updating of the Tripartite Action Plan on Revenue,
Expenditure and Donor Funding for the Palestinian Authority
(TAP). In general, however, despite the efforts of ECRO’s staff, the
Commission, in Palestine, has not been able to exercise a coordi-
nation role commensurate with the size of its programme of

(1) MSP I-II; at the end of 1999, the problem was already foreseen also

for MSP III, even before the start of its implementation.

(2) This issue concerns also the implementation of LRDP, which, at the

end of 1999, had not started yet.

(3) MSP I-II.

assistance. In 1999 it was not Shepherd (4) of any SWG. This was
mainly due to the organisation and management weaknesses
described above, in particular the lack of authority at the local
level and the shortage of resources.

86. The Commission has recently improved its coordination
with the Member States, particularly concerning the adoption of
the CSP and the NIP. Nevertheless, at the operational level, coor-
dination with the Member States should be further improved and
developed, for instance concerning the exchange of information
from both sides on project identification and preparation, and on
specific issues related to implementation. In this regard the meet-
ings, which are organised on the spot in order to discuss projects
before they are presented to the Med-Committee, are certainly
useful, but not sufficient.

87. Because of a lack of representatives at senior level at the
meetings, the Commission has not played the active, high-profile
role in UNRWA’s reform process that the size of its contribution
would have justified, unlike other donors, such as the EU Member
States and Switzerland.

88. The PA appreciates the Commission’s contribution to its
development. However, although the coordination mechanisms
are being improved and the related activities intensified, the effec-
tiveness of the coordination, according to the information obtained
on the spot, is not yet considered on a par with other donors,
because of the Commission’s planning weaknesses mentioned
above.

CONCLUSIONS AND RECOMMENDATIONS

89. The Commission’s management of the programme of assis-
tance to Palestinian society has had positive aspects and results
(see paragraphs 23-24), and has encountered considerable exter-
nal constraints (see paragraphs 16-22). The special local condi-
tions and their dynamic nature require, to an even greater extent
than for other developing countries, adequate resources, good
interservice coordination, an authoritative presence on the ground,
clear objectives, timely decisions, efficient systems and opera-
tional procedures, as well as close monitoring and control. In this
respect, nevertheless, the impact of the programme has been
reduced by structural weaknesses and failures in the Commis-
sion’s programming and management procedures and systems,
which are the responsibility of the Commission and independent
of local constraints (see paragraphs 28-83). These deficiencies are
not unique to the programme of assistance to Palestine, but affect
EU cooperation policy generally. The remedies, therefore, should
be seen in the perspective of a more general reform of Commis-
sion structures and procedures in this field.

(4) The Shepherd is the donor who plays the key coordinating role in an

SWG.

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90. The Commission’s management has sometimes focused its
attention on the procedural details, at the expense of the results
which were expected from the actions financed. The implementa-
tion setbacks experienced by highly visible projects (such as the
European Gaza Hospital and the technical assistance to the PLC),
to which factors within the Commission’s control contributed,
have had the consequence of undermining the EU’s image as a
manager of much needed aid.

91. The Court recommends, in particular, that:

(a) the Commission should reassess its priorities: either allocat-
ing adequate resources (crucially, adequate staff and effective
management information systems) to such an ambitious pro-
gramme, or reducing the scope of the programme to a man-
ageable size if the available resources are limited;

(b) given the present programme, ECRO should be considerably
reinforced and given substantial authority, including financial
authority. Devolution of greater authority to field offices is
generally needed in order to improve the effectiveness of the
EU cooperation policy. The prevention and eventual detection
of mismanagement could also be further improved through
the reinforcement of the financial control function at ECRO,
which at the moment is weak, due to the lack of staff and
technical resources, such as databases. The Commission should

assess its staff needs in Palestine and, if necessary, start nego-
tiations with Israel for an increase in the number of staff, as
ECRO itself had already suggested in 1996;

(c) an effort at rationalisation, simplification and clarification
concerning management systems and procedures is urgently
needed; the focus should be on results;

(d) as in other areas of EU cooperation policy, the current split in
the project cycle should be overcome. Coordination and col-
laboration between different services need to be substantially
improved, with a view to fostering the sharing of responsibili-
ties and the pooling of expertise, simplifying and shortening
the decision-making process and reacting rapidly to changing
circumstances;

(e) project preparation should be substantially improved, and a
pipeline of projects should be created. The current situation,
whereby project preparation tends to be too quick and super-
ficial, and implementation consequently often delayed, should
be corrected;

(f)

indicators should be introduced in order to allow the Com-
mission to assess its own performances in achieving the objec-
tives that it has fixed.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 11 and 12 October 2000.

For the Court of Auditors

Jan O. KARLSSON

President

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THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

1 to 3. Assistance to the Palestinians has been and is one of the
EU’s political priorities.

Ever since the beginning of Community assistance in 1971 and in
particular during the uprising of the Palestinians (1988 to 1993)
the environment in which Community assistance was provided,
has been very unstable and difficult.

6. The Council adopted Regulation (EC) No 1734/94 as the legal
instrument regulating the pledge. According to that Regulation
the Community should implement financial and technical coop-
eration with the West Bank and Gaza Strip under a five-year pro-
gramme, 1994 to 1998.

As the figures in paragraph 8 of the Court’s report show, since
1994 the Community has far exceeded this pledge.

Grant support has been concentrated on three areas: infrastruc-
ture rehabilitation, institution building (including recurrent cost
support to the education sector) and private sector development.

The Community’s programme of assistance was hampered by the
difficult circumstances prevailing in the area.

The legal and budgetary framework of the programme

These were extraordinary circumstances that required continuous
adaptation with limited resources. The increase in the volume of
assistance, as well as the change of orientation of the programme
compounded by the limitation of human resources made it dif-
ficult to respond to the needs and the principles defined by both
the Council and the European Parliament.

4. The Commission considers that the overriding factor affect-
ing the impact of the programme was the lack of human resources.
The Commission concedes that there were weaknesses in man-
agement, mostly as a result of this. Plans are in hand for changing
both the structures and the systems used within the Commission,
as follows.

(a) The Commission has embarked on an overhaul of the man-
agement of its external aid programme as part of the wider
Commission reform effort.

(b) The Commission’s efforts to promote the use of performance

indicators will be renewed.

(c) The whole question of project preparation and planning is

being addressed as part of the overall reform process.

(d) The question of coordination with other donors and Member

States will continue to be kept under review.

8. This assistance to UNRWA continues to this day, with trien-
nial conventions between the EC and UNRWA governing the
Community contribution to the operations of UNRWA in its fields
of operation (health and education).

The previous EC-UNRWA Convention expired at the end of 1998.
In November 1998, the Council adopted the directives for the
Commission to negotiate the 10th EC-UNRWA Convention, cov-
ering the period 1999 to 2001. The negotiations with UNRWA
are concluded allowing for the signature of the Convention and
disbursement of funds in early autumn 1999. In addition to the
conventional contribution, some specific UNRWA projects are
supported by the Commission, amongst others, on food aid
(Directorate-General — DG Development) and humanitarian aid
(ECHO).

EXTERNAL CONSTRAINTS ON THE PROGRAMME

The weakness of Palestinian institutions

22. The Commission and other donors have pushed hard for
corrective measures. As a consequence of this the Palestinian
authority has already taken the first steps to improve its budget-
ary transparency.

INTRODUCTION

THE COMMISSION’S FORMULATION AND MANAGEMENT OF
THE PROGRAMME

Context and background of European Union (EU) assistance
to Palestinian society

Budgetary execution

In 1987 a new budget line was established for the West Bank

5.
and Gaza Strip.

26 and 27. The overriding political situation in the area and the
complexity of the projects make it particularly difficult to foresee

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how quickly projects can be implemented or even whether financ-
ing agreements will be signed. This uncertainty makes it difficult
to predict the actual level of disbursement, but there have been
improvements in forecasts over the last year.

36. The Commission agrees that these types of delay must be
avoided. It took some time to find a suitable replacement, but the
successful candidate took up post on 28 August 2000.

Human resources

Number of staff

The Commission’s central services

29. The Court recognises the staff shortages in the geographical
and technical units. The financial units have been equally under
resourced, and the Commission has recognised the problem and
is addressing the issue of staffing in general.

Organisation

38. The Commission has adhered closely to the rules and regula-
tions, and although this has had the advantage of greater trans-
parency, it has also contributed to slow decision-making.

39. A clearer definition of responsibilities and better coordina-
tion will result from the Commission’s plans for reform, which
are already under way (see answers to paragraphs 90 to 92). In
particular, the project cycle will be reunited with the expected
result that responsibilities will be clear.

30. The Commission recognises the shortage of administrative
resources devoted to the external aid programmes and has drawn
this to the attention of the budgetary authority on several occa-
sions, and most recently in the communication on reform adopted
by the Commission on 16 May 2000.

40. Posts are published with a job description. Comprehensive
job descriptions for each member of staff are currently under
preparation as part of the overall Commission reform.

The field office

31. Between February and November 1994, work was carried
out without authorisation from the Israeli authorities.

33. The Commission did reinforce ECRO staff following the rec-
ommendations of the 1996 inspection report according to the
then existing possibilities. Appointments were made for one A
official (24 August 1997) and one C official (7 January 1997).

41. The Court’s point is being taken up in the reform plan for
the Commission’s external services. Decentralisation and devolu-
tion to delegations is a major feature of the forthcoming reform.

42. The Commission shares the Court’s opinion that decentrali-
sation cannot take place if the appropriate tools as well as quali-
fied human resources are not available. The advantages are that
decentralisation affords greater control over the disbursement of
funds.

A second ALAT (agent local d’assistance technique) post was also
added in February 2000.

The Commission has been working towards the establishment of
an appropriate information system. CRIS (common RELEX infor-
mation system) will give Delegations access to financial informa-
tion for the different projects.

The MEDA team

Strategy and planning

35. The Commission agrees with the Court’s observations. MEDA
teams were created to provide human resources in addition to the
technical assistants, not to substitute for existing staff or experts.

The Commission has to respect the current rules for technical
assistance offices (TAOs/BATs) which allow for one year renew-
able contracts only. It considers that, in the light of insufficient
resources, recourse to technical assistance offices was the only
solution possible. This problem is not restricted to the MEDA
teams but is common to all external assistance offices. The Com-
mission’s services are working towards a solution, and this is an
important aspect of the reform proposals both in the manage-
ment of external assistance and more widely.

43. Since 1997, the Palestinian Authority, with the support of
the World Bank, has been preparing the Palestinian development
plan which constitutes the basis of the international donor com-
munity’s strategy. The key to increasing Palestinian Authority
ownership of its own development is the further strengthening of
this plan.

In parallel with the development plan, and with informal and for-
mal consultations with the Ministry of Planning and International
Cooperation (MoPIC), the E4 strategy is to be found in the under-
lying rationale of the Euro-Mediterranean Partnership.

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In order to provide the European Institutions, Member States and
our counterparts with an elaborated view of the Commission’s
long-term development strategy, a country strategy paper for the
West Bank and Gaza Strip was prepared covering the period 2000
to 2006.

50. The problems of effective coordination and, on occasion,
wasted effort on the part of the Commission are not easy to solve
given the scale of the aid and the number of donors involved, as
well as the institutional weaknesses of the Palestinian Authority
(PA).

In the mid-term perspective, and as required by the MEDA Regu-
lation, triennial national indicative programmes are to be pre-
pared, and the work for the document covering the years 2000
to 2002 has been finalised.

51. For the projects examined by the Court, the Commission
undertook thorough risk/constraint assessments, as far as it was
possible.

In the short term, the Commission has prepared an annual financ-
ing plan in accordance with its proposal for a new MEDA Regula-
tion. This plan has been prepared following discussions and con-
sultations with MoPIC.

52, 53. Earmarking enables to Commission to meet requests
made by the European Parliament and Member States for precise
information on how the funds are used, especially following the
adverse media coverage of the donor programmes in Palestine.

44 and 45.
It is true that performance indicators were not set for
the NIP. Indicators were set at the project and programme level.
Experience gained from implementing programmes and projects
was duly taken into consideration when the NIP 2000 to 2002
was prepared and when new projects were developed.

46. The Commission agrees that the results in institution build-
ing have not, until now, been very good. This is one of the reasons
why the Commission funded the report ‘Strengthening Palestin-
ian public institutions’. It is too early to evaluate its results since
the report was finalised only in the summer of 1999.

Regarding the Palestinian Legislative Council (PLC) the Commis-
sion’s participation in the elections was central to setting up the
PLC. The Commission’s overall assistance to the PLC should be
considered a success.

There were several reasons for the delays in concluding negotia-
tions with UNRWA — amongst them, the generally difficult cli-
mate due to allegations of fraud on the part of UNRWA Lebanon
in October 1998. Earmarking did cause complications and delays
to the 10th EC-UNRWA Convention, but every effort was made
to make the convention clearer and more transparent as com-
pared with previous conventions by introducing payment sched-
ules, clear reporting mechanisms, etc. This view is shared by the
Member States and by UNRWA itself.

53.
In the case of the local rural development programme, the
separate accounting window for EC funds allows full transparency
and accountability and enables the Commission to track the
activities financed with EC funds.

47. The need to improve project planning and preparation has
been recognised and is being addressed in the current reform pro-
cess. A pipeline of projects has been prepared.

Performance indicators

Project preparation: taking into account risks, constraints and
procedural implications

48. The European Gaza Hospital and the Palestinian Housing
Council projects were initiated in 1990 to 1991. ECRO was only
set up in 1994, and until 1994 when the Palestinian Authority
was established, there was no formal counterpart responsible for
the definition of a development strategy and coordination with
the donor community. The Commission is undertaking steps
within its own means to address this problem by preparing a
three-year project pipeline.

54. The Commission agrees that the use of performance indica-
tors could improve project management. The reorganisation within
the Commission during the past two years has made this task
more difficult. However, the Commission intends to make a
renewed effort in this area following the adoption of the commu-
nication on reform of external aid management.

Project implementation

Timing of action and responsiveness

49. The Court’s comments are valid. The current reorganisation
of the RELEX (external relations) services should contribute to
resolving the problems.

56. Since the SCR (service commun RELEX) became fully opera-
tional in mid-1999, there has been a substantial acceleration in
the time taken for tenders and payments and an improvement in
overall project implementation.

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Public procurement

The Commission agrees that management information systems
could be improved, and work is in hand to address the problem.

57. The new manual of instructions for the external aid tender
procedures will lead to greater efficiency. At mid-2000 there were
no unduly delayed tenders, at least not centralised ones. Neverthe-
less, there could still be delays in the launching of tenders and in
the time from the launch of a tender until the award of a contract
if there are inadequate resources.

FINDINGS ON THE PROJECTS EXAMINED

The European Gaza Hospital

Procurement procedures are deliberately rigorous in order to
avoid disputes which could lead to delays, and the procedures
must be followed correctly.

58. Delays in the tendering procedures were caused by staff
shortages.

The Commission’s decision to establish the SCR was designed in
part to overcome these problems. Since the SCR became fully
operational in mid-1999, there have been improvements in the
time needed to conduct tenders. In a large and increasing number
of cases the average time of six to nine months to conduct a ten-
der is adhered to.

66 to 68.
It was always the intention that the Commission
involvement in this project would be limited to the construction
and equipment of the hospital, with UNRWA taking responsibil-
ity for everything else.

In 1996 and with active Commission involvement, the hospital
was practically completed (97 %). At that time, it was not expected
that the Commission would become involved at all in the arrange-
ments for the operation of the hospital, and this became an issue
only when it became clear that the responsible authorities were
not in a position to fulfil their obligations to commission and
operate the hospital.

67. The sequence of events as described by the Court shows flex-
ibility and a willingness to adapt.

68. The financing agreement for remodelling works was signed
by the Commission on 20 July 1999 and by UNRWA on 11 Janu-
ary 2000.

Delays continue to occur due to reasons beyond the Commis-
sion’s control such as in the time taken for approval by the Pal-
estinian Authority, or for contract signature.

The Palestine Housing Council (PHC)

59.
In deciding to create the SCR the Commission has succeeded
in substantially diminishing the delays. Coordination between
both European Commission Representation Office (ECRO) and
the central services, as well as between services, has been improved
greatly. This has been acknowledged by ECRO. An example of
improved coordination is the recent creation of the GIV group
(Groupe interservice de visas), which has resulted in diminishing
the time needed to approve a draft financing proposal to two
weeks.

Monitoring and reporting

60. A basic programme of tracking has been established through
the use of spreadsheets, and a series of improvements have been
put in place to have information on hand, including a targeted
plan to use the management information systems

61. There is no single list of projects. This has to do with the
structure of Community funding, which is by budget line. On
some projects, particularly those co-financed with NGOs (non-
governmental organisations), the Commission is consulted at the
start and periodically provided with summary tables.

73. The project agreement expired and the funds were decom-
mitted in June 2000. Any proposals for further funding from the
PHC management will have to be considered as a new project,
and processed through the usual channels

75. The standard text of financing agreements has been revised
and the quality improved.

The tender failed because the PHC was in breach of the tendering
procedures. Subsequent attempts by the Commission to offer
solutions were rejected by the PHC.

Projects in support of the Palestinian Legislative Council
(PLC)

Construction of a building for the temporary seat of the
PLC

Provision of technical assistance and equipment to the
PLC

76 and 77. The project has therefore been cancelled and funds
were decommitted in June 2000.

77 to 79. The project is in the process of being cancelled.

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Other projects

involved in this reform process and will be represented at the
appropriate level.

81.
In the case of the municipal support programme, phase III
(MSP III), the projects that were identified in the financial agree-
ment (FA) were only indicative. It is not necessary to know at the
time of the project preparation the precise list of micro-projects
that will be funded under the project.

The list of projects will be updated by the consultants and by the
Palestinian Economic Council for Development and Reconstruc-
tion (Pecdar) once the consultants take up their duties.

88. The Commission has strengthened coordination with the
Palestinian authority and will continue to do so. A more active
and frequent coordination structure has been instituted with the
Minister for Planning and International Cooperation. Since Octo-
ber 1999, two coordination meetings (on 4 November 1999 and
24 January 2000) on project implementation have taken place in
Brussels. This effort has already been appreciated by MoPIC.

A local rural development programme (LRDP) has been under
full-scale implementation since February 2000.

CONCLUSIONS AND RECOMMENDATIONS

In the case of the LRDP, the Commission headquarters do not
approve the micro-projects. The projects are approved by the
Project Steering Committee (PSC) which acts as the authority on
financing decisions. The projects approved by the PSC are included
in the work programmes and cost estimates, which are submitted
to Commission headquarters for approval. They are required to
give approval mainly for the technical, financial and administra-
tive aspects of the implementation and not the selection of the
projects.

82. The prime responsibility for the coordination of donors rests
with the Palestinian Ministry of Health. The project has now been
decommitted, and a reformulated project is in the pipeline.

COORDINATION WITH OTHER DONORS AND THE
PALESTINIAN AUTHORITY

85. The Commission’s efforts to play a high-profile role have
been hampered by such factors as lack of resources, and its
attempts to take a leading role in the international aid coordina-
tion structure has been opposed by other parties, notably the
United States.

86. Coordination with Member States could be further improved.
However, prior to project presentation at the MED Committee,
ECRO convenes information meetings with the Member States.
There are limits to what coordination can achieve in particular
when there are differences in opinion between capitals and local
delegations. Decisions are taken by qualified majority which may
lead to a situation where the opinion of one or more MS is not
reflected in the final project design.

89. The Commission vision continues to be to establish a Pales-
tinian State with a prosperous economy in a free, pluralistic soci-
ety. The Court recognises the special and considerable constraints
affecting the Commission’s work in Palestine, but concludes that
structural weaknesses in the Commission’s internal systems
reduced the impact of the programme. The Commission’s view is
that the principal obstacle to efficient project management has
been the lack of human resources.

The Commission has already embarked on an overhaul of the
management of its external assistance programme, as part of the
wider Commission reform effort. The Court’s recommendations
in relation to this report will be taken into consideration fully. The
reform aims for enhanced multiannual programming; reform of
comitology arrangements, reunification of the project cycle from
identification to implementation. A new body to implement Com-
munity aid will be created, and this will lead to more local man-
agement of the project cycle by way of devolution and decentrali-
sation.

90. The Commission would like to point out that (a) the body
of procedure applied to external aid has been growing continu-
ously and in complexity and (b) the Commission has been criti-
cised in the past for not following these procedures meticulously.
It is the Commission’s aim, however, to achieve the results envis-
aged by the action financed. There were delays with the Gaza
Hospital, but, they were caused by the then prevailing political
circumstances. The situation on the ground has considerably
changed from 1991, when the European Gaza Hospital was started,
and it continues to change. It was the Commission who kept the
project alive. The Commission may however not have done enough
to publicise its decisive role in preventing the project from fail-
ing.

91.

87. The reform process within UNRWA relates to their internal
operations and as to how in the future they will respond to donor
needs. The Commission, as a major donor, should be actively

(a) A central theme of the overall Commission plans for reform,
announced on 16 May 2000, is to focus scarce resources on
core activities. In future the geographic departments of the
Directorates General for External Relations and Development

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Official Journal of the European Communities

C 32/23

will focus on programming, amongst other things, the stra-
tegic policy decisions on funding allocations per sector, to be
established in close dialogue with the beneficiary countries.
The involvement of Member States will in future focus on
policies and strategies, rather than on micro-management of
projects.

(b) Proposals for creating a new body responsible for the imple-
mentation of EC assistance (see point (d)) should also remedy
the very serious staff shortfalls, while terminating the current
dependency on outside consultants for the fulfilment of Com-
mission tasks. ECRO should be considerably reinforced.

Any discussion with Israel on ECRO, especially its status, its
staffing and its physical location depend on the outcome of
the final political settlement between Israel and the Palestin-
ians. On mismanagement the Commission can exert a certain
influence and may even improve its control mechanism. It
should be noted however that the management or misman-
agement by other important players, such as the United
Nations, as in the case of the Gaza Hospital, lay beyond its
control.

(c) Further efforts are being made to rationalise systems and pro-
cedures in general. The MEDA Regulations were revised in
September 2000. Commission proposals which would lead to
a simplification of procedures have not yet been positively
received by Member States in the MED-Committee.

A new manual of instructions relating to contracting proce-
dures has been in use since the beginning of 2000. Such pro-
cedures necessarily have a degree of complexity in order to
avoid undue claims or legal disputes which could lead to
delays. Other areas, however, such as the procedures for
approving country strategies, national indicative programmes

and annual work plans are being looked at with a view to sim-
plifying matters. This coupled with the reform of the external
services should lead to improved results.

(d) The Commission has already decided that the project cycle
will be unified. The majority of EC assistance programmes,
including those to Palestine, will be managed by a new body,
responsible for all project stages from identification to full
implementation. The present SCR will be converted into an
Office, reporting to a Board of External Relations Commis-
sioners. The legal and budgetary framework for the body in
its final form will depend on the wider discussions on exter-
nalisation as part of the wider Commission reform efforts and
on a proper evaluation of the first stage. The new entity will
allow the Commission to retain full managerial control over
the provision of external assistance

(e) New working methods will be introduced for the geographi-
cal departments and the SCR, and the consistency and quality
of programming will be closely monitored. Evaluation will be
given a substantially higher profile.

(f) The logical framework, which normally is to be attached to
every financing proposal, makes specific provision for a col-
umn on objectively verifiable indicators, but due mainly to
constraints of staff and time to ensure sufficient attention to
detail in the process of preparing/designing projects, indica-
tors are indeed sometimes inadequate. In this regard the Com-
mission’s decision of 16 May 2000 on the reform of its exter-
nal assistance programmes makes specific provision to further
strengthen both its methodology and its training arrange-
ments. In the last two years the Commission has greatly
expanded training in project preparation for both headquar-
ters and field staff, as well as for counterpart officials of part-
ner governments.