Special Report No 11/2001 concerning the Tacis cross-border cooperation programme together with the Commission's replies
Date: 2001-07-19
Institutions: European Court of Auditors
Subjects: Central and Eastern Europe, EU programme, cooperation policy, cross-border cooperation, development aid, living conditions

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 11/2001

concerning the Tacis cross-border cooperation programme together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 329/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

An overview of the Tacis cross-border cooperation programme . . . . . . . . . . . . . . . . . . . . . .

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

THE LEGAL FRAMEWORK AND COORDINATION WITH OTHER INSTRUMENTS . . . . . . . . .

Legal framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lack of funding from Phare programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordination with Interreg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BUDGETING AND PROGRAMMING OF TACIS CBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Overall amount of the budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delays in allocation of funds to small projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capacity of regional and local authorities to manage projects . . . . . . . . . . . . . . . . . . . . . . . .

IMPLEMENTATION OF TACIS CBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Works contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tendering for works contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemptions from value added tax and customs duties . . . . . . . . . . . . . . . . . . . . . . . . . . .

Role of authorities in beneficiary countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supply contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Small project facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IMPACT OF TACIS CBC PROGRAMME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Border crossings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Border management

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

1-6

1-5

6

7-16

7-9

10-14

15-16

17-25

17-21

22

23-25

26-35

26-29

30-32

30

31

32

33

34-35

36-53

36-42

43

3

4

4

5

5

5

6

7

7

7

8

8

8

8

9

9

9

9

9

10

10

10

11

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Paragraph

Page

Environment

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

Economic development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Small projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Impact of programme on living standards in the border regions . . . . . . . . . . . . . . . . . . . . .

Cross-border impact

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

Participation of local and regional authorities in Tacis CBC programme . . . . . . . . . . . . . . . .

Overall conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44-49

50-51

52-53

54-57

54

55

56

57

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58-62

ANNEX 1 — Tacis CBC programme beneficiary regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 2 — Outline implementation scheme of Tacis CBC programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 3 — Tacis CBC, Interreg and Phare CBC implementation structures . . . . . . . . . . . . . . . . . . . . . . . . . .

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

11

12

12

12

12

12

13

13

13

15

16

17

18

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SUMMARY

Programme overview

I. The Tacis cross-border cooperation (CBC) programme was established in 1996 to help reduce the differ-
ence in living standards between the western border regions of Belarus, Moldova, Russia and Ukraine and those
in neighbouring countries. It seeks to encourage cooperation between regional authorities on either side of
the border and support projects with a cross-border impact. While the annual budget is small (20-30 million
euro), the programme is politically important both because the region will form the new eastern border of the
European Union following the next accession and because of the Union’s ‘Northern Dimension’ policy (see
paragraphs 1 to 5).

The legal framework and coordination with other instruments

II. The programme’s legal framework is not geared to coordination with the Phare and Interreg programmes.
Although the programmes have similar objectives, cooperation mechanisms already successfully developed by
the Commission for the Phare CBC programme were not used for the Tacis CBC programme. Apart from
Poland, only limited funding was available from the Phare programme for joint projects with Tacis countries,
there being no specific appropriate financing mechanism for funding the regions of Phare countries bordering
on NIS countries. Thus the potential for linked projects on either side of the border has been greatly reduced
(see paragraphs 7 to 16).

Budgeting and programming of Tacis CBC

III. Despite the programme’s political importance and the large number of project proposals initially received,
its budget was cut back in 1999 and 2000. There have been serious delays in programming funds for the small
project facility (SPF) and in assisting regional authorities to increase their management capacity. Infrastructure
has been seldom financed outside the border-crossing sector although there is a high demand for such fund-
ing (see paragraphs 17 to 25).

Implementation

IV.
Implementation has been very delayed. For works contracts, difficulties have been experienced in obtain-
ing bids within tender budgets. Equipment has sometimes only been supplied after the end of the scheduled
duration of projects because of the Commission’s lengthy procurement procedures and delays in customs clear-
ance in the beneficiary countries. Obtaining exemption from value added tax has been a major problem for
projects. Implementation procedures for the SPF have been too centralised. The audit of a representative
sample of Tacis CBC payments did not reveal any significant errors concerning their legality and regularity (see
paragraphs 26 to 35).

Impact

V. The border crossing programme suffered particular delays so that it had not yet had an impact at the end
of 2000. Most environmental projects suffered from a lack of follow-up investments either from Tacis or other
sources. Despite the programme’s economic development objectives, very few large projects were financed in
this area. Overall, projects financed from the SPF had the most cost-effective results (see paragraphs 36 to 53).

Conclusions and recommendations

VI. While the programme has the potential to address important needs, it has had little impact so far either
on improving living standards in beneficiary regions or on cross-border cooperation, and more efforts need

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to be made to support the participation of local and regional authorities (see paragraphs 54 to 57). It is recom-
mended that (see paragraphs 58 to 62):

— coordination mechanisms between the Tacis CBC programme, the Interreg programme and the Phare programme

should be significantly strengthened;

— consideration should be given to increasing the budget of the Tacis CBC programme and matching funding made avail-

able for bordering regions in the Phare countries;

— greater emphasis should be placed on infrastructure and investment support;

— the programme should give more priority to projects which directly contribute to increasing the living standards of the

population in the eligible regions;

— a higher proportion of funds should be allocated to the small project facility and its management should be decen-

tralised.

INTRODUCTION

An overview of the Tacis cross-border cooperation programme

1. The Tacis CBC programme was launched in 1996 on the ini-
tiative of the European Parliament and covers regions in Russia,
Belarus, Ukraine and Moldova (1) which border on the European
Union (Finland) and the Phare countries (2). The programme also
reflects the demand of the 1994 Essen European Council for
intensified cross-border cooperation in Central and Eastern Europe
to promote regional cooperation and good neighbourliness.

2. A total of 132,5 million euro was committed to the pro-
gramme over the period 1996-2000 which represents approxi-
mately 5 % of the total Tacis budget (3). According to the Com-
mission’s main policy document on the subject (4), the objectives
of the programme are:

(a) to promote economic and social development in the border
regions by supporting sustainable projects to reduce the risk
of stability in the region being undermined by the very sig-
nificant difference in living standards on either side of the bor-
der. In particular, the programme should assist the border
regions to overcome their specific development problems
which stem from being on the periphery of their national
economies;

(1) For a map of the eligible regions see Annex I.
(2) For the purposes of this report the Phare countries are countries ben-
efiting from the European Union’s Phare programme which border
on the four Tacis CBC beneficiary countries: Estonia, Hungary, Latvia,
Lithuania, Poland, Romania and the Slovak Republic.

(3) The Tacis CBC programme is funded on a separate budget line from

the main Tacis programme.

(4) Communication from the Commission to the Council, the European
Parliament, and the Committee of the Regions on cross-border coop-
eration within the framework of the Tacis programme, Brussels,
27.5.1997 COM(97) 239 final.

(b) to finance projects which have a cross-border impact and
which are supported by communities on both sides of the
border, such cooperation being considered essential to ensure
sustainable development;

(c) to finance, as a priority, projects with a demonstrable local or

regional commitment.

These objectives are similar to the objectives of the Phare CBC
programme (5).

3. The Tacis CBC programme was also initiated as a means to
provide complementary funds for Russian border regions in order
to promote joint projects with Interreg-financed projects in Fin-
land (6). More generally, the Tacis CBC programme is the main
financial instrument available to the Commission to fund projects
within the context of the European Union’s so-called ‘Northern
Dimension’ policy. This initiative, which was launched after Fin-
land and Sweden joined the European Union, seeks to develop
Northern Europe through achieving a more coherent approach to
addressing the specific problems and needs of the region (7). In
addition, the programme has a role to play in reducing the poten-
tial isolation of the Russian enclave of Kaliningrad.

(5) See Articles 3 and 5(2) of Regulation (EC) No 1628/94 and Articles 3

and 5(3) of Regulation (EC) No 2760/98.

(6) The Interreg programme was introduced in 1990 by the Commission
to assist border regions in Member States in tackling their specific
development problems. Finland became eligible for Interreg II on its
accession and under Interreg IIA (1995-99) received a total of 34 mil-
lion euro for the three regions bordering on Russia (South East Fin-
land: 9,6 million euro; Karelia Region: 13,9 million euro; Barents
Region: 10,5 million euro).

(7) Countries within the region covered by the ‘Northern Dimension’ are
Denmark, Estonia, Finland, Germany, Iceland, Latvia, Lithuania, Nor-
way, Poland, the Russian Federation and Sweden.

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4. At the same time the Tacis CBC programme is seen as a way
to contribute to the pre-accession process in the Phare countries,
notably through the provision of complementary funding to help
address increasing concerns over the adequacy of the Phare-NIS
borders, which in the coming years will become part of the Euro-
pean Union’s eastern border, and in order to develop cross-border
relations.

national authorities have often played a leading role in the
development of these projects also;

(c) small projects, for up to 200 000 euro in Tacis grant financ-
ing, which are identified and prepared by local and regional
authorities. The beneficiary is required to provide co-financing
of at least 20 %.

5. The programme is essentially implemented through three
types of intervention:

(a) projects to improve border crossings and border-related infra-
structure which are jointly identified by the Commission and
the national authorities in beneficiary countries;

(b) so-called ‘large projects’, generally for between 1 million euro
and 3 million euro. In the Ukraine, Belarus and Moldova, the

An overview of Tacis implementation procedures is given in
Annex 2 and an outline of the different parties involved in the
Tacis CBC, Interreg and Phare CBC programmes presented in
Annex 3. In principle, the priority sectors have been border cross-
ings, environment and economic development. The allocation of
the Tacis CBC budgets for the period 1996 to 2000 over the three
types of intervention and over the different sectors is set out in
Table 1 below.

Table 1

Allocation of Tacis CBC funds 1996-2000

Border crossings

Large projects

Small projects

Border crossings

Environment

Economic development

Public administration and social affairs

Other

Unallocated

Total

Source: European Court of Auditors.

62,9

—

—

—

—

—

62,9

—

42,2

4,8

0,8

0,2

48,0

Total

63,0

44,5

9,2

4,4

1,7

9,7

(Mio EUR)

%

48

34

7

3

1

7

0,1

2,3

4,4

3,6

1,5

9,7

21,6

132,5

100

The Court’s audit

THE LEGAL FRAMEWORK AND COORDINATION WITH
OTHER INSTRUMENTS

6. An audit of the Tacis cross-border cooperation programme
was carried out in the second half of 2000. The objective of the
audit was to examine how well the programme had been man-
aged and what its impact was some five years after the programme
was launched. It involved file reviews and interviews at the Euro-
pean Commission headquarters, meetings with the recipient
authorities and the audit of projects in the beneficiary countries.
The on-the-spot audits covered 13 of the 15 projects with a value
over 1 million euro and a sample of 10 of the 46 projects financed
under the Small Project Facility, which had been, or were being,
implemented. Meetings were also held in four neighbouring coun-
tries (Estonia, Finland, Hungary and Poland) to help assess the
level of cross-border cooperation generated by the programme.

Legal framework

7. The Tacis CBC programme was established on the basis of
Council Regulation (EC) No 1279/96 of 25 June 1996, concern-
ing the provision of assistance to economic reform in the New
Independent States and Mongolia (1) over the period 1996 to
1999. However, the Regulation covered the entire Tacis pro-
gramme and the part of it devoted to cross-border cooperation

(1) OJ L 165, 4.7.1996, p. 1.

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was very limited (1). This was in contrast to the Phare CBC pro-
gramme where the Commission established a detailed program-
ming and implementation framework in a separate Commission
regulation in 1994, the first year of the programme (2). There
were virtually no changes to the Tacis CBC programme under the
new regulation (2000 to 2006) for aid to the NIS countries apart
from the introduction of a multi-annual indicative programme
(Article 3) and a reference to the need for coordination with the
Phare programme and the Structural Funds (Article 14) (3).

8. A particularly striking contrast between the Phare CBC pro-
gramme and the Tacis CBC programme is that for the latter the
Commission has not established coordination mechanisms for
promoting dialogue and cooperation between the NIS countries
and adjoining countries similar to those already in place for the
Phare CBC programme. Under the Phare CBC Regulation ‘Joint
Programme and Monitoring Committees’ (JPMCs), made up of
national and regional representatives of the Phare country and the
neighbouring Member State, succeeded in bringing the bordering
countries together to identify, appraise and recommend new
projects. The Commission itself had observer status on the JPMC
but had the final decision-making authority over which projects
recommended by the JPMC would actually be funded. The estab-
lishment of JPMCs for the Tacis CBC programme could similarly
have promoted greater cross-border cooperation, both in relation
to specific projects and to the wider development of bilateral rela-
tions between the countries concerned, including at the regional
level.

In addition, again in contrast to the Phare CBC programme,
9.
the Commission has not required a development analysis and
strategy for the beneficiary border regions to be drawn up by the
authorities on the two sides of the border. Similarly, no annual
Memorandum of Understanding setting, down the projects to be
funded and signed by the countries on either side of the border,
has been established. As a result there has been no procedure for
ensuring that information on Tacis CBC projects to be funded was
communicated to the neighbouring countries although this was
a prerequisite of cross-border cooperation.

Lack of funding from Phare programme

10. A fundamental difficulty faced by the Tacis CBC programme
has been the lack of funding available on the Phare side of the
border, with the exception of the border-crossing sector (particu-

(1) Reference to the Tacis CBC programme is essentially limited to

Article 3(10) and Annex IV paragraph 1.

(2) Commission Regulation (EC) No 1628/94 of 4 July 1994 concerning
the implementation of a programme for cross-border cooperation
between countries in central and eastern Europe and Member States
of the Community in the framework of the Phare programme
(OJ L 171, 6.7.1994, p.14).

(3) Council Regulation (EC, Euratom) No 99/2000 of 29 December 1999
concerning the provision of assistance to the partner States in Eastern
Europe and Central Asia (OJ L 12, 18.1.2000, p. 1).

larly in Poland), in order to be able to develop joint or at least
related projects. Given that regional authorities in the Phare bor-
der regions concerned generally had very limited budgets of their
own, it would have been desirable for Phare to provide such fund-
ing. However, the Phare CBC programme was initially limited to
the Phare countries’ borders with the European Union. Although
the eligible border regions were extended in 1999 to cover bor-
ders between Phare countries, the programme still did not cover
the Phare-NIS borders despite the growing disparity in living stan-
dards between western and eastern border regions in certain Phare
countries (for example, Hungary, Poland and the Slovak Repub-
lic).

11.
In principle the Phare Credo programme, set up in 1996 to
provide funding primarily for cross-border projects on Phare to
Phare borders but for which Phare-NIS borders were also eligible,
could have been used in conjunction with the Tacis CBC pro-
gramme. However, although it was originally foreseen that 102
million euro would be available under the programme over the
period 1996 to 1999, just 11,7 million euro was actually con-
tracted. Only 1,4 million euro was contracted for the Phare-NIS
border over 23 projects (average size approximately 60 000 euro),
none of which had direct links with Tacis CBC projects.

12.
In 1998 a new budget line was created by the European Par-
liament entitled ‘Special actions in favour of the Baltic region’ to
finance projects in north-west Russia, the Baltic States and Poland.
From 1999 the budget has been approximately 10 million euro
per annum which is financed by both Tacis and Phare (4). While
designed to increase flexibility and promote a joint approach
between Interreg, Phare and Tacis, as far as Russia is concerned,
the programme to a considerable degree duplicates the Tacis CBC
programme.

13. More fundamentally, the separation of aid to Tacis and Phare
countries under two different regulations is a major but also
unnecessary obstacle to effective cross-border cooperation. While
for the main Tacis and Phare programmes there is a clear need for
two separate regulations in order to distinguish between countries
of the former Soviet Union (Tacis Regulation) and the former
communist countries of Central and Eastern Europe (Phare Regu-
lation), the very objective of cross-border cooperation is to reduce
the negative impact of such divisions. Thus it would have been
desirable to create a new regulation, with its own budget line, for
the adjoining border regions of the Tacis and Phare countries.

14. The largely ad hoc and insufficient coordination between the
Phare and Tacis services within the Commission has also hindered
closer cooperation.

(4) No financial allocation was made to the budget line in 1998.

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Coordination with Interreg

BUDGETING AND PROGRAMMING OF TACIS CBC

Overall amount of the budget

15. While the European Union has made funding available on
the Finnish side of the border with Russia through the Interreg
programme, it has been difficult to establish linked Tacis CBC-
Interreg projects for several reasons:

(a) most of the Finnish Interreg programme is implemented
through projects of a relatively small size (typical EU contri-
bution of 200 000 to 250 000 euro). This makes the Tacis
CBC small project facility, with its limit of 250 000 euro, the
natural source of Tacis co-financing for joint projects, but
only approximately 15 % of Tacis funds have been devoted to
this instrument;

17. The annual budget for the CBC programme was set in 1996
at 30 million euro. It has not been possible to establish on what
basis the budget was fixed at this level. This amount was main-
tained for the first three years of the programme, but was then
reduced to 20 million euro in 1999 and 22,5 million euro in
2000, in line with a general reduction in the Tacis budget, although
the issues arising from the imminent establishment of a new east-
ern border for the European Union, the development of the
‘Northern Dimension’ policy, and the special position of Kalinin-
grad are of growing importance.

(b) the timing of the calls for proposals for Interreg and Tacis
CBC projects are not harmonised which makes it difficult to
plan joint projects;

(c) Interreg funds are programmed on a multi-annual basis while

Tacis CBC funds are allocated each year;

18. The budget allocation also did not take into account the con-
siderable number of project applications received during the first
two years of the programme. While the Commission does not
have precise statistics on the number of applications for large
projects, the general indications are that the number of project
applications decreased considerably from 1998 onwards.

(d) Interreg funds and Tacis CBC can only be used on the terri-
tory of the beneficiary country and not on the other side of
the border. This considerably limits the scope for joint projects;

(e) whereas the selection of Interreg projects is made at regional
level, by the Finnish beneficiary regions and generally in con-
sultation with neighbouring authorities in Russia, this is not
the case for Tacis CBC projects, funding decisions instead
being made by the European Commission headquarters (1).

19. The reason given by the beneficiary countries for this decline
was that local authorities came to realise that the limited funds
available for large projects outside the border-crossing sector
(which was the domain of the national authorities), meant that
the small probability of receiving funding for a large project did
not justify the costs of project preparation. Indeed, the limited
Tacis CBC budget means that on average only one, at most two,
large projects per annum can be funded in each country. Because
of the limited availability of funds no call for proposals for large
projects was made at all in Russia in 1999 and 2000 (2).

16. Up until 2000 there was no systematic contact between the
Commission services responsible for Tacis CBC and the Commis-
sion services in DG Regio responsible for Interreg to improve the
coordination of the two instruments. Towards the end of 2000
more concerted efforts began to be made by the two services to
identify ways to improve the ‘interoperability’ of the two instru-
ments.

20. For the small project facility (SPF), where full statistics exist
for the number of project applications, it is clear that the demand
for funding was much higher than the funds allocated to the pro-
gramme for the period 1996 to 1998 (see Table 2 below). The
total value of projects ‘recommended’ for financing by the Com-
mission’s project selection committee was 68 % higher than the
actual funds available.

(1) This leads to a situation where Russian regional authorities can have
more influence over the selection of Interreg projects than Tacis CBC
projects.

(2) All the Commission 2000 budget for Russia was allocated to the
relaunching of the Sortalava waste-water treatment plant (4,5 million
euro). The funds for this project, which was originally to be financed
from the 1996 budget, had been decommitted due to the lack of
implementation (see paragraph 44).

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Table 2

Number and value of SPF project proposals

Budget year

Projects submitted

Projects recommended

Projects approved

1996

1997

1998

Total

Number

Value
(Mio EUR)

Number

Value (1)
(Mio EUR)

Number

Value
(Mio EUR)

91

133

121

345

13,8

20,5

20,7

55,0

39

42

47

128

5,9

6,3

7,1

19,3

16

30

26

72

2,4

4,7

4,4

11,5

(1) Estimate based on average project size of 150 000 euro.
Source: European Commission.

21. Despite the limited funds available, the higher probability of
winning project funding under the SPF, compared to large projects,
means that local and regional authorities are keen to submit
project proposals. In terms of the participation by beneficiary
authorities, and particularly local and regional authorities, in the
programme the SPF can be considered as much more successful
than the large project component of the programme.

Delays in allocation of funds to small projects

22. Given that funds are allocated to the SPF each year, it would
have been expected that a regular annual cycle for project prepa-
ration, submission and approval could have been established. This
would have facilitated the task of both the Commission and the
beneficiary authorities. In fact, the SPF has suffered serious delays
at the programming stage. For the 1996 budget year, projects
were not selected until 1998. While this delay can partly be attrib-
uted to the need to set up the implementation procedures, and the
situation did improve for the 1997 budget year, the Commission
was responsible for very serious delays for the 1998 budget year
due to the reorganisation of the Commission services. As a result
projects were not selected until October 2000, greatly slowing
down the momentum the programme had started to build up and
damaging its reputation in the beneficiary countries. The delay
was the result of the new directorate in the Commission respon-
sible for tendering contracts for external aid blocking the selec-
tion process until standard guidelines for this type of grants had
been established for all external aid programmes.

respect until the second year of the programme (1997: Regional
capacity building initiative: 675 000 euro). Moreover, actual imple-
mentation only finally began in April 2000 because the Commis-
sion was unable to decide on what was the appropriate procedure
for awarding contracts of this kind.

24. A further positive aspect of the SPF is that for many local
and regional authorities, the maximum grant level of 200 000
euro is more manageable than that for large projects (1-3 million
euro). The so-called large projects are in some cases difficult for
regional and local authorities to absorb, not only because of their
size, but also because of the high proportion of technical assis-
tance involved in them. On average such large projects have
included 1,3 million euro in technical assistance (approx. 80 %)
and 0,35 million euro in equipment (approx. 20 %). For regional
authorities, funding for infrastructure would often have been
preferable, both in terms of absorption capacity and their actual
needs. However, despite the opportunities under the programme
for funding small-scale infrastructure (2), the Commission policy
has generally been to limit infrastructure support to border cross-
ings (see also paragraph 44).

25. For the preparation of large projects Russian regional authori-
ties have generally benefited from good cooperation both with
Finnish regional authorities and Finnish consultancies. In Ukraine
and Moldova national ministries frequently played a major part in
drawing up project applications, in some cases due to the weak
capacities of the regional administrations.

IMPLEMENTATION OF TACIS CBC

Capacity of regional and local authorities to manage projects

Financial implementation

23. Although the Commission itself stressed that ‘a precondition
for the successful implementation of any cross-border coopera-
tion activity is the regional and local capacity to generate and
develop projects’ (1), funds were not allocated for assistance in this

(1)

‘Communication from the Commission to the Council, the European
Parliament, and the Committee of the Regions on cross-border coop-
eration within the framework of the Tacis programme’, Brussels,
COM(97) 239 final 27.5.1997.

26. The financial
31 December 2000 is summarised in Table 3 below.

implementation of the programme as at

(2) See indent 10 of Regulation (EC) No 12/96: ‘Whereas, in order prop-
erly to meet the most acute needs of the New Independent States and
Mongolia at the present stage of their economic transformation, it is
necessary to permit a limited amount of the financial allocation to be
used for small-scale infrastructure projects in the context of cross-
border cooperation’.

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Table 3

Financial implementation of Tacis CBC programme 1996 to 2000

Commitments

Contracts

Payments

(Mio EUR)

1996

1997

1998

1999

2000

Total

30,0

30,0

30,0

20,0

22,5

132,5

23,7

29,7

28,2

6,6

0,0

88,2

16,1

16,4

4,8

0,4

0,0

37,7

27.
Implementation of the programme has generally been slow,
notably in relation to the main component of the programme,
border-crossing facilities. The main reasons for this are examined
in the following paragraphs. As a result of implementation prob-
lems 6,3 million euro (21 % of the commitment) had to be
decommitted when the period allowed for contracting the 1996
budget expired at the end of 1999.

28.
In fact the amounts decommitted should have been higher
since a further 2,6 million euro from the 1996 budget foreseen
for service and supply contracts for border-crossing facilities had
also not been contracted at 31 December 1999. However, because
the Commission had delegated the management of this amount
to the border crossing ‘Programme supervision unit’ (PSU), man-
aged by a consultancy firm, it considered these funds to be already
definitively contracted.

consultancy company responsible for preparing the tenders had
underestimated the likely range of costs, particularly the amount
required by foreign companies to cover the perceived risk of
working in these countries (2). At the same time, Commission
requirements intended to ensure the financial viability of contrac-
tors made it difficult for NIS contractors to submit valid bids.

Exemptions from value added tax and customs duties

31. A major problem encountered in relation to works contracts
was obtaining the agreement of the beneficiary authorities to
grant exemption from value added tax for local contractors.
Although exemptions were required by the Memoranda of Under-
standing governing the implementation of border-crossing
projects, which were signed between the beneficiary countries
and the Commission, in practice this requirement proved difficult
for the Commission to enforce. Because of the problems experi-
enced, contractors working in Russia and Ukraine had submitted
claims of almost 2 million euro by the end of 2000.

Role of authorities in beneficiary countries

32.
In other respects too, programme implementation was not
always facilitated by the project beneficiaries. Delays were encoun-
tered, particularly at Svetogorsk (Russia) and Jagodin (Ukraine) in
obtaining approval of the design of the border-crossing facilities.
In general, the fact that in the NIS countries nine different services
had responsibilities for border-crossing projects complicated
decision-making (3). While the official project beneficiaries for
border crossings were the customs authorities, the need for coor-
dination between the national, regional and local customs authori-
ties was not conducive to rapid implementation. Moreover, the
role of the local government authorities in border crossing projects
within their territory was generally not clearly defined.

29. The audit of a representative sample of Tacis CBC payments
did not reveal any significant errors concerning their legality and
regularity.

Supply contracts

Works contracts

Tendering for works contracts

30. The border crossing programme in Ukraine, Belarus and
Moldova suffered significant delays due to the serious difficulties
in obtaining tender bids within the contract budget. All three ten-
ders issued in 1999 for border-crossing facilities (1) in these coun-
tries had to be re-tendered because in each case only one bid was
received and these bids were on average double the amount fore-
seen in the budget. The main reason for this situation was that the

(1) Kamenny Log (Belarus), Chop (Ukraine), Leushen (Moldova).

33. The funding of equipment typically represents 15 to 25 % of
the cost of Tacis CBC projects. In approximately half of the large
projects examined which were nearing completion or had already
been implemented, the project had suffered from delays in the
supply of equipment. These delays were due to the Commission’s
lengthy procurement procedures, the time taken by beneficiaries
to approve equipment lists and hold ups in customs clearance in
the beneficiary countries. As a result, the equipment sometimes
only arrived just before the scheduled end of the project or even
later.

(2) The problem was less serious in Russia because its proximity to Fin-
land meant that the logistical difficulties were not so great for Finn-
ish companies.

(3) By way of comparison, in Finland only two services were responsible

for border crossings.

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Small project facility

34. While it would be expected that the SPF could be imple-
mented using lighter, more flexible procedures than for larger
projects, this has not been the case. The SPF has suffered from a
heavy structure much of which is far removed from the benefi-
ciary regions despite the fact that this instrument is particularly
aimed at the local and regional level.

35. Because its own staff resources available to manage the pro-
gramme were limited, the Commission contracted out much of its
day-to-day running to a management agency based in Denmark.
Although the agency established local offices in St Petersburg
(Russia) and Lvov (Ukraine), most decisions had to be taken at its
headquarters and approved by the Commission services in Brus-
sels. The Commission’s delegations have had very little input into
the SPF although, because of its regional emphasis, there is a
greater need for the Commission to manage the SPF from within
the beneficiary countries. The long procurement and payment
procedures have meant that it is difficult for beneficiaries to
implement projects within the 18- month limit which the Com-
mission has insisted on for the completion of such projects.

IMPACT OF TACIS CBC PROGRAMME

Border crossings

der crossings. However, a 1995 study (1) financed by the Phare
programme on border-crossing bottlenecks had already estab-
lished the urgent need for assistance at the two border crossings
on the CEEC-NIS border which had the longest average waiting
times in the whole of central and Eastern Europe: Zahony-Chop
(Hungary-Ukraine; 28 hours) and Kukuryki-Kozlovitchi (2)
(Poland-Belarus; 24 hours, rising on occasions to five days). It
would therefore have been desirable to have financed these two
crossings as a priority while determining the next round of inter-
ventions through the needs assessment.

In fact works at Chop only began in October 2000. More
39.
seriously, at Kozlovitchi, although it was also by far the biggest
border crossing on the CEEC-NIS border, 359 028 trucks using
the crossing in 1996, no Tacis infrastructure investments had
taken place by the end of 2000.

40. The only two border-crossing projects where construction
was close to completion at the end of 2000 were on the Russian-
Finnish border, at Salla-Kelloselkä, 50 km north of the Arctic
Circle (4,4 million euro) and Svetogorsk-Imatra (6,8 million euro).
The Salla project is seen as a way to develop the Barents Euro-
Arctic Region and shorten long-distance journey times by typi-
cally 2 to 4 hours. However, the impact of the project is, in the
short term at least, expected to be relatively limited given that just
1 727 trucks used the crossing in 1996, only approximately 0,5 %
of those using the Kukuryki-Kozlovitchi crossing. Following the
upgrading of the border crossing it was estimated in the project
feasibility study that the number of trucks would grow but still
only to approximately 5 000 per annum by 2000.

36. Approximately half of Tacis CBC funding over the period
1996 to 2000 has been allocated to border crossings. However,
construction work only began in 2000. As a result, five years after
the launch of the Tacis CBC programme, the programme had not
yet had any impact in this area.

41. At the Svetogorsk-Imatra crossing point, although the project
was much more justified in terms of traffic usage (1996: 26 000
trucks; 283 000 cars), the very bad road from Svetogorsk to
Vyborg (55 km) threatened to become as a bottleneck once the
border-crossing construction had been completed.

37. Border crossings are a particularly striking example of the
desirability of either having one financing instrument to cover
both sides of the border or, failing this, at least to ensure adequate
coordination between the Phare and Tacis instruments. However,
the Commission did not develop a strategy for improving cross-
ings on the Phare-NIS borders. The first major Phare support to
border crossings to the NIS was launched in 1993 without any
corresponding initiative from Tacis funding. Because border-
crossing facilities were completed on the Phare side of the border
without any parallel improvement on the Tacis side, bottlenecks
persisted.

38. The first step in the Tacis border crossing programme was a
needs assessment study in 1996 which covered 42 border cross-
ings in the eligible border regions. This study represented a valid
approach to developing a medium-term strategy for assisting bor-

42. The impact of the Commission’s intervention at border
crossings has been increased by it taking an integrated approach
through its funding of training and equipment as well as the main
construction component. It would, however, have been desirable
for the feasibility studies carried out to provide estimates of how
far delays were due to infrastructure constraints and how far to
inefficient procedures in order to better ensure that excess infra-
the importance of
financed. Moreover,
structure was not

(1)

‘Central European Border Study: Report of Study Mission to Identify
Major Border-Crossing Bottlenecks’, July 1995.

(2) Zahony-Chop lies on Pan-European Corridor 5, Trieste-Budapest-
Kiev while Kukuryki-Kozlovitchi, the lorry crossing point at the
Terespol-Brest border, is situated on Pan-European Corridor 2, Berlin-
Warsaw-Moscow.

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Official Journal of the European Communities

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inadequate secondary legislation as a constraint to improving
procedures did not begin to be adequately addressed until the
Commission launched a study of this subject in 2000. In any
event, the continued low pay of customs officials and widespread
corruption are constraints, which are outside the scope of the
Tacis CBC programme, but can be expected to reduce its impact.

available, a further study of the river basin, partly overlapping the
geographical area covered by the first project, was launched under
the CBC programme (1998: 1,27 million euro). This second study
must be considered premature and, given the serious water-related
health problems in Moldova, the value of financing a further study
rather than funding infrastructure investments must be ques-
tioned. The impact of both Prut River projects could have been
increased if funds had been available to finance Rumanian coop-
eration.

Border management

43. The Tacis CBC programme has had little impact on improv-
ing the security aspects of border management. This partly reflects
a lack of a clear approach on the part of the Commission in a situ-
ation where cooperation is made difficult by the sensitivities of
the administrations in beneficiary countries, particularly in Rus-
sia and Belarus, to border management issues. The Commission
allocated a total of 3 million euro for this purpose under the 1996
and 1997 CBC programmes but a study contracted by the Com-
mission in 1997 to identify possible projects was abandoned. This
was despite the fact that its preliminary conclusions stressed that
efforts to improve border management on the one side of the bor-
der (Phare) would not be enough without complementary efforts
on the other side of the border (Tacis).

46. One of the most important projects to which Tacis CBC pro-
vided funding was the Krasny Bor hazardous waste disposal site
near St Petersburg (1996: 1,4 million euro), designated as an envi-
ronmental ‘hot spot’ by the Helsinki Commission on the Baltic
Sea and which threatened not only the surrounding area but also
the Baltic itself. The project represented only a modest advance on
previous studies and had little impact. Its proposed solution for
increasing incinerator capacity at an affordable price through the
purchase of a second-hand incinerator was not realistic. More
fundamentally, the project was unable to address the problem of
how to ensure hazardous waste was actually delivered to the offi-
cial Krasny Bor site instead of being dumped illegally.

Environment

44. Approximately one third of the Tacis CBC programme has
been allocated to environmental projects. Tacis inputs have heavily
focused on technical assistance and, to a lesser extent, equipment,
the opportunity provided by the Tacis Regulation to finance infra-
structure under the CBC programme being scarcely used (see also
paragraph 24). The main environmental infrastructure project to
which funds were committed was for a waste-water treatment
plant (WWTP) in Sortavala in Karelia near the Finnish border.
However, the 2,2 million euro allocated in 1996 had to be sub-
sequently decommitted because funds were not contracted before
the expiry of the programme, mainly due to weaknesses in the
project design. New finance of 4,5 million euro was committed
to relaunch the project from the 2000 budget, the increase in
funding being mainly due to the improved specifications.

45. Studies were carried out to assess water quality and set up a
monitoring strategy on the Bug, Latorica and Uzh rivers in the
Western Ukraine (1,98 million euro) and the Prut River Basin in
Moldova (1996: 2,49 million euro) without adequate consider-
ation being given to the need to follow-up the projects with
investments to make the rivers cleaner. Thus the Ukraine project
did not include the identification of investments required to reduce
pollution (e.g. WWTPs). For the Prut River, where the study con-
firmed serious health problems relating to water use and hygiene,
corresponding investment projects were identified by the project.
However, before the recommendations of the first project were

47. The Tacis CBC programme has also funded several environ-
ment projects which aim at promoting eco-tourism in order to
increase the revenue of the population in the border regions.
While the technical assistance funded by Tacis provided useful
expertise in addressing the environmental aspects of the projects,
the eco-tourism impact of the projects was very limited.

48. The one environment-related area where it did prove pos-
sible to attract both local funding and donor lending were two
projects to reduce harmful energy emissions. One involved two
pilot investments in the Republic of Karelia to substitute fossil
fuels by woodchip (1997: 2,3 million euro), and the other foresaw
energy-saving measures in the closed military town of Sneznogorsk
near Murmansk (1997: 2,7 million euro). While the cross-border
impact of the reduction of emissions is very limited, the projects
nevertheless seemed likely to achieve some tangible, and poten-
tially replicable, benefits in terms of fuel economies.

49. At the time of the audit it was expected that the investment
component of both projects would be co-financed by the Nordic
Environmental Finance Corporation (NEFCO). The Commission
and NEFCO should seek to enhance cooperation at the program-
ming and project preparation stages in order to identify further
co-financing opportunities for environmental investments.

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Economic development

50. Although one of the basic objectives of the Tacis CBC pro-
gramme was to increase living standards in the border regions of
the beneficiary countries, there have been very few large projects
for economic development. Thus the first such project, the estab-
lishment of institutions for small and medium business support
in Uzhgorod in Ukraine, only commenced at the beginning of
2000 (1998: 1,5 million euro) so that at the time of the audit, in
October 2000, it was too early to identify specific results.

51. Support to the development of cross-border business links
are particularly important now that Phare countries are starting
to impose visas on NIS nationals as part of their preparation for
accession (1). Such restrictions are most likely to reduce local
cross-border trade unless compensating measures are taken.
Despite the importance of this issue, the Commission has not
developed a clear approach which would help regional authori-
ties in the identification and design of suitable projects.

Small projects

52. The projects financed under the SPF reviewed on the spot
had generally produced cost-effective results in line with their
objectives although those in the field of public administration and
social affairs, to which approximately 30 % of the SPF has been
allocated, had a limited cross-border impact. Particularly positive
features of small projects were:

53. The SPF could be used in the field of public administration
to achieve a genuine cross-border impact by promoting project
proposals from ‘Euroregions’. These are cross-border bodies, based
on similar creations in the European Union, which have been
established in recent years along most of the length of the Russian-
Finnish and NIS-Phare border. Such bodies have the potential to
develop into important forums for sustainable cross-border coop-
eration.

CONCLUSIONS

Impact of programme on living standards in the border
regions

54. Because of its limited budget the Tacis CBC programme can
at best only have a modest impact in the eligible border regions.
Over its first five years the programme has not achieved even this
modest impact. This is partly because of the serious delays in the
border-crossing programme. Once implemented such projects
should eventually assist these regions through encouraging cross-
border links, although the projects are primarily aimed at the
international and national rather than regional level. Environmen-
tal projects have also yielded few tangible benefits to the popula-
tions of the border regions and have been largely restricted to
studies with virtually no infrastructure investment. Very few large
projects have been targeted specifically at economic development.
The most significant CBC contribution in this area has been
through the Small Projects Facility.

(a)

in contrast to the larger projects, a relatively high proportion
of funding (37,5 %) was devoted to local economic develop-
ment projects, the most important issue for the populations
of the beneficiary regions and the primary objective of the
Finnish Interreg programmes;

Cross-border impact

(b) the SPF allowed many more institutions in the beneficiary
countries to benefit from the programme than was the case
with the funding for large projects;

(c) the SPF, because it was based on NIS public bodies working
with public authorities rather than consultancies from West-
ern Europe, provided more scope for creating sustainable net-
works after the end of project funding;

(d) beneficiaries’ commitment was strengthened by the 20 %

co-financing requirement.

(1) For example, the Slovak Republic, the border of which is just 2 km
from Uzhgorod, introduced a visa requirement for Ukrainian citizens
in 2000 as part of its accession preparations.

55. Although a few large projects have achieved a measure of
cross-border cooperation, overall the programme has fallen short
of its potential in this area. This is mainly due to two factors.
Firstly, in contrast to the Phare CBC programme, the Commission
did not establish a joint forum in which authorities on either side
of the relevant borders could meet to identify, prepare and moni-
tor projects. Secondly, different procedures have greatly handi-
capped cooperation between beneficiaries of the Interreg and
Tacis CBC programmes, while there have been very little Phare
funds available to promote joint or even related projects, particu-
larly as the regions of Phare countries bordering on the NIS were
not eligible for the Phare CBC programme. The exception to this
are the border-crossing projects, but here coordination between
Phare and Tacis has been very limited, crossings on the Phare side
of the border generally being built several years before those on
the Tacis side.

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Participation of local and regional authorities in Tacis CBC
programme

56. The low managerial capacity of many local administrations
has restricted their participation in the programme. The Commis-
sion has been very slow to provide assistance to build up local
and regional capacity, its main project for this purpose not start-
ing until 2000. Large projects are very often not easy for regional
authorities to absorb, the small project facility being generally a
more suitable instrument for encouraging their participation.

Overall conclusion

57. The Tacis CBC programme is an instrument which can play
a useful role in addressing issues relating to the establishment of
a new eastern border for the European Union following the next
accession and giving a more concrete expression to the ‘Northern
Dimension’ policy. However, its impact to date has been limited,
not only because of implementation delays but also because of
the very limited funding available, the fact that no framework for
cross-border dialogue at the project programming stage was set
up, the failure to provide matching funding for the Phare eastern
border regions, and the insufficient priority given to projects that
address the fundamental objective of the programme: namely
raising the living standards of the populations in the beneficiary
regions.

RECOMMENDATIONS

58. Coordination mechanisms between the Tacis CBC programme, the
Interreg programme and the Phare programme should be significantly
strengthened.

(a) In order to ensure that such funding is used as efficiently and
effectively as possible, the Commission should ensure that the
regulatory framework will facilitate a cross-border programme
covering both the Phare and NIS sides of the border taking
into account the coming enlargement of the EU (see para-
graph 13).

(b) To improve programme coordination as well as dialogue
between the NIS beneficiaries and their counterparts in Fin-
land and the Phare countries, the Commission should estab-
lish committees along the lines of the joint programming and
monitoring committees (JPMCs) established for the Phare CBC
programme (see paragraph 8).

(c) Development strategies for the eligible regions should be
established and authorities in the Phare countries formally
and systematically informed of which projects have been
selected by the Commission for funding (see paragraph 9).

(d) A working group should be established between the Phare
and Tacis services to improve coordination between Tacis CBC
and the neighbouring border regions of the Phare countries
(see paragraph 14). Recent efforts by the Commission services
to improve coordination between Tacis CBC and Interreg
should be pursued (see paragraphs 15 and 16).

59. Consideration should be given to increasing the budget of the Tacis
CBC programme and funding made available for bordering regions in
the Phare countries to finance -linked cross-border projects.

(a) Given the importance of the issues relating to the new eastern
border of the enlarged European Union, the developing ‘North-
ern Dimension’ policy, and the initially high level of interest
in the programme which has since waned for large projects,
at least in part because of the limited funding, an increase the
Tacis CBC programme budget should be considered (see para-
graphs 17 to 20).

(b) More attention should be given to assisting local and regional
authorities to prepare project proposals (see paragraph 23).

(c) For the Tacis CBC programme to function effectively it is
essential that matching funding be made available for the
Phare countries’ regions which border on the Tacis CBC eli-
gible regions (see paragraph 10).

60. Greater emphasis should be placed on infrastructure and invest-
ment support.

(a) More use should be made of the provisions to use CBC funds
for financing infrastructure and investments outside the
border-crossing sector. To increase available funding and
ensure the commitment of beneficiaries, co-financing should
be introduced for all
infrastructure projects (see para-
graph 24).

(b) Greater attention should be paid at the project preparation
subsequently attracting
stage
co-financing for infrastructure including consulting with
NEFCO and other IFIs (see paragraphs 44, 45 and 49).

to the possibilities

for

(c) Measures should be agreed between the Commission and the
beneficiary countries to ensure that the existing arrangements
for the treatment of customs duties and VAT in the context of
Tacis assistance are implemented (see paragraph 31).

61. The programme should give more priority to projects which increase
the living standards of the population in the eligible regions.

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Official Journal of the European Communities

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(a) The Commission should develop guidelines to assist regional
authorities in the design of suitable economic development
projects in order to help increase the number of projects
funded in this key sector (see paragraph 51).

(b) For eco-tourism projects, a higher priority should be given to
assessing the revenue potential of such projects and to devel-
oping that potential within the project timeframe (see para-
graph 47).

(a) It is particularly recommended to increase the proportion of
the budget allocated to the SPF. While there may be greater
administrative costs associated with the SPF than with larger
projects, such costs are outweighed by its numerous benefits
(see paragraphs 15(a), 21, 24 and 52).

(b) A regular annual cycle for project proposals and awards should

be introduced for the SPF (see paragraph 22).

62. A higher proportion of funds should be allocated to the small
project facility and its management should be decentralised.

(c) The management of the SPF should be carried out much closer
to the beneficiary. The Commission’s delegations are best
placed to perform this function (see paragraph 34) (1).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 19 July 2001.

For the Court of Auditors

Jan O. KARLSSON

President

(1) The Commission Delegations in the NIS already manage the Bistro
programme, another Tacis small project facility for projects up to
100 000 euro and with an annual budget of approximately 5 million
euro. An independent evaluation of the programme in 2000 found
its management by the Delegations to be cost-effective.

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Official Journal of the European Communities

C 329/15

ANNEX 1

TACIS CBC PROGRAMME BENEFICIARY REGIONS

Regions eligible for the Tacis
CBC programme are shown in
black.

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Official Journal of the European Communities

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ANNEX 2

OUTLINE IMPLEMENTATION SCHEME OF TACIS CBC PROGRAMME

National authorities originate
project proposal

Regional and local authorities
originate project proposal

Border-crossing
projects

Large
projects

Small project
facility

Management agency carries
out formal evaluation

DG Relex selects projects and draws up
financing proposal

Tacis Management Committee
gives opinion

Commission
Decision

Commitment established

Contracting

Payment

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Official Journal of the European Communities

C 329/17

ANNEX 3

TACIS CBC, INTERREG AND PHARE CBC IMPLEMENTATION STRUCTURES

Commission

DG Relex

EuropeAid

DG Regio

DG Elarg

Tacis
programme

Interreg
programme

Phare programme

Tacis CBC
programme

Beneficiary countries

1. Belarus
2. Moldova
3. Russia
4. Ukraine

Phare
programme

Member States

Beneficiary Countries

1. Albania
2. Bosnia
3. Bulgaria
4. Czech Republic
5. Estonia
6. FYROM
7. Hungary

8. Latvia
9. Lithuania
10. Poland
11. Romania
12. Slovakia
13. Slovenia

Joint
monitoring
committees

Joint programme  and
monitoring
committees

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THE COMMISSION’S REPLIES

SUMMARY

The legal framework and coordination with other instruments

II. The Phare CBC and corresponding Interreg programmes have different implementation mechanisms and
funding compared to the Tacis CBC programme which sets certain limits to possible coordination. However,
the new Tacis/Interreg guidelines, Interservice consultations, joint Phare/Tacis missions to coordinate program-
ming and Interservice meetings are first steps which have been put in place to improve coordination.

As noted in the reply to point 7, the Phare-NIS borders are not currently eligible under the Phare CBC pro-
grammes, but the Commission is willing to consider extending them to cover, inter alia, Tacis countries. In the
meantime, cross-border projects in Phare countries’ border regions adjacent to Tacis countries receive funds
from the Phare national programmes.

Budgeting and programming of Tacis CBC

III. The Commission agrees with the Court that the CBC programme is important. The cutbacks in the Tacis
CBC budget from EUR 30 million in 1998 to EUR 20 million in 1999 relates to a cut in the overall Tacis
budget, as well as to the need to address an exceptional situation in the Caucasus after the Russian crisis in
1998 and a contribution to the Chernobyl Shelter Fund.

Compared with 1999, the 2000 budget has already increased by 12 % to EUR 22,5 million, and the Commis-
sion has requested an increase to EUR 29 million for 2001.

Separate funding from the budget line for special action in favour of the Baltic Sea region adds to the available
funds, as does the funding from other sources such as the regional cooperation programme, justice and home
affairs and customs programmes, and the national programmes.

The first years of the small projects facility (SPF) were characterised by the setting up of new procedures which
caused some delays in its implementation but the programme is now catching up.

The limit to the share of the Tacis programme involving the financing of investment was raised from 10 % to
20 % by the new regulation which came into force at the beginning of 2000.

Implementation

IV. The programme has experienced delays, but these delays should be seen in context. The construction of
new border crossing facilities is very time-consuming, particularly due to the high number of services involved
in the partner countries.

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At the beginning of the programme, some delays were caused by the need to set up a framework to conclude
works contracts. This task was completed in January 1999 and has already resulted in faster implementation.

The difficulties in obtaining valid tender bids for works were due to unduly modest cost estimates made by a
consultancy firm and the depreciation of the euro.

In addition, both the Commission and the beneficiaries have learnt from past experience, which improves
timely implementation.

Impact

V. The first results of the border crossing programme became evident in the early part of 2001, when the
basic construction of two crossings was completed. An additional two crossings will be completed in 2001, a
further two in 2002 and construction of two more will start in the autumn of 2001.

The studies funded by Tacis in the environmental area are a precondition for subsequent investments. In many
cases, the size of such investments exceeds the possibilities of the Tacis funds. Such financing is normally the
remit of the international financial institutions (IFIs), but co-financing is a possibility under the new Tacis
Regulation (EC, Euratom) No 99/2000.

At the beginning, it was difficult for local and regional authorities to develop good ideas for large economic
development projects. The small projects facility instrument allowed a step by step approach.

Conclusions and recommendations

VI. Measures have been introduced to improve coordination between the Tacis CBC, Interreg and Phare
programmes, guidelines and joint missions being the first steps. The Commission is taking action to bring Tacis
and Interreg closer together. The guidelines will have to be reviewed to take account of, among other things,
the perspective of accession and the EU’s overall regional policy.

Tacis CBC beneficiary countries receive cross-border aid through the Tacis regional cooperation and national
programmes. The CBC budget including the budget line for special action in favour of the Baltic Sea region
has remained unchanged despite an overall decrease in the Tacis budget. This means that the CBC share of the
total has actually increased.

The border crossing programme projects contribute substantially towards improving living conditions. One
example is the western border region of Ukraine, where mainly western European companies produce textiles,
furniture and shoes. These companies give employment to the local population and revenue to the local
economy and the State. This production depends on fast crossings. The Commission will continue to include
specific projects to foster local economic development in border regions.

From 2001 the Commission is increasing the SPF budget.

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INTRODUCTION

An overview of the Tacis cross-border cooperation programme

1 to 5. The CBC started later than the main Tacis programme
and the Phare CBC programme and it has relatively limited
resources. At the beginning new procedures and practices had to
be set up, and the impact of the programme will not be evident
until some years after its start-up.

The Tacis CBC programme should be distinguished from the cor-
responding Phare CBC programme. Even if the basic objectives of
the Tacis and Phare CBC are similar the political context is com-
pletely different, the latter being part of pre-accession assistance
geared towards smoothing the transition from Phare to future
Interreg programmes. The beneficiaries of the Tacis CBC pro-
gramme are NIS countries whose relationship to the EU is still
developing. These different starting points are reflected in the
decision-making procedures and management structures and res-
sources allocated to the two programmes.

6. The audit took place in the second half of 2000 and covers a
period ending in December 2000. Although some large environ-
mental projects were completed in 2000, most of the projects
under the border crossing programme, which is the main com-
ponent of CBC, are now due to be completed in 2001 and 2002.

THE LEGAL FRAMEWORK AND COORDINATION WITH
OTHER INSTRUMENTS

Legal framework

Under the new Phare CBC regulation, the Phare CBC programme
has been geared towards accession and preparing the candidate
countries for their future involvement in Interreg. This objective
does not, of course, apply to Tacis CBC.

8. Since the Phare CBC regulation does not apply to border
regions in candidate countries adjacent to NIS countries, no Joint
Cooperation Committees as provided for in Article 7 of the Phare
CBC regulation have been set up for those borders.

In view of the next accession it would not seem appropriate to try
to build a new institutional structure between current candidate
countries and the NIS. The Commission’s current guideline on
bringing Tacis and Interreg funding together will be reviewed as
necessary taking into account, inter alia, EU regional policy.

9. From 2000 the Commission changed its programming pro-
cedures for the Tacis CBC programme as a whole. As required by
the new Tacis regulation the Commission drafted for the first time
a strategy paper and an indicative programme covering several
years and giving a coherent framework for interventions under
this part of the programme. These two documents, agreed in con-
sultation with the relevant Commission services, serve as a frame-
work for the annual action programme.

In addition the border crossing programme, the main component
of the CBC programme, works in a way which takes into account
both deficiencies and planning on either side of the border. Refer-
ence is made to those studies during the programming process.

With regard to the development strategies for the beneficiary bor-
der regions, the Commission is examining the possibilities of pre-
paring them for the regions concerned.

7. The previous and current Tacis regulations offer an integrated
framework for the different kinds of Tacis assistance given to the
NIS countries (national, regional, cross-border, nuclear safety).

Lack of funding from the Phare programme

The Commission adopted Regulation (EC) No 1628/94, establish-
ing the Phare cross-border programme in conjunction with Inter-
reg. This Regulation has been replaced by Regulation (EC) No 2760/
98, which notably extended the Phare CBC programme to borders
between candidate countries (future internal borders of the Euro-
pean Union), provided that a Joint Cooperation Committee is
established on each border, and that a single joint programming
document in a multiannual perspective is prepared, including
common development strategies for the region, seen as one single
socio-economic and geographical entity.

10. The geographical scope of the Phare CBC regulation (Com-
mission Regulation (EC) No 1628/94) was originally limited to the
borders between the Phare countries and the European Union,
but was extended to borders between candidate countries from
1999. The new Phare CBC regulation (Commission Regulation
(EC) No 2760/98) mentioned in a recital that ‘...in a later stage,
borders with other neighbouring countries benefiting from other
Community assistance programmes may also become eligible’.
This expressed the willingness of the Commission to consider
extending the Phare CBC programme even further to cover bor-
ders with, inter alia, Tacis countries. In the meantime since cross-
border projects in Phare countries’ border regions adjacent to
funded through the Phare CBC
Tacis countries are not

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programme, they receive funds from the Phare national pro-
grammes. These projects are mainly border crossings, but also
small ‘people-to-people’ projects in the context of small project
funds.

11. The Credo programme, which was a Phare multi-country
programme, managed with the help of a technical assistance
office, received an allocation of EUR 12 million in 1996, and its
implementation has been finalised in 2000.

While originally it was the Commission’s intention to allocate a
global amount for EUR 102 million over a four-year period to it,
preference has been given to extending the Phare CBC pro-
gramme, which until 1998 only covered the borders between the
European Union and candidate countries, to borders between
candidate countries, in order to prepare these also for Interreg.

In addition, in line with the overall Commission policy to phase
out a number of multi-country programmes to the benefit of
Phare programmes per individual country, CBC programmes
between candidate countries are also managed under the Phare
decentralised implementation system (DIS). From 1999, up to one
third of the total Phare CBC appropriation has been allocated to
borders between candidate countries, representing over EUR 50
million per year. Borders between candidate countries and the NIS
could receive support from national Phare programmes.

12. The Commission agrees with the Court that the concept of
the budget line for ‘Special action in favour of the Baltic Sea region’
overlaps with the CBC concept.

13. The Commission does not disagree that a specific regulation
covering both sides of the border could in the past have facilitated
cross-border cooperation. However, it has chosen to take a num-
ber of practical steps to bring together the funding provided by
the two instruments, for instance through systematic consulta-
tions and the organisation of joint missions in the programming
process.

14. The Phare and Tacis programmes are managed in different
ways: one is already being implemented locally by the partner
countries under the Phare decentralised implementation system,
the other is managed centrally from Brussels. Better cooperation
arrangements are being developed: joint Phare and Tacis missions
are now being launched by the Commission, in response to the
findings of the audit.

Coordination with Interreg

15 and 16. Many of the points made by the Court concerning
the lack of harmonisation of procedures have been addressed sys-

tematically in the Commission’s practical guide to bringing Inter-
reg and Tacis funding together, published in April 2001. The
Commission services have worked closely together in order to
prepare this guide, which sets out clearly the steps the Commis-
sion is taking to improve coordination and includes recommen-
dations on how to prepare projects for potential project appli-
cants.

In particular, the Commission will insist on harmonised calls for
proposals; projects with both an Interreg and a Tacis dimension
will be given priority during the selection process; and the intro-
duction of the indicative four-year programme for Tacis CBC pro-
vides a multiannual element to coordination. This programme
was adopted in 2000 and it is being updated in the summer 2001.

BUDGETING AND PROGRAMMING OF TACIS CBC

Overall amount of the budget

17. The budget allocation of EUR 30 million was set on the basis
of a political assessment of the needs and opportunities of good
projects, and taking into account the balance between needs and
resources for the Tacis programme as a whole. The intention has
been to increase the programme, in view of the enlargement.
However, the general series of cuts to the Tacis programme affected
CBC as well, in particular in 1999.

Since 1999, the programme has increased back to its original
level, if account is taken of the separate budget line for special
action in favour of the Baltic Sea region, introduced by Parlia-
ment, and now closely integrated with the CBC budget line. It is
quite clear that the issues covered by the CBC demand increased
attention. In future programming exercises, border management
will benefit from the Tacis national programmes as well.

19. An increased supply of funds could indeed lead to an increased
demand, and thus to a greater number of project applications. But
there is another factor at work, which is the limited capacity of
local authorities to come up with well-designed project propos-
als. The Commission set up the regional capacity building initia-
tive (RCBI) to address this issue, and is considering extending its
duration, given the improvement in the quality of project applica-
tions that has been observed in 2001 as a result. Although it
might be beneficial to provide more infrastructure than has been
from a technical
provided in the past,

this should result

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assessment of the needs of individual projects. The balance between
technical cooperation and infrastructure or equipment should not
be affected by policy constraints.

The ceiling of 20 % imposed by the Tacis regulation on the amount
of funding available for investment purposes reflects these con-
cerns. But there is a case for arguing that Tacis projects should
more often lead to investment projects for which financing has
been secured beforehand.

A project which came up in a call for proposals in 1996 was
decommitted and then later carried out in 2000 with a much
larger budget. Hence there was no call for proposals in 2000.

20. The SPF budget has been affected by the general budgetary
constraints as have other components of the programme and
therefore supply was not able to keep up with demand. SPF is one
of the four priorities mentioned in the indicative programme and
its share of the total budget has been between 10 % and 25 %.

21. The SPF was designed to cater to the needs of the local and
regional authorities, and they are the only ones entitled to submit
projects under this facility. This is not the case for the large
projects, where not only local and regional authorities may sub-
mit project proposals but also other entities, and where the size
of the proposed operation often makes it too complex to be man-
aged by local and regional authorities in the first place.

The SPF aims at capacity building, and in general investments in
infrastructure are not perceived to be capacity building. EUR
200 000 is not to be seen as a ceiling for SPF, since the local par-
ticipation can be higher than 20 %. Nor is EUR 50 000 a floor,
since SPF can finance smaller projects.

The border crossings projects are a priority for the Commission
as the CBC programmes deal with present and future borders and
the programme’s focus on border crossing facilities is in accor-
dance with the 1996 Tacis regulation (Article 3(10)) and the 2000
regulation (Article 2(4b)).

25. The project preparation capacity of the authorities of Ukraine
and Moldova has been considerably less than that of the Russian
authorities who have been helped by their Finnish counterparts.

22. The Commission is in the process of catching up. The fourth
call for proposals (budget year 1999) was launched in December
2000, with a submission deadline in March 2001. A fifth submis-
sion deadline is now planned for the end of the year 2001 for the
budget year 2000.

IMPLEMENTATION OF TACIS CBC

Financial implementation

23. The problem of the regional and local authorities’ capacity
to contribute to project design has been addressed in the national
Tacis programmes by using EU experts to develop the initial out-
line submitted by the local counterpart into project terms of refer-
ence. Such technical assistance to the counterpart could be applied
to CBC project design.

27. The slow implementation of the border crossing part of the
programme was affected by the large amount of preparatory work
required, on feasibility studies, drafting of works contracts, memo-
randa of understanding, tender preparation, etc. This preparatory
work plus various problems originating with the beneficiaries,
such as the need for construction permits, were the main reasons
for delays.

The regional capacity building initiative (RCBI) suffered from dif-
ficulties in tendering and contracting procedures in its first two
years. The implementation has been speeding up since April
2000, following contract signature.

Before construction works can start, up to nine ministries are
involved in the design approval of the crossings. These procedures
are quite often complex and time-consuming.

24. All Tacis funding is on grant terms, even when used for
investment, although loans are more suited to the size of most
investment projects and they require a greater commitment on
the part of the beneficiary. There is an opportunity cost in grant
finance, which should therefore never be considered to be ‘free’.

Almost all works projects funded from the 1996 to 1999 budget
will be completed by 2002. At two crossings (Salla and Svetogorsk
in Russia) the basic construction was completed on 18 January
2001 and will be fully operational in autumn the same year.
Leushen (Moldova) and Kamenny Log (Belarus) will be completed

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in 2001. Projects in Jagodin and Chop are due to be completed by
the middle of 2002. Works for the remaining two crossings
funded under the 1999 CBC budget are due to start in September/
October 2001.

The problem raised by the lack of a framework to conclude works
contracts, which was a reason for the delay at the starting-up
phase, has been solved and will in future not hinder the smooth
continuation of the programme.

Delays relating to studies will be avoided in future. The pro-
gramme is based on a study, which identified possible projects for
funding.

Although there were thorough design studies, the issue of the
design of the works was reopened at the beneficiary’s request at
the time when works should have started. This problem will be
avoided in future since the partner States will be asked to do the
design of the projects themselves.

A further factor affecting construction is the difficult weather
conditions in the region, which can hold up work for several
months during winter. That was the case at Salla and Svetogorsk,
where although the works contracts were signed in October, the
actual work could not start until April the following year.

The programme now runs much faster, following the establish-
ment of the framework, as evidenced by the recent completion of
construction works at two crossings.

28. Funds were contracted to the PSU due to a lack of resources
in the Commission to run the programme, which was fully in line
with the Commission practice and regulations at that time.

30. There were difficulties in obtaining valid tender bids due to
wrong cost estimates by the consultancy company entrusted with
that task. The depreciation of the euro against the dollar further
affected the process.

It can be difficult for NIS contractors to bid for Tacis contracts
although they are eligible to do so. Some NIS contractors over-
come these difficulties by bidding in consortium with EU contrac-
tors. The problem is also being addressed through local seminars
which aim to make NIS companies familiar with Commission ten-
dering procedures.

in the Memoranda of Understanding (and the general rules) signed
between the Commission and the beneficiary countries. Regula-
tions on tax exemptions for Tacis CBC projects can be susceptible
to varying interpretations by individual officials. The Commission
continues to address this question at the highest level in the ben-
eficiary countries to ensure in future the correct application of
regulations allowing for tax exemptions.

Due to efforts by the Commission, the problem had been largely
resolved by the middle of 2001 as far as border crossings are con-
cerned, and claims in Russia and Ukraine should be lowered con-
siderably.

32.
In the past contractors were asked to do the design and the
construction of the crossings. This proved to be very difficult, as
described in the report. The Commission will change this proce-
dure in future and the beneficiary countries will be asked to pre-
pare the design of the projects themselves. Technical support will
be available if needed. The aim will be to ensure ownership of
projects from the outset and the agreement of all parties before
implemention of the Tacis CBC programme is launched.

33. There have been delays in delivery of equipment and con-
struction materials, as the report says. While it is correct to say
that the Commission’s performance was not always as quick as it
might have been, the main cause of delay has been on the side of
the beneficiary countries. The inordinate amount of time the ben-
eficiaries can take to approve the equipment lists has caused
greater delays than problems over customs. In some cases equip-
ment supplies require the agreement of nine ministries. Therefore,
for example in Russia approval has taken more than six months
in some instances despite the Commission urging the beneficiary
to reach a decision. The overall position may improve as the
authorities get more used to working with Tacis.

For all projects, including those dealing with environment issues,
the Commission’s rules require project managers, contractors and
beneficiaries to go through a number of steps. These take longer
in the NIS, a fact not always recognised when setting project dura-
tion. This was not apparent at the outset and, although improved
sequencing of the various components of a project may help
where technical assistance is linked to equipment delivery and
infrastructure construction, where appropriate future projects
will have greater durations than the current norm of two years.

31. The difficulties over VAT exemption are a problem the Com-
mission shares with other donors. Exemption from tax is included

34. The Commission has sought to bring the SPF closer to the
beneficiaries, but while the Facility continues to be managed from
Brussels, the general procedures of the Tacis regulations must be
applied.

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35. The role of the Danish management agency has been as an
administrative secretariat to assist the Commission in its daily
work: circulate information about the programme, give advice on
the preparation of project applications, support selected projects
during the life of the contract, advise on and approve minor
changes in the implementation of projects and prepare docu-
ments for major changes to the contract which would require
Commission approval. The selection of projects, major contract
changes, approval of payments, etc. have to be doneby the Com-
mission.

Some form of additional management support is essential, as
there are a large number of projects, which require a high level of
attention. From 2002, when technical assistance offices have been
phased out, the work will have to be carried out by in-house staff.
No decision has yet been taken over the possible deconcentration
of the management of projects to delegations. Other multi-
country programmes, such as the Tacis regional programme, are
not being deconcentrated as their projects are not focused on
single countries. As all Tacis CBC projects operate in a single Tacis
country, project management could be deconcentrated in the
same way as the Tacis national programme.

38 to 40. At the beginning Tacis CBC programming was influ-
enced by Finland and Sweden’s accession to the European Union
and the fact that EU Member States shared for the first time com-
mon land and maritime borders with Russia. Therefore, the pro-
gramme was focused at first on north-west Russia, though Belarus,
Ukraine and Moldova were not neglected.

In 1996 EUR 2,9 million was allocated to Belarus including the
crossings at Kozlovitchi (freight traffic) and at Varshavsky Most
(passenger traffic) in the Brest region. Due to inaccurate cost esti-
mates by a consultancy company, tender procedures for Var-
shavsky Most were not completed successfully and so it was
decided to postpone the crossing works until work had started on
the new terminal at Kozlovitchi 2 (K2).

The Commission made EUR 7 million available in its 2000 CBC
budget to the Brest region (new terminal Kozlovitchi 2). Further-
more, the Commission intends to allocate additional funding to
the Brest region under the 2002 budget to ensure the completion
of that important terminal. The amount of EUR 7 million will
however be sufficient to start the construction.

IMPACT OF TACIS CBC PROGRAMME

Border crossings

The impact of the Salla crossing should not be measured exclu-
sively in terms of the number of trucks using it. In the long run it
will serve the development of the northern region by facilitating
crossings.

36. The construction of new border crossing facilities is a com-
plex and time-consuming task. The Commission services respon-
sible have to deal with up to nine agencies responsible for border
crossings in the beneficiary countries. Before construction can
begin, the lengthy preparatory work has to be completed (works
contracts, environmental impact assessments, design studies and
tenders).

The impact of the programme was not apparent before the end
of 2000, but the first results are now clearly visible.

37. The first major Phare support with regard to borders to the
NIS started in 1993, but many of the crossings on the Phare side
were financed from national budgets from the respective coun-
tries. Some of those investments were matched on the NIS side
with national funds of the corresponding partner State. In other
words, major parts of the investments on the Phare eastern bor-
der received support through national budgets and not through
Phare.

The lack of information and coordination between the Phare and
the Tacis countries themselves as opposed to the teams manag-
ing the two programmes is often the reason for bottlenecks

41. Due to improvements the Leningrad-Oblast road is suitable
for truck traffic in summer and passenger traffic in the whole
year.

42. There is a need for equipment and training on procedures,
as well as for infrastructure, and so the border crossing pro-
gramme covers all three areas complemented through Tacis cus-
toms and justice and home affairs programmes.

The size and capacity of the crossing is determined by the esti-
mates of traffic volumes. The calculation is based on the assump-
tion that modern control practices are applied, and so the infra-
structure should not be oversized. Delays which continue after
the refurbishment of a crossing would be due either to a further
traffic increase or to inappropriate control procedures.

The outcome of the study on border legislation referred to by the
Court showed that in all four countries concerned, the applica-
tion of border legislation, rather than the legislation itself, is
responsible for delays. The legislative means to implement mod-
ern control techniques are in place, and the need is for training
and improvement of secondary legislation.

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The Commission is aware of the problems of low pay and cor-
ruption and takes precautions in project design and mangement.
The Tacis national programmes have included projects aimed at
helping combat corruption.

43. The CBC programme had two separate financial proposals
for border management, one in 1996 and one in 1997 with a total
amount of EUR 3 million.

The main part (EUR 2 million) was foreseen for Russia for a project
on the impact of Schengen on the future EU-Russian border after
enlargement. In the beginning the Russian authorities welcomed
the project, but it failed finally due to a lack of a clear ownership
of various Russian agencies involved in the preparatory phase of
the project. It was therefore decided to allocate parts of the funds
to complete the Salla border crossing in Russia.

The remaining funds were used for a border demarcation project
at the border between Belarus and Lithuania and for conferences
and working groups on cross-border cooperation, which is clearly
a border management activity.

The Tacis justice and home affairs programme also funds activi-
ties in the four countries concerned strengthening their overall
border management capacity.

Environment

44. The 1996 project in Sortavala had indeed to be decommit-
ted. This development is not only due to the weakness of the
design, but also to the lack of progress in related preparatory
work by the local authorities. The project responds however to a
real need. This is why it has been reprogrammed under the 2000
programme.

The use of Tacis funds to finance infrastructure is encouraged by
the new Tacis regulation.

investments, as was the case for the Sortavala project (Tacis CBC
2000 budget), but in doing so it has tried not to lose sight of the
fact that grant funding has an opportunity cost, and is thus not a
‘free’ good. Tacis co-financing of investment can be justified in
cases where the economic rate of return exceeds the financial rate
of return, which, admittedly, is often the case in the environmen-
tal sector. Additionality is a precondition for grant financing, for
technical assistance projects as well as for investment projects. In
other words, grant funding should be a financing source of last
resort. Investment financing should usually be the remit of the
international financial institutions (IFIs). Having said that, the
Commission accepts that there is scope for increased coupling
between its own Tacis environmental projects and downstream
investments projects: it will increasingly be selecting projects
which are due to be followed by investments, and preferably by
investments for which financing is secured.

The Prut River projects do not duplicate each other as they are
complementary: one concerns the river itself while the other cov-
ers its tributaries. The results of both projects will be available
soon, allowing donors, including the Commission and govern-
ments to address the need for investment for the river basin as a
whole.

46. The project has offered advice on the implementation of a
ticketing system for monitoring hazardous waste from official
producers until it reaches the Krasny Bor site. The project has
made recommendations to reduce the number of authorised waste
carriers, in order to increase efficiency of the control system.
Enforcement will of course remain with the St Petersburg authori-
ties.

47. These projects are not completed yet (Karelia Parks) and eco-
tourism by its nature will not increase in a measurable way before
completion and subsequent positive publicity.

48. The conclusion that the projects to reduce harmful energy
emissions seem likely to achieve tangible and potentially repli-
cable benefits is shared by the Commission. However, the cross-
border emission reduction can by nature only be marginal as
Sneznogorsk is only a very small isolated town and the Finnish
border somewhat distant from it.

It is also the intention of the Commission to seek increased coop-
eration with IFIs, in particular with the Nordic Environmental
Finance Corporation (NEFCO) in the development of future pro-
grammes.

49. The aim of the Commission’s joint environmental pro-
gramme (JEP) is to identify co-financing opportunities for envi-
ronmental investments. It is actively seeking co-financing with
NEFCO and other international financial institutions, and a spe-
cific project for co-financing is foreseen under the 2001 action
plan.

45. The financing of investments in the environmental area
needs to be preceded by feasibility studies and accompanied by
the setting-up of new institutions and institutional relationships.
This is what the Tacis programme has focused on. In addition,
Tacis has been able to provide funding for small or medium-sized

This cooperation should be endorsed with the launching of the
Northern Dimension Environmental Partnership (NDEP) endorsed
by the Goteborg European Council.

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Economic development

53. Since 1999 the SPF has also been open to associations which
means that Euroregions can now apply.

50 and 51. The report correctly states that there have so far been
few economic development projects financed through CBC. How-
ever, the situation is changing as there is already one major project
underway, another approved and being prepared for launch and
still more being proposed under the 2001 CBC programme.

CONCLUSIONS

Impact of the programme on living standards in the border
regions

The first economic development project, at Uzhgorod in Ukraine,
is providing lessons for the design of such future projects. Although
it has not progressed far enough to have had an impact, it is
already evident that its future sustainability might have been
enhanced if it had been designed to operate within the network
of enterprise development projects established in Ukraine through
the Tacis national programme: the linkage is being made as the
project nears conclusion. Greater attention could also have been
paid to identifying a partner in either Hungary or Slovakia and it
is proving more difficult to remedy this.

Project sustainability may also be affected by the short life of the
Tacis project. It is conceived as a two-year project: parallel projects
financed from the national programme have generally been imple-
mented over four to five years through follow-on projects. These
points will be taken into account in future CBC projects. However,
experience in other Tacis projects suggests that most institution
building, private sector and eco-tourism projects would need three
to five years to achieve sustainability.

These points are already in view in the design of a similar project
at Ungheni in Moldova financed from the 2000 CBC programme.
Arrangements are in hand for the Ungheni beneficiary to visit the
Uzhgorod project and a counterpart organisation has already been
identified in Iasi in Romania. In that case, all parties are aware of
the significance of the preparations for accession by Romania
although these are seen as a mixture of negative factors, as the
border regime tightens, and the positive effect of the border
becoming the frontier with the European Union itself. Motivation
to take forward this project is, therefore, strong on both sides of
the border.

Small projects

52 and 53. Where possible the positive features of the SPF will
be incorporated into larger projects. For example the two eco-
nomic development projects
involve
co-financing, albeit in kind, from the beneficiaries. This has taken
the form of premises gifted to the project.

referred to above

54. The Tacis CBC budget is indeed limited but this is linked to
the size of the overall Tacis budget. Evidence of the programme’s
impact was not apparent at this stage of its implementation but
the basic construction of two major border crossings was com-
pleted shortly after the audit and more will be completed in 2002.

The positive impact of the small projects facility is recognised.
The Court’s criticism of the absence of a link to investment in the
environmental programmes will be addressed through the reori-
entation of the joint environmental programme instrument. The
setting up of the NDEP will lead to better coordination between
grant technical assistance and IFI investment.

Economic development has had a limited share of overall Tacis
CBC resources due to the prioritisation of other parts.

Cross border impact

55. The Phare CBC regulation provides for Joint Cooperation
Committees to prepare joint programming documents in a mul-
tiannual perspective for the border regions between central Euro-
pean States, and with the European Union, but since the Phare
regulation is primarily geared towards accession and cooperation
with EU States, no such joint strategy has been elaborated for bor-
ders between Phare and Tacis countries.

The development of the ‘Practical guide to bringing Interreg and
Tacis funding together’ is already improving coordination between
those two instruments, and will continue to do so over the next
few years.

Action has been taken to improve coordination. An example is
the series of conferences financed by the CBC programme start-
ing in late 1999 which brought together border guards and cus-
toms officials from both sides of the border. Working groups at
the conferences developed together a manual of best practices/
standards at border crossings, which has been agreed by all rep-
resentatives from the corresponding Tacis and Phare countries.
This facilitates border crossings and procedures.

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Official Journal of the European Communities

C 329/27

56. Efforts have been made to provide assistance for local and
regional authorities through the SPF programme.

which goes far beyond proposals to support infrastructure
projects. It covers a wide range of areas, important for the
development of the Brest region, including a strategic devel-
opment plan.

As far as large projects are concerned, the Commission will pay
particular attention to the question of absorptive capacity when
drawing up its final programme proposals.

(d) The creation of an interservice group on interoperability is

being considered.

57. The Commission takes the view that in December 2000 it
was too early to make an assessment of the full impact of the CBC
programme. Tacis CBC beneficiary countries receive cross-border
aid through the Tacis regional cooperation and national pro-
grammes. The CBC budget including the budget line for special
action in favour of the Baltic Sea region has remained unchanged
despite an overall decrease in the Tacis budget. This means that
the CBC share of the total has actually increased. In the final
analysis the programme’s budget, which the Court finds limited,
is decided by the budgetary authority. The Phare framework for
cross-border dialogue as well as the whole Phare CBC regulation
is related to the pre-accession process.

RECOMMENDATIONS

58. The Commission will work to improve coordination between
Interreg and Tacis. The practical guide specifically allows for
amendments to take into account future developments.

(a) The Commission understands the Court’s recommendation
for a regulatory framework which would facilitate a cross-
border programme covering both Phare and NIS sides of the
border as including also procedural measures like improved
co-ordination mechanisms. The Commission is willing to
consider extending the Phare CBC programme to cover NIS/
Phare borders. The current guidelines on bringing Tacis and
Interreg closer together would have to be reviewed taking into
account i.a. the perspective of accession and the EU’s overall
regional policy.

(b) While the Phare CBC regulation already provides for joint
committees to prepare programming documents for the bor-
der regions between central European States and the Euro-
pean Union, it is primarily geared towards accession, and no
such joint strategy has been elaborated for borders between
Phare and Tacis countries.

The Commission is committed to improving coordination
between Interreg and Tacis.

(c) The Commission welcomes the Court’s recommendation on
development strategies and is examining the possibilities for
preparing such cross-border strategies for the regions con-
cerned.

59. The duration of the regional capacity building initiative,
designed to help local and regional authorities to prepare project
proposals, has just been extended.

(a) and (b) It is not wholly clear that waning interest is linked to
reduced funding. The lower level of interest in large projects
may also reflect the limited design capacity of potential ben-
eficiaries. The Commission is willing to provide greater help
with project design as suggested.

The Commission has recently increased its efforts to assist
local authorities, notably in the context of Interreg/Tacis coor-
dination. A seminar was held in Helsinki in June 2001 and
another is planned for St Petersburg in the autumn.

(c) The recital of the Phare CBC regulation envisages the possibil-
ity of extending the programme to neighbouring countries
benefiting from other EU assistance programmes and the
Commission services are actively considering how better coop-
eration could be achieved.

60. The emphasis on technical assistance, rather than on infra-
structure and investment support, must be seen against the back-
ground of a limited budget and the relatively large share of border
crossings where spending is concentrated on infrastructure.

(a) Appropriate use should be made of the facility for financing
activities outside the border crossing sector. Co-financing
designed to ensure the commitment of the beneficiaries would
work only if the level of co-financing was affordable by the
beneficiary.

(b) The possibility of attracting IFI investment is notoriously dif-
ficult unless the IFI is involved in the initial design. It may be
possible to do this with NEFCO due to the existing relation-
ship, but is less likely with other IFIs at present.

(c) The Commission continues to address this question at the
highest level in the beneficiary countries to ensure in future
the correct application of regulations allowing for tax exemp-
tions.

A first step in this direction is the Brest Euroborder study
which was submitted to the Commission in June 2001, and

Due to efforts by the Commission, the problem had been largely
resolved by the middle of 2001 as far as border crossings are con-
cerned.

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Official Journal of the European Communities

23.11.2001

61.

62.

(a) While the Commission agrees that economic development
projects should be designed on the basis of appropriate guide-
lines the existence of such a document would not in itself sub-
stantially increase the number of projects.

(a) From 2001 the Commission is increasing the SPF budget.
Indicative figures for 2001, 2002, 2003 are EUR 4,4, 4,5 and
5,0 million respectively.

(b) In April 2001 the Commission introduced a regular annual

cycle for SPF proposals and awards.

(b) An aim of financial sustainability should be included in Tacis
projects in support of eco-tourism, along with any enterprise-
based projects. This may mean that projects would require
more than the one to two years usually allowed, and provi-
sion should be made for a follow-on project where necessary.

(c) The Commission does not disagree that SPF management
should be carried out much closer to the beneficiary but since
other multi-country programmes are not being deconcen-
trated, the SPF will, on present plans, continue to be managed
from Brussels.