WRITTEN QUESTION E-2844/02 by Olivier Dupuis (NI) to the Commission. Use of European public money in Kosovo.
Date: 2002-10-09
Institutions: European Parliament, Provisional data
Subjects: EU financing, European Agency for Reconstruction, Kosovo, aid policy, business ethics, corruption, electricity supply, energy industry, energy supply, financial control, fraud, fraud against the EU

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WRITTEN QUESTION P-2834/02

by Karin Riis-Jørgensen (ELDR) to the Commission

(2 October 2002)

Subject: VAT refunds

Pursuant to the eighth VAT Directive, VAT refunds were scheduled to have been abolished several years
ago, with VAT being incorporated into the sixth EEC Directive. VAT-registered companies could then
deduct EU VAT in their own regular domestic VAT declarations. The EU Member States would
subsequently clear the VAT debt between the various countries.

The proposal that a European VAT-refund system be created was never adopted. That resulted in major
bureaucratic problems for European companies.

Have any measures been taken to ease the burden for companies as regards VAT refunds? What
alternatives does the Commission see to a European VAT-refund system?

Answer given by Mr Bolkestein on behalf of the Commission

(6 November 2002)

The Honourable Member refers to the proposal for a Council Directive amending Directive 77/388/EEC as
regards the rules governing the right to deduct value added tax (1), submitted by the Commission in June
1998, aiming to replace the refund procedure laid down in the Eighth VAT Directive (2) with the right for
taxable persons to recover VAT directly in the regular VAT declarations they make in their Member State
of establishment. The latter would then recover the amount from the Member State in which the tax was
due by means of a refund system between the Member States.

Despite the full support of
Committee, it has not yet been possible to obtain the Council’s unanimous agreement on the proposal.

traders and the approval of Parliament and the Economic and Social

This is mainly due to the fact that the Council took some time to discuss the matter because other issues
were considered more important.

However, at the Ecofin Council on 4 June 2002 the Council Presidency signalled its intention to re-open
the discussion. The Danish Presidency honoured this undertaking and made considerable efforts to reach a
compromise acceptable to all the Member States.

The Commission remains convinced that the proposal represents the only way to achieve a major
simplification for traders, who could recover the VAT paid in another Member State in the same way as
national VAT.

(1) OJ C 219, 15.7.1998.
(2) Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States
relating to turnover taxes (cid:1) Arrangements for the refund of value added tax to taxable persons not established in
the territory of the country, OJ L 331, 27.12.1979.

(2003/C 161 E/045)

WRITTEN QUESTION E-2844/02

by Olivier Dupuis (NI) to the Commission

(9 October 2002)

Subject: Use of European public money in Kosovo

More than three years after the United Nations Interim Administration Mission in Kosovo began and
despite the investment of EUR 400 million in the energy sector, electricity supply in Kosovo remains very
irregular, with, for example, an average supply of only about ten hours a day.

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Various sources report instances of misappropriation and fraud in the use of European Union funds for
energy supply and production. These sources also state that there is a lack of transparency on the part of
the European companies contracted to rebuild the energy production and supply system in Kosovo.
Furthermore, Andy Bearpark, Head of Pillar IV of UNMIK, the administration of which falls within EU
competence, has confirmed that one of his colleagues, apparently an EU citizen, is responsible for the
misappropriation of EU funds for Kosovo. According to these same sources, considerable Union funds
(EUR 4,5 million) intended for Kosovo have passed through accounts in Gibraltar. It would also seem that
the ‘Kosova B Plan’, destroyed during a storm, was not insured on the basis of the criteria normally
applicable to this kind of power station. Finally, it would appear that OLAF has carried out an enquiry into
these matters, including the case in which at least one EU citizen working for the EU Mission in Kosovo is
implicated.

Does the Commission intend to provide Parliament with all the information it has on the business of EU
funds being diverted via Gibraltar, including the final ‘fate’ of these funds, on the inadequate insurance
cover for the ‘Kosova B Plan’ and on the lack of transparency the European companies have demonstrated,
along with the information gathered by OLAF during its enquiry into all these matters?

What steps have been or will be taken to guarantee in future that all European public money reserved for
Kosovo is used correctly and, in this specific case, to ensure a satisfactory electricity supply for Kosovo?

Finally, does the Commission not consider that the very status of Kosovo, most significantly its provisional
indeed of misappropriation, as much within the
nature, risks encouraging cases of mismanagement,
International Administration as among private actors in Kosovo, and that the Union has a duty to adopt
an initiative aimed at full international recognition of Kosovo?

Answer given by Mrs Schreyer on behalf of the Commission

(4 December 2002)

With respect to the fate of the Community funds for energy supply and production, the Commission
wishes to inform the Honourable Member that the European Anti-Fraud Office (OLAF) opened a case in
May 2002 into suspected misappropriation of USD 4,2 million from the Kosovo budget, after having
received a report from the United Nations Interim Administration Mission in Kosovo (UNMIK). The money
was traced to Gibraltar, and with the excellent co-operation of the Gibraltar authorities, OLAF obtained an
order in the High Court freezing the bank account where the funds were held. The amount that was then
discovered to be still available as a cash deposit was approximately USD 3,2 million, which was returned to
the Kosovo budget last October 2002. The balance of the fraudulently obtained funds had been invested in
shares. The Commission has commenced action in the High Court of Gibraltar to have the shares sold and
the proceeds remitted to the Kosovo budget. The Commission is seeking full restitution of the principal,
costs, damages, interest, and an accounting for any profit made by the party responsible for the illegal
transfer.

OLAF’s investigation did not concern European companies, nor the alleged inadequate insurance coverage
for the ‘Kosova B plan’. OLAF’s investigations are always limited to inquiries into fraud or misappropri-
ation of Community funds.

Regarding the steps that have been or will be taken to guarantee in the future that all European public
money reserved for Kosovo is used correctly, the Commission would like to remind the Honourable
Member that the bulk of the Community funds dedicated for Kosovo under the CARDS programme is
successfully implemented by the European Agency for Reconstruction.

The Agency is subject to tight controls by its Governing Board, in which both the Commission and the
Member States are represented, by the Court of Auditors and by a Financial Controller appointed by the
Commission. In view of the report of the Court of Auditors on the financial accounts of the European
Agency for Reconstruction (EAR) for the 2000 financial year and on its positive assessment of the
Agency’s work in Kosovo, the Parliament granted the discharge to the Director of the Agency on its
plenary session on 9 April 2002 (1).

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As far as the measures taken to improve the control of the operations undertaken by the United Nations
Mission in Kosovo, it is important to note that the Regulation establishing the Office of the Auditor
General was signed into law during October 2002. Tenders to provide technical support for three years,
funded by the Commission through the European Agency for Reconstruction, are currently being sought
from interested parties. Meanwhile, to enable the Auditor General to begin working swiftly, temporary
funding for the post will be covered by the Kosovo Consolidated Budget, and a recruitment process for the
position of Auditor General is already underway. It is envisaged that the office will begin to function at the
beginning of 2003, when the new Auditor General will oversee the recruitment of other positions within
the institution.

Moreover, a comprehensive strategy for preventing corruption is being put into place by the United
Nations Mission in Kosovo, initiated by a conference on anti-corruption measures in Pristina, under the
auspices of the Union-led Pillar of UNMIK (cid:1) funded by the Commission (cid:1) and the World Bank. This
includes an extensive Community-funded training programme implemented by the European Agency for
Reconstruction, for civil servants on appropriate practice and behaviour; the use of monitored computer
systems to increase transparency; and the simplification of certain procedures to reduce the scope for
fraud. An anti-corruption agency to compliment the work of the new Auditor General is also envisaged in
the near future. As an interim measure, Italian financial police, the ‘Guardia Finanzia’, have been deployed
in Kosovo, and will soon have very extensive powers to investigate certain institutions without notice.
Also, at the request of the Commission, all publicly-owned enterprises, including KEK, are either in the
process of being audited, or about to be, by professional auditor teams from outside Kosovo, in most cases
from Member States.

With respect to the specific query on what is being done to ensure a satisfactory electricity supply for
Kosovo, the Commission would like to remind the Honourable Member that unfortunately Kosovo’s
electricity supply was seriously damaged by a lightning strike and resultant fire in mid-July 2002, which
knocked out more than half of the territory’s power generation capacity.

The current load management operates at five hours ‘Power On’ and one hour ‘Power Off’, that is all areas
are supplied with power for more than 20 hours per day. However, as demand for electricity has almost
tripled since the pre-war period in which the power infrastructure was designed, in such circumstances,
power shortages are almost inevitable.

in a top industry professional

To tackle these problems, the United Nations Mission in Kosovo’s Special Representative, Michael Steiner,
from a Member State, as new Chief Executive Officer.
has brought
Furthermore, all senior management positions at
the beneficiary public utility company, Korporata
Energjietike E Kosovoes (KEK) have subsequently been re-advertised, and new appointments made.
Extensive staff training programmes are underway. New legislation has enabled KEK to increase its bill
collection rate, which has in turn improved its finance, and allowed domestic shortfalls in power to be
made up, at least in part, by electricity imports. Kosovo’s Government has also undertaken an energy
conservation campaign, designed to reduce waste and curtail consumer demand.

The Commission through the European Agency for Reconstruction is playing a very important role in
rehabilitating the power sector of Kosovo and overcoming the disastrous consequences of the fire of July
2002. The sustainability of the funds invested in the energy sector in Kosovo and implemented by the
Agency is ensured by accompanying the overhaul efforts with investment in capacity building. For
example, the repairs in the power stations have been accompanied by training of the management of KEK
and in the modernisation of its management tools and by providing a management assistance team to
support the public utility, which contract has, as one of the specific required outputs, to propose an
insurance strategy for KEK. It should be noted that all Agency contractors are required to have in place ‘All
Risks’ insurance.

As far as the provisional status of the Kosovo is concerned, the Commission wholly subscribes to the
Special Representative of the Secretary General of the United Nations’s policy of ‘standards before status’,
which have been endorsed by the United Nation Security Council at its meeting on 24 April 2002.

(1) Bart Staes (cid:1) Report A5-0101/2002 final 25 March 2002.