Report from the Commission  - Annual Report on the Cohesion Fund (2003) (SEC(2004) 1470)
Date: 2004-12-15
Institutions: European Commission
Subjects: Cohesion Fund, accession to the European Union, activity report, financial control, implementation of the budget, management audit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.12.2004 
COM(2004) 766 final 

. 

REPORT FROM THE COMMISSION 

ANNUAL REPORT ON THE COHESION FUND (2003) 

(SEC(2004) 1470) 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

Budget implementation ................................................................................................ 3 

Economic environment and conditionality .................................................................. 5 

Preparing the accession countries to implement the Cohesion Fund........................... 5 

Coordination with the Structural Funds: the strategic reference frameworks.............. 7 

Inspections and findings............................................................................................... 8 

Irregularities and the suspension of assistance ............................................................ 9 

Evaluation .................................................................................................................... 9 

Information and publicity........................................................................................... 10 

The information set out in this report is presented in greater detail in the Commission staff 
working document (SEC(2004) 1470). 

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ANNUAL REPORT ON THE COHESION FUND (2003) 

This  report  is  presented  in  accordance  with  Article  14(1)  of  Regulation  (EC)  No  1164/94 
establishing a Cohesion Fund. It covers the activities of the Cohesion Fund during 2003. 

1. 

BUDGET IMPLEMENTATION 

The final amount, after indexation, of the resources of the Cohesion Fund for 2003 
was EUR 2 839 million, including around EUR 1 million for technical assistance. 

99.8%  of  commitment  appropriations  were  implemented  in  2003.  Only  EUR 3.37 
million  was  carried  forward  to  2004  and  no  commitment  appropriations  were 
cancelled. 

Implementation of commitment appropriations in 2003 (in euro) 

Commitment 
appropriations 

Initial 

Movements 

Final 
resources 

Implementation 

Cancelled  Carryovers 

to 2003 

2003 budget 

2 839 000 000 

Appropriations 
carried  over  from 
2002 

Appropriations 
made 
again 

available 

0 

31 096 007 

Repayments 

Totals 

0 

2 870 096 007 

0 

0 

0 

0 

0 

2 839 000 000 

2 835 622 004 

0 

3 377 996 

0 

0 

31 096 007 

29 680 316 

0 

0 

0 

0 

0 

0 

0 

0 

2 870 096 007 

2 865 302 320 

0 

3 377 996 

Payment  appropriations  worth  EUR  104.8  million  were  transferred  from  the 
Cohesion  Fund  to  the  Solidarity  Fund  and  EUR  350  million  was  transferred  to 
Objective 1 to cover payment requests from the  Member  States.  Taking account of 
these transfers, all the payment appropriations were implemented. 

Implementation of payment appropriations in 2003 (in euro) 

Payment 
appropriations 

2003 budget 

Appropriations  carried 
over from 2002 

Appropriations  made 
available again 

Repayments 

Totals 

Initial 

Movements 

Final 
resources 

Implementation

Cancelled  Carryovers 

to 2003 

2 650 000 000 

-454 789 000 

2 195 211 000 

2 195 123 861 

87 139 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

2 650 000 000 

-454 789 000 

2 195 211 000 

2 195 123 861 

87 139 

0 

0 

0 

0 

0 

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During the year, Spain committed appropriations in excess of its allocation, thereby 
making up for the fact that Greece did not consume all the appropriations allocated 
to it. 

Budget implementation of appropriations in 2003 by Member State 

Commitment appropriations 2003 

Member State: 

Spain 
Greece 
Ireland 
Portugal 
Technical assistance 
Total 

Member State: 

Spain 
Greece 
Ireland 
Portugal 
Technical assistance 
Total 

Environment 

Transport 

Amount 
717 645 122 
176 404 253 
39 875 213 
374 662 746 
- 
1 308 584 335 

% Envir 
46.5 
33.3 
34.0 
58,1 
- 
46.2 

Amount 
825 490 749 
353.054.898 
77 447 367 
270.140.540 
- 
1 527 037 669 

Mixed 
% Transport Amount 
53.5 
66.7 
66.0 
41,9 
- 
53.8 

901 115 
901 115 

Environment 

Amount 
795 426 626 
25 913 242 
84 168 779 
135 539 103 
- 
1 041 047 750 

% Envir 
46.1 
64.7 
48.9 
52.5 
- 
47.4 

Payment appropriations 2003 
Transport 

Amount 
929 305 015 
14 164 441 
87 923 822 
122 584 061 
- 
1 153 977 339 

Mixed 
% Transport Amount 
53.9 
35.3 
51.1 
47.5 
- 
52.6 

98 771 
97 771 

Total 

Amount 
1 543 135 871 
529 459 151 
117 322 580 
644 803 286 
901 115 
2 835 622 004 

Total 

Amount 
1 724 731 641 
40 077 683 
172 092 601 
258 123 165 
98 771 
2 195 123 860 

% 

54.4 
18.7 
4.1 
22.7 
0 
100 

% 

78.6 
1.8 
7.8 
11.8 
0 
100 

After 2001, when the implementation of appropriations was clearly concentrated on 
environmental projects, in 2003 transport projects predominated for the second year 
running 
(53.8%  of  commitment  appropriations  and  52.6%  of  payment 
appropriations). 

The major effort begun in 2000 to clear the appropriations remaining to be settled in 
respect of projects from the previous period was sustained in 2003 with some 26% of 
the appropriations remaining to be settled at the beginning of the year being paid or 
decommitted during the year. Accordingly, the appropriations remaining to be settled 
at  the  end  of  2003  accounted  for  only  39%  of  the  annual  budget  of  the  Cohesion 
Fund (as against more than half at the end of 2002). In all, 67 projects were closed 
during  2003.  Naturally,  this  effort  to  liquidate  the  appropriations  to  be  settled  will 
continue in 2004. 

Member State 

Spain 
Greece 
Ireland 
Portugal 
Technical 
assistance 
Total 

Settlement in 2003 of commitments for the period 1993-99 

Initial amount to be 
settled 

915 085 684 
381 986 228 
90 492 409 
103 128 498 
96 454 

Decommitments 

Payments 

Final amount to be settled 

3 925 998 
17 698 199 
111 600 
2 911 167 
96 454 

260 564 812 
27 217 263 
34 292 729 
38 996 933 
0 

650 594 874 
337 070 766 
56 088 080 
61 220 398 
0 

1 490 789 273 

24 743 418 

361 071 737 

1 104 974 118 

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2. 

ECONOMIC ENVIRONMENT AND CONDITIONALITY 

The Council Regulation on the Cohesion Fund1 provides for financing by the Fund to 
be conditional. In particular, no new projects or, in the case of major projects, no new 
project  stages  may  be  financed  if  the  Council,  acting  by  a  qualified  majority  on  a 
recommendation from the Commission, finds  that  the Member State concerned  has 
not implemented its stability or convergence programme in such a way as to avoid an 
excessive deficit. 

In  Portugal,  the  general  government  deficit  amounted  to  4.4%  of  GDP  in  2001, 
exceeding  the  3%  of  GDP  reference  value  in  the  Treaty2.  On  16  October  2002  the 
Commission adopted an opinion stating that an excessive deficit existed in Portugal. 
On  5  November  the  Council  adopted  a  decision  to  that  effect,  in  accordance  with 
Article 104(6) of the Treaty, as well as a recommendation addressed to Portugal with 
a  view  to  bringing  the  excessive  government  deficit  to  an  end.  As  the  Portuguese 
authorities took action to comply with this recommendation, the Commission did not 
recommend  the  suspension  of  the  Cohesion  Fund  in  Portugal.  The  Portuguese 
general government deficit for 2002 and 2003 is estimated at 2.7% and 2.8% of GDP 
respectively.  On  11  May  2004,  the  Council  therefore  decided,  on  the  basis  of  a 
Commission recommendation, to repeal the decision on the existence of an excessive 
deficit in Portugal. 

The  Commission  activated  the  EDP  for  Greece  on  19  May  2004  on  the  basis  of 
figures showing that the deficit in 2003 amounted to 3.2% of GDP. On 5 July 2004, 
the ECOFIN Council adopted a decision (Art.104.6) on the existence of an excessive 
deficit  in  Greece  and  a  recommendation  for  the  excessive  deficit  correction 
(Art.104.7).  The  Council  recommended  the  Greek  authorities  to  put  an  end  to  the 
excessive  deficit  situation  as  rapidly  as  possible  and  by  2005  at  the  latest.  The 
Council established the deadline of 5 November 2004 for the Greek government to 
take  effective  action.  Also  the  Greek  authorities  were  recommended  to  reduce  the 
debt ratio at a satisfactory pace and to correct the serious deficiencies revealed in the 
process of validating the EDP notification. 

Subsequently, large upward revisions of the deficit figures took place in September 
2004, resulting in an outturn for 2003 of 4.6% of GDP for the deficit and of 109.9% 
for  the  debt.  According  to  the  Commission  2004  autumn  forecasts,  the  general 
government deficit would reach 5.5% of GDP in 2004 and the debt ratio would attain 
112.1% of GDP, while for 2005 the general government deficit would attain 3.6% of 
GDP in 2005. This development reflects at least partly the absence of effective action 
taken  by  Greece  in  accordance  with  the  recommendations  under  Article  104(7). 
Consequently,  the  Commission  may  consider recommending to the Council to take 
further steps concerning the follow-up to such budgetary developments. 

1 
2 

Article 6 of Council Regulation (EC) No 1164/94 as amended by Regulation (EC) No 1264/99. 
Namely the estimated outturn for 2001 in the September 2002 reporting of government deficits and debt 
levels  in  accordance  with  Council  Regulation  (EC)  No  3605/93,  as  amended  by  Regulation  (EC) 
No 475/2000. 

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3. 

PREPARING THE ACCESSION COUNTRIES TO IMPLEMENT THE COHESION FUND 

For  2004-06,  EUR  24  billion  (current  prices)  has  been  earmarked  for  structural 
assistance  in  the  10  countries  acceding  to  the  EU,  of  which  over  one  third 
(EUR 8.5 billion) has been allocated to the Cohesion Fund.  

Table: Breakdown of allocations for the accession countries: 2004-06 

Country 

Cyprus 
Czech Republic 
Estonia 
Hungary 
Latvia 
Lithuania 
Malta 
Poland 
Slovakia 
Slovenia 
Total 

Mid-range allocations 
(EUR million - 2004 prices) 
53.94*
936.05
309.03
1 112.67
515.43
608.17
21.94
4 178.60
570.50
188.71
8 495.04

Upon accession on 1 May 2004, eight of the 10 ISPA beneficiary countries cease to 
benefit from ISPA and, together with Cyprus and Malta, become eligible under the 
Cohesion Fund. In order to prepare these countries for a smooth and timely transition 
to the Cohesion Fund, the Commission launched a series of activities in 2003, which 
are as follows:  

– 

Consultations  between  the  authorities  of  the  new  Member  States  and  the 
Commission were started with a view to drawing up consistent Cohesion Fund 
strategic  reference  frameworks  for  2004-06.  The  frameworks  were  to  set  the 
main  areas  of  priority  assistance  and  their  financial  breakdown  and  to  define 
the role of the various national authorities in the management of the Fund.  

With  the  exception  of  the  frameworks  of  the  Czech  Republic  and  Slovakia,  the 
Commission had been consulted on all the frameworks of the accession countries by 
the  end  of  2003.  Expenditure  under  the  Cohesion  Fund  in  those  countries  will 
therefore be eligible from 1 January 2004.  

– 

– 

Considering  the  substantial  relative  increase  in  resources  available  to  the 
accession  countries  under  the  Cohesion  Fund,  a  series  of  technical  assistance 
measures  were  adopted  to  help  the  countries  concerned  to  prepare  quality 
transport and environment projects for submission to the Cohesion Fund. 

Technical assistance at the initiative of the Commission continued to focus on 
training  the  public  procurement  authorities  in  the  accession  countries,  with 
particular  attention  to  the  implications  of  the  new  Financial  Regulation  and 
public-private partnerships for public utilities. 

* 

Including the Financial Instrument for Fisheries Guidance (FIFG) 

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– 

Finally, the Commission continued to audit the new Member States' financial 
management  and  control  systems  and  make  recommendations  to  improve 
these.  Moreover,  the  Commission  encouraged  acceding  ISPA  countries  to 
continue  their  efforts  to  move  along  the  EDIS  (extended  decentralised 
implementation system) roadmap so as to obtain a positive certificate from the 
Phase  3  (compliance  assessment)  external  auditor.  As  a  result,  by  the  end  of 
2003, five out of eight of these countries had completed Phase 3 for one or both 
intervention sectors and applied for either partial or full EDIS (Phase 4). 

4. 

COORDINATION  WITH  THE  STRUCTURAL  FUNDS:  THE  STRATEGIC  REFERENCE 
FRAMEWORKS 

4.1. 

Transport 

In  2003  the  transport  sector  accounted  for  53.8%  of  total  Cohesion  Fund 
commitments (EUR 1 526 million). As in the past, the Commission insisted that the 
work  of  the  Fund  should  concentrate  on  railways.  The  projects  and  operations 
adopted in 2003 by Member State are set out in the Annex. 

While  TEN  transport  projects  of  common  interest  are  financed  from  the  trans-
European  transport  networks  budget  line,  the  Cohesion  Fund  provides  funds 
specifically  for  the  overall  TEN  transport  infrastructure  networks.  Coordination 
between  the  TEN  budget  and  the  Cohesion  Fund  is  important  because  these 
Community  financial  instruments  take  into  account  the  need  for  links  between  the 
central  regions  of  the  Community  and  those  regions  which  are  structurally 
handicapped by their insular, landlocked or peripheral status. 

The  process  of  revising  the  guidelines  for  the  development  of  the  trans-European 
transport  network3  continued  during  2003.  A  high-level  group  consisting  of 
representatives  of  the  current  and  future  Member  States  and  the  EIB  made  its 
recommendations  to  the  Commission  concerning  new  priority  projects  in  the 
enlarged EU.  

Based on the recommendations of the high-level group and the results of the public 
consultation  on  the  report,  the  Commission  brought  forward  a  new  proposal4  on 
1 October  2003,  which  supplements  the  2001  proposal.  The  new  proposal  adds  a 
further nine new projects to the list of priority projects, bringing the total number of 
projects  on  major  transport  axes  up  to  29.  Member  States  should  give  appropriate 
priority to these projects when requesting funding from EU financial instruments. 

4.2. 

Environment 

The environment accounted for 46.2% of total Cohesion Fund commitments in 2003 
(EUR 1  309  million).  The  priorities  in  this  sector  remained  the  supply  of  drinking 

3 
4 

Decision No 1692/96/EC. 
COM(2003)564 final: Proposal for a Decision of the European Parliament and of the Council amending 
the amended proposal for a Decision of the European Parliament and of the Council amending Decision 
No 1692/96/EC on Community guidelines for the development of the trans-European transport network. 

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water and the treatment of waste water and solid waste. The projects and operations 
adopted in 2003 by Member State are set out in the Annex. 

The  Cohesion  Fund  contributes  to  the  more  general  objectives  of  environmental 
policy  in  relation  to  sustainable  development  and  in  particular  achievement  of  the 
priority  areas  of  the  6th  Action  Programme,  notably  the  management  of  natural 
resources, waste and climate change. 

During  2003  the  Cohesion  Fund  continued  its  efforts  to  implement  environmental 
legislation,  not  only  by  directly  financing  infrastructure  for  waste-water  treatment, 
drinking-water  supply  and  the  treatment  of  solid  waste,  but  also  by  enforcing  the 
correct application of certain Directives as a prerequisite for the grant of financing. 
This concerns both the subject-based directives with a large spatial component (e.g. 
those on nature conservation and the management of waste and waste water) and the 
directive on environmental impact assessments (EIA). 

5. 

INSPECTIONS AND FINDINGS 

During  2003,  the  Directorate-General  for  Regional  Policy  carried  out  17  audit 
missions  on  projects  and  10  audit  missions  on  the  management  and  inspection 
systems in the four Member States eligible under the Cohesion Fund. Problems were 
identified in all four Member States. 

In  the  case  of  projects,  the  main  shortcomings  noted  concerned  the  procedures  for 
awarding public contracts, although the situation varies from country to country. The 
improvement in the situation noted in 2002, particularly as regards compliance with 
Decision 96/455/EC on publicity, was confirmed in 2003. 

The  irregularities  detected  are  the  subject  of  adversarial  procedures  with  the  four 
Member  States  with  a  view  to  determining  whether  financial  corrections  should  be 
applied. 

The  audit  of  the  systems  set  up  by  the  Member  States  was  implemented  in  three 
stages.  In  the  first  stage  the  Commission  examined  the  descriptions  of  the  systems 
that  the  Member  States  had  communicated  to  it,  and  the  two  subsequent  stages 
involved  on-the-spot  verifications  by  means  of  compliance  testing.  The  findings 
showed that the Member States had continued their efforts to bring their organisation 
into  line  with  the  requirements  of  Commission  Regulation  (EC)  No  1386/2002  on 
management and control systems for assistance granted from the Cohesion Fund and 
the  procedure  for  making  financial  corrections,  but  that  problems  persist  in  certain 
well-defined fields. 

An  action  plan  was  drawn  up  with  Spain  and  Greece  in  order  for  the  necessary 
changes  to  be  made  during  2004  to  provide  the  Directorate-General  for  Regional 
Policy  with  reasonable  assurances  that  the  management  and  control  systems  are 
operating correctly. 

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6. 

IRREGULARITIES AND THE SUSPENSION OF ASSISTANCE 

During  2003  the  European  Anti-Fraud  Office  (OLAF)  finalised  the  reports  on  the 
joint audits carried out in 2002 with the Regional Policy DG in the four beneficiary 
Member  States  to  look  at  their  implementation  of  Regulation  (EC)  No  1831/94  as 
regards the systems and procedures for notifying and monitoring irregularities in this 
field. The conclusions of the audit were communicated to the Member States and a 
summary report was forwarded to the Council, Parliament and the Court of Auditors. 

In  addition,  Article  3  of  Regulation  (EC)  No  1831/94  concerning  irregularities  and 
the recovery of sums wrongly paid in connection with the financing of the Cohesion 
Fund  and  the  organisation  of  an  information  system  in  this  field  requires  the 
beneficiary  Member  States  to  notify  the  Commission  of  irregularities  as  soon  as  a 
preliminary administrative or judicial finding has been made. 

In  2003,  two  Member  States,  Greece  and  Portugal,  notified  the  Commission  of  36 
and  10  irregularities  respectively.  The  cases  notified  by  the  Greek  authorities 
involved  a  total  of  EUR  121 005 484  in  Community  contributions,  and  EUR 
120 240 418  was  subsequently  deducted  from  payment  requests  submitted  to  the 
Commission. The irregularities concerned for the most part non-compliance with the 
rules  on  public  contracts  and  applications  for  ineligible  expenditure.  The  cases 
notified  by  the  Portuguese  authorities  involved  a  total  of  EUR  21 043 856  in 
Community  contributions  and,  here  too,  more  than  half  the  cases  concerned  non-
compliance  with  the  rules  on  public  contracts,  the  rest  concerning  presentation  of 
ineligible  expenditure.  In  the  latter  case,  more  than  half  of  the  cases  were  detected 
during  Community  checks.  EUR 897 896  was  recovered  at  national  level  and  the 
remainder is still to be recovered. 

The  other  two  beneficiary  Member  States  notified  the  Commission  under  the 
Regulation that they had detected no irregularities during the year.  

7. 

EVALUATION 

Under the revised Regulation No (CE) 1164/94, the Commission and the beneficiary 
Member  States  both  appraise  and  evaluate  investment  projects  for  which  part-
financing  is  requested  from  the  Cohesion  Fund,  with  a  view  to  ensuring  the 
effectiveness of Community aid. 

Every  application  for  assistance  must  be  accompanied  by  an  ex-ante  cost-benefit 
appraisal of the project by the Member State, showing that the medium-term socio-
economic advantages are in keeping with the resources deployed. The Commission 
scrutinises this appraisal on the basis of the new cost/benefit analysis guide used by 
both  promoters  and  the  Commission  to  assess  whether  part-financing  is  advisable. 
On the basis of the new guide for the cost/benefit analysis of major projects, during 
2003  the  Commission  carried  out  substantial  internal  work  to  make  the  ex-ante 
financial analysis of the various projects more coherent. 

In addition, the ex-post evaluation of a sample of 200 projects part-financed by the 
Cohesion  Fund  during  the  period  1994-2002  was  launched  in  2003.  The  results  of 
this study are expected at the end of 2004.  

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8. 

INFORMATION AND PUBLICITY 

Two  information  meetings  with  all  15  Member  States  and  the  applicant  countries 
were held in Brussels, on 17 July and 19 November 2003. 

At  the  first  meeting,  the  Commission  presented  the  commitment  and  payment 
forecasts  for  the  year  and  the  Member  States  presented  the  situation  in  their 
respective countries. The Commission presented the draft regulation on information 
and publicity measures drawn up on the basis of Decision 96/455/EC. As a result of 
the  difficulties  encountered  in  applying  some  of  the  Decision's  provisions,  certain 
Member  States  wished  to  amend  the  text.  For  legal  reasons,  the  Decision  was 
replaced by a Commission regulation. 

During the November meeting, the Commission presented the 2002 annual report on 
the  Cohesion  Fund,  the  commitment  and  payment  forecasts  for  the  year  and  the 
information that, following the mid-term review, Ireland is no longer eligible under 
the Cohesion Fund from 1 January 2004. 

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