Report from the Commission - 16th Annual report on implementation of structural funds 2004 {SEC(2005)1348}
Date: 2005-10-28
Institutions: European Commission
Subjects: Community budget, Structural Funds, activity report, implementation of the budget, structural expenditure

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.10.2005 
COM(2005) 533 final 

REPORT FROM THE COMMISSION 

16th ANNUAL REPORT ON IMPLEMENTATION OF STRUCTURAL FUNDS 2004 

{SEC(2005)1348} 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

Introduction .................................................................................................................. 3 

Analysis of Implementation in 2004 ............................................................................ 3 

Consistency and Coordination ..................................................................................... 7 

Evaluations................................................................................................................... 9 

Controls ........................................................................................................................ 9 

Committees Assisting the Commission ..................................................................... 11 

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REPORT FROM THE COMMISSION 

16th ANNUAL REPORT ON IMPLEMENTATION OF STRUCTURAL FUNDS 2004 

This  report  is  presented  in  accordance  with  Article  45(2)  of  Regulation  (EC)  n°  1260/1999 
laying down general provisions on the Structural Funds. It is the 16th annual report covering 
the Structural Fund activities during 2004. 

The  informations  outlined  in  this  report  are  presented  in  greater  detail  in  the  Commission 
Staff Working paper. 

1. 

INTRODUCTION 

The  year  2004  was  marked  by  three  important  events  in  the  life  of  the  current 
generation of European programmes: the allocation of the performance reserve; the 
mid-term  review  of  the  programmes  in  the  EU  15;  the  enlargement  of  the  Union 
giving  rise  to  43  additional  programmes  mostly  in  the  category  of  less  developed 
regions. For the latter, Community aid totalling EUR 24 billion (at current prices) has 
been allocated for the period 2004-06.  

Meanwhile,  outside  the  framework  of  the  current  programmes,  negotiations  were 
launched on the new regulatory framework for cohesion policy for 2007-2013. The 
Commission’s proposals to the Parliament and to the Council are intended to confirm 
the role of cohesion policy as the principal budgetary instrument at Community level 
for  the  realisation  of  the  Lisbon  competitiveness  agenda  with  estimated  budgetary 
requirements  of  some  EUR  336.1  billion  over  7  years  for  three  priority  objectives: 
Convergence,  in  the  least  developed  regions;  Competitiveness  and  Employment,  in 
the other regions; European territorial co-operation, across borders.  

2. 

ANALYSIS OF IMPLEMENTATION IN 2004 

2.1. 

Budgetary Implementation 

2.1.1.  Commitments 

In  2004  the  available  commitment  appropriations  for  the  Structural  Funds  totalled 
EUR 35 353 million, i.e. 32% of the EU budget. The commitment appropriations for 
the ten new Member States amounted to EUR 3 812 million. Commitments actually 
made totalled EUR 35 212 million, practically 100% of the available appropriations 
(reflecting  the  system  of  essentially  automatic  commitments).  All  of  the  allocation 
foreseen in the Copenhagen agreement for the EU-10 programmes was committed. 

2.1.2.  Payments 

Payments on commitments in 2004 were the highest ever recorded for the Structural 
Funds,  equivalent  to  EUR  31  516  million  euros,  or  99%  of  the  available  payment 

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appropriations.  This  represented  a  significant  acceleration  in  the  realisation  of  the 
current generation of programmes in the fifth year of the programming period.  

This reflected more proactive management by the authorities at Community, national 
and  regional  level,  helping  to  keep  the  programmes  on  track  for  a  successful 
implementation over the 7 years, 2000-06.  

For Objective 2, 100% of the available payment credits were used. For Objectives 1 
and 3, as well as for the Community Initiatives, the figure was also close to 100%. 
For the FIFG (outside Objective 1 programmes) the figure was 83%, an improvement 
on  the  performance  of  previous  years.  On  the  other  hand,  the  figure  for  innovative 
measures and technical assistance decreased from 90% in 2003 to 78% in 2004. At 
the  level  of  each  Fund,  the  ERDF,  EAGGF-Guidance  and  ESF  all  achieved  high 
payment  levels  (between  98%  and  100%  of  available  credits).  For  the  FIFG  the 
figure was 81% in 2004, down from 86% in 2003.  

In the ten new Member States, the payments in 2004 largely consisted, as expected, 
of  advances  to  create  the  rolling  funds  to  help  programme  realisation1.  They 
amounted to EUR 1 550 million. The total amount of interim payments (concerning 
only Objective 1 programmes) was EUR 23.7 million. 

2.1.3. 

Implementation by Member States (EU 15) 

In  2004,  the  accelerated  implementation  allowed  seven  out  of  the  fifteen  Member 
States  to  decrease  their  outstanding  commitments  in  absolute  terms.  Absolute 
reductions  in  this  respect  were  highest  for  Spain  (EUR  500  million)  and  Ireland 
(EUR 361 million). Reductions were also achieved on accumulated commitments in 
Denmark,  Finland,  Luxembourg,  Portugal  and  Sweden.  Five  Member  States 
accounted for almost three-quarters of all payments, in order, Spain, Germany, Italy, 
Portugal and Greece. In the Fifteen, these are the major beneficiaries of EU cohesion 
policy. 

2.1.4.  “N+2” rule2 

Decommitments of resources in the absence of a valid payment claim with the time 
delays  set  by  the  n+2  at  the  end  of  2004  were  minor  relative  to  total  resources 
deployed. For the ERDF, the figure amounted to an estimated EUR 56.1 million for 
26  programmes.  Most  concerned  INTERREG  programmes  which,  involving 
management arrangements across national borders, are more difficult to execute. The 
figure represented only 0.3% of the annual commitment for ERDF. The figures will 
be definitive once the agreement of the Member State concerned will be received. 

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2 

The advances for EU-10 Structural Fund programmes amount to 16% of the total commitment envelope 
of € 16 billion for the period 2004-2006, or € 2.56 billion, split between 2004 (10%) and 2005 (6%).  
Art.  31  (2),  par.2  of  the  Regulation  N°  1260/1999  provides  for  definition  of  the  “N+2”rule:  The 
Commission shall automatically decommit any part of a commitment which has not been settled by the 
payment on account or for which it has not received an acceptable payment application, as defined in 
Article 32(3), by the end of the second year following the year of commitment or, where appropriate 
and for the amounts concerned, following the date of a subsequent Commission decision necessary in 
order to authorise a measure or an operation or by the end of the deadline for the transmission of the 
final  report  referred  to  in  Article  37(1);  the  contribution  from  the  Funds  to  that  assistance  shall  be 
reduced by that amount.  

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Estimates for the other Structural Funds gave slightly higher rates of de-commitment: 
for the ESF the figure was EUR 123.5 million, or 1,3% of the annual commitment, 
for  the EAGGF EUR 44.4  million, or 1.5% of the annual commitment, and for the 
FIFG EUR 70.2 million or 12.5% of the annual commitment. 

For all 4 Funds taken together, the overall result should equate to a de-commitment 
of less than 1% (around 0,96%) of the total 2002 annual commitment, suggesting that 
the n+2 rule is performing the role for which it was intended by encouraging a more 
even pattern in financial execution of the programmes year-on-year. 

2.2. 

Programme Implementation 

2.2.1.  Objective 1 and 2 

2.2.1.1.  EU 15 

In 2004, an important event was the allocation of the performance reserve followed 
by the mid-term review. This innovation in the programmes for 2000-06 also allowed 
Member  States  to  adapt  programmes  to  changes  in  the  general  socio-economic 
situation or to changing labour market conditions and to take on board the results of 
the  mid-term  evaluations.  In  general,  this  provided  the  opportunity  to  contribute 
better  to  the  priorities  of  the  revised  European  Employment  Strategy  (EES)  and  to 
the  achievement  of  the  Lisbon  objectives.  The  mid-term  review  also  allowed 
Member States to introduce changes in the structure of the programmes, for example, 
to simplify implementation. 

2.2.1.2.  New Member States 

Experience of the first year of programme implementation in EU-10, begun in May, 
suggests  that  project  selection  activity  is  well  under  way  in  most  cases. 
Encouragingly,  the amount of project  applications  for  some  measures  exceeded  the 
financial resources available in the programmes. At the same time, challenges remain 
such as raising the quality of projects and ensuring a balanced geographic coverage, 
as well as the need to address deficiencies in management. 

2.2.2.  Objective 3 

A  main  message  arising  from  the  mid-term  evaluation  reports  is  that  the  strategy 
initially  agreed  for  the  ESF  interventions  remains  relevant  in  the  majority  of  the 
cases,  and  that  it  continues  to  contribute  to  the  implementation  of  the  European 
Employment  Strategy.  Recommendations  mainly  concerned  fine-tuning  of  the 
programmes. Many of the changes introduced aimed at simplifying the programmes, 
increasing  flexibility  to  respond  to  socio-economic  challenges  or  reducing  the 
allocation  to  measures  where  needs  appear  to  be  less  than  expected  as  reflected  in 
under-spending. 

2.2.3.  Fisheries outside Objective 1 

The  mid-term  review  provided  the  opportunity  to  adapt  the  programmes  to  the 
requirements  of  the  reform  of  the  Common  Fisheries  Policy  in  particular  regarding 
the  discontinuation  of  aid  for  the  renewal  of  fishing  vessels  and  the  permanent 
transfer of Community vessels to non-member countries, which is no longer allowed 

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from  2005;  changes  in  the  terms  and  conditions  for  aid  from  Member  States  to 
fishermen and ship owners who temporarily cease their fishing activity; changes in 
the  aid  for  the  retraining  of  fishermen  which  is  widened  to  include  diversification 
into other activities while they continue to fish part-time. 

2.2.4.  Community Initiatives 

2.2.4.1.  Interreg 

With  the  accession  of  ten  new  Member  States,  11  new  cross-border  programmes 
were launched and amendments were introduced to 17 programmes to add the new 
Member  States  among  the  participants.  The  additional  ERDF  funding  for 
INTERREG for the new Member States totals EUR 479 million for the period 2004-
2006. Together with the indexation funds for the period 2004-2006, this has brought 
the  ERDF  budget  for  INTERREG  III  to  some  EUR  5.8  billion.  Many  programmes 
were modified in 2004 as a result of the mid-term review process. 

2.2.4.2.  Leader+ 

The  payments  in  2004  for  the  73  Leader+  programmes  amounted  to  238  Million 
EUR  from  EAGGF  Guidance.  More  than  20 000  projects  were  approved  since  the 
beginning of the programming period by the Local Action Groups mainly within the 
domains  of  tourism,  support  to  SMEs,  renovation  and  development  of  villages  and 
rural heritage, basic services to the rural population and rural economy. For the new 
Member  States,  the  possibility  exists  to  implement  a  Leader+-type  measure  under 
their rural development programmes. 

2.2.4.3.  URBAN 

The year 2004 was largely devoted to the launching of work on thematic networks 
(programme  URBACT).  Fifteen  thematic  networks  have  been  approved,  each 
organised  around  different  themes.  Participation  is  high  with  150  cities  as  partners 
including 36 cities in the new Member States. New results for the Urban Audit were 
published3.  

2.2.4.4.  EQUAL 

In  2004,  the  first  round  of  implementation  of  the  Partnerships  for  Development 
(PDD)  came  to  an  end  and  the  second  phase  was  launched.  A  new  focus  was 
introduced  involving  support  activities  to  strengthen  institutional  capacity  and 
efficiency  in  national  managing  teams  for  EQUAL.  Several  EQUAL  publications 
were produced and are available electronically4.  

In 2004, 27 new decisions were adopted to incorporate changes as result of the mid-
term review and the indexation or to draw up new Community Initiative Programmes 
(PIC) for the new Member States.  

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(http://www.urbanaudit.org) 
www.europa.eu.int/equal 

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2.2.5. 

Innovative Actions 

2.2.5.1.  ERDF 

Some  139  programmes  were  approved  with  total  amount  of  EUR  660  million,  of 
which  EUR  344  million  under  the  ERDF.  A  major  event  in  2004  was  the  prize-
giving  ceremony  for  the  winners  of  the  European  Regional  Innovation  Awards 
competition5. Comprehensive checklists and models for the amendment and eventual 
closure of the programmes were prepared during 2004 as part of the drive to ensure 
sound financial management and to help identify best practices.  

2.2.5.2.  ESF 

Some  35  projects  in  the  field  of  social  dialogue  were  finalised.  33  projects  were 
selected under the first round of a call for proposals on “Innovative approaches to the 
management  of  change”.  In  order  to  assist  in  the  mainstreaming  of  results,  the 
Commission  launched  a  call  for  proposals  on  the  “transfer  and  dissemination  of 
innovation from ESF Article 6 projects”. 

2.2.5.3.  FIFG 

The year 2004 mostly concerned the implementation of projects selected in previous 
years. Three projects were brought to a close. An ex-post evaluation of the results of 
projects selected within measure “Innovative actions” was launched.  

3. 

CONSISTENCY AND COORDINATION 

3.1. 

Consistency with other Community Policies 

3.1.1.  Competition 

Regulation  (EC)  No  1260/1999  states  that  assistance  approved  by  the  Commission 
must include all the elements required for the ex-ante assessment of the compatibility 
of  state  aids  with  the  common  market.  Accordingly,  during  2004  the  Commission 
paid  particular  attention  to  ensuring  compliance  with  state  aid  rules,  firstly,  in  the 
programmes  for  the  new  Member  States  for  2004-06,  and,  secondly,  in  the 
programmes for the Fifteen, including the assessment of competition policy aspects 
of certain major projects as defined by Articles 25 and 26 of Regulation 1260/1999. 

3.1.2.  Environment 

For the ten new Member States, some EUR 720 million are estimated to be spent on 
environment  priorities  for  the  period  2004-6  which  represents  4.8%  of  the 
EUR 15 billion  allocated  for  the  Structural  Funds  for  the  new  Member  States 
compared with 13% out of EUR 196 billion in the EU15 for the period 2000-6. All 
new  Member  States  have  water  and  waste  management  projects  as  important 
priorities.  

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http://europa.eu.int/comm/regional_policy/innovation/concours_en.htm 

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A  particular  challenge  for  the  new  Member  States  concerns  the  application  of  the 
Environmental  Impact  Assessment  Directive  and  the  Birds  and  Habitats  Directives 
(for the Natura 2000 network).  

3.1.3. 

Internal Market 

Greater  decentralisation  has  been  introduced into  the  management  of  the  Structural 
Funds, increasing the responsibility of the Member States for the award of contracts 
financed  by  the  Community  Funds.  To  ensure  that  these  procedures  comply  with 
Community  rules,  the  Commission  has  encouraged  national  authorities  to  adopt 
various  preventive  measures  such  as  appropriate  training  for  staff  involved  in 
awarding contracts and issued procedural guidelines. 

3.1.4.  Transport 

The  revised  Community  guidelines  for  the  development  of  the  Trans-European 
network  were  adopted  on  29  April  20046.  These  Guidelines  comprise  30  priority 
projects of European interest across EU-25 with cost of around EUR 225 billion. As 
projects of European interest, they help to focus funding from the Structural Funds in 
this field, especially in the regions covered by Objective 1.  

3.2. 

Coordination of Instruments 

3.2.1.  The Structural Funds and the Cohesion Fund 

There are now 13 Member States eligible for support under the Cohesion Fund (the 
ten new Member States, Portugal, Spain and Greece). Ireland was no longer eligible 
for support since the 2003 review which found that GNI per capita had grown above 
the threshold level. 

The  principal  coordination  instrument  between  the  interventions  of  the  Cohesion 
Fund and Structural Funds is the strategic reference framework (SRF). The ten new 
Member States presented their SRF during the first semester of 2004.  

3.2.2.  The Structural Funds and the EIB/EIF 

In 2004, cooperation between the Commission and the EIB was further intensified in 
terms  of  dialogue  and  preparatory  work  for  reinforced  cooperation  in  the  next 
programming  period  2007-2013.  The  Bank  assisted  the  Commission  in  appraising 
15 major  ERDF  projects  and  25  Cohesion  Fund  projects.  At  the  end  of  2004, 
technical  negotiations  began  between  the  Commission  and  the  EIB  on  how  to 
strengthen cooperation in order to offer the Member States additional help to prepare 
quality projects with a view to accelerating execution. The negotiations are expected 
to conclude in 2005. 

In 2004, the European Investment Bank lent a total of EUR 43.2bn (in 2003, 42.3bn) 
for projects strengthening the European Union’s political objectives. Financing in the 
EU-25 Member States totalled EUR 39.7bn. 

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Decision N° 884/2004/EC amending Decision N° 1692/96/EC.  

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In  2004, 
the  European  Investment  Fund  (EIF)  acquired  holdings  worth 
EUR 358 million  in  venture  capital  funds,  bringing  its  aggregate  portfolio  to 
EUR 2.8bn, and provided a total of EUR 1.4bn in guarantees for SME portfolios of 
financial intermediaries. 

The total lending of EUR 28.5bn for regional development represents some 72% of 
the EIB’s aggregate lending within the EU-25. 

4. 

EVALUATIONS 

4.1.  Mid-Term Evaluation 

The  mid  term  evaluations  were  based  on  a  mix  of  methodologies,  including  desk 
research,  primary  research  and,  for  larger  programmes,  some  macro-economic 
modelling.  Significant  improvements  were  evident  in  the  quality  and  rigour  of  the 
evaluations.  The  results  were  used  to  improve  the  implementation  of  Structural 
Funds,  particularly  to  develop  further  indicators,  to  help  implement  horizontal 
priorities and to improve project selection criteria. 

4.2. 

Performance Reserve 

The  performance  reserve  is  an  innovation  for  the  2000-2006  period.  In  total,  over 
EUR 8 billion was allocated to Structural Fund programmes (Community Initiatives 
were  excluded)7.  The  performance  of  each  programme,  priority  or  measure  was 
assessed  on  the  basis  of  financial,  effectiveness  and  management  indicators.  As  a 
general rule, the majority of programmes and priorities performed sufficiently well to 
merit an allocation from the reserve, although the sums involved varied considerably 
in the light of the review results. 

A  major  strength  of  the  process  was  to  create  an  incentive  for  capacity  building  in 
good  management  practices.  There  was  some  diversity  between  Member  States  in 
the  methods  used  for  assessing  performance  and  for  making  allocations  reflecting 
differing circumstances.  

4.3. 

Other Evaluations 

During  2004,  the  Commission  carried  out  or  completed  a  series  of  ex-post 
evaluations  as  well  as  a  strategic  evaluation  on  the  contribution  of  the  Structural 
Funds to the Lisbon strategy. 

5. 

CONTROLS 

5.1. 

ERDF 

Closure  audits  on  the  1994-99  period  have  been  completed  on  56  programmes 
covering all Member States. In a limited number of cases, the audit findings led to 
the suspension of the closure process.  

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See annex-part 5: Performance Reserve: Range of Percentage Allocations, Objective 1 and Objective 2. 

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A new audit enquiry on the 2000-06 period was launched to verify that the systems 
work  effectively  in  practice.  Eight  audits  were  carried  out  in  2004  in  different 
Member States.  

Co-ordination  meetings  were  organised  during  the  first  part  of  the  year  with  
EU-15 Member  States  to  discuss  control  issues  with  the  national  control  bodies 
covering all the Funds.  

As regards the new Member States, the audit work concerned the assessment of the 
systems descriptions submitted under Article 5 of Regulation 438/2001.  

5.2. 

ESF 

The 2004 risk assessment focused primarily on those programmes which represented 
the  highest  financial  impact  factor.  42  system  audits  were  carried  out  in  the  
EU-15 Member States  and  17 coordination meetings  were held with  the designated 
national Article 10 and 15 control authorities. 

System  descriptions  were  reviewed  following  Article  5  reports,  supplemented  by  5 
on-the-spot, fact-finding missions in the new Member States. Three closure audits of 
the 94-99 programmes were carried during the year. 

5.3. 

EAGGF 

In  2004,  five  missions  in  Member  States  aimed  at  closure  audits  of  the  
94-99 programmes  and  covering  the  biggest  national  programmes  for  Objective  5a 
measures were carried out. 

Some  17  audit  missions  were  carried  out  in  Member  States  to  identify  certain 
situations  which  were  held  to  be  unsatisfactory  (representing  some  2-3%  of  the 
EAGGF payments in 2004) to be followed by appropriate corrections. 

5.4. 

FIFG 

A  total  of  8  on-the-spot  controls  were  carried  out  in  2004.  Five  on-the-spot  audits 
concerned  the  verification  of  management  and  control  systems  of  2000-2006 
programmes (EUR 407 Million ) in four Member States. One FIFG audit concerned 
the closure of 1994-1999 programmes (EUR 1,1 Million). Two projects of innovative 
actions were audited for an amount of  FIFG aid of EUR 236.000. In total nineteen 
structural  projects  were  audited  (EUR  5,35  Million),  FIFG  aid  amounting  to  EUR 
1,8 Million. 

5.5. 

OLAF 

During 2004, OLAF undertook 29 operational missions in the Member States. Some 
22 of these missions related to the controls and verifications on the spot effected by 
the Commission for the protection of the EC financial interests against fraud or other 
irregularities. Seven other missions were to assist either the national administrations 
or the legal authorities. 

Sixteen  missions  concerned  the  ESF,  three  missions  for  the  ERDF,  two  missions 
concerned FIFG and one regarding the EAGGF Guidance Section. 

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In  2004,  Member  States  themselves  communicated  to  the  Commission,  in 
accordance with the Regulation (EC) No 1681/94, some 30378 cases of irregularities 
involving  431  million  euros  which  have  affected  payments  incurred  during  both 
periods  1994-1999  and  2000-2006.  Both  amounts  and  number  of  cases  have 
increased comparing to the year 2003. This is likely to affect the finalisation of the 
process  leading  to  the  closure  of  programmes  relating  to  the  period  1994-1999.  It 
shows at the same time an encouraging increase in awareness among Member States 
of their obligations in this field, leading to better detection and reporting as opposed 
to an underlying rise in the incidence of irregularities. 

6. 

COMMITTEES ASSISTING THE COMMISSION 

6.1. 

Committee on the Development and Conversion of Regions (CDCR) 

The  CDCR  in  its  role  as  management  committee  gave  favourable  opinions  on 
amendment  of  the  guidelines  for  INTERREG  III  and  INTERREG  IIIC  and  on 
Commission  Regulation  (EC)  N°  448/2004  as  regards  the  eligibility  of  expenditure 
on operations co-financed by the Structural Funds. As a consultative committee, the 
CDCR considered the Technical assistance measures planned for 2005, approval of 
the lists of the areas eligible under Objective 2 in the ten new Member States, and the 
approval of programming documents for the new Member States. 

6.2. 

ESF Committee 

The Committee adopted 3 opinions: on the adoption of Commission Regulation (EC) 
N° 448/2004, on the programming documents of the new Member States and on the 
future regulatory framework for the Structural Funds. 

6.3. 

Committee on Agricultural Structures and Rural Development (STAR) 

The  STAR  Committee  met  11  times  in  2004  and  gave  favourable  opinions  on 
52 modifications of rural development programmes under Article 44 (2) of Council 
Regulation  (EC)  N°  1257/1999  and  5  on  rural  development  programmes  under 
Article 4 of Council Regulation (EC) N° 1268/1999. 

6.4. 

Committee on Structures for Fisheries and Aquaculture (CSFA) 

The  Committee  was  consulted  on  the  following  subjects:  the  draft  Regulation 
n° 448/2004,  FIFG  programming  documents  of  the  10  new  Member  States,  the 
innovative actions projects, the conference on the future of FIFG, the interpretation 
of  Article  16  of  Regulation  2797/99  and  on  the  draft  rules  of  procedure  of  the 
Committee. 

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See also Annual Report 2004 on the protection of the Community financial interests –the fight against 
fraud, http://europa.eu.int/comm/anti_fraud/reports/index_en.html. 

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