Report from the Commission - Annual Report of the instrument for structural policy for pre-accession (ISPA) 2004 {SEC(2005) 1552}
Date: 2005-12-01
Institutions: European Commission
Subjects: Central and Eastern Europe, accession to the European Union, activity report, pre-accession aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 1.12.2005 
COM(2005) 612 final 

REPORT FROM THE COMMISSION 

ANNUAL REPORT OF THE INSTRUMENT FOR STRUCTURAL POLICY FOR 

PRE-ACCESSION (ISPA) 

2004 

{SEC(2005) 1552} 

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TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

5. 

5.1. 

5.2. 

5.3. 

6. 

6.1. 

6.2. 

7. 

7.1. 

7.2. 

7.3. 

8. 

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

ISPA budget ................................................................................................................. 3 

Project funding ............................................................................................................. 4 

New ISPA projects....................................................................................................... 4 

Projects funded during 2000-2004 ............................................................................... 4 

Payments ...................................................................................................................... 5 

Technical assistance ..................................................................................................... 5 

Technical assistance on the initiative of the beneficiary country ................................ 5 

Technical assistance on the initiative of the Commission ........................................... 6 

Management and implementation ................................................................................ 7 

Project monitoring........................................................................................................ 7 

Financial management and control .............................................................................. 7 

EDIS............................................................................................................................. 8 

Risk assessment............................................................................................................ 8 

European Court of Auditors findings........................................................................... 8 

Co-financing partners – EIB and EBRD...................................................................... 9 

Contribution to Community policies............................................................................ 9 

Public procurement ...................................................................................................... 9 

Environment policy...................................................................................................... 9 

Transport policy: from TINA towards new TEN-T guidelines ................................... 9 

Co-ordination among pre-accession instruments ....................................................... 10 

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Foreword 

This  annual  report  on  the  activities  of  the  Instrument  for  structural  policy  for  pre-
accession (ISPA) covers the calendar year 2004. 

It provides information on the fifth year of implementing ISPA. 

The reporting format reflects the requirements of article 12 of the ISPA Regulation1. 
It  has  been  adapted  to  take  account  of  the  comments  made  by  the  European 
Parliament, the European Economic and Social Committee and the Committee of the 
Regions.  

It is hoped that the report will also serve as a useful reference document for everyone 
interested  in  the  promotion,  prior  to  accession,  of  economic  and  social  cohesion  in 
the EU candidate countries. 

1. 

INTRODUCTION 

As  a  result  of  accession,  ISPA  beneficiary  countries  decreased  from  10  to  two  in 
number,  leaving  only  Bulgaria  and  Romania  to  benefit  from  new  ISPA  financial 
assistance in 2004. For this reason, the report is restricted to the activities of ISPA in 
these  latter  countries,  whereas  implementation  of  the  former  ISPA  projects  in  the 
new Member states are dealt with in the Cohesion Fund 2004 Annual Report. 

2. 

ISPA BUDGET 

For  2004,  €453.3  million  was  allocated  from  the  Commission  budget  to  the  ISPA 
instrument.  The  appropriations  covered  all  expenses  for  co-financing  projects 
(measures) in the beneficiary countries in the environment and transport domains, as 
well  as  for  providing  technical  assistance  (TA),  irrespective  whether  the  TA 
measures were initiated by the beneficiary country or by the Commission. 

Table 1: ISPA budget in 2004 – in euro 

Budget line 

Commitment 
appropriations 

Commitments 
implemented 

Payments 
implemented 

Functional  budget 
line B 13.01.04.02 

Operational budget 
line B 13.05.01.01 

2.100.000 

1.890.000 

1.696.088 

451.200.000 

449.469.968 

132.162.924 

Total 

453.300.000 

451.359.968 

133.859.012 

1 

Council Regulation (EC) 1267/1999 of 21 June 1999. 

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3. 

PROJECT FUNDING 

3.1. 

New ISPA projects  

In 2004, the Commission approved 11 new ISPA measures concerning 9 investments 
in  the  environment  field  and  2  in  the  transport  sector,  including  one  technical 
assistance  (TA)  measure.  The  total  ISPA  contribution  in  that  year  amounted  to 
€452 million, representing an average grant rate of 58.3% of the total eligible project 
cost of €775 million. Commitments totalling €449 million were used for new projects 
(€303 million) as well as for ongoing projects adopted in the previous years. 

About  56.5%  of  the  ISPA  contribution  was  awarded  to  environmental  protection 
projects, predominantly to sewage collection and wastewater treatment projects, but 
also  to  a  desulphurisation  plant.  In  the  transport  sector  the  grant  to  a  combined 
rail/road bridge over the Danube is noteworthy. 

Table 2: New projects approved in 2004 – in euro 

Sector 

Projects 

Eligible cost 

ISPA 
contribution 

Grant rate 

Commitments 

n° 

9 

2 

11 

Environment 

Transport 

Total 

397.780.000 

268.246.300 

377.452.452 

183.734.500 

775.232.452 

451.980.800 

% 

67.4 

48.7 

58.3 

178.311.258 

124.960.302 

303.271.560 

3.2. 

Projects funded during 2000-2004 

Between 2000 and 2004, the Commission grant assisted 72 projects on the basis of 
proposals  submitted  by  Bulgaria  and  Romania:  53  in  the  environment  sector,  17  in 
the transport sector, and one TA measure in each of the two countries for achieving 
decentralised  implementation  (EDIS).  These  projects  represent  a  total  eligible 
investment cost of €3.74 billion, of which €2.51 billion or 67% is financed by ISPA. 
Since  the  launch  of  ISPA,  some  84%  of  the  ISPA  funds  set  aside  for  the  two 
beneficiary countries for the period 2000 to 2006 has been allocated and, from these 
allocations, 75% has been committed. 

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Table 3: Projects approved in 2000-2004 –in euro 

Sector 

Project 
decisions 

Eligible cost 

ISPA 
contribution 

Average grant 
rate 

Commitments 

Environment 

Transport 

EDIS 

Total 

n° 

53 

17 

2 

72 

1.631.154.563 

1.182.478.353 

2.112.247.242 

1.326.144.338 

% 

72.5 

62.8 

921.558.749 

956.777.621 

1.482.308 

1.482.308 

100.0 

1.303.797 

3.744.884.113 

2.510.104.999 

67.0 

1.879.640.167 

Commitments  were  distributed  in  a  balanced  manner  between  the  environment  and 
transport sectors, the ratio between the respective sectors amounting to 49.1 to 50.9.  

3.3. 

Payments 

Overall  ISPA  payments  (including  for  decentralisation)  totalled  €132.2  million, 
which represented an increase of no less than 280% in comparison with the payments 
made in 2003 (€45.9 million). 

By the end of the period 2000-2004, €329.8 million had been paid out, representing 
17.5% of the budgetary commitments implemented in that period.  

Table 4: Payments – in euro 

Sector 

2000-2003 

2004 

Total 

Environment 

77.964.300 

67.584.714 

145.549.014 

Transport 

119.173.044 

64.191.648 

183.364.692 

EDIS 

Total 

537.962 

386.562 

924.524 

197.675.306 

132.162.924 

329.838.230 

4. 

TECHNICAL ASSISTANCE 

4.1. 

Technical assistance on the initiative of the beneficiary country 

TA  measures  for  project  preparation  have  to  ensure  that  beneficiary  countries  are 
presenting  a  sufficient  number  of  quality  projects  in  time  to  the  Commission  for 
ISPA  funding.  Similarly,  TA  measures  for  institutional  strengthening  aim  at 
enhancing the capacity of the beneficiary’s administration to manage and monitor the 
implementation of large-scale infrastructure investment.  

In  2004,  one  application  combining  project  preparation  and 
strengthening in the environment sector was approved. 

institutional 

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Table 5: Technical assistance on the initiative of the beneficiary country 2000-2004 
(in euro) 

Sector 

N° of projects 

Eligible cost 

ISPA contribution 

Environment 

Transport 

EDIS 

Total 

6 

4 

2 

12 

42.481.000 

34.948.500 

9.786.060 

1.482.308 

7.927.545 

1.482.308 

53.749.368 

44.358.353 

4.2. 

Technical assistance on the initiative of the Commission 

Technical assistance activities on the initiative or on behalf of the Commission have 
been  concentrated  importantly  on  enhancing  the  beneficiary  countries’  capacity  to 
prepare,  appraise  and  implement  ISPA  projects  in  accordance  with  the  standards 
required for the management of Community funds. 

A.  Technical  assistance  activities  financed  under  the  “TA  Action  Programme 
2001” 

Initially foreseen to cover TA activities for the 10 ISPA beneficiary countries during 
the  period  2001-2003,  only  those  activities  of  the  Programme  which  were  spilling 
over into 2004 were contractually continued that year, i.e. until the end of April 2004 
for the 8 acceding countries and until the end of 2004 for Bulgaria and Romania. In 
general,  the  activities  were  financed  from  the  commitments  allocated  during  the 
period 2001-2003 which amounted to €11 860 864 and were not entirely taken up by 
end  2003.  They  concerned  the  provision  of  support  to  Monitoring  Committees,  as 
well as the delivery of advisory services on public-private partnerships. 

B.  Technical  assistance  activities  financed  under  the  “TA  Action  Programme 
2004-2006” 

This  Programme  is  a  follow-up  of  the  above  TA  Action  Programme  2001,  albeit 
focussing only Bulgaria and Romania, and most of its activity areas are of a similar 
nature  as  those  in  the  2001  Programme.  In  2004,  the  Programme  notably 
encompassed support to improve the quality of projects throughout the project cycle, 
and assistance for the appraisal and quality control of project applications. 

C.  Technical  assistance  activities  undertaken  outside  the  “TA  Action 
Programme 2001” and the “TA Action Programme 2004-2006”  

In 2004, the areas of activity concerned included payment of salaries and overhead 
for  ISPA  staff  (local  agents)  employed  by  the  Delegations  -incl.  the  8  acceding 
countries until 30 April 2004-, and assistance for the appraisal and quality control of 
project applications. 

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Table 6: Technical assistance on the initiative of the Commission 2000-2004 – in euro 

Activity  

Indicative 
allocations 

Commitments 

Payments 

Action Programme 
2001(*) 

Action Programme 
2004-2006 

Activities outside 
the Action 
Programmes 

12 000 000 

11 860 864 

6 514 699 

5 185 000 

1 529 950 

21 270 

17 800 000 

17 800 000 

10 258 355 

Total 

34 985 000 

31 190 814 

16 794 324 

(*) Including ISPA-10 

5. 

MANAGEMENT AND IMPLEMENTATION  

5.1. 

Project monitoring 

As  regards  effective  implementation  of  ISPA  projects  during  2004,  the  beneficiary 
countries  continued  to  make  made  further  progress  in  terms  of  hands-on  capacity. 
However, the impression remains that there is still scope for them to take effective 
ownership  of  the  different  stages  of  the  project  cycle  and  to  enhance  co-ordination 
between the various project stakeholders. A correlated area of concern is the lack of 
adequate  financial  and  human  resources  devoted  to  the  planning,  preparation  and 
management of ISPA measures, in particular in the environment sector, as well as the 
persistent high turnover of staff. 

5.2. 

Financial management and control 

During  2004,  the  Commission  carried  out  a  fourth  cycle  of  system  audits  in  the 
beneficiary  countries  to  assess  the  adequacy  of  the  systems  and  procedures 
established for the management and control of ISPA funds and their compliance with 
requirements  which  are  close  to  those  applicable  to  the  Cohesion  Fund  and  the 
Structural  Funds.  Conclusions  of  this  audit  cycle  suggest  that  progress  has  been 
made, but that improvements in essential areas such as internal control, internal audit 
and compliance with public procurement rules are still required.  

In  the  case  of  Romania,  the  system’s  audits  disclosed  material  shortcomings,  the 
extent  and  nature  of  which  prompted  the  Commission  to  interrupt  payments  in 
December  2003  and  February  2004  for  CFR  (Railways  Agency)  and  in  December 
2004 for all implementing agencies. A reservation concerning the management and 
control system of ISPA in Romania was introduced in DG Regional Policy Annual 
Activity Report for the year 2004. As a consequence, the Romanian authorities have 
been requested to implement corrective actions by specific deadlines. 

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Parallel project audits in the beneficiary countries confirmed that public procurement 
remains  a  very  risky  step  in  the  whole  project  cycle  as  was  revealed  by  the  high 
rejection  rate  for  the  main  tender  documents  and  the  lengthy  process  of  awarding 
contracts. 

5.3. 

EDIS 

The process of setting up satisfactory financial management and control systems for 
ISPA  has  been  given  a  further  dimension  in  2001  by  the  procedure  for  the 
beneficiary  countries  to  move  towards  an  extended  decentralised  implementation 
system  (EDIS)  for  ISPA.  The  conferral  of  EDIS  and,  hence,  the  waiving  of  the  ex 
ante  approval  of  tendering  and  contracting  by  the  Commission,  are  subject  to  a 
benchmarking exercise of 4 stages -starting with the stage gap assessment. 

By May 2005, the progress made by the beneficiary countries in this exercise caused 
concern. In the case of Romania, the opinion of the stage 3 (compliance assessment) 
external  auditors  was  that  none  of  the  bodies  involved  in  ISPA  implementation 
comply with  the EDIS  requirements. Regarding Bulgaria, considerable problems in 
the  tendering  process  prevented  the  launching  of  stage  2  (gap  plugging)  until  mid 
2005. 

In these circumstances, it is rather unlikely that Bulgaria and Romania will submit a 
request for EDIS accreditation for ISPA much before the middle of 2006, giving very 
little time for a stage 4 (accreditation) Commission decision before accession. 

6. 

RISK ASSESSMENT 

Under  the  system  of  ex  ante  approval,  the  audit  strategy  with  respect  to  the 
beneficiary  countries  is  largely  focussed  on  prevention,  ensuring  that  each  country 
put  in  place  sufficient  control  procedures  regarding  project  implementation  and 
payments.  Successive  audit  rounds  at  all  stages  of  EDIS  aim  at  identifying  the 
shortcomings 
the 
recommendations  are  implemented  and  the  shortcomings  resolved. However, based 
on  the  findings  of  the  audits,  ISPA  implementation  is  confronted  with  a  series  of 
risks which are to be confined and remedied throughout the audit process. 

the  system,  and  at  verifying  whether 

the  set-up  of 

in 

6.1. 

European Court of Auditors findings 

In  its  annual  report  concerning  the  financial  year  2003,  the  Court  of  Auditors 
expressed  the  opinion  that,  the  Commission  did  not  take,  in  the  past,  sufficient 
measures  to  set  up  systems  in  the  beneficiary  countries  that  comply  with  the  ISPA 
requirements, and which would have accelerated the removal of the Commission’s ex 
ante  control.  For  this  reason,  the  Commission  carried  out  additional  system  and 
project audits and agreed on an action plan with these countries in which appropriate 
recommendations of the Commission relating to identified system deficiencies are to 
be addressed according to a specific timetable.  

In 2004, the Court also assessed the effectiveness of ISPA assistance in a number of 
beneficiary countries that have become a Member state. By extension, the findings of 
these  audits  are  relevant  for  the  current  ISPA  beneficiary  countries  as  well.  In  the 

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Commission’s view, most of the errors the Court pointed to did not have a financial 
impact and were of a formal nature. 

6.2. 

Co-financing partners – EIB and EBRD  

The  EIB  and  the  EBRD  remained  the  privileged  partners  for  providing  loan 
financing  to  ISPA  projects  in  2004.  The  Banks’  specialist  skills  in  structuring 
grant/loan  combinations  of 
including  public-private  partnership 
arrangements,  continued  to  be  useful  for  improving  the  quality  of  projects  funded 
from ISPA.  

funding, 

7. 

CONTRIBUTION TO COMMUNITY POLICIES 

7.1. 

Public procurement 

The  fulfilment  of  legal  requirements  for  sound,  fair  and  transparent  public 
procurement  as  enshrined  in  the  PRAG  has  proved  to  be  a  major  challenge  for  the 
beneficiary  countries.  Training  on  specific  procurement  issues  as  well  as  practical 
tools (guides) are to warrant that tendering and contracting take place in accordance 
with national law harmonized according to EU standards.  

7.2. 

Environment policy 

By providing direct assistance to priority projects for environment, ISPA accelerates 
the  implementation  of  environmental  policy and the  compliance  with EU  standards 
in  the  beneficiary  countries.  In  particular,  administrative  capacity  has  been 
strengthened in regard to environmental investment planning and prioritization, and 
steady  progress has also been made  in proper implementation of the EIA directive, 
including aspects related to public consultation. However, problems in relation to the 
difficulties of environmental authorities in obtaining adequate funding and staffing as 
well as the lack of co-ordination between policy fields and of strategic planning need 
to be addressed as a matter of priority by these countries. 

7.3. 

Transport policy: from TINA towards new TEN-T guidelines 

The transport networks in the beneficiary countries, agreed in accordance with TINA 
(Transport  Infrastructure  Needs  Assessment),  were  constructed  around 
the 
framework of pan-European corridors. These networks are used as the planning basis 
for the national transport strategies for ISPA purposes, i.e. concern the construction 
or rehabilitation of a section, nodal point or access relating to the networks. Four of 
the fore-mentioned corridors run across the territory of Bulgaria and Romania. Under 
the new Community guidelines for the development of the trans-European transport 
network  (TEN-T),  three  of  the  network’s  priority  projects  (PP7:  Motorway  axis 
Igoumenitsa/Patra-Athina-Sofia-Budapest,  PP18:  Rhine/Meuse-Main-Danube  and 
PP22: Railway axis Athina-Sofia-Budapest-Wien-Praha-Nürnberg/Dresden) concern 
axes which include Bulgaria and Romania. 

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8. 

CO-ORDINATION AMONG PRE-ACCESSION INSTRUMENTS 

The  PHARE  Management  Committee  ensures  close  co-ordination  among  the  three 
pre-accession  instruments,  PHARE,  SAPARD  and  ISPA.  Further  co-ordination  is 
implemented  through  the  (PHARE)  Joint  Monitoring  Committee,  the  inter-services 
Co-ordination  Committee  and  periodic  meetings  with  the  EC  Delegations  in  the 
beneficiary countries.  

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