Report from the Commission to the Council on the future of the European Agency for Reconstruction
Date: 2005-12-23
Institutions: European Commission
Subjects: Central and Eastern Europe, European Agency for Reconstruction, cooperation policy, economic reconstruction, peacekeeping, report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.12.2005 
COM(2005) 710 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

ON THE FUTURE OF THE EUROPEAN AGENCY FOR RECONSTRUCTION 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

4.1. 

4.2. 

5. 

Background .................................................................................................................. 3 

Political considerations ................................................................................................ 4 

the future of implementation of pre-accession assistance under IPA (2007-2013) ..... 4 

The transition aspects................................................................................................... 6 

Legal and financial considerations............................................................................... 6 

Administrative, personnel and budgetary matters........................................................ 7 

Conclusion.................................................................................................................... 7 

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REPORT FROM THE COMMISSION TO THE COUNCIL 

ON THE FUTURE OF THE EUROPEAN AGENCY FOR RECONSTRUCTION 

1. 

BACKGROUND 

The  European  Agency  for  Reconstruction  (hereafter  the  “EAR”)  was  established  by  the 
Council  Regulation  (EC)  N°  2667/2000  of  5  December  2000  1.  It  was  designed  as  an 
instrument  for  supporting  the  EC  reconstruction  efforts  in  Kosovo,  following  the  crisis  in 
1999, and the Emergency Assistance Programme in Serbia after the end of the of Milosevic 
regime in 20002. Its mandate was extended to the former Yugoslav Republic of Macedonia in 
2001 for supporting the implementation of the Ohrid agreement.  

The seat of the EAR is in Thessaloniki, and it has operational centres in Belgrade (Serbia and 
Montenegro-Serbia),  Podgorica  (Serbia  and  Montenegro-Montenegro),  Pristina  (Serbia  and 
Montenegro-Kosovo,  under  UNSCR  1244)  and  Skopje  (the  former  Yugoslav  Republic  of 
Macedonia).  The  total  number  of  staff  in  the  EAR  is,  in  2005,  of  312,  of  which  114  are 
temporary agents and 198 are local agents, all paid by the operational budget lines.  

The EAR has a Governing Board composed of representatives from all Member States, two 
representatives of the Commission, one of them the Chairman of the Board and an observer 
from the European Investment Bank. External control lies with the Court of Auditors. 

Overall the EAR has been successful and efficient in delivering reconstruction assistance in 
the  Western  Balkans.  It  has  been  an  efficient  and  flexible  tool  recognised  by  all  with 
a track record of delivering substantial amounts of assistance. 

Regulation  (EC)  2667/2000  was  last  amended  by  Regulation  (EC)  2068/2004  of  29 
November 2004 to inter alia extend its application till 31 December 2006.  

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analysing 

gathering, 

OJ L 306, 7.12.2000, p. 7. Regulation as last amended by Regulation (EC) No 2068/2004 (OJ L 358, 
3.12.2004, p. 2). 
The tasks requested for the Agency to implement are defined in Article 2 paragraph 1 of the Regulation, 
as follows: 
Article 2  
1. To achieve the objective laid down in the second subparagraph of Article 1, the Agency shall carry 
out the following tasks, within the limits of its powers and in accordance with the decisions taken by the 
Commission: 
on: 
(a) 
(i) damage, the requirements for reconstruction and the return of refugees and displaced persons, and 
related initiatives taken by governments, local or regional authorities and the international community; 
(ii)  the  urgent  requirements  of  the  communities  concerned,  taking  account  of  the  various  population 
displacements 
displaced; 
for 
(iii)  the  priority  sectors  and  geographical  areas  requiring  urgent  assistance  from  the  international 
community; 
(b)  preparing  draft  programmes  for  the  reconstruction  of  the  Federal  Republic  of  Yugoslavia  and  the 
return of refugees  and displaced  persons  in  accordance  with  guidelines provided  by  the  Commission; 
(c) implementing the Community assistance referred to in Article 1, wherever possible in cooperation 
with  the  local  population  and  where  necessary  by  drawing  on  the  services  of  operators  selected  by 
tender. 

the  Commission 

communicating 

possibilities 

information 

return 

those 

and 

and 

the 

the 

of 

to 

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This report follows the legal commitment of the Commission to report to the Council on the 
future of the mandate of the EAR before 31 December 2005, as provided for in Article 14 of 
Regulation 2667/20003. 

2. 

POLITICAL CONSIDERATIONS 

The  EU  has  launched  the  Stabilisation  and  Association  Process  (SAP),  aiming  to  support  a 
closer association and eventual accession of the Western Balkan countries. The Thessaloniki 
Agenda of June 2003 confirmed that the enriched policy of the Stabilisation and Association, 
including the Stabilisation and Association Agreements, will constitute the overall framework 
for the European course of the Western Balkan countries, all the way to their future accession.  

The  closer  linkage  between  the  political  process,  including  the  political  dialogue,  and  the 
financial  assistance  and  its  implementation  has  become  crucial.  Preparation  for  the  future 
membership  also  implies  preparing  the  beneficiary  countries  to  assume  their  own  financial 
responsibility for the implementation of the EC assistance by progressively moving towards 
decentralised  implementation  systems,  whereby  the  responsibility  for  the  programme 
preparation and implementation will rely primarily on the national institutions, first under the 
scrutiny (ex-ante control) by the Commission, and finally fully under their own responsibility.  

Moreover, the EC has to be coherent with respect to the instruments and the implementation 
mechanisms it  puts  in  place  and  align  the  implementation of the EC assistance with current 
practices  in  other  potential  candidate  and  candidate  countries  and  recent  enlargement 
experience.  One  should  note  that,  for  historical  reasons,  the  EAR  works  only  in  Serbia  and 
Montenegro, including Kosovo under UNSCR 1244, and in the former Yugoslav Republic of 
Macedonia,  while  Community  assistance  for  the  other  countries,  Croatia,  Bosnia  and 
in  a  directly  centralised  but 
Herzegovina  and  Albania, 
deconcentrated, way, by the Commission Delegations. The Commission is expected however 
to accredit the Croatian authorities to manage the assistance in a decentralised manner in the 
first quarter of 2006 

implemented 

is  currently 

There is no reason why this differentiation should be maintained in the light of preparations 
for  future  membership.  Maintaining  the  current  status  quo  establishes  a  difficult  to  justify 
differentiation between the countries and sends blurred signals to the countries of the region. 

3. 

THE  FUTURE  OF  IMPLEMENTATION  OF  PRE-ACCESSION  ASSISTANCE  UNDER  IPA 
(2007-2013) 

The  latest  Enlargement  process  has  demonstrated  that  devolution  (de-concentration, 
progressive  de-centralisation)  towards  Commission  delegations  and  national  administrations 
of  the  beneficiary  countries  of  the  existing  pre-accession  instruments  has  been  a  success.  It 
has  been  an  efficient  way  to  assist  the  beneficiary  countries  on  their  way  to  accession  by 
progressively integrating them in EU policies and by teaching them to manage EU financial 

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Article  14  of  Council  Regulation  (EC)  No  2068/2004.  By  31  December  2005  the  Commission  will 
report  to  the  Council  on  the  future  of  the  mandate  of  the  European  Agency  for  reconstruction.  Any 
proposal to extend the Agency beyond 31 December 2006 should be made by the Commission to the 
Council by 31 March 2006. 

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aid in an autonomous way as an integral part of the preparations for their future participation 
in the structural funds and rural development funds after accession.  

A  single  interlocutor  through  de-concentrated  delegations  to  implement  the  acquis  and 
manage  aid  has  important  advantages.  The  road  to  closer  ties  with  the  EU  and  possible 
membership  requires  a  daily  relationship  at  local  level  and  a  learning  approach  to  the 
Community methods. This is only possible with proximity and support for creating ownership 
in the countries. Through a gradual transfer of responsibilities the countries gain competence 
for taking the full responsibility of the management of EU funds, which is required when they 
become Member States and have to be in charge of managing structural and rural funds. This 
has  been  done  successfully  in  the  past  with  Phare  through  de-concentrated  delegations.  The 
IPA regulation is particularly designed to this aim. 

Following  experience  of  the  past  and  taking  into  account  previous  recommendations  of  the 
Court  of  Auditors,  the  Commission  has  improved  the  provisions  of  the  proposal  for  IPA 
Regulation in comparison with the current provisions under the PHARE regulation, in order 
to support and encourage the beneficiary countries moves towards decentralised management 
of  EU  aid  and  approximate  the  management  structures  to  those  which  a  country  will  face 
upon  accession.  Within  IPA,  three  specific  components  have  been  created,  namely  for 
regional  development,  human  resources  development  and  rural  development  (similar  to  the 
structural and rural funds for the Member States). These components which are only open to 
candidate countries can also only be implemented under decentralised management. As such, 
this will stimulate the countries eligible under IPA – with the support of the Commission – to 
build  up  their  administrations  to  be  eligible  for  these  components  as  soon  as  possible  after 
being declared candidate countries.  

The strength of the national administrations in the Western Balkans is different from country 
to country, which is another reason for the Commission to be particularly present and close to 
them,  helping  them,  via  the  delegations,  to  build  the  institutions  and  the  capacities  that  are 
required for decentralised management, while taking into account each particular situation. 

It  is  also  worth  underlining  that  the  Court  of  Auditors  concluded  that  over  the  years  the 
supervisory  and  control  systems  for  the  delivery  of  pre-accession  assistance  have  improved 
and this led to a positive Declaration of Assurance from the Court for pre-accession assistance 
in  the  context  of  the  2004  budgetary  discharge.  The  Court  of  Auditors  report  stated  in  this 
context that these “systems at the level of the Commission's central services and delegations 
and certifying authorities were basically sound, and worked in practice”.  

The  process  towards  full  decentralisation  of  EU  aid  by  beneficiary  countries  is  one  of  the 
main objectives of IPA (as for PHARE in the past). It will be a learning process of many years 
for  beneficiary  countries,  over  the  lifetime  2007/2013  of  IPA.  To  make  it  a  success,  this 
process  needs  to  go  first  through  partial  decentralisation  (with  ex  ante  control  by  the 
delegations  on  tendering  and  contracting)  for  a  number  of  years  as  an  intermediate  step. 
Partial decentralisation with ex ante control can be achieved in a relatively short time span of 
1 to 2 years as was the case with previous candidate countries. Croatia for example, where the 
Commission is currently implementing assistance in a de-concentrated way by its delegation, 
will  start  working  in  partial  decentralised  mode  already  in  2006  after  18  months  of 
preparation. 

Such  a  learning  process  towards  full  management  of  pre-accession  aid  by  the  beneficiary 
countries can not be achieved with the EAR for several reasons: 

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First,  implementation  of  assistance  by  the  EAR  is  to  be  considered  a  form  of  “indirect 
centralised  management”,  in  the  sense  of  Article  53  (2)  of  the  Financial  Regulation,  which 
means that it cannot delegate further the powers given to it by the Commission. 

Second, the EAR, set up before the date of application of the present Financial Regulation (1 
January  2003),  does  not  correspond  exactly  to  any  of  the  entities  to  which  the  Commission 
may  entrust  certain  tasks  in  accordance  with  Article  54  of  the  Financial  Regulation.  It  has 
indeed been established by a Council Regulation as if it were a Community body in the sense 
of Article 185 of the Financial Regulation, but it functions rather as an “executive agency”, 
which,  according  to  Article  55  of  the  Financial  Regulation,  should  be  set  up  by  the 
Commission in accordance with the statute for executive agencies. This situation could not be 
maintained in the long run and if it were decided that the EAR should continue its existence, it 
would  in  fact  need  to  be  transformed  into  an  executive  agency.  However,  the  executive 
agency  is  also  a  form  of  indirect  centralised  management  and  would  equally  not  be  an 
appropriate solution. 

The  decentralisation  process  is  a  learning  process  of  many  years  that  should  be  started 
immediately  under  IPA.  Under  the  present  regulatory  framework  the  only  available 
instrument  for  this  is  a  de-concentrated  implementation  of  Community  assistance  by  the 
Commission Delegations. 

Therefore, the Commission is proposing for the future Instrument for Pre-Acession Assistance 
(“IPA”),  to  implement  from  the  beginning  the  assistance  under  the  model  used  for  the 
previous  accession  process,  i.e.  to  implement  the  assistance  through  de-concentrated 
Commission  Delegations  and  to  prepare  in  parallel  the  countries  for  future  decentralised 
implementation  at  the  point  in  time  when  their  management  and  control  systems  are 
sufficiently developed to meet the criteria laid down in article 164 of the financial regulation, 
first under the ex-ante control by Commission Delegations and finally fully under their own 
autonomy.  For  Turkey  and  Croatia,  this  will  already  be  the  case  from  the  outset  of  IPA  in 
2007 as Turkey is operating already today in a decentralised manner and Croatia is expected 
to be accredited shortly. 

The EAR is now entrusted with the implementation of the CARDS programme, which runs 
until 2006. As a consequence, in this context, it would be appropriate to phase out the EAR 
over a relatively short period of time after 2006, in order to allow the EAR to complete this 
work (or at least the major part of it); this would require an extension of its existence for two 
further years, until 31 December 2008. 

4. 

THE TRANSITION ASPECTS 

4.1. 

Legal and financial considerations 

The task of the EAR is to implement Community assistance under the CARDS Regulation to 
the former Yugoslav Republic of Macedonia and Serbia and Montenegro, including Kosovo 
under  UNSCR  1244,  in  so  far  as  the  Commission  has  delegated  the  implementation  of  the 
relevant CARDS programmes to the EAR. With the end of the EAR, the delegations by the 
Commission to this agency also come to an end. As a consequence where the implementation 
of the relevant CARDS programmes is not yet finished at the end date of the life time of the 
EAR, it will be for the Commission to continue this implementation.  

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With respect to third parties, since the EAR acts on behalf of the European Community, it will 
be  for  the  European  Community  to  exercise  directly  all  the  rights  and  to  stand  for  all  its 
obligations.  As  the  European  Community  is  represented  by  the  Commission  (art.  282  EC 
Treaty) it will be for the Commission in all legal proceedings to take over from the EAR as 
applicant or defendant. 

The actual winding up of the EAR (staff contracts and liquidation of assets) will be a task for 
the EAR itself. The necessary decisions will have to be adopted by the Director of the EAR or 
the Governing Board, according to their respective powers. 

Detailed arrangements for the actual transfer of files and archives to the Commission services 
shall be agreed in a timely manner by an administrative arrangement between the Commission 
services and the Director of the EAR. 

4.2. 

Administrative, personnel and budgetary matters 

The phasing out of the EAR will have to be accompanied by an equivalent phasing in of the 
implementation  of  Community  assistance  in  a  de-concentrated  way  by  the  Commission 
Delegations  in  the  countries  concerned.  The  transfer  of  financial  responsibilities  to  the 
Commission will require the upgrade of the Delegations in Serbia and Montenegro and in the 
former  Yugoslav  Republic  of  Macedonia.  It  would  also  require  the  setting  up  of  offices  in 
Podgorica and Pristina.  

Taking  into  account  the  dual-track  approach,  preparations  are  ongoing  for  setting  up  an  EC 
Liaison office in Podgorica which will be an antenna of the EC delegation in Belgrade.  

Since  September  2004,  the  EC  Liaison  Office  in  Kosovo  under  UNSCR1244  is  already 
operational within the premises of the European Agency for Reconstruction in Pristina.  

The savings from the closure of the EAR activities in the Western Balkans at the end of the 
transition phase, i.e. 2009, would be similar to the supplementary administrative expenses for 
Delegations/offices,  as  there  would  be  economies  in  the  operational  lines  following  the  full 
phasing  out  of  the  EAR.  A  slight  increase  of  administrative  expenditure  will  however  take 
place  in  2007  and  2008,  due  to  the  existence  of  both  delegations/offices  and  EAR.  This 
administrative expenditure will go down in 2009 to similar levels as in 2006.  

5. 

CONCLUSION 

On  the  basis  of  the  considerations  above,  the  Commission  intends  to  propose,  before  31 
March 2006, a draft Regulation to the Council aiming to: 

Discontinue the EAR, but seek the extension for two years, until 31 December 2008, with its 
current mandate and status, to gradually phase out its activities under CARDS. 

At  the  same  time  the  Commission  would  prepare  the  implementation  of  the  future  IPA 
Regulation in a de-concentrated manner, through its Delegations in the countries concerned, 
from 2007. 

The extension of the mandate of the EAR is thus intended only to allow EAR to finalise the 
CARDS programmes it currently manages. The main objective is to enable the continuation 

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of the aid delivery without disruptions, with the best possible efficiency and in a cost-effective 
manner. 

The progressive phasing out of the EAR till 31December 2008 and creation at the same time 
of  de-concentrated  delegations/offices  which  will  be  responsible  for  the  implementation  of 
IPA from the beginning will make the EU presence more transparent and more efficient. This 
is particularly relevant for Kosovo, in the context of the EU’s future enhanced presence in this 
territory after its final status has been settled. 

The extension of the mandate for two years would allow for a transfer of the responsibilities 
from EAR to the Commission services, in particular to its Delegations, in an orderly manner. 
This should allow the EAR to close most of the remaining CARDS projects and avoid, as far 
as possible, transfer of open files to the Commission. 

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