Report from the Commission - Annual Report of the Instrument for Structural Policy for Pre-Accession (ISPA) 2005 {SEC(2006)1430}
Date: 2006-11-10
Institutions: European Commission
Subjects: accession to the European Union, activity report, pre-accession aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 10.11.2006 
COM(2006)674 final 

REPORT FROM THE COMMISSION 

Annual Report of the Instrument for Structural Policy for Pre-Accession (ISPA) 2005 

{SEC(2006)1430} 

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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. 

5.4. 

5.5. 

6. 

6.1. 

6.2. 

6.3. 

7. 

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

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

Project funding ............................................................................................................. 3 

New ISPA projects....................................................................................................... 3 

Projects funded during 2000-2005 ............................................................................... 4 

Payments ...................................................................................................................... 4 

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 – incl. EDIS ......................................................... 7 

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

European Court of Auditors findings........................................................................... 9 

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

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

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

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

Transport policy ......................................................................................................... 10 

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

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REPORT FROM THE COMMISSION 

Annual Report of the Instrument for Structural Policy for Pre-Accession (ISPA) 2005 

This  report  is  presented  in  accordance  with  Article  12  of  the  ISPA  Regulation.  It  is  the  6th 
Annual Report covering the ISPA activities during 2005. 

The information outlined in this report is presented in a greater detail in the Commission staff 
working paper (annex to this report). 

1. 

INTRODUCTION 

As  a  result  of  the  European  Council  of  June  2004  which  accepted  Croatia  as  a 
candidate  country,  the  report  now  includes,  in  addition  to  Bulgaria  and  Romania, 
Croatia which is entitled to ISPA assistance since 1 January 2005. 

2. 

ISPA BUDGET 

In  the  Commission  budget  for  2005,  €525.7  million  was  allocated  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 countries or by the Commission. 

Table 1: ISPA budget in 2005 – in Euro  

Budget line 

Commitment 
appropriations 

Commitments 
implemented 

Payments implemented 

Functional budget 
line B13.01.04.02 

Operational budget 
line B13.05.01.01 

3 763 290 

3 251 762 

1 414 187 

521 950 000 

521 950 000 

231 243 551 

Total 

525 713 290 

525 201 762 

232 656 738 

3. 

PROJECT FUNDING 

3.1. 

New ISPA projects  

In  2005,  the  Commission  approved  24  new  ISPA  measures  concerning  11 
investments in the environment field and 4 in the transport sector, as well as 8 TA 
projects  -7  in  the  transport  sector  and  1  in  the  environment  sector-,  and  one 
horizontal  TA  measure.  The  total  ISPA  contribution  in  that  year  amounted  to 
€493 million,  representing  an  average  grant  rate  of  70%  of  a  total  eligible  project 
cost  of  €705  million.  Commitments  totalling  €521.9  million  were  used  for  new 
projects (€312 million) as well as for ongoing projects adopted in the previous years.  

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In  the  environment  sector,  ISPA  assisted  predominantly  sewage  collection  and 
treatment projects, but also two solid waste projects. In the transport sector, the most 
important project was a combined road/rail project.  

Table 2: New projects approved in 2005 – in Euro 

Sector 

Environment 

Transport 

Horizontal TA 

Total 

n° 

12 

11 

1 

24 

Projects 

Eligible cost 

ISPA 
contribution 

424.710.000 

299.112.500 

279.886.500 

193.850.755 

20.000 

20.000 

704.616.500 

492.983.255 

Grant rate 

% 

70.4 

69.3 

100.0 

69.9 

Commitments 
in 2005 

195.489.417 

116.681.100 

10.000 

312.180.517 

3.2. 

Projects funded during 2000-2005 

Between 2000 and 2005, the Commission grant-assisted 96 projects on the basis of 
proposals submitted by Bulgaria, Croatia and Romania: 65 in the environment sector, 
28  in  the  transport  sector,  and  three  horizontal  TA  measures  (two  for  achieving 
decentralised 
for  organising  monitoring 
(EDIS)  and  one 
committees).  These  projects  represent  a  total  project  cost  of  €4.7  billion,  of  which 
€4.3  billion  are  eligible  for  ISPA  funding.  ISPA  funds  contributed  67%,  or 
€2.9 billion to these eligible investment costs. A strict balance between both sectors 
was maintained. 

implementation 

End 2005, more than 97% of the funds set aside for the three beneficiary countries 
for the period 2000–2006 had been allocated and, from these allocations, almost 83% 
had been committed. 

Table 3: Projects approved in 2000-2005 – in Euro 

Project 
decisions 

Sector 

Environment 

Transport 

Horizontal TA 

Total 

n° 

65 

28 

3 

96 

Eligible cost 

ISPA 
contribution 

2.021.031.383 

1.455.900.551 

2.306.715.498 

1.457.115.989 

Average 
grant rate 

Commitments 

% 

72.0 

63.2 

1.210.854.471 

1.189.043.388 

1.633.308 

1.633.308 

100.0 

1.492.308 

4.329.380.189 

2.914.649.848 

67.3 

2.401.390.167 

3.3. 

Payments 

Overall ISPA payments in 2005 totalled €229 million, which represented an increase 
of  no  less  than  73.5%  in  comparison  with  the  payments  made  in  2004 
(€132.2 million). By the end of the period 2000-2005, nearly €559 million had been 
paid  out,  representing  23.3%  of  the  budgetary  commitments  implemented  in  that 
period.  

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Table 4: Payments – in Euro 

Sector 

2000-2004 

2005 

Total 

Environment 

Transport 

TA 

Total 

145.549.014 

183.364.692 

924.524 

109.694.489 

119.346.710 

58.800 

255.243.503 

302.711.402 

983.324 

329.838.230 

229.100.000 

558.938.230 

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 
present  a  sufficient  number  of  quality  projects  in  time  for  funding,  incl.  for  future 
funding from the Cohesion Fund and IPA. 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 investments.  

In 2005, 7 applications concerning project preparation and/or institutional building in 
the  transport  sector  and  one  application  concerning  project  preparation  in  the 
environment sector were approved. 

Table 5: New TA - projects approved in 2005 – in Euro 

Sector 

Environment 

Transport 

Horizontal TA 

Total 

N° 
Projects 

Eligible cost 

ISPA 
contribution 

Grant rate 
% 

Commitments 

1 

7 

1 

9 

25.000.000 

12.500 000 

74.675.500 

62.199.075 

50.0 

83.3 

8.750.000 

46.141.710 

20.000 

20.000 

100.0 

10.000 

99.695.500 

74.719.075 

100.0 

54.901.710 

When considering the period 2000-2005, ISPA awarded over €119 million to more 
than 20 projects concerning institutional building or the preparation of projects.  

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Table 6: Technical assistance on the initiative of the beneficiary country 
2000-2005 - in Euro 

Sector 

N° of projects 

Eligible cost 

ISPA contribution 

Environment 

Transport 

Horizontal TA 

Total 

7 

11 

3 

21 

67.481.000 

84.461.560 

1.633.308 

47.448.500 

70.126.620 

1.633.308 

153.575.868 

119.208.428 

4.2. 

Technical assistance on the initiative of the Commission 

The  Commission  carries  out  these  TA  activities  either  through  ad  hoc  actions 
launched in previous years, or in the framework of TA Action Programmes: 

-  Technical  assistance  activities  undertaken  outside  the  TA  Action  Programmes 
comprise  services  contracts  for  providing  technical  and  financial  expertise  to  DG 
Regional Policy to assist in project appraisal and policy development. Assistance for 
intra muros deconcentration activities with the EC Delegations was closed in 2004.  

-  Technical  assistance  activities  financed  under  the  “TA  Action  Programme  2001” 
comprise the organisation of the statutory ISPA monitoring committees, the strategic 
analysis  of  the  Via  Baltica,  the  promotion  of  higher  quality  of  ISPA  funded  public 
utilities in the water and waste sector, and advise on public-private partnerships. 

-  Technical  assistance  activities  financed  under  the  “TA  Action  Programme  2004-
2006”  are  a  follow-up  of  the  TA  Action  Programme  2001,  albeit  focusing  only 
Bulgaria and Romania, and incorporates new framework contracts for the appraisal 
of  ISPA  project  proposals  previously  financed  outside  the  Action  Programmes.  In 
addition  to  these  contracts,  the  activities  include  extra  muros  support  to  EC 
Delegations'  supervisory  tasks,  improvement  of  the  quality  of  environment  and 
transport  projects  throughout  the  project  cycle,  and  project  appraisal  and  quality 
control by the EIB. 

-  Technical  assistance  activities  financed  under  the  “TA  Action  Programme  2005-
2006  for  Croatia”  provide  resources  for  the  EC  Delegation  in  Zagreb  to  perform 
supervisory tasks (intra and extra muros) related to ISPA implementation within the 
framework of deconcentrated management. 

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Table 7: Technical assistance on the initiative of the Commission 2000-2005 – in Euro 

Activity 

Indicative allocations 

Commitments 

Payments 

Activities outside the Action 
Programmes 

4.210.000 

4.210.000 

2.885.726 

Action Programme 2001(*) 

12.000.000 

11.860 864 

7.594.070 

Action Programme 2004-2006 

10.067.680 

6.419.950 

3.650.397 

Action Programme 2005-2006 
for Croatia 

1.200.000 

400.000 

- 

Total 

 27.477.680 

 22.890.814 

 14.130.193 

(*) Including some activities relating to ISPA beneficiary countries which became Member state in 2004  

5. 

MANAGEMENT AND IMPLEMENTATION  

5.1. 

Project monitoring 

While  the  first  ISPA  projects  were  approved  by  the  Commission  in  2000, 
implementation of these projects started at best in 2001, generally, by tendering the 
service  contracts  for  supervision  of  the  implementation.  Due  to  regular  delays  in 
tendering and contracting, the first actual works contracts were not signed until 2002. 
Progress  on  the  ground  has  gained  pace  since  then,  which  is  witnessed  by  the 
progress in the payments made by the Commission to the national authorities. 

However,  in  the  two  acceding  countries  Bulgaria  and  Romania,  administrative 
weakness remained the main challenge facing the implementation of ISPA in 2005. 
Despite  that  audit  missions  undertaken  by  the  Commission  in  2005  showed  some 
progress with the ISPA Implementing Agencies, the results achieved in key areas of 
staff,  procurement  and  financial  management  required  continuous  monitoring  and 
need to be enhanced further. In several cases, delays in the execution of projects had 
accumulated to more than two years from the initial plans. On several occasions, the 
Commission insisted with the national authorities that the contracting authorities and, 
in  the  environment  sector,  the  final  beneficiaries  adopt  a  proactive  approach,  take 
effective  ownership  of  the  different  stages  of  the  project  cycle,  and  enhance  co-
ordination between the project stakeholders. 

In  Croatia,  with  the  first  two  projects  approved  only  in  December  2005, 
implementation had not yet commenced. 

5.2. 

Financial management and control – incl. EDIS 

The  principal  requirements  under  ISPA  for  both  the  financial  management  and 
control,  incl.  the  treatment  of  irregularities,  are  close  to  those  applicable  to  the 
Cohesion and Structural Funds. They relate to the establishment of internal financial 
control  systems  and  procedures  that  can  ensure  transparent  and  non-discriminatory 
procurement  procedures,  the  accuracy  of  declared  expenditure,  adequate  internal 
audit capability, sufficient audit trail and appropriate treatment of irregularities. 

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During  2005,  the  audit  work  as  regards  Bulgaria  and  Romania  included  8  audit 
missions which focussed to a large extent on closely monitoring, on the spot, of the 
implementation of the action plans and deadlines that were agreed with the national 
authorities  in  2004  and  of  the  progress  achieved  towards  extended  decentralisation 
(EDIS)  which,  when  achieved,  enables  the  waiving  of  the  ex  ante  control  of 
tendering and contracting by the Commission.  

For  Romania,  the  level  of  assurance  on  the  systems  in  place  has  quite  radically 
advanced  compared  to  2004.  An  EDIS  request  for  accreditation  of  all  ISPA 
implementing  agencies  was  received  by  the  Commission  early  2006.  Following  a 
final verification audit, the conferral of EDIS for ISPA for all agencies was granted 
in June 2006. 

For Bulgaria, as significant efforts were made in 2005 to close the gaps identified in 
the management and control systems, the EDIS process was eventually put back on 
track.  An  EDIS  request  for  accreditation  of  all  ISPA  implementing  bodies  was 
submitted to the Commission late April 2006 and is presently being assessed by the 
Commission services. However, two particularly concerns remain: the issue of public 
procurement  and  the  shortage  of  qualified  and  experienced  staff.  Despite  the  close 
supervision  of  procurement  by  the  EC  Delegation,  the  experience  of  ISPA  in  this 
respect is indeed one that is characterized by frequent complaints, allegations, etc. 

insufficient  quality  of 

tendering  and  contracting  dossiers, 

A number of project audits were carried also out in these countries, the main findings 
of  which  generally  reflected  the  shortcomings  identified  during  the  system  audits, 
namely 
irregular 
procedures  during  the  procurement  process,  need  to  improve  the  verification  of 
expenditure  declarations,  certification  of  ineligible  expenditure,  the  lack  of 
(adequate)  supporting  documents,  and  the  incomplete  adherence  to  publicity  and 
information requirements. Also, as mentioned before, a recurring problem is the lack 
of qualified and experienced personnel, including its high turnover. As this situation 
is likely to be a major constraint for the effective utilisation of the future Cohesion 
and  Structural  Funds  as  well,  close  monitoring  of  progress  in  this  respect  will 
therefore be ensured.  

From their side, the Croatian authorities have mobilised efforts in preparing for the 
introduction  of  the  Decentralised  Implementation  System  (DIS)  for  PHARE  and 
ISPA.  This  enabled  the  Commission  to  confer  decentralised  management  of  ISPA 
assistance  in  February  2006  (whereby  the  EC  Delegation  still  performs  ex-ante 
controls). 

5.3. 

Risk assessment  

Under  the  system  of  ex  ante  approval,  the  audit  strategy  with  respect  to  the 
beneficiary countries focuses largely on prevention, ensuring that each country put in 
place sufficient control procedures regarding project implementation and payments. 
Successive  audit  rounds,  including  at  all  stages  of  EDIS,  aim  at  identifying  the 
shortcomings  in  the  set-up  of  supervisory  and  control  systems,  and  at  verifying 
whether the recommendations are implemented and the shortcomings resolved. 

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5.4. 

European Court of Auditors findings  

In its Annual report concerning the financial year 2004, the Court's overall opinion 
on  the  pre-accession  instruments  was  that  supervisory  and  control  systems  were 
basically sound and worked in practice, although risks continue to exist at the level 
of the implementing organisations. This opinion was confirmed in the framework of 
a  limited  review  of  ISPA  activities  in  2005,  as  a  result  of  which  the  Court 
recommended that the Commission monitors closely the systems in question.  

5.5. 

Co-financing partners – EIB, EBRD and KfW  

Given  their  expertise  in  project  preparation  and  implementation,  the  Commission 
regularly met these lending institutions and, where possible,  organised  joint  project 
identification  and  appraisal  missions  for  projects  for  which  loan  financing  was 
sought. In 2005, loans were provided for two projects by the EIB, for 6 projects by 
the EBRD, and again for two projects by the KfW.  

6. 

CONTRIBUTION TO COMMUNITY POLICIES 

6.1. 

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 
acceding  beneficiary  countries.  This  results  from  the  fact  that  the  qualifications  of 
staff  in  these  countries  are  not  always  up  to  level  of  skills  required  to  manage 
complex infrastructure projects, in particular, as far as tendering and contracting are 
concerned. Because of the difficulties encountered in this area, the Commission has 
put  many  efforts  in  developing  technical  assistance  activities  which  focused  on 
strengthening recipients’ procurement skills, systems and procedures. Among others, 
it  continued  to  organise  various  seminars  and  training  sessions,  including  the 
dissemination of manuals and practical guides. 

6.2. 

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 further by these countries. 

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6.3. 

Transport policy 

The  transport  networks  in  the  beneficiary  countries,  in  the  case  of  Bulgaria  and 
Romania,  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.  Six  of  the  fore-mentioned  corridors  run 
across  the  territory  of  Bulgaria,  Croatia  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  (motorway  axis  Igoumenitsa/Patra-Athina-
Sofia-Budapest,  inland  waterway  axis  Rhine/Meuse-Main-Danube  and  railway  axis 
Athina-Sofia-Budapest-Wien-Praha-Nürnberg/Dresden) concern axes which include 
Bulgaria and Romania, and one which includes Croatia (railway axis Lyon-Trieste-
Divaca/Koper-Divaca-Ljubljana-Budapest-Ukranian border).  

7. 

CO-ORDINATION AMONG PRE-ACCESSION INSTRUMENTS 

As  required  by  the  Coordination  Regulation,  the  Commission  ensures  close  co-
ordination  between  the  three  pre-accession  instruments  PHARE,  SAPARD  and 
ISPA.  The  Regulation  carefully  specifies  the  fields  to  which  each  instrument 
provides  assistance,  thereby  minimising  potential  overlaps  between  the  different 
instruments. 

The  PHARE  Management  Committee  ensures  co-ordination  among  these  three 
instruments,  whereas  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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