Report from the Commission to the European Parliament and the Council - General Report on pre-accession assistance (PHARE – ISPA – SAPARD) in 2005 {SEC(2006)1546}
Date: 2006-11-30
Institutions: European Commission
Subjects: EU financing arrangements, accession to the European Union, operation of the Institutions, pre-accession aid, report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.11.2006 
COM(2006)746 final 

REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

GENERAL REPORT  
ON PRE-ACCESSION ASSISTANCE  
(PHARE – ISPA – SAPARD)  
IN 2005 

{SEC(2006)1546} 

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1. 

SUMMARY 

This  is  the  sixth  report  to  the  European  Parliament  and  the  Council  covering  activities 
financed  by  the  three  pre-accession  instruments,  Phare,  ISPA  and  SAPARD  in  2005.  The 
Report focuses on the coordination between these instruments in accordance with Article 13 
of  the  ‘Council  Regulation  on  the  co-ordination  of  pre-accession  assistance’  (EC)  No 
1266/991  (in  the  following  "Coordination  Regulation").  In  line  with  the  positive  accession 
negotiations  in  Copenhagen  2002,  an  increased  emphasis  was  put  on  creating  the 
administrative  capacity  required  for  a  successful  implementation  of  the  acquis  and 
participation in present or future European Community programmes as of membership. 

Phare  addresses  priority  measures  concerning  the  adoption  of  the  acquis  communautaire, 
whether  through  improving  administrative  capacity  or  supporting  related  investment.  It  also 
has an element for Economic and Social Cohesion.  

ISPA  (Instrument  for  Structural  Policies  for  Pre-Accession)  finances  major  environmental 
and transport infrastructure projects.  

SAPARD  (Special  Accession  Programme  for  Agriculture  and  Rural  Development)  finances 
agricultural and rural development.  

For financial figures on the pre-accession instruments, see section 5 “Financial Overview”.  

The  co-ordination  of  the  three  instruments  is  ensured  by  a  division  of  responsibilities 
between the instruments. A committee at Directorate level ensures co-ordination between the 
Commission services concerned. A ‘General Assistance Document’ covering all instruments 
was  presented  in  May  2006  to  the  Phare  Management  Committee,  the  body  assisting  the 
Commission in co-ordinating the instruments. At country level, the Commission encouraged 
the applicant countries to enhance inter-ministerial co-ordination, which is seen as a key pre-
condition for the successful future management of the Structural Funds. 

2. 

OVERALL DESCRIPTION OF MECHANISMS OF THE PRE-ACCESSION INSTRUMENTS 

2.1 Commitments and transfer of funds 

Before  EU  funds  can  be  transferred,  they  require:  (1)  a  Framework  Agreement;  (2)  a 
Commission Decision, in order to be committed into the Budget and; (3) an annual bilateral 
Financing  Agreement  or  Memorandum  determining  the  financial  commitment  of  the 
Community  for  the  measure  concerned  towards  the  recipient  country,  i.e.  fixing  rights  and 
obligations  for  both  parties.  However,  the  procedures  leading  to  decision  making  and 
commitment  of  funds  are  different  for  each  instrument.  Detailed  information  on  the 
procedures leading to funding under each instrument can be found at Annex 1.1.  

2.2 Implementation structures in Candidate countries 

Funds  from  the  pre-accession  instruments  are  channelled  through  the  National  Fund, 
established in the Ministry of Finance in each country, under the responsibility of the National 

1 

Published in the OJ L 161, 21.06.1999, p.68 

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Authorising  Officer.  The  concrete  implementation  of  Phare  and  ISPA  is  carried  out  in 
Implementing Agencies (such as the Central Finance and Contracts Unit, CFCU) that receive 
the  funds  from  the  National  Fund2.  For  SAPARD,  the  implementation  is  carried  out  by  the 
dedicated SAPARD Agency that receives the funds from the National Fund. 

2.3  Decentralisation  of 

Regulation3 

implementation  under  Article  12  of  the  Co-ordination 

Decentralisation is the process by which management of EU funds is devolved to candidate 
country administrations.  

For Phare and ISPA, this process was governed in 2005 by the Decentralised Implementation 
System (DIS), except for Croatia. DIS means that the procedures for managing measures or 
projects  financed  by  ISPA  and  Phare  require  ex  ante  control,  i.e.  decisions  concerning 
procurement and award of contracts are taken by the contracting authority and referred to the 
EC  Delegation  in  the  beneficiary  country  for  endorsement.  Thus  the  EC  Delegations  are 
responsible  for  endorsing  procurement  documents  before  tenders  are  launched  or  contracts 
signed.  

Croatia submitted a request to the Commission for accreditation of its DIS system for Phare 
and ISPA in the second quarter of 2005. Subsequently, the Commission audit services (of DG 
Enlargement and REGIO) assessed the national and sectoral programme/project management 
capacity,  financial  control  procedures  and  structures  regarding  public  finance  in  Croatia. 
Based  on  this  assessment,  the  Commission  decided  in  February  2006  to  confer  the 
management of Phare4 and ISPA on a partially decentralised basis to the designated Croatian 
body in the Ministry of Finance.  

On the other hand, SAPARD is implemented on a fully decentralised basis (EDIS = Extended 
Decentralisation  Implementation  System).  EDIS  stands  for  full  decentralisation  of  EU 
support, meaning the process by which management of EU pre-accession funds is devolved to 
candidate  country  administrations,  where  the  Commission  exercises  no  systematic  ex-ante 
control over individual transactions, but is limited to an ex-post control, whilst it retains the 
final responsibility for general budget execution. 

Delegation  of  DIS  and  EDIS  management  responsibility  requires  each  country  to  set  up 
adequate  management  and  control  systems  to  be  approved  at  national  level  by  the  National 
Authorising  Officer.  Once  these  conditions  are  met,  the  Commission  carries  out  the 
compliance  verification  prior  to  the  Decision  by  the  Commission  conferring  financial 
management.  

Whilst Phare and ISPA continued to be implemented through the DIS in 2005 in Bulgaria and 
Romania, further progress to move to EDIS on the basis of the Co-ordination Regulation was 
noted in these countries, with the target set for EDIS accreditation being Summer 2006. For 
Phare  and  ISPA,  the  move  to  EDIS  is  done  through  4  stages  described  in  the  Commission 
Working document  “Preparing for Extended Decentralisation” and the document “Roadmap 
to EDIS for ISPA and Phare”. The Roadmap sets out the procedural stages leading to an EDIS 

2 
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4 

Unless the National Fund acts as a paying agent on behalf of the Implementing Agency. 
Article 12 of the Co-ordination Regulation provides the legal basis to “waive the Commission’s ex ante 
approval for project selection, tendering and contracting by applicant countries” 
As well as the decentralisation to the CFCU of most of the remaining CARDS projects 

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decision.  Stages  1  to  3  are  the  responsibility  of  the  Candidate  countries  and  contain  a  Gap 
assessment,  a  Gap  Plugging  and  a  Compliance  assessment  of  the  management  and  control 
systems. Stage 4 is the preparation for Commission decision and is the responsibility of the 
Commission.  This  decision  is  taken  following  an  in  depth  review,  including  a  verification 
audit  on-the-spot,  of  the  management  and  control  systems  as  described  in  the  EDIS 
application submitted to the Commission by the National Authorising Officer. 

For more information on EDIS, see Annex 1.2  

3. 

MONITORING AND EVALUATION  

3.1 PHARE 

Execution  of  the  Phare  programmes  is  subject  to  a  structured  monitoring  and  evaluation 
process.  A  Joint  Monitoring  Committee  (JMC)  in  each  country  is  supported  by  Sectoral 
Monitoring Sub-Committees (SMSC) which meet twice a year.  

In the new Member States, the JMC system is governed by a revised JMC mandate that came 
into force in May 2004, with the key purpose of further reinforcing the monitoring function of 
the JMC as well as related reporting obligations to the Commission. Accordingly, in 2005, all 
new  Member  States  presented  to  the  JMCs  their  Implementation  Status  Reports  on  Phare 
assistance,  which  consolidated  the  findings  of  monitoring  and  interim  evaluation  reports  as 
well as financial reporting. In Bulgaria and Romania, the system of JMC/SMSC has been well 
established since 2001. In Croatia, the system of JMC/SMSC was pilot-tested in 2005 and the 
meetings covered decentralised CARDS projects. 

The  monitoring  and  interim  evaluation  system  involves  successive  decentralisation  of  the 
responsibilities  for  monitoring  and  interim  evaluation  to  the  Candidate  Countries,  in 
conjunction with the accreditations to DIS and EDIS. In 2005, all new Member States had set 
up  their  decentralised  monitoring  and  interim  evaluation  (IE)  functions.  In  Bulgaria  and 
Romania, whilst the responsibility for monitoring was decentralised in 2001, the IE function 
remained  centralised.  As  a  preparation  for  decentralising  the  IE  function,  both  countries 
started in 2005 to draft their Action Plans on decentralised monitoring and interim evaluation. 
Croatia started to prepare for decentralisation of monitoring. 

In  2005,  DG  Enlargement  centralised  IE  function  generated  27  individual  country,  sectoral, 
ad-hoc  or  thematic  reports  on  Phare  support  to  Bulgaria  and  Romania.  The  key  messages 
derived from these reports are the following: 

- Objectives are too ambitious/vague/unclear, and require subsequent reformulation to become 
operational; 

-  There  is  insufficient  capacity  for,  and  preparation  of,  multi-annual  programming/project 
fiche design; 

-  Effectiveness  of  multi-annual  programming  is  reduced  as  a  result  of  cumulative 
implementation delays; 

-  Sustainability  is  at  risk  due  to  limited  institutional  absorption  capacity  as  well  as  lack  of 
progress with public administration reform; 

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- Phare has had limited effect to date in preparing beneficiaries to the Structural Funds; 

- On the whole, effectiveness of Twinnings is satisfactory. 

3.2 ISPA  

All ISPA projects are subject to the ISPA Regulation and the Financing Agreement provisions 
of both monitoring and evaluation. Implementation progress is reviewed systematically twice 
a  year  and  periodically  by  Commission  services,  in  particular  through  the  Monitoring 
Committees.  

Requirements  for  ex-post  evaluation  are  stipulated  in  Section  XIII  of  the  annex  to  the 
Financing Memorandum, which is concluded for  each  project between  the Commission and 
the  ISPA  beneficiary  state.  This  section  states  that  after  the  completion  of  a  project,  the 
Commission and the beneficiary countries will evaluate the project’s impact and the manner 
in which the project has been carried out. As no project had been completed by end 2005, no 
ex-post evaluation was launched in that year. 

3.3 SAPARD  

Implementation  of  SAPARD  programmes  is  subject  to  the  provisions  of  the  ‘Multi  Annual 
Financing  Agreements’  in  respect  of  both  monitoring  and  evaluation.  In  2004  each  of  the 
Monitoring Committees met at least once. The Commission continued working closely with 
the beneficiary countries on adapting and running the monitoring and evaluation systems. The 
14 Monitoring Committee meetings held in 2005 provided a useful opportunity to discuss and 
decide  on:  (i)  monitoring  the  implementation  of  the  programmes  (ii)  approval  of 
modifications necessary regarding the closure of the programme and improving the absorption 
capacity  of  the  programmes  (BG,  RO)  as  well  as  (iii)  approval  of  the  annual  reports  on 
progress  achieved  in  relation  to  the  implementation  of  the  Sapard  programmes,  before  their 
official submission to the Commission.  

4. 

CO-ORDINATION  

4.1. General 

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

The  Accession  Partnerships  set  the  general  framework  for  assistance  under  the  three  pre-
accession  instruments.  They  are  complemented,  in  the  case  of  Phare,  by  the  National 
Development Plans, and in the case of ISPA, by the national strategies for the  environment 
and  transport.  SAPARD  projects  are  selected  on  the  basis  of  the  Rural  Development 
Programmes  for  2000-2006,  prepared  on  the  basis  of  the  Candidate  countries’  plans  and 
approved for each of the countries by the Commission in 2000. 

The  Phare  Management  Committee  plays  a  key  role  in  general  co-ordination.  According  to 
Article 9 of the Co-ordination Regulation, the Committee should assist the Commission in co-
ordinating  operations  under  the  3  instruments  and  the  Commission  should  inform  the 
Committee  about  the  indicative  financial  allocations  for  each  country  and  per  pre-accession 

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instrument about action it has taken as regards co-ordination with the EIB, other Community 
instruments and IFIs.  

4.2 Co-ordination inside the Commission  

The Phare programme and the co-ordination of the instruments come under the responsibility 
of  DG  Enlargement,  supported  by  the  Phare  Management  Committee.  ISPA  is  under  the 
responsibility  of  DG  Regional  Policy,  and  SAPARD  under  the  responsibility  of  DG 
Agriculture. 

Programming is co-ordinated through extended inter-service consultations. In addition, a Co-
ordination Committee at Directors level for the pre-accession instruments has been set up in 
the  various  Commission  services  involved.  It  pays  particular  attention  to  the  preparation  of 
EDIS of Phare and ISPA. 

The  Commission’s  Co-ordination  Committee  for  the  3  pre-accession  instruments,  set  at 
Directors  level,  has  not  officially  convened  during  2005,  although  an  important  number  of 
meetings  have  taken  place  notably  in  view  of  creation  of  the  new  Instrument  for  Pre-
Accession (IPA) and its relevant components.5  

A  General  Assistance  Document,  through  which  the  Commission  informed  the  Phare 
Management  Committee  of  the  co-ordination  of  pre-accession  aid  in  2005  and  planned 
assistance for 2006, was presented to Member States at the Phare Management Committee on 
19 May 2005. In particular, this document provided the indicative financial allocations for the 
year for each country in relation to the three instruments, information on co-ordination with 
EIB and IFIs and about progress and perspectives for decentralised management. A separate 
annual report on co-ordination of pre-accession assistance provides more detailed information 
on co-ordination between Phare, ISPA and SAPARD. 

To  avoid  duplication,  the  Commission  has  clarified  the  interface  between  Phare  and 
SAPARD,  taking  into  account  the  provisions  of  the  Co-ordination  Regulation.  As  regards 
project  monitoring,  co-ordination  takes  the  form  of  the  JMC.  The  JMC  is,  where  possible, 
supported by the ISPA Monitoring Committees and the relevant Phare sub-committees. 

5 

Of the proposed 6 external relations instruments that are due to apply in the period 2007-2013, one is 
the new instrument for pre-accession assistance, IPA. At the junction between external assistance and 
internal policies, the IPA intends to facilitate the entry into the Union of candidate countries (Turkey, 
Croatia and former Yugoslav Republic of Macedonia) and potential candidate countries. IPA will be an 
accession  driven  instrument,  fulfilling  all  the  requirements  stemming  from  the  accession  process, 
notably  in  terms  of  priorities,  monitoring  and  evaluation.  IPA  will  replace  the  current  pre  accession 
instruments  notably:  Phare,  the  scope  of  which  is  support  for  the  implementation  of  the  acquis 
communautaire  in  the  form  of  institution  building  and  related  investments,  investments  in  economic 
and social cohesion and cross-border cooperation; ISPA, which is the precursor of the Cohesion Fund 
and deals with environment and transport infrastructure; SAPARD, the precursor of Rural Development 
plans, dealing with Common Agricultural Policy acquis and Rural development; Turkey pre-accession, 
with the same scope as Phare; CARDS, which covers the Western Balkans. 

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4.3 Co-ordination in the Candidate countries 

The Commission strongly encourages the candidate countries to enhance inter-ministerial co-
ordination,  which  is  a  key  pre-condition  for  the  candidate  countries’  successful  future 
management  of  the  Structural  Funds  and,  in  the  short  term,  for  implementing  Phare  ESC. 
Although  significant  progress  was  noted,  such  inter-ministerial  co-ordination  still  needs 
further improvement. As decentralised management is either provided for from the outset (for 
SAPARD), or will gradually increase (for Phare and ISPA), the responsibility of the candidate 
country  for  the  proper  co-ordination  of  operations  receiving  pre-accession  support,  and  for 
avoiding overlaps, must be developed accordingly. 

Therefore, the Commission requires the countries to take the necessary steps for effective and 
efficient co-ordination. The checklist transmitted to the candidate countries and Commission 
Delegations, which allows the latter to verify that the IA is capable of managing a Phare ESC 
‘scheme’  in  a  sound  and  efficient  manner,  states  that  an  assessment  must  be  made  to  show 
that the established co-ordination mechanisms are adequate, and that appropriate mechanisms 
are in place, in order to ensure no overlap occurs between the other Community instruments, 
notably Phare CBC, SAPARD and ISPA. 

4.4 Co-ordination with the EIB and International Financial Institutions (IFIs)  

The Commission consults the international financial institutions ("IFIs") and bilateral donors 
regularly  throughout  the  programming  cycle,  to  identify  the  scope  for  joint  activities  and 
complementary approaches to addressing pre-accession priorities. 

The  cooperation  and  co-financing  of  projects  with  the  EIB  and  other  IFIs,  in  particular  the 
European  Bank  for  Reconstruction  and  Development  ("EBRD"),  the  World  Bank  and  the 
Council of Europe Development Bank ("CEB"; in cooperation with the German Kreditanstalt 
für Wiederaufbau "KfW"), is organized under the amended Memorandum of Understanding 
between the European Commission and participating IFIs for the enlargement countries of 20 
May 2003. 

In the Phare context, the possibilities of IFI co-financing for investment projects at national 
programme  level  are  limited,  since  the  programming  mechanisms  for  Phare  and  the  loan 
allocation  mechanisms  are  quite  different  in  timing.  However,  a  close  co-operation  is 
maintained  with  the  IFIs  to  ensure  that  a  sound  and  sustainable  framework  is  defined 
permitting loan financing, wherever this is more appropriate than funds financing so ensuring 
additionality between the two financing modes.  

Concerning  horizontal  programmes  financed  under  Phare,  the  ten  Phare  countries  were 
eligible  before  2005.  The  new  programmes  launched  since  2005  cover  only  4  countries: 
Romania, Bulgaria, Croatia and Turkey. The technical nature and the multi-country approach 
of the successive horizontal finance facilities required the involvement of highly-specialised 
financial  institutions,  with  a  long  track  record  in  international  finance,  SME  and  Municipal 
sector  development.  The  preference  was  for  financial  institutions  with  the  status  of 
international public-law bodies, which shared the values of the EU, in particular, in relation to 
enlargement  and  had  similar  public  policy  objectives,  rather  than  private-sector  financial 
institutions looking for commercial investment terms.  

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The  first  facility  programme  was  launched  in  1999  with  the  EBRD.  The  CEB,  which 
implements the programme in co-operation with KfW, and the EIB have joined the Facility 
programmes in the following years. Since 1999, 23 Facility programmes have been initiated 
by the Commission. 

- 
14  SME  Finance  Facilities  comprising  in  total  €323  million  of  EU  incentives  and 
€2,039.25 million of credit lines from the IFIs. As of end-February 2006, €267 million of EU 
incentives are already earmarked into projects. 

- 
9 Municipal Finance Facilities comprising a total of €100 million of EU incentives and 
€500 million of loans from the IFIs. As of end-February 2006 €37.5 million of EU incentives 
are already earmarked into projects.  

The  SME  Finance  Facility  is  a  multi-beneficiary  programme  which  aims  to  strengthen  the 
capacities  of  financial  intermediaries  (i.e.  banks,  leasing  companies)  in  the  beneficiary 
countries  (New  Member  States  and  the  Candidate  Countries),  to  expand  and  sustain  their 
financing operations to SMEs.  

The  mechanism  of  the  Municipal  Finance  Facility  is  similar  to  the  SME  Finance  Facility 
mechanism. Loan and risk-sharing instruments from resources of IFIs are combined with non-
reimbursable  financial  incentives  for  local  financial  intermediaries.  It  is  also  foreseen  that  a 
limited  amount  of  technical  assistance  for  municipalities  will  be  funded  by  Phare  to 
strengthen the demand side of the municipal credit market.  

The EIB and the Commission have established a facility at border regions, as requested by the 
Nice  European  Council,  and  as  outlined  in  the  Commission  Communication  on  Border 
Regions of 25 July 2001. The project concentrates on the implementation of small municipal 
infrastructure in border regions to promote integration with current EU regions: It consists of 
2  Municipal  Infrastructure  programmes  comprising  a  total  of  €50  million  of  EU  incentives 
and €250 million of loans from the EIB. This programme is only implemented with the EIB in 
border regions and is still in the process of implementation.  

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5. 

FINANCIAL OVERVIEW  

Allocations for PHARE, ISPA and SAPARD in 2005 (in € million) 

PHARE6 

SAPARD 

ISPA 

TOTAL 

Bulgaria  /Romania 
(plus 
Roadmap 
Kozloduy) 

Kozloduy 
Decommissioning 

Croatia 

Total 

751.0 

250.3

500.7 

50.0 

80.0 

881.0 

NA

250.3

25.0 

525.7 

1502.0

50.0

105.0

1653.4

6 

These amounts indicate the global allocations for each pre-accession instrument and so include national 
programmes,  CBC  programmes,  the  KIDS  programme  for  Nuclear  Decommissioning  and  support 
expenditure  as  well  as  contributions  to  multi-country  programmes,  including  TAIEX.  They  represent 
original allocations and so do not include additional funds for floods allocated to Romania and Bulgaria 
during the course of the year. These additional amounts were 12.3 MEUR for Bulgaria and 24.6 MEUR 
for Romania.  

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