Communication from the Commission to the European Parliament and the Council - Annual Report 2006-2007 on the implementation of Community assistance under Council Regulation (EC) No 389/2006 of 27 February 2006 establishing an instrument of financial support for encouraging the economic development of the Turkish Cypriot community
Date: 2007-09-18
Institutions: European Commission
Subjects: Cyprus, EU aid, European Agency for Reconstruction, aid programme, development aid, economic development, financial aid

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 18.9.2007 
COM(2007) 536 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Annual Report 2006-2007 on the implementation of Community assistance under 
Council Regulation (EC) No 389/2006 of 27 February 2006 establishing an instrument of 
financial support for encouraging the economic development of the Turkish Cypriot 
community 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Annual Report 2006-2007 on the implementation of Community assistance under 
Council Regulation (EC) No 389/2006 of 27 February 2006 establishing an instrument of 
financial support for encouraging the economic development of the Turkish Cypriot 
community 

1. 

INTRODUCTION 

On 26 April 2004, the Council at its meeting in Luxembourg noted the results of the 
simultaneous referenda in Cyprus on 24 April 2004 on the Annan Plan and stated the 
following: 

“The Turkish Cypriot community has expressed their clear desire for a future within 
the European Union. The Council is determined to put an end to the isolation of the 
Turkish  Cypriot  community  and  to  facilitate  the  reunification  of  Cyprus  by 
encouraging  the  economic  development  of  the  Turkish  Cypriot  community.  The 
Council  invited  the  Commission  to  bring  forward  comprehensive  proposals  to  this 
end,  with  particular  emphasis  on  the  economic  integration  of  the  island  and  on 
improving  contact  between  the  two  communities  and  with  the  EU.  The  Council 
recommended that the 259 million euro already earmarked for the northern part of 
Cyprus in the event of a settlement now be used for this purpose.” 
Further  to  these  conclusions,  the  Commission  put  forward  on  7  July  20041,  a 
proposal  for  a  Council  Regulation  on  an  instrument  of  financial  support  for 
encouraging  the  economic  development  of  the  Turkish  Cypriot  community.  The 
financial statement which accompanied this proposal provided for €259 million to be 
committed  for  this  programme  over  the  period  2004-2006  under  Heading  7  (Pre-
accession strategy) of the Financial Perspective. 

This  led  to  Council  Regulation  (EC)  No  389/2006  adopted  on  27  February  2006 
establishing  an  instrument  of  financial  support  for  encouraging  the  economic 
development  of  the  Turkish  Cypriot  community  and  amending  Council  Regulation 
(EC) No 2667/2000 on the European Agency for Reconstruction2 (hereafter the "aid 
regulation"). 

The aid regulation provides in Article 10 that “Each year the Commission shall send 
to  the  European  Parliament  and  the  Council  a  report  on  the  implementation  of 
Community assistance under this instrument. The report shall contain information on 
the  actions  financed  during  the  year  and  on  the  findings  of  monitoring  work,  and 
shall  give  an  assessment  of  the  results  achieved  in  the  implementation  of  the 
assistance". 

This  report,  the  first  one,  covers  the  period  from  27  February  2006  to  28  February 
2007. In line with the normal practice of reporting progress on financial assistance on 
an  annual  basis  following  the  normal  cycle  of  budget  years,  the  next  annual  report 
will cover the period up until the end of December 2007. This first report covers in 
particular the following areas: 1) the programming of the financial assistance, 2) the 

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COM (2004) 465 final of 07 July 2004 as modified by COM (2004) 696 final of 21 October 2004 
OJ L65, 7.3.2006, p.5. 

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implementation  mechanisms  for  this  programme,  3)  the  first  actions  in  terms  of 
tendering  and  contracting, and  4) conclusions with an assessment of  the challenges 
posed by this specific aid programme. 

2. 

PROGRAMMING OF THE ASSISTANCE 

2.1. 

Context 

Following the adoption of the aid regulation in February 2006, the main focus of the 
Commission's  activities  during  the  reporting  period  was  programming  of  the 
assistance with a view to make the necessary budgetary commitments before the end 
of  2006.  The  2006  programming  context  has  been  characterised  by  the  following 
elements: 

2.1.1.  Delayed approval of the aid regulation 

The  aid  regulation  was  adopted  by  the  Council  some  20  months  after  the  initial 
proposal by the Commission in July 2004. The delayed approval of the aid regulation 
implied that the budgetary commitments, initially conceived to be spread over three 
years,  2004,  2005  and  2006,  had  to  be  taken  in  one  year  only.  In  a  multi-annual 
programming  framework,  lessons  from  previous  years  are  taken  into  account  to 
better define annual programming needs. This was here not possible and therefore a 
programme  covering  the  whole  amount  of  €259  million  had  to  be  developed  and 
adopted  in  2006  only.  This  aspect  is  particularly  important  also  considering  that 
under  this  aid  programme  the  aid  intensity  is  much  higher  than  under  previous 
financial assistance programmes for the Turkish Cypriot community. 

The  implication  of  this  delay  was  that  a  series  of  preparatory  activities  planned 
already for 2004-2005 could not take place. In order to prepare the programme, the 
Commission  had  to  rely  on  the  limited  budget  of  €2  million  for  feasibility  studies 
made available under the 2003 Special Aid Package for the northern part of Cyprus3. 
Feasibility studies were carried out inter alia in the areas of solid waste, water and 
wastewater,  energy,  and  rural  development.  A  baseline  study  on  the  economic 
situation of the northern part of Cyprus was also carried out by the World Bank on 
behalf of the Commission to assist overall programme preparation. 

The above mentioned studies provided an initial gap assessment of the situation with 
regards to the requirements of the acquis and identified priority projects to be carried 
out  under  the  aid  programme.  In  general  terms  these  studies  highlighted  the  high 
level of investments required to bring infrastructure and services in the northern part 
of Cyprus in line with the requirements of the acquis communautaire. 

The  studies  also  pointed  to  the  need  for  further  project  preparation  as  regards 
development  of  detailed  tender  specifications.  In  general,  there  were  no  reliable 
socio-economic statistical data concerning the northern part of Cyprus. 

The delay in carrying out preparatory activities will mean that for certain investment 
projects, contracting will take place very close to the contracting deadline at the end 
of 2009. 

3 

Funded  under  Council  Regulation  (EC)  No  555/2000  of  13  March  2000  on  the  implementation  of 
operations in the framework of the pre-accession strategy for the Republic of Cyprus and the Republic 
of Malta 

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2.1.2.  Uncertainties as regards overall amount of financial resources available 

In its conclusions of 26 April 2004, the Council recommended that the €259 million 
already earmarked for the northern part of Cyprus in the event of a settlement would 
be made available to meet the objectives of the aid regulation. To this effect, credits 
were earmarked in reserve pending adoption of the legal basis in an amount of €120 
million in the 2005 Budget and of €139 million in the 2006 budget. 

The late approval of the legal basis implied that credits earmarked for 2005 were no 
longer  available.  When  the  regulation  was  approved  in  February  2006,  the  only 
resources available were the €139 million.  Initially programming was based on that 
allocation. 

The  Commission  informed  Member  States  that  it  would  have  been  possible  to 
reconstitute  the  €  259  million  package  by  requesting  an  additional  €  120  million 
under Heading 7 of the budget which had an available margin of € 1.085,4 million.  

An  amending  budget  was  adopted  in  October  2006.  Once  it  became  clear  that  the 
full,  originally  foreseen  amount  of  €259  million  would  be  available,  programming 
was revised so that some projects were developed in two phases. 

2.1.3.  Consultations with the Government of the Republic of Cyprus 

In a statement inserted in the Council Minutes when the aid regulation was adopted, 
the Commission, taking into account the existing political situation in Cyprus as well 
as the aim of integrating and reunifying the island, declared its readiness to consult 
the  Government  of  the  Republic  of  Cyprus  about  the  major  aspects  of  the 
implementation of assistance under this Regulation. 

Consultations  meetings  on  the  content  of  the  programme  were  held  with 
representatives from the Government of the Republic of Cyprus on 19 June and 9-11 
October  2006  with  particular  attention  to  the  issue  of  island  wide  planning.  There 
were additional meetings and correspondence on other horizontal issues (in particular 
on  Article  7(1)  of  the  aid  regulation  on  protection  of  property  rights)  in  the  period 
from March to October 2006. 

2.1.4.  Comitology 

Article  3  (3)  of  the  aid  regulation  requires  that  the  Phare  Management  Committee 
give its opinion on draft financing decisions, where they are in excess of € 5 million 
and  cover  operational,  rather  than  supporting,  activities.  The  Phare  Management 
Committee  was  consulted  on  two  draft  financing  decisions  falling  under  the 
requirements of the said article respectively at its meetings of 3 July and 20 October. 
On both occasions, voting took place. On 3 July, no opinion was delivered whereas 
on 20 October, the Committee issued a favourable opinion by qualified majority. In 
line  with  comitology  rules,  the  Commission  proceeded  to  adopt  the  financing 
decisions. 

At  the  meeting  on  3  July,  Committee  members  asked  the  Commission  to  further 
consult with the Government of the Republic of Cyprus. Further contacts took place 
throughout the summer and autumn 2006 either through meetings or correspondence 
as indicated above at 2.1.3. 

2.2. 

Content of the programme 

The  overall  allocation  of  €259  million  was  committed  by  the  Commission  through 
the  adoption  of  5  financing  decisions  in  the  period  from  23  June  to  22  December 

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2006 (see list of financing decisions in annex I as well as annex 2 for a breakdown of 
the overall aid programme by project). 

Out of the €259 million, €240,15 has been allocated to the operational part of the aid 
programme  whereas  the  remainder  €18,85 
(i.e.  7.2%  of  the  overall  financial 
allocation) will be used to support the implementation of the aid programme by the 
Commission in line with the provisions of Article 4(3) of the aid regulation. 

In designing the programme, the Commission based itself on the following: 

•  Objectives of the aid regulation; 

•  Discussions with the beneficiary community; 

•  Results of on-going projects; 

•  Findings of studies carried out in 2004-2006; 

•  Timescales available for the contracting (N+3). 

2.2.1.  Financial assistance for operational projects 

Through  three  financing  decisions,  a  programme  was  developed  representing  a 
balanced  package  of  actions  addressing  the  main  needs  of  the  Turkish  Cypriot 
community  and  all the  objectives of Council Regulation No  389/2006  (see  Table 1 
below for the overview of distribution of funding by priority objective). 

Financial  assistance  under  this  aid  regulation  focuses  on  five  priority  objectives  as 
follows: 

Objective  1:  Developing  and  restructuring  of  infrastructure  (approx.  €  129,25 
million): 

Under  this  priority  objective,  the  programme  aims  to  redress  the  serious  gaps  in 
infrastructure provisions existing in the northern part of Cyprus in key sectors such 
as  environment  (and  in  particular  water  and  sanitation,  solid  waste  and  nature 
protection),  energy  (with  particular  attention  to  supply  and  demand  management 
issues),  traffic  safety  and  telecommunication.  Following  years  of  underinvestment 
and neglect, key infrastructure sectors are in need of rehabilitation and upgrading to 
meet the demands of the acquis communautaire. 

Besides  infrastructure  investment,  technical  assistance  for  capacity  building  and 
policy  reforms  will  be  deployed  to  ensure  long-term  sustainability  in  terms  of 
enhanced  service  provision.  This  priority  is  likely  to  be  the  most  affected  by  the 
property situation. Certain flexibility has been built in the programme as regards the 
funding  of  reserve  projects  in  case  some  cannot  go  ahead  because  of  the  need  to 
respect property rights. 

Objective 2: Promoting social and economic development (approx. €70.2 million): 

This  priority  covers  a  broad  range  of  activities  aiming  to  enhance  long  term 
economic sustainability of the Turkish Cypriot community as follows: 

•  Rural development and modernisation of the agricultural sector, including actions 
to  sustain  local  population  in  rural  areas  through  a  more  diversified  local 
economic  base  and  improvement  of  the  socio-economic  conditions  and  local 
services provision; 

•  Restoration of urban and local infrastructure in the three main towns of Nicosia, 

Kyrenia, Famagusta as well as in other minor urban centres and villages; 

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•  Infrastructure  work  needed  for  the  opening  of  new  crossing  points  across  the 

Green Line; 

•  Human resources development, supporting reforms in the education sector as well 
as strengthening vocational training in order to supply the skills needed by local 
companies through a variety of schemes; 

•  Actions to promote the competitiveness of the private sector inter alia through a 
loan scheme and direct support to small and medium sized enterprises (SMEs). 

Objective  3:  Fostering  reconciliation,  confidence  building  measures,  and  support 
to civil society (approx. € 13 million): 

Under this priority, the aid programme will fund activities: 

•  To strengthen civil society and to support reconciliation and confidence building 
measures (including support to the Committee  of Missing Persons). The success 
of  reconciliation  and  confidence  building  measures  depends  on  improvement  of 
the  current  political  climate.  Results  in  this  field  have  been  mixed  in  the  past, 
however, level of trust between the two communities remains low and any hope of 
a solution relies on the rebuilding of this trust covering all sectors of the society; 

•  To continue de-mining in the buffer zone and adjacent areas. Special attention will 

continue to be given to the de-mining of future crossing points; 

•  To  support  joint  work  between  the  two  communities  in  the  field  of  history 
teaching in partnership with the Council of Europe building on preparatory work 
undertaken since 2004 with both communities. 

Objective  4:  Bringing  the  Turkish  Cypriot  community  closer  to  the  European 
Union (approx. € 9.5 million): 

This priority aims to lift isolation of the Turkish Cypriot community by facilitating 
contacts with the European Union through: 

•  a community scholarship scheme for students and teachers;  

•  grants for people-to-people contacts between the Turkish Cypriot community and 

counterparts organisations in the European Union; 

•  raising  awareness  of  the  European  Union  and  its  policies.  An  EU  information 

point will be set up in the northern part of Cyprus. 

Objective 5: Preparing the Turkish Cypriot community to introduce and implement 
the acquis communautaire (approx. € 13.46 million): 

This priority will assist with the preparation of legal texts as well as reinforcement of 
the capacity to implement the acquis in view of the withdrawal of its suspension in 
accordance with Article 1 of Protocol N° 10 to the Act of Accession. The bulk of the 
activities  under  this  priority  objective  will  be  carried  out  through  the  Technical 
Assistance 
scale 
equipment/investments  required  for  acquis  harmonisation  will  be  also  be  funded. 
Given the importance of protecting the environment in the northern part of Cyprus, a 
separate  project  to  build  capacity  for  environmental  stewardship  will  also  be 
supported. 

Information  Exchange 

Instrument 

(TAIEX). 

Small 

Unallocated Technical Assistance and Programme Reserve Facility (approx. 4.74 
million, 2 %): 

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The Programme Reserve component will provide some limited resources to respond 
to requests for new activities which may become needed once implementation starts 
and  which  may  arise  from  changes  in  the  political  situation.  This  is  particularly 
important considering that though the implementation of this aid programme would 
last over 5 years, funding was available only in 2006 for programming purposes. 

Table 1. Distribution of funding by priority objective 

--- 

Obj 1Infrastructure 54%

Obj 1Infrastructure 54%
Obj 2 ESC 29%

Obj 2 ESC 29%

Obj 3 Reconciliation 5,5%

Obj 3 Reconciliation 5,5%

Obj 4 Closer to the EU 4%

Obj 4 Closer to the EU 4%
Obj 5 Acquis 5.6%

Obj 5 Acquis 5.6%

Obj 6 Reserve 2%

Obj 6 Reserve 2%

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2.2.2.  Financial assistance to cover administrative expenditure under Article 4(3) of the aid 

regulation 

According to  Article 4(3) of the  aid regulation, assistance can be used "to cover in 
particular  the  costs  for  supporting  activities  such  as  preliminary  and  comparative 
studies, training, activities linked to preparing, appraising, managing, implementing, 
monitoring, controlling and evaluation of assistance, activities linked to information 
and visibility purposes as well as costs for supporting staff, renting of premises and 
supply of equipment". 

A  total  of  €18,85  million  has  been  earmark ed  to  support  the  Commission  in  the 
implementation  of  the  aid  programme.  Financial  support  for  administrative 
expenditure will be mobilised inter alia for: 

(1) 

(2) 

(3) 

(4) 

The formulation of sector strategies; 

To  review  and/or  to  undertake  feasibility  studies  for  project  preparation 
(including  economic  and  financial  analyses,  detailed  technical  design 
specifications, legal assessments, preparation of tender documents for works, 
services, supplies and grant calls for proposals, etc.); 

To  provide  expertise  to  assist  in  the  procurement  process  and  the 
implementation  phase  if  required  (including  audits,  monitoring,  evaluations, 
etc.); 

To recruit contract agents for the Commission Programme Team, to procure 
office  management  logistics  (including  renting  of  premises)  and  related 
supply  of  equipment  for  the  purpose  of  establishing  a  programme  support 
office within the beneficiary community. 

2.3. 

Contracting and execution deadlines 

Contracting  deadlines  were  set  in  each  of  the  five  Commission  Decisions  taken  in 
2006  under  this  aid  regulation.  These  are  set  between  June  and  December  2009  in 
line with the provisions of Article 5 (1) of the aid regulation as regards duration of 
the  contracting  period.  Execution  goes  up  to  December  2012  for  the  bulk  of  the 
programme. In the case of the project involving the setting up of a revolving credit 
scheme, the execution period goes up to December 2014. 

3. 

IMPLEMENTATION MECHANISMS 

According to Article 3 (1) of the aid regulation,  the Commission is responsible for 
administering  the  assistance.  Article  5  (2)  of  the  aid  regulation  allows  the 
Commission  to  entrust  implementation  of  part  or  all  of  the  aid  programme  to  the 
European Agency for Reconstruction. 

However, following the report from the Commission to the Council on the future of 
the Agency4 proposing the closure of the Agency by end 2008, the option of using 
the  Agency  was  no  longer  considered  as  suitable.  Alternative  arrangements  would 
have had to be introduced at a critical moment in the implementation phase with the 
potential of delays and disruptions.  

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COM (2005) 710 final of 23.12.2005 

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3.1.1.  Centralised management by the Commission 

Implementation of this programme follows Article 53(a) of the Financial Regulation5 
(centralised  management),  with  DG  Enlargement  of  the  European  Commission 
acting as the Contracting Authority with the exceptions listed in section 3.1.2. 

Procurement  is  carried  out  in  line  with  the  provisions  of  Part  2,  Title  IV  (External 
actions)  of  the  Financial  Regulation  and  Chapter  3  of  Part  2,  Title  III  of  its 
implementing rules6 as well as the Commission Decisions C (2006)117of 24 January 
2006  and  C(2007)2034  of  24  May  2007  on  “Rules  and  procedures  for  services, 
supplies  and  works  contracts  financed  from  the  General  Budget  of  the  European 
Communities for the purposes of co-operation with third countries”. 

In  order  to  implement  the  programme,  a  dedicated  Programme  Team  composed  of 
Commission  officials  and  contract  agents  has  been  set  up  as  part  of  the  Turkish 
Cypriot community Task Force within DG Enlargement. 

With a view to ensure cost-effective co-ordination with the beneficiary community in 
the  preparation  and  implementation  of  the assistance,  while  also  providing  a  venue 
for  meetings  and  seminars,  the  Programme  Team  has  been  using  the  facilities  of  a 
Programme  Support  Office located in the northern part of Nicosia since September 
2006.  Office  management,  both  premises  and  support  staff  such  as  secretaries  and 
drivers,  is  provided  by  a  private  contractor  -  GTZ  (Deutsche  Gesellschaft  für 
Technische Zusammenarbeit). As an integral part of the Programme Team, a TAIEX 
Local Support Point aimed at co-ordinating visits by Member States experts was also 
established. 

During the reporting period, the Programme Team has gradually been built up. At the 
end  of  February  2007,  the  Programme  Team  comprised  of  20  staff  including  2 
statutory Commission officials, 8 contract agents and 10 staff provided by the private 
contractor for administrative and logistical support. Recruitment was under way for 
additional contract agent positions in order to complete the team by end 2007. 

3.1.2. 

Joint management 

Activities in the field of upgrading of local and urban infrastructure and support to 
the  private  sector  (for  a  total  of  €17.5  million)  will  be  jointly  managed  with  the 
United Nations Development Programme (UNDP), in accordance with Article 53 (d) 
of  the  Financial  Regulation.  The  Commission  will  capitalise  on  the  expertise  and 
knowledge developed by UNDP – Partnership for the Future in the period 2001-2004 
when UNDP delivered EU assistance to the Turkish Cypriot community.  

3.1.3. 

Indirect centralised management 

Implementation  of  activities  delivered  by TAIEX  (€9.5  million)  will  be  carried  out 
according to indirect centralised management procedure stated in Article 54.2(c) and 
56 of the Financial Regulation (indirect centralized management). An Agreement is 
currently 
für  Technische 
Zusammenarbeit) until 20.06.2008 for the whole of the TAIEX programme. 

concluded  with  GTZ 

(Deutsche  Gesellschaft 

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Council Regulation (EC, Euratom) 1605/2002 of 25 June 2002; OJ L 248; 16.9.2002, p.1. Regulation as 
last  amended  by  Council  Regulation  (EC,  Euratom)  1995/2006  of  13  December  2006,  OJ  L390, 
30.12.2006, p.1. 
Commission  Regulation  (EC,  Euratom)  No  2342/2002  of  23  December  2002  (OJ  L537;  31.12.2002; 
p.1).  Regulation  as  last  amended  by  Regulation  (EC,  Euratom)  No  478/2007  (OJ  L111,  28.04.2007, 
p.13).  

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3.1.4.  Award of grants without a call for proposal 

Provision is made in the programme for the award of a number of grants without a 
call  for  proposals  respectively  to  UNDP  (De-mining  assistance  programme  and 
Support to the Committee of Missing Persons Campaign) for a total of € 5.5 million) 
and the Council of Europe (History Teaching Project and the Academy of Political 
Studies Project) for a total of €1.6 million. Dir ect award is justified on the basis of 
Article  168  (1)(c)  given  the  de  facto  monopoly  of  these  organisations  in  these 
sectors. 

4. 

ACTIONS FINANCED DURING THE REPORTING PERIOD 

4.1. 

Activities 

Most  of  the  financing  decisions  under  the  aid  programme  were  taken  by  the 
Commission during Autumn 2006. Activities during the reporting period focused on 
the setting up of the Programme Team and the TAIEX Local Support Point as well as 
of  tailor-made  systems  and  procedures.  Grant  agreements  were  also  signed  with 
UNDP in the field of private sector development and urban and local infrastructure in 
December 2006. It was important to ensure continuity of UNDP activities in favour 
of the Turkish Cypriot community as previous grant agreements with UNDP in these 
sectors expired in November 2006. The Project Steering Committee involving UNDP 
and  the  Commission  met  in  January  2007  to  decide  on  the  specific  activities  to  be 
undertaken. 

During  the  reporting  period,  activities  on  the  preparation  of  a  solid  waste 
management  plan  for  the  Turkish  Cypriot  community  also  started.  This  plan  is  an 
important prerequisite for the launch of works tender foreseen under the Solid Waste 
Management Sector Programme. 

Annex 3 presents the list of contracts signed by the Commission during the reporting 
period. 

Contract  forecasts  and  procurement  notices  were  also  launched,  including  the  first 
call  for  proposal  for  the  community  scholarship  scheme  for  the  academic  year 
2007/2008 which was published in January 2007. Many of the tenders launched were 
for consultancy activities to prepare works tenders. Detailed project preparation for 
works  could  not  be  carried  out  earlier  because  of  the  limited  amount  of  funding 
previously available. 

4.2. 

TAIEX 

Since  2004  TAIEX  has  delivered  technical  assistance  to  the  Turkish  Cypriot 
community under previous funding arrangements. During the reporting period, funds 
under  the  aid  programme  were  used  in  the  main  for  the  setting  up  of  the  TAIEX 
Local  Support  Point.  Other  activities  were  still  financed  by  funds  from  previous 
funding programmes. 

4.3. 

Information and Publicity 

During  the  reporting  period,  the  emphasis  in  terms  of  publicity  activities  was  on 
raising  awareness  amongst  the  beneficiary  community  of  the  projects  to  be  funded 
under the aid regulation. Between November and December 2006, information to the 
beneficiary  community  was  provided  through  kick-off  seminars  delivered  by  DG 
Enlargement  to  various  stakeholder  groups,  including  the  leadership  of  the  Turkish 
Cypriot  community,  local  communities,  representatives  from  the  education  and 

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agriculture  sector,  private  sector  and  civil  society.  Press  conferences  were  held  for 
both  the  Turkish  Cypriot  and  Greek  Cypriot  press  respectively  in  November  2006 
and  January  2007. A leaflet  was  produced and distributed to potential beneficiaries 
and the wider public. 

Additionally,  the  DG  Enlargement  website  is  used  to  publicise  the  aid  programme. 
The  website  includes  the  text  of  the  aid  regulation,  and  of  Commission  Financing 
Decisions and related documents. There are also links to other websites dealing with 
tendering for contracts to be financed under the aid regulation. 

4.4. 

Financial execution (contracting and disbursement) 

At  the  end  of  the  reporting  period,  a  total  of  €14.5  million  was  contracted.  Of  this 
amount,  around  €13.2  million  was  contracted  unde r  the  operational  part  of  the  aid 
programme and €1.3 million for supporting activities. 

As  regards  disbursement,  the  Commission  disbursed  to  its  contractors  a  sum  of 
around  €4.25  million  during  the  reporting  period.  Of  this  amount,  around  €3.7 
million  were  contracted  under  the  operational  part  of  the  aid  programme  and 
€550,000  for  supporting  activities.  Additionally,  the  Commission  spent  around 
€400,000 for staff and mission costs. 

5. 

CONCLUSIONS 

Most of the activities during the reporting period focused on: 

(1) 

(2) 

(3) 

the  programming  of  the  assistance:  all  financing  decisions  were  adopted  in 
2006; 

in the setting up of the implementation mechanism: the programme team was 
built up; and the Programme Support Office and TAIEX Local Support Point 
became  operational  in  September  2006,  less  than  seven  months  after  the 
adoption of the aid regulation; 

ensuring  continuity  with  previous  EU  funded  activities  to  the  benefit  of  the 
Turkish Cypriot community: activities previously carried out by UNDP could 
be seamlessly continued through the signing of grant agreements between the 
Commission and UNDP in December 2006. 

The legal, diplomatic and political context within which the Commission is operating 
is  unique.  This  context  poses  a  number  of  challenges  and  risks  to  the  successful 
implementation of this aid regulation: 

(1) 

Tight  contracting  deadlines  and  squeezing  of  the  programme  duration:  as 
indicated before, the commitment of the funds available for this programme 
was squeezed by the late adoption of the legal basis. The consequences of the 
overall reduction of the duration of the implementation are the following: 

(a) 

(b) 

Preparatory  activities  planned  in  the  early  part  of  the  programme 
could  not  take  place.  Contracting  of  large  scale  infrastructure 
investments within three years will prove very challenging due to the 
lack of previous project preparation; 

Activities  planned  to  be  carried  out  on  annual  basis  can  only  take 
place  for  three  consecutive  years  (2007-2009)  rather  than  the 
originally  planned  five  (2005-2009)  For  instance  the  community 
scholarship  scheme  will  be  implemented  only  for  three  academic 

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(2) 

(3) 

(4) 

(5) 

years.  No  funding  is  available  at  present  for  funding  such  a  scheme 
after  the  2009/10  academic  year.  The  same  applies  to  all  grant 
schemes  foreseen  under  the  aid  programme,  e.g.  for  farmers,  local 
communities, civil society organisations, etc. The last call for proposal 
for these grant schemes will be issued in the first half of 2009. 

Property  issue:  it  is  estimated  that  78%  of  privately  owned  land  in  the 
northern part of Cyprus belongs to Greek Cypriots. Location of many of the 
planned infrastructure investments still has to be determined. However given 
the  amount  of  property  owned  by  Greek  Cypriot  private  owners,  it  is  likely 
that  many  investments  would  be  able  to  proceed  only  if  these  owners  give 
their consent. Reserve projects will be prepared in order to mitigate the risks 
of some projects not being able to go ahead because of lack of consent by the 
owners. The need to obtain consent will also require additional time within an 
already very tight implementation timescale. 

Low absorption capacity by beneficiary community: though needs are great, 
the  Turkish  Cypriot  community  is  small  and  not  well  equipped  in  terms  of 
structures to receive such large amount of resources in such a short amount of 
time. The overall impact in terms of economic and social development risks 
to  be  diminished  by  the  implementation  of  the  programme  over  a  shorter 
period of time. 

Staffing of the Commission Programme Team: due to the current staff rules 
relating  to  maximum  duration  of  contracts  for  contract  agents,  a  major  staff 
turnover  in  the  Programme  Team  will  take  place  in  2009  close  to  the 
contracting deadline.  

Co-operation between the Turkish Cypriot and Greek Cypriot community: the 
overall  success  of  the  programme  in  reaching  the  overall  objective  of 
facilitating the reunification of Cyprus depends greatly on the successful co-
operation  between  the  two  communities  in  the  island.  Political  issues  not 
directly related to the aid programme per se but rather to the overall political 
context on the island might induce both communities to block implementation 
of  certain  parts  of  the  programme.  In  this  sense,  implementation  would  be 
greatly  facilitated  by  progress  on  the  reunification  process  under  UN 
auspices. 

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6. 

ANNEXES 

6.1. 

Annex 1: List of Commission Decisions taken under the Aid Regulation 

Title and date of the Decision 

Amount in €m 

1 

2 

3 

4 

5 

COMMISSION DECISION 
C/2006/2336/3 Of 23/06/06 establishing a technical 
assistance facility to support the implementation of 
the instrument of financial support to encourage the 
economic development of the Turkish Cypriot 
community 

COMMISSION DECISION 
C/2006/2335/4 of 26/06/2006 establishing a 
programme of assistance provided by the Technical 
Assistance Information Exchange Instrument 
(TAIEX) for the Turkish Cypriot community 

COMMISSION DECISION 
C/2006/5000 of 2006 of 27/10/2006 
establishing a financial assistance programme to 
encourage the economic development of the Turkish 
Cypriot community – Part I 

COMMISSION DECISION C/2006/6533 of 
15/12/2006 establishing a financial assistance 
programme to encourage the economic development 
of the Turkish Cypriot community – Part II  

COMMISSION DECISION C/2006/7035 of 
22/12/2006 
establishing a technical assistance facility to support 
the implementation of the instrument of financial 
support to encourage the economic development of 
the Turkish Cypriot community – Part II 

4.00

4.50

38.10

197.55

14.65

258.800*

* This is the total amount on the 2006 budget line 22.02.11(2007 budget line 22.020703). The balance 
is constituted by 200,000 euro on a budget line relating to administrative expenditure for TAIEX in 
2006 for implementation of the TAIEX assistance for the Turkish Cypriot community. 

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6.2. 

Annex 2: Breakdown of individual projects 

Objectives and projects 
Objective 1: Developing and restructuring of infrastructure (49.9%) 
Sub-Objective 1 – Protecting the environment 
Project  1.1.  –  Sector  programme  for  upgrading  the  quality  and  management  of  water  supply  and  sanitation 
services  
Project  1.2  –  Support  to  the  Turkish  Cypriot  community  as  regards  management  and  protection  of  potential 
Natura 2000 sites in the northern part of Cyprus 
Project 1.3 Solid waste sector programme for the Turkish Cypriot community 
Project 1.4 Feasibility study for the rehabilitation of the Lefke mining area 
Sub-Objective 2 – Improving management of the energy sector 
Project 1.5 Upgrading the management of the energy sector 
Project 1.6. Development and restructuring of the energy infrastructure – Part II 
Sub-Objective 3 - Improving traffic safety  
Project 1.7. Improving traffic safety  
Sub-Objective 4 – Telecommunications 
Project 1.8 Development and restructuring of telecommunications infrastructure 

Objective 2: Promoting social and economic development (27.1%) 
Project 2.1 Rural Development Sector Programme 
Project 2.2 Upgrading of local and urban infrastructure  
Project 2.3 Upgrading of local and urban infrastructure – Part II 
Project 2.4 Human Resources Development Sector Programme 
Project 2.5 Micro and Small Enterprises Loan programme 
Project 2.6 Sustainable economic development sector programme 
Project 2.7 Supporting private sector development within the Turkish Cypriot community 

Sub-Total 

Sub-total 

Objective 3: Fostering reconciliation, confidence building measures and support to civil society (5%) 
Project 3.1 Reconciliation, confidence building measures and support to civil society 
Project 3.2 De-mining assistance programme  
Project 3.3 Support to the development of new trends in history teaching for reconciliation and stability in Cyprus 
Sub-total 

Objective 4: Bringing the Turkish Cypriot community closer to the European Union (3.7%) 
Project 4.1 Community scholarship programme  
Project 4.2 Promotion of youth exchanges and other people-to-people contacts 
Project 4.3 Information on the European Union political and legal order 

Sub-total 

Objective  5:  Preparing  the  Turkish  Cypriot  community  to  introduce  and  implement  the  acquis 
communautaire (5.2%) 
Project 5.1 Technical Assistance to support legal transposition as well as implementation of the acquis through 
the  TAIEX  instrument  –  Part  II  (Component  A  –  Assistance  through  TAIEX);  Component  B  –  small  scale 
equipment facility)+ Part I 
Project 5.2 Capacity building in the environment sector 

Objective 6: Unallocated Technical Assistance and Programme Reserve Facility (1.8%) 
Project 6.1 Unallocated Technical Assistance and Programme Reserve Facility 

Total 

+ Overall technical assistance for the implementation of the programme (7.2%) 
Overall total 

Sub-total 

Sub-total 

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Costs (€ )  

71 400 000 

5 000 000 

21 200 000 
900 000 

5 000 000 
8 750 000 

3 000 000 

14 000 000 
129 250 000 

29 700 000 
7 000 000 
8 000 000 
8 000 000 
9 000 000 
6 000 000 
2 500 000 
70 200 000 

8 000 000 
4 000 000 
1 000 000 
13 000 000 

5 000 000 
3 000 000 
1 500 000 
9 500 000 

6 500 000 
4 500 000 

2 460 000 
13 460 000 

4 740 000 
4 740 000 

240 150 000 

18 850 000 
259 000 000 

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6.3. 

Annex 3: Contracts signed during the reporting period 

Contract 
number 
(CRIS) 

Contract Title 

Contractor 

Signature  Amount (€) 

2006/124-237  Addendum  to  TAIEX  2005  agreement  with  GTZ  for 
the purpose of setting up a TAIEX Local Liaison Point 
in the northern part of Cyprus 

Gesellschaft 

Deutsche 
für 
Technische  Zusammenarbeit  - 
GTZ GMBH (Germany) 

18/07/2006

506.836

2006/124-397  Setting  up  of  a  Programme  Support  Office  in  the 

northern part of Cyprus  

Gesellschaft 

Deutsche 
für 
Technische  Zusammenarbeit  - 
GTZ GMBH (Germany) 

25/07/2006

1.324.257

2006/127-273  Addendum  to  TAIEX  2005  agreement  with  GTZ  for 
carrying out technical assistance to the Turkish Cypriot 
community 

Gesellschaft 

Deutsche 
für 
Technische  Zusammenarbeit  - 
GTZ GMBH (Germany) 

08/11/2006

2.993.164

2006/129-343  Private Sector Development Programme in the northern 

part of Cyprus 

United  Nations  Development 
Programme - UNDP 

26/12/2006

2.500.000

2006/129-353  Upgrading of local and urban infrastructure 

United  Nations  Development 
Programme - UNDP 

26/12/2006

7.000.000

2006/131-199  Solid Waste Management Plan for the Turkish Cypriot 

AGRECO 

23/02/2007

199.850

Community  

TOTAL 

---- 

14.524.107

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