Report from the Commission to the European Parliament and the Council GENERAL REPORT ON PRE-ACCESSION ASSISTANCE (PHARE – ISPA – SAPARD) IN 2006 {SEC(2007) 1468}
Date: 2007-11-09
Institutions: European Commission
Subjects: EU financing arrangements, EU programme, accession to the European Union, coordination of aid, pre-accession aid, report

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 9.11.2007 
COM(2007) 692 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

GENERAL REPORT  
ON PRE-ACCESSION ASSISTANCE  
(PHARE – ISPA – SAPARD)  
IN 2006 

{SEC(2007) 1468} 

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1. 

SUMMARY 

This  is  the  seventh  report  to  the  European  Parliament  and  the  Council  covering  activities 
financed  by  the  three  pre-accession  instruments,  Phare,  ISPA  and  SAPARD  in  2006.  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. 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) a 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 
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 

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Published in the OJ L 161, 26.06.1999, p. 68. 

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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  Implementation  under  Article  12  of  the  Co-ordination 
Regulation3 

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

For  Phare  and  ISPA,  this  process  was  mostly  governed  in  2006  by  the  Decentralised 
Implementation  System  (DIS).  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 
ELARG  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.  

Further progress to move to EDIS in Bulgaria and Romania on the basis of the Co-ordination 
Regulation was made in 2006. As a result ISPA EDIS accreditation was awarded to Romania 
in  November  2006  for  the  country's  two  Transport  implementing  agencies.  However,  EDIS 
accreditation  was  not  awarded  to  the  environmental  implementing  agency  due  to  capacity 
weakness  and  poor  performance.  Future  audits  are  to  decide  on  the  accreditation  of  the 
environmental implementing agency in Bulgaria. In the meantime the DIS system of ex-ante 
controls remains in place.  

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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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All  the  ISPA  implementing  agencies  in  Romania  were  EDIS  accredited  in  June  2006 
following a Commission audit. No moves have yet been made in Croatia to obtain ISPA EDIS 
accreditation since the implementation of ISPA is still at a relatively early stage. 

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 
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,  with  the  key 
purpose of further reinforcing the monitoring function of the JMC as well as related reporting 
obligations to the Commission. Accordingly, 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 both Bulgaria and 
Romania  the  JMC  played  an  active  role  in  2006  considering  the  challenges  that  their 
respective administrations had to cope with in the final preparatory phase before accession. In 
Croatia,  the  system  of  JMC/SMSC  pilot-tested  in  2005  was  set  up  during  2006.  The  JMC 
meetings for Croatia covered Phare programmes as well as 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.  All  the  new  Member  States  had  their 
decentralised monitoring and interim evaluation (IE) functions set up since 2005. Whilst the 
responsibility  for  monitoring  was  decentralised  to  Bulgaria  and  Romania  in  2001,  the  IE 
function has remained centralised until the day of accession. It is expected that decentralised 
interim  evaluation  will  be  set  up  by  the  Bulgarian  and  Romanian  authorities  in  early  2007. 
Croatia  was  granted  DIS  on  February  2006  including  their  responsibility  to  set  up  a 
monitoring function. 

In  2006,  DG  Enlargement  centralised  IE  function  generated  24  individual  country,  sectoral, 
ad-hoc or thematic reports on Phare support to Bulgaria and Romania. 

The key messages derived from the Bulgaria and Romania evaluations are the following: 

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On  the  whole  the  evaluation  results  concluded  that  the  performance  of  Phare 
has improved over time but remains mixed; 

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– 

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The implementation of Phare remains a challenge with widespread contracting 
delays; 

Outputs have generally been delivered adequately, if later than planned; 

Twinning  has  been  particularly  effective  for  institution  building,  increasing 
absorption capacity of beneficiaries;  

Sectoral  performance  of  Phare  displayed  great  variation.  In  Romania 
Environment  and  Internal  Market  are  sectors  with  the  highest  rating.  By 
contrast the lowest rated sectors are Economic and Social Cohesion and Energy 
and  Transport.  In  Bulgaria  Environment  is  the  sector  with  the  highest  rating. 
The lowest rated sectors are Economic and Social Cohesion, Social and Energy 
and Transport; 

Phare support was crucially needed to initiate reforms to public administration 
and the judiciary but only inadequate progress has been made; 

Phare has had limited effect in preparing beneficiaries to the Structural Funds. 
The  acceleration  in  preparations  for  Structural  Funds  was  mainly  due  to  the 
own efforts by the authorities in the view of the imminence of accession; 

Phare  did  not  contribute  enough  to  ensuring  that  national  co-ordinating 
structures and procedures were in place; 

Sustainability  of  Phare  assistance  is  building  up  as  Phare  has  strengthened  the  legal, 
organisational and administrative systems in many sectors. 

3.2 

ISPA 

All  ISPA  projects  are  subject  to  the  ISPA  Regulation  and  the  Financing  Memorandum 
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.  No  projects  had  been  completed  in  Romania  or 
Croatia  by  the  end  of  2006.  However,  although  some  projects  in  Bulgaria  were  largely 
completed  by  the  end  of  2006,  no  investment  project  has  yet  been  wound  up.  No  ex-post 
evaluation was therefore 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  2006  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 
Monitoring  Committee  meetings  held  in  2006  provided  a  useful  opportunity  to  discuss  and 
decide  on:  (i)  monitoring  the  implementation  of  the  programmes  (ii)  approval  of 

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modifications  necessary  regarding  the  closure  of  the  programmes  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 
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-ordinat  ion  Committee  for  the  3  pre-accession  instruments,  set  at 
Directors  level,  has  not  officially  convened  during  2006,  although  an  important  number  of 
meetings  have  taken  place  notably  in  view  of  creation  of  the  new  Instrument  for  Pre-
Accession (IPA) and its relevantcomponents5. 

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, 

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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. 

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 association 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 26 
April 2006.  

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 Turkey6. 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.  

6 

Turkey is covered by Pre-accession financial assistance for Turkey. 

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The  first  facility  programme  was  launched  in  1999  with  the  EBRD.  The  CEB,  which 
implements  the  programme  in  association  with  KfW,  and  the  EIB  have  joined  the  Facility 
programmes in the following years. Since 1999, 32 Facility programmes have been initiated 
by the Commission. 

– 

– 

– 

18 SME  Finance  Facilities comprising in total €376 million  of EU  incentives 
and €2,328.25 million of credit lines from the IFIs. As at mid-February 2007, 
€287.6 million of EU incentives are al ready earmarked into projects. 

11  Municipal  Finance  Facilities  comprising  a  total  of  €117.8  million  of  EU 
incentives and €589 million of loans from 
€41.3 million of EU incentives are alr eady earmarked into projects.  

the IFIs. As at mid-February 2007; 

3 Energy Efficiency Finance Facilities for the first time in 2006 and comprising 
€53  million  of  EU  incentives  and  €212  m illion  of  loans  from  the  IFIs.  The 
implementation will start in April 2007. 

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  Energy  Efficiency  Facility  was  launched  in  2006  in  response  to  the  Energy  Efficiency 
Green Paper and the Directive on Energy Performance of Buildings. It aims at stimulating the 
energy  efficiency  investments  in  all  kind  of  buildings  and  in  the  industry  sector  by  making 
appropriate  financing  available  to  the  end-borrowers.  The  programme  combines  IFI  credit 
lines extended to financial intermediaries with incentives to improve the cost effectiveness of 
the equipment and make the energy investment more attractive, and fees to the benefit of local 
financial  intermediaries  in  order  to  encourage  them  to  lend  for  the  purpose  of  energy 
efficiency financing. 

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  €40  million  of  EU  incentives 
and €200 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.  The  EU  contribution  has  been 
reduced from €50 to €40 million in 2006 in order 
to commensurate the size of the programme 
with potential projects.  

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5. 

FINANCIAL OVERVIEW  

Allocations per country for PHARE7, ISPA and SAPARD in 2006 (in € million) 

PHARE 

SAPARD 

ISPA 

TOTAL 

Bulgaria  

Romania 

Croatia 

Total 

 305.3 

544.3 

 78.2 

927.8 

 82.4

192.4

 25.0

299.8

 167.8 

377.9 

 34.4 

580.1 

 555.5

1114.6

 137.6

1807.7

7 

Phare figures are approximate as they include the BG/RO Roadmap and Croatia contributions to multi-
country programmes which cannot accurately be split by country. A breakdown of the roadmap by type 
of  programme  can  be  found  in  the  country  annexes.  The  figure  for  Bulgaria  includes  the  KIDS 
programme for Nuclear Decommissioning. All figures exclude support expenditure. 

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